Grigory Yavlinsky web-site, 09.10.2016

A boy asks his Father

“Dad, what’s the difference between a disaster and a misfortune?”

His father answers, “Let me put it this way: if a little goat were to fall off a bridge into a river and drowns, that would be a misfortune, but not a disaster.

However, if a plane with the Party and Government delegation were to crash, that would be a disaster, but not a misfortune.”

(Anecdote from Soviet era)

According to Elvira Nabiullina, Chairperson of the Central Bank [of Russia], low oil prices are no longer a problem for our economy, and decline in economic growth should not scare us either. Head of the Central Bank assures us that the economy has adapted to the new reality and the country no longer faces an economic disaster. How should we take such a statement?

For Russian officials a disaster means if it is a prison, or if they are fired, or if the head of the state is suddenly changed. After all, they depend on the President who designated them to the post, rather than the people. And all is well while there is no hunger, trains run, and Moscow had money to spend on entertainment… People, certainly, sometimes complain of some difficulties: rising prices, falling incomes, that they have sometimes pay bribes, that laws are not respected and courts judge unfairly… But the government leads two hot wars and one cold war and discuss whether they should restore military bases in Vietnam and Cuba so that people would think less [about the problems in the country]. Creation of myths of the people is an expensive thing. However, it is easier to conceal snowballing problems behind such myths.

Meanwhile, people deprived of any hope for the future are leaving the country. According to the poll conducted by the Levada Centre, 23 per cent of Russians think about emigration, for young people with higher education this percentage is even higher, amounting to 29 per cent. So in fact the country can be left without a future. But the present officials do not care – “after us the deluge”. Therefore, Prime Minister advises to teachers who are trying to feed their families to go into business. But people working in business are deprived of these businesses by the Moscow Mayor. And the authorities are resolving the tasks of self-preservation, these are more important problems for them than problems of the people.

How an economic disaster may look like in the 21st century? From the point of view of professional economists, rather than Russian officials. The discussion of this issue resulted in these notes.

BEING LATE FOR THE FUTURE

The Russian economy has really adapted both to low oil prices and limited access to external sources of financing. There is no panic in the market yet. There are no abrupt sharp price hikes, no wave of bankruptcies, no mass-scale production closures. Certainly, the general conditions have deteriorated (in particular, this applies to the volume and dynamics of demand), but not to such an extent so that to leave everything and run… Many people put up with the fact that there would be no return to 2000s, and if they decide to live and work in this country, they have to adapt to what it is here at present. And the majority of those who are in a relatively good situation today, are ready to show flexibility, including reduction of their demands.

However, the government’s statements that “the economy has adapted” do not encourage creating an efficient economy. Many people find that building a career in an inefficient system is a more viable alternative than trying to transform the system. And this destroys the future. Therefore, if we talk about the essential things, what the Russian economy is missing today, than we should say that these are first of all opportunities and potential.

We have not experienced economic growth for a long time, and it is even no longer included in the assessments of a medium or even long term perspective. This means that many of the fundamental mechanisms of the investment process ceased to function. And now it is not known when these mechanisms will be restarted – the world experience shows that it may take decades. But for the great number of businessmen, those whose motive is development rather than immediate profit especially here in Russia, – the loss of perspective and “drive” caused by long-term stagnation mean loosing [developments] rates and the vector. Indeed, not only oil and gas are the main resources and wealth of the country, but capable and motivated people. Their disappointment in politics and “voting with their feet” represent a serious blow on the country’s development and economy.

The world has changed a lot in the recent years. And if now, our business community, represented by at least a few Russian companies will not be able to enter the global economy on the level of world leaders, we will be a the back seat of the future economic hierarchy. And we will have to pay a high price for the loss of the key irreplaceable resource – the time.

Is it good that the economy has adapted to the new realities? Hardly. The economy has stopped been an indicator and a limitation of the political and social stagnation. Now we can not see the line beyond which there is irreversible cunctation to the future.

FROM CRISIS TO COLLAPSE

In the meantime, transport still functions in the country, there are telecommunications, hospitals function, shops are open and there is nothing reminiscent of the approaching catastrophe, which Mrs. Nabiullina might have been talking about. The economy has been somewhat functioning at the present level of the load, supporting the life of the society and even leaving some (albeit small) surplus for geopolitical games. But there is no guarantee that the temptation of the government to increase this burden on the economy will not take the upper hand. The defense budget has been already inflated to unprecedented sizes, and sanctions and counter-sanctions are literally strangling the economy: from late 2014 to 2017, Russia lost USD 280 billion in capital inflows, including USD 85 billion in direct investment (E. Gurvich, I. Prilepsky “The impact of financial sanctions on the Russian economy”. Voprosy Economiky), unpredictability reached such a level that a possibility of a war with the United States has been seriously discussed.

Saving on oil so that to be able to afford more guns, trying to realize the unrealizable geopolitical fantasies and balancing on the brink of adventure, reminiscent of the Cuban missile crisis is possible only to a certain limit. Those on top can miss the moment when the system will be shifting from the crisis to a collapse.

The disaster, according to the definition is a “turning point, deciding the fate, a fatal and disastrous point”. In this sense, President Putin’s anti-European political course, rejection of modernisation of the state and the country and world isolation of Russia (see “Conscientious Choice?“), the policies of endless state lies in order to preserve themselves in power and creation of a façade of legitimacy have become a disaster for Russia and its economy. Movement along “the path which does not exist” represents a real disaster.

Source: http://www.yavlinsky.ru/news/ekonomika/catastrophe