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Why Putin will win re-election: Russians like the status quo

While Russia needs more economic reforms, most citizens are afraid of things getting worse before they get better

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(bne IntelliNews) – Russia has fallen into the middle income trap and it is going to struggle to climb out again. One of the things that keep countries in this trap is that while life could be better, it’s actually not that bad. The Kremlin is banking on the population’s preference for the status quo over radical change to ensure that President Vladimir Putin is a shoo-in at the March 2018 presidential elections. But another six years of Putin’s rule will only make it harder to escape from Russia’s mediocrity.

Russian do want change, and polls show they want it more than ever before. But they just don’t want very much change. The population is haunted by the very recent memory of the nightmarish 1990s when incomes were counted in the $10s and inflation hit a peak of 2400% (that’s 6% a day). Any change must come with guarantees of preserving what they already have.

And life has improved out of all recognition in the last two decades. From a basket case in 1992, today Russia has become a more or less a normal country. It is the only emerging market that has been reclassified “high income” by the United Nations Development Programme (UNDP) in the last decade and has incomes on a par with the poorest EU member states.

Although a lot of money has been invested into things such as new equipment and technology, profits and productivity are rising more slowly than costs. The trap is despite the fast catch up of the early phase, the economy becomes increasingly uncompetitive as time passes.

The Russian economy demonstrated astonishing growth between the two financial crises of 1998 and 2009 in its catch-up phase. The gross domestic product expanded 83% in these 11 years, productivity was up by 70%, and fixed capital investment doubled in real terms.

Whereas in 1999, per capita GDP (in purchasing power parity – PPP – terms) was $9,300 (only 25% above the global average), by 2008, this indicator had increased to $21,600 (78% above the global average). At the same time Russia’s share in the world economy (calculated at prevailing exchange rates) grew fourfold over the same period, from 0.6% to 2.7%. And most importantly the welfare of the population increased considerably: real wages increased by 3.4 times, and real pensions increased by 2.8 times.

Russia raced ahead until  2014, when it suddenly hit the brick wall of the “silent crisis.” It has been losing ground to its competitors ever since – especially now that Central Europe is booming.

The rule of thumb is the middle income trap kicks in when salaries are 40% of the US average, according to the European Bank for Reconstruction and Development’s chief economist Sergei Guriev. Currently the US per capita income is $58,030;  as of the end of 2016 against Russia’s is $22,540, or 38.8%.

To catch up with countries with a similar level of economic development, Russia needs to increase capital investment by an additional 1% of GDP per year, said Guriev at a conference of the New Economic School in Moscow this week, as well as make a lot of really obvious investments into infrastructure, social services, education and health, among other things.

One of the most insidious parts of this trap is that life at this level is actually not too bad – especially when set in the context of a country emerging from the poverty of the early stages of transition. In order to boost productivity both company owners and the workers have to make a big effort and take risks. The forces of “creative destruction” need to be unleashed where successful companies flourish, but the inefficient ones go bust. Transition country leaders are more focused on keeping people employed because of the hardships that went before, and so support the inefficient companies for the sake of the jobs they provide. Likewise, the workers would rather keep a secure but low paying job than take risks on a much better one that comes with the possibility of it blowing up.

All this conspires to make it hard for a country in the middle income trap to climb out of its potential and move on to the next stage.

Much has been written on the rising poverty in Russia, but again put it into the European context and life in Russia is not so bad. Russian poverty is on a par, or better, than the EU average and most of the developed world. The current Russian poverty level is 13.1% of the population, but that compares favourably with the US poverty level of 12.9% and is better than both Portugal and Spain – two countries the Kremlin said it wants to catch up with – that have poverty levels of 18% and 21.1% respectively. Likewise, Russia per capita income is 114% and 85% of per capita income in Portugal and Spain respectively in PPP terms.

Thanks to the residual oil and gas revenues, Russia continues to make incremental progress, although clearly the collapse of oil prices in 2014, and the associated deep devaluation of the ruble, have knocked the country back; but after a decade of 10% annual wages increases, there is a very large income cushion to fall back on. But to escape the trap the government will have to make radical and deep reforms – and that boils down to getting the work force off the government teat and into the private sector.

