Chris Miller in FP talks about
how Vladimir Putin runs the economy, making sure mother Russia keeps turning with himself at the helm despite external pressures from low oil prices, multiple sanctions, and costly wars in the Middle East and eastern Europe. "Putinomics" is based on three pillars:
- State control of all productive sectors, except for "non-strategic" ones (such as agriculture and retail). The state covers approx. 2/3 of the economy, tightly controlling media, energy and financial services -- all of which are closely tied to politics. Pay some lip service about improving the business climate and efficiency, understanding full well that the country's largest firms, the source of political power of the ruling elite, relies on the monopoly power awarded to them.
- Fiscal prudence. Russia keeps its budget deficits under control and maintains low external debt and low inflation to minimize its economic vulnerability. Cutting salaries as an austerity measure, avoiding massive layoffs, despite millions of workers employed in inefficient, Soviet-era factories. This is done at the expense of growth, which was 1.3% in 2017 (-0.2% in 2016), lower than many developed markets, despite its relatively underdeveloped industries and therefore higher growth potential. Stagnation continues in 2018-19, where projected growth is even lower than global growth.
- Using social safety net to maintain control over the mood, especially among its older, more vocal population (i.e. pensioners).
From the article:
" The Kremlin understands that maintaining its current policies will keep Russia stable but stagnant, under-investing in human capital and in private businesses while overspending on wasteful and corrupt state-owned firms. Economic growth will be capped around 2 percent a year. From Putin’s perspective, economic stagnation is tolerable. He has the tools he needs to stay in power. Big changes in economic policy, by contrast, might anger key support groups and loosen the Kremlin’s control over Russian politics."
For this reason, the west just cannot rely on sanctions to effectively punishing the Russian government. If anything, it's only hurting the common Russian people.
