Stability versus growth in Russia?
In any country, the pursuit of macro-stability can have consequences for growth. A protracted austerity campaign, entailing cutting budget expenditure and maintaining tight monetary control, can limit output and income over several years. In some cases – in Greece from 2010, for example – the argument that there is no alternative is weak. An overzealous or wrong-headed pursuit of stabilization can damage growth.
On the other hand, in a weak and inflation-prone economy the achievement of macroeconomic stability may be a necessary precondition for subsequent sustained growth. Stable prices and a stable currency provide the predictability that private investors need. This was a tenet of the Washington Consensus, derived from IMF and World Bank experience in Latin America and variously applied, misapplied or not applied to societies in transition after communism. That ‘consensus’ no longer exists, but it does not follow that tough stabilization policies never worked as growth incubators. They contributed, for example, along with liberalization and privatization, to later strong development in Estonia and Poland.
In Russia, the 2014–18 macro-stabilization was thoroughgoing and in some aspects brutal. But it was swift. According to Rosstat, GDP fell in only one year, i.e. in 2015. Inflation came down rapidly. There were accompanying policies that inflicted some economic damage, such as import-substitution and counter-sanctions on food imports. Both of these weakened competition and raised prices of affected goods and services, and the former slows technological change. Both have created vested interests in their continuation. But they were not stabilization policies; they were products of traditional Russian economic security concerns, heightened by sanctions.
The tentative conclusion is that Russian stabilization policies did not harm (or perceptibly help) growth. What about the converse? Have measures aimed at growth affected stability? The most obvious way this could happen is when aggregate demand is stimulated in the cause of acceleration but labour is fully employed and the only acceleration that occurs is faster inflation. The national projects exercise might, if it becomes too much of a campaign, have such an effect, but that looks unlikely. The budget rule continues to be observed, fiscal surpluses are planned for 2019–21, and the CBR and independent forecasters project inflation subsiding to the bank’s target rate of 4 per cent in early 2020.
The economic bloc of the Russian leadership espouses financial prudence. In this it so far has the backing of President Putin. That sets limits – probably desirable limits – to any spending-led dash for growth. But faster growth may be achievable, in the course of four or five years, by reform in the sense of institutional change. Why should that be so difficult? (It might be assumed that, in focusing on reform, two other possible growth depressants – rent transfers to sector B, and the preoccupation with geopolitics – remain unchanged.)