Vladislav Inozemtsev: The Foreign Agent in the Kremlin

lakhta wreck

The Foreign Agent in the Kremlin
Vladislav Inozemtsev
The Insider
December 31, 2019

One of the crucial events of the past year was passage of the law on labeling Russian nationals as “foreign agents.” Although the law emphasizes that such “agents” should disseminate information from foreign media outlets and receive financial remuneration from abroad, the notion of “foreign agent” has a quite definite meaning for most Russians: someone who works on behalf of a foreign government to the detriment of their own country.

However, if you think hard about the new law and its implementation (the Justice Ministry has been charged with designating individuals foreign agents, but citizens and NGOs will probably also be able to take the initiative), the first thing that comes to mind is the man who signed it so showily into law on December 2—Vladimir Putin, president of the Russian Federation, who took office exactly twenty years ago today, albeit as acting president.

When Putin moved into the Kremlin, Russia was successfully emerging from an economic crisis triggered by a sharp drop in oil prices in the late 1990s and the ruble crisis of 1998. These two events largely brought to a close the aftermath of the Soviet Union’s collapse and the transition from a planned economy to a market economy. Welcoming the new president, people believed him when he said, “The country’s future, the quality of the Russian economy in the twenty-first century, depends primarily on progress in those industries based on high technology and hi-tech products,” while the world took him at face value when he claimed, “Today we must declare once and for all that the Cold War is over. We abandon our stereotypes and ambitions, and henceforth we will jointly ensure the safety of the European population and the world as a whole.” It seemed that the coming decades should be extremely successful ones for Russia, and the country would inevitably takes its rightful place in the world economy and politics. However, events unfolded following a different scenario, and nearly all the trends that we can now ascertain as well-established suggest that if a CIA officer had taken charge of his country’s recently defeated enemy he would have done less damage to it than Putin has done.

First, Russia in the early noughties had very low labor costs: according to Rosstat, the average salary was $78 a month in 2000. Given that energy prices in Russia were then seven to ten times lower than in Europe, it was self-evident the country should decide to undertake large-scale industrialization by attracting foreign investors. The Central European countries, which in the late nineties and early noughties became successful industrial powers by attracting European capital (we can recall what happened with Škoda’s factories) were an example of the strategy’s wisdom.

However, despite what Russian authorities said at the time, preventing foreign capital from entering strategic industrial sectors became policy. Almost immediately after Putin came to power, the government began renationalizing assets that had been privatized in the nineties: instead of raising taxes on companies owned by Russian oligarchs, the regime commenced buying them out, constantly ratcheting up the price, culminating with Rosneft’s purchase of TNK-BP for $61 billion in 2013. In fact, taxes raised from the competitive sectors of the economy and redistributed through the budget went to buy assets in the extractive sector and were invested in rather dubious projects. Consequently, by the early teens, the share of raw materials (mineral products, ore, and metals) in Russian exports had reached 79–80%, as opposed to 50.4% of Soviet exports in 1989. Finally, in recent years, Russia has begun “diversifying” its raw materials exports by reaching out to China, effectively becoming an “energy appendage” not only of Europe but also of the whole world.

Second, as the economy became ever more dependent on extractive industries, Russia under Putin began to deindustrialize rapidly, resulting in a sharp decline in the demand for skilled workers, who could have been employed to develop the country on new foundations. According to various estimates, 16,000 to 30,000 industrial enterprises, which had employed over 13 million people in the late-Soviet period, were closed between 2000 and 2018. As of 2017, 9.9 million people were employed in Russian processing industries, as opposed to 21.7 million people in the RSFSR in 1989, although there was no significant increase in labor productivity. We can concede, of course, that a good many of these enterprises were not competitive, but most of them were never put up for auctions in which foreign investors were allowed to bid, the Russian government did not provide potential investors guarantees on investments in technically modernizing enterprises, and so on. Essentially, the government adopted a consistent policy of simplifying the industrial infrastructure, increasing dependency on imports, and most significantly, downgrading whole cities that had previously been important industrial centers. It would be no exaggeration to say that the bulk of Soviet industrial enterprises was destroyed not in the “accursed nineties,” but in the noughties and the early teens.

Third, the process went hand in glove with a demonstrative lack of attention to infrastructural problems and managing Russia’s vast expanses. About 700 airports were closed between 2000 and 2010, domestic passenger traffic dropped below international passenger traffic, and so many roads fell into disrepair and collapse that since 2012 city streets have been counted as roads in order to buff up the statistics. Infrastructure projects have been concentrated either in Moscow (e.g., the Moscow Ring Road, the Central Ring Road, expansion of the Moscow subway) or on the country’s borders as a kind of exercise in “flag waving” (e.g., Petersburg and environs, Sochi, Chechnya, the Crimean Bridge, the reconstruction of Vladivostok and Russky Island).

