BORIS KAGARLITSKY, MOSCOW
THREE LITTLE PIGS FROM THE ECONOMY AND FINANCE MINISTRIES
Sometimes it is very useful to keep an eye on Russian bureaucrats. Especially on those charged with economy and finance, or on the analysts who write speeches and generate ideas for them.
In January the Russian government’s liberals were enjoying their holidays and the last year’s summary reports – they didn’t see anything to worry about. In February they kept on denying any possibility of the world economic crisis, making allowance for slight drop in market rates. In March they finally avowed the existence of the world crisis, but said Russia would only profit from it. Now that the resident banks have to face the funding gap the bureaucrats accept that the crisis is looming in Russia, but really a trifling of a crisis. We still have nothing to worry about, they say.
Our liberal bureaucrats stay optimistic in the face of the looming crisis. Minister of Finance Alexei Kudrin sees the cause of the economic difficulties purely in economy overheating. This implies that all our problems arise from the fact that everything is too good. Do you know, for instance, why the roads in the country are rough and often pot-holed and the transportation systems are falling to pieces? The point is, explain the officials, that our economy is developing so rapidly that the demand for infrastructure services exceeds supply.
This reminds me of an old Jewish joke: “Rabinovich, people say someone have given you a good scolding in the forest.”“Well, I wouldn’t call that a forest – two little trees!”
It is the liberal ideology that nurtures optimism of the Russian bureaucrats. They seem to believe that we live in the best of all possible worlds, just like characters of Voltaire’s Candide. The world capitalist system, being the best economic system, never fails. And even if it does, it regulates itself without human intervention or critical thinking. In this very logic, even if something is rotten in the world economy, it won’t implicate Russia. The point is that our bureaucrats interpret the questions about the state of domestic economy as the ones about their competence. So, can you think of a man who would frankly avow that his competence falls short of his official duties?
The closer is the breath of crisis, the cheerer the ministers and the experts repeat the mantra of the three little pigs: “No, no, I won't let you come in, not by the hair on my chinny chin chin." Brave Russian bureaucrats are not afraid of the Big Bad Wolf, or the falling dollar, or the exchange rate collapse, or liquidity squeeze, or even inflation. It’s no big deal that the money in the stabilization fund is losing its value. Something is left, isn’t it? Even the inflation that erodes savings of the middle class, forcing the latter go on strikes, doesn’t frighten the audacious men in the Russian government – there are still a lot of people working.
Those officials really make our life more comical. It’s a pity Kudrin has already forgotten his joke about using the stabilization fund to correct the negative impact of the world financial crisis. For it was a joke, wasn’t it?! Mind you that we are only half way there – exchange rate collapse, falling dollar, liquidity squeeze and inflation are only the beginning. So far the economy has been on the rise and the bureaucrats could cheer up. But the economic theory of capitalist business cycles has its rigid logic, and you don’t need to have Marx or Keynes as your second name to know what will happen next. The decrease of consumer demand in the United States has triggered recession and it won’t stop until it reaches its trough.
Decrease of demand in the rich countries will be followed in the near future by scaling back production. We know from practice that just as the economic growth sustains itself, the decline exacerbates itself. Deterioration in demand triggers job cuts, which in its turn leads to further deterioration in demand – the jobless usually don’t have much money to spend. The crisis comes in waves, one after another. And every time that people hope they are over the hardest moments they find that the worst is yet to come.
The less the Americans and the Western Europeans buy, the less the Chinese and the Indians produce. But when the real economy is in depression, the information economies won’t be able to develop, for they are based on processing information about the real economy. For over dozen years the Western societies have been living to the illusion that it is possible to live from purely financial manipulations and computer programming. Alas, they have to accept that high cost-effectiveness of these marketrs was provided by low payments and technological inferiority in the production sector. And that couldn’t last forever. The production sector no longer can afford high pace of development, this will ultimately result in landslide of prices on raw materials. This is when the energy superpower will have to admit its ultimate weakness: under production crisis, nobody needs the energy.
The three little pigs from Russia’s economy and finance ministries know that sooner or later their houses built of straw and sticks will be blown in. Even a gentle breeze can do that. Unfortunately, our ministers only know how to work with straw and sticks, i.e. energy and finance. And we have no house of bricks to hide in it, should the weather change.
But what shall we do when the houses of straw and sticks are blown in? What’s next?
As to our bureaucrats, they won’t be “swallowed” by the Big Bad Wolf. The economic crisis has many times before blown over particular persons in the government.
Unless the Big Bad Wolf comes for them in the form of the social protest...
Boris Kagarlitsky is Director of the Institute of Globalization and Social Movements
April 11, 2008
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