Mighty Moscow Times Blasts Cruel Kremlin

In a brilliantly terse, acidic editorial, the Moscow Times exposes the breathtaking hypocrisy of the Kremlin in Georgia; it complains to high heaven about Georgian mistreatment of Russians that Georgia believed were spies, then it turns right around and kills innocent Georgians.

In October, when authorities cut transportation and postal links with Georgia and started a crackdown on Georgian migrants living in the country, Foreign Minister Sergei Lavrov promised that every effort would be made to ensure that law-abiding people would not be affected. The death in a Moscow detention center on Saturday of one law-abiding migrant, Manana Dzhabelia, shows that these efforts were tragically insufficient.

Dzhabelia, a 51-year-old mother of three, was detained on Oct. 4 after police found she was not carrying her passport. Despite her explanation that it was at the Georgian consulate to be extended, Dzhabelia’s deportation was ordered the very next day by a district court — rapid action in a country where legal procedures are notoriously slow.

In a cruel twist, a higher court ruled that Dzhabelia was in the country legally, but the detention center was still waiting for an official release order when she died.

It’s impossible to say, of course, that the detention killed Dzhabelia. Prison conditions, however, have been heavily criticized by human rights organizations and even by then-Justice Minister Yury Chaika in March. Dzhabelia’s legal representative, Irina Bergaliyeva, said her client had alerted guards that she suffered from high blood pressure. Although medical staff did visit with Dzhabelia at least twice, Bergaliyeva called the examinations insufficient. A hunger strike Dzhabelia started when her requests to be released pending an appeal of her deportation likely did not help her condition.

But that does not change the real injustice — that she was behind bars at all.

Russia’s relations with Georgia have been tense for months, in part because of Moscow’s accusations that Tbilisi is planning military action against the pro-Russian leadership of the breakaway republics of South Ossetia and Abkhazia. Ironically, Dzhabelia, an ethnic Georgian, fled Abkhazia to Moscow 13 years ago to escape the bloodshed of a conflict between Tbilisi and the republic.

The decision to restrict transportation and mail and to crack down on Georgian migrants followed the arrest of several Russian officers in Tbilisi on espionage charges. One of the men was released the next day, while the other three returned to Moscow three days later, raising issues of the proportionality of Russia’s response.

In Dzhabelia’s case, the results were out of all proportion. After just four days, the detained Russian servicemen were back in Moscow. Two months after her arrest, and two days after a court ruled that she should be freed, Dzhabelia died in detention.

Thanks for reading La Russophobe !

Aslund Exposes Russia’s Sham Economy

Writing in the Moscow Times Anders Aslund, senior fellow at the Peterson Institute for International Economics, exposes the fundamental hollowness and failure of the Putin economy.

In 1999, the McKinsey Global Institute published a report titled “Unlocking Economic Growth in Russia.” Startlingly, the report suggested that the economy could grow by 8 percent per year for the foreseeable future without any changes to current economic policy. The report identified three factors underlying the growth projections. First of all, Russia had achieved a critical mass of market-based activity, private enterprise and financial stabilization. Second, physical and human capital were both abundant. Finally, moderated investment rates would be sufficient for high growth.

The institute was concerned, however, that too much production took place at obsolete plants, which it said had to be closed so that activity could be concentrated in the most modern factories. This report appeared long before anybody even imagined the current oil boom.

From this perspective, Russia’s real average economic growth of 6.8 percent per year since 1999 does not look as impressive. Russia has also underperformed in relation to the other former Soviet republics, which have grown by an (unweighted) average of nearly 9 percent per year over the last three years. The stars have been the Baltic states, Armenia, Azerbaijan and Kazakhstan. All of these, with the exception of Azerbaijan, have undertaken more extensive structural reforms than Russia.

Many things have worked out well in the Russian economy since the financial crash of August 1998. In hindsight, the crash looks like the catharsis Russia needed to become a full-fledged market economy. It broke the protracted resistance from old-style managers and the Communists against reforms. It showed that only a full-fledged market economy made sense.

Ever since, Russia’s macroeconomic performance has been stellar. Budget and current account surpluses have skyrocketed with world oil prices. The oligarchs have rationalized and revived old Soviet industries. For instance, they have concentrated steel production in the most efficient plants, just as the McKinsey report advised. Capital investment has grown at a reasonable clip of about 10 percent per year. Significant structural reforms were undertaken from 2000 to 2002, notably tax reforms and the adoption of the Civil Code.

The current economic growth erupted in 1999, before President Vladimir Putin came to power, and originated in the reforms carried out under President Boris Yeltsin in the 1990s. By 1999, they had reached a critical mass. Putin is not the creator but the beneficiary of the economic growth. The driver of the economic growth has been the private sector, but Putin is endangering that growth through his renationalization campaign. According to the European Bank for Reconstruction and Development, the private sector generated 70 percent of gross domestic product in 2004 but only 65 percent in 2005. And renationalization continues.

