Sex, Oil, and the Ruble

January 28, 2015 12:30 PM

In the last few weeks, a start-up called Russian Zen has become the most visited internet site in Moscow. No, it isn't a spiritual site. Quite the contrary. On a background of sparsely-clad women and soothing tantric music, three numbers flash on the screen: the real-time ruble to dollar exchange rate, the ruble to euro exchange rate, and the price of oil per barrel.

Everyone seems to be transfixed by these three numbers, and during the (frequent) traffic delays in downtown Moscow you can simultaneously see them on multiple handheld screens in the cars around you. Taxi drivers update you on the latest numbers the moment you enter a cab, and some coffeehouses even have Russian Zen displayed on their cash registers.

The obsession with the falling ruble is easy to understand. After almost 15 years of relative financial tranquility, ordinary Russians have lost half of their foreign currency wealth in just three months. For middle-class Russians who are used to travelling abroad often, this is particularly painful. The planes to Thessaloniki, Milan, and Paris are reportedly less crowded than usual. Parents who have sent their children to study in London—and many do—have to put up a larger portion of their salaries towards education. Foreign cars are suddenly out of reach and out of stock.

But it is not just consumers of luxury goods and let's-go-shopping travelers who suffer. All businesses that rely on foreign inputs and sell on the Russian market face an uphill battle to remain afloat. The devaluation has been so steep that business plans are thrown out the window. Continuously, as the numbers flashing on Russian Zen show: The ruble keeps falling, and so does the price of oil.

I also visit the Russian Zen site several times a day, as my business depends very much on the falling ruble. I run a private graduate school in economics. To compete in the market for professorial talent, we pay salaries similar to the ones professors of economics would receive at the average American university. Students, however, pay in rubles. For many of their families, the tuition was high relative to their income even before the devaluation, so the school had arranged student loans with local banks. Now the banks are saying they cannot serve these loans anymore as the fall of the ruble has made them unprofitable. We are faced with the choice of either heavily subsidizing students or seeing them leave school. Several already have. In short, the business of private education in Russia looks like this now: Costs are up substantially in ruble terms, and revenues have actually fallen as collecting tuition has become more challenging.

These difficulties are, moreover, widespread. Russian state universities have also suffered. Allegedly their budgets have been cut by 25 to 30 percent relative to last year, as the falling price of oil has meant fewer revenues in the government's coffers. As a comparison, after the 2008–09 financial meltdown in the United States, some American state universities cut their annual budgets by 3 to 5 percent and claimed that such cuts would wreak havoc on the quality of education. Imagine this: With education in Russian state universities accessible to anyone who has passed the entrance exams, the only solution is to double the class size.

You can begin to understand why Russian Zen has become so popular: For many of us there is little to do but nervously watch the screen. And hope that political leaders will come to their senses and find a compromise to the current situation that puts the education and livelihoods of many ordinary Russians in danger.

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Simeon Djankov Former Research Staff

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