The end seems near for the Putin model

[CaptMorgan68]

By Anders Åslund
Friday, February 26, 2010

A recent week in Moscow left one clear impression: The Putin model of crony state capitalism is dead.

For years, the structure that Vladimir Putin crafted looked invincible, with its steady, high growth rates and effective, mild repression. But the system only distributed ample oil rents to the elites and the ordinary people, creating neither moral nor economic value.

Today the bill is due. In 2009, Russia's gross domestic product plunged 7.9 percent, even though Moscow had the world's third-largest international currency reserves. Russia performed the worst among the Group of 20 leading global economic powers. And as Russian elites realize that the Putin model has failed, opposition to the government is mounting.

At a business conference in Moscow this month, the suave first deputy prime minister, Igor Shuvalov, faced suggestions that the juggernaut of emerging economies in Brazil, Russia, India and China is being reduced from BRIC to BIC because of Russia's poor performance. Questioned about responses to the global economic downturn, Shuvalov defensively claimed that Russia's actions had been successful. But the numbers do not show this.

Russia's problem is larger than day-to-day constraints. Its public finances are in good shape; its current account is sound. But during Putin's second term as president, from 2004 through 2008, a substantial renationalization of business took place, spearheaded by his confiscation of the Yukos oil company. Much of Russia's economy is now dominated by monopolistic state corporations such as Gazprom, Russian Railways, Russian Technologies, Transneft, Rosneft and a handful of banks. They are run by Putin confidants who are close friends from his days in the KGB.

These big state corporations accounted for much, if not all, of the decline in Russia's GDP last year. They are a black hole of inefficiency. Their leaders do not know how to run a company, which leads to poor financial results, huge state subsidies, miserable services and enormous corruption.

When oil prices were high enough to keep the circus going, elites did not complain. The government's tactics in the Yukos case, including fabricating charges against former company chairman Mikhail Khodorkovsky, had taught them to keep quiet, and besides, they were doing very well financially. Today, however, corruption spurred by state corporations is causing Russia to lag behind other countries.

Putin and his state capitalism are clearly to blame. The state sector expanded during his time in power, according to the European Bank for Reconstruction and Development; it became more corrupt, according to Transparency International; Russia became less competitive, according to the World Economic Forum; the business environment grew worse, according to the World Bank. Russia is so corrupt that it has failed to expand its road network since 2000. Such facts were known in recent years, but only because Russian elites feel the effects are people speaking up.

A cacophony of elite voices are offering critiques, to the point that 2010 already bears some resemblance to 1987, the year Mikhail Gorbachev's glasnost policy of openness came to life. Igor Yurgens's Institute of the Contemporary Development, which is chaired by none other than Russian President Dmitry Medvedev, has taken the lead with a full-fledged call for Western liberalism, advocating the dissolution of the Interior Ministry and the FSB, successor to the KGB. On Feb. 18, Medvedev followed its cue and sacked 17 police generals. In December, the old Kremlin courtier Gleb Pavlovsky even called on Putin to retire, saying the prime minister is obsolete.

Surprisingly, one of the most important forces acting against Putin is Vladislav Surkov, the eternal political deputy chief of the presidential staff. Another shock came when authorities allowed more than 10,000 people -- an enormous rally by Russian standards -- to demonstrate in the western city of Kaliningrad on Jan. 30, even though the protest was directed against Putin and the regional governor. Surkov's subordinate overseeing domestic politics in northwestern Russia was instantly sacked, a rare event in Putin's Russia. The buzz on the Moscow grapevine is that Putin accused Surkov of having allowed the protest to take place.

Russians are becoming less afraid than in recent years and are even ashamed of their prior cowardice. Those jumping on the bandwagon include the respected finance minister, Alexei Kudrin, who publicly criticized Putin's United Russia party, and Sergei Mironov, the Putin loyalist who chairs the Russian Federation Council.

Although Medvedev is widely deprecated domestically and abroad, it can be a gift to be underestimated. The president has criticized state corporations, law enforcement and corruption in public, providing openings for others to fill in, and he offers an alternative platform of power.

Put another way, Russia is finally experiencing a thaw in the middle of winter.

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/25/AR2010022504848.html?hpid=opinionsbox1

[sepheronx]

I love how these people say "plunge in GDP". GDP more like the concept of a general view of every finance in the country, but if you actually look, most companies in Russia had a profit (not nearly that of a couple years ago, but profit plunge), so I stick by what I say in thinking that this "GDP plunge" is more or less talk, and no real evidence. Kinda like our banking system, there are numbers, but no physical cash. Yet the Russian government is still sitting on piles of reserve funds and other funds, that was non existent since 2004.

