Roots of Russia's economic dilemmas: Liberal economics and illiberal geography

Europe - Asia Studies

Volumn 54, Issue 1, 2002, Pages 31-49

  Lynch, Allen C ^b  

^a UNIVERSITY OF VIRGINIA   (United States)

^b NONE

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC CONDITIONS; ECONOMIC DEVELOPMENT; ECONOMIC PLANNING; NATIONAL ECONOMY; PRODUCTION COST; STATE ROLE;

RUSSIAN FEDERATION;

EID: 0036143268     PISSN: 09668136     EISSN: None     Source Type: Journal    
DOI: 10.1080/09668130120098223     Document Type: Article

References (103)

1. Martin Wolf, 'Price of forgiveness', Financial Times, 11 August 1999, p. 10.
2. For an overview of Russia's natural resource endowment see V. D. Andryanov, Rossiya v mirovoi ekonomike (Moscow, 2000), pp. 6-10; and Yu. N. Gladkin, V. A. Dobroskok & S. P. Semenov, Sotsial'no-ekonomicheskaya geografiya Rossii (Moscow, Gardariki, 2000), pp. 117-156.
3. For an overview of Russia's natural resource endowment see V. D. Andryanov, Rossiya v mirovoi ekonomike (Moscow, 2000), pp. 6-10; and Yu. N. Gladkin, V. A. Dobroskok & S. P. Semenov, Sotsial'no-ekonomicheskaya geografiya Rossii (Moscow, Gardariki, 2000), pp. 117-156.
4. See V. S. Bard, Investitsionnye problemy Rossiiskoi ekonomiki (Moscow, Ekzamen, 2000), pp. 211-221, for a thorough discussion of the problem of Russian economic decline and how to gauge it. Judging by physical production in the construction and consumption areas, and comparing 1997 with 1985, the decline has been massive: production of excavators fell by five-sixths, of bulldozers by six-sevenths, of steamrollers by seven-tenths, of cement by two-thirds and of concrete materials by five-sixths; oil and gas condensate declined by two-fifths; in the consumer area, production of meat fell by one-third, of sausage products by half, of butter by more than half, of cheese and related dairy products by three-fifths, of eggs by a quarter and of sugar by about a quarter (Bard, pp. 218-219). A widespread view that smaller declines in electricity generation reflect less dramatic real declines in overall output overlooks the minimum level of electric power needed for any production at all. Electric power is in effect much less sensitive to recession and depression than is industrial and consumer production (Bard, p. 213).
5. Valuing the Russian GDP at the official exchange rate (as opposed to Purchasing Power Parity - PPP - estimates) understates the actual extent of economic activity in Russia but it is an accurate gauge of the economy's capacity to service its hard currency external sovereign debt, which is estimated at $148 billion in early 2001. Thus, if we calculate Russia's GDP per capita at the prevailing exchange rate, it is $1360 for 1999, while in PPP terms it is $4660, or more than three times as high; gross GDP in PPP terms for 2000 would be ca. $700 billion versus ca. $200 billion in dollar exchange rate terms. Actual GDP may be somewhat higher in light of the significant volume of unregistered economic transactions. Still, while Russia's shadow economy may account for as much as 40% of all transactions, it is generally agreed that the unofficial economy involves much more distribution than production. See Economist Intelligence Unit, Country Forecast. Russia (July 2000) and Bard, Investitsionnye problemy, pp. 211-212.
6. Valuing the Russian GDP at the official exchange rate (as opposed to Purchasing Power Parity - PPP - estimates) understates the actual extent of economic activity in Russia but it is an accurate gauge of the economy's capacity to service its hard currency external sovereign debt, which is estimated at $148 billion in early 2001. Thus, if we calculate Russia's GDP per capita at the prevailing exchange rate, it is $1360 for 1999, while in PPP terms it is $4660, or more than three times as high; gross GDP in PPP terms for 2000 would be ca. $700 billion versus ca. $200 billion in dollar exchange rate terms. Actual GDP may be somewhat higher in light of the significant volume of unregistered economic transactions. Still, while Russia's shadow economy may account for as much as 40% of all transactions, it is generally agreed that the unofficial economy involves much more distribution than production. See Economist Intelligence Unit, Country Forecast. Russia (July 2000) and Bard, Investitsionnye problemy, pp. 211-212.
