While Putin floats on Oil, his Countrymen Drown

The indispensable Paul Goble reports:

Moscow’s excessive reliance on profits from the export of oil and gas — the centerpiece of Vladimir Putin’s policies – has been contributing to a significant decline in the standard of living of most Russians beyond the capital’s ring road even as it has boosted the country’s GDP, according to a UN report on “Energy and Stable Development.”

As a result, Nataliya Zubarevich, a geographer at Moscow State University who helped prepare the report says, “there is oil and gas [in Russia] but no happiness,” at least outside Moscow, the oil and gas producing regions of Khanty-Mansiisk and Yamalo-Nenets, and the processing center in Tyumen. Because the Russian government has “incorrectly” relied on oil and gas profits alone to show economic growth, she continues, there has been a decline in the well-being of Russian citizens, not only in terms of income but also in health, education and other social services.

Indeed, the report points out, in order to support oil and gas exports, Russia has to spend nearly five percent of its GDP to support the oil and gas infrastructure, an amount that severely limits Moscow’s ability to invest in the modernization of the country and that will largely preclude it as the cost of drilling increases and Russia’s production of oil and gas declines. In an interview with Svobodnaya Pressa, Zubarevich added that the sale of oil and gas abroad had helped Russia but that the way in which these profits were used now constitutes “a very serious break on development,” one that she suggests will only become worse if Moscow doesn’t change course.

The UN report itself, she says, reflects that dual assessment. The report’s first section says that earnings from oil and gas gives Russia “a chance for a leap forward in innovative development,” all the more so because some of the technologies used in oil and gas processing can be applied in other fields. But the succeeding sections “assess this possibility much more skeptically.” And Zubarevich says that she views that assessment as the more correct. Indeed, she continues, as long as the oil and gas money is flowing in, “the Russian powers that be really are not interested in innovations.”

Such people don’t need or want change, and they talk about innovations only to make themselves look better “in the eyes of the world.” Because that is so, Zubarevich argues, the distribution of profits is unlikely “to simulate innovations.” Instead, even if money is redistributed more equally, that alone will not promote positive change. Indeed, the Moscow geographer says, for innovation, there will need to be “a change of institutions and the rules of the game in society.” People will have to be rewarded not because of where they sit and what they control but rather for what they think up, a complete transformation from the current situation.

These are “global changes,” she continues, and include “very significant changes in the political space. Without that, nothing will happen.” And those changes involve far more that decentralization of control: they require “competition in the political space and openness in the mass media. Only this will reduce corruption in the system of distribution.”

“In the institutional design which now exists in the Russian Federation,” Zubarevich said, noting that this was her “personal opinion,” “innovative development is impossible.” And some of the proposals for innovation, such as Academic Zhorez Alferov’s call for a Manhattan Project-style effort, simply won’t work.

Alferov, Zyubarevich pointed out, “is a member of the Communist Party of the Russian Federation.” He always put the state in first place, and while the state can play some role, the kinds of innovations Russia needs are not “’nano’ and not ‘nuclear research’” but rather a broadening of opportunity for “small innovation improvements in the entire structure.” Indeed, she says, even if Russians came up with a breakthrough in nano technology, the country would not be able to introduce it because “we do not have the stimuli and drivers which would be necessary for that kind of innovation.” Perhaps the country can change so that this will be possible, Zubarevich concludes, but it will have to change in major ways.

32 responses to “While Putin floats on Oil, his Countrymen Drown

  1. Francis Smyth-Beresford

    Yes, an uplifting article by “the indispensable” Paul Goble (purely as a matter of curiosity, why is his name always preceded by “the indispensable”? If you were looking for anything other than a learned treatise promoting Baltic independence which, just by happenstance, was very critical of Russia, would he be of much use?). I don’t mean to mock Mr. Goble, who is obviously an educated man with a diverse background, including time spent in the CIA and U.S. State Department. However, I can’t say I’ve ever seen any of his writings that had anything good to say about Russia, so I’m afraid this one was a bit of a letdown in the suspense department. I don’t mean he’s necessarily wrong; he’s just a little predictable.