Consequently, rural settlements have begun dying out massively in most regions of the country: since 2000, around 30,000 villages in Russia have disappeared, and nearly 10,000 of them have eight or fewer residents. The number of residents in cities with populations ranging from 50,000 of 200,000 people has decreased: population reductions have been recorded in 70% of these cities, while the population has dropped by a quarter in more than 200 such cities. There has been a massive exodus of people from the Russian Far East.  Even the solution of longstanding problems that were handled for better or worse in the nineties has been abandoned, including disposing solid wastes, minimizing harmful emissions, and storing hazardous industrial waste. Russian infrastructure is close to collapse: depreciation of the power grids exceeds 70%, while 75% of the heating network is obsolete. Only 52.8% of local roads meet Russia’s poor standards. All attempts to remedy the situation are propaganda tricks more than anything, and yet budget funds for infrastructure are allocated regularly, just as taxes are collected from the populace.

Fourth, despite formal achievements, such as increasing life expectancy and reducing per capita alcohol consumption, the nation’s physical and mental health is verging on the disastrous. From 2000 to 2016, the number of HIV-infected Russians increased almost twelve times, reaching 1.06 million people, meaning that the threshold for an epidemic has been crossed. Spending on health care has remained extremely low. It is usually measured as a percentage of GDP, but a comparison of absolute figures is much more telling: in 2019, the government and insurance companies allocated only 23,200 rubles or €330 for every Russian, which was 14.2 times less than in Germany, and 29 times less than in the US, not counting out-of-pocket expenses.

Despite the huge influx of immigrants and migrant workers during Putin’s rule, the population of Russia (without Crimea) decreased by 2.7 million people from 2000 to 2019. Drug addiction has been spreading rapidly, becoming one of the leading causes of death among relatively young people in small towns. And yet the authorities see none of these things as a problem, limiting access to high-quality foreign medicines and accessible medical care (the number of hospitals has been halved since 2000, while the number of clinics has decreased by 40%), all the while believing the HIV crisis can be solved by promoting moral lifestyles. There is little doubt that Russia’s population should began dying off at a furious pace now that the reserves of economic growth have been exhausted.

Fifth, the formation of a bureaucratic oligarchy, able to appropriate at will what the authorities see less as “public property” and more as “budget flows,” has generated enormous corruption and blatantly inefficient public spending. A sizeable increase in spending on the space program—from 9.4 billion rubles in 2000 to 260 billion rubles in 2019—producced a drop in the number of successful launches from 34 to 22. Despite promises in 2006 to build almost 60 new nuclear power units, only 12 units have been brought online over the last twenty years. Programs for growing the military-industrial complex have not been consistently implemented: production of new weapons has been minuscule, amounting to only ten to twenty percent of Soviet-era production. The country’s only aircraft carrier has for the second time suffered combat-like damage during an “upgrade,” while its only 4.5-generation fighter has just crashed during a test flight.

The latest challenges posed to Russia by the development of information technology around the world have elicited no response whatsoever from the regime. On the contrary, the bureaucrats and siloviki have consistently acted to discourage researchers and innovators. The dominance of the siloviki in most government decision-making, their utter lack of oversight, and unprecedented incompetence have meant that much of the money that could be used effectively in the military sector and open up new frontiers for Russia has been simply been embezzled.

Sixth, Putin’s rule has been marked by the impressive “gifts” he has made to countries which the Kremlin has often identified as potential enemies. Around $780 billion was spirited from Russia between 2009 and 2019, whereas less than $120 billion was taken out of the country during the entirety of the nineties. The most important cause of this outflow was a law, passed in 2001, establishing a nine-percent tax on dividends paid to “foreign investors” or, rather, the offshore companies registered as owners of Russian assets. (The subsequent abolition of this measure in 2015 has changed little.) Much of this money was invested in passive sources of income in the west or spent on the luxurious lifestyles of Russian billionaires, thus supporting local economies in other countries.

Even more “generous,” however, was Putin’s gift to west in the form of the four million Russian citizens who have left Russia during his presidency: mainly young and middle-aged, well-educated, willing to take risks and engage in business, they now control assets outside the country that are comparable to the Russian Federation’s GDP. This wealth has been generated from scratch by talented people the Russian regime regarded as dead weight. The destruction of human capital is the biggest blow Putin has dealt to Russia, and it is no wonder western analysts argue Russia will need a hundred years at best to bridge the emerging gap.

Seventh, we cannot ignore the holy of holies: national security. We have already touched on the military sector in passing. It is a realm in which technological progress has largely boiled down to showing cartoons to members of the Russian Federal Assembly: space launches are still carried out using Soviet Proton rockets, designed in the sixties; the last of the Tu-22M strategic bombers rolled off the line in 1993; the Su-57 is based on groundwork done while designing the Su-47 during the late eighties;  and the advanced Angara (S-200) missile was developed as part of the Soviet Albatross program from 1987 to 1991. Things are no better in the secret services: agents sent on secret missions set off Geiger counters, like Lugovoy and Kovtun, blow their cover wherever they can, like Mishkin and Chepiga, or get caught in the act, as was the case with Krasikov.

