"R" in BRIC

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Transcript "R" in BRIC

The “R” in BRIC: Russia in the Global
Economy
Understanding Russia and its Neighbors
March 23-24, 2011
World View, An International Program for Educators
Sponsored by Center for Slavic, Eurasian, and East European Studies,
UNC-CH
Thomas K. Tiemann
Jefferson Pilot Professor of Economics
Elon University
The Russian Nation
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The largest in world in land area
139 million people (US = 313 million)
80% Ethnic Russian
99.4% of those over 15 can read and write
73% Urban (US = 82%)
Median age is 38.7 years (US = 36.9)
What Russia Makes
• Rich in minerals: Oil, Natural Gas, Coal,
Metals
• Rich farmlands: Grains, Sugar Beets, Beef
• Manufacturing: Transport equipment,
machinery, consumer durables, textiles
• Basic industry: Steel, Aluminum
What Russia Sells
• Largest exporter of natural gas (to Europe
and Ukraine)
• Second largest exporter of Oil.
• Exports chemicals, Wood Products, Military
Equipment, various manufactured goods.
Russia’s Economy Today
• GDP: $2.229 trillion (US = $14.72 trillion)
• Unemployment rate: 7.6% (US = 9.7%)
• Gini coefficient measure of inequality (Closer
to zero is closer to equality): 42.2 (US = 45)
• Modest trade surplus
• Inflation of about 6.5% in 2010
• But…GDP per capita (PPP) is only $15900
(US = $47400)
Why aren’t Russians better off?
• By many indicators, they should be better off:
– Well endowed with natural resources
– Literate population
– Largely urbanized
• But GDPPC is 1/3 of that in US.
• Is it something in their history?
The Transition
• We know about 75 years under communism.
• Russia has made a huge transition since the
early 1990s, going from a centrally planned
economy to a more-or-less market-based
economy.
• This transition was marked by scandals,
corruption, gangster-style murders, jailing of
business owners. Some still goes on today.
From last week…
• Moscow’s Ex-Mayor Faces Legal
Scrutiny
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By ANDREW E. KRAMER The New York Times, March 19, 2011.
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MOSCOW — For years, opposition politicians accused the longtime mayor of
Moscow of ruling over a sprawling empire of crony capitalism.
His friends got rich, and his wife got even richer, they said, becoming a
billionaire real estate magnate who controlled much of the city’s development.
Through it all, the mayor, Yuri M. Luzhkov, and his wife denied everything. Not
that it seemed to matter. Mr. Luzhkov, a close ally of the Kremlin, was never
investigated.
But last fall, Mr. Luzhkov fell out of favor and was fired. And suddenly,
prosecutors seem to be finding corruption everywhere. They are examining a
wide circle of Mr. Luzhkov’s acquaintances, family members and supporters.
One by one, his allies are being arrested.
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Russia’s economic backwardness
goes back centuries
• Russia has long been ruled by autocrats.
• Until very recently, Russia lacked a middle
class.
• Russia has never been a meritocracy, valuing
personal loyalty over ability.
• Russia does not have a tradition of a rule of
law.
Some Russian History
• It’s hard to decide exactly when Russia
became “a country,” but I’ll start in the 15th
and 16th Centuries.
• Russia had Grand Dukes who had loose
control over the Boyars, the local gentry.
• Ivan IV became Grand Duke (at age 3) in
1533 and Russia was ruled by regents,
including a rotating set of Boyars.
Some Russian History. ii
• At 16, Ivan declared that he would be the
Czar and replaced the council of Boyars who
had advised the dukes with his own ”chosen
council,” made up of gentry who owed their
position to Ivan.
• He soon created the “Oprichniki,” a group that
reported directly to him. These were given
estates by Ivan, but they held them at Ivan’s
will.
Some Russian History. iii
• Ivan was suspicious of the Boyars and
instituted a reign of terror that earned him the
name “Ivan the Terrible.”
• He had fits of rage, and even killed his own
son in one of those fits.
• Generally, he was arbitrary, suspicious, cruel,
and demanded loyalty
• He also modernized the army, expanded
Russia into Siberia, and introduced printing.
Some Russian History. iv
• After Ivan, the centralization of power went
on, and the Boyars lost influence.
• There was not a “real rule of law,” and there
was suspicion of Europe.
• The Boyars were compensated for their loss
of influence by being given more land and
more power over the peasants.
• Cities were unimportant, and only a small
middle class developed.
Some Russian History. v
• By the early19th century, Russia was
backward, isolated, and had not really
participated in the modernization that took
place across Europe. It was still medieval.
• The Czars were politically conservative and
kept power close to them. They resisted the
general political liberalization that took place
across Europe along with industrialization
and urbanization.
Some Russian History. vi
• When the Revolution arrived in 1917, Russia
was still largely agricultural, and still almost
feudal.
• The country was ruled by a small group which
was suspicious, arbitrary, often cruel, and
demanded loyalty.
• It shouldn’t be surprising that the new
government was often suspicious, arbitrary,
often cruel, and demanded loyalty.
Some Russian History. vii
• Under communism, people were purged,
exiled, and executed as one “ruler” or another
gained and lost power.
• A ruling class of Nomenklatura who owed
position to the ruler evolved.
• The country (now the USSR) made economic
progress and became an urban society with a
large manufacturing sector.
The Russian Economy’s
Problems Today
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Russia's long-term challenges include
a shrinking workforce,
a high level of corruption,
difficulty in accessing capital for smaller, non-energy
companies, and
• poor infrastructure in need of large investments.
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CIA World Factbook, 2011
• Dependence on exports of commodities (oil, steel,
grain) whose prices are volatile.
The Russian Economy’s
Problems Today. ii
• So, the history lives on:
– The Oligarchs have replaced the Nomenklatura as
the Nomenklatura replaced the Oprichniki.
– Personal loyalty to a superior is still important,
even the oligarchs must be aware of who is in
charge.
– The rule of law is weak and the rule of the bribe
and the side deal is strong.
What will you experience?
• Moscow is a glittering city with many new buildings and
beautiful old one.
• You won’t be able to read anything since the alphabet is
different. It’s worth it to spend some time becoming familiar
with the Cyrillic alphabet so you can sound out signs, etc.
• Moscow is expensive. To try to keep track, there are about
28 rubles to the US dollar. If you think that a ruble cost 4¢ (it
actually costs about 3 ½), that 100 rubles is $4, you’ll avoid
unpleasant surprises on your credit card bill when you get
home.
• Be careful of fiddles, and don’t be angry with yourself for
paying the “stupid tax” a few times. It’s usually small.
What will you experience?
• You could fix all the potholed roads, fine the taxi drivers for
overcharging, and even introduce hotel staff to study that
strange concept known in the West as 'customer service',
but then Moscow would no longer be MoscowA big city with
a big character, Moscow has an energy and pride that's hard
to match. Sometimes intimidating, bullying even, the city
itself can terrify the casual tourist, but the rewards to be had
from taking the time to learn about it and fight back are
tremendous!.
• Moscow Life http://www.moscow-life.com/ March 21, 2001.