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. Last Updated: 07/27/2016

Wishful Thinking Won’t Solve the Crisis

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After the drop in oil prices in the fall and the subsequent devaluation of the ruble, government officials, business leaders and economic analysts were thrown into a panic. Even Finance Minister Alexei Kudrin, whose job requires that he try to calm people’s fears, began issuing one gloomy statement after another.

Nonetheless, it seemed that the economy started to stabilize in the second quarter as oil prices crept upward again and the ruble gained. The general panic gave way to renewed optimism, and the authorities reverted to their typical overly confident statements about the economy.

As could have been expected, however, that confidence turned out to be premature. During this period of seeming stability, manufacturing continued to fall, unemployment grew and demand dwindled. Moreover, in early July the price of oil fell once again and brought the stock market and the value of the ruble tumbling down with it. The hard-won gains of the first half of 2009 were lost in only a few days. Once again we heard doomsday predictions that the economy would soon crash.

Russia has experienced a roller-coaster ride of dramatic mood shifts. Periods of panic are followed by self-assuring statements about having “hit bottom already.” This testifies to how little the country’s leaders understand about what is happening and why each new turn of events — whether negative or positive — is so unexpected for them.

The economy has avoided a complete crash thanks to the billions of rubles and dollars the government has thrown at it, creating at times a sense of illusory stability. Rather than using the occasional lulls in the economic storm to understand what is happening and to prepare for the next wave of difficulties, the authorities use the respites to continue a propaganda campaign to convince the people that the economy will soon recover. The more successful their PR efforts are, the less prepared the people are when the next wave hits — and the greater their feelings of shock and confusion.

Salary arrears were already growing rapidly by midsummer, and news reports of massive layoffs had become common. But the escalating social crisis does not necessarily threaten the stability of the political system. Protesters are not calling for a change in leadership — or even for a change in the country’s economic course — but only for back pay and basic civil rights protection.

From an ideological point of view, there is no reason to consider these as challenges to the existing order. But one fact could change everything: As the crisis deepens, the ability of the authorities to meet the people’s demands is rapidly decreasing.

Even if courts rule that companies must pay back wages to workers, employers often do not have the funds to pay employees. Layoffs continue, despite appeals by governors and ministers that employers preserve jobs. And the more the authorities refuse to change the system, preferring stop-gap measures for putting out the fires that are growing daily in number and intensity, the more they will be caught in a downward spiral and the more they will lose control of their policies — and the economy as well.

Boris Kagarlitsky is the director of the Institute of Globalization Studies.