20 years under Putin: a timeline

On April 21, Vladimir Putin delivered his 17th address to the Federal Assembly, devoting it mostly to the issues of overcoming poverty and economic development. However, an analysis of the measures he laid out once again confirms the fact that the president is not interested in economic growth if it requires structural and institutional reforms, more freedom, or an adjusted foreign policy.

 

April 21, 2021: Vladimir Putin delivers his annual address to the Federal Assembly. Photo: kremlin.ru.

 

Read about the West’s reaction to Vladimir Putin’s address in IMR’s special roundup

Most experts anticipated that Vladimir Putin’s address to the Federal Assembly would be devoted to the issues of reviving the Russian economy and social development. Taking into account the numerous meetings of the Russian president with government officials and heads of the so-called “development institutions,” many assumed that Putin would put forward radical measures to “restart” the Russian economy, which has been stalling for almost eight years. From 2013 to 2020, its average growth rate has been just over 0.3 percent per annum, and the real income of the population, despite the often-mentioned 2020 social benefits, is now more than 10 percent lower than in 2013.

However, Putin’s address, in my opinion, has only confirmed that the economy is an alien and uninteresting subject for the president and that, as I have repeatedly written elsewhere, economic growth is not his priority. He has not proposed any breakthrough ideas, such as tapping the National Welfare Fund (NWF) or revising the budget rule. Instead, promises were again made to schoolchildren and their poor parents, as well as to pregnant women and citizens caring for sick children; we heard about the inevitable construction of a high-speed highway to Kazan and Yekaterinburg; about the restructuring of loans in problematic areas; and about likely changes to the tax system, which, judging by the president’s tone, will be aimed at reducing capital flight and stimulating domestic investment.

The address nevertheless contained several important messages. First, social development is understood by Putin exclusively in the context of overcoming poverty—he mentioned this repeatedly in his speech. The main initiatives were quite unambiguously addressed to the poor. For instance, speaking about his favorite topic of hot school meals (introduced last year), Putin stressed that “this measure has become a help for families.” In other words, the president is clearly focused on supporting the poorest citizens—those who, apparently, have not benefitted from his twenty years of rule. However, even for these people, the prospect of climbing out of poverty is hardly feasible: the cost of the measures proposed by Putin was estimated by Finance Minister Anton Siluanov at 270 billion rubles ($3.6 billion) a year, approximately 2 percent of the NWF and 0.4 percent of the real disposable income of the population in 2019. For comparison: since the beginning of the pandemic, the U.S. government has distributed to American citizens an amount equivalent to 11 percent of all their income for 2019. However, any economist will say that certain adjustments to the policy on poverty will not boost Russia’s stagnant economy into growth rates higher than the global averages, which are expected to reach 4 percent and 3.8 percent, respectively, in 2021-2022.

Second, the Kremlin believes that the state should remain the main investor in the economy, and that state capital investments themselves are supposedly capable of ensuring the desired growth. In this context, recall which investment areas were mentioned by Putin. On the one hand, there was infrastructure (including construction of new federal highways); on the other, there were schools, universities (mainly pedagogical), libraries, and museums, primarily regional. No one, of course, can dispute the importance of these initiatives, but what is striking about them is that none offers what any investment should bring—profit or a multiplier effect. You can spend money on renovating and modernizing rural libraries, but all books and information resources have long been available online. It is possible to build new roads worth hundreds of billions of rubles (recall that the construction of the highway to Yekaterinburg last year was scrapped because of the exorbitant cost), but this will not result in freight or passenger traffic along them. While U.S. President Joe Biden has unveiled his infrastructure plan against the backdrop of a highly competitive and diversified economy with almost unlimited demand for goods and services, the Russian president has proposed to build modern transport arteries where the need for them is not too great and without reforming the Russian economy as a whole.