The elementary inability to carry out their work in secret is the height of unprofessionalism: a handful of journalists can dig up nearly all the dirt on Russian agents, using information freely available on the internet. The same applies, among many other things, to the downing of Malaysia Airlines Flight 17 over the Donbass and the regime’s use of unprofessional, incompetent mercenaries from various private military companies.

Finally, eighth, President Putin’s foreign policy deserves special attention. Over the past ten years or so, the Kremlin’s own efforts have led to the creation of a buffer zone of neighboring countries that fear or hate Russia. If something like this could be expected from the Baltic states, which sought for decades to restore the independence they lost in 1940, no one could have imagined twenty years ago that Russia would make Georgia and Ukraine its worst enemies. However, our country’s principal “patriot”—whose daily bedtime reading seemingly consists of the works of Zbigniew Brzezinski, who once argued that Russia’s “imperial backbone” would be broken only when it lost Ukraine once and for all—has consistently sought to make Kiev recognize Moscow as its principal existential threat.

Similar sentiments have emerged in Minsk, where the authorities and populace of the country that suffered the greatest losses in the Great Patriotic War for the sake of the Soviet Union’s common victory have been nearly unanimous in their opposition to further rapprochement with Russia. We won’t even mention Russia’s damaged relations with the US and the EU: at the behest of Moscow, which is immeasurably weaker than the collective west, a new cold war has been launched that the Kremlin has no chance of winning but that could lead Russia to the same collapse suffered by the Soviet Union during the previous cold war. Meanwhile, Moscow’s hollow propaganda and its theatrical micro-militarism have been a genuine godsend to western military chiefs, who have been securing nearly unlimited defense budgets, just like the designers of advanced technology, who have been developing new weapons and gadgets in leaps and bounds.

I will not catalogue the current president’s other achievements—from destroying the Russian education system and nourishing a cult of power in society, thus generating a crisis of the family, to undermining Russian federalism and nurturing an unchecked power center in Chechnya. I will only emphasize once again that not just any foreign agent, after spending decades infiltrating the highest echelons of power in an enemy country, would be able to inflict such damage. I don’t consider Putin a foreign agent in the literal sense of the word, of course, but if it is now comme il faut in Russia to identify those who are working, allegedly, for hostile powers and thus inflicting damage on their own country, it is impossible to ignore what Putin has done over the past twenty years.

The current head of the Russian state should have a place of honor on the list of “foreign agents,” just as “Party card number one” was always reserved for Lenin in bygone days. And the west should be advised not to seek to undermine Putin’s regime but, on the contrary, do its utmost to extend his term in the Kremlin, simply because as long as Russia is so inefficient, backward, and profligate it poses no threat to the rest of the world, however much the strategists at the Pentagon try and convince the top brass otherwise.

Photo and translation by the Russian Reader

Tatyana Maleva: People and Oil Don’t Mix

Demolishing the Population’s Income Is a Big Mistake by the Authorities
Yevgeny Andreyev
Special to Novaya Gazeta
October 17, 2015
Novaya Gazeta

Why the government prefers oil to people, why poverty could touch half the population, and why social services are losing out to defense spending

Tatyana Maleva. Photo: TASS
Tatyana Maleva. Photo: TASS

In previous years, when it submitted the latest draft budget to the Duma for consideration, the government repeatedly emphasized its social focus: it was all about people, they would say. Now, as the 2016 budget is being worked out, the authorities prefer not to think about this. Spending on the most people-focused items—education and health care—will be significantly reduced. Despite annual inflation’s soaring to nearly 16%, public sector wages will not be indexed at all, while old-age pensions will be indexed only by 4%. Tatyana Maleva, director of the Institute of Social Analysis and Forecasting at the Russian Academy of National Economy and Public Administration (RANEPA) told us how the social sector would cope with all these blows.

Based on your analysis of the projections for the 2016 budget now being submitted to the Duma, which of the social sector issues do you see as most acute?

Those caused by the insufficient indexation of old-age pensions. The government has chosen the most economical solution to this problem.

A 4% indexation does not correlate at all with the expected outlook for inflation. Thus, the budget risks reducing the real value of pensions.

The acuteness of the problem is amplified by the fact that, if we look at the history of incomes in post-reform Russia over the past twenty-five years, we see that pensions have fallen lower than all other sources of income such as wages and benefits. Only in 2010, thanks to the valorization of pension rights [a one-time increase in the monetary value of the pension rights of citizens with time in employment before 2002Y.A.] and pulling the minimum pension up to the subsistence level, we pushed the real value of pensions to where it had been at the outset of reforms in the nineties. It had taken twenty years to restore the purchasing power of pensions. But now, during a crisis, they are being demolished again by the budget under consideration. This is a big mistake by the authorities.

