Part 9 (1/2)
Often bamboozled by other businessmen and fleeced by a rapacious bureaucracy, they are paranoid. Tax evasion is still rampant, though abating. They trust in equity and avoid debt. Some of them have criminal roots or a criminal mindset - or are former members of Russia's shady security services.
Three fifths, according to the Expert-Komkon survey, find it ”hard to survive” when ”observing all laws”. ”Strong leaders are better than all sorts of laws” is their motto, quoted by Izvestia. Generally, they are closer to being robbers than barons.
Early capitalism is always unruly. It is transformed into a highly structured edifice by the owners.h.i.+p of land and realty (the prime collateral), the protection of private property, a functioning financial system comprised of both banks and capital markets and the just and expedient application of the rule of law.
Russia has none of these. According to Business Week, bank deposits amount to 4 percent of the country's mid-size GDP - compared to half of GDP in other industrialized countries. Mortgages are unheard of, deposits are not insured and land owners.h.i.+p is a novel proposition. The judiciary is venal and incompetent. Might is still right in vast swathes of the land.
The state and the oligarchs continue to represent a rent-seeking opportunity. Businessmen spend time seeking concessions, permits, exemptions and licenses rather than conducting business. The ”civic inst.i.tutions” they form - chambers of commerce, clubs - are often mere glorified lobbying outfits of special and vested interests. Informal networks of contacts count more than any statute or regulation. In such a mock ”modern state” no wonder Russia ended up with a Potemkin ”middle cla.s.s”.
Russia in 2003
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Contrary to recent impressions, Russia's Western (American-German) orientation is at least as old as Gorbachev's reign. It was vigorously pursued by Yeltsin. Still, 2002 marks the year in which Russia became merely another satellite of the United States - though one armed with an ageing nuclear a.r.s.enal.
Russia's economy has revived remarkably after the 1998 crisis, but it is still addicted to Western investments, aid and credits. Encircled by NATO to its West and US troops stationed in its central Asian hinterland, Russia's capitulation is complete. In the aftermath of conflicts to be engineered by the United States in Afghanistan, Iraq, North Korea, Iran, Syria and, potentially, Cuba - Russia may feel threatened geopolitically as well as economically. Both Iran and Iraq, for instance, are large trading partners and leading export destinations of the Russian Federation.
If anything can undo the hitherto impressive personality cult of Russia's new ”strong man”, Vladimir Putin, it is this injured pride among the more penumbral ranks of the country's security services.
Russia's history is littered with the bloodied remains of upheavals wrought by violent ideological minorities and by a.s.sorted conspirators.
Hence Putin's tentative - and reluctant - attempts to team up with China and India to establish a multi-polar world and his closer military cooperation with Kyrgyzstan and Armenia - both intended to counter nationalistic opposition at home.
Luckily, the sense of decline is by no means prevalent.
Russians polled by the American Pew Research Center admitted that they feel much better in a world dominated by the United States as a single superpower. The KGB and its successors - Putin's former long-term employers - actually engineered Russia's opening to the West and the president's meteoric ascendancy. And no one in the army seriously disputes the need for reform, professionalization and merciless tr.i.m.m.i.n.g of the bloated corps.
Reforms - of the military, Russia's decrepit utilities, dilapidated infrastructure and housing, inflated and venal bureaucracy, corrupt judiciary and civil service, choking monopolies and pernicious banking sector - depend on the price of oil. Russia benefited mightily from the surge in the value of the ”black gold”. But the windfall has helped mask pressing problems and allowed timid legislators and officials to postpone much needed - and fiercely resisted - changes.
Russia's ”economic miracle” - oft-touted by the ”experts” that brought you ”shock therapy” and by egregiously self-interested, Moscow-based, investment bankers - is mostly prestidigitation. As the European Bank for Reconstruction and Development (EBRD) correctly noted in November, Russia's 20 percent growth in the last three years merely reflects enhanced usage of capacity idled by the ruination of 1998.
Neutering the positive externality of rising oil prices, one is left with no increase in productivity since 1999. Industrial production - outside the oil sector - actually slumped. As metropolitan incomes rise, Russians revert to imports rather than consume shoddy and shabby local products.
This, in turn, adversely affects the current account balance and the viability of local enterprises, some of which are sincerely attempting to restructure. According to Trud, a Russian business publication, two fifths of the country's businesses are in the red. Russia's number of small and medium enterprises peaked at 1 million in 1995-6. They employ less than one fifth of the workforce (compared to two thirds in the European Union and in many other countries in transition).
Thus, falling oil prices - though detrimental to Russia's ability to repay its external debt and balance its budget - are a blessing in disguise. Such declines will force the hand of the Putin administration to engage in some serious structural reform - even in the face of parliamentary elections in 2003 and presidential ones the year after.
Russians - wrongly - feel that their standard of living has stagnated.
Gazeta.ru claims that 39 million people are below the poverty line.
Many pensioners survive on $1 a day. In truth, real income per capita is actually up by more than 8 percent this year alone. Income inequality, though, has, indeed, gaped.
Responding to these concerns, though, in a ”coattails” effect, the president is expected to carry pro-Kremlin parties back into power in 2003 - a modic.u.m of elections-inspired bribing is inevitable. State wages and pensions will outpace inflation. The energy behemoths - major sources of campaign financing - will be rewarded with rises in tariffs to match cost of living increases.
Russia faces more than merely a skewed wealth distribution or dependence on mineral wealth. Its difficulties are myriad. On cue from Was.h.i.+ngton, it is again being hyped in the Western press as a sure-fire investment destination and a pair of safe geostrategic hands. But the dismal truth is that it is a third world country with first world pretensions (and nuclear weapons). It exhibits all the risks attendant to other medium-sized developing countries and emerging economies.
External debt repayments next year will exceed $15 billion. It can easily afford them with oil prices anywhere above $20 and foreign exchange reserves the highest since 1991. Russia even prepaid some of its debt mountain this year. But if its export proceeds were to decline by 40 percent in the forthcoming 3-4 years, Russia will, yet again, be forced to reschedule or default. Every $1 dollar decline in Ural crude prices translates to more than $1 billion lost income to the government.
Russia's population is both contracting and ageing. A ruinous pension crisis is in the cards unless both the run-down health system and the abysmally low birthrate recover. Immigration of ethnic Russians from the former republics of the USSR to the Russian Federation has largely run its course. According to Pravda.ru, more than 7 million people emigrated from the Federation in the last decade.