Also, wasn't that protest more or less in regards to plants closing down, or something to do with economics, less then a rally against Putin? I sense a form of ignorance in this Washington post article.

Yes, there are problems, and yes, the reliance on crude resources is non beneficial in a long term aspect, but regardless what we do, natural resources is going to rise again and they will gain even more money. If they follow suit to what they say (regarding tech development), then Russia will just gain another trait (that it had for a long time, but not optimized for civil use), to add to the general growth of their economy. Example is the defense companies. And they seem to be doing very well.

[KoTeMoRe]

The Putin model of crony state capitalism is dead.

Ding Dong: Saudi Arabia called, wazzuuup!

On a side note, so Putin's model is dead, but Medvedev that 's folliwoing Putin's initial low profile path, is fresh?
Oh my, I'm so amazed by this whole lunacy about big capitalism being free from political grasp (and vice versa), you folks really do belive this, ja?

[CaptMorgan68]

wonder if that story about Surkov selling out Putin has any merit to it...

[artjomh]

Questioned about responses to the global economic downturn, Shuvalov defensively claimed that Russia's actions had been successful. But the numbers do not show this.

Cool story, bro.

However...


Russian Growth Forecast Raised to 6.2% at Citigroup

By Maria Levitov

Feb. 24 (Bloomberg) -- Citigroup Inc. raised its forecast for the pace of Russian economic growth to 6.2 percent this year as consumer spending accelerates.

Russia’s economy may expand faster than the previous forecast of 3 percent, supported by an increase in incomes, Elina Ribakova and Natalia Novikova, analysts at Citigroup in Moscow, wrote in a report e-mailed today. Real wages are set to increase by about 6 percent, they said.

“We believe the economy will already have turned to growth in the first quarter, supported by a pick-up in household consumption,” the report said.

Russian retail sales rose for the first time in a year in January as slowing inflation and higher wages boosted spending. Sales grew an annual 0.3 percent and real wages advanced an annual 2.6 percent in the same month, according to the Federal Statistics Service. Inflation slowed to an annual 8 percent.

The central bank lowered the benchmark interest rate for the 11th time since April on Feb. 19 after earlier cuts proved insufficient to spur lending growth. Domestic demand remains “unstable” and below pre-crisis levels even as the economy has recently posted improvements in industrial output and real disposable incomes, Bank Rossii said on Feb. 19.

“Loose fiscal and monetary policies will, in our view, stoke domestic demand and inflation, forcing the central bank to allow ruble appreciation” in the second half, Citigroup said. The ruble is likely to strengthen to about 34 against the euro- dollar basket, according to the report.

The economy of the world’s biggest energy exporter contracted a record 7.9 percent last year. The statistics office has yet to publish fourth quarter data, though some economists have estimated the decline eased in the final three months.

Gross domestic product shrank an annual 2.2 percent last quarter, ING Bank NV said on Feb. 2. That compares with an 8.9 percent decline in the third quarter and a record 10.9 percent slump in the second. http://www.businessweek.com/news/2010-02-24/russian-growth-forecast-raised-to-6-2-at-citigroup-update1-.html

[Stonewall71]

wonder if that story about Surkov selling out Putin has any merit to it...


I had never heard of this guy, he even has a page on MySpace:
http://www.myspace.com/vladislavsurkov

[sepheronx]

^^^

See, goes to show that foreign papers are looking for cheap articles. Something quick and dirty, will always sell.

[CaptMorgan68]

^^^

See, goes to show that foreign papers are looking for cheap articles. Something quick and dirty, will always sell.

Aslund is famous for being 'a bit' anti-Russian)))).. this article is pretty objective by his standards

[sepheronx]

Aslund is famous for being 'a bit' anti-Russian)))).. this article is pretty objective by his standards

I stopped reading most western papers when it comes to Russian anything. Here in Canada it is the same thing. I had many conversations with people regarding Russia and politics in "what they heard" from our papers. It went as far as saying that people in Russia eat other humans. It is really sad how stupid our society is in the west when it regards to the east.

[CaptMorgan68]

Cool story, bro.

However...

http://www.businessweek.com/news/2010-02-24/russian-growth-forecast-raised-to-6-2-at-citigroup-update1-.html

CTC Media (the one that partially owns the Comedy Club brand) just reported a 347% full year profit growth.. so things are definitely picking up

[Kit]

Putin's economy is not shrinking. It's growing in another direction.