7. Financial Times Annual Survey. Russia, 30 April 1999, p. 1.
8. The Journal of Commerce, 26 July 1999; Economist Intelligence Unit, Country Profile. Russia 2000, p. 22 and Economist Intelligence Unit, Country Forecast. Russia (July 2000), appendix.
9. The Journal of Commerce, 26 July 1999; Economist Intelligence Unit, Country Profile. Russia 2000, p. 22 and Economist Intelligence Unit, Country Forecast. Russia (July 2000), appendix.
10. The Journal of Commerce, 26 July 1999; Economist Intelligence Unit, Country Profile. Russia 2000, p. 22 and Economist Intelligence Unit, Country Forecast. Russia (July 2000), appendix.
11. Ibid. and Andryanov, p. 184.
12. Hans-Hermann Höhmann & Christian Meier, 'Conceptual, Internal, and International Aspects of Russia's Economic Security', in Alexei Arbatov, Karl Kaiser & Robert Legvold (eds), Russia and the West. The 21st Century Security Environment (Armonk, NY, M.E. Sharpe, 1999), p. 83.
13. RIA news agency, Moscow, in Russian, 1127 gmt 22 November 2000.
14. See Bard, pp. 154-234, for an excellent overview of the Russian investment crisis in its various dimensions.
15. M. Ts. Mkrtchyan et al., Sostoyanie i protivorechiya ekonomicheskoi reformy (Moscow, Ekonomika, 1998),p. 175; Jean Radvanyi, La Nouvelle Russie (Paris, Armand Colin, 2000),p. 145; Bard, pp. 187-198.
16. M. Ts. Mkrtchyan et al., Sostoyanie i protivorechiya ekonomicheskoi reformy (Moscow, Ekonomika, 1998),p. 175; Jean Radvanyi, La Nouvelle Russie (Paris, Armand Colin, 2000),p. 145; Bard, pp. 187-198.
17. Radvanyi. The centrality of the fuels and energy sectors may be gauged by the fact that in 1999 they constituted 35% of Russian GDP, 12% of industrial employment, 45% of the country's capital stock, 42% of state budget revenue and 46% of exports (Radvanyi, p. 149).
18. Efim S. Khesin, 'The Intersection of Economics and Politics in Russia', in Arbatov, Kaiser & Legvold (eds), p. 100; and Thane Gustafson, Capitalism Russian-Style (Cambridge, UK, Cambridge University Press, 1999), pp. 221-224.
19. Efim S. Khesin, 'The Intersection of Economics and Politics in Russia', in Arbatov, Kaiser & Legvold (eds), p. 100; and Thane Gustafson, Capitalism Russian-Style (Cambridge, UK, Cambridge University Press, 1999), pp. 221-224.
20. Mkrtchyan, p. 185.
21. Masaaki Kuboniwa (Hitotsubashi University, Japan), 'FDI and Capital Flight in Russia', paper presented to the 2000 National Convention of the American Association for the Advancement of Slavic Studies, Denver, 11 November 2000.
