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Rhetoric about it being “Nigeria with snow,” “Zaire with permafrost,” “Upper Volta with missiles,” “gas station masquerading as a country,” etc., regardless, the fact of the matter is that Russia does have a respectable manufacturing base.

This should be pretty obvious just from a quick perusal of the sorts of manufactures Russia produces:

  • A vast military-industrial complex that produces (and exports) on a scale and versatility exceeded only in the US.
  • Rosatom is building an amazing 40% of all the nuclear power plants currently under construction in the world. 10% of the world’s power turbines are made at the Leningrad Metallurgical Factory.
  • More prosaic but also more generally indicative, Russia produces about 2 million cars annually, which is about the same as in the UK and France, and thrice more than in Italy. This satisfies around 70% of its total domestic sales – virtually the exact same percentage as in the US and UK

This is not, of course, to make Russia out to be some kind of manufacturing behemoth like Germany, Japan, or Korea. It is however on approximately the same level as the European economic Middle Powers of France, Italy, and the UK, as well as that of fellow BRIC members Brazil (which has a 35% larger population) and India (which has eight times its population). In other words, it is broadly what you would expect based on its GDP and status as an upper middle income country.

This is pretty elementary stuff any other journalist or pundit can discover for himself through a quick glance through the various economics statistical databases on the Internet. The figures below were derived from the World Bank’s data on nominal GDP and the share of manufacturing in the economy for 2013.

Country Manufacturing Output in 2013
China $2,923bn
USA $2,081bn
Japan $912bn
Germany $829bn
Korea $404bn
Italy $327bn
India $321bn
France $318bn
Russia $308bn
Brazil $276bn
UK $259bn

And here is a historical graph showing Russia’s manufacturing sector on a global perspective (log scale) since the early 2000s.

world-manufacturing-1990-2014

To be sure, yes, Russia exports very little of this. As mentioned, its manufacturing base is to a very large extent domestically orientated. Instead, its exports are dominated by oil, natural gas, and metals, of which it has a cornucopia.

Why? Because comparative advantage, otherwise known as Economics 101. A concept that in Russia’s case the Western media consistently has trouble with.

Cue the famous graph of Russia’s exports structure that supposedly makes it a gas station:

russia-exports

… which if so would then make Australia, a well educated nation and one of the richest in the world, nothing but a coaling station.

australia-exports

Incidentally, what makes the “Nigeria with snow” rhetoric so convenient is that it can be – and is – wielded against Russia regardless of what actually happens to the oil price. If it goes up, emphasis can be put on the increasing dependence of the Russian budget, exports, and overall economy on hydrocarbons. If it goes down, you can instead focus on the imminent fiscal collapse – no matter that Russia has almost $400 billion socked away and that its current budget deficit is close to non-existent. Regardless of what happens with the oil price, doom is always preordained. And there is nothing that Russia can do about this “oil dependence” in anything but the very longterm short of nuking all its oilfields.

I would write more but Ben Aris writing in February 2014 in response to a typical hackneyed Economic editorial on how Russia is hopelessly addicted to oil and about to collapse any moment now has made any such effort redundant, so I will instead save myself some work and quote him in extenso:

“this achievement was founded almost entirely on oil and gas prices, which have climbed fivefold since 1999.”

So now we launch into the core of the attach, the increasingly hackneyed argument that “all Russia’s prosperity is due to its gift of oil and the government has done nothing else to make life better.”

This argument is becoming extremely tiring and moreover as time passes it is demonstrably not true. Oil remains very important but a lot has changed in Russia in the last decade, which is being willfully ignored.

Firstly oil prices didn’t take off until about 2005. Prior to that the long-term average was $25/barrel. And yet Russia put in 10% GDP growth in 2000 and continued to grow at least 4-5% until 2005. And only then did oil prices take off lifting growth to 6-8%.

So if Putin is so rubbish and all the good stuff depends on oil, how did he manage to get all that growth in the years when he had the same oil prices as Yeltsin had??? Could it be that something else happened? Could it be that the devaluation of the ruble had a positive effect? Could it be that oil companies invested more in themselves in 2000 than in all the 1990s. Could it be this started off a virtuous circle of growth, investment and rising wages that lead to other companies appearing to take advantage of this new money? And if not, where did all those consumers come from that have been driving Russian growth in last five crisis years? Just askin’… because according to the Economist analysis it appears that oil pours directly into Russians pockets which they then go out and spend in the shops.

“Dependence on energy exports is greater even than under the Soviet Union: they now account for 75% of the total, against 67% in 1980.”

Journalism 101: “when citing statistics, you need to attribute them to the valid source so they can be checked.”

This number is flat out wrong, or made up, or I don’t know as the author doesn’t say where it comes from. The last number I have is from the Russian customs service and is 49.4% export revenues for oil and 11.7% for gas in 2013 – a total of 61.1% of export revenues which is LESS than the “Soviet number” (where ever that is from).

No one is denying that oil and gas play do provide funds to pay for lots of other things the government wants to do – and so impede reforms because the government is so actively throwing money at problems. But the statistic that everyone who makes this argument always skips over is that oil and gas only account for about 15% of GDP in terms of value created according to Rosstat; the service sector made up just over 50% of GDP in value terms last year. Russia is not just a black and white petroeconomy.

Oil is of course even more important than that as it has direct knock on effects to other industries. A paper from the highly respected Bank of Finland economic analysis team (BOFIT) tried to assess exactly how important oil and gas are to the Russian economy. It adjusted the number up to about 25% of GDP and made this conclusion: “When adjusted to reflect the oil and gas sector’s actual contribution to GDP, Russia is on par with Norway (Table 2). This is much less than traditional oil states such as Saudi Arabia, which generates about half of its GDP directly from the oil and gas sector.”

Lets just pause for a moment and take that in: Russia’s dependence on oil and gas is the same as that of NORWAY…. not a true petro-economy like Saudi Arabia.

“Ten years ago the Russian budget balanced if oil was around $20 a barrel; today it needs to be around $103.”

Yeah, and ten years ago you could buy a coffee in London for 50p and not the £5 a cup it costs now. This “balance-the-budget” price of oil is another myth.

