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German tech guy notes that Europe barely has a presence in the tech sector.

  • Hardware dominated by East Asians; Europeans used to do this, but Phillips, Nokia had their heyday many years ago.
  • Internet infrastructure (e.g. cloud, DNS) dominated by the United States, though China has its own self-contained ecosystem.
  • Platforms (operating systems, social networks, search engines, app stores) are dominated by the United States. Europe has almost zero presence here.
  • Europeans do have some successful apps, e.g. some video game companies, various music and shopping services.

Most significantly, there are no European general purpose tech giants, such as both the United States (Google, Amazon, Apple, Microsoft, Facebook) and China (Alibaba, Baidu, Tencent) have in spades, which not only have one or two orders of magnitude more significance than any of the European app companies, but end up acquiring many of them; it is telling that of the nine given examples of successful European apps, Skype and Minecraft were both acquired by Microsoft, while Soundcloud has an uncertain future.

Some possible reasons he gives for Europe’s lack of success:

  • Regulation – Taxes, labor laws, privacy laws, red tape.
  • Investment climate – Harder for startups to raise money.
  • Geography and Demographics – The United States and China are homogenous markets of many hundreds of millions of people; Europe is a fragmented mess.
  • Attitudes – Could Europeans be just more pessimistic about tech and business? Which translates into subpar regulations. (In contrast, Chinese are highly technophilic).
  • Startup ecosystems – The US has Silicon Valley, China has Shenzhen; what does Europe have? Since it lacks giants, it is subject to a constant brain drain to Silicon Valley.

From my own observations this all seems to be pretty accurate true. Southern Europe is hampered by red tape; northern Europe is better for doing business, and has higher human capital, which is reflected in more tech companies (the biggest, Spotify, is Swedish), but is likewise hampered by higher taxes and strong privacy laws (esp. Germany).

With a mere $14.4 billion worth of venture capital activity in 2015, Europe lags behind both the United States ($72.3 billion) and even China ($49.2 billion) in this sphere too.

The US and China’s advantages in achieving economies of scale would seem obvious. It might also be the most important factor. Russian regulations are no better than Europe’s, and its level of VC funding is truly minimal, yet it does manage to have one general purpose tech company that is at least noticeable at the global level (Yandex). China has a far bigger market than Russia, and its web censorship doubles as protectionism in all but name (as the author notes in another video), so its major tech companies are now becoming more and more comparable to the American giants.

On the whole, so far as tech companies are concerned, Europe seems to serve as a mere human capital repository for Silicon Valley.

This would seem to be important for a couple of reasons.

1. It’s yet another demonstration of how the only two countries that really matter in the world today are the United States and China. Europe? I’m sorry, but US conservatives pegged it right. Museum cum retirement home that has nothing to teach anybody.

2. According to O-Ring theory, most value is generated through complex production chains, whose highly productive workers pull up the wages of workers in simple sectors far above the Third World levels they would otherwise be at. But few of those are forming in Europe, and many that do, end up bleeding off into the US anyway.

3. It’s interesting to speculate on what this means for the geographical location of the first artificial general intelligence (probably the most portentous event in all history). This might mean nothing much, but it could also mean a great deal. Anyhow, if this AGI requires large computing and technical resources, it will most likely appear in the US, followed by China; in contrast, there is a close to zero chance it will happen in Europe or anywhere else.

 
• Category: Economics • Tags: Europe, Technology 
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guangzhou-china

Guangzhou, China (/r/Cyberpunk)

Some time ago a commenter asked me about the state of China Studies in Russia, an issue that is pretty germane as they increasingly align with each other.

TL;DR – Catastrophic. Simply put, Russia does not have the cognitive tools to understand the country that Kremlin talking points describe as Russia’s “strategic partner.”

Longer answer: Alexander Gabuev, who has a BA/MA in Chinese History from Moscow State University, wrote a couple of comprehensive articles on the state of Sinology in Russia when he was deputy foreign editor of Kommersant:

This post is heavily based on Gabuev’s material.

History of Russian Sinology 101

The first Russian mission to China was in 1714, with contacts for the next 150 years dominated by religious figures (Illarion Rassokhin, Alexey Leontyev, Osip Kovalevsky, Nikita Bichurin). There was a faculty of Eastern languages at Kazan University from 1807-1855 (Nikita Bichurin, Palladiy Kafarov, Vasily Vasiliev), which relocated to Saint-Petersburg State University (SPBU) around 1854. The Eastern Institute was set up in Vladivostok in 1899.

The Oriental faculty at SPBU was disbanded in 1919 and was spread out across other faculties, but Eastern Studies continued flourishing during the 1920s. However, the Soviet Oriental Studies community was devastated by the late 1930s purges, with several prominent Sinologists such as Nikolay Konrad and Julian Shutsky being sent to the Gulag or shot on charges of being Japanese spies.

In the next 50 years, Sinology would recover and develop further, but strongly tied to the perceived needs of the state and, like all social sciences, under tight Marxist-Leninist ideological strictures. The collapse of the USSR brought ideological freedom, but also a collapse of funding (salaries for top Sinologists plummeted from a comfortable level of 400-500 rubles during the 1980s to $30-$50 by the mid-1990s) and spiraling corruption that preempted any flowering of Russian Sinology to this day.

“Sinology is dead”

In June 2011, President Medvedev was presiding over a state prize awarding ceremony. The only Russian social scientists to be recognized were a group of Sinologists, including Artem Kobzev and Mikhail Titarenko, for their work on compiling and editing a six tome Encyclopedia of Chinese Spiritual Culture: “Their work helps us better understand the traditions and spiritual culture of China, they deepen and enrich modern Sinology. Their work is read all over the world…” proclaimed Medvedev. Kobzev followed it up with a short history of Russian Sinology: The first Chinese-Russian dictionary was compiled under a 140,000 ruble grant from Alexander I, and the USSR also financed a Big Chinese-Russian Dictionary. This was a pointed comment; as he soon clarified in a smaller discussion with the President, the Encyclopedia had actually been financed by the Chinese Development Bank at the personal direction of its CEO Chen Yuan, in honor of his late father, who had warm feelings towards the USSR. According to Kobzev’s account, Medvedev was rather distraught by what he had heard, and the Sinologist soon got a letter from the Kremlin telling him that his suggestions were considered important. Soon after, the Russian Fund for the Humanitarian Sciences allocated a total of 6 million rubles [$200,000] in the form of five grants for the study of China. It’s unclear if anything useful was done with them; one of the five grants went to the Philosophy faculty of Saratov State University, which didn’t have a single Sinologist.

This anecdote appears to be pretty representative of the sorry state of China Studies and social science in general in Russia.

There are fewer than 200 academic Sinologists, of whom only about 50 can be considered active (he compares this with 15,000 in the United States, but apparently, this was a big overestimate; Gabuev says: “this figure appears to be wrong, my mistake. picked it up from an American colleague back in 2012 without critically assessing it”). The average age of these researchers is rising inexorably; the director of the Institute of the Far East RAS is 78 year old Mikhail Titarenko [he died in 2016]. Whereas there were 500 experts at that institution in the 1980s, there are now just 147 of them, according to Sergey Luzyanin, the Institute’s deputy director. There isn’t a single academic expert in Russia on the finances, law, or military of China.

This is linked to low academic salaries, even at Russia’s top institutions for Sinology. Here are some of the figures when Gabuev wrote his article:

  • 16,000 rubles ($500 at 2012/13 exchange rates) for a Research Fellow, 27,000 rubles ($900) for a senior researcher at the Institute of the Far East RAS.
  • 30,000 rubles [$1,000] for an Assistant Professor, 45,000 rubles [$1,500] for a full Professor at Moscow State University’s (MSU) Institute of Asian and African Countries.
  • Salaries are 20% higher at the Ministry of Foreign Affairs-affiliated Moscow State Institute of International Relations (MGIMO) than at the MSU.
  • Literally the only institution where Russian Sinologists get an internationally respectable salary is at the Higher School of Economics – salaries of 150,000-200,000 rubles ($5,000-$6,500) are not atypical.

Things are even worse outside the capital. Saint-Petersburg State University, the second most prominent China Studies center in Russia outside Moscow, had to close down a program on the Chinese economy around 2011 due to lack of financing, and the third center of Russian Sinology, the Far Eastern Federal University in Vladivostok, closed down its Eastern Institute, an organziation that traced back its lineage to Tsarist times, at around the same time.

Only a few dozen scientific articles on China are produced per year, and their quality lags English language output, even though the latter produces orders of magnitude more material. Many of their articles aren’t even open access; a significant percentage are merely reference works for the country’s leaderships, prepared whenever there are big summits or other major state events in China. Furthermore, many articles aren’t indexed by international databases. “We do not subscribe to the Journal of Contemporary China, it’s too expensive. From 1991 the state doesn’t finance any international scientific partnerships. Not a ruble on literature, on travel, only just the occasional grant for a conference or a book…” says Vladimir Portnyakov, another deputy director of the Institute. New literature is acquired by renting out the Institute’s properties, which have emptied out as a result of so many people leaving after 1991.

Consequently, there is large-scale brain drain amongst young researchers to the private sector, or abroad (it is noted that Israel has seen large improvements in its Sinology in recent years, in no small part thanks to immigrants from Russia – even though, I would add, other business sectors have to the contrary seen a “backflow” from Israel back to Moscow in the past decade). Even those those specialists who stay on have to spread themselves out across multiple institutes to make a halfway decent living, leaving no time for research.

This has also resulted in a generational chasm within the Sinologist community; there are hardly any serious middle-aged researchers. Although there are several respectable Sinologists over the age of fifty who were produced in the USSR: Alexander Lomanov, Sergey Luzyanin, Andrey Ostrovsky, Vladimir Portyakov, Viktor Larin, Alexey Voskresensky, Vladimir Korsun, Andrey Karneev, Alexander Lukin, Mikhail Karpov, Nikolay Samoylov, Alexey Maslov – the author could name only one significantly younger figure, Vasily Kashin, at the CAST thinktank.

The state of affairs is no better at the state level

The main source of China talent in Russia is in the Ministry of Foreign Affairs. Gabuev’s sources mention several particularly competent people: Deputy Foreign Minister Igor Morgulov, Thailand ambassador Kirill Barsky, China ambassador Andrey Denisov, and a few other members of the Russian diplomatic staff in China. (This makes sense; in one of my Twitter conversations with Chinese Russianist Xin Zhang, he pointed out that “one related problem is agenda for bilateral communication between specialists are still highly state-sactioned”). However, according to a business source, this doesn’t apply to people in the lower rungs: “The people at the top level can be okay. But the people on the ground are not the best, in the sense of helping out businesses or even as a source of expertise, they are quite useless.” This reflects the narrow focus of China experts in the Russian state structures, who focus on highly specific areas such as classic “high diplomacy,” nuclear non-proliferation, and the banalities of arranging Putin’s meetings with Chinese leaders. And this is the Ministry of Foreign Affairs. In contrast, there is almost a singular lack of Sinologists within Russia’s economics-related Ministries.

