Price Controls for Putin’s Imperiled Russia

With the Russian economy in freefall, rather than offering parachutes to his countrymen the Russian dictator Vladimir Putin is doling out anvils. He has the country racing full speed towards neo-Soviet collapse.

Russia posted 3.4% GDP growth in 2012, and earlier of this year the World Bank had projected economic growth for Russia of 2.3% for 2013.

That was then.

Last week, the World Bank concluded that Russian growth this year would be a stunningly anemic 1.3%, only slightly more than one-third what Russia achieved last year and just over than half what the World Bank had predicted for this year.  Russia’s failing stock market is reflecting the wider economic malaise.

What’s more, the World Bank has cut projected growth for Russia in 2014 from 3.1% earlier to just 2.2% at present.  If 2013 is any gauge, one can expect that projection to once again be far too optimistic, as last year’s was.

But even at 2.2%, Russia’s numbers would lag far behind the other members of the BRIC group (consisting of Brazil, Russia, India and China) of emerging economies to which Russia is routinely compared, and just as far behind the baseline levels Russia needs to sustain its giant population. China is posting growth at roughly four times Russia’s rate, and it doesn’t have to manage the world’s largest national territory, covering eleven time zones.  Nor is it artificially buoyed by vast fossil fuel exports.

Disturbingly, the Putin economy is faltering even though the crude oil prices that form its bedrock have remained strong.

A county with such vast size as Russia, and such a puny economic base, simply can’t afford such anemic levels of growth.  1% economic growth in the USA, whose economic base is eight times larger than Russia’s despite having only twice as many workers, results in adding $160 billion to the economy, $500 for each American.  That same level of growth in Russia produces just $20 billion, a mere $150 for each Russian.  And Russia has such rampant corruption that the lion’s share of that $150 will simply be stolen rather than reaching the pockets of citizens in need.

As the Financial Times reports, Putin believes Russia faces a truly dire emergency and is taking risky steps which could make the situation much, much worse.  Next year, he plans to implement startling price controls on gas, electricity and railroads.  Putin is terrified, you see, that Russia could begin to experience the devastating phenomenon of “stagflation” in which prices rise out of control even as incomes are falling.
And he’s not wrong to be afraid.

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