Paul Craig Roberts and Michael Hudson — Russia’s Weakness Is Its Economic Policy

According to various reports, the Russian government is reconsidering the neoliberal policy that has served Russia so badly since the collapse of the Soviet Union. If Russia had adopted an intelligent economic policy, Russia’s economy would be far ahead of where it stands today. It would have avoided most of the capital flight to the West by relying on self-finance.…

Paul Craig Roberts Blog
Russia’s Weakness Is Its Economic Policy — Paul Craig Roberts and Michael Hudson

F. William Engdahl — Putin: Nyet to Neo-liberals, Da to National Development

Must-read for anyone interested in Russia and the Russian economy.

With very little fanfare, Russian press a few days ago carried a note that could have a most profound positive significance for the future of the Russian domestic economy. The online Russian blog, Katheon, carried the following short notice: “Russian President Vladimir Putin instructed (the Stolypin economist group–w.e.) to finalize the report of the Stolypin Club and on its basis to prepare a new program of economic development, alternative to Kudrin’s economic plan. The program itself should be given to the Bureau of Economic Council in the IV quarter of 2016.”

In their comment, Katheon notes the major significance of the decision to drop the clearly destructive neo-liberal or free market approach of former Finance Minister Alexei Kudrin: “The Stolypin club report advises to increase the investment, pumping up the economy with money from the state budget and by the issue of the Bank of Russia. In turn, the concept of the Center for Strategic Research (Alexei Kudrin) suggested that investments should be private and the state is to ensure macroeconomic stability, low inflation, reduced budget deficit.”…

Breath a sigh of relief. Putin was not bringing back Kudrin as some thought, but just giving him a say as a matter of "fair and balanced" and good politics.

There are three major economic groups in Russia, the neoliberals led by former finance minister Alexei Kudrin, the monetarists led by central bank chief Elvira Nabiullina, and the Stolypin Club, in which Sergei Glazyev (also transliterated Glaziev) plays a leading role. 

After a competition, Putin chose to go with the Stolypin group, which in Western terms is Keynesian but not New Keynesian. These economists would likely be open to Post Keynesianism and MMT if they are not already familiar with it.

This is an extremely positive sign for the Russian economy, although it will be severely criticized in the West. The Kudrin neoliberals and Nabiullina monetarists have been strangling investment and growth Russia, and severely disadvantaging workers-consumers, by relying on the confidence fairy.

Putin needs to get a tight grip on the oligarchs, too, at least to the degree that their interests conflict with Russia's present situation. They are a major source of corruption. Putin has already pruned back the worst, but that is not saying much. Culling is still needed.

Putin should be looking to China rather than the West. Europe is a basket case, the UK is reeling, and the mighty US is plagued with a slow recovery and rising inequality that is translating into social unrest and political divisiveness. On the other hand, China has been managing a difficult transition fairly seamlessly and is on track to eradicate poverty as part of this five-year plan.

NEO
Putin: Nyet to Neo-liberals, Da to National Development

F. William Engdahl

F. William Engdahl — Russia’s Achilles Heel – Reflections from St. Petersburg

The first thing that is important to understand is that in Russia's governmental structure there are essentially two governments. The prime minister, currency Dimitry Medvedev, is responsible for domestic policy including economic policy, and the president, now Vladimir Putin, is responsible for foreign and military policy. The Central Bank of Russia is politically independent and responsible for monetary policy.

Secondly, it is important to grab that domestic affairs under Prime Minister Medvedev is deeply beholden to the ideology and economics of Western economic liberalism, introduced at the time the USSR collapsed. This cohort adheres to the the Western paradigm.

 Russia's Achilles heel is the economic liberalism inherited from the Yeltsin years and Harvard boyz by the proteges of Yegor Gaidar, the former Acting Prime Minister that introduced shock therapy. Current prime minister Dimitry Medvedev and central bank chief Elvira Nabiullina are economic liberals who follow the Washington Consensus that is based on neoliberalism as economic liberalization, deregulation, and privatization, along with low taxes and perks for "job creators." The prescription for economic policy is "expansionary fiscal austerity" in order to increase business confidence. The business of the central bank is solely to keep inflation low and the exchange rate stable.

