What is the Russian economy based on

Russia

Roland Götz

To person

Dr. Roland Götz studied the Soviet economy and the economies of the CIS at the Federal Institute for Eastern and International Studies in Cologne and at the Science and Politics Foundation in Berlin.

The development of a comprehensive program is intended to promote Russia's economic growth. However, this is more a desired state than actual prognoses. The political system and state structures make a noticeable change difficult.

Russian President Vladimir Putin and Energy Minister Alexander Nowak at a meeting on the sidelines of the Russian Energy Week in Moscow. (& copy picture alliance / Iliya Pitalev / Sputnik / dpa)

Summary

Between 2000 and 2018, the Russian leaders commissioned eight plans to provide orientation for long-term economic and social policy. They were either not implemented at all or only partially. It is also unlikely that the plan adopted in 2018, called the "Forecast of the Socio-Economic Development of the Russian Federation by 2036", can be realized. A prerequisite for its success would be a significant improvement in the investment climate, for which above all the trust of entrepreneurs in the state structures would have to be strengthened. This presupposes a reform of the political system, which the ruling circles are not interested in because they would then have to fear for their privileges.

Plans for the market economy

After overcoming the transformation recession in the first half of the 1990s and the financial crisis in 1998, Russia's leaders felt that long-term economic programs had to be drawn up. These plans, known as "strategy", "concept" or "forecast", set targets for production, investment, foreign trade and demographic development at national and regional level, among other things. While experts from different directions develop drafts, the final versions follow the precise specifications of the president and government (see Vera Rogova's contribution in the bibliography). The required measures come from the instruments of economic development and innovation policy in the market economy and not from a planned economy monetary, fiscal and currency policy, as requested by Sergej Glasjew and others (see the article by Roland Götz in the bibliography).

"Strategy 2010"

Vladimir Putin, who was appointed Prime Minister by President Boris Yeltsin in August 1999, founded the Moscow "Center for Strategic Studies" (Center for Strategic Research, CSR). On its behalf in 2000 it drafted an economic program designed until 2010 with the title "Basic directions of the long-term social and economic policy of the government - Strategy 2010". Senior CSR employees such as German Gref, Alexej Kudrin, Arkadij Dworkowitsch, Alexej Uljukajew and Elwira Nabiullina received government posts and were able to implement parts of this program, including a tax and budget reform and the establishment of a foreign exchange reserve fund. As a result of the sharp rise in the price of oil and the motivated recommissioning of disused oil fields, an oil export boom started in Russia from the year 2000, which led to the high growth rates in production and income planned in the program being exceeded and the state foreign debt almost exceeded could be completely dismantled. However, other items on the agenda, such as reform of the administration and the judicial system or diversification of the economy, have only been implemented to a limited extent. The "Strategy 2010" remained in force the longest in comparison to all subsequent economic programs (see Table 1, page 10).

"Concept 2020"

In June 2006, under the influence of the economic development driven by the oil export boom, President Putin commissioned the Ministry of Economic Affairs to draw up an even more ambitious economic program that would give Russia the status of a leading global power of the 21st century. This so-called "concept for socio-economic development up to 2020" was put into effect by the government in November 2008 by ordinance. However, the global economic crisis that spanned Russia in the second half of 2008 made it impossible to carry it out.

"Strategy 2020"

In order to replace the obsolete "Concept 2020", Prime Minister Putin commissioned the Moscow "University of Economics" and the Russian Academy of Economics and Civil Service to draw up an economic program that will run until 2020 in January 2011. In March 2012, both institutions presented a two-volume work entitled "Strategy 2020 - A new growth model and a new social policy", which contained extensive reform proposals for legislation in the areas of social and economic policy. Although it was not formally confirmed by the government, some of his proposals were incorporated into Putin's decrees of May 2012, in which he gave instructions for economic and social policy during his presidency.

"Forecast 2030"

On the basis of Putin's "May Decrees" of 2012, the Ministry of Economic Affairs drafted a "Forecast of the long-term socio-economic development of the Russian Federation up to 2030", which was confirmed by the government in March 2013. Since many of its initial assumptions were outdated by the economic crisis of 2014/15 and the effects of the western sanctions following the annexation of Crimea, it was not implemented.

"Strategy 2030"

As a replacement for the unrealized "Forecast 2030" and in accordance with a law on "strategic planning" (static.kremlin.ru/media/acts/files/0001201406300016.pdf) passed in 2014, Prime Minister Dmitry Medvedev commissioned his expert council and his then Minister Mikhail Abysov (who was arrested for embezzlement in March 2019) with the creation of a so-called "Strategy for Socio-Economic Development of Russia by 2030 - Strategy 2030". It was supposed to be available in 2017, but was not completed.

