January 9, 2015

A Street-Level View of Russia’s Economic Crisis



Describing the recent plunge in oil prices, the distinguished Harvard economist Ken Rogoff recently said, “Oil prices are the big story for 2015. They are a once-in-a-generation shock and will have huge reverberations.” Among the most important of those reverberations is the potential effect on Russia, which counts on oil as a major source of export earnings. Earlier in 2014, the West had imposed economic sanctions in response to Russia’s role in the Ukraine conflict. A key geopolitical question is how the combined effects of sanctions, a crashing currency, and falling oil revenues would influence Russian behavior.

The following guest post is a glimpse into how these developments appear to some Russians. It comes from Alex Pantich, an American student of international relations and recent graduate of The Ohio State University.
 
I arrived in Moscow in September and have since seen the effects of Russia’s economic tumble first-hand. As a teacher and a foreigner who speaks Russian, I have observed two different reactions to the crisis: people who are appalled and frightened by it; and people who are emboldened by it.

The first group seems to be made up mainly of younger people, though I have met some older Russians who have the same feelings. These are the people who support anti-corruption reformers and are horrified as week by week their prospects for a prosperous future fall with the ruble against the dollar. Many of my friends in Moscow who, back in 2013, thought that their professional future would always lie in Russia are now thinking about emigrating or have already done so. There are some who hope to stay and fight for a different Russia but most feel there is no way to change things and no bright future to find within Russia.

This first group is definitely in the minority. Most of the Russians I know fall into the second group. I have heard many older Russians laugh at the sanctions and say “The Americans call this a crisis? Ha, we lived through 1991 and 1998. This is nothing. There is still food on the shelves.” One of the most interesting billboard advertisements I have seen was for apartments. It read: “Our answer to sanctions! Lower prices!” and included a picture of a tank’s cannon and a Russian woman in a military outfit with a very short skirt. This embodies the response of older Russians to this crisis. They don’t see it as a real threat yet because it comes nowhere near the earlier crises.

A month ago I hosted a discussion on “Russia’s Transition to a Free Market Economy” with 10 Russians, most of them over the age of 40. I expected many to have a dim view of how capitalism came to Russia, but I was surprised by the depth of nostalgia for communism. The majority of the participants thought that Russia would be much better off if all large companies were nationalized. They felt that large companies stole money from average Russians because they didn’t pay their taxes and offshored much of their profit. When I mentioned Russian corruption and suggested money would probably still be stolen, I was told that the government is more trustworthy than private industry. The general sentiment seemed to be that capitalism has brought too much individualism to Russia and that a return to communism or at least a more socialist state would encourage greater social cohesion.

One of the most striking comments came from an older woman who is a PhD professor of English. She said that supermarkets are one of the main reasons for Russia’s problems today. She asserted that young Russians today are lazy (a view with which the other participants enthusiastically agreed) and this laziness is partially due to the ease of access to food. She said that during the Soviet Union era, people had to work and grow potatoes on the side.  This led her to the conclusion that if people had to go out with their family every weekend to work and harvest potatoes it would both encourage young people to be more hardworking and encourage greater social cohesion. The other participants were divided, but the majority agreed with her. They believed that Russian society has become too soft on the back of oil profits and needs a period of austerity to return it to the great state it once was.

I also asked the participants what they thought about Russia’s military spending, specifically whether it was too low or too high. They all agreed that it was much too low. When I asked them why, they said Russia needed a large army to stand up to the United States, in case it tried to start a war with Russia (a very real possibility in their minds). They told me that the United States has been bullying countries since the Soviet Union fell and that Russia needs a strong military to stand up to them. When I asked about social and education spending I was told that they were important but the military came first.

The emboldened second group also consists of young people, who were not represented at my discussion club. They are nationalistic and support both Putin and Russia without question. They wear Putin shirts on the street and feel the blame for Russia’s problems lies solely on the shoulders of the West. The sanctions have incensed them even more. In both the falling oil prices and the sanctions they see a conspiracy between Saudi Arabia and the West to neuter Russia because of Ukraine and Syria. I have met a number of people like this at bars in Moscow and once they find out I am American there is always a silence and a distance develops between us until they discover I am half Serbian, at which point they call me “brother” (Serb and Russian nationalists consider one another close allies).  My conversations with these young nationalists have been very interesting. They are adamant in their support for Russia against outside forces and they truly believe that the United States seeks the complete humiliation and destruction of Russia. Their pockets have been hit just as hard as their older peers but they feel that it is the price they have to pay for Russia to maintain her dignity. I’ve also noticed that as the economy gets worse, the rhetoric they use gets more and more heated.

I’ve asked these people in the past about freedom of speech and press. Their response has been that freedom of speech is not necessarily a good thing because the truth isn’t always told. This was their justification for state control of news sources and the internet sphere. They said “the state cares for us and will tell us the truth, can we really trust just anyone on the street to tell us the truth?”

These are just anecdotal observations from Moscow, rather than any randomized sampling of Russian views. The conclusion I have drawn from these observations is that the Russian people will continue to support Putin in the face of further sanctions and the drop in oil prices. They will do so because they feel like he is in their corner while much of world is not. As the war in Ukraine continues, and the shock of sanctions and lower oil prices settles in, the discontent of the Russian people will most likely be focused outward, rather than inward, against the forces they believe to be aligned against Russia.
 

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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