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prague-deus-ex I think Czechia might just be the best country in the world.

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

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

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

 
• Category: Economics • Tags: Czech Republic, Living Standards 
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zvezda-interview

Not even a week in Moscow, and I get contacted by a Zvezda TV journalist requesting an interview about life in America and why I returned to Russia. In a deserted billiards room, I began talking about my theory that there is a civility-friendliness spectrum, with Britain on one end of it, Russia on the other, and America in between. However, I rather embarassingly botched it. I kept saying that while Britons are more civil and polite, Russians tended to be more open and genial, at least once you broke the ice with them. The problem is that my brain hadn’t fully adjusted from English to Russian, and so one of the key words I kept using, “genial,” didn’t actually mean what I thought it meant in Russian – in effect, I have been arguing that Russians were more ingenious than the Anglo-Saxons (they are not). But it was only at the end of the interview that I suddenly recalled that genialnost’ is not genialness. The quizzical looks my interviewer and the cameraman had given me at the start of the interview also suddenly made sense.

I explained what had happened to them, and suggested they cut that part since it made no sense. Relieved that I was in fact sane, they agreed. Unfortunately, my little joke about the only polite Russians being the Polite People would also have to go into the trashbin. But no matter – that episode only accounted for 10% of the entire interview, with almost everything else being about the burning political topic of the day in Moscow right now: Donald Trump. Is the Establishment trying to organize a Maidan against Trump? (Sort of. But in such a lame-assed way that more electors abandoned HRC than Trump himself). Would Trump be a friend to Russia? (Consult Palmerstone and Alexander III. So, most likely, not. But as a successful businessman and a non-ideological “America First” nationalist, it would be easier to make deals with him). What do you make of his apparent hostility towards China? (Let the Eagle and the Dragon claw at each other. Why we worry?).

***

My friend Artem Zagorodnov, whom I met in London, presented a talk in Juneau, Alaska deconstructing some of the major Western myths about Russia – that is, the sort of material I have written a lot about.

You can watch it here: Putin and Russia’s Evolving Image in the United States.

***

In more mundane news, I continue renovating my apartment, enjoying the cold dry climate, and making observations of potential interest.

In contrast to just a decade yore, it is now quite safe to use zebra crossings. (Two decades ago, you couldn’t even say that of a pedestrian crossing at a green traffic light). You should still look round, but then the same applies to London, and New York might even be marginally worse. Even as civility in Russia has risen, it has been falling in both Britain and America, so that we are steadily seeing a sort of ironic convergence between the two.

Possibly related: I see a few people with face masks everyday. I approve of this East Asian tradition. If you really have to go out while ill, at least make an effort to avoid transmitting it.

***

Shopping is a mixed experience. Many security guards. Low efficiency – took me three times longer to order a piece of furniture than it would have in the US or Britain. But I don’t suppose it matters that much right now – the shopping centers were surprisingly empty, especially for this time of year. Russia might be climbing out of the recession according to the latest indicators, but it’s clear that it is not yet being reflected in consumer confidence on the ground.

That said, the quality of service is now very good. At my local El Dorado, the staff were very helpful in explaining the different products on sale and speeding up access to out of stock items. Thanks to the devaluation, Russian made products in most categories of electronic goods are competitive. Online ordering also works smoothly, at least in Moscow. There is no central super-vendor like Amazon in the US, but shipping is fast and and you have the option of paying in cash on delivery.

Hauling large pieces of furnitures up the stairs can be relatiely expensive. But you can hire a couple of Tajiks to do it for much cheaper. No formal agreements, just pluck them off the streets, where the municipality pays them by the hour, and they are grateful for the couple hundred extra rubles while on the taxpayer’s dime. Still probably not a good reason to allow hundreds of thousands of them in, but since they’re here anyway, why not make mutually beneficial deals?

***

There are two sorts of item which were traditionally cheap in Russia, but are no longer so.

The first such items are books. The time when you could get high quality hardbacks for a few dollars appear to be long gone. This is especially surprising since Russian book publishing takes place in Russia, and as such should have benefited from the devaluation. But apparently not. For instance, I was planning on acquiring a hardback copy of “Twenty Years to the Great War,” a recent published magisterial 1,000 page study of late Tsarist industrialization by the historian Mikhail Davydov, but at $50 it will have to wait.

Incidentally, local bookshops are a favorite haunt of mine, since they – especially their politics and history sections – reflect the ideas of the intelligentsia, or at least the sorts of ideas the elites want their intelligentsia to have. For instance, in a Waterstones in London, Richard Shirreff’s “War with Russia” was very prominently featured. In this poorly written Red Storm Rising remake, the “self-obssessed nutter” and “ruthless predatory bastard” Putler launches a brutal war of aggression against the West. The undertone is crystal clear – Four legs good, two legs bad, and we must never falter in our faith (and funding for) NATO!

The history section of my local bookshop is a decidedly more lowkey affair. The books most prominently featured in that section were Ian Morris’ “Why the West Rules – For Now,” Niall Ferguson’s “Civilization”, and the first two volumes of Boris Akunin’s ongoing project “The History of the Russian State.” Respectively, these books represent: An ideologically neutral study of big history and social evolution from a quantitative perspective; populist dreck based on a lame catchphrase transparently designed to appeal to the Intellectual Yet Idiot crowd; ahistorical dreck from a popular detective fiction writer with a severe animus against the state he is chronicling.

