Russian economy: in a worse state than it seems?

Dmitry Travin introduces a new week-long series on openDemocracy Russia


Dmitry Travin
7 January 2013

The series of five articles we are offering to readers of open Democracy Russia deals with the Russian economy and its problems.  
Two of the articles are overviews: Dmitry Travin analyses the reasons for the fall in GDP growth rates and Vladimir Gryaznyevich offers a look at the life of an ordinary person in a big Russian city, using St Petersburg as the example. 

Three articles consider individual important issues.  Pavel Usanov reflects on the investment climate in Russia today.  In one of his pieces, Andrey Zaostrovtsev explains how senior officials who wield considerable influence in the business sphere have a very negative effect on the investment climate.  In his second article, he uses pension reform, which has stalled, to show why Putin is unable to effect any serious transformations.

The aim of the series is to highlight some points which may not be evident.  Anyone trying to assess the state of affairs in Russia by using just the main statistical data and impressions gained in the centre of such big cities as Moscow or St Petersburg can very easily arrive at a distorted picture of reality. This observer will discover that the life of an everyday Russian is not very different from that of the inhabitants of most European countries.  Muscovites and Petersburgers dress well, drive good cars, go to cafes and restaurants and buy roughly the same goods as people in the West.  And, moreover, the Russian economy growth rates are even slightly higher than on average in EU countries. Today’s Russian government likes talking about this, though not about what lurks behind the outer shell.

It is precisely what is behind the exterior that we wish to illuminate in our series. The reasons for doing this are twofold.
Firstly, today’s wealth is in many ways predicated on the considerable revenue Russia receives from its oil and gas exports. The reader should understand that, should the energy market conditions deteriorate, the prosperity could very quickly evaporate. What you see in Russia today is not completely compatible with life in countries with economies less dependent on market conditions.

'Anyone trying to assess the state of affairs in Russia by using just the main statistical data and impressions gained in the centre of such big cities as Moscow or St Petersburg can very easily arrive at a distorted picture of reality.'

Specialist observers have already had to endure the shock of seeing the economy of the great Soviet Union collapse in literally a few years (end 80s-early 90s) and the ensuing plummeting living standards. Something similar could happen again, although not on the same scale, of course.

Secondly, the income spread in Russia is very large. People who can afford expensive cars and restaurants are a very small part of society.  On the outskirts of the big cities, in environmentally-challenged industrial zones and in small towns where there’s no work, everything looks very different.   Only with much higher GDP growth rates will Russians to be able to live approximately similar lives to EU citizens. These rates are an impossibility without serious changes to the economy so as to attract capital, build up high-tech enterprises and create well-paid jobs. This is the only way of improving the lives of the majority of the population.

Even if oil and gas prices hold up and there is no catastrophe in the Russian economy, the second of the problems I listed above will certainly affect the situation. Countries wishing to catch up with those in the vanguard of development, have to make sure that growth rates are considerably higher than they are in today’s Russia. This is what some European countries did in the 50s and 60s, as did Japan at the same time. Over the past 30 years China has taken that path, and India over the past 20 years. Although Russia (with China, India and Brazil) is a member of the BRIC grouping, its development has been very different.  Russia today is more like Asian countries who concentrate on oil exports.  Average living standards are actually higher than in China, India and Brazil, but all the wealth derives from natural resources, so establishing a stable democratic society with a developed market economy in Russia today would be difficult, despite the external similarities between life in Moscow and St Petersburg and the big cities of the West.

But this does not mean that Russia can expect the same revolutionary processes that are happening today in Arab countries. In that way Russia is not like Asia. Although Putin does little for the dynamic development of his country, he is fairly firmly ensconced in his presidential chair.  The current political regime will only collapse if there is a dramatic fall in living standards. 

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