    No, the really uplifting part was watching Ms. Zubarevich emerge from her cocoon as a simple geographer at Moscow State, spread her beautiful wings and flit from field to field; now a psychologist with her thumb on the happiness pulse of the nation, now an economist with recommendations for the government on how to reinvest national profits, now a political scientist adept at interpreting future national policies, now a clairvoyant who can divine what the country’s leaders are thinking. I’m hoping this will, at the very least, inspire a positive article from LR on the impressive complexity of education in Russia, which results in broad expertise in so many fields regardless of one’s intended profession.

    Russia is foolish, she says, to rely so heavily on a natural resource that is both in high demand and expensive. Of course it’s silly to sell what everybody wants and what you have more of than most, any economist will tell you that. Saudi Arabia, for example, has pretty much bugger-all else to sell except oil and petroleum products, but do they rely on that?


    Well, yes, actually; they do. They probably ought to diversify – sand, for example, is used in concrete, and they have lots of sand. Unfortunately, it only brings in about $13.00 USD at the most per ton, so the cost of shipping it would probably leave the shipper in the red. Still, it’s something to think about.


    Once again, sadly, Putin’s stupidity has resulted in a trade surplus


    this time of some $113 Billion. He obviously has no idea what he’s doing, and should pay more attention to his geographers. Some countries, though, might be glad of that kind of cash. The USA, for example, with a trade deficit a bit larger than Russia’s surplus.


    The writers explain that such a deficit is not necessarily worrisome, and will correct itself over time. The U.S. economy has run a trade deficit since the late 1960’s, so perhaps they’re right.

    Nobody would reasonably try to compare the standard of living in the U.S. versus Russia – obviously, there’s a very great difference, and perhaps the Russian government should look at improvements that would raise the standard of living for its citizens. But a high standard of living should be sustainable. This blog has recently pointed out that not only is Putin popular in poll after poll domestically, but the value of the national currency is on the rise. The U.S. dollar, meanwhile, is in free-fall


    I would submit room for improvement exists in most countries.

    • Fortunately the readers have whole range of media to enjoy lots of good to say about Russia with diverse background KGB and Pavlovski managed democracy foundation people running those, like 100 mio USD a year Russia Today. So instead of complaining about a particular blogger not saying enough or anything positive about Russia wouldn’t it be easier to just combine different sources, both positive and negative, in own personal way?

    • Yes, dear Francis, please be very, very ashamed of yourself.

      Providing those disgusting blue links to some weird third-party sources is disgusting.

      You even try to the English language sources to justify Putin’s actions – something appalling.

      Your fleeing under the cover of logics, when fair democracy fighters tell you THE truth you should beleive with an open heart, is unacceptable.

      Right, ladies?

  2. Not only is not the U.S. dollar in a free fall, it has significantly appreciated against both euro and the sterling, at least by 20 % in last 12 months.

    It’s also fundamentally dishonest to post an article from 2005 (that discusses that 113 billion surplus) to make it appear that the figure is current. Of course, you would have large surplus when the oil price is sky high.

    You appear to be a fraud, a charlatan and a shill for the Russians , sir, your very British aristocratic-sounding hyphenated name notwithstanding, if that is your real name of course.

    Or perhaps you are in their service, whether paid or unpaid, thus continuing a great tradition of Commie and Nazi collaborators such as Kim Philby, Donald Mclean or William Joyce.

    Whoever you are, you ought to be ashamed of yourself. I doubt you would be

    • My, but of course the purchasing power of the US dollar raises over decades: http://en.wikipedia.org/wiki/United_States_dollar#Purchasing_power

    • And yes, Euro and Pound have fallen against the dollar, those Euro brags are now ashamed.

