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Decay of Russia

Decay of Russia
Delyagin Michael 04.06.2008

The Russian economy has indigestion.

The state does not want to spend a gold stream of petrodollars flowing on the country on its modernization and normalization of life of its citizens having not recovered from Catastrophe of 1991.

Money of Russia go on support of the American and European economy or "are frozen" in own budget or budgets of the state corporations (in relation to which there are huge suspicions in corruption) as international reserves of the Central Bank and successors of infamous Stabilization Fund (Reserve Fund and Fund of National Well-Being).

After stabilization of economy the state shows unwillingness not only to direct its development but also to solve the most essential, sharpest problems including increasing shortage of infrastructure and total arbitrariness of monopolies.

Result - frightening growth of internal trouble and not only economic but also social on a background extremely comfortable (even in view of global financial crisis) external conditions.

Inflation in 2008 Will Be Higher, Than in 2007

Even the official rate of inflation (underestimated, by numerous estimations, in 2,5-3 times) made from the beginning of the year up to May, 26 7,5%. To imagine that for seven months remaining inflation will make less than one percent (so that its annual level keeps within initial official forecast of 8.5%) not less difficult, than to imagine its level in 3% for the remaining seven months (so that it keeps within today's not less official forecast in 10,5%).

Quality of economic forecasts of the government most evidently characterizes the fact that the federal budget of 2008 should be reconsidered radically in January of the same 2008 for its base parameters had practically no relation to reality.

Already long time ago forecasts of the government represent no more than its substantiation of "its policy of idleness", policy of refusal from modernization. We are told fairy tales about oil which is just about to fall in price. In conditions when even the World power agency was compelled to recognize officially that at preservation of current trends of extraction and consumption of oil there would be a sharp physical shortage of energy carriers in 10 years, these are really fairy tales. They are necessary for ruling bureaucracy for justification of putting off practically the second budget of the country "for rainy day" instead of directing it on modernization of economy so that by the moment of reduction in price of oil to be released from a serfdom from it.

These forecasts are practically not connected to a reality: it is simply cheap propagation which not only deceives a society but also deprives the state of adequacy.

After cancellation of practically not working "freezing" of prices for some commodity groups (it was during its "action" the price for bread jumped up in a number of cities on 40-60% during several days) the anti-inflationary policy of the state consists basically in restriction of growth of monetary weight and strengthening of rouble for reduction of import in price.

Both these directions have no relation to the real reason of inflation - universal arbitrariness of monopolies not so much natural, infrastructural but trading. It's difficult and boring to struggle with them, at times even dangerous; necessary element of struggle - disclosing of structure of costs of the companies abusing monopoly position that is politically impossible for ruling bureaucracy as it will open a picture of real scales of corruption and power racket.

That is the main reason of inflation's going out from under control.

A number of officials once trying to distract society from a reality have already declared impetuous Russian inflation mainly "import".

Yes, the growth of the world prices for foodstuffs beats across Russia which management lacks time to undertake development of agriculture in practice and not in words (since 1990 - the last before Catastrophe - farmland were reduced more than in 1,7 times!)

But the scales of "import inflation" are not so great at we are tried to be explained by the guilty in its shocking and long growth (by informal estimations of officials, in 2008 it will reach 14%!) Federal State Statistics Service, having compared the Russian inflation with the European one (the EU is also under impact of world rise in price for foodstuffs), has quite convincingly shown that its contribution makes less than a quarter, having unintentionally but demonstratively exposed high-ranking officials from economy.

Source: Federal State Statistics Service.

It's really possible to fight with this inflation stimulating cheap import, including strengthening of rouble - but with two obligatory amendments. Firstly, this import should not undermine restoration of the Russian agriculture (otherwise we will become hostages of the world market and a victim of the next coil of the world prices for foodstuffs). Secondly, its stimulation should be accompanied by the struggle against arbitrariness of monopolies (otherwise benefit from its reduction in price will be gotten not by the consumer but intermediary - monopolist).


Putin Brought Russia up to the Necessity of Cards

Acceleration of inflation basically is caused by a rise in prices for foodstuffs which because of a total arbitrariness of monopolies has not simply outstripping but catastrophic character. Even on the official data, rise in price of the minimal set of food stuffs (so-called "inflation for poor") in 2007 made 22.3%, having in 1,9 times exceeded general inflation (11.9%), for January - April, 2008 - 14.9% having exceeded official inflation (6,3%) already in 2,4 times.

As a result of it since autumn, 2007 improvement of conditions of life of a great bulk of population of Russia including not only poor and very poor but also middle class which took place during all 2000th years was replaced by decrease in real incomes.


The state of things of 12% of the poor Russians experiencing, according to Levada center, shortage of money to purchase food (this parameter is well coordinated to the official data on a share of the Russians with incomes below a living wage) appears to be the worst. The rise in prices on housing-and-municipal services and medicines makes position of these people really menacing, it has compelled a number of regional leaders (including the governor of the second city of Russia - Saint-Petersburg) to discuss seriously a question on introduction of food coupons - quasimoney given out to the hard-ups and accepted by a certain category of shops in payment for certain types of the foodstuffs.

It is the most reasonable and economical variant of the target help to the poor, widely used in the same USA. Coupons are good also because they allow to stimulate if necessary the development of these or that branches as in case of necessity they can be accepted as payment of not only all goods but also, for example, extremely for domestic or not for all kinds of meat but, for example, only for a beef.

However, their appearance in Russia seems to be improbable, at that not because they will demand essential improvement of systems of state management and trade (without it abusing with their usage will be monstrous even according to today's measures) but only for advertising reasons. In fact official propagation repeats in all sharps and flats about prosperity of putin's Russia and how it "will rise from knees". Introduction of analogues of unforgettable to the Russians cards will completely devaluate all efforts of official propagandists as it will evidently and convincingly show the Russians a real condition to which the modern Russian society has been brought to.

