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. Last Updated: 07/27/2016

Programmed for Fiscal Disaster

No surprises that as far as private business interests are concerned, the recently released Communist economic program reads badly. No surprises, either, that the bad news takes the form of price controls, tighter financial regulation and the renationalization of strategic sectors.


The text may not be riveting. But it is worth picking holes in influential documents which happen also to be economically illiterate. And it is important to note that even if Communist leader Gennady Zyuganov does become Russia's president, the reality will have little to do with the program.


Despite a reported 16 drafts and diligent editing, the program remains riddled with vagueness and contradiction. The document lacks coherence partly to appeal to different groups of voters, each of them holding contradictory views. The inconsistencies also reflect deep divisions within the Communist Party itself: Keeping moderates, such as Duma Speaker Gennady Seleznyov, and extremists, such as Viktor Anpilov and company, under the same banner requires a certain degree of duplicity.


At the heart of the program is an attack on the current government's austere economic policies -- specifically, "the neutron bomb" of monetarism. Communist economists cannot deny that low inflation is good, but they downplay the importance of keeping the money supply tight. Inflation, they say, can instead be overcome by imposing price controls. And "free education for all, free health care for all" and the like can be financed simply by printing money.


This position defies all logic. Until inflation is below around 30 percent per year, squeezing monetary growth is the only way prices rises can be tamed. In the last 12 months, Russia's Central Bank has kept money relatively tight, so inflation is now reaching new lows, in turn pushing up real incomes. The"structural" causes of inflation so beloved of the Communists -- such as monopolistic pricing or high energy prices -- only become relevant once money supply has stopped growing completely.


Bone-headed price controls such as the Communists advocate would do nothing but place Russian consumers before the old Soviet dilemma: shortages and queues on the one hand, extortionate black markets on the other.


The Communist program also dumps the ruble corridor -- which "benefits importers at the expense of domestic industry." Because the corridor punishes increases in the money supply with immediate loses of international reserves, it remains the most effective anti-inflationary device in the official policy armory. To want low inflation, while ending the corridor, simply does not add up. And as for helping domestic industry, the best way to help Russian firms is to keep on delivering, on the low inflation front.


The Communists want to cut imports from the West, but imports today are lower than they were under Communism. They assert that Russia's declining industrial production is a "national catastrophe" -- but much of Soviet output added negative value, fulfilling defunct military production quotas rather than consumers' desires.


The Communist program is at its foggiest when comparing Russia with other countries. Japan features heavily -- the government should encourage the formation of keiretsu-style "financial industrial groups" like the Japanese have, the argument goes, with a Russian State Bank of Reconstruction and Development for good measure. But the Japanese achieved high post-war growth on the strength of an aggressive export strategy and high inflows of foreign capital, both of which the Communists want to avoid.


It is reassuring that the Communists' program eschews Marxist rhetoric. But in its place comes a "Keynesian" logic which stresses the importance of reviving demand. A Communist government will apparently spend its way out of recession by investing in industry and putting money in people's hands via social programs.


If any Communists are looking for evidence of Keynesian policy in practice, they should talk to Jim Callaghan, prime minister of the U.K.'s "Keynesian" Labor government in the 1970s. This is Callaghan, talking to his own party, prior to a landslide defeat:"We used to think you could spend your way out of a recession by boosting government spending. I tell you now ... that option no longer exists. In so far as it ever existed it worked only on each occasion to inject larger doses of inflation into the economy, followed by higher unemployment as a next step."


The most widely held Communist-related fear among business interests is not more inflation, but renationalization. If Zyuganov prevails, in order to consolidate his power base, he may decree several de-privatizations. More likely, the government may pay back debts it took on during loans-for-shares auctions, maintaining part ownership of several majority-privately owned blue-chip firms. But it is not at all clear these assets would remain in the public sector long. Soon enough, they would return to market under a different masthead.


In Central and Eastern Europe, communism stands for national humiliation and mental oppression. Political opportunists in those parts used the party's name and infrastructure, but they did not present the electorate with an updated variant of traditional communism. The break with the past was clear and welcome.


In Russia, in contrast, for a solid chunk of the population, communism conjures images of superpower status, national pride and a sunnier youth. Opposition spin doctors know a lot of the old message can be profitably recycled. This is why Zyuganov's party has repackaged a familiar formula to collect votes which are there for the asking.


At the highest level, these Presidential elections will be about property. Zyuganov's party represents the least dynamic members of the old nomenklatura -- those who missed out during the immediate post-communist confusion. Yeltsin, on the other hand, is backed by the nomenklatura who made substantial gains, both in terms of position and wealth. These communists' aim is not to permanently transfer resources from the private sector to the state, but to change the distribution of ownership within the private sector. Russia's communists are not against business -- they simply want some for themselves.