Both these books come to similar conclusions. The good news is that Russia has a stable political-economic system, one where there is congruency between its political and economic institutions. The bad news is that Russia has a stable political-economic system, which means that serious structural reforms are unlikely to be implemented. It remains by and large a petro-state, in which hydrocarbon exports are the drivers of growth, leaving the economy vulnerable to fluctuations in the global oil price.
The Russian Economy Under Putin, based on a June 2017 conference in Stockholm, consists of a dozen chapters by leading experts from Russia and beyond who analyze the trajectory of the Russian economy since 2000. The “neoliberals” in charge of the Central Bank and finance ministry have maintained a tight monetary policy, getting inflation under control and ensuring that the economy does not suffer a repeat of the 1998 debt crisis. The neoliberals’ capacity to manage fluctuations in external conditions makes them useful allies of the oil sector and opponents of the manufacturing lobby, which has been pushing for a more interventionist state role, including cheaper capital and import regulation.
However, oil dependency undermines the incentive for real reforms that could capitalize on Russia's high human capital to unleash a “knowledge economy.” Flat global commodity prices led to lackluster growth performance after 2008, in sharp contrast to the 8% annual GDP growth of 2000–8 (16).
Susanne Oxenstierna (Chapter 4) notes that military spending tripled in real terms under Putin, peaking at 4.4% of GDP in 2016 (87), although since then it has fallen, with a target of 2.5% for 2020. Michael Alexeev (Chapter 7) argues that Russia's high quality human capital is undermined by its poor institutions, meaning that its highly-educated workforce does not engage in wealth-generating activities. Citing unpublished data from UNESCO, he reports that there are 62,000 “holders of law degrees” in the US and 230,000 in Russia (113). That is incorrect: there are 1.1 million lawyers in the US and 34,000 people graduated from US law schools in 2017; and there are somewhere over 400,000 lawyers in Russia. Yaroslav Lissovolik and Andrei Kuzentsov (Chapter 5) stress the challenges facing economic integration in the former Soviet space given the vast distances that goods have to travel.
Vladimir Gimpelson and Rostislav Kapeliushnikov (Chapter 8) analyze the demographic trajectory of the Russian labor market. They argue that some 30% of the growth in the 2000s was due to a rise in the labor supply, especially of younger workers. By 2030, however, they predict a 10% decline in the labor force, with a particularly acute (25%) fall in workers under 35. Raising the pension age will only add some 1.2 million workers—whereas the deficit will be 7 million. This is bad news for Russia's growth prospects—whatever reforms the government introduces. On a more positive note, Russia is an international outlier, with 67% of the population having some form of tertiary education (135). Analysis of income data leads them to conclude (contra Alexeev) that the returns on education are positive.
Chloe le Coq et al (Chapter 9) test the “resource curse” hypothesis (the idea that natural resource exports are bad for long-term growth) through an econometric analysis of Russia’s regions. They do not find a negative correlation between energy revenue and manufacturing at the regional level—which they see as a refutation of the resource curse. I had always assumed that the resource curse applied at national level, so I am not sure what to make of this finding.
The book concludes with three short chapters analyzing the prospects for future reform. Sergei Aleksashenko (Chapter 9) and Anders Åslund (Chapter 10) concur in seeing little chance of structural changes to Putin's system of crony capitalism—even though the system has not been able to generate growth in incomes or investment since 2014. They differ in their assessment of the handling of the financial crisis in late 2014, which saw the ruble lose 40% of its value. Åslund (191) defends the decision to float the ruble, while Aleksashenko (173) is critical of the Central Bank's measures, which triggered panic. (On this point, Mau sides with Åslund [180]). Stephen Fortescue (Chapter 11) argues that the chances for a serious industrial policy—led by the defense sector—are undermined by opposition from the oil and gas lobby, in alliance with the finance lobby.
For the most part the book focuses on macroeconomic issues, and lacks chapters analyzing the economic performance of specific sectors such as the export drivers—except for the brief discussion of oil and gas by Åslund (193–96)—or the domestic industries that have capitalized on Russia's rising middle class (telecoms, retailing, construction). China also deserves more attention, given its growing role in Russian trade and finance, especially since the 2014 western sanctions.
The conventional approach to discussing the Russian economy is the frame of “transition” from Soviet socialism and “reform” towards a better-functioning economic system. In Russia's Economy in an Epoch of Turbulence, Vladimir Mau instead adopts a broader comparative framework, that of state responses to systemic crisis. Mau is a former colleague of the reformist Prime Minister Egor Gaidar and currently heads the Russian Presidential Academy of Public Administration and National Economy. His book provides a snapshot of the thinking of the remaining economic liberals who have positions of influence in the Russian state apparatus: their analysis of what has happened over the past thirty years, and what remains to be done.
For Mau, the 1990s were not simply a shift in the system of economic management, but also involved a wrenching structural transformation to a post-industrial economy. This challenge deepened in the face of the global crisis of 2008, which Mau sees as paralleling similar structural challenges in the 1930s and 1970s, involving technological shifts, social disruption and changes in the international currency system.
Chapter 2 discusses the political turbulence of the 1990s, which saw Russian state power erode, leading to high inflation, a collapse in tax collection and ineffective economic policy. The book devotes five short chapters (3–7), totaling forty-one pages, to the 1998 financial crisis; and four short chapters (8–11), with thirty-three pages, to the 2008 crisis. More aggressive editing could have reshaped this material into a smoother narrative. The next six chapters (12–18), follow the evolution of economic policy year by year from 2009 to 2016, with multiple charts showing macroeconomic trends (interest rates, exchange rate, and oil price). Mau does not go into the details of specific sectoral performance.
2008 was a global crisis which coincided with a domestic bubble of foreign borrowing by Russian corporations (123). The global crisis called for a policy response beyond the standard stabilization/deregulation package known as the “Washington Consensus” (97), and global integration means that tradition Keynesian stimulus policies will also not work. Unfortunately, “the fight against deflation in the Western world would push inflation outside, into the developing economies” (103), and the rise of populism was another barrier to the needed economic reforms (148). Re-industrialization of mature economies (including Russia) is needed, but it will come through liberalization, not mobilization (181). The Russian government's stabilization policies were generally successful, though they relied heavily on social spending and loan guarantees for enterprises (129)—recycling oil rents to produce social stability. Rather than embark on serious supply side reforms (a more flexible labor market, for example), most of the elite hoped that a return to higher global oil prices would reflate the economy. Meanwhile rising labor costs made Russia less competitive (150, 164), a situation that demographic trends will only exacerbate. A relatively low savings rate, 22% of GDP, also constrains growth (170). Yet, the elite remains complacent: “demand for modernization has notably fallen in the past decade” (189). Even before the imposition of sanctions and fall in oil price that occurred in 2014, it was clear that the Russian economy was stagnating (178). Mau does not give us any grounds for optimism that Russia will be able to break out of its economic impasse.
There are some prominent factors that Mau passes over in his analysis. He does not devote much attention to China, either as a model or as a partner, contending that “China has not become a significant factor in the overcoming of the global crisis” (110). And he does not directly address the role of Vladimir Putin in Russia's political economy, beyond the delicate observation that “by 2000 … the macroeconomic stabilization had been synchronized with political stabilization” (6). It remains an open question, therefore, whether Putin's eventual departure from the political scene will lead to another crisis, or a breakthrough to a new economic model.