What you need to look at is the non-oil budget deficit (the federal budget deficit Russia would have if you magic all the oil and its revenue away). In the boom years of 2006-2008 Russia was running a health budget surplus, but it as also running a non-oil budget surplus of about 1%. In other words it had broken its addiction to oil as the real economy was producing enough tax revenue to finance everything before a dollar of oil tax money was received. That changed in 2008 when the non-oil deficit when down to 14% and the state poured rescue money into the economy, but has recovered somewhat since and the plan is to take the non-oil deficit back to about 4-5%. In other words the government was to modest subside the budget with oil money. It is actually an extremely reasonable plan and how the budget was run in the first half of the last decade.

However, in the 90s the non-oil deficit was over 25% of GDP. In other words under Putin the fiscal oil dependence has steadily decline as that service sector and other industries increase their share of the economy, but the crisis was a big set back – and thank god for that oil as it is the cushion that has given Russia a soft landing.

Bear this in mind whenever you encounter the next loud proclamation about how Russia is [insert banana country]-with snow that doesn’t produce anything.

 
• Category: Economics • Tags: Manufacturing, Oil, Russian economy, RussPol 
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doing-business-2016-world-map

In the overall scheme of things, the World Bank’s Ease of Doing Business (and other such indices) don’t seem to be terribly important. As long as you don’t go full retard on such matters and adopt Soviet-style central planning, or something like that, then you should do just fine as long as your human capital/national IQ is up to scratch. Just compare Chile and China: The former radically liberalized under the late Pinochet; the latter still exercises capital controls, with layers of bureaucracy and prevalent state ownership. But China, with human capital indicators approximately one standard deviation higher than Chile’s, has been growing at 10% for more than three decades, while Chile remains in the middle-income trap.

That said, there are good reasons for paying attention to them too.

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

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

Finally, one presumes that “kleptocracies” – i.e., what the Putin regime is frequently characterized as by Western officials and the media – will be unwilling to cut down on regulations because it is “built on corruption” and similar rhetoric. But instead we are seeing the precise opposite across multiple objective indicators of corruption, with the Doing Business rankings being just a case in point.

russia-doing-business-rankings-2005-2015

First off, here is Russia’s percentile performance on the Ease of Doing Business rankings since the World Bank began doing them. (Each report refers to the year beforehand, so the most recent report, Doing Business 2016, refers to the situation as of this year). Relative to other countries – and in general, the world has been improving fast this past decade in this respect – Russia went down under the second Putin administration. The Medvedev administration, for all its reformist rhetoric, made no appreciable gains. Only under the current administration has Russia surged ahead to 51st place this year, ahead of the vast majority of non-OECD nations. (Though ironically, at the same time, its growth rate has plummeted, which just goes to further show that in the large scheme of things, institutions aren’t that big of a deal).

A more useful way of looking at this, which also enables both cross-country and temporal comparisons, is to look at the Distance to Frontier index – i.e., how far any particular country lags from the “optimal” level of ease of doing business at any particular year.

Russia and the Ex-USSR

doing-business-russia-vs-exussr

Thoughout the ex-USSR, business conditions have improved significantly in the past few years, to the extent that Russia, Kazakhstan, and – yes – Belarus as now close to the level of the much-lauded Baltics in the late 2000s. Contrary to Maidanist rhetoric, it also seems that Ukraine under Yanukovych made big leaps forwards, only for progress to come to a grinding halt under the pro-European and “reformist” Maidan regime. Let it sink in that it is and long has been much easier to do business in “statist” Belarus under Europe’s “last dictator” than it has been in the pro-Western failed state of Ukraine.

Russia and BRICS

doing-business-russia-vs-brics

From being middling amongst the BRICS, Russia has surged to the forefront. Note that Russia’s low position on the Ease of Doing Business index has at times been given as a reason to kick it out of BRICS (no matter that Brazil and India always did worse).

Russia and East-Central Europe

doing-business-russia-vs-ece

From lagging the Visegrad bloc of countries a few years back, Russia has more or less merged into them.

Russia and the West

doing-business-russia-vs-the-west

And has even merged with some Western countries – primarily the more traditionally more corrupt ones along the Eastern Med such as Italy, Greece, and Israel – but still. Point is – no longer is Russia an outlier in terms of ease of doing business even relative to the fully developed world.

Not surprisingly, many people are not very happy about these developments. Bloomberg’s Leonid Bershidsky, normally one of the better anti-Putin journalists:

For some governments, improving their country’s standing in the World Bank’s Doing Business survey has become a national priority. Yet the results of such efforts sometimes are deceptive.

That’s because the annual ranking of business friendliness of regulatory systems isn’t based on surveys of businesses. Instead, it analyzes regulations and regulatory change, and awards points for pro-business measures and takes them away for anti-business ones. In practice, that means rating government policies without considering their real effect. It’s a ranking of institutional good intentions, which explains why so many politicians swear by it.

The fact that it is not based on surveys of perceptions picked by mysterious methods and accountable to nobody is its very point and what makes it objective in the first place! (And I’m not just saying this now that Russia is performing quite well on it. I was saying the same thing in 2008 back when Russia’s position on the Doing Business rankings was nothing to write home about).

Unlike, say, Transparency International’s Corruption Perceptions Index, which is what Bershidsky from the sounds of it basically wants to copy in relation to Doing Business:

As I explained in previous posts on this blog, it suffers from numerous flaws. Part of it has to do with its questionable methodology: using changing mixes of different surveys to gauge a fluid, opaque-by-definition social phenomenon. Another is its reliance on its appeal to authority, the theory being that “experts” in business and think-tanks know more about corruption relative to anyone else. Countries with more regulations are systematically prejudged, as are those facing hostile media environments such as Russia or Venezuela. Above all, the CPI doesn’t pass the face validity test – in other words, many of its results are frankly ludicrous. Is it truly plausible that Russia (2.1) is as corrupt as failed states like Zimbabwe (2.4) or D.R. Congo (2.0), or that Italy (3.9) is more corrupt than Saudi Arabia (4.7) which is a feudalistic monarchy!?

Bershidsky continues:

… Russia jumped in the charts thanks to four innovations: It cut the number of days required for a new company to open a bank account and register property, cut property taxes and simplified the process of obtaining an electricity connection.

These hardly seem substantial improvements, compared with the danger of losing property to powerful and thoroughly corrupt law enforcement agencies and bureaucrats, the risks imposed by Putin’s external aggression, and the country’s shrinking economy and decayed infrastructure. It’s not for nothing that Russia is 143rd out of 152 nations in the Heritage Foundation’s latest Index of Economic Freedom.