So the next time you encounter a Western hack claiming that Russian bookshops are brimming with ultra-nationalist fantasies and xenophobic tracts, recognize it for what it probably is: Projection.

***

The second item that was more expensive than you might expect in Russia was vodka. This was not surprising to me personally, since over the years I have written a lot about Russia’s mortality crisis, how it is primarily vodka bingeing that is to blame for it, and how Putin has been successfully tackling the problem by raising excise taxes on alcohol, amongst other measures. Still, it was good to see the effects of those policies in person – the cheapest 0.5 liter bottle was 219 rubles, while the average bottle cost 350 rubles. These prices are not far from American ones in absolute terms and far higher relative to Russian salaries.

The flip side is that this encourages “left” production – the fatal poisoning of 74 people in Irkutsk due to a bad batch of alcohol extracted from bath oil has been at the top of the news this past week. And everytime something like this happens, populists inevitably demand the government lower vodka prices, even though every ruble decrease in vodka prices would result in far more aggregate deaths than the odd Boyaryshnik poisoning now and then.

***

Thanks to g2k for the Amtsa recommendation – it is indeed the best adjika I have tried to date. Still can’t say I’m a fan, I would prefer any standard Mexican salsa, but I can imagine buying it again.

As I said previously, Russia isn’t the best country for spicy food. As far as I can gather the hottest pepper widely available here is something called “Ogonek,” which I think is similar to jalapeno on the Scoville scale. Most Russians regard it as excruciatingly hot.

I did manage to finally find a cheap, drinkable dry red wine – the Agora bastardo from Crimea. Very far from the best, rather too sour for my taste, but at least I won’t have to become a teetotaller in Russia for lack of options.

I am looking forwards to trying out the Lefkadia/Likuria wines recommended by JL.

That said, I don’t want to give off the impression that Russia, or at least Moscow, is a consumer hellscape. Far from it. While the wine and spice departments are subpar relative to what an American or Briton might be used to, the local teashop has about thirty sorts of Chinese teas on sale, some of them remarkably rare, but all of them at rather reasonable prices. In London, you’d probably have to go to something like the venerable Algerian Coffee Store to find a similar Chinese tea collection.

***

 
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Nearly every other day brings another scary headline about Russia’s economic apocalypse. Inflation is robbing Russians of buying power and Putin propagandists are denying it. The “wheels are coming off” the regime according to our friends at the RFERL, the end of the regime is nigh according to Bill Browder, and Putin’s days are numbered, at least in the creative imagination of Ukrainian nationalist academic Alexander Motyl.

Masha Gessen’s friends can no longer get their little Gruyères, the “legendary” (primarily for losing his clients’ money) Moscow investor Slava Rabinovich is predicting food shortages, and things are only about to get worse with oil falling to $25 per barrel and the ruble to 125/$1, at least according to the Khodorkovsky-funded Interpret Mag’s Paul Goble, who has made something of a professional career forecasting Russia’s takeover by Muslims and the Chinese.

Ambrose Evans-Pritchard, the guy who has predicted all twelve of China’s past zero recessions amongst other forecasting accomplishments, says that Russia is “in a full-blown depression.”

One would think from all the noise that we are looking at some sort of Greece-like depression, or an imminent rerun of the collapse of the post-Soviet economy in the 1990s.

Now for the rather banal reality. Real GDP is expected to contract by around 2.7% this year according to the World Bank, but then recover to 0.7% in 2016 and 2.5% in 2017.

The reasons behind this are likewise pretty banal. They don’t have a great deal to do with Western sanctions, which hurt the ability of Russian companies to raise capital but otherwise have had little bite, and they have even less to do with any particular feature of Russia’s political system/kleptocracy/lack of economic freedoms that both anti-Russian establishment pundits like Ariel Cohen and pro-Western liberals in Russia like former Finance Minister Alexey Kudrin like to claim as dooming it to economic stagnation. If they were right, then East-Central Europe – most of which is rated as a lot economically freer and less corrupt than Russia on the various indices that proclaim to measure such – would not also have been stuck in a relative economic rut since around 2007.

No, the reason for Russia’s recession is quite simple and boils down to the sharp collapse in oil prices from ~$100 in 2014 to ~$50 this year.

Though the Russian economy is about far more than just oil – natural resource rents are 18% of GDP – it is true that oil is the key component of Russia’s export basket. So when oil prices collapse, in the absence of massive and unsustainable interventions, the ruble devalues. This is indeed what happened. Imports went down, goods became more expensive, and inflation rose. The Central Bank jacked up interest rates in order to prevent runaway inflation, but at the price of a decline in aggregate demand and consequently a short-run decrease in the GDP. If one is really searching for a comparison, the correct one would be not to Greece (which is locked in a monetary straitjacket by the ECB) nor to the late Soviet Union (wholly irrelevant) but to the Volcker recession in the early 1980s US.

Sergey Zhuravlev's permanent oil shock model. Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

Sergey Zhuravlev’s permanent oil shock model (click to enlarge). Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

There is now a very substantial output gap. Dependence on Western credit is now much reduced relative to 2013, to say nothing of 2007. Meanwhile, there are active and serious efforts to develop Russia’s own financial system, which remains woefully underdeveloped for an economy of its size and scope.

Finally, even if oil prices drop permanently to $50 – which is entirely possible, given the removal of the Iran sanctions, this would not mean the Russian economy would be necessarily doomed to years of stagnation. To the contrary, econometric modeling by Russian economist Sergey Zhuravlev indicates that it would result in a ~1.5 year recession (which began in mid-2013, versus 2012 in his model; but otherwise it remains very relevant) followed by accelerated GDP growth thanks to exports.

