Russia’s Economic Meltdown: Consequences and Prospects for the Future

January 28, 2009

Editor’s Note: Moscow faces the prospect of serious turmoil as protests in response to the financial crisis spread throughout Russia. What underlying policies gave rise to the current problem and how well is the Putin administration weathering the storm? On January 28, the

Carnegie Endowment for International Peace

hosted a discussion on the main cause of Russia’s current financial downturn. Brookings Scholars Clifford Gaddy and Barry Ickes joined Carnegie Scholars Rose Gottemoeller and Mark Medish to reflect on what the future holds for Russia’s economy as the Putin administration navigates the burst of the oil bubble.

What we’re really going to be talking about is economic policy in this – what we call Putin’s system or Putin’s model. We’ve written about this is in an article in the National Interest if – some of you may have read it – I encourage you to read it because hopefully it will present these ideas in a bit more coherent and clear form, although without any graphs and charts, which may be the advantage of today’s presentation. So let me just quickly sum up what we argue is Putin’s system – the way he’s managing this economy.

And begin with what we would say is four key premises in his mind. Number one is that the economy is key for Russia’s strength in the world – not its military, not all this other stuff that was in the Soviet day – the economy. Number two: If that’s true, the economy should be as strong and efficient as possible and that has implications for what kind of an economic system you have, because Putin, as I’ll point out, is convinced that a Soviet-style economy – central planning, state ownership and so forth – is not the way to a strong economy. It proved itself in the Soviet period to have a weak economy.

Third key premise is that the economy has to ensure the priority of state interest, which of course is not always the case – in his mind – in a pure market economy with private ownership. So something has to be added. And a fourth point – extremely important, of course, for the current talk and current situation – is this economy has to be robust to crisis and kind of a worse-casescenario-type crisis. I’ll get to that in a minute. So the efficiency point is the point I made that Russia does need a market economy with private owners.

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View Gaddy on Russia’s Economy »