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Though it is Catalonia and Iraqi Kurdistan that have dominated the news these past two weeks, this month also saw a flare-up in separatist sentiment in Brazil.

The referendum was organised a week after a similar vote in Catalonia by a secessionist movement called “The South Is My Country”.

The movement said it set up polls in more than 1,000 municipalities across the states of Rio Grande do Sul, Santa Catarina and Paraná.

brazil-separatism

This region apparently has a have a fleeting historical experience of independence:

The south of Brazil has expressed secessionist tendencies before, ever since Italy’s Giuseppe Garibaldi helped it achieve a short-lived semi-independence in 1836.

Last year a similar vote in October 2016 organised by “The South Is My Country” gathered 617,500 votes. Over 95% of the voters in the three states said they were in favour of separation.

They are the the whitest states:

map-brazil-race

State White (%) Brown (%) Black (%) Asian or Amerindian (%)
Santa Catarina 86,6 9,4 3,6 0,4
Rio Grande do Sul 82,3 11,4 5,9 0,4
Paraná 70,3 25,5 3,0 1,1
São Paulo 70,2 22,4 6,2 1,3
Rio de Janeiro 54,5 32,4 12,6 0,4

And the most developed and cognitively gifted ones.

kirkegaard-brazil-s-factor

Emil Kirkegaard: The S factor in Brazilian states

Brazil is not in any danger of breaking up anytime soon – while the referendums in the three “separatist” provinces register overwhelming support for independence, turnout is very low, indicating that a majority are either opposed or at the very least don’t care all that much.

However, what is true today may no longer be true the case tomorrow, because the centrifugal forces that break nations apart are gathering strength at the global level.

Historical perspective: One of the strongest and most consistent geopolitical trends of the past 200 years has been an explosion in national entities.

historical-number-of-countries

We went from less than 50 polities in 1800 to around 200 today.

But it wasn’t always like this. I don’t know if anybody has quantified this precisely, but the number of states or state-like entities in the world must have constituted many thousands during the medieval and Early Modern periods.

Just the territories of the Holy Roman Empire at times accounted for more than a thousand!

map-holy-roman-empire

The Holy Roman Empire during the time of the Hohenstaufen Emperors.

Then the rise of the great gunpowder empires and European colonialism rapidly whittled down the numbers of independent states to a few dozens, with even the Latin American independence movements of the 19th century making nary a blimp at the global level.

But then the 20th century saw the collapse of the European monarchic empires, the emergence of national self-determination as a legitimate consideration in international law, the decolonization of the Third World, and the collapse of Communist federative states such as Yugoslavia and the USSR. The number of independent states, including unrecognized de facto polities, now numbers over 200.

As the cliodynamician Peter Turchin points out, the optimal size of a polity has varied throughout history:

We know empirically that the optimal size of a European state took a step up following 1500. As a result, the number of independent polities in Europe decreased from many hundreds in 1500 to just over 30 in 1900. The reason was the introduction of gunpowder that greatly elevated war intensity. The new evolutionary regime eliminated almost all of the small states, apart from a few special cases (like the Papacy or Monaco).

In today’s Europe, however, war has ceased to be an evolutionary force. It may change, but since 1945 the success or failure of European polities has been largely determined by their ability to deliver high levels of living standards to their citizens.

Consequently, under a liberal globalism that is true to its ideals, that is, one free of authoritarian coercion or Malthusian selection for big strong states, it appears that runaway national fragmentation is inevitable.

And these aren’t even the only trends militating against national consolidation.

1. Clever, high-functioning regions breaking away from stupid, corrupt regions. The classic example of this is, of course, Italy, where the 103 IQ, highly productive north has gotten increasingly fed up with the 93 IQ nepotistic, lackadaisical south. (

Map credit: Those Who Can See; Reluctant Apostate.

There are variants of this in other countries as well. Catalonia is the headline example as of the time of writing. There is evidence this could become an issue in Brazil. Even the Russian nationalist slogan “Stop feeding the Caucasus” is an implicit statement of separatism.

The industrialized Donbass, at any rate, has already had it feeding the rest of the Ukraine (this wasn’t the main reason for the rebellion, but it was a reason).

Although there are many “experts” who parrot the idea that separatism is economically ruinous, that doesn’t seem to be at all obvious. All else equal, it would instead seem to be that, say, a Northern Italy freed of the obligation of having to pay extra taxes to feed their southern neighbors will allow them to spend more money on their own infrastructure, or to save it up; being more intelligent and less clannish, they will also likely create better institutions without the “contributions” of their southern former countrymen. Nor will the companies of the new North Italian states lose the markets of the states they break away from, since they will all remain within the single European economic space (at least in an ideal, non-hypocritical world; after all, protectionism is bad, according to liberal globalism).

This is important, because with the Liberal-Left’s discreditation of “nationalist” justifications for the existence of current nation-states, we are left with just the materialist, economic ones. But they are not necessarily in their favor!

map-europe-separatism

Sputnik i Pogrom map of European separatist movements.

2. The rediscovery of ancient local identities. The collapse of “artificial” Communist constructs in the face of resurgent nationalisms hid the fact that the modern nation-state is also in many ways a relatively new and pretty artificial construct based on a shared literary corpus, Tombs of the Unknown Soldier, and sappy tales about semi-mythical heroes of yore like the Yellow Emperor, Barbarossa, Joan D’Arc, Ivan Susanin, and Paul Revere. A construct that was competitive in the past 200 years, to be sure, but will not necessarily remain so in a 21st century more characterized by a resurgence of ancient local identities and alternate models of sovereignty.

The drive towards Italian and German unification began at the Congress of Vienna in 1815 and cultimated by the 1870s, a blink of an eye in historical terms. The rise of a strong American national consciousness dates to the late 18th century, and is now being actively deconstructed by Leftist and Black nationalist ideologues (e.g. stressing that the Founding Fathers were slave-owners, that Columbus was an occupier, etc). The way is being cleared for the disintegration of the United States and its replacement by its constituent ethno-cultural units.

English, French, and Russian national identity is considerably older, and have a long history of centralization around London, Paris, and Moscow as opposed to the more distributed arrangements of Germany, Italy, or Spain, so they might be expected to hold out the longest in Europe. However, even their “core” territories have regions with distinct local identities – Cornwall, the North, and the region around London in England; Britanny, the Vendée, and the South in France; Ingria, Idel-Ural, “Green Ukraine”, and the Kuban in Russia. These units, though very much underneath the surfaces, are still recognizable and some of them have even made themselves felt in past civil wars, so their reemergence during this century is not out of the question.

3. The globalist population replacement project. As one Italian has recently told me, separatist sentiment in the North has ebbed somewhat in the past couple of years, thanks to Merkel’s immigrants helping them realize that they still have so much in common. However, I suspect this will be a short-term and fleeting phenomenon.

angry-black-manly-knight

BBC: We wuz lords.

new-germans

Meet the new Germans.

When you affirm that any African or Asian can be a Briton or a German, you implicitly devalue those very national identities – at least relative to both localized and globalist alternatives to sovereignty (which is what really matters). This is because all nation-states have at least an implicit ethnonationalist basis. Increasingly strident denial of this fact, backed up by hate speech legislation, may be a short-term way of shoring up the legitimacy of the new multi-cultural chimeras popping up in Europe, but at the same time it will doom their long-term prospects – unless they abandon pretenses and start outright apeing the United States (and the USSR) by becoming explicit “proposition” nations. But too bad for them, the EU already has that “niche” cornered.

4. The rise of alternate models of sovereignty. These include:

  • Regional economic blocs, such as Mercosur, the African Union, and of course the most advanced example of this, the European Union.
  • Corporate-friendly globalist trading agreements such as the Trans-Pacific Partnership.
  • Outright global government in the form of the United Nations.