Another myth about Russia is the size of the public sector. The most widely quoted estimate is the estimates of the Federal Antimonopoly Service (FAS), which said state-owned companies actually account for a whopping 70% of GDP. However, as bne IntelliNews reported the actual size of the public sector is more like 40% – although there is a lot of uncertainty over the actual number.

The problem the Kremlin faces is that to really make a difference it needs to basically sack half the workforce and tell them to find a better job – and in most regions these private sector jobs simply don’t exist. Even after the elections are passed and with radical reforms clearly on the agenda, the Kremlin is unlikely to make this move.

Moreover, the people themselves don’t want it. A fascinating survey by Carnegie Endowment for International Peacefound that Russians are evenly divided on the need for radical reform: 42% of Russians advocate decisive and full-scale changes, another 41% called for minor changes and a gradual improvement of the current situation. It was the poor that are keenest on fast change, while the middle class are for the status quo. Surprisingly, the young were least keen on change.

And this “it used to be a lot worse,” thinking is part of the reason so many Russians will vote for Putin: a poll by the state-owned pollster, the Russian Public Opinion Research Centre (VTsIOM), reported 84% will vote to keep Putin and 70% will turn out to vote.

But the people are discontented. The standard of living has clearly fallen over the last four years so Russians want something to change. Another survey by the Institute of Sociology of the Russian Academy of Sciences found that the phlegmatic Russians are keener on change than ever before. Unsurprisingly the respondents to this survey were wholly focused on raising the standard of living and improving social services, while political changes remain a secondary concern. There is a basic tension in Russian society between the desire for change and the fear of reforms that may upset the hard-won “not that bad” status quo.

The survey found that over the past 10 years, most respondents preferred stability to change: in 2007 the ratio was 60% to 40%, in 2012 72%/28%, and in October 2016 61%/39%. The tables finally turned this autumn and by December the ratio had flipped to 49%/51%.

This survey, by contrast with Carnegie’s, found that the desire for change was much stronger with the young than the old: of Russians aged 30, 62% support the reforms; of 31-40-year-olds 51% want changes; and over 41-years the majority are for keeping the status quo. The crisis has gone on too long and people are tired of coping. While there is a mild economic recovery at the federal level, on the ground real incomes only went positive earlier this year and the more important real disposable incomes (money left after spending on food and utilities) is still just in negative territory.

What  can the government do to get out of this trap? The answer is pretty obvious and most of the key elements are already in the plans being proposed. New economic drivers need to be found in the form of new business, technology and added value production, but so far the only effective investment the government has made is into agriculture. The government has gone a bit blockchain bonkers, but this initiative has yet to produce many jobs. To get these to work, institutions need to be made more efficient, rules simplified and the rule of law and property rights vigorously enforced.

One indicator of the problems is the lack of small and medium-sized enterprises (SMEs) in the economy. Large business is more productive everywhere, but the gap between large and small business in Western Europe is 40%, and in Eastern Europe it is 70%, according to the EBRD. Another recent survey found that 80% of SMEs had been approached by officials for bribes.

Most of Central Europe had the needed deep reforms forced on them by their EU accession bids and are booming as they begin to move beyond the middle income trap. None of the Eastern European countries have made these changes. The earliest these changes could appear is in the second half of next year, but don’t hold your breath.

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High-ranking Ukrainian official reports on US interference in Ukraine

It is not usually the case that an American media outlet tells the truth about Ukraine, but it appears to have happened here.

Seraphim Hanisch

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The Hill committed what may well have been a random act of journalism when it reported that Ukrainian Prosecutor General, Yuriy Lutsenko, told Hill.tv’s reporter John Solomon that the American ambassador to that country, Marie Yovanovitch, gave him a “do not prosecute” list at their first meeting.