Putin is widely credited with the introduction of law and order in Russia, but where is it? Expenditures on law enforcement have increased significantly but have not produced significant results. According to official statistics, during Putin’s first five years in power, Russia recorded an annual average of 32,200 homicides, compared to an average of 30,200 homicides during Yeltsin’s last five years in the Kremlin. The public perception of social stability is merely the result of successful propaganda.

Initially, Putin’s judicial reform appeared impressive, but it amounts to little more than a transfer of judicial power from regional executive bodies to the presidential administration. According to Transparency International, corruption in Russia declined at the beginning of the decade, as in most of the region, but has bucked the regional trend by increasing considerably since 2004.

Russia’s oil surplus is so huge that it can hide many flaws in economic policy. Most striking, GDP in current dollars has increased almost five-fold over the past seven years, to some $960 billion this year from barely $200 billion in 1999. Russia is now the 10th-largest economy in the world, measured by GDP in current dollars, ranking just behind Spain. Barring a major disaster, Russia will become the world’s fifth-biggest economy within the next two decades.

At present, the oil surplus is driving economic growth, which is being generated mainly by the consumer sector, retail trade and housing construction, while industrial output has increased by just 4 percent per year over the last two years. That these are the conditions underlying growth does not bode well.

Ironically, Russia’s least dynamic sector is energy production. In 2003, oil production skyrocketed by 11 percent, thanks largely to private ownership and investment. But the confiscation of assets from Yukos led to the renationalization and disorganization of almost half the oil industry. The new state owners are less effective as managers and direct more of their efforts to purchasing further assets than developing those they already control. The remaining private oil companies are rightly afraid of investing or boosting production too much. As a consequence, oil production may rise by only 2 percent this year and stagnate in the future.

Some people do not handle luck well and end up succumbing to hubris, as is the case with Russia’s current leaders. By and large structural reforms ended in 2003, even if continued restructuring of some enterprises is driving some isolated reform, as is the case in the electricity sector. Despite declining official enthusiasm, Russia is approaching WTO accession. Yet, beside what has been responsible macroeconomic policy, the overarching actual economic policy today is that of renationalization.

The evident cause of this economic policy is the oil bonanza. Former Prime Minister Yegor Gaidar and the economists Clifford Gaddy and Barry Ickes have all discussed Russian economic policy as a product of the oil curse. They compare current policy to that of Soviet times. The oil riches of the 1970s led to the Brezhnev petrification, and even contributed to the foolhardy war in Afghanistan, while economic growth was closely correlated with international oil prices. Economics was ignored to the point that investment in the vital oil and gas sector was badly neglected in just the same way that it is today. When the oil prices finally fell in the 1980s, the Soviet economy collapsed.

The situation is much better today. The leadership has learned the importance of macroeconomic stability and is focused on growth. Fortunately, private enterprise dominates, but wherever the public sector prevails problems amass — in gas and oil production, banking, the aircraft and automotive industries and a large part of public transportation, health care, education and law enforcement. The longer oil prices remain high, the worse economic policy will become. The medium-term economic cost might not be high, but the long-term cost will be. Booms breed complacency and corruption.

Oil does not have to be such a curse. Kazakhstan’s economy is even more dominated by oil but, unlike Russia, Kazakhstan steadily increases its oil production by developing new fields. It does so successfully because a multitude of foreign and private oil companies operate there. Kazakhstan is ahead of Russia in banking, labor market, pension and government reform, as well as scholarships abroad. And its growth rate has been at almost 10 percent per year for the last seven years.

Thanks for reading La Russophobe !

Aslund Exposes Russia’s Sham Economy

Writing in the Moscow Times Anders Aslund, senior fellow at the Peterson Institute for International Economics, exposes the fundamental hollowness and failure of the Putin economy.

In 1999, the McKinsey Global Institute published a report titled “Unlocking Economic Growth in Russia.” Startlingly, the report suggested that the economy could grow by 8 percent per year for the foreseeable future without any changes to current economic policy. The report identified three factors underlying the growth projections. First of all, Russia had achieved a critical mass of market-based activity, private enterprise and financial stabilization. Second, physical and human capital were both abundant. Finally, moderated investment rates would be sufficient for high growth.

The institute was concerned, however, that too much production took place at obsolete plants, which it said had to be closed so that activity could be concentrated in the most modern factories. This report appeared long before anybody even imagined the current oil boom.

From this perspective, Russia’s real average economic growth of 6.8 percent per year since 1999 does not look as impressive. Russia has also underperformed in relation to the other former Soviet republics, which have grown by an (unweighted) average of nearly 9 percent per year over the last three years. The stars have been the Baltic states, Armenia, Azerbaijan and Kazakhstan. All of these, with the exception of Azerbaijan, have undertaken more extensive structural reforms than Russia.

Many things have worked out well in the Russian economy since the financial crash of August 1998. In hindsight, the crash looks like the catharsis Russia needed to become a full-fledged market economy. It broke the protracted resistance from old-style managers and the Communists against reforms. It showed that only a full-fledged market economy made sense.

