Teaching Comparative Government and Politics

Thursday, August 05, 2010

The past as future

Aleh Tsyvinski, Professor of Economics at Yale University and Sergei Guriev, Rector of the New Economic School in Moscow offer an analysis of Russian politics and economics that suggest a reprise of the 1970s if oil prices remain at present levels. There's obviously a connection between economics and politics, but does it overwhelm leadership? or globalization? Will 1970's-style stagnation produce another political crisis in Russia?

That 70’s Show in Russia
[I]f oil prices remain at $70-80 per barrel, Russia is likely to relive key features of the Brezhnev era of the 1970’s and 1980’s – with a stagnating economy and 70-80% approval ratings for its political leaders…

Fast and sustainable economic growth requires the rule of law, accountable, meritocratic, and non-corrupt bureaucrats, protection of property rights, contract enforcement, and competitive markets. Such institutions are difficult to build in every society. In Russia, the task is especially problematic, because the ruling elite’s interests run counter to undertaking it.

In post-crisis Russia, the resource curse is reinforced by two factors. First, massive renationalization since 2004 has left state-owned companies once again controlling the commanding heights of the economy. These firms have no interest in developing modern institutions that protect private property and promote the rule of law. Second, Russia’s high degree of economic inequality sustains the majority’s preference for redistribution rather than private entrepreneurship…

A comprehensive and consistent reform plan was already included in then-President Vladimir Putin’s own economic agenda at the beginning of his first term in 2000.

The so-called Gref Program… foresaw many of the reforms that are vitally needed – privatization, deregulation, accession to the World Trade Organization, and reform of the government, natural monopolies, and social security. Many of these reforms are outlined in the current government’s own “Long-Term Strategy for 2020.” The problem is that – as with the Gref program in 2000 – the Strategy is unlikely to be fully implemented, owing to the same old weak incentives…

The factors that drove the Putin era of rapid economic growth – high and rising oil prices, cheap labor, and unused production capacity – are all exhausted. Russia will thus be forced to start spending the reserves that saved the economy in the recent crisis. The “70-80” scenario will preserve the status quo, but eventually the economy will reach a dead end, at which point the only choice will be genuine economic reform or decline and dangerous civil disorder.

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