Normally, all things Russia are covered by the American press as “bad”, and all things Ukraine are covered by the same as “good.” Yet this report reveals quite a bit about the nature of the deeply embedded US interests that are involved in Ukraine, and which also attempt to control and manipulate policy in the former Soviet republic.

The Hill’s piece continues (with our added emphases):

“Unfortunately, from the first meeting with the U.S. ambassador in Kiev, [Yovanovitch] gave me a list of people whom we should not prosecute,” Lutsenko, who took his post in 2016, told Hill.TV last week.

“My response of that is it is inadmissible. Nobody in this country, neither our president nor our parliament nor our ambassador, will stop me from prosecuting whether there is a crime,” he continued.

Indeed, the Prosecutor General appears to be a man of some principles. When this report was brought to the attention of the US State Department, the response was predictable:

The State Department called Lutsenko’s claim of receiving a do not prosecute list, “an outright fabrication.” 

“We have seen reports of the allegations,” a department spokesperson told Hill.TV. “The United States is not currently providing any assistance to the Prosecutor General’s Office (PGO), but did previously attempt to support fundamental justice sector reform, including in the PGO, in the aftermath of the 2014 Revolution of Dignity. When the political will for genuine reform by successive Prosecutors General proved lacking, we exercised our fiduciary responsibility to the American taxpayer and redirected assistance to more productive projects.”

This is an amazing statement in itself. “Our fiduciary responsibility to the American taxpayer”? Are Americans even aware that their country is spending their tax dollars in an effort to manipulate a foreign government in what can probably well be called a low-grade proxy war with the Russian Federation? Again, this appears to be a slip, as most American media do a fair job of maintaining the narrative that Ukraine is completely independent and that its actions regarding the United States and Russia are taken in complete freedom.

Hill.TV has reached out to the U.S. Embassy in Ukraine for comment.

Lutsenko also said that he has not received funds amounting to nearly $4 million that the U.S. Embassy in Ukraine was supposed to allocate to his office, saying that “the situation was actually rather strange” and pointing to the fact that the funds were designated, but “never received.”

“At that time we had a case for the embezzlement of the U.S. government technical assistance worth 4 million U.S. dollars, and in that regard, we had this dialogue,” he said. “At that time, [Yovanovitch] thought that our interviews of Ukrainian citizens, of Ukrainian civil servants, who were frequent visitors of the U.S. Embassy put a shadow on that anti-corruption policy.”

“Actually, we got the letter from the U.S. Embassy, from the ambassador, that the money that we are speaking about [was] under full control of the U.S. Embassy, and that the U.S. Embassy did not require our legal assessment of these facts,” he said. “The situation was actually rather strange because the funds we are talking about were designated for the prosecutor general’s office also and we told [them] we have never seen those, and the U.S. Embassy replied there was no problem.”

“The portion of the funds, namely 4.4 million U.S. dollars were designated and were foreseen for the recipient Prosecutor General’s office. But we have never received it,” he said.

Yovanovitch previously served as the U.S. ambassador to Armenia under former presidents Obama and George W. Bush, as well as ambassador to Kyrgyzstan under Bush. She also served as ambassador to Ukraine under Obama.

Former Rep. Pete Sessions (R-Texas), who was at the time House Rules Committee chairman, voiced concerns about Yovanovitch in a letter to the State Department last year in which he said he had proof the ambassador had spoken of her “disdain” for the Trump administration.

This last sentence may be a way to try to narrow the scope of American interference in Ukraine down to the shenanigans of just a single person with a personal agenda. However, many who have followed the story of Ukraine and its surge in anti-Russian rhetoric, neo-Naziism, ultra-nationalism, and the most recent events surrounding the creation of a pseudo-Orthodox “church” full of Ukrainian nationalists and atheists as a vehicle to import “Western values” into a still extremely traditional and Christian land, know that there are fingerprints of the United States “deep state” embeds all over this situation.

It is somewhat surprising that so much that reveals the problem showed up in just one report. It will be interesting to see if this gets any follow-up in the US press.

