All power to the President
Social and economic risks of Vladimir Putin

Abandoning social obligations and shifting them off onto the shoulders of regions the federal government made it clear it is no longer responsible for living standards. Distancing from regulation of economic processes and completely relying on the machinery of market self-organization the power shows it is not responsible for economy either. As a result of these serious and probably fatal mistakes the country might be unable to cope with the social overstrain.

Mean body temperature for a hospital
Formal macroeconomic figures show that the national economy is developing rather successfully. However, for one thing these indicators are nothing but “mean body temperature in all patients of a hospital”. Secondly, there are serious doubts about the validity of inflation appraisal provided by official statistics. Since the central statistics agency started to operate under the Ministry of Economic Development and Trade, there is an open conflict of interests because this very ministry is responsible for economic growth and of course would like to post better indicators. The best way to show a bigger growth is to underestimate inflation. Therefore, while the official statistics tells us about a 10-percent inflation polls show people assess it is approximately twofold higher. Apparently, the truth lies somewhere in the middle. We should interpret the official evaluations of the GDP growth also through this bias. The government forecasts it will be about 7 % by the end of the year. In reality, the posted growth has to be adjusted according to a gap between actual and officially proclaimed inflation rates. And of course it will actually be lower that that reported by the government.
Music in the ears instead of food in the stomach
However, even if we agree with macroeconomic figures undoubtedly Russia’s economic growth bases on the favorable situation with prices in the world market of raw materials. Such a growth has an extremely narrow basis: production is on the rise strictly in sectors with the access to foreign markets or those associated with financial services, natural or other monopolies. Russia has only 15% of its labor force in these sectors.
At the same time the economic growth almost does not involve most of the manufacturing industry, agriculture, or construction. The income of people working in these industries stagnates at a very low level. Thus, for people working outside branches exporting raw materials the economic growth is rather music in the ears than food in the stomach.
It is clear that our today’s economic growth cannot be stable, as it depends on oil prices in the world market but not on our will. Of course, there will be no growth if oil prices fall down.
Why does it grow?
The modern world has acknowledged that economic development depends strictly on scientific and technological progress. In leading economies innovated technologies are behind 90% of the GDP growth. Countries that create and apply these innovations show a stable economic growth gaining on intellectual rather than on natural rent. Unlike the natural rent, the intellectual one is reproductive. It is only natural that the Arab countries are looking today for alternative sources of economy growth other than exports of oil. They understand very well that even their huge petroleum reserves are not limitless.
Russia’s oil reserves per capita are far inferior to those in the exemplary models of raw material economies. Hence, our chances to lose this source of the economy growth are essentially higher. Russia’s economic “miracle” widely advertised by some governmental economists actually exists only in their fevered imagination.
Moreover, global forecasts say that the era of high oil prices is coming to its end soon. Facing the oil price rise, industrialized countries are developing and introducing new energy-saving technologies. A new hi-tech world will demand far less energy and hence oil prices will inevitably fall down.
This situation is fraught with serious risks for our economy oriented on exports of raw materials. If the government fails to work up mechanisms of structural reconstruction of the economy (it is necessary to redistribute returns from the natural rent to investments into science-intensive sectors) our economic growth will end with the downfall of oil prices.
The large-scale social reform initiated by the state leadership boils down to the power’s denial of its social obligations to the people to the maximum possible extent. The power shifted them off onto the shoulders of regions but did not provide adequate sources of financing. Moreover, the federal center managed to redistribute taxes in its favor.
Since the majority of Russia’s regions live on federal donations, additional obligations imposed on them without due financing mean simply that nobody is going to fulfil them. The reform is fraught with a further disintegration of the country. General coffer expenses per capita differ 50-fold between Moscow and the North Caucasus and five-to-seven-fold among other regions on the average. It is clear that the reform will end in a deeper polarization of the regions in budget financing and living standards. Practically the country will not exist any longer as one social entity.
Commercialization of the social sphere
This policy of the center factually undermines the main source of the economic growth that should base on the scientific and technological progress, i.e. on education and science on everything that we call the human factor and the human capital.
Logically enough all the industrialized countries say they are “social states”. It is not a tribute to Socialism. It is a natural aftereffect of international competition. Competition makes every country (looking for a stable development) guarantee education, health protection, and free access to information to its citizens. It makes them establish regimes most favorable to the revealing of creative potentials of every person. If a country fails to provide such guarantees it undermines foundations of its economic growth.
However, the policy of our leadership instead of widening social guarantees is aimed rather at making the whole society live according to the rules of market competition. Practically this makes impossible the development of such promising spheres as universal education, which cannot function on the principle of self-repayment, science, which does not have a motive to boost its profits, and culture. For example, scientific institutions (the government has plans to privatize them) will turn into warehouses if they center strictly on profit maximization.
One more risk
The social reform launched by the government is carried out simultaneously with the political one that boils down to the appointment of governors. Therefore, the federal center assumes all political rights and shrugs off any social responsibility. To put it mildly it is not logical because the center could explain governors’ appointment only saying that thus it assumes all social obligations. In this case it would be a step towards consolidation of the state unity and protection of the citizens’ right for a deserving life. However, our country drifts farther and farther away from the federative system towards a politically unitary state. But from the viewpoint of taxes and budget it is rather turning from the federation into a confederation.
All this construction is rather shaky since the reform arouses discontent of the masses abandoned by the federal center to the mercy of fate. Regional heads appointed by the center bear no responsibility before the masses. Their discontent can easily develop into spontaneous actions of protest. But since they cannot change the government through legal actions (people were simply deprived of their right to elect heads of region and their representatives to the parliament) the power itself inspires people to illegal forms of protest.
Sergey GLAZYEV, Deputy of the State Duma, Corresponding Member of the Russian Academy of Sciences