The utopian globalist option enjoyed a brief period of popularity in the immediate wake of WW2, but was soon displaced by the cynical realities of the Cold War.

The regionalist and corporatist options really began to flourish from the 1970s and haven’t looked back since, minor disruptions such as Brexit and Trump regardless. The EU is now arguably more influential than any single European country.

This is a very important development because the existence of massively supra-national and globalist frameworks nullify many of the economic arguments against localist separatism.

5. It only takes one domino. New polities tend to emerge in waves – as Lenin pointed out, “There are decades where nothing happens, and weeks where decades happen.” This is unlikely to change in the future.

Jose Ricon spells this out with reference to Catalonia:

So the referendum lacks any sort of legal backing. But what is being attempted in Catalonia, if successful, could serve as a precedent for the future. If unilateral independence is possible by peaceful means, and the international community eventually recognised Catalonia as a State, this would move the state of the interpretation of the right to self-determination more towards the side of Liechtenstein: That any territory, if it just feels like it, can become independent by passing a vote. This is what is being attempted, even though it is not being made explicit: to appeal to what is considered right to change what is considered legal.

This principle would also allow for the independence of Barcelona, or of London, for example, if recognised in a non-hypocritical way. …

This could be just another footnote in a history book, or an opening passage in the chapter that explains how you got an explosion in the number of states that began around 2017.

As local, pre-imperial identities are rediscovered, we could be looking at something like 400 states by 2100, if we project linearly, or closer to 1,000, if we project exponentially.

This is a very weird prospect to be sure, but stranger things have happened before.

After all, there are still no shortage of countries riven by ethnic identity – Wilsonian self-determination taken to its logical conclusions should produce at least another 100 states in Europe and the former Soviet Union, another 100 in the Middle East, several dozen in India, and who knows how many in Africa.

map-africa-borders-ethnic

If African borders correlated to ethnic identity.

There are also no shortages of wealth gradients even in mono-ethnic regions of the world. Such a result is indeed expected in countries that are “long” on the longitudinal axis by dint of Richard Lynn’s Cold Winters Theory of IQ. As GDP per capita hews closer and closer to the levels predicted by average population IQs, as we can expect to see in our future biorealistic world, the pressures for separation will grow ever more manifest, everywhere.

And since national breakup is coterminous with the march of liberal globalism – which enjoys the near unanimous support of the cognitive elites – can it even be stopped?

Perhaps one of the key arenas of international competition in the coming century, apart from dealing with global warming and the race towards IQ augmentation and machine intelligence, will revolve around struggles to foment separatism in your neighbors before you fall apart yourself. With its authoritarian government and one billion strong Han core, I expect China to win this “race” as well.

And yet this world will not necessarily be a uniform mishmash of different races and colors and cuisines and dialects with no identity of their own. When you are a technocrat ruling over 80 million people, it is easy for you to listen to your economists and invite in millions of supposed “doctors and engineers” to augment your workforce, protestations from stupid racist hillbillies in the boondocks be damned. Quite a lot harder if you’re the mayor of a small city who has to justify his decisions to a combatative citizens’ gathering in a townhall – the bulk of opposition to Merkel’s immigration decrees was at the local level.

Besides, what is nationalism but globalism at a smaller level? The Duchy of Aquitaine and the Most Serene Republic of Venice had their own culture, their own identities, their own values – and there is no reason to expect things to be any different in the future world of city-states and corporate fiefdoms from the Emirate of Abu Dhabi to the Canton of Zurich.

 
• Category: Foreign Policy • Tags: Brazil, Color Revolution, Futurism 
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Not often that you see Russia in some color other than bloody red on a world map of corruption or institutional quality. But according to the Open Budget Index (2012 results), the Russian budget is actually pretty transparent as far as these things go.

Of the major countries, only the UK (88), France (83), and the US (79) are ahead. The other major developed countries in the survey like Germany (71), Spain (63), and Italy (60) are all behind Russia (74), as are its fellow – and supposedly far cleaner – BRICs fellows Brazil (73), India (68), and China (11). Of perhaps greater import, only the Czech Republic (75) edges above Russia in the CEE group, whereas all the others – Slovakia (67), Bulgaria (65), Poland (59), Georgia (55), Ukraine (54), Romania (47), etc. – lag behind it. Also noteworthy is that Russia’s typical neighbors on Transparency International’s CPI, such as Zimbabwe (20), Nigeria (16), and Equatorial Guinea (0), reveal almost nothing in their national budgets.

Now of course the Open Budget Index is not the same thing as corruption. You can have an open budget but still steal from it (and this does happen in Russia frequently), and you can also have a closed budget from which few people steal, at least directly (as was the case in the USSR… or to take a more modern example, while Russia’s OBI is now higher than Germany’s, it is inconceivable that state corruption is even in the same league in these two countries).

Nonetheless, there is surely a very significant degree of correlation between the two. Having an open budget means that it is can be subjected to scrutiny; were Russia’s budget closed like China’s or Saudi Arabia’s, Navalny’s work to expose corrupt state tenders would be simply impossible (as it is, the latest ploy corrupt bureaucrats have been forced to resort to is to sprinkle Latin characters into the Cyrillic texts of state tenders so as to confound search engines).

Second, a high OBI score demonstrates the state’s commitment to fighting corruption. If Putin and Co. really didn’t care and were truly the kleptocrats they are repeatedly labeled as by the Western media, they would instead do everything in their power to hide the budget so as to remove the possibility of scrutinizing it. But they don’t. To the contrary, Russia’s OBI has increased from year to year.

As we can see above, Russia’s budget transparency in 2006 was… about middling; consistently below developed world standards, but higher than plenty of Third World countries and even quite a few CEE countries. But by 2012 it was 10th out of 100 countries. If Russia’s government were truly only committed to stealing as much as it possibly could why would it bother with the legislative and institutional improvements that enabled such a change in rankings?

It is now the most transparent of the BRIC’s, having overtaken both (consistently transparent) Brazil and (also rapidly improving) India in 2012.

Of most pertinence, Russia has massively improved its relative position to other CEE countries; only the Czech Republic and Georgia under Saakashvili have registered such appreciable improvements. To the contrary, both Poland and Romania actually registered declines in their overall levels of budget transparency.

Russia no longer even trails the developed world in this regard.

I would also note that this chimes with the findings of the Revenue Watch Index, which found Russia to be one of the world’s best countries at reporting information about revenue from the extractive sector. This in particular goes against the widespread trope of shady siloviki appropriating all the proceeds from Russian oil and gas and murdering the investigative journalists who go after them.

Conclusions

Once again I would like to emphasize that the OBI does not measure corruption. For instance, China is nowhere near as corrupt as the numbers indicate here; FWIW, my own impressions from perusing various indices and reading comments boards from both countries is that “everyday” corruption is somewhat higher in Russia and elite-level corruption is comparable. Nonetheless, the OBI is an objective measure, drawn from concrete metrics, and that alone makes it superior to Transparency International’s CPI, which is a measure of corruption perceptions.

To remove any possible insinuation that I only castigate the CPI because it ranks Russia abysmally low, I would ask the following question: Is it really plausible that Italy is more corrupt than Saudi Arabia, as implied by the CPI, when there is such a vast gulf in their levels of budget openness and other objective assessments of institutional quality?When we actually pretty much know that a substantial chunk of Saudi Arabia’s budget goes into feeding the country’s 15,000 odd princes… that the very country is named after the family that rules it? I find that very improbable. I would suggest it is somewhat more likely that the “experts” and businessmen asked to assign CPI ratings simply bumped up the Gulf states for their (admittedly) very generous and sumptuous hospitality and their pro-Western policies; all factors that would work in the reverse direction in the cases of countries like Russia, or Venezuela.

