MY VIEWS ON “LIBERAL” ECONOMIC MODEL IN RUSSIA ( AND INDIA)

On the 1st of December Russian President Vladimir Putin delivered the Annual Presidential Address to the Federal Assembly” ( to the both Chambers of the Russian Parliament). The Address” is interpreted by different politically minded people in a different way. The majority thinks that the Address was, as usual, a sort of a report that everything is relatively good in Russian economy. Indeed the President told the high audience about a number of positive changes in Russian economy. For instance, the President said that unlike in the USSR modern Russia instead of buying grain abroad has exported grain at the sum of 16.5 billion US Dollars whereas the export of Russian armaments brought a little more than 14 billion US Dollars.

The president avoided mentioning the fact that Russia exported grain but imported meat with more added value, which belongs to a foreign producer of meat. But that kind of omissions are common in speeches of all politicians of the world. Besides Russia is already 100% self sufficient in poultry meat and is near to be self sufficient in pork meat. Muslims constitute about 20% of the population of Russia and for 80% of Russian citizens pork is not a food forbidden by the religion. So the situation with meat supply is really much better in comparison with early 90-s when the only available meat was so called “ Legs of Bush” – chicken legs supplied to Russia from the USA on the initiative of the USA President Bush-Father… There is a lot of different meat on sale in Russia and much less money to buy it than 2 years ago…

Yet the minority of political analysts found some hints in the address that the economic model in Russia may be changed and quite soon to the detriment of a “ liberal economic model” existing in Russia now.

Why is it so ? In India many economists think that the departure from “ Nehruvian socialism” and the gradual liberalization of the Indian economy, especially under the government of Shri Modi, gave India an economic impetus and today India has a higher rate of GNP increase than China. And that proves that liberalization of the economy must be good in any country. This is a wrong notion due to many reasons.

First of all, in my personal view, so called “Nehruvian socialism” was not a socialism in any possible interpretation. It was a system of protection of Indian NATIONAL CAPITAL from the much more powerful foreign capital with which very poor ( in fact – robbed by Angrezi) post-colonial India could not compete. The Indian State and the cursed “license Raj” were in fact the protectors of Indian market from uncontrolled import from abroad. Nehru was an aristocrat but at the same time he was an Indian patriot and knew well Indian history, including the horrible case of a mass dying of hunger of Indian hand cloth makers not able to compete with Angrezi manufactured cloth…

When the Indian national capital became much stronger that it was in the first post colonial decades, then the State could afford to gradually open up the Indian economy to the global capital. Yet even under Shri Modi this liberalization is conducted under certain preconditions. “Make in India” Program is the most evident example – Instead of direct import of foreign goods the “liberal Government” says to a foreign producer- “ We do not mind your production being sold in India but…MAKE IT IN INDIA ITSELF. Very good policy.

Why a “ literal model” is bad for Russia and why it brakes the acceleration of Russian economy ?

Indeed over the past 25 years the liberal model in Russia has convincingly demonstrated its inefficiency and lack of vitality in the specific conditions of post-socialist Russia and in the specific conditions of the real attitude to Russia from its “Western partners”.

India never was a rival for the USA while the USSR was . For anglo-saxonian and western political doctrine the USSR and Russia is the same country. Smaller in size and population, yet the only country in the world that can wipe away with nukes the USA from the map. It is not even necessary to drop nukes on American territory and provoce a global nuclear winter. A few 40 megaton torpedoes exploded near the shores of East and West coasts will create 200 meters high tsunami wave that will wash away the core of American civilization hundreds of miles away from the coasts… Russians has thise weapons and Americans know it. Why than the USA should cooperate with Russia to restore its previous might in all spheres? The task is to contain and to brake the development of its economy. ” A la guerre comme a la guerre”.

One of the key moments of the liberal model of peripheral capitalism in Russia was an attempt to attract foreign investment to the country with low wages of highly qualified personnel at the Russian labor market. At the same time, there were actual restrictive measures from the USA on the investments from domestic Russian sources. India has no idea that somebody could forbid the investments from internal souse – be it a State or a NATIONAL business. Russia is still not investing much from internal sources as Indian capital can do and actually does.

This concept was promoted as the “Washington Consensus”, which has tied ruble emissions to the amount of hard currency ( mainly US Dollars) from the sale of Russian export commodities – especially energy and other raw materials. Due to the fact that Russia is not just one of foreign countries for the USA the principles of Washington consensus were different to those applied to other countries. As such the Washington Consensus was formulated by a British economist John Williamson in 1989 as a set of rules for economic policy in Latin America. The document was intended to mark a departure of these countries from the “command model” of economic development of the 1960-1970-ies and the adoption of economic policies that are common for the most of Western countries. It was a question of principles, which, according to Williamson, reflected the common position of the US administration, the main international financial institutions – the IMF and the World Bank, as well as the leading American think tanks. Their headquarters are in Washington, DC – hence the term “Washington Consensus”. It is a nice place to organize “radical reforming ” of Russian economy, isn’t it ?

