Thread: Russia disappoints the world

Originally Posted by Ironduke

According to the CIA, most of Russia's economic growth is being driven by growth in domestic goods and services sectors, not the energy sector. And it's been that way for the past several years.

The CIA is pretty bad at this kind of stuff... I go there for quick easy numbers, not analysis.

If you look at the investment numbers, Russia's energy sector has actually been expanding compared to the rest of the economy.

Originally Posted by Adux

When you have a civil servant who have not been paid salaries for years being responsible for state assets worth billions. When you have a drunkard Yelsten and Boris Berzerversky in the Russian Government.

I meant, how were the oligarchs destroying Russia economically? How were they physically managing to do it. Even given significant corruption at the highest level is not an adequate explanation for the economic problems that Russia faced. The US has had plenty of problems with corrupt CEO's the past decade or so, yet the impact on our economy has been minimal.

I expect them to take a turn with Menedev presidency, In my opinion the whole thing is the gameplan of putin, he knows as it stands today as well as in 1990's russia cannot compete with the world in products, therefore his race towards commodites. Russian economy is growing at 7%, more than Oil, there is huge influx of outside money pouring into Russian economy.

Russia can compete with the world when it comes to products, their government just isn't used to letting it.

Funny isnt it, When Kasporov got arrested, he started sloganering in English rather than in Russian, If it all he had a base in Russia, he wouldnt have to do that. Though I agree with you on this Political move by Putin, There are a lot of Western propped agencies and agents in Russia. USA isnt a harmless lamb when it comes to involving in Russian internal politics for the interest of its MNC and government.

Russia needs to get used to life in the world economy and this is part of it. They can either accept it or they will remain left behind All sorts of foreign nations and interests try and influence our politics. Some of them succeed too. We do so right back. It is all part of the game.

Energy brought in money to run the government, Second those were sold under corrupt and by dubious methods. Therefore in my opinion the earlier contract stands null and void.

First Russia has to do is, reform its property laws.

Why is it assumed that Russia is the right and proper guardian of the energy sector? I don't think it had so much to do with the money (after all there were other less controversial ways to get that) then the direct control over Europe's energy supply.

Private Investment was the largest contributer last year. Russia has a lot of work to do, You are being a bit severe here.

Russia deserves some severity... I'm seeing them falling back into the same old stupid economic patterns in the name of world power. It is frustrating in much the same manner as watching Africa is frustrating most of the time.

US in 1930's cant be compared to what Russians were in 1990's. Total differnet secenario with total differnet variables. US at the point of time didnt even face quater of threats the Russians face today.

What threats do the Russians face today?

The Biggest threat they face is Themselves. If Russia fails to strike the right chord between its economic and military aspirations...they are doomed.

Putin and the present Russian leadership are an intelligent lot. They know that thier homegrown comapanies cannot compete with the highly efficient and ruthless MNC's of the west. They are simply going into hibernation for a few years until they are competitive enough to open up the economy. If they globalize the economy completely at this moment, what will result is a complete domination of the local market by western MNC's. This scenario is highly hazardous for the Russians. In the meanwhile they will sustain thier economic growth through energy. And with the amount of Oil they have (exploration in sakhalin-3 has already begun), I dont see why they cant stage a economic comeback in the comming decade.

Originally Posted by somak11

Putin and the present Russian leadership are an intelligent lot. They know that thier homegrown comapanies cannot compete with the highly efficient and ruthless MNC's of the west. They are simply going into hibernation for a few years until they are competitive enough to open up the economy. If they globalize the economy completely at this moment, what will result is a complete domination of the local market by western MNC's. This scenario is highly hazardous for the Russians. In the meanwhile they will sustain thier economic growth through energy. And with the amount of Oil they have (exploration in sakhalin-3 has already begun), I dont see why they cant stage a economic comeback in the comming decade.

Closing oneself off from outside competition is generally the reason why economies stagnate and have even more trouble long term. They get used to not having to compete, and they lose out on the innovation that is going on elsewhere.

