The Scoop on Putin’s New Chief of Staff; Are Russians Really Unhappy?; Engdahl Reports that Putin Has Finally Cast the Neoliberals Aside in Economic Policy

Alexander's Column at Palace Square, St. Petersburg, Russia; photo by Natylie S. Baldwin
Alexander’s Column at Palace Square, St. Petersburg, Russia; photo by Natylie S. Baldwin

As mentioned in a previous post, Putin’s long-time Chief of Staff, Sergei Ivanov, resigned recently and has been replaced by Anton Vaino.  Vaino is not well-known and Marina Obrazkova at Russia Direct had an article providing some background and information about him:

Last week Russian President Vladimir Putin appointed a new Chief of Staff of the Presidential Administration, Anton Vaino, who will also become a permanent member of Russia’s Security Council. The former head of the Presidential Administration, Sergei Ivanov, will now focus on questions of environmental protection, ecology and transport as a special presidential envoy.

….Until recently Vaino worked as a deputy head of the Kremlin’s Presidential Administration. The new Chief of Staff is 44 years old and is originally from Tallinn, the capital of Estonia. A graduate of the Moscow State Institute of International Relations (MGIMO University), Vaino is fluent in English and Japanese. After graduation, he worked in the Russian embassy in Japan and, later, served in the Asia department of the Russia’s Foreign Ministry.

Vaino’s colleagues argue that he is a competent and reserved person. “Such traits as composure, friendliness, and discretion will merge well with his managerial style. He is hardworking and energetic. He is capable of setting goals of different scope and scale as well as controlling them. Vaino is a classic manager,” Dmitry Orlov, general director at the Agency of Political and Economic Communications, told Russia Direct

The new Chief of Staff has acquired his popularity quite quickly, the expert points out. “In terms of ratings, Vaino moved up quickly from the top 90 to the top 20, even though transitions in Russian politics are usually quite conservative,” he explains. “This is a sign that he has a serious position in the power structure and the president has a high assessment of his work.”

According to Orlov, the growth of Vaino’s influence has not surprised the expert community. His appointmentthoughdid.

Meanwhile, Pavel Salin, director of the Center for Political Studies at the Financial University under the Russian Government, argues that Ivanov, as a trusted member of the president’s inner circle, was a very strong political figure and had power to influence the decision-making process. In contrast, Vaino is just a technocrat, notwithstanding his knowledge of the Kremlin’s inner workings.

“It might be said that he is Putin’s former aide-de-camp. He was the head of protocol carrying out all technical functions and had access to the physical presence of the president 24/7,” the political analyst says. “Notwithstanding his invisibility, he is well aware of all intricacies of the Presidential Administration.”

Obrazkova’s sources reiterate the importance of this particular political role in the Kremlin:

The position of Chief of Staff of the Presidential Administration is one of the most influential ones in Russian politics. According to Orlov, this position is in the top five judging by overall importance. Officially, the head of this structure is the third most important person in the country.

“The head of the Presidential Administration is an important position – the third most significant role in Russia,” the political analyst says.

Salin agrees with this view but he adds that this position depends a lot on personality.

“The role of Chief of Staff as well as the role of any presidential body, is highly dependent on the loyalty of its leader. Another factor is the president’s vision for the given institution: whether he wants to see it strong or weak, independent or simply technical,” he said.

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Gilhard Verjoen, a new writer on Russia issues over at The Duran,  discusses his experience with a phenomena that many of us independent Russia analysts (who have done in-depth research with an open mind and even visited the country we’re commenting on) know all too well:  the major disconnect between the real Russia and the Russia that is portrayed in western mainstream media.

Just as in any other country some people in Russia like their President and some people don’t.  However when the Western media continually bad mouths a country (Russia), there is always an agenda behind it. In every country where Washington wanted a regime change, they demonised its leader in order to get public support to intervene and come to the rescue of its poor population that suffers under this demon of a leader. Now they are doing the same with Russia.

Truth however is, Yes Putin is not an Angel nor a knight in shining armour, but he has paid off all the debt the country owed and he turned the economy round and built up its military again.

One of the most common ways to interpret a country’s well being is to look at its GDP. Russia’s GDP speaks for itself.  However I went further and looked at findings of the OECD (Organisation for Economic Co-operation and Development), which states on its website, that 69% of people in Russia are employed compared to 65% of OECD countries. In OECD countries 13% of employees work extremely long hours, compared to 0.2% in Russia.

Yes in Russia, the average disposable income per household is at $19,292, lower than the $25,908 of the OECD countries, but when people were asked how satisfied they are with life (out of 10), the Russian average was 6 – very close to the OECD average of 6.6. In the OECD countries, 75% of people have secondary education, whilst in Russia it is 94%. The list goes on and on. All the detail can be found here.