But why? After all, budget cuts are not the government’s whim, but hard necessity dictated by the economic crisis.

As events of the last two years have shown, there are basically only two kinds of resources in this country, oil and people. The price of oil has collapsed, but the people are still here.

It is people who are, in fact, the most reliable of all resources. Sooner or later, investment in people produces economic growth. Oil, on the contrary, is impacted by circumstances unconnected with the Russian economy; we cannot influence the market price of oil. It turns out that one key resource makes us hostage to the situation, while we are voluntarily refusing to support the other resource. So I would argue that during the crisis we should look for ways to support people and even risk a larger budget deficit if necessary. Most economists, including me, are forecasting a long crisis. It is only beginning, and demolishing people’s real incomes right at the outset of the crisis is fundamentally wrong.

How painful will the decision to partially index pensions be?

The government thinks that indexing pensions by 4% will affect only the 38 million pensioners. This is misleading. Models of consumption and survival are based not on individual strategies, but on the strategies of households, meaning families. Around 40– 45% of Russian families include pensioners. The experience of the nineties tells us that even miserly pensions, when they were paid, served as a safety cushion against poverty in families when their younger member lost their jobs or faced nonpayment of wages. Because, in this case, pensions support the household’s minimum consumer budget and act as social insurance. Consequently, the forthcoming partial indexation of pensions will reduce the budgets of 40–45% of Russian households. Meaning that the real impact of this decision will be the growing risk of poverty not among pensioners but among nearly half the country’s population.

The government contends that real incomes have fallen by 2–3%, and real wages by 9–10%. Do you agree with these figures?

At one time, incomes showed a more moderate decline, but now they are rushing [downwards] hot on the heels of wages. Because the factors that were propping up incomes, including pensions, have ceased functioning, and incomes are going to fall, maybe even lower than wages. Over the last year, we have experienced a huge reduction in incomes. Basically, the entire growth they had achieved over the previous three or four years has imploded. And there is no reason to expect the growth will be restored. The decline might simply slow down due to arithmetic: the base for comparison will decrease from month to month, and therefore the rate of decline in real wages may turn out to be 7–8%, not 9–10%. But this does not alter the fact the population’s income is likely to be reduced.

How hard is inflation hitting people’s wallets?

Apparently, by year’s end we will be seeing 13–15% inflation. It is inflation that has a total effect on all incomes by devaluing them, regardless of social classes and age groups. But the risks that emerge among different social group because of high inflation are different. For examples, employees face the risk of job losses and cuts in nominal wages. This is already happening. We see cuts in benefits, reductions in allowances, and the axing of bonuses around the country. Moreover, while individuals are capable of combating other causes of income reduction such as job loss or reduction in wages by looking for a new job or retraining, they can do nothing to withstand inflation.

The number of poor people in Russia increased sharply over the past year—by three million people. Are the authorities capable of dealing with this scourge, or does everyone just have to wait for a rise in oil prices?

It is appropriate to recall how poverty has evolved in Russia. In the nineties, over 30% of the population was poor, but this was shallow poverty. When economic growth began in the nineties, poverty was significantly reduced. Many poor Russians moved into the so-called sub-middle class, rather than sinking into outright poverty. Economic growth reduced poverty levels relatively easily all by itself, without a restructuring of social benefits, without support for various social groups. But as soon as the country shifted from growth to recession, this seemingly happy trajectory turned into a disaster for us. Since, during the “fat” years, a reasonable system of targeted social support for the poor was not established, we are now reaping the consequences of its lack. Very many types of social support were eliminated in 2015, and certain “visionary” regions gutted many social benefits as far back as late 2014. Therefore, poverty will grow, and in this sense, indeed, the only hope is a hypothetical rise in the price of oil.

If the price goes up, there will be more money in the budget, and maybe benefits will return. But I am not so certain of this. It is absolutely not a fact that federal revenues are converted into institutions of social support. I think that in this case there will be a serious struggle with a high probability of the social sector’s losing to the military-industrial complex.

The country made this choice long ago, and it is clearly not going to be revisited.

The official unemployment rate in Russia has not exceeded 6%, which is quite a favorable figure by international standards. At the same time, there is lot of evidence that hidden unemployment has grown. What is your overall assessment of the employment sector?

Indeed, 6% is not a high figure at all. Actually, a low unemployment rate has been traditional in Russia in all phases of the economic cycle, whether the economy has been in growth, crisis, boom or recession. Over the quarter century that Russia has been living in the market economy, it has not really experienced unemployment. But economic laws still apply, and during crises, pressure on the market increases. Ultimately, the market extends possibilities for part-time employment, and this can be interpreted as hidden unemployment. People are willing to work a full workweek, but employers offer them part-time work, either half a day or two or three days a week.

