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Hidden traps of Russian economy

Скрытые ловушки российской экономики

The lack of money in retirement is only the beginning. Soon the budget can form new holes that need plugging

That ends in the Pension Fund of the Russian Federation will not agree to economists has long been known. And Putin, of course. It’s just that he only now recognized the problem and chose to solve the scenario that caused mass protests.

It’s time to think about whether the economy is like hidden traps, which the government won’t tell us until the moment when the problem becomes virtually unsolvable. Because the situation is objectively getting worse, but the people draws attention not at all threat — as did not pay until recently, attention to the sad data with the ratio of workers to pensioners.

Such obvious pitfalls as the pension where all the advance is easy to calculate, it seems not. But there are non-obvious. They arise in those areas where experts see the increase in negative processes, but are unable to say exactly how these processes are large-scale and disastrous for the economy.

Most of the problems, of course, creates corruption, which is gradually coming out of all control. The appetites of the bureaucracy increase. Habit to feed at the expense of bribes is strengthened. Experience bypass various prohibitions increases. And most importantly — among young people formed a stable idea of what work should be on the civil service, where there is always something good. Understanding of the need to take bribes from a young age laid long-term plans on life.

Economics, in principle, can bear a burden of corruption. It’s like an additional tax, which in itself is not fatal. However, the natural growth of corruption makes bribery all the more unaffordable for the business. The seller is transferring their costs to the buyer. The price increases. Some people lose the ability to buy the product. Demand is falling. Business activity is minimized. The official overlaps with their requisitions for the remainder of the business. He again lays the bribe prices etc.

If the normal tax the state can regulate, including by lowering taxes when they lead to cuts in business taxation spontaneous bribes and Putin himself is not able to cancel, even if the economy it has not. The burgeoning bureaucracy is planning their income for the future and hard to squeeze money from businesses, despite the fact that they may be closed tomorrow.

Rather, even knowing this, the bureaucrat will begin to lean even more on bribes: once the economy collapses, we must have time to make a fortune, transferred the money to the West, and then to blame myself.

I think Putin realized the danger at the beginning of the decade, and in 2012 gave the security forces a carte Blanche for “shoot” corrupt (but, of course, not the most senior). The system of “ejection”, however, works not so good, because the autocracies are formed too many zones to fight corruption (including-corruption of the law enforcers themselves).

If the extent of bribery will be able to keep at least relatively acceptable limits, our economy will continue to be in a state of stagnation. But if the bureaucracy, including the police, considers that the business should put the squeeze on, while he still has the money, will be a sharp economic downturn.

The second trap is also associated with the activities of the bureaucracy and security forces, and quite legitimate — but no less devastating. The fact that the bureaucracy needs to prove their usefulness to constantly demonstrate to his superiors the activity.

It is expressed in different kinds of business inspections in the sphere of culture, education, health… the more officials we have, the more important it is for them to expand control over society. As for the security forces, they seek not just to control, but to the revelations of various threats and landings exposed.

The case of the “New grandeur” has shown that it is easily possible almost children to prosecute, incriminate them terrible crimes. From a tragedy with young people involved in this case, they suffer themselves and their loved ones. But just as there are in business. And they can be fabricated not only for reporting but also to order.

It allows to kill at once two hares: and the authorities to demonstrate the necessity of its power structures, and a lot of money for the destruction of a competitor to obtain. In democratic countries, the proliferation of such cases depends on the risks for the officials, their febricula. And in Russia there is practically no risk, but there are a lot of incentives for inventing alleged abuses by business.

Of course, the business often just pay off this kind of assaults. However, the payment of money to inspectors included the mechanism described above. If the graft exceeds the tolerable level, the economy starts to crumble. The business will either close or go into the shade, not to issue securities that can complain about the controllers. For the state effects is almost the same: in both cases, it will cease to receive taxes from “extinct” plants. And, perhaps, will reinforce the fiscal burden for the rest to keep going for some time.

What is happening today the VAT increase shows that Putin is ready to increase the tax pressure on business even in a situation of stagnation in which economists usually suggest to lower taxes. And if he does so now, it probably will continue, which will lead to even more rapid curtailment of business activity.

Finally, the third trap is a small city that live at the expense of one or two core enterprises. If due to the reduction in market demand or due to Western sanctions (as in the case of the aluminium company Oleg Deripaska) some of these businesses closed, Putin will have to find ways to feed the affected population. And this again will be a stimulus for new tax increases in that part of the economy, which is still kept.

I want to emphasize that this is all a trap, the existence of which we know, but do not have sufficient data to assess the extent of possible disaster. If in the case of pensions, the demographics clearly showed that soon the ends do not converge, corruption, arbitrariness of officials and towns the probability of this is, however, to say exactly how come, in practice, impossible.

Therefore, the Russian economy there are two ways. If everything remains as is, then we have a long stagnation of the Brezhnev-type stagnation. If at some point everything will be collapsing due to the above-described problems, the Kremlin can not cope with the complex consequences — or begin to deal with them on the principle “after us the deluge.”

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