The Problem in Russia Isn’t a Lack of Free Speech But a Lack of Free Markets

Deng’s enlightened reforms 

If one could define Deng Xiaoping’s Reform and Opening Up in a single word, the world would be ‘balance’. It was in 1978 when Deng set China upon a course that would balance market forces and social planning, entrepreneurialism and stability, modern monetary policies combined with monetary prudence, fiscal realism with fiscal expansion, order and social openness, progress with party political and cultural consistency.

Deng changed the way that the Chinese economy operated and in so doing, changed the lifestyles and aspirations of the people, as well as the nature of the Chinese state. But crucially, Deng did not instigate radical reform to the state itself, the ruling party, the governing ideology, nor the culture. Instead, he allowed these things to evolve over time and the testament to his achievements are the realities of a modern China whose economic growth remains consistently robust, even in a year of global economic and political uncertainty. As a result of China’s continued commitment to further reform and openness, China’s people continue to innovate across multiple sectors whilst China’s education system produces some of the world’s great minds. Taken in totality, the people are enjoying their highest national living standards in Chinese history.

In this sense, the overall balance that Deng created was one between the past and the future, thus resulting in a period of change that was radical in terms of its scope but moderate in terms of its implementation.

Deng’s Reform and Opening Up transpired nearly a decade prior to the Soviet Union’s version of reform in the mid-1980s. Yet although China built a model that could have been used as the foundation of economic modernisation in a Soviet state that was already far more industrialised than China had been in the late 1970s, the USSR instead decided to commit collective economic and social suicide before ultimately collapsing under the weight of an incompetent and disloyal political class.

Contrasting reforms 

One of the clear differences between China after the 1978 reforms and the USSR in the age of Gorbachev and his deputy Alexander Yakovlev, was that China never lost sight of long term goals and the gradualist approach required to achieve them. Here again, the wisdom of Confucius helped to inform the Chinese political method. According to Confucius,

“When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps”.

Consequently, under the leadership of Deng, certain action steps were adjusted in order to make the economy work in a more effective way for the benefit of the people, while the USSR by contrast took an hysterical leap into the unknown of wholesale change without a clear goal in mind.

One of the major problems to face post-Soviet Russia was the immediate shift from a non-convertible national currency to one that was subject to immediate and extraordinary market pressures. During the USSR, ordinary Soviet citizens acquired goods through a non-convertible Rouble. This currency was effectively a government issued certificate for internal use that had no value outside of the USSR. When purchasing imported goods from abroad, Moscow issued a separate so-called “clearing Rouble”. As Soviet citizens could not legally own hard currencies, the non-convertible Rouble worked up until the collapse of the USSR when a new Russian Rouble created in 1992 became subject to the same market forces of more established currencies like the Dollar and Deutschmark.

The result was that ordinary Russian consumers went from having a currency that was worth something at home while being worthless abroad to one that had a value determined by international market forces that was close to worthless at home due to staggering rates of inflation.

By contrast, China only gradually transformed its de-facto internationally worthless Renminbi of the pre-1978 era to the internationally traded currency of today. After 1978, a duel-tracked currency system was introduced in China which saw a Soviet style Renminbi continue to be used domestically while foreign exchange certificates were issued for international consumers and investors.

As China worked to stabilise internal exchange rates throughout the last decades of the 20th century, it was only in the 21st century that the Renminbi was allowed to be legally traded outside of mainland China. After initiating the selling of Renminbi denominated Dim Sum Bonds outside of mainland China beginning in 2007, these bonds gradually became fully internationalised and in line with China’s robust economy, became a source of attraction for investors from the wider world.

After consecrating currency swap agreements with multiple partner nations, the Renminbi became fully internationalised and in 2015 the IMF incorporated the Chinese national currency into the Special Drawing Rights currency basket which also includes the US Dollar, Euro, British Pound Sterling and Japanese Yen.

