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reflections

May 26, 2016 | 02:54 GMT

5 mins read

The Russian Economic Revolution That Never Was

Russia's Race to Reform
(SERGEI KARPUKHIN/AFP/Getty Images)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

Russia's economic strategy is in disarray. The government has already cut its federal budget for 2016 twice, and the Kremlin has still not made a final decision on this year's spending. After muddling through two years of economic hardship, government members, silovarchs and technocrats are squabbling over how to escape a prolonged crisis. On Wednesday, Russian President Vladimir Putin resurrected his Presidium of the Economic Council to come up with a plan for the next three years. The presidium has been dormant for two years. Originally composed of dozens of economists, statesmen and entrepreneurs, the group proved too large and diverse to agree on a future economic and financial strategy for Russia. In its latest iteration, the presidium has shrunk to just six members representing Russia's three primary economic camps.

Russian central bank chief Elvira Nabiullina leads the most conservative camp, which has not pushed for any substantial reforms or stimulus to the Russian economy. Former Finance Minister Alexei Kudrin heads a second group. Widely regarded as one of Russia's most realistic economic thinkers, Kudrin left his post in 2011 after a disagreement with then-President Dmitri Medvedev over spending cuts. Kudrin and other like-minded figures — such as Finance Minister Anton Siluanov and Economic Minister Alexey Ulyukayev — favor structural reforms to the entire Russian system, not just the economy. The group has called for the state to reduce its role in the economy, a shocking proposal for the highly centralized Russian government. Although the ministries are already pursuing plans to privatize many of the state's most coveted and strategic companies, Kudrin's camp wants to go further by increasing public financing and implementing social, judicial and security reforms.

Kudrin's camp stands in stark contrast to the presidium's third camp, a strange collective that calls itself the Stolypin Club. Sergei Glazyev, a presidential adviser, and Andrei Kaplach, deputy chairman of Vnesheconombank, lead the group, which takes its name from Pyotr Stolypin, Russia's prime minister from 1906 to 1911. The Stolypin Club believes the government should print more cash to implement a large-scale stimulus, allowing the state to sink deeper into deficit. At the same time, the group advocates radical reforms that would sever most of Russia's financial ties to the West, prohibiting Russian entities from using foreign currency or taking foreign loans and requiring Russian firms to default on existing loans from the West.

Though the club's policies have little in common with those of its namesake, Stolypin's Russia suffered many of the same problems that plague the country today. In 1906, Stolypin, reacting to massive instability in the country, implemented a series of radical reforms to the Russian economic, political and social systems. At the time, demographics in the Russian Empire were shifting as Russian peasants moved to the cities. In addition, tensions had flared between the country's ethnic Slavic and non-Slavic populations and among borderland residents. In 1899, the empire's economy sharply declined because of contractions in European industry and money markets. One-third of Russia's noblemen sold off their assets, leaving the lower classes either jobless or with assets they did not know how to manage.

All of this came to a head in 1905. Protests, riots and violence erupted across the Russian Empire, a presage of the revolution that would follow 12 years later. In St. Petersburg, nearly a million workers protested the aristocracy. Across the country, academic strikes were staged, and Slavs rioted against Jews, Poles, Lithuanians and other minorities. At the time, the U.S. Consul in St. Petersburg described a scene rife with "murder ... robbery and crime of every kind."

The Russian Empire cracked down on the uprisings while making piecemeal concessions to the public, for example by establishing a parliamentary system. But Stolypin knew the entire system needed to be overhauled. He believed that breaking the empire's economic reliance on the state would create a class of independent workers even more loyal to the crown. Although his reforms began in the agricultural sector, he also undertook efforts to liberalize the empire's educational, judicial and political systems — much as Kudrin proposes to do today.

Stolypin's vision was hailed as the economic revolution that would bring the Russian Empire closer to the status of its more prosperous Western counterparts. But Stolypin's process faltered, derailed by the First World War and the Russian Revolution. As a result, one can only speculate about whether Stolypin's reforms would have solved or exacerbated the country's problems.

Now the Presidium of the Economic Council's three camps face a similar quandary. Russia cannot regain its stability by ignoring its many problems. Kudrin's plan to overhaul the economy would change Russia's situation in the long term. But like Stolypin's reforms, the proposed restructure accounts neither for the external pressures building on Russia nor for the political, ethnic and economic hostilities once again simmering in the country. More important, the Russian people may not have the patience to wait as the government reforms its way out of a crisis.

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