The Russians Will Pay for Expensive Gasoline As for Expensive Bread

In April the retail price of gasoline jumped up higher, than for all first quarter - on 4,3% (from the beginning of the year - on 7,6%) and for 26 days of May - on 3,0%. The reasons - growth of the world prices for oil used as a pretext by the Russian monopolists and increasing reduction in extraction of the Russian oil (on 0,3% in January - April, including 0,7% in April, 2008).

The words of vice-premier Sechin about necessity "to keep" (not to increase but precisely to keep!) the achieved volume of oil recovery and intention of Chairman Putin to lower taxation of the oil companies stimulating thus them if not to reduction in price but to not such fast rise in price of gasoline are indicative of despair of the Russian authorities.

It's clear that the monopolist will not reduce the price under any circumstances and experiments either on reduction or even on cancellation of taxes (for example, the tax from sales) have proved it rather convincingly. Ignoring of it by Putin testifies not only about illiteracy but also about powerlessness of ruling bureaucracy.

According to the research center of portal Superjob.ru, 6% of economically active Russians at able-bodied age actively using the Internet and owning a car have already stopped using personal motor transport because of the rise in price of gasoline; among the Russians with monthly income lower than 10 thousand roubles this share has made 10%.

However, it's aimless to hope for essential reduction of traffic jams for this reason: on the one hand the reasons of disorganization of traffic is not only the quantity of cars but also cachexy of services regulating it as well as absence of civilized parking for cars and huge streams of transport (including cargo) in the shopping centers located on transport highways.

On the other hand, the Russians as a whole have no comprehensible alternative to personal motor transport: public transport, as a rule, degrades and even in Moscow a lot of people are compelled to use personal cars simply by virtue of congestion of the underground and criminogenic atmosphere developed in it.

If the price of gasoline nevertheless appears high enough for this purpose, it will spoil all pleasure from rather free driving.


Monopolism Will Not Allow Habitation to Fall in Price

Numerous hasty promises of sharp falling of prices for the real estate by the end of this year are quite groundless.

Yes, really, evident excess of offer over demand is observed in Moscow and a number of large cities. In advertising one announcement of purchase covers tens announcements of sale; many owners of "investment" apartments and offices want "to get cash" - and fail. Thus input of habitation in build fell in Moscow in the first quarter of 2008 on 39,5%: it is a result of not only lack of empty space but also reaction of the building companies which started to delay building process on falling of real incomes of middle class because of gallop of inflation and growth of cost of mortgage because of world financial crisis.

However such state of things develops not for the first time. The Moscow market of the real estate already some times became transfixed on next "point of balance" and, having got used to it, continued growth after a while.

Both monopolism and big "safety factor" - are only operative, tactical reason of preservation of high prices at excess of offer over demand.

The strategic reason is that habitation still is the only popular and rather reliable investment in our country. Real estate of several large cities and resort zones (first of all Moscow, Saint Petersburg and Sochi) "gather" means which are earned by the whole country.

Thus competition with the real estate in other countries is relatively - well-fixed Russians will make investments abroad and buy "resort" habitation there, but the basic part of time all of them will still spend in Russia - and, it means, they will buy habitation for themselves and relatives here supporting transcendental prices.

The prices for habitation can fall only at influence of one of three factors. The first - reduction in price of oil, depriving Russia of "oil-and-gas pillow", capable despite of bad management to transform our country into "silent harbour" in world financial crisis (while situation is not stabilized some kind of a "swing" is observed: in III quarter of the last year pure private capital inflow was replaced by pure outflow in 1,0 billion dollars, in IV quarter the flow which made 20,8 billion renewed, in I quarter of 2008 pure inflow grew up to 22,8 billion, while in first two months of II quarter significant pure capital inflow was again observed). In the near future there is no use waiting for the reduction of prices on oil.

The second factor of reduction in price for habitation - mass capital outflow from Russia, which is improbable as Russia remains (in many respects due to oil and gas) the most attractive and clear object of investment for world capitals. Certainly, reduction in price for habitation in the USA and Europe (to sell Moscow apartment to buy ten ones in the USA and to live comfortably on the difference received is possible already today) will lead to a certain outflow of the Russian money but it's presented insignificant on the general background.

The third possible reason of reduction in price for habitation - the beginning of real actions of the Russian state to solve housing problem: mass building with development of infrastructure, creation and restoration of the destroyed settlements around new factories and other objects of economic activity (which should be also created). It looks impossible at present ruling bureaucracy.

Thus it's possible to wait for reduction in price for real estate up to the end of the year together with a different sort of astrologists from economy, but it doesn't mean - to get it at least.


Bureaucracy Will Carry Off Business to System Crisis

The reason of economic problems becoming aggravated in rather favorable conditions - full inactivity or maleficent activity of ruling bureaucracy.

Neighbouring China and the European Community rather convincingly show us, everyone in its own way that though there are problems which could not really be solved "right now", there are no problems which could not be solved at all by achieving their gradual mitigation.

Our trouble is not in objective circumstances and not in own nonsense. Our trouble - motivation of the ruling bureaucracy which has transformed the state into the tool of personal enrichment, basically corruption one, into original "factory of millionaires" (if not billionaires) and has convinced itself that it should be so.

Egoistical desire to extremely personal consumption (both material and symbolical) in combination with full impunity makes ruling bureaucracy the factor destroying Russia.

To break this situation before it will carry off business to system crisis, apparently, is impossible.

Therefore in the current year decay of Russia will proceed.
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