Following the memorable changeover in the presidency of Russia in 2012, when Vladimir Putin and Dmitry Medvedev simply swapped places, a new plan of national development was formulated for Putin's next term in office.
After the global crisis of 2008-2010, which the authorities managed to bring under control—despite the strong decline in income—thanks to the huge resources accumulated in the previous years in the Stabilization Fund, a period of significant economic growth followed in the years 2011-2013. In 2009, the per capita income in Russia fell from USD598 to USD533, and then started growing again, in connection with increases in oil prices, reaching a record level of USD814 in 2013. Since the annexation of the Crimea and the beginning of the war in the Donbass region, the per capita income has dropped to USD459—below the level recorded in 2007 (USD490).
A slight improvement of the economic situation occurred in 2017, when the average income increased to USD539. There are many signs, however, that this is just an isolated episode in a long process of income decline, as evidenced, among other things, by the collapse of the RUB exchange rate (read more) following the recent American sanctions against the Russian business and political elites, which were meant to directly hit Putin’s entourage (read more).
It should be emphasized that in the case of Russia, it is difficult to talk about average income per capita, because of the extremely uneven distribution of income within society. In terms of the number of the USD billionaires, according to the CEOWORLD magazine, Russia occupies the 7th place in the world (71 people). This ranking is led by China (819), which is far ahead of the United States (571), as well as India (131), the United Kingdom (118) and Germany (114).
In Russia, the top 10 per cent of the wealthiest citizens control 70 per cent of all assets in the country. At the same time over 20 per cent of the population lives below the poverty line, while the CEOs of large corporations receive salaries reaching millions of RUB per day.
The authors of the report entitled “Putin. The results. 2018”, Vladimir Milov (a former associate of Boris Nemtsov) and Ilya Yashin are pointing to the fact that expenditures on education and the social sphere fall each year and that their share in the budget currently amounts to only 7 per cent. At the same time, spending on the sectors related to the military and law enforcement agencies has been steadily growing, reaching 40 per cent of the budget, and the number of public officials has doubled since 2000. One particularly vivid example of the decline of Russia’s international position is the fact that in just four years (2013-2017) its share in global GDP fell by about 40 per cent, from 2.98 per cent to 1.85 per cent.
During the entire period of Putin’s rule, i.e. in the years 2000-2017, Russia obtained USD3.5 trillion in revenues from the exports of oil, gas and the products of their processing, and the state budget obtained USD2 trillion in taxes on these raw materials. These resources would be enough for a radical modernization of the country—the construction of apartment blocks, road networks, social infrastructure. However, this did not happen. There has been no discernible economic growth for ten years, and the obtained revenues have simply “evaporated”.
The head of the Federation Council Committee on Defense and Security Viktor Bondarev, who could hardly be suspected of a lack of loyalty to Putin, recently stated that according to independent assessments between 2000 and 2017 an amount of USD430.7bn was siphoned off from Russia.
Where have these huge resources gone? The authorities are implementing various “political” projects, such as the bridge leading from Kerch to the Crimea, worth over USD5bn. A bridge connecting Russia with North Korea is also planned. However, when it comes to infrastructure that is acutely needed by ordinary Russians, the objectives are becoming less and less ambitious every year. While back in 2000 almost 8,000 kilometers of new roads were constructed, in 2015 only 2,500 kilometers of new roads were built.
In recent days “The Sunday Times” revealed that Russian citizens deposited USD47bn in British offshores, and that a total of USD110bn went through them over the last decade. The British government has just made a decision on the disclosure of holdings of all Russian depositories in the British Virgin Islands and the Cayman Islands.
Additionally, deposits worth a total of USD10bn are being held in Russian accounts in the mainland United Kingdom. The United Kingdom is planning to disclose and freeze all assets of Russians citizens exceeding GBP50,000 in cases where the legitimate origin of these funds cannot be documented.
Is it therefore possible, in this situation, to forecast the strategic tasks of the Russian authorities for President Putin’s next term in office? Is there at least a basic consensus among the economic elite regarding the socio-economic doctrine of contemporary Russia and the hierarchy of objectives and priorities?