The best way to have a growth business model in Russia's case would be to globalize, but offer a large number of soft incentives (tax cuts, moratoriums on payments for a few years, easy credit, ect) for MNC's to move operations to Russia... the oil money would be perfect for this. The US (or sections of the US anyways) practices this, and we've had fairly steady growth since the fall of the Soviet Union. When our auto companies started having problems our government very quickly said that it was not going to bail them out. Why? Because they were the author of their own difficulties. Japanese automotive makers are doing just fine producing here in the US.

As for the energy sector, my problem with that is that the oil isn't being put to economic use. They aren't using the money to expand the other sectors of the economy. The investment figures show most of the investment going into energy and energy related fields. This creates the very real problem of Russia becoming (or rather continuing) a one product economy.

Originally Posted by lwarmonger

The best way to have a growth business model in Russia's case would be to globalize, but offer a large number of soft incentives (tax cuts, moratoriums on payments for a few years, easy credit, ect) for MNC's to move operations to Russia

Sir, you make some good points here. But I think there are some point we disagree on.
1. The US auto industry is indirectly preotected, because the Japanese Auto makers are forced to buy US steel and others raw products. The steel and other metal markets are hugely subsidized.
2. The US agricultural and food market is heavily subsidized..even sugar is subsidized resulting in corn syrup being used for everyday purposes. Read about the corn market.
3. The World Trade Organization gives an unfair ( and unfortunate ) advantage now-a-days to the developed countries. If Russia globalizes now..it will never become self sufficient. What is result is a banana republic or at best a slightly dignified form of one of those middle eastern countries who make only 5 products and import everything else.

The Oil money needs to be smartly. The russians are smart. They know they cannot follow the Latin American stupidity into bein another banana republic. They need to set the system, infrastructure and manpower first. Only then can they competer with the world. This is exatcly what India ( 90's), China (80's) and a long time ago, a country called Japan do.
See only having monetary incentives does not gaurantee success. You need a system, infrastructure and trained manpower. Being a communist country for such a long time....Russia will need atleast a decade before it should open up completely.

Originally Posted by somak11

1. The US auto industry is indirectly preotected, because the Japanese Auto makers are forced to buy US steel and others raw products. The steel and other metal markets are hugely subsidized.

The steel and metal markets are subsidized, but how are Japanese Auto makers "forced" to purchase American anything?

2. The US agricultural and food market is heavily subsidized..even sugar is subsidized resulting in corn syrup being used for everyday purposes. Read about the corn market.

Difference between the American agricultural market and others. Most nations subsidize farming to keep prices low, because they have inefficient producers. We subsidize our farmers to keep prices high (through destruction of crops or paying farmers not to grow food), because we have hyper-efficient producers. In a free trade environment without any subsidies or tarrifs from anyone our farmers would be providing most of the world's food, and many farmers in the third world would be starving because they couldn't compete.

3. The World Trade Organization gives an unfair ( and unfortunate ) advantage now-a-days to the developed countries. If Russia globalizes now..it will never become self sufficient. What is result is a banana republic or at best a slightly dignified form of one of those middle eastern countries who make only 5 products and import everything else.

Any healthy nation in today's world isn't self-sufficient. The US certainly isn't. Neither is Europe, and Japan is the furthest of all from being self-sufficient. The whole ideal of globalization is to maximize competetive advantages and specialization to the benefit of all.

Right now Russia pretty much has a one product economy (at least one product for export). That is not healthy.

The Oil money needs to be smartly. The russians are smart. They know they cannot follow the Latin American stupidity into bein another banana republic. They need to set the system, infrastructure and manpower first. Only then can they competer with the world. This is exatcly what India ( 90's), China (80's) and a long time ago, a country called Japan do.

Russia doesn't lack infrastructure though... the Soviet Union gave them plenty of that. What they lack is modern industrial plants and private sector R&D. The Soviets of the 1980's had far better infrastructure than China of the 1980's did. As for economics, in the past three hundred years I have seen nothing that would indicate to me that they have the slightest clue of how to handle an economy. That might change, but so far it hasn't.