Ever since, Russia’s macroeconomic performance has been stellar. Budget and current account surpluses have skyrocketed with world oil prices. The oligarchs have rationalized and revived old Soviet industries. For instance, they have concentrated steel production in the most efficient plants, just as the McKinsey report advised. Capital investment has grown at a reasonable clip of about 10 percent per year. Significant structural reforms were undertaken from 2000 to 2002, notably tax reforms and the adoption of the Civil Code.

The current economic growth erupted in 1999, before President Vladimir Putin came to power, and originated in the reforms carried out under President Boris Yeltsin in the 1990s. By 1999, they had reached a critical mass. Putin is not the creator but the beneficiary of the economic growth. The driver of the economic growth has been the private sector, but Putin is endangering that growth through his renationalization campaign. According to the European Bank for Reconstruction and Development, the private sector generated 70 percent of gross domestic product in 2004 but only 65 percent in 2005. And renationalization continues.

Putin is widely credited with the introduction of law and order in Russia, but where is it? Expenditures on law enforcement have increased significantly but have not produced significant results. According to official statistics, during Putin’s first five years in power, Russia recorded an annual average of 32,200 homicides, compared to an average of 30,200 homicides during Yeltsin’s last five years in the Kremlin. The public perception of social stability is merely the result of successful propaganda.

Initially, Putin’s judicial reform appeared impressive, but it amounts to little more than a transfer of judicial power from regional executive bodies to the presidential administration. According to Transparency International, corruption in Russia declined at the beginning of the decade, as in most of the region, but has bucked the regional trend by increasing considerably since 2004.

Russia’s oil surplus is so huge that it can hide many flaws in economic policy. Most striking, GDP in current dollars has increased almost five-fold over the past seven years, to some $960 billion this year from barely $200 billion in 1999. Russia is now the 10th-largest economy in the world, measured by GDP in current dollars, ranking just behind Spain. Barring a major disaster, Russia will become the world’s fifth-biggest economy within the next two decades.

At present, the oil surplus is driving economic growth, which is being generated mainly by the consumer sector, retail trade and housing construction, while industrial output has increased by just 4 percent per year over the last two years. That these are the conditions underlying growth does not bode well.

Ironically, Russia’s least dynamic sector is energy production. In 2003, oil production skyrocketed by 11 percent, thanks largely to private ownership and investment. But the confiscation of assets from Yukos led to the renationalization and disorganization of almost half the oil industry. The new state owners are less effective as managers and direct more of their efforts to purchasing further assets than developing those they already control. The remaining private oil companies are rightly afraid of investing or boosting production too much. As a consequence, oil production may rise by only 2 percent this year and stagnate in the future.

Some people do not handle luck well and end up succumbing to hubris, as is the case with Russia’s current leaders. By and large structural reforms ended in 2003, even if continued restructuring of some enterprises is driving some isolated reform, as is the case in the electricity sector. Despite declining official enthusiasm, Russia is approaching WTO accession. Yet, beside what has been responsible macroeconomic policy, the overarching actual economic policy today is that of renationalization.

The evident cause of this economic policy is the oil bonanza. Former Prime Minister Yegor Gaidar and the economists Clifford Gaddy and Barry Ickes have all discussed Russian economic policy as a product of the oil curse. They compare current policy to that of Soviet times. The oil riches of the 1970s led to the Brezhnev petrification, and even contributed to the foolhardy war in Afghanistan, while economic growth was closely correlated with international oil prices. Economics was ignored to the point that investment in the vital oil and gas sector was badly neglected in just the same way that it is today. When the oil prices finally fell in the 1980s, the Soviet economy collapsed.

The situation is much better today. The leadership has learned the importance of macroeconomic stability and is focused on growth. Fortunately, private enterprise dominates, but wherever the public sector prevails problems amass — in gas and oil production, banking, the aircraft and automotive industries and a large part of public transportation, health care, education and law enforcement. The longer oil prices remain high, the worse economic policy will become. The medium-term economic cost might not be high, but the long-term cost will be. Booms breed complacency and corruption.

Oil does not have to be such a curse. Kazakhstan’s economy is even more dominated by oil but, unlike Russia, Kazakhstan steadily increases its oil production by developing new fields. It does so successfully because a multitude of foreign and private oil companies operate there. Kazakhstan is ahead of Russia in banking, labor market, pension and government reform, as well as scholarships abroad. And its growth rate has been at almost 10 percent per year for the last seven years.

Thanks for reading La Russophobe !

Aslund Exposes Russia’s Sham Economy

Writing in the Moscow Times Anders Aslund, senior fellow at the Peterson Institute for International Economics, exposes the fundamental hollowness and failure of the Putin economy.

