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unsolved-socialism-problem

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

Translated by: Fluctuarius Argenteus; slightly edited by AK.

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

***

Socialism Not Dead: Paradoxes of an Unsolved Problem

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

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

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

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

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

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

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

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

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

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

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

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

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

piketty-capital-income-ratio-europe

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

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

piketty-russia-inequality-history

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

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

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

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

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

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

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

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

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

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

piketty-top-income-tax-rates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

***

Notes

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

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

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

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

***

Translator’s Note

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

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

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

europe-gini-index

This conventional view is mostly true.

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

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

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

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

niip-eastern-europe

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

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

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

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

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

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

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

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

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

Of course opinions on the desirability of this will differ.

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

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

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

 
• Category: Economics • Tags: Eastern Europe, Inequality 
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The question of Indian IQ is a big puzzle. Far trickier than China’s IQ which I think I’ve basically figured out (101-102 today; 106-108 genetic ceiling).

The PISA-adjusted IQ of India – as extrapolated from the states of Tamil Nadu and Himachal Pradesh, which are relatively rich and are reputed to have good school systems by Indian standards – is a miserly 75.4; Richard Lynn, in his latest estimates based on an international standardized test from 1970 and a more recent TIMSS study in the states of Rajasthan and Orissa is 82.2. The chart above compiled by Steve Sailer from Lynn’s data on numerous IQ tests also indicates it is the low 80′s. In my opinion the low 80′s figures given by the IQ tests is more accurately reflective of today’s Indian g because PISA is after all an academic test and Indian schools leave a lot to be desired.

Regardless, the differences between Indians, and East Asians and Europeans, are huge. India is in fact at the upper level of sub-Saharan African IQ which typically ranges from 65 to 80. There are lots of factors holding India back: Malnutrition (which is on average perhaps worse than in sub-Saharan Africa), vegetarian diets, poor education system, a moderately high rate of consanguineous marriage. But all that said the sheer size of the gap makes me skeptical that all of it is down to environmental factors alone.

On the other hand the average IQ of Indian immigrants to the US is an Ashkenazi Jewish-like 112. Ramanujan was assessed by G.H. Hardy, no lightweight himself, as the most gifted mathematician of his age. Going back further in time, India has a pretty stunning religious, linguistic, mathematical, and philosophical heritage. Only a continuous stream of very high IQ individuals could have both created and sustained such a heritage.

Another very telling feature of India is the pervasive inequality that has characterized it throughout time. Kenneth Pomeranz notes in his book The Great Divergence on why it was Europe and not China that underwent the Industrial Revolution that Early Modern India had levels of inequality significantly in excess of that of either China or Western Europe. Consider that (1) redistributive wealth mechanisms were virtually non-existent then, (2) that India unlike China or Europe nonetheless still had a lot of unused resources which typically puts a damper on inequality; (3) the always relevant correlation between wealth and IQ. All this implies an “IQ Gini index” considerably greater than in either Europe or China even in the pre-industrial past. And according to Sailer, even today whereas “China focuses on giving the masses a solid basic education that prepares them for manufacturing jobs” India on the other hand “focuses more on giving outstanding university educations to the meritocratic elite.”

Finally, we also know that India remains a heavily caste based society, despite very vigorous government attempts to legislate it away. They don’t tend to intermarry. They eat different foods. And they do appear to differ markedly in IQ. Brahmins occupy a lot of the intellectually demanding positions (I cannot find the source but I recall reading that almost all members of India’s version of the Manhattan Project were composed of Brahmins). A lot of the (super high IQ) US Indian immigrants appear to be Brahmins. Meanwhile Indian immigrants to Britain or those who live as diasporas in sub-Saharan Africans tend to under-perform Anglo whites by about 0.5 S.D. These are the “Patels”, etc were talking about who are mostly Vaishya or Shudra and who constitute the vast bulk of India’s population. If they are typically scoring in the low 90′s and India’s average is in the low 80′s then *that* difference can plausibly be ascribed to the Flynn Effect.

So let’s do the power summary for India:

  • Many cultural achievements (philosophy, religion, literature) that up until the Early Modern period compared respectable with those of European, Near Eastern, and East Asian civilization, but were much less prevalent in sub-Saharan Africa.
  • Levels of inequality in Early Modern times that were higher than in Western Europe, China, or Japan even though on objective factors (e.g. lower levels of land stress) should have been lower.
  • The caste-based nature of traditional Indian society that the government has been powerless to stamp out.

What I conclude from this is that in terms that would be familiar to Westerners: India is a nation of Gypsies and Jews.

Over the centuries, Brahmins have been selected for intelligence. They were expected to master requisite texts and those who couldn’t handle it dropped away. These selective pressures did not apply to the lower castes who made up the vast majority of the population.

The reason for why India split along caste lines was because of Hinduism and its origins as a religion/ideology to hold society together under the boots of the conquering light-skinned Aryans who brought down the original Harappan civilization (indeed 4 millennia on Bollywood still glamorizes lighter-skinned actors and this is not very controversial within Indian society). These invaders became the Kshatriya military caste, and the Brahmins became their spiritual apologists and enablers. (The Kshatriya were also the one major caste that was allowed to eat meat to build up muscles. Quite logical). The darker skinned aborigines had to continue tilling the soil for their new masters.

Christianity.proclaimed the spiritual inequality of all men. In fact it was a very special religion in that it took a very strict line against within-kin marriages in general. Hence why a caste society or anything resembling it is pretty much impossible under Christianity as long as everyone is considered a fellow Christian. (Whereas caste is inherent to Hinduism). Nonetheless we learn that even a millennium after the Norman invasion of Britain people with Norman surnames such as Darcy, Percy, Baskerville and Mandeville are still on average richer than Anglo-Patels like Smith, Mason and Cooper. Nonetheless British society as Western Europe in general traditionally considered itself as one organic society with only small groups of “service nomads” like Gypsies (peddlers, fortune tellers) and Jews (moneylenders) outside it.

In India basically the entire population appears to be composed of “service nomads” who belong to their own groups and exchange services with other groups. The Vaishya are traders and artisans; The Shudra are farmers; the Kshatriya are warriors; the Brahmins are priests and scholars. Their religion is what binds them together and keeps the whole thing flowing, hence why it is not opposed even by those ostensibly disadvantaged by it. Over several millennia of this caste society operating, in which different castes hardly ever intermarried, you got a plethora of distinct populations that were adapted to their particular divinely-appointed task in life.

In practice this meant a small subsection of Ashkenazi Jewish-like Brahmins with very high IQ’s; and a huge mass of peasants with genetic IQ ceilings somewhere in between those of Europeans and Negroids.

(I would also hypothesize that after the coming of medical modernity this makes for a bad dysgenics situation because Brahmin families will probably have far lower fertility rates than say Shudra, so their share of the Indian population will dwindle; in contrast, homogeneous European and East Asian populations would appear to be more insulated against dysgenic trends because in those societies dysgenics only occurs via lower IQ segments of the population having more kids, while in a place like India – or increasingly multicultural America/Europe – not only lower IQ individuals have more kids but also lower IQ population groups).

So my estimates: (1) India’s current IQ is in the low 80′s; (2) The Flynn effect could yet bring it up to perhaps the low 90′s if India successfully develops (in China the gap is about 5 points but China is of course far richer now and eats far more meat); however, successful development is much harder than in China because starting point IQ’s are far lower. We can expect India to continue growing and gaining on the developed nations but at a pace that will never match China’s; nor, barring technological revolutions (brain-computer interfaces, etc), will it feasibly ever develop to the levels of majority East Asian or European societies.

India will continue benefiting from an extremely intelligent and culturally creative but also very small intellectual upper class of Brahmins. Unfortunately much like Jews they cannot be expected to be all that loyal to the Indian nation (to the extent that an Indian nation exists).

(Republished from AKarlin.com by permission of author or representative)
 
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From their latest Editorial / anti-Putin rant, via Mercouris. It is not with the ideological rhetoric that I have an issue with; it’s The Guardian, after all. Nor am I especially interested in defending Pussy Riot’s prosecution (my own views on the matter jive with Kononenko’s). I do however have an issue with the The Guardian explicitly misrepresenting or outright lying to support its agenda – a modus operandus that is now all too common to it and makes a mockery of the “facts are sacred” values it claims to uphold. In this “fisking”, I will only highlight the most egregious violations of basic journalistic standards.

“Their protest is not made of slogans and placards, but is crafted from art, dance and performance. Putin and his henchmen know how to deal with the former – the hundreds of thousands who have spilled into the streets in the last eight months – but their handling of the these women is much less assured.”

The Protests for Fair Elections got at very, very most 100,000 at the biggest such rally, the one on Prospekt Sakharova in December – a count made by Russia’s most liberal mainstream newspaper. (Other estimates ranged 60,000-80,000). That is, they numbered in the tens of thousands. If they want hundreds of thousands, they had better look elsewhere… say, Spain.

“The trial takes place in the same courthouse where alleged fraudster and billionaire Mikhail Khodorkovsky, former boss of the Yukos oil company and Putin’s political enemy, was tried.”

Not an alleged but a CONVICTED fraudster, in a judgment ruled sound by the ECHR.

“The treatment meted out to these ordinary, playful, even harmless young women and mothers has shocked and outraged ordinary Russians.”

April poll, Levada: 47% of “shocked and outraged ordinary Russians” think 7 years is an adequate punishment; 32% think it is excessive; and a mere 10% do not think they should be criminally prosecuted at all.

April poll, VCIOM: How do Russians look at Pussy Riot’s “punk prayer”? Hooliganism – 46%; sacrilege – 21%; political protest – 13%; PR – 10%; 4% – encouragement of hatred towards religious groups; 1% – art. In other words, only 14% of Russians agree with The Guardian’s interpretation. 86% think Pussy Riot should be prosecuted.

July poll, Levada: 36% approve of the prosecution of Pussy Riot, 50% disapprove.

July poll, FOM: 34% of Russians think that several years in prison is a just sentence, whereas 37% disagree. If they were asked to write a sign a letter in defense of Pussy Riot, 28% say they would and 51% say they wouldn’t.

Based on the above polls there is no consensus on what to do with Pussy Riot but most certainly the case has no shocked or outraged many Russians. For that matter very significant minorities consider that a prison sentence of several years would not be out of place. Whether or not one agrees with or is horrified by that is quite irrelevant. What IS relevant is that The Guardian has cardinally misrepresented Russian social attitudes to its readers in order to push its own partisan agenda.

Why does The Guardian so often conflate its own left-liberal views and biases for that of the “ordinary people” it pretends to speak for? (This is a rhetorical question)

“… brought him, until as recently as 2010, approval ratings of around 80%. That is no more. His ratings have plummeted.”

Does this look like a “plummeting” approval rating to you? (chart via Mark Adomanis via Levada Center)

“Resentment towards the political elite, the widening gap between the immensely rich and the poor, the deteriorating social security system, the collapse in oil prices and what Forbes has called “a stampede” of investors out of Russia – an outflow of $42bn in the first four months of 2012 – means the economy is flagging.”

Russia’s Gini index of inequality was 41.6 in 2011. This is virtually unchanged from the 38-43 range is has been in since 1993. Wrong.

Russia’s GDP grew 4.9% in Q1, and is estimated to have increased by 4.0% in Q2. (For comparison, the UK is in an outright double-dip recession). Russia’s industrial PMI for June 2012 is higher than in Brazil, China, and all G7 countries bar Canada. On what basis then is the Russian economy “flagging”, especially in the context of near-recession in the Eurozone and an appreciable slowdown in China?

One can take issues with several other characterizations in that paragraph. Oil prices have hardly collapsed (they are still higher than in any year bar 2008 and 2011); it is unclear what exactly The Guardian means by “resentment” or “deteriorating” (certainly it is unlikely to be backed by statistical data if the other claims are anything to go by); and the points about capital outflow as usual do not go into the structural specifics of said outflow (hint: A large portion of it is European daughter banks in Russia recapitalizing their mothers in the Eurozone).

But the complaint is not about those claims shoddy as they mostly are. It is about the two outright, demonstrable LIES in this paragraph.

“… the new laws include a requirement for non-governmental organisations to carry a “foreign agent” tag”

“The new laws include a requirement for non-governmental organisations THAT ENGAGE IN POLITICAL ACTIVITIES AND RECEIVE FOREIGN FUNDING to carry a “foreign agent” tag.” Fixed.

As per the best Western traditions, as pointed out by Mark Chapman.

Well, who has to register in the United States, under FARA? Persons who are acting as agents of foreign principals in a political or quasi political capacity. Quasi-political? Isn’t that a little vague? Well, perhaps they’re a little more specific in the Frequently Asked Questions section. Here, we learn that “foreign principals” means “…foreign political parties, a person or organization outside the United States, except U.S. citizens, and any entity organized under the laws of a foreign country or having its principal place of business in a foreign country” (emphasis mine), and that the purpose of the Act is “…to insure that the U.S. Government and the people of the United States are informed of the source of information (propaganda) and the identity of persons attempting to influence U.S. public opinion, policy, and laws“.

Why is The Guardian so contemptuous of even the most accessible facts when they go against its own narrative? (This is a rhetorical question)

(Republished from Da Russophile by permission of author or representative)
 
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While researching my article on Soviet economic performance relative to the US (it was bad), I came across this fascinating graph showing income inequality in the USSR since 1946.

As you can see, the 10% richest Soviet citizens in the first postwar year were more than seven times as rich as the 10% poorest. That is actually substantially higher than in many capitalist social democracies today: Czech Republic (5.2), Finland (5.7), Germany (6.9), Japan (4.5), Sweden (6.2). Russia’s current R/P ratio is about 13 IIRC.

And there’s lots of factoids that support this assertion:

(1) Stalin increased his own salary as General-Secretary from 225 rubles (until 1935), to 500 rubles in 1935, 1,200 rubles in 1936, 2,000 rubles by the end of the war, and a cool 10,000 rubles by 1947.

(2) While in the 1920′s there were strict limits on managerial salaries as a percentage of workers’, in 1929-1934 they were quietly lifted. In the 1920′s, the “Party maxim” was 175 rubles compared to average worker salaries of 50 rubles; whereas by 1937 the average manager-worker differential increased to 5:1 (higher than in contemporary Paris, where it was 4:1). This figure doesn’t include unofficial payments in envelopes and huge bonuses for over-fulfillment of the Plan.

(3) In the military, a lieutenant’s salary in 1939 was 625 rubles, compared to a colonel’s 2000 rubles. This was a higher differential than in France, where it was 2,000 francs and 5,000 francs, respectively. Or for that matter far higher than in today’s “oligarchic” Russia, where a lieutenant now gets 50,000 rubles and a colonel 75,000 rubles.

(4) The highest administrative salaries reached into the 10,000′s of rubles, e.g. the director of one Kharkov enterprise in the late 1930′s got 22,000 rubles. The chairman and deputy chairman of the Supreme Council got salaries of 25,000 rubles. These figures are 100x the salary of an average worker which was 250 rubles and a minimum industrial wage of 110-115 rubles.

Another interesting factoid I discovered was that the supposedly education-worshiping Soviet government made people pay for it from 1940 onwards. The 8th-10th classes of schools, as well as colleges, now cost 150-200 rubles per year to attend (10% of an average worker’s yearly salary), while higher education cost 300-500 rubles. This system was only removed in 1954.

So apart from the well-known features of Stalinism (repressions, etc) it seems to have also been a period of privilege – in which bureaucrats may have been very unsafe but did enjoy incomes that were unprecedented compared to the rest of Soviet history. Overall inequality wasn’t astoundingly high because private enterprise had been banned for the most part, but inequality within the actual state structure was; quite possibly, more so even than today. Needless to say it was also full of informal hierarchy in terms of privileged access to scarce goods – the 1930′s-40′s was a horrible period for Soviet consumers.

I wonder what Russian Stalinists who idealize the period would make of all this?

(Republished from AKarlin.com by permission of author or representative)
 
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Not like most people in Moscow live in palaces.

There is a certain Russian expression: “Москва — не Россия” (i.e. Moscow, isn’t Russia), to denote the idea that while the capital may be rich, at least by Russian standards, the rest of the country languishes in grinding poverty. This is a trope is frequently taken up by the Western media, which at times presents the Russia outside Moscow and St.-Petersburg as a wasteland languishing in Third World-style destitution. It is also commonly implied that Moscow is growing fast in prosperity, while the rest of the country lags behind.

And at first glance the statistics seem to confirm this, with salaries in Moscow for 2010 almost double the Russian average. Income disparities are even greater, the average income in Moscow being 2.5 greater than in Russia as a whole. It accounts for about 20% of Russian GDP while only representing 7% of its population. But as is usually the case, there is an important catch. As argued in an excellent article by Sergey Zhuravlev, there are several factors dragging down Moscow’s real level of prosperity.

First, prices for a fixed assortment of goods and services in Moscow are approximately equal to the OECD average, and higher than in the rest of Russia by a factor of about 1.4 (see Rosstat). This means that a ruble of consumption in Moscow only buys as much as 70 kopeks in the provinces.

As a result, the 2.5 differential in incomes – this figure, by the way, is down from its peak of 3.6 in 2000, so in reality Moscow has grown substantially slower than Russia as a whole – is reduced to about 1.8 as of 2009.

However, what’s more, Moscow’s level of inequality is the greatest in Russia (as one might expect of a city with so many billionaires). It’s Gini index of 52 is about 10 points above the Gini index for Russia as a whole. So the median resident of Moscow got only 36% as much income as the typical Russian in 2009 (albeit this figure would likely recover to its more typical level of about 50% after the recession). A disparity of this modest scale is fairly large but not completely atypical by developed country standards.

Two conclusions follow. First, headline figures of the gulf of the inequality between ordinary denizens of Moscow and the rest of Russia overestimate its real extent due to their omission of price differentials and intra-regional inequality (both of which favor Russia). Second, the gap has been slowly narrowing over the past decade, as both incomes and prices in the Russian interior slowly converge to Moscow/OECD levels.

This is not to say that Moscow is poor, far from it, most of its socio-economic and consumption indicators are at or near the top of the Russian regions (e.g. meat consumption, Internet penetration, etc). But for most people living standards are not cardinally different from what they’d experience in in any other Russian city.

(Republished from Sublime Oblivion 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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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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The standard view of the American economy is one of exponential growth: even if interrupted by a recession once a decade and a Depression once every two generations (the 1890′s, the 1930′s, the 2010′s?), the engines of industry would always come back roaring again. Output per American could always be expected to increase as it has from 1790 until the present day. There has never been a decade, even during America’s two Depressions, when US GDP was lower at the end than at the beginning.

However, another point of view on the US economy can be developed by drawing on observations of factors such as median income, energy consumption and inequality. Broadly speaking, this picture is one relative stagnation from 1890-1940, and again from 1973-today, punctuated by the truly remarkable “miracle economy” of the post-war boom. Furthermore, the US is now about to transition to a new phase: economic stagnation and anarchic stasis, to be followed by oligarchic Caesarism. This first post will be, for now, just a series of observations that I believe to be inextricably linked, but lack the theoretical foundations to put on a sound footing. Feel free to skip it, as it might be hard to follow and I’m mostly writing it to get greater understanding for myself. More polished version(s) to follow.

1. Median incomes (the ones that matter to ordinary Americans) tell a radically different story from the GDP figures. As shown below, they remained at a virtual plateau from 1914 to 1940. During the WW2 mobilization, spare capacity filled up, as factories began to produce the tanks, ships, planes, jeeps and misc. that played a crucial role in the Allied victory. After the war, what might have been a new plateau from the 1940-50 base accelerated, literally driven by the automative revolution; it is during this time that the US became a suburban, oil-based civilization.

ave-us-income-saez

However, the oil shocks of the 1970′s threw a jackhammer into that arrangement. Since then, the only discernible rise took place in the 1990′s: a period that saw the opening up of the Chinese “reserve army of labor” and the Soviet resource base to global markets. These began creating powerful deflationary effects in the US. But things went into reverse altogether during the past “lost decade“.

The median household income in 2008 was $50,303. The median household income in 1999, expressed in 2008 dollars, was $52,748.

You’ve got to figure 2009 will see another decline in income, in which case Americans will end the decade significantly less well off than when they started it. We’re not just treading water. We’re going backwards. …

Still, the 2000s have been especially barren. Median income rose only in three years—2005, 2006 and 2007, and even at the cyclical peak in 2007 it was below the levels of 1999 and 2000.

2. More on the energy developments during the period. During 1950-70, the US enjoyed very rapid growth both in absolute energy consumption and the energy efficiency of its techno-industrial base. Therefore, the quantity of “useful work” available for exploitation by American labor and capital increased very rapidly.

But this growth moderated since the 1970′s. Given the continuing reduction in the EROEI of oil, the peaking of the net energy flowing into the US economy from coal in 1998, and the turn to costly shale gas to maintain natural gas production volumes observed within the last decade, this trend must have only strengthened in the 2000′s. Graphs are taken from Economic Growth and Cheap Oil (Robert Ayres).

us-exergy-services-supply

The growth in the”technical efficiency” with which exergy is converted to “useful work” by the American economy has been flattening since the 1980′s (probably due to diminishing returns to investments into more efficiency: see Tainter, etc). Though Obama’s drive to increase energy efficiency is laudable, it will be hard to achieve big results given that most of the low-hanging fruit have already been picked.

technical-efficiency-us-exergy-services

If further improvements in technical efficiency are low, then the US will be going into a permanent hyper depression in the years ahead according to Ayres’ calculations. As of today, the observed results match the Low forecast.

ayres-us-gdp-forecasts

There’s little reason for hope. The potential for squeezing more “useful work” – the single biggest factor in GDP growth – out of the current US energy base are very limited. Coal, oil and natural gas are roads to nowhere. While nuclear and renewables are far more sustainable in the long-term (for maintaining an industrial base), they need 1) several decades to be build up and 2) given the same investments in K and L generate less useful work than today’s hydrocarbons because of their low EROEI’s.