See only having monetary incentives does not gaurantee success. You need a system, infrastructure and trained manpower. Being a communist country for such a long time....Russia will need atleast a decade before it should open up completely.

That is a good point. The Russians have the infrastructure and trained manpower, but then don't really have a system. However I don't see how embarking on a policy of active antagonism towards the people who do have a system that works is going to help them learn.

Originally Posted by lwarmonger

The steel and metal markets are subsidized, but how are Japanese Auto makers "forced" to purchase American anything?

Because the US government hevily taxes steel imports.

Originally Posted by lwarmonger

In a free trade environment without any subsidies or tarrifs from anyone our farmers would be providing most of the world's food, and many farmers in the third world would be starving because they couldn't compete.

I hope you know what you are talking about. The corn lobby in US is a very powerful one. Also why is most of your sweet products made of corn syrup.eg coke, pepsi. Sugar is extremely expensive because the industry is protected from cheaper and more efficient imports. Yes the agricultural industry is more efficient in US but to assume that you would be providing to most third world countries is a very very far fetched assumption.

Anyways you made some good points and I want to add that second world countries will become the hub for manufacturing while the first world ones like the US grow more food. This is an inevitable trend in macroeconomics.

Any healthy nation in today's world isn't self-sufficient. The US certainly isn't. Neither is Europe, and Japan is the furthest of all from being self-sufficient. The whole ideal of globalization is to maximize competetive advantages and specialization to the benefit of all.

When I say self sufficient, I do not mean that they produce everything they need. ha ha ha ha.. In the lame mans term self suffiency in terms of modern economics means that a country only produces products that it enjoys a considerable advantage in producing than importing.Like you said "comparative advantage" By globalizing prematurely , Russia will not be able to develop the markets it can enjoy an advantage in. You can see the how the middle eastern and african economied have suffered by prematurely globalizing. More efficient companies will gobble them up.

Russia doesn't lack infrastructure though... the Soviet Union gave them plenty of that. What they lack is modern industrial plants and private sector R&D. The Soviets of the 1980's had far better infrastructure than China of the 1980's did.

Infrastructure that the Soviets enjoyed during the 80's has since eroded. The defense industry has collapsed. So has the healthcare, Education, Public transport systems. Small Industries in Russia are almost non existant. To bring in cheap products from efficient European and American companies in the market would be like a death blow to the Russians small companies. They will not be able to compete and will die out. This will lead to complete dependancy on others. For a country as large as Russia, this is not encourageble. They are not the Swiss or the Belgians. They need State controlled manufacturing due to strategic reasons as well. You dont want a scenario where the nations vital needs are controlled by foreign owned companies.

Originally Posted by somak11

Originally Posted by lwarmonger

Because the US government hevily taxes steel imports.

But Mexico doesn't. The fact is that more of a Japanese car is made in America than an "American" car... and that was a deliberate decision made by Japanese auto makers.

I hope you know what you are talking about. The corn lobby in US is a very powerful one. Also why is most of your sweet products made of corn syrup.eg coke, pepsi. Sugar is extremely expensive because the industry is protected from cheaper and more efficient imports. Yes the agricultural industry is more efficient in US but to assume that you would be providing to most third world countries is a very very far fetched assumption.

I do indeed know what I am talking about. My college education wouldn't have been worth much if I didn't. We are already one of the (I think the) largest food exporters in the world, and that is with most of our agricultural subsidies designed to depress production. If we weren't reducing production by subsidizing our farmers they would be selling at an even lower price, and undercutting farmers world wide in the absence of tarriffs. I don't see why that is far fetched... seems like basic macro-economics to me.

Anyways you made some good points and I want to add that second world countries will become the hub for manufacturing while the first world ones like the US grow more food. This is an inevitable trend in macroeconomics.

Well, the US will grow food and do high end manufacturing and R&D/services... European nations should have ditched their farming sector a long time ago, as Japan should have as well. They can't produce efficiently, and are spending billions each year to support that inefficient production. That's the reason why agricultural subsidies have been such a hot button issue in the EU.

