As Russian political scientist Gleb Pavlovsky has rather rightly said, one ought to rule out the five-thousand-plus sanctions imposed versus the Russian Federation since this composing as sanctions in the typical diplomatic and economic sense. They are a conditional “second front,” a blow focused on taking apart the Russian economy, the Russian social structure, and the institutional structure in action to the matching actions of the Russian authorities, with the West’s plainly mentioned position not to mirror such actions.
To put it merely, it is a way to bring the costs of the current Russian policy to such a level that any advantages for individuals who make political decisions drawn up in their creativities would end up being absolutely insignificant and ephemeral in contrast with the big and genuine expenses in all locations and of all possible types. And it is likewise a signal to all social strata that the state and its policies are not simply the authoritarian domain, the associated elite and their choices, but all the strata and categories of the population that comprise the country and their civic engagement.
This dismantling, in addition to the apparent and direct commercial, cultural, logistical, and other seclusions, might have effects that do not push the surface area. Above all, obviously, they are associated with social and financial transformation. In particular, for instance, an authoritarian dictatorship (not an informational autocracy!) and a growing market economy are equally exclusive by definition. This is an institutional and economic axiom, and if anyone has an interest in learning more about it, they can speak with the timeless works by Ludwig von Mises or James M. Buchanan; Daron Acemoglu and James A. Robinson’s The Economic Origins of Dictatorship and Democracy, on quantitative institutional economics; and Robert Barro’s brilliant and extensive work “Economic Growth.”
In addition, in this regard, I see inevitable contradictions between those declarations and the currently urgently enacted decrees of the Russian federal government to liberalize and stimulate conditions for little and medium-sized services and the inevitability of really nationalizing a substantial piece of the whole economy. Yes, measures to liberalize conditions and roll back the state canopy might have been an effective step to keep the economy and social circumstance from falling under the abyss– I have actually blogged about this myself in a number of current short articles.
This is what the Soviet Union did, in particular Nikolai Ryzhkov, who was responsible for the economy in the Soviet federal government in 1987. He provided a decree and instructed all law enforcement agencies not to hinder cooperatives, joint endeavors and other types of company at the time. However, the existing effort to stimulate small and medium organization is, firstly, gotten in touch with a synchronised unbinding of hands to local authorities and officials on the ground through other decrees, providing more space for maneuver. And this undoubtedly and right away scales corruption to unprecedented percentages in a vertically corrupt environment.
This can just be avoided by severe repression and intimidation, as was customary in the Stalinist state, however the elites can’t do that, because they require the loyalty of the executive apparatus. Second of all, all these assistance measures are issued in a practically stalemate state of the economy and in a brand-new political paradigm very similar to an authoritarian dictatorship.
As I have actually already stated, the closer the political system moves to dictatorship and totalitarianism as the final unfavorable stage of the sociopolitical system, the less attention is paid to the efficiency of economic and social policies and their consequences for the authorities. There is, however, a specific reasoning to actions: the so-called rut, when, despite the desires of those who make decisions, just those decisions that are no longer figured out by desires are forced to be made. The power can do this not even deliberately, being put in a position where there are simply no options and no possibility to think of them, where the reasoning and waterfall of events carries the decisions made in a certain direction.
For example, this holds true with nationalization. My colleague Konstantin Sonin, a dazzling political economic expert and professor at the University of Chicago, made a really sensible statement on this topic. In basic, his message was as follows: in order to prevent mass layoffs in shutting down business and in shutting down business, these enterprises and business should not be permitted to close down. And how can this be done against the will of the owner?
In basic, it is clear that it is simple to close down a company that wishes to cease operations, however how can one make a business that wants to shut down run without in fact nationalizing it ?! And this uses not only to Western makers closing down production here, however also to Russian companies, where there has actually already been a series of mass layoffs and stops in production.
Nationalization can be understood as any type of taking ownership on the balance sheet of the state or state corporations and more subsidization, mainly of wages to keep work. I am deliberately leaving out here the question of organization efficiency, the waiting duration for possible, however not obvious, substitution of components, etc, and so on. This issue rather meaningless to some level, because the new political paradigm has happened, as I stated above, and besides, the level of unpredictability and irregularity of the environment is so high and determined in hours that it is difficult to reason within the framework of regular financial reasoning, as I likewise pointed out more than once.
Another basis for nationalization in any kind is the need to restrict the superpowers of the recipients of the present situation, such as manufacturers or suppliers of food and standard necessities. It is they who have the opportunity to transfer the inflation that has already occurred and is unquestionably increasing to the customer without substantial drops in output and sales, although definitely with their changed structure. If prices are regulated, nevertheless, this threatens to cause lacks, as both manufacturers and sellers will underestimate these volumes.
In times of intense crisis, food inflation gallops relative to all other categories of items anyhow. Neutralizing this procedure is really hard, practically impossible, for instance, at the end of its presence the USSR failed to handle this. As a result, in order to include prices and to in some way manage the deficit, the state will be required to carry out nationalization or quasi nationalization in any of its acquired kinds. In what type is not so crucial now. Venezuela did this under Chavez. We know how it ended.
Nationalization is constantly bad, in any position, at any time, in any form. Even constraints on the sale of properties to nonresidents, even restrictions on the payment of dividends and coupon income to them. Even the presidential decree on the positioning of SWF resources into shares and bonds of domestic companies, obviously planned to stabilize the stock market.
One must understand that any kind of nationalization is encapsulation of investment circulations, isolation of the economy, and transfer to the state of the full rights and chances to redistribute benefits and to make business choices that are encouraged not by the performance of organization however by the interests of the administration. In vertical redistribution, complimentary pricing and the AD-AS design do not work, and market relations are at best seriously distorted, at worst gotten rid of.
In truth, the state is entrusted to only two alternatives: either to finance business agents on the balance sheet by printing undervaluing cash, which will add fuel to the inflationary fire, or to close some enterprises and go to mass joblessness. This choice will undoubtedly lead to social discontent and, accordingly, to the strengthening of repressive systems. The social-institutional rust and the consequences of the concentration of the economy in the hands of an authoritarian dictatorship is a different subject for conversation.
So, all the good speak about the requirement to liberalize business environment, about “providing unlimited freedom to entrepreneurship,” about how “business will discover opportunities and rapidly replace everything,” and so on etc appear more and more ridiculous and such situations seem impractical. This would have worked if the replacement industrial production and logistics channels had actually already been developed or a minimum of prepared. It would have worked if the monetary system was not in a state of total isolation or had been reoriented and prepared ahead of time. Lastly, it would have worked if the geopolitical position of the country was not in a state in which it is now.
Nevertheless, none of this holds true, and the political metamorphosis makes the state of the economy and its agents not just shaky and unstable, but collapsing. And nationalization is the track: you will take it, whether you like it or not, but this is the track you’ll take, and this is where it leads.