Putin’s words about the need for massive gasification of the entire country sounded even more puzzling. In my opinion, it would be much more logical today to subsidize the installation of solar panels or wind generators in remote areas than to build pipelines in the interests of the state monopoly of Gazprom. According to the president’s logic, money must be spent to increase GDP, but what actually comes next is not so important. 

Third, the part of Putin’s address that covered science and technological development seemed to me rather strange. Here we again heard about trillions of rubles that will be spent on fundamental research and about the allocation of money to universities to create centers of competencies, but the president set hardly any goals to be achieved. He did mention environmental concerns and the need to reduce greenhouse gas emissions, but this has only raised more questions. Russia is still a country almost completely dependent on the energy sector, so stating goals that directly contradict the interests of the economy’s basic sector seems counter-productive. At the same time, not a word was uttered about informatization and IT development, although global practice shows that even limited investments in this sector yield extremely high returns, and it would be natural to address this topic in any speech dedicated to accelerating economic growth. In other words, Putin is obsessed with spending, but cares little about the results.

It appears that, speaking about economic growth in recent years, Putin has been bluntly lying, paying lip service to the rhetorical clichés popular in the world.

I will omit that part of Putin’s speech about Russia’s foreign and military policies. It seemed to me visibly restrained, as it did not mention Ukraine, the post-Soviet space, or the “Russian world.” The Kremlin must still believe in the possibility of a dialogue with the United States and does not want to aggravate the situation further after so much deterioration in recent years. Overall, this gives the impression that, following a very difficult 2020 with the constitutional reform, the coronavirus pandemic, a catastrophic drop in oil prices, and a spike in protest sentiment, Putin has regained confidence and, to some extent, even feels carefree. Energy prices have bounced back to a comfortable level for Russia; the pandemic is not exactly defeated, but has become a part of everyday life and is no longer a destabilizing force; plus the protest movement is waning. The system, according to the president, has returned to a relatively stable state, where he only needs to help the poor (citizens through subsidies; industries, such as education, through injecting extra money; regions through writing off or restructuring budget loans), and everything will be great.

The problem is that economic development is not ensured by the fight against poverty (in the 2000s, incidentally, the share of the poor population in Russia was much higher than today), but by the emancipation of the middle class and entrepreneurial citizens. However, the current Russian government is categorically unprepared to make this step. And so I would say that Russia is returning to the “path of non-development” that it was following before the global economic crisis almost knocked it out. This is the inevitable consequence of the lack of freedom, domination of state entrepreneurship, domesticating of “inexpensive” voters, and accumulation of reserves for a truly rainy day, which, as the authorities believe, is still a long way off. It is for this reason that Putin’s address reaffirms previous policy priorities  (e.g. boosting life expectancy, level of well-being, etc.), but their implementation has now been pushed to 2030 or later—beyond the accountability timeline. Moreover, Putin clearly considers this approach not a policy failure, but loyalty to his strategic guidelines. 

It appears that, speaking about economic growth in recent years, Putin has been bluntly lying, paying lip service to the rhetorical clichés popular in the world. I do not think that the Kremlin is interested in growth—after all, the president speaks increasingly more often about stability, which, in economic terms, is best described by the word “stagnation.” This is how many Russian economists describe the emerging status quo, pointing out that no economic “acceleration” is feasible under the current concepts of state policy. To be fair, Putin is not categorically against growth (during his first two presidential terms, Russia’s economic growth hit record figures), but he does not accept growth if it requires structural reforms or greater economic freedom, even more so if it implies serious institutional transformations or foreign policy adjustments. 

The government’s problem today is not the very idea of ​​growth, but its potential cost, which is why Bloomberg, following Western logic, keeps expecting radical changes from the Russian president that never materialize. Putin is looking for growth without development, trying to square the circle in a way that no one has yet been able to do. And if it proves impossible to do so, then growth will be sacrificed for the sake of stability and safety. Regime stability and Putin's personal safety... 

 

* Vladislav Inozemtsev holds a PhD in economics and is the director of the Center for Research on Post-Industrial Societies (Moscow).

Russia under Putin

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