Staunton, April 11 – The Russian government’s efforts to control basic food prices haven’t worked because they address a symptom of rather than the underlying reality of demand and supply both domestic and foreign, Vladislav Inozemtsev says, a reality that can only be addressed by taking measures at odds with the political goals of the current regime.
Despite all its talk about isolating Russia from the world, the economist says, the Russian economy is deeply integrated in it; and with regard to food supplies especially so and despite the Russian embargo in place since 2014 (mk.ru/economics/2021/04/11/rost-cen-mozhno-ostanovit-nepriyatnymi-dlya-chinovnikov-merami.html).
That is because politically well-connected Russian producers set prices with an eye to what they are abroad rather than allow them to be set by the domestic market. These producers thus grow less food and set prices higher than would otherwise be the case because the government is allowing them certain monopoly advantages.
Prices in the West are higher than they would otherwise be because of government subsidies to the population hard hit by the pandemic and so that only makes the situation in Russia more problematic, Inozemtsev says. But it is hardly insoluble, although the obvious steps forward are not likely to be to the regime’s liking.
“In other words,” the economist says, “whether anyone wants to hear this or not, real bases for a rise in prices exist so that populist hysteria in this case is inappropriate.” There are ways to address those, but given the regime’s calculations, there is little reason to think it will take them and actually freeze prices.
Such measures, he argues, are those which will increase the amount of food offered for sale in Russian stores and reduce the current restrictions on a growth of production. Freezing prices doesn’t do that; it can even work in the opposite direction. But there are time-tested ways to do so.
First of all, the embargo in place since 2014 should be immediately lifted and the access of Russian producers to the Russian marketplace should be expanded. Many foods produced abroad are cheaper and better quality than those now offered for sale in Russia, and their re-entrance to the market can drive prices down.
In addition, Inozemtsev says, the government must undertake “serious measures to demonopolize the market which today is divided among major companies often connected with high-ranking officials.” In a more democratic country than Russia, that would already be the subject of real politics.
The economist also favors cutting or even eliminating some taxes on producers. Agricultural production accounts for only 3.5 percent of GDP and so cutting taxes in that sector would not hurt the budget but it would mean that producers could make the same profits while selling at lower prices.
Despite what many think, restricting price rises is not a simple thing. “It is closely connected with the adoption of measures extremely unpopular among the powers that be” who have acted in ways that have led to exactly the crisis Russia is in today. In fact, Inozemtsev says, the producers and their allies in the halls of power have benefited from these price rises.
This trend in fact “reflects that ‘restoration of sovereignty’ for which we have fought for long years,” he continues. “But with sovereign rights should come sovereign responsibilities, and the results of the struggle with price increases will soon show whether our rulers are ready for that or not.”