3. Another interesting thing is that the period of stagnant US median incomes is linked with rising inequality. (This explains the continued moderate growth in consumption and GDP – its just that since 1973 a very large portion of it has been accruing to the guys at the top of the pecking order).

Now in stagnant systems – e.g. overpopulated agrarian societies – this is explained (Turchin) by the fact that land, food and credit prices have a tendency to go up, benefiting the elites (landowners, financiers, etc) relative to the rest of the population. While similar processes apply to industrial societies (see Marx), its effects can be combated by the powerful redistribution mechanisms available to the modern state (that were lacking in the agrarian states of yore). Hence, despite the fact that since the 1980′s Western Europe has been on much the same vastly lower growth trajectory, inequality in states such as France and Germany has remained low.

On the other hand, the US – having progressively deregulated the financial sector and knocked down marginal tax rates – has experienced a massive increase in inequality that may now be approaching the levels of the Gilded Age.

marginal-tax-rates

4. Fertility rates are linked to economic conditions. One of the many explanations for the post-war baby boom in the US is that soldiers were returning home, social conservatism, etc. But none of them are very convincing as comprehensive explanations.

us-fertility-rate

Instead, one may interpret the above graph as follows:

  • 1900-1940: stagnant median incomes; TFR approaches replacement level rates as the US ceases being an agrarian society.
  • 1940-1970: the baby boom as US middle class living standards expand rapidly. Populations tend to expand rapidly when their resource base expands. Interesting why TFR expansion started dropping in early 1960′s, though: perhaps looking at cohort TFR’s (which adjust for average age of childbearing) would yield a better fit with the economic stats?
  • 1970-2010: roughly replacement level TFR’s, stable median incomes.
  • 2010+: if median incomes begin to fall in the future, due to energy constraints and/or fiscal collapse, we might well see the TFR drop to something like 1.5.
  • A comparison: Russia completed its post-agrarian fertility transition by the mid-1960′s; after that, the TFR remained stable at around 1.9-2.1 until 1990 (as we know this was a time of zastoi / stagnation, esp. in the later part of this period). But in the 1990′s Russia’s TFR fell off a cliff, along with real living standards (not only did average incomes fall, soaring inequality made most people’s income fall even faster). The nadir was reached in 1999 (TFR=1.16) and has since risen up to 2009 (TFR=1.56).
  • Of course, non-material factors also play a big role: e.g., why is German TFR so much lower than France’s? etc…

5. Preliminary speculations. The reason I’m very skeptical on the Keynesian / Krugman vs. Austrian / Tea Party “debate” is that both positions, though ostensibly opposite, are based on the same presumption: that further economic growth is still possible, if only their policy prescriptions were to be followed. (In a recent Oil Drum posting Gregor MacDonald laid out my thoughts very well in Hollow Men of Economics.

So, Krugman draws many simplistic graphs showing how growth was bigger during the (Keynesian) 1950′s-1960′s than during the (monetarist) 1980′s-2000′s, ergo, the government should throw more and more money at the economy, the deficits and debts be damned. Then there his ridiculous “invisible” bond vigilantes argument: if the US can sell debt so cheaply, why should we worry about exploding budget deficits? Only a few things wrong with this theory…

  1. It’s a complete strawman! By the time the bond vigilantes take off their invisibility cloak, the costs of servicing debt – much of it now in short-term bonds which have to be frequently rolled over – will begin to spike, leading to an irreversible death spiral.
  2. Makes the questionable assumption that the US will grow at 2-3% in the future, whereas 1) the necessity of deleveraging, 2) the exergy situation and 3) the fragile geopolitical situation makes this highly unlikely.

Of course, the Austrians / WSJ are no less insane. If only the rich could get more tax breaks, if only banksters and oil corporations could be coddled even more than they are already, everything would be fine and dandy and we’ll be growing our way into a Randian paradise of abundance.

Both sides UTTERLY fail to consider the vital factor of useful work to economic growth. Useful work is a function of exergy & technical efficiency. Exergy is likely to peak and go into decline within the decade, given the trends in the energy base; technical efficiency appears to have a trend of flattening out. If investors were to suspect there are no prospects for future growth, the credit system – the economic equivalent of fertilizer in agriculture – as it exists today would collapse (why give out loans if there’s little prospects they will be repaid?), and the consequent drop off in investment will lead to depreciation overtaking and the capital stock beginning to contract. Finally, while the labor force will continue to expand, its quality will not because American IQ has been flat since around the 1980′s because of the cessation of the Flynn effect. (The *only* positive, productivity enhancing trend at work is the continued informatization of the economy, which may gain a boost with the appearance of ubiquitous, specialized and highly effective AI’s by the 2020′s.)

This is not an attractive view to take, because it basically means that whatever the government does or doesn’t do, GDP decline is inevitable. But the alternatives aren’t rosy either:

  • If Krugman “wins” the debate: the economy sputters along for a few years, never getting onto a sustainable growth trajectory. Awning budget deficits and ballooning of the public debt (which is now at 140% of GDP if you also count local/municipal debt and Freddie Mac/Freddie Mae liabilities). The result: an Argentina 2000/Latvia 2009-style collapse, probably sometime around 2012-15 (might be triggered by a “geopolitical shock”). End-result: some kind of American Caesarism.
  • If Austrians “win” the debate: the decline is grinding and gradual, rather than sudden and catastrophic.

Instead, it would perhaps be a better idea to craft policies in such a way as to minimize the harm done for (as I suggested in my abortive “Collapse Party” project) and at the same time make the foundations of the American state stronger.

  • Reintroduce the high marginal tax rates of the 1950′s-60′s to reduce inequality and shift the burden to those able to shoulder it. Might prevent the soaring inequality / corruption / resentment that leads to crony Caesarist outcomes. Problem: ACHTUNG SOCIALISM!
  • Allow the financial system to contract / collapse as needed. Today, it is a rotting dead weight on the US – both economically (there’s no need for such a huge financial sector in the first place) and morally (they are a class apart from normal Americans). Problem: institutional capture means same banksters wield immense influence over both parties of power.
  • Reduce military expenditures. There’s a lot that can be cut. First, the metastasized “war on terror” apparatus. Second, the expeditionary/naval component can be cut. There’s no long-term hope of containing China, but the Western US itself is secure. The Pacific Fleet can be reduced. Get out of Afghanistan. On the other hand, maintaining dominance in the Atlantic (core US interest) and the Middle East (oil) is useful. Third, saved money can be used to 1) continue research into next-generation military technologies, 2) reducing deficit. It’s not really a choice, actually. Military contraction is inevitable in the next decade: the only question is whether it will be uncontrolled (as during 1990′s Russia, when c.70% of Soviet military assets depreciated into junk) or controlled (with the result that core strengths will be preserved). Problem: suggesting reductions in military spending is unpatriotic & goes against the powerful defense & MIC lobby.
  • Obamacare is imperfect, but one of the administration’s best achievements. Leave as is.
  • Use savings from cutting off subsidies to the MIC & financial mafias – and the bigger tax intakes – to launch a coordinated restructuring of the US energy base. To accelerate the transition to sustainability, start planning and building lots of new nuclear power plants, and renewables. Start phasing out coal. First, makes a positive contribution to helping the world avoid catastrophic climate change. Second, this transition is in any case inevitable once the EROEI of hydrocarbons dips to lower levels – but by then, switching will harder because there’ll be many other challenges on the plate (e.g. mitigating the increasing effects of global warming; coping with the dearth of capital). So make a head start now. Problem: requires the kind of forward thinking that institutions are chronically incapable of.
  • How do solve all these problems? Obama needs to take a gamble, revolutionize his leadership, launch an all out political assault against the enemies of progress. Problem: not going to happen.

And that’s the story of it.

If I had to bet on it, I’d say US GDP per capita will be 5-25% lower in 2020 than it is now – even though we’re in recession. (Unlike with the 1930′s Depression, there’s no abundant, very high-EROEI energy subsidy on the horizon waiting to propel the US to another level). Inequality will be no lower than today, because of the power of today’s stakeholders in the system, hence – coupled with lower output and the waning of the credit system – median incomes will be a lot lower; hence, many more people in outright destitution. The center of gravity (economy, population) shifting back to the north and east (above all the Great Lakes region) from the south and west. The Presidency will have transitioned to some kind of Caesarism, served by a clique of politically-connected oligarchs. Any imperialist adventures now confined to the Western hemisphere. The citizenry too atomized, apathetic and preoccupied with quotidian concerns to do much about it.

I appreciate your thoughts and criticisms of this post, but do note that it is not meant to be final or “serious”; more like a strange mix of relatively obscure economic concepts, lazy extrapolations and personal impressions. As I said at the beginning, I hope to refine and connect these ideas into a more rigorous and logical framework in the future.

(Republished from Sublime Oblivion by permission of author or representative)
 
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I’ve been accused of being a “Russophile cockroach”, an “amoral Putin lackey”, and overall bad guy. Guilty as charged! Yes, I do like Russia and don’t have much good to say about the Western media’s coverage of it. Yes, I don’t give much of damn for the moralistic posturing that any vapid idiot Kremlinologist can easily excel in. And yes, I do have a positive opinion of Vladimir Putin (as do 75%+ of Russians). Now granted, part of this probably has something to do with the huge amounts of money his FSB minions kindly slip under my door for glorifying their Tsarist godfather on the Internet in my spare time. But this doesn’t necessarily mean that I set my alarm clock to VVP’s speeches, drink prodigal amounts of Putinka for breakfast, and bow before his icon at the Altar of Neo-Stalinism in my basement before logging onto my workstation to fulfill my job description as ein strammer Putin-soldat. In reality, my positive view of Putin is moderate and hedged.

Don’t believe my word as “the dishonest, progangadizing (very, very) little maggot” that I really am? Below I present five major shortcomings of the Putin Presidency.

What Putin did wrong

1. Waiting until 2006, or too little too late.

Since 2006, Russia embarked on a range of policies designed to check its demographic decline, reduce poverty, and recover its status as a Great Power. The main examples would be the National Priority Projects; a revamped industrial policy; health promotion; pro-natality, AIDS containment and anti-alcohol measures; military modernization; and incubation of hi-tech industries such as nanotechnology. Many of these are already bearing fruit – quite literally on the demographic front, where the total fertility rate rose to 1.56 children per woman by 2009, from 1.1-1.3 before 2006. In conjunction with falling mortality rates, this resulted in Russia experiencing its first year of population growth in 2009 since 1994. But why did Putin take so long to start addressing all these issues?

Though there are several possible explanations, I think the most accurate is that at the time Putin was simply too preoccupied with stabilizing the Russian shell of the collapsed Soviet empire. Each functioning state rests on its monopolization of legitimate violence, of tax collection, and of the issuing of money. All three monopolies were under grave threat by the late 1990′s. Homicide rates were sky-high, organized crime infiltrated state structures, and Chechen bandits raided Russia proper. The state was too weak to collect taxes from the oligarchs, producing chronic budget deficits that culminated in the 1998 default. Inflation raged unchecked, most transactions were in dollars or in kind, and many analysts were starting to describe Russia as a failed state. Therefore it cannot be surprising that Putin in his first term devoted most of his attention towards containing and mitigating these mortal threats to the Russian state. The invasion of Chechnya, the political subjugation of the oligarchs, the strengthening of the “power vertical” – all these were intended to restore some modicum of state control over the Russian Federation.

Yet as the political struggle went on at the top, the “real Russia” remained largely stagnant. With the inflow of ethnic Russians from the Near Abroad largely exhausted, demographic decline accelerated in the 2000-2005 period. In contrast to the broad-based growth after 2005/2006, in the early Putin years manufacturing remained depressed, while more than a third of economic growth accrued to the recovery in oil extraction. Little new infrastructure was built. The rate of military procurement dropped even below the miserly levels of the Yeltsin era. Thanks to the Putin government’s myopic negligence or administrative inability, Russia’s manifold, deepgrained socio-economic problems only began to be seriously addressed within the past few years.

Strike 1 – Contrary to most fans and critics alike, Putin didn’t do too much. He did too little, and too late. Under the first few years of his watch, Russia lost historical time just as it did under Yeltsin. On many socio-economic indicators, the RF in 2010 has only caught up to what the RSFSR achieved back in 1990.

2. Red tape and corruption, or the bureaucracy is expanding to meet the needs of an expanding bureaucracy.

Corruption remains “public enemy number one”, according to President Medvedev. This can be confirmed by any number of horrific anecdotes: the absurdly inflated Moscow housing market, bureaucrats owning property worth hundreds of their yearly salaries, entrepreneurs losing their businesses to well-connected thugs. Apart from a few cosmetic house-cleaning campaigns under the Putin President, the state’s efforts to control this scourge have been decidedly lack-luster, and Russia continues to be perceived as one of the most corrupt nations on Earth.

[Sources: Transparency International's "Corruption Perceptions Index"; Transparency International's "Global Corruption Barometer", answers to the question, "In the past 12 months, have you or anyone in your household paid a bribe in any form?" (% saying "yes"); World Bank's "Worldwide Governance Indicators" (Control of Corruption), country percentile].

This corruption is directly related to the arbitrary power of Russia’s bureaucracy, and the labyrinth of regulations that “justify” its existence. Love them or hate them – and yes, most Russians hate them – bureaucrats are indispensable for running a modern state. However, in Russia bureacrats are neither accountable unlike in most developed nations nor held under close scrutiny unlike in the USSR or today’s China. Furthermore, their numbers are well in excess of necessity. In contrast to a few post-Soviet nations like Estonia and Georgia which fired many of their bureaucrats, the Russian bureaucracy grew rapidly under Putin.

[Source: Rosstat].

The extractions of rent-seeking bureaucrats stunt the development of small and medium businesses. Furthermore, corruption indirectly kills people (e.g. grocery pharmaceuticals are expensive and unreliable) and fosters a destructive social mentality in which anything and everything is considered exchangeable for money and the privileged and connected can act with impunity.

As the man at the top of the pyramid, Putin was responsible for perpetuating this system during his Presidency. Sensational rumors of foreign villas and multi-billion dollar offshore accounts to the contrary, there is no evidence that Putin is personally corrupt*. However, controlling corruption within one’s circle and further down is extremely hard; no Russian ruler, except the most steely and despotic, has ever managed to rein in his bureaucrats. Now you could go down the neo-Stalinist route, but executing corrupt bureaucrats is now politically incorrect in most places outside China. Perhaps Putin should have simply axed this Gordian knot, like Saakashvili in Georgia**? That might have worked, – no regulation, no bureaucrat, no problem. But something stayed his hand. Maybe he feared chaos, since the bureaucracy is one the forces gluing a nation together. Maybe they were considered necessary to reconsolidate the state and rebuild the power vertical. I don’t know.

Maybe Putin shouldn’t have suppressed Russia’s civil society and media outlets if he was serious about checking corruption? But this is a false narrative. It is not the federal government or Putin, but unreformed institutions such as the Ministry of Internal Affairs (MVD), the FSB, the Prosecutor-General, etc, that pose the greatest hazards to Russia’s nascent civil society. It is not VVP who runs around killing and harassing journalists, but the “stationary bandits” in government and/or business taking advantage of Russia’s culture of impunity. The ultimate proof of the pudding is Ukraine – despite its pluralistic politics and journalistic freedoms after the Orange Revolution, corruption there remains at least as bad as in semi-authoritarian Russia***. No matter the personal integrity or ability of Russia’s (or Ukraine’s leaders), the entire post-Soviet state system remains unacceptably opaque and unaccountable.

Strike 2 – Putin could have mitigated Russia’s corruption and culture of impunity by: 1) stripping away the reams of red tape that create opportunities for rent-seeking, 2) decimating the ranks of the bloated bureaucracy, traffic police, etc, or 3) increasing the penalties for, or the “costs” of, corruption. In reality, there was some improvement in 1) and 3), and massive backtracking on 2). It is only under Medvedev that government and citizenry are beginning to show signs of taking corruption more seriously.

3. Inequality, or oiligarchs & their little adults.

Russians are not Americans. Though most accept the capitalist system, a majority of Russians believe the state has a duty to narrow down inequality between rich and poor and assure everyone a decent standard of living. Opinion polls indicate that around 63% of Russians are essentially “statists”, while only 25% are economic “liberals” and an insignificant 4% are small-government libertarians. Thouh there has been impressive progress on lifting all boats in the past decade – poverty rates were slashed, consumer goods became much more affordable – the Putin regime also presided over an era of slowly rising inequality****. This does not sit well with many Russians, especially the elderly who put great stock in egalitarian values.

[Source: Rosstat].

It is no great exaggeration to say that Russia’s government is by the rich and for the rich. Though perhaps at first necessary as the most reliable way for a broken state to combat tax evasion, the 13% flat tax on incomes now perpetuates inequalities. A much bigger burden falls on productive companies in the form of (highly regressive) social security contributions, which are set to rise from 26% to 34% of the first 400,000 rubles of income this year to help correct the budget deficit. However, Putin had no problems with reducing taxes for oil companies, so that they could either extract and sell off Russia’s oil the faster, or pocket the extra change.

Worst of all are the effects on social cohesion. All Russian oligarchs earned their wealth through their connections with the state – there is not a single Sergei Brin or Bill Gates amongst them. The inheritance tax was abolished in 2006, and now more than a hundred Russian children, or “little adults“, are set to acquire billions without earning a single ruble. Sure, these “new Russians” get to experience the shallow thrills of conspicuous consumption, and take power in their sleazy connections with state structures to run over ordinary Russians with impunity (sometimes literally). The price Russia pays for tolerating these historyless elites is a perpetual bankruptcy of social capital, the cooperative spirit that welds a nation together. Amongst other things, this dearth of social capital manifests itself in society’s tolerance for petty corruption. After all, why should a simple traffic policeman, doctor, or other low-paid state worker refrain from taking bribes, when oligarchs make off with billions in cahoots with the state?

There has been no effort to check or reverse the growth of inequality under either Putin or Medvedev. Even as the Fair Russia opposition party calls for progressive taxation and a luxury tax, Roman Abramovich is indulging himself to his biggest yacht so far, armed with a missile defense system and laser shield.

Strike 3 – Putin presided over an increase in inequality, made all the more unholy by money’s marriage with socio-political privilege. Though neither the trend towards nor the magnitude of inequality is exceptional by global standards, it clashes with Russian popular sentiments and undermines social capital.

4. Economic mismanagement, or stationary bandits who don’t know or care about limits to growth.

First, the “Muscovite” rent-granting political economy over which Putin presided is both economically inefficient and socially unjust. Take the Russian oil industry, in which politically subservient oiligarchs are given free rein to manage their own companies. This combines the worst of both private and state ownership. Lacking security over their assets, the oiligarchs are loath to plow too much of their own money into maximizing long-term oil extraction and revenue. Far better to maximize short-term extraction by overexploiting their oil fields, pleasing the Tsar with generous rent payments, and to make off once these fields go into premature decline. In the meantime, astronomical profits are diverted into a few oiligarch hands instead of going to the Russian state. Now granted, Putin’s “purgatory”, run by clans of “stationary bandits”, might be an improvement over Yeltsin’s “hell” of asset-stripping “roving bandits”… but they are all still bandits nonetheless.

Yet when all is said and done, it is not entirely clear that Putin could have realistically done better on any of these issues. He inherited the “Muscovite system” from Yeltsin and can be credited with actually making it workable, in the sense that the oligarchs were forced into paying their taxes and Russia’s chronic budget deficits were finally eradicated. Reversing privatization and trying to create a Russian version of Statoil, the efficient state-owned Norwegian energy company, was entirely unrealistic given the institutional rot of the Russian state. The other extreme, a full-scale liberalization of the oil sector, would have probably been counter-productive because of that same weakness of the Russian state. For proof, look no further than how Khodorkovsky used YUKOS’ resource wealth to mount a direct political challenge to the Kremlin… would the Russian people really have been well served if their state had been hijacked by the Menatep bandits?

Second, even accounting for its being a cold, landlocked country with a lot of heavy industry, Russia remains very energy inefficient. There are serious uncertainties over its ability to meet future domestic and European gas demand, and its oil production will soon peak and go into decline. However, by world standards, Russia is supremely well-endowed with energy resources. Thus, it makes manifest sense to use the earnings from foreign hydrocarbons sales to aggressively implement energy efficiency measures and build a green energy infrastructure. The World Bank estimates that investing 320bn $ into energy efficiency could save Russian consumers 80bn $ and generate more than 100bn $ in extra export revenues annually. Putin prefers to go the much more expensive route of greatly expanding generating capacity, e.g. by building many nuclear power plants, while less glamorous but cheaper options like insulating housing, upgrading utilities, or reducing natural gas flaring are neglected. So yes, Russia’s policies on energy are short-termist and “cornucopian”, – but the very same could be said for almost any country one cares to name. Only a bare handful of nations, like Sweden or Germany, have made serious commitments to sustainable development (and none acknowledge the concept of Limits to Growth).