[Tank34]

The government's tactics in the Yukos case, including fabricating charges against former company chairman Mikhail Khodorkovsky
Stupid statement. Who need to fabricate charges if almost all top oligarhs become rich illegaly. Almost all of them criminals and it is pity that most of them would never meet justice. But it is pure BS that Khodorkovsky was innocent. He is a criminal. And it is good that he is in prison.

[Ataman]

The 'Putin model' is dead? Oh noes, again?! :lol:
Thanks for telling us. It's incredible how some people over the world know Russia much better than Russians themselves. They must be omniscient... oh wait.

[Jippo]

I have some money on Russian market. Made 230% profit. Their economy must be suffering....

[Mr.K]

Negro por favor.
Replace Putin by Bush and Russia by United States, the article will be just as "true"
I'm surprised that this article isn't from "The Economist"

[Redox]

I stopped reading most western papers when it comes to Russian anything. Here in Canada it is the same thing. I had many conversations with people regarding Russia and politics in "what they heard" from our papers. It went as far as saying that people in Russia eat other humans. It is really sad how stupid our society is in the west when it regards to the east.
Dont tell me you take this internet Russia stong BS serious and try to preach it in every day life. :D

[themacedonian]

The above article is speculation and hearsay I can be a better journalist.

Of topic but How about this from a better paper in the capitol:

http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/

With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.

[lbprnstars99]

as someone who belives in free market and private ownership i do feel that the nationalizion of the companies by putin was the wrong move, but i believe hes done ENOUGH right things to lead russia at a time of critical situation.. i feel that when russia gets away from oil and divesifies as much as possible and privatises teh companies in the long run the better off it will be..

but the notion that russia is doing bad economicaly is just crazy, in a few years maybe a decade they will have a biggest economy in all of europe..

[Nizark]

Ding Dong: Saudi Arabia called, wazzuuup!

On a side note, so Putin's model is dead, but Medvedev that 's folliwoing Putin's initial low profile path, is fresh?
Oh my, I'm so amazed by this whole lunacy about big capitalism being free from political grasp (and vice versa), you folks really do belive this, ja?

SA is hardly 'state' since the whole damn state is related

[sepheronx]

Dont tell me you take this internet Russia stong BS serious and try to preach it in every day life. :D

Not unless someone spews out bull****, then I counter it.

What, you are one of those believers that they eat children too? Wouldn't surprise me.

[KoTeMoRe]

Nizark: Your point confirms my view, thank you.

[themacedonian]

politics and business are connected. Don't tell that Toyota has ONLY a brake problem. It has a political brake problem in the US now.

[Akril]

So called "Putin model" never supposed to be permanent or keystone first of all. It's rather "hotfix" for Gorby-Yeltsin mess needed in some time cell and undergoing through changes by the very same "Putin team" since circa 2007. Do not understand thous ideologically driven jerks in WP, it's like no one told them that the economy is a tool for getting a target, not the target itself.

BTW, what is all this fuss about 7,2% drop? We'd made 7% in 2008, so the -7,2% is only one year loss, unlike in some countries when 5-4% drop is the whole decade.

[Switek]

Putin model couldn't work. This is what I've claimed for many years. It wasn't criticism over Russia itself but wrongly defined way of achieveing planned goals. Those goals I'd name as a 'planned (controlled) capitalistic economy'.

[my name again]

Putin model couldn't work. This is what I've claimed for many years. It wasn't criticism over Russia itself but wrongly defined way of achieveing planned goals. Those goals I'd name as a 'planned (controlled) capitalistic economy'.


Please explain to me why this "Putin"model couldnt work and what better solution you would suggest.

[Switek]

This is a system in which, regardless of who is in power, to develops private enterprise esp small and middle business protected by firm system of laws and law enforcement even is some parties are continuing their activity against the government but in line of the letter of the law and equal access to national media.. It's a system where people like Bierezovsky and simple ones can count on hones trials...

In this perspective political and economical rights are identical.

[Jurinko]

Interesting that all Russians posting here are not at home, but stuck somewhere at decadent West.

[KoTeMoRe]

Nope they're not. Economical "rights" do not exist. You got economical leverage. These men passed thourgh political gambles to get all their money. Big business is linked with politics (of the past) and these links need (ed) to be severed. Unfortunatley this is a pipe dream. Economy is linked to politics and no "Putin's Model" could change that.
People like Berezovsky do not go on trial for these matters they either "solve the problem", either whine to the Big Chief.

If this is your concern, then open your eyes. This system is at work all over the place. It's a post communist disease and it will take time to become a non issue.

[Switek]

Rights does not mean equality but possibilities... I do not believe that all have the same chances but there's a chance for everyone, anyway.

[Russianlynxy]

Interesting that all Russians posting here are not at home, but stuck somewhere at decadent West.

