By Paul Goble
“If it does not carry out reforms,” Kseniya Yudayeva, the first deputy head of the Central Bank, told a conference at Moscow’s Higher School of Economics, “Russia will be condemned to the maintenance of the existing economic structure and ‘eternal stagnation.’”
Specifically, she said, “if a targeted structural policy designed to create possibilities and stimuli for increasing labor productivity and the diversification of the economy, [Russia’s] growth rates will remain low” (vedomosti.ru/economics/articles/2016/04/19/638290-rossii-grozit-vechnaya-stagnatsiya).
In this regard, she and other participants in the meeting said, “Russia recalled the USSR at the start of the 1970s,” adding that “now, the economy is at almost full capacity, and this means that growth is possible only on the basis of investment – but not on just any but only on those directed at raising labor productivity.”
That will require, Yudayev says, the development of competition in the Russian economy “which will allow ineffective firms to be driven from the market and new high productive ones to take their place.” At present, this is not happening; and new work places “are being created only in the informal sector which is not distinguished by high productivity.”
There is a widespread misconception, the central banker says, that Russia could achieve this by simply printing more money and injecting it into the economy. “But in the absence of a good investment climate, [such money from savings] would not become investments but rather the source of capital flight.”
Another misconception, she says, arises from confusion between business cycles and economic growth and requires that the Central Bank and the state budget somehow support growth even when “the slowdown is connected not with cyclical elements but with structural problems.”
Russia’s current problems are not the result of the business cycle but rather resemble “the bursting of a bubble” with the collapse of oil prices, Yudayeva says. Consequently, as the experience of other countries has shown, what is required to move forward is very different than simply the expansion of a general stimulus.