Putin’s Economic Policies Leading to Stagnation

Writing in the Moscow Times, John Lough argues that Vladimir Putin’s “teflon” quality of escaping criticism has come to an end.

In the economy, Putin is likely to announce new reformist policies to show that Russia’s tired-looking leadership has not run out of ideas. The highly competent economist Alexei Kudrin could return to the government if, for example, Putin decides not to name Medvedev as prime minister. This would be welcomed by many businesspeople in Russia and the West.

These reformist policies and the likely co-opting of some of the liberal opposition may buy time, but they will not be enough to stem the sense of disillusionment and alienation among the most dynamic and active segments of society. (…)

Ultimately, it is the economy that will determine the speed of change. With high oil prices, low levels of public debt and 4 percent economic growth, Russia is unlikely to face short-term difficulties. Yet the longer-term problems are mounting up quickly and may be beyond the regime’s ability to manage them. These problems include a shrinking labor force, low levels of capital investment and the urgent need to raise labor productivity and reduce exposure to the oil price. A prolonged euro-zone recession could easily push down the oil price and shake the system to its core.

For the foreseeable future, Russia is likely to steer between two paths — “stagnation plus” and “stagnation minus” — with neither resulting in a decisive breakdown or a qualitative breakthrough. Any way you look at it, this outcome is far from being a recipe for stability and will only erode Putin’s model further.