Vladislav Inozemtsev: Russia Has Stopped Making Sense

DSCN5158The west would do as well to try and engage these inebriated young Russians in meaningful dialogue as their erratic, spiteful government.

Vladislav Inozemtsev
Sanctions Forever
Snob
March 30, 2018

The recent simultaneous expulsion of 139 Russian diplomats from 24 countries is an extraordinary event, especially if you consider it was undertaken not in response to provocations against these countries themselves, but as a token of solidarity with Great Britain, which has accused Russia of attempting to murder the former intelligence agent Sergei Skripal on English soil with a chemical weapon.

The current fad is to describe what is happening as a new cold war. I noted long ago that Russia’s changed attitude to the world fit this definition well. However, events might have gone even farther or, to be more precise, in a different direction.

The west was extremely concerned about what happened in Ukraine in 2014–2015. Along with Putin’s speeches in Munich and Bucharest in 2007 and 2008, the five-day war in Georgia, Moscow’s attempts to strengthen its authority in the former Soviet Union and cultivate friendships with certain Central European leaders, Russia’s aggressive actions jibed well with previous views. The responses proposed seemed clear as well: containment, aid to allies, competition and rivalry on the global periphery. Putin was routinely described as someone who understood only zero-sum games. One side’s loss was always a win for the other side.

However, since the mid 2010s, the circumstances have changed dramatically, although it was hard to notice it immediately. Russia’s meddling in the US presidential election (no matter whether it impacted the outcome or not), its flirtation with European ultra-righwingers, its open support of war criminals like Assad, and the state terror unleashed against opponents of the regime and people whom Putin and his retinue have deemed “traitors” are all indications not only of the fact that the Kremlin has ceased to play by any rules whatsoever. More important, Moscow has seemingly ceased to take its own good into account when it makes certain moves.

What did the Kremlin gain by sullying the 2016 US presidential election? If we speak of Russia per se, nothing was gained whatsoever. Whoever had won the election without our meddling, the relations between our countries would certainly not be worse than they are now. The only consequences have been a supercharging of American politics and aggravation of internecine battles within the Washington establishment. What has Moscow gained by financing and supporting anti-European forces? Apparently, a similar destabilization. It is telltale that if this destabilization does become a reality, Russia will gain nothing from it. The EU will not crumble, but it will become less functional, and pro-European forces will only find it is easier to prove their argument that the countries of Europe must rally less for some particular purpose and more against a particular enemy. Even if pro-Putin forces achieve local victories here and there, it will not alter the overall picture. The greater part of Europe will become increasingly anti-Russian. What has Putin gained by murdering, apparently, over a dozen of his personal enemies in the UK, people who had long ago been stripped of any opportunity to harm Russia? He has turned our country into an international outcast, which no one wants.

The west’s reaction, as exemplified by the expulsion of Russian diplomats, points to a new reality, consisting primarily in the fact that Russia has finally stopped making sense to the world, nor should it surprise anyone. It really is unclear what Putin wants right now. Does he want to become dictator of his own country, wiping out even the semblance of democracy? The west would not prevent him from doing this in any way. Does he want to resurrect the Soviet Union? Go crazy, only it is far from a fact the khans and beys of Central Asia want the same thing, given that Moscow has so far not been terribly successful at achieving genuine integration with these countries. (Ukraine is a special case, but even here it would make more sense to negotiate with the Ukrainian people, not with Brussels and Washington.) Does he want to launder the money stolen in Russia in Europe and various offshore companies? I have not heard anything in the news about Russian funds and property being seized by foreign authorities. Since Russia has stopped making sense, the west has sent signals and hints Putin should settle down. They do not necessarily want him to become less anti-western, only more rational. They want him come down to earth and engage in lawlessness, if possible, only at home.

The Kremlin has feigned it cannot make sense of these signals. It prefers to act in keeping with the tactic of symmetrical response. However, what was normal during the real Cold War strikes observers as abnormal nowadays. In the 1970s, members of the Central Committee did not own villas in the south of France and did not stash their money in banks registered in Luxembourg and Delaware. Soviet enterprises were not owned by companies up to their necks in debt in the west. By hook or by crook, Soviet home industry supplied the populace with nearly all the bare necessities, and what it could not supply was obtained from the Soviet Union’s Eastern European satellities. Everything has changed since then. Russia is much more vulnerable to European economic sanctions than US nuclear missiles.

Symmetrical responses were productive when the parties were motivated by clearly defined interests. When one side is motivated by garden-variety resentment, such responses are counterproductive. Moscow assumes its bluff has been called, although the west’s signal contains a different message: there is nothing to discuss with the Kremlin. Moreover, the process no longer seems like fun to anyone. Given the circumstances, what is the point of having embassies in hostile countries that outnumber the diplomatic missions of their most trusted friends?