Still, all that is speculation. Much like the CPI itself. Back in the world of concrete statistics and facts, I think this further confirms my basic thesis on Russian corruption, which goes something like this:

  1. It was extremely high during the 1990′s.
  2. It declined at a steady if not breakneck rate (media narrative – it keeps getting worse every single year under Putin).
  3. The state itself is moderately but not extremely interested in curbing corruption (media narrative – Russia is a “mafia state”).
  4. Today, Russia is not an outlier or an anomaly on corruption when compared against Central-Eastern or Southern Europe. To the contrary, it is comparable to the worst-performing European countries (e.g. Hungary, Romania, Greece), and about middling in the overall global corruption ratings. (media narrative – “Nigeria with snow”).
  5. It continues to improve at a slow but steady pace.

For more information see my Corruption Realities Index, which I developed in 2010 and takes into account the OBI when computing corruption levels.

(Republished from Da Russophile by permission of author or representative)
 
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One of the most common tropes against Russia is that critical (independent, democratic, etc) journalists there are dying like flies, presumably because of the “culture of impunity” created by Putin or even on his express orders. It is rarely mentioned that the statistical chances of a Russian journalist dying by homicide is an order of magnitude lower than in several countries widely recognized to be “democratic” such as Brazil, Mexico, Columbia, and the Philippines, or that – unlike Turkey or Israel (!) – Russia does not imprison any journalists on account of their professional work. To this end, I compiled a “Journalism Security Index” to get a more objective picture than the politicized rankings produced by outfits like Freedom House that put Russia on par with Zimbabwe.

As usual in these situations, a few graphs are worth thousands of words.

The graph above shows the numbers of journalists killed in Russia for every year since 1992 as compared with other “democratic” countries like Brazil, Mexico, India, and Colombia. As one can see, the situation has improved greatly in the past three years, with only one journalist (in Dagestan) getting killed in 2011; meanwhile, the situation in Mexico has deteriorated to levels unseen in Russia since the early 1990′s. Does this mean that Felipe Calderón is the next Stalin? Or is it that he is just faced with a drugs war that is rapidly spiraling out of control?

However, even this likely overstates the risks to Russian journalists, because there are simply a great many of them. According to the latest UN data, there were 102,300 newspaper journalists in Russia, far more than in Brazil (6,914) or India (16,079), and while data for the other two does not exist, I will assume that there are as many journalists per capita in Colombia (so 1,670) and three times as many in Mexico (13,027) as in Brazil. You can adjust the latter two figures within the bounds of plausibility but as you will see, this would not make a cardinal difference. So let’s start calculating annual homicides per 100,000 newspaper journalists (latest figure) – a rough but valid proxy for the general level of journalistic peril in any given country.

Wow! You can’t see anything past Colombia! Let’s remove it.

So once you make some necessary adjustments for respective journalist populations, it emerges that Russian journalists have been relatively safe compared to other democratic countries throughout virtually its entire post-Soviet history. They are now safer by orders of magnitude. (The dip in Brazil’s and Mexico’s rates in 2012 are artificial as only half the year has passed).

Finally, homicides per 100,000 journalists are compared with the population as a whole. As one can see from the above graph, Russian journalists were always safer than the average Russian citizen, and are now safer by an order of magnitude. Only one Russian journalist was killed in 2010 and 2011 for a rate of about 0.5/100,000 per year, relative to an overall homicide rate of slightly less than 10/100,000. The average journalist is far less likely to have criminal or binge drinking proclivities than the average citizen (factors that account for the overwhelming bulk of homicides in Russia) so it is right and proper that their homicide rate should also be well below the national average.

The same cannot be said of the other countries we are comparing Russian journalists to. In 2010, the homicide rate in Mexico was 18/100,000 (vs. 77/100,000 for journalists), in Brazil it was 25/100,000 (vs. 14/100,000 for journalists in 2010, but soaring to 87/100,000 in 2011), and in India it was 3.4/100,000 (vs. 12/100,000 for journalists).

It need hardly be mentioned at this point that for most of the “democratic” Yeltsin period, life was riskier for Russian journalists than under “authoritarian” Putin and his “stooge” Medvedev. There were 41 journalists killed in Russia from 1992-1999, compared to 30 from 2000-2008, and 6 from 2009-today (of which 5 occurred in 2009). Does this then mean that Yeltsin, not Putin, was the real Stalin? Of course not. The journalist killings in the 1990′s were a product of the chaos and lawlessness of that time, much like the narco-related killings decimating the ranks of Colombian, Brazilian, and Mexican journalists today. As one can see from the graph above, killings of Russian journalists have always been substantially correlated with the overall homicide rate; the latter began to sustainably decline from the mid-2000′s, and from 2009, journalist killings appear to have followed suit.

Why then does Russia have one of the lousiest reputations for journalist killings in the world, whereas a purely statistical analysis implies that it is in fact now extremely safe relative to several other “democratic” countries like Brazil, Mexico, the Philippines, India, and Colombia, and does not imprison any journalists unlike Turkey or Israel?

Ultimately, I think it has much to do with the unhinged hostility of the Western media to Russia. Case in point, let’s look at The Guardian’s coverage.

When a journalist is killed in Mexico or Brazil, it is reported placidly and matter of factly, the newspaper restricting itself to: Names and identities (four journos from Veracruz; Mario Randolfo Marques Lopes); possible culprits (“the work of the cartels”; “accusing local officials of corruption”); some basic context, e.g. quantity of other journalist killings in the recent past. And apart from a final sentence or two noting that “corruption means it is often difficult to define where the authorities stop and organised crime begins”, that is pretty much the harshest judgment they make.

Now turn to the Guardian’s coverage of the sole Russian journalist killed in the past three years – Khadzhimurad Kamalov, in Dagestan, 2011. The difference begins with the titles. What used to be “Four Mexican journalists murdered in last week” or Brazilian journalist and girlfriend kidnapped and murdered” now becomes “Truth is being murdered in Putin’s bloody Russia.” And it continues in the same vein, with rhetoric being substituted for facts: “Crimes against freedom bathed in slothful impunity”; “Inside Moscow, rulers who pay lip service to human rights parade only an indifference that makes them complicit in these crimes” (is Calderón or Dilma Rousseff complicit in journalist killings in their countries?); “How many more, Mr Putin? How long are we supposed to mourn fellow journalists who died trying to tell us, and their fellow Russians, what a slack, slimy, savage state you run?”

No further comment is necessary.

(Republished from Da Russophile by permission of author or representative)
 
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I recently had the dubious pleasure of engaging in an extended Twitter exchange with Peter Savodnik. Peter is a consummately credentialed journalist based in New York. He is also a classical representative of the well-paid prostitute class otherwise known as Independent Western Journalists in polite (i.e. doublethink) society, as well as of that emigre clique which delights in smearing their former homeland at every opportunity (as with Julia Ioffe, Miriam Elder, etc). So nicely does he encapsulate the dinner suit-wearing, respectability-laden double standards, Western chauvinism, ingrained authoritarianism, and deep vein of conspiratorial paranoia that characterizes Western Independent Journalism that I think it useful to lay out our conversation in full.

[tweet https://twitter.com/petersavodnik/status/191952240007843842]

Because protesting sky-high education costs and corporate corruption is so much more morally repugnant than defiling one of a country’s most sacred places.

[tweet https://twitter.com/streetwiseprof/status/191955790771388416]

I noticed Mr. Savodnik’s ranting against Occupy thanks to the approving reply from Streetwise Professor, a Russia blogger. SWP (Craig Pirrong) is a well-known neocon, Russophobe and anti-civil liberties fanatic (who masquerades as a small government classical liberal), who has a rabid gaggle of groupies following his rock-star avatar around on the interwebs (e.g. @LibertyLynx, @catfitz, etc).