The situation in the “silovik” agencies is, if anything, even worse. In Russia’s military intelligence, the GRU, there is precisely one (!) analyst working on the Chinese military (before Serdyukov’s reforms, there were two). During the Russian-Chinese military exercises “Maritime Cooperation 2012,” the Chinese had nearly 200 young officers with a solid knowledge of Russian at hand to provide linguistic support; the Russians could only muster three translators. Evidently, the Chinese military has made efforts to build up a large base of Russia expertise, unlike Russia with respect to China. So do bear this in mind whenever you read the next Andrei Martyanov article about Russia’s supposed military dominance over China. Even if that is an accurate assessment – and I have my doubts – do note that there would be almost no-one to translate intercepted Chinese communications within the Russian Army (hopefully the Americans don’t block access to Google Translate).

I would note that many of these observations are backed up by the aforementioned Xin Zhang, who in 2014 corrected me on my prior belief that the state of Sinology and Russianology in Russia and China were similarly dismal: “… likely more Russian experts in China than the other way… In Shanghai, we held conferences & seminars in Russian, although translation is needed for some participants.”

No China expertise in the media

Both RIA and ITER-TASS only had around half a dozen journalists each in their Beijing bureaus as of when Gabuev wrote his articles. None of Russia’s major broadsheets, even the “serious” ones like Kommersant and Vedomosti, have a presence on the ground in China. For comparison, major Western news agencies have bureaus of 15-20 people in Beijing, as well as employees in the provincial centers. It also far less than the attention China devotes to Russia: There are 70 people in the Xinhua bureau in Moscow. Consequently, there is far less news about China in the Russian press relative to the other major countries. I would also add as an observer of both the Western and Russian media that much of it basically consists of reprints of Western coverage of China, as opposed to original journalism.

The business sector isn’t interested either

Despite China being Russia’s largest trading partner – and its main bulwark against more serious Western sanctions – Russia’s state corporations aren’t rushing to avail themselves of China expertise, with predictable consequences – Gabuev cites a $3.5 billion loss in Rosneft from an unsuccessful pipeline to China, and Gazprom’s repeated failed attempts to enter the Chinese gas markets. Neither is the situation in the private sector much better. There only partial exceptions to this dismal picture are nuclear power monopoly Rosatom and development bank Vnesheconombank in the state sector, and Deripaska’s En+ Group in the private sector.

Certainly there is nothing on the scale of Chinese business analysis of Russia, such as that of the Chinese state-owned oil company CNPC. Not only does it maintain a large in-house staff of Russia specialists composed of Chinese Russia experts, Russian China Studies majors, and catches from the Chinese bureaucracy and security services, but it even orders reports from thinktanks on topics such as the “prospects of Russia’s political system to 2024 and its influence on Russia’s oil sector.”

Can one imagine anything like this under Rosneft’s Igor Sechin? To ask the question is to answer it.

There are very few instances of state bureacracies or corporations ordering expert analyses from Russian academia, as is typical in both China and the West. “The state has simply left Sinology. And this is a huge mistake. In China, the opposite is happening – the state is developing Russia Studies,” says Alexey Maslov, dean of Oriental Studies faculty at the Higher School of Economics (and a shaolin master). On the other hand, business and bureaucrats aren’t too satisfied with the academic Sinologist community either. “There is no practical benefit from communicating with them. You ask them a simple question, and they start their answer from the time of the Yellow Emperor, and don’t end up clarifying anything. Typical professors,” says one federal bureaucrat.

The future of Russian Sinology

Alexander Gabuev wrote these articles four years ago. In the meantime, the author himself – who can be considered somewhat of a China expert himself – left Kommersant to work for the US-financed Moscow Carnegie Center thinktank, which also happens to be the most highly rated thinktank in Russia. One can consider this as just one more depressing anecdote in the context of all the dismal things he wrote about Russian Sinology and social science in general.

The following is based largely on my own impressions.

In the years since 2012-13, the situation of Russian academia has improved, especially in the elite universities that are part of Project 5/100 – the state program to get five universities into the world’s top 100 (currently, only Moscow State University qualifies, and that by a hairsbreadth). Salaries there are now quite respectable, and are at least minimally comparable to those at the Higher School of Economics. However, I suspect financing at the Russian Academy of Science, at least if my impressions of the Institute of Psychology are anything to go by, remains catastrophically low.

There has also been a massive increase in the numbers of Russians studying Chinese in the past two decades. Whereas there were just 5,000 Russians studying Chinese in 1997, by 2007 it was 17,000, and by 2017 there were close to 56,000 of them (this is not entirely bad by comparison with the 200,000 Chinese learners in the United States, many of whom I suspect are Chinese-Americans).

On the other hand, the average quality of Chinese instruction in Russia leaves much to be desired, so optimism is premature. As Alexander Gabuev also pointed out in 2013, quoting Alexey Maslov: “Today we have more than 160 universities that offer Chinese… But many of these people are almost impossible to use in real life. This creates the impression that we have a lot of Sinologists. But in reality, they are not Sinologists, their level of Chinese language knowledge is very low.”

Nonetheless, the overall situation does seem to be improving, even if at a slow rate and from a very low base. And there’s no obvious reason for things to get worse.

However, so long as Putin remains more interested in financing the Rotenbergs than RAN – for instance, the planned bridge to Sakhalin might consume about as much money per year as the entire federal budget for science – there can be no serious talk of Russia starting to produce a lot of world-beating research in Sinology or any other brance of science.

 
• Category: Economics • Tags: Academia, China, Russia 
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When finishing up yesterday’s post I realized that Transparency International has finished releasing its final version of the Global Corruption Barometer.

By far the most interesting indicator is the percentageof people who report paying a bribe in the past 12 months (more precisely, the percentage of households who paid a bribe when accessing basic services). It is as close to objective measurement as you can get in a sphere of life as indefinite and necessarily opaque as “corruption.”

You can take a look at a global interactive map here: https://www.transparency.org/news/feature/global_corruption_barometer_citizens_voices_from_around_the_world

Access to the global data here in Excel format: Global_Corruption_Barometer_2017_Global_Results

More regional maps (where available), with a few comments comparing results to the GCB 2013.

gcb-2017-bribery-europe

Europe – Romania, Hungary, and Lithuania are the most notably corrupt EU countries; Greece, in fairness, has improved substantilaly since the last assessment in 2013, when 22% of Greeks paid bribes.

Ukraine didn’t budge relative to 2013; was 37%, now 38%. Both the Ukraine and Russia are much worse than Belarus. This confirms stereotypes, BTW.

gcb-2017-bribery-asia-pacific

East Asia – India has actually deteriorated further, from 54% in 2013. Taiwan’s figure is much more plausible than the anomalous seeming 36% in the last survey.

gcb-2017-bribery-latin-america

Latin America – What is going on in Mexico? It was 33% last time.

It appears that North America will not be covered in this round of the GCB. For comparison with its southern neighbors and Europe, the reported bribery rate in the US was 7% in 2013 (up from 5% in the survey before that, and 2-3% in the oldest surveys).

The bribery rate in Canada in the last GCB was 3%.

gcb-2017-bribery-middle-east

Middle East – This is pretty interesting – Tunisia is basically a European Mediterannean countries in this respect (Greece: 10%; Italy: 7%).

Algeria not bad either at 14%. Perhaps explains why there hasn’t been an Arab/Islamist “spring” there against its ageing rulers.

gcb-2017-bribery-africa

Africa – This concisely explains why Botswanans manage to maintain a pretty nice state despite very low average IQs (they have natural resouce rents from diamonds, ofc, but so does Equatorial Guinea – and far more of them – but that doesn’t translate into normal living standards for its 99%).

 
• Category: Economics • Tags: Corruption, Opinion Poll 
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The World Bank Enterprise Surveys are an invaluable source of information on the business climate across both time and space.

In particular, its section on corruption does for businesses what Transparency International’s Global Corruption Barometer does for individuals – it directly asks them whether they are expected to give bribes to bureaucrats to reach understandings on taxes, get permits, utilities connections, and to “get things done” more generally.

Now in general, people love to complain about corruption. It seems to be universal. Opinion surveys almost always show that perceptions of corruption are getting worse everywhere.

Good news! This isn’t really borne out by the statistics. Things really do seem to be getting better. (I excluded countries with information for just one year).

 

gifts-get-things-done

We have basically seen a halving in corporations reporting they need to grease public officials to “get things done.”

gifts-tax

Ergo for dealing with tax officials.

gifts-contract

Curiously, though, there was minimal change in the number of firms reporting needing bribes to secure government contracts.

Still, I don’t think that invalidates the general picture.

(1) Paying bribes to tax officials and to “get things done” is a more coercive form of corruption. I imagine many of these are “cough up or we shut you down” scenarios. Securing government contracts is nice, but not a life-and-death issue for most businesses.

(2) Perhaps the lack of change in securing government contracts merely reflects the fact that more and more countries have been opening up open bidding systems, whereas before they would have just been automatically channeled off to the Minister’s business buddies (without bribes).

Here’s an observation from commenter Twinkie to flesh out these statistics:

I remember the days when American defense contractors used to complain about the FCPA (Foreign Corrupt Practices Act) constraining them in competition against the Europeans in pursuing contracts in less-developed countries (“The Germans can tax-deduct bribes paid overseas!”).

Those days are long gone. It’s not to say that corruption is a thing of the past, but the absolute scale and public acquiescence (or lack thereof) of it have changed dramatically in many parts of the world.

This is evidence for my assumption in Our Biorealistic Future that in the long-term, we can expect institutions everywhere to get better, as different countries adopt established best practices, despite individual cases of backsliding.

 
• Category: Economics • Tags: Corruption 
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russia-inflation

Inflation is now at 2.7% as of October 2017, down from double-digit rates three years ago and overshooting the Central Bank of Russia’s 4% target for this year.

This constitutes an all-time post-Soviet low.

This is in large part thanks to the hawkish monetary policy of CBR head Elvira Nabiullina, and indirectly of Putin, who gave her and the economic liberal bloc political cover in the face of populist opposition demanding lower interest rates and greater state invervention in the economy.

Once Soviet-era capacities, at least in those sectors where they were market-competitive, were restored by the mid-2000s, Russia’s high growth rate petered out (though irrational exuberance sustained it for a couple more years until the 2008 crash). The major problem, besides an atrocious business climate, was that high inflationary expectations had become embedded. High inflation discourages savings, which you need for investment. Consequently, banks were only prepared to lend to small and medium sized businesses at rapacious rates of interest.

But it now looks like Russia’s version of the Volcker shock since 2014 has finally succeeded in taming inflation for good.

This is especially significant since it comes on the back of three other major achievements that are of long-term relevance to growth.

1. A rise from ~120th (i.e. Nigeria) to 35th (i.e. Japan) position on the World Bank’s Ease of Doing Business since the start of Putin’s third term. Russia is still far from the best place to do business in, but it is vastly better than it was a decade ago.

2. A near halving in the numbers of Russian “pocket banks,” to the benefit of established and more transparent lenders (a consolidation that Nabiullina has spearheaded).

3. The beginning of semi-serious efforts to resurrect Russia’s moribund R&D capacities. (More on this later).

Finally, Russia has managed to do all this without the big budget deficits, yawning debt increases, and the unusual monetary experiments that have characterized Western policies since 2000.

Despite the political and foreign policy failures of Putin’s third term in office, and its more “embedded” problems such as elite rent-seeking and excessive state ownership, economic policy during this period is praiseworthy and, barring major geopolitical crises, stands Russia in good stead for a decade of solid growth.

 
• Category: Economics • Tags: Inflation, Russia 
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wb-doing-business-2018

The World Bank has just released its Ease of Doing Business data for 2018 (report PDF; rankings; historical data in Excel)

I wrote about why good scores on this indicator are pretty useful two years ago:

First, elites pay a lot of attention to it. Several countries – including Russia, Kazakhstan, and India – have made climbing up the Doing Business rankings a matter of national economic planning.

