The following is an interview with Russian economist Vasily Koltashov, by Ulrich Heyden, published in Telepolis (Germany) on March 31, 2016, translated to English for CounterPunch
The ‘Moscow Economic Forum 2016’ took place on March 23, 24. There, much criticism of the economic policies of the Russian government was voiced. Greater support of Russian industry through easier access to loans was advocated. The following interview was conducted by German journalist Ulrich Heyden with Russian economist Vasily Koltashov shortly after the forum took place. For a report on the Moscow Economic Forum, see Ulrich Heyden’s article in CounterPunch on April 8, 2016.
Vasily Koltashov is the head of the economic research department at the Moscow-based Institute of Globalization and Social Movements. He says Western economic sanctions and the resulting economic turmoil has the Russian people restless. And there are increasing tensions within the Russian elite, torn between reconciliation with the West or an independent course for the country.
Ulrich Heyden: How to explain the sharpness of the criticisms of the Russian government that were voiced at the Moscow Economic Forum?
Vasily Koltashov: There are two opposing camps in Russia. The so-called liberal camp has the support of the EU and the United States and, temporarily, of the main reigns of power in Russia. But there is also a patriotic opposition which hates the liberal opposition. And the liberal opposition hates the patriotic opposition.
What do you mean by “patriotic opposition”?
The patriotic opposition is a new phenomenon in Russia. It arose after 2008, mainly due to the global financial crisis. The main criticism of the patriotic opposition relates to social and economic issues and not issues of elections, human rights or foreign policy.
The patriotic opposition arose because of the crisis that arose over the commodity exports Russian capitalism.
Can one say that the Economic Forum was a national gathering of liberals, conservatives and the left-wing people?
There were practically no liberals at the meeting.
The Moscow Economic Forum has met every year since 2013. Was there anything new this year?
The Economic Forum is in a crisis. It has an important role, but it is not developing. Year after year, the same statements are made.
What is missing?
A concrete plan on how the country can be led out of the crisis is needed. That plan must take into account the needs and concerns of the population. People are increasingly faced with hardship. Standards of living are falling. Real, monthly wages in the regions have fallen in the past year and a half, from an average of 20,000 rubles to 15,000 (197 euros, U.H.). But in Moscow, you can still hear of salaries amounting to 20,000 rubles (263 euros, U.H.).
The people are very concerned. They want an economic policy that increases their standard of living and protects them from unemployment and the loss of value of their money. But at the Moscow Economic Forum, one hears of measures to support industry, cheap loans for industry and more efforts to re-industrialize Russia. Many Russians would not understand how such measures could save them from the consequences of the present turmoil.
Was the conflict in Novorossiya (eastern Ukraine) an issue?
There was, understandably, discussion at the Forum on the situation in Novorossiya, the uprising in eastern Ukraine. Russian and EU’s elites implement common neoliberal policies. At the same time, they are in conflict with each other over events in Ukraine. The peoples need a different policy, a non-neoliberal Eurasian integration. Neither Russian nor European elites are capable of implementing it.
The quite popular economic adviser to Vladimir Putin, Sergei Glasew, spoke at the Economic Forum in favour of increases in the money supply.
Glasew is popular, but it he has rather peculiar views. He says, for example, the ruble is undervalued. He is wrong. The ruble is overvalued, because the single national market has been destroyed. If the price of oil continues to fall, the ruble’s exchange rate will also continue to decline. The central bank keeps the ruble on a strong footing in relation to the poor economy.
Glasew thinks an increase in the money supply will have no negative impact because the ruble is undervalued. I believe, that when the increase in money supply is not accompanied by an increase in demand for Russian goods, this will lead to increased inflation.
What economic policies do the liberals and patriots stand for in Russia?
The members of the Moscow middle class and government functionaries think and hope that Russia will get along with the West. Then the economy will develop well. This is the message in liberal media. The patriotic media cannot convince the people, that the economic situation would be improved by supporting the industrialists with greater state support.
What do you suggest?
Our Institute of Globalization and Social Movements has presented a concrete plan. We propose a state program providing for the construction of housing for the citizens at affordable mortgage loans of one to three per cent. This housing program is to be carried out with Russian materials, Russian construction and Russian workers. We propose to build new roads and railways and to renew public transport.
How will this be financed?
Firstly, Russia has substantial financial reserves. Secondly, the money supply could be increased. Our proposed construction program will trigger economic growth. The money that is generated will find its way into state coffers.
You have just criticized Putin’s economic adviser Glasew for his plan to increase the money supply.
We are for increasing the money supply only as a first impetus for growth. We do not want to give away money to the industrialists. We know they would like to have cheap loans. But cheap loans in today’s conditions would only lead to an increase in inflation, because there is already turmoil at the highest level. Even a reduction in the central interest rate will lead to the growth of inflation.
At the business forum there were disaster scenarios. One got the impression that the economy will collapse soon if there is no support of Russian industry. Are these exaggerations?