As for the parallels that suggest themselves when we contemplate the Kremlin’s latest steps, they do not resemble the actions of Khrushchev and Brezhnev. They are more reminiscent of the Stalin era’s experiments. The Soviet secret services eliminated the revolution’s enemies abroad, while the Kremlin categorically demanded the German communists not form a coalition with the Social Democrats in the face of the Nazi threat.  The Kremlin imagined maximum destablization of the democratic countries would cause them to collapse and help establish the universal reign of the proletariat. History, however, proved this policy was erroneous. No one suffered more from the collapse of the Weimar Republic than the Soviet Union. If European integration fails, Russia is not likely to benefit, either. Were we not thrilled about the Brexit vote not so long ago? Did we not believe a more independent Great Britain would deal a blow to the Eurocrats? The only problem is that for now it is rather more obvious the UK’s increased independence has strengthened its resolve to deal with Moscow, while Europe (and not only Europe) has been inclined to support the supposed renegade.

Summing up, I can only repeat my longstanding assumption that the sanctions against Russia are virtually permanent. Instead of contemplating events in a rational manner, weighing the pros and cons, and taking decisions aimed at reducing tension, Russia has continued to engage in provocations, lies, and dodges. (In Soviet times, the Party’s leaders had the good sense to maintain dialogue with the west on economic and other issues even at the height of the arms race.) The west finds it difficult to respond with force, nor does anyone want to respond with force, so the tokens of growing contempt will keep manifesting themselves over and over again. Russia should be ready for this. Or it should begin to change, although, apparently, it is pointless to expect this.

Thanks to Alexander Morozov for the heads-up. Translation and photo by the Russian Reader

Advertisements

Vladislav Inozemtsev: The Calm before the Storm

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

Another empty billboard
Another empty billboard

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.
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.
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.
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.

Vladislav Inozemtsev: Russian Society Has No Future

The Secret of the Putinist Consensus
Vladislav Inozemtsev
February 11, 2015
Snob.ru

Nowadays, when discussing whether the political system produced in Russia in the 2000s is secure, the majority of discussants ignore its internal complexity. Arguments about authoritarianism, the return to the Soviet past, the oil curse, and the propaganda effect, like many others, divert us from the vital principles of how current Russian society functions and prevent us from assessing the potential and prospects of the Putinist stability.

anomie

In my opinion, in recent years Russia has developed a unique type of societal structure for which it is difficult to find an analogue. I am least inclined to believe that its image was first shaped in the minds of the inhabitants of the Ozero dacha cooperative and then brought to life, but what has eventually emerged requires long and deep analysis. Essentially, it is a kind of “non-social society,” however clumsy the term sounds.

Russia has entered the second decade of the twenty-first century an utterly peculiar country on several grounds. It is an open society whose citizens are most afraid of this openness. It is a relatively rigidly controlled society, but it has no ideology. It is a society encumbered by a mass of formal constraints, but it permits an incredible degree of personal freedom. Finally, and most importantly, it is a society that seems to be united and cohesive, but is based on unrestricted individualism.

The shaping of this social system proceeded along several vectors, with the regime achieving impressive successes in each of them.

Its first victory was overcoming the threat posed by the outside world. If we recall the Soviet Union and the phobias of the communist elites, the most obvious of these was the fear of transparency and openness. Information about western societies was filtered, and travel abroad was restricted. The assumption was that the authoritarian model could exist only in isolation from the world. However, the 1990s and 2000s specifically showed the opposite was the case. First, large-scale market-based reforms, firmly linked in people’s minds with “western values,” dealt a severe blow to the welfare and pride of Russian citizens, and then growing prosperity came at a time marked by a more independent policy. Yet, preservation of the Soviet principle of identifying oneself with one’s country meant that the successes of the few were regarded as society’s achievements. I myself once overheard rather poor Russian tourists in Paris discussing how the French drove such cheap cars compared with Muscovites, although none of the speakers could afford an oligarch’s limousine.

In the new Russia, the west has come to be seen as a source of problems for our country. “Getting up off its knees,” the great power has nothing to learn from the west, which depends on us more than we depend on it. It bears repeating that these notions were molded by the experience of the 1990s, the economic recovery of the 2000s, and skillful propaganda. But the fact remains that the authorities have managed to achieve full immunity from the influence of the west, which in the twentieth century had destroyed dozens of previously closed authoritarian regimes.

The second outstanding achievement has been the deideologization of society, which in most cases is extremely dangerous for nondemocratic systems. Whereas people in the Soviet Union were united by a particular purpose (moreover, this unity was not purely formal), there is no such goal in today’s Russia. Neither “stability,” “getting up off its knees” nor even rallying the “Russian world” points toward it, because they define not so much a final result (like the “victory of communism”) as a condition or process. Soviet ideology and its manifestations have been replaced by a refined capitalist unscrupulousness, with the principle of personal enrichment as its alpha and omega. Despite all the talk about “spiritual bonds,” it is material bonds that hold the current Russian system together—the mutual and profound consensus amongst thieves who fatten themselves on the public domain.

An ideology that made it possible for the entire society to look in the same direction has been replaced by a conspiracy of silence among corrupt officials and bribe takers that co-opts ever more people to the ruling clique on the basis of personal loyalty. It unites the “elite,” since it culls principled citizens from its ranks and transforms any and all personal qualities into money and wealth. Money and wealth are in fact the new Russian ideology, an ideology that generates not so much a single “platform” as a general principle defining how society operates. Knowledge, positions in the hierarchy, and power are converted into money, and money itself is just as simply converted into anything else. Normal countries have academic, cultural, political, and entrepreneurial elites. In Russia, however, there is a single “elite,” and it unites only those adept at turning any opportunity that comes their way into cash, and vice versa.

