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One of the most reliable indicators of influence is access to cars. They are the standard symbol of affluence and middle-class status the world over. They are also far more understandable at the everyday level than things like the PPP GDP per capita, or the number of burgers your national McWage will buy.

Following on my last post, which focused on production, let’s now examine another indicator: The number of cars bought in any given year per 1,000 people.

auto-sales-russia-cee

As we can see from the graph above, Russians (22/1,000 as of 2012) are now buying more new cars per person than any other Central-East European country. Now, this is NOT to say that they are richer than the Czechs (18/1,000), or even the Poles (9/1,000) and Estonians (18/1,000). The latter countries’ markets are already substantially saturated and close to Western levels of auto ownership, while Russia still has some catching up to do; furthermore, they don’t have tariffs on imported second-hand cars, whereas Russia’s are quite substantial. It is also probably true that on average Czechs buy higher quality and more expensive cars than Russians. Nonetheless, the difference between Russia and countries like post-crisis Latvia (7/1,000) and Hungary (7/1,000) are now so wide that it’s hard to argue that the latter are still substantially more prosperous.

auto-sales-russia-and-other-countries

The difference is of a similar magnitude to today’s Greece (6/1,000), in the wake of its economic depression – and has also gained on other countries that were part of developed Europe but hard-hit by the crisis like Spain (17/1,000), Portugal (11/1,000), Ireland (20/1,000), and Italy (26/1,000). In a very real sense, the fact that ordinary Russians can now more readily afford relatively big-ticket items like automobiles than citizens of some countries long considered to be past of the developed world is quite a momentous affair. In fact, not only are they being overtaken by Russia, but by Brazilians (20/1,000) and the Chinese (14/1,000) too, even if the last BRICS member India (3/1,000) continues to be mediocre. That said, there is still a very considerable gap between Russia and the truly front-tier countries like Germany (41/1,000) and the US (47/1,000).

(Republished from Da Russophile by permission of author or representative)
 
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One common trope about the Russian economy is that it has virtually no manufacturing to speak of and lives off “oil rents” that can collapse any day.

Whiles there is a small nugget of truth to this assertion, but by and large it is simply false. It is true that a great chunk of Russian exports do accrue to hydrocarbons and metals, because that is its comparative advantage in trade. That said, there are plenty of Russian products on the domestic market. The automobile industry is a good and representative example of this because they it’s a stalwart of many national economies and there exist reliable and easily accessible statistics on it.

Car Production Car Sales Autos self-sufficiency
Czech Rep. 1,178,938 193,795 608%
Mexico 3,001,974 987,747 304%
South Korea 4,557,738 1,530,585 298%
Poland 647,803 328,532 197%
Japan 9,942,711 5,369,721 185%
Germany 5,649,269 3,394,002 166%
Turkey 1,072,339 817,620 131%
China 19,271,808 19,306,435 100%
Argentina 764,495 832,026 92%
Brazil 3,342,617 3,802,071 88%
South Africa 539,424 623,921 86%
France 1,967,765 2,331,731 84%
Russia 2,231,737 3,141,551 71%
USA 10,328,884 14,785,936 70%
UK 1,576,945 2,333,763 68%
Sweden 162,814 326,441 50%
Italy 671,768 1,534,889 44%
Ukraine 76,281 263,604 29%
Australia 209,730 1,112,132 19%

As such, I decided to compile a representative list of countries, with data on production and sales for 2012 drawn from OICA, in order of the ratio of their auto production to new auto sales – that is, their degree of self-sufficiency in cars.As we can see above, while Russia is perhaps rather lower than average, its domestic auto manufacturing industry nonetheless manages to satiate 71% of demand for new cars.

This is quite comparable to France, the US, and the UK, and is vastly higher than a similarly resource-dependent rich country, Australia. Quite a lot of other resource-heavy countries like Saudi Arabia, Venezuela, and Norway don’t produce cars at all. Mexico is a huge exception, but the reason for that is that it borders the US and the US has outsourced quite a lot of its auto industry south of the border to take advantage of lower labor costs – a situation analogous to the Germans’ outsourcing of car production to Spain in the 1980′s, and Central-East European countries like the Czech Republic, Slovakia, Hungary, and Poland in the 2000′s.