I believe that the economy may collapse one way or the other. Industry in Russia is really rather poorly developed. Production is declining. There are occasional redundancies. Part-time working hours have been introduced. Wages have often been cut. Unemployment is not particularly high, at six per cent. But the reason for low unemployment is the very low wages.
Were there concrete, positive results at the Economic Forum?
A positive result was a clear commitment to a protectionist policy. This means that Russia must withdraw from the World Trade Organization (WTO). In my opinion, more steps are required to strengthen the Eurasian Economic Union before it could aspire to be an alternative to the European Union. But the Eurasian Union [which is planned as the next step of integration after the existing Eurasian Economic Community, U.H.] cannot develop according to the EU model, which is a hierarchy headed by Germany and including prominent roles for France (and perhaps Italy). Then there are Poland, Romania and Hungary, countries of third and fourth rank. For them, the EU has more disadvantages than advantages.
The members of the Eurasian Economic Union and the Customs Union (Russia, Belarus, Armenia, Kyrgyzstan, Kazakhstan, U.H.) currently have no concrete benefits from economic integration.
The Eurasian Economic Union and the Eurasian Customs Union were formed according to terms of the World Trade Organization (WTO). Admission of Russia into the WTO makes the Eurasian Economic Union pointless. The Eurasian Union only makes sense as an organization if it is competing for influence against the EU because the EU is pursuing an active policy of expansion towards the east. In 2013-14, the EU won over official Ukraine. Russia has absorbed Crimea but shied away from anything similar for Donbass. It is still unclear who is pulling Belarus into whose sphere of influence. For the West, Putin’s replacement by someone carrying out orders from the outside is on the agenda.
‘A turn is almost in the air’
There would be no hierarchy of power in the Eurasian Union?
In the Eurasian Union will function according to a different form of integration. No integration can succeed based on a free market and free foreign trade. A common, protected market supporting domestic demand is needed. Such a project would be an alternative to the EU and would entice some states to leave the latter. That’s how the Eurasian Economic Union, called a “dangerous project” in Brussels when it was formed, could actually become so.
Is it possible that the Russian leadership could eventually turn into true Keynesians and encourage the state to target housing and road-building projects?
In 2017, the economic situation will become so bad that a turn will be in the air. Attempts by the Russian government to find accommodation with the West would push Russia towards forming a neoliberal government, which would very quickly become totally unpopular. Health and education services would be completely destroyed; customs duties would be lowered and the state would sell blocks of its assets. This policy would intensify the contradictions in society because the people are demanding that we take into account their interests.
The patriotic camp will benefit from this development?
Russian society is divided into two parts–the Belyje lenti (people who wear white ribbons), representing liberal positions, and the people wearing the orange and black St. George ribbon, who hold patriotic and protectionist attitudes and long for a post-Soviet integration.
These are two very strong movements. However, the Belyje lenti movement is primarily a Moscow movement and the number of its supporters is limited. The patriotic forces have more than 90 per cent of the population behind it. The only way to prevent the patriotic forces from coming to power are policies creating economic growth, meaning that Russia would return to the situation that existed in 2008. But this is not possible.
Because oil prices are so low…?
And there will be no increase in oil prices in the foreseeable future The turmoil in Russia is already quite deep and neoliberal recipes will do nothing to get the country out of that. They would only start a second wave of crisis. This year, there will be a severe economic slump in China, a recession in the United States and possibly a recession in the euro zone. That means there will be many events pushing down the price of oil and metals and thus worsening the situation of the Russian economy. In my estimation, this development will increase support for the patriotic camp.
Is it possible that the ‘United Russia’ party would not get an absolute majority in the Duma elections to take place on September 18?
This party is not popular. The chairman of United Russia is Prime Minister Dmitry Medvedev. His government has failed. He is synonymous with the beginning of the economic turmoil. He succeeded Prime Minister Putin in 2012 at a time of economic growth and now the economy is in its current, pathetic state. It may well be that the members and deputies stage an internal uprising and an ‘insurgent’ Parliament is elected. Many deputies of United Russia do not agree with the neoliberal course. With a neoliberal program, they could not look the voters in the eye.
So can we expect to see surprises?
I had a conversation in a Russian region with a journalist. I asked him, how it is possible that your newspaper criticizes Putin so firmly? He answered, “Who is your Putin? He is far away; perhaps he does not exist. It’s the regional governor who has the power.” That’s the political authority he is wary of. In contrast to the situation in Moscow, local authorities can defy the central power at critical moments and organize rallies of dissatisfied citizens.
How stable is the position of Vladimir Putin?
A considerable portion of the ruling elite wants to come to an agreement with the West and remove Putin from office. The people who are working with Putin and are hit by the sanctions do not want this. There are serious conflicts in the Russian elite that are not public but which can affect the Duma elections to take place on September 18. Much is still unclear. Will Putin lead a party contesting the Duma elections? What will be the role of the Popular Front founded by Putin in 2011?