Vladimir Putin's claim to political legitimacy is closed tied to his record as the strongman who brought economic order and a modicum of prosperity out of the chaos of post-Soviet, post-Yeltsin Russia. And, as he once again seeks the presidency -- this time facing unexpectedly vigorous opposition -- he'll surely be playing the economic stability card whenever possible. But this time around, it's hard to make the case that his election is key to keeping Russia on a growth track. Far from it: Putin's brand of top-down rule undermines the prospects of building a productive, diversified economy.
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To see why, consider the economy's roller-coaster ride over the past two decades. In its last years, the economy of the Soviet Union was a bizarre mélange of First and Third World: a military superpower, with a scientific elite to match, that sucked anything of real value from a backward industrial economy bedeviled by corruption and inefficiency. The trouble is that the economy of today's Russian Federation still more or less fits that description.
To be fair, some things have changed since the USSR was consigned to the dustbin of history. In big cities, shops are full of consumer goods that no longer look like props from Terry Gilliam's black comedy, Brazil. Government pensions get paid in a currency that actually buys something. And Moscow's streets are so clogged with private cars that the city now struggles with worse traffic than London. But the economy is still largely a Potemkin façade that depends on the sale of raw materials and weapons to keep the lights on.
Even hindsight doesn't offer much enlightenment into how the economic collapse that paralleled the Soviet Union's political collapse might have been avoided. GDP fell by more than one-third in the 1990s, as the crumbling planned economy self-destructed. Output only recovered to the 1990 level in 2004. Meanwhile, much of the country's vast natural resource wealth was sold for a song to a new class of political connected oligarchs.
The hopelessly inefficient industrial base has been partly scrapped, partly refurbished with the aid of foreign technology and management practices. And the cowboy capitalism of the transition decade gave way after the 1998 financial meltdown to a more predictable sort of monopoly-dominated crony capitalism in Putin's Russia. Growth averaged seven percent annually between 1999 and 2008. Taxes are now collected, and a modest level of public services is delivered in return.
But the key to the Russian economy's success in the last decade was the global commodity boom. As the world's largest producer of crude oil and the second largest producer of natural gas, Russia has benefitted mightily from the run-up in fossil fuel prices. Indeed, thanks to booming oil revenues, Moscow was able to muster a $200 billion bailout for its banks after the economy was slammed by the global recession in 2008.
If you don't look too closely, the economy now seems in pretty good shape. Per capita income, in terms of purchasing power, is approaching $20,000 - small potatoes compared to the United States ($47,000) or Germany ($37,000), but not far from, say, Portugal ($26,000), and probably double the output bequeathed by the Soviets. The government's fiscal house is in order. In fact, unlike virtually any other economy you can name, the budget is in surplus, and the government's financial assets actually exceed its debts. Elite education in the sciences, one of the few genuine achievements of the USSR, is still good. And one can see some payoff in the emergence of a world-class software industry.
But the view is decidedly less tidy from close up. For starters, there's the not-so-small matter of inequality. The economist's favorite yardstick of household income inequality, the GINI index, is middling by comparison with other countries in Russia's income range. But the impact of poverty is all too visible in health statistics. Life expectancy is eight years less than in China and barely above that of Papua New Guinea. Infant mortality is triple that of Spain. Arguably the most telling statistic: the total fertility rate (the number of children the average woman will have in a lifetime) is 1.4 -- a shockingly low rate that reflects, at the very least, housing scarcity and, more likely, deep pessimism about the future.
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