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IPFS News Link • Russia

Is Neoliberlism Killing Russia?

• https://www.paulcraigroberts.org

southfront.org reports that according to polls by VCIOM, a state pollster, the Russian public's confidence in Putin, prime minister Dmitry Medvedev and the Russian cabinet has dramatically declined over the past year.  https://southfront.org/internal-political-crisis-russia/

The decline is related to domestic, not foreign, policy.  Apparently, the public perceives recent Kremlin economic policy as a continuation of the disastrous policies that Washington imposed on Russia in the 1990s when Russia was loaded up with foreign debt while state assets were privatized and plundered by oligarchs sponsored by the West who "cashed out" by selling the assets to foreigners.

Russia's stock market became the darling of the West in the mid-1990s as underpriced mining, oil and infrastructure were sold for a fraction of their value to foreigners, thus transferring Russian income streams abroad instead of leaving the income to be invested in Russia. In effect, Russians were told that the way for their country to get rich was to let kleptocrats, oligarchs, and their U.S. and British stock brokers make hundreds of billions of dollars by privatizing Russia's public domain.

Washington took advantage of the gullible and trusting Yeltsin government to do as much political and economic damage as possible to Russia. The country was torn apart.  Historic parts of Russia such as Ukraine were split off into separate countries.  Washington even insisted that Crimera, long a part of Russia and the country's warm water port, was retained by Ukraine when the Soviet Union was dismembered.

The approval rating of Putin and the Medvedev government dropped sharply in response to the recent increases in the retirement age and value added tax. The former raised concerns about pension security and reminded Russians of the collapse of Soviet pensions.  The latter reduced consumer disposable income and lowered consumer demand and the economic growth rate.  These policies represent austerity imposed on the domestic population instead of on foreign creditors and reflect the neoliberal view that austerity leads to prosperity.  The US sanctions give Russians every reason not to repay their foreign loans; yet Russians continue to enable their own exploitation by foreigners, as neoliberal economists have told them that there is no alternative.

Russia is experiencing capital outflows due to the Russian private sector's repayment of loans to Western creditors. Russia has experienced over $25 billion a year of capital outflows since the early 1990s, accumulating to over a trillion dollars. This money could have been invested in Russia itself to raise the productivity and living standards of its citizens. The outflow puts the ruble under pressure, and the interest payments draw money out of the country away from Russian uses.  If it were not for these outflows, the value of the ruble and Russian wages would be higher.

Russia's economic problems are due to the looting of the country during the Yeltsin years, to the imposition of neoliberal economics by the Americans, and to financialization as a result of the privatizations.

People's savings (called the "overhang") were wiped out with hyperinflation. Privatization was not accompanied by new investment. The economy was not industrialized, but financialized. The proceeds from privatization were deposited by the Russian government in private banks where the money was used to privatize more Russian assets. The banking system thus served to finance the transfer of ownership, not to fund new investment, and the proceeds were transferred abroad. Russia was turned into a financial colony in which proconsuls created wealth at the top.

Today privatization continues in the de facto privatization of public assets, such as charging fees for use of federal highways.  As the Russian economic profession has been brainwashed by the Americans, the country is devoid of economic leadership.

We have pointed out on more than one occasion that it is nonsensical for Russia to indebt itself by borrowing abroad in order to finance investments. The Russians were sold a bill of goods that the central bank cannot issue rubles unless the rubles are backed by dollars.  This advice served to prevent Russia from using its own central bank to fund public infrastructure and private investment projects by issuing rubles.  In other words, Russia might as well not have a central bank.

Apparently, Russian economists do not understand that Russia does not spend borrowed foreign currencies inside Russia.  If Russia takes a foreign loan, the borrowed money goes into central bank reserves. The central bank then issues the ruble equivalent to be spent on the project, and the cost of the project goes up by the pointless interest paid to the foreign lender.

As far as we can tell, the Institute of Economics of the Russian Academy of Sciences is so brainwashed by neoliberal economics that their minds are closed to correct policies.  The failure of Russian economic leadership imposes far more costs on the Russian economy than do Washington's sanctions.

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