The depth of his derangement is demonstrated by his loathing for Wikipedia, which he views as some kind of Communist conspiracy (no kidding, his fan Catherine Fitzpatrick, who apart from her hobby of trolling non-Russophobe blogs also writes blog posts with titles such as What is Technocommunism and the Internet of Things? condemning open-source. Also the reason why she chooses to pay for TypePad, instead of using the free – and much superior – WordPress platform for her blog).

[tweet https://twitter.com/petersavodnik/status/191965291742375937]

So I guess by Savodnik logic given crackdowns in Belarus, the Meetings in Russia also look baseless and absurd? Time to expose that fool, methinks.

[tweet https://twitter.com/AnatolyKarlin/status/192046123320483840]

[tweet https://twitter.com/petersavodnik/status/192108181902737409]

Actually according to my link only 5 of the journalists, or 7% of them, where arrested while “while participating in protests or civil disobedience related to Occupy events.” The rest where arrested while covering them – a perfectly valid journalistic activity. Yasha Levine in particular has a harrowing account (via blog posts) of his experiences in LA country jail – where he picked up a Third World skin disease – and his consequent legal troubles, which demonstrates that the justice system hates independent journalism every bit as much as the police does.

But note, in particular, Savodnik’s diversion of the conversation to Politkovskaya, a journalist murder in Russia SIX YEARS ago. He for one doesn’t seem to have troubles with whataboutism, of the “But in American they lynch Negroes” kind for which non-Russophobes like myself are frequently accused of – including by Sadovnik himself. But the Politkovskaya case has no relevance to the conversation – the issue is Peter Savodnik’s reference to press freedom violations in foreign countries to support repression of his ideological enemies in the West. I do not like hypocrisy, and I call him out on it.

[tweet https://twitter.com/AnatolyKarlin/status/192113326753456128]

[tweet https://twitter.com/petersavodnik/status/192114961227591683]

[tweet https://twitter.com/AnatolyKarlin/status/192118355212242944]

And now the you-work-for-the-KGB canard comes out, reliable as ever coming from liberasts! My eternal response to that – what a pity the paycheck always seems to get stuck in the mail…

[tweet https://twitter.com/petersavodnik/status/192115447397756928]

[tweet https://twitter.com/AnatolyKarlin/status/192135905794990081]

Had this exchange occurred at the Guardian, in its Orwellian-named “Comments are Free” section, at this point I’d have been unpersoned by the plagiarist hack Luke Harding for being a Kremlin troll.

[tweet https://twitter.com/petersavodnik/status/192120397309812736]

[tweet https://twitter.com/AnatolyKarlin/status/192128656489971712]

Now I take his argument to its logical conclusion, i.e. absurdity, now using Brazil (which is actually, when looked at from the POV of concrete statistics as opposed to Russophobic democraticist rhetoric, is far more dangerous for journalists than Russia) to “justify” Obama pressuring Yemen to imprison the critical journalist Abdulelah Hider Shaea. Because that is the kind of mental acrobatics that Savodnik utilizes to wield the Politkovskaya case against Occupy.

[tweet https://twitter.com/AnatolyKarlin/status/192129054546210816]

[tweet https://twitter.com/AnatolyKarlin/status/192129334616657920]

Predictably enough, shattered by the exposure of his true authoritarian leanings and patent double standards on free speech, Peter Savodnik goes off the deep end, ranting about the KGB, FSB, and “agents of an authoritarian regime that kills people.”

[tweet https://twitter.com/petersavodnik/status/192123874656272384]

[tweet https://twitter.com/petersavodnik/status/192131039529934849]

[tweet https://twitter.com/petersavodnik/status/192131393122349056]

Funny he says that, as it is Savodnik himself who has a reactionary hatred for ordinary Russian people and wants to disenfranchise them (see below). Projecting a bit much, Mr. Democratic Journalist?

[tweet https://twitter.com/petersavodnik/status/192131677156409344]

I’m sure that Peter Savodnik is not the worst of the lot. Any number of other, far more mendacious characters come to mind who are outstanding on the issue of their hypocrisy as regards Russia, RT, the US, and Wikileaks – Luke Harding (a Russophobe fanatic who blames Assange for releasing the unedited Wikileaks cables when it was actually HE HIMSELF, with David Hearst, who was responsible for publishing the passwords to them); Konstantin von Eggert; the SWP hive; Miriam Elder; fuck it, virtually the entirety of the Western mainstream media.

But what this conservation with Peter Savodnik is useful for is representing that general mendacity in brief, distilled, easily digestible (and disgusting) form.

Exposes of Luke Harding and Von Eggert to follow.

Addendum. Thanks to Minka in the comments for letting us know that Sadovnik also espouses extreme neoliberal Latynina-like views on the Russian majority of Putin voters (“peasants”), who should not be allowed to vote.

[tweet https://twitter.com/petersavodnik/status/176603211245957120]

[tweet https://twitter.com/petersavodnik/status/176619216445779968]

In fact it’s pretty clear Savodnik loathes the Russian people as a pack of uncultured peasants for not voting like Savodnik would. The gall!

[tweet https://twitter.com/petersavodnik/status/183188645828767744]

[tweet https://twitter.com/petersavodnik/status/183138599733178370]

For our freedom and mine… Right? I think it’s pretty clear that it is Sadovnik who is living in the 19th century, what with his reactionary hatred of ordinary people.

(Republished from Da Russophile by permission of author or representative)
 
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As repeatedly noted by Mark Adomanis, the Russian liberals and the Western media have predicted about 10 of the last zero Russian revolutions. Likewise, the “Jasmine Revolution” in China that was the subject of so much talk about a year ago has fizzled out like a wet firework. Meanwhile, the Arab world remains in the midst of convulsions, and political instability is spreading into the West – most visibly in Greece and the Med, but also in the guise of Occupy Wall Street and associated movements in the US.

This is no doubt disturbing and aggravating to Western supremacists (it is telling that that the media organization providing the most detailed coverage of OWS, RT, is both non-Western and the object of venomous bile from the American exceptionalism culture warriors). Doesn’t the West (and the US in particular) have democracy, freedom of assembly, freedom of speech, free media, economic opportunities, equality under the law, etc. – things that are all starkly and completely absent in countries of the Other, e.g. Russia and China? What the hell are the hippies and liberals protesting? Are they doped up unemployed losers, useful idiots of Leninist agents of influence, or both?

I think the answer is far simpler than it seems. In Russia, younger people tend to be both higher earning (their skills are better fitted to a capitalist economy) and more economically optimistic than their parents, not to mention their grandparents. They are also far more pro-capitalist, and substantially more supportive of Putin and Co. than the older generations (who have not done as well under capitalism, and who have fonder memories of communism). In fact, in the minds of Russian youth – and in stark contrast to the picture drawn by uninformed commentators – capitalism, prosperity, and the Putin era are closely linked. Hence, no real Russian equivalent of OWS (at least for now).

While I’m far from as well informed on China, it basically seems to have the same dynamics. Young people there are now far more educated than the middle-aged, let alone the immiserated elderly, and – many of them single children and enjoying far higher incomes than those of their less well-educated parents – are now coming to enjoy many of the creature comforts of rich country lifestyles, such as Internet access, cars, foreign travel. The young are the most active protest group, and keeping them satiated is most important for avoiding revolution. A similar dynamic also appears to be at work in India and Brazil. Hence, no “Spring” or OWS-equivalent in those countries either.

The situation in the Arab world and the West appears to be the precise opposite. Some of the commentary on the “Arab Spring” has emphasized the generational fault-lines that riven Arab societies, the main burden being the hordes of young unemployed Arab men (and unemployable, because of low skills). When food prices approached a critical level in 2011, social pressures reached a tipping point, and revolutions of varying types and success levels followed in Egypt, Tunisia, Libya, Syria, and Bahrain.

