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A miracle begins to emerge in the Russian economy
Taiwan News ^ | 2002-10-18 | Jonathan Power

Posted on 10/29/2002 6:43:48 PM PST by Destro

Opinion

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.


TOPICS: Editorial; Foreign Affairs; Russia
KEYWORDS: russia
A 13% flat income tax and investment in heavy industry over service sector jobs?

Take a deep breath......

1 posted on 10/29/2002 6:43:48 PM PST by Destro
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Comment #2 Removed by Moderator

To: FreeNot
So you mean a crippling world war will be followed by a German secret intelligence operation to insert a revolutionary leader to start a civil war?
3 posted on 10/29/2002 6:53:50 PM PST by Destro
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To: FreeNot
Same thing was happenning in the late 18 hundreds till the 1917.

And communism began rearing its ugly head in the USA in 1932. Does this mean that Russia is fifteen years ahead of us?

4 posted on 10/29/2002 6:54:51 PM PST by FreePaul
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To: Destro; FreeNot
Russian economy forges on as confidence stays strong: Violent siege leaves business unfazed
5 posted on 10/29/2002 6:56:51 PM PST by Destro
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To: FreePaul
bump
6 posted on 10/29/2002 6:57:48 PM PST by Destro
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Comment #7 Removed by Moderator

To: Destro
"Russian economy forges on as confidence stays strong: Violent siege leaves business unfazed"

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.

8 posted on 10/29/2002 7:21:26 PM PST by auggy
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To: auggy; FreeNot
The only thing the communists did well was education, especially science and math. Match that educated population with Russia's natural resources and it has explosive positive possibilities. I don't think Russia will rival Western Europe or the USA but it may become an heavy industry powerhouse. Instead of compact cars they may build damns, oil rigs, large tankers, etc with labor costs around the same as the cheapest Asian manufacturers. Russians have no experiance in consumer goods but they do have experiance with heavy industry and I think that is where they are concentrating their investments.
9 posted on 10/29/2002 7:34:45 PM PST by Destro
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Comment #10 Removed by Moderator

To: Destro
I am glad to see the Russians at least try to move toward a tax structure that will lessen the burden on poor ol' Vlad Six-Pack.

About a year ago, I mentioned the low tax rate in Russia to a friend from the Ukraine. I told him this is a good sign Russia was going to improve their prospects immensely.

I was surprised to hear him say it was not the first time that low taxes were promised. He once owned a small high tech consulting company (I don't remember where) and the authorities let him pay his taxes and generally left him alone. The problem is once his business started growing and he began making serious rubles, he was suddenly the focus of attention of the local government. The shakedown started and they bled him dry a little at a time. Mysterious fees, licenses, etc., etc.

He said the rule of law supporting binding contracts is still a long way off. Too much cronyism, corruption and political interference. On more than one occasion, he has said living here made him homesick!
11 posted on 10/29/2002 7:51:22 PM PST by SteelTrap
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To: Destro
The Russians have had a lot of adversity over the past 85 years - I hope they get some good times!
12 posted on 10/29/2002 8:03:14 PM PST by neutrino
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To: Destro
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.
They should do like us an send all manufacturing overseas. That's working, isn't it?

13 posted on 10/29/2002 8:41:47 PM PST by sixmil
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To: neutrino
I was a visiting lecturer at the College of Business and Management in Moscow in the mid '90's. What impressed me was the number of smart, ambitious kids clamoring for an opportunity. As soon as they get their "sea" legs in the ocean of capitalism, I think we may see Russia as an economic powerhouse.

All nations rise and fall. If the democratic party is successful in turning America into a third world country (by virtue of attrition), Russia may step in to fill the gap.
14 posted on 10/29/2002 9:07:07 PM PST by hoosierskypilot
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To: Destro
Russians have no experiance in consumer goods

They do, Destro: their watches, for instance, are really great. In fact, Russian watches are known to be the fastest in the world.

15 posted on 10/29/2002 9:37:05 PM PST by TopQuark
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To: FreeNot
Stay the same? The Russians have to get to the pay level of a South Korean first.
16 posted on 10/29/2002 10:15:33 PM PST by Destro
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To: TopQuark
The only think I know about Russian watches is from a line from the 2 star movie "Spies Like Us".
17 posted on 10/29/2002 10:18:10 PM PST by Destro
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To: Destro
Kennedy and Kruschev were both right, or nearly so (Kennedy predicted Russia would, within a few decades, adopt capitalism; Kruschev predicted the U.S. would adopt communism).
18 posted on 10/29/2002 10:51:08 PM PST by supercat
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To: supercat
Re #18

Ha, ha, a good comment !

19 posted on 10/31/2002 1:05:55 AM PST by TigerLikesRooster
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