"Strategy 2024"

In spring 2016, President Putin instructed his Economic Council and the CSR, headed by Alexej Kudrin at the time, to develop a "Strategy 2018–2024 with a perspective until 2035" (see the article by Vera Rogova, pp. 7–8, in the bibliography). In 2017, however, only a brief description of this project was published under the title "Strategy for Development of the Country 2018–2024", which has apparently been discontinued.

"Forecast 2036" and "Budget forecast 2036"

President Putin announced in his message to the Federal Assembly at the beginning of March 2018 (http://en.kremlin.ru/events/president/transcripts/statements/56957) and in several decrees in May 2018 (http://en.kremlin.ru / events / president / news / 57425) Guidelines for a new economic program. According to this, Russia is to rise to the group of the five largest economies by 2024, measured in terms of gross domestic product at purchasing power parities, with economic growth of around 3 percent per year exceeding that of the world economy and inflation to be a maximum of 4 percent per year. (The "five-man club" of the largest economies today include China, the USA, India, Japan and Germany). According to the World Bank, Russia's gross domestic product (GDP) had already exceeded that of Germany between 2008 and 2015 and was only slightly below it in 2018/19, which is why this important task for propaganda could possibly be fulfilled again (Figure 1, p. 11). An economic program corresponding to Putin's specifications was published by the Ministry of Economic Affairs on November 28, 2018 with the title "Forecast of the socio-economic development of the Russian Federation up to 2036". The "budget forecast" published on March 29, 2019, which also extends to 2036, is based on this.

Both so-called forecasts decree (like all previous long-term programs) the development of a series of economic and social key data for the state as a whole based on the requirements of the state leadership and at the same time determine the framework for the planning of the areas and municipalities based on them; they are therefore not forecasts, but plans (see table 2, p. 11, graph 2, p. 12, and table 3 on p. 12). The planning, which extends up to 2036, distinguishes between two variants (scenarios): In the "base scenario", higher growth in the global economy is assumed than in the "conservative" scenario. The baseline scenario is considered to be the one towards which economic policy should be oriented. Of course, the assumptions and therefore also the results of the plan calculations differ noticeably in both cases only up to 2024, while they are practically identical towards the end of the long-term planning period.

As demanded by Putin, Russia's GDP is expected to grow by 3 percent per year on average in real terms (adjusted for inflation) over the 18 years of the planning period 2019 to 2036. However, the real disposable income of the population (wages, profit income and social benefits minus taxes and contributions) can only increase by an average of 2.4 percent per year according to planning. The number of employees is expected to increase from 72 million in 2018 to 76 million by 2036. This would of course require an increase in the workforce, which even exceeds the "high" forecast of official statistics by far (Rosstat, Demographic Forecast to 2035 - Population by Age Group, https://www.gks.ru/folder/12781).

The planned economic growth, which is high compared to previous years, requires an increase in the investment rate from 21 percent (2018) to 27 percent (2036) in both scenarios. For this purpose, the government decided in mid-2018 to revise the guidelines for economic development (http://static.government.ru/media/files/VxiY5sMI1efyU0dBdVFSrau5TFkgYG3K.pdf). In order to put a stop to the authorities' excessive addiction to control, the "regulatory guillotine" is also to be introduced in Russia, following the example of Mexico, South Korea and other countries. This means that all regulations that restrict entrepreneurship will expire at the end of 2020 if they have not been changed or expressly confirmed. Also most of the "national projects", which align the already existing "state programs" with priority goals by means of project planning and which are planned to spend a total of 25.7 trillion rubles (395 billion US dollars) between 2019 and 2024 are intended to improve the conditions for investment activity (see Table 4, p. 13, as well as the contribution by Ben Aris in the bibliography).

While planning envisages an increase in the production of natural gas and coal by 2036, oil production is to be stabilized at the level reached in 2018 during the same period by halting the otherwise inevitable decline in oil production in the West Siberian oil fields by opening up further Central and East Siberian deposits becomes. The new technologies required for this, including hydraulic fracking, cannot be imported due to western sanctions and must first be developed in Russia (see the article by Tatjana Mitrova in the bibliography). Despite high investments, the energy and raw materials sector will not trigger economic growth because its export volume is expected to stagnate at around 250 billion US dollars due to falling world market prices. Growth impulses are expected from the expansion of the other economic sectors, whose exports are expected to increase from around 190 billion US dollars (2018) to around 700 billion US dollars by 2036.

