Staunton, May 10 – Many analysts assume that as the war in Ukraine continues and sanctions remain in place, the Russian Federation will return either to the conditions of Soviet times or those of the 1990s, Vladislav Inozemtsev says; but there are compelling reasons that it won’t do so but rather enter a decade or more of “degradation and decline.”
Russia in the coming year will “most likely resemble” neither the Soviet past nor the 1990s one, the Russian economist says. On the one hand, the Russia economy is far more open to the world than the Soviet one was, and consumption levels are much higher. And on the other, none of the negative or positive features of the 1990s are present (ridl.io/vpered-v-proshloe/).
“There will be no traces” of the worst features of the 1990s – the collapse of the financial system, hyperinflation, the dominance of the oligarchy, and separatism – or the best ones – openness to the world and optimism about the future – in the coming years, Inozemtsev says. “Neither prosperity not freedom are going to increase,” Inozemtsev says.
The current crisis is unique in that “it is bottomless,” and a deep recession will almost certainly last throughout the first half of this decade. But at the same time, there is no reason to expect that the government or the financial system will collapse, the ruble to fall significantly, hyperinflation to take hold or the country to disintegrate.
In the coming years, there will be no signs of optimism but there will be a significant decline in conspicuous consumption either because the better off will leave the country or try not to attract unwanted attention to themselves. Young people in particular will have to cut back their expectations. And apathy will spread throughout the country.
De-globalization will accelerate and there will be a primitivization of goods and services within Russia, Inozemtsev says. Service sectors will “degrade even father than the other sectors of the economy, both public and private,” with education and healthcare suffering the most serious blows. Products without warranties and fake products will become the norm for an increasing share of the economy.
Cannibalization of equipment in which Russians will dismantle some kinds to fix others will set in, and “all trademark and copyright legislation will be almost completely ignored.” The Russian government will make things worse because it can’t afford tax cuts and it has shown itself incapable of managinrossg the economy successfully.
Inozemtsev points out that “Russia’s prosperity in the 2000s was due nt only to high oil prices … but also to a sharp fall in investment, from 36 to 38 percent of GDP in the Soviet er to 19 to 22 percent under Putin.” That trend will continue, and infrastructure across the board will deteriorate.
For the time being at least, the Kremlin will be able to limit any radical increase in unemployment, and the ruble exchange rate will remain “relatively stable.” Inflation will hit most sectors but prices for housing and other real estate are likely to fall because of declining demand.
What all this means, Inozemtsev concludes, is that the era into which the Russian economy is now entering won’t be as disastrous as that of the early 1990s; but at the same time, “the downturn won’t be as short-lived as it was after the crisis of 2008.”