22. Economist Intelligence Unit, Country Forecast. Russia (July 2000), pp. 29-30. Also available at www.eiu.com.
23. Ibid., p. 30.
24. Khesin, p. 111; Radvanyi, p. 149.
25. Ibid., p. 38; A.P. Parshev, Pochemu Rossiya ne Amerika (Moscow, Krymskii Most, 2000), p. 64; Radvanyi, p. 148.
26. Ibid., p. 38; A.P. Parshev, Pochemu Rossiya ne Amerika (Moscow, Krymskii Most, 2000), p. 64; Radvanyi, p. 148.
27. Gustafson, Capitalism Russian-Style, p. 223.
28. Milana Davydova, 'Accelerated Capital Flight', Segodnya (Moscow), 16 March 2001, from WPS Monitoring Agency, at www.wps.ru/eindex.html. In general, Russian companies invested $15.154 billion in property abroad in 2000, compared with $4.43 billion foreign direct investment in Russia for that year. In 1999 the ratio was $8.38 billion in Russian capital directly invested abroad compared with $4.26 billion invested in Russia. See also Daniel Bases, 'Russia Creates Cautious Investor Optimism', Reuters (New York), 16 March 2001.
29. Milana Davydova, 'Accelerated Capital Flight', Segodnya (Moscow), 16 March 2001, from WPS Monitoring Agency, at www.wps.ru/eindex.html. In general, Russian companies invested $15.154 billion in property abroad in 2000, compared with $4.43 billion foreign direct investment in Russia for that year. In 1999 the ratio was $8.38 billion in Russian capital directly invested abroad compared with $4.26 billion invested in Russia. See also Daniel Bases, 'Russia Creates Cautious Investor Optimism', Reuters (New York), 16 March 2001.
30. Rossiiskaya gazeta, 30 March 2001.
31. Radvanyi, p. 42.
32. 'Russia's Infrastructure. Crumble, Bumble', Economist, 2 September 2000.
33. Washington Post, 23 November 2000; International Herald Tribune, 16 January 2000, p. 8.
34. Washington Post, 23 November 2000; International Herald Tribune, 16 January 2000, p. 8.
35. The illegal export of non-ferrous metals has become a major crisis affecting Russia's power and transport infrastructure. Of Russia's 700 000-750 000 tons of non-ferrous scrap metal exported each year (at ca. $1000 per ton), only half is genuine scrap metal. The other half represents stolen rail track, copper overhead power lines etc. From 1995 to 1998 the export of copper scrap jumped from 28 600 tons to 365 000 tons, while that of aluminum leapt from 11 900 tons to 367 500 tons. Theft from power lines resulted in 700 cases of non-fatal electrocution throughout Russia in 1999 and more than 500 deaths from electric shock. Nezavisimaya gazeta, 18 November 2000; Moscow Times, 27 May 2000, pp. IV-V.
36. The illegal export of non-ferrous metals has become a major crisis affecting Russia's power and transport infrastructure. Of Russia's 700 000-750 000 tons of non-ferrous scrap metal exported each year (at ca. $1000 per ton), only half is genuine scrap metal. The other half represents stolen rail track, copper overhead power lines etc. From 1995 to 1998 the export of copper scrap jumped from 28 600 tons to 365 000 tons, while that of aluminum leapt from 11 900 tons to 367 500 tons. Theft from power lines resulted in 700 cases of non-fatal electrocution throughout Russia in 1999 and more than 500 deaths from electric shock. Nezavisimaya gazeta, 18 November 2000; Moscow Times, 27 May 2000, pp. IV-V.
37. Economist Intelligence Unit, Russia. Country Profile 2000, p. 17. Tom Ashead, of Troika Dialog, a Moscow investment bank, estimates that Russia needs to spend $6.5 billion to end the 6.5 million-long waiting list for telephones, $9 billion to digitalise the telephone system and $6.5 billion to modernise the long-distance system. Currently, less than $500 million per year is spent on infrastructure development in Russian telecoms. 'Russia's Infrastructure. Crumble, Bumble', Economist, 2 September 2000.
38. Economist Intelligence Unit, Russia. Country Profile 2000, p. 17. Tom Ashead, of Troika Dialog, a Moscow investment bank, estimates that Russia needs to spend $6.5 billion to end the 6.5 million-long waiting list for telephones, $9 billion to digitalise the telephone system and $6.5 billion to modernise the long-distance system. Currently, less than $500 million per year is spent on infrastructure development in Russian telecoms. 'Russia's Infrastructure. Crumble, Bumble', Economist, 2 September 2000.