When I say self sufficient, I do not mean that they produce everything they need. ha ha ha ha.. In the lame mans term self suffiency in terms of modern economics means that a country only produces products that it enjoys a considerable advantage in producing than importing.Like you said "comparative advantage" By globalizing prematurely , Russia will not be able to develop the markets it can enjoy an advantage in. You can see the how the middle eastern and african economied have suffered by prematurely globalizing. More efficient companies will gobble them up.

Middle Eastern and African countries don't suffer from globalization, they suffer from the varying problems of lack of education, basic infrastructure, social organization (tribes just don't cut it anymore), a one product economy, civil wars, excessive corruption, ect... I could go on in this vein for a while. The point I am trying to make is that it doesn't matter if you don't have "national" corporations... hell America's "national" corporations are not really American anymore. My above mentioned example of more parts in a "Japanese" car being made in America than an "American" car is a perfect illustration of that point. Our automakers are paying now for the dominance and complacency they had before (although we did not protect them much, they had a favored spot in the world's largets auto market). Protecting your markets from competition rarely makes them more competetive.

Infrastructure that the Soviets enjoyed during the 80's has since eroded. The defense industry has collapsed. So has the healthcare, Education, Public transport systems.

None of which has much to do with business viability in the short term.

Small Industries in Russia are almost non existant. To bring in cheap products from efficient European and American companies in the market would be like a death blow to the Russians small companies.

But they are doing exactly that... bringing in European and American goods without doing the investment in industrial plant that they would need to produce such goods for themselves. Why? Because foreigners would own it?

They will not be able to compete and will die out. This will lead to complete dependancy on others.

Only as much as everyone else is dependent upon others.

For a country as large as Russia, this is not encourageble. They are not the Swiss or the Belgians.

Or the US? I'm not encouraging Russia to participate in anything the US hasn't already done.

They need State controlled manufacturing due to strategic reasons as well. You dont want a scenario where the nations vital needs are controlled by foreign owned companies.

And we do that as well... it is one of the reason why our steel companies are so heavily subsidized, and part of the reason why our disfunctional military procurement system operates the way it does. However the Russian government's definition of "vital needs" encompasses a great deal more than most successful economies definition of "vital needs." No one (reasonable) here in the US is under any illusion about how important oil is to us, but you don't see the US government going and nationalizing industries.

lwarmonger.. I think we should agree to disagree. I also hope we have come to a basic understanding what the other is trying to say. I am very familiar with the concepts of economics you are depicting here. I am a double major in engineering and economics at a major American University and am very familiar with American Microeconomics.

But comming from India..I have learnt one thing that the laws of economics in the pure form do not always constitute the best path forward. Sometimes there are other complex and unexpected variable that factor in. This is why the best policy makers do not always have phd's in Economics or PoliSci.
regards,

Originally Posted by somak11

lwarmonger.. I think we should agree to disagree. I also hope we have come to a basic understanding what the other is trying to say. I am very familiar with the concepts of economics you are depicting here. I am a double major in engineering and economics at a major American University and am very familiar with American Microeconomics.

Alright, and I do understand what you are trying to say... I even used to think that way myself. I would suggest asking Shek about it sometimes. He teaches economics at West Point, and talking to him about subjects like this can be very educational.

But comming from India..I have learnt one thing that the laws of economics in the pure form do not always constitute the best path forward. Sometimes there are other complex and unexpected variable that factor in. This is why the best policy makers do not always have phd's in Economics or PoliSci.
regards,

Perhaps not the best path forward, because economics leaves no room for things outside the economic sphere. However to ignore economics, or to treat it as less important that politics or the military is also unwise.

Alright, and I do understand what you are trying to say... I even used to think that way myself. I would suggest asking Shek about it sometimes. He teaches economics at West Point, and talking to him about subjects like this can be very educational.

I will contact Shek. New Ideas are always welcome.