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President Putin signs law blocking fake news, but the West makes more

Western media slams President Putin and his fake news law, accusing him of censorship, but an actual look at the law reveals some wisdom.

Seraphim Hanisch

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The TASS Russian News Agency reported on March 18th that Russian President Vladimir Putin signed off on a new law intended to block distorted or untrue information being reported as news. Promptly after he did so, Western news organizations began their attempt to “spin” this event as some sort of proof of “state censorship” in the oppressive sense of the old Soviet Union. In other words, a law designed to prevent fake news was used to create more fake news.

One of the lead publications is a news site that is itself ostensibly a “fake news” site. The Moscow Times tries to portray itself as a Russian publication that is conducted from within Russian borders. However, this site and paper is really a Western publication, run by a Dutch foundation located in the Netherlands. As such, the paper and the website associated have a distinctly pro-West slant in their reporting. Even Wikipedia noted this with this comment from their entry about the publication:

In the aftermath of the Ukrainian crisis, The Moscow Times was criticized by a number of journalists including Izvestia columnist Israel Shamir, who in December 2014 called it a “militant anti-Putin paper, a digest of the Western press with extreme bias in covering events in Russia”.[3] In October 2014 The Moscow Times made the decision to suspend online comments after an increase in offensive comments. The paper said it disabled comments for two reasons—it was an inconvenience for its readers as well as being a legal liability, because under Russian law websites are liable for all content, including user-generated content like comments.[14]

This bias is still notably present in what is left of the publication, which is now an online-only news source. This is some of what The Moscow Times had to say about the new fake news legislation:

The bills amending existing information laws overwhelmingly passed both chambers of Russian parliament in less than two months. Observers and some lawmakers have criticized the legislation for its vague language and potential to stifle free speech.

The legislation will establish punishments for spreading information that “exhibits blatant disrespect for the society, government, official government symbols, constitution or governmental bodies of Russia.”

Insulting state symbols and the authorities, including Putin, will carry a fine of up to 300,000 rubles and 15 days in jail for repeat offenses.

As is the case with other Russian laws, the fines are calculated based on whether the offender is a citizen, an official or a legal entity.

More than 100 journalists and public figures, including human rights activist Zoya Svetova and popular writer Lyudmila Ulitskaya, signed a petition opposing the laws, which they labeled “direct censorship.”

This piece does give a bit of explanation from Dmitry Peskov, showing that European countries also have strict laws governing fake news distribution. However, the Times made the point of pointing out the idea of “insulting governmental bodies of Russia… including Putin” to bolster their claim that this law amounts to real censorship of the press. It developed its point of view based on a very short article from Reuters which says even less about the legislation and how it works.

However, TASS goes into rather exhaustive detail about this law, and it also gives rather precise wording on the reason for the law’s passage, as well as how it is to be enforced. We include most of this text here, with emphases added:

Russian President Vladimir Putin has signed a law on blocking untrue and distorting information (fake news). The document was posted on the government’s legal information web portal.

The document supplements the list of information, the access to which may be restricted on the demand by Russia’s Prosecutor General or his deputies. In particular, it imposes a ban on “untrue publicly significant information disseminated in the media and in the Internet under the guise of true reports, which creates a threat to the life and (or) the health of citizens, property, a threat of the mass violation of public order and (or) public security, or the threat of impeding or halting the functioning of vital infrastructural facilities, transport or social infrastructure, credit institutions, energy, industrial or communications facilities.”

Pursuant to the document, in case of finding such materials in Internet resources registered in accordance with the Russian law on the mass media as an online media resource, Russia’s Prosecutor General or his deputies will request the media watchdog Roskomnadzor to restrict access to the corresponding websites.

Based on this request, Roskomnadzor will immediately notify the editorial board of the online media resource, which is in violation of the legislation, about the need to remove untrue information and the media resource will be required to delete such materials immediately. If the editorial board fails to take the necessary measures, Roskomnadzor will send communications operators “a demand to take measures to restrict access to the online resource.”