Im not. I don't really understand what the fuss is all about. The Russia economy is gradually rising again, the stock market has been off the walls for the last couple of months. Regular folks didn't even "feel" the recession, I feel like. Yes, some stuff got more expensive here and there but it wasn't too bad at all.

There is no such concept as the "Putin model" economy. Russia today is making money with what it can. It is heading in the right direction in terms of re-establishing it's technological institutions, education, and industry. If all goes smoothly in the country for at least the next decade, Russia will become a wealthier and much more advanced nation, with basis to establish a widely diversified economy.

[Flamming_Python]

Putin model couldn't work. This is what I've claimed for many years. It wasn't criticism over Russia itself but wrongly defined way of achieveing planned goals. Those goals I'd name as a 'planned (controlled) capitalistic economy'.

It was never planned to continue onwards with the development of 'mega-corporations' and such. The consolidation and formation of such holdings were the first stage of the plan; but once they reach stagnation they would be broken up - as what happened to UES which was broken up into dozens of smaller private companies.

Medvedev is now beggining to implement what Putin had long been saying was neccessery, but himself had not delved too deeply into.

[intelligenzija]

Interesting that all Russians posting here are not at home, but stuck somewhere at decadent West.

what is so interesting about it? Most russians probably wouldn't post on an American board..

[Snoshi]

what is so interesting about it? Most russians probably wouldn't post on an American board..

Because its ussualy expats who are most "gun-ho" when it comes to defending Russia.

[Russianlynxy]

Because its ussualy expats who are most "gun-ho" when it comes to defending Russia.

Well using that logic you could deff say the same about the Chinese and Jews living outside of Israel.

[Eye]

what is so interesting about it? Most russians probably wouldn't post on an American board..
Maybe it's true, but most of other mp.net members live in countries of theirs origin or emigrated few generations ago.

[Snoshi]

Well using that logic you could deff say the same about the Chinese and Jews living outside of Israel.

Not necessarily true.. But you are pretty much right. This is the case with most expats.

[vi]

I can't believe my fellow Russians are seriously discussing an article about Russia by Washington Post with this crowd

Give it up guys, let these monkey believe what they want. I say its better if they underestimate their opponent

[Switek]

I can't believe my fellow Russians are seriously discussing an article about Russia by Washington Post with this crowd

Give it up guys, let these monkey believe what they want. I say its better if they underestimate their opponent


Monkeys you say? I think they somehow fit here:

http://img43.imageshack.us/img43/8397/monkeysi.jpg

;)

[vi]

All humans are monkeys, but I always knew that you are different

[my name again]

Not necessarily true.. But you are pretty much right. This is the case with most expats.

Because Jews and Chinese are better humans than Russians right?

As for the article , there is no such thing as a Putin model, because he is not the single supreme leader of Russia.

[Akril]

Interesting that all Russians posting here are not at home, but stuck somewhere at decadent West.

Are u sure about this?

[Red Templar]

What problemma with Putin?
I feel good (financially) - I'll vote for him.
logical?
Is not that right?

[CaptMorgan68]

it was never planned to continue onwards with the development of 'mega-corporations' and such. The consolidation and formation of such holdings were the first stage of the plan; but once they reach stagnation they would be broken up - as what happened to ues which was broken up into dozens of smaller private companies.


qft.........

but then in the case of companies like OAK the new aviation giant consolidation of assets made sense since their competition is mostly global and their western counterparts often enjoy acombo of govt subsidies, contracts , tax breaks etc anyways... in a globalized economy certain monopolies do make sense.. there's a general consensus on that even among those who are strict Keynesians... just listen to Bloomberg 'on the economy' podcasts from time to time....

in any case the State Owned Enterprises model utilized with so much success by China is not at all different... the Chinese had it much easier when it comes to technology transfer than Russia.. if Russia enjoyed the same level of foreign direct investment and know-how transfer China had in the 80's it would have been a much different story economically.. much in Russia's favour....

[Bifrost]

The article is childish along with the comments. If the guys in washington payed more attention to actually visitng the country and talking to people - they would have a **** load of firsthand knowlege on the matter. Not to mention that putting Khodorkovsky in an article on Russia is a shoot in your own foot thing and gives one zero credit.
Lets put it simple, for those BTDT guys who acknowlege the ammount of corruption in Afghanistan just think the same of Russia, just bigger, as much as Russia is bigger then Afghanistan. Yet one thing is the same - a police general rank goes for the same one million US. If the article or the comments have been closer on the matter there would have been smth to discuss.
Situation is not good and its not just about the someones "model".