Second, all else equal, more economic freedom really is “better” than less economic freedom. You do not need to be some kind of neoliberal hypercapitalist to appreciate that having more layers of bureaucracy, more hops you need to jump through to start a business or enforce a contract, as benefitting anyone other than the bureaucrats who create these rules in the first place. Indeed, when adjusted for differing GDP per capita levels, there is a strong correlation between a country’s place on the Doing Business rankings and its reported incidences of bribery/corruption, presumably because the more regulations you have the more opportunities bureaucrats have to shake businesses down.

It is also highly objective. You look at the legal documents, count the number of steps and/or days required to set up a business or enforce a contract, and tally the whole thing. Necessarily more subjective assessments of the degree of corruption or the prevalence of the rule of law – important, but prone to bias – don’t enter the equation.

Well, the good news is that Russia has continued its strong trend of improvement since the start of Putin’s third term, and is now in the uppermost quintile of all the world’s economies in terms of ease of doing business.

wb-doing-business-2018-russia

This is especially impressive since the entire world has been getting far more business friendly in the past decade, as institutions such as this very index spur on even the more recalcitrant nations to adopt First World best practices (fewer pointless regulations).

Russia’s immediate neighbors now – France, The Netherlands, Japan, Czechia – are no longer cause to be ashamed, as was the case around 2010, when it instead neighbored models of bureaucratic efficiency such as India and Nigeria.

As we can see, Russia is now fully within the “range” of First World – not as business-friendly as the United States, with its age-old reputation for free-wheeling commerce, but more so than Italy, with its reputation for bureaucratic tyranny.

wb-doing-business-2018-brics

Since the mid-2010s, Russia has been doing far better better than its fellow BRICS members.

wb-doing-business-2018-eastern-europe

Russia is now also doing about as well as the average for Eastern Europe’s successful reformers – worse than free trade entrepot Estonia and libertarian nirvana Georgia, but at about the same level as Poland, Czechia, Kazakhstan, Belarus; somewhat better than Hungary, which has lagged on reform; and far better than in the Ukraine or in Uzbekistan.

Analyzing by subcomponents, only two sectors where Russia still does quite badly – worse than the global median – are in “Dealing with Construction Permits” and “Trading Across Borders,” both notoriously corrupt sectors of the Russian economy. They urgently need attention.

But otherwise, this is the sort of quiet but very real “reform” that Russia needs at the micro level, but that remarkably few of Putin’s liberal critics seem to notice.

Although Putin has formally failed to fulfill his ambitious 2012 election promise of climbing into 20th position on this ranking by 2018, an improvement from around 120th position to 35th position is still more than respectable.

 
• Category: Economics • Tags: Business, Russia 
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PAPER REVIEW

Kulivets & Ushakov – 2016 – Modeling Relationship between Cognitive Abilities and Economic


Abstract:

We propose that problem solving is the mediator between human competencies and achievements. Creation of goods and services is based on problem solving in design, production and delivery. The quality of problem solving depends on human competencies and, in turn, determines economic achievements. More importantly, the choice of problems to be solved creates or does not create the possibility for application of highly qualified labor and, as a result, for full-fledged realization of human capital. We propose a mathematical model based on these assumptions. The simulation reproduces most important traits of Lynn and Vanhanen’s (2002) findings. The simulation shows a non-linear growth of economic achievements with national IQ growth as well as an increase of between countries variance. Thereby the proposed model can serve as a satisfactory explanation for empirical data on links between national IQs and economic achievements.

It’s well established that there is a very close correlation between average national IQ and GDP per capita, especially when corrected for resource windfalls and Communism.

jones-iq-gdp-per-capita

(One such standard graph from Garett Jones).

However, there remain two additional results that correlational exercises cannot adequately explain:

  1. “First, the relationship between national IQs and income is not linear. As it was shown later this relationship can be well approximated by quadratic function (Whetzel & McDaniel, 2006). The mere assumption that more capable, competent and educated people produce better economic results is not sufficient to explain this specific finding.
  2. “Second, residuals of the regression of GDP on national IQ grow proportionally with the IQ. It means that in some high-IQ countries human potential leads to serious economic realizations while in others it is out of demand. So a comprehensive explanation of Lynn and Vanhanen’s data includes understanding of factors stimulating the use of highly qualified labor.”

So Sergey Kulivets, a mathematician at the Trapeznikov Institute, and Dmitry Ushakov, a psychologist at the Institute of Psychology RAN, created a model in which problem solving plays a central role to investigate these two puzzles.

They model a world composed of different countries, in which every resident has a “talent” with a bell curve distribution around different means. Each country has two types of people: Entrepreneurs and specialists. Entrepreneurs hire specialists to produce goods, the quality of which is determined by the talents of the specialists working on them. These goods are then sold on the international market, where any country can buy them. The “GDP” of each country is the sum of the income of its entrepreneurs, or the value of all the goods produced by the entrepreneurs within a country and sold in the international product market, during a set period.

ushakov-simulation-model

Here is how the model works:

  1. Each entrepreur chooses a task for solving. There are two types of tasks: “Threshold” and “open type” ones. Threshold problems require a minimum competence level to complete, but additional competence beyond that threshold offers no further advantages beyond that minimal point; the value of the solutions to open problems increases with the talent of the specialists allocated to it.*
  2. The entrepreneur hires specialists from his own country to perform that task, attracting specialists by offering higher salaries for more competitive candidates.
  3. The entrepreneur produces goods. Quantity dependent on number of workers and money allocated to them; quality depends on the competence (talent) level of the hired specialists.
  4. The entrepreneur sells the good on an international market, competing with other enterpreneurs on price and quality.
  5. Income from this goes to entrepreneur, which in turn – after subtracting production costs and salaries – determines his budget for the next round of problem solving.

Consult the paper for the specific formulae used to describe task selection, the labor market, and the product market.

Towards the end, K&V compare their theoretical models against Lynn and Vanhanen’s. They match up near perfectly.

ushakov-simulation

Competence: I; Development: D.
Left: Lynn & Vanhanen 2002; Right: Simulation results.

Also one can observe that K&V get a nicer fit than L&V, presumably because the Communist legacy (negative outliers) and resource windfalls (positive outliers) aren’t modeled.

ushakov-budgets

Over time both consumers and entrepreneurs become much richer in competent countries relative to incompetent ones, as the “rise in entrepreneurs’ income influences the consumer income through salary rises.”

In this model, entrepreneurs choose tasks in a random way; unsuccessful ones are abandoned, while those that bring a return continue to be produced. As K&V note, if the quality of entrepreneur predictions as to the profitability of various tasks were to also depend on competence levels, then this cognitively-determined pattern of the wealth and poverty of nations can be expected to be even starker.

However, they do end with a cautionary note of some relevance to today’s political economy: Our model is based on the assumption that entrepreneurs’ income comes from organizing people to produce goods and services. This mechanismfunction is impaired if natural rent becomes the main source of profit.

* Incidentally, I would note that this division is justified by and reinforced by Garett Jones’ theory of the O-Ring sector: “I posit that there are two kinds of jobs: O-ring jobs where strategic complementarities to skill are large, and a diminishing-returns Foolproof sector, where two mediocre workers provide the same effective labor as one excellent worker… In a world where countries vary only slightly in the average skill of workers, these assumptions are sufficient to generate massive differences in cross-country income inequality while generating only small amounts of intra-country income inequality.

 
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unsolved-socialism-problem

The latest in our series of translations of Russian national-conservative thinker Egor Kholmogorov.

Translated by: Fluctuarius Argenteus; slightly edited by AK.

Original: http://zavtra.ru/blogs/pravoslavnyij-sotsializm

***

Socialism Not Dead: Paradoxes of an Unsolved Problem

It may seem strange that, at the turn of the 21st century, the word “Socialism” is back in the popular political idiom. The final decade of the preceding century seemed to have been the time of its complete (and, so it would seem, irreversible) annihilation.

Soviet-style “Real Socialism” ended in a pathetic disgrace, striking its colors at the sight of a sausage pointed at its heart. Who would have thought that churning out missiles, dams, and factories wouldn’t be enough to sustain a planned economy based on communal property? It was also necessary to grant the Socialist people access to consumer goods at least remotely comparable to those available under Capitalism; otherwise, falling behind not only in living standards but also in technology became inevitable. Soviet Socialism collapsed under the weight of this contradiction, while China enacted reforms so deep that, while looking at Chinese billionaires, one can’t help but wonder whether it’s still Socialism or a “Red Capitalist” oligarchy of the Chinese Communist Party – quite probably no worse than any other oligarchy in history.

Meanwhile, the Capitalist world with its triumphant Liberalism seemed to have scored a doubtless moral victory. Not only did it outpace Socialism, it completely consumed it. All more or less sensible Socialist ideas were incorporated into the structure of the “welfare state”, leaving “Real Socialism” with such dubious achievements as complete socialization of property or pedantic ideological censorship. Socialism appeared to have been entirely devoured and digested by a Capitalism that had reached in this struggle a new stage in its historical evolution.

A quarter of a century after this victory over Socialism, the foundations of the global Liberal order are more and more visibly shaken. Within the US Democratic party, Hillary Clinton’s Liberalism, oriented at racial and sexual minorities, has been challenged by “Democratic Socialist” Bernie Sanders who is cajoling White American workers into rising against the 1%, the Wall Street loan sharks. Socialist? US Presidential candidate? Early 21st century? It seems patently absurd. Meanwhile across the pond, the Labour party in the UK eschewed fine-looking bureaucrats in favour of Jeremy Corbyn, a Socialist, an anti-militarist, and general diehard Leftist. One of his first acts as leader of the Shadow Cabinet was creating a committee for a new economic policy, including such anti-inequality fighters as Thomas Piketty and Nobel Prize winner Joseph Stiglitz.

All of a sudden, we not only see a ressurection of Socialism in two of the leading countries of the Capitalist world, but positioning itself as a powerful political political alternative to the dominant Liberal mainstream. If we take into account that this mainstream is also under attack by right-wing populism of the likes of Donald Trump and Marine Le Pen (the program of the latter replete with anti-Capitalist and anti-Globalist vocabulary), the Liberal “end of history” seems to have ended quite rapidly. If this wave hasn’t reached us yet, it is only because both our Liberalism and our Capitalism are quite peculiar, and our political system doesn’t operate under Western-style rules. However, one cannot completely shut oneself off from a revolution of ideas, and it seems likely we will soon hear the march of a new Socialism here in Russia.

What is the cause of this 2010s Socialist re-revolution? The return of economic conditions that had caused the heyday of Socialism in the 19th century and were drastically changed in the 20th. The driving force of the Socialism of two centuries ago was a contradiction between the ideals of civil liberty and equality brought about by the French Revolution and the Enlightenment, and an absolute economic inequality typical of ancien régime Europe. The latter became more prominent and intolerable at the start of the Industrial Revolution, when hundreds of thousands of proletarians became concentrated in the stench and stuffiness of the working-class suburbs of developed countries.

Liberalism was faced with a monstrous and insoluble contradiction: why, after declaring human rights and liberties in thought and politics, giving equal rights to all social strata and doing away with the feudal ladder of estates, should it remain the guardian of a gap between wealth and misery, the protector of economic inequality? The situation of defending equality in the sphere of ideas, less important for most of the people, and championing inequality in the sphere of the stomach, of much greater everyday importance, seemed entirely ridiculous.

