Vladislav Inozemtsev: The Calm before the Storm

A common sight: first-floor commercial space for rent in downtown Petersburg.

The Calm before the Storm: Can We Avoid Economic Collapse in 2018?
Vladislav Inozemtsev
Slon.ru
August 1, 2016

Last week, Tatyana Nesterenko, one of Russia’s most experienced financiers and a person distant from politics, a person who has held the post of deputy finance minister and head of the Federal Treasury for almost twenty years, said the Russian economy should expect serious financial problems as early as next year, comparing the current situation with the “eye of a storm, [meaning] a condition in which everything [merely] looks quiet and safe.”

In my view, Nesterenko is undoubtedly right. The government has recently appeared to be the epitome of tranquility. It has even been drafting a new three-year budget, although in terms of revenues for 2016, the previous such plan (for 2014–2016) was off by 42%! Revenues were projected at 15.9 trillion rubles, but actual revenues in the first six months of the year were 4.6 trillion rubles. I don’t think the new draft budget will prove more accurate, if only because no sources of income for covering the deficit are envisioned after 2017. The president, who from time to time meets with economists and recommends developing a new development strategy for the country “roughly within a year,” meaning when the Finance Ministry’s reserves will run out and the budget’s huge social commitments will prove impracticable, has mainly been busy reshuffling the security forces, believing, apparently, that a sum changes by rearranging its components.

Coins tossed for good luck onto a stanchion in the Fontanka River — Coins tossed for good luck onto a cable spool anchored in the Fontanka River.

Today, Russia’s economy, to invoke Economic Development Minister Alexei Ulyukayev‘s maxim, really has hit rock bottom. The authorities are elated that the rate at which the GDP has been falling fell to 0.6% in the second quarter, but we should note this reduction took place in conjunction with an accelerating reduction of real incomes (by 6.2% in May, and 4.8% in June) and a considerable increase in inflationary expectations. Annual inflation was 7.5% as of June and showed no tendency toward decreasing.

Moreover, oil prices have fallen considerably. Brent fell by 15.2% during July, and, apparently, black gold is near a new equilibrium price ranging between 38.5 and 43 dollars a barrel. A 15–16% fall in the oil price will cost the Russian budget 430 to 460 billion rubles in the remaining five months of 2016, which is also no cause for optimism. Responding to it by “managing” the descent of the ruble will not be easy. Devaluing the national currency will no longer lead to a growth in exports, which this year has lagged behind last year’s figures by 30.5%. On the other hand, imports, which have basically not shrunk (they are down by only 10.4%) will inevitably become more expensive, dragging along with them the prices for a wide range of goods, thereby causing inflation and setting the tone for high interest rates.

Empty billboards are also not hard to come by in the city center.

In mid 2016, the Russian economy really is situated in the eye of a kind of storm. It is quite calm there at the moment: the authorities have become accustomed to the new circumstances. They have no hesitation in spending reserve funds. Generally, fears of popular discontent over lowing living standards have been overcome. Seemingly, a certain reduction in the degree of hostility toward western countries might do the trick of restoring relations with them. There has been a glimmer of hope the EU’s problems will deepen with the UK’s exit. The possibility of Donald Trump winning the presidential race in the US has been taken seriously. Putin feels like a winner in his confrontation with Turkey. It is no wonder officials have dubbed the situation the “new normal.” It really is the new normal, so as long we take into account two factors: oil at 50 dollars a barrel and spending accumulated reserves at the rate of 600 billion rubles a quarter. That is around 8% of the overall amount in both sovereign wealth funds, the Reserve Fund and the National Wealth Fund.

However, the problem is not so much that sooner or later we will have to break back into the open sea through the hurricane’s eye wall, but the fact that the eye of the storm might move, and it would appear we have no instruments for tracking it. The country has not been trying to find the best place in this “quiet corner.” It has simply been drifting, humbling waiting for what happens next.

Evaluating the numerous programs and strategies that experts affiliated with one or another wing of the government are now trying to draft, one cannot help thinking that none of them is capable of boosting the Russian economy in view of two circumstances.

An elderly woman turning in scrap paper and other junk to supplement her pension.