Bershidsky translated: It’s showing the wrong results shut it down let me and Anders Aslund compile it instead.

More general theme: Whenever Russia’s scores on such indices begin to unfathomly climb a bit too high for comfort, there are inevitably calls for them to be erased and replaced with other indices.

This is a familiar phenomenon. For instance, when Transparency International’s Global Corruption Barometer 2013 appeared to indicate that incidences of bribery had recently plummeted in Russia to levels resembling those of the more corrupt First World nations (as opposed to typical levels of other middle-income countries) they opted to not release them at all due to not having “confidence in the reliability of the data.”

UPDATE: Alexander Mercouris has produced an article on the Doing Business rankings that basically confirms the points made here but with more in the way of personal experience.

If Russia’s rapid rise in the World Bank’s ease of doing business rankings tells us that – for all its problems – Russia cannot be the corrupt kleptocratic oligarchy of Western fantasy, it also tells us two other things.

The first is – as I said at the beginning of this article – that the demand for more and more “reforms” simply ignores the fact that reforms are in fact being carried out.

Anyone who reads through the World Bank’s annual surveys will see that they are all about “reforms”. It is precisely because Russia is carrying out “reforms” that its ranking is rising so fast.

To be clear, modernising the court system, introducing a new bankruptcy law, simplifying procedures for connecting to the electricity supply, and passing laws on registering property and on administering bankruptcy, are reforms.

They may lack the drama of breaking up Gazprom, but academic research, historical experience and the World Bank all say the same thing: it is these sort of unexciting reforms that in the end are the ones that make a difference and which produce results.

In other words Russia is reforming, and it is doing so successfully, in a methodical and purposeful way.

The second point is that if one looks at what sort of countries now outrank Russia in the survey, it turns out that they are – broadly speaking – the three Asian industrial giants: Japan, Taiwan and South Korea, the two Asian city states of Hong Kong and Singapore, and the traditional and well established industrialised societies of the West: the US, the three rich countries of the British commonwealth (Canada, Australia and New Zealand) and most (though not all) the states of the EU – in sum what was once called “the first world”.

If one removes the one indicator where Russia scores especially badly, Trading Across Borders – for which there are special reasons (see above) – Russia becomes even more clearly aligned with these “first world” countries rather than with those countries that make up what used to be called “the third world”.

The Russian government’s target is to achieve 20th place in the World Bank’s ease of doing business survey by 2018. That may be too optimistic, though it is worth pointing out that the target for this year was 50th, which Russia only missed by one place.

 
• Category: Economics • Tags: Business, Russian economy 
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So now that I’m blogging more or less regularly again I’ve been thinking of setting up a bit more of a structured schedule.

Probably it will be minor posts interspersed throughout the week, with a compendium of my best Ask.fm questions and major posts (called Big Posts) every Thursday or Friday which will (generally) run as Features sometime over the weekend.

So without further any ado, here’s my Ask.fm Q&A’s since last time.

***

Automation and IQ

What model do you foresee replacing the current global neo-liberal economic model? When do you think it will happen?

The game changer will be automation. To be sure, people have been talking of automation for decades, but I suspect when it truly hits it will be very sudden since it will likely involve a series of rapidly occuring threshold events as robots and AI programs quickly replace humans in industry after industry.
I don’t know when it will happen. Sometime between 2020-2050 is really the best I can do.
In the new world that will arise, many – perhaps most – people will be driven out of their jobs. Only the >130 IQ cognitive elites will still have more or less guaranteed employment in the creative industries and in designing and improving the robots (until/unless superintelligence takes care of them too but that’s another story).
Since almost all income will now accrue to the owners of capital, wealth inequality will soar to levels that make today’s reality seem like some kind of hippie commune.
Presumably the oligarchs can be persuaded to institute some kind of basic universal income system if only for their own benefit (no consumers = no economy). But the outcome won’t necessarily be that rosy. My friend Scott Jackisch posits a sort of neo-feudalism where the oligarchs retreat to their gated mansions, get legitimized by their paid up NRx bootlickers, and keep the proles in line through ubiquitious surveillance and drones. And hackers and cyborg “grinders” lead an insurgency against them from the derelict ruins of the old cities. He really should write a sci-fi novel one of these days.
Anyway… back to reality. I do think eventually there will be UBI. That, and the various MyFace/Twatter entertainment systems, are cheaper than murder drones anyway. An interesting question is to what extent, if any, UBI will be linked to “good behavior” (socially, politically). An even more dystopian scenario (to some) would be to have your basic income get determined by your social justice karma. I think we might well be heading there…
If Rindermann’s “smart fractions” are important to national prosperity now, they will become all-important after mass automation. GDP per capita will *essentially* be linked to the numbers of >130 IQ people you have relative to “dead weight” i.e. everyone below that. Even the most blank slatist economists will realize what idiots they were back when they argued for (~85 IQ) mass Third World immigration.
Since countries like Japan, Korea, and Germany could be expected to become ultra-competitive due to their large “smart fractions,” countries in the <95 IQ zone – i.e., most of the Third World – will have to become protectionist if they want any of their domestic industries to survive. This could lead to a retreat of globalization, and ironically, provide a counter-acting force against rising inequality.

Are you shocked by the amount of low wage labor in large metro areas in America? Most of it came within the last 20 years from immigration. My impression is that Europe (even with its immigration) doesn’t have nearly the amount of stupid unskilled labor that we have.

Yes, I noticed it, though I am not particularly shocked by it. I suspect it’s largely on account of the US having a large class of ~85-90 IQ NAMs (Non Asian Minorities).
In contrast, when I visited France in *the early 2000s*, even the supermarket in the small town I was staying at *already* had an automated self-checkout. It was my first encounter with them. (I had lived in Britain beforehand. Incidentally, for whatever reason, productivity in France is substantially higher than in Britain, which you wouldn’t predict on the basis of neoliberal orthodoxy).
Which raises the really big puzzle of just WHY and HOW American GDP per capita is so much higher than that of the EU countries, and France/Germany in particular. (I tried to answer it here, but didn’t really succeed in doing so: http://www.unz.com/akarlin/national-wealth-and-iq/).
For whatever reason, the middle class and the smart fractions in the US are just a lot more productive than their European counterparts.

What are your thoughts on driverless cars? Will they be a game changer?