Excuses invented for explaining why some people are poor and some rich pushed those who considered this to be an injustice to certain solutions. “Private property is inviolable, you have no right to infringe upon it, therefore, you dare not touch the wealth of others,” said the wealth apologists. “It simply means that property is theft, and it must be destroyed or redistributed to close the gap between wealth and poverty,” replied the champions of the poor. “Liberty is not the equality of results but that of opportunities. We should be equal at square one, and then let each one gain according to his energy and talents,” said the wealth apologists. “Then we should socialize the work effort, and then we’ll have a common result: From each other according to their ability, to each other according to their needs. Also, let’s create truly equal opportunities, because the prospect of equal chances for millionaires and have-nots is a bald-faced lie,” replied the champions of the poor.

The ideas, methods, and moral high ground of the Socialism of yesteryear stemmed from a European yearning for equality, described by Alexis de Tocqueville, and the angst caused by the monstrous material inequality in the Europe in an age when the gaps between wealth and poverty were insurmountable. These gaps are the subject of a spirited dialogue between a young Rastignac and a cynical, conniving Vautrin in Honoré de Balzac’s Le Père Goriot. Vautrin explains to Rastignac, then a young idealist, that his chances of making good money thanks to learning, personal qualities, and industriousness are equal to zero. The only way of winning a fortune is getting it from somebody who already has it, by way of inheritance or marriage. The only way of becoming rich is being rich.

The world that spawned most Socialist theories, especially those of Saint-Simon, Proudhon, and Marx, was not a liberal world of free competition and equal opportunity. It was a polarized world devoid of a middle class: the 1% of haves and the 99% of have-nots.

What did this mean in practice? All talk of alleged opportunity in life granted by a Liberal version of Capitalism seemed naught but a myth. Big money was a magnet that attracted even bigger money. The lion’s share of national income, regardless of the pace of its growth, was distributed in the same proportion that was fixed in the structure of national capital. Simply put, those who controlled the majority of wealth gained the majority of income while making little to no effort.

America was the sole exception, with a lower concentration of wealth and a higher share of income distributed through free competition. Hence the image of the USA as a Promised Land, a land of opportunity, a magnet for migration. A good way of making money in Europe was moving to America (with the possibility of returning to the Old World with newfound wealth in tow left open).

No industrial growth, no Socialist attacks on the government or the bourgeoisie could change anything in the structure of this world until the start of World War I. This explains the revolutionary character of European socialism and the borderline utopian radicalism of its proposed solutions: Total socialization of industry, expropriation of the ruling classes, dictatorship of the proletariat, dreams of a World Revolution.

piketty-capital-income-ratio-europe

Source: Capital in the 21st Century by Thomas Piketty. Not part of Kholmogorov’s article.

This World Revolution did come to pass – but it started not in 1917, but in 1914. As brilliantly demonstrated by Thomas Piketty in Capital in the 21st Century, the Great War kickstarted a default of old European wealth. The horrors of war, the collapse of world trade, the Russian Revolution with its devastation and expropriation of the wealthy classes, the defeat and hyperinflation in Germany and Austria, the demographic crisis and budget deficit in the UK and France, the impeding dismantlement of colonialism – all of this led to a catastrophic decline in capital concentration in Europe.

piketty-russia-inequality-history

Source: From Soviets to Oligarchs: Inequality and Property in Russia 1905-2016 by Filip Novokmet, Thomas Piketty, and Gabriel Zucman (2017). Not part of Kholmogorov’s article.

The revolutionary role of Russia, whose bourgeoisie was sacrificed at the altar of transformation, consisted not so much in socializing property and launching the Socialist experiment as in crashing the world rent. The enormous Russian debt that had fed millions of rentiers all over Europe turned into dust in the blink of an eye and doomed the rentier civilisation to extinction.

From the 1920s to the 1940s, the level of capital concentration in the world capitalist system continued its decline. Contributing factors included the Great Depression that had finally made its way to America, the devastation of World War II, the post-war wave of nationalisations, and tax deductions for national reconstruction. The ratio of capital to national income fell from 6:1 under the old regime to 2:1, i.e. the entirety of concentrated capital (be it in the form of real estate, shares, or foreign assets) became equal to only two years’ worth of national income.

What were the socioeconomic consequences of this Great Default? The grip of Capital loosened, its magnetic effect wasn’t as far-reaching, and the problem of economic equality was tackled within the framework of global Capitalism, without employing the radical recipes of fin de siècle Socialism. More precisely, those radical recipes were relegated to countries that were lagging behind in industrial development, such as Russia and China. The main goal of this radicalism was a wilful, determined achievement of an industrial breakthrough. Socialism in so-called Socialist countries was most concerned with productivity and not wealth redistribution.

Western countries, however, having no need for a “great leap forward”, were able to afford the luxury of a “Socialism sans Socialism”. Social Democracy, Christian Socialism, Swedish Socialism, Social Reformism all followed the same model. Without abolishing private property as such, without creating a dictatorship of Leftist parties, by limiting themselves to a selective nationalisation, they achieved economic equality by fostering a system of high wages and a well-developed social sphere, ushering in the welfare state. Essentially, it was a huge Ponzi scheme organized according to Keynesian precepts: The state took away a sizable portion of incomes via taxation in order to redistribute this money, also as income but under a more egalitarian distribution.

This was the zeitgeist of the treinte glorieuses of 1945-1975, when all Western governments followed, with slight variations, a single socioeconomic policy targeted at bringing social inequality as far down as possible, raising national income redistributed as salaries to the detriment of rents, dividends, etc., and widening the social responsibilities of the state. It was the age of a rising middle class, the 40% that follow the 10%-strong strata of the wealthy; this class laid claim to 30-40% of national wealth as opposed to just 5% before World War I. The 50% of the poor were stuck with the same 5% as before, but at least they gained a much greater chance of breaking out of poverty by dint of education, good work, entrepreneurial spirit and general savvy.

The social lifts seemed to be working. A peculiar anthem of the era is Chuck Berry’s tongue-in-cheek 1964 song You Never Can Tell, the accompaniment to John Travolta’s and Uma Thurman’s wild gyrating in Pulp Fiction. It’s the story of a young Black couple from New Orleans that makes decent money, buys a house, mail-order furniture, a fridge, a phonograph, even a used jalopy… New capital growth was slow but steady, not in the form of rent or foreign bonds but mostly as real estate, shares and equity.

The most positive Soviet-era memories of those who were impacted by the system are based on largely the same processes, just disguised with red banners and “Glory to the Communist Party” posters. The income levels of Soviet workers were incommensurably lower, as was the quality of consumer goods offered by the market (it took a long time to realise that the Western market of the era was just a mechanism for redistributing wealth that was gained through not entirely market-based means). However, the Soviet system was infinitely more helpful with regards to restoring and accumulating… capital. It was even explicitly called “capital construction.” Most Soviet citizens were granted, entirely free of charge, real estate that was worth many years of individual income and still commands an impressive market price. And so construction proceededly rapidly apace to build the cosy, even slightly bourgeois world of 1970s Soviet comedies.

The Socialist system, like that of the West, followed the route of reconstructive capitalism. Meanwhile, Socialism as an idea gradually fell out of favor over the 20th century as its main raison d’être, inequality, disappeared. The semi-Socialist policies of Western countries created a perfect model village of Capitalism: Low inequality levels, broad opportunities, intensive social lifts, high levels of welfare, a wide availability of consumer goods thanks to a developed and flexible market. All of it seemed like a brilliant alternative to Socialist experiments: Socializing not wealth, not industry, but revenue, redistributing it so that everyone could decide where to spend it within a wide spectrum of options.

An ideal world of freedom and equality finally seemed to be within grasping distance. It also had a place for racial and gender equality, the 1960s becoming a triumph for equal rights activists of all stripes. At the same time, Socialism was quagmired in internal antagonism, the total control of the state eroding all freedom and neutering the enjoyment and variety of everyday life.

piketty-top-income-tax-rates

Source: Capital in the 21st Century by Thomas Piketty. Not part of Kholmogorov’s article.

However, the economic developments of the treinte glorieuses were the gravedigger for both Soviet Socialism and Western Welfare Capitalism. They signed their own death warrants themselves. A natural accumulation of capital was underway, via saving a part of income in the West or direct capital giveaways by the state in the USSR. But a feature of capital is that it “magnetizes” and draws income. The owner of capital tends to rent-oriented, not work-orientated, behavior. This “capitalist” wants to gain interest and rent, to make his capital inheritable, to pay the lowest taxes he can, and thoroughly despises the have-nots whose claims to a share of his income seem to him most outrageous.

The late 1970s saw the rise of a new Capitalism with many faces, from British Thatcherism to US Reaganomics to the waves of privatization that swept away the Soviet system and its socialist economy. It was a massive uprising of capital that wanted back its right to extract revenue and spend it on itself without sharing with society. Just like the pendulum swinging towards Socialism in the early 20th century, its return towards pure Capitalism at the end of the century was most pronounced and most socially destructive in Russia. A savage, dog-eat-dog oligarchic Capitalism that took sway in the country freed itself from practically all burden of social responsibility. It was a tyranny of wealth limited only by the garrotte in the hands of thugs, be they mafia racketeers or bureaucrat raiders.

However, it would be unreasonable to claim that the nature of the processes that transpired in those decades was drastically different in Russia, Europe, and the US. It was a time of large predatory fortunes, scams and profiteering, social polarization, and growing inequality everywhere. Americans and Western Europeans, accustomed to slogans of “equal opportunity,” suddenly once again found themselves in the era of Rastignac, when the only way to get rich – was to be rich. Also, the very notion of wealth had changed: It was no longer a reasonable, comfortable prosperity, but a blatant, tacky luxury.

In The Price of Inequality, Stiglitz describes the behavior of modern American business as “rent-oriented.” Nobody wants to improve real economic indices, nobody wants to make money, everybody wants to live as a rentier off unfounded bonuses, “golden parachutes,” and other forms of self-financing so common in American corporations. Is it that different from Gazprom cleaning women?[1]

At the other end is the growth of inflamed poverty: according to Stiglitz, the life expectancy of US White men with no college education is plummeting at the rate of 1990s Russia. Over the last 15 years, everyone and their mother have talked about the “death of the middle class.” Piketty projects that at the current rate of increasing inequality, Europe will return to 19th century levels by 2050: 10% of the population will own 80% of capital, and 60% of all income.

The society built by the global anti-Capitalist uprising of the early 1900s is becoming a thing of the past, as is faith in market-based self-regulation of Capitalism, allegedly evolved enough to solve social issues. It turns out that self-regulation played no part whatsoever, and the growth of economic equality occurred due to a catastrophe that had wiped out the “old money,” paving way for a unique Social-Capitalist system. Conversely, growing capital concentration, seemingly normal for a self-regulating capitalism, simply reproduces inequality.

A Neo-Socialism is the natural response of a society that enshrines equality to the emergence of a new inequality. Will it be different from classic Socialism? It will be, and rather strongly so.

Destruction of private property and socialization of the means of production proved to be a rather dubious road to Socialism. In practice, they only led to the creation of a new class – the nomenklatura, a decline in individual initiative, logistic and planning errors leading to shortages and even famines. And, in the long run, they failed to prevent the restoration of Capitalism in its most savage incarnation. In addition, small-scale private property continued to develop even if when it all private property was nominally abolished.

