Transcript RISE AND FALL OF FREEDOM IN RUSSIA

DESTRUCTION OF
ECONOMIC AND POLITICAL
FREEDOM IN RUSSIA
A. Illarionov
The Conference Board
Global Advisory Council Meeting,
Copenhagen, June 26, 2006
© Institute of Economic Analysis
www.iea.ru
Russian people’s wisdom:
“If you are not behind bars yet
it is not your merit,
it means the system does not work properly.”
From the documents of the Russian government:
“Our system must work better.”
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The main problem of the most of the 1990s
was macroeconomic instability.
From the late 1990s the problem of
macroeconomic instability has been solved.
The main problem of the 2000s is destruction of
freedom and transformation of Russia
into a non-free country.
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The most popular question among business
people in the 1990s up to mid-2003:
What will be the exchange rate of Ruble
tomorrow?
Day after tomorrow?
In a week?
In a month?
By the end of the year?
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The most popular question among Russian
business people since mid-2003 and especially in
the last two years:
Is it not too late to leave the country?
Should I leave Russia by the end of the year?
In a month?
In a week?
Day after tomorrow?
Tomorrow?
Right now?
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View on Transition from 1991.
Areas of public life
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Starting points in
1991
Targets
Economy
Centralized planned
Free market
Political system
Communist
dictatorship
Liberal democracy
Nature of state
mechanism
Soviet empire
Real federation on the
Russia’s territory
Foreign policy
Aggression and
confrontation
Friendly neighboring
State ideology
Communism,
Social hatred
Social patience and
ethnic tolerance
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View on Transition from 2006.
Areas of
public life
Starting points
in 1991
Interim results
by 2006
Economy
Centralized
planned
Free market
State-monopoly
capitalism
Political
system
Communist
dictatorship
Liberal
democracy
Bureaucratic
dictatorship
Nature of
state
mechanism
Soviet empire
Real federation
on the Russia’s
territory
State as
business
owned by the
Corporation
Foreign policy
Aggression
and
confrontation
Friendly
neighboring
Energy
aggression
Social patience
and ethnic
tolerance
Social and
ethnic
intolerance
State ideology Communism,
Social hatred
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Targets
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Periods in recent (2000-2006) history
of the Russian authorities’ policies:
1. Jan 2000 – June 2001: “Sturm und Drang” Period.
2. July 2001 – June 2003: Period of Indecisiveness.
3. July 2003 – June 2006: “Great Turn” Period:
3.1. July 2003 – Nov 2004: Period of Questions.
3.2. Dec 2004 – Nov 2005: Period of Answers.
3.3. Dec 2005 – July 2006: No Debate Period.
4. Since July 17, 2006 – ?
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Overall diagnosis for current policies
of the Russian authorities’ is
Darvensazimus disease.
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Darvensazimus disease
is a very rare, complex and dangerous illness.
It consists of at least 5 diseases:
-
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“Dutch” Disease.
“Argentinean” Disease.
“Venezuelan” Disease.
“Saudi” Disease.
“Zimbabwean” Disease.
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“Dutch Disease” –
sustaining high rate of inflation and
national currency’s real appreciation
leading to “undesirable” structural changes
and budget profligacy.
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Ruble real exchange rate appreciation is causing
tangible structural changes in industrial output.
Oil output as a share of industrial production closely followed
the Ruble real exchange rate
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“Argentinean Disease” –
use of “industrial policy”
to “correct” “undesirable” structural changes
by redistributing value added from energy sector
into other sectors, primarily into machine building,
military-industrial complex, government apparatus.
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Beginning of industrial policy in Russia, 2002-2004:
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•
Increase in taxation of oil companies
•
Increase in government expenditure, including
government investments
•
Setting up different government-regulated transport
and energy tariffs for different sectors, industries
and companies
•
Further differentiation of import duties
•
Introduction of import quotas
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The fastest growing item was government’s
expenditure on military and police…
National defense and police expenditure as a share of GDP
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… as well as on administration.
National expenditure on administration as a share of GDP
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As a result, the number of bureaucrats
and their share in total employment
have dramatically expanded.
Public administration as a share of total employment
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The rise in government expenditures has also led
to increase in non-market employment…
Employment in non-market sector as % of total
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… therefore reducing employment in market sector.
Employment in market sector as % of total
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New stage of industrial policy –
“development policy” (MERT), 2005-2006:
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•
Differentiation of taxation for different companies.
•
Destruction of Oil Stabilization Fund.
•
Expanding of old and creation of new state financial
“developmental” institutes – Russian Bank of Development,
creation of the Government Investment Fund, creation of
Government Venture Funds.
•
Creation of Special Economic Zones.
•
Granting taxation privileges to different municipalities.
•
Adoption of Programs of Development for different industrial
sectors.
•
Introduction of limitation to foreign ownership in 39 “strategic”
sectors.
•
Adoption of Innovation and Technology Development programs.
•
Preparation of the Program for Government Support of Design.
•
MERT: “Actually, we have many more ideas...”