On the one hand, anti-crisis measures should have been implemented yesterday, rather than postponing their preliminary discussion to 2017. By the way, Russian Finance Minister Anton Siluanov warned in early 2016 that, at current oil prices, the Russian budget would be short 3 trillion rubles, which in turn would lead to spending the greater part of the National Wealth Fund. Little has changed since then. In the absence of reserve funds, the hole in the budget cannot be closed in 2018 either by raising funds on the international capital market (in this case, we would have to raise considerably more money than all the central government’s current international obligations) or by privatizing. (One year’s deficit could be papered over only by selling off the lion’s share of the state’s holdings in Gazprom and Rosneft.) Whatever economic development strategy the Kremlin approves a year from now, it will not prevent a large-scale collapse in 2018, with all the attendant consequences.

On the other hand, all the existing programs, however much Alexei Kudrin and Boris Titov stress their differences, are generally focused on the same thing: relaunching the economy on behalf of manufacturers. There is in fact only one difference between them. Titov’s Stolypin Club has suggested priming major enterprises with money through the earmarked and regulated distribution of cheap loans, subsidized by the Central Bank, while Kudrin’s Center for Strategic Research favors institutional reforms that could include reducing taxes on business and limiting the rights and opportunities of security services and the bureaucracy for extracting additional income from business. The assumption is that either by getting its hands on cheap money or ridding itself of the unbearable pressure of regulators, business will be reanimated, sparking life-saving economic growth.

More commercial real estate for rent in the city center.

I would love to be wrong, but I don’t think these measures will produce any meaningful outcomes, because the most important factor in the economic slowdown of 2014–2016 has been the crisis in consumer demand. The state has diligently performed its investment obligations, saturating heavy industry with funds via defense sector orders. It has not halted its sometimes pointless but expensive infrastructure projects. It has been encouraging state companies to build new pipelines and railways, but none of it can compensate the effect of declining consumer demand. Moreover, this demand has increasingly shifted towards the continuing flow of imports, while the share of domestic goods on the market has stopped growing. As I understand it, none of the economic development programs has so far offered a solution to this problem.

Therefore, in my opinion, we should introduce as least three new story lines into the ongoing debates.

First, we should stop regarding increases in wages for low-paid earners, pensions, allowances, and other payments to low-income Russians as “costly measures.” Saving money by reducing the incomes of doctors, teachers or pensioners is much more destructive than reducing costs at Gazprom or expenditures in the program for rearming the Russian army. These segments of the populace are most focused on purchasing domestic goods and services, and investing in them produces a multiplier effect in the sales and production of consumer goods. The crisis of 2008–2009 was negotiated much more successfully than the current crisis not only due to the relatively radical reversal in oil prices but also because the government considerably increased people’s incomes at the time, despite budget problems, whereas 41% of the population now say they lack money for food and clothing.

Second, we should think hard about a one-time credit and debt amnesty for people whose indebtedness to banks, the tax authorities or housing and utilities sector companies does not exceed, say, 30 thousand rubles. Obligations of this amount now account for around 20% of the population’s entire debt burden, and a measure like this would affect 10 to 12 million people. The state would have to allocate up to 2 trillion rubles to implement the program, but both the social and political (why deny it) effect of such a measure would be incomparable with a Stolypin Club-style emission of a similar scale, which would completely vanish in the offshore accounts of executives of major companies in bed with the state and sympathetic officials. In my view, we cannot do without this measure now, but none of the people involved in the current discussion has deigned to mention it in their programs.

Third, direct measures for stimulating demand are necessary. They were adopted by all the governments of developed countries hit by the crisis of 2008–2009, but our officials were quite reluctant to copy them. I have in mind not only programs for encouraging purchases of new automobiles but also a system of issuing food stamps, analogous to the American one, to poor people. For example, pensioners could buy stamps nominally worth four to six thousand rubles for two to three thousand rubles at welfare offices. The stamps would be accepted in shops as payment for domestic food products only, with the exception of cigarettes and alcohol, and commercial outlets would then turn them in at banks at face value and have the amount credited to their accounts. This could be a powerful stimulus both to domestic manufacturers and commerce, not to mention the popularity of such a step among socially vulnerable groups themselves.

Ads like this one for a prostitute service are stenciled and pasted on every available surface in the city center.