      Here Euro: http://en.wikipedia.org/wiki/Euro#Exchange_rates

      And here goes the Pound: http://en.wikipedia.org/wiki/UK_Pound#Value

      I can almost see them Europhiles blush to the roots of their hair!

      However, some pro-Merkel web-brigadiers could, of course, forge the data of ECB, of course.

      • Well, I don’t know what your education is, but the chart is inverted. It shows that $1.18 now buys 1 euro. In the middle of 2008 it took $1.35, and about a year ago it took about 1.30. It depends of course when you start the time period, but I said dollar is up about 20% in last year, and it is absolutely true.

        • I’m Russian, you know. Forgive me my lack of real education. But anyway, from the EUR table of exchange rates looks like dollar and euro were 1=1 in 1999, and in 2010 1 EUR was like USD 1,45 on 13 January, and USD 1,32 on April, 8th.

          1999 03 Dec $1.0015
          2000 26 Oct $0.8252
          2001 06 Jul $0.8384
          2002 28 Jan $0.8578
          2003 08 Jan $1.0377
          2004 14 May $1.1802
          2005 15 Nov $1.1667
          2006 02 Jan $1.1826
          2007 12 Jan $1.2893
          2008 27 Oct $1.2460
          2009 04 Mar $1.2555
          2010 8 Apr $1.3296

          It is really frustrating me to know that an educated man would be talking about Euro falling to dollar from this data, really frustrating.

          • From your own link:

            On 15 July 2008, the euro rose to an all-time high of $1.5990 (€0.6254/$). In a reversal, in August 2008 the euro began to drop against the U.S. dollar. In just two weeks the euro fell from its peak to $1.48 and by late October it reached a two and a half year low below $1.25 before moving back above $1.50 by November 2009.

            $1.60 in July ’08; $1.50 in November ’09; $1.33 now

            • I linked to the information for a decade. You cited changes within 10 days. Don’t you think a decade statistics is more informative in such questions as tendencies in currency exchange rates?

              • Fine, of course long term data are more reliable. But you took only the lows to prove some point, and that’s misleading.

                So, over last 10 years or so, we have seen a rapid fall of euro (down to 80 cents), rapid fall of dollar (up to $1.60 per euro) and everything in between. in 2005, the price of euro was exactly the same as now, and for the last 6 months or so, dollar is consistently rising against euro again.

                By the way, it would be very beneficial to the U.S. economy if the dollar really fell against euro; the exports will soar in such a situation, so be careful what you wish for

                • RV, come on, look at the lows or the highs of the spread, for 10 years interval it’s absolutely no difference. Compare the rates in 2000 and 2009 and nothing changes.

                  And, yes, whole world would lose if the USA makes dollar cheaper, but the US economy will benefit.

                  I am careful, and I, of course, wish the dollar to be high in the sjies, together with Euro and Ruble. But what do my wishes have to do with statistics?

        • Ah, yes, and the CPI for the US definitely show that dollar is getting more and more worth in the past years, RV. No doubt.


          Not even the strongest crisis since the last strongest crisis has changed the dollar’s steady growth.

          • Of course. Don’t you think I remember that I bought a new car around 1972 for $2,000. Inflation destroys purchasing power of every currency in the world, so what? Salaries were also much smaller back then. In Dickens’s time, 100 pounds was a princely sum and you could probably buy a house on that

    • Francis Smyth-Beresford

      For what it’s worth, I apologized as soon as I saw your post, and agreed the error was completely my own. My comment correcting the error did not appear, for some reason. I customarily research references carefully, but this was a slip-up. The link below provides an up-to date tracking of Russia’s balance of trade, and the current surplus is significantly lower than that I quoted, at $31.7 Billion.


      I maintain, however, that the fundamentals of the previous post are little changed, since (a) Russia still maintains a trade surplus and is not in deficit, and (b) 2010 is a long way from complete.

      You are also correct that the dollar is not only rallying, but may be entering a sustained period of recovery. I can’t explain the article I originally linked, and I decidedly should have read it more carefully. It does clearly state the dollar is in free-fall and is current – perhaps it was measured only against the Hang Seng index.


