The Party Is Over
- By Yulia Latynina
- Dec. 24 2008 00:00
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It is not difficult to see that the situation in Primorye is a repeat of what happened in Novocherkassk in 1962. In this small, one-factory city near Rostov-on-Don, workers were told to increase production while their pay was effectively cut after Moscow's central planners announced major price increases on staple foods.
Now in the Far East, where salaries had already been dropping, Kremlin leaders will raise the price on imported cars. The impact in Primorye from price hikes on car imports is dangerously similar to what was felt by Novocherkassk residents in 1962, when prices were raised for butter and meat.
I don't think the authorities were overly worried about the Primorye residents when they decided to raise import duties, despite the fact that the number of people who resell or service used imported cars in the region is no smaller than those who assemble Russian passenger models in Nizhny Novgorod, Tolyatti and other cities.
Most likely, the decision on import duties was made in order to help Kremlin favorites like Sergei Chemezov and Oleg Deripaska whose holding companies own the AvtoVAZ and GAZ carmakers. But it is highly questionable whether this tactic will save the domestic car industry. The only possible hope for this dying sector is if the government allows the ruble to devalue to its real market value. But that would be a bold move, and the authorities are not accustomed to making bold decisions. They prefer making cautious -- which inevitably means bad -- decisions, for which they rarely have to answer later.
Few people know that the Kremlin has delivered not one, but two deadly blows to Primorye. On Nov. 1, the government also placed high tariffs on the export of raw timber. As a result, the whole economy of the Far East ground to an immediate halt. Thousands of timber-filled train wagons and cargo ships stood idle on the region's borders and at its ports, and tens of thousands of people lost their jobs overnight. In this case, however, the government quietly repealed the tariffs.
The ingenious plan behind the high tariffs on timber exports was to stimulate the development of Russia's wood-processing sector. But it seems that the effect was just the opposite: The lumber industry froze up and nobody built any wood mills.
This example clearly shows that state regulatory measures only work when there is a functioning government. But when the state apparatus has become nothing more than a feeding trough for corrupt bureaucrats or a cover for officials to avoid answering for their bad policies, regulatory measures become nothing more than a sham.
In reality, Russia is not going through an economic crisis. The real crisis is that its government model is fundamentally flawed. Under Putinomics, when petrodollars are flooding state coffers, the government can afford to make bad decisions without worrying about the consequences. Even before the crisis, the country was already sinking into a state of disorder and the government was dysfunctional, but while oil money kept pouring into state coffers, Putin was able to cover up most of the mess.
But starting in the fall, it became clear that the country's national wealth was acquired thanks to high world oil prices and not as a result of any individual's personal wisdom. But now the party is over, and any decision the authorities make -- whether it is ruble devaluation, bankruptcy for AvtoVAZ or squashing protests in Primorye -- will come at a very high price indeed.
Yulia Latynina hosts a political talk show on Ekho Moskvy radio.