In other words, now it is not enough to say that Russia has sailed into a perfect storm. It must be understand that not only the captain and his mates will have to fight for our ship’s survival but absolutely all the passengers as well, and so the basis of an anti-crisis program should be attention to the general population, not to state corporations. And, of course, to be at least relatively prepared to fend off the mighty blows of the elements, we must stop postponing actual steps until tomorrow, and begin taking them today.

Source of original text: Worldcrisis.ru. Translated by the Russian Reader.

Alexander Zamyatin: Three and a Half Theses on the Elections

Three and a Half Theses on the Elections
Alexander Zamyatin
Anticapitalist.ru
July 24, 2016

Thesis No. 0: The Obvious
The parliament in Russia has been reduced to such a condition there is no point in talking about a hypothetical leftist faction or a group of MPs from single-mandate electoral districts tabling or blocking law bills independently of the presidential administration. If there has been anything consistent about the political reforms of the past fifteen years, it is that legislative bodies, the Duma foremost among them, have been stripped of the power to influence the government’s social and economic policies, even despite their formally voting budgets up or down.

The elections to the Seventh State Duma are not a chance to transform the political regime or even have an impact on it.

The entire campaign is controlled to a lesser or greater extent by the presidential administration’s Office for Domestic Policy. The leaders of the current Duma factions have long ago left no doubt as to the complete absence of conflict within parliament. Even such a harmless identity as “systemic opposition” has taken a backseat to rallying round the president by way of combatting the “fifth column.”

1000_d_850 Boris Titov. Photo courtesy of Rossiyskaya gazeta

This stricture applies as well as to the Party of Growth (Partiya Rosta) and its leader Boris Titov, the federal commissioner for the rights of entrepreneurs. The handiwork of spin doctors, the party’s emergence has marked the utter degeneration of the idea of founding an independent right-wing party, a project that has dragged on since the late nineties in shape of parties such as Boris Nemtsov and Nikita Belykh’s Union of Right Forces (SPS) and Leonid Gozman and Mikhail Prokhorov’s Right Cause (Pravoe delo). The fortunes of the Party of Growth’s forerunners have been telling: they immediately fell apart, absorbed by the so-called Crimean consensus.

Despite the transparency of the schemes involved, any conversation about parties and elections has to begin with these textbook truths, not only because they are not obvious to many people but also because certain actors in this process, including people comfortable with leftist ideas, call them into question by the way they behave.

Thesis No. 1: The Possible
A considerable number of the Kremlin’s actions in domestic and foreign policy over the past five years has been aimed at preventing the recurrence of the events surrounding the 2011 parliamentary elections. Despite the fact that, in retrospect, the White Ribbon rallies and Marches of the Millions seem harmless, they were an unprecedented challenge to the Putin regime, a challenge that, moreover, meshes perfectly with the ruling elite’s view of the world.

The ouster of spin doctor extraordinaire Vladislav Surkov and his projects for building “sovereign” democracy and preventing the “orange threat” by establishing quasi-fascist youth movements, and his replacement by the hard and taciturn Vyacheslav Volodin as domestic policy chief were obvious reshuffles meant to be read literally. During Putin’s third term, not even the pretense of political liberalism must remain.

This would seemingly contradict the preservation of certain liberal gains in the realm of electoral law made during Dmitry Medvedev’s single term as president: reduction of the electoral threshold for parties hoping to enter the Duma from 7% to 5%; the return of the mixed voting system, with 225 seats (out of a total of 450) up for grabs in single-mandate districts; and a reduction of the number of members required to officially register a party (from 50,000 to 500). But attempts by the independent right-wing liberal opposition to run in “warm-up” regional elections in 2013-2015 have shown that everything remains under the Kremlin’s total control.

Moving the date of the Duma elections from November to September reveals one of the regime’s main wagers: the election campaign should be as inconspicuous and cushy as possible for all vetted candidates, and the turnout on voting day must be minimal. Previously, parliamentary elections immediately preceded the presidential election, but now, finally, the figure of the president has been detached from the bureaucratic and political body of the country with all its shortcomings.