The labor market has formed a kind of social contract under which employers save on costs by not dismissing employees, because the Labor Code forces them to bear exorbitant costs when letting employees go. Employees remain employed, which gives them the chance to earn seniority. And the state pretends not to notice any of this, because it also has a stake in the situation. It saves on unemployment benefits and thereby reduces its financial obligations.

Overall, how has the current economic crisis aggravated social problems in the country? Are there factors capable of causing society to protest and take political action?

It is not just the matter of the crisis. Long-term factors are also capable of impacting the social sector. Even during phases of economic growth, many social processes in Russia were not entirely favorable. Take demographics: the long-term trend has been determined by previous generations, and it cannot be changed. Nothing can be done about the fact that each successive generation in Russia will be smaller than the previous generation.

Furthermore, if we look at a longer trend, we have to admit that wages and other types of income have fallen undeservedly much lower than GDP has sunk. This has predetermined very many processes in the economy. Low-wage labor and a low-income population cannot be effective. We have repeatedly been taught this lesson over the last twenty-five years. Coming to terms now with a drop in incomes and wages means recognizing the inefficiency of our human resources. Yes, of course, no one gets rich during a crisis. But it is not a worsening of social tensions in the country due to a sharp collapse in incomes that we should be afraid of. We should be afraid of social apathy, of the population’s withdrawing into itself and washing its hands of the situation. From the socioeconomic viewpoint, this is a step backwards. This apathy can hold us back for many decades. And even if drivers of economic growth do emerge in Russia, and we expect that people will respond quickly, this might not happen.

But what is the source of this apathy?

In the nineties, the population really lent a helping hand to economic reforms by a creating a strong platform for the informal economy. Everyone predicted that society would explode, but it did not happen. The population thus gave an advance to the government that was carrying out reforms. The country managed to make this incredibly difficult transition from one type of economy to another. The people’s patience was rewarded. We are seemingly now in the same situation. However, our vector is pointing down, not up. The current patience of Russians might pull the country down. The population has not been integrated into this economy; it has not become its subject. It has elaborated its own behavioral trajectories, tactics, and strategies, which do not correspond in any way to state policy. The state and the populace lead separate lives.

Are you not idealizing the nineties? After all, even now, during a crisis, people’s living standards and incomes are much higher than they were then.

What saved people from hunger and many people from death in the nineties? First, grassroots unorganized trading, whose symbol was the famous shuttle traders. A huge informal trading sector was formed, flea markets emerged, and so on. But this sector ultimately disappeared, losing out to powerful commercial chains. Second, a powerful sector of private household plots formed in small towns and villages in the nineties. Even if they provided no cash income, people lived off the land. During the years of economic growth, this sector has turned into dacha villages with lawns, and has also ceased to exist as a source of subsistence for households. Third, a small business sector took shape in some form, albeit a specific form with many negative traits. Nevertheless, there was entrepreneurial freedom. Now, all attempts to get small business on its feet have led to nothing. The administrative obstacles erected in recent years have shut the door to the big economy for small business. Fourth, by the early noughties, a small but noticeable nonprofit and NGO sector had been established in Russia. Now, many of these organizations have been labeled “foreign agents.” Formally, [many of] the NGOs continue to operate, but they do not have the ability to act freely as they see fit.

These are the four legs that have been sawed off the Russian market economy stool, and it will not be able to stand up without them. The set of factors that prevented social catastrophe in the nineties is no longer functioning.

Maybe other mechanisms will be developed, but so far I do not see them. So everything is going to depend on the speed, depth, and duration of the crisis. But if we proceed from the most probable assumption, that the crisis will shift into a protracted, sticky recession, the quality of services will fall, despite the fact that, purely superficially, universities, schools, and clinics will continue to function. We do not know yet how the population will respond economically to these challenges. It has very few options. In fact, its only option is to wait for mercy from the state. People have been prevented from taking care of themselves.

Translated by the Russian Reader. Thanks to Ilya Matveev for the suggestion.

Hooked

Stuck on the needle: oil and gas account for 98% of Russian corporate profits
Pavel Miledin
September 24, 2015
rbc.ru

RBC’s rating of the 500 largest Russian companies shows the real value of the oil and gas industry to the domestic economy. The contribution of all other companies to total gains—46 billion rubles in 2014—amounted to less than two percent

Andrei Molodkin, Hope, 2009. Acrylic block filled with Russian crude oil, edition of eight, 56 x 20 x 11 cm. Image courtesy of priskapasquer.com

According to Rosstat, Russia exported almost 500 billion dollars’ worth of goods in 2014; oil and natural gas accounted for 42% of this sum. In 2014, oil and gas revenues accounted for 7.4 trillion rubles or 51.3% of the country’s budget. If you look inside the corporate sector, the dependence on the oil and gas sector is even more impressive.

