Константин Сонин (ksonin) wrote,
Константин Сонин
ksonin

Russia-2012: Is the Glass Half-Full or Half-Empty?

Написал небольшую колонку для Baltic Rim Economies.

By Spring 2012, Russia has finally achieved the same level of GDP per capita that was previously achieved in 2008, the pre-crisis peak. After 9 years of growth averaging 7% per year, the world financial crisis of 2008-09 hit the country hard. The fall in industrial production was the largest among the 20 industrialized countries. The recent survey by the European Bank for Reconstruction and Development showed that 36 percent of Russian households (as compared to 11 percent in Western Europe) have had to reduce their basic consumption because of the crisis.

Coincidentally, the levels of production and consumption of the 2008 peak are roughly the same as the levels of the previous peak achieved in 1990, the last year before the collapse of, subsequently, the Soviet economy, the communist party dictatorship, and then the Soviet Union itself. Granted, a significant part of Soviet GDP was wasted on building up military capacity; that is, the same level of production translates in a higher standard of living in 2012.  However, the fact that the 2008 peak was the same as the 1990s peak and that the economy is struggling to break the same ceiling right now is not a coincidence.  

Though high prices for oil and natural gas, Russia’s primary export, alongside with the conservative macroeconomic policy of early Putin’s governments have played a role, the main contributing factor was the low starting point. The high-speed growth of 1999-2008 was based on low-hanging fruit. Now, when there is little unutilized existing capacity, the main source of growth should be increased labor productivity (as of now, it is 15-20 percent of the US productivity in respective sectors).

The political situation is not conductive for any kind of substantive reform. Vladimir Putin, the paramount leader of Russia since 1999 and newly elected as country’s president, starts his new six-year term in difficult times. The March 2012 election returns give him barely sufficient legitimacy: though the officially reported vote share was 63%, the more reliable independent estimates give him a slim majority of 52-53%.

Still, there is little doubt that he does not face any real challenges to his leadership in the near future. Fortunately for Putin, the opposition is not organized and cannot settle on any particular leader, platform, or a message. The protest movement of Winter 2011-12 has had a kind of decentralized leadership, featuring a number of prominent literature, art, and entertainment figures in its ranks. It has united a very diverse group of smaller movements, ranging from radical young communists to libertarians . The outcome of March 4, 2012 presidential elections, while ending the myth of a significant “Putin’s majority” and even casting doubt on his legitimacy, did not produce a clear path for the opposition as well.

Given that Putin has proved himself extremely rigid in either policy or personnel choice (he would not get rid of close subordinates even if wide-spread corruption allegation would make them a visible drag on his popularity), the new government is not expected to be radically different from the current one, both in terms of personalities and policies.  The next few years will witness slow growth amid mild political turmoil.  This is a pessimistic scenario for those who hoped for modernization, reform, and fast growth. This is still optimistic for those who remember Russia’s 20th century.

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