Otherwise, macroeconomic indicators remain unremarkable. Corporate debt repayments scheduled for the second half of the year are twice lower than in the first half. The budget deficit is forecast to be 3-4% of GDP for the year and overall state debt levels continue to be very low. (Incidentally, this figure is 20% for Saudi Arabia. Which should put the nail in the coffin of the idiotic conspiracy theory that the fall in oil prices has been orchestrated by them and the US to undermine Russia).

russia-unemployment-rate

Unemployment in Russia (Trading Economics).

Unemployment has barely budged, not even reaching 6% at its peak. In comparison, it was at 10% throughout much of the 1990s. This is almost entirely an output recession.

Now inevitably when recessions occur, living standards tend to fall, and people have to live more frugally. Reading the Western media, one would think that the recession has led to a tsunami in worker protests, criminality, and elite intrigues against Putin.

But in statistical terms, the real impacts of the downturn have been modest. According to Levada opinion polls, the percentage of people having difficulty buying food and clothing increased to 32% this year from 21% in 2014, but this is still lower than the figure for (pre-crisis) 2012, when it was at 33%, to say nothing of the early 2000s (higher than 50%) or the 1990s (around 80%). The percentage of Russians who spend either “almost all” or “two thirds” of their incomes on food, another measure of poverty, is 26% this year, completely unchanged from 2014, and actually lower than in 2013 (33%) or the 2000s in general (40%-50%), to again say nothing of the 1990s (consistently around 80%). These numbers have been confirmed credible by observers such as Russia Insider’s Gilbert Doctorow and Alexander Mercouris, who have personally assessed the situation on the ground, in stark contrast to the New York Times’ Masha Gessen’s reliance on her “Je suis fromage” liberal Russian friend.

Index of "protest potential" based on percentage of Russians saying they'd be willing to partake in protests.

Index of “protest potential” based on percentage of Russians saying they’d be willing to partake in protests.

It is deeply unfashionable to say this but Russian living standards have improved astronomically in the 15 years of Putin’s rule – more so than the headline GDP figures. As such, even a recession like the current one only kicks living standards back by one or two years.

As such, it is not surprising – if deeply disappointing to the Western elites who want to stir up a color revolution in Russia – that Russia’s level of “protest potential” (the percentage of Russians saying they would be willing to participate in protests, or rating the likelihood of protests as being high) is currently near record lows.

Naturally, any such attempts to put the effects of an ultimately modest ~3% drop in GDP into statistical perspective will be met with accusations of callous indifferent to the plight of the Russian people, and the work of Olgino trolls to boot. I have seen this replayed numerous times on the Internet, even when the people making such arguments were Russians living in Russians, whose only sin was to recount their own (generally modest) experiences and impressions of the recession.

Make no mistake – there is a well coordinated media effort in the West to leverage any Russian economic problems to destabilize the Kremlin. Note the chorus of condemnation around the destruction of food illegally imported from the EU in contravention of Russian sanctions, even though the destruction of excess food is routine under the EU’s Common Agricultural Policy.

Naturally, this is driven by their altruistic and heartfelt commitment to the wellbeing of the Russian people. Though isn’t it just a wee bit strange that those journalists and “activists” who tend to shout loudest about the burning of European food also tended to be the ones who maintained the thickest silence about the burning of Russian people in Odessa in the new European Ukraine.

 
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See data. For real, this time.

russian-gdp-overtakes-germany

While it is perhaps a big strange to start thinking of Russia as a high-income economy, it’s not so surprising when looking at concrete statistics such as vehicle consumption, Internet penetration, etc. – all of which are now at typical South European and advanced East-Central European levels (even if there’s still some way to go to converge with the likes of France or the US).

In per capita terms, this means that the average Russian is now about as rich in terms of real goods he can buy on domestic markets as a typical citizen of Portugal, Greece, Estonia, Poland, or Hungary (though with the caveat that most of the latter places have a lot less income inequality). Below is a table showing the GDP per capita, PPP (current international $) of Russia and comparable countries:

2008 2009 2010 2011 2012
Czech Republic 25,885 25,645 25,300 26,209 26,426
Portugal 24,939 24,892 25,547 25,586 25,305
Slovak Republic 23,210 22,546 23,149 24,112 24,896
Greece 29,604 29,201 27,539 25,859 24,667
Russian Federation 20,276 19,227 20,770 22,408 23,549
Lithuania 19,559 16,948 18,120 21,554 23,487
Estonia 22,065 19,470 20,092 21,996 23,024
Chile 16,435 16,190 18,607 21,001 22,655
Poland 18,021 18,796 20,036 21,133 21,903
Hungary 20,432 20,249 20,734 21,455 21,570
Latvia 18,090 15,928 15,944 19,103 21,005
Croatia 20,215 19,158 18,546 19,817 20,532
Turkey 15,178 14,578 15,965 17,242 17,651
Brazil 10,393 10,357 11,187 11,634 11,909
China 6,202 6,798 7,569 8,408 9,233
Ukraine 7,311 6,312 6,691 7,215 7,418

Furthermore, it’s looking as if Russia might have a real chance of overtaking Portugal next year. Just as Putin promised in 2003! (Double GDP; overtake Portugal in 10 years). But even if that fails, at least overtaking Greece is all but assured, so even if Russia misses out on Portugal it will still get to say it is no longer the poorest “proper” European country.