A similar approach has been used in China in terms of preparing Renminbi to become a fully floating currency, although here too China has opted for a gradual rather than hysterical approach. China consequently seeks to avoid artificially pushing up the exchange rate (value) of Renminbi, not only because this would be bad for its export business but also because China is well aware of the troubles Japan got itself into by voluntarily allowing the Yen to over-appreciate after the 1985 Plaza accords. While the US today uses much the same rhetoric regarding an allegedly “undervalued” Renminbi as that which was used against Japan in the early 1980s, China does not plan to capitulate on any front, let alone in terms of caving to US pressure over the Renminbi. China has no plans to overvalue the Renminbi by allowing a free float which would likely lead to a higher value in the national currency. Likewise, China has no plans to artificially de-value the Renminbi either.

Instead, China aims for a stable national currency in order to avoid boom and bust cycles at home while also doing with the Renminbi what Japan could have never realistically done with the Yen – position itself to become the world’s future reserve currency. Furthermore, China’s managed float (which could easily be called a managed peg) of the Renminbi to other major currencies including the US Dollar, Korean Won, Japanese Yen, Euro and other less globally traded currencies will help the Renminbi to ease itself into its inevitable future position as the world’s major reserve currency.

At the same time, while not taking drastic moves to alter the value of its currency one way or another, China is working to gradually transform the Renminbi into the world’s de-facto reserve currency. As China’s overall GDP is set to overtake that of the US by 2040, as history indicates, the nation with the world’s largest economy will necessarily provide the world with it’s reserve currency. But far from siting and waiting for another forty years, China is already taking steps to entice other countries towards using its the Renminbi as a currency of bilateral international trade while the addition of Renminbi to the SDR currency basket in late 2015 has further underscored the role of China’s currency as a major player in international markets. This year’s launch of the so-called Petroyuan has further demonstrated that China is very serious about promoting its currency as an alternative to a US Dollar that while strong is increasingly volatile in terms of its reliability in international exchanges among nations targeted by sanctions and other economic pressures from Washington.

China – from trade to innovation 

Trade is another area where China has shown that slow and steady wins the most important races. After opening up the economic to special economic zones (SEZs) in the 1980s that saw foreign direct investment spur the growth of domestic manufacturing, today, as China looks to export its own capital while importing ever more goods, China is promoting imports through events like the China International Import Expo and the establishment of strategically located free trading zones (FTZs).

China’s great reform of 1978 was made possible through the creation of special economic zones (SEZs) throughout the nation. By the mid 1980s China had created 20 such zones. Within each special economic zone, regulations such as taxation were drastically cut while these zones also welcomed foreign direct investment on highly attractive terms. The zones also served as China’s first foray into the free trade that increasingly defines Chinese mentality to a modern multilateral approach to globalisation with Chinese characteristics. Finally, because China’s special economic zones were and remain bedrocks of export driven commerce, these zones helped to transform China into the world’s industrial powerhouse that it is today.

Just as sure as the SEZs of the Deng era helped to transform all of China into the industrial and innovation powerhouse it is today, the creation of new free trade zones (FTZs) throughout strategic regions of China will help to transition the country into its next economic phase a a nation that opens its national doors to a world of trade, capital exchange, technical exchange and human connectivity.

As China looks to cultivate free trade agreements with multiple nations and in so doing helping to harmonise the ease of moving goods in multiple directions within the context of the Belt and Road initiative, China seeks not only to embrace free trade but to promote it as a means of accelerating economic growth among its partner nations by allowing them to both buy and sell their goods to important global markets in a less bureaucratically restrictive environment.  As freer capital inflow and outflow arrangements will also be possible in the new FTZs, China will present the world a preview of future decades when an inevitably freely floating Renminbi will become ever more favoured as an international reverse currency and as a currency of international trade.