In 1999, the McKinsey Global Institute published a report titled “Unlocking Economic Growth in Russia.” Startlingly, the report suggested that the economy could grow by 8 percent per year for the foreseeable future without any changes to current economic policy. The report identified three factors underlying the growth projections. First of all, Russia had achieved a critical mass of market-based activity, private enterprise and financial stabilization. Second, physical and human capital were both abundant. Finally, moderated investment rates would be sufficient for high growth.

The institute was concerned, however, that too much production took place at obsolete plants, which it said had to be closed so that activity could be concentrated in the most modern factories. This report appeared long before anybody even imagined the current oil boom.

From this perspective, Russia’s real average economic growth of 6.8 percent per year since 1999 does not look as impressive. Russia has also underperformed in relation to the other former Soviet republics, which have grown by an (unweighted) average of nearly 9 percent per year over the last three years. The stars have been the Baltic states, Armenia, Azerbaijan and Kazakhstan. All of these, with the exception of Azerbaijan, have undertaken more extensive structural reforms than Russia.

Many things have worked out well in the Russian economy since the financial crash of August 1998. In hindsight, the crash looks like the catharsis Russia needed to become a full-fledged market economy. It broke the protracted resistance from old-style managers and the Communists against reforms. It showed that only a full-fledged market economy made sense.

Ever since, Russia’s macroeconomic performance has been stellar. Budget and current account surpluses have skyrocketed with world oil prices. The oligarchs have rationalized and revived old Soviet industries. For instance, they have concentrated steel production in the most efficient plants, just as the McKinsey report advised. Capital investment has grown at a reasonable clip of about 10 percent per year. Significant structural reforms were undertaken from 2000 to 2002, notably tax reforms and the adoption of the Civil Code.

The current economic growth erupted in 1999, before President Vladimir Putin came to power, and originated in the reforms carried out under President Boris Yeltsin in the 1990s. By 1999, they had reached a critical mass. Putin is not the creator but the beneficiary of the economic growth. The driver of the economic growth has been the private sector, but Putin is endangering that growth through his renationalization campaign. According to the European Bank for Reconstruction and Development, the private sector generated 70 percent of gross domestic product in 2004 but only 65 percent in 2005. And renationalization continues.

Putin is widely credited with the introduction of law and order in Russia, but where is it? Expenditures on law enforcement have increased significantly but have not produced significant results. According to official statistics, during Putin’s first five years in power, Russia recorded an annual average of 32,200 homicides, compared to an average of 30,200 homicides during Yeltsin’s last five years in the Kremlin. The public perception of social stability is merely the result of successful propaganda.

Initially, Putin’s judicial reform appeared impressive, but it amounts to little more than a transfer of judicial power from regional executive bodies to the presidential administration. According to Transparency International, corruption in Russia declined at the beginning of the decade, as in most of the region, but has bucked the regional trend by increasing considerably since 2004.

Russia’s oil surplus is so huge that it can hide many flaws in economic policy. Most striking, GDP in current dollars has increased almost five-fold over the past seven years, to some $960 billion this year from barely $200 billion in 1999. Russia is now the 10th-largest economy in the world, measured by GDP in current dollars, ranking just behind Spain. Barring a major disaster, Russia will become the world’s fifth-biggest economy within the next two decades.

At present, the oil surplus is driving economic growth, which is being generated mainly by the consumer sector, retail trade and housing construction, while industrial output has increased by just 4 percent per year over the last two years. That these are the conditions underlying growth does not bode well.

Ironically, Russia’s least dynamic sector is energy production. In 2003, oil production skyrocketed by 11 percent, thanks largely to private ownership and investment. But the confiscation of assets from Yukos led to the renationalization and disorganization of almost half the oil industry. The new state owners are less effective as managers and direct more of their efforts to purchasing further assets than developing those they already control. The remaining private oil companies are rightly afraid of investing or boosting production too much. As a consequence, oil production may rise by only 2 percent this year and stagnate in the future.

Some people do not handle luck well and end up succumbing to hubris, as is the case with Russia’s current leaders. By and large structural reforms ended in 2003, even if continued restructuring of some enterprises is driving some isolated reform, as is the case in the electricity sector. Despite declining official enthusiasm, Russia is approaching WTO accession. Yet, beside what has been responsible macroeconomic policy, the overarching actual economic policy today is that of renationalization.

The evident cause of this economic policy is the oil bonanza. Former Prime Minister Yegor Gaidar and the economists Clifford Gaddy and Barry Ickes have all discussed Russian economic policy as a product of the oil curse. They compare current policy to that of Soviet times. The oil riches of the 1970s led to the Brezhnev petrification, and even contributed to the foolhardy war in Afghanistan, while economic growth was closely correlated with international oil prices. Economics was ignored to the point that investment in the vital oil and gas sector was badly neglected in just the same way that it is today. When the oil prices finally fell in the 1980s, the Soviet economy collapsed.

The situation is much better today. The leadership has learned the importance of macroeconomic stability and is focused on growth. Fortunately, private enterprise dominates, but wherever the public sector prevails problems amass — in gas and oil production, banking, the aircraft and automotive industries and a large part of public transportation, health care, education and law enforcement. The longer oil prices remain high, the worse economic policy will become. The medium-term economic cost might not be high, but the long-term cost will be. Booms breed complacency and corruption.