Obviously a lot of lorry drivers, chaffeurs, etc. will find themselves out of work. It will take a long time to implement – even if adopted all at once, it will still take about 20 years to change the bulk of the vehicle stock – so I don’t see this as being an absolutely massive game changer. That said, I look forwards to not having to bother with owning my own car, and being able to do something useful during commutes instead of driving.

Given the coming wave of job automation, what would you suggest is a good long-term career path for someone who is in their early to mid 20s, in the 125-135 IQ range but with no technical skills? This is an odd question, I know, but I’d like to what you have to say about it.

Get in an oligarch’s good graces. That’s what half of NRx is doing! ;)
Slightly less flippant answer: Read N.N. Taleb’s writings on the power law, and internalize it. If you have a 125-135 IQ, you should be able to build a successful passive-income business, write a bestselling book, etc. You will most likely need to make a lot of attempts before you hit gold, but with your cognitive profile, you have a good chance of making it there eventually. People who end up succeeding are usually those who also fail the most beforehand.
You’d do well to start at this now before everyone is unemployed, on basic income, and competing with you trying to do the exact same thing.

***

My Book, Smart Fractions

I always liked your posts o n education, PISA performance and related economics/demographics. A few days ago I stumbled on http://www.oeaw.ac.at/vid/dataexplorer/ . In this database you can see fertility rates for all countries of the world by education level. Is that of use to you? It is.

Thanks a bunch for the link! I look forwards to exploring this. Might even be of use to my book.

apollos-ascent

“It is. Thanks a bunch for the link! I look forwards to exploring this. Might even be of use to my book.” You’re writing a book?

Yes. The preliminary title is Apollo’s Ascent.
Its big idea is that the rate and global distribution of technological progress in history has largely been a function of the literacy rate and the absolute numbers of “smart fraction” people available.
I actually plan to make an announcement about this relatively soon on the blog with a more detailed exposition of the main thesis (hopefully before Garett Jones’ Hive Mind comes out).

wrt the premise of your book, how does Britain fit in? AFAIK we’re the single largest contributor to ‘human accomplishment’ over past thousand years or so but by no means a large populace so the smart fraction couldn’t have been that large in absolute terms.

Here’s the thing: England made a huge leap forwards in terms of literacy early on in the Early Modern Age. By the time of the Civil War, literacy was at around 40%. This was much higher than practically anywhere else. Renaissance Italy peaked at around 20% and then remained stagnant at that level for centuries. France on the eve of the Revolution was only at around 25%.
For a smart fraction to be capable of contributing to scientific/cultural progress, it needs to be literate. According to Ancient Literacy by William V. Harris, Ancient Greece was probably the first society on Earth to go beyond “priestly literacy” (~1-2%) to “craftsman literacy” (~10%). England was probably the first society on Earth to go from “craftsman literacy” to something resembling mass literacy, and that happened in the 17th century.
You will know from Human Accomplishment that the great bulk of British achievements accrued in the post-1600 period, and that this coincided with the genesis of the Scientific Revolution.
Another thing to bear in mind: Since England was also one of the first societies to escape Malthusianism, it would also have been one of the societies longest subject to dysgenic trends. While British national IQ today is unremarkable relative to other West European countries, it might have been somewhat higher 400 years ago. Finally, the English were unusually well fed by continental European standards from the 17th century onwards – they were a few cm’s taller, for instance – so that would have likely given a further boost to their IQs.

I myself played a round a bit with the Education/Fertility database and calculated a “predicted IQ loss” over the next generation. Because of the extreme fertility differences, Latin America will be hit very hard (loss about 4 IQ points). What is your take on the future of Latin America?

“Brazil is the country of the future… and always will be.” – Charles de Gaulle.
CDG was usually right.
Apart from a burst of strong growth in the 50s-70s, Latin America for most of its history seems to have merely been keeping up with the advanced countries if not actively falling behind them (like Argentina).
If as you say dysgenic trends are particularly strong there, then all the more reasons for longterm skepticism. about 7 hours ago

What developed country has the most eugenic fertility? What about the least? My observation is that Britain has the most dysgenic but I haven’t seen the data? Where does America fit in there?

Not a topic I have looked at in any great detail (yet).
From what I have gathered from Lynn/Murray, trends amongst White Americans are moderately dysgenic and strongly dysgenic amongst Black Americans. However, JayMan statistically disputes that: https://jaymans.wordpress.com/2014/07/28/idiocracy-can-wait/
As far as I know, most of the differences in fertility rates between developed countries accrue due to fertiltiy differences amongst the more intellectual sorts. So it may be reasonable to assume that dysgenic trends in low fertility countries (Germany, Italy, Japan) are stronger than in high fertility countries (USA, Australia, France). Which if true would be a double whammy of sorts. But as I said I haven’t looked at this in depth, so don’t quote me on this yet. about 2 hours ago

***

CRISPR, Eugenics, Futurism

How do you think positive genetic engineering will be deployed? will the .1% be able to use it to ensure the primacy of their offspring or will natural inborn inequality be ‘fixed’ by it or any other scenario? When do you imagine it will be used in a majority of human births?

Using CRISPR to “correct” genetic load and vastly increase IQ is a no-brainer to me. Most East Asians would agree with me, though many Americans laboring under Judeo-Christian morality systems would not. Their loss. Most will probably come round eventually, but might miss out in the meantime.
According to estimates I’ve heard from a well informed person the actual technology should be pretty much worked out in 5 years (this was in 2014).
Then it should be mainly regulatory and ethical issues, but they are a big unknown. However, ambitious (ruthless?) billionaires will be able to start upgrading their offspring around about then.
If left to market forces, due to the Moore’s Law-like progress in biotech costs, I expect the procedure will become affordable to the vast majority of people soon after the technology is worked out. If many or most people start doing it, there will be a huge acceleration in technological progress, possibly but not necessarily in sufficient force to take us to a computer superintelligence sometime this century.
So whether it reinforces or suppresses inequality ultimately depends on the regulatory response. Short of a concerted global ban, high net worth individuals will be able to upgrade their offspring but the option will be foreclosed to the proles. The motivations behind any such ban could be naive concern over “human dignity” or other such nonsense, but I don’t exclude the possibility of a transnational oligarch conspiracy to create “global Brahmins” out of their family lines either.

