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Vladimir Putin's mission impossible in Russia

Russia Putin-3

Russian President Vladimir Putin speaks during a meeting with local officials in Omsk, Russia, Tuesday, Aug. 28, 2018. (Alexei Druzhinin, Sputnik, Kremlin Pool Photo via AP)

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Tuesday, September 4, 2018

Vladimir Putin faces an enormous challenge. He wants to deliver prosperity to Russians before 2024, when the constitution says his presidency must end, but the economy is no longer cooperating. For this unhelpful economic outlook, Russia's president has only himself to blame.

After dipping into recession in 2015, Russia remains in a rut. Private investment and productivity are sluggish. Economists don't expect growth to exceed 2 percent a year in the foreseeable future — a far cry from the 5-percent-plus pace of Putin's first two terms.

If things keep going this way, Russians might get fed up by 2024. That's dangerous, because the transfer of power — or a constitutional amendment to let Putin stay — will stir more dissatisfaction, given how little say voters will have in the process. The last time Russians took to the streets, in 2011 and 2012, the economy was doing well.

Putin's answer is to decree that Russia will have an economic miracle. He has ordered the government to boost fertility, longevity, incomes, housing, innovation, digitalization, education and health. It's an impressive collection of goals, yet less than inspiring, because this future is so implausible.

The problem is more political than economic. For a start, Russia's Crimean land grab and election meddling made the country an international pariah and provoked Western sanctions. These might have a limited immediate effect on growth, but they create persistent uncertainty that keeps foreign investment and ideas away.

Meanwhile, Putin's grip on power throttles the domestic economy. His lack of regard for property rights and personal freedoms — he decides who may take assets from whom, who gets prosecuted, and what people are allowed to say —pervades officialdom. As long as people fear that their lives and livelihoods can be confiscated, entrepreneurship will be stifled and many of the best and brightest will leave.

Granted, Russians don't give up easily. In Moscow, the Skolkovo Innovation Center incubates promising startups. Restaurateurs and home-grown food companies cater to every taste and budget. There's even a farm-to-table movement. But all too often businesses fall prey to official shakedowns or attacks from competitors using a corrupt judicial system to pressure or even imprison their targets. For enterprises that survive, there's often little choice but to sell out to firms with ties to the government.

Against this background, even prudent economic policies take on a different character. Consider Russia's plan to raise the pension age — a move essential to the longer-term growth and solvency of any country with an aging population. Russians reasonably ask: Why should we wait longer for our money when the president's friends are getting rich on state contracts?

Putin's advisers know what's needed. An economic program developed by former finance minister Alexei Kudrin — and produced at Putin's behest — stresses that "economic success is impossible" without the rule of law and a "fair and genuinely independent" judicial system. Yet this fundamental element is absent from Putin's own plan. In any case, Russians could be forgiven for wondering how the ruling elite would deal with opponents if it could no longer exploit the courts.

In the end, the dilemma is plain: Putin can have Putinism or a more prosperous Russia, but not both. The odds aren't good that he'll make the right choice.

Bloomberg Opinion

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