39. 'Russia to Repair Roads', International Herald Tribune, 29 June 2001, p. 2.
40. The figure for 2000 is $3.7-3.8 billion, as reported in Wall Street Journal, 24 January 2001.
41. Business Review (Moscow), September 2000, p. 57.
42. RIA news agency, Moscow, in Russian, 1127 gmt 22 November 2000.
43. Andrew Jack, 'IMF mission leaves Russia with no agreement', Financial Times, 23 November 2000, p. 2.
44. 'Oil Change', Economist, 21 September 2000. Also at www.economist.com.
45. Radvanyi, p. 227. The rest of foreign investment in Russia was constituted by portfolio investment (2-5% of the total per year) and credits (50-60%). The city of Moscow, with ca. 8% of the country's population, has been the recipient of 50-70% of all foreign investment in Russia.
46. Economist Intelligence Unit, Country Forecast. Russia (July 2000), p. 40. Also at www.eiu.com. See also Stefan Hedlund, Russia's 'Market' Economy. A Bad Case of Predatory Capitalism (London, UCL Press, 1999), p. 8.
47. Economist Intelligence Unit, Country Forecast. Russia (July 2000), p. 40. Also at www.eiu.com. See also Stefan Hedlund, Russia's 'Market' Economy. A Bad Case of Predatory Capitalism (London, UCL Press, 1999), p. 8.
48. Interfax News Agency, Moscow, in English, 1120 gmt 30 August 2000.
49. Rossiiskaya gazeta, 17 November 2000. The 1999 estimate breaks down as follows: non-return of foreign exchange earnings: $2.3 billion; non-receipt of goods or non-return of advance payment on imports: $3 billion; transfer of advance payments for fictitious import contracts for the provision of services: $5.5 billion; export of cash dollars in Xerox boxes and the like: more than $12 billion (the figure for 1998 was $21.6 billion); transfer of rubles to correspondent accounts in Russian banks: indefinite; non-receipt in Russia of foreign exchange earnings from the sale of goods in 'duty free zones' like the Black Sea area: indefinite. Economist, 13-19 January 2001.
50. Rossiiskaya gazeta, 17 November 2000. The 1999 estimate breaks down as follows: non-return of foreign exchange earnings: $2.3 billion; non-receipt of goods or non-return of advance payment on imports: $3 billion; transfer of advance payments for fictitious import contracts for the provision of services: $5.5 billion; export of cash dollars in Xerox boxes and the like: more than $12 billion (the figure for 1998 was $21.6 billion); transfer of rubles to correspondent accounts in Russian banks: indefinite; non-receipt in Russia of foreign exchange earnings from the sale of goods in 'duty free zones' like the Black Sea area: indefinite. Economist, 13-19 January 2001.
51. See the interview with Dmitrii Vasil'ev, Executive Director of the Institute of Corporate Law and Corporate Governance in Moscow in The Russia Journal, 3-9 February 2001; also Andryanov, p. 158.
52. Economist Intelligence Unit, Country Forecast. Russia (July 2000), p. 9.
53. Gustafson, Capitalism Russian-Style, pp. 224-225.
54. Allen Lynch, 'The Crisis of the State in Russia', International Spectator (Rome), April-June 1995, pp. 21-34.
55. Andryanov, p. 188.
56. This question was first broached publicly by Joseph Stiglitz, chief economist of the World Bank, in a report issued in April 1999. Stiglitz contrasted the implications of open capital accounts in Russia versus closed capital accounts in China for each state's ability to shape its economic environment during the transition from comprehensive central planning. For a discussion see Peter Reddaway & Dmitri Glinski, The Tragedy of Russia's Reforms: Market Bolshevism against Democracy (Washington DC, US Institute of Peace, 2001). See also Shinichiro Tabata, 'The Great Russian Depression of the 1990s: Observations on Causes and Implications', Post-Soviet Geography and Economics, 41, 6, 2000, pp. 389-398.