      Again, though, the rally comes with a note of caution. A rise in value of the dollar is likely to foreshadow a rise in oil prices, which will be advantageous to Russia, who is on track at present to repeat their trade surplus of last year if not exceed it. Further evidence of Russian financial stability is seen here


      I promise to be much more careful in future.

      • Fine, no problem. Their trade deficit and other fundamentals are very much tied to the price of oil, gas and other commodities, wouldn’t you agree? And those prices are fickle. $25 and $30 oil was a very recent phenomenon.

        A country living off selling commodities and practically nothing else has no future, that’s all I need to say. That applies not only to Russians but to many Arab regimes as well. In the long term, they are doomed too.

        • Francis Smyth-Beresford

          Thanks for your gracious reply. I agree that a country which relies strictly on commodities is limited in its lifespan to how long those commodities will last, but I believe Putin is looking to the future with oil profits, and is using them to finance future markets. Russia need not limit itself to commodities and is rich in natural resources as well, but has tripped over its own feet in the matter of logistics in some cases (for example, shipment of boron from Dalnegorsk; the nearest railhead is better than 200 km away and there’s no seaport. Transportation costs make it impossible to sell the mineral competitively) and in others has been greedy, killing the goose that laid the golden eggs by scaring off investors (corruption, threats of nationalization).

          These problems, however, are surmountable as long as you have alternatives. Many of the Arab republics have not, being unsuited to agrarian pursuits and poorly positioned to compete with manufacturing giants like China. Oil is more or less all they have, but its advantage is its accessibility. It’s more or less impossible to bring a barrel of oil to market in North America for less than $25.00; it costs that much to get it out of the ground. You can get a barrel of oil to market in Iraq for less than $5.00, including production and a kickback.

          • It’s not just a function of how long those commodities are going to last, but also (and probably even more important) how long the high prices can be maintained. And Russia has no say in this no matter what she does.

            I don’t agree that Russia “need not limit itself to commodities” as you put it. No, she has to, because there is nothing else to sell. Well, maybe also some weapons

            • China has? I bet China has. And I bet we all know how China and India would influence with the oil and gas market in the next, say 15-20 years.

  3. Strange RV that even you have noted FSB’s modus operandi and correctly have said “Whoever you are, you ought to be ashamed of yourself. I doubt you would be”.

    Strange, but I am also starting to believe FSB (do you like his initials – they sound so much better than KGB, don’t they? – yuk) is another alias of that imbecile RTR.

    Especially so when they comment to each other on this blog. To me it becomes unbelievably nauseating, having to read what RTR has to say under his new alias ‘Voice of Reason’ and then replies to his own garbage under the FSB alias. (PS I was always led to believe that talking to oneself was the first sign of madness, but that getting self replies to these comments so raised was the proof of the madness).

    But on the positive side, I’m glad to say that quite a few new names have appeared on LR lately, and their common sense approach with sane comments as to Putler’s and his mafia’s evils are a real and enjoyable added reading bonus to the ones already commenting.

    • […]”and their common sense approach with sane comments as to Putler’s and his mafia’s evils are a real and enjoyable added reading bonus” – something is rotten in the state of Denmark…

    • Well, he could be RTR or some other Russian who appeared here before under a variety of aliases. Or, he could be a fellow traveler.

    • Francis Smyth-Beresford

      Ahhh….send in the clowns; don’t bother – they’re here. Enter the tragic Bohdan, career spear-carrier for brighter lights.

      The only obvious aliases on this blog I’ve noticed are Georg (aka voroBey/Elmer/Maksym), noticeable for his ravings about the “maskali” in all his personalities, and Voice Of Reason. The latter has his own reasons, I imagine, and a likely one would be – if it is indeed RTR/Arthur – that he was already banned in his previous incarnations. In any case, he and I share nothing but an appreciation for each other’s humour, and we are not the same person. It’s worth pointing out that Georg is the only one who replies to his own comments or adds supportive titbits like “ Elmer, you are so wise” (as a different personality). To be fair, he quite possibly does believe he is four different people, as he is not merely dripping craziness, but appears to have been marinating in it.

