It is impossible to create a normal economy when just 12 percent of the working-age population contributes taxes and value added in enterprises that are not tied to the state or the oil and gas industry, one of Moscow’s most respected moneymen, former head of investment firms Troika Dialog and Renaissance Capital Andrei Movchan tells Postimees in an interview.
Vladimir Putin gave his famous Wunderwaffe speech, the so-called federal address on March 1 as his primary pre-election appearance. Everyone is talking about what Putin said concerning his new missiles, even though the lion’s share of his speech was dedicated to grand economic and social promises. How realistic are these promises, considering the state of the Russian economy?
It [the speech] was not about the economy. In Russia, we call it a conversation for the benefit of the poor (empty words). He has been promising the same things for 14 years. Some have been fulfilled, others haven’t.
The oil went up – some promises were fulfilled. The oil went down – nothing came of it [fulfilling promises]. Better living standard, availability of housing, more high-paying jobs, growth of GDP – the gap between reality and promises is manyfold. Putin promised the same things again. Should people believe those promises? No.
Do you believe he promised them just to have something to talk about?
Yes, you can write that. Look at the reality: we are in stagnation (Russia’s GDP grew for the first time since 2014 last year, even though growth fell short of expectations – 1.5 percent – J. P.), and we depend on oil even more than we did before (oil and gas revenue made up 40 percent of the federal budget last year, compared to less than 30 percent in 2015; the weight of oil and gas export in GDP has also grown – J. P.), technological backwardness and dependence on the West is growing, our isolations from the West is growing; we have fewer opportunities for cooperation because of our hostility toward the West.
Our role in the global economy is shrinking as we are stagnant, but the world keeps growing. (Looking at real GDP, Russia’s made up 3 percent of the global economy in 2013 and only 1.8 percent last year – J. P.).
We have far more public servants per capita than we did in Soviet times, despite computerization.
I specifically looked into it recently: 28 percent of the working-age population gets their income from the state budget, another 10 percent get it from state corporations and companies, and another 15 percent are subcontractors of those corporations and firms and oil companies.
That is to say 53 percent of the workforce gets their income from the state and from oil and gas. Taxes come from 65 percent of the working-age population, meaning that taxpayers not connected to the state or the oil and gas industry only contribute 12 percent of all taxes!
That’s nothing. That is the state Putin has built. We had nothing of the sort when he first came to power. We lived more modestly, but things were healthier in terms of the economy. It is impossible to create a normal economy based on the structure we have today.
Putin has promised economic growth that is faster than the global average, 120 million square meters of new apartment space, a global logistics center, world-class research and educational centers to which young people will flock from all over the world – things no one believes. And yet he keeps making promises, and everyone who is anyone keep nodding their heads. What’s the trick?
There is no trick. They are mere words used by bureaucracy to further its goals. They’ll go to Putin and praise him for talking so beautifully about a global logistics center. However, it requires money: gives us some, and we’ll make it happen.
The money is allocated, most of it gets stolen; and after a while, they will come back to the president to report that this little shack is the global logistics center. It’s done, the money has been spent.
It is curious that Putin’s lofty economic promises did not spark any kind of debate in society as to what it is he promised and how realistic it is.
Everyone perfectly understands that it has nothing to do with the real world. Had he promised us wretchedness, cold, and dark, people would have paid just as little attention. As that would also be totally unrealistic.
These are people who said they feel sorry for those who bought the dollar for 35 rubles (that happened in the fall of 2014; the exchange rate has been over 54 rubles since December of that same year – J. P.), who said that oil shale oil is a myth invented to scare Russia, who kept talking about doubling the GDP in 2012-2018 etc.
People who understand nothing about the economy. Putin doesn’t care about the economy. He only knows that macroeconomic policy needs to be rigid, and that is what he requires. Elvira Nabiullina (head of the Russian central bank – ed.) is an educated specialist and keeps a close eye on the situation. The rest simply doesn’t interest Putin; he measures everything with his personal rating and lack of social protests.
The Russian economy will keep ticking, without high or low tides?
Most likely. We will begin to feel our backwardness more and more. There will be more technological problems. The corrupt vertical devours everything.
That should inevitably result in social upheaval?
I don’t know, maybe. In any case, it is still miles away. The price of oil is holding more or less. Perhaps when GDP per capita falls by at least 30 percent.
Would it change anything were Alexei Kudrin to become prime minister?
Change what? [Current prime minister] Dmitri Medvedev has always positioned and conducted himself as a proponent of market economy, but you cannot change the system.
Putin is a hostage of his own situation. He cannot do anything to deviate from his tactical plan of maintaining power at any cost by striking a balance between the interests of major lobby groups. Those interests are clashing very strongly. They have already left us with precious few options on the international arena.
Their well is gradually running dry, and they cannot reach an agreement as people really hate each other in circles close to Putin. Putin needs to pay more attention to their interests than what is needed to run the country.
To what extent have the West’s sanctions impacted the struggle of these groups surrounding Putin?
I believe it has been their common miscalculation. They did not count on the West stepping up to them at their own game. They saw the West as potential victims. As weaklings who cannot make a single decision with all their democracy and law-abiding nature and must always go through courts and parliaments.
We do not have to do that which leaves us with free hands. We can screw with them as much as we want, and they’ll eventually have to start buying their way out of our villainy.
But it turned out the West is not all that perfect after all, that it also has its bad boys. That diplomats can be expelled without evidence and sanctions laid down without permission from international courts etc.
Now we can no longer imagine how to come to an agreement [with the West] as we have shaped our society to always interpret any and all compromise as surrender.