Daily archives: June 17, 2011

Nigeria on Volga

I was struck during the Great Hispano-German Cucumber Scare to learn from the BBC that Russia had banned EU vegetables, and this was difficult as Russia imported 40% of its vegetables from the EU. I suspect that figure excludes Russian vegetables grown and consumed in the informal rural sector, but it is nonetheless astonishing that Russia, which has a greater area of unforested potential arable land per head of population than any other major state, is highly dependent on vegetable imports.

A small fact indicative of a huge malaise. As China and Russia hold a key summit today, China is heading for global economic supremacy, probably within my lifetime (though US resilience should not be ignored, and the process will be slower than many think). Russia, by contrast, slips further and further down the league table of global influence. We can predict future importance for China, India and Brazil. Europe faces genteel relative decline.

But Russia faces renewed absolute decline. It is a third world economy, configured around exports of raw commodities, exactly as African countries are. Because commodity, and especially energy, prices are high and likely to remain so, there is a superficial aura of wealth. But because these commodities are exported virtually unprocessed, the employment effects, and thus the distribution of wealth inside the economy, are extremely limited. Russia has oligarchs involved in energy and mineral export. They are unimaginably wealthy. It has a technocratic and labouring class employed in these industries. They are doing well. It has senior officials corruptly gaining from the state interaction with these commodity producers, either through regulation or ownership. They are doing very nicely. It has a limited service economy catering for the above groups.

All of this is the active economy. It just does not spread far enough into Russian society to carry it along. Russia is looking more and more like Nigeria, with a tiny elite, few technocrats, a corrupt officialdom and a few people servicing them, all doing OK, while ordinary people live in squalor.

Like Nigeria, Russia does not make anything. When did anyone reading this last buy a Russian manufactured good? The Soviet system collapsed in large part because it could not provide consumer goods to a population that wanted them. Like Nigeria, Russia makes very little indeed – less than in Soviet times. Russian manufacturing industry as a whole has still not recovered to Soviet levels of production. I am willing to doubt it ever will. Russia just exports commodities and sucks in manufactures – disproportionately for the luxury end of the market, reflecting its crazy wealth distribution. Exactly like Nigeria, in fact.

Of course, government extracts some tax from the commodity industries and puts it into social benefits and funds the bewildered and status diminished professionals in education, healthcare etc. But the government’s tax revenue is exceeded by capital flight, as the oligarchs simply export the mega profits from commodities into numbered bank accounts abroad. No oligarch has ever thought “Wow I made billions from aluminium or gas, now I will invest it in manufacturing expresso machines and cyclone vacuum cleaners in Russia.” They think “Which way is Switzerland? Where do I buy Highbury?”

Foreign Direct Investment into manufacture in Russia is negligible for a country of its size, because there is absolutely no guarantee of a fair rule of law, of redress against a government or that some oligarch will not covet your factory, or local big man decide to shake you down. Democracy has vanished as Putin has made it impossible for opposition groups to operate and tightened his grip on the media. The killing of independent journalists and investigators has become routine. The situation both on human rights and judicial independence is actually worse than Nigeria.

Russia is not a great power in decline. It is a third world country in decline.

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