What I experienced in my discussions at the conference–this year with record attendance of more than 12,000 business people and others from around the world–was a sense that there coexist two Russian governments, each the polar opposite of the other. Every key economic and finance post is firmly occupied at present by monetarist free-market liberal economists who might be called “Gaidar’s Kindergarten.” Yegor Gaidar was the architect, along with Harvard’s Jeffrey Sachs, a Soros-backed economist, of the radical “shock therapy” that was responsible for the economic hardships that plagued the country in the 1990s resulting in mass poverty and hyperinflation.
Today’s Gaidar Kindergarten includes former Finance Minister Alexei Kudrin, another Euromoney favorite in 2010 as international Finance Minister of the Year. It includes Economics Minister, Alexey Ulyukaev. It also includes Medvedev’s Deputy Prime Minister, Arkady Dvorkovic.

Dvorkovic, a graduate of Duke University in North Carolina, is a protégé, directly serving during his earlier years under Yegor Gaidar. In 2010 under then Russian President Medvedev, Dvorkovic proposed a lunatic scheme to make Moscow into a world financial center by bringing in Goldman Sachs and the major Wall Street banks to set it all up. We might call it inviting the fox into the hen house. Dvorkovic’s economic credo is “Less state!” He was the chief lobbyist in Russia’s WTO accession campaign, and tried to ram through rapid privatization of the assets that remain state-owned.

This is the core group around Prime Minister Dmitry Medvedev today who are strangling any genuine Russian economic recovery. They follow the western playbook written in Washington by the International Monetary Fund and the US Treasury. Whether they do this at this stage out of honest conviction that that is best for their nation or out of a deep psychological hatred for their country, I’m not in a position to say. The effects of their policies, as I learned in my many discussions this month in St Petersburg are devastating. In effect, they are self-imposing economic sanctions on Russia far worse than any from the USA or EU. If Putin’s United Russia party loses the elections on 18 September, it will be due not to his foreign policy initiatives for which he still enjoys 80+% popularity polls. It will be because Russia has not cleaned the Augean Stables of the Gaidar Kindergarten.

From various discussions I learned to my shock that the official policy of Medvedev’s economic team and of the Central Bank today is to follow the standard IMF “Washington Consensus” budget austerity policies.…

I had the honor of appearing on a major panel together with several members and founders of this group. It included a co-founder of the Stolypin Club, Boris Titov, a Russian businessman and open ideological foe of Kudrin, who is chairman of the All-Russian “Business Russia” organization. He insists on the need to increase domestic production of goods, stimulate demand, attracting investment, tax cuts and the cuts to the refinancing rate of the Central Bank. Titov is a central figure today in Russia’s recent China initiatives. He served as chairman of the Russian part of the Russian-Chinese Business Council, and member of the Presidium of the National Council on Corporate Governance.

My panel also included Stolypin Club leading members Sergei Glazyev, Adviser to the President of the Russian Federation, and Andrey Klepach, Deputy Chairman of the VEB Bank for Development. Klepach, a co-founder of the Stolypin Club, was formerly Deputy Economics Minister of Russia, and director of the macroeconomic forecasting department of the Ministry of Economic Development and Trade. My impression was that these are serious, dedicated people who understand that the heart of true national economic policy is human capital and human well-being not inflation or other econometric data.…

What was clear from my St Petersburg talks this time is that events are approaching a decisive “do or die” turn in which either economic policy is formally put into the hands of competent national economy circles such as those of Boris Titov, Andrey Klepach and Sergey Glazyev, or she will succumb to the insidious poison of Washington Consensus and liberal free market nonsense. After my recent private talks I am optimistic regarding prospects for a positive change.

NEO

Russia’s Achilles Heel – Reflections from St. Petersburg

F. William Engdahl