Two recent sets of interactions with people got me thinking about we’re still in the calm before the domestic economic storm in Russia –

‘it’s all stable here, things are ok. We got a pay rise, it’s not indexation, but we have everything we need’. From a metal turner in a provincial city. He’s a smart lad and there’s always an element of irony about even his more ‘sincere’ comments. This is a case in point of such double-talk. Reassuring oneself; expressing genuine dispositions about the world ‘right now’; reflecting on how ‘it’s much worse for you’ (because of the harder to hide energy inflation in Europe); super-heating irony to manage the hegemonic narrative of Russian TV at the same time. Especially noticeable given that, after the Moscow Crocus City Concert attack, it’s obvious that things are not ‘ok’ and ‘stable’.

In turn I talk to my tame middle-class apolitical professional. His firm has a new contract with a state enterprise. Things are also looking up. A nice new income stream to diversify after the loss of business with Westerners. But at the same time grumblings: ‘it seems like sanctions will start to do their work soon, nonetheless. The authorities can’t go on indefinitely defying economic gravity.’ Generalities, vague ones. It’s hard to know whether people are referring to actual economic issues like inflation, actual shortages through the failure of some aspects of autarky or import substitution, or something else.

As Nick Trickett wrote in December 2023, we’re looking at a third of state spending going on the war in 2024! Substitution can only replace Western imports in specific and limited ways in the middle term (i.e. to 2025). A weakening ruble means that from the state’s perspective they need fewer dollars as these ‘buy’ more state spending in rubles. However, the reality is that devaluation plus hard constraints on output in Russia will lead to galloping inflation by the second half of 2024, especially after the summer. At the moment, forcing exporters to convert $ into rubles, is delaying the inevitable (these are in effect capital controls). Will hoarding by individuals of hard currency come back? There is already a climate where no one can make capital investment without state guarantees. Stanimir Dobrev is great on this: last week he pondered the question of how logistics firms can renew their trucks when they are paying 24% interest on their leases for inferior (economically) Chinese fleet.

Back to ‘my guys’. They’re still partially in denial about real inflation on staples (aren’t we all?). The situation is somewhat similar to the UK and parts of the EU – double-digit official inflation on food in 2023, and more on some products. Once again, shortages are just inflation by other means – like the situation with eggs right now (the government was forced to suspend import duty on 1.2 billion eggs because of the 40% inflation on them – incidentally I wonder if people are studying closely the effect of long-term loss of access to Ukrainian food imports – eggs are a big asset for Ukraine). ‘Capital outflows’ because of feared inflation also take place in miniature. Often my interlocutors ask me for investment advice in crypto and bullion (another indication they don’t really believe the Russian press hype about ‘stability’). In my unpublished book on the war I write about drug dealers and crypto bros trying to hedge the war.

 ‘We want more State in the socially-significant spheres of life’ is the kind of citizen message after the ‘deal’ of the 2024 election that, having echoed around after the Global Financial Crisis from 2009 in Russia, is back in the room again. If ‘massaged’ inflation is likely to show rises of 8-10% in 2024 that’s a remarkable return to the bad old days of the 2010s when Russians first fell out of love with Putinism, whose best years could be summed up as ‘Botswana incomes rising slightly higher than inflation’ (turns out to more apt a comparison than one might think). As the Central Bank will need to keep hiking, the 16%+ rates on servicing debt will feed through hard on the costs of living.

What about the ‘regionalka’? Natalia Zubarevich reflects on the trends today beyond Moscow and Petersburg – money goes on beefing up Far East transport and real estate to pivot to China, to Rostov region, the logistical entry to Ukraine, and of course Moscow. But revealingly oil and gas can’t be squeezed any more and in some areas output is declining. Logistical constraints still affect the output of fertilizers. Most hit by sanctions? Timber processing (“forest-industry”). Will there be a boom in Russian domestic furniture? Russian IKEA? I remember a turn to domestic production around 2010. 10% of petrol output are likely affected by drone strikes on refinery. But remember that 10% of petrol was exported anyway and 50% of diesel. Main issue is logistics again with the railways jammed with ‘other priority traffic’. Taxes on petrol are pretty low by international standards and the price for consumers is effectively controlled for political reasons, but still a hit to the pocket-book.

Agriculture: 2023 was a good year for soy, but not for grains profits. In 2024 an indicator of vulnerability is that 30% of grain is produced by smaller farmers, not agroholdings.  The former don’t have any financial buffers. Will cooking oil scarcity be the next egg panic?

Will they bring wage incomes of 1 million rubles ($10,810) into the new, higher income tax bracket – something of a shibboleth for Putin’s ultra-neoliberal approach from two decades ago? (now it’s 5 million rubles). More important are taxes on enterprise profits and VAT. Are people the new oil, again?

Zubarevich forecasts a gladiatorial fight in the population for benefits – especially those available to families for children. Fictive self-employment, fictive divorces – all for the sake of accessing social subsidies. Back to the past? In 2000, Moscow incomes were composed of only 20% taxable ‘white’ wages, the rest were murky. Will this repeat? Zubarevich says it’s unlikely because of good digitalization and tax capacity. Nonetheless in North Caucasus even Rosstat acknowledges that no one, apart from municipal workers, actually pays taxes. (Informal economy is 60% of activity).

Growth areas are construction of residential in medium sized cities with arms factories and also in oil and gas regions.

Will there be new impetus on military mobilization. How can there be when there are record shortages of labour? Inward migration is falling, a lot, possibly by 50%. A real indication of the value of the ruble. Not to mention the fact that immigrants are effectively treated worse than indentured servants – a bigger indicator of racism’s destructive effect on the moral fabric of society and one that makes it clear why so many people are indifferent to the treatment meted out on those suspected of involvement in the Crocus attack.

Overall, a ‘lot of trends are going to be broken’. Zubarevich ends her interview focusing on the effect of the war on income inequality – a decline that’s small but significant because of the 11 million children getting state support, and the 5 million workers in ‘proper’ industry, along with 2 million direct ‘beneficiaries’ of the war spending.

So are ordinary folk leading or lagging indicators? It would seem, like here in the EU and UK, that people’s economic sensitivities are very much summed up by the term, ‘The old is dying and the new cannot be born’. State capitalism on a war footing is a contradiction without someone taking the pain. And morbid symptoms appear in great variety, as Gramsci noted.