Artist mutilates self as Putin paralyzes Russia

by Leonid Bershidsky

Bloomberg

On Nov. 10, Russian performance artist Pyotr Pavlensky undressed on Moscow’s Red Square, right in front of Lenin’s tomb, sat down and nailed his scrotum to the pavement.

Reactions to the radical act, which Pavlensky meant to be a “metaphor of the apathy, political indifference and fatalism of modern Russian society,” ranged from disbelief to mockery. A police source told state-owned news agency RIA Novosti that the action constituted normal behavior “for a mentally ill person.”

Pavlensky, however, may have been on to something. The apathy and fatalism he so dramatically depicted is clear in the Russian economic ministry’s long-term economic development forecast. The forecast, which stretches through 2030, is a major strategy document meant to serve as the basis for policy decisions — though in this case the most probable scenario does not require much action at all.

In March, when the previous version of the forecast was adopted, the basic scenario was a moderately optimistic one that had the Russian economy growing at an average of 4 percent a year, noticeably faster than developed countries like the United States and members of the European Union.

The current version is based on a “conservative” scenario, with average growth limited to 2.5 percent annually and a drop in Russia’s share of global output to 3.4 percent in 2030 from 4 percent in 2012. In other words, despite consistently high energy prices — in 2030, the forecast sees oil at $90 to $110 per barrel in 2010 prices — Russia will keep lagging behind other developing nations, especially China and other Asian countries.

While the previous version of the forecast envisioned a net capital inflow of 1.5 percent gross domestic product, the current one says capital flows will be “balanced” — an improvement on the $80 billion capital flight expected this year but not an overly ambitious goal.

Other parts of the forecast look just as dismal. For example, private investment in research and development is not expected to make any contribution to economic growth. Russia will only be able to increase productivity by importing technology, which by 2030 will allow it to reach 66 percent of the U.S.’ productivity level, up from the current 39 percent. There will be more income inequality; incomes and domestic demand will grow about as slowly as the economy as a whole.

“The expected trends in global raw materials markets will not be able to re-emerge as prime drivers of economic growth,” the forecast says. “At the same time, structural constraints to growth have significantly increased. They include undeveloped infrastructure, obsolescent equipment, unfavorable demographics and a growing deficit of qualified personnel. That means in the next 20 years, the Russian economy will not be able to return to the 2000-2008 growth trajectory and even keeping up a lower growth tempo will require significant reforms.”

Such depressing reading gave rise to frustrated and angry comments. “A new strategy for Russia: we have lost the last shred of conscience and we are too lazy even to pretend that we are doing something,” money manager Yulia Bushueva wrote on Facebook. “Don’t bother us, we are busy stealing.”

Sluggish growth may be a prelude to a fiscal catastrophe awaiting Russia in another 20 years. That dire warning comes from a new study by a group of economists working for the Gaidar Institute for Economic Policy and the Presidential Academy of National Economy and Public Administration. Both institutions regularly receive government orders and grants for research. The group, which includes Boston University’s Laurence Kotlikoff, estimated Russia’s fiscal gap — the difference between the present values of the country’s future expenditures and future receipts — at $28 trillion. Eliminating it would mean immediately raising taxes by 29 percent, cutting spending on everything except debt servicing by 22.4 percent, or working out some combination of revenue raises and spending cuts.

The fiscal gap is a reflection of demographic projections that Russia’s population will be somewhat older than the U.S.’ by 2050, with 23 percent over the age of 65, and the assumption that Russia will run out of oil in 55 years given the current proven reserves and extraction rate.

It may seem strange that Russian economists are preoccupied with the seemingly distant future: Who cares about 2030 and 2050, when Europe is barely making plans for the next two years? But projecting Russia’s current stagnation into the middle of the century is not exactly a futile theoretical exercise. It may just be that frustrated economists are trying to do what Pavlensky did in Red Square: draw attention to the tired indifference that seems to define economic policy during President Vladimir Putin’s third term in power.

“Economists in the government are close to panic,” Alexander Polivanov wrote on Lenta.ru. “The forecast is their way of telling politicians that the country needs reforms and it needs them as soon as possible.”

It is hard to say, however, whether the economists themselves believe Putin cares enough to react. A top Russian bureaucrat recently told me in private that “the passion has gone out of government” and that Putin’s line since being re-elected last year is to “be as conservative as possible.” Putin — who more than a decade ago in his first term tirelessly reformed the tax system and seemed eager to have Russia catch up to its European neighbors — is not getting any younger. He is tired, cynical and not inclined to act decisively. The 61-year-old leader may not even be alive in 2030 to witness the results of his current policies.

Leonid Bershidsky, an editor and novelist, is Moscow correspondent for World View.