Putin Sanctions Making Entrepreneurs ‘Enemies of the Regime,’ Inozemtsev Says

August 12, 2014
Those who will be hit the hardest by the Russian import sanctions are the Russian businessmen who purchase and then sell these goods. Photo via realty.rbc.ru

Staunton, August 11 – Many observers are focusing on the impact Putin’s ban on imports from countries which have imposed sanctions on Russia will have on Russian consumers, but Vladislav Inozemtsev says that it will have more serious consequences for Russian entrepreneurs and their relationship with the Kremlin.

Because the sanctions will hit the entrepreneurs’ profits so hard and because the Russian authorities appear to have ignored how that will undermine the contribution they make to the economy, the economist says, an increasing number of them will conclude that for the regime they are “nothing” and something it can ignore.

Indeed, he continues, these consequences are likely to be so serious that those around Vladimir Putin who proposed these bans should “immediately be given the rank of heroes of Ukraine or some other top awards of the countries which are most critical with Russia.”

There is no doubt, he says, that these bans will have only a small impact on the countries from which Russia had been importing these goods. Just as there is no doubt that there will be shortages, price hikes and other problems in the Russian market as a result, but these things are “not that important,” Inozemtsev says.

Those who will be hit the hardest are the Russian businessmen who purchase and then sell these goods. That is because the average wholesale price is typically only 15 to 35 percent of the retail price, a pattern that means the earnings and profits of these businessmen will be hurt far more than anyone else.

What matters most, Inozemtev argues, is “something completely different.” It is that the businessmen who have been the most active in developing the service sector in Russia will have heard from the authorities. As a result of this action, “the state has firmly and clearly said to this part of the entrepreneurial class: you are a blank space to us, an absoute zero.”

By this action, the powers that be will not only inflict serious harm on “entrepreneurial initiative in the major cities” and spark a growth in unemployment. They will make enemies of a group of people who had been quite content to work hard as long as the government left them alone to do so.

The people in the Kremlin may perhaps hope that Russia does not need growth in the service sector given their plans to produce more arms. They may think that they will be able to cope with unemployment by increasing the size of the military. They may also assume that government employees will continue to be in demand.

While this is “possible,” what is more “probable” is that “these hopes will not work out,” Inozemtsev says. In the major cities, the enterprising part of the population will presumably understand that the current powers are only ready to observe the ‘social contract’ with socially defenseless strata of the population and its own employees. They will realize that the authorities “don’t need” the entrepreneurs.

The potential consequences of alienating this group are clearly far larger than any benefits Vladimir Putin and his regime may think they have won by this action.