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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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Constantinople: Ukrainian Church leader is now uncanonical

October 12 letter proclaims Metropolitan Onuphry as uncanonical and tries to strong-arm him into acquiescing through bribery and force.

Seraphim Hanisch

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The pressure in Ukraine kept ratcheting up over the last few days, with a big revelation today that Patriarch Bartholomew now considers Metropolitan Onuphy “uncanonical.” This news was published on 6 December by a hierarch of the canonical Ukrainian Orthodox Church (running under the Moscow Patriarchate).

This assessment marks a complete 180-degree turn by the leader of the Orthodox Patriarchate of Constantinople, and it further embitters the split that has developed to quite a major row between this church’s leadership and the Moscow Patriarchate.

OrthoChristian reported this today (we have added emphasis):

A letter of Patriarch Bartholomew of Constantinople to His Beatitude Metropolitan Onuphry of Kiev and All Ukraine was published yesterday by a hierarch of the canonical Ukrainian Orthodox Church, in which the Patriarch informed the Metropolitan that his title and position is, in fact, uncanonical.

This assertion represents a negation of the position held by Pat. Bartholomew himself until April of this year, when the latest stage in the Ukrainian crisis began…

The same letter was independently published by the Greek news agency Romfea today as well.

It is dated October 12, meaning it was written just one day after Constantinople made its historic decision to rehabilitate the Ukrainian schismatics and rescind the 1686 document whereby the Kiev Metropolitanate was transferred to the Russian Orthodox Church, thereby, in Constantinople’s view, taking full control of Ukraine.

In the letter, Pat. Bartholomew informs Met. Onuphry that after the council, currently scheduled for December 15, he will no longer be able to carry his current title of “Metropolitan of Kiev and All Ukraine.”

The Patriarch immediately opens his letter with Constantinople’s newly-developed historical claim about the jurisdictional alignment of Kiev: “You know from history and from indisputable archival documents that the holy Metropolitanate of Kiev has always belonged to the jurisdiction of the Mother Church of Constantinople…”

Constantinople has done an about-face on its position regarding Ukraine in recent months, given that it had previously always recognized the Metropolitan of Kiev and All Ukraine of the Ukrainian Orthodox Church-Moscow Patriarchate as the sole canonical primate in Ukraine.

…The bulk of the Patriarch’s letter is a rehash of Constantinople’s historical and canonical arguments, which have already been laid out and discussed elsewhere. (See also here and here). Pat. Bartholomew also writes that Constantinople stepped into the Ukrainian ecclesiastical sphere as the Russian Church had not managed to overcome the schisms that have persisted for 30 years.

It should be noted that the schisms began and have persisted precisely as anti-Russian movements and thus the relevant groups refused to accept union with the Russian Church.

Continuing, Pat. Bartholomew informs Met. Onuphry that his position and title are uncanonical:

Addressing you as ‘Your Eminence the Metropolitan of Kiev’ as a form of economia [indulgence/condescension—OC] and mercy, we inform you that after the elections for the primate of the Ukrainian Church by a body that will consist of clergy and laity, you will not be able ecclesiologically and canonically to bear the title of Metropolitan of Kiev, which, in any case, you now bear in violation of the described conditions of the official documents of 1686.

He also entreats Met. Onuphry to “promptly and in a spirit of harmony and unity” participate, with the other hierarchs of the Ukrainian Orthodox Church, in the founding council of the new Ukrainian church that Constantinople is planning to create, and in the election of its primate.

The Constantinople head also writes that he “allows” Met. Onuphry to be a candidate for the position of primate.

He further implores Met. Onuphry and the UOC hierarchy to communicate with Philaret Denisenko, the former Metropolitan of Kiev, and Makary Maletich, the heads of the schismatic “Kiev Patriarchate” and the schismatic “Ukrainian Autocephalous Orthodox Church” respectively—both of which have been subsumed into Constantinople—but whose canonical condemnations remain in force for the canonical Ukrainian Orthodox Church.

The hierarchs of the Serbian and Polish Churches have also officially rejected the rehabilitation of the Ukrainian schismatics.

Pat. Bartholomew concludes expressing his confidence that Met. Onuphry will decide to heal the schism through the creation of a new church in Ukraine.

The Ukrainian Orthodox Church under Metropolitan Onuphry’s leadership is recognized as the sole canonical Orthodox jurisdiction in Ukraine by just about every other canonical Orthodox Jurisdiction besides Constantinople. Even NATO member Albania, whose expressed reaction was “both sides are wrong for recent actions” still does not accept the canonicity of the “restored hierarchs.”