While China is opening up its entire geographical space to freer trade, by following the time tested method of setting up special zones to test both domestic attitudes and international attitudes towards the next phase in China’s economic development, Beijing continues to embrace a gradualist strategy that allows for the growing pains inherent in any new economic change to mature in a self-contained environment that can be easily monitored and legislatively amended depending on what challenges arise. It was this method that helped the SEZs of the 1980s transform the entire nation and thus when the new FTZs are fully operational, this too can be seen as a blueprint for future trading relations between all of China and its global partners.

Xi Jinping Thought 

In the same way that Deng’s opening up in 1978 helped to empower the people and put them on a path to a more materially fulfilling and socially enlightened future, Xi Jinping Thought on Socialism With Chinese Characteristics for a New Era looks to inspire future generations of globally minded innovators to put China at the heart of a world guided by the forces of peace through prosperity. At the core of Xi Jinping Thought is the principle that economic openness when managed effectively while simultaneously encouraging people driven innovation, can help to free people from cycles of economic exploitation and ensure a future in which development progresses on a sustainable model. This itself helps ensure a more stable economic future for the world as a whole as China looks to lead by example rather than through coercion. This serves to underscore the importance of mutual respect and transparency which helps developing nations to empower their own populations through participation in the Belt and Road initiative.

Furthermore, because the market socialist model of modern China prioritises balance between innovation and regulations that avoid boom and bust cycles, China is able to offer the world a viable and sustainable alternative to neo-liberal economic systems in which automation and the artificial intelligence revolution threatens the economic opportunities of ordinary people. When contrasted with the “race to the bottom” implicit in neo-liberal economic systems, the Chinese model at the core of Xi Jinping Thought allows for the wealth generated by the artificial hand to cycle back into the economy in the same way as profits generated by the human hand have been in the past. In this sense, China’s world renowned innovations in robotics and artificial intelligence will help to further enlighten the Chinese workforce while fostering a spirit of creation and innovation that does not come at the expense of socio-economic security. The FTZs are set to be a global showcase of this balanced modern model in action.

China likewise welcomes the creation of FTZs in its partner nations as such an arrangement will help to increase global connectivity projects within the framework of the Belt and Road initiative. In an age when the fate of one nation’s stock markets and one nation’s currency can have negative ramifications throughout the world, it is clear that the best way to overcome financial unilateralism is to pool the strengths of multiple economic powers acting in concert to create new means of material, cultural and human exchange. In achieving this, China has developed a model of economic openness that can harness the kinetic potential of multiple world economies so as to achieve win-win trading relationships that are more shielded from the pangs of distant markets.

The classic adage ‘show, don’t tell’, naturally applies to the new FTZs. While theoretical arguments can win minds, seeing theory spring to action can win real life adherents whose attraction to a new geo-economic mentality is best apprehended by seeing how such a system functions in daily life. In this sense, while the FTZs will be showcases of China’s latest innovations, China’s free trading zones will be a demonstrable example of the kind of future China seeks for itself and graciously recommends for partners who may be indecisive about their own future in an ever more inter-connected world.

Taken in totality, China’s approach has been one of moderation that has seen the implementation of history changing initiatives through gradual processes. Within the framework of these gradual processes, China is able to position itself as a global bedrock of geo-economic stability which given the sudden political shifts elsewhere, provides a great sense of assurance to bilateral partners across multiple continents.

Russia’s lost decade 

Whilst China continued to innovate, modernise and sign new trading agreements in the 1990s, Russia experienced a lost decade. In the 1990s, Russia was ruled by pirates proclaiming freedom, economists who did not have a clue about economics, foreigners who didn’t have a clue about Russian cultural characteristics, and oligarchs whose idea of a free market was one that was about as free as that of the slave ship.

A free market can only function in a society that is largely free from systematic corruption, one that is rules based rather than arbitrary and one in which laziness, graft and selfishness are anathema to the general culture. None of these characteristics existed in post-Soviet Russia and as a result, poverty, narcotics, suicide, AIDS, prostitution, organised crime and violent crime became the rule rather than the exception.

