How To Solve Russia’s Economic Troubles

Alexander Lebedev has a long blog post on his newspaper’s website today on Russia’s economic crisis, offering his own analysis for why Russia is currently struggling. He focuses only slightly on Ukraine, and the impact sanctions have had, but he mainly emphasizes the failings of the Putin government, calling it “an era of missed opportunities”. He also alleges that $3 trillion was wasted on welfare subsidies, prestige projects like the Sochi Olympics, and corruption. Money that he says could have been used to modernize infrastructure, and to create “a post-industrial knowledge economy”. Instead, he says, they focused only on the export of raw materials.

He then moves on to the Government’s current “anti-crisis program”.

“It especially does not hide that it intends… to act in the same manner and with the same tools as the global financial crisis of 2008-2009. Firstly, to fill in the holes in the banks’ balance sheets and ‘strategic enterprises’ with money, relying on the fact that the world economy will grow, increase oil consumption, and cause the price of ‘black gold’ [oil/gas] to rise.”

But, Lebedev alleges, this plan is ‘fundamentally wrong and dangerous’. And for Russia to ‘borrow money to cover a budget deficit in the current environment would be very problematic’.

This, he says, is all reminiscent of the late 1980s and early 1990s, which led to the collapse of the Soviet Union (Lebedev, of course, has to bring up Putin’s quote calling this the greatest geopolitical catastrophe of the 20th century).

But Lebedev has a 4-pronged plan that he says ‘can be implemented immediately’.

First, end corruption (‘as banal as this sounds’). At stake is ‘the preservation of the state’.  To do this, Lebedev proposes ‘a new power structure’ like Singapore established in 1960 – ‘The Corrupt Practices Investigation Bureau’ [note: the bureau was established earlier (in 1952), but moved under the jurisdiction of Singapore’s Prime Minister, Lee Kuan Yew, in 1960.].

Second, restore order to the financial sphere. Lebedev launches into a description of a common banking scam in Russia, where bank owners use front companies to embezzle money, then close the banks ‘under the pretext of “adverse market conditions’, and the Deposit Insurance Agency is then required to pay off depositors. To stop this practice, Lebedev proposes increasing the amount of minimum authorized capital required to open a bank. He also proposes taking advantage of international cooperation to prosecute those criminals who have fled abroad.

Third, the complete deregulation of businesses working in the ‘real sector’. “This will not only increase the profitability (and hence the possibility of further investment and business development), but also significantly reduce the bureaucracy that has become a self-replicating monster in today’s Russia.” In addition, Lebedev suggests exempting small and medium-sized businesses from all taxes until the end of the recession.

Lastly, Lebedev says, “now is the perfect time for the state to realize its greatest and most valuable asset – land.”

“The state controls a huge land reserve, which includes farmland and land reserved for state needs. A significant part of these areas are not being used. If you take at least one-fifth of those lands, to transfer them into individual housing and bring them to market – the price will fall, and even a low-income family would be able to buy a plot of land. Millions of people would be able to take advantage of this opportunity… and in times of crisis and ruble devaluation, land is still the best object for investment.

Since the sale would be massive, the state, even at a junk price, would get trillions of rubles. This money could then be used to create… roads, sewage, electricity, gas… Since they are mostly controlled by the same state, the money will come back in the form of revenue. By becoming landowners, citizens would begin to build houses, stimulating the construction industry, attracting small businesses for finishing off and landscaping, buying furniture, appliances, etc. Thus, there will be a powerful multiplying effect that can reach up to 3% of GDP.”

His 4 proposals will ‘dramatically change the development agenda of the country’, Lebedev claims, the only thing required for all of his proposals is the political will to act on them.







One thought on “How To Solve Russia’s Economic Troubles

  1. Karen Wallace

    Great writing! I love the land idea! We could do that in this country too. Think of all the open space still out there in just about every state…starting with Texas!

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