The utopia of complete socialization is opposed by the following fact: As material progress unfolds, a human being demands more, not less space for individual existence and self-expression. The ideal of a normal human, as it turns out, is his own house, not an army barracks. Collectivism invariably leads to a tyranny of mediocrity and dooms the societies that adopt it to backwardness in scientific-technical development.

Under these conditions, Neo-Socialism presupposes, above all, the socialization of income and prohibitive measures on capital concentration. The world of future Socialism is a world where all offshores are annihilated and each and every fatcat is subjected to high income and property taxes, with inheritance laws hampering the transfer of super-wealth. This nullifies the magnetic effect of large capital, and most of income is redistributed as wages in the context of free labor and a free market. From an instrument of optimizing income, the market turns into an instrument of optimizing expenditure.

Here, however, the New Socialism faces several classic pitfalls, already singled out by Joseph Schumpeter in the mid-20th century. The impossibility of super-wealth, limiting unfair and imperfect competition, monopolism, and profiteering lead to the waning of that very entrepreneurial spirit that nurtures the Capitalist economy. There will a dearth of those interested in starting a new business to beat all competitors and make a nice buck. And, needless to say, an “inventor and innovator” certificate[2] is a feeble substitute for super-incomes.

The only remedy to entrepreneurial crisis within Neo-Socialism could be a change in business philosophy: Stop chasing big money and instead take pride in the individuality of your business, its attractiveness and social relevance. This, however, only works for small and middle-sized businesses, while bigger enterprises require investments (including non-returnable ones) and risks so enormous that a small-time businessman can only afford it if he is aiming for a super-income. An alternative is a planned, state-run innovation policy, a “Communism of ideas” that will be of dubious long-term efficacy.

A society that guarantees a relative equality of income would be doomed to low economic growth. However, it is precisely the form of economic growth stabilization – especially within the core of the Capitalist system – envisioned by Neo-Socialist economists, Piketty above all.

Another question inevitably brought forward by Neo-Socialism is its relations with globalization. In a Neo-Liberal world, globalization is a world market system that forces the expenses of wealthy and developed countries on the poor and undeveloped by creating “common markets” that stifle economic development. They confine poor countries to the lower stages of technological chains while keeping the rights to ideas and the final product in the hands of developed countries. This is exactly the principle of the Transatlantic and Trans-Pacific Partnerships, modern attempts to cement the eternal commercial dominance of the US.[3]

An alternative to this economic globalism is economic Nationalism; the greater the drop in economic growth and surge in inequality, the more that will it be visible. Countries with independent industrial potential and inner market resources will isolate themselves from the rest of the world as much as they are able to, from imports to economic immigrants, in order to maintain their development level despite in spite and at the expense of others.

This Nationalist alternative is seen as the greater threat to the Neo-Socialist project. Its defenders keep putting a lot of effort into criticising Nationalist and Protectionist ideas and rallying to the defence of Smithian dogmas of “relative advantage” that lead to international division of labor and creation of common markets.

Nevertheless, preserving global markets under a Neo-Socialist policy would require a serious “leveling of fortunes” everywhere on the planet. Wealthy countries, much like wealthy people, would be compelled to spend most of their wealth to improve the living standards of the poor up to a certain “golden mean.” According to modern GDP per capita statistics, it would be represented by the living standards of a Turkey or a Mexico – probably even lower in reality, because rich countries create much of their GDP and national income by virtue of being rich. Were they to be more modest in their lifestyle, much of their national product simply wouldn’t be produced.

Is it possible to downgrade the living standards of rich countries and prop up the poor ones to even slightly reduce global inequality? One may well doubt this, especially considering that for most of humanity, it is the quality of life in the developed countries that really matters, not the tyranny of averages. Everyone in the world dreams of a Lexus, not a Zaporozhets.[4]

And now we re-encounter a fundamental contradiction within the Socialist dream. It is inspired by a global historical trend towards equality and social justice, but the justice in question turns out to be a tyranny of mediocrity, the erasure of extremes of arrogant wealth and abject poverty. But how is the value of this justice comparable with the imperative of development that presupposes certain extremes? To move forward, one must desire to be the best, which is impossible without a certain, sufficiently wide score chart – even if it comes at the expense of others.

Combining the values of justice and equality with the values of development is a task yet unsolved by the New Socialism.

***

Notes

[1] Allusion to a news item at around the time of this article’s writing featuring a woman employed as a cleaner in the Gazprom office who had reported the theft of her Christian Dior handbag worth $26K.

[2] Allusion to the Soviet practice of rewarding technical and industrial innovators with honorary diplomas and certificates, as opposed to patent rights or other, more substantial awards.

[3] A cheap rear-wheel-drive supermini mass-produced in the USSR (and then, briefly, in independent Ukraine) in 1958-1994 that became a byword for shoddy, uncomfortable, and breakage-prone cars in (post-)Soviet culture.

[4] On January 23, 2017, the US announced its withdrawal from the Trans-Pacific trade agreement.

***

Translator’s Note

The article was written in April 2016 and reflects the political and economic situation of the era.

 
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graph-iq-gdp-per-capita

There are three main reasons why the correlation between national IQ and GDP per capita is only around r=0.7, instead of r=0.9.

Oil/resource windfalls: Saudi Arabia would otherwise be about as prosperous as Yemen.

The legacy of Communism: Central planning and especially the lunacy that is Maoism are far less effective than free markets.

The legacy of Malthusianism: This is the most subtle factor, but it used to be very important. Countries like China, Japan, and to a lesser extent India used to be stuck in a high-level equilibrium trap; quite intelligent and productive, but unable to accumulate capital surpluses due to almost everyone being at the limits of subsistence.

This was not the case with relatively land-rich Latin America, where escaping from the Malthusian trap was easier. As a result, the degree of human capital there has long correlated much better with the region’s wealth. (Argentina even had a resource windfall effect around a century ago).

But all these factors will diminish in the coming decades!

Practically everyone outside Sub-Saharan Africa has more or less escaped the Malthusian trap.

Communist regimes have nearly all collapsed, leaving just a few relics like Cuba and Best Korea as monuments to failure. Moreover, over the long term, we can expect institutions everywhere to get better, as different countries adopt established best practices – occasional backsliding as with Venezuela regardless.

The impact of resource windfalls – apart from a few exceptions (e.g. Botswana – diamonds), we’re speaking about oil – will likewise decline. Technology has conquered Hubbert’s peak from the supply side, and soon enough, electric batteries are going to cut in from the demand side.

map-usa-automation-risk

Even today, it is presumably not an accident that the countries with the most developed automation in manufacturing – Germany, Switzerland, (Northern) Italy, Japan, South Korea, parts of the United States, and increasingly, China – are those where the core populations have 100-105 range average IQs.

The coming automation of more and more sectors of the economy, including services, will impact disproportionately on low IQ jobs, so the impact on economic performance of average IQs – and especially smart fractions – should if anything increase even further.

The one thing that could throw a wrench into this – sort of – is if countries were to begin randomly adopting large-scale intelligence augmentation at highly differential rates (e.g. via CRISPR + genomics of IQ). But it isn’t likely to be random. It will almost certainly be the richest and least superstitious/obscurantist countries that will adopt these technologies first, and both of those factors are already highly correlated with IQ.

 
• Category: Economics • Tags: Automation, Futurism, Human Biodiversity 
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lenta-russian-billionaires-2014

In 2014, Lenta.ru conducted a study into the ethnic composition of Russia’s billionaires. (Steve Sailer picked it up as well). The observation that Jews constituted 21% of the Russian Forbes 200 predictably drove handshakeworthy journalists, Jews, and especially Jewish journalists into a tizzy (as I recall, when I asked him when he was also going to condemn Forbes Israel, which also loves to count Jewish billionaires, that was when anti-Russian hack Ben Judah blocked me).

The hysteria concealed real failings in the article. There was no clear methodology. Furthermore, the numbers of Ukrainians in the ratings seemed vastly inflated. They supposedly constituted 12% of Russian billionaires, even though most of them were nothing of the sort; the analytical team seems to have just consigned everyone with a surname ending in “ko” to the Ukrainian race. This makes about as much sense as counting Donald Drumpf as a German oligarch in America.

Still, some general trends could be clearly discerned. Russians – that is, Russians and Russians misattributed as Ukrainians and Belorussians – consituted about 66% of the list’s members and almost exactly half of the combined capital of $481 billion. Jews and Mountain Jews constituted 24% of the list, and had 28% of the capital. All of the rest belonged to Caucasian and Muslim minorities. Notably, there were no traditionally Buddhist/animist Siberian minorities on the list.

top-10-russia-billionaires-2017

In recent days, the blogger Ivan Vladimirov, who produces excellent data-heavy material on Russian demographics, published a similar census based on the spring 2017 edition of the Forbes 200 for Russia for the nationalist journal Sputnik and Pogrom: Who Owns Russia?

Here are some of the more pertinent take-away points:

1. First, he notes that state ownership is now at 70% of the Russian economy, twice its share 10 years ago, so in actual fact, the real “owners” of Russia are now the curators and appointed directors of its state behemoths, such as Igor Sechin (Rosneft) and Alexey Miller (Gazprom).

2. Unlike Lenta.ru, he goes into some detail into his methodology:

  • No “svidomy zmagars” – all the billionaires with distant Ukrainian or Belorussian ancestors are assumed to be Russians by default.
  • Nationality is passed on down the paternal line, including with the Jews.
  • Unless they have openly declared they identify more with another aspect of their ancestry. For instance, Petr Aven (head of Alpha Bank), despite being a Latvian-Russian métis through his father, identifies more with his Jewish maternal grandmother and belongs to Jewish organizations, so he’s considered to be a Jew.
  • No presumption of Jewishness or non-Jewishness based on just the name since there are too many false positives.

russia-billionaires-2017-ethnicity

3. Now we come to the actual numbers – out of the Forbes 200 and their cumulative $459 billion in assets:

Russians constitute 127 (63.5%) of the people in the list, including 57.4% of the capital.

Jews have 41 (20.5%) people in the list, with 24.8% of the capital.

After those came Armenians (7), Tatars (6), Azeris, Chechens, and Ingush (3 each), and two Uzbeks, though one of the latter, Alisher Usmanov, is the fifth richest billionaire in Russia and has a relatively “interesting” public profile (a spat with Navalny; funding Western race realists).

4. Vladimirov also notes that the Russian billionaires tend to have a very low degree of national consciousness.

For instance, Evgeny Kaspersky’s comments when asked if he had any Jewish ancestry on a visit to Israel:

I searched and searched, alas, I did not find… I got the name from Polish peasants, who during the uprising in the 1860s emigrated somewhere under Nelidovo about 300km from Moscow. There they married into Russians (that is, Slavic, Tatar, Polovtsian and whatever else constitutes “Russian” blood from in me). By mother is from the Tambov peasants. But this is the most interesting thing. Tambov was inhabited by soldiers who served their lives in various places. And soldiers sometimes came with brides from the most different places. And according to indirect data – I have roots from Scandinavia and Persia. But from Israel – alas, no… Although who knows?

This is, of course, nonsense from a population genetics standpoint. But one of the tropes of Soviet/Russian multiculturalism is that Russians are mulattoes up and there is no such thing as a Russian anyway. And the Russian elites respect this legacy, after as they’ve long done away with the economic aspects of Soviet dogma.

