Conclusions: policy versus reform
A state can change the workings of the economy by changing policies – fiscal or monetary, for example – within a given framework of institutions. Or it can do so by changing the institutions themselves. Writing about Soviet-type economies, Anthony Chawluk showed how policy changes could produce significant results; he noted that reform was more problematic for decision-makers because the risk of unintended consequences was greater.
Major institutional change can certainly have unforeseen consequences in developed economies as well. For the UK, two examples will suffice: the deregulation of financial services in the 1980s; and now Brexit. The same would very likely be true for Putin’s Russia if reform was allowed to happen.
Policies of macroeconomic stabilization in Russia from 2014 were tough but, by and large, successful. When it comes to the imposition of austerity in the pursuit of stabilization, having an authoritarian regime helps. It does not help when reform is required. Policies for faster growth now consist very largely of state-led investment projects, of which the chances of success are more doubtful. Time will tell, probably in 2020–21. Major reforms establishing a rule of law offer a better prospect for stronger growth in the long term. However, they also bring the prospect of a liberalization of the social and political order. Thus they are unlikely to be carried out.
A gradual process of reform towards a rule of law could begin with the removal of some so-called ‘economic crimes’ from the criminal code, or with restrictions on the use of pretrial detention. Both have been discussed, but so far the interests ranged against them – chiefly the security organs – have blocked progress.
The most likely consequence of a lack of progress is a trend rate of economic growth below 2 per cent a year. That implies a similarly sluggish trend rate of growth in personal incomes. If the national projects do not unblock Russian growth over the next couple of years, is it possible that the leadership, in its search for growth, might even take risks with the system?