According to data from the RBC 500, a rating of the largest Russian companies, released on Wednesday, the total revenue of oil companies in 2014 amounted to 19.8 trillion rubles or 35.3% of the total revenue of all the companies in the rating, but 97.7% of all net profit, or 1.98 trillion rubles. All other sectors accounted for a mere 46 billion rubles of net profit. If only net profit is taken into account as the outcome of domestic business activity, there are, essentially, no other industries in Russia.

Our Everything
According to Oleg Buklemishev, director of the Economic Policy Research Center at the Moscow State University economics department, the date once again reveal the key story of the interaction between the Russian economy and the state, the agent that redistributes oil revenues.

“The whole history of attempts to diversify the economy has come precisely to this,” says Buklemishev.

This once again confirms that talk of diversifying the economy has just been talk, he adds.

Andrei Movchan, director of the Economic Policy Program at the Carnegie Moscow Center, thinks there is nothing unusual about all this.

“Russia is an exporting country, and all other sectors of industry dwell in the shadows of the oil industry,” he says.

According to Movchan, this is particularly noticeable during a crisis, when currency prices for commodities continue to allow the oil sector to profit.

The oil and gas sector’s net profit in 2013 was also huge, but not to the same extent. Then it amounted to 79.2% of the overall net profit of companies listed in the RBC 500.

“The devaluation of the ruble is having an impact,” explains Natalya Orlova, chief economist at Alfa Bank.

Oil and gas companies, which sell their products for hard currency, have weathered the collapse of the national currency better.

Buklemishev draws attention to the fact that the beginning of 2014 was generally good for the economy, and the effect of the sanctions and falling oil prices began to impact Russian business in the second part of the year. As late as June 2014, Brent crude oil cost $114 a barrel, which helped the oil sector show good results.

It is all a matter of revalued hard currency, argues Oleg Vyugin, board chairman of MDM Bank.

“Oil companies are chockablock with hard currency,” he says by way of explaining their brilliant 2014 results.

It is no wonder the most profitable company was Surgutneftegaz. Due in large part to its revalued hard currency savings, it made 885 billion rubles of net profit, 43% of all profits among the RBC 500.

Crisis More Noticeable
Falling corporate profits among the RBC 500 companies reveal the crisis more vividly than official data. Profits fell by nearly half (45%) from 2013 to 2014: from 3.7 trillion rubles to 2 trillion rubles. However, according to Rosstat’s data, in 2014, profits of Russian companies fell by a mere 10%, from 6.5 to 5.9 trillion rubles. Moreover, according to official statistics, 72% of companies were profitable, while 28% made a loss. Among the RBC companies, the split was slightly different: 81% were profitable, while 19% were loss making.

Movchan argues the difference in the numbers may be due to several factors. There is a “sector bias” in the rating of the largest companies. By the end of 2014, the crisis had not yet reached several sectors, for example, the service sector, which is not represented in the rating due to the absence of large companies there. Buklemishev says the more noticeable drop in profits among RBC 500 companies speaks to the fact that business has been going through difficult times.

“Profit is still a controllable variable, and in a bad situation corporations might try and show less profit in order to pay fewer taxes,” he argues.

But a revenue growth of 14%—the RBC 500 companies earned 56 trillion rubles in 2014—is merely the outcome of high inflation.

“It is practically zero in terms of tangible results,” says Movchan.

Oleg Vyugin agrees with him. According to Rosstat, inflation in 2014 was 11.4% and GDP grew by 0.6%.

“The RBC 500 data, which show a slight real growth in revenue and a fall in profits, correspond broadly to the situation in the economy,” he argues.

Small Improvements
There are a few other things worth remarking on in the RCB 500 rating. In terms of revenue (or rather its equivalent, operating income), the financial sector came in second place after oil and gas. Banks and financial companies earned 6 trillion rubles in 2014, outpacing metals and mining. It would seem that a good result for the financial sector testifies to the diversification of the oil economy.

Movchan and Buklemishev note, though, that the financial system is a function of cash flows from the oil industry, just like, however, transport and retail trade. According to Buklemishev, in 2015, the performance of banks will not be so impressive, and the sector itself will make a loss. (In 2014, the banks and financial companies in the RBC 500 showed a profit of 13.1 billion rubles.)

Another trend economists are watching is the strong growth and high net profit margins (the ratio of net income to revenue) in the Internet and online retail sector (e.g., Yandex, Yulmart, Mail.Ru Group, and Wildberries). Here, net profit is more than 50% of revenue. The telecommunication sector has also performed well in terms of profitability (11%). With a profit margin of 10%, the oil and gas industry is only in third place.

The growth of e-commerce is, apparently, one of the few trends showing that a market economy can develop normally in Russia. Oleg Kuzmin, chief economist at Renaissance Capital, argues that growth in this sector is quite understandable: cash flows from the ordinary goods and services sector are being redirected to the Internet. Another reason is that the public has been attempting to reduce its expenditures by buying cheaper goods on the web. It is no wonder that economists have pointed out the low profit margin in the retail segment—3.5% in 2014.