In fairness, this multicultural spirit likewise applies to Russia’s Muslim elite. He cites the example of Mikhail Gutsuryev, who sits on the Board of Trustees of the Jewish Museum and Center of Tolerance, while at the same time funding the construction of synagogues, Orthodox churches, and mosques. Or Lukoil head Vagit Alekperov, an Azeri-Russian, who renovated the main Russian Orthodox church of Imperial-era Baku, and prefers to keep his silence on matters of religion: According to a NYT profile of him from 2004, he “prudently keeps leather-bound copies of both the Koran and the Bible at his office, to allay any concerns that he prefers one almighty to another.”

5. I also noticed that Russia’s statistics are rather similar to America’s.

In the US, North-West Europeans make up 51% of the members and own 56% of the cumulative assets in the Forbes 2010 list – this is almost identical to the figures for Russians in Russia, though on the other hand, this demographic group only makes up about 50% of the US population (non-Hispanic Whites minus Greeks, Italians, etc.), whereas Russians constitute 80% of Russia.

Jews own about a quarter of Russia but more than a third of the US – that said, they only make up 0.1% of the Russian population, versus 2% of the US population. That said, as Vladimirov points out, the more relevant indicator would be their 0.5% share of the Soviet population c.1989.

It is also interesting to note that “southern” diasporas, which in Russia’s case are Caucasians (Armenians, Azeris, Ingush, and for that matter, the Jews), are relatively more successful in commerce/becoming billionaires in Russia. This is also true for the US, where Italians, Middle Easterners, and Greeks are overrepresented as a share of the population. This is even though with the exception of the Jews, who are massively overrepresented, their IQs are no higher than those of WASPs or Russians, and possibly noticeably lower. I have speculated at times whether this “commercial trait” of people with Near Eastern/East Med ancestry could have developed as a consequence of their unrivalled length of experience with urban life and the associated haggling, bartering, etc. skills it selected for over the millennia.

 
• Category: Economics • Tags: Billionaires, Russia 
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East-Central Europe – the Visegrad nations and the Balts – are commonly considered to have had far better post-Communist transitions than Russia. They started earlier, and from a more privileged position; in contrast, the Soviet economy was more distorted in the first place, and there were no living memories of prewar capitalism. They got more economic and institutional support from the West. There was no haphazard rush to privatize state assets, preempting the development of a powerful oligarch class that in Russia’s case has become a byword for sleaze and boorishness.

One positive result of this was a generally much lower degree of income inequality than in Russia.

europe-gini-index

This conventional view is mostly true.

However, as Leonid Bershidsky has just pointed out, citing a recent research paper by Thomas Piketty et al., there is a small catch.

Finally, the large negative foreign asset positions of Eastern European countries should obviously be put in relation to the fact that these countries have adopted a development strategy based upon economic and political integration within the European Union. Eastern European countries are largely foreign-owned, but the owners tend to come from EU countries (in particular from Germany). So in some sense it is not entirely different from the situation of peripheral regions that are being owned by more prosperous central regions in a large federal country.

It is also worth noting that these patterns of foreign ownership also have consequences for the study of domestic inequality. In particular, as demonstrated by Novokmet (2017), the fact the holders of top capital incomes tend to be foreigners rather than domestic residents contributes to lower top income shares in countries like the Czech Republic or Poland or Hungary (as compared to countries like Russia or Germany). I.e. foreign owned countries tend to have less domestic inequality (other things equal).

In other words, a lower net international investment position – all other things equal – should result a country having lower inequality by dint of their 1% being foreigners.

niip-eastern-europe

The two major exceptions in the ex-Communist world are Russia and China.

Finally, it is interesting to compare ex-communist countries with respect to the importance of foreign assets (see Figure 7d). It is particularly striking to contrast the case of Russia and China, which both have positive net foreign assets (i.e. these two countries own more assets in the rest of the world than what foreigners own in Russia and China), and Eastern European countries, which all have hugely negative net foreign assets (i.e. these are largely foreign-owned countries). These differences are partly due to differences in economic and natural endowments. In particular, it makes sense for countries with large (but not permanent) natural resources such as Russia to accumulate trade surpluses and foreign reserves for the future.

Certainly Russia’s resource endowments helped and perhaps made it possible, but there was also a political element to it. Even under Yeltsin, the Kremlin had always been loathe to privatize state corporations to foreigners, even though they managed them better than either the state or domestic oligarchs.

One explanation is that privatization was unpopular enough, and selling off assets to foreigners would have made it even more politically untenable. A more cynical interpretation is that foreigners were harder to influence or to provide the kickbacks and favors their benefactors in the state expected for their largesse.

Be that as it may, Russia (and China) developed national oligarchies, whereas Visegrad and the Baltics ceded theirs to the established oligarchies of Mitteleuropa.

Finally, the large negative foreign asset positions of Eastern European countries should obviously be put in relation to the fact that these countries have adopted a development strategy based upon economic and political integration within the European Union. Eastern European countries are largely foreign-owned, but the owners tend to come from EU countries (in particular from Germany). So in some sense it is not entirely different from the situation of peripheral regions that are being owned by more prosperous central regions in a large federal country.

Ergo for Belarus and the Ukraine (!) with respect to Russia. (Despite everything that’s happened since 2014, Russia remains the biggest foreign investor in Ukraine).

Now as Bershisky goes on to point out, while foreign ownership has its benefits – institutional integration, better management, etc. – there is also a price to pay: A loss of sovereignty.

It’s not really a choice; Eastern Europe will eventually need to champion integration, just as it once championed membership. My own view is that eventually, it will no longer matter where a European company is headquartered because a united Europe will have a common budget, and economic cohesion will become inevitable. Nationalism may be having a moment, but it’s too late: The Eastern European countries have been open to investors for too long, and they’ve lost too much control over their economic future to hold on to political control.

Of course opinions on the desirability of this will differ.

As an immigration optimist who had a hysteric fit on Twitter over Brexit, we can be pretty sure that Bershidsky will see this as a good thing.

That said, Bershidsky might be jumping the shark here. As the Ukraine has shown, if there is sufficient political will, an economic “colony” can well defy its foreign owners, despite the economic cost of it (a 15% collapse in GDP). On the other hand, could Muslim immigration really be the hill on which Eastern Europe’s populists and Brussels skeptics make their last stand? After all, multicultural enrichment is a process that takes years if not decades to get noticed and to start having a marked effect on natives’ lives, whereas the loss of Crimea and the Donbass – and the ensuing threat to Ukraine’s continued statehood – was a much more sudden jolt.

In the lack of any such highly visible state of emergency, it is easy to imagine the East Europeans taking their hush money and piping down.

 
• Category: Economics • Tags: Eastern Europe, Inequality 
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According to the latest estimates, Russia might harvest as much as 133 million tons of grain this year.

russia-grain-production

This would make 2017 a record harvest not just by post-Soviet standards, which were pretty dismal until the past decade, but relative to the RSFSR’s peak of 127.4mn tons in 1978.

(This is the case even after adjusting for Crimea’s absence from the RSFSR after 1954, since the parched peninsula only produces about a million tons of grain per year).

The US Department of Agriculture predicts that Russia will overtake the US and the EU to become the world’s largest single wheat exporter in 2017, accounting for a sixth of the world’s total and recovering its old Tsarist status as one of the world’s great breadbaskets.

world-grain-exports

Incidentally, if it were to also recover its Tsarist era borders, especially the Ukraine and Kazakhstan, it would account for about a third of world wheat exports.

One of the big proximate reasons for this are recent economic developments. Few sectors of the Russian economy have gained as much from the ruble devaluation and the sanctions as agriculture.

However, there are strong secular trends that Russia’s new breadbasket status is here to stay.

The world population is growing, and the climate is warming. This will raise global demand for calories, channeling investment into Russian agriculture, even as crop yields go up thanks to longer growing seasons and more atmospheric CO2, and previously inhospitable lands are opened up for agricultural exploitation.

burke-temperature-economy Russia is predicted to economically benefit more than any other country from global warming, and relatively speaking, agriculture can be expected to benefit more than any other sector. Meanwhile, conviently, major competitors such as Australia and the US will be wracked by droughts.

Russia is no longer the Soviet Union, where grain imports were running at 30 million tons by the 1980s – that is, about as much as just Russia by itself now exports – and draining the country of foreign currency. There are now many agricultural conglomerates competing in a free global market, responsive to price signals and intolerant of waste (about a quarter of the Soviet potato harvest rotted away in transportation). This is an opportunity that Russia will continue to exploit.

Minister of Agriculture Alexander Tkachev has suggested that in the future, Russian export earnings from grain exports may come to equal or even eclipse those from hydrocarbons, in effect fully returning Russia to its foreign trade position during late Tsarism.

This is unlikely any time soon. Even as late as 2015, Russia exported a total of $7.4 billion of crops, which is not only an order of magnitude lower than its $189 billion worth of hydrocarbons and minerals exports, but is not even sufficient to cover its $9.3 billion worth of crop imports (primarily vegetables and tropical crops like coffee and citrus fruits).

Nonetheless, both the global prices for and Russian production of grains is likely to continue soaring in the decades ahead. Meanwhile, the outlook for oil is far less certain. While the supergiants continue depleting rapidly, new extraction technologies have postponed the oil peak for an indeterminate number of future decades, and electric cars will increasingly bite away on the demand side. So Tkachev’s vision is not altogether fantastical.

 
• Category: Economics • Tags: Agriculture, Russia 
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Results of the Pakistan Census are out and show that the population has reached 207,774,520 people as of 2017.

pakistan-census-2017

After hurtling past Russia around 2000, Pakistan has now just about converged with Brazil, which has approximately 207,932,000 people as of this year.

Considering that Pakistan increases by 4 million every year to less than 2 million in Brazil, it is very likely that it has already overtakenthe South American giant to become the world’s fifth most populous country.

population-russia-pakistan

Note that the UN Population Division estimated Pakistan’s population to be 197 million in 2017, or 10 million lower than the just released census figures.

Low-lying and impoverished Bangladesh is more commonly cited as the big country facing the greatest threat from global warming, but it has gotten its population growth under control to a far greater extent than Pakistan, and the effects of Greenland/Antractic melt on sea levels will take centuries or millennia to fully percolate.

But Pakistan might be in more of a immediate pickle (as in, within the next few decades). Unlike the other rivers of the Indian subcontinent, which are mainly powered by monsoon precipitation, the Indus is reliant on glacial runoff for the great bulk of its water flow. Will Pakistan be able to feed itself as those glaciers shrink over the coming decades?

 
• Category: Economics • Tags: Demographics, Pakistan 
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Africa has more than 50 political entities and more than a billion people with some of the highest concentrations of genetic and cultural diversity on the planet.

For every destitute failure like Niger, you have some country that bucks the stereotype and dispels some of the doom and gloom that predominates in HBD-realistic commentary about the “dark continent”. One of the biggest and most striking exceptions is Ethiopia, noteworthy as the only African country to successfully resist European colonization.

Reprinting Al’s comment from my post trying to counter some of the extreme skepticism towards Africa:

For a supposedly reality-based community, the HBDosphere has a major blind spot regarding where Africa is today and possible scenarios for its future. Africa has 55 countries; doom and gloom is not applicable to them all.

