A few weeks ago, a return to the Soviet era of a command economy, in which a central government owns and runs most businesses, would have seemed outlandish. But now? Maybe not so much.
In response to Russia’s invasion of Ukraine, the United States and European allies have imposed sweeping sanctions on the Russian economy, and global companies like Starbucks and McDonald’s have left or distanced themselves from the country. Meanwhile, the Russian central bank has desperately tried to prop up the ruble and prevent even greater economic fallout. But as Russian state intervention grows, will the economy fall further from what it was before the invasion?
“Marketplace” host Kai Ryssdal spoke with Chris Miller, assistant professor at The Fletcher School at Tufts University and author of the book “Putinomics: Power and Money in Resurgent Russia.” The following is a transcript of their conversation.
Kai Ryssdal: What do you imagine Vladimir Putin’s economic policy thoughts are right now?
Chris Miller: Well, the Russian leadership is in a real dilemma. They’ve got a set of financial sanctions that they weren’t prepared for and is imposing costs that they’ll struggle to deal with. The other two key issues that they face — one is trying to make sure the financial system stays stable and they don’t have banking issues or financial markets freezing up domestically. And the second is trying to address the fall of living standards that’s going to be caused as prices go up and inflation jumps.
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Ryssdal: So that second thing, how does Putin do that with a central bank and foreign reserves that are frozen, a currency that’s dropped by 50%, let’s say, and a stock market that has not opened — and as soon as it does, it will not be pretty? How does he take care of the Russian populace?
Miller: Well, the Russian government is still trying to keep the ruble from falling further, and it does have some resources to do that with. It’s not easy. But its ability to do this isn’t indefinite because the resources are limited. And so at some point, the Russian government has to simply recognize that living standards are going to fall.
Ryssdal: Russia has spent the last 30 or so years making really solid inroads to being a market economy. Do you think that can continue after this country is fundamentally cut off from a huge chunk of the global economy?
Miller: Well, the problem that the market economy in Russia faces right now is that a lot of private businesses are essentially being squeezed off from any financing, in many cases squeezed off from their markets. And what’s going to remain is largely the state-owned part of the economy. It’ll benefit from government support. And also the state-owned part of the economy is in industries that were generally speaking less reliant on foreign connections or are in spheres like energy, where there’s still a fair amount of foreign trade that’s possible. It’s the rest of the economy that really face the most difficult outlook over the coming months.
Ryssdal: Quantify that for me. I mean, a difficult outlook over the coming months seems a little sterile, right? It will not be pretty over there.
Miller: Well, it won’t be pretty. It’s really difficult to forecast with any sort of certainty as to how bad it’s going to be, in part because we haven’t had sanctions like this on a major economy in three-quarters of a century [referring to the economic actions taken against Japan during World War II]. So we’re operating in really new territory, and the Russian policy-making elite doesn’t know how to deal with it. They’re right now improvising for a crisis that they weren’t ready to face.
Ryssdal: Do you suppose we’re headed back to — and look, this a leap — but to the Soviet-era days of a command economy over there?
Miller: You know, I think that is a reasonable comparison to make. The government’s taking more and more direct control of business decisions. It’s imposing new restrictions on the flow of capital and on the ability of individuals to access their own bank accounts. I think the other factor that matters on this front is that the Russian economy is going to get more militarized as the government tries to prepare itself for the current war and any future confrontations. And the more the military and the security services play a role in economic policy, the more command methods come to the fore.