Ed Dolan's Econ Blog

Navalny: Change Russia, Start with Moscow—and that Goes for the Economy, Too

Alexei Navalny, lawyer, blogger, and opposition activist, has a simple slogan for his campaign to become mayor of Moscow: Change Russia, start with Moscow. His program urges a broad spectrum of changes to legal, political, educational, and healthcare systems, but reform of Moscow’s and Russia’s economy underlie all of them.

Russia’s economy certainly could use a shot in the arm. When Vladimir Putin first became president of Russia, the economy was just beginning to emerge from the chaos of the 1990s. Putin promised, rashly, to double GDP in ten years. If you pick the right measure of GDP and the right years, he managed to do it. (See this earlier post for details.) However, as the next chart shows, the Russian economy was hit hard by the global crisis. In its best post-recovery year, 2010, it grew at barely half the pre-crisis average. Year-on-year growth of real GDP through the second quarter of 2013 has been just 1.2 percent. The economy may have technically entered a recession in the second quarter, although Bloomberg quotes Deputy Economy Minister Andrei  Klepach as saying that there was no recession, only stagnation.

What could the mayor of Moscow do about Russia’s GDP? More than one might think. For one thing, the city of Moscow, all by itself, accounts for a quarter of the country’s economic output—about the same share as the top 20 U.S. cities contribute to the American economy. More importantly, though, Moscow exhibits all of Russia’s economic ills in microcosm. Change there really could spark change throughout the country.

Vast resources, little to show

Exhibit A for the Navalny campaign is the huge budget of the city government. As the next chart shows, Moscow’s budget is far larger than those of Paris, London, or Berlin. It is nearly as big as that of New York, a city with about the same population but with an economy some two to four times larger, depending on how you measure it. Despite the vast spending, however, Muscovites struggle with transportation, healthcare, and schools that are far inferior to those of the other cities. Where does the money go?

According to Navalny, it goes down the twin rat holes of corruption and incompetence. “Select projects on the basis of priorities for development of the city, not according to the appetites of construction firms that are close to the mayor’s office,” he says.  It is not enough to go after individual corrupt officials. (He cites the example of one who, suspected of stealing 600 million rubles, is now under arrest—house arrest in a 13-room apartment in one of Moscow’s most fashionable districts.) Instead, the whole system needs change, with transparency and accountability as the number one priorities.

Navalny is not  new to this. For several years, his Fund to Fight Corruption has engaged in practical projects to combat corruption in areas from city contracting and election rigging to potholes and leaky water mains. These are among the demands of the fund, which have now become planks in Navalny’s campaign program:

  • Transparency and competitive bidding for all city contracts
  • Publication of full information on contract fulfillment
  • Establishment of an independent board of controllers for city contracting
  • Publication of lease terms for all city properties leased to private parties
  • Introduction of modern standards of corporate governance for city-owned enterprises, such as professional boards of directors, competitive selection of top management, and publication of all financial information, including compensation of top managers.

Transportation as a showcase for Moscow’s problems

The election program covers a wide range of problems in housing, city planning, education, healthcare, crime, and more. To select just one area, a quick look its treatment of transportation issues will show how, in Navalny’s view, corruption and incompetence come together to exacerbate the difficulties that Muscovites face every day.

In Soviet times, the crown jewel of Moscow’s transportation system was its famous Metro. Still the backbone of the system, it has been expanded in recent years, but it has not kept up with demand. Surface transportation—vital to connecting much of the city to the Metro, among other things—is in far worse shape. Busses are caught in traffic with inadequate, or inadequately enforced bus lanes. The result is extreme congestion. Navalny’s election program cites  the TomTom Congestion Index, according to which Moscow has the worst traffic congestion in the world. The situation is not improving.

The platform traces the transportation mess to several sources. One is a preference for large-scale projects, like the city’s new ring roads. Those projects are a source of easy profit for well-connected contractors, but they leave the city without much-needed, shorter connections between nearby neighborhoods. Residents complain that getting to a nearby address too often takes a lengthy trip to a ring road and back again.

Another problem is Moscow’s chaotic parking situation. There is no organized system of paid parking, so people park wherever they please, whether it blocks traffic, or bus lanes, or whatever. Navalny’s program urges a rationalized system of pay parking, which he sees as more a matter of organizational competence and will than of vast capital investment.

Finally, there is widespread anger at the traffic police, who are are portrayed as more concerned about opportunities to collect bribes than about the flow of traffic. As a result, they slow traffic down rather than keeping it moving. Navalny’s program envisions a police force that is wholly subordinate to the city, rather than the central, government.

The sensitive issue of immigration

Some liberals, both in Russia and in the West, voice concerns about Navalny’s nationalist leanings and his positions on immigration. As Robert Coalson notes in a recent piece in The Atlantic, Navalny has participated in demonstrations that include far-right nationalist groups, supported Russia in its war against Georgia, and has sometimes used (and later apologized for) crude racial epithets. Human rights icon Lyudmila Alexeyeva attributes these manifestations of nationalism, in part, to his inexperience as a politician. She expects him to express himself in more restrained terms as he becomes more politically mature.

If his official election program is any indication, Alexeyeva’s prediction may already be coming true. The program does make a direct appeal for the votes of those who see immigration as undermining Russian wages and fostering crime. The remedies it recommends, however, are relatively unobjectionable.

