Russia specialist forecasts 'dramatic' economic crisis for Russia

26 March 2014

Russia’s economy will suffer a sizable economic crash in the near future, the socio-economist and Russia specialist Dr John Round forecast at an event last week organized by the Foundation for Law, Justice and Society and the Centre for Socio-Legal Studies. The workshop, entitled (In)formal Economies, Economies of Favour: The End of Transition?, exposed the prevalence of Soviet-era informal economic activity in Russia, Ukraine, and other parts of central and Eastern Europe.
 
"When the crash comes," he argued, "informal payments and with them people's salaries will decline dramatically". He went on to forecast that, unlike previous economic crises, this one will be much harder, and if Russia is isolated from Europe and the US as looks increasingly likely, it will have a dramatic effect, and another reworking of the informal economy will result.

When the crash comes, informal payments and with them people's salaries will decline dramatically

 
Dr Round argued that Russia’s complete failure to diversify and its dependence on petro gas is largely attributable to the corruption of public officials, the bureaucracy of the state, and the dependence of workers on informal economies, typified by cash-in-hand payments, to support their incomes.
 
These weaknesses in the Russian economic system had already contributed to the decline in the currency, which is around 25% weaker than a year ago. In conclusion, he cited the laying off of workers in banks and other large state-owned enterprises as further evidence of the coming economic crash, which would only be exacerbated by the increasing international isolation of Russia as a result of its annexation of Crimea.
 
Dr Round was discussing the extensive research he conducted in Russia and Ukraine over the past decade, published in his recent book on The Role of Informal Economies in the Post-Soviet World. In the discussion, held at Wolfson College last Thursday, he described the necessity of the informal to get things done in Russia, which distinguishes it from informal economic practices elsewhere in the world, and the ineffectiveness of anti-corruption drives by the state.
 
Despite the fact that informal economic practices were crucial to support the incomes of working people in Russia, Dr Round showed how detrimental they are to the workers themselves, who receive meagre pensions, find credit hard to obtain, and suffer low wages, while the costs of consumer goods are massively inflated by the processes of corruption and informal payments necessary to bring them to market.
 
Dr Nicolette Makovicky followed Dr Round’s remarks with a broader overview of informal economic practices across the region, which will form the basis of an edited book Economies of Favour after Socialism, to be published next year. She showed how informal practices are often invisible to the bureaucratic eye, but at the same time, interdependent with, and complementary to, the formal economy recognized by the state.
 
Dr Makovicky highlighted the complexity of the issue by exploring normative approaches, which tend to negatively characterize informal economic practices in terms of bribery and corruption, and cultural relativist approaches, which interpret them more favourably as systems of favours, networks and reciprocal relationships.
 
Comments on the two presentations were given by Marina Kurkchiyan and Agnieszka Kubal of the Centre for Socio-Legal Studies.
 
A podcast of the presentations is now available from the link on the right and from our Podcast pages.