Third, the main reason Russia experienced such a deep recession during the 2009 global financial crisis was because its banks and corporations had become dependent on infusions of Western credit. Once this system throttled up in late 2008, emerging markets were the first to be cut off. Unfortunately, Russia under Putin’s watch had failed to develop the deep indigenous credit systems that enabled countries like Brazil or China to weather the storm in good shape, and it saw a massive GDP decline of 7.9% in 2009. But it’s not exactly clear how Russia could have prepared better. The main reason Russia’s financial system was starved of capital was because instead of reinvesting the proceeds from hydrocarbon sales into the economy, the government bought up foreign currency reserves in order to prevent an excessive ruble strengthening from short-circuiting the revival of Russia’s manufacturing base. Ironically, by trying to reduce its resource dependency, Russia actually increased its exposure to the Western financial system, whose weaknesses only became obvious with the benefit of hindsight. Nonetheless, despite the severity of the GDP drop in 2009, the Russian economy is now showing signs of mounting a vigorous recovery.

Finally, Putin should be given big props for protecting Kudrin – the main architect of Russia’s macroeconomic stability – from the attacks of the spendthrifts and siloviki in his circle. This did nothing to benefit him politically, but as a result Russia today is “one of the world’s most fiscally secure nations”, according to Liam Halligan, chief economist with Prosperity Capital Management.

Strike 4 – under Putin, Russia remained economically unproductive, socially unjust, energy inefficient, and acquired a dependence on Western credit. These problems are deep and are unlikely to go away without intelligent intervention by the state.

5. White elephants, or Siberian bridges to nowhere.

The Russian state has always liked “white elephant” solutions to complicated problems. Putin continued in this proud tradition. Perhaps the best example of this were Russia’s wild-eyed plans to construct six aircraft carriers during the giddy heights of its pre-crisis boom. Let’s look at the problems with this scheme:

  1. The global hegemony of the United States rests on the power projection capabilities of its 11 aircraft carrier battle groups. Russia is a regional land power whose strategic interests do not extend far beyond its Near Abroad.
  2. Russia’s economic base is seven times smaller than America’s.
  3. Even the “structurally militarized” USSR never had much success with aircraft carriers. Russia’s military-industrial complex is now almost an order of magnitude smaller and no longer has access to the big drydocks in Ukraine.
  4. Russia can’t even build a decent helicopter carrier, and eventually took the rational decision to order Mistrals from France.
  5. The days of the aircraft carrier may well be numbered due to the development of cheap carrier-killing weapons systems.

This particular white elephant never was to be. But far too many are real enough, such as the bridge to nowhere near Vladivostok that will connect the Russian mainland to a small island populated by a few thousand residents, projected to cost more than 1bn $ and intended as a showpiece for the 2012 APEC summit. Meanwhile, the roads from the Urals to Vladivostok remain little more than dirt tracks.

Now admittedly, white elephants are minor nuisances relative to the first four problems. Their attractions are hardly unique to Russia, and it could even be argued that some, like the Sochi Olympics, are a net positive thanks to their impact on national morale. Nonetheless, I still think improving Russia’s energy efficiency or networking its clunky armed forces is somewhat more important than erecting suspension bridges in Siberia or dreaming about multiple carrier battle groups patrolling the Russian Arctic.

Strike 5 – Putin is sometimes too influenced by the traditions of Soviet gigantism to consider humbler, more cost-effective ways of solving problems.

What Putin did right

But what about that KGB spy’s ruthless suppression of freedom and democracy? False narrative. The majority of Russians approve of Putin and his system – as of 2008, some 75% of Russians felt that they either had “enough” or even “too much” freedom. Today’s Russians feel much happier and freer than in either the late Soviet Union or Yeltsin’s Russia.

But hasn’t Putin suppressed the free media and brainwashed Russians into worshipping him? Yet if that were the case, one would presumably expect most Putinistas to be old, sour-mouthed Stalinists, whereas in fact support for Putin (and disillusionment with the West) is highest amongst young, university-educated Muscovite men – the very segment of the Russian population that is most exposed to the West through the Internet and foreign travel! (Of course, to the Western chauvinist, this must mean that the Russian people are ignorant, nationalist sheeple… since nothing can be allowed to challenge their faith, there is little point in talking to them).

What about Putin’s hatred of the West? Again, false narrative. Putin the KGB operative is inseparable from the Putin who served under Sobchak, the liberal mayor of St.-Petersburg in the 1990′s, or the Putin who favored the “civiliki” clan (Surkov, Medvedev, “patriotic liberals”) over the FSB-connected “siloviki” in his choice of successor. But why then does Putin antagonize America by maintaining relations with freedom-haters like Ahmadinejad and Chavez? Newsflash! This is Realpolitik, practiced by all sane and sovereign nations. Bending over backwards to advance Washington’s national security interests is not part of Putin’s job description. Not can it reasonably be expected, due to US support for states hostile to Russia (e.g. Georgia) in its Near Abroad.

One of Putin’s greatest strengths is that he recognizes the immense harm Russia suffered from single-minded past pursuits of abstract ideals, and rejects mindless idolization of the West as surely as he rejects the old Marxist-Leninist dogmas. He is a national figure of post-ideological reconciliation, a leader who sees no paradox in defending the Soviet Union against politicized attempts to equate it with Nazi Germany while honoring Russians like the dissident Aleksandr Solzhenitsyn or the White general Anton Denikin.

Zhou Enlai may have been exaggerating when he said the impact of the French Revolution was “too early to tell”, but nonetheless, I think it is fair to say that we must wait at least a few decades before we have any hope of objectively determining Putin’s legacy. Based on the criticisms I’ve made in this post, some analysts would rush to dismiss Putin as an incompetent idiot or malicious enemy of the Russian people. After all, it doesn’t take much to pronounce judgment from the comforts of one’s armchair… Yet none of us have been in Putin’s boots. We didn’t experience his early struggles with the oligarchs, the contraints and frustrations he faced trying to rule Russia through an unwieldy and corrupt bureaucracy, the pyramid of cards he has to build and maintain to balance the warring Kremlin clans. I can do no better than quote a great speech by Theodore Roosevelt to illustrate this point:

It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.

Putin’s critics, knowing neither victory nor defeat, are nothing more than the dust at the feet of that great man who continues struggling, striving, and spending himself as Russia’s humble servant.

* To the best of my knowledge, all these allegations of Putin’s 40bn $ of personal wealth originate from Stanislav Belkovsky, a professional purveyor of kompromat and creature of Sechin’s silovik clan.

** Georgia’s success at controlling corruption shouldn’t be exaggerated. In recent years, the Saakashvili regime acquired the habit of pressuring independent businesses to provide “voluntary contributions” in return for not bankrupting them under corruption prosecutions.

*** Russia’s corruption should be viewed in perspective. Is it a serious problem that reinforces privelege and blights the lives of many people? Certainly. Apocalyptic? Not at all. First, Russia is not excessively corrupt by the standards of most middle-income countries, and there is evidence that “everyday” corruption (as opposed to business corruption) fell under Putin’s watch. See here, here, and here. Second, corruption does not seriously affect Russia’s growth potential. Italy was systematically corrupt in the 1970′s-80′s (and still is), as exposed in the short-lived mani pulite investigatations of the early 1990′s. But that did not stop Italy from overtaking Britain’s GDP back in 1987 in the so-called “Il Sorpasso”. Likewise, Russia’s myriad strengths – the strong education system, energy wealth, and macroeconomic stability – means that its systematic corruption is unlikely to constitute an insurmountable barrier against its convergence to Western levels of development.

**** Russia’s levels of inequality shouldn’t be exaggerated, however. The Gini index of income inequality has been stable at around 40 since the early 1990′s, and is only high by European standards. (The US and China are at 45, most Latin American countries exceed 50).

(Republished from Sublime Oblivion by permission of author or representative)
 
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Then you might get something like Peter Turchin’s War and Peace and War, which I’ve finally read on the recommendations of Kolya and TG. Ranging from Ermak’s subjugation of the Sibir Khanate to the rise of Rome, Turchin makes the case that the rise and fall of empires is reducible to three basic concepts: 1) Asabiya – social cohesiveness and capacity for collective action, 2) Malthusian dynamics – the tendency for population to outgrow the carrying capacity, and 3) the “Matthew Principle” – the tendency for inequality and social stratification to increase over time. The interplay between these three forces produces the historical patterns of imperial rise and fall, of war and peace and war, that were summarized by Thomas Fenne in 1590 thus:

Warre bringeth ruine, ruine bringeth poverty, poverty procureth peace, and peace in time increaseth riches, riches causeth statelinesse, statelinesse increaseth envie, envie in the end procureth deadly malice, mortall malice proclaimeth open warre and bataille, and from warre again as before is rehearsed.

Turchin, PeterWar and Peace and War (2006)
Category: history, cliodynamics, war; Rating: 4/5
Summary: Amazon reviews

Ibn Khaldun, Malthus, and Saint Matthew meet up for coffee

1) According to the Arab philosopher Ibn Khaldun, empires only form when a tribe, nation, or religious sect attains a high degree of asabiya, – the ability of a group’s members to cooperate with each other, to maintain their identity and discipline in the face of adversity, and to impose their beliefs, values, and control over other groups. Other similar expressions are social cohesion or “social capital”. As Ibn Khaldun wrote, “royal authority and dynastic power are attained only through a group and asabiya. This is because aggressive and defensive strength is obtained only through… mutual affection and willingness to fight and die for each other”. (To put this in context, this is similar to Lev Gumilev’s theories of “passionarity” / пассионарность (willingness to sacrifice oneself for one’s values) or my own ideas on the sobornost’-poshlost’ / rationalism-mysticism belief matrix, in which a state of sobornost’, of course, refers to a high level of asabiya).

This is not surprising – military cooperation and morale is an important factor in military success. See the stunning successes of the early Islamic armies spreading the revelations of Mohammed, or of Nazi Germany. Later in the book, Turchin references the work of Trevor Dupuy, who showed that the Germans had a “combat efficiency” of 1.45, compared to the British 1.0 and American 1.1, in the battles on the western front of 1944 – in other words, excluding equipment and terrain, each Germany soldier was militarily “worth” 20% more than an Anglo-Saxon one.

Now why do some societies have higher asabiya than others? Ibn Khaldun’s analysis covered the dynamics of the desert / settled boundary in the North African Maghreb. Amongst the desert Bedouin tribes, constant inter-tribal warfare exerts group selective pressure favoring the emergence of tribes high in asabiya. These selective pressures are much weaker in settled civilizations with rule of law. Now these defects are more than made up for civilizations’ greater population density and better technologies, which can normally yield much bigger, better-equipped armies than anything the barbarians can muster. However, should civilization fall into a state of internal strife and social dissolution, it becomes “vulnerable to conquest from the desert” by a coalition of Bedouin tribes organized around one group with a particularly high asabiya. However, as soon as the barbarians become ensconced within their new domains, they gradually assimilate into the urban civilization, the high asabiya of the core group dissipates, and the cycle begins anew.

Turchin extends Ibn Khaldun’s beyond the Maghreb into a general theory of the rise of empires, almost all of which arise along “meta-ethnic frontiers” featuring bloody conflicts between starkly alien peoples. The constant military pressure and hatred for the Other binds the borderlanders together, fostering the relative economic equality, social solidarity, and discipline that will in time build an empire. Examples of this include the conflict of the Roman farmer-warriors against the Celtic barbarians of the Po Valley that melded the Latin peoples into the Roman Empire, the centuries-long struggle against the raiding, slave-taking steppe Hordes that incubated Muscovy’s rise, and the violent frontier wars against the Native Americans that formed the “melting pot” identity of the United States. The entire history of Europe from the Roman Empire to Poland-Lithuania has been characterized by the millennial, north-eastern drift of the meta-ethnic frontier between Rome/Christianity and tribal pagans, a frontier which repeatedly spawned new states and empires (Rome itself, the Caroliangian Empire, and the myriad Germanic and Slavic states.

2) The author notes that Ibn Khaldun’s blaming of “luxury” and “senility” for the degeneration of civilizations is an inadequate explanation, being nothing more than a biological metaphor with questionable applicability. Instead, Turchin lays out the theory of cliodynamics, the “mathematized history” that attempts to provide a comprehensive explanation of the “secular cycles” of imperial rise and fall by modeling Malthusian dynamics, i.e., when a great empire arises the resulting stability and prosperity produce overpopulation, which results in dearth, rising inequality (i.e. the old middle-class shrinks, while oligarchs and the landless indigent veer into prominence), and an intensified struggle for scarce resources that undermines social solidarity. Eventually, a severe shock such as a disastrous harvest, peasant uprisings, civil war, or foreign invasion provokes a full-fledged Malthusian crisis that triggers the collapse of the empire. I’ve already written about cliodynamics in detail here.

(Incidentally, I’ve also connected the decline of asabiya (or in my terminology, the transition from sobornost’ to poshlost’) to the socio-demographic cycles of cliodynamics. The theme of The Ages of Man, in which the bounteous Golden Age of the first dynasties (imperial rise) degenerates into the “immorality” and dearth of the Iron Age (social atomization, Malthusian stress, decline), – finally followed by an apocalyptic “cleansing” and start again (Malthusian collapse, barbarian invasions, Dark Ages, etc), is common to all civilizational traditions. See my Musings on the decline and fall of civilizations and explanation of the Malthusian Loop.)

3) Matthew 25:29: “For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath”. In other words, there is a natural tendency for wealth to become concentrated in the hands of the few, called the Matthew Principle. In other words, if a pre-industrial civilization enjoys socio-political stability, has ineffective redistributive mechanisms, no free land / overpopulation, and a social mentality that accepts (or even glorifies – see “conspicuous consumption”) big levels of wealth inequality, within several generatons it will develop prodigal levels of social stratification. Wealth inequality tends to reach a maximum just before a collapse of the entire system: for instance, the Roman Empire fell for the last time just decades after reaching “peak inequality” in 400AD. Similar things can be said about the end of republican Rome, the decline of medieval France, and even Russia 1917 or Iran 1979.

Why does the Matthew Principle operate so strongly in Malthusian settings? In agrarian societies, private property is the normal way of storing inherited wealth. If a family has lots of children, each one will inherit ever smaller plots. To make ends meet, they will be eventually forced to borrow loans; if they can’t, their land is taken over by their creditors, and they now have to hire themselves out as agricultural laborers or drift into the cities where they can try to join a trade (hence the reason why cities expand so much in times of subsistence stress). Meanwhile, those who have land can 1) rent it out at exorbitant rates (since the demand for it is so high in an overpopulated country) or 2) they can sell the grain their tenants or serfs produce at high prices (again because there are more mouths to feed). The resulting accumulation of drifting unemployed are matchwood for social unrest (e.g. see the role of the sans-culottes in the French Revolution).

Meanwhile, on the other side of the social spectrum, the elites or nobility grow at a faster rate than the commoners because they have better access to food and can afford more children, and die less quickly. Those with land benefit from cheaper labor and the rise in rent prices, while manufactures become easier to afford thanks to the increase in trade and urban artisans. However, intra-elite inequality also increases, and there is increasing tension as some poor nobles see peasant arrivistes rising above them in social status. Because the king depends on the nobles for governing his kingdom, state institutions must be expanded to “feed” all those nobles who are left out of inheritances, fostering corruption, aristocratic intrigues, and social stratification. Those at the very top of the social pyramid engage in the most extravagant conspicuous consumption, provoking envy amongst the have-nots. All these widening social chasms reduce the society’s asabiya.

The plagues, wars, and internal violence unleashed by Malthusian collapse tends to kill off most of the top and bottom of the social period. The landless indigent starve to death, or their weakened immune systems succumb to disease, or they get carried away as the cannon fodder in the uprisings that wrack the failed state. The nobles also die fast, thanks to their status as a military caste. Generational cycles of violence and wars and political purges carry many of them off. After the collapse, land becomes cheaper and labor becomes more expensive. Subsistence stress largely subsides and society becomes much more egalitarian. The cycle begins anew.

Criticisms and Consequences

I think Turchin’s book is a good introductory text to the new science of cliodynamics, one he himself did much to found (along with Nefedov and Korotayev). However, though readable – mostly, I suspect, because I am interested in the subject – it is not well-written. The text was too thick, there were too many awkward grammatical constructions, and the quotes are far, far too long.

More importantly, 1) the theory is not internally well-integrated and 2) there isn’t enough emphasis on the fundamental differences separating agrarian from industrial societies. For instance, Turchin makes a lot of the idea that the Italians’ low level of asabiya (“amoral familism”) was responsible for it’s only becoming politically unified in the late 19th century. But why then was it the same for Germany, the bloody frontline for the religious wars of the 17th century? And why was France able to build a huge empire under Napoleon, when it had lost all its “meta-ethnic frontiers” / marches by 1000 AD? For answers to these questions about the genesis of the modern nation-state, one would be much better off by looking at more conventional explanations by the likes of Benedict Anderson, Charles Tilly, or Gabriel Ardant.

Nowadays, modern political technologies – the history textbook, the Monument to the Unknown Soldier, the radio and Internet – have long displaced the meta-ethnic frontier as the main drivers behind the formation of asabiya. Which is certainly not to say that meta-ethnic frontiers are unimportant – they are, especially in the case of Dar al-Islam, which feels itself to be under siege on multiple fronts (the “bloody borders” of clash-of-civilizations-speak), which according to Turchin’s theory should promote a stronger Islamic identity. But their intrinsic importance has been diluted by the influence of modern media.

Turchin has an interesting discussion of the future of the US, China, Russia, and the European Union based on the conclusions of War and Peace and War. In particular, one very relevant point he made is that to become a true empire, the EU requires 1) the development of a European-wide loyalty towards it, willing to shed blood for it, and 2) its core state, Germany, must continue to underwrite it financially. None of these conditions, I think it is safe to say, will be met. Germany is most emphatically not prepared to sacrifice its national interests in favor of a European project over which it does not have direct control; the Germans have their own problems, foremost among them the demographic aging of the population. Furthermore, only 37% of Germans are today prepared to fight for their own country, according to the findings of the World Values Survey*; if that is the case, then how many Germans would fight (and risk death) for the Brussels bureaucracy? 5% would probably be generous. Quite simply the EU does not have any foundations for an imperial future, nor the will to create one; it is very fragile and will start unraveling at the smallest shocks.

Another major problem with the book that makes it incomplete is that although Turchin touches and speculates about the modern world and the future – in particular, he notes that the rising inequality, crime rates, slower growth, etc, of the post-1960′s industrialized world is similar to the traditional symptoms of an emerging Malthusian crisis – he does not connect the dots with the Limits to Growth, the theory that explicitly states that we are being swept into a Malthusian crisis due to global overpopulation and resource depletion. This is a far more important development than the techno-hype he devotes much of the last chapter to.

In the end I gave a 4/5 for this book, although it could have potentially gotten 5*/5. Turchin did valuable work in emphasizing how the material (e.g. the Malthusian) interacts with the spiritual (asabiya) in history, whereas many lesser theorists regard the latter as a “mystical” factor unworthy of serious attention. However, the book suffered from 1) poor writing, 2) too many marginal details that should have been edited out, and 3) unsuccessful application of the theory to the current, post-agrarian era. He should either have left it out entirely, or spent a lot more time doing it better.

* From the latest “wave” of the World Values Survey, “Of course, we all hope that there will not be another war, but if it were to come to that, would you be willing to fight for your country?” I think this question is an excellent way of gauging asabiya in a nation, since it directly addresses the issue of life, death, and self-sacrifice. The results are very interesting.

The Scandinavian countries – limp-wristed feminist socialists that they are ;) – all say a resounding “yes” (Sweden 86%, Norway 88%, Finland 84%). Similarly, for all the problems of the post-Communist transition, Eastern European nations also retain high levels of asabiya (Poland 75%, Russia 83%, Georgia 70%), though Serbia 61% is lower (maybe because they’ve already fought) and so is Ukraine 69% (its Russophones aren’t as loyal as West or Central Ukrainians). Most of the Muslim countries say “yes” (Iran 81%, Egypt 80%, Morocco 77%), including a whopping 97% in Turkey. Iraq 37% is the sole outlier. Similarly, the Asian nations also have high levels of patriotism (China 87%, India 81%, South Korea 73%).

The United States 63% isn’t as high as one might think, and curiously close to France 61%, Great Britain 62%, and the rest of the Anglo-Saxon world. The nations of Latin America tend to have similar figures. The Mediterranean countries, the old countries, and the countries defeated in World War Two are the last willing to put their lives on the line for their nation (Italy 43%, Spain 45%, Japan 25%, Germany 37%).

(Republished from Sublime Oblivion by permission of author or representative)
 
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After two hundred years of global ascendancy, the West is in rapid relative decline to (re)emerging Asia, which is mounting a steady “Great Reconvergence”. Likewise, the legitimacy of today’s “neoliberal internationalist” order promoted by the West is being questioned by the more statist, neo-Westphalian visions of the leaders of the Rest, the so-called BRIC’s. This has already led to the emergence of a “world without the West” – a parallel international system based on the principles of state sovereignty, hard power, and bilateral trade relations.

The most powerful and influential member of this new world is China, which has become the “workshop of the world” since its graduated opening up from the late 1970′s. Accounting for half of global steel and cement production, China has built up an enormous infrastructure of roads, railways, and ports to support its mercantile expansion. In 2009 it became the world’s largest automobile market. Furthermore, China is now advancing higher up the ladder of added-value industries by expanding into hi-tech areas such as commercial aircraft, renewable energy, and supercomputers.

One of the most important factor making China’s rise all the more significant is that it is concurrent with the accelerating decline of Pax Americana that is spurred on by the end of cheap oil, US economic weakness, and regional threats to American hegemony from the “challenger Powers” (e.g. Russia, Iran, and China itself). Should the current international order suffer a “cascading collapse” – which is not unlikely, given the brittleness of the world financial and energy system – then it is possible that China will emerge as an equal, or even superior, pole to the US superpower as soon as 2020.

