Skip to comments.A miracle begins to emerge in the Russian economy
Posted on 10/29/2002 6:43:48 PM PST by Destro
A miracle begins to emerge in the Russian economy
2002-10-18 / Taiwan News / By Jonathan Power London
There used to be a joke told in Moscow: There are two ways out of the Russian economic crisis: the natural and the miraculous. The natural way is that the Archangel Michael and his cohorts of angels descend to earth and work 24 hours a day to save the Russian economy. The miraculous way is that the Russians do it themselves.
Perhaps it is too early to talk of miracles, but like Poland before it (where this joke also went the rounds in a Polish form) Russia has climbed magnificently out of the abyss. No doubt it will stumble again, but the indications are that the fundamentals of future success are now being laid and that the Russian economy can be said to have safely weathered the storms of its transition from command economy straitjacket to capitalist economy free spirit.
Just last week the Organisation for Economic Cooperation and Development, a western intergovernmental agency, removed Russia from its black list of countries that tolerate money laundering. In the last couple of years Russia has not only passed legislation to deal with the issue, it has effectively implemented it.
For the past three years Russia has achieved an annual economic growth of 6.5%, combined with a productivity boom that Anders Aslund, the influential Swedish expert of the Russian economy, describes as making " U.S. productivity growth appear lethargic".
This time round the West must get its response right. On at least two previous occasions in the last ten years it has messed things up, once by under reacting and once by overreacting.
The first time the West had a big chance to make a difference was in 1992. President BorisYelstin, not long in power, had appointed a highly intelligent economic reformer as prime minister, Yegor Gaidar, who wanted to transform the Russian economy, liberalizing commodity prices, deregulating exports, unifying the exchange rate and establishing market interest rates. Yeltsin and Gaidar appealed to the West to help them, but the West seemed only interested in discussing the paying back of the old Soviet debt. Gaidar, effectively isolated, was defeated.
Three years later, feeling rather guilt ridden about its earlier mistake, the West geared itself up to help. But this time there was no sensible economic policy in place. All eyes and effort were fixed on the reelection of Yelstin in the face of strong opposition from the fascists on one side and the communists on the other. Russia was considered too big and too nuclear to fail and the resources of the International Monetary Fund poured in, followed by a massive flow of private portfolio investments.
Three years later on August 17th, 1998, in a totally undisciplined environment the Russian economy crashed and the rouble eventually fell to a quarter of its previous value. Foreign investors ran away scared and burnt. But the crash also brought to a shuddering halt the raping and looting of the Russian economy that had been the stock in trade of Russia's first generation capitalist class who not only had made themselves rich had turned the quite benign income distribution of Russia into that of a typical Latin American country whilst financially corrupting a large part of the Russian political class.
The crash meant there was nothing left to loot: the coffers of the state were effectively empty. This translated into big losses for the big Russian businessmen and because they could no longer milk the state there was no way for them to win back the power and influence they wielded before. But since then, as Aslund observed in "Foreign Affairs", "Russia has grown more serious". The old cultured Russia re-asserted itself and with its highly educated middle class, proficient in maths and engineering, it was primed to take advantage of the Internet world. Bribery has plummeted as the opportunities for practising it cost free have dried up and under President Vladimir Putin the country and its decision-making has stabilised. Moreover, the fruits of privatisation- one of the more sensible policies of the Yeltsin years- have become apparent. Soviet-era managers have been replaced, companies have been restructured and into the arena have stepped a new generation of businessmen, often in their thirties, who deemed the making of money by entrepreneurship rather than asset stripping and corruption the preferable road to take.
Interestingly these capitalists have not taken the path many western advisers advocated, building up small businesses as in Poland. Instead, they are working at developing heavy industry, building sizeable conglomerates that use the cash generated by oil or metals businesses to invest in manufacturing companies that they bought at knock down prices after the crash. Although ruthless in sacking over manned workforces most of them have leant support to Putin's plans for radical tax reform and judicial reform. They tend to be pro Western and open to bringing in Western managerial and technical expertise.
The breakthrough is still tentative. The fragile, war-prone, international atmosphere doesn't help, the slow down in neighbouring Poland is a warning of troubles to come and the working class is not yet benefiting as much as the middle class but, nevertheless, the Russia of today is barely recognizable from the early Yeltsin years. At least the democracy and openness he fathered meant that it was a little easier for Russia to learn the hard way.
The Russians have shown they can do miracles. It just cost them rather more than it should.
Take a deep breath......
And communism began rearing its ugly head in the USA in 1932. Does this mean that Russia is fifteen years ahead of us?
I took a cruise to the Scandinavian countries recently. Our ship docked in St.Petersburg, Russia. It wasn't the prettiest dock we were at. Probably the ugliest one. It was totally a industrial port. Really nothing for a cruise ship to be at. There was a huge crane directly in view of the ship. It was picking up and setting down box cars, about the size of a trailer on a 18-wheeler. Possibly larger. The crane operated 24 hours a day. There were hundreds of the box cars. I don't know what the heck it was doing with them , but they certainly worked hard at what they were doing.
I also took a tour in St. Petersburg. Our tour guide was telling us that before the Soviet Union dissolved, the people of the Soviet Union thought they had always been middle class. When they started learning the truth they were angry that they had been lied to all of these years. They were in the lower class and lived in poverty compared to the U.S. This is when the rebellion against the government began. She said they are still living in poverty, although some have prospered. They had faith that they too, someday would also prosper. She was very religious lady that put her faith in God as her reason for living.
They should do like us an send all manufacturing overseas. That's working, isn't it?
They do, Destro: their watches, for instance, are really great. In fact, Russian watches are known to be the fastest in the world.
Ha, ha, a good comment !
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