Alexei Kudrin, Russia’s former Deputy Prime Minister and Minister of Finance, wrote in the newspaper “Kommersant” that “the government only has a small window of opportunity for reforms”. In his opinion, in the context of the electoral cycle, the government only has two years left to carry out any reforms.
Kudrin sees three main tasks that have to be addressed by the government. The most important one is the need for an immediate reconstruction of the model used for the management of the Russian state. The state should be setting an example for the entire society, it should provide better quality services more quickly, and should reliably carry out the undertaken tasks. This is the most important condition that has to be fulfilled in order for the country to achieve at least the average global level of growth. The current administration does not meet these conditions.
The second task is the modernization of society and the economy through:
- increased expenditures on education and health care;
- development of the technical infrastructure;
- genuine support for domestic businesses;
- furthering the country’s technological development in order to enable the transformation of the economy from one based on the supply of raw materials to a digital, export-oriented economy that is competitive on a global scale;
- providing support for regions and cities in launching their own growth mechanisms;
- a reconstruction of the education system;
- a reform of the social security system—an extension of the retirement age.
There are currently 40 million pensioners in Russia. People who have 5-10 years of work left before retirement should understand that it is worth working longer in order to receive a higher pension. Such a proposal was already considered years ago by Yegor Gaidar, who was the author of Russia’s liberal reforms. The pension fund would already be running a deficit at present, were it not for major subsidies from the federal budget.
Kudrin also mentions the reform of the tax system. He does not indicate the direction of this reform, but links this issue to the predictability of actions taken by the authorities and the public expectations in the context of a reform of the political model of the Russian state. This is the third fundamental task that should be carried out before the parliamentary elections in 2021: a full democratization and transparency of the electoral process.
These proposals were not met with enthusiasm in the community of Russian economists and political and business commentators who are shaping the attitudes of Russia’s ruling elite.
Amid the intrusive “patriotic” propaganda, and the promotion of hatred against liberalism in the economy and in politics, the economic community is trying to discredit Alexei Kudrin in various ways. He is criticized for repeating the liberal thought patterns that Yegor Gaidar already proposed in the 1990s. According to the exaggerated critiques of the establishment economists, these liberal ideas could boil down to the conclusion that “there should be more oil and fewer people”. Kudrin’s opponents suggest that his plan only serves his own political and personal goals. In reality, they see it as a serious threat to their own interests.
The well-known Russian economist Mikhail Delyagin, the director of the independent Institute of Problems of Globalization, believes that Putin himself understands little about economics and is completely dependent on experts in this matter. This group of experts includes a number of liberal economists with views similar to those of Gaidar, such as the president of Sberbank Herman Gref, the president of Rusnano Anatoly Chubais, the Finance Minister Anton Sihananov, the Governor of Russia’s central bank Elvira Nabiullina, and the former Minister of the Economy Alexei Ulyukayev, who was subjected to a provocation and tried in court. These people are maintaining at least a minimum level of macroeconomic stabilization in the economy.
Despite the beliefs of some Russian officials that Russia should emulate China, there is simply no real alternative to free market views. The liberal, free-market line of thinking about the economy is subjected to sharp corrections by Putin’s arbitrary decisions regarding the militarization of the country, which are an expression of his neo-imperial ambitions. Putin and his oligarchic elite are aware, however, that a policy of autarky, isolation, and cutting Russia off from Western capital and technology is not a viable option. Because of that, post-communist populists such as Sergey Glazyev—who has expressed satisfaction with the sanctions, which in his opinion will activate own production and innovation – do not have much of a chance in this competition.
Russia’s most serious problem is the persistence of the hostile foreign policy towards the West, which collides with the policy of savings, especially in terms of military expenditures.
If the Western community does not force Putin to abandon the path of confrontation, then some sort of a “rotten” compromise will be reached in the economic policy, which will be a combination of liberalism and militarism. This would mean a continuation of Russia’s current downward spiral.