The Inevitability of China’s Return to Hegemony

Critics aver that ordinary Chinese remain much poorer than Americans, but they miss the obvious fact that with its 1.3bn+ population, China needs only a Romanian level of per capita economic output to equal the US; should they reach Portugal’s level, China’s economy would be double America’s size. (Economic power underpins military power). Nor is there any reason for supposing that China’s growth will soon falter due to social and regional inequality, environmental degradation, bad loans, population aging, or social unrest (though it may well experience a Malthusian collapse along with the rest of the world by 2050). For a refutation of the major concerns, see my old post A Long Wait at the Gate of Delusions, or in summary:

  1. Regional disparities. The sharp divide between the affluent coastal and poorer internal regions is not new in Chinese history. In the absence of firm central control, this has in the past led to fragmentation – coastal administrations orientating themselves to foreign commercial interests, the interior sinking beneath a morass of poverty and corruption. However, modern China is not the ailing China of the 19th century in the throes of Malthusian stagnation. It is now a proud and rising Great Power, its regional separatist movements are quelled, and it is under the firm control of the CCP. As such, the chances of a jaded Japan or declining USA successfully exploiting this divide are very slim.
  2. Income inequality. There is also a great deal of inequality between China’s urban and rural, between its new oligarchs and itinerant indigents, and between the privileged and non-privileged. However, this is entirely typical of capitalist societies at the height of the industrialization drive, and levels of inequality tend to fall once a more affluent state decides on expanding social welfare schemes to contain labor unrest. As will be covered in a later, related post on China’s internal debates, the ideological underpinnings for such a shift are already coming into place with the concept of the “Harmonious Society“.
  3. Environmental degradation. A major problem. An innovative attempt to start measuring economic performance with “Green GDP” (accounting for pollution costs) was quietly squashed when it indicated that China had almost no real growth. That said, localized pollution per se, like city smog or collapsed ecosystems, won’t bring about China’s fall just as they haven’t led to the fall of any other post-agrarian society. The same certainly cannot be said for anthropogenic climate change, whose effects will become devastating to China by the 2030′s (floods, droughts, desertification, dust storms, etc). The most ominous prospect is the melting of the Himalayan glaciers, though some point out that this may be a centuries-long process. Nonetheless, these potential disasters won’t come in time to prevent China’s assumption of its superpower mantle, which I predict for 2020.
  4. Bad loans. A valid point, but they only tend to result in – or more accurately, contribute to – long-term stagnation by the time high growth rates falters, such as when a developing society nears convergency with the rich world (e.g. Japan in the early 1990′s). South Korea got a severe economic shock in 1997 stemming from its structural weaknesses, but respectable rates of growth continued up until the 2008 economic crisis. Speaking of which, Western critics should be doubly cautious now when criticizing China for its bad loans. As recent history might have proven, investing in industrial overcapacity may be rather less useless than building suburbs with no future, printing money under euphemisms like quantitative easing, or whatever the latest bondoogles are.
  5. Will China get old before it gets rich? The concerns over aging are ridiculous because 1) China’s TFR is at a respectable 1.8 (OK, more like 1.6-1.7 if one accounts for their skewed sex ratios, but still…), 2) its labor force will continue growing until 2030, and 3) it still has massive labor armies locked up in the countryside which can be drawn into higher-added value economic sectors. The real problem cases in the aging department are Central Europe, the Mediterranean, and Japan. See Will China Grow Old Before Getting Rich? (Goldman Sachs) for a more comprehensive analysis which reaches the same basic conclusion.
  6. Excessive export dependency. Frankly, I’ve always thought the image of the heroic American consumer saving the world by kindly consuming much of what the the world produces to be somewhat ridiculous – and this image is already being revealed for the hallucination it really is, thanks largely to US fiscal profligacy, imperial overstretch and peak oil. But I digress. First, China’s export dependency is nowhere near as high as suggested by the official figures because much of its exports are merely assembled in China from parts made in and imported from Korea, Japan, etc. Whereas gross exports are near 40% of GDP, net exports are at just 7% of GDP. In 2008, China clocked up a respectable 8% GDP growth rate (albeit, one only enabled by prodigious credit infusions), even though its exports fell by 20%. Second, the main reason for Chimerica – Chinese saving / production – American dissaving / consumption – in the first place was it allowed China to acquire the foreign currency to pay for resource imports, build up its industrial base, and acquire advanced technologies, while the US got back cheaper goods to cushion its rising inequality and industrial stagnation. But China interest in this deal is flagging. It already has by far the world’s largest industrial base by volume and it has bought up, or stolen, most of the key technologies needed for advanced industrialism. From now on, growth will be slower as it is curbed by stagnant world demand, accumulating bad loans, diminishing returns, etc, – it will likely be around 5-7% a year in the 2010′s, rather than the 10% typical of the 1980′s to 2000′s. Nonetheless, growth should continue at a fast enough rate to soak up the new landless labor, ease social tensions and enable China to launch a geopolitical breakout. The inevitable transition from a centrally-weak, disbalanced and commercialized nation-state, to a more centralized, balanced, hegemonic empire will not be smooth, but China’s forward momentum is simply too large to derail its rise to superpower status.
  7. Social unrest. Unlikely to happen in a big way as long as fast economic growth continues, which it likely will for the next decade. China still has plenty of room for economic convergence, and its investments in human capital are going to be paying off handsomely in this period – “during the past decade, China has produced college and university graduates at a significantly faster pace than Korea and Japan did during their fastest-growing periods” (Goldman Sachs). Nor are resource or ecological limits to growth likely to intrude in the next ten years. Of course, this situation won’t last forever and by 2030 at the latest, China will be forced to radically reform its model to hold together, e.g. to nationalist expansionism or ecotechnic dictatorship.
  8. China’s monolithic and non-democratic nature. Though the CCP projects an image of internal unity on the world, under its placid exterior there is a flux of dynamic debates about how China should reconcile growth with environmentalism, capitalism with socialism, democracy with stability, and cultural influence with military strength. The necessity of liberal democracy for success is a figment of the Western end-of-history mentality, and will be recognized as such by the time the West realizes history doesn’t end.

In conclusion, China has the tools at its disposal to become the world’s last industrial superpower (the US and Japan are in relative decline, Russia has too few people, India is coming to the party too late). The creeping dissipation of the global financial system will remove the US from its position as the system’s intermediator, and with it will go a key pillar of neoliberal internationalism. This will clear the foundations for the emergence of a new symbiosis between the oil-exporting nations of the Middle East and a China which can provide them with cheap consumer goods and security guarantees in place of a deindustrialized, unpopular, and increasingly insular America. These trends will become the conventional wisdom by 2020.

China and the World: Coal, CO2, and Geopolitics

By that date, the age of scarcity industrialism will be in full bloom. Three issues will come to the forefront of all discussions about China’s global significance.

First, the impact of 1.3bn people enjoying rising levels of personal affluence on the global environment. Its electricity generation fueled almost entirely by coal, China has recently overtaken the US to become the world’s biggest CO2 emitter. Today, given the absence of any egalitarian, spiritual, or ultra-nationalist ideology keeping the country together, China requires rapid growth to prevent spiraling unemployment and social unrest. The CCP wants to remain in power, and for that it needs stability, and that needs growth, and that needs more and more coal plants every year. Hence the reason for China’s unwillingness to agree to any but the weakest CO2 emissions targets – i.e., a non-binding resolution to a 45% reduction in Co2 intensity per unit of GDP by 2020 from the levels of 2005. However, since China’s GDP is expected to treble or even quadruple from 2005 to 2020, its emissions will grow by 50-100% even if it achieves this non-binding target. Needless to say, this will be catastrophic for our efforts to contain climate change to a global temperature rise of below 2C, at which point runaway dynamics are expected to become predominant. As the last superpower, I expect China to take the lead in any global or national “final gambit” at geoengineering our way out of runaway climate change.

Second, China’s ability to generate industrial growth from its own resources is shrinking. It is already a major oil importer and its grain production is on a slowly dipping plateau, thanks to increasing urbanization and environmental damage (desertification, salination, depletion of fossil aquifers, etc). It is already restricting exports of the strategic Rare Earth Metals that constitute key components of hi-tech devices such as hard drives, wind turbines, and electric cars. This is a major problem for the world outside China, since China accounts for a stunning 95% of global REM production. It will take a decade to reopen the old mines, and in the interval the West could experience a severe “tech crunch”.

Since the bulk of Chinese electricity consumption comes from coal and its geo-economy is not structurally dependent on cheap oil on the same massive scale as the US, China will not be as hard hit by peak oil as the Anglo-Saxon world; besides, its manufacturing prowess and foreign currency reserves will allow it to outbid most competitors for the black gold. However, the downside to using coal is that it too will peak – in China’s case, perhaps within 10 to 15 years, after which it will go into a rapid decline. As such, China can be expected to “lock in” foreign energy supplies with long-term contracts, increase exploitation of unconventional fossil fuel sources such as coal seam gas, and accelerate its current attempts to force through a renewable transition. In 2009, China became the world’s largest producer of both wind turbines and PV panels; however, they have made nary a dent in its CO2 emissions, and are unlikely to do so any time soon. Coal is much cheaper and more importantly, provides the vital base load power that intermittent wind and solar flows cannot.

Third, China’s military power and neo-colonial influence is set to increase in the coming decades. After suppressing military spending from the late 1970′s to the early 2000′s in order to free up its energies for rapid economic growth, the People’s Liberation Army is now being paid back handsomely for its patience. A prescient quotation from the Economist in 1986, from the days when the magazine was still worth reading:

For China’s military men with the patience to see the economic reforms through, there is a payoff. If Mr. Deng’s plans for the economy as a whole are allowed to run their course, and the value of China’s output quadruples, as planned, between 1980 and 2000 (admittedly big ifs), then 10 to 15 years down the line the civilian economy should have picked up enough steam to haul the military sector along more rapidly. That is when China’s army, its neighbors and the big powers will really have something to think about.

That time is now. Defense spending is now rising faster than GDP, as China intensifies military modernization and acquires new capabilities in electronic, information, and anti-satellite warfare. The overall strategic balance has also changed. The dissolution of the Soviet Union meant that the old Chinese fear of a tank invasion from the north has dissipated; coupled with the growing importance of maritime trade and foreign energy supplies, this has produced a reorientation to coastal defense and broader power projection to the south and east. China’s most ambitious military project is its decision to embark on the construction of a real blue-water navy, a vital tool in the renewed “gunboat diplomacy” we are likely to see in the years ahead.

In the short term, this has extended to China acquiring Russian weapons such as four Sovremenny-class guided missile destroyers, twelve Kilo-class diesel-electric submarines, and advanced anti-ship missiles and supercavitating torpedoes such as the Sunburn, Sizzler, and Shkval. Domestic production of naval vessels is expanding rapidly: whereas US shipbuilding is withering away, China now accounts for a third of global shipbuilding and “is in the midst of a shipbuilding and acquisition craze that will result in the People’s Liberation Army Navy having more ships than the U.S. Navy sometime in the next decade”, including four aircraft carriers by 2020. China’s military modernization has already tipped the regional balance of power. A recent RAND study indicates that China is already be able to establish air superiority over Taiwan in the event of a hot war over the straits, and on current trends it will probably be able to conquer it outright within the decade.

In tandem with its military modernization, which is mostly geared to fighting and winning possible local wars in south-east Asia (Taiwan, Spratly Islands, Vietnam), China is pursuing a far-sighted “string of pearls” strategy of naval base construction on its outlying coastal islands and friendly nations such as Myanmar, Sri Lanka, Bangladesh, and Pakistan. They will host radar stations and anti-ship batteries, and will form logistics hubs for naval operations. The underlying strategy is to reinforce China’s coast against foreign encroachment and to protect its sea lines of communication (SLOC) – especially the vital energy routes supplying it with Middle East oil.

Finally, the broadest form of China’s projection of influence is its rush to buy out mines, arable land, oil field concessions, and foreign national elites, from Australia to Brazil to Ukraine to Angola; indeed, Africa is a focal point of interest, with up to half a million Chinese already working on building up the continent’s industrial infrastructure and tapping its energy and mineral wealth. Closer to home in South-East Asia, most nations are both appreciative and fearful of China’s rise, bandwagoning with the US on security while engaging with China economically. The fact of America’s accelerating decline means that this state of affairs is not permanent. Any future “downsized” US empire will have minimal interests in East Asia, and will concentrate its energies on the Americas, Africa, and perhaps the Middle East (though it will be largely displaced by Turkey and China there).

The second greatest East Asian Power, Japan, will have neither the will to mount a serious challenge to China’s emerging hegemony, nor the strategic foundations. Japan is almost entirely reliant on foreign supplies of energy, and as soon as the PLA Navy surpasses the Japan Maritime Self-Defense Force, it will be utterly eclipsed by China. Why struggle, when Japan can instead exist as in a comfortable symbiosis with a China whose post-1978 growth it actively nourished – spats over their wartime history to the contrary? Japan is capital-rich, China is labor-rich; both share Asian values based on paternalism, state capitalism, and national sovereignty… Japan has two choices. It can try to construct an encircling alliance encompassing Russia, Korea, India, and the US to contain China, but this is a truly ambitious undertaking because 1) Russia has – and by that point the US will have – no overriding reason to confront China, 2) the “pan-Asian” appeal of China, 3) Japan has territorial disputes with Russia, whereas Russia in turn has close if suspicious relations with China through the SCO, and 4) as argued by the late Samuel Huntington, Asian societies have a tendency to bandwagon with the leading regional power – now it’s the US, in the future it will be China. The other alternative, and I would argue the likelier and more natural one, is for Japan to acknowledge Chinese regional hegemony. Once Japan takes this plunge, every other nation in in the region will follow.

Conclusion

It is no exaggeration to say that whither goes China goes the world. It is already the world’s greatest industrial power, at least as measured by physical throughput, energy consumption, and pollution emissions. Though still technologically backward, it is much less so than 10 years ago. China’s purchases of foreign technology, copying, and industrial espionage are rapidly closing the gap, and China’s rapidly expanding R&D workforce will be able to successfully hit the ground running once there arises the need for indigenous innovation.

The extent to which China will be able to solve its energy, minerals, food, and water problems will have major impacts domestic and international, and its success or lack of at reducing – or mitigating – its greenhouse gas emissions, is probably going to determine whether the world as a whole will be able to wriggle out of its Limits to Growth predicament. Finally, China’s cultural, economic, and neo-colonial influence is going to metastasize – in the process transforming it into an East Asian regional hegemon and primary pole in world geopolitics.

China’s greatest challenges lie in geopolitics (how to manage its own rise?), coal (how to power growth?), and CO2 (how to grow, or just stay still, sustainably?). The answers to these questions will determine its future political, social, and economic trajectory. It is therefore vital to to find out how its elites are planning to stand up to this panoply of perils and opportunities, which will be the subject of my next post on China.

(Republished from Sublime Oblivion by permission of author or representative)
 
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I have long noted Russia’s resurgence back into the ranks of the leading Great Powers; I predicted that the global economic crisis will not have a long-term retarding impact on the Russian economy; and within the past year I have bought into Stratfor‘s idea that the defining narrative now in play in Eurasia is Russia’s intention to reconstruct its empire / sphere of influence / call-it-what-you-will in the post-Soviet space. This “resurgence” is advancing along several major fronts: geopolitical, economic, demographic, military, and ideological. In this post I will cover recent major news on the first four.

Ukraine Returns to the Empire?

The most consequential big event is the electoral victory of Viktor Yanukovych (35%) in the first round of the Ukrainian presidential elections, followed by Yulia Tymoshenko (25%), Serhiy Tihipko (13%), Arseniy Yatsenyuk (7%), and Viktor Yushchenko (5%) – a result that I called 100% accurately. Disillusioned with the incompetence, economic decline, and “anarchic stasis” of five years of Orange rule, polls indicate three times as many Ukrainians now favor a “strong leader” over a “democratic government”, so no wonder that the liberal ideologue Yushenko, though the only major Ukrainian politician who is consistent and sincere in his views, suffered a crushing defeat as the last true representative of the Westernizing “Orange” movement. This marks a threshold in the accelerating “regathering of the Russian lands”*.

Below is an electoral map of the first-round Ukrainian presidential elections. As is always the case, the urban, Russophone / Surzhyk-speaking, Russian Orthodox Church-affiliated south and east voted for the pro-Russian Yanukovych, head of the Party of Regions, while the more bucolic, Ukrainian-speaking, Kyiv Patriarchate-affiliated / Uniate center and west favored Tymoshenko.

[Click on map to enlarge].

This reflects the civilizational fault-line riveting Ukraine in half – commonly assumed to be along the Dnieper River, but more accurately, dividing the country into a pro-Russian south and south-east, the independence-minded Ukrainian center, and the pro-Western south-west.

Back in 2004, there was a clearly defined pro-Russian (Yanukovych) and pro-Western (Yushscenko) force. Yushscenko prevailed thanks to incompetent vote rigging on the part of the Party of Regions and a Western-supported popular uprising known as the Orange Revolution. The oranges are now regarded as rotten and nothing of the same sort can happen in 2010, since both Presidential contenders are now, for most purposes, beholden to Russia.

Yanukovych supports closer political and economic ties with Russia, would renounce NATO and EU accession plans, and enjoys the support of the Donbass oligarchs (including Ukraine’s richest man and king-maker, Rinat Akhmetov) and the senior managers of the Ukrainian military-industrial complex. There has been talk of a possible political union between United Russia (Russia’s “party of power”) and the Party of Regions, which will lay the institutional foundations for closer union with Russia, Belarus, and Kazakhstan, involving joint membership in Eurasec, a customs union, and even the CSTO. Finally, there have been rumors that Yanukovych will retain Yushenko in some minor political position, as a placebo for the west Ukrainians in order to nip secession movements in the bud and to undercut Tymoshenko’s support in a crucial region.

Tymoshenko is the unprincipled, chameleon-like politico par excellence, repeatedly reinventing herself from hard-hitting gas oligarch / robber baroness, to Lesya Ukrainka-inspired Orange liberal nationalist, to Putin-friendly aspiring Czarina. She has negotiated a well-publicized gas deal with Russia, took part in the sale of the major Ukrainian steelmaker, the Industrial Union of Donbass, to a Kremlin-friendly Russian industrial group, and publicly backed away from NATO membership. In doing this, she has tried to ride the geopolitical and emotional wave of the Russian resurgence, and succeeded in gaining the firm support of the central regions. However, although singularly charismatic in the gray world of Ukrainian politics, she has been unable to significantly penetrate into the Party of Regions electoral base. Coupled with low voter turnout in Ukraine’s western regions, due to their disillusionment with her newly-discovered Russophilia, this means that she will almost certainly lose out to Yanukovych in the second round of elections scheduled for February 7th** (assuming no extralegal interference from the 3000 strongarm Georgian “election observers” who are in Ukraine just for the girls, supposedly).

Geopolitically, this Ukrainian reversal marks declining US influence in the region and the imminent resurgence of Russia as a Eurasian hegemon. This is producing reverberations, with independence-minded countries throughout the region – Belarus, Kazakhstan, Azerbaijan, even Georgia – now accepting their eventual reintegration into Eurasia, or attempting to reach a new accommodation with the new reality of Russian power. Here is Peter Zeihan (Stratfor) on Ukraine’s Election and the Russian Resurgence:

These are all important factors for Moscow, but ultimately they pale before the only rationale that really matters: Ukraine is the only former Russian imperial territory that is both useful and has a natural barrier protecting it…. Without Ukraine, Russia is a desperately defensive power, lacking any natural defenses aside from sheer distance… The (quite realistic) Russian fear is that without Ukraine, the Europeans will pressure Russia along its entire western periphery, the Islamic world will pressure Russia along its entire southern periphery, the Chinese will pressure Russia along its southeastern periphery, and the Americans will pressure Russia wherever opportunity presents itself…

Ukraine by contrast has the Carpathians to its west, a handy little barrier that has deflected invaders of all stripes for millennia. These mountains defend Ukraine against tanks coming from the west as effectively as they protected the Balkans against Mongols attacking from the east. Having the Carpathians as a western border reduces Russia’s massive defensive burden. Most important, if Russia can redirect the resources it would have used for defensive purposes on the Ukrainian frontier — whether those resources be economic, intelligence, industrial, diplomatic or military — then Russia retains at least a modicum of offensive capability. And that modicum of offensive ability is more than enough to overmatch any of Russia’s neighbors (with the exception of China).

Incidentally, this episode brings to mind what the late political scientist Samuel Huntington wrote about the future of the “Orthodox civilization” in his well-known work The Clash of Civilizations and the Remaking of World Order. He predicted that Western attempts to orchestrate an artificial divide between these two members of the same civilization would have only deleterious results, perhaps resulting in a “Great Split” – quoting a Russian general, “Ukraine or rather Eastern Ukraine will come back in five, ten or fifteen years. Western Ukraine can go to hell!” Yet the more stable and likeliest arrangement would be the following:

The third and most likely scenario is that Ukraine will remain united, remain cleft, remain independent, and generally cooperate closely with Russia… Just as the [Franco-German relationship] provides the core of the European Union, the [Russian-Ukrainian relationship] is the core essential to unity in the Orthodox world.

With all major Ukrainian political blocs re-orientating themselves to Russia and the two countries increasing their cooperation in spheres ranging from politics to the military-industrial complex, Huntington’s prediction could be said to have been fulfilled.