For example, the program calls for an end to the slave-like conditions often imposed on immigrant workers by city contractors. They are accused of making bids premised on prevailing Russian wages and then bringing in immigrant workers who are paid far less than the minimum. Living in crowded hostels, without documents, they have few options to seek other employment.

On the whole, the immigration planks in Navalny’s platform do not fall far outside the boundaries of the current U.S. debate on immigration reform. They do call for stricter control of Russia’s southern borders, including the introduction of a visa regime for the former Soviet republics that are the greatest source of immigration. However, as in the United States, calls for stricter border control are paired with proposals that would allow a more normal life for legal immigrants and their children, including those from the Caucasus. For example, it calls for better education for children of immigrants, including measures to teach Russian and mainstreaming into city schools.

Will Navalny be the next mayor of Mosow?

Not likely, in the view of nearly all observers. The middle-class, private-sector constituency to which Navalny appeals is stronger in Moscow than anywhere else in Russia, but is still not a majority of the electorate. The candidate’s skillful use of social media and grass-roots activism is unlikely to be enough to offset the complete control of television by the Kremlin-backed incumbent, Sergei Sobyanin.  Sobyanin further stacked the odds in his favor by resigning his post earlier in the summer, then calling a snap election in which he stands as the leading candidate to replace himself.

Then, of course, there is the ever-present possibility that if Navalny were to poll too well, the authorities would throw him back in jail. He has already been convicted on corruption charges that nearly everyone sees as politically motivated, and is running for mayor pending an appeal of his sentence. As a backup, election officials are now claiming that Navalny has received illegal foreign campaign contributions. The evidence for this seems weak. Yes, some contributions to the candidate’s web site have come from foreign ISPs, but such ISPs are routinely used by many Russians for a variety of legitimate reasons. Still, Russian courts often bring convictions on flimsy evidence when it is politically expedient to do so.

The bottom line, though, is that whether he becomes mayor or not, Navalny’s election campaign will deliver a message: Russia really does need change, and Moscow would be a very reasonable place to start.




8 Responses to “Navalny: Change Russia, Start with Moscow—and that Goes for the Economy, Too”

XTXAugust 20th, 2013 at 7:32 am

Ed Dolan is not an economist but political demagog the same as Alexei Navalny is.

How on earth can Alexei Navalny son of ukrainian gangster (cigarete and alcohol smugler) Anatoly Navalny can be corruption free ? How can be Alexei Navalny supported by criminal capital be corruption free persona, if he has just recently embazzeled huge amounts of money from one timber company in Siberia ?

People from Russia does not belive in false prophets. And United Russia peoples front will invest huge ammounts of money and energy to neutralize this criminals like Navalny and expose to russian people their criminal intentions !

markAugust 21st, 2013 at 10:19 pm

A few questions Ed. What percentage of the wealth in Russia has been created with the subsequent oil boom there. What happens to Russia and some other countries where the economies are almost entirely tied to that? God help those people when the oil runs dry.

The fact that Russia is rife with corruption (just like us) is no surprise. Corruption is everywhere and no matter what kind of government is being peddled to the people those at the top of the food chain are in position to exploit/benefit themselves. That is just human nature. But what should not surprise us is the glaring lack of anything from Russia that resembles innovation or quality. To me it is the inherent problem of a society still rooted to some extent in a communist mentality. Places like that just don't run very efficiently. China serves as a better model…but even there you see how the elites at the top can't fill their pockets fast enough while allowing those underneath to have a little enterprise for themselves. Communism is nothing more than America's own version of the 1% vs. the 99%.

Ed Dolan EdDolanAugust 22nd, 2013 at 7:21 am

Good questions. Let me try to answer them briefly; each of them would be worth a long post.

1. The share of oil and gas in Russian wealth creation is very large. 30 percent of GDP, 2/3 of exports, half the government budget. This source claims, however, that those numbers are only part of the answer. (… ) .

2. You are right that corruption is everywhere, but it varies in degree and nature from one place to another. For example, in the US the focus of corruption is the lobbying/vote-buying activity surrounding Congress. In Russia, the focus of corruption at the highest level is the struggle for the share of wealth created by oil. In China, it is the struggle to tap into the stream of wealth created by investment-led growth, by way of gaining position within the one-party system. People who write about corruption sometimes make the point that in countries with resource wealth, corruption is focused on dividing up an existing pie rather than on things that make the pie grow. That suggests how countries that are all corrupt in one way or another can differ greatly in terms of economic dynamism.

3. The problem in Russia is not so much that the oil will "run dry" as that Russia is a relatively high-cost producer, and tapping new fields (e.g., beneath the arctic ocean) is pushing costs up even further. (I wrote about this last year here:

Because Russia is a high-cost source, its net income from oil is more volatile than the price of oil itself on world markets. Also, Russia is not keeping up with an important rule of thumb of economic development, that net investment each year should equal or exceed depletion of natural resource reserves.

MarkAugust 25th, 2013 at 11:08 am

Thank you sir for your in depth response. While I rarely comment on your site I do refer to it from time to time when I need something "valuable" and exhaustive. You are providing a wonderful Internet service, and I have learned a lot here.

DidzisAugust 22nd, 2013 at 1:54 am

A good piece on Navalny! But I doubt any meaningful economic or/and political improvement in Russia/Moscow for long years to come. Not the least reason for this is what I observe here in Riga – a much, much better organized and transparent place. Folks this summer let "Russian" Unity Centre to power again though businessmen in the city say that they're crooks on the verge to be called a mob.