Oil does not have to be such a curse. Kazakhstan’s economy is even more dominated by oil but, unlike Russia, Kazakhstan steadily increases its oil production by developing new fields. It does so successfully because a multitude of foreign and private oil companies operate there. Kazakhstan is ahead of Russia in banking, labor market, pension and government reform, as well as scholarships abroad. And its growth rate has been at almost 10 percent per year for the last seven years.

Thanks for reading La Russophobe !

Aslund Exposes Russia’s Sham Economy

Writing in the Moscow Times Anders Aslund, senior fellow at the Peterson Institute for International Economics, exposes the fundamental hollowness and failure of the Putin economy.

In 1999, the McKinsey Global Institute published a report titled “Unlocking Economic Growth in Russia.” Startlingly, the report suggested that the economy could grow by 8 percent per year for the foreseeable future without any changes to current economic policy. The report identified three factors underlying the growth projections. First of all, Russia had achieved a critical mass of market-based activity, private enterprise and financial stabilization. Second, physical and human capital were both abundant. Finally, moderated investment rates would be sufficient for high growth.

The institute was concerned, however, that too much production took place at obsolete plants, which it said had to be closed so that activity could be concentrated in the most modern factories. This report appeared long before anybody even imagined the current oil boom.

From this perspective, Russia’s real average economic growth of 6.8 percent per year since 1999 does not look as impressive. Russia has also underperformed in relation to the other former Soviet republics, which have grown by an (unweighted) average of nearly 9 percent per year over the last three years. The stars have been the Baltic states, Armenia, Azerbaijan and Kazakhstan. All of these, with the exception of Azerbaijan, have undertaken more extensive structural reforms than Russia.

Many things have worked out well in the Russian economy since the financial crash of August 1998. In hindsight, the crash looks like the catharsis Russia needed to become a full-fledged market economy. It broke the protracted resistance from old-style managers and the Communists against reforms. It showed that only a full-fledged market economy made sense.

Ever since, Russia’s macroeconomic performance has been stellar. Budget and current account surpluses have skyrocketed with world oil prices. The oligarchs have rationalized and revived old Soviet industries. For instance, they have concentrated steel production in the most efficient plants, just as the McKinsey report advised. Capital investment has grown at a reasonable clip of about 10 percent per year. Significant structural reforms were undertaken from 2000 to 2002, notably tax reforms and the adoption of the Civil Code.

The current economic growth erupted in 1999, before President Vladimir Putin came to power, and originated in the reforms carried out under President Boris Yeltsin in the 1990s. By 1999, they had reached a critical mass. Putin is not the creator but the beneficiary of the economic growth. The driver of the economic growth has been the private sector, but Putin is endangering that growth through his renationalization campaign. According to the European Bank for Reconstruction and Development, the private sector generated 70 percent of gross domestic product in 2004 but only 65 percent in 2005. And renationalization continues.

Putin is widely credited with the introduction of law and order in Russia, but where is it? Expenditures on law enforcement have increased significantly but have not produced significant results. According to official statistics, during Putin’s first five years in power, Russia recorded an annual average of 32,200 homicides, compared to an average of 30,200 homicides during Yeltsin’s last five years in the Kremlin. The public perception of social stability is merely the result of successful propaganda.

Initially, Putin’s judicial reform appeared impressive, but it amounts to little more than a transfer of judicial power from regional executive bodies to the presidential administration. According to Transparency International, corruption in Russia declined at the beginning of the decade, as in most of the region, but has bucked the regional trend by increasing considerably since 2004.

Russia’s oil surplus is so huge that it can hide many flaws in economic policy. Most striking, GDP in current dollars has increased almost five-fold over the past seven years, to some $960 billion this year from barely $200 billion in 1999. Russia is now the 10th-largest economy in the world, measured by GDP in current dollars, ranking just behind Spain. Barring a major disaster, Russia will become the world’s fifth-biggest economy within the next two decades.

At present, the oil surplus is driving economic growth, which is being generated mainly by the consumer sector, retail trade and housing construction, while industrial output has increased by just 4 percent per year over the last two years. That these are the conditions underlying growth does not bode well.

Ironically, Russia’s least dynamic sector is energy production. In 2003, oil production skyrocketed by 11 percent, thanks largely to private ownership and investment. But the confiscation of assets from Yukos led to the renationalization and disorganization of almost half the oil industry. The new state owners are less effective as managers and direct more of their efforts to purchasing further assets than developing those they already control. The remaining private oil companies are rightly afraid of investing or boosting production too much. As a consequence, oil production may rise by only 2 percent this year and stagnate in the future.