In such circumstances, society is divested of its purpose, sense of mission, and role models. It destructures, turning into a crowd.

The third factor is even more important and follows from the two we have already discussed. The renowned Putinist consensus has not involved trading freedom for prosperity, as many liberals have argued. Nobody has taken freedom away from Russians; on the contrary, it exists in abundance in today’s society. Russia’s secret in the Putin era consists, rather, in sham restrictions on freedom that even more strongly underscore its boundlessness. Unlike Soviet times, Russian citizens have the right to leave the country, acquire any form of property, freely disseminate information, and do business. Most importantly, they are virtually unencumbered by any moral constraints in their private lives. Freedom in Russia has not been abolished: it has been ably shunted out of public life into private life. This is what makes the country a “non-social society,” a society where the social interactions habitually dubbed “civil” do not arise, but where at the same time pressure on the regime, always generated by the lack of freedom as such, does not emerge, either. The thousands of petty restrictions about which the indignant press often writes conceal an unlimited space of personal permissiveness. The well-known Russian historian Alexei Miller is quite right when he notes, “[L]iving in Russia, which notoriously lacks in democratic standards, one feels personally free.” [1]

IMG_5947

This explains the steady decline in social activism we have observed in the country in recent years, moreover, against a backdrop of ever-growing enthusiasm for quasi-social activism—communicating on the Internet, social networks, forums, and so on. In Russia, freedom has ceased to be a tool for social change. This would probably be Putinism’s supreme achievement were it not for one more circumstance.

The fourth point seems the most fundamental to me. Since the early post-Soviet years, Russia has given rise to a society in which individuals have been able to achieve almost anything, but in an environment where they have acted alone and not sought to rely on social consolidation. If you want to solve a problem, it is easier to pay a bribe, negotiate an exception or just close your eyes to certain rules, but not try and question their legitimacy or demand they be changed. This correlates nicely with the main principle of governance—the merger of business and government, and the transformation of all public offices into sources of personal enrichment. Corruption functions not as an evil but as a natural element (if not a good) in the new system, as it permits the problems the system creates to be solved. More importantly, it allows them to be solved effectively, while collective action, on the contrary, blocks the very possibility of solving them. This is a life, as the well-known sociologist Zygmunt Bauman has written, that consists of “biographic solutions to systemic contradictions.” [2]

As a result, people have, with good reason, come to understand collective action as counterproductive. The system of corruption does not elicit rejection, since it offers an almost ideal version of the daily narrative, making it possible to solve many of the problems every person has, and more efficiently than any other option. The secret of Putin’s Russia consists in the abrupt expansion of the space in which citizens are allowed to solve systemic contradictions individually. Ultimately, the country is populated by people who want to eat and sleep, make money and operate freely within their limited space, see the realities of the other world, but be satisfied with (and even proud of) their own. So Putin can sleep peacefully. He reigns over an absolutely destructured crowd, a liquid postmodernity that engages in apologetics for corrupt government, is incapable of self-organization, and has no common problems and purposes.

Completing the picture and going back a little, we can again recall openness. This is the system’s final chord. Soviet society’s weakness was that it prevented too many people and too many different people and social groups from expressing themselves. People who held different views were persecuted. Initiatives were punished. There was a clampdown on alternative culture. Religious life was suppressed. As soon as Mikhail Gorbachev spoke of change, his intentions found millions of supporters. Some wanted the system to be reformed and renewed, while others wished for its complete destruction. But everyone understood that nobody could solve his or her particular problems without destroying the framework that hampered society as a whole. A system that suited almost no one could not survive. Today, the borders are open, and anyone who is so dissatisfied with the system that they cannot be content with the freedom available within these borders is free to leave. There are more and more such people every year, while the “aggressively obedient majority,” as it was once dubbed, grows ever more consolidated.

IMG_5950

Russian society has no future. But the faceless and unprincipled crowd that now populates the country does have one. And that more than suits both the crowd itself and those who parasitize its obedience. After all, nobody is asking the people to make sacrifices: a little humility is all that is required from it. But that means we should not count on rapid change.

Vladislav Inozemtsev is Professor of Economics at Moscow’s Higher School of Economics and Director of the Center for Post-Industrial Studies.

Photos by the Russian Reader

1. Alexei Miller, “Ot demokratii XIX veka k demokratii XXI-go: kakov sleduiushchii shag”? [From nineteenth-century democracy to twenty-first century democracy: what is the next step?], in V.L. Inozemtsev, ed., Demokratiia i modernizatsiia: vzgliad iz XXI stoletiia [Democracy and modernization: the view from the twenty-first century], Moscow: Evropa, 2010, p. 101.
2. Zygmunt Bauman, The Individualized Society, Malden, Mass.: Polity Press, 2001, p. 106.