Time to shove off

The Economist

The Soviet Union was undermined by stagnation and a sense of hopelessness. Is the same thing happening again?

IN 2000 a group of young Russians, just back from their studies in America, started the website WelcomeHome. Ru. “Life in Russia is becoming more normal. It is possible to live here, make a career and bring up children. Many of those who had left have come home. We are among them,” the site read. It was a typical reaction by young Russian professionals to the growth, opportunities and promise of stability from Vladimir Putin, the new president. Soon, after years of capital flight, money started to flow back into Russia.

Twelve years later, as Mr Putin appears to be preparing to retake his presidential office for another 12 years, the mood is starkly different. WelcomeHome.ru is dead. Instead, a new popular blog has sprung up on a Russian social network. It is called “Pora valit”, which means roughly “Time to shove off”. Its few thousand users exchange stories about how best to leave Russia. The blog’s title sums up perfectly the mood among Russia’s urban and educated class.

Emigration is the talk of the town. Dmitri Bykov, a popular and prolific author, dedicated a recent weekly feuilleton to the flight of money and people and the travelling ban imposed briefly on two opposition politicians, Boris Nemtsov and Vladimir Milov. The Soviet government punished dissidents by expelling them, Mr Bykov quipped. “Now they punish them by keeping them in.”

A recent opinion poll by the Levada Centre shows that 22% of Russia’s adult population would like to leave the country for good. This is a more than threefold increase from four years ago, when only 7% were considering it. It is the highest figure since the collapse of the Soviet Union, when only 18% said they wanted to get out. Those who are eager to leave are not the poor and desperate. On the contrary, most are entrepreneurs and students.

The Levada Centre recently conducted a survey of people aged 25-39 living in large cities and earning five-to-ten times the average income in Russia. Almost a third would like to emigrate permanently. They are not dissidents or romantics. Half say they have no interest in politics, a third are Kremlin supporters, most work in the private sector and have done well over the past decade. “These are not just people who would like to leave Russia, but people who have the means to do so,” says Lev Gudkov, the head of the Levada Centre.

These figures do not necessarily indicate a brain drain. Mr Gudkov, who has been measuring Russia’s emigration over the past 20 years, says the number of people who will actually leave is probably small. Among the young and well-off, only 6% have filed for a visa, are negotiating a contract or have applied to study abroad. (Though, given Russia’s unfavourable economic and social trends, it can ill afford to lose even a small number of its best educated young people.) What these figures really show is a startling level of frustration with the state of the country. “This is a cardiogram of Russian society,” says Mr Gudkov. If so, things are going badly.

The suitcase syndrome

In some ways, the urge to leave now may seem odd. Mr Gudkov says that what he calls the “suitcase mood” usually spikes either in anticipation of a crisis or just after one. After the financial crisis in 1998, for example, his emigration indicator went up to 21%. Devaluation and default had wiped out savings and Boris Yeltsin had fired his government, raising fears of an unstable succession. But now the succession is in no doubt. Mr Putin will remain in power for the foreseeable future. And even if, by chance, Dimitry Medvedev, the present president, is allowed to stay on in his post, the current regime will continue in some form or another.

The economy also shows no sign of immediate distress. After the 2008 financial crisis, which hit Russia harder than most countries, output bounced back and is now growing at between 4% and 5% a year: not as fast as in the mid-2000s, but certainly no worse than in many other emerging markets, including Brazil. The oil price is 1.5 times higher than it was in 2007, the peak of general optimism; inflation is heading down; employment is up and consumption is robust. Evgeny Gavrilenkov, chief economist at Troika, a Russian investment bank, calls it “a good muddling through”.

Yet, despite this, people and firms are taking money out of Russia. Last year the net outflow was $34 billion (see chart). Some of the capital flight, Mr Gavrilenkov says, can be attributed to the unexpected windfall from higher energy prices: unable to invest everything at short notice domestically, energy firms are parking it abroad. But a lot of capital is leaving the country in small sums and can only be attributed to individual transfers. Soaring sales of mid-price properties to Russian buyers in Europe confirm the trend.

So while the sense of acute crisis has gone, it has been replaced by a feeling of stagnation. Mr Gavrilenkov, one of Russia’s more optimistic analysts, argues that the economy is in a better state than people think—for the moment. “Things can go on like this for another two years. Maybe three. But then…”

Misusing oil

Russia’s most immediate vulnerability is its growing dependence on energy. During Mr Putin’s rule the share of oil and gas in Russia’s export revenues has gone up from half to two-thirds. This increase is almost entirely due to higher prices rather than growing production. The budget depends on them. Five years ago Russia needed $50-a-barrel oil in order to balance its budget. Next year the price will have to be $120 to meet its spending obligations. The current price is $113 a barrel. As Russia gets closer to elections, its budget expenditure (which is already growing by more than 10% a year) is bound to increase.