In case of deleting such untrue information, the website owner will notify Roskomnadzor thereof, following which the media watchdog will “hold a check into the authenticity of this notice” and immediately inform the communications operator about the resumption of the access to the information resource.
The conditions for the law are very specific, as are the penalties for breaking it. TASS continued:

Liability for breaching the law

Simultaneously, the Federation Council approved the associated law with amendments to Russia’s Code of Administrative Offences, which stipulates liability in the form of penalties of up to 1.5 million rubles (around $23,000) for the spread of untrue and distorting information.

The Code’s new article, “The Abuse of the Freedom of Mass Information,” stipulates liability for disseminating “deliberately untrue publicly significant information” in the media or in the Internet. The penalty will range from 30,000 rubles ($450) to 100,000 rubles ($1,520) for citizens, from 60,000 rubles ($915) to 200,000 rubles ($3,040) for officials and from 200,000 rubles to 500,000 rubles ($7,620) for corporate entities with the possible confiscation of the subject of the administrative offence.

Another element of offence imposes tighter liability for the cases when the publication of false publicly significant information has resulted in the deaths of people, has caused damage to the health or property, prompted the mass violation of public order and security or has caused disruption to the functioning of transport or social infrastructure facilities, communications, energy and industrial facilities and banks. In such instances, the fines will range from 300,000 rubles to 400,000 rubles ($6,090) for citizens, from 600,000 rubles to 900,000 rubles ($13,720) for officials, and from 1 million rubles to 1.5 million rubles for corporate entities.

While this legislation can be spun (and is) in the West as anti-free speech, one may also consider the damage that has taken place in the American government through a relentless attack of fake news from most US news outlets against President Trump. One of the most notable effects of this barrage has been to further degrade and destroy the US’ relationship with the Russian Federation, because even the Helsinki Summit was attacked so badly that the two leaders have not been able to get a second summit together.

While it is certainly a valued right of the American press to be unfettered by Congress, and while it is also certainly vital to criticize improper practices by government officials, the American news agencies have gone far past that, to deliberately dishonest attacks, based in innuendo and everything possible that was formerly only the province of gossip tabloid publications. The effort has been to defame the President, not to give proper or due criticism to his policies, nor credit. It can be properly stated that the American press has abused its freedom of late.

This level of abuse drew a very unusual comment from the US president, who wondered on Twitter about the possibility of creating a state-run media center in the US to counter fake news:

Politically correct for US audiences? No. But an astute point?

Definitely.

Freedom in anything also presumes that those with that freedom respect it, and further, that they respect and apply the principle that slandering people and institutions for one’s own personal, business or political gain is wrong. Implied in the US Constitution’s protection of the press is the notion that the press itself, as the rest of the country, is accountable to a much Higher Authority than the State. But when that Authority is rejected, as so much present evidence suggests, then freedom becomes the freedom to misbehave and to agitate. It appears largely within this context that the Russian law exists, based on the text given.

Further, by hitting dishonest media outlets in their pocketbook, rather than prison sentences, the law appears to be very smart in its message: “Do not lie. If you do, you will suffer where it counts most.”

Considering that news media’s purpose is to make money, this may actually be a very smart piece of legislation.

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US continues to try to corner Russia with silence on Nukes

Moscow continues to be patient in what appears to be an ever more lopsided, intentional stonewalling situation provoked by the Americans.

Seraphim Hanisch

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TASS reported on March 17th that despite Russian readiness to discuss the present problem of strategic weapons deployments and disarmament with its counterparts in the United States, the Americans have not offered Russia any proposals to conduct such talks.

The Kremlin has not yet received any particular proposals on the talks over issues of strategic stability and disarmament from Washington, Russian Presidential Spokesman Dmitry Peskov told TASS on Sunday when commenting on the statement made by US National Security Adviser John Bolton who did not rule out that such talks could be held with Russia and China.

“No intelligible proposals has been received [from the US] so far,” Peskov said.

Earlier Bolton said in an interview with radio host John Catsimatidis aired on Sunday that he considers it reasonable to include China in the negotiation on those issues with Russia as well.

