2016 03/16 Konstantin Sonin

KONSTANTIN SONIN

Economic Analysis as Political Prediction: Russian Economy in 2016 and in a 40-years Perspective

Konstantin Sonin is John Dewey Distinguished Service Professor at the Harris School of Public Policy Studies at the University of Chicago. His research interests include political economics, development, and economic theory. In 2012, he was an economic advisor to the presidential campaign of Mikhail Prokhorov. He was a postdoctoral fellow at Harvard, a member of the Institute for Advanced Study in Princeton, and served on the faculty of the New Economic School (NES) and Higher School of Economics (HSE) in Moscow. Now he is affiliated with HSE in Moscow and the Stockholm Institute of Transition Economics as a visiting professor and adviser.

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Summary

There is no question that the Russian economy is in crisis: in 2015, GDP was down 3.5 percent, inflation was 11 percent, and real income fallen for the first time on Putin’s watch - in 15 years. The immediate reason is a dramatic fall in the world prices of oil, Russia’s main export, yet the foreign sanctions, cabinet dysfunction, and president’s inattention contributed to the downturn. However, the main problem of the Russian economy is long-term: the economy stagnates since 2008 and there is little hope that it will return to sustainable growth without serious reforms. Essentially, this is the same issue that the Soviet Union faced 40 years ago: without a political change, the planned economy would not stop stagnating. Then the long-delayed attempts of political change and economic reforms have only sped up the economic catastrophe. This time the market protects the economy from a total collapse, but the archaic and corrupt political system prevents any sustainable economic growth – making everyone who wishes Russia well to wait for a political change that would allow badly needed reforms.