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Konstantin Sonin - Russia can never be like China

0 28 March 2014

There is much speculation at the moment about the future of the Russian economy. While the West discusses possible sanctions, Russian government officials are already talking up potentially profitable partnerships with China, India and other emerging countries. 

In an article published by Hopes & Fears Konstantin Sonin (pictured), vice-rector of Moscow’s Higher School of Economics, sheds some light on what may or may not happen, and how it would affect Russia’s economy.   

Russia could become a “new China”

There is no such thing as the “Chinese option”, and it is crazy to suggest that Russia could follow that path. Chinese growth is based on two fundamentals - a market economy and openness to world markets for imports and exports. When the Chinese tried to go without these their economy went from the second largest in the world 100 years ago to the sixth in the mid 20th century - and it fell into a very bad state. The Chinese miracle became possible only when they opened up to the free market and the world.  

A national payment system could replace the international one

Creating our own payment system is a technical issue and it cannot have a positive effect. The problems that prevent Russia from fully plugging in to the global financial system are not to do with technical calculations. They are much bigger. There isn’t any cheap money in Russia, and there’s also no cheap way to transfer money into the country. Creating a national payment system will benefit those who get to implement the project, which is why they are lobbying for it so enthusiastically. However, the country has a whole won’t gain anything from it. 

An internet clampdown

Limitations on the internet can’t possibly have a positive effect on the development of the economy, but neither can it have a particularly negative effect unless, for example, they decide to ban electronic payments. However, any measures that limit the sharing of information between companies and the public do threaten the sector’s wellbeing. When there is els information, it makes it more difficult for Russian and foreign companies to make investments, because increased uncertainty means increased risk. 

The high oil-price means that nothing in Russia will change

A few years ago Sergey Guriev, Georgy Egorov and I wrote a paper on the relationship between oil prices and freedom of the press. We argued that the higher the oil price, the freer an authoritarian government is to limit press freedom. We can see this being played out in Russia at the moment, as the government reduces press freedom at a time when oil prices are high. The government feels able to pursue this, along with other controversial policies, because it feels that the high oil price allows it to do anything without damaging the economy. This belief is misplaced.

The state of our economy before the sanctions were announced was not very healthy, and the sanctions make things worse. We didn’t have any real sources of growth, and everything that has happened just slows down the process of technology transfer and weakens stimuli for development. 

Source: Hopes and Fears

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