AFP Writes: Putin’s failure damning Russia to low growth trap
Moscow (AFP) – Russia’s failure to significantly change its energy-dependent economic model under President Vladimir Putin is consigning the country to potentially decades of low growth and eroding its status as a top emerging economy.
The Russian economy ministry on Thursday dramatically confirmed what was obvious to many, by downgrading its estimate of Russia’s average growth to 2030 to a paltry 2.5 percent, a far cry from over seven percent rates in the early Putin years.
“The pace of Russia’s economic growth will fall behind the global average in the forecast period,” admitted Economy Minister Alexei Ulyukayev.
This year even Russia’s official forecast puts 2013 growth at just 1.8 percent. But most worrying for the Kremlin is that the weakness cannot just be blamed on external factors but stems from domestic shortcomings.
The Russian economy faces a daunting list of troubles –- a declining population, the re-emergence of the United States as a rival energy superpower due to shale gas, and the government’s colossal spending on defense that stretches the budget.
These factors are compounded by Russia’s failure to stimulate private enterprise, reform the judicial system, improve labor productivity and turn the Russian economy into more than a lumbering energy producer.
Russia is screwed. Big time.
The only thing that kept Russia afloat over the last decade or so is high energy prices. Now that energy prices are down substantially and with no indication for them to recover, Russia is standing on the edge of the cliff looking down into abyss. No doubt, there are multiple structural problems in Russia (aging population, low energy prices, corruption, etc…), however, the biggest problem is psychological/cultural.
Having lived in both Russia and the USA I know exactly what I am talking about. The difference between the two economies is as follows. In the USA everyone knows that they have unlimited potential in terms of starting their own business and trying to get rich. Everyone has an understanding that if they work hard, risk, sacrifice and get lucky, there is really no limit to what they can accomplish. As a result, everyone tries to excel at something and you end up with a highly diversified economy benefiting all.
That part of the equation is gone in Russia. Culturally people do want to get rich, but they don’t want to work for it. They want it to happen overnight and the only way to do that is too steal or take something away from someone or to be corrupt. That is how most “New Russians” got rich and that is what most Russians aspire to.
Given this reality, I do not see how Russia will amount to anything anytime soon. The fact that their economy will suffer over the next decade is now a certainty. The only way to fix it going forward is to change the culture or to change the psychology. Unfortunately, I do not see that happening anytime soon.
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