(Republished from Da Russophile by permission of author or representative)
 
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By the usual standards of Guardian reporting on Russia, this one by GQ Russia editor Andrew Ryvkin is… well, about par for the course.

Citing a recent PwC report that Russia will overtake Germany to become Europe’s biggest economy in 2030, he asks, “Should we believe them?

Well, the PwC is just repeating predictions made almost a decade earlier by Goldman Sachs, which has thus far proved very accurate on the growing prominence of the BRICs in general, and of Russia in particular (regardless of repeated attempts to kick it out of that grouping, against the judgment of Jim O’Neill, the inventor of the BRICs concept himself).

So in effect Ryvkin is asking us whether we should trust a range of organizations with a great predictive record on the issue to the uninformed ravings of a Guardian hack.

Forget Russia’s very reasonable and respectable growth rates compared to the other Central-East European countries. According to Ryvkin, Russia’s downfall will be because it is “politics”, and not “strict economic policies”, that “rule these wintry lands.” What is the primary example he uses to demonstrate this?

One should also have sedatives close to hand while reviewing the figures. Russia has become one of the most corrupt countries in the world, and is barely making an effort to hide it. For instance, one of the Sochi 2014 Olympic projects – a 50 km road – costs nearly $8bn.

This meme was popularized by Julio Ioffe in the Western press on Russia back in 2010. It has also long since been long debunked, including on this very blog – although it continues to float around as a cliche among Russian liberal and journalist circles.

The only problem with looking at Russia through this failed state prism, without bothering to corroborate sources, is that in no sense can the Adler-Krasnaya Polyana route be described as just a “roadway”. Intended to be completed within 3 years in an area with a poorly developed infrastructure, this so-called “road” also includes a high-speed railway, more than 50 bridges, and 27km of tunnels over mountainous, ecologically-fragile terrain!

Then there’s this bizarre statement: “Germany, is currently associated with its policy of austerity, Russia is known for precisely the opposite.” That’s certainly news to me, as Russia has run balanced budgets for the past 2 years* – in stark contrast to, well, pretty much the rest of the developed world (including Germany for that matter).

And here you’re inevitably faced with a question: how would the Russian government act if it became a leading European economy and faced a crisis like the one in we have now in the eurozone, considering that this government has allowed the construction of a $160m/km road?

That is an extraordinarily remote possibility, seeing as Russia has fiscal unity and no significant sovereign debt (i.e. the lack of which define the European crisis). The very question is not only based on a faulty premise (the so-called “caviar road”) but essentially meaningless.

After some of the usual moralizing and content-free platitudes about the absence of Russian democracy, as well as the further extremely bizarre idea that the Chinese economy is not politicized like Russia’s**, Ryvkin wanders back on track with the usual spiel about how Russia is Nigeria with snow.

Here’s a question: who would want a Russian-made car, when even Russians don’t want them? Another one: who wants to fly Russian aeroplanes, when even in Russia people choose to fly on a Boeing or Airbus? But these huge industries still exist, resembling Frankenstein’s monsters of Soviet industrial might, brought to life by heavy injections of oil money and created by businesses that ultimately cannot produce a competitive product.

It goes against almost every aspect of economic, market-oriented logic, but it has nothing to do with the economy, because it aims to keep the workforce loyal to the government and project an image of a neo-Soviet industrial power. So is securing votes at the cost of your country’s economic development today a strategy worthy of someone who is going to lead the European economy in seventeen years? Is the strategy even smart?

Back in the world of hard facts and statistics, Russian car production was at 2.0 million units in 2011 (increasing by a further 15% in 2012) compared to 1.2 million units in 2000. Many foreign automakers have moved manufacturing into Russia, but that one presupposes is a good thing; that indigenous Russian brands haven’t done as well doesn’t mean much (which British brands are doing well apart from Rolls Royce?). There are few countries in which automobiles are a major export staple – incidentally, China with which Ryvkin incessantly compares Russia with isn’t one of them – and there is no good reason to expect Russia to become a major exporter of cars under any government, be it Putin’s or “even [a 10-year-old] (as long as he was smart enough not to stop the flow of oil and gas).”