Should we expect independent candidates in the single-mandate districts who are capable of taking advantage of the simplified electoral procedures, as described above? Hardly. To get his or her name on the ball0t, an independent candidate has to collect the signatures of at least 3% of voters in the district. (Until 2003, they were required to collect the signatures of 1% of all voters and put up a cash surety.) In reality, this amounts to collecting the signatures of 5-6% of all voters in the district [because local electoral commissions make a habit of invalidating large numbers of signatures—TRR], meaning tens of thousands of signatures.

The only legal loophole for independent candidates is to run in single-mandate districts as the nominees of parties, which are not required to collect signatures. This applies to parties that hold seats in the Duma or one of the regional legislatures. All other parties must collect around 200,000 signatures to be registered in the elections. There are only fourteen such parties among the seventy-seven parties registered in the country.

Thesis No. 2: The Unlikely
The right-wing liberal opposition’s march to the elections using the slain Boris Nemtsov’s mandate as an MP in the Yaroslavl Regional Parliament was frustrated after the Democratic Coalition’s primaries proved a failure, with only a tenth of the planned 100,000 participants registering to vote. The infighting that ensued ended with the dubious, to put it mildly, ex-PM Mikhail Kasyanov being joined on the PARNAS list by the extreme right-wing populist blogger Vyacheslav Maltsev, who is totally at odds with the party’s moderate electorate, and Professor Andrei Zubov, famously sacked from MGIMO (Moscow State Institute for International Relations) for his anti-regime remarks about Crimea, but a man who is otherwise given to alternately spouting liberal truisms or utter monarchist nonsense. That is all you need to know about the Democratic Coalition at present.

yavlin1_1428604380 Grigory Yavlinsky. Photo courtesy of Polit.ru

The only source of intrigue in these elections has, perhaps, been the good old Yabloko Party. For the first time, the party has supported independent politicians from outside the party’s central apparatus, thus benefiting from the collapse of the Democratic Coalition. Yabloko’s willingness to blur its identity both on the right (there are members of Democratic Choice of Russia among Yabloko’s single-mandate candidates) and the left, has given hope to many opposition castaways. At the same time, Yabloko has proposed a strategic deal to everyone who has asked the party’s help in getting access to state campaign financing. Grigory Yavlinsky will need broad support in the 2018 presidential election.

Basically, the intrigue boils down to how honest Yavlinsky and Co. are in their intentions to give the regime a fight and compete with Putin in the presidential election. The first answer that comes to mind would question their independence. The party has been perfectly integrated into the system since 1999 (or even 1996). Party functionaries are kept on a short lease by state financing, and access to national media leaves no doubt as to the existence of an agreement between Yavlinsky and the presidential administration or the president himself.

Yet a more cunning answer is possible as well. Yablokov’s moderateness gives it a tactical advantage over opposition politicians who held the bar high for radicalism in 2012 and are now political outsiders driven to the verge of legality. We will be able to clarify which of these hypotheses is closer to the truth after the elections.

Be that as it may, these parties have been talking seriously about overcoming the five percent barrier and forming a faction in the Duma. Is this possible without a serious mobilization of the protest electorate?

Thesis No. 3: The Imperative
What does the radical left have to do with any of this? The paradox of the situation in which we find ourselves is that while our programs and main slogans answer to the interests of tens of millions of people in Russia (and, in a sense, of the entire society), our campaigning hardly goes beyond a few thousand people. We are excluded from the political process, which is now dominated by anti-popular and, sometimes, simply dangerous forces.

The fact that Russia lacks a full-fledged bourgeois parliamentary democracy sometimes leads people to draw the false conclusion that the country lacks a political process. Of course, it is imitated to a considerable degree by constructs, controlled by the presidential administration, that imitate pluralism in hysterical debates with Alexander Prokhanov and Vladimir Solovyov on national TV. But the very origins of these costly imitations, cultivated for years on end, indicates the presence of political antagonism, in which there are, at least, two sides: the current elite, playing to maintain the status quo, and the active segment of society, opposed to the elite and trying to organize alternatives.

Another common mistake appears at this point in the otherwise correct argument that the right-wing liberal opposition offers no real alternatives and stands programmatically for the very same neoliberal reforms as the regime. Trading the Putinist elite for someone from the opposition, such people argue, would not entail any consequences for the country except, perhaps, the flagrant acceleration of the selfsame unpopular economic reforms.