I’m in broad agreement with your major points, and I which to illustrate them with some examples from the one case I know best, and which has been mentioned in the comment thread. Ethiopia. I lived there for several years in the last decade as an expat, still visit regularly, have invested not only other people’s money, but my own, in there. This is going to be long, sorry.

First of all, keep in mind that Ethiopia is landlocked, has few useful minerals (just a little gold), has no oil and therefore must pay a hefty energy bill in imports, and as a very montainous place it is really difficult and expensive to build modern infrastructure. They speak their own language (Amharic) and, never having been colonized, don’t have the head start that other Africans have in speaking/understanding English or French. It’s also in an exciting neighborhood: Sudan (terrorism and civil war), South Sudan (civil war), Eritrea (formal state of war, tenuous ceasefire at the border), Somalia (’nuff said), Kenya (terrorism), Djibouti (only decent neighbor). That’s on top of whatever ancestral disadvantages it might possess on HBD grounds.

Someone expressed doubts about the increasing crop yields. They’re true. Ethiopia has been growing at or over 10% year-on-year since the turn of the millenium. This growth has been obtained by investment on family farms (there are very few large private estates in Ethiopia, since the Communist dictatorship of 1974-1992 had expropriated all land). This means growth has been broad and benefited a large proportion of the population. It also means it is sustainable. Ethiopia is set to be the fastest growing economy in the world this year, despite suffering from a drought (more below).

Foreign investment is pouring in, mainly Chinese, Korean and Turkish, but with non-negligible and rising amounts coming from the West (U.S., Netherlands, Germany) and Japan. They have made some inroads in products such as flowers, leather, and the textile industry, i.e., the first-tier, labor-intensive stages of industrialization. This is almost certain to go on.

They have also turned Ethiopian Airlines into a major player in world long-haul cheap air transportation, despite not having the bottomless amount of cash the Arab sheikdoms can give Qatar, Etihad, Emirates &c. Ethiopian Airlines revenue has been growing at 25% year-on-year for the last decade or so. It has surpassed South African as the largest African carrier.

Foreign investment (mainly Chinese here) has been pouring into infrastructure. The Chinese have built a major new railway to Djibouti (Ethiopia’s outlet to the sea) and motorways between the major cities. I have used them several times and the quality is generally very good in an absolute sense (in Africa, they have few peers).

Sub-Saharan Africa is famous for electricity shortages, and that kills any possible industrialization. Ethiopia is building the Grand Ethiopian Renaissance Dam on the Blue Nile, which has already started producing a small amount of energy and is set to be completed shortly. It is the seventh largest dam in the world and will supply several times Ethiopia’s current electricity needs. The shortages will not only disappear, but prices will be dirt cheap in global terms – cheap enough to attract foreign investors. Best part? The whole cost of the dam, some USD 7 billion, is being financed from the government budget – not donors, not foreign aid, not outfits like World Bank, and such. It is their own money.

Another thing the Ethiopians are doing is at least trying in education. They have now achieved full primary school enrollment; that is, very nearly all school-aged children really are attending school. This is a major achievement for a Third World country, and one as poor as Ethiopia. They have also created about a dozen universities, and are busy churning out engineers and agronomers. I mean, really: the government has a cap of about 15% on how much social science (that includes law) degrees the universities can grant. They have the priorities in the right place.

Of course, the standards of this education are low on an absolute scale, but even then… Several times I’ve spoken about this with other expats (Asians and Westerners) who were directly involved with supervising their Ethiopian workforce. To the question, ” you know, is someone with a degree in engineering from an Ethiopian university really an engineer?”, the answer almost unanimously was: “well, not really, of course it’s not the same thing as an engineering degree from back home in [China, Netherlands, Korea], but it is much better than we expected. The balance between expertise/salary levels is excellent and headquarters is really pleased. Plus, there are more than enough people capable of continuing to receive training and achieve higher productivity levels”. I myself did not run a large team, but my experience has been much the same.

Ethiopia is world-famous for the 1980s famine. That had nothing much to do with “incompetence”, though. It was planned, and very well planned if I may say so, by the then ruling Communist government (who else?) to genocide the population of the heartland of the opposition. The global repercussion took them by surprise and they had to appear to do something; so they happily received the world’s donations of food and money, gave them to their soldiers or sold them to get guns, and kept the people starving. They lost in the end, thank God (the opposition guerrillas took over the capital in 1992, and they are the basis of the current ruling party).

From late 2015 or so, Ethiopia (and East Africa from Eritrea to Mozambique generally) has been suffering from the effects of the latest El Nino phenomenon in the Pacific Ocean, which interferes in the framework of air currents in the southern hemisphere with the result that in East Africa the rainy season is shortened by one or two months. As Karlin’s piece shows, there is barely any major irrigation works in Africa. (In the case of Ethiopia, the topography makes it nearly impossible in most of the country, and in all the more densely settled regions). Well, the current Prime Minister gathered the high-ranking foreigners in there (ambassadors and businessmen) to tell them, in effect: “if you say you’re our ally, this is the time to chip in. By the love of God, if you want to help, don’t give us food. What we need is money that we can funnel to the peasantry of the most affected areas, so they can buy food, and seeds and cattle to replenish their decimated holdings. If you give us food, more of our peasants will be priced out of the market and things will only get worse. And by the way, if you don’t help us, we will do this ourselves with our own money”. Funds from abroad were not forthcoming, and none of you has heard of any major famine in Ethiopia in the last two years. The economy did not even slow down! Why? Becase Ethiopia has been achieving nearly 40% of investment/GDP ratio, and invests over two thirds of its budget on capital investment (infrastructure); numbers almost unheard-of in the Third World, and particularly in countries as poor as Ethiopia.

Of course, this has focused on the positive side of the picture, because few people know about this, and – as I see – none in the HBDosphere. (Those who do, are making money out of it). There are of course, major, enormous, obstacles for Ethiopia to continue improving; the most immediate is, what else, rivarly between the ethnic groups. (Today, the minority Tigrayans, just some 4 million people out of 100 million, hold the upper hand and buy out the elites of the other way more populous ethnies. The Oromo have been staging demonstrations since last year, and large parts of the country are currently under a relatively mild martial law). Acute foreign exchange shortage is another difficulty; exports are growing, and growing well, but are still too small to finance industrialization-driven growth, so the government is very careful with the foreign exchange it gets (this is a major pain in the ass for foreign investors; but if the government did not do this, the now-more-numerous middle and upper classes would spend this money away importing luxury goods from Asia and the West).

The Ethiopian economic strategy proclaims the relatively modest objective of achieving middle-income status by the end of the 2020s. (If they keep up their current rates of growth, they’ll get there well ahead of schedule). That’s a pittance if you’re a Westerner, but a genuine achievement if you were the world’s poster-child for abject poverty just a few decades ago.

I could tell you a lot more, about politics, security. terrorism, crime, the problem of Islam, etc, but I’m sure your eyes glazed over into TL;DR long ago. Anyway, if someone read this far and is interested in more information, look up the name of Arkebe Oqubay.

What makes this all the more impressive is that Ethiopia was subjected to an IQ shredder of sorts during the Italian occupation.

A reader and long-term correspondent on primarily Eurasian matters sent me the following email:

I’ve been there a couple of times. Ethiopia is fucking amazing. It’s like what visiting Korea in 1960 must have been: still poor, but with all the numbers going up, up, up.

Anyway, here’s a depressing bit of historical trivia about Ethiopia: when the Italians took over, back in 1936? Mussolini literally told the new colonial regime to “liquidate” as many educated Ethiopians as possible. Which they enthusiastically did. Haile Selassie’s government had laboriously scraped together the cash to send a couple of hundred Ethiopians abroad to university. Almost all of them were killed, as were most of the country’s literate administrators and technicians. If you want the depressing details, google Yekatit 12 or the Graziani Massacre. The exact numbers are of course contested, but it looks like the Italians killed 20,000 to 30,000 (out of a population that was then 9 – 10 million), disproportionately targeting the educated and skilled.

That is similar to the Katyn massacre in absolute terms, twice as bad in relative population terms, and perhaps an order of magnide or two worse in terms of its impact on the educated, technically competent fraction of the population of Ethiopia relative to Poland. And yet the former is an order of magnitude or two better known. I’ve read several books covering the lead-up to WW2 and this is the first time I’d heard of Yekatit 12.

Additional wrinkle: this ended up being a double whammy for Ethiopia, because after the war, they very reasonably asked for war crimes trials for the people who did this. This was terribly embarrassing to the Allies, because some of these exact same people had switched sides and were now key players in the new postwar Italian government. (In particular Marshal Badoglio, the first postwar prime minister, had been implicated in all sorts of horrors in Ethiopia.) The Allies did not want an Italian equivalent to the Nuremberg trials! So, to shut up the Ethiopians, they made a deal: they gave them Italian Somaliland — modern Eritrea. This turned out to be a poisoned gift, because Eritrea is ethnically and linguistically distinct from Ethiopia. Before long there was an independence movement, and then a grinding twenty five year long guerrilla war that helped keep both countries poor and miserable.

The last war with Eritrea ended in 2000. Ethiopian GDP per capita (PPP) – i.e., adjusted for population growth – has expanded by 150% since 2000 ($620 to $1600 constant 2005 international dollars), if from a very low base. I think that’s the highest rate of expansion of any Sub-Saharan Africa with the exception of some small resource exporters.

 
• Category: Economics • Tags: Development, Ethiopia 
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prague-deus-ex I think Czechia might just be the best country in the world.

  • Europe’s best gun rights (just further liberalized)
  • But lower homicide rate than UK/France/Germany because no aggressive Third World minorities
  • Social liberalism without the poz and purple-haired SJWs
  • Also most atheist European country
  • But with a higher fertility rate than Holy Poland nonetheless
  • Sane foreign policy
  • Richest country in ex-Communist Europe.
  • Has more industrial robots per capita than France or UK (the word “robot” comes from the Czech/Slavic word for “worker”).
  • 40% cheaper than the US.
  • Member of the Schengen zone.

Okay, someplace like Switzerland or Norway might give it a run for its money, but if I were a Westerner looking to downshift to someplace nicer, affordable, and more European, Czechia seems to check all the boxes.

Is this about right, or do I have an overly rosy view of the Czechs?

 
• Category: Economics • Tags: Czech Republic, Living Standards 
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This is a horse I’ve pretty much beaten to death, but still worth pointing out – not many Russians want to leave Russia. And not many Russians ever wanted to leave Russia.

Results of the latest Levada polls:

levada-leave-abroad

levada-how-prepared-to-leave

Incidentally, when I was in Saint-Petersburg, the hotel receptionist said that if anything, there has been a substantial increase in repatriates like myself.

Another account to that effect.

I am not going to claim that there is some great repatriation trend, because I am not a dishonest Western hack who constructs a “sixth wave of emigration” meme on the basis of purely anecdotal evidence.

Still, it’s something to think about it.

Incidentally, according to the OECD’s latest PPP benchmarks (2014), actual Russian household consumption is comparable to the rest of East-Central Europe and the Baltics, and is at 50%+ of the German/French/UK level and 42% of the US one.

gdp-ppp-consumption-russia

The OECD countries & partners, with Russia in red.

gdp-ppp-consumption-russia-progress

Russia has also continued gaining relative to the US through to 2014, despite the Great Recession. It must have fallen somewhat during the 2014-2016 recession and devaluation, but only modestly, since Russia produces most of its own consumer goods.

Rule of thumb for Russia: While wages might be 4x lower than in the developed Western countries, prices are likewise 2x lower, so the differential in living standards is far more modest.