That is because hydrocarbons are Russia’s comparative advantage, a concept which likewise explains why say Australia and Norway do not export much manufactured goods either. Ironically, the surest way to solve this “resource dependency” would be to get Ryvkin’s 10 year old President to ACTUALLY stop the flow of oil and gas.

That is also the reason why Ryvkin doesn’t work as an analyst at PwC but writes articles for the Guardian.

* Actually latest estimates show that 2012 had a deficit of 0.02% of GDP, but that’s of course basically a rounding error.

** Where to even begin here? For a start, consider the fact that the HQ’s of all the major Chinese companies have a “red machine” with a telephone link to Party functionaries

(Republished from Da Russophile by permission of author or representative)
 
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In terms of new cars, they now are. According to 2011 statistics, Russians bought 17.6 new automobiles per 1000 people. This indicator is still quite a bit below most of Western Europe, such as Germany’s 38.5, France’s 33.4, Britain’s 31.9, Italy’s 30.1, and Spain’s 20.0. However, it has already overtaken most of East-Central Europe, whose figures are: Czech Republic 17.0, Slovakia 12.5, Estonia 11.7, Poland 7.2, Hungary and Ukraine both 4.5, Romania 3.7. Likewise, some countries that by the 1990′s came to be regarded as natural parts of affluent Europe are now behind Russia on this measure: Portugal 14.4, Greece 9.0.

Now this is just one example, and the market for one consumer durable good isn’t going to be perfectly reflective of the overall situation. The crises in the PIGS may be temporarily dissuading nervous consumers from making large purchases; another factor to consider is that their overall car fleets are bigger and newer than Russia’s, so there is not as much of an incentive to get new cars. And taking into account a much larger basket of goods, the World Bank estimates Russia’s GDP per capita (at PPP) to be $20,000, which is still considerably behind $25,000 in Portugal and the Czech Republic, and $32,000 in Spain.

What’s all the better is that the current improvements in Russia’s relative position are happening against the background of extremely benign debt dynamics; aggregate debt is only 74% of Russian GDP, compared to 184% in China, 280% in the US, and more than 300% in most of Europe. This leaves it with a great deal of fiscal and monetary wiggle room in the event of a renewed global crisis that is no longer available to the developed world or lauded emerging markets such as Brazil, India, Poland, Turkey, and Poland. While the affluence gap between Russia and the most developed nations remains large it is nonetheless being steadily and sustainably closed.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Though it’s not quite true that Russia has “no roads, only directions”, the old saying isn’t far off the mark. The World Bank’s recent report on Russia’s economy notes that the Eurasian giant’s road network is primitive and crumbling, coming in 111th in a global ranking (the railway system does much better at 33rd); more than half its highways do not meet minimum riding quality requirements. None of this should come as a big surprise to anyone who has had the pleasure* of driving beyond Moscow’s MKAD.

One of the main gripes of Russia’s limousine liberal opposition is the low priority the Kremlin places on the country’s road development – according to Boris Nemtsov, the rate of road construction during the Putin era fell by two or three times relative to the Yeltsin years (these figures don’t tally well with the official statistics but whatever). My intention here isn’t to wrestle over numbers and details in an attempt to either vindicate or condemn Putinism, instead I am going to consider a far more fundamental question: is it really worth Russia’s while to invest limited resources in a high-entropy system with no future that will furthermore accentuate socio-economic divisions in the short-term?

First, there is the imminent reality of peak oil. World oil resources are finite and there is evidence suggesting that production peaked globally in 2005 or 2008 (depending how you measure it), and that Russia will peak sometime between now and 2015. While Russia will continue extracting plenty of surplus to satisfy its own needs, is there really a need to use its energy proceeds to expand a transport system that will soak up ever more domestic oil production? Surely there are better uses for this revenue, such as improving its abysmal energy efficiency, refurbishing the creaking R&D system or even just getting more foreign currency? Eventually, of course, Russia’s oil production surplus too will dwindle and vanish: thereafter, its high-entropy road system, with its long asphalt serpents and wheeled metallic gas boxes, will decay into mud tracks and rust carcasses, and then into mere directions in the deepnesses of Eurasia. (Another thing that bears mentioning is that rising Russian domestic oil consumption will make the collapse of oil availability in the deficit countries that much more rapid due to the dynamics of the Export Land Model).