CRISPR&intelligence: I’m reminded of point 6 of Fred Reed ramblings on evolution (I don’t share his skepticism of evolution) http://www.unz.com/freed/me-derbyshire-and-darwin-612/ Still, remark is interesting. Why are seemingly extremely beneficial traits so rare? Somewhere they must have downsides

Certainly. Bigger brains require more energy. But eventually limits are reached beyond which more intelligence offers diminishing marginal returns and ceases to be strongly selected for.
IMO, Pumpkin Person nails it in his reply to Q3: http://pumpkinperson.com/2015/08/17/some-hbd-questions-from-a-reader/

More on intelligence&downsides. Beyond brain energy consumption, Cochran thinks the downside of Ashkenazi intelligence is a higher prevalence of a host of specific genetic diseases. Beyond, consider the anxiety about GMOs crops. How then can you brush off the precautionary principle for HUMAN GMOs?

(1) We just avoid the specific Ashkenazi Jewish intelligence genes that result in genetic diseases, thus “missing out” on the modest <1 S.D. improvement in IQ that would have otherwise given us. That still leaves huge scope for improvement, at least on the level of 4-5 S.D.’s, which describes the cream of the cognitive crop today.
(2) I don’t think the anxiety over GMO crops is scientifically legitimate.

What developed country are you most optimistic about over the next 50 years? What country most over-performs their potential? Also, what country most underperforms their potential?

(1) The “Anglo offshoots” i.e. Australia, Canada, even the US. Demographically vigorous. High native IQs. Strong universities and hi-tech sectors. Cognitively elitist immigration policies. The US is a partial exception, but since so many talented people around the globe still want to move to the US anyway, this means that in net terms, things will probably cancel out (especially since with the advent of mass automation, the influence of “smart fractions” is likely to increase even further).
Since the Cucks of Europe are insisting on flooding the continent with <90 IQ Third Worlders, and Sub-Saharan Africans will come to comprise something like 40% of the global population by the end of this century (UN projections) resulting in massive immigration pressure, I don’t hold out much hope for any EU countries, including even Poland and Hungary, who will still have to answer for Juncker’s and Merkel’s choices. Japan and South Korea will do okay but ultimately their potential is going to be constrained by their lower q factor (curiosity) since that will likely attain more of a premium in the coming age of automation.
(2) The US itself is the biggest and most prominent example. See http://www.unz.com/akarlin/national-wealth-and-iq/
(3) Once smart fractions (varying IQ distributions), oil windfalls, and Communist legacies are factored in, there are very few countries that truly overshoot or underperform very much.
But the biggest example here is China. See http://akarlin.com/2012/02/education-elixir-of-growth-3/

***

Charles Murray and Steven Pinker

Do you know Charles Murry and Steven Pinker? They think mainstream-social science is still lagging behind REAL science by ignoring genetic and racial differences. What’s your idea of this situation and political-correctiness of FAKE knowledge ?

They are of course correct, but their high status stops them from being too forthright in calling a spade a spade. This allows Pinker to retain his status as a high priest of modern liberalism, complete with columns in the Guardian, while Charles Murray, for all my respect for his sociological work, is at heart a cuckservative who gets triggered by Donald Trump of all people. As such, they embody the problem at least as much as they contribute to solving it.

Thank you for answering my questions about C Murry and S Pinker. When will the mainstream media & social science accept and talk about the TRUTH? How hard it will be?

I used to think that the flood of new genetic evidence would sweep away the dogmas that have been accumulating in universities and the media since the days of Boas and Gould.
But I have become much more skeptical of late, because I now realize that regressive trends have if anything accelerated. With SJWs making common cause with the Western deep state (NSA, GCHQ, Google, Facebook, etc.) the foundations are being laid for enshrining blank slate, social justice ideology in perpetuity – or at least until whenever its host organism collapses.

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The Ukrainian Question

In http://www.unz.com/akarlin/prosvirnin-shoahed/ you wrote that Ukrainian nationalists have been preventing Poroshenko from making good on the Minsk agreements. Why them rather than his Western retainers?

It appears that the latter, not the former, are the ones who got him by the balls. I think the Western powers generally do want to see Ukraine fulfill the Minsk Accords (the Europeans do at any rate; I am not 100% sure on the neocons who are overseeing US policy on Ukraine).
The problem is that the Maidan absolutists and nationalists view fulfilling the Minsk conditions as a great zrada (betrayal) and are uncompromising in their opposition to it. The nationalists might not enjoy huge electoral support, but they have a lot of armed, violent men in their ranks, and that is likely what by far the most important consideration in Ukraine nowadays. If they can overthrow one President, then they can overthrow a second one as well, if the circumstances are right.
Moreover, actually fulfilling the Minsk Accords would raise the risk of the far western regions (Galicia, etc.) demanding the same autonomies as the Donbass. These are generally considered to be the main reasons why Poroshenko isn’t rushing to fulfill them. In fact, he has yet to fulfill a single condition in them.

Are Russian and Ukrainian nationalisms necessarily at odds?

I have no issues with Malorossiyans who take pride in their regional culture, traditions, and identity.
As for the “Ukraine” project, it is a fiction jointly created by Poles and Soviet multikultis to divide the Russian nation.

Why do you say Ukraine is a Communist invention? It was created in 1917 by the February Revolution. Its precedent is the Kyivan Rus

No, it’s absolutely not. Ukraine (namely, “borderland,” there being at various times multiple ukrainas to denote territories near the borders of the Russian world) has absolutely nothing to do with Kievan Rus. The term itself was a Tsarist-era literary invention that was hijacked in the 20th century to serve the cause of Ukrainian nationalism. In the days of “Kievan Rus” itself, the term people from Galicia to Vladimir-Suzdal used was just “Rus,” or “the Russian Land” (Russkaya Zemlya).
This is what results in the very peculiar Ukrainian nationalist sort of schizophrenia in which they propose to prosecute and imprison people calling Russia (aka the modern state), “Russia”, or “Rus”: http://lenta.ru/news/2015/07/07/radavsrussia/ In a way, they’re sort of proving the point that Ukraine is an unconvincing fiction. If it wasn’t, they wouldn’t care.

Could the Russian Empire in the early twentieth century have peacefully transformed into something like the British Commonwealth?

