Staunton, April 16 – The situation in Russia today recalls the infamous stagnation era of 1976 to 1984, Kirill Rogov says. Indeed, the current rates of growth are “essentially lower than was the case in that period;” and at present, there is even less discussion about escaping from stagnation because the regime is focused on stability above all else.
The Russian commentator’s comments are a response to an 82-page report, Stagnation-2: Consequences, Risks and Alternatives for the Russian Economy (in Russian, at liberal.ru/wp-content/uploads/2021/04/zastoj-2.pdf) that has just been released by the Liberal Mission Foundation (echo.msk.ru/blog/rogov_k/2822682-echo/).
“The current policy of the government gives unqualified priority to ‘stability,’” Rogov says, “which from an economic point of view” is based on the redistribution of rents and incomes to favored groups in the population rather than organizing things so as to promote the kind of development that would lead to recovery and growth.
The Putin regime relies on “economic isolationism” produced for “foreign policy confrontation” to allow it to continue in that way. But “this model isn’t beneficial for the young, qualified specialists, and companies in the technology sector with export potential.” Unfortunately, these groups have little influence on decision making.
As a result, Rogov continues, “in the present model one can observe a symbiosis of isolationism, dirigisme, and expanded political limitations which secure ‘an equilibrium of stagnation,’” something the powers that be show they are committed to maintaining in order to maintain their own political positions.
In the minds of the rulers, Russia will be able to develop through “the intensification of labor without adequate compensation and the mobilization of private capital for the solution of its own investment tasks.” According to Rogov, “This is the fundamental scenario for ‘Stagnation-2.”
But there are obvious problems with such an approach: falling incomes from the oil and gas sector, demographic decline, and various “’black swans’” such as the pandemic, sanctions, and technogenic crises. Separately and together, they will make it impossible for the Russian economy to grow more than miniscule amounts in the next decade.
And as a result of that, social tensions will increase, and the political stability of the regime will decline as well. This may happen even more quickly because Western countries are moving away from carbon fuels at a rapid rate and that makes the bet the Kremlin has made on them even less likely to pay off than it has so far.
GDP per capita in Russia has ranged between 55 and 65 percent of those in developed countries; but if the regime continues on its current course, that figure will fall to 50 percent by the mid-2030s. To maintain stability, the regime will have to become even more repressive than it is today, something that will add to downward pressure on economic development.
According to the report, Rogov says, “Russia could occupy the niche of an exporter of production based on European technologies to the markets of the CIS and East Asia.” That wouldn’t lead to any “magic breakthrough,” but it could prevent “the second structural crisis in 50 years” from overturning the current political order.
But for that to happen, the current rulers must change direction and seek to cooperate with other countries. Development based on one’s own resources “allow poor countries to grow in the early stages but the possibility of growth from the level of middle incomes upward is always connected with an open economy and international cooperation.”