The fact that Russia has a lot of oil to export is not a problem in itself; as Clifford Gaddy of the Brookings Institution has argued, it ensures a competitive advantage. The problem is the country’s addiction to it, and its misuse of oil revenue. Instead of investing in human capital—such as better schools and hospitals—and modernising the oil and gas industry, Russia has used the money to perpetuate the inefficient structure of the Soviet economy in exchange for political support. Instead of encouraging people to look for newer opportunities, Russia ties them down with handouts to dinosaur enterprises and one-company towns.

A good example is the case of Avtovaz, maker of the Lada car. After the 2008 crisis, Mr Putin should probably have let the ailing company go bust. It simply could not compete with the new models being produced elsewhere, especially in Japan. Instead, Mr Putin gave Avtovaz more than $1 billion and shielded the company from foreign competition. Since Avtovaz employs 70,000 people directly, and millions of parts-suppliers and car-dealers rely on it, the prime minister’s investment is expected to pay off on election day. Asked who should be Russia’s next president, Igor Komarov, the plant’s boss, replied: “If you weigh up who has helped us in our hardest time, the answer is obvious: Mr Putin.”

Mr Putin’s rule, however, is far from being as beneficent as it seems. Throughout most of his vaunted “period of stability”, disposable income and retail-trade volumes have grown twice as fast as GDP. In the 2000s soaring consumption translated into economic growth, but this was largely achieved by using up the spare capacity of Soviet assets and underinvesting in new industries and infrastructure. A study commissioned by the World Bank in 2007—a year before the crisis—revealed that only 5% of firms were created or destroyed in the decade of high growth. In a healthy market economy the rate is much higher, sometimes approaching 20%.

As a result, Russia now lacks capacity for strong economic growth. The continued increase in consumption, backed by a high oil price, has led to an astonishing increase in imports (up 40% a year), but it no longer stimulates the domestic economy. Such stimulus can come only from a boost in productivity and investment.

Fresh investment, both foreign and domestic, is deterred by Russia’s poor business climate, which shows little sign of changing. When Walmart tried to buy a retail chain there—a three-year flirtation that eventually ended last year—it was apparently fobbed off by bureaucrats who, according to a source familiar with the negotiations, “did not want another whiner like Ikea, which had exposed corruption.”

Not for a sack of gold

That corruption crushes the prospects of active and talented people. The rent-seeking behaviour of Russia’s rulers, who control the money and the levers of repression, stifles competition. Many of the elite have backgrounds in the security services; their instinct is to raid, grab and control, rather than create and compete. The occasional firing of high-ranking officials such as the former mayor of Moscow, Yuri Luzhkov, leads not to a change in the system but to the simple redistribution of cash flow.

Investing in innovation and raising productivity makes little sense when your well-connected competitor can hire the tax police and prosecution service to force you out of business. As Dmitry Kamenshchik, owner of Moscow’s Domodedovo airport (now being eyed by state-backed competitors), says wryly: “Like anyone else I don’t know whether I will be sent to prison or not. We are all citizens of the Russian Federation and live under the Russian criminal code.”

Mr Medvedev has a grand plan to create a Silicon Valley in Skolkovo, a special zone outside Moscow, and is bringing in Cisco, an internet-services giant, as a flagship firm. But this will do nothing to free up competition or make Russia an attractive place to do business. When two Russian physicists who live and work in Britain won a Nobel prize last year they were asked to come and work in Skolkovo. “You must have all gone mad over there if you think that for a sack of gold you can invite anyone,” Andre Geim replied. The fact that Russian scientists want to work abroad is not a problem in itself; large numbers of Chinese scientists do the same. The problem is that so few want to return. According to the World Bank, 77% of Russian science and engineering students studying in America will never come back.

In the past, Russian entrepreneurs were prepared to put up with bad institutions and corruption because of high returns. Now that the rewards are smaller and the appetites and impudence of bureaucrats greater, large Russian firms are reducing the domestic sector of their business to a minimum, while smaller ones are looking to sell up. A recent survey by Campden Media and UBS, a bank, of 19 Russian businessmen with a personal wealth of more than $50m and a turnover of $100m showed that 88% had moved their personal wealth abroad and were prepared to sell their companies. Few planned to pass their businesses on to their offspring, which is hardly surprising, since most children of the rich and powerful are now ensconced in the West. Parents send their children abroad not to learn to run their businesses more efficiently, but so they never have to come back.

