Russia’s Bubble Bursting

Share on facebook
Share on twitter
Share on linkedin
Share on email

Up and down. Down and up.  Like all world markets,the Russian MICEX and RTS indexes have been on an endless roller coaster ride.  Both markets didn’t benefit from Monday’s American and European rallies driven by American and European governments throwing capital a life line.  Instead the MICEX and RTS plummeted .  Some of those losses were regained on Tuesday.  The Kremlin solution, like everyone else, is to keep throwing money at the problem. Russia’s banks and big corporations are happily lapping up the monetary milk and honey. However, as most economists note, liquidity may stave off the panic, but it will do little to address the deep structural problems facing world capitalism.

Monday’s calm was short lived as investors began panicking over the global economy’s long term prospects.  Last weekend’s global defibrillator jumped started the markets for one historic day.  On Monday, the US Dow shot up an unprecedented 936 points.  Much of these gains, however, were wiped out Tuesday and Wednesday, which posted a collapse of 733 points. Investors’ crystal balls show show a very dim future.
In Moscow, markets also dropped after a day of gains.  Oil prices slid to $75 a barrel and served as another blow to Russia’s petrol driven economy.  As a result, the market dropped another 8.5 percent.  The Russians’ solution?  Pull the plug and stop the markets. Again.

It’s the crash heard around the world. That’s what the Wall Street Journal is calling it.  Indeed, Russian stocks have not only crashed.  They’ve hit the floor and kept on bouncing. Russian markets have lost 61 percent of its value over the last three months.  So far, only Russia’s oligarchs have taken the hit.  According to a report in Bloomberg, Russia’s super rich have lost a collective $230 billion or 62 percent of their wealth.  The top losers have been Vladimir Lisin ($22 billion), Roman Abramovich ($20.3 billion), Alexei Mordaskov ($19.2 billion), and Oleg Deripaska ($16 billion).  Clifford Levy claims that this loss has already hit $1 trillion. The reason:

Many of Russia’s oligarch billionaires and their millionaire brethren have built up vast fortunes largely by borrowing against the future earnings of their main commodity assets. Now, as the value of their investments sinks on the stock markets and bankers call in their debts, they’re staying home to lick their wounds.

Pop goes the weasel.

The faltering Russian economy begs important political questions.  If the slide continues to deepen, will the Russia’s oligarchs begin exerting their political power?  So far they’ve been in step with Putin and Medvedev, sitting quietly on the sidelines enjoying their riches.  Evaporating wealth might quickly translate into evaporating support for the Kremlin. The next year might prove how strong Putvedev’s alleged power really is.

Unfortunately, the impact on the Russian economy won’t stop at the top. Prosperity trickles, while economic hardship pours.  Inflation continues to be the most immediate burden for most Russians.   Some experts are predicting that rising inflation will exceed the governments prediction of 11.7 percent despite hopes that the liquidity injection would bring down prices. Massive layoffs haven’t started, but they’re expected.

Some Russian businesses are already cutting.  In anticipation of financial constraints, the newspaper Nezavisimaya gazeta announced this week that it was cutting 46 people, 20 of them journalists, from its staff. Russians are also voicing their concerns about job and savings losses (Kudos to James at Robert Amsterdam for noting this piece).  The specter of 1998 continues to haunt the Russian consciousness.

And what of the Russian labor movement?  What role will they play?  Unfortunately, very little at the moment.  To say that the Russian labor movement is weak is an understatement.  A measurement of how weak couldn’t come at a worse time.  According to a poll conducted by VTsIOM, only 35 percent of respondents felt that labor unions have an influence on worker’s position.  Only 6 percent felt that their influence was great.  In fact only 41 percent knew that labor unions even existed.  Moreover, the answers from union members were even more distressing.  Only 20 percent felt that their union had an influence over their position, while 76 percent felt that unions had little influence.  Since 2005, the number of workers who identified themselves as union members has been decreasing.  In 2005, it was 34 percent, 2007, 30 percent, and 2008, only 24 percent.

Despite the lack of popularity or even recognition, now might be the prefect opportunity for Russian labor to step up.  The crisis has opened up new conditions for struggle and its time for unions to step up and exert their power, argues unionist Aleksandr Shershukov.  If that is the case, then this struggle shouldn’t end at the workplace.  The situation might be ripe for mobilizing from below:

Polling by the Public Opinion Foundation in September found that only 5 percent of the respondents said that prices had not risen in their city or village, while 54 percent said that prices had gone up significantly and 24 percent said prices had increased moderately. Polling during the first week of October found 57 percent of the respondents complaining that prices had risen sharply and 25 percent saying that prices had increased moderately. quoted experts as saying that rising prices were increasingly stratifying society. “Protest attitudes are creating social polarization and social contrasts,” said Aleksandr Golov of the Levada Center:

Sharp changes in living standards give rise to expectations of mass protest actions both among those whose standard of living has fallen and those whose standard of living has significantly increased. The readiness to participate in protest actions grows only among those whose standard of living has dropped significantly (, October 15).

In a Levada Center poll, 18 percent of the respondents said mass protests against falling living standards could possibly take place in their cities or districts (, October 15).

Russian labor may be weak.  Luckily, the Russian population is far from docile.