It is interesting to see what yields more profit to foreign companies operating in Russia. Last year, they received 7.2 trillion rubles in revenue here and earned 211 billion rubles in profit. Despite the low margins, most of their profits came from retail trade (17%), the production and sale of alcohol and tobacco (17%), and finance (10.8%). How is that not a diversified economy within Russia’s oil economy?

Translated by the Russian Reader

__________

Russia rejects criticism of greenhouse gas plan, will not amend – top Putin adviser
Andrey Kuzmin
September 23, 2015
Reuters

MOSCOW, Sept 23 (Reuters) – Russia has rebuffed calls for a more ambitious plan to cut its carbon dioxide emissions after environmentalists branded its current pledge inadequate and backward looking.

The world’s fourth largest emitter of greenhouse gases, Russia pledged in March to keep its emissions at 25–30 percent below the level it generated in 1990, the year before the Soviet Union and its vast industrial complex collapsed.

Green groups say the pledge, made ahead of a global warming summit in Paris in December, is far too easy for Moscow to fulfill because 1990 was a time when Soviet industry was a notoriously prolific polluter whereas Russia’s industrial base today is much smaller.

A group of four global climate research groups, known collectively as Climate Action Tracker, have rated Russia’s pledge as ‘inadequate’, worse than the ‘medium’ assessment they have handed out to other big polluters such as China, the United States and the European Union.

But President Vladimir Putin’s top adviser on global warming dismissed such criticism during an interview on the sidelines of a Moscow meeting of the United Nations’ International Panel on Climate Change this week.

“It is their opinion, it does not reflect anything and is not objective,” Alexander Bedritsky told Reuters, saying Russia would stick to its current plan.

“They can say whatever they want, but our commitments are based on around 70 scenarios of how the climate system will be developing.”

It is unfair to compare the Kremlin’s commitments to those of developed economies such as the United States or European Union member states because Russia is still an economy in transition, he added.

Russia’s pledge stresses the importance of increasing energy efficiency and boosting the use of renewables.

“If the contribution of Russian forests is fully taken into account, limiting greenhouse gas emissions to 70-75 percent of 1990 levels by 2030 does not create any obstacles for social and economic development,” it says.

“TRAGIC PLEDGE”
With its gigantic reserves of oil, gas and coal, Russia emits 2 gigatonnes of CO2 equivalent a year, making it the fourth largest producer of greenhouse gases after the United States, China and India.

According to Greenpeace, 85 percent of CO2 equivalent emissions in Russia come from its energy industry.

They and other green groups say Russia’s current programme is far too unambitious because the Soviet Union was on the brink of collapse in 1990—the year the programme is pegged to—and its greenhouse gas emissions therefore fell sharply as the country’s industrial base shrank.

“This pledge is a tragedy, a catastrophe,” said Vladimir Chuprov, head of Greenpeace’s energy programme.

“With this 25–30 percent commitment they are basically saying: ‘Guys, we’re staying in the 20th century with our carbon-centered technology’.”

Chuprov and fellow environmentalists want Russia, the world’s biggest country by territory, to do much more, noting that its richest company—state-owned Gazprom—is the world’s leading corporate emitter of greenhouse gases.

ANDREI-MOLODKIN-artfair-superJumbo
Andrei Molodkin, Gazprom, 2012. Image courtesy of Orel Art, via Art Paris Art Fair

Specifically, Chuprov says Russia needs to expand its use of renewable energy and try to develop new power generating technologies or risk missing out on another technological revolution.

Currently, Russia gets 90 percent of its energy from carbon fuels such as oil, gas and coal, Chuprov said. Green groups estimate that only around 1 percent of the country’s energy needs comes from renewable sources.

Green groups such as Greenpeace or the World Wildlife Fund complain that central government in Russia does not consult them enough when it comes to formulating climate change policies.

Under its existing plan, Russia would fail to meet the goal set out by the United Nations’ International Panel on Climate Change to cut emissions to 50–80 percent below 1990 levels by 2050, he said.

Bedritsky said Russia was already making good progress and that its greenhouse gas emissions would peak at 25 percent below 1990 levels by 2020. They will then fall or stay flat until 2030, he added.

“Our preparations for the (Paris) summit are not just good, we have achieved excellent results, announced our commitments on time up until the year 2020, and until 2025 and 2030,” said Bedritsky. “We will definitely fulfill our promise.”