The US makes for an interesting comparison to both the Arab world and the BRIC’s. Despite the fact that its young people still (for the most part) have a much higher material standard of living than the Chinese or Russians, its inter-generational wealth distribution appears to be more similar to that of the Arab world: its youth are much poorer, and suffer much more from unemployment. This is reflected in political ideologies – whereas the baby boomers remain stalwart supporters of capitalism, the people in their 20′s are actually split 50/50 between supporting capitalism and socialism (hence, the appearance of OWS, as I predicted).

Even internationally, the US is much less certain of the benefits of the “free market system” than was the case in prior years. More Chinese (77%), Brazilians (67%), and Germans (68%) now think that free markets are the way to go than Americans (59%). Even the Russians (52%) aren’t that far behind, and if we consider only the youngest generation, amazingly enough, more Russians would now be pro-capitalist than Americans. But as is so often the case, ideology is merely superstructure, dependent on the economic base for its own makeup; when polls indicate that as of 2010 ordinary Chinese find it easier than Americans to afford food, no wonder that faith in free markets soars in one country and tumbles in another. Ergo for Russia.

It is time to set aside the ideologized rhetoric that underpins much of today’s commentary on the purported instability of states based on their perceived “authoritarianism” or “corruption” (especially as measured by the ridiculous CPI). Despite being closer to the trough of the J-curve, and not matching up to the standards of democracy and decency that the West dictates as universal (while frequently failing to adhere to those same standards itself), the fact is that, objectively speaking, both China and Russia have been a lot more stable than the West – and with more favorable inter-generational wealth distributions and far better prospects for growth (due to their combination of First World human capital with merely medium-income economies), they have the objective conditions to remain politically stable for the foreseeable future.

Meanwhile, as iniquities grow and the over-educated young generations of the West are frustrated in their economic ambitions, having their social benefits cut while the establishment concentrates on currying favor with elderly voting majorities and bailing out their sponsors in the financial industry (at least until the whole carapace comes hurtling down due to over-indebtedness), political instability in the West is set to remain and metastasize until the barbarians at the gates can no longer be airily dismissed as weed-smoking socialist loser types “without an agenda” by the MSM and the powers that be.

EDIT: This article has been translated into Russian at Inosmi.ru (БРИК стабильности: почему Occupy Wall Street не приходит в Москву или Пекин?).

(Republished from Sublime Oblivion by permission of author or representative)
 
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Иn the wake of the 2009 recession, declinist rhetoric has come to dominate discussion of Russia’s economic prospects. Jim O’Neill, the founder of the BRIC’s concept, has his work cut out defending Russia’s expulsion from the group in favor of Indonesia, Mexico, or some other random middle-sized country. Journalists in the Western media claim its economy is “not growing”, as do liberal Russian newspapers such as Vedomosti. Comparisons between Putin and Brezhnev (who presided over the Soviet Union’s period of stagnation, or zastoi) are piling up. Even President Medvedev isn’t helping the situation, telling a forum of international businesspeople that Russia’s “slow growth” hides stagnation (good job promoting your country, DAM! not….).

I don’t want to exchange rhetorical barbs in this post (which you may note is not tagged as a “rant“), and my skills at mockery and picking apart tropes aren’t nearly as well developed as those of Mark Adomanis or Kremlin Stooge, so I’ll do what I do best and go straight to the statistics. And so we have Fact #1: what is described as stagnation for Russia is a growth rate of 4%. It grew 4.0% for 2010. It was 4.1% in Q1 2011, and the government predicts it will be 4.2% for the whole year. The World Bank predicts 4.4% in 2011, 4.0% in 2012; the OECD expects 4.9% in 2011 and 4.5% in 2012; and the IMF forecasts 4.8% in 2011, 4.5% in 2012, tapering off to less than 4.0% in the “medium-term.”

This does not strike me as being particularly bad by global standards. This is obviously no miracle economy of Chinese-like 10% growth rates, but Russia (4.4%; 4.0%) does not compare badly to the World Bank’s projected growth for other typical middle-income countries such as Turkey (4.1%; 4.3%), Thailand (3.2%; 4.2%), Brazil (4.4%; 4.3%), Mexico (3.6%; 3.8%), or South Africa (3.5%; 4.1%). Facing real stagnation, many countries in the developed world such as the UK could only wish for Russia’s growth rate; though this is an unfair comparison, because Russia is poorer and can therefore find it easier to grow faster (see economic convergence), it is not less unfair comparing Russia to countries such as India (8.4%; 8.7%) or Indonesia (6.2%; 6.5%) because the latter are so much poorer than Russia in their turn.

This discussion suggests that CONTEXT is vital when discussing the degree of stagnation in a country. One of the two major factors here is the current GDP of the country in question; real GDP, that is, because that is what growth refers to (i.e. if a country devalues its currency by half but output remains constant, then nominal GDP will fall by half but real GDP will remain constant; as such, real GDP per capita is also the better proxy for living standards and economic sophistication). Now there are two major estimates by international organizations of Russia’s real GDP. The IMF estimates it at $15,800 as of 2010, whereas the World Bank believes it is $19,800 (relying on recent joint research by OECD-Eurostat-Rosstat). There are grounds to believe that the latter is more accurate because the international price comparison data that goes into real GDP estimates is much more recent for the World Bank*. But regardless of which one you use, Russia’s GDP is still much higher than the other emerging markets or BRIC’s with which it is so frequently compared to – Brazil has $11,100, China has $7,500, Indonesia has $4,400, and India has $3,600.

This is extremely important for two reasons. First, it is much harder to grow quickly when you are already a mostly developed country (like Russia, Poland, Korea) than when you are a mid-level developing country (China, Brazil) or a poor developing country (India, Indonesia). The most important reasons are: (1) The potential to achieve rapid growth by transferring your population from rural agriculture to urban industry and services becomes exhausted; (2) the services sector, where productivity can’t be improved as fast as in industry, assumes a bigger share of GDP; (3) most importantly, those countries are far closer to the technological frontier or “best practice”, and hence must increasingly innovate their way to growth instead of reaping low-hanging fruit by adopting and copying from elsewhere. All this isn’t debatable – there is a ton of economic literature on this, it passes the common sense test, and it is basically a given.

Second, when your starting base is low, fast economic growth is far more necessary to achieve real improvements in living standards and catching up to the West. 5% growth in the US would be remarkable and unprecedented for decades. 5% growth in a country like Egypt, with a GDP per capita of $6,000, will not transform it into a developed or even mostly developed country for the foreseeable future. Not only that, but it will be significantly swallowed up by a population growing at nearly 2%. This is no different from the growth rates in most fiscally healthy developed nations and so in effect virtually no “catch up” happens whatsoever.

This brings us to a second point, the importance of accounting of adjusting for population growth. India’s 8% growth rate in the last decade seems remarkable, prompting talk of “Shining India” and how it is the next big superpower. But considering its very low starting base, and the fact that its population was growing by nearly 2% per year, and you have the far less impressive figure of 6% per capita growth. This is still respectable, but it is barely higher than (much wealthier) Russia, and probably doesn’t warrant the glowing accolades heaped on its “tiger” economy.

At this point, I think it will be a good idea to consolidate all these statistics into a single graph that illustrates the arguments. GDP figures are taken from the World Bank’s 2010 estimates (there is reason to believe China’s GDP is underestimated, hence it has two estimates). GDP growth refers to the mainstream consensus on how fast these countries will be growing in the medium term (e.g. Russia “stagnating” at 4% a year; China following in the historical footsteps of Korea; India growing at the realistically highest rates projected by its proponents; Brazil and Mexico continuing to conform to both their historical rates and medium-term predictions; etc). Population growth is subtracted from the GDP growth to give a per capita figure. The last column are the projected totals for 2020. Figures are rounded off.

