Publication: Russia and Eurasia Review Volume: 1 Issue: 1

By Aleksandr Buzgalin

At the time of writing, almost a month has passed since Russian President Vladimir Putin delivered his annual address to the Federal Assembly of the Russian Federation [that is, both houses of parliament, the State Duma and the Federation Council] on April 18. It prompted, immediately, a multitude of highly contradictory assessments. Politicians from the government camp were profuse in their compliments. Analysts who support the government’s policy expressed measured optimism. Independent analysts displayed cautious skepticism. The opposition objected to everything–as indeed they are supposed to. But even then the public debate on the address was conspicuous by its absence. Each commentator explained his point of view and left it at that. The principal issues in the government’s policy were duly noted, and nothing more.

A month later the address has been quite simply forgotten. No one mentions it. You might expect the whole of our political life to revolve around the contents of this document, which reveals the intentions of the authorities. There should be clashes of opinion and a seething political struggle. There is only silence.

There is of course a struggle going on–when is there ever not?–but it is independent of what the president had to say on April 18.

Does this mean that Vladimir Putin’s standpoint has no influence on political life? It would be foolish to think so. This particular address was apparently not intended as a political manifesto. Not the kind that shapes the specific political steps the administration intends to take. It served instead to present the president’s policy in a favorable light to the public. It is no accident that Putin was at his most specific when touching on personal matters, but considerably vaguer on major or significant or critical problems, and that he completely avoided discussion of any strategy for Russia’s development.

Yet it seems to me that the address is worth remembering. However vague many of his theses might have been, however much there was that he avoided mentioning, an analysis of the address reveals a considerable amount behind the proposals on which he was more or less specific. Indeed, even his silence on certain problems is eloquent.

Admittedly, the sharp corners he chose to avoid included several fundamental issues. At the very beginning of his address, Putin declared that the main aim of his policies was to raise the standard of living. He observed with pride that in 2001 economic growth continued, real incomes rose by 6 percent, and the number of unemployed fell by 700,000. But he “forgot” that unemployment has steadily risen since July of that year, not fallen. Since the beginning of 2002 it has risen again–by 200,000. Analysts predict that it will continue to rise. As for personal incomes, after three years of economic growth they have still not returned to where they were prior to the August 1998 financial crisis. And in 2001 they were less than 83 percent of the 1997 pre-crisis level (not to mention the 1990 level, which experts predict will not be reached again before 2015).

Putin did not deny the obvious, however. He admitted that we have still not overcome the effects of the ten-year crisis or solved the poverty problem. The question remains, however, whether the standard of living really is or should be a government policy priority. To answer this question, we must recognize that the three-year period of economic growth, which has been supported by a substantial increase in investment in fixed capital, was not primarily a result of the factors cited by most politicians and analysts. The devaluation of the ruble after August 1998 gave Russian producers a chance to establish themselves on the domestic market, from which imported goods were disappearing, but it could not create additional sources of investment. And the rise in world oil prices only began several months (spring 1999) after the country’s economic growth (November 1998).

Where did the sources of investment to support economic growth come from? From the sharp increase in profitability of businesses. Why did this rise so sharply? Very simply because in 1998 real incomes in Russia fell by 10 percent, and in 1999 they fell a further 22 percent. In February 1999 real incomes stood at only 56.4 percent of the June 1998 level. The combined loss of income in 1998-1999 can be estimated at over 300 billion roubles (at 1997 rates). This figure, with interest, covers the whole of the investment growth seen in 1999-2001. It transpires that Russia’s economic growth has been financed entirely by working people. And this “domestic debt” for the three years of economic growth has not been repaid.

The second problem is the rate of economic growth. Putin expressed his dissatisfaction with the government’s forecast of between 3.5 percent and 4.6 percent over the next few years (as if the government could create the growth). Government officials had simply given an honest assessment of the most favorable scenario for economic development, consistent with the existing course of economic policy.

Putin then spoke sensibly about the conduct of an active policy aimed at tapping Russia’s economic potential, and about the government’s duty to establish strategic objectives. Unfortunately, the rest of his speech showed that these were mere words. The whole of the government’s active policy boiled down to little more than a theory on the need to limit state interference in the economy. However, on some issues–the reform of the natural monopolies, support for science–Putin conceded that the state should still play some role, in particular by approving the budgets of the state-owned nationwide monopoly structures. Thank goodness! In the tenth year of reform the government has finally remembered that it ought to do something about managing its own property. As for strategic objectives, Putin had nothing more to say.

And yet the problems that have caused him unease during government sessions of late (the foremost being the threat of a further slowing of economic growth) have their roots in precisely this lack of strategy. It cannot be replaced even by wholly rational (and equally banal, having been mooted several times already by both Putin and his officials) proposals on reform of the state apparatus and the judicial system, or on the need to improve the handling of the housing and utilities sector (after the mass protests in Voronezh), or the need to support small business, and so on. And that is not to mention the fact that there is a considerable distance to travel from Putin’s general formulation of the problem to adopting concrete resolutions that will actually allow the problems to be solved. Even success in these undertakings cannot compensate for Putin’s confusion in the face of strategic threats in the social and economic spheres.

The greatest of such threats is the serious technological backwardness of Russia’s production base, which is compounded by extremely outdated equipment. It is from this that most of the other social and economic problems stem. Putin clearly does not know how to solve the problem of the large-scale technological modernization of the Russian economy without damaging the interests of the social and political forces that put him in power. This is why he says nothing.

Aleksandr Buzgalin is a doctor of economics and a professor at Moscow State University. He is a leader of Russia’s Democratic Socialist Movement.