In fact, about the only people in this dispute that seem to be in support of the “restored” hierarchs, Filaret and Makary, are President Poroshenko, Patriarch Bartholomew, Filaret and Makary… and NATO.

While this letter was released to the public eye yesterday, the nearly two months that Metropolitan Onuphry has had to comply with it have not been helped in any way by the actions of both the Ecumenical Patriarchate and the Ukrainian government.

Priests of the Canonical Church in Ukraine awaiting interrogation by the State authorities

For example, in parallel reports released on December 6th, the government is reportedly accusing canonical priests in Ukraine of treason because they are carrying and distributing a brochure entitled (in English): The Ukrainian Orthodox Church: Relations with the State. The Attitude Towards the Conflict in Donbass and to the Church Schism. Questions and Answers.

In a manner that would do any American liberal proud, these priests are being accused of inciting religious hatred, though really all they are doing is offering an explanation for the situation in Ukraine as it exists.

A further piece also released yesterday notes that the Ukrainian government rehabilitated an old Soviet-style technique of performing “inspections of church artifacts” at the Pochaev Lavra. This move appears to be both intended to intimidate the monastics who are living there now, who are members of the canonical Church, as well as preparation for an expected forcible takeover by the new “united Church” that is under creation. The brotherhood characterized the inspections in this way:

The brotherhood of the Pochaev Lavra previously characterized the state’s actions as communist methods of putting pressure on the monastery and aimed at destroying monasticism.

Commenting on the situation with the Pochaev Lavra, His Eminence Archbishop Clement of Nizhyn and Prilusk, the head of the Ukrainian Church’s Information-Education Department, noted:

This is a formal raiding, because no reserve ever built the Pochaev Lavra, and no Ministry of Culture ever invested a single penny to restoring the Lavra, and the state has done nothing to preserve the Lavra in its modern form. The state destroyed the Lavra, turned it into a psychiatric hospital, a hospital for infectious diseases, and so on—the state has done nothing more. And now it just declares that it all belongs to the state. No one asked the Church, the people that built it. When did the Lavra and the land become state property? They belonged to the Church from time immemorial.

With the massive pressure both geopolitically and ecclesiastically building in Ukraine almost by the day, it is anyone’s guess what will happen next.

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Ukrainian leadership is a party of war, and it will continue as long as they’re in power – Putin

“We care about Ukraine because Ukraine is our neighbor,” Putin said.

RT

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Via RT…


Russia’s President Vladimir Putin has branded the Ukrainian leadership a “party of war” which would continue fueling conflicts while they stay in power, giving the recent Kerch Strait incident as an example.

“When I look at this latest incident in the Black Sea, all what’s happening in Donbass – everything indicates that the current Ukrainian leadership is not interested in resolving this situation at all, especially in a peaceful way,” Putin told reporters during a media conference in the aftermath of the G20 summit in Buenos Aires, Argentina.

This is a party of war and as long as they stay in power, all such tragedies, all this war will go on.

The Kiev authorities are craving war primarily for two reasons – to rip profits from it, and to blame all their own domestic failures on it and actions of some sort of “aggressors.”

“As they say, for one it’s war, for other – it’s mother. That’s reason number one why the Ukrainian government is not interested in a peaceful resolution of the conflict,” Putin stated.

Second, you can always use war to justify your failures in economy, social policy. You can always blame things on an aggressor.

This approach to statecraft by the Ukrainian authorities deeply concerns Russia’s President. “We care about Ukraine because Ukraine is our neighbor,” Putin said.

Tensions between Russia and Ukraine have been soaring after the incident in the Kerch Strait. Last weekend three Ukrainian Navy ships tried to break through the strait without seeking the proper permission from Russia. Following a tense stand-off and altercation with Russia’s border guard, the vessels were seized and their crews detained over their violation of the country’s border.

While Kiev branded the incident an act of “aggression” on Moscow’s part, Russia believes the whole Kerch affair to be a deliberate “provocation” which allowed Kiev to declare a so-called “partial” martial law ahead of Ukraine’s presidential election.

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When Putin Met Bin Sally

Another G20 handshake for the history books.

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Via Zerohedge


In the annals of handshake photo-ops, we just may have a new winner (much to the delight of oil bulls who are looking at oil treading $50 and contemplating jumping out of the window).

Nothing but sheer joy, delight and friendship…

…but something is missing…

Meanwhile, earlier…

Zoomed in…

And again.

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