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| Sun, 1 Jan 2006 Eric
Kraus Chief strategist www.sovlink.ru
The resignation of Andrei Illarionov was the last, most widely-expected “surprise” of 2005. T&B has learned that most probably it was a “resignation” in form only, and that Mr. Illarionov had been strongly encouraged to resign by the Kremlin – indeed, barely a week before Russia assumes the Chairmanship of the G8, this gentle pressure had become irresistible. Although freedom of expression is a valuable asset, when one accepts a job in any government, one also accepts certain limitations on what one can and cannot say in public. As a reality check, readers concerned with the “loss of pluralism” are invited to ask themselves what would have been the career prospects of a top advisor to Tony Blair who had issued public warnings that the Blair administration was turning Britain into “another Venezuela” – or of an adviser to Bush quoted in the NYT saying that the Halliburton Iraqi deal was the “scam of the century”. The individual in question would have likely been dropped down the nearest elevator shaft. Illarionov claims that he resigned “because Russia is no longer free”, implying by extension that it was “free” under the Yeltsin regime. If this is the sort of “freedom” he advocates for Russia, then it what is surprising is that Mr. Putin took so long to dump his wildly indiscrete court jester… The Hirsute TenorThe basic problem with Illarionov was one that we have repeatedly complained of as regards the Russian political discourse: his repertoire ranges from merely frantic to the truly hysterical - his softest form of expression was a piercing shriek. The Kyoto treaty was not merely “a mistake” or “a misguided policy” it was to be the “Auschwitz of the Russian Economy” [1]. Yukos was not merely unfair, but “the scam of the century”. His increasing inability to compromise, as well as his legendary arrogance and rudeness, rendered him useless in the policy field. Yukos was dismantled and Kyoto was signed – the market gained a further 82% on the year, and the economy continued to grow smartly (for that matter, 2004/2005 was the hottest year on record, and anyone still doubting the reality of global warming is now engaged in faith-based science – a speciality of the current US administration). The Russian political class would do well to learn something about discretion from Washington; we would note that Colin Powell - blatantly manipulated and lied to by Bush, Cheney and Rumsfeld in the run-up to the Iraqi invasion – resigned quietly, and has held his tongue to this day. Illarionov, on the other hand, has never recovered from his defeats on Kyoto and Yukos – despite the fact that he was never asked to support either one or the other (nor, to the best of our knowledge, did the Yukos affaire make a mockery of international law or result in the deaths of a couple hundred thousand Iraqi civilians…). The Party Knows bestIllarionov is an ideologist in the great Russian tradition. Like Bukharin and Trotsky before him [2], he was absolutely incorruptible, believing passionately in one overarching idea. Given the catastrophic results of the nominally-liberal and pro-Western Yeltsin governments, it is hardly surprising that this one idea – the belief that the Washington Consensus and “free-markets” are to be the salvation of mankind – is no longer particularly popular in Russia. Andrei Illarionov argued that Russia should pump out and sell all of the oil it physically could, giving big business an absolute free hand in the economy, cut social spending to the bone investing all excess oil revenues in US treasury bonds (via the reserve fund), privatize the Kremlin walls and, in terms of foreign policy, accept the role of junior partner to America. Needless to say, he found himself very much in a minority of one. Mr. Illarionov is an articulate and well-trained economist, however his reputation for being a brilliant academic is a more recent creation; he has been a supporter of budgetary orthodoxy and the reserve fund, but his actual contribution has been fairly minor. He did attain considerable prestige in the late 1990s by his strident warnings of the inevitable collapse of the GKO bubble (though T&B is also on the record predicting that interest rates of between 30%-150% coupled with a stable currency and a chronic budget deficit would terminate in disaster – and it still has not earned us our Nobel Prize…). His recent warnings that Russia suffered two main problems: excessive dependency upon oil revenues, and a too-slow increase in oil production (!) suggested more concern with polemics than with academics. Illarionov was hired as an economic adviser by President Putin early in his first mandate. Unfortunately for the ill-advised advisor, to be effective, the application of economic theory – at least, of the non-Marxist variant – requires substantial intellectual flexibility. Economic theory, including liberal theory, is just that – a theory. It needs to be adapted to the situation, and when economic data (growth, inflation, investment) diverge durably from the predictions of orthodoxy, then the theory – not the data – must be revised. Psychologically unable to do so, Andrei gradually came to be taken as something of a joke in Russia – eyes tended to roll towards heaven when his name was mentioned. But where this ultimate grandstander and self-promoter was taken very seriously indeed was in the Western media. His incendiary remarks were reproduced under the inevitable heading “Putin advisor warns…” or “Kremlin insider states…” Similarly, the brokerage community took a perverse pride in wheeling out their pet Kremlin insider so as to give their best Western clients a special thrill. It was safe – ultimately, he was tame, and would end every speech with the promise that Russia would inevitably return to Neoliberal orthodoxy, and all would live happily ever after… Finally, there is certainly no harm in having highly articulate advocates of the various extreme economic options making their voices heard, and perhaps Mr. Putin will occasionally take him to lunch – but given Illarionov’s total lack of discretion, he is more suited to be a local pundit than a Kremlin insider. The claim that he is the last liberal in the Russian government is patent nonsense. The truly important liberals – Gref, Kudrin, Medvedev, etc. are still there, working very hard and accepting the give-and-take of politics – in their increasingly successful quest not to Westernize, but rather to Modernize Russia – and it is they, not some wild-eyed publicity hound, who deserve our praise!
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