So just where do the Western media get their sources that Russians are not happy or are suffering under Putin?

Most of the cross-section of Russians I spoke to on my trip last October, were reasonably content with their lives.  I will add the caveat that I visited major cities and, therefore, cannot speak to how Russians living in the hinterlands may feel about their lives – at least, not from personally talking to them.

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Independent journalist and academic, F. William Engdahl, reports at New Eastern Outlook that Putin has finally sidelined the neoliberals, led by Alexei Kudrin, and given a green light to the “statists,” led by Sergei Glazyev.

After more than two years of worsening economic growth and an economy struggling with 10.5% central bank interest rates that make new credit to spur growth virtually impossible, Russian President Vladimir Putin has finally broken an internal factional standoff. On July 25 he mandated that an economic group called the Stolypin Club prepare their proposals to spur growth revival to be presented to the government by the Fourth Quarter of this year. In doing so, Putin has rejected two influential liberal or neo-liberal economic factions that had brought Russia into a politically and economically dangerous recession with their liberal Western free market ideology. This is a major development, one I had been expecting since I had the possibility to exchange views this June in St. Petersburg at the annual St. Petersburg International Economic Forum.

With very little fanfare, Russian press a few days ago carried a note that could have a most profound positive significance for the future of the Russian domestic economy. The online Russian blog, Katheon, carried the following short notice: “Russian President Vladimir Putin instructed (the Stolypin economist group–w.e.) to finalize the report of the Stolypin Club and on its basis to prepare a new program of economic development, alternative to Kudrin’s economic plan. The program itself should be given to the Bureau of Economic Council in the IV quarter of 2016.”

….In the current situation of severe Western economic and financial sanctions against Russia the flows of such private investment into the economy as the Kudrin camp advocates are rare, to put it gently. Cutting what is a very minimal budget deficit only increases unemployment and worsens the situation. President Putin has clearly realized that that neo-liberal “experiment” has failed. More likely, is that he was forced to let economic reality unfold under the domination of the liberals to the point it was clear to all internal factions that another road was urgently needed. Russia, like every country, has opposing vested interests and now clearly the neo-liberal bested interests are sufficiently discredited by the poor performance of the Kudrin group that the President is able to move decisively. In either case, the development around the Stolypin Group is very positive for Russia.

In convening the new meeting of the Economic Council Presidium on May 25, after a hiatus of two years, President Putin, noting that the group deliberately consisted of opposing views, at that time stated, “I propose today that we start with the growth sources for Russia’s economy over the next decade…The current dynamic shows us that the reserves and resources that served as driving forces for our economy at the start of the 2000’s no longer produce the effects they used to. I have said in the past, and want to stress this point again now, economic growth does not get underway again all on its own. If we do not find new growth sources, we will see GDP growth of around zero, and then our possibilities in the social sector, national defense and security, and in other areas, will be considerably lower than what is needed for us to really develop the country and make progress. “

Now just two months later, Putin obviously has decided. He clearly has an eye as well to Russia’s next presidential elections in March 2018. In doing so he has selected the one group of the three on the Economic Council that believes that the state has a positive role to play in development of the national economy.

The Stolypin group in many ways harkens back to the genius behind the German “economic miracle” after 1871, whose ideas created the most impressive economic growth from backwardness in all Europe within just over three decades. The only other countries to come near to that German economic achievement were the United States after 1865, and the Peoples’ Republic of China after 1979, with the Deng Xiaoping “Socialism with Chinese Characteristics.” The national economic development model is based on the work of the now-all-but-unknown 19th Century German national economist, Friederich List, the developer of the basic model of national economic development.

….The group is in essence followers of what the great almost-forgotten 19th Century German economist, Friedrich List, would call “national economy” strategies. List’s national economy historical-based approach was in direct counter-position to the then-dominant British Adam Smith free trade school.

List’s views were increasingly integrated into the German Reich economic strategy beginning under the Zollverein or German Customs Union in 1834, that unified one German internal domestic market. It created the basis by the 1870’s for the most colossal emergence of Germany as an economic rival exceeding Great Britain in every area by 1914.

….A broad indication of the kind of proposals the Stolypin group will propose to revive substantial economic growth in Russia and deal with major basic infrastructure deficits that greatly hinder productive enterprise came in a series of proposals Glazyev made in September 2015 to the Russian Security Council, a key advisory body to the President.

