One of the key events that precipitated the demonstrations in Ukraine that eventually led to the ouster of President Yanukovych was his cancellation of an association agreement with the EU which carries with it an arrangement for loan funds from the IMF. An alternative arrangement was negotiated directly with Putin and Russia. The IMF agreement carried with it the market reform/austerity measures that are typical of IMF bailouts. In the case of Ukraine subsidized energy prices were one of the targets. In discussions about the complexities of the Ukrainian crisis on Daily Kos and elsewhere there is on strain of opinion that sees Russia as offering some sort of alternative to the harsh neoliberal policies of the IMF and the EU. This diary is an attempt to explore that notion by examining some of the present trends in economic and social policy in the Russian Federation.
Neoliberalism is a complex historical movement and it is often difficult to draw a bright line as to what is and is not neoliberal policy. A while back I did a diary series on the history of neoliberalism. Anyone wanting an explanation of what I mean by the term is referred to those diaries. Conceptually the opposite of neoliberal economic and social policy is socialism. There is very little in the way of formal socialism on offer in the world of the 21st C. Cuba and Venezuela are about as close as it gets. Russia and China have both morphed from Marxist communism to arrangements that are probably best described as state capitalism.
I would like to examine two issues of social policy in contemporary Russia, pension reform and energy subsidies in an effort to see if they represent more personal economic security than is typical of the situation inside the EU.
Russia has had a pension system that looks SOMEWHAT like the US combination of Social Security and 401K. There is a combination of a state run pension fund and private investment defined contribution accounts. The state was responsible for collecting all of the money through payroll taxes and then allocating it between the two funds. The money going into the defined contribution accounts had been regarded as the personal property of the employee. New legislation to "reform" the system was recently passed.
Russia's government approved a pension system overhaul on Thursday that will give it tighter control over savings accumulated by private funds while reducing the burden of an ageing population on the state's budget.This legislation was presented to the public as an interim measure. Russia, like every other industrialized nation, is dealing with the problem of rising pension costs associated with an ageing population. One could interpret this change as a move away from the privitization associated with neoliberalism toward a state controlled system. One could also view the appropriation of private funds as another instance of Kremlin kleptocracy. It would be necessary to see how the process unfolds over the next couple of years before making conclusive judgments about purpose and outcomes. However, it seems to me that there is strong reason to question whether this represents an improvement in retirement security for ordinary Russians.
Changes to the law will prevent private funds from collecting payroll contributions until they have changed their legal status and been vetted by the central bank, a process that is expected to take at least a year.
The move has raised concerns among market participants about nationalization of pension savings - often a tempting measure for cash-strapped governments looking to plug holes in over-stretched state pension systems.
The share of Russia's working age population is expected to decline by the end of Putin's third term in 2018 to 56.8 percent from 60.1 percent in 2013, Russian Federal Statistics forecasts show, adding to the burden of paying pensioners.
The economics and politics of energy have been fundamentally central to post Soviet Russia. Under the Yeltsin government the state owned industrial enterprises were turned over to the ownership of the workers by the distribution of individual shares. In the economic chaos that prevailed at the time the workers were willing to sell their shares for modest prices. That made it possible for a new breed of capitalist robber barons to rapidly acquire control of the industries in key economic sectors. They became known as oligarchs. When Putin assumed the presidency from Yeltsin he set about exerting control over the oligarchs in a not especially gentle manner. He managed to wrest control of the major energy enterprises and consolidate them in a nominally state owned corporation called Gazprom.
"Russia produced approximately 510 billion cubic meters (bcm) of natural gas in 2011, and approximately 60% of it was sold on the domestic Russian market. Russia has one of the highest domestic consumption rates per capita of natural gas - understandably so, since Russia is one of the world's coldest countries, and heating and electricity use is high. Russian industry also depends heavily on natural gas.The Russian government is trying to reduce the energy subsidies to domestic consumers without creating a political backlash. At the same time it wants to use energy supplies to Europe as a tool to exercise control over foreign policy. Putin and his government claim to be prepared to face economic sanctions from the west and to absorb the domestic economic shocks that they would likely create. If they attempt to curtail energy exports as a means of retaliation that would add more pressure to accelerate the increases in domestic gas prices.
Russia uses a four-tier pricing system for natural gas: two tiers for domestic prices, one for the former Soviet states and one for its European customers. Russia has long capped domestic natural gas prices, a practise left over from the Soviet era. Currently, Russia charges between $75 and $97 per thousand cubic metres (tcm) on the domestic market, with households and municipal entities, such as schools and hospitals, paying the lower price and industrial entities paying more. Most of the former Soviet states pay in the mid-$200s and Europe pays $350 to $450 per tcm.
Russia's natural gas firms - primarily Gazprom - are suffering financially because of measures that let domestic users pay a fraction of the price Russia's foreign customers pay. In the past decade, the Kremlin has permitted Gazprom to increase its price by 14 to 25% a year. This gradual increase has prevented a massive backlash from natural gas consumers in Russia because it has been accompanied by improving economic standards in the country. However, Gazprom says this increase is insufficient.
The present incarnation of Russian state capitalism does not appear to be making an effort to reconnect with the socialist past. Their present efforts at "reform" don't look all that different from something that might have been concocted by the IMF. It seems to me that smaller countries lacking in wealth and power like Ukraine face rather dismal prospects in the present world. Whether one is looking at Ukraine, Greece, Sudan, Bolivia or Bangladesh none of them are likely to find a lot in the way of aid and comfort from their more powerful neighbors. The notion that the people of Ukraine would fair better economically by dealing with Russia instead of the EU and IMF doesn't seem to hold up very well. The painful reality seems to be that they are seriously broke and caught between the devil and the deep Balck Sea.