PS. The (relative) silence about the total collapse of the Orange party in Ukraine on the part of normally Russophobic outlets has been deafening. Since everyone loves the West and liberal ideologues, how on Earth could this have happened? It’s like a bad dream. ;)

The Eurasian Energy Map Redrawn

Russia, China, Iran redraw energy map by the always-insightful Indian diplomat M K Bhadrakumar.

The inauguration of the Dauletabad-Sarakhs-Khangiran pipeline on Wednesday connecting Iran’s northern Caspian region with Turkmenistan’s vast gas field may go unnoticed amid the Western media cacophony that it is “apocalypse now” for the Islamic regime in Tehran. The event sends strong messages for regional security. Within the space of three weeks, Turkmenistan has committed its entire gas exports to China, Russia and Iran. It has no urgent need of the pipelines that the United States and the European Union have been advancing. Are we hearing the faint notes of a Russia-China-Iran symphony? …

Second, Russia does not seem perturbed by China tapping into Central Asian energy. Europe’s need for Russian energy imports has dropped and Central Asian energy-producing countries are tapping China’s market. From the Russian point of view, China’s imports should not deprive it of energy (for its domestic consumption or exports). Russia has established deep enough presence in the Central Asian and Caspian energy sector to ensure it faces no energy shortage. What matters most to Russia is that its dominant role as Europe’s No 1 energy provider is not eroded. So long as the Central Asian countries have no pressing need for new US-backed trans-Caspian pipelines, Russia is satisfied.

During his recent visit to Ashgabat, Russian President Dmitry Medvedev normalized Russian-Turkmen energy ties. The restoration of ties with Turkmenistan is a major breakthrough for both countries. One, a frozen relationship is being resumed substantially, whereby Turkmenistan will maintain an annual supply of 30bcm to Russia. Two, to quote Medvedev, “For the first time in the history of Russian-Turkmen relations, gas supplies will be carried out based on a price formula that is absolutely in line with European gas market conditions.” Russian commentators say Gazprom will find it unprofitable to buy Turkmen gas and if Moscow has chosen to pay a high price, that is primarily because of its resolve not to leave gas that could be used in alternative pipelines, above all in the US-backed Nabucco project.

[Click on map to enlarge].

Third, contrary to Western propaganda, Ashgabat does not see the Chinese pipeline as a substitute for Gazprom. Russia’s pricing policy ensures that Ashgabat views Gazprom as an irreplaceable customer. The export price of the Turkmen gas to be sold to China is still under negotiation and the agreed price simply cannot match the Russian offer. Fourth, Russia and Turkmenistan reiterated their commitment to the Caspian Coastal Pipeline (which will run along the Caspian’s east coast toward Russia) with a capacity of 30bcm. Evidently, Russia hopes to cluster additional Central Asian gas from Turkmenistan (and Kazakhstan). Fifth, Moscow and Ashgabat agreed to build jointly an east-west pipeline connecting all Turkmen gas fields to a single network so that the pipelines leading toward Russia, Iran and China can draw from any of the fields.

Indeed, against the backdrop of the intensification of the US push toward Central Asia, Medvedev’s visit to Ashgabat impacted on regional security. At the joint press conference with Medvedev, Berdymukhammedov said the views of Turkmenistan and Russia on the regional processes, particularly in Central Asia and the Caspian region, were generally the same. He underlined that the two countries were of the view that the security of one cannot be achieved at the expense of the other. Medvedev agreed that there was similarity or unanimity between the two countries on issues related to security and confirmed their readiness to work together.

The United States’ pipeline diplomacy in the Caspian, which strove to bypass Russia, elbow out China and isolate Iran, has foundered. Russia is now planning to double its intake of Azerbaijani gas, which further cuts into the Western efforts to engage Baku as a supplier for Nabucco. In tandem with Russia, Iran is also emerging as a consumer of Azerbaijani gas. In December, Azerbaijan inked an agreement to deliver gas to Iran through the 1,400km Kazi-Magomed-Astara pipeline.

The “big picture” is that Russia’s South Stream and North Stream, which will supply gas to northern and southern Europe, have gained irreversible momentum. The stumbling blocks for North Stream have been cleared as Denmark (in October), Finland and Sweden (in November) and Germany (in December) approved the project from the environmental angle. The pipeline’s construction will commence in the spring.The $12-billion pipeline built jointly by Gazprom, Germany’s E.ON Ruhrgas and BASF-Wintershall, and the Dutch gas transportation firm Gasunie bypasses the Soviet-era transit routes via Ukraine, Poland and Belarus and runs from the northwestern Russian port of Vyborg to the German port of Greifswald along a 1,220km route under the Baltic Sea. The first leg of the project with a carrying capacity of 27.5bcm annually will be completed next year and the capacity will double by 2012. North Stream will profoundly affect the geopolitics of Eurasia, trans-Atlantic equations and Russia’s ties with Europe.

To be sure, 2009 proved to be a momentous year for the “energy war”. The Chinese pipeline inaugurated by President Hu Jintao on December 14; the oil terminal near the port city of Nakhodka in Russia’s far east inaugurated by Prime Minister Vladimir Putin on December 27 (which will be served by the mammoth $22-billion oil pipeline from the new fields in eastern Siberia leading to China and the Asia-Pacific markets); and the Iranian pipeline inaugurated by Ahmadinejad on January 6 – the energy map of Eurasia and the Caspian has been virtually redrawn.

And from Pipe dreams come true (bne):

Putin ordered construction to start on Nord Stream at the end of last year after the pipeline got the last environmental permits from Germany. And in January, Gazprom started building the first pumping station at the mouth of the first of two parallel pipes, which is supposed to be operational by 2011 with a capacity of 27.5bn cm/y. Thanks to Nord Stream, 2009 should be the last episode of the Russo-Ukraine “Gas for Cash” soap opera, which usually ends with Europe freezing. [AK: see also What difference would Nord Stream mean to European energy supply?].

South stream, the other pipeline project, will close the circle, but this pipeline has had a harder time getting off the drawing board and is competing with the EU-sponsored Nabucco pipeline, which is supposed to source Caspian region and Middle East gas and send it to Europe without crossing Russian soil. The problem is that there’s probably only enough demand to support one pipeline.

The R of the BRIC’s Remains Solid

Many of the economic predictions I made in Decoupling from the unwinding and Russia Economic Crisis are coming to fruition. See RUSSIA 2010: Slow build over first half to boom in 2011 (bne):

Russia was undoubtedly far more affected by the international crisis that started in September 2008 than anyone had expected – especially the Kremlin. It also stands out as the only one of the BRIC countries (Brazil, Russia, India, China) to show negative growth, leading to calls from the likes of analyst Anders Aslund to remove the “R” from BRIC.

This is rubbish, so Jim O’Neill, the man that coined the term in the first place, told bne at the 2009 International Monetary Fund (IMF) conference. “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.”

This was one of my major themes. When the Western financial system ground to a standstill in late 2008, the first countries to be cut off were the emerging markets. Having access to deep indigenous credit systems, the likes of Brazil and China were understandable far less affected than Russia, whose corporations had come to rely on Western intermediation of their credit inflows.

And in the longer term, excluding Russia from the BRIC’s makes little sense given its major growth potential (educated workforce, resource windfall, modernization policy, economic gains from global warming).

The Russian economy contracted by a bit less than 9% in 2009, but as the year came to a close it was already starting to recover – six months later than analysts were predicting at the start of the year. However, despite the pain of the crisis, the prospects for 2010 are looking much better than many had dared hope.

One should also note that this “pain” was insubstantial compared to the 1998 crisis, which is what many analysts were (unfavorably) comparing it to. While the percentage of the population barely making ends meet went up from 29% in July 1998 to 40% in December 1998, this figure remained stable at around 10% throughout the recent crisis. The main shift occurred amongst Russia’s “consumer class” (the ones who buy cars, PC’s, etc), whose percentage of the population tumbled by a quarter from 19% to 14%, and perhaps explains the reason for its large drop in GDP for 2009, i.e. the drop in large purchases. The silver lining is that this implies inequality has decreased during the crisis.

bne’s annual survey of investment bank outlooks suggests that growth will return to at least 4% and possibly go as high as 6% by the end of 2010. Inflation will remain low at about 5% while overnight rates at the Central Bank of Russia (CBR) will become real for the first time, finally giving the central bank a second tool to manage the economy and so be able to tackle Russia’s twin perennial headaches of inflation and ruble appreciation more effectively. …

The much discussed problems of the reappearance of a budget deficit will be much milder than appears now, coming in at something under 5% of GDP. This means the Kremlin will drastically reduce its international borrowing and has already cut the amount it needs to raise from $18bn to $10bn, but this could fall to $5bn or even nothing at all if oil prices rise to around $80 per barrel, which most of the banks bne surveyed believe will be the average price for 2010. Indeed the state will be able to raise all the money it needs to plug the deficit at home and pave the way for a return of private issuers to the international capital markets.

I predicted an oil price of around 90$ for 2010 (“oil prices in H1 will remain at 70-90$, and will rise to 90-110$ in H2″), so this is completely realistic considering my stellar record on oil price forecasting.

Finally, the RTS had a spectacular performance, rising over 120% in 2009 from its spring lows to end the year at about 1400. Unlike last year, the investment banks all agree that the index will end 2010 at around 1900-1950 and some say that it will reach and pass its all-time high of 2600 by 2011.

The themes for 2010 include: a turning inwards to growth driven by domestic demand, a push to introduce some real bottom-up economic reforms, a new focus on improving Russia’s productivity, increased inter-regional crediting, a shift towards closer ties with China, consolidation within many sectors and most important a gradual reassessment of Russia’s risk.

Again, much of this will not be new to S/O readers. I’ve already called the consolidation of Russia’s financial system, the shifting emphasis on domestic manufacturing, its decoupling from the insolvent Anglo-Saxon system, the imminent purge of corrupt siloviki, etc…

The collapse of the Russian economy in 2009 was dramatic, but emerging market crises are intrinsically less “sticky” than those in the West, largely because of the shallow penetration of debt in all its forms into the economy. As Liam Halligan, chief economist at Prosperity Capital Management, points out Russia’s fundamentals remain extremely strong and stand out from the rest of emerging Europe. And despite spending $200bn on rescue packages, the Kremlin still have $400bn in the bank, which was increasing again towards the end of the year, and remains the third richest country in the world after China and Japan, against the US and UK, which are 18th and 19th with a bit more than $80bn each. As the story going forward for the next several years will be all about the credit worthiness of countries, Russia finds itself, along with its newest buddy, China, in an enviable position.

Feel free to read the whole article.

Russia’s Population Grows in 2009

Russia registers its first year of population growth in 2009 since 1994.

Russia has registered the first population increase since the chaotic years which followed the fall of the Soviet Union, bucking a long-term decline that has dampened economic growth projections, officials said on Tuesday. Russia’s population increased by between 15,000 and 25,000 to more than 141.9 million in 2009, the first annual increase since 1995, Health Minister Tatyana Golikova told a meeting in the Kremlin with President Dmitry Medvedev. …

Russia’s dire population forecasts — some of which predict sharp declines over the next few decades — are a key function of economic predictions which see Russia growing much slower over the next 20 years than the other BRIC countries; China, Brazil and India.

a) None of this should be too surprising to my readers, given that back in mid-2008 I predicted:

I will make some concrete, falsifiable demographic predictions (something Russophobes going on about Russia’s impending demographic doom wisely avoid doing).

  1. Russia will see positive population growth starting from 2010 at the latest.

I was totally correct, and even better, a year early! (well, just about). Meanwhile, the Russophobe commentariat continues their happy life in la la land.

b) Russia’s approaching demographic doom is a major staple of pessimist and Russophobe assessments of its future prospects in areas like economic modernization and geopolitical power. To the contrary, far from the steep fall produced by most demographic models, a more realistic scenario is for Russia’s population to stagnate or grow very slowly in the next two decades, as a fall in the numbers of women in child-bearing age is balanced out by rising fertility rates and falling mortality rates. See 10 Myths about Russia’s Demography for my detailed exposition of Russia’s demographic prospects.

The Volatile Caucasus

Saakashvili’s megalomania probes new depths, so no wonder the opposition – who are no Russophiles, it should be said – are holding their noses and reaching out to their erstwhile enemy. Taking a cue from the Party of Regions:

The leader of Georgian opposition party the Movement for a Fair Georgia, former Prime Minister Zurab Nogaideli, said Jan. 26 that his party would like to form a partnership with United Russia, the ruling party in Russia led by Prime Minister Vladimir Putin.

See also this Russian-language report, Танки августа (“Tanks of August”) analyzing the buildup to, chronology, and course of the 2008 South Ossetian War, which is called “The Five Day War” in this publication. This is no pro-Kremlin propaganda, the Russian Army receives acerbic criticism for its performance.

However, most interesting, at least for me, was the chapter “Настоящее и будущее грузино-российского конфликта. Военный аспект” (pp. 85-109), a serious analysis of post-war dynamics in the balance of power between the two countries, is worth checking out. I’ll summarize it here.

a) Though Georgian military spending has fallen somewhat from its 2007-08 high of 8% of GDP, its military potential has continued growing at a fast rate and now exceeds its level in August 2008. Anti-partisan training has been deemphasized in favor of preparation for a hot conventional war against Russia, especially emphasizing the anti-tank and air defense aspects; battle-hardened troops have been returned from Iraq, the reserves system is being reformed, and military contracts concluded in 2007-08 are now bringing in masses of new Soviet and Israeli military equipment from abroad. The authors believe it is not unrealistic that Georgia will make another attempt at a military resolution of the Ossetian issue after 2011.

b) Counter-intuitively, the authors believe that though the revolutionary reforms now being implemented by the Russian Army will enhance its long-term potential, in the short-term there will be a certain loss of effectiveness due to the ouster of experienced officers, a shortfall which will not be immediately made up by the extensive NCO-training program which is only now getting started. The effective number of Motor Rifle and Tank battalions in the Caucasus military region has fallen from 65 in August 2008 to just 40 at end-2009, albeit their quality has been somewhat improved thanks to the rapid acquisition of modernized tanks and helicopters. Furthermore, their forward-positioning in Abkhazian and S. Ossetian bases will give them an advantage missing in 2008.

c) Finally, the authors also note the growing military superiority of Azerbaijan over Armenia. The two countries hold a long grudge over Armenia’s occupation of the ethnically-Armenian enclave of Nagorno-Karabakh. Revenues from the BTC pipeline have enabled Azerbaijan to massively increase its military potential, acquiring a panoply of modernized late-Soviet and Israeli weapons systems. Azerbaijan’s military budget now exceeds the entire Armenian state budget. However, Armenia is allied with Russia through the CSTO, hosts a big Russian base, and receives subsidized weapons systems from Russia, as well as some old Soviet stocks for free. The authors note that due to ethnic majority-Armenian unrest in the southern Georgian province of Samtskhe-Javakheti (which I noted in my post on the possibility of a new Russia-Georgia war), Russia would be wise to increase its military presence in Armenia and accelerate the modernization of the Armenian armed forces in order to be able to exploit Georgia’s soft southern underbelly in a new war***.

Power Projection & Military Modernization

Two more military things. Frustrated with the sorry state of Russian military shipbuilding, the Kremlin is considering the French Mistral, a helicopter carrier & amphibious ship. Such an acquisition will enhance two important Russian capabilities.

First, if deployed in the Barents Sea, it will reinforce its anti-submarine warfare (ASW) capabilities, which are growing in importance with its increasing strategic interests in the Arctic linked to the region’s oil-and-gas deposits and potential trade opportunities as the sea-ice melt accelerates. Second, these vessels would enable Russia to insert crack military forces behind enemy lines much quicker than had previously been possible. In the event of a potential conflict with Georgia or the Baltics, this capability will be incredibly valuable.

EDIT to add PAK-FA news: Second, Russia unveiled the PAK-FA prototype fighter, the first 5th-generation fighter to be produced outside the US. Below are some informative articles on the subject.

[youtube=http://www.youtube.com/watch?v=ovoo-n9b5Bs&w=425&h=344]

Despite delays and questions over its effectiveness, Russia being the 2nd nation in the world to test a 5th generation fighter after the US does prove that elements of the Russian MIC, especially military aviation, remain robust and capable of innovation. (Besides, one shouldn’t neglect to mention that the American MIC also has its own problems: cost overruns, questions over the JSF’s real utility, etc). As pointed out in earlier posts, Russia’s main challenge is now rooting out corruption and modernizing the MIC’s machine tools and management culture to enable high-volume production of state-of-the-art military equipment such as the PAK-FA, so as to modernize its armed forces by 2020 without returning to a Soviet-style militarized economy.

* To forestall criticism, this is not, of course, an expression of “Great Russian chauvinism”, but a historical reference to the state centralization and “gathering of the Russian lands” undertaken by Muscovy from the time of Ivan III (1462-1505). This formed the palimpsest for all future restorations of Russia’s empire, including the current one.

** Why Yanukovych will almost certainly win the Ukrainian Presidency – just a matter of beans-counting. In the first round, he got 35%, Tymoshenko got 25%. Yanukovych will net many of the Tihipko voters (13%), while Tymoshenko will get support from some of the Yatsenyuk (7%) and Yushenko (5%) voters. The rest of the electorate will split roughly in half, most likely. But even if Tymoshenko gets very lucky, it is hard to see her closing the awning 10% gap separating her from Yanukovych in the first round.

*** I would also add that though unlikely, it is not impossible that Armenia and Azerbaijan will fight a new war in the near future, as the Azeris despair of their long-term chances of ever reclaiming Nagorno-Karabakh in the face of Turkish-Armenian reconciliation and the hard reality of rising Russian power over the Caucasus. They could yet make a desperate gamble, perhaps in the context of the chaos unleashed by a US-Israeli war with Iran and its proxies. That said, the far likelier possibility is that the realistic-minded President Aliyev will reconcile himself to Russia’s growing power over the Caucasus.

(Republished from Sublime Oblivion by permission of author or representative)
 
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One of the most interesting emerging sciences today, in my opinion, is cliodynamics. Their practitioners attempt to come to with mathematical models of history to explain “big history” – things like the rise of empires, social discontent, civil wars, and state collapse. To the casual observer history may appear to be chaotic and fathomless, devoid of any overreaching pattern or logic, and consequently the future is even more so (because “the past is all we have”).

This state of affairs, however, is slowly ebbing away. Of course, from the earliest times, civilizational theorists like Ibn Khaldun, Oswald Spengler and Arnold Toynbee dreamed of rationalizing history, and their efforts were expounded upon by thinkers like Nikolai Kondratiev, Fernand Braudel, Joseph Schumpeter, and Heinz von Foerster. However, it is only with the newest crop of pioneers like Andrei Korotayev, Sergey Nefedov, and Peter Turchin that a true, rigorous mathematized history is coming into being – a discipline recently christened cliodynamics.

As an introduction to this fascinating area of research, I will summarize, review, and run an active commentary on one of the most comprehensive and theoretical books on cliodynamics: Introduction to Social Macrodynamics by Korotayev et al (it’s quite rare, as there’s only a single copy of it in the entire UC library system). The key insight is that world demographic / economic history can be modeled to a high degree of accuracy by just three basic trends: hyperbolic / exponential, cyclical, and stochastic.

Korotayev, Andrei & Artemy Malkov, Daria KhaltourinaIntroduction to Social Macrodynamics: Secular Cycles and Millennial Trends (2006)
Category: cliodynamics, world systems; Rating: 5*/5
Summary: Andrei Korotayev (wiki); review @ cliodynamics.ru; a similar text на русском.

Introduction: Millennial Trends

Google Books has the first chapter Introduction: Millennial Trends.

In 1960, Heinz von Foerster showed that the world’s population at any given time between 1-1958 CE could be approximated by the simple equation below, where N is the population, t is time, C is a constant, and t(0) is a “doomsday” when the population becomes infinite (worked out to be 13 November, 2026).

(1) N(t) = C / ( t(0) – t )

According to Korotayev et al, this simple formula of hyperbolic explains 99%+ of the micro-variation in world population from 1000 to 1970. Furthermore, a quadratic-hyperbolic equation of the same type accurately represents the increase in the GDP. Why?

He discusses the work of Michael Kremer, who attempted to build a model by making the Malthusian assumption that “population is limited by the available technology, so that the growth rate of population is proportional to the growth rate of technology”, and the “Kuznetsian” assumption that “high population spurs technological change because it increases the number of potential inventors”.

(2) G = r*T*N^a

(3) dT/dt = b*N*T

Above, G is gross output, T is technology, N is population, and a, b, and r are parameters. Note that dT, change in technology, is dependent on both N (indicates potential number of inventors) and T (a wider technological base enabled more inventions to be made on its basis). Solving this system of equations results in hyperbolic population growth, illustrated by the following loop: population growth → more potential inventors → faster tech growth → faster growth of Earth’s carrying capacity → faster population growth.

Korotayev then counters arguments dismissing such theories as “demographic adventures of physicists” that have no validity because the world system was not integrated until relatively recently. However, that is only if you use Wallerstein’s “bulk-good” criterion. If one instead uses the softer “information-network” criterion, noting that there is evidence for the “systematic spread of major innovations… throughout the North African – Eurasian Oikumene for a few millennia BCE” – and bearing in mind that this emerging belt of cultures of similar technological complexity contained the vast majority of the global human population since the Neolithic Revolution – then this can be interpreted as “a tangible result of the World System’s functioning”.

Then Korotayev et al present their own model that describes not only the hyperbolic world population growth, but also the macrodynamics of global GDP in the world system until 1973.