2010 GDP /c GDP % gr. Pop % gr. 2020 GDP /c
Brazil $11,000 4% 1% $15,000
China (1) $7,500 8% 0.5% $16,000
China (2) $12,000 7.5% 0.5% $25,000
France $34,000 2% 0.5% $39,000
India $3,600 8.5% 1.5% $7,000
Indonesia $4,400 6.5% 1% $7,500
Korea $29,000 3% 0% $39,000
Mexico $15,000 3% 1% $18,000
Russia $20,000 4% 0% $30,000

The results, as you can see, are fairly stunning. A low population growth and relatively high base – Russia’s GDP per capita of $20,000 is equivalent to that of Poland, Hungary, and Estonia – means that as soon as 2020 Russia will be where Italy is today, with a GDP per capita of $31,500. Now granted Italy may have grown as well, but given its dismal record for the past decade and the growing financial tremors in the Eurozone even this is far from certain. In other words, even at “stagnant” growth rates of 4% per year Russia will have converged to the lower ranks of Western Europe’s rich countries (having overtaken Greece and Portugal outright).

But this isn’t that surprising when you consider that 4% is equivalent to the trend rate at which Korea has grown from 2003, when its GDP reached Russia’s today; the IMF predicts that by 2013, a decade later, it will hit $35,000.

(Excuse the minor digression from the main topic of this post, but the graph also convincingly demonstrates why my Sino Triumphalism is not misplaced. Even under fairly rosy assumptions for India, it will have have barely converged to China’s 2010 level in a decade’s time – and that assuming that China’s GDP isn’t underestimated. The real question isn’t why Russia isn’t growing as fast as China, but why is China growing so damn fast? See other posts for answers).

Now what about unexpected downsides? Objectively, Russia has solid macro fundamentals – far better than the over-indebted, over-leveraged Western economies (with the partial exceptions of Canada and Scandinavia). This is a trait it shares with the other BRIC’s and many other emerging markets in what is truly an amazing and perhaps unprecedented reversal of places in the last decade. This isn’t grounds for complacency – the 2009 recession is argument enough for that.

Nonetheless, the main facts remain intact: (1) It is growing from a relatively high base; (2) In an environment of approximately zero population growth; (3) The strength of state finances preclude any fundamental economic cataclysm as happened/is happening in Ireland, Greece, Latvia, etc. Taking into account these adjustments, a growth rate of 4% is entirely respectable and better than many if not most countries in the same general income bracket.

* Those interested in the details can read here and here.

EDIT: This article has been translated into Russian at Inosmi.Ru (Российская экономическая «стагнация» в глобальной перспективе).

(Republished from Sublime Oblivion by permission of author or representative)
 
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Not really arguing anything in this post, just sharing some interesting stats I found about the affluent class in Russia (as compared with BRIC’s and others).

First, as we know Russia is (in)famous for the opulence of it oligarchy. But according to the research firm Wealth-X, despite a relatively high number of billionaires, its overall share of Ultra High Net Worth Individuals (UHNW) is far more modest as you can see in the table below. As a percentage of GDP (caveat: this is comparing apples and oranges, but still instructive since national wealth is correlated to yearly output), the wealth of the Russian UHNW’s is equal to 43% of a 1.5tn GDP in 2010 (as compared with 28% in China, 43% in Brazil, 44% in the US, and 55% in India).

So, same picture as with income inequality – as I’ve noted before on this blog, Russia’s levels of inequality are in fact quite modest by world standards – with a Gini index of about 40, it is higher than most European countries (25-35) but lower than the US and China (45) and most Latin American countries (50+).

Now what’s really distinctive about Russia’s ultra-rich is that billionaires comprise a high percentage of all UHNW individuals – some 7% of them, as opposed to about 1% in the other countries; and those same billionaires control 84% of that group’s total wealth, as opposed to 33% in Brazil and China, 25% in the US, and 20% in India.

Is Russia’s concentration of wealth at the very top of the top good or bad? It’s hard to say. It ultimately depends on your view of the merits of the upper middle class and their values. If you believe it reinforces social stability and creates economic dynamism, then this is a weakness. If on the other hand restricting the emergence of a class system and enhancing state power are held to be important, then Russia’s structure is better (after all, it’s easier to influence 100 odd billionaires than keep track of thousands of multimillionaires).

One interesting (and puzzling?) thing I’ve noticed is that Sweden seems to have a similar structure of wealth ownership. This country of 9 million has 10 billionaires – that is almost as many as France (12) or Italy (13), whose populations are six or seven times bigger, and almost as many per capita as the United States. Considering that it’s one of the most equal countries in the world, this leaves very little room for the millionaire class (which I guess makes sense on account of its high income tax rates).

Second, I was trolling Forbes’ list of Russia billionaires for 2011 and counted up the wealth of those known to be friends of Putin (Gennady Timchenko of Gunvor, oil transport and Yury Kovalchuk, banking – through the Ozero dacha coop; and Arkady Rotenberg, of construction, inc. of the controversial Khimki route – through judo). It came up to around $8.1 billion of the total $432.7 billion.

That is a very comfortable sum, of course, but doesn’t really support the oft peddled line that friends of Putin are corruptly buying up most of the Russian economy. Little doubt that Timchenko et al. got by some or most of their wealth “unfairly” (and I assume they’ll be expected to return some of the favors to Putin & Co. once they retire) but that’s just really existing capitalism most places in the world for you.

* Kudos to those who got the Pelevin reference.

(Republished from Sublime Oblivion by permission of author or representative)
 
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In the wake of the economic crisis in which Russia’s GDP fell by a stunning 7.9% in 2009, its status as a BRIC economy – with its connotations of promise and progress – was brought into question. After all, isn’t it a dying nation with rapidly degrading infrastructure? Isn’t it amazingly corrupt? Wouldn’t its contempt for liberal democratic values doom it to stagnation? And what happens now that oil production, the main locomotive of the Russia economy, has stalled thanks to the politicized persecution of “brilliant entrepreneurs” like Mikhail Khodorkovsky? Indeed, was not its economic collapse in 2009 a portent of things to come? And so on*.

There are many reasons to dismiss these arguments, as I will try to show in this post. First, the very inventor of the BRICs concept, Jim O’Neill of Goldman Sachs (who has probably thought more about it than anyone else) dismisses the argument that Russia is ineligible on the basis that is was the only country amongst them to show (highly) negative growth during the economic crisis as “rubbish”. He goes on to add that “the only reason that Russia was hurt so badly was unlike the others, it borrowed heavily on the international capital markets and, of course, it is dependent on the price of oil.” ** Of course, the Russian economy’s dependence on Western intermediation for its credit is a structural weakness, and one that was exposed in late 2008. But potential faultlines like this are hardly unique amongst the BRICs – its most promising member, China, critically depends on exports for continued growth***, and its banks are saddled with bad debts.

Second, many of these arguments from demography (“dying Russia”), infrastructure (“crumbling Russia”), and institutions (“Zaire with permafrost”) are both 1) exaggerated in severity and 2) exaggerated in their influence on economic development.

Take Russia’s plummeting population… except that it hasn’t been plummeting or even falling since 2009! (It is now stagnant). True, Russia is going to see a substantial fall in its labor pool – according to the Rosstat medium scenario, from 62% of the total population now to a truly apocalyptic 55% by 2030****. (Yes, that was sarcasm). And though its population will age substantially in the next few decades, there probably won’t be any problems with paying pensions thanks to its resource wealth. Basically, Russia’s demography is neither as bad as it is usually portrayed in the Western media, nor will it negatively impact on its future economic development in any significant way.

