Andrey Movchan: ''Russia behaves like a classic minnow''

Interview with the director of the programme Economic Policy at the Carnegie Moscow Center. Part I

Andrey Movchan: ''Russia behaves like a classic minnow'' Photo: Svetlana Bekanova (finbuzz.ru)

Andrey Movchan, a financial officer, director of the programme Economic Policy of the Carnegie Moscow Center, tells about illusory nature of the conflict between Russia and the West, a low probability of social disturbance and many other interesting things in the first part of the interview with Realnoe Vremya.

''The discussion about Russia in America is one of peripheral ones''

I want to start with the story about the currency crisis in 2014-2015. Its reason was a collapse in oil prices. But the Russian authorities claimed that the sanctions also contributed. As far as I know, you reject the latter argument, right?

That's right.

And the access of our companies to foreign money — it also did not matter?

Of course, it didn't. Analyze account balances in the CBR in 2014-2016. Russia all this time was cash-rich, there were more money than we used, including currency. Foreign exchange reserves began to slightly decrease in 2014, and that's only because it was a pointless fight against changes in the value of the ruble — and then they again began to grow. If you have extra money, you don't know where to put it, it doesn't matter whether you will be issued a loan or not.

So, Russia had no chance to avoid this crisis?

Russia would have such possibility if its economy long before the crisis had not been built as the economy of a resource country. And in that situation, which was by 2014, it was pointless to talk about this.

''Analyze account balances in the CBR in 2014-2016. Russia all this time was cash-rich, there were more money than we used, including currency. Foreign exchange reserves began to slightly decrease in 2014, and that's only because that was a pointless fight against changes in the value of the ruble — and then they again began to grow.'' Photo: zaba.hr

Once you said such thing: Russia and the United States have nothing to argue about. Because there is almost no mutual trade, no economic interest. Then why so much fuss, not only from our side?

Actually, on their part, it is not so much fuss. America is just much bigger than Russia, and there is more fuss due any reason in general. Actually, the debate about Russia in America is one of peripheral ones. On the other hand, this is a very convenient discussion, given the political moment. In its time on diplomatic and bureaucratic level, the confrontation between America-the Soviet Union was honed to perfection for the benefit of the officials of both parties. Now both in the US and Russia they take old patterns and use in the election campaign, in political struggle for influence. This is not an economic pattern, it is more political, and like any pattern, it leads nowhere, working only to meet the needs and ambitions of bureaucrats.

Besides, one should understand how the modern world is arranged. By and large, it works as a giant joint-stock company. There are majority shareholders such as America, China, the European Union, Japan, and minority ones such as Russia. The latter group has a small package of global GDP and a small influence. But at the same time, some minority shareholders have 'blocking rights' (like Russia with nuclear weapons, oil reserves and the ability to organize a war with a weak opponent) and enjoy the opportunities to spoil the life of majority shareholders. Russia is behaving like a classic minority shareholder, earning points by spoiling the life of others. In business it is called greenmail: you can't influence the situation in the company but can spoil the life of the controlling shareholders, and they make concessions for you so you do not interfere. This tactic is conventionally useful for greenmailer (as a rule, concessions are very limited) but very bad for major shareholders. Naturally, this position of Russia causes irritation of the US and Europe, and this irritation adds to the 'noise'.

There is nothing to argue about with the US, but we must have something with the EU.

It is completely wrong to argue with the EU for us, we depend on each other like conjoined twins. All of Russia's wealth, whatever it is, depends solely on the EU: we sell them strategically important share of hydrocarbons and we buy from them strategically important share of equipment. If tomorrow the EU stops to exist, Russia will plunge into chaos and poverty. Because, on the one hand, we will have nowhere to sell our oil and gas (to whom we will sell?). On the other hand, we will never get proper computers, trains, cars, rails, or metal for thin intrument to any machines and so on. So it is not like we have nothing to argue about — we simply have no right to argue with them. And we're not, actually. As well as they are not. We should just stop paying attention to tabloids on both sides, within the real policy the EU and Russia get along well.

''The problem we are seeing in the regions, that we see with all classes, except 'the elite', is connected not only with the fact that we are a resource state. It is connected with the fact that we are a resource state of a very bad, archaic model.'' Photo: Maskim Platonov

''By quality of economic models we are not even the average European state of the late 18th century''

We still feel some echoes of the year 2014. For example, real incomes in the country have been falling for four years in a row. Logically, there should be some limit. The limit — not from the point of view of standard of living (because we lived even worse), but rather psychological. Do you admit that at some point people will say: ''Stop. We want changes. We don't like how they are ruling the country''?

In reality, it is a very difficult question. First, we need to understand how our economy works. It is the economy of feudal, if you want, resource country. And what's worse, it is an economy with a very poor distribution mechanism. There have been feudal economies where cities flourished, the urban law developed, as well as art, science, crafts. Such countries used to win competition and eventually formed the backbone of the capitalist, developed world. But Russia is a 'bad' feudal country, in which the process of displacement of non-resource business is taking place — it is either monopolized and passed to large feudal lords, in parallel getting primitive and losing competitiveness, or destroyed and replaced by imports.