(Editing by Andrew Osborn and Gareth Jones)

Ilya Kalinin: Petropatria

Smash & Vengerov & Bobina, feat. Matua & Averin & Kravets, “Oil”

__________

[…]

Extractive nationalism is a machine for turning the nation into a resource for the imaginary regeneration of empire (whose present prospects are, nevertheless, ever more real). Hence the demographic policies of the 2000s, the concept of the “Russian world” (now also equipped with the right to intervene militarily on behalf of compatriots abroad), and the precedent of territorial expansion. In this case, there is another, geopolitical aspect to the resource state’s demodernization: a return to the imperial idea, which ignores both the postmodernist model of globalization and the modernist model of the nation-state. (Although the new empire has been assembled under the quasi-national cover of the “Russian world,” the Russian language, and Russian culture, thus papering over the conflict between the national and the imperial.) The conversion of fossil fuels into one of the main instruments in the war for imperial influence is only the most brutal and aggressive version of the total resource-driven mentality we are discussing.

Thus, the logic of the resource state is deeper than Alexander Etkind writes.* It is not merely that the elite triggers demodernization, turning the populace into an object of paternalistic care based on the charitable redistribution of income derived from the sale of natural resources. It also has to do with the fact that the “modernization project,” the official agenda of the 2000s and 2010s, consists in transforming the populace itself into a natural resource, as it comes to be seen in terms of the same pragmatic struggle for limited resources.

“There is increasing competition for resources. And I want to assure you, dear colleagues, and emphasize that [it is a competition] not just for metals, oil, and gas, but primarily for human resources, for intelligence. Who shoots ahead, and who remains an outsider and inevitably loses their independence, will depend not only on economic potential, but first and foremost on the will of every nation, on its intrinsic energy; as Lev Gumilev said, on its passionarity.”**

We are confronted here with a typical example of translating the discourse of nation into the organicist language of energy resources. Victory in international competition is vouchsafed to those who realize that not only natural but also symbolic resources (“spiritual bonds”) are limited and also need to be placed under state control. If Russia’s economic potential is based on metals, oil, and gas, its human resource consists in the capacity for appropriating “intrinsic energy,” the “will of the nation.” Thus the Russian state’s superextractivity can be described not only as the economic exploitation of “natural resources […] almost without the populace’s involvement” (Etkind, p. 164) but also as the political exploitation of the populace, turned into raw material for the reproduction of the elite.

The values to which the elite appeals in its search for national identity—the historical past, Russian culture, the Russian language—are turned into the exact same sort of raw materials.*** Its ideological obsession with “spiritual principles,” “historical origins,” “tradition,” and “cultural foundations” is defined by the selfsame chthonic horizon of the earth’s depths as the mineral resources on which the elite’s material prosperity and political stability objectively depend. The dialectic of current Russian (de)modernization involves making Russia’s future dependent on intensively exploiting its past (represented as its natural or cultural heritage). A resource is a condensation of the past; it inhabits the present in concentrated form.

The constructed “national tradition” and de(modernization) are deployed in keeping with a simplified version of the Marxist dogma of base and superstructure. In our case, the base is occupied by resources (mineral resources fuel the economy, while the resources of national tradition drive ideology and cultural policy), while the superstructure emerges through modernizing technology for exploiting these same resources. That is why, in a resource state, modernization inevitably devolves into demodernization—a circular movement that over the longer term will increasingly deplete material resources and thus become more dependent on symbolic resources. Hence the increasingly strident attempts to put them under state control: as the final victory of the resource-driven mentality approaches, the struggle for resources has only exacerbated. Natural resources, public institutions, people, and values are converted into raw materials for strengthening the current political order’s stability.

In the end, extractive nationalism itself is a resource for the production of raw petropatriotism. The petropatria is a homeland for the petromacho in which everyone else has to live as well, that same populace for whom it is time to make their choice between their country and oil.

Source: Ilya Kalinin, “Petropatria. Rodina ili neft’” [Petropatria: homeland or oil], Neprikosnovennyi zapas 95 (3) (2014)

* Alexander Etkind, “Petromacho, ili Mekhanizmy demodernizatsii v resursnom gosudarstve” [Petromacho, or demodernization mechanisms in the resource state], Neprikosnovennyi zapas 88 (2) (2013): 156–167.

** President Putin’s Address to the Russian Federal Assembly, December 12, 2012.

*** Cf. Ilya Kalinin, “Boi za istoriiu: proshloe kak ogranichennyi resurs” [The history wars: the past as a limited resource], Neprikosnovennyi zapas 78 (4) (2011): 330–340; Ilya Kalinin, “Proshloe kak organichennyi resurs: istoricheskaia politika and ekonomika renty” [The past as a limited resource: historical policy and the rent economy], Neprikosnovennyi zapas 88 (2) (2013): 200–214; an expanded version of the article can be found on the website Polit.ru.

Editor’s Note. For another take on the topic of Russian history as a limited resource, see Vasily Zharkov, “Enslaved by History,”

Still image from the finale of video "Oil." Courtesy of YouTube
Still image from the finale of the video “Oil.” Courtesy of YouTube