Market and State Regulation Failure at the Heart of Russian Recession

December 26, 2014

Sliding oil prices and sanctions are not the only cause of the recession, says Aleksandr Buzgalin, professor of political economy at Moscow State University.

Sliding oil prices and sanctions are not the only cause of the recession, says Aleksandr Buzgalin, professor of political economy at Moscow State University.


Story Transcript

SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Russia’s economy is at the risk of entering a period of deep recession. The sliding oil prices has created that havoc in the Russian economy.

Here to discuss what is happening is Aleksandr Buzgalin. Aleksandr’s joining us from Moscow. Aleksandr is a professor of political economy at Moscow State University.

Thank you so much for joining us, Aleksandr.

ALEKSANDR BUZGALIN, PROF. POLITICAL ECONOMY, MOSCOW STATE UNIV.: Hello. Thank you for opportunity to talk with you.

PERIES: Aleksandr, the speculation is that the sanctions against Russia for annexing Crimea plus the sliding oil prices combined has caused this effect on the Russian economy. What’s your take?

BUZGALIN: First of all I want to stress that main reason is not sanctions or oil prices. Of course oil prices are very important for Russia. But a question is very inefficient economic policy which is trying to combine, from one hand, this so-called market fundamentalism, an idea of liberal economy, from, on other hand, shadow state regulation. And this combination leads to the very inefficient model of governing and both absence of self-regulation, let’s say, market regulation and absence of a real state /proʊgræˈmirɪŋ/ of economy. Both are creating very strange situation, when we have declarations of free market and shadow state regulation instead of real economy. So both these factors are the key factors of inefficiency of Russian economy.

Sanctions are not very important for Russia until now. Only small part of economy, small part of finance is under the influence of these sanctions, fortunately, I think, because it’s inefficient for both, for Russia and for European Union, because Russia also is introducing some sanctions.

Oil prices is important factor because this is big part of state budget. And this is one of the reasons of decline of ruble–I mean cost of ruble in comparison with dollar. And this is also interesting and important question, but this is another question.

PERIES: Right. So then why has it climaxed at this moment?

BUZGALIN: So it’s not now. Real recession started two years ago, and it was declining of growth from 2, 3 percent to one-zero. And now we have, in 2014, +0.5 percent. So it’s really stagnation. It’s not decline, but this is stagnation. And in such situation, of course, decline of oil prices and decline of income of budget /ɪnˈdoʊs/ is important [page (?)].

But in Russia we had the growth of dollar, cost a dollar, and that’s why income in rubles we have more or less the same. This is the game. We have the same volume of rubles per gallon of oil as before, because the ruble, ruble became cheaper. And this is one of the explanations why we have these speculations around dollar cost.

But there is also another explanation, and this is attack of financial speculators, both Russian and foreign. And because we have free market or, if I can say, free market in financial sphere, we receive jumping of the cost of dollar 10, 20 percent per day. And it was very bad for Russians, for ordinary Russians, and it created big incomes for financial speculators.

PERIES: Right. And so what is the implication on ordinary Russians? I understand the interest rate is something like 17 percent at the moment.

BUZGALIN: It’s more complex. There is different interest rate for different subjects. But if you want to take loan to buy apartments, it will be even more. It will be 20 percent per year. And we have jumping inflation. It’s not even simple growth. It’s like in a hospital: when you have today high temperature, tomorrow very low temperature, you know it’s such type of disease. And we have such type of disease in our country.

And in this situation, of course, for poor Russians, this is a big challenge–not mainly interest rate; it’s mainly problem of growth of prices and very small indexation of minimum wage, of pensions, in comparison with inflation, especially if they’ll take into the consideration basic consumer goods and drugs, which are very important for children, for elder people. And that’s why we have this program. Plus we have permanent growth of social differentiation instead of decline. In 2000s, in this decade, we have more than 16 times to get between 10 percent of the richest and 10 percent of the poorest, and it is slowly growing.

But for real not even justice, but for real stability, we need maximum eight times decline difference, like in Europe, for example. And we have, instead of that, really very big contradictions between small part of very rich and big part of poor. More than 10 percent are under the poverty rate in Russia.

PERIES: Right. One of the reasons given by the Western press, at least, is that the Russians have turned away from commerce with both the European Union and the United States by this, the example of the cancellation of the European pipeline and turning more towards Asia and China. This is an argument that Hudson has made. Does this have any implication on what’s going on?