Emmanuel Todd’s work suggests that a transition to Communism was not an accident. Virtually all countries/regions with the exogamous communitarian family system (Eurasia, China, Vietnam, Yugoslavia, Bulgaria, Cuba) took “naturally” to Communism, at least in the beginning.

emmanuel-todd-family-systems
But if we consider a what-if in which there was no WW1 and the Russian Empire did not become the USSR, it would also have avoided the “multinational” experiments that created Ukraine and Belarus, and both those regions would have become firmly Russian, just like the French provinces only became truly French in the 19th century through the natural process of nation-building. The fact that there were protests in Belarus in the 1920s when Soviet commissars insisted that they study in Belorussian instead of in Russian in the schools shows how much natural, organic momentum this nation-building process had.
The non-Russian regions (Finland, the Caucasian states, Central Asia, etc.) would have fallen away or more likely become federated states. Relations with Eastern European Slavs would be a lot better. With the exception of the Poles, most East European Slavs were highly Russophilic in the 19th century.

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Chinese IQ & Cultural Influence

A Chinese official medical magazine show s China’s average IQ of kids was 103.4 in 2005. But there are huge differences among provinces. Someone think it’s caused by Iodine difficiency in some regions.What’s your idea? http://www.city-data.com/forum/world/2348902-china-iq-map-provinces-8-10-a.html

I don’t think differences in iodine deficiency will be playing a major role nowadays. The link between iodine deficiency and IQ depression has been known for a long time now, and Communist countries of all systems are pretty good at solving problems like these!
*Most* countries have major differences between provinces. Moscow is about 2/3 S.D. higher than the Russian average. Northern Italy is 1/2-2/3 S.D. higher than Southern Italy. Recently, Kenya Kura found a similar north/south gap in Japan, which is rather surprising since Japan has a reputation as a homogenous country! China does not have a reputation as a homogenous country, so the fact that it has major differences in IQ between different provinces is not surprising in the least.
Shanghai and Beijing clearly enjoy a “cognitive clustering” effect. Everybody who’s anybody wants to go there (just like Americans want to go to NY or SF; Britons want to go to London; Russians want to go to Moscow; etc). But only the more intelligent and driven Chinese are capable of doing that, especially since China has barriers to urban migration in the form of the hukou registration system.
The far southern provinces have higher levels of admixture with the (lower IQ) pre-Han indigenous peoples, plus Clarkian/Unzian processes of selection for higher IQ would not have had as long a chance to operate there as in Yangtze/Yellow River “core” China. There might also be a slight environmental factor in the form of greater parasitic disease load in the south, but that is more speculative. Yunnan and Guizhou provinces (lowscoring) are also remote and landlocked and have lagged in the developmental process, so their IQs may also be additionally depressed by sheer poverty and great malnutrition (though malnutrition has long ceased to be a major problem in China overall).

My question about anime, china and japan was about how much china could exercise actual cultural influence in the West, like Japan did in the 90′s and 2000′s and still does to some extent in the form of Anime.

If cultural influence is a function of g, q, and GDP – namely, intelligence, creativity, and economic weight, as seems reasonable – then eventually Chinese cultural influence can be expected to massively outweigh Japanese cultural influence in the West.
What specific form that influence will take is something I have no idea about.

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Balkan IQ

According to Lynn, Serbia’s national IQ is 90. Basically, all of the Balkans countries seem to have low, as in 85 to 90ish, IQs. But I’m struck at how low the Serbs apparently are in terms of IQ. Have you any experience with Serbs or Serbia? Are you inclined to accept or to doubt Lynn’s numbers?

I haven’t had many personal interactions with Serbs or South Slavs so I can’t say. Actually, even I I did, it still wouldn’t be of much validity, like all personal anecdotes. I knew one Kyrgyz woman who was very bright but Kyrgyzstan has an average IQ of ~75 (derived from PISA). So personal anecdotes aren’t worth much. I do not see any obvious reasons for why the figures for the South Slavs should be incorrect so I assume they are more or less accurate.
The Balkans in general have been Europe’s least-developed region for centuries. Serbia as late as 1913 had an illiteracy rate of more than 90%. This was far lower than the contemporaneous figures even in Russia or Portugal, the two most extreme non-Balkan laggards in Europe at that time. Since development and literacy are both somewhat associated with national average IQs, that would support the finding of low IQs for the Balkans.
JayMan’s theory on this is that whereas the northern Slavs had selection for higher IQs in the form of cold winters – village communities that were too feckless at longterm planning would simply starve to death and vanish off the map – there were no such rigorous selection mechanisms for higher IQs in the Balkans.

The Serbian IQ is that it isn’t much higher than that of black Americans, just 4 or 5 points higher, and yet they seem so much more civilized. Other Balkans countries, IQs are either a tad higher, the same or even lower (Albania) than blacks, and yet they too are more civilized. How can this be? Which other ethnic group has an IQ that is “4 or 5″ points higher than that of American Blacks?

Hispanics.
Hispanics are basically civilized people. Ron Unz had an article a few months ago in which he statistically demonstrated that White and Hispanic crime rates were essentially the same. I currently live in a Hispanic majority area and don’t feel particularly unsafe.
There is more to civilization than just IQ.
I think with respect to American Blacks there are two things we have to keep in mind. First, what really characterizes them is their amazing levels of violence. Nicholas Wade suggests it might be linked to the 2R allele of the MAOA gene. South Slavs and especially Albanians have a reputation for being thuggish relative to other Whites, but they have nothing on Blacks in that department. As you correctly point out, you will be far, far safer anywhere in Belgrade than in Baltimore.
Second, the stereotype of the violent, low IQ Black is drawn primarily from the inner city ghettoes. It is an accurate enough stereotype, but note that those ghettoes consist of those Blacks too poor or feckless to move out of them. There are plenty of Blacks living relatively unnoticed in middle class suburban neighborhoods. If we’re talking of real hardcore 95%+ Black ghettoes with 50/100,000 annual homicide rates, the mean IQ there is probably more like 80 instead of 85.

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Russian Economy, Society, Foreign Policy

Are there plans in Russian to seriously start re-building their industrial base (ie non-extractive economy)?