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

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

auto-sales-russia-cee

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

auto-sales-russia-and-other-countries

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

(Republished from Da Russophile by permission of author or representative)
 
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As I write the book, I create a lot of graphs. Here is one of them.

russia-automobile-production

So in manufacturing terms, as far as cars are concerned, the “deindustrialization” era is decidedly over.

Of course it’s also important to note that in 1985 they were producing this whereas today they are producing this as well as various foreign brands. Plus for every two cars produced and sold in Russia today, one is imported, for total yearly sales of 2.9 million in 2012 (about the same as in Brazil – 3.6 million, Germany – 3.3 million, and India – 2.7 million).

(Republished from Da Russophile by permission of author or representative)
 
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One of the most common arguments made to explain why Russians don’t finally overthrow the evil Putin in a bloody bunt is that they are brainwashed by the regime’s TV propaganda stations.

This isn’t actually very accurate at all. Russian TV isn’t any more propagandistic than in the West, and on some issues, less so; but that is for another time.

The more relevant issue that is presupposes that there few Russians have means of accessing the “free information on the Internet, which even Western propagandists acknowledge is not controlled in Russia. But today this is no longer actual, as revealed by this history of polls on Internet penetration from FOM.

As you can see, Internet penetration in Russia as of Spring 2012 went over the 50% mark. Those people can read all the Navalny, Snob and Echo of Moscow they want to.

Of those 51%, a much larger proportion access the Internet daily as opposed to the several years ago.

Internet penetration is at basically developed country levels of 70% in Moscow and St.-Petersburg, and in Med-like 50%’s in other urban areas.

The most “connected” regions lead only by 2-3 years.

Finally, a graph of Russia Internet penetration compared to developed countries (Germany, the US, Italy, Greece); BRIC’s; and Ukraine. A few interesting observations can be made:

(1) Internet penetration in Russia increased at very rapid rates throughout the 2000′s.

(2) They have now almost caught up with those of Greece and Portugal, and lag Italy by just 2-3 years. The US and Germany however both reached Russia’s current Internet penetration rates a decade earlier.

(3) Ukraine has the same Internet penetration rate in 2011, at 31%, as did Russia’s rural areas in the same type period – or Russia as a whole in 2009.

(4) Not related to Russia as such, but pertaining to one of the themes over at AKarlin, China is head and shoulders above India.

(Republished from Da Russophile by permission of author or representative)
 
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Sergey Zhuravlev is a Russian economist who runs a wonky but eminently readable and very useful, interesting blog and writes for Expert (author profile), which I may add is an excellent publication. You have met him previously on my blog as the inventor of a clever – if, in my opinion, flawed – argument that the 2011 Duma elections were marred by 5%-6% fraud, but were clean in Moscow; and if you read the Russia blogs, you may also have come across Mark Adomanis’ translation of one his articles about Russian regional inequality. Now I am presenting a translation of his Feb 13 article on what I called as the end of Russia’s demographic crisis: The Reversal of the Russian Cross. In my opinion, it has a few weaknesses; in particular, he is too cavalier about dismissing the “alcohol hypothesis” about post-Soviet Russia’s “supermortality”. But overall it is a brilliant and deeply informative survey of the origins of the Russian Cross – the crossover of the births and deaths graphs in 1992 – as well as of its recent reversal, to the extent that natural population decline is now almost stabilized and the overall population is able to grow due to net migrants.

The Reversal Of The Russian Cross

Last year our country’s population increased, for the first time in 20 years. Although positive growth in aggregate was only enabled by immigration from the Near Abroad, existing trends in rising fertility and falling mortality were maintained.

If we are to go by Rosstat’s figures, in the past year Russia’s population – for the first time in virtually the entire twenty years of Russia’s existence as a sovereign state – increased, exceeding 143 million people. The maximum population size was reached in 1992, at 148.56 millions, and has since decreased at a practically monotone rate. That said, it should be added that small population growth was previously observed in 1994 and 2009, and that the population fall in 2010 was, most likely, explained by cumulative errors over the period since the 2002 Census, and by the abnormal mortality during that summer’s heatwave [AK: There were c.56,000 excess deaths during the anomalous 2010 heatwave, which is basically equivalent to population decline of 48,300. Furthermore, the 2010 Census showed there to be 143.9 million Russians, which was one million higher than projections based on the 2002 Census; this implied that during the period, net immigration was underestimated by more than 100,000 per year. So its likely that even despite the heatwave, Russia's population still eked out an increase in 2010].

Caucasian Mountains only bested by Urals Mountains

The aggregate growth in our country’s permanent population was 165,000 for the past year [AK: This was a preliminary estimate that seems to have discounted December's migration stats; the final figure is population growth of 189,000]. Although overall positive growth is only enabled by migrants – net immigration is estimated at 296,000 for this year – the rate of natural population decrease continued to decline at a fast pace. Whereas in 2005 there were 828,000 more deaths than there were births, this past year it declined to 131,000.

Russia’s population is substantially affected by the effects of migration from the former Soviet Union. In the 22 years after 1990 – the year when ethnic problems in the former USSR exploded – some 7 million people have moved to Russia for permanent residency. This figure is in net terms, accounting for reverse flows from Russia, and discounting temporary labor migrants. Although net population outflow from Russia into countries of the Far Abroad constituted 80,000 annually throughout the 1990′s – in total, 1,050,000 Russians have officially moved into countries of the Far Abroad for permanent residency since 1990 – it has practically ceased from 2006 [AK: The Far Abroad is the world outside the former USSR, minus the Baltics and (recently) Georgia. Note also that Russia's "brain drain" came to a dripping halt at precisely the time when hacks in the Western media began to propagandize it].