57. This question was first broached publicly by Joseph Stiglitz, chief economist of the World Bank, in a report issued in April 1999. Stiglitz contrasted the implications of open capital accounts in Russia versus closed capital accounts in China for each state's ability to shape its economic environment during the transition from comprehensive central planning. For a discussion see Peter Reddaway & Dmitri Glinski, The Tragedy of Russia's Reforms: Market Bolshevism against Democracy (Washington DC, US Institute of Peace, 2001). See also Shinichiro Tabata, 'The Great Russian Depression of the 1990s: Observations on Causes and Implications', Post-Soviet Geography and Economics, 41, 6, 2000, pp. 389-398.
58. In 1913 Russia had the highest tariff walls of any major European state. James H. Bater, The Soviet Scene. A Geographical Perspective (London, Edward Arnold, 1989), p. 26.
59. For an overview of the impact of geography on Russia's historical development see Richard Pipes, Russia Under the Old Regime (London, Penguin Books, 1995), pp. 1-24; see also Radvanyi, La Nouvelle Russie, pp. 31-54.
60. For an overview of the impact of geography on Russia's historical development see Richard Pipes, Russia Under the Old Regime (London, Penguin Books, 1995), pp. 1-24; see also Radvanyi, La Nouvelle Russie, pp. 31-54.
61. Yu. N. Gladkin et al., Sotsial'no-ekonomicheskaya geografiya Rossii (Moscow, 2000), p. 90.
62. Parshev, p. 45. At the same time, Canadian agricultural productivity per worker is incomparably higher than Russia's, at more than $25 000 in value added per worker in Canada versus less than $500 in Russia in the early 1990s. See Andryanov, p. 26.
63. Bater, p. 209.
64. Ibid., p. 234.
65. Alexander Rubtsov, 'One Must Know How to Build Roads in Russia', at the Internet site strana.ru, 28 June 2001.
66. W. Scott Thompson, 'The Persian Gulf and the Correlation of Forces', International Security, 7, 1, Summer 1982, pp. 157-180, following on earlier work published by Albert Wohlstetter in Foreign Affairs (1967).
67. W. Scott Thompson, 'The Persian Gulf and the Correlation of Forces', International Security, 7, 1, Summer 1982, pp. 157-180, following on earlier work published by Albert Wohlstetter in Foreign Affairs (1967).
68. Bard, p. 282.
69. Radvanyi, p. 200.
70. Gladkin et al., p. 96.
71. Bard, pp. 282-283.
72. Ibid., pp. 90-91.
73. Parshev, pp. 117-118. Costs of production were calculated in terms of fuel and electricity, raw materials, pay and depreciation.
74. Gladkin et al., pp. 89-98.
75. Parshev, p. 392. Also L.V. Milov, Vserossiiskaya pakhota i osobennosti rossiiskogo istoricheskogo protsessa (Moscow, Rosspen, 1998), expanding upon L.V. Milov, 'Prirodno-klimaticheskii faktor i osobennosti rossiiskogo istoricheskogo protsessa', Voprosy istorii, 1992, 4-5, pp. 37-56.
76. Parshev, p. 392. Also L.V. Milov, Vserossiiskaya pakhota i osobennosti rossiiskogo istoricheskogo protsessa (Moscow, Rosspen, 1998), expanding upon L.V. Milov, 'Prirodno-klimaticheskii faktor i osobennosti rossiiskogo istoricheskogo protsessa', Voprosy istorii, 1992, 4-5, pp. 37-56.
77. For provocative thoughts along these lines see Ryszard Kapuscinski, Imperium (Paris, Feux Croises/Plon, 1994, French translation from the Polish by Varonique Patte), p. 339.