Now what about Russia’s crumbling infrastructure? Though Russia having no roads, only directions may be cliché*****, it does undoubtedly have an element of truth. But look at this from another perspective. Russia might have plenty of crumbling concrete and rusting iron carcasses, interspersed with the occasional modern highway or recently-built gleaming showpiece – but does it really, really need better infrastructure, or are its resources better spent elsewhere? At least unlike India, or even Brazil or China, Russia has a complete industrial infrastructure. Its “Khrushchevki” prefabricated concrete tower blocs and disused railway stocks may give it a decrepit, even post-apocalyptic air, but the equivalent scene in India or China may well consist of a village of peasant huts with dirt paths meandering through it! In other words, Russia needs new infrastructure relatively less than the other BRICs (yet even so, Merrill Lynch predicted it would spend more in the next three years than either India or Brazil, despite its smaller population)!

Finally, yes – Russian institutions are corrupt and its state is illiberal and (semi-)authoritarian, though arguably it is democratic****** (of course the degree to which this is the case can be subject to endless debate). However, the evidence indicates that institutions have historically had relatively little impact on economic growth or “convergence”. A multi-author NBER study in 2004 on Do Institutions Cause Growth? was summarized thus:

We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement. We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose. We also find that some of the instrumental variable techniques used in the literature are flawed. Basic OLS results, as well as a variety of additional evidence, suggest that a) human capital is a more basic source of growth than are the institutions, b) poor countries get out of poverty through good policies, often pursued by dictators, and c) subsequently improve their political institutions.

Russia seems to fit the above model reasonably well. It has high human capital – far better than China or Brazil, let alone India. As I wrote earlier, “Around 70% of Russians go into higher education, compared with just 20-25% of Brazilians or Chinese… in the 2006 PISA science assessment, only 15.2% of Brazilians possessed skills beyond those needed for purely linear problem-solving, compared with 47.6% of Russian and 51.3% of American students”. Already resembling a developed country in human capital and having pursued reasonably effective economic policies under Putin, Russia may now slowly be moving towards surmounting that last institutional hurdle, with Medvedev now taking aim at the MVD (police) and bureaucracy.

Finally, it would be well to point out one area in which Russia has a decisive advantage over the other BRICs – it is already a much more developed economy and society. As of 2009, and despite the economic crisis, Russia’s real GDP per capita was 14,900$, far higher than Brazil’s 10,500$, China’s 6,600$, and India’s 2,900$ (not to mention that Russia’s Gini index of wealth inequality, at 41, is lower than both China’s 47 and Brazil’s 57). Really, the most convincing reason to leave Russia out of the BRICs is not that it doesn’t belong there, but that it won’t grow as fast as the others simply because it is already substantially richer than them and as such no longer has as much space to catch up! (And hence would not be as attractive to investors)…

That said, Russia in the next decade will probably grow relatively fast nonetheless – not only because it is a well-educated nation with substantial room left for “catch up” growth to developed world levels, but because of a very favorable external environment. First, the (probable) peaking of oil production and China’s ravenous growth******* means that oil and resource prices will remain high, bringing in the hard currencies that would help Russia buttress its fiscal position and buy the technologies it needs to modernize itself from the West.

Second, in a dramatic turnaround from 1998, Russia today is now in a much stronger long-term fiscal position than practically any Western developed country. The article Rerating Russia by Ben Aris is worth quoting in extenso:

Russia’s credit rating is way too low, as it boasts some of the strongest fundamentals in the world, but it’s still tarred by its increasingly irrelevant “emerging market” moniker… The world has been turned upside down by the global financial crisis. Nowhere is this clearer than in [Greece's and Russia's] bond offerings. While Greece is sagging under a heavy public debt burden, Russia not only has almost no debt to speak off (Capital Economics predicts 9.5% of GDP by the end of this year), but also has well over $400bn in hard currency reserves. That’s five times more than either the US or UK, making it the third-richest country in the world in terms of cash. …

Russia is enjoying a mirror image of the problems its more developed peers are facing up to. For example, the UK is one of the most indebted countries in Europe now after it borrowed a massive €257bn last year, ratcheting up its leverage to borrow about €2.80 for every €1 that the Bank of England is holding in its vaults as a reserve. The US is in similar dire straits.

… Currently, Russian sovereign debt has a ‘BBB’ rating, which is only two notches above junk bond status. At the same time the US and UK have (so far) kept their ‘AAA’ ratings despite their worsening finances. Most economists are predicting Europe’s external debt to rise from 100% of GDP to 130% over the next five years, while that of Russia is expected to continue falling. Indeed, analysts say that the ratings of developed countries’ have disconnected with reality, while countries like Russia are being penalised. “On the basis of our model, the [best possible] ‘AAA’ rating for the US and the United Kingdom cannot be explained, as these two countries are rated two to three rating notches better than countries with comparable fundamental data,” Ingo Jungwirth, an analyst with Raiffeisen International, wrote in a study in March.

His study found that based solely on the country’s finances, both the US and UK should be downgraded three notches to a ‘AA’. However, if the ratings agency actually went through with a downgrade, the cost of borrowing to both countries would spike and spark a financial global crisis, which would probably wreck the global economy for decades. Jungwirth suggests that these two countries earn a “bonus” for being too big to fail.

On the flip side, Russia is underrated given the strength of its financial position. Consider that on the day Iceland defaulted on its debt at the start of this crisis, it enjoyed higher ratings than Russia. Today Russia’s ‘Baa1′ rating from Moody’s Investors Service is still the same as bailout-dependent Iceland’s. Fitch Ratings and Standard & Poor’s currently class Russian debt as ‘BBB’ – even lower than Moody’s. …

There are already some signs that investors are cottoning on to the strength of the Russian bond offering. After US investment bank Lehman Brothers collapsed, the spreads on UK credit defaults swaps (CDS) … have soared by 281 basis points (bps). At the same time, Russia’s CDS have actually contracted by 17 bps over the same period, making it one of the few countries in the world deemed by investors to be a safer place to invest than it was before the start of the crisis. …

The US, Japan, and most of Europe have reached their limits to growth. Now faced with unsustainable budget deficits, ballooning debts, and intense (BRIC-centered) competition for remaining high net energy resources, the long era of Western hegemony is now coming to an end. It is thus with some skepticism and bemusement that I view the smug commentary in the Western media on the Russian Foreign Ministry leak published at R ussian Newsweek********, which they claim show Moscow’s “planning to reorient its foreign policy in a more pragmatic and pro-Western direction”, in apparent acknowledgement of its failed policies of dirigisme within and confrontation without.

In reality, the Kremlin’s détente-for-modernization leak is more likely to be an Aesopian telegram that conveys Russia’s satisfaction with what it has already achieved and of the new world order that is emerging. In the past decade, the Russian state has consolidated and reestablished a sphere of “privileged interests” across Eurasia, decisively purging Ukraine and Central Asia of Western influence. Meanwhile, with the United States facing severe fiscal stress and geopolitical challenges on other fronts in the Middle East and the Far East, the West now has neither strength nor will to push back against Russia beyond Visegrad, and is beginning to lose its unity and cohesion. Russia’s security dilemma is retreating, as a new geopolitical equilibrium crystallizes along the marches between the West and Eurasia.

Since good fences make good neighbors, this paves the way for better relations between Russia and some Western countries, in particular Germany, Italy, and France (in the Russian leak, Britain is conspicuous in its absence). Take the former. What interest does Germany really have in sending soldiers and paying taxes to perform a doomed “civilizing mission” in Afghanistan for the US, or in subsidizing Mediterranean profligacy while imposing stringent discipline on itself in return for their (aging and shrinking) markets? On the other hand, there is great potential for synergy between the German and Russian economies. The Teutonic industrialists have technologies and capital that Russia now needs to modernize its manufacturing and hi-tech industries, while the Russians have the energy and mineral resources that could keep German factories humming well into the age of scarcity industrialism. Back in October 2009, I suggested that this economic relation could be the basis for a new German-Russian alliance; now the New York Times has caught on.