Aren’t I ignoring alternate automobile energy sources, such as hydrogen and electric? I don’t buy much into the optimistic prognoses. Due to its fundamental problems with energy wastage, storage and infrastructure deficit – suffice to say, you need about one liquid hydrogen truck per twenty vehicles compared to one gas truck per two hundred – hydrogen is unlikely to ever displace hydrocarbons on the mass scale needed to preserve automative culture in its heyday form. Electrics have relatively better prospects, but they remain several times more expensive than conventional cars: though battery technology is improving rapidly, the availability of the Rare Earth Metals used to make them is moving in the opposite direction. In short, both hydrogen and electrics are far more structurally energy-inefficient and hence expensive than today’s hydrocarbons; as soon as shortages drive oil prices into the stratosphere, widespread vehicle use by the middle classes will retreat into history. Why should Russia even embark on this road to nowhere?

Second, it should be stressed that even as of 2008, there were only about 210 automobiles for every 1000 Russians, compared to 500-700 in the developed countries. If the Russian state were to fund a world-class highways system, like the American interstates or the German Autobahnen, their benefits would only be immediately enjoyed by perhaps a third of the population (its more affluent part). While this would no doubt be welcomed by the likes of Boris Nemtsov, a pro-bourgeois shill who bemoans Russia’s maternity benefits because they increase fertility amongst the poor, and by Yulia Latynina, who decries democracy for allowing poor people to vote, I fail to see how this would improve the lot of Russia’s marginalized and pensioners. Viewed from this prism, the Russian government’s decision during the economic crisis to increase social benefits – including a 30% rise in pensions this year – is far more socially just than taking the World Bank’s suggestion to increase road infrastructure investment.

Instead of subsidizing the already prosperous bourgeoisie off the state’s lard, Russia would be far better served leaving the road infrastructure to market forces. First, they are subject to less graft and waste. State contracting for road-building is riddled with corruption, even by Russian standards: around half to two thirds of allocated funds can be expected to get “lost”. Second, where heavy demand exists, private companies build toll roads (e.g. the Moscow to St.-Petersburg route). These are already sprouting where traffic flows are heavy and are of much better quality than the state projects. Only people who use these private roads will have to pay for their upkeep, instead of the all-Russian taxpayer. Likewise, where there is little demand for roads, such as the symbolic but unprofitable trans-Siberian route, capitalists will not waste capital.

Third, Russia’s geography itself hardly befits an auto-faring civilization. The cold climate, seasonal melting and vast distances make upkeep difficult and costly, even if it weren’t weighed down by corruption. The vastnesses of northern Eurasia are far better suited to railways, whose operation is inherently cheaper and cleaner. Unlike automobiles, railway fares are affordable to ordinary pensioners and the indigent. Encouragingly, investment into Russian railways is very substantial and there are plans for a high-speed rail link between Moscow and St.-Petersburg and other high-traffic routes.

In the US, the automative age got kickstarted in the 1950′s, when oil prices were low, affluence was rising fast and the US government financed the Interstate for military purposes. In turn, this project gave an impetus to the growth of a suburbia that now forms the core of its service economy. However, as Howard Kunstler and others have pointed out, it is an economy with no future: critically dependent on concentrated energy sources to support a high-entropy, unsustainable and soulless lifestyle, and one that only continues to be subsidized under the political pressure born of the “psychology of previous investments”. This is not a road Russia should aspire to travel, regardless of the superficial attraction of the American suburban idyll. It is a spiritual cemetery, and soon to become an economic one too**.

* Not being ironic here, BTW. Driving in Russia is far more fun than in any European country (with the possible exception of Germany’s limitless speed Autobahnen). I’m a thrill-seeker that way.

** I’m also highly skeptical of the usefulness of India’s expansion of its Golden Quadrilateral, for a nation where mass car ownership is non-existent and unlikely to ever materialize and which doesn’t even have metro systems in most of its biggest cities. Likewise for China, though at least its railway plans are appropriately gargantuan and ambitious.

(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.