BUZGALIN: We have now a lot of discussions around opportunity to have more strong, stable cooperation with China, and especially with Kazakstan and Belarus. It was a lot of contradictions, and [incompr.] we have some contradictions. But still it was agreement about so-called Euro-Asia, economic union. And we had just today a step forward. And Kyrgyzstan is joining and Armenia is joining to this union. There are even negotiations with Turkey and some other countries. And it can be, by the way, one of the answers on the challenges from the West, from United States and from European Union.

Also, it’s–maybe question to you will be more than to us, but in Russia there are a lot of speculations that the European Union is paying for the aggression of the–not aggression, maybe, but for the policy of United States in Ukraine. And United States government administration started sanctions, and the negative influence is going to European Union. European Union is losing something, not United States. And this is also big question, what is the unity or if it’s really the unity in policy towards Russia, I mean, United States and European Union, if they are together or if we can see contradictions between these two actors.

PERIES: Right. So, as far as Russia’s enhancement with Eurasia, and particularly with China now, I understand that both parties and agreements are moving away from using the U.S. dollar to using the ruble or the UN in terms of their currency of exchange. How is this going to affect the falling ruble prices?

BUZGALIN: First of all, they have both positive and negative experience of using of national currencies. Before this jumping of the cost of ruble, which I mentioned before, it was growth of exchange based in national currency–yuan, ruble, and so on. Also, it was attempts to make ruble money currency for the exchange with Belarus and Kazakhstan, but when ruble falled down for 30 percent during one day–but of course it was big question mark if we can continue this further.

I think that, generally speaking, orientation on the Euro-Asia cooperation is a positive idea. But in order to realize this, we need another economic and social policy, or even another economic and social system in Russia, because now we have only imitation of free market and imitation of state regulation. We have negative aspects of both. It is negative convergence of regulation and free market model.

I am not supporter of free market economy in any case. And for me this is not free market. This is global domination of /foʊrˈpoʊrətrɪf/ capital. And this is late capitalism, not free market, in any case. But in Russia, we have [predator (?)] of this late capitalism, and if we will not change, if we not change our economic system, all forms of cooperation with China, Belarus, Kazakhstan will be inefficient. This is big question. Also it’s question mark for Belarus and Kazakhstan. They have also a lot of negative features in their economic policy. And I can say this openly.

PERIES: Right. There’s some speculation that this is an effort, the lowering of the oil prices is an effort to squeeze Russia so that companies like Gazprom, the oil and gas company, state-owned, in Russia, will have to explore different ways of supporting state capitalism. And what do you think of that speculation?

BUZGALIN: This is big question mark. And in Russia, many so-called state companies there, by the way, according to the juridical form, legally they are stock companies. And state has only 50 or 51 percent of the shares. It’s not only state corporation. And behavior of these so-called state corporations is similar with /sjuː/ but private companies, because the incomes of top managers of these companies is extremely big, enormously big, a lot of money expropriating by insiders of these corporations. And for people, this state corporation creates not too much. And behavior of this corporation is [absolutely (?)] the same as behavior of private oil corporations or other corporations which are producing, for export, raw materials, or extracting raw materials but, to say, not even producing.

That’s why I can say that in Russia we have a very specific form of state capitalism. It’s more appearance of state property than real state property. And state is not playing as actor which is trying to realize the interests of all people of Russia; it’s more realizing interests of the top managers, insiders of state corporations, and top bureaucracy. That’s why I can say that we have a mixture of bureaucracy and oligarchs who are real masters of our economy and political life. It’s bureaucratic oligarchic capitalism, if you want. And in many aspects, this is, by the way, parody on the Western [capitalism].

What I was talking with U.S. students, academic people, militants of social organizations, movements, and described the system of power, corruption, and so on in Russian corporations, they said this is a parody on United States and United States has the same but in more civilized, more polite, more beautiful, if you want, not so ugly forms as Russia. So when you are looking on Russia, you see in the mirror United States, and we are just trying to do the same as United States. And when you will criticize Russian capitalism, please don’t forget to criticize U.S. capitalism as the motherland for Russian capitalism.

PERIES: We shall do that. Thank you so much for joining us, Aleksandr.

BUZGALIN: And thank you for opportunity to talk with you honestly, without any censorship, about important questions for me.

I want to add I like my country, I love my country. That’s why I’m critical. And I want to make my country better. And I hope you also will send good words to Russian people, because Russian state, Russian bureaucracy, and Russian oligarchs, and Russian people say it’s very big difference, like, I don’t know, establishment or oligarch of United States and citizens of United States.

PERIES: Thank you, Aleksandr, and have a wonderful holiday, and to you and to the Russian people.

BUZGALIN: Yes, and good holidays for U.S. people also.

PERIES: And thank you for joining us on The Real News Network.


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