The American age of dominance is waning and will soon come to an end and a new constellation of Powers will take its place. Far from being a shunned BRIC in a world run by the West, Russia will be one of the main poles in the new world of the Rest.

* See Nouriel Roubini, Anders Aslund or Julia Ioffe for the standard spiel.

** See “The R of the BRICs Remains Solid” part of this post.

*** Of course there are arguments that the magnitude of these problems are overstated.

**** The irony is that the more Russia’s (abnormally low) life expectancy and (now fairly average by European standards) fertility rates improve, the worse its dependency ratio will get in the decades ahead! Yet another demonstration of the stupidity of simple-minded extrapolation of population trends to future economic prospects.

***** In any case, in an age of peak oil, the wisdom of expanding road networks further is open to question. Russia would be better served by modernizing its railway system, on which it plans to spend 390bn $ by 2030.

****** On the basis that it fulfills democratic norms on paper although not in spirit, and in the sense that most Russians believe Russia is free and democratic (as was not the case during the Yeltsin period). Both the Polity IV political database and Economist Democracy Index perceive Russia as a kind of hybrid regime that is neither liberal democratic nor fully authoritarian.

******* This illustrates another important point – the BRICs are greater than the sum of their parts; they are more of an idea and a concept, than some kind of ranking in which countries can be kicked out of for (perceived) lack of performance. Strong Chinese and Indian growth, for example, help pull along nations like Russia or Brazil that are more heavily based in resource extraction.

******** See the full “О Программе эффективного использования на системной основе внешнеполитических факторов в целях долгосрочного развития Российской Федерации” here.

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This April, Michael Bohm, editor at the Moscow Times, published the article New Kremlin Dreamers, which questioned Russia’s stated intention of becoming an advanced industrial nation by 2020. I wasn’t much impressed by its pessimistic assertions – for instance, regarding Russia’s hopes of becoming the world’s fifth largest economy by 2020, he falls into the frequent Kremlinologist fallacy of applying standard GDP growth rates to nominal GDP (as opposed to purchasing-power parity GDP, which corrects for exchange rate fluctuations). He similarly passes over that countries in the process of economic catch-up typically grow much faster than the leader nations, because they have greater returns to investment. Soon after Yevgeny Kiselyov wrote Dreaming of Modernization and Innovation on a similar theme.

I disagree with them on two fundamental points. First, I don’t share in their pessimism and I believe that on purely objective factors, Russia – and much of the rest of East-Central Europe for that matter – is well set to converge to Western living standards by 2020 (which will by then probably be stagnating in light of peak oil and intensifying competition for energy resources from other emerging-markets). This is a point I made a long time back in Towards a New Russian Century? and Education as the Elixir of Growth. Second, even if that were not the case there is still a lot to be said of the power and utility of positive, optimistic thinking – ambition is no sin in my eyes, and in the case of government a moral duty to their citizens. Hence this rebuttal. ;)

Two recent articles in the Moscow Times took issue with the “Kremlin dreamers” for their rose-tinted views of Russia’s destiny, alleging that the main goals of “Strategy 2020”, like becoming the world’s fifth largest economy or doubling GDP per capita, are nothing more than utopian pipe-dreams. Yet an objective look at key current trends – in educational attainment, economic growth, resource depletion and climate change – suggests that these “fairy tales” have the potential to become reality.

First, Russia’s educational profile resembles that of a First World country, unlike most of its emerging-market competitors. Around 70% of Russians go into higher education, compared with just 20-25% of Brazilians or Chinese. The quality of its primary education is substantially higher than in developing nations, as attested to by the results of international student assessments like PISA or TIMSS. For instance, in the 2006 PISA science assessment, only 15.2% of Brazilians possessed skills beyond those needed for purely linear problem-solving, compared with 47.6% of Russian and 51.3% of American students. A country needs to have sizable cadres of skilled workers to move into added-value manufacturing or complex services. Brainier nations will also assimilate technology more easily and thus their economic “rate of convergence” to developed-world status will be that much faster. In this respect, Russia and east-central Europe are in a different league from East Asia, let alone Latin America or the Middle East.

Second, while there’s no denying Russia is plagued by corruption, to suggest it is endemic like in a failed state, as suggested by Transparency International’s Corruption Perceptions Index, is ludicrous – and would frankly be obvious to anyone who has visited both Russia and some of its neighbors on the list. Its problem is that it’s a survey of outsider businesspeople and their subjective perception of the situation, which differs markedly from the experiences of ordinary people. When asked, only 17% of Russians admitted to paying a bribe to obtain a service in 2007, according to TI’s Global Corruption Barometer – putting them in the same quintile as Turkey or the Czech Republics, i.e. slap bang in the middle of world corruption, not the end. The effects of corruption must also be set in context against a panoply of other, equally important growth factors. Goldman Sachs compiled an index called the Growth Environment Score, which aggregates a wide range of stats on macroeconomic, institutional, educational and technological conditions to assess a nation’s potential for economic “catch-up”. In 2007, Russia came in at 66th out of 181 countries, tied with China and ahead of Brazil and India.

Third, to fulfill one of the main goals of “Strategy 2020” – to become the world’s fifth largest economy, all Russia has to do is surpass Germany in purchasing-power parity GDP. Since according to the IMF Russia’s GDP was 2.26bn $ and Germany’s was 2.91bn $ in 2008, this can be achieved merely by maintaining an average growth rate of 2% points higher than Germany to 2020 – which seems entirely feasible considering that from 1999-2008 this difference was more than 4%. Doubling the GDP per capita over the next 11 years is trickier and requires continuing the average 1999-2008 growth rate of 6%. Though complicated by the current economic crisis, coming close is still entirely possible.

Fourth, Russia’s economy is not overly dependent on natural resource exports – they have stagnated since 2003 and the bulk of growth came from retail, construction and manufacturing. They are however crucial to replenishing government coffers, allowing the Kremlin to spend lavishly on things like military modernization, infrastructure expansion and prospective sunrise industries like nanotechnology – thus turbo-charging its plans for an “innovation economy”. (Granted, some is wasted like the 1bn $ project on the bridge to Russki Island, i.e. to nowhere). Fortunately for Russia, there’s no reason to believe oil prices will remain low. Even now, in the depth of the biggest global economic crisis since the Great Depression, prices never fell below $40 a barrel and have now rebounded to over $60. With oil production close to or already past its peak and Chinese voraciousness unquenched, a second oil price spike is only a few years away.

Finally, according to researcher Trausti Valsson, further in the future global warming will unfreeze remote energy resources in the Far North to exploitation, open up the Arctic to shipping, bolster Russian crop yields and increase the carrying capacity of Siberia and the Far North. Russia could literally end up on top of the world.

Wells may have ridiculed Lenin as a “Kremlin dreamer” in 1920, yet precisely a decade or so later the Soviet Union began to produce aircraft, tanks, trucks, machine tools and chemicals, boasting growth rates far higher than that of any other industrial nation. And though the USSR did set over-ambitious goals for the Five Year Plans, the achievements were impressive nonetheless.

By 2020, Russia will experience increasing problems due to adverse demographic trends, slowing growth due to (paradoxically) successful “catch-up”, and perhaps waning European demand for its natural gas and dissatisfaction with an increasingly atrophied and unresponsive descendant of the “Putin system”. As such, far from being a fairy tale, the “Kremlin dream” is a strategy for maintaining Russia’s geopolitical relevance well into a troubled 21st century.

(Republished from Sublime Oblivion by permission of author or representative)
 
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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.