Some people do not handle luck well and end up succumbing to hubris, as is the case with Russia’s current leaders. By and large structural reforms ended in 2003, even if continued restructuring of some enterprises is driving some isolated reform, as is the case in the electricity sector. Despite declining official enthusiasm, Russia is approaching WTO accession. Yet, beside what has been responsible macroeconomic policy, the overarching actual economic policy today is that of renationalization.

The evident cause of this economic policy is the oil bonanza. Former Prime Minister Yegor Gaidar and the economists Clifford Gaddy and Barry Ickes have all discussed Russian economic policy as a product of the oil curse. They compare current policy to that of Soviet times. The oil riches of the 1970s led to the Brezhnev petrification, and even contributed to the foolhardy war in Afghanistan, while economic growth was closely correlated with international oil prices. Economics was ignored to the point that investment in the vital oil and gas sector was badly neglected in just the same way that it is today. When the oil prices finally fell in the 1980s, the Soviet economy collapsed.

The situation is much better today. The leadership has learned the importance of macroeconomic stability and is focused on growth. Fortunately, private enterprise dominates, but wherever the public sector prevails problems amass — in gas and oil production, banking, the aircraft and automotive industries and a large part of public transportation, health care, education and law enforcement. The longer oil prices remain high, the worse economic policy will become. The medium-term economic cost might not be high, but the long-term cost will be. Booms breed complacency and corruption.

Oil does not have to be such a curse. Kazakhstan’s economy is even more dominated by oil but, unlike Russia, Kazakhstan steadily increases its oil production by developing new fields. It does so successfully because a multitude of foreign and private oil companies operate there. Kazakhstan is ahead of Russia in banking, labor market, pension and government reform, as well as scholarships abroad. And its growth rate has been at almost 10 percent per year for the last seven years.

Thanks for reading La Russophobe !

Aslund Exposes Russia’s Sham Economy

Writing in the Moscow Times Anders Aslund, senior fellow at the Peterson Institute for International Economics, exposes the fundamental hollowness and failure of the Putin economy.

In 1999, the McKinsey Global Institute published a report titled “Unlocking Economic Growth in Russia.” Startlingly, the report suggested that the economy could grow by 8 percent per year for the foreseeable future without any changes to current economic policy. The report identified three factors underlying the growth projections. First of all, Russia had achieved a critical mass of market-based activity, private enterprise and financial stabilization. Second, physical and human capital were both abundant. Finally, moderated investment rates would be sufficient for high growth.

The institute was concerned, however, that too much production took place at obsolete plants, which it said had to be closed so that activity could be concentrated in the most modern factories. This report appeared long before anybody even imagined the current oil boom.

From this perspective, Russia’s real average economic growth of 6.8 percent per year since 1999 does not look as impressive. Russia has also underperformed in relation to the other former Soviet republics, which have grown by an (unweighted) average of nearly 9 percent per year over the last three years. The stars have been the Baltic states, Armenia, Azerbaijan and Kazakhstan. All of these, with the exception of Azerbaijan, have undertaken more extensive structural reforms than Russia.

Many things have worked out well in the Russian economy since the financial crash of August 1998. In hindsight, the crash looks like the catharsis Russia needed to become a full-fledged market economy. It broke the protracted resistance from old-style managers and the Communists against reforms. It showed that only a full-fledged market economy made sense.

Ever since, Russia’s macroeconomic performance has been stellar. Budget and current account surpluses have skyrocketed with world oil prices. The oligarchs have rationalized and revived old Soviet industries. For instance, they have concentrated steel production in the most efficient plants, just as the McKinsey report advised. Capital investment has grown at a reasonable clip of about 10 percent per year. Significant structural reforms were undertaken from 2000 to 2002, notably tax reforms and the adoption of the Civil Code.

The current economic growth erupted in 1999, before President Vladimir Putin came to power, and originated in the reforms carried out under President Boris Yeltsin in the 1990s. By 1999, they had reached a critical mass. Putin is not the creator but the beneficiary of the economic growth. The driver of the economic growth has been the private sector, but Putin is endangering that growth through his renationalization campaign. According to the European Bank for Reconstruction and Development, the private sector generated 70 percent of gross domestic product in 2004 but only 65 percent in 2005. And renationalization continues.

Putin is widely credited with the introduction of law and order in Russia, but where is it? Expenditures on law enforcement have increased significantly but have not produced significant results. According to official statistics, during Putin’s first five years in power, Russia recorded an annual average of 32,200 homicides, compared to an average of 30,200 homicides during Yeltsin’s last five years in the Kremlin. The public perception of social stability is merely the result of successful propaganda.

Initially, Putin’s judicial reform appeared impressive, but it amounts to little more than a transfer of judicial power from regional executive bodies to the presidential administration. According to Transparency International, corruption in Russia declined at the beginning of the decade, as in most of the region, but has bucked the regional trend by increasing considerably since 2004.

Russia’s oil surplus is so huge that it can hide many flaws in economic policy. Most striking, GDP in current dollars has increased almost five-fold over the past seven years, to some $960 billion this year from barely $200 billion in 1999. Russia is now the 10th-largest economy in the world, measured by GDP in current dollars, ranking just behind Spain. Barring a major disaster, Russia will become the world’s fifth-biggest economy within the next two decades.