There, Glazyev proposed a five-year ‘road map’ to Russia’s economic sovereignty and long-term growth. It was aimed toward building up the country’s immunity to external shocks and foreign influence, and ultimately, toward bringing Russia out of the periphery and into the core of the global economic system. Goals included raising industrial output by 30-35 percent over a five year period, creating a socially-oriented ‘knowledge economy’ via the transfer of substantial economic resources to education, health care and the social sphere, the creation of instruments aimed at increasing savings as a percent of GDP, and other initiatives, including a transition to a sovereign monetary policy.

However, Dmitry Dokuchaev at Russia Direct has taken a much more tepid view of what has actually been decided upon in terms of the economic policies of the liberals vs. the statists:

For now, the competing strategies have not been written yet, and public discussions on them have not started. True, this May, the two concepts were discussed during the meeting of the Presidential Presidium of the Economic Council, but only behind closed doors. Nevertheless, over the last couple of months, the two sides have made a sufficient number of statements and allowed some “leaks” that can provide the basis on which to judge the content of future programs.

In December 2015, representatives of the Stolypin Club issued a report, which, apparently, will form the basis of their strategy. In it, they outline how to boost the economic growth in the country. They proposed to increase investments, pumping up the economy with state money from the budget, and by having the Central Bank issue 1.5 trillion rubles. Simultaneously with that, they expressed the idea of cancelling the “free floating” ruble (i.e., the pure market determination of its exchange rate), by having the exchange rate set by the Central Bank, while at the same time limiting speculative assaults against the national currency.

At the second stage, they plan to bring the tax system into line with the standards used in developed countries. In particular, this calls for the return of the unified social tax (UST) that was canceled in 2010, as well as the reduction of the tax burden on businesses from the current 49 percent, to an average 41 percent level. Also outlined were such measures as “soft” currency regulation, as well as reforms to land laws, the judicial system and certain aspects of the old age pensions program.

A different concept was proposed by the Center for Strategic Studies, headed by Kudrin. In his opinion,investments should come from the private sector, but the state needs to create favorable conditions for this – by ensuring macroeconomic stability, low inflation and reduced budget deficits. This also means carrying out reforms, as well as ending the new “cold war” with the West, reducing geopolitical tensions and seeking foreign investments.

In addition, Kudrin does not believe that economic growth is being hampered by a lack of money, which allegedly the country needs to print. Corporate bank accounts currently have accumulated savings of 14 trillion rubles, which is sufficient for the investment needs of the country for one year. However, according to Kudrin, in the current circumstances, business simply prefers not to invest these funds, but keep them in reserve for the proverbial “rainy day.”

Commodity companies have also acquired a stockpile of money, which they are not planning to invest. This money is sitting in bank accounts, earning very good returns due to high interest rates, argues Titov of the Stolypin Club. The demand for cheap money is huge – if one were to announce the availability of loans at below market rates, lineups would form from the Kremlin to the Garden Ring Road, he insists.

Titov refers to the economic program of his rival Kudrin as the “lazy economy.” According to him, Kudrin’s plan, which involves inflation targeting and following a tight fiscal policy, does not imply active actions – one just needs to wait for the economy to adapt to external conditions. For their part, Kudrin and his supporters are convinced that the active stimulation of the economy, through the use of the printing press and the issuance of cheap loans, as proposed by the Stolypin Club, will, in the end, only lead to the acceleration of inflation and ruble volatility.

….With his program, Kudrin is forcing the head of state to make a tough choice – either ambitious political goals and economic stagnation, or modest political goals and moderate economic growth. The ex-finance minister’s concept is strong, in that it will preserve the financial reserves of the government and the Central Bank, which, in turn, ensure the security of the state.

However, Putin is unlikely to look favorably on Kudrin’s defeatist position, which involves talk about backwardness and a lack of faith in a positive future, as well as conviction that Russia cannot rely on four-percent GDP growth in the coming years.

The same applies when it comes to improving relations with the West: Putin has already clearly stated that Russia will not sell its sovereignty. Nevertheless, many experts believe that, in the end, priority will be given to Kudrin’s program. After all, Putin, over the years of his reign, has shown himself as a statist in the political sense, but at the same time, he has always favored liberal approaches when it came to the economy.

I don’t totally agree that Putin has always had a cut-and-dried preference for neoliberal economic policy.  In my assessment, he has had a more discerning approach, believing in trade and markets but not to the extent of selling out control of its economic resources to foreign investors or completely lopsided trade agreements, and also stating publicly that Russia is a welfare state.  I think Putin tends to lean more toward the economic model of the Scandinavian countries (circa the 1970’s and 1980’s) as a long-term goal.

This will, no doubt, be an interesting story to follow in the coming months.

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