So you have to identify whether you mean “re-building their industrial base” in a statistical sense, or in the rhetorical sense that is often used in political debates in Russia.
In statistical terms, industrial output since 2008 has come close to peak USSR (RSFSR) levels. Let’s take a sectoral look. Light manufacturing (e.g. textiles) is now a small fraction of peak Soviet output, but that doesn’t matter much, since those are shit industries anyway (unskilled, low value added). Machine building, an important industry, is at 50%. Car production is TWICE higher relative to peak Soviet levels. Electronics production is substantially higher. Aerospace and military output has increased greatly in the past few years, but still lags Soviet peak output by a large margin. But the Soviet economy was massively distorted to favor heavy manufacturing, especially manufacturing with military applications. It is unlikely that Russia will be able to return to that kind of structure under a market economy that caters to consumer needs. Or whether it is even good sense to make that effort.
In terms of policy debates, there have been arguments by statist economists like Sergey Glazyev to use Russia’s accumulated oil funds to provide subsidized loans to strategic manufacturing sectors (amongst other suggestions). This is quite a radical suggestion that is unlikely to be adopted anytime soon since the Finance Ministry and the Central Bank appear to be run by monetarist hardliners. Unsurprisingly, the consensus of Western and liberal Russian economics commentators is that Glazyev is a madman. Speaking for myself, I do not feel I have the requisite expertise on the Russian economy or industrial policy to venture any firm opinions on this.

What are some things that the West (and America) do better than Russia? Also vice versa?

Relationships between strangers is a key difference in America’s favor (see http://ask.fm/akarlin88/answer/133014724988).
Britons are civil, but not very friendly. Russians are uncivil, but can become very friendly once you come to know them. Americans are both civil and friendly.
Overall I think Americans are more open to free speech and freedom in general, such as gun rights. This is, overall, a good thing (so long as society can handle it and American society can). Russians (and Britons, and Europeans in general) are very totalitarian in their attitudes towards gun rights and “hate” speech. I mean you can still easily get fired for voicing the wrong things in the US, but at least you won’t be imprisoned for it.
Needless to say, the average American is still far richer than the average Russian (though the gap isn’t as vast as it first appears due to purchasing power differences), and enjoys much better healthcare and higher education services. Moreover, contrary to eurofag propaganda, US healthcare and higher education is better than in almost all other European countries (e.g. just look at cancer survival rates across countries, or the national shares of Nobel Prize/Fields Medal winners). Of course both healthcare and higher education are an order of magnitude more expensive in the US, but the typical American, so long as he isn’t completely feckless, is usually able to afford them quite easily.
I might come off as highly anti-American in my blog postings but in general I really admire quite a lot of things about ‘Murica!
You can read a LOT more about my comparisons of Russia to the US (and Great Britain) here: http://akarlin.com/series/national-comparisons/comparisons-russia-uk-usa/

What is your opinion of the “Euro-Siberian” empire that some people on the alt-right (eg Guillame Faye) like to put forth?

Bismarck said that Europe is nothing but a geographical expression. Eurosiberia isn’t even that.
Broadly speaking, I support a Europe of independent nation-states. I do not see a problem with extending the common economic space across the Eurasian steppes, in a gradual, unforced way, and at a pace with which its constituent peoples are comfortable with. But I see no point in any grander constructs.

How do you see future relations between Russia and China?

No China isn’t going to conquer or otherwise “take over” Siberia. The idea is so absolutely fucking stupid but so many seemingly intelligent people appear to take it for granted.
China and Russia complement it each very well. Russia has the mineral and energy resources, China has massive economic and financial heft. There is a lot of scope for joint work in manufacturing and technology and increasing numbers of agreements are getting signed to that effect. Geopolitical disputes between them are minor and fade into insignificance relative to the problems both have with the US and its aggressively ideological approach to international relations.

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Quick Rejoinders

You should do a “game” analysis of the major Russian writers and their works, it would be a great humorous read to supplement your usual serious articles. I can see it already: (Gogol – omega, Turgenev – beta-orbiter, Lermontov – shadow-alpha, Tolstoy/Pushkin – peak Aplha, Nabokov- alpha marriage)

“Return of Kings columnist” isn’t on my current list of career goals.

Have you considered getting a PhD in one of the many subjects that interest you and that you write so engagingly and intelligently about on unz.com?

Why should I pay money to discredit myself?

 
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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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world-gdp-ppp-1990-2015

 

At least according to the latest revision of the World Bank’s PPP-adjusted GDP estimates.

China has long been expected to overtake the US economy (one economist dated it to as early as 2010), and there had already been a flurry in the media when the IMF claimed the same thing in December last year. The World Bank’s new figures just confirm the new reality and scaremongering about a bad night at the irrelevant casino that is the Chinese stockmarket is not going to materially change the fact. Annual growth continues at 7% per year, much the same as South Korea when it was at a similar stage of per capita development in the 1980s.

Russia’s PPP-adjusted GDP actually marginally overtook Germany’s back in 2013, and it managed to maintain this small lead into 2014 despite falling into recession. Of course with GDP expected to fall by around 3% this year, there will almost certainly be a reversal of this, but not by any radical amount – the hystrionical pronunciations of the Western media regardless – and will likely be temporary anyway import substitution really kicks in.

Financial, military, and cultural power are all ultimately functions, if lagging functions, of productive economic power. Although it would be a bad idea to go overboard with it, the spectacle of the same year (give or take) seeing both Russia overtaking the former biggest economy in Europe, and China overtaking the former biggest economy in the world, is really quite symbolic.

 
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This year will mark yet another milestone in Russia’s steady post-1990s demographic recovery, with the population minus Crimea hitting 144.0 million as of January 1, 2015 [XLS link], relative to 143.7 million in the same period last year. (Excluding Crimea is, needless to say, done not out of political considerations, but to retain the appropriate base for comparison). Though figures for December will only be out in about two weeks’ time, the picture for January-November is positive; despite the continuing pressures of population ageing and the decline in the numbers of women in their childbearing age as the small 1990s cohort enters adulthood, both natality and mortality figures improved slightly relative to 2013. For the second consecutive year running in its post-Soviet history, Russia’s births will substantially supercede deaths. Below shows a summary from state statistics service Rosstat.

russia-demography-jan-nov-2008-2014

But will this happy state of affairs last?

Mark Adomanis and an email correspondent known as “Doug” suggest that the turnaround has come to an end. They are both serious and intelligent people who know a lot about both demographics and Russia, and I am in qualified agreement with most of the points they make. But they might be slightly too pessimistic. Although in the middle term a cessation and perhaps limited reversal of Russia’s demographic uptrend during the Putin years is virtually inevitable, there are a number of factors that will likely soften and considerably mitigate the end of Russia’s demographic uptrend.

Below I will list a summary of their main points and my comments on each one of them.