At present, the oil surplus is driving economic growth, which is being generated mainly by the consumer sector, retail trade and housing construction, while industrial output has increased by just 4 percent per year over the last two years. That these are the conditions underlying growth does not bode well.

Ironically, Russia’s least dynamic sector is energy production. In 2003, oil production skyrocketed by 11 percent, thanks largely to private ownership and investment. But the confiscation of assets from Yukos led to the renationalization and disorganization of almost half the oil industry. The new state owners are less effective as managers and direct more of their efforts to purchasing further assets than developing those they already control. The remaining private oil companies are rightly afraid of investing or boosting production too much. As a consequence, oil production may rise by only 2 percent this year and stagnate in the future.

Some people do not handle luck well and end up succumbing to hubris, as is the case with Russia’s current leaders. By and large structural reforms ended in 2003, even if continued restructuring of some enterprises is driving some isolated reform, as is the case in the electricity sector. Despite declining official enthusiasm, Russia is approaching WTO accession. Yet, beside what has been responsible macroeconomic policy, the overarching actual economic policy today is that of renationalization.

The evident cause of this economic policy is the oil bonanza. Former Prime Minister Yegor Gaidar and the economists Clifford Gaddy and Barry Ickes have all discussed Russian economic policy as a product of the oil curse. They compare current policy to that of Soviet times. The oil riches of the 1970s led to the Brezhnev petrification, and even contributed to the foolhardy war in Afghanistan, while economic growth was closely correlated with international oil prices. Economics was ignored to the point that investment in the vital oil and gas sector was badly neglected in just the same way that it is today. When the oil prices finally fell in the 1980s, the Soviet economy collapsed.

The situation is much better today. The leadership has learned the importance of macroeconomic stability and is focused on growth. Fortunately, private enterprise dominates, but wherever the public sector prevails problems amass — in gas and oil production, banking, the aircraft and automotive industries and a large part of public transportation, health care, education and law enforcement. The longer oil prices remain high, the worse economic policy will become. The medium-term economic cost might not be high, but the long-term cost will be. Booms breed complacency and corruption.

Oil does not have to be such a curse. Kazakhstan’s economy is even more dominated by oil but, unlike Russia, Kazakhstan steadily increases its oil production by developing new fields. It does so successfully because a multitude of foreign and private oil companies operate there. Kazakhstan is ahead of Russia in banking, labor market, pension and government reform, as well as scholarships abroad. And its growth rate has been at almost 10 percent per year for the last seven years.

Thanks for reading La Russophobe !

Exposing Russophile Blatherskites

Here is a characteristic example of the kind of “argument” being spewed out by the America-hating, dictatorship loving Russophile apologists for the Kremlin:

First stop – London, site of the world’s first nuclear terrorist attack, where one Alexander Litvinenko, a former KGB agent turned whacked-out conspiracy theorist, was poisoned with radioactive polonium. From his deathbed, Litvinenko pointed the finger at Russian President Vladimir Putin and the FSB, the Russian intelligence service. Putin would have to be crazy to order or countenance such an attack, that Russia had nothing to gain from it and everything to lose. Kindly disregard the total lack of evidence implicating the Russian state, and please do your best to ignore the shady character of the victim and his billionaire Russian oligarch patron, whose criminal career was well-documented by the late Paul Klebnikov. (After his fascinating expose, The Godfather of the Kremlin, was published, Klebnikov was knocked off by unknown assailants.)

So let’s see now:

1. The “President” of Russia, a former KGB spymaster, had “nothing to gain” by killing a KGB defector who provided Russian state secrets to the West and accused his government of bombing apartment buildings in Moscow to justify the war in Chechnya. He’s desperate to preserve his reputation in the West, which is why he’s selling nuclear technology to Iran, massive quantities of assault weapons to Venezuela, and giving financial support to the terrorist regimes of Hamas and Hezbollah, all the while maintaining a vast nuclear strikeforce, universal conscription, and obliterating opposition political parties and independent television (the author calls this is “independent foreign policy”).

2. The “President” of Russia has exactly the same KGB credentials as Litvinenko. But while the latter is “whacked out” the former is sane, and we must enter the “bizarro” world to think the “President” could be guilty of anything, while it’s obvious that the latter is guilty of everything. We should oppose the latter, protect the former. Search hard, dear reader, though the entire bucket of slop that constitutes this “analysis” and try to find a single critical word about the KGB spy who rules Russia. Hard, isn’t it?

3. The use of extremely high technology nuclear material from a Russian reactor is not evidence of Kremlin involvement in the Litvinenko killing, nor is the Kremlin’s stonewalling of the investigation, nor is the testimony of Mikhail Trepashkin, nor does the fact that there is a “total lack of evidence” indicate the action of professional intelligence services as opposedto unprofessional amateurs. The author believes that, if the KGB had done the deed, there would be a trail of evidence leading to their door like breadcrumbs.