Russia hosts the world’s second largest migrant population, after the US; it slightly exceeds Germany in this respect, and doubly so the next five largest migrant centers: Saudi Arabia, Canada, Great Britain, Spain, and France. A third of Russia’s migrant inflow from 1990 to 2010 from the former Soviet bloc accrued to Kazakhstan. But in the noughties Kazakhstan ceded leadership as a source of migrants to Uzbekistan, and after the Orange Revolution Ukraine caught up with them, and Kyrgyzstan after the Tulip Revolution [AK: Zhuravlev has a separate blog post noting that emigration waves typically accompany revolutions in the former Soviet space. I guess its something to look forwards to if the White Ribbon crowd seizes power.]

The only former Soviet republic with which Russia has had a negative migration balance these past 21 years – in which more people left than came in – is Belarus. That said, it should be noted that starting from 2005 the migration balance with Belarus too has turned positive, albeit it remains modest (net immigration from Belarus constitutes less than 8,000 people over the past six years). It is unclear why more people left for Belarus before this date; perhaps because the Russian provinces neighboring Belarus, such as Belarus, aren’t exactly the richest ones. Maybe it was tied to family reunification – parents returning to their children, or Belorussians returning to their homeland, for instance from Komsomol construction projects. Perhaps for this same reason Russia had a net outflow of migrants into Ukraine in the very early 1990′s.

As regards internal migration, the statistics do not reveal any special revelations that could refute or even complement intuition. There are three main destinations for internal migrants: The city of Moscow and Moscow oblast (in the past year the entire agglomeration absorbed 125,000 people, or three quarters of Russia’s population growth), and St.-Petersburg (33,000 migrants in the past year). There is also substantial migration into the Southern Federal District (in significant part from the neighboring North Caucasus) and into the Urals Federal District.

An important caveat is that in the two latter cases, population growth carries an exclusively point-like character. In the Urals Federal District, it is almost entirely concentrated around Tyumen oblast, the richest province in Russia today. Due to the high levels of social support in Tyumen oblast, fertility is also high: Young families get generous housing benefits, there are special programs for families with children. On its part the situation is similar for the Southern Federal District, which grows entirely thanks to Krasnodar krai, which is also understandable: Sochi.

It is clear that Russia’s demographic situation has improved in substantial part on account of the Northern Caucasus, where a strengthening baby boom started from about 2005. The other more or less demographically balanced Russian region, experiencing positive natural population growth, is the Urals Federal District thanks in turn to Tyumen. But contrary, perhaps, to popular belief, the Northern Caucasus isn’t the main source of migrants to the Central Federal District. In 2010, the most recent year for which internal migration data is available, only 16,000 people from the North Caucasus got permanent residence in the Center. This is but a drop in the ocean to the 19 million population of the Moscow region.

The biggest “donors” to the Moscow agglomeration are the Center itself and the Volga Federal District. These two regions, which constitute the primordial Russia as it developed in the 16th-17th centuries, experience not only the maximum natural population decrease in Russia but also the maximum mechanical loss of population, which in its turn is getting fairly intensively replaced by migrants from Central Asia (and in Siberia, apparently, from China [AK: Here I disagree with Zhuravlev. While there are significant numbers of Chinese labor migrants and shuttle traders in the Far East, very few of them choose to stay. This is not the case for Central Asians.])

Wartime Losses in Peacetime

Russia’s natural population decrease has declined as a result of a significant improvement in mortality, as well as a modest increase in fertility. The fall in mortality, just as its rise earlier in the 1990′s and early 2000′s, for the most part affected men, and substantially affected their expected life expectancy. From a remarkably low level for a civilized country of 58.9 years six years ago (the minimum was 57.4 years in 1994) it has now improved to 63.6 years. This is still far from a result to write home about, but at least it is now almost equal to the best Soviet-era indicators in the early 1960′s and late 1980′s. As for mortality among under 40′s, which has always been the scourge of Russian men, the current curves are even better than the Soviet ones (granted, the share of men living to 35-40 years is now higher mostly thanks to significantly lower infant and child mortality rates).

The phenomenon of “supermortality” from 1991 to 2009 – the 6.24 million excess deaths in the past 19 years, of which 3.2 million accrue to the 1990′s, that would not have occurred had age-specific mortality rates remained fixed at 1990 levels – has yet, in my opinion, to be endowed with a rational explanation [AK: This is the weakest point of Zhuravlev's essay. Yes, there is a rational and very convincing reason: Alcohol. There is a very close correlation between alcohol consumption and mortality since the late Soviet period, when an anti-alcohol campaign reduced consumption and improved life expectancy, to local peaks in consumption - and mortality - around 1994 and the early 2000's, to the past few years, when mortality reductions have occurred in lockstep with less boozing. There are similar correlations between alcohol consumption and mortality by geography, sex, and socio-economic sex; see the evidence here.]

Despite the hugeness of the number itself. It is equal to or even exceeds the “supermortality” caused by collectivization, is almost an order of magnitude greater than the number of victims of the Great Terror, and has the same order of magnitude as the rear losses of the USSR during the Great Patriotic War.