This claim completely ignores the real state of affairs, in which the loss of power by the Putinist elite (even under a smooth and sophisticated transfer of power to someone from outside that elite) would be tantamount to its death.

Whoever came to power afterwards, the chance to make public the details of how the president’s friends personally enriched themselves both at the expense of individuals knocked out of the game and at the expense of the Russian state and the entire Russian people, would give this person colossal power over the current members of the ruling class. This is clearer to the ruling class than to anyone else, so they have been doing everything to make sure that stripping them of power would be prohibitively costly to their opponents and, thus, the entire country. It is therefore quite likely that the departure of the Putinist elite would be accompanied by tectonic shifts in the societal and political landscapes, shifts that could have quite different consequences. This state of affairs has become a risk factor even for the well-off segments of society, not to mention its least socially protected members.

Coupled with the systemic depravity of the current economic model, the developing political crisis at some stage could bring the country to yet another historical fork in the road. Expectation of this moment, when the accumulated contradictions are revealed as keenly as possible, unites more or less everyone in the leftist opposition. But does our budding leftist movement currently have any sense of how to hasten this moment? No. Does it have a clear, confident answer as to how to prepare for it? No. Nor could it have such an answer, because we cannot know anything about the political struggle without being involved in it. Of course, economic struggle is supposed to shape an organized working class. But it is a classic mistake to believe that by disconnecting ourselves from the “bustle of bourgeois politicking” and redeploying all our forces to the economic struggle and organizing, we will accelerate the awakening of working class consciousness.

Involvement in the political struggle, which in any case does not abolish the economic struggle, encourages the movement to take on qualities necessary for the establishment of a real political force: the know-how of spirited political agitation among the depoliticized masses, the know-how of debating opponents, and, finally, a place in the media that report on politics and society. It is important that even in the embryonic state in which we find ourselves we can begin working in this direction.

When freedom of assembly is practically nonexistent, and freedom of speech and the freedom to agitate are subjected to well-known restrictions, elections remain a venue for developing the three qualities mentioned above. But there is another consideration at work here. It is only during election campaigning that we have a chance to speak to people with the hope of being heard. If you simply hold pickets and hand out leaflets, the only means of drawing considerable attention to yourself is by engaging in tawdry moralizing. As an election campaigner, however, you play a role to which people are accustomed, a role in which they either ask you what we should do or vigorously object to your arguments. And that means you have made contact. What you do with it depends on your skills as a campaigner.

vy_nas_b_1 “You don’t represent us.” / “You can’t even imagine us.” Banner at Fair Elections rally in Petersburg, December 2011. Photo courtesy of Colta.ru

Is there currently a party we could support in these elections? No, but that means only that it will have to be created. There is nothing surprising about the fact we still have not founded a party in a country where, with some reservations, there are no independent, grassroots parties, parties not generated by the Kremlin. It is amazing to think it will always be this way and it is not necessary to prepare for change.

The lack of such a party poses the most difficult question: how can we be involved? First, it is possible to back candidates running in single-mandate districts, candidates whose campaigns we can join without forfeiting our own identity. Now, when the registration process has almost ended at the Central Electoral Commission, we can identify such candidates in our districts.

Second, oddly enough, there is the hypothetical possibility of running a campaign against involvement in the elections, since there is no political force advancing a leftist agenda. This campaign tactic could become part of the political struggle if it were run as a full-fledged campaign with a highly refined appeal every activist would be able to defend. There are two significant drawbacks to this option: a) unlike a campaign in support of a particular candidate, there is no source of funding; and b) campaigning “against all” candidates appears more dubious to the authorities than legally campaigning for a registered candidate and is likely to be prohibited altogether.

This paltry slate of options for active involvement in the upcoming elections to the Duma might get a big boost from the municipal council elections scheduled for next fall. Registering as an independent candidate for a municipal council is an accessible option for where we are at now, and all the advantages of running an election campaign can be realized in this case as well.

We have a whole year to answer the question of whether the leftist movement needs to be involved in elections and prepare ourselves should the answer be yes. From this point of view, this September’s elections are useful at least in the sense they confront us with the issue of political involvement, even if some imagine that it has been decided once and for all.

Translated by the Russian Reader