(4) G = k1*T*N^a

(5) dN/dt = k2*S*N

(6) dT/dt = k3*N*T

Above, T is technology, N is population, S is surplus per person (and S = g – m, where g is production per person and m is the subsistence level required for zero population growth), and k1, k2, k3, and a are parameters. This can be simplified to:

(7) dN/dt = a*S*N

(8) dS/dt = b*N*S

(9) G = m*N + S*N

As S should be proportional to N in the long run, S = k*N. Replace.

(10) dN/dt = k*a*N^2

Recall that solving this differential equation gives us hyperbolic growth (1).

(11) N(t) = C / ( t(0) – t )

Furthermore, replacing N(t) above with S = k*N gives (12), allowing us to work out the “surplus world product” S*N (13).

(12) S = k*C / ( t(0) – t )

(13) S*N = k*C^2 / ( t(0) – t )^2

Hence in the long-run, this suggests that global GDP growth can be approximated by a quadratic hyperbola. Other indices that can be described by these or similar models include literacy, urbanization, etc.

One finding is that after 1973, there world GDP growth rate itself falls (rather than just a slowing of the growth of the GDP growth rate, as predicted by the original model): the explanation is, “the literate population is more inclined to direct a larger share of its GDP to resource restoration and to prefer resource economizing strategies than is the illiterate one, which, on the one hand, paves the way towards a sustainable-development society, but, on the other hand, slows down the economic growth rate”. To take this into account, they build a modified model, according to which, “the World System’s divergence from the blow-up regime would stabilize the world population, the world GDP… technological growth, however, will continue, though in exponential rather than hyperbolic form”.*

The consequences for the future are that though GDP growth will reach an asymptote, technological improvements will continue raising the standard of living due to the “Nordhaus effect” (e.g. combine Moore’s Law – exponentially cheapening computing power, with the growing penetration of ever more physical goods by IT).

“It appears important to stress that the present-day decrease of the World System’s growth rates differs radically from the decreases that inhered in oscillations of the past… it is a phase transition to a new development regime that differs radically from the ones typical of all previous history”. As evidence, unlike in all past eras, the slowing of the world population growth rate after the 1960′s did not occur against a backdrop of catastrophically falling living standards (famine, plague, wars, etc); to the contrary, the causes are the fall in fertility due to social security, more literacy, family planning, etc. Similarly, the decrease in the urbanization and literacy growth rates is not associated this time by the onset of Malthusian problems, but is set against continuing high economic growth and the “closeness of the saturation level”.

(AK: This rosy-tinged analysis is persuasive and somewhat rigorous, but there is a gaping hole – they used only “technology” as a proxy for the carrying capacity. However, as Limits to Growth teaches us, part of what technology did is open up a windfall of energy resources – high-grade oil, coal, and natural gas – that have been used to fuel much of the post-1800 growth in carrying capacity (disguised as “technology” in this model), yet whose gains are not permanent because of their unsustainable exploitation. Furthermore, the modern technological base is underpinned by the material base, and cannot survive without it – you can’t have semiconductor factories without reliable electricity supplies – and generally speaking, the more complex the technology, the greater the material base that is needed to sustain it (this may constitute an ultimate limit on technological expansion). This major factor is also neglected in Korotayev’s millennial model. As such, the conclusion that the world has truly and permanently reached a sustainable-development regime does not follow. This is not to say that it is without merit, however – it’s just that it needs to be integrated with the work done by the Limits to Growth / peak oil / climate modelers.)

Chapter 1: Secular Cycles

Korotayev et al conclude that these millennial models are only useful on the millennial scale (duh!), and that typical agrarian political-demographic cycles follow Malthusian dynamics because in the shorter term, population tends to growth much more rapidly than technology / carrying capacity, which led to a plateauing of the population, growing stress due to repeated perturbations, and an eventual tipping point over into collapse / dieoff.

The basic logic of these models is as follows. After the population reaches the ceiling of the carrying capacity of land, its growth rate declines toward near-zero values. The system experiences significant stress with decline in the living standards of the common population, increasing the severity of famines, growing rebellions, etc. As has been shown by Nefedov, most complex agrarian systems had considerable reserves for stability, however, within 50–150 years these reserves were usually exhausted and the system experienced a demographic collapse (a Malthusian catastrophe), when increasingly severe famines, epidemics, increasing internal warfare and other disasters led to a considerable decline of population. As a result of this collapse, free resources became available, per capita production and consumption considerably increased, the population growth resumed and a new sociodemographic cycle started.

He notes that newer models are far more complex and predict the dynamics of variables such as elite overproduction, class struggle, urbanization, and wealth inequality with a surprisingly high degree of accuracy (e.g. see A Model of Demographic Cycles in a Traditional Society: The Case of Ancient China by Nefedov). Korotayev et al then list three major approaches to modeling agrarian political-demographic cycles: Turchin (2003), Chu & Lee (1994), and Nefedov (1999-2004).

1. Turchin has constructed an elegant “fiscal-demographic” model, in which the state plays a positive role by by a) maintaining armed order against banditry and lawlessness, and b) doing works such as roads, canals, irrigations systems, flood control, etc, – both of which increase the effective carrying capacity. However, as demographic growth brings the population to the carrying capacity of the land (in practice, the population plateaus somewhat below it due to elite predation), surpluses diminish. So do the state’s revenues, since the state taxes surpluses; meanwhile, expenditures keep on rising (because of the reasons identified by Tainter). Eventually, there sets in a fiscal crisis and the state must tax the future to pay for the present by drawing down the surpluses accumulated in better days; when those surpluses run out, the state can no longer function and collapses, which leads to a radical decline of the carrying capacity and population as the land falls into anarchy and irrigation and transport infrastructure decays.

2. The Chu and Lee model consists of rulers (including soldiers), peasants (grow food), and bandits (steal food). The peasants support the rulers to fight the bandits, while there is a constant flux between the peasants and bandits whose magnitude depends on the caloric & survivability payoffs to belonging in each respective class. However, it’s not a fully-formed model as its main function is to fill in the gaps in the historical record, by plugging in already-known historical data on warfare and climatic factors; they neglected to associate crop production with climatic variability (colder winters result in lesser crop yields) and the role of the state in food distribution (which staved off collapse for some time and was historically significant in China).

3. Nefedov has integrated stochasticity into his models, in which random climatic effects produce different year-to-year crop yields. One result is that as carrying capacity is reached, surpluses vanish and the effects of good and bad years play an increasingly important role – i.e. a closed system under stress suffers increasingly from perturbations. One bad year can lead to a critical number of people leaving the farms for the cities or banditry, initiating a cascading collapse. However, he neglects the “direct role of rebellion and internal warfare on cycle behavior”, so as the model is purely economic, each demographic collapse is, implausibly, immediately followed by a new rise.

The ultimate aim of Korotayev et al is to integrate the positive features of all three models (Chapter 3), but for now the take a closer look at the political-demographic history of China, the pre-industrial civilization that maintained the best records.

Chapter 2: Historical Population Dynamics in China – Some Observations

Below is a graph of China’s population on a millennial scale. Note the magnitude and cyclical nature of its demographic collapses. Note also that such cycles are far from unique to Chinese civilization (see collapse of the Roman Empire), and reflect for a minute, even, on the profound difference between the modern world of permanent growth, and the pre-industrial, “Malthusian” world.

Since it would be futile to repeat the fine details of every political-demographic cycle in China’s, I will instead just list the main points.

  • The cycles tend to be ones of a fast rise in population, when surpluses are high and people are prosperous. It plateaus and stagnates when the population reaches the carrying capacity, when there is overpopulation, much lowered consumption, increasing debilitation of state power, and rising social inequality and urbanization.
  • Sometimes, such as in the middle Sung period, population stress did not lead to a collapse, but instead to a “radical rise of the carrying capacity of the land” through administrative and technological innovations. This increased the permanent ceiling of Chinese carrying capacity from 60mn to around 120mn souls, and in doing so alleviated the population stress until the early 12th century (AK: e.g. in Early Modern Britain, the problem of deforestation was solved by coal). At that point, China may have once again solved its problems, even escaping from its Malthusian trap (AK: some historians have noted that it had many of the prerequisites for an industrial revolution). That was not to be, as “the Sung cycle was interrupted quite artificially by exogenous forces, namely, by the Jurchen and finally Mongol conquests”.
  • The Yuan dynasty would not reach the highs of the Sung because of the general bleakness of the 14th century – the end of the Medieval Warm Period, unprecedented floods and droughts in China, etc, which lowered the carrying capacity to a critical level. The resulting famines and rebellions led to the demographic collapse of the 1350′s, as well as the de facto collapse of the state, as China transitioned to warlordism.
  • Carrying-capacity innovations under the Ming did not, eventually, outrun population growth, and it collapsed during the turmoil of the transition to the Qing dynasty. The innovations accelerated throughout the 18th century (e.g. New World crops, land reclamation, intensification of farming). Indications of subsistence stress as China entered the 19th century were a) declining life expectancies, b) rising staple prices, and c) a huge increase in female infanticide rates in the first half of the 18th century. By 1850, China was again under very severe subsistence stress and the state grew impotent just as Europeans began to encroach on the Celestial Empire.
  • Huang 2002: 528-9, worthy of quotation in extenso. “Recent research in Chinese legal history suggests that the same subsistence pressures behind female infanticide led to widespread selling of women and girls… Another related social phenomenon was the rise of an unmarried “rogue male” population, a result of both poverty (because the men could not afford to get married) and of the imbalance in sex ratios that followed from female infanticide. Recent research shows that this symptom of the mounting social crisis led, among other things, to large changes in Qing legislation vis-à-vis illicit sex… Even more telling, perhaps, is the host of new legislation targeting specifically the ‘baresticks’ single males (guanggun) and related ‘criminal sticks’ of bandits (guntu, feitu), clearly a major social problem in the eyes of the authorities of the time”. See Diagram V.13. (AK: Interestingly, China’s one-child policy, by artificially restricting fertility in order to ward off a “Maoist dynasty” Malthusian crisis, has led to many of the same problems in the past two decades).
  • Speaking of which… China had further dips in its population after during perturbations in the 1850′s (the millenarian Taiping Rebellion), the 1930′s (Japanese occupation), and 1959-62 (the Great Leap Forward), each progressively smaller than the last in its relative magnitude. For instance, the latter just formed a short plateau.

Korotayev et al conclude the chapter by running statistical tests on China’s historical population figures from 57-2003. In contrast to linear regression (R^2 = 0.398) and exponential regression (R^2 = 0.685), the simple hyperbolic growth model described in “Introduction: Millennial Trends” produces an almost perfect fit with the observed data (R^2 = 0.968). So in the very, very long-term, the effects of China’s secular cycles are swamped by the millennial trend of hyperbolic growth.

Finally, the authors describe in-depth the general pre-industrial Chinese demographic cycle. Below is a functional scheme I’ve reproduced from the book (click to enlarge).

The main points are:

  • Fast population growth until it nears the carrying capacity, then a long period (100 years+) of a very slow and unsteady growth rate, accompanied by increasingly significant, but non-critical fluctuations in annual population growth due to climatic stochasticity (positive growth in good years, negative growth – along with dearth, minor epidemics, uprisings, etc – in bad years). These fluctuations get worse with time as the state’s counter-crisis potential degrades due to the drawdown of previously accumulated surpluses.
  • According to Nefedov’s model and historical evidence, the fastest growth of cities occurred during the last phases of demographic cycles, as peasants were driven off the land and there appeared greater demand for city-made goods from the increasingly affluent landowners (who could charge exorbitant rates on their tenants). Furthermore, some peasants are drawn into debt bondage because the landowner had previously given them food at a time of dearth. Other peasants turn to banditry.
  • Re-”elite overproduction → over-staffing of the state apparatus → decreasing ability of the state to provide relief during famines”. The system of state relief had been very effective earlier, e.g. in 1743-44 a state effort to prevent starvation in the drought-stricken North China core was successful. However: “By Chia-ch’ing times (1796-1820) this vast grain administration had been corrupted by the accumulation of superfluous personnel at all levels, and by the customary fees payable every time grain changed hands or passed an inspection point… The grain transport stations served as one of the focal points for patronage in official circles. Hundreds of expectant officials clustered at these points, salaried as deputies (ch’ai-wei or ts’ao-wei) of the central government. As the numbers of personnel in the grain tribute administration grew and as costs rose through the 18th century, the fees payable for each grain junk increased [from 130-200 taels per boat in 1732, to 300 taels in 1800, and to 700-800 taels by 1821]“. Similarly, the Yellow River Conservancy, whose task it was to prevent floods, degenerated into hedonistic corruption in the early 19th century; only 10% of its earmarked funds being spent legitimately.
  • So what you have is an increasingly exploited peasantry, a growing (and volatile) urban artisan class – e.g., the sans-culottes of the French Revolution, and more banditry. The bandits create a climate of fear in the countryside and force more outmigration into the cities, and the abandonment of some lands. At the same time, state power – military and administrative – is on the wane, displaced by corruption. The effects of perturbations are magnified due to the system’s loss of resiliency. There eventually comes a critical tipping point after which there is a cascading collapse that involves a population dieoff, the fall of centralized power, and a prolonged period of internal warfare.
  • Fast population growth does not resume immediately after collapse because things first need to settle down.

In my Facebook Note, Musings on the decline and fall of civilizations, I draw a link between the fast population increase / abundance of the “rise” period, and the concept of the “Golden Age” common to all civilizations. Also ventures a theory as to why cities (hedonism, conspicuous consumption, etc) have such a poor reputation as a harbinger of collapse… because they are, it’s just that the anti-poshlost preachers haven’t identified the right cause (i.e. overpopulation, not “moral decadence” per se).

Furthermore, a tentative explanation of the reason for differential Chinese – European technological growth rates (compare and contrast with Jared Diamond’s explanation):

Incidentally, a possible reason why Western Europe emerged as the world’s economic hegemon by the 19th century, instead of China, a civilization that at prior times had been significantly more advanced. But in China, the depth of the Malthusian collapses was deeper and more regular (once every 300 years, typically) than in W. Europe… Once the Yangtze / Yellow River irrigation systems failed, tens of millions of peasants were doomed; nothing on an equivalent scale in Europe, which is geographically and politically fragmented into many chunks and nowhere has anywhere near the same reliance on vulnerable hydraulic works for the maintenance of complex civilization (control over water was at the heart of “Oriental despotism” (Wittfogel); the Chinese word “zhi” means both “to regulate water” and “to rule”).

This theory that the reason China began to lag behind Western Europe technologically was because of its more frequent collapses / destructions of knowledge should be explored further.

Finally, about the nature of perturbations in a closed system under increasing stress… That is our world in the coming decades: even as Limits to Growth manifest themselves, there will be more (and greater) shocks of a climatic, terrorist, and military nature. The stochasticity will increase in amplitude even as the System becomes more fragile. As a result, polities will increase the level of legitimization and coercion, i.e. they will become more authoritarian.)

Chapter 3: A New Model of Pre-Industrial Political-Demographic Cycles

To address the shortcomings of other models and taking into account what happens in typical pre-industrial demographic cycles, Korotayev with Natalia Komarova construct their own model that includes the following three main elements:

(1) The Malthusian-type economic model, with elements of the state as tax collector (and counter-famine reservoir sponsor), and fluctuating annual harvest yields; this describes the logistic shape of population growth. It explains well the upward curve in the demographic cycle and saturation when the carrying capacity of land is reached. (2) Banditry and the rise of internal warfare in time of need are the main mechanism of demographic collapse. Personal decisions of peasants to leave their land and become warriors / bandits / rebels are influenced by economic factors. (3) The inertia of warfare (which manifests itself in the fear factor and the destruction of infrastructure) is responsible for a slow initial growth and the phenomenon of the “intercycle”.

Reproducing the model in detail will take up too much space, so just the main conclusions: “the main parameters affecting the period of the cycle are a) the annual proportions of resources accumulated for counter-famine reserves, b) the peasant-bandit transformation rate, and c) the magnitude of the climatic fluctuations. Hence, the lengths of cycles – and this is historically corroborated – is increased along with the growth of the counter-famine (more reserves) and law-enforcement (repress banditry) subsystems.

Chapter 4: Secular Cycles & Millennial Trends

Full version of Chapter 4: Secular Cycles and Millennial Trends.

The chapter begins by modeling the role of warfare, and challenges recent anthropological findings that denser populations do not necessarily lead to more warfare.

  • First, this is explained by the fact that it’s not a simple relation, but more of a predator-prey cycle described by a Lotka–Volterra equation. When warfare breaks out in a time of stress it leads to the immediate reduction of the carrying capacity and demographic collapse; however, warfare simmers on well into the post-collapse phase because groups continue to retaliate against each other.
  • Second, the methodology is flawed because it treats all wars the same, whereas in fact they tend to be far less devastating for bigger polities than for small ones. This is because bigger polities have armies that are more professional, and the length of their “bleeding borders” relative to total territory, is much smaller than for territorially small chiefdoms, for whom even low-intensity wars are demographically devastating. As such, more politically complex polities fight wars more frequently more frequently than smaller ones, but tend to be far less damaged by them.
  • Imperial expansions in territory coincide with periods of fast population growth and high per capita surpluses; later on, shrinking surpluses decimate the tax base and even defense proves increasingly hard (“imperial overstretch”). This correlation is very strong.

Now Korotayev et al combine their model from the last chapter with Kremer’s equation for technological growth (see the Introduction):

dT/dt = a*N*T

They also model a “Boserupian” effect, in which “relative overpopulation creates additional stimuli to generate and apply carrying-capacity-of-land-raising innovations”.

Indeed, if land shortage is absent, such stimuli are relatively weak, whereas in conditions of relative overpopulation the introduction of such innovations becomes literally a “question of life and death” for a major part of the population, and the intensity of the generation and diffusion of the carrying capacity enhancing innovations significantly increases.

Finally, they make the size of the harvest dependent not only on climatic fluctuations, but also on the level of technology.

Harvest i = H 0*random number i*T i.

Running this model with some reasonable parameters produces the following diagram, which reproduces not only the cyclical, but also the hyperbolic macrodynamics.

Furthermore,

Note that it also describes the lengthening of growth phases detected in Chapter 2 for historical population dynamics in China, which was not described by our simple cyclical model. The mechanism that produces this lengthening in the model (and apparently in reality) is as follows: the later cycles are characterized by a higher technology, and, thus, higher carrying capacity and population, which, according to Kremer’s technological development equation embedded into our model, produces higher rates of technological (and, thus, carrying capacity) growth. Thus, with every new cycle it takes the population more and more time to approach the carrying capacity ceiling to a critical extent; finally it “fails” to do so, the technological growth rates begin to exceed systematically the population growth rates, and population escapes from the “Malthusian trap” (see Diagram 4.26):

The cycles lengthen, and then cease:

AK: some confirmation for my rough explanation of why Chinese technological growth rate fell below Europe’s prior to the Industrial Revolution (see end of Chapter 2 in this post).

Of special importance is that our numerical investigation indicates that with shorter average period of cycles a system experiences a slower technological growth, and it takes a system longer to escape from the “Malthusian trap” than with a longer average cycle period.

Finally, they also add in an equation for literacy:

l i+1 = l i*b*dF i*l i*(1 – l i)

Which has the following effect on population growth:

N i+1 = N i*(1 + α × dF’)*(1 – l) – dR i – rob*N i*R i

And all added together, it produces the following stunning reproduction of China’s population dynamics from ancient past to today.

And concludes:

Of course, these models can be only regarded as first steps towards the development of effective models describing both secular cycles and millennial upward trend dynamics.

The Meaning of Cliodynamics

Turchin, Peter & Sergey NefedovSecular Cycles (2008)
Category: cliodynamics, world systems; Rating: 5/5
Summary: Read the whole book (PDF) or in chapters

This is a free online, quasi-popular book about eight different pre-industrial secular cycles (including Tudor England, the Roman Empire, Muscovy, and the Romanov Empire). Knowing the facts of history and the proximate causes of Revolutions – Lenin’s charisma, Tsarist incompetence, the collapse of morale and of the railway system, etc – is all well and good, but an entirely different perspective is opened up when looking at late Tsarist Russia through a social macrodynamic prism. The interpretation shifts to one of how late imperial Russia was under a panoply of Malthusian pressure, and of how the additional stresses and perturbations of WW1 “tipped” the system over into a state of collapse.

Finally, my reply to someone who sent me a message suggesting that cliodynamics may “make old school idiographic history redundant”.

I don’t think these trends will make idiographic history redundant, because there are many elements that are irreducible to mathematical analysis; furthermore, a major and inevitable weakness of cliodynamics is our lack of numbers for much of pre-mass literacy history. To the contrary, I think cliodynamics will end up complementing the “old school” rather than displacing it.

Footnotes

* Ray Kurzweil, one of the high priest of the singularitarian movement, extends Moore’s observations to also model technological growth (computing power, to be precise) as doubly exponential, or even hyperbolic. See Appendix: The Law of Accelerating Returns Revisited,

On the other hand, Joseph Tainter noted that in many areas the rate of technological innovation is actually slowing down. This is an argument that Kremer’s assumption that the rate of technological growth is linearly dependent on the product of the population and the size of the already-existing technological base is too simplistic.

These observations are supported by Planck’s Principle of Increasing Effort – “with every advance [in science] the difficulty of the task is increased” (i.e. you’re now unlikely to make new discoveries by flying a kite in a thunderstorm). Furthermore, “Exponential growth in size and costliness of science, in fact, is necessary simply to maintain a constant rate of progress”, and according to Rescher, “In natural science we are involved in a technological arms race: with every ‘victory over nature’ the difficulty of achieving the breakthroughs which lie ahead is increased”.