Falling living standards? This fit the maximum in 1994, but not the second local maximum in 2003, when normality was returning. And on the whole, while living standards fell during the transition period and reattained Soviet levels only in 2003-2005, the depth of the fall was nowhere near deep enough to explain this “supermortality” as during the war years with reasons such as malnutrition, poor sanitation, and the unbearable conditions of mobilized labor. The “supermortality” of the past twenty years carried some war front characteristics: Excess mortality among males from 25 to 44 years of age in percentage terms relative to Soviet norms was maximal, at 57%. As if Russia had a war.

To this day another very popular explanation is the “alcohol hypothesis.” Booze became more accessible, people got more free time on their hands, and parasitism was no longer a jailing offense. It is probable that more accessible spirits, and especially drugs – which were little known in the USSR – played their role. However, during the period, people didn’t start to buy fewer spirits; it remained at a constant 9-10 liters of ethanol per capita annually (the contribution of homemade moonshine is purely evaluative, often they add on about 10 liters of ethanol per capital, but who’s doing the counting?).

Be that as it may, the reduction in external (“non-natural”) causes of death in the past few years was very significant and was visibly faster than the reduction in mortality from all other causes. For instance, if aggregate mortality declined by 2.9% in 2011, for non-natural causes – homicides, suicides, alcohol poisoning – it fell by 9%-17%. Albeit, mortality from traffic accidents did increase by 1.3%.

The causes for this reduction in “non-natural” mortality should probably not be sought for beyond rising living standards. Especially revealing in this context is a comparison between large megapolises, especially Moscow, with the rest of Russia. In the capital, the numbers of murders and suicides, not to even mention alcohol poisonings by counterfeit vodka, are many times lower – by up to five to ten times lower – than in the rest of the country.

In aggregate drunkenness, banditry, the increasing number of auto accidents, and the war in Chechnya explain much less than 100,000 of the annual number of abnormal deaths, which in some years have reached up to 600,000 in the past decade. Furthermore the rise in mortality also affected women, albeit to a lesser extent, for whom the chances of meeting one of the deaths described above are much less characteristic.

The melancholy arising from a career loss is surely an important factor, especially when it comes to people near the end of it. But then its unclear why mortality increases afflicted 25 year old youths; there are cases of suicide even among party and Komsomol activists of this age, even though they fit perfectly into the new capitalist economy.

The mere fact of the demise of the state of “Kuzmich” could hardly have caused such an overpowering depression, as to invoke the desire to end it lethally [AK: Кузьмичи refers to a person who grew up on Soviet kitsch and later became disillusioned by it, but was forced to continue living the lie to retain his power. This cynicism and obscurantism described the Soviet nomenklatura by the 1970's-80's.] To be honest, it was sooner the other way round: They had annoyed everyone by then. One final consideration: We may be dealing with a statistical artifact from Soviet times. It’s well known that to a Soviet economic statistics were just rubbish to a significant extent. Is it possible that similar techniques were applies to mortality statistics, even though its more difficult? [AK: I very much doubt it, not only because falsifying demographic stats is more difficult but because the picture they reveal is damning nonetheless: Stagnant life expectancy (an overall decline for men) and an infant mortality rate that actually, unique among industrialized countries in peacetime, that actually increased under the late Brezhnev period.]

Girls, Ask your Girl Friends

The shifts taking place in fertility were no less interesting. In the 1990′s, the quantity of children per woman younger than 25 years nearly halved. This decrease barely affected older women; however, because it was specifically “youth fertility” that was high in the USSR, the aggregate result was dramatic. The total fertility rate (TFR) – the number of children a woman can expect to have in her lifetime – fell from 1.89 children in 1990 to 1.16 (!) in 1999, which is, of course, very far from level required to assure population replacement. Although the noughties observed an increasing TFR on account of more births among older women – in 2009, the TFR reached 1.54 children – the total “shortfall” of births from the reduction in “youth fertility” during the 1991 to 2009 period consisted of 11.292 people.

Up until 2007, the influence of these changes on the crude birth rate – the numbers of births per 1000 people – was slightly offset by the increase in the numbers of women in their childbearing age.

In the graph below, it is clear that in this indicator, adjusted for changes in age-specific mortality, was actually growing in the 1990′s and the first half of the 2000′s. This is not surprising, as fertility was mostly formulated on account of women born in 1975 or younger, when we had a repeat demographic spurt (an echo of the baby boom of the 1950′s). After 2007, the crude birth rate is starting to be affected by the echo of its own collapse in the 1990′s and by population aging. That is why the birth rate has remained almost flat since that year, despite the number of children per woman markedly increasing. This “echo effect” is going to influence fertility in the coming decade, since women from the small 1990′s cohort will be reaching child-bearing age.

It is difficult to say with certainty what caused this fertility shift towards women of greater age. In the Soviet period, a significant contributory factor to early childbearing was that it was figured as a condition for registration for the provision of housing. Apparently, postponed childbearing was enabled by growing income inequality (as a result of which, women began to take more care in choosing a mate, with economic factors playing a significant role in the process), new opportunities for international migration, or something else.

It’s clear that under the Soviet Union, the presence of kindergartens, schools, the Constitution’s guarantee – which was more or less followed in practice – of free housing constituted significant social supports, which enabled high fertility rates. One can also add that many Soviet cities – maybe, all of them – were developed like a “company town”, with social and housing infrastructures closely tied to the town-forming enterprise. When markets were introduced, and it became clear that nobody wanted so many tractors or so many tanks and the revenues of these enterprises dried up, all this infrastructure were left hanging in thin air. There was nothing left to finance the kindergartens and nurseries, no funds to build housing. And the destruction and uncertainty, of course, also influenced decisions on having children.

