Pity the central bankers.
In a recent policy briefing, the Central Bank of Russia fretted openly that monetary policy – specifically, the Bank’s ability to stimulate or dampen economic growth by manipulating lending rates and the money supply – was losing touch with Russian households. At fault, according to a report by Bloomberg (which, credit where it’s due, broke the story), is inequality, which has grown to such a high level that those who can afford to borrow don’t need to, and those who might need to can’t afford it. Thus, whatever the CBR might decide to do with interest rates wouldn’t matter much.
That, though, is only the tip of the iceberg. Elsewhere in their report, the CBR writes (in typical central-bankese):
The clarity of the signal from the key rate to the financial sphere and its influence on the activity of enterprises and households depends greatly on the role of the financial sector in the movement of financial resources in the economy, and in the formation of savings and credit. As such, an important condition is the trust placed by the population and businesses in financial intermediaries.
In other words, monetary policy only works if people trust banks. And people don’t trust banks. In a survey from WCIOM (also cited by Bloomberg), some 61% of respondents said that now is a better time to save than to spend, but only 38% said they would put their savings in a bank. Russians are, of course, well aware that their mattresses don’t pay interest, aren’t ensured against loss and won’t help them build a credit history – and yet into the mattress it goes.
This is, of course, entirely rational behavior. As the ruble has collapsed verses the dollar and euro, the Central Bank and the Deposit Insurance Agency have struggled to keep up with the impact on a banking sector heavily in hock to European financial markets. The CBR has closed more than 200 banks since the crisis began, while encouraging the remaining institutions to hold onto deposits almost at any cost – which generally means offering higher and higher real interest rates on deposits (even as CBR rates have declined). For a while, this has worked, and household deposits have continued to grow throughout the crisis (and are currently 5.4% higher in nominal ruble terms than they were at the start of the year). But that growth, if annualized (to 7.2%) is barely ahead of inflation (6.4%) and well below prime interest rates (10.6%). Given that performance – and the fact that banks keep going under at a rate of a few a week – why would you put your money in the bank?
Banks, however, are not the entirety of the problem. Despite falling incomes and cuts to social service prevision, Russians are, by and large, withdrawing from the public space, rather than pressing their grievances and demands. The September 18 Duma elections were met with a resounding silence, as record low turnout delivered an unenthusiastic result for the ruling party, as if to say, “here, have your power, we don’t need it.” And, after some growth last year and the first quarter of 2016, labor protest is also in decline.
This is all too reminiscent of a phenomenon we have seen before in Russia: a rejection of formal institutions, of the impersonal, universalistic logics of political and economic exchange, in favor of hyper-localized, particularistic solutions and coping mechanisms. Whether you call it “involution” (per Burawoy et al), “patience” (per Ashwin) or “aggressive immobility” (per me), the upshot is the same: the signals that matter are only the ones received close at hand. Other signals of more distant origin, whether sent by politicians, activists, the television or the Central Bank, are increasingly only noise, as they were through much of the 1990s.
What is striking is how quickly Russians appear to be moving back into the safety of involution and immobility, after what looked like a broadly successful foray into contemporary capitalism over the past decade and a half or so. Russians became avid borrowers and, to an extent, investors; consumer and mortgage lending boomed, as did term deposits, pension funds, and the real estate market. From a transactional standpoint, Russia began to feel increasingly like Europe.
This is, however, about more than finance and capitalism – both of which are suspect not only in Russia. It is fundamentally about the signals that make individuals part of a community, that allow people to feel common cause with people they’ve never met. It was the increasing meaningfulness of those signals that allowed some people to challenge the Kremlin in 2011 and 2012, and so some in President Putin’s camp might silently be glad at the present state of affairs. As the Central Bank can tell them, however, they shouldn’t be. It’s never a good thing to lose touch.