(Republished from Sublime Oblivion by permission of author or representative)
 
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This is my first follow-up post to The Belief Matrix, in which I attempted to advance a universal model for civilizational responses to subsistence crises (The Malthusian Loop) and the Western challenge (The Sisyphean Loop). The first country I’ll apply this too is the US, because doing so will allow me to make several important points about the nature of the belief matrix – namely, that even nominally “Western nations” like the US – that archetype of the West – is imprisoned within the Sisyphean loop.

This is because the Idea of the West, as previously defined, is a rationalist absolute, whereas all other human societies are not. Hence the US can never attain full union with it, but only try to. Instead, decade by decade and century by century, it redefines liberty. This is a mostly consensual social activity that rarely veers into large-scale violence, the Civil War being the most vivid exception (though even it was an extraordinarily civilized affair by the standards of the time). This process is so internalized that Americans, along with the British or the French, think of themselves, and define themselves, as “Westerners” with no apparent conflict between it and their national identities. To the contrary, they are complementary.

Through the accumulated circular momentum of liberal tradition, the structure of its political system which moderates sharp swings towards extremism in the population and of the media which muffles extremist voices, and most importantly its reconciliation of liberalism with popular democracy, America’s “liberty loops” manage to remain anchored firmly within the bottom-right quadrant, well away from the instability brought on by the disillusionment / rejection of tradition of the left, and the totalitarianism of the top. But what makes the US a spiritually much more satisfied nation is that the very organic nature of the integration of its sobornost and Westernism makes Americans unaware that they live in the Belief Matrix, just like everyone else.

Below is the belief matrix for the US during the past century.

At the beginning of the century, America was an open, self-confident, emerging Great Power, with a rapidly growing economy and population. Though after the end of the First World War there was widespread concern over Bolshevism, European entanglements, and immigration, this did not significantly lower its belief in itself.

This changed substantially in the 1920′s, which saw a significant retreat from tradition: a) female suffrage from 1920, b) the first great consumer revolution, including mass automobile production and chain stores, c) the rise of crime and homicide rates, linked in part to Prohibition. The US started drifting left.

This drift accelerated during the early 1930′s in the time of the Great Depression, when a) economic output collapsed by around 25%, causing mass unemployment, b) homicide rates peaked at over 9.0 / 100,000 during 1931-34, c) the American fertility rate fell to a nadir close to the replacement-level rate of 2.1 children per woman during the 1930′s, d) numerous incidents of labor unrest, and e) the federal government came to face significant challenges from the right and the left (e.g. Huey Long with his “Every Man a King” socialism) – though at no time was it really threatened, which testifies to the stability and dynamic inertia of its liberal democratic tradition.

From the late 1930′s, the economy began to recover and criminality declined. The US began to recover faith in itself and its mission after the uncertainties about the future of liberalism and capitalism prevalent in the 1930′s. This was reinforced by victory in World War Two and the massive economic, political and spiritual boost it imparted to the US, which emerged as a global hegemon, far stronger than the USSR.

Despite the McCarthy witch-hunts and the launching of the military-industrial complex as a permanent feature of American society, the 1950′s and 1960′s retain a reputation of being a Golden Age of US history. Morale was high due to visible US superiority – despite occasional shocks such as the Soviet testing of a nuclear bomb in 1949, the (false) fears of a “missile gap” in the mid-1950′s and the Sputnik shock of 1957. The period saw an unprecedentedly low level of income inequality and the massive economic growth that caused the post-war to 1973 period to become known as the “miracle years”.

Homicide rates remained at around 5.0 / 100,000 (a relative low by US historical standards) until the late 1960′s and a spirit of confident, middle-class domesticity contributed to a baby boom that resulted in US fertility rates lasting through to the early 1970′s, by which time it had begun to drop precipitously, along with the rest of the industrialized world.

Meanwhile, belief in the validity of the Idea of the West remained extremely firm – so firm, in fact, that anti-Communist feelings manifested themselves into overt persecution in contravention of the Idea of the West (with its emphasis on rule of law). This is the Law of Circularity in action (from the Belief Matrix) – at its extremes, ideologies converge (or flip); even as the Red Scare zealots shouted about the Communist threat to US liberties, their own actions forsook their principles – to the overwhelming approval of the American population, at least until they stumbled over into the realm of the absurd (i.e. the McCarthur-Army hearings).

Though the US moon landings of 1969 seemed to mark the apogee of the American Golden Age, in reality the country was already in fast moral decline. The oil crisis. Anti-war movements. Watergate. Vietnam. Hippies. Roe vs. Wade. Culture war. Drugs. Oil crises. Limits to growth. The waxing Soviet menace (they achieved nuclear parity and conventional superiority in Europe by the mid-1970′s). Rapid fertility decline. The rising economic challenge from Japan and Germany, and the beginning of deindustrialization in the Mid-West. During this period the country moved sharply left, away from tradition and belief in itself; yet as always, the socio-cultural liberalization of the 1970′s was the author of its own demise, spelled out in this case by the Reagan reaction – a peculiar mix of economic deregulation, hard-line foreign policy and social conservatism.

By the early 1990′s, there appeared an ostensible new dawn in the wake of the collapse of the Soviet Union. Fukuyama began proselytizing his End of History thesis, proclaiming Western liberal democracy to be the final stage of history, following a long tradition stemming from Manichaeism through Marx. This became somewhat of a pillar of Western thought. China and Russia, the two erstwhile socialist giants, were beginning to acquire new dependencies with the West. The Asian model of development seemed increasingly discredited with the collapse of Japanese growth rates in the early 1990′s, and later “confirmed” by the East Asian financial crisis of 1997. Europe was increasingly anemic and mired in social problems stemming from its aging populations and welfare states.

Meanwhile, the US flourished. Its economic growth rate remained relatively healthy at 3.1% in the 1990′s, virtually unchanged from the 1970′s or 1980′s. Fertility rates continued to climb upwards ever so slightly from their late-1970′s to mid-1980′s nadir (though much of the growth can probably be attributed to increasing numbers of younger Hispanic immigrants and the (non-repeatable) increasing age of mothers at average childbirth). Finally, homicide rates fell to lows unseen since the 1945-1973 “Golden Age”…

Yet much of this progress was illusory, and it began to unravel during the Bush years. Income inequality rose to levels unseen since the Great Depression. Though crime remained at a relatively low level of around 5.0-6.0 / 100,000, this was only accomplished by imprisoning an ever greater portion of the American population. Even as car production fell from 13.0mn units in 1999 to 8.7mn units in 2008, the financial industry metastasized. The 2000′s saw a “jobless recovery” from the .com bust while median incomes stagnated (or outright declined, if the people at ShadowStats have a point). The US is coming to resemble the late USSR across a disturbingly wide spectrum of social, economic, military and cultural indicators. It has been moving away from the state of sobornost, “a deep sense of spiritual harmony amongst classes, regions, races and sexes”, since the 1970′s, i.e. towards the left on the Belief Matrix.

9/11. Iraq. Extraordinary renditions. Guantanamo. The Katrina debacle. Housing bubble. Regulatory capture. Credit collapse. The fall of the investment banks. The rise of the “Rest” (led by China and Russia), who are hardly best friends with the “West”. The Great Recession. Deficits, debt, decline. As a result, the American population is now rapidly moving away from the firm belief in the West that characterized the 1990′s, and even further away sobornost. The election of Obama, perhaps the most liberal and outsiderish President in history, is just a reflection of these deeper trends. At an unconscious level Americans realize they have deep problems requiring radical solutions.

A detailed discussion of the waning superpower’s future prospects I leave for another post – suffice to say that whereas in the next decade its power will likely decline precipitously relative to China’s, its inherent geographic, economic and institutional strengths will allow it to remain a key pole of the emerging new world order, and we are likely to see a certain resurgence by the late 2010′s or early 2020′s, as soon as its current imbalances and contradictions are resolved or at least contained.

Based on the dynamics of the Belief Matrix, it is likely that the US will repeat the dynamics of the Great Depression not only in economic, but in social terms. Namely, there will be a partial collapse of legitimacy in the government; the feds will face challenges from the far-left (new Huey Long’s, anarchism, etc) and the far-right (demands for more state rights, anti-tax movements, “American reactionary patriots”, etc); fertility will collapse from the current replacement-level rates, as welfare shrinks and the utility of having children for the very poor, currently the most fecund social group, drops; crime will increase, etc. Yet within a decade a new social order will gradually emerge, probably fiscally and socially conservative and more authoritarian than the current one, and with it a new equilibrium will slowly, painfully come into being.

However, due to the sheer circular momentum of America’s liberty cycles, and the sheer power of the historical force behind, the country is likely to remain, at least in most respects, a liberal democracy. The same cannot be said of Russia, Turkey, or even countries like Germany or Japan.

PS. A reply to Alex Knight’s comment on the original Belief Matrix post:

but let us never forget that US capitalism developed precisely by committing genocide against the millions of native people who inhabited this “abundant high-quality land”.

likewise in terms of labor, we can never erase the painful history of enslavement of millions of Africans, whose unpaid labor created much of these “surpluses.”

True… but the West is just that… rule of law, sanctity of contract, etc. Not humanism or kindness. Some 72,000 “vagrants” (mostly peasants driven off the land by new, dispossessing elites – and this is a massive number given that the size of the English population was only around 4mn then) were hanged in Henry VIII’s England… so can we really say that “barbarous Muscovy” under “Ivan the Terrible” was that much more “tyrannous” than his English contemporary?

The native peoples of North America practiced a form of primitive communism where land was held in common and the concept of private property did not exist. This was in direct contravention to Western civilization, and as such a heresy worthy only of extirpation. Similarly, at the time it made a great deal of rational, economic / capitalist sense to use Negro slaves imported from Africa to grow sugarcane and cotton in the West Indies and the American South…

But by its own standards, however, the US has always succeeded at maintaining a symbiotic relationship between its “folkish” elements and the Idea of the West… that is, amongst the people who matter. This might be – well, is – hypocrisy, but as the commentator Kolya pointed out, “Hypocrisy is a tribute vice pays to virtue”. [Did some quick Googling, this quote originally comes from someone called La Rochefoucauld - "Hypocrisie est un hommage que la vice rend à la vertu"]. I suppose it is valid to argue that hypocrisy is better than being simple full of vice with no respect for virtue… at least hypocrisy offers the chance of a way out, or light at the end of a dark tunnel. Others would say instead that hypocrisy is the truest matrix, the most perfect totalitarianism…

(Republished from Sublime Oblivion by permission of author or representative)
 
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At the recent Summit of the Americas in Trinidad, two great leaders, Obama and Chavez, shook hands in what could be the symbolic first gesture of reconciliation. Treasonous neocons will no doubt rush to condemn this as yet another limp-wristed and unilateral concession to “America’s enemies”, reminding their listeners that Chavez closed down opposition media, nationalized American assets and welcomed Russian warships and strategic bombers to his realm.

Yet their stubborn animosity is worse than just imperialist arrogance – it is stupid. They fail to realize that in the past decade Latin America in general, and Venezuela in particular, has become too politically mature to be easily manipulated into serving US (corporate) interests by economic hitmen, CIA operatives and their local surrogates. It is to Obama’s credit that he is willing to move from willful denial to cautious acceptance of the decline of overt American power in Venezuela and elsewhere.

For that is the new reality. The Venezuelan opposition is increasingly discredited for its unconstructive hostility to the government and extra-legal attempts to overthrow Chavez, one of which nearly succeeded in 2002. This resulted in blowback against the US for its covert involvement The government’s refusal to renew the licenses of opposition media outlets that seditiously backed the abortive coup is thus completely understandable, as is Chavez’ personal animosity towards Bush and outreach to other states in similar straits. Furthermore, it should be noted that the owners of newly nationalized companies, including American ones, were fairly compensated.

Meanwhile, within five years of taking real power in Venezuela, a corrupt, disorganized and class-ridden country, Chavez managed to a) double the GDP, b) halve the number of people living in poverty and c) drastically improve practically every indicator of social wellbeing from child mortality rates to inequality to tertiary education enrollment rates (I already covered these successes in prior posts). This does not mean that Venezuela is no longer a corrupt, disorganized and class-ridden country – it still is, to an extent – but the improvements are undeniable and Chavez enjoys high approval ratings. It is thus unseemly and dishonest of the Western MSM to excoriate Chavez as a thuggish populist strongman and economic illiterate.

Let us hope they take a clue from Obama. Or from Mark Weisbrot and his fellow authors, who in their latest paper, The Chávez Administration at 10 Years: The Economy and Social Indicators, give a glowing verdict on the achievements of the Bolivarian revolution.

Economic Growth: As you can see from the graph below, Chavez inherited an ailing, stagnating economy. From 1978-1998, Venezuela’s per capita GDP declined by 21.5%. Chavez was initially politically weak, with the state-owned oil company (PDVSA), the linchpin of the Venezuelan economy, controlled by forces intensely hostile to Chavez. Furthermore, they began to actively sabotage the economy from December 2001, when the Venezuelan Chamber of Commerce organized a general business strike against the government. This culminated in a two day military coup in April 2002 that temporarily unseated Chavez. Adding to the political instability and capital flight, the PDVSA oil strikes of Jan-Feb 2003 led to a short but severe recession.

After the oil strike and Chavez's consolidation of power, Venezuela racked up one of the highest growth rates in the world.

After the oil strike and Chavez’s consolidation of power, Venezuela racked up one of the highest growth rates in the world.

However, once the opposition were neutralized Venezuela managed to rack up very rapid growth. Even canceling out the post-recession recovery, GDP grew at an annual pace of 8.8% from the end of the shaded part in the graph above to Q2 of 2008, or at 6.9% in per capita terms. This is not an unimpressive achievement. The (mean) average Venezuelan increased his output as fast as the average Argentine, Indian and Russian during those years; from the major countries, only the Chinese did significantly better.

Furthermore, growth was broad-based and primarily private – contrary to media myths, the oil sector actually experienced negative growth from 2005-2007 after its quick initial recovery from the PDVSA strikes. Manufacturing grew at a respectable annual rate of 13.2% from 2004-2007. For all the ruckus over incipient statism with all its negative connotations, the public share of GDP declined.

Social Progress: The economy not only grew at an impressive tempo, but the benefits accruing to it were more equitably distributed than at any time in Venezuelan history. Despite the opposition-instigated economic reversals of his mid-Presidency, from 1999-2008, poverty more than halved from 43% to 26% and extreme poverty plummeted from 17% to just 7%. Its Gini index, a standard measure of inequality, dropped from 47 to 41 – though still high, it is extraordinarily egalitarian by Latin American standards and all the more impressive considering it came at a time of rising oil prices.

Infant mortality dropped from 19.0 / 1000 in 1999 to 14.2 / 1000 in 2008; post-neonatal mortality was cut by more than half. Food security improved through the Programa Alimenticio Escolar school-feeding program and the heavily subsidized Mercal network of government food stores. Despite fairly rapid population growth, from 1999-2007 access to clean drinking water increased from 80% to 92% of the population and access to sanitation increased from 62% to 82% of the population. These achievements were facilitated by impressive improvements in medical care – the numbers of physicians, hospitals and other medical facilities increased by almost an order of magnitude.

From 1999-2008 Venezuela finally achieved near universal primary school enrollment and near universal secondary enrollment. Participation in higher education increased by an astounding 138%. Since the extra human capital embedded in education is a vital prerequisite for longterm economic growth, Chavez laid very important foundations here.

Labor: Unemployment dropped, and naysaying propagandists to the contrary, not just because the state hired all the new people. Though employment in the public sector increased by around 50% since 1999 and its share of the total workforce increased from 13.1% to 16.6%, it was commensurate with the large expansion of the state undertaken under Chavez in the second half of his Presidency. However, it remains quite low by developed-country standards.

Government Finance, Current Account. Although the dramatic rise in oil prices helped, non-oil revenue also increased from 11.7% of GDP in 1998 to 14.2% of GDP in 2007 due to improved tax collection. Revenue and spending both increased, the government maintained a stable budget surplus. However, the state oil company PDVSA also had 6.1% of GDP in public expenditures – this, along with peak oil, is probably what caused Venezuelan oil extraction to fall. That said, I think leaving more resources in the ground for a time when they’ll become worth much more is in itself not a bad investment. Similarly, the current account stayed firmly in the black throughout.

For a more detailed discussion of Venezuela’s prospects during this world depression, please see Victimized Venezuela II: Beware of Schadenfreude. Suffice to say the situation is unlikely to turn critical and Chavez will remain politically secure, the wishes of some in the US foreign policy establishment regardless.

That said, there do exist serious problems in Venezuela – inflation, an overvalued bolivar, corruption, obstacles to small and medium business (SME) growth and crime… just to prove I’m not a chavista fanatic.

Problem – Exchange Rates, Inflation. After subsiding from a peak at around the time of the PDVSA strikes, inflation crept back up to around 30% since 2006, supercharged by soaring global food prices. However, since its exchange rate is fixed at 2,150 bolivars to one US dollar, the inflation contributed to massive over-valuation of its currency, estimated at more than 50%. This needs to be fixed if Venezuelan manufacturing is to become competitive and to dilute the economy’s dependence on oil rents – growth in this sector mostly ceased by 2008, and as of December 2008 was down by 25.4% from December 2007. Devaluation is also needed to narrow an awning budget deficit some expect to exceed 20% of GDP in 2009, a disturbing figure even by recent spendthrift standards.

Now that Chavez won the referendum on the abolition of term limits in February 2009 and given that the next Presidential election is in 2012, there are already signs of a stealth devaluation. Because subsidizing dollars is much harder with oil prices at 50$ instead of 100$ per barrel, the government is limiting the amounts of dollars Venezuelans can buy for foreign travel and are considering doing the same with luxury imports. Though Finance Minister Ali Rodriguez says a devaluation will not happen in 2009, a “multitiered exchange rate” is possible – that is, continuing the current peg only for vital imports such as medicine, food staples, and industrial machinery.

This will keep social discontent to a minimum (for a year or two, Venezuelans will have to live with fewer imported cars and cakes, but they’ll have bread). The boost in inflation will be counteracted by shrinking demand and general global deflation. Furthermore, Venezuela has low foreign debt, considerable reserves and China is keeping a floor under commodity prices by buying them up on the cheap across the world. Coupled with what already looks like an incipient recovery in emerging Asia, Venezuela, like Russia, should come out of the crisis relatively unscathed, leaner and ready to enjoy a second round of soaring oil prices. Meanwhile, Chavez is continuing to invest in long-term development by pouring money into infrastructure projects like building an extensive railway system – an excellent idea for the post-peak oil world.

Problem – Corruption, Obstacles to SME Growth. Venezuela is ostensibly the 158th most corrupt nation in the world, according to Transparency International. Yet as I noted in one of my very first articles for Da Russophile, Reading Russia Right:

While there’s no denying Russia is plagued by corruption, to suggest it is endemic like in a failed state is ludicrous – and would frankly be obvious to anyone who has visited the countries on that list. The problem with the CPI is that it’s a survey of outsider businesspeople and their subjective perception of the situation. While improving perceptions is an important goal, it does not necessarily correlate perfectly with reality. TI’s Global Corruption Barometer asks ordinary people how affected they are by corruption, for instance, have you paid a bribe to obtain a service this year? In 2007, 17% of Russians did – putting them into the same quintile as Bulgaria, Turkey and the Czech Republic. In other words, slap bang in the middle of world corruption, rather than at the end.

Pretty much the same argument can be made with Venezuela. In 2007, only 12% of Venezuelans paid a bribe to obtain services, basically the same proportion as the supposedly much cleaner Czechs.

The root cause of this is the sheer amount of restrictions on business in Venezuela – it comes 171st in Ease of Doing Business rankings. In this atmosphere, doing business in full compliance with all the laws and regulations is nigh impossible and forces enterprises into a constant search for shortcuts by reaching understandings with regional bureaucrats. This distorts the economy, dissuades investors and reduces the potential rate of economic convergence with the developed world. And lowers its position on the Corruption Perceptions Index

Yet ultimately, the important thing is to get stuff built – parasites skimming 10% off a project is regrettable, but not catastrophic. As long as a developing country has basic market mechanisms, a semblance of macroeconomic stability, an open economy and most importantly, high human capital, its economy will converge to developed country levels. Many deeply corrupt and bureaucratized countries (Italy immediately springs to mind) managed the transition and fell into economic stasis only after they got rich.

The current preference for short-term social gratification in place of faster diversification through manufacturing is lamentable, but perhaps unavoidable. Chavez operates under the same political constraints that conditioned the classical Latin American caudillo. Maintaining the acquiescence of the statist bourgeoisie, if not their active support, is key to retaining power, given their control over the traditionally tightly intertwined business-bureaucratic-military complex. It appears to me that this structure is being rapidly dismantled in Venezuela since 2003. (Paradoxically, by constructing a new elite drawn from the younger, educated proletariat, Chavez may well end up ushering in the conditions for a leaner, more effective capitalist economy).

Sociological speculations aside, it is however indisputable that Chavez is building the future more actively than any previous Venezuelan leader – despite the cancerous growth of bureaucracy, socialist tendencies and failure to reform the economy on his watch.

Problem – Crime. I am always skeptical about attributing crime trends, positive or adverse, to governments. They can influence them but can’t control them, for they depend on a great many variables inter-connected in ways little understood even by modern criminologists. That said, I thought it would be instructive to actually plot out Venezuela’s notoriously high homicide rates against other Latin American nations.