“China is building up its nuclear capacity now. It’s one of the reasons why we’re looking at strengthening our national missile defense system here in the United States. And it’s one reason why, if we’re going to have another arms control negotiation, for example, with the Russians, it may make sense to include China in that discussion as well,” he said.

Mr. Bolton’s sense about this particular aspect of any arms discussions is correct, as China was not formerly a player in geopolitical affairs the way it is now. The now all-but-scrapped Intermediate Range Nuclear Forces Treaty, or INF, was a treaty concluded by the US and the USSR leaders Ronald Reagan and Mikhail Gorbachev, back in 1987. However, for in succeeding decades, most notably since the fall of the Soviet Union, the US has been gradually building up weaponry in what appears to be an attempt to create a ring around the Russian Federation, a situation which is understandably increasingly untenable to the Russian government.

Both sides have accused one another of violating this treaty, and the mutual violations and recriminations on top of a host of other (largely fabricated) allegations against the Russian government’s activities led US President Donald Trump to announce his nation’s withdrawal from the treaty, formally suspending it on 1 February. Russian President Vladimir Putin followed suit by suspending it the very next day.

The INF eliminated all of both nations’ land based ballistic and cruise missiles that had a range between 500 and 1000 kilometers (310-620 miles) and also those that had ranges between 1000 and 5500 km (620-3420 miles) and their launchers.

This meant that basically all the missiles on both sides were withdrawn from Europe’s eastern regions – in fact, much, if not most, of Europe was missile-free as the result of this treaty. That is no longer the case today, and both nations’ accusations have provoked re-development of much more advanced systems than ever before, especially true considering the Russian progress into hypersonic and nuclear powered weapons that offer unlimited range.

This situation generates great concern in Europe, such that the UN Secretary General Antonio Guterres called on both Moscow and Washington to salvage the INF and extend the Treaty on Measures for the Further Reduction and Limitation of Strategic Offensive Arms, or the New START as it is known.

“I call on the parties to the INF Treaty to use the time remaining to engage in sincere dialogue on the various issues that have been raised. It is very important that this treaty is preserved,” Guterres said at a session of the Conference on Disarmament in Geneva on Monday.

He stressed that the demise of that accord would make the world more insecure and unstable, which “will be keenly felt in Europe.” “We simply cannot afford to return to the unrestrained nuclear competition of the darkest days of the Cold War,” he said.

Guterres also urged the US and Russia to extend the START Treaty, which expires in 2021, and explore the possibility of further reducing their nuclear arsenals. “I also call on the United States and the Russian Federation to extend the so-called New START Treaty before it expires in 2021,” he said.

The UN chief recalled that the treaty “is the only international legal instrument limiting the size of the world’s two largest nuclear arsenals” and that its inspection provisions “represent important confidence-building measures that benefit the entire world.”

Guterres recalled that the bilateral arms control process between Russia and the US “has been one of the hallmarks of international security for fifty years.”

“Thanks to their efforts, global stockpiles of nuclear weapons are now less than one-sixth of what they were in 1985,” the UN secretary-general pointed out.

The Treaty between the United States of America and the Russian Federation on Measures for the Further Reduction and Limitation of Strategic Offensive Arms (the New START Treaty) entered into force on February 5, 2011. The document stipulates that seven years after its entry into effect each party should have no more than a total of 700 deployed intercontinental ballistic missiles (ICBM), submarine-launched ballistic missiles (SLBM) and strategic bombers, as well as no more than 1,550 warheads on deployed ICBMs, deployed SLBMs and strategic bombers, and a total of 800 deployed and non-deployed ICBM launchers, SLBM launchers and strategic bombers. The new START Treaty obliges the parties to exchange information on the number of warheads and carriers twice a year.

The new START Treaty will remain in force during 10 years until 2021, unless superseded by a subsequent agreement. It may be extended for a period of no more than five years (that is, until 2026) upon the parties’ mutual consent. Moscow has repeatedly called on Washington not to delay the issue of extending the Treaty.

 

 

 

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