“Нам нужна новая экономика”: Denying protectionism and supporting competition as way forward, Putin still anti-Ricardian and anti-Smithian

The full-text article appeared in Vedomosti in Russian and abridged version in FT, in English.

The gist of Putin’s Russian-style “State of the Union” address is this:  “Готовы ли мы так сильно рисковать будущим России ради чистоты экономической теории?” which loosely translates as, “Are we ready to risk Russia’s future only to satisfy the postulates of [free-market] economic theory?”  Here Putin is defending some steps towards vertical integration and state control that his government exercised in the past.

It is apparent now that “privatize everything” approach does not work in Russia because free market institutions and the rule of law are not there.  However, historically, state control and state sponsored innovation have not produced the long-term growth to which Putin alludes.

Putin emphasizes development of new innovative technology and raising productivity, which echoes the recent rhetoric in the EuroZone.  Meaningless job creation and liquidity injections may only be a short-term solution and just do not make an economy more competitive in the long run.  In other words, G is not a ‘giant’ anymore in the Keynesian Y=G+C+I+NX.   [Although Keynes probably did not envision his legacy to last so long beyond depression, and he did say that we all would be dead in the long run ;-) ]

And, of course, the state should not forget to tax the rich!

As far as the “Russian Silicon Valley”, “Сколково”, that warrants a separate entry….

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