4. Berezovsky probably killed Klebnikov because the latter said nasty things about the former in a book. But the fact that Berezosky played a key role in selecting the “President of Russia” means nothing negative about that “President” and it is also irrelevant that there is a “total lack of evidence” implicating him in the killing of Litvinenko, his close associate. It’s obvious that Berezovsky killed Litvinenko, and the fact that he had everything to lose by doing so (his close associate, his protected position in Britian) means nothing. It’s more likely that Berezovsky is the killer than the “President.” Assuming Berezovsky did kill Litvinenko, it means nothing that he, Public Enemy #1 in Russia, can get his hands on Russian nuclear materials, that the Kremlin says nothing about such materials going missing, or that it stonewalls the subsequent investigation even though it is “innocent.” Kindly disregard all of that.

The author concludes: “As I have warned for the past year or so, Russophobia is the latest and most dangerous trend in Washington, and it is now a bipartisan fashion, as Senators Biden and Graham demonstrated on Fox News (where else?) the other day.” Can you imagining someone saying, as Nazi Germany rose to power: “As I have warned for the past year or so, Naziphobia is the latest and most dangerous trend in London, and its now a bipartisan fashion.” Wait a minute! Someone DID say EXACTLY that, didn’t he?! Yes he did! And his name was Neville Chamberlain.

As La Russophobe has warned for the past year or so, Russophelia is the latest and most dangerous trend in Russia, and it is now the lunatic fashion, as this author demonstrates on “The Ether Zone.” A neo-Soviet dictatorship is rising in Russia, and more than 1,000 posts on this blog document it. If we allow raving psychopaths like this one to mislead us into dropping our guard yet again, then we have only ourselves to blame.

For more examples of russophile insanity along these lines, see the post on Social Affairs Unit (hat tip Robert Amsterdam).

Thanks for reading La Russophobe !

ZheZhe Calls the Tune

On December 5th the new blog ZheZhe asked: “What if the killer(s) of Litvinenko were sent by Russia, or in Russia, and Litvinenko was murdered, or the murder is being used, as a pretext for getting Berezovsky back into Russia to face prosecution?”

The next day, the Times of London published a story (reported below on La Russophobe) indicating that ZheZhe had asked exactly the right question. It turned out that the Kremlin DID demand a quid pro quo, the extradition of Berezovsky in return for cooperation.

On the 5th, ZheZhe might have been labled a paranoid conspiracist cabal. Today, it’s just plain prescient. Bravo! And remember that the next time someone tells you that you’re leaping to conclusions of Kremlin malevolence (someone like the idiot described in the post above, for instance).

Yet another example of how the blogosphere leads the way these days in coverage and analysis of current events, especially where relatively obscure topics like Russia are concerned.

Thanks for reading La Russophobe !

Overmanged Democracy = Neo-Soviet Union

Nikolai Petrov of the Carnegie Foundation confirms with scholarly analysis that Russia is a neo-Soviet state. He characterized Russia as an “over-managed democracy” (“OMD”) and then concludes:

Besides having many similarities with the Soviet system of people’s democracy, OMD is not very stable. It is transitional by nature, and its development toward either democracy or nondemocratic management is inevitable. A reason to be optimistic with regard to Russia’s future development besides the appearance of a whole “unbeaten” generation is the very nature of OMD itself. For overmanaged democracy to serve as a means to preserve political power, the current political elites will have to reintroduce elements of democracy and federalism; otherwise, all they will manage to do is lose power

He observes that it is just as fundamentally flawed as the Soviet system:

By trying to increase control, the system may lose control. The first and main paradox of OMD is the nonlinear relationship between the government’s efforts to control the system and the final result. After a certain critical level of control has been exceeded which may have already occurred the system can lose all manageability and simply collapse. This is what happened during the 2004 presidential elections in Ukraine. The current Russian electoral system has no safety valves left that would enable it to let off steam if the pressure grows. Russia’s OMD is a multilayer system in which the urge to control goes beyond any reasonable limit. In addition, every cog of the system seeks to prove its utility to its superior, and thus works for its own benefit rather than for the public good.

He states that Putin’s is a regressive regime: “In the seven years that President Vladimir Putin has been in power, Russia seems to have regressed politically almost to where it was a decade and a half ago. Nearly all democratic institutions have been weakened under Putin’s rule, including parliament, political parties, independent media, and fair elections.” And he concludes that, in fact, Russian society generally is regressive: “In Russia, a strong, semi-military, mobilization state has traditionally dominated over a much weaker and barely consolidated society. The policy of state strengthening that has been undertaken during Putin’s presidency has largely brought back the familiar Russian pattern: the state is ubiquitous and encroaches upon public territory, pushing out the genuine public initiatives that are not controlled by the state. Having “streamlined” media, business, political parties, and other institutions, the state now attempts to expand its control over civil society.”

Thanks for reading La Russophobe !