The final countdown of the Putin era

 https://theins.ru/opinions/inozemtsev/255405

The final countdown of the Putin era. Vladislav Inozemtsev on the consequences of mobilization for the economy and the Kremlin

 

 

In recent years, all and sundry, with or without reason, have used the popular formula that "we woke up in another country." The resetting of the terms of the Kremlin usurper, the arrest of Alexei Navalny, the recognition of the "independence" of the DPR and LPR, and the Russian invasion of Ukraine - all these events received the same similar response. Today, however, it is probably worth recognizing that none of them deserved such an assessment: the mobilization announced on September 21 became a milestone that truly divided modern Russian history into “before” and “after”, an event that began the final countdown of the Putin era.

I will not talk about the moral side of the issue - to assess whether the genocide of the Russian people that has begun will change the situation on the Ukrainian front; and delve into history, comparing current and previous mobilizations. I will confine myself to assessing the economic effect of what is happening. He, I am sure, will not go unnoticed by any of the Russians, giving a sharp acceleration to the economic crisis, the prerequisites for which were laid down by the very fact of the Russian invasion of Ukraine.

We know about the mobilization from the Kremlin officials (not too much) and from the Russians themselves (much more). According to the authorities, 300,000 people are expected to be drafted into the army - mainly those who have military specialties and experience, with a strict age limit, after they receive summons from the military registration and enlistment offices. According to ordinary people, the "quotas" for certain areas of the central regions of Russia reach 800 people; from a number of regions it is supposed to call up to 20 thousand - and all this rather confirms the leaks about the real tasks set to send a million or even 1.2 million people to the troops . At the same time, summonses come to people of various ages and levels of education, and representatives of the military registration and enlistment offices, the police and the National Guard begin wholesale raids on men, stoppingthem on the streets, in the subway or at stationary points of the traffic police. These "peculiarities of national mobilization" cause truly catastrophic consequences for the domestic economy.

If we approach the issue purely formally and assume that the vast majority of Russians are eager to lay down their lives or become disabled in Ukraine, protecting the interests of Putin's bureaucracy, then the situation does not look extraordinary. Out of tens of millions of patriots, you can easily recruit 300 thousand and even a million people, the absence of which the economy will not notice at all.

The country officially has 3.1 million unemployed, 700 thousand private security guards , at least 100 thousand personal drivers, 80 thousand deputies of various levels and many other citizens equally useful for the economy. Large Russian companies have a staff many times larger than in the corresponding Western corporations; 774,000 people are employed in the “armored” Russian Railways from the mobilization - the same number as in all railway companies in Europe, the total revenue of which exceeds the income of the Russian monopoly by more than 7 times. However, this would be if, on the one hand, citizens willingly went to war, and, on the other hand, the state knew the measure and was committed to at least elementary legality.

Neither one nor the other applies to modern Russia. Therefore, it is meaningless to assess the losses of the economy from “gnawing out” a million workers from it; the problem lies elsewhere.

Today it is clear that the authorities want to treat the population like cattle, but they are held back by many things - first of all, the expectation of reverse activity. This creates conditions for a disproportionately large mobilization of the population in remote areas, rural areas and small towns. Examples are already known from the Far East, from Buryatia or Yakutia, when almost half of the male population is brought to assembly points from some villages. This means that the already long-stagnating local economy will be on the verge of collapse; thousands of families will be left without income, and local medium and small businesses will simply die out. It seems to me that if before the mobilization it was possible to say that the Russian GDP would fall by 4-5% this year, now my spring forecast of a 10% fall seems almost overly optimistic.

Before mobilization, one could talk about an annual decline in GDP by 4–5%, now it is at least 10%

The answer may be that Russia has recently been the economy of large cities and large companies (Moscow alone accounted for more than 20% of GDP), but here another factor comes into play. Unlike obedient villagers, “advanced” residents of megacities do not want to fertilize the Ukrainian black soil with themselves - and tens of thousands of them have already gone on the run (and we are not talking about those who storm border points - this is not for long, martial law will be introduced in the coming days and close borders) in their own country. People avoid living at the place of registration, the number of men in the center of regional cities on weekdays has decreased several times, and movement between regions has sharply decreased. We have not yet returned to the times of covid quarantines, but everything is moving towards that.

Of course, it should be assumed that in the coming days the military commissariats will begin to calculate people not at the place of registration, but at the place of work - and this will be the strongest blow to the economy: several million people will prefer to quit their jobs so as not to get into the army. Meanwhile, in large cities, the efficiency of business entities is higher than in rural areas, which means that the loss of even a few employees can cause a disproportionate loss to the company. The temporary “disappearance” of at least 3–4 million people from the legal labor market will not go unnoticed. Therefore, I would venture to suggest that in October the GDP indicator for the whole country will decrease by at least 4–6% compared to August, and the following months will only consolidate this trend.

