The Lenin-Stalin-Putin Continuum
Last week, once again, Vladimir Putin’s Russia was awash in appallingly bad economic news. Inflation was roaring and consumer confidence was plummeting. The stock market was bouncing around like a yo-yo, helplessly enslaved by world raw materials prices. A Russian defector won a Nobel prize and then ruthlessly condemned the state of neo-Soviet science. Once again, Russia pathetically flailed about seeking WTO membership like a beggar, and retail giant IKEA announced it was halting investment in the the land of Putin (IKEA has spent more on Russia than the Kremlin is planning to spend on the Sokolovo “Russian Silicon Valley” project).
All this leads Russians to look elsewhere for investment opportunities, of course. Capital flight has always been a main hallmark of the despotic Putin regime. So last week, Putin revealed his “solution” to that problem: He simply won’t let Russians access foreign markets.
Who can be surprised that Putin, a proud KGB spy and a relic of the failed Soviet past, would adopt a neo-Soviet authoritarian response to the inconvenience of the marketplace? Who can expect his results to be any better than those of his Soviet ancestors?
It’s truly amazing that Putin continues to stubbornly ignore reality, just like the infamous emperor with his new clothes. As the Financial Times reports (h/t Streetwise Professor):
Russia will actually receive less capital inflows than initially thought – with Russian stocks attracting barely half of what was predicted in April. The IIF estimates that inflows into Russia will be $67.5bn this year, down from $72.4bn estimated in April. Russian equities, which were expected to bring in $12.5bn, will now account for just $6.7bn of the total.
On the one hand, Russia’s economy continues to suffer from state intervention and dubious governance. On the other, the extent of the country’s own boom and bust – with banks suffering from having granted excessive consumer credit – has been overlooked. As a result, optimism that a firming oil price would bring foreign investors into Russia appears to have been misplaced. It appears that, however often analysts say Russian equities are attractively priced, few foreign investors want to move first.
Vladimir Putin is simply not qualified to run a market economy, and he is in fact not even trying to do so. Instead, he is rapidly recreating the failed Soviet state, driving his nation once again towards the precipice of collapse.