The economic stabilization of the 2000′s, and especially the new social support measures introduced in 2006-2007 – maternity capital, credit programs, etc. – launched a “delayed fertility” effect, a shift of births towards older women. In general fertility has matured, albeit one shouldn’t exclude the possibility that further concerted efforts to provide social support for families and children will return TFR back to Soviet levels. In any case, more than half of the movement back is already behind us.

(Republished from Sublime Oblivion by permission of author or representative)
 
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In the wake of Putin’s article on national security for Rossiyskaya Gazeta, there has been renewed interest in Russia’s ambitious military modernization plans for the next decade. I am not a specialist in this (unlike Dmitry Gorenberg and Mark Galeotti, whom I highly recommend), but I do think I can bring much-needed facts and good sources to the discussion.

1. This is not a new development. In fact, the massive rearmament program was revealed back in 2010 (I wrote about it then). Russia’s armed forces were neglected in during the 1990′s and early 2000′s, and enjoyed only modest funding until now; relative to Soviet levels, they are now far degraded. The main goal is to create a mobile, professional army equipped with modern, high-tech gear by 2020.

2. To recap. With oil prices high and Russia’s fiscal situation secure, it IS affordable; it’s not like the old USSR (or today’s US for that matter) spending money it doesn’t have. I also don’t necessarily buy the argument that most of the additional funds will be swallowed up by corruption or inefficiency. Massive new procurement can create temporary bottlenecks, which raises prices, but on the other hand it also allows for economies of scale. The real question is whether Russia absolutely needs to retain the hallowed One Million Man Army, which would appear far too big for the modest anti-insurgency or local wars it may be called to fight in the Caucasus or Central Asia. (There is no possibility of matching NATO or Chinese conventional strength in principle, so that consideration is a moot point).

3. Putin argues for 700,000 professional soldiers by 2017, with the numbers of conscripts reduced to 145,000. This is a huge change, as today – with the failure of the attempt to attract more contract soldiers under Medvedev – conscripts still make up the bulk of the Russian Armed Forces. Many are ill-trained; even things like dedovschina aside, it is impossible to create a good soldier capable of fighting in modern wars in one year’s time. So if successful this will undoubtedly be a change for the better.

4. Will this effort be successful? Based on the results of the previous attempt, Streetwise Professor argues not. I disagree. The previous attempt was marred by the inconvenient fact that salaries were ridiculously low; few reasonably bright and successful people would want to make a career of the military. But since January 1, 2012 military salaries have been radically increased, so that whereas before they were below the average national wage, they are now about twice as big. According to this article this is how the new salaries look like in international comparison.

Lieutenant salaries (pre-bonus)
Russia (2011) $500
NATO East-Central Europe $800-$1400
Russia (post-2011) $1600
France $2300
US $2800
Germany $3000
UK $3500

When one also bears in mind that living expenses in Russia tend to be lower than in most developed countries, it emerges that the new pay scale is only slightly below West European standards. Furthermore, whereas the West European rates are similar to their prevailing national average salaries, the average salary of the Russian lieutenant will be twice higher than the average national salary, which was $800 as of 2011. Remarkable as it may seem based on current culture*, but it’s quite possible that the military will come to be seen as an attractive career choice in Russia.

Below is an infographic from Vzglyad which gives you some idea of the extent of the increases. There are three rows of figures for each rank. The third one represents the average salary (including bonuses). The dark column represents 2011, the lighter column represents post-Jan 1st, 2012.

5. The total cost of the program to 2022 is 23 trillion rubles: 20 trillion for modernization, 3 trillion for defense plants.

According to Vesti, 1.7 trillion rubles will accrue to the additional costs of higher salaries and military pensions in 2012-14 alone. Extending this to 2022 gives a figure of 4.2 trillion rubles. However, we can expect the costs after 2014 to increase further, because of the growing share of contract soldiers and probable further increases in military salaries. So in practice that would probably be something like 7-10 trillion rubles on personnel costs.

So while the rearmament program which focuses on “hardware” is gargantuan, the increases in spending on “software” are very substantial as well.

6. Another myth is that the increased military spending will bite hard into social spending, education, and healthcare. After all, the projected federal budgets show declines in the share of education and healthcare spending, while military spending increases. I bought into it, until I found this article by Sergey Zhuravlev, a noted Russian economist.

This is because of the changing structure of government spending. First, under Medvedev there was a big increase in spending on anti-crisis measures (which are temporary and have now ebbed away), then on big increases on social spending in the run-up to the elections. So naturally, as revenues grow, there will develop room to increase military spending without decreasing social spending, e.g. on pensions. The sum total of the increase in military (and general security, police) spending is not going to be more than 1.5% points of GDP.

In practice, most of the increased spending will accrue at the expense of declines in spending on the national economy and (a very modest) amount of new debt. The former is substantially associated with the end of spending on the Sochi Olympics. So the picture, as Zhuravlev argues, isn’t so much “guns instead of butter”, as “guns instead of Sochi.” As for the debt, it will only constitute an additional 3.5% points of GDP to 2014, which is an insubstantial sum, especially considering Russia’s minimal aggregate levels of sovereign debt.