Temporary "disappearance" from the legal labor market of at least 3-4 million people will not go unnoticed

Naturally, the transition of the economy to wartime regime will dramatically increase the scale of corruption (one can recall the joke that the military commissars will break into the Forbes list like a herd) - and throughout the civil service system, and this will seriously undermine any vestiges of business initiative. In addition, mobilization is a very expensive thing: it means that the authorities are focused on continuing the war indefinitely, which requires money. It is no coincidence that, in parallel with the appointment of “referendums” in the occupied territories and the announcement of mobilization at the top, they thought about raising taxes: first on basic industries (the Kremlin intended to collect almost 1.4 trillion rubles from taxes and duties on the export of energy products alone next year), and then on the growth of social payments ( by more than 15%from the beginning of 2023, which appears to be the effect of the merger between the Pension Fund and the Social Insurance Fund).

There is no doubt that in the new situation, each ruble of collected taxes will turn into 2-4 rubles of the fall in the gross product, and the economy will rapidly go into the shadows - both following the "disappearing" citizens, and fleeing from state petty. In such a situation, the frontal reduction in demand is beyond doubt: the standard of living will fall by 5–7% only by the end of the year, simply because the salaries of the mobilized will remain (at least in the first months) virtual, and the retreat of millions who do not want to serve into the shadows will reduce the overall lots of income. Taxes collected from enterprises and citizens will turn out to be a net deduction from public welfare, since this money will be spent on the production of equipment that burns well in the Ukrainian steppes and on providing for the army, on the way to which most of them will simply be plundered.

Growing taxes will be spent on the production of equipment that burns well in the Ukrainian steppes

I'm not even talking about how significant the blow that will come through the financial sector will be. In the summer of 2022, after the failure associated with the start of the war, the lending market in Russia gradually began to recover: in July, mortgage issuance rates were more than twice as high as in May. Now it is even inconvenient to talk about what the demand for apartments will be (unless it is supported by the military commissars and members of their families) in conditions where at least one in ten economically active men will be mobilized or will try to escape from mobilization.

Naturally, the stock market will also react to what is happening: the Moscow Exchange index has fallen by 15.5% over the past week and may well fall below 1500 points before the end of the year. Investments (with the exception of state investments in the military-industrial complex) will also begin to decline sharply, which will set a trend for 2023, in which I would now certainly lower the forecast for a decline in GDP to 7-8%. And all this does not take into account the effect of the inevitable new wave of sanctions that will be announced .Western countries in the near future: we are talking about a much more radical than expected exclusion of Russia from energy markets and a new wave of restrictions on the supply of critically important products for the country. “Parallel” imports, on which the Kremlin has so far placed high hopes, may be blown away both by the accompanying mobilization of border closures and by new financial restrictions, such as the suspension of Mir cards in some countries. In general, I would say that the medium-term (within 3-5 months) financial effects of mobilization will be significantly more significant than the consequences of the outbreak of war in Ukraine.

The financial effects of mobilization will be more significant than the consequences of the outbreak of war

However, the matter will not be limited to this either, since with a lag of two or three months (although I can underestimate the efforts and determination of Ukrainian patriots), tens of thousands of coffins will go on the way back from Ukraine to Russia - and not Prigozhin’s criminals or those who made a responsible decision to choose a contract service and since then few people have been interested, and those who were full of plans on September 1, joyfully seeing their children to school. Then Putin's genocide of able-bodied and sexually mature men will give rise to a response of Russian women, expressed in a range from despair to unbridled indignation. The next wave of the crisis will begin, taking place in conditions when the authority of the authorities will be reset to zero even more effectively than the terms of office of the president in 2020.

It is the broad "women's revolution" that will become the biggest threat to power in the context of the ongoing war in Ukraine: men in Russia in a significant number have long lost their sense of self-preservation and the ability to stand out from the herd mass, but women instinctively feel what a terrifying future the bald Kremlin dwarf has prepared for them . Under the new conditions, no orphan's allowances and white "Ladas" will no longer stop the growing rebellion.

No orphan benefits and white "Ladas" will no longer stop the growing rebellion

With his decision to mobilize (and not at all about a “special military operation”), Putin announced the termination of the existing contract with the country. Today it has become clear that, on the one hand, the population no longer has personal freedoms, which for more than twenty years the Kremlin has guaranteed with a reduction or even absence of political ones; and, on the other hand, slavish obedience to power and non-interference in politics does not provide any economic growth.

It must be understood that the redistribution of national wealth through theft and corruption of the last twenty years cannot be compared with its destruction in the aggressive war waged by Russia today. The largest amount confiscated from an official or security official (the case of Colonel Zakharchenko), which once shocked Russia, corresponds to spending 6 hours, and the cost of “Putin’s palace” mentioned in Navalny’s investigation corresponds to 2 days of continuation of the Ukrainian adventure (which, as now Obviously, it will only get more expensive over time.

Two years ago, I spoke about how the 2020s would be “a time of terror and pure authoritarianism” for Russian power, suggesting that such tools of dominance could help Putin rule throughout the decade. Today, this forecast has to be changed: madness has reached a scale that cannot be maintained even for several years.

“The Russian economy,” I wrote in early March, “will die by winter ,” and now I think I was right...