The planning does not envisage an energy turnaround: the proportion of power plants operated with natural gas and coal is to remain stable at 64 percent by 2036, the proportion of nuclear energy in the same period - by one percent to 19 percent and the Share of large hydropower plants will drop by one percent to 16 percent. The share of other renewable energies will therefore remain at one percent of electricity generation. Even if it achieves the growth targets of the "Forecast 2036", Russia will still be able to meet its less than ambitious commitment to limit greenhouse gas emissions to 70-75 percent of the 1990 level if two-thirds of its primary energy consumption is based on the use of natural gas, as planned. Nuclear energy and hydropower will be based (https://climateactiontracker.org/countries/russian-federation/; see also the contribution by Alexey Kokorin and Anna Korppoo in the bibliography). A more active climate protection policy fails because of the resistance of the industrial lobby, which does not agree with the weakened version of the law regulating greenhouse gas emissions, which is to be passed by the Duma in 2019 after two years of discussion. That is why Russia had to ratify the Paris Climate Agreement in September 2019 without the consent of Parliament by means of a government ordinance (https://www.telegraph.co.uk/news/2019/09/23/russia-ratifies-paris-climate-accord -targets-critically-insufficient /).

Political Limits to Growth

The current economic program (like its predecessors) is not a forecast that could come true with a high degree of probability, but a catalog of wishes: Russia's economy is to grow at the pace of the world economy for 18 years while maintaining macroeconomic stability (low inflation and unemployment, low budget deficit) Outdo Germany as an economic power. The high investments required for this should be made possible and stimulated by the "national projects" (Table 4, p. 13) by eliminating the country's deficit in infrastructure and living standards. The latter, however, will hardly succeed as long as the business world’s trust in the state structures is extremely weak, for which there are good reasons: Entrepreneurs can hardly defend themselves against state officials blackmailing them for minor or even construed violations of regulations, demanding bribes or making a profit class as fraud because the courts almost always follow the prosecution's view (see the text by Ella Paneyakh and Dina Rosenberg in the bibliography). This "corporate looting" (Russian: reiderstwo) is no longer based on criminals as in the 1990s, but is now organized by regional networks of the "Silowiki" (see the articles by Veronika Horrer, Michael Rochlitz et al. and Ilja Viktorov in the bibliography).

Even Putin's criticism of such practices, which he had repeatedly expressed in his messages to the Federal Assembly, had no effect. At the 28th International Financial Congress in Saint Petersburg on July 4, 2019, Central Bank President Elwira Nabiullina had to state with resignation:

"Improving the investment climate cannot be limited to removing administrative barriers. What is required is the protection of private property, independent courts and, in particular, the resolution of corporate disputes, the best quality of corporate governance and the development of human potential. We have spoken these words for many years Years ago almost unchanged. At first they just seemed right, then a commonplace, then empty words from officials and now sometimes like a cry of despair "(https://www.cbr.ru/press/st/2019-07- 04 /).

The findings of the director of the "Levada Center", Russia's leading public opinion research institute, Lev Gudkov: "The emerging middle class in Russia has recognized that the lack of independent courts is the main obstacle to the modernization of the country" (see the text by Lev Gudkov, p. 292 as well as the contributions by Eberhard Schneider and Alexandra Vasileva as well as by Fabian Burkhardt and Janis Kluge in the bibliography). This obstacle to modernization will remain as long as the Russian political system requires control of the media, the use of the army as a socialization authority and the legal relativism of the judiciary in order to survive (see Gudkov in Bibliography, pp. 288–293). Russia is stuck in the impasse of "authoritarian modernization" (Vladimir Gel’man in the bibliography).

outlook

The political, bureaucratic and economic elites of Russia are interested in maintaining the authoritarian political system with its compliant judiciary because it secures their positions and privileges. An upswing in companies outside the raw materials sector, on which the success of current economic planning depends, is made very difficult. Therefore, the planned economic growth and a noticeable improvement in the living conditions of the broader population are hardly to be expected.


Bibliography:

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The Russia analyzes are jointly published by the Research Center for Eastern Europe at the University of Bremen, the German Society for Eastern European Studies, the German Poland Institute, the Leibniz Institute for Agricultural Development in Transition Economies, the Leibniz Institute for East and Southeast European Research and the Center for Eastern European and International Studies (ZOiS) gGmbH. The bpb publishes them as a licensed edition.