The following economic and social paradox has attracted the attention of analysts for at least two decades.
The Soviet-style economy with its presumably full employment is dead. State-owned heavy industry is partly ruined and partly privatized in a peculiar crony manner. The consumer-oriented industries did not reach the necessary normal development scale, and stores around the country had been and still are full of imported goods ranging from cheeses and “J.W. Bush’s chicken legs” to garments, footwear and mobile phones.
The whole economy and export operations have taken on an even more resource-oriented character than ever. Annual capital flight from the country is running at $100 billion to $150 billion. Investment activities, both private and budget-financed, are at an extremely low level. There were sharp financial and economic crises in 1998 and 2008, and another that started in the latter half of 2014 is happening right now.
And yet for decades there seemed to be no clear-cut unemployment problem registered by the statistical organs and, until lately, there had been only a few worrisome projections concerning the immediate future of this vital sphere.
The prevailing explanations for this paradox can be reduced to one idea: The reform process in Russia has not gone far and deep enough. Because of this, until recently there has been no serious discrepancy between demand for the human factor and the characteristics of the country’s actual manpower potential.
Then, quite suddenly from the point of view of the general public, a loud alarm was sounded by a row of economic and social analysts. The reasoning goes as follows. Russia has entered a new crisis with unresolved demographic problems. The “tragically scanty” generation of the 1990s is unable to service the “real sector” of the economy and secure an import-substitution effect, while the influx of migrants has shrunk by 70 percent.
Thus Russia has entered the first stage of an unprecedented demographic catastrophe, Tatyana Maleva, the director of the Institute for Social Analysis and Forecasting, said in a speech she delivered at the public Gaidar Forum in January. Unfortunately official statistics are blurring the real picture, she maintained,
The main problem facing Russia’s labor market in the immediate future is not the high level of unemployment per se, but in the aforementioned unwelcome combination of an aggravating unemployment situation in some sectors of the economy and a growing cadre deficit in some others.
Not a few industrial firms have already been forced to switch to a three- to four-day workweek. The jobless rate, among both female and male workers, will probably grow most in the modern service sector — in finance, the mass media, retail trade and transport. At the same time, foreign migrants are being discouraged by the devaluation of the ruble and by the strengthening of the regimen they face, to name but two strong factors.
According to Maleva, whose Institute for Social Analysis and Forecasting is an authoritative research institute, Russia’s labor market has entered a very complicated phase in its development — that of “a deep, prolonged chronic fall in the size of the economically active population.” Happening on a scale thus far unknown to the world, this eventual demographic catastrophe is developing independently of the sudden new economic crisis, of the fall in oil prices and of the ruble’s rapidly diminishing rate of exchange.
A sharp drop in living standards is another aspect of the current crisis that doesn’t find a proper reflection in official statistics. Perhaps the most acute problem for the population is connected not with food prices but with the skyrocketing costs of medical services, starting with a sharp rise in retail prices for major pharmaceuticals. The speakers at the Gaidar Forum noted that pensioners have been the first victims of this regrettable trend.
The poverty rate, currently estimated at 12 percent of the overall population will probably rise to 23 percent by the end of this year, while within some social groups it may reach 30 percent. “All of the work over the last 20 years to cut poverty among pensioners will go to wrack and ruin,” Maleva warned.
According to specialists, 2015 will see bigger risks concerning eventual arrears in sales and wages than did 2009. A big share of the money that Russians could have lived on this year was already spent last December in an unprecedented rush on the consumer market in the form of mass spending on household appliances and electronics.
The ruble seemed to be in free fall, and people tried to somehow safeguard their savings. They have been misled and persuaded “that all will be fine” with the economy in general, Maleva believes. Had people realized just how bad the start of the new year might actually be, they would have acted differently.
Meanwhile the still young and hungry state-oligarchic capitalism is retarding normal business conditions at the grass-roots level of the economy.
For mighty financial groups it is of little consequence if the key banking rate stands at 10 percent (as it had been until mid-December), at 17 percent (as between mid-December and the end of January) or at 14 percent (its current level). Yet, for “outsiders,” e.g., “independent” small and medium-size businesses, such levels practically mean no opportunity to get credit at all, to say nothing of getting loans with normal, bearable conditions.
The tragicomic thing about the sharp rise of the key bank rate in mid-December is its official pretext: the alleged necessity of safeguarding against inflation. “What inflation?” many experts would like to ask.
Economic growth stopped abruptly almost a year ago, and if prices had been skyrocketing it was because of international sanctions, illogically self-imposed import sanctions and some other factors undermining the balance between supply and consumer demand.
For now, the central Bank of Russia has pronounced three factors as crucial for the key interest rate level: exchange-rate stability, inflation targeting and propping up the economy. Just show me how to give backing to the nonmonopolized and thus nonprivileged lower sectors of the economy with the current key interest rate of 14 percent!
Finally, one more interesting issue. The highest economic regulation body headed by Prime Minister Dmitry Medvedev hints nebulously at the necessity “to raise the sovereignty of the economy” as well as the need of more “manual steering” (or “manual control”) by state organs. In normal language, this means more import-substitution efforts (especially, in view of unpleasant international sanctions) and stricter adherence to the “autarkian” principles on the one side and a bigger role for direct presidential decisions and centralized policymaking on the other.
It is not a North Korean style approach in the spirit of Juche thought yet, but the “comrades” are certainly “moving in the right direction.”
Andrey Borodaevskiy, an expert on world economy and international economic relations, was a professor at Seinan Gakuin University, Fukuoka, from 1994 to 2007.