First, even by the time Chavez was inaugurated President in February 1999, Venezuelan homicide rates had a long, secular trend towards growth, much like Brazil and Jamaica.

Second, they peaked in 2003, at the end of a turbulent period of opposition-instigated anarchy. Since then homicide rates fell slightly, but it seems from the graph of Colombia that once entrenched, high homicide rates are very hard to reverse.

Third, there are allegations that the Venezuelan state contributes to the high homicide rates with its supposedly lax policies towards the “war on drugs”. Right-wing commentators lambast Chavez, left-wing commentators lambast the CIA, and in general the situation seems shady and unclear. I will not comment on these angry accusations and conspiracy theories (which might be true, who knows?) except to state the obvious and recommend global drug legalization.

Fourth, many of the big cities where crime is concentrated are actually run by opposition mayors.

Along with the likes of Colombia, South Africa and Iraq, the chances of violent death in Venezuela today are typical of a medieval society. By my rough calculations, at current rates every thirtieth Venezuelan can expect to be murdered during his or her lifetime. You really don’t want to be a young man living in a seedy Caracas slum nowadays…

Crime is no doubt a huge problem in Venezuela requiring the utmost attention and possibly draconian measures. Which will not happen, as Chavez is far too humanistic for that, and tradition-bound; Venezuela abolished the death penalty way back in 1863…

Problem? – Authoritarianism. Even Freedom House, a notoriously compromised organization, refrains from labeling Venezuela as Not Free. According the Economist Democracy Index, it is a hybrid regime much like that of Russia, Turkey or Georgia – neither a traditional liberal democracy nor an authoritarian state. The Polity IV Project, an academic database tracking democracy trends since the end of the Second World War, gives Venezuela 5 on a scale ranging from -10 (full autocracy) to 10 (full democracy). I suggest reading their 2007 Venezuela Report to anyone genuinely interested in its political status – their main complaint is on weak executive constraints.

Furthermore, democracy is no panacea. Chavez may have increased his personal power and perhaps this trend will intensify, yet he empowered communities by expanding local democracy, education and healthcare. Much of Latin America is enmeshed into backward, class-ridden systems wherein minuscule middle classes exploit the state to serve their own ends, while keeping the masses suppressed by neglect, ignorance, poverty and religion. Chavez is breaking Venezuelans free of this unholy matrix.

I once talked on a plane with a Venezuelan who lamented on the idleness and lack of curiosity of the people, and about how the equivalent of a small town is murdered there every year. Sounds to me like they need a good dose of revolutionary fervor directed towards building up the country. Hopefully the Bolivarian Revolution will sweep away the oligarchic degenerates into political irrelevance and Chavez will use the opportunity to build a modern industrial economy and reinstall liberal democracy once the heavy lifting is finished.

Yet in any case the US should not concern itself over his democratic or human rights credentials, be they fair or foul. Venezuela has Latin America’s biggest reserves of oil and its Orinoco tar sands could potentially hold as much oil equivalent as Saudi Arabia (though being hard to exploit they are worth much less). Although it exports much of its oil to the US, the Chinese have recently been getting in on the action in a big way, as part of their global strategy of locking up diminishing natural resources to fuel industrialization for a few more decades. Cutting off a major part of America’s economic lifeblood at a time of peaking global oil extraction in the service of abstract concepts like democracy is strategic folly.

Overthrowing Chavez and installing a pliant satrap is no longer realistic – the Venezuelan state is now stronger, Chavez is popular and the opposition is viewed as venal and discredited in the eyes of voters. Even from a military perspective, intervention is politically unacceptable and in any case becoming riskier year by year as the Bolivarian republic plows part of its oil windfalls into acquiring modern diesel submarines, air defense systems and Sukhoi fighter jets from Russia – a relatively cheap and effective way of negating American CVBG diplomacy.

Finally, in any case Venezuela has, interesting enough, the most positive outlook on the US of any major Latin American country – Chavez’s tirades to the contrary. This should provide further incentives for cooperation rather than conflict.

(Republished from Sublime Oblivion by permission of author or representative)
 
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EDIT: Check out the updated Top 50 Russophobe Myths.

According to this blog’s philosophy, every thesis needs an antithesis. Hence I present the Top 10 Russophobe Myths, in opposition to La Russophobe’s Top 10 Russophile Myths. (As well as to celebrate our 2000th visit).

10

MYTH: The barbarous state of Muscovy arose in the sixteenth century when Ivan the Terrible climbed out of the trees.

REALITY: The more than 1000-year old civilization of Kievan Rus’ was literate, affluent, governed by a legal code that abhorred cruel and unusual punishments (including the death penalty) and accorded women property and inheritance rights.

9

MYTH: Russians are a pack of uncultured illiterates.

REALITY: Russia leads the world in literacy, level of tertiary attainment and the quality of its mathematicians and programmers. It possesses a world-class literary, musical and artistic heritage and to claim otherwise is in fact to admit oneself ignorant and uncultured.

8

MYTH: Russia has fallen to Tsarist levels of inequality and is plagued by endemic, African-level corruption. Both of these have become much worse under Putin.

REALITY: Russia’s level of income inequality and of corruption is average by world standards. Under Putin, they have registered a slight deterioration and slight improvement, respectively.

7

MYTH: Russia is an aggressive state which is hated by its neighbors.

REALITY: Unlike some superpowers, the Russia Federation has yet to invade another country. Most of its neighbors view Russia favorably and a majority of Ukrainians would be happy to join it.

6

MYTH: Russians are sexists and xenophobic racists who hate the West.

REALITY: Russian women live longer and are better educated than men, enjoy full abortion rights and participate extensively in the economy. Few Russians are predisposed against the US and there are far fewer anti-Semitic incidents in Russia than in France, Germany and the UK.

5

MYTH: Heroic Americans with their British sidekicks won World War Two, while the Russians just threw billions of soldiers without rifles in front of German machine guns.

The vast majority of German soldiers were killed, taken POW or otherwise incapacitated on the Eastern front. The Soviet to Axis loss ratio was 1.3:1 and the USSR outproduced Germany in every weapons system throughout the war.

4

MYTH: Russia’s economy is one big oil bubble.

REALITY: The extractive industries contribute a negligible amount to Russia’s real GDP growth. Today’s excellent macroeconomic situation combined with its impressive human capital stand Russia in good stead for convergence to First World living standards by 2020-30.

3

MYTH: Life has only improved for a few oligarchs. Russia is in a demographic death spiral that has gotten worse under Putin and which will soon sink its economy.

REALITY: In the last eight years, poverty rates have more than halved and wages have risen by a factor of 2.6, fuelling an on-going consumption boom. The birth rate has increased, the death rate has fallen and mortality from murder, suicide and alcohol poisoning has plummeted. Projections of Russia’s future dependency ratios are no worse than for China or the G7.

2

MYTH: Putin has abused human rights, personally murdered 200 journalists and returned Russia to its totalitarian past.

REALITY: Too bad that only 3% of Russians agree, despite having easy access to such views via the press, cable TV and the Internet. The number of journalists killed under Putin (17) is less than under Yeltsin (30), and only five of them can be definitively linked to their professional work. Elections have been mostly free and fair.

1

MYTH: Russia is Mordor.

REALITY: Scratch a Russophobe, and you find a talentless fantasy writer. Sorry to disappoint you folks, but there aren’t billions of orcs beneath the Ural Mountains preparing the final phase of their assault on the West. Not as far as I know, anyway.

I’ll be adding more myths as I think of them…
11

MYTH: Chechnya’s heroic freedom fighters deserve their indepedence.

REALITY: When they had de facto independence, the Chechens created a criminalized, Wahhabi state, practiced ethnic cleansing against local Russians and launched armed raids against border regions.

12

MYTH: All Soviet space programs were developed by German prisoners of war, who are still kept in labour camps in Siberia.

REALITY: Sorry, but wrong country. All German leading hi-tech professionals, including rocket scientists, surrendered to Americans and many worked on their space program.

Comments and Sources
10. Read the Kievan Rus’ wiki and consult its sources for confirmation and more information. Just to pre-empt any confrontations, I am aware that some Ukrainian nationalists consider the history of Rus’ to be exclusively theirs, dating the emergence of the Russian state to the late medieval expansion of Muscovy. This is a ridiculous viewpoint. Firstly, Kievan Rus’ also covered modern-day Belarus and most of European Russia west of the Volga. Secondly, even Muscovy can trace its ancestry from the principality of Vladimir-Suzdal’, which was nearly as old as Kiev or Novgorod.
9. Russia has universal literacy (see World Bank). Statistics on the percentage of the population with tertiary education from the OECD. In PIRLS 2006 (Progress in International Reading Literacy Study), Russia came first in the world on the average combined reading literacy score. In mathematics, 17% of all Fields Medal winners (and 36% since the RF came into existence) have been Russian/Soviet nationals (see Wikipedia). Programming prowess is indicated by articles such as these (The next Silicon Valley: Siberia) and reflected in things like Maths Olympiad and programming competition results.
8. Russia’s income Gini coefficient (a standard measure of income inequality) of around 41.3 as of 2007 is high only by the standards of socialist European countries. It is lower than in the US, China and the vast majority of developing countries. It has remained almost completely constant from 1994-2003, and by projection, to 2007 (see HDR05 RF: Rusia in 2015, p.33). Only 17% of Russians paid a bribe to obtain a service in 2007 (see Transparency International’s GCB) – putting them into the same quintile as Bulgaria, Turkey and the Czech Republic, i.e. slap bang in the middle of world corruption rather than at the end. Even according to the World Bank (control of corruption 16.5 in 2000; 24.3 in 2006) and Transparency International (CPI of 2.1 in 2000; 2.3 in 2007), transparency has slightly improved under Putin. I have already discussed issues of inequality and corruption (in particular the problem with CPI) here and here. To quote A Normal Country (Andrei Shleifer & Daniel Treisman, Foreign Affairs, Mar/Apr 2004) in extenso:
Yet what about sources less dependent on the perception of outsiders? In the summer of 1999, the World Bank and the EBRD conducted a survey of business managers in 22 postcommunist countries. Respondents were asked to estimate the share of annual revenues that “firms like theirs” typically devoted to unofficial payments to public officials “in order to get things done.” Such payments might be made, the questionnaire added, to facilitate connection to public utilities, to obtain licenses or permits, to improve relations with tax collectors, or in relation to customs or imports. Respondents were also asked to what extent the sale of parliamentary laws, presidential decrees, or court decisions had directly affected their businesses, in the hope of measuring the extent to which policymakers were co-opted by business.
On both the “burden of bribery” and “state capture” dimensions, Russia ranked right in the middle of its postcommunist peers. On average, Russian firms reportedly paid 2.8 percent of revenues on bribes, less than in Ukraine and Uzbekistan, and far less than in Azerbaijan (5.7 percent) and Kyrgyzstan (5.3 percent). The percentage who said it was “sometimes,” “frequently,” “mostly,” or “always” necessary for their firms to make extra, unofficial payments to public officials in order to influence the content of new laws, decrees, or regulations was also about average: 9 percent, compared to 24 percent in Azerbaijan, 14 percent in Latvia and Lithuania, and 2 percent in Belarus and Uzbekistan. In both cases, Russian responses were very close to what one would predict given Russia’s relative level of economic development.
How does corruption in Russia affect individuals? The UN conducts a cross-national survey of crime victims. Between 1996 and 2000, it asked urban residents in a number of countries the following question: “In some countries, there is a problem of corruption among government or public officials. During [the last year] has any government official, for instance a customs officer, a police officer or inspector in your country asked you, or expected you, to pay a bribe for his service?” The percentage of positive responses in Russia was about average for the developing and middle-income countries surveyed. Some 17 percent of Russians said they had been asked for or had been expected to pay bribes in the preceding year, fewer than in Argentina, Brazil, Lithuania, or Romania. Again, Russia’s relative position was almost exactly what one would expect given its per capita income.

7. 81% of Ukrainians, 78% of Bulgars, 59% of Slovaks and 54% of Chinese view Russia favorably (in each country, that’s more than those who view the US in a positive light). These opinion polls are from the 47-nation PEW survey Global Unease with Major Powers. (Ok, admittedly the same cannot be said for Poles and the Czechs). Some 54% of Ukrainians are positive about joining the Union of Russia and Belarus, while only 24% are negative (see this poll). More Ukrainians would prefer to join the Union of Russian & Belarus (43%) than the European Union (30%) (see Levada poll here).

6. For abortion laws, see Wikipedia. For other stats, see the WEF Gender Gap Index 2007 Russia section, according to which women are better educated, healthier and constitute 38% of decision-makers and 64% of professional workers. (Admittedly, the political subsection isn’t as good, though it should be noted that since the last Duma elections, the percentage of women in parliament has increased from 10% to 14% and two women have entered the Russian Cabinet). Only 8% of Russians view Americans very negatively (an attitude not shared by most people in Latin America and the Middle East). In 2006, a typical year, there were 136 violent anti-Semitic incidents in the UK, 97 in France, 74 in Canada, 38 in Germany and 34 in the Ukraine, compared to just 30 in Russia (according to the Stephen Roth Institute for the Study of Contemporary Anti-Semitism and Racism).
5. Rüdiger Overmans. Deutsche militärische Verluste im Zweiten Weltkrieg. Oldenbourg 2000. ISBN 3-486-56531-1 estimates that from the Polish campaign to the end of 1944, 75-80% of all German armed forces personnel died or went missing in action on the Eastern Front up to the end of 1944. According to Krivosheev’s research, throughout the war, the vast majority of German divisions were concentrated against the Soviet Union – in 1942, for instance, there were 240 fighting in the East and 15 in North Africa, in 1943 there were 257 in the East and up to 26 in Italy and even in 1944 there were more than 200 in the East compared to just 50 understrength and sub-par divisions in the West. From June 1941 to June 1944, 507 German (and 607 German and Allied) divisions and 77,000 fighters were destroyed in the East, compared to 176 divisions and 23,000 fighters in the West. The two pivotal battles, Stalingrad and El Alamein, differed in scale by a factor of about ten.
According to meticulous post-Soviet archival work (G. I. Krivosheev. Soviet Casualties and Combat Losses. Greenhill 1997 ISBN 1-85367-280-7), casualties were as follows:
Number of Soldiers – the total number of people who passed through the armed forces of the following combatant countries during the course of World War Two.
USSR – 34,476,700, Germany – 21,107,000.
Irrevocable Losses – the number of people serving in armed forces of following countries who were killed in military action, went MIA, became POWs and died of non-combat causes.
USSR – 11,285,057, Germany – 6,231,700, (Germany + occupied territories) – 6,923,700,
(Germany + occupied territories + Axis Allies) – 8,649,500
Ratio (USSR + Germany) – 1,8:1, Ratio (USSR + (Germany + Allies)) – 1,3:1
Military Dead – the number of people who were KIA, died of non-combat causes, died as POWs or went MIA (and thus presumed dead). Germany according to Overmans’ figures.
USSR – 8,668,400 (of whom Russians – 6,750,000), Germany – 5,318,000.
The problem is that during the Cold War, historiography in the West was dominated by the memoirs of Tippelskirch, who wrote in the 1950′s with constant Soviet/German forces ratios of 7:1 and losses ratio of 10:1. This has been carried over into the 1990′s (as with popular historians like Anthony Beevor), although it should be noted that more professional people like Richard Overy are aware of the new research. Note also that cumulatively 28% and 57% of all Soviet losses were incurred in 1941 and 1942 (source), whereas for the Germans the balance was roughly the opposite.
The idea that there were two soldiers for every rifle in the Red Army, as in the film Enemy at the Gates (a truly awful film which moved the Russian veterans’ association to demand of the Duma that it be banned in Russia), is a complete figment of the Russophobic Western imagination. From 1939 to 1945, the USSR outproduced Germany in aircraft (by a factor of 1.3), tanks (1.7), machine guns (2.2), artillery (3.2) and mortars (5.5), so in fact if anything the Red Army was better equipped than the Wehrmacht (sources – Richard Overy, Why the Allies Won, Pimlico 2006, ISBN 1845950658; Chris Chant, Small Arms, Silverdale Books 2003, ISBN 1-85605-790-9).
Another particularly insidious myth is that Russia would have been better off surrendering to the Nazis, espoused by our dead friend La Russophobe, since apparently Stalin killed more people than Hitler. All that one needs to do to disprove this vile idea is consider the fact that 26.6mn Soviet citizens died in the Great Patriotic War, the vast majority of them civilians under German occupation and the whole Generalplan Ost.
The war against Russia will be such that it cannot be conducted in a knightly fashion. This struggle is one of ideologies and racial differences and will have to be conducted with unprecedented, unmerciful and unrelenting harshness. – Adolf Hitler, March 1941.
4. In 2007, Russia’s economy grew by 8.1%, driven by construction (16.4%), retail (12.0%), finance (10.4%) and manufacturing (7.9%) and weighted down by the extractive industries (a meager 0.3%) (source). This pattern has held since 2005, and even in the 2000-2004 period only a third of growth was due to increasing hydrocarbons production. Consult the economics part of this post for further information. Russia has a healthy current account surplus, 0.5tn $ in foreign currency reserves and as of now the budget is calculated to break even at 65$ / barrel oil. Continuing increases in oil prices mask volume growth in non-hydrocarbons exports. For why I am bullish on continuing high growth in the future, refer to my previous posts here and here. Note that Goldman Sachs thinks that Russia is the only member of the BRICs (Brazil, Russia, China, India) with the potential to reach Western levels of GDP per capita in the foreseeable future.
3. According to Rosstat, in the last eight years, poverty rates have more than halved (from 30% to 14%). In real terms during 2000-2007, pensions have grown by a factor of 2.3 and wages by a factor of 2.6, reaching 643$ as of February 2008 (while the Gini index has remained roughly steady, as we’ve already covered). A consumption boom has seen cell phone and Internet penetration by 2008 exceed 100% and reach 28%, respectively. From 2000-2007 per thousand people, the birth rate has increased from 8.7 to 11.3, while the death rate has fallen from 15.3 to 14.7 – thus, natural population growth has increased from -0.66% to -0.34%. Similarly, infant mortality has tumbled from 15.3/1000 to 10.2/1000. (In fact, increased migration meant the total population fall in 2007 was just -0.17%, i.e., not substantially different from Japan, Germany or just about any central-east European nation). During the same period, mortality from alcohol poisonings, suicide and murder has fallen by 40%, 25% and 40%, respectively. However, all of this misses the point that in economics what matters isn’t the population or its growth rate per se, but the dynamics of the working age population as a percentage of the whole population – in this respect, Russia’s projected decline is no more severe than that in the the G7 or China (see this post and pg.8 of this Goldman Sachs report).
2. The notion that Putin has strangled Russia’s nascent democracy is an exclusively Western one. 64% of Russians think Putin has had a positive influence on democracy and human rights, while only 3% think it was ‘very negative’ (see recent BBC World Service poll and fedia’s excellent commentary on it). For more information, please consult this blog’s stated position on HR in Russia and my appearance on Al-Jazeera. The data on journalists is taken from the Committee to Protect Journalists‘ database and fedia’s audit of it. Finally, on the topic of the election, no election watch-dog has been able to point out anything other than vacuous allegations that I’m aware of. For instance, on the topic of the 2008 Presidential elections, please consult my blog post on it (including the Western media’s shameless manipulation of the response to the Moscow protests) and the response of independent Russian election monitor GOLOS (here):

GOLOS Association observed that the Election Day was held in a relatively quiet atmosphere in contrast to the State Duma election day. Such large-scale violations observed then as campaigning next to polling stations, transporting of voters, intimidation of voters and others were practically non-existent. Polling stations were better prepared and the voting process was better organized. At the majority of polling stations voters’ lists were properly bound, there were fewer representatives of administration at inside polling stations. In general the process of opening of the polling stations went well without any major incidents.

1. This last myth is a bit tongue in cheek, although on the topic of Mordor I’ve actually managed to find a Russophobe who makes the comparison explicitly.
But as time since 1991 passed and the two countries drifted in their development further and further away from each other, the city was increasingly attached to Estonia because of the dark presence of its evil twin, Russian Ivangorod (right).
Crossing the river bridge into Ivangorod makes those numbers quickly grow in flesh and obtain form in miriad of differences, which set Russia apart from Europe, starting with sickening public toilets and ending with the hopelessness in the people’s eyes.This is why looking again at the crude limestone fortress almost invisible at night with only the howling of wild beasts giving away the presence of life on the other side of the vast body of water I can’t help it but recollect the following verse:
…to bring them
all and in darkness bind…
in the land of Mordor, where the shadows lie.
I have a feeling that this attitude could be just one of several things uniting myself and many decent Narva inhabitants. And this feeling is good.
And so the Annals of smug, self-satisfied Western Hypocrisy go on, world and time without end, imagining Russians to be Mongols with tanks and ICBMs (for the most extreme example, check out these religious nutjobs who go on about the “Final Phase“). Too bad Russia prevented the West from becoming better acquainted with the Golden Horde by being in the way.
11. Go here for our take on the Chechen question.
12. See Brother Karamazov’s comment on 31st March, 2:14PM. Also has another myth.
Note also that it was a Russian (Tsiolkovsky) who developed the theoretical and philosophical basis for space exploration.
(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.


PastClassics
The “war hero” candidate buried information about POWs left behind in Vietnam.
What Was John McCain's True Wartime Record in Vietnam?
The evidence is clear — but often ignored
Are elite university admissions based on meritocracy and diversity as claimed?
A simple remedy for income stagnation