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“Venezuelan Disease” –
nationalization and quasi-nationalization of private
assets in oil, gas, transportation, construction,
automobile industry, aviation…
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Having launched their assault on Yukos,
the authorities by the end of 2004
have essentially destroyed the most effective,
most transparent and fastest growing company.
Its most valuable and effective part –
Yuganskneftegaz – has been handed over
to the state-owned company Rosneft.
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As a result of the forced transfer to Rosneft,
Yuganskneftegaz, the “pearl” of Russia’s oil industry,
saw its output collapsed after 4 years
of unprecedented growth within Yukos.
Yuganskneftegaz oil output growth as % to previous year
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Financial results of Yuganskneftegaz activity
under state management became
triumph of ineffectiveness and incompetence.
Yuganskneftegaz’ financial results
in Jan-Sep 2005 as % in Jan-Sep 2004.
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In a response to the government’s assault,
private investments in the oil sector in 2004 fell by 20%,
in 2005 again by 4%, and growth in Russia’s oil output
fell from 12% in June 2003 to 0,9% in August 2005.
Oil Production Annual Growth Rates, January 1996 – January 2006
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“Zimbabwean Disease” –
establishing next to total control of executive
power over public and social life
that leads to destruction of virtually all nonstate political and economic institutions
of civilized society –
legislative and judicial powers, political parties,
private businesses, mass media, NGO,
religious organizations, internet.
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Deterioration in Electoral Process Index in Russia.
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Deterioration in Judicial Framework & Independence
Index in Russia.
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Deterioration in Civil Society Index in Russia.
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Deterioration in Independent Media Index in Russia.
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Deterioration in Governance Index in Russia.
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Government propaganda saw return
of the Cold War syndromes.
Today “enemies of people” include liberals,
business people (“oligarchs”), westerners,
potential “orange” forces.
In preparation to the next round
of parliamentary and presidential elections
the authorities are de-facto encouraging activity
of nationalistic groups and simultaneously
creating officious “anti-fascist movement”.
Using “antifascist” demagogy as a pretext
they attack dissenting voices in the society.
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Zimbabwean disease:
Political Freedom in Zimbabwe and Russia, 1991−2005
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By dynamics of Political Freedom Index in 1991−2005
Russia has demonstrated one of the worst performances
in the former USSR
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By changes in Political Freedom Index in 2005
Russia and Ukraine occupy polar positions.
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Saudi Disease –
use of quasi-nationalized energy resources,
energy companies, energy infrastructure,
as a weaponry
in domestic and international relations.
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Backed by unstoppable influx
of financial resources into the country
(that is rewarding irresponsibility
and interventionism)
Russian authorities’ foreign policy becomes
more and more arrogant and aggressive.
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Energy warfare has been recently used against
democracy-oriented Ukraine, Moldova, Georgia.
At the same time Russian authorities
are positioning themselves
as an actual ally of political regimes
in Belarus, Uzbekistan, Iran, Syria, Venezuela,
Myanmar, Algeria, and of such political forces like
Palestinian HAMAS.
Government-controlled media launched antiEuropean, anti-American,
and in general anti-Western hysteria.
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The Russian state is being transformed into
the Corporatist State.
It means:
- ownership of the Russian state by the Corporation,
- use of the Russian state bodies (security service, tax
service, courts, others) in the interests of the
Corporation,
- destruction of rule of law, absence of identical rules,
- main award of the Corporation is paratrooping its
member (Russian or foreigner – doesn’t matter) into the
state-owned company,
- privatization of profits, nationalization of costs,
- PPP (public-private partnership) – coercion of private
business to fulfill orders from the Corporation and bear
the costs,
- selectiveness taken as absolute principle,
- ideology of “nascism” (“our ownism”).
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“We should work like one corporation.”
President of Russia at the State Council Meeting,
December 24, 2006
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The long-term forecast.
What is to expect?
Some historical analogies/warnings.
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Dutch Disease:
GDP per capita in the Netherlands as % of the USA,
1975–1988
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Argentinean Disease:
GDP per capita in Argentina as % of the USA, 1958–2005
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Venezuelan Disease:
GDP per capita in Venezuela as % of the USA, 1957–2005
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Saudi disease: GDP per capita in Saudi Arabia
as % of the USA, 1973–2005 гг.
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Zimbabwean Disease:
GDP per capita in Zimbabwe as % of the USA, 1982–2005
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Annual average rates of lagging behind of “sick”
countries during their “diseases” by GDP per capita,
percentage points of the USA level per annum.
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Darvensazimus.
“It is a Russian Disease”
(Hugo Chavez)
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View on Tasks from 2006.
Areas of public
life
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Starting points in
2006
Targets
Economy
State-monopoly
capitalism
Free market
Political system
Bureaucratic
dictatorship
Liberal democracy
Nature of state
mechanism
State as business
owned by the
Corporation
Real federation on
the Russia’s territory
Foreign policy
Energy aggression
Friendly neighboring
State ideology
Social and ethnic
intolerance
Social patience and
ethnic tolerance
© ИЭА