      Anyway, I’m flattered you think I could simultaneously keep up two personalities, as I enjoy Voice’s comments and find him extremely comical. I don’t think our writing styles are at all similar, but if you do, again I am flattered. You’re of course free to believe what you’d like.

      • Voice of Reason

        Pretty insightful, Francis. Nobody else noticed that if you pronounce “RTR”, you can hear “Arthur”.

        And voroBey/Elmer/Maksym/Georg also has another handle: LES. They all write “Roosha” and “Rashan” again and again. For some reason, the English spelling/pronunciation of the word “Russia/Russian” seems funny to him.

        • Francis Smyth-Beresford

          Good day, Soviet goon-boy! That’s one of Bohdan’s best, do you like it?

          I’d love to take credit whenever labels like “insightful” are being tossed around, but in this case you were “outed” almost as soon as you began to use RTR, by Andrew or Robert or RV. I took a look back through the comments and couldn’t find it, but I distinctly remember one of them referring to you as “RTR/Arthur” way back, probably in the beginning of March.

    • Voice of Reason

      Bohdan wrote: “Strange, but I am also starting to believe FSB is another alias of that imbecile RTR.

      RTR should be pleased by this comparison.

  4. Damn it, Fransis, I know it now. They have called the former KGB after YOU when the USSR felt apart!!! OH SHI–

  5. Sergei Guriev, rector of the New Economic School in Moscow; and Ekaterina Zhuravskaya, an economics professor at the school — is about as gloomy as projections come.

    Click to access JIA_2010.pdf

    Titled “Why Russia is Not South Korea,” it jumps off from suggestions by some economists that Russia is following the economic trajectory of South Korea, with an 11-year lag. Meaning that Russia is on its way up, in a big way. For a striking snapshot of why this theory has broad traction, look at the chart on page 2 of the link.

    Guriev and Zhuravskaya, however, dismantle that interesting theory and conclude that the comparison is specious. They project that Russia’s economy “will revert to stagnation and will not catch up with the economic level [of industrial countries] in the next ten to twenty years unless its political institutions undergo a drastic change.”

    Mainly the authors are talking about corruption and the capricious way laws are enforced.

    What sours them on Russia’s prospects of making those drastic changes is how Prime Minister Vladimir Putin and President Dmitry Medvedev have responded to the global financial crisis. Their actions provide “another convincing piece of evidence that the government is more interested in preserving the status quo rather than using the crisis as an opportunity for restructuring the economy,” Guriev and Zhuravskaya assert.

    This grim appraisal has validity. Quite apart from the specific data and arguments that Guriev and Zhuravskaya bring to the table, oil prices in the long term — contrary to the conventional wisdom — are going to have a general downward trajectory, and eventually tank. This will be a direct result of the natural gas surplus — the shale gas and LNG — plus the motherlode of Iraqi oil to arrive on the market. Russia’s main source of income would shrivel, and the country would be looking at a dire economic and social scenario resembling the 1990s.

    Yet one cannot ignore Putin’s instincts for survival. Given the unignorable presumption by Putin’s inner circle that they will remain in power through around 2030, it seems to me that, faced with the prospect of a bankrupt country and being thrown out of office, Putin’s team may very well finally embrace the fundamental reforms they’ve resisted – respect for the rule of law, economic diversification, and so on.

    Putin certainly does not wish the Guriev-Zhuravskaya world.

  6. FSB:

    Mr. Goble, who is obviously an educated man with a diverse background, including time spent in the CIA and U.S. State Department. However, I can’t say I’ve ever seen any of his writings that had anything good to say about Russia,
    Can anyone think of anything good to say about Russia? What would it be?

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