Explaining Russia’s Money-go-round
In the decade to the 2008 global financial crisis, Russia’s economy grew at almost 8 percent a year — due in large part to high oil prices. Stagnation followed, but Russia didn’t suffer a disastrous meltdown. How has it avoided, at least so far, the so-called curse of a resource-dependent economy in spite of economic crises and Western sanctions?
Chris Miller, a professor at the Fletcher School of Law and Diplomacy at Tufts University, finds an answer in Putinomics, defined as a three-pronged economic strategy built on stable state finances, a stable social contract and efficient private business. Learning from a chaotic 1990s, the Kremlin stowed hundreds of billions of dollars of its 2000s oil windfall in reserve funds. Conservative financial and monetary policies safeguarded the social contract with wage earners, state employees and pensioners. While oligarchs and state-owned firms continued to prevail in the economy, in industries not closely linked to politics — such as the retail and iron and steel sectors — market incentives tended to dominate decision-making, enhancing economic efficiency.
But by the 2010s, Miller observes, Russia faces new set challenges: reducing bureaucracy, increasing investment in health and education, improving the rule of law and increasing regulatory transparency. Russia is now at a crossroads of prolonged stagnation and growth, and without fundamental changes in Putinomics, Miller expects, its economy will find it hard to escape the stagnation trap in the coming years.
Global Asia.