A future amputated

All this is breeding a sense of stagnation that compounds the glum mood of the middle class. It is not fear of impoverishment or unemployment that makes people think of emigrating, as in many other countries, nor the threat of instability or revolution, which have forced out Russians in the past. People want to leave because they feel there is nothing more for them in Russia. The sense of a future has been amputated. According to the Levada Centre, three-quarters of Russians do not plan more than two years ahead; only 3% plan more than ten years ahead. The degradation of infrastructure, institutions and, most important, human capital, creates a desire to tune out of it all.

Those who want to go abroad often have higher material standards of living than their peers in the West. They are looking for things they cannot buy: recognition of achievements, protection of property rights, physical safety, a functioning health service, a proper education for their children. They want to live a life which does not involve paying bribes, or losing one’s business for political reasons, or being jailed at the whim of a corrupt bureaucrat.

The story of Sergei Magnitsky looms large in the minds of professionals. Mr Magnitsky, a successful corporate lawyer, blew the whistle on a big corruption scheme run by a group of police investigators, only to be put in jail and hounded to death by the same policemen. The government failed to investigate the accusations, and is still covering up the circumstances of Mr Magnitsky’s death.

The feeling that nothing will change, improve or open up is exacerbated by the likelihood of Mr Putin’s return as president. His restoration will be largely symbolic, since he never let power shift out of his hands. But it does, nevertheless, symbolise a reversal, rather than a forward movement.

And the roots of unhappiness go much deeper. After the collapse of the Soviet empire, the country was left without a clear sense of purpose or destiny. After seven decades of trying to set up Utopia, Russia’s only aim in the 1990s was to become a normal, civilised state. But two wars in Chechnya and the destruction of Yukos, Russia’s most successful oil company, in 2003 put an end to that hope.

Mr Putin has stirred and exploited the country’s nostalgia for its Soviet past. But the narrative of resurgence and restoration was combined with contempt for ordinary Russians who, in the view of the Kremlin’s rulers, were not ready for democracy. The double-digit growth of incomes masked problems for a while, but when growth slowed down stability turned into immoveability.

In some ways, says Vladimir Mau, Russia’s leading economic historian, Russia’s situation is similar to that of the Soviet Union in the 1970s and early 1980s, the “era of stagnation (zastoi)”, after a thaw in the 1960s. Then, too, the oil price was high and consumption rising, but the country was consumed by a sense of hopelessness. Life was reasonably comfortable for the well-educated, but social mobility was blocked by party apparatchiks. The gap between expectations and reality was unbridgeable. When the oil price fell, food shortages and fury at the privileges of the elite became catalysts for change.

Russia’s economy is more flexible than the Soviet one was, but frustration with the unfairness of the system is no less strong. Shortages of goods have been replaced by lack of property rights; the humiliation of queueing for meat has been replaced by the humiliation of being milked by bureaucrats. Most important, the gap between rhetoric and reality is just as wide. The question is whether Russia’s middle class, whose demands and expectations exceed the capacity of the system, can play the same role as the relatively affluent Soviet intelligentsia who helped to sweep away the Soviet Union.

In the 1980s the intelligentsia believed that removing senile Communist apparatchiks would be enough to put the country on a path towards normality. Millions of young technocrats who faced spending the rest of their lives behind the Iron Curtain, unable to fulfil their ambitions, did not expect the Communist system to collapse; but when Mikhail Gorbachev started his reforms, they were a powerful force behind them.

Today, Russian society as a whole is much more cynical and distrustful than it was in Soviet times. Aggression, hatred and nationalism have risen to levels not seen even after the Soviet collapse in the 1990s: 34% of Russians “want to shoot” those they blame for their troubles. As for the middle class, it is much less cohesive and idealistic. It is also less desperate. “They would rather exchange their country than change it,” says Mr Mau.

The Kremlin undoubtedly likes things that way. It has learned from the mistakes of the Soviet Union, which raised levels of education and science to compete with America, but in the end created pressure from within the system that it could not contain. This is one reason why Mr Putin is so keen for Russia to have a visa-free travel arrangement with the rest of Europe. The other is that it would give the Russian elite unhindered access to their European properties.

Yet it is important to remember that Russians are not going to emigrate in their millions. The overwhelming majority will stay at home, discontented. The big question is what will they do? Will their frustration be transformed into protest and an attempt to change things? Or will it simply be dissolved in the general conformism and cynicism which has been nurtured to such harmful effect over the past decade?

The stagnation in the dying days of the Soviet Union was both more restrictive and more productive. Russia’s current stagnation is comfortable for most people, but also less promising. It may take a new generation to make fiercer demands on the system and force change. But what kind of change that will be, nobody knows. онлайн займ займы на карту без отказа https://zp-pdl.com/fast-and-easy-payday-loans-online.php https://zp-pdl.com payday loan

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