So, no particular reason for Russians to want to leave, considering the administrative barriers they face as a non-Schengen European country.

I suppose that if Russia had freedom of movement with the EU (like Poland, Romania), or was truly destitute (like Ukraine, Moldova), then there would surely be more emigration.

But this is not the case. And, hypocritical though it might be on some level, that’s probably for the best. Russia has already lost enough of its cognitive elites during the 1910s-1930s and the 1990s.

 
• Category: Economics • Tags: Emigration, Russia 
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So the other day Mark Zuckerberg, who is all but officially campaining for the Presidency in 2020, came out in favor of basic income:

Every generation expands its definition of equality. Now it’s time for our generation to define a new social contract. We should have a society that measures progress not by economic metrics like GDP but by how many of us have a role we find meaningful. We should explore ideas like universal basic income to make sure everyone has a cushion to try new ideas.

I do support basic income.

Though who cares what I support. Two to three decades down the line, basic income will become all but inevitable if the oligarchs want mass consumer capitalism to survive under mass automation.

The only problem is that Mark “I Don’t Know Why They Trust Me, Dumb Fucks” Zuckerberg is just about the last person you’d trust to implement a basic income.

Don’t like his sister’s ideas on “whitewashing ancient statues”? That’s a 10% cut in your soypack purchasing power.

zuckerberg-basic-income

Mainstream Republicans and Democrats are corrupt retards who care naught beyond more tax cuts for the oligarchs and gibsmedats for the ghettoes, respectively. So its likely that it will be some political outsider President who ends up instituting basic income. In practice, given their wealth and high IQ, this in turn probably means some Silicon Valley plutocrat.

 
• Category: Economics • Tags: Facebook, Universal Basic Income 
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In recent weeks I’ve had cause to look at Moscow property prices.

moscow-property-prices-2013

There are basically three major socio-economic regions in Moscow:

  • The center – Upper middle class, very high property prices (300-400,000R/sq m), cosmopolitan, tilted against Putin and towards liberal parties like Yabloko, full of cafes with Macbook toting hipsters, do not discriminate against immigrants when renting out their properties (presumably because its not like Central Asian Gastarbeiters can afford the prices there anyway).
  • The south-west and west – Middle class, moderately high property prices (200,000R/sq m), tilted against Putin and towards liberals and Communists. This region traditionally hosted a large percentage of Moscow’s academic/R&D institutions and hi-tech factories, so the locals tend to be engineers and technicians and their well-educated children.
  • The east, south and north – Lower class, low property prices (150,000R/sq m), tilted towards Putin and especially the nationalist LDPR, majority proles – though very few work in factories, with a significant contingent of lumpenproles (one woman in my flat died from a drug overdose a few weeks ago) with a growing immigrant presence.

Whereas you see many Central Asians in the center of Moscow, there they are almost inevitably doing street sweeping or construction work, whereas in the outskirts there many of them start appearing out of work uniform. Most of them actually live in the cheaper outskirts, and are increasingly buying up property there. This is accompanied by ethnic tensions. One such region, Biryulyovo – which has Moscow’s second lowest property prices – was the site of a small race war back in 2013 provoked by the murder of a Russian by an immigrant. That said, it’s (still) a long way from the yearly “fireworks” you have in Paris.

In the meantime, I also suspect that many of the more successful locals from the prole areas are making their way to more prestigious regions. In the USSR, you tended to live where you worked (your apartment was assigned to you). With a free market in real estate, the way is clear for the sort of “cognitive clustering” that you see throughout the US and Europe, where the brightest, richest, most successful (all inter-correlated) converge onto good neighborhoods close to the center, while the duller and less successful elements are left behind in the Biryulyovo banlieues.

(Incidentally, this cognitive stratification is a microcosm of Russia as a whole – the average IQ in Moscow is ~106, versus ~96 in the rest of the country).

Here is a graph that I think supports this interpretation (left: Rubles / sq m, right: USD / sq m).

moscow-property-prices-2000-2017

Vykhino and Zhulebino (blue, orange) are classic prole regions – at 120,000R per sq m, they are marginally more upscale than Biryulyovo, but only just. Sokol (red) is a solidly middle-class region, and contains two universities and an industrial museum within its boundaries. Its average property price is 200,000R per sq m. Tverskaya (green) is a super-elite central region that hosts many of Moscow’s tourist landmarks, including the Bolshoi Theater; property prices there are a cool 400,000R per sq m.

But the trend is even more interesting – note the steady stratification of property values of Sokol and Tverskaya relative to prolecore Vykhino-Zhulebino. Even as early as 2013, Sokol was only about 40% as expensive, whereas today it is more than 60% as expensive. The differential between Vykhino-Zhulebino and Tverskaya has increased from being twice as expensive a decade ago, to almost four times as expensive today.

(This isn’t due to any particularities of the chosen regions – the trend for the prole South-East as a whole relative to the middle-class South-West and the elite Center matches the specific example above).

london-house-price-map Nor do I think this is likely to change anytime soon. This differential in real estate prices is now approaching what you see in both Paris and London (see right), both of which are far more advanced on the diversity (and financialization/cognitive clustering) front than Moscow.

This isn’t great for me personally. For instance, while it was still possible to leverage my apartment, which is in one of the crappier regions, to jump into the center a decade ago and maybe 5 years ago, it’s no longer so realistic today. I suppose I should hurry up while regions like Sokol are still within reach.

I suspect these differentials will continue widening in the years ahead. Immigration will continue, and might intensify as the Russian economy emerges out of recession. Cognitive clustering has a momentum of its own and isn’t going to run out of steam anytime soon.

Finally, I suspect that the advent of driverless cars in one or two decades will produce another major uptick in housing prices in the central regions of the world’s metropolises. One of the few major downsides of life in big cities is that traffic congestion costs go up 34% with every doubling of the urban population. The much greater efficiency of driverless cars should largely nullify those costs, turbocharging property prices in big cities and especially the central, already very expensive cores of the big cities even further.

I am obviously not in the business of giving financial advice. That said, even all else equal, I suspect that in Russia as in most of the Western world, people who move to the big cities – especially the expensive, prestigious regions where high property prices form an effective wall against vibrant diversity – will do financially better than those who stay in the outskirts.

 
• Category: Economics • Tags: Moscow, Real Estate, Urbanization 
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Here is a graph of monthly births in Russia since 2006 through to March 2017:

russia-births-2006-2017

It is pointless to make sweeping conclusions based on demographic data from the past one or two months.

That said, the three month moving average has been down relative to the same period in the previous year since the middle of 2016, and as of this year, has widened to 10%, an unprecedented figure in the past decade.

russia-births-change-2006-2017

Now to be sure, birth rates should – all else equal – be falling, because the diminished generation of the 1990s is now moving into its peak childbearing years. It shouldn’t be falling by 10% in any one year, however. If this new trend continues, Russia’s TFR for 2017 should fall to about 1.65 children per woman from the 1.76 in 2016.

OTOH mortality continued improving, falling by 1% in the first three months of 2017 relative to same period last year, which translates into a correspondingly greater improvement in life expectancy because of Russia’s ageing population (i.e. for the same reason that Russia’s fertility rate would increase if the number of births was to stay the same).

So I don’t want to imply all is doom and gloom after having covered Russia’s demographic turnaround for almost a decade.

However, it does perhaps warrant a reassessment of the weight we attach to different demographic projections.

For instance, the “Medium” scenario in my Russian demographic model – also the one which I long thought likeliest – involves the assumption that the TFR would converge to about 1.75 (where it has generally been since 2012), with steady convergence in life expectancy to developed world levels, and annual (official) immigrant inflows of 300,000. In this scenario, Russia’s population would actually increase to about 150 million in 2025 and 158 million by 2050 (that’s including Crimea, aka +2 million).

However, if the recent fertility decline is not a one-year blip, and were to instead to continue falling to about 1.50, then Russia’s population would stagnate (this is from before Crimea):

Low (TFR=1.5 from 2010)Population growth starts from 2011, going from 142mn to 143mn by 2023. Then it falls slowly to 138mn by 2050. The birth rate peaks at 12.5 in 2013, falls sharply to 7.8 by 2032, and then remains in the 8-9 range. The death rate troughs at 11.4 in 2032, then rises to 12.9 by 2050. Positive natural increase is never attained.

Not really the demographic apocalypse long promised by the Western media either, but a disappointing outcome nonetheless.

It’s also possible that this will further encourage the kremlins to intensify immigration from Central Asia.

 
• Category: Economics • Tags: Demographics, Russia 
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Ernst & Young regularly carries out large-scale surveys of corporate employees across a range of countries on issues such as ethics and corruption in the workplace.

In the latest Global Fraud Survey (PDF), which took place at the end of 2016, 88% of Ukrainian employees thought that bribery and corrupt practices are widespread in business in this country.

Incidentally, this figure was 85% in the 2013 survey, the last year of “normalcy” before the Maidan. It was also at 80% in 2015. In short, overthrow of the “kleptocratic” Yanukovych made no difference to these figures. Zilch.

Now to be sure, the E&Y survey is more a measure of corruption perceptions than a measure of corruption itself, and the two are not necessarily the same. Still, there is definitely a correlation – according to Transparency International’s direct surveys of bribery incidence, the Ukraine consistently competes with Moldova for the status of Europe’s most corrupt nation, while the country with the lowest (best) ranking on the E&Y survey, Denmark, had 0% of respondents saying they had to pay a bribe in the past year when they were queried about it.

Overall, this is just one more piece of evidence to the effect that the Maidan has failed to solve the main problem that it set for itself.

In other news, Central Bank head Valeria Gontareva has offered up her resignation (after having disappeared from the limelight several weeks ago). In her three years of office under Poroshenko, she and her relatives appear to have done well for thmselves, like many bureaucrats throughout the post-Soviet world. Still, but many accounts, she has done a pretty good job; some 40% of financial institutions have been closed, including many offshoring funnels and pocket banks, while most of the rest have been forced to clarify their ownership structures. But with mounting uncertainties over the future of IMF credits piling up and an emerging crisis over fraud at Kolomoysky’s Privatbank before its nationalization, I suppose now is as good a time as any to part ways.

***

E&Y: Corruption perception by country

  • Question: Can you indicate whether you think it applies, or does not apply, to your country/industry or whether you don’t know?
  • Answer: Bribery/corrupt practices happen widely in business in this country.
Rank Country %
1 Ukraine 88
2 Cyprus 82
3 Greece 81
4 Slovakia 81
5 Croatia 79
6 Kenya 79
7 South Africa 79
8 Hungary 78
9 India 78
10 Egypt 75
11 Slovenia 74
12 Nigeria 73
13 Italy 71
14 Bulgaria 68
15 Turkey 67
16 Russia 66
17 Spain 64
18 Czech Republic 63
19 Portugal 60
20 Serbia 57
21 Jordan 53
. Average of all participants 51
22 Latvia 51
23 Ireland 47
24 Lithuania 47
25 Germany 43
26 Saudi Arabia 43
27 Poland 38
28 Belgium 36
29 Austria 32
30 Estonia 32
31 Romania 31
32 France 28
33 UAE 27
34 UK 25
35 Netherlands 23
36 Oman 19
37 Sweden 18
38 Switzerland 18
39 Finland 16
40 Norway 10
41 Denmark 6

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• Category: Economics • Tags: Corruption, Ukraine 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.