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Russia Market Economy Short Lived?

Posted By Yevgeny Volk On June 29, 2009 @ 3:55 pm In Ongoing Priorities | Comments Disabled

The past week saw an extraordinary event in the Russian economy. Prime Minister Putin and other Cabinet Ministers made a surprise visit to one of Moscow’s supermarkets and personally regulated the price rates. Putin discovered that the trade margin on an array of foodstuffs in Perekryostok supermarket is significantly higher than the average. In fact, Putin ordered price cuts, while Yuri Kobaladze, managing director of X5 Retail mid-price chain and Putin’s former foreign intelligence colleague, promised to slash the prices.

The government’s intervention in pricing issues and attempts to institute administrative control over retail prices are the most glaring attributes of a totalitarian socialist economics. The economic history has repeatedly confirmed the policy’s total ineffectiveness and inaptitude, including during the recent Soviet age.

Admittedly, Putin’s affected check-up of retail prices is populist in nature. He cannot but consider the people’s concerns over price growth. They have soared 7.2 percent since the start of the year and could well rise by 13-15 percent by the end of the year. However, the Prime Minister is trying to blame the owners of grocery chains and save his own person and the government from taking the flak. They are the ones whose errors and inordinate government spending are stimulating inflation in Russia.

Many government watchers have remarked upon the somewhat inappropriate way Putin checked up supermarket prices. The supermarket of his choice was among the expensive ones located in one of Moscow’s elite western districts. Small wonder, the supermarket prices were set with due account for the supply/demand ratio. In addition, there are many more expensive grocery supermarkets in Moscow including those controlled by the Kremlin’s cronies.

Tellingly, Putin’s price control initiative resonated with other Russian politicians anxious to score political points in populism. Speaking at Putin’s recent meeting with the State Duma faction leaders, Duma Speaker Boris Gryzlov called to set a trade margin limit on various goods and re-introduce the government monopoly on alcohol production. This would spell a return to tough government regulation of prices and rejection of a vital free market mechanism.


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