Russia’s great experiment in “freedom” turned out to be merely a new form of slavery.

The Putin myth 

Even by the end of the 1990s, Vladimir Putin was barely known outside of his hometown of St. Petersburg. A former intelligence officer who later became involved in local politics after the collapse of the USSR, Putin gained a reputation for being an able technocrat in an age of widespread incompetence. As such, he rose quickly through the ranks, eventually becoming Prime Minister (an appointed rather than elected office in Russia) by 1999. Putin however was not an ideas man and nor was he the celebrated public figure he later became.

The Putin of the late 1990s was someone committed to pushing Russia towards a western economic model in spite of the fact that neither the people nor the businesses oligarchs understood capitalism in the way that Lee Kuan Yew of Singapore clearly did. By the time Putin became Russia’s President at the turn of the 21st century, his technocratic experience did teach him one valuable thing. Putin knew that if Russia was going to have any genuine ability to modernise, it would have to rid itself of oligarchic factions who competed with each other whilst vying for control over the government.

Because of this, Putin did not eliminate the oligarchs as many claim that he had, but instead he gradually co-opted them. Putin effectively said to the oligarchs that they needed to work with the government rather than against it and that in return, they could still influence the broad trajectory of Russia’s economy. Those who agreed to cooperate had their status elevated and those who did not either fled the country (taking much of their assets with them), were eventually arrested or otherwise done away with.

This helped to stabilise the economy, but it did not help to modernise the economy. The failure of many to understand this crucial difference is one of the reasons that Russia’s model remains so far behind that of neighbouring China.

The folly of pride 

In order to compensate for the lack of economic momentum, Russia eventually re-built much of its military, thus regaining one of the only technical advantages it held against the west during much the Cold War period (particularly during the age of Brezhnev). As such, a new domestic narrative developed which stated that because Russia became militarily mighty once again, economic concerns were less important than those involving the military and the diplomatic corps. Whilst it is not likely that the authoring of this narrative after around 2010 was a conscious preparation for the western derived sanctions that would hit Russia beginning in 2014, the narrative did help many in Russia to cope with the psychological pressure of sanctions, whilst Russia’s under-developed economy ironically helped to shield most ordinary people from the negative effects of sanctions. Likewise, as sanctions stimulated Russia’s agricultural sector, many felt that Russia had achieved a victory against the west – albeit a victory that did little to change Russia’s fundamentally flawed economic order.

Towards a new awakening 

For many in Russia who accepted minor improvements as a poor substitute for genuine economic reform, the penny dropped when in 2018, the Russian government proposed to radically increase the national pension age. This itself led to previously unthinkable loses for the ruling United Russia party in local and regional elections held in 2018.

The pension scandal has led to a growing realisation among many in Russia that while the country has experienced far too many radical political changes since 1905, much needed economic reforms are decades overdue.

Russia today operates neither on the command economic model of the Soviet era nor on anything that can be called a truly free market. Instead, whilst Russia aspires to be a free market, it remains one in the hands of a small group of oligarchs who benefit from the country’s grossly undervalued currency whilst ordinary people remain poor in dollar terms and starved of opportunity because of a lack of both public and private investment in infrastructure, industry and technology.

Russia remains home to an educated population and is ideally suited to take advantage of the robotics and AI (artificial intelligence) revolution of the 21st century. But this can only happen if a new economic model is devised and implemented.

Conclusion 

Whilst many international criticisms of Russia claim that there is a lack of free speech in the country, this is simply not true. Free speech in Russia remains part of the daily life of Russians and is not under any direct threat. The problem with Russia therefore is not a lack of free speech but a lack of free markets – the kinds of which transformed Singapore from a swamp into a first world economy and that which allowed China to lift more people out of poverty at a more rapid pace than that which had ever been accomplished in human history. Russia might be a military superpower, but its economy needs to modernise in order for the country to achieve its potential.

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