It is true that as a share of GDP, spending on education and healthcare will fall; this isn’t too desirable, since – especially on the latter sector – they aren’t high in the first place. But it is important to note that this refers to the federal budget, and that the total GDP is projected to increase substantially to 2014; in practical terms, federal spending on education and healthcare will remain flat. But most healthcare and education spending occurs at the regional level. Regional spending in turn will not be under the constraints imposed on the federal budget by rearmament, so in real terms aggregate total education and healthcare spending will continue increasing.**

* Even here I need to make a caveat. Whereas the Army is very unpopular in intelligentsia, Moscow, and emigre circles (of which I am, admittedly, a part) this isn’t quite the case at the all-Russia level where opinions are on balance ambiguous, NOT negative. A majority consistently approves of the Army, and as shown in this Levada poll, even opinion on conscription is typically split 50/50. Only 21% think that Army service is “a waste of time.” The lesson is not to make general extrapolations from unrepresentative samples.

** This is assuming that the whole military spending thing isn’t just pre-elections braggadocio that will be quietly dropped in favor of boring, useful stuff like transport, education, and healthcare as argued in a recent Vedomosti article citing anonymous government sources. I guess that’s a possibility, but I doubt it will happen; the big military spending rises have been in the works far too long to be just dismissed this May.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Russia has a long and proud drinking culture; according to the chronicle of its founding, the main reason it chose Christianity over Islam was the latter’s prohibition of booze. Vodka has been distilled there since at least the 12th century. As of the time of writing, it is the world’s largest spirits market by volume – 2.4 billion liters in 2009, according to the Scotch Whisky Association (SWA), of which more than 80% accrues to domestic vodka brands. Whiskey’s share is only 0.5%; but it is growing at explosive rates, and whiskey now account for two thirds of all spirits imports. Indigenous distilleries are sprouting up and conditions appear favorable for this growth to continue.

In the Soviet period, the only spirits available to most citizens were vodka and cognac from the Caucasus – a point illustrated by Erkin Tuzmukhamedov, one of Russia’s leading sommeliers and author of whiskey books, who got his first taste of Scotch by taking sips on the sly from the bottles his diplomat father brought home from abroad. This changed with the opening up of markets in the early 1990’s. Whiskey consumption has seen tremendous growth; the SWA says exports to Russia have risen from £5m to £31m in the past decade.

Though starting from a low base in comparison with the biggest Scotch markets, such as the US’ £499m, growth is expected to remain double-digit well into the future for three main reasons. First, rising incomes means Russians can afford to develop more refined tastes. Second, the growing segment of female drinkers favors spirits that can be sipped. Third, the government plans to quadruple the currently low excise duties on spirits by 2014, thus narrowing the cost differential between vodkas and whiskeys. All this implies growth for blends, which dominate the Russian whiskey market – for a time, Tuzmukhamedov was Dewar’s chief promoter in Russia – and very strong growth for single malts.

Reactions to inquiries about indigenous Russian producers was dismissive, their current presence being described as “fairly negligible.” There are some distilleries that have laid down their own malts, but are currently maturing and won’t be ready for years. One example is Viski Kizlyarskoe, a Daghestan-based brand that in 2008 laid down test run trials of all major types of whiskey – malt, grain, and blended – and is building a $7m distillery.

Praskoveysky distillery

Praskoveysky distillery

Another is the Praskoveysky distillery based in Stavropol, which has been producing wine and cognac since 1898. In 2008, it expanded into whiskey, starting up production in oak barrels on Irish technology. The factory manager, Boris Pakhunov, claims that it has a better nose than the Jameson that inspired his brand, and the honey tones are sharper.

The first samples from both are coming to market just now, and once in mass production prices are expected to range 300 to 400 rubles ($11-15) – an economy class alternative to vodka and the most popular imported brands in this category, such as White Horse or Famous Grouse.

Later, in May 2010, the Urzhum spirits distillery announced the launch of its own line, headed by “Officer’s Club.” Another increasingly popular approach is to just import whiskeys from abroad and bottle one’s own blends, as done by the Kaliningrad-based distiller Alliance 1892 in February of this year. It’s product, “Seven Yards”, went on sale this May, costing $18 per bottle.

So it’s a beginning of sorts, if not an overly impressive one thus far. Nonetheless, as whiskey’s following grows, this could change. According to Tuzmukhamedov, there are whiskey appreciation societies in the biggest cities like Moscow, St. Petersburg, and Yekaterinburg: “I’ve met ordinary guys who save their money to go on holiday to Islay – that’s not affectation, that’s appreciation of the drink.” He should know, as he runs Dewar’s new whiskey academy in Moscow, whose one month courses have become very popular with restaurateurs.

Whither now? Tuzmukhamedov is very skeptical that whiskey will ever displace vodka as Russia’s national drink, because vodka has the weight of tradition behind it and goes much better with the staples of the Russian diet. Though there is a lot of room for growth remaining, he expects it to eventually level off. Russian whiskeys are likely to become more prevalent on the Russian market, and some may even be exported. There is an antecedent for this in Baltika beer, which began brewing in 1990 on foreign techniques and can now be found in Western supermarkets.

That said, there is still a long way to go. According to Tamerlan Paragulgov, the director of an alcohol standards agency, many of the fledgling Russian whiskey makers still have fairly obsolete marketing standards; case in point, the Praskoveysky winery and cognac distillery is still run in a leisurely and paternalistic fashion as a Soviet-style enterprise. Another problem, according to Tuzmukhamedov, is that it is very hard for a small producer like Praskoveysky to establish itself in competition against the big names.

The experiments of today’s Russian whiskey producers may garner interest among whiskey circles in Russia, but they will have to get more serious about marketing and raising capital if their products are to break out into the wider market.

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

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

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

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