78. Andryanov, p. 26. Possibly employing a different calculus, and no doubt influenced by the prevailing artificially high exchange rate for the Soviet ruble (almost parity against the US dollar), Economist estimated that in 1987 Soviet agricultural labour productivity was one quarter of that of Western Europe and one-eighth of that of the United States. 'The Soviet Economy', Economist, 9-15 April 1988, p. 9.
79. Radvanyi, p. 40; and Gladkin et al., p. 94.
80. www.worldwildlife.org/arctic-refuge/goeroldpaper.pdf. The average cost for all US oil, including Alaskan, is about $4 per barrel.
81. Parshev, pp. 54-56; and Gladkin et al., p. 89 and passim.
82. Bater, pp. 203-204.
83. Parshev, p. 77.
84. Merle Fainsod, How Russia is Ruled (Cambridge, MA, 1963), pp. 459-460.
85. Bater, pp. 218-220. Similarly, Kapuscinski wonders at the distortions to the Soviet steel industry, and the economy at large, created by the omnipresence of barbed wire along the vast border, around the camps, closed installations etc. See his Imperium, pp. 94-95.
86. Pierre Lorrain, La mysterieuse ascension de Vladimir Poutine (Monaco, Editions de Rocher, 2000), p. 121.
87. Gladkin et al., p. 109.
88. Richard E. Ericson, 'Economics and the Russian Transition', Slavic Review, 57, 3, Fall 1998, p. 622.
89. Radvanyi, p. 146; and Bard, p. 212. Bard notes that another 30% of firms are on the verge of the red while just 20% of firms are significantly profitable, even in the face of widespread tax evasion.
90. Andryanov, pp. 6-7.
91. Hedlund, p. 13.
92. Gladkin et al., p. 118 and passim.
93. Ibid., p. 114: 'It is clear today that, under market conditions, many of the gigantic Soviet-era construction, production and mining projects, which were undertaken, literally "at the end of the world", could never have been carried out at all in light of the enormous capital investment requirements as well as their unprofitability'. See also Bard, p. 281.
94. Parshev, p. 62.
95. Ashlee Vance, 'From Russia with Code', Infoworld, 16 March 2001, at www.bisnis.doc.gov; John Baroli, 'Russia Takes Advantage of Brain Power at Home', International Herald Tribune, 28 May 2001, p. 12. Russian programme outsourcing totalled $110 million in 2000, versus $6.3 billion forecast for India in 2001.
96. Ashlee Vance, 'From Russia with Code', Infoworld, 16 March 2001, at www.bisnis.doc.gov; John Baroli, 'Russia Takes Advantage of Brain Power at Home', International Herald Tribune, 28 May 2001, p. 12. Russian programme outsourcing totalled $110 million in 2000, versus $6.3 billion forecast for India in 2001.
97. Aleksandr Nekipelov, 'Kvazirynok kak rezul'tat rossiiskikh reform', Pro et Contra (Moscow), Spring 1999, pp. 5-27; for an outstanding analysis of Russia's large barter economy see Clifford G. Gaddy & Barry W. Ickes, 'Russia's Virtual Economy', Foreign Affairs, 77, 5, September/October 1998, pp. 53-67.
98. Aleksandr Nekipelov, 'Kvazirynok kak rezul'tat rossiiskikh reform', Pro et Contra (Moscow), Spring 1999, pp. 5-27; for an outstanding analysis of Russia's large barter economy see Clifford G. Gaddy & Barry W. Ickes, 'Russia's Virtual Economy', Foreign Affairs, 77, 5, September/October 1998, pp. 53-67.
99. Gustafson, p. 9.
100. A point emphasised by Shinichiro Tabata, 'The Great Russian Depression', p. 397.
101. For an analysis of the prospects of such arrangements in Russia see 'Oil change', Economist, 21 September 2000; for President Putin's endorsement of the concept see Interfax News Agency, Moscow, in English, 0756 gmt 3 September 2000.
102. Gustafson, pp. 50-51.
103. See Bard, pp. 142-153 and 327-337 for an essentially Keynesian analysis and model of Russia's economic challenges.