It is noteworthy that for Ukraine, this ban on the emission of national currency does not apply. But the emission of Ukrainian currency -hryvnia, while maintaining an acceptable standard of living, despite the collapse of industry in Ukraine, did not have the aim of the project (target) emission. Without a special target for this emission it was plundered much, and the budget deficit was balanced with the borrowing from the IMF, which led to the continuous growth of the external debt and to an increase in payments to service that debt. In doing so, these payments, to service existing debt, were paid from the next new IMF loans. By the time of the coup d’état in 2014 external debt of Ukraine already amounted to more than $ 70 billion US Dollars, that’s a lot for a country such as Ukraine. After the coup the situation deteriorated even more. Without new tranches from the IMF-Ukraine is the State bankrupt.

Thus, the ban on the free emission of ruble by the state of the Russian Federation, where, as in Ukraine, corruption inevitably leads to the theft of budget funds – that ban paradoxically helped, Russia has not fallen in the “debt trap”, as happened in Ukraine. Yet the development of the Russian economy was also greatly hampered by this ban. Because this ban even on the project (target) ruble emission, not supported by influx of petro-dollars constantly reproduced under-monetization of the Russian economy . The national economy did not have and still does not have enough money for expanded reproduction. The brakes are still on…

Declared, with the initiative from the USA in 2014, the so called “ sanctions economic war” to Russia allows us to move away from the harsh conditions of the “Washington Consensus” and from anti-protectionist WTO prohibitions, for the imposition of sanctions against Russia, is a flagrant violation of WTO rules. But, in the framework of the liberal model, emission of national currency not tied to the influx of hard currency from export of raw materials is still absent as an important source of investment through ruble emission, aimed at the revival of industrial production. No money – no development….

Objections from liberals that ruble emission supposedly will inevitably lead to inflation – are false. Emission really leads to inflation if it is directed to replenish the state budget with “empty money”, not supported by production of new goods. If the issue is not “eat it all “, as it was in the late Soviet Union, and the aim is to finance projects that will give new products and new services demanded by the customer, the emission will accelerate the cash flow and will not lead to inflation. Which is present today in Russia according to official statistics at about 7% but in reality it was a two digits inflation in 2016 without any significant ruble emission.

It is hard to assume that all “liberals” sincerely believe in the liberal mantras. They are not so stupid. But they are put in high economic posts to rule the Russian economy as long ago as under Bill Clinton Administration. With the objective to hinder the economic development of Russia. Than why should I love the liberals in the economic block of the Government ?

Of course, some emission of ruble ruble still takes place in the last few years, but it is sent to the commercial banks “in order to maintain and support the financial system” of the country. Yet the banks, instead of lending money to industrial and agricultural production units, prefer to throw a significant part of the received funding on the hard currency market, receiving profit from financial transactions without the risk of investing “long money” in production in the Russian Federation. As a result, production is falling as well as is falling customers demand for goods due to absence of money and the economy inevitably becomes “more small”.

In 2016 the GNP has risen by zero percent. In 2015 we had, as the Primer-Minister Medvedev said, “a negative rise” – minus 3.4 % as compared with GNP 2014. I think that in 2016 we also in reality have @a negative rise of GNP but more close to a “zero rise” as we gradually get accustomed to the conditions of sanctions war against us. In 2014 it was a new reality.

Well… but what about the other “sacred cow” of the liberal model ? How things stand- with foreign investments to Russia, especially with direct investments (into production in the real sector and not speculative, “portfolio investments, which are mostly speculative financial transactions, too often not associated with the development of production or services?

Statistics of such direct foreign investments into Russian Federation are sad and humiliating.

According to the Central Bank of Russia in the period 1994-2016 net FDI averaged 5.8 bln. Dollars on a quarterly basis. The record was made in the Iast quarter of 2013 years- 40.14 billion US Dollars, and the lowest point was in the 4th quarter of 2005 -.. minus 3.92 billion US $ . In 2016 it is expected that the total amount of foreign direct investment into Russia will be about 6 billion US Dollars, which is 15 times less than the annual investment into such a Great Power as Ireland (100 billion. US Dollars).

It must be admitted at last that this “sacred cow” of the liberal model has died from hunger and its resurrection is not possible. The same can be said about all the liberal model in Russia as a whole. Therefore, departure from the Russian liberal model is simply inevitable. It is just a matter of time and circumstances. But the time and the circumstances around Russia are such that continuation of this liberal model for a few more years and the so called “stabilization” are simply dangerous for Russia.

( To be continued )
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