The problem we are seeing in the regions, that we see with all classes, except 'the elite', is connected not only with the fact that we are a resource state. It is connected with the fact that we are a resource state of a very bad, archaic model. By quality of economic models we are not even the average European state of the late 18th century. And, despite the fact that our resource economy is quite decent (foreign exchange reserves increase, the budget is replenished), because of poverty of alternative economy and its degradation we have very poor people and high inequality. It does not speak in favour of the scenario of long-term stability.

It is on the one hand. On the other — we have a broad enough class of beneficiaries from resources. If you try to calculate how many families, people, clans benefit from the existing distribution system, you get a few million people, including security officials, regional elites, including half a million people who work for feudal lords of the first level in different positions. How has this number of beneficiaries formed in the country where everyone lives in poverty?

It is very simple — it was formed by those who outside the hierarchical structure would have lived even poorer. It brings together those who, sitting in the chair of regional officer or deputy, can without education, talents and efforts to provide his family with a steady income; those who, not wanting to work with his hands and head, get sufficient salary for life, serving in the repressive organs (and in the case if a student hits in the face, he gets another apartment); those who in a normal economy would be unable to become even the head of a department, but due to contacts and the ability to show personal loyalty, they occupy a position of executive officer of a large part or even the whole state-owned companies; those who simply do not want to take responsibility and think about the future, compete and take risks, and those who receive meager, but still regular, payments.

''Look at countries such as Zimbabwe: Mugabe's dictatorship ends that he is replaced by the army. Not the people, who reached the state of total starvation, but the army. This happens because the balance in such systems often turns out to be in favour of power structures.'' Photo: kremlin.ru

But it is still a small percentage.

There will be three to four million direct beneficiaries. Many of them are armed, they completely control the media, the legislative system, the distribution system. This is quite a powerful force that can hold power.

Let's also remember that our state is still very socialist-parasitical, a new generation was born but did not go out of the mentality of the Soviet system. Thirty percent of the workforce work for the state, approximately 8 percent works for it indirectly. And of the remaining 40 to 45 percent work in a gray business. We have almost no class that could stand up for the rights of non-resource business and have legal foundations. People who work for the state are get used to that they are provided, today they are provided more, tomorrow — less. They do not know one way or another how to rebel against the state, one should not expect it from them. And those conditional 12-15 percent who could demand the rights and would not be intimidated by their gray position, who are now being squeezed from the market — well, they are very few. What do 8-9 million disparate people mean opposed to 4 million of the real beneficiaries of the system that control everything and who have the power of law enforcement and judicial system? No, it's not enough for something happened.

As the situation in this field continues to deteriorate, the influence of power structures and the army (and it is huge today: the power structures are, in fact, the authors of the process of squeezing of businesses, and even the Kremlin can't stop them) will proportionately increase. Look at countries such as Zimbabwe: Mugabe's dictatorship ended with that he was replaced by the army. Not the people, who reached the state of total starvation, but the army. This happens because the balance in such systems often turns out to be in favour of power structures.

I don't think Russia can expect some public outrage. I rather assume that, when pie is already very small and especially there are great conflicts within the government system, there can be a hard left turn.

''I don't think Russia can expect some public outrage. I rather assume that, when pie is already very small and especially there are great conflicts within the government system, there can be a hard left turn.'' Photo: Oleg Tikhonov

''The system, built to maintain its own power, started to do its own affairs''

When reading or listening to you, it has the feeling that you have a very sober look at the situation. But at the same time, it creates a feeling of hopelessness. One comes to the conclusion that the country is not run by the government, but oil, we are just globally unlucky with the structure of the economy and it is impossible to fix anything. Does the quality of management plays a role?

Of course, it does. Let's say this — it plays a role when there are points of bifurcation — they happen sometimes. In the nineties we had a bifurcation point. Could we at the moment to build a diversified economy or to lay its foundations? Most likely, we could. Why we didn't? Because we made a total mistake: the emphasis was put on privatization, which has led to the formation of new forms of rental feudalism. There were people who then said that it was wrong to do privatization – we should give it for management, but the state should retain the assets or transfer them, for example, to the pension system. And the freedom of business should consist in enabling people to create new businesses. These people were not heard in such fuss. Why was there a fuss? Because there was a limited group of beneficiaries who wanted to obtain control over the assets. It was a point of bifurcation.

There was also the second point, at the beginning of the 2000s, when the largest businesses started to agree about creating a certain code of business running. From this, for example by the American model, there could have grown a diversified economy and legal state. This process was interrupted by the advent of siloviks, the centralized power and destruction of dissatisfied ones. Could it have gone another way? It could. Was there a possibility of development? There was.

The last one, unlikely point of bifurcation was in 2012. If another person would have become president (even a successor of 'tandem'), it would be a chance to establish rotation in power, and it would likely move us in the direction of development and openness. Now the situation is, unfortunately, too crystalized. I'm afraid, there won't be bifurcation points in the near future — we are moving in the same direction. This is well illustrated by completely uncontrolled processes for the government. What is happening now, as evidenced by the entire business – that tax and law enforcement agencies are just robbing the country, destroying business opportunities, stuffing their pockets, I do not think that it has been conceived by the Kremlin. This situation is disadvantageous to the supreme power, but there is nothing to do with this because it has gone out of control. This system, built to maintain its own power, now is engaged in their own affairs. The shouts and requests are responded with a slight disregard and it continues to do its job. Is there anything to do? I doubt that it is possible without any structural changes.

To be continued

By Artyom Malyutin