Fertility Trends

One, most obviously, the “empty cohorts” of the 1990s are now hitting peak reproductive age. So far, that’s been balanced out by a rise in TFR [AK: Total Fertility Rate, an age structure-independent measure of the birth rate] — there are fewer women aged 20-25, but Russian women overall are having more kids per woman. But it seems a bit premature to declare that this will continue to be the case. – Doug.

I always considered the idea that TFR would keep up with the falling numbers of women in their childbearing age to be extremely unlikely, as it would require the TFR to eventually rise above that seen in any other developed country bar Israel. Anybody reading through my demography archives will see this being emphasized repeatedly.

According to my simulations from 2008, if the TFR now remains constant at its current rate of 1.7 children per woman, the crude birth rate will fall below 10/1,000 women by 2025 – today it is at what will likely be a local maximum of ~13.3/1,000 – before bottoming out at around 9/1,000 in the early 2030s. Even if the TFR were to rise to 2.0 children per woman, equivalent to that of the most fertile Western countries like France and Ireland, the crude birth rate by 2025 will still be 11/1,000.

That said, natural population increase is a function of both birth rates and death rates, and there is very ample scope for further improvements in the latter. In the early 2000s, the death rate was at ~16/1,000 and average life expectancy was at just 65 years, mostly due not to any great defect of the healthcare system – after all, even many properly Third World nations achieve life expectancies in the mid- or high-70s – but to the region-wide alcoholism drinking, in the form of vodka binge drinking. Despite the continued pressure of an ageing population, a rise of the life expectancy to 71 years by 2014 was accompanied by a reduction in death rates to 13/1,000. If these trends continue and life expectancy continues rising, reaching 75 years by 2025 – by no means an unrealistic prospect, based on the prior experience of Finnish Karelia and the Baltic states in battling their own alcohol epidemics – then Russia’s birth rates and deaths rates should continue to more or less move in lockstep to each other.

The sign might be a plus or a minus, but contingent on the continuation of current trends – a TFR of around 1.7-1.8, and moderately fast improvements in life expectancy – the magnitude of natural population growth (or decline) will be very small.

Recession

Two, the impact of the recession. Recessions almost always depress fertility, and there’s no reason to expect this one to be different. You’d also expect the recession and the weak ruble to affect the immigration / emigration balance.Doug.

And:

As Russia’s economy was growing, wages were increasing, jobs were plentiful, and housing was, if not readily available, than a lot more available than it had been in the past. Russian workers might not have had it great in comparison to their Western peers, but they had it a lot better than at any other point in their history. The rather banal result of this, still rather modest, economic bounty was that people felt more comfortable starting and expanding families and that lots of “guest workers” form the rest of the former Soviet Union moved to Russia to find jobs.

However now that Russia’s economy is set for a nasty recession of indeterminate length, and now that real incomes are getting hit by a combination of currency weakness and inflation, it’s not terribly surprising that its population dynamics are starting to weaken. That’s exactly what you’d expect to happen when a country suffers a sharp short-term economic reversal. Despite the Kremlin’s loud protestations of exceptionalism Russia is not, in fact, all that different: when you hammer the population’s standard of living they react accordingly.Mark Adomanis.

A comprehensive economic collapse followed up with austerity policies can definitely torpedo Russia’s demographic recovery. See the Latvian experience after 2008, or the complete shipwreck that is post-2010 Greece.

But I do believe there are a few reasons why this is overstated:

What’s important is not so much the depth of the economic collapse as the effect it has on social policies. Back in 2009, Russia’s GDP fell by an impressive 8%, but its demographics continued improving nonetheless. That is because the Russian state, flush with accumulated hydrocarbons revenue, could easily avoid implementing painful austerity policies. The consensus estimate for the coming Russian recession is a 4-5% fall in GDP, and there are no plans to cut social spending this time around either.

Having chosen currency devaluation over internal devaluation through austerity and wage cuts – unlike aforementioned Greece and Latvia, who have no influence over EU monetary policy – the Russians worst affected will be already well-off regular consumers of imported produce, whose fertility rates are the least affected by economic considerations. These types of recessions tend to be short but sharp. Surprising everyone, Russian industrial production actually increased by a solid 4.1% this December y/y, and there are several other encouraging leading indicators suggesting that this recession is likely to be pretty mild.

Because migration flows are so much more directly dependent on the economy – a Tajik working as a Gastarbeiter in Russia will now, effectively, earn twice less in the US dollar equivalent than a year ago – net immigration can reasonably be expected to decrease. There are signs this is already happening, as net immigration fell from 277,000 in January-November 2013 to 246,000 in the same period this year. On the other hand, and somewhat tragically, this decline will be substantially or completely covered by increasing immigration of war refugees, draft evaders, political dissenters, and the plain immiserated from Ukraine. Even as overall net immigration fell, it rose via-a-vis Ukraine from 36,000 last year to 78,000 this year, and frankly this is probably a huge underestimate (other sources state it’s close to a million). This is a huge loss for Ukraine, but a boon for Russia; after all, Ukrainian immigrants don’t raise the sorts of subpar human capital and integration issues that Central Asians and Caucasians do.

Vodka and Mortality

Three, cheaper vodka. Apparently vodka consumption dropped by more than 10% just between 2012 and 2013 — a very encouraging sign! But that’s likely to go into reverse this year, especially if the cut in price is accompanied by a relaxation of anti-alchohol campaigns and policies. Historically, the effects of changing access to alcohol have shown up pretty quickly in the numbers — you can pretty much spot the departure of Krushchev and the end of Gorbachev’s anti-alcohol campaigns just by staring at mortality statistics. So I’d expect a visible shift. The open question will be the magnitude.Doug.

Just to be clear, I agree that the decision to cut vodka prices from this February is a bad one. Putin justifies it by the need to prevent people from drinking more surrogates, but the empirical evidence indicates that prices are closely linked to overall consumption, which is in turn linked to mortality. While higher prices will increase illicit (and more dangerous) production, only a small percentage of people, typically the truly dependent and lost causes, partake in it anyway.

That said, the 2010s are not the 1980s, and there are a number of differences between now and then that would imply that the effects of lowering vodka prices now will have fewer negative than back then.

Despite the immediate effectiveness of Gorbachev’s anti-alcohol campaign – life expectancy instantly jumped up by two years – it was very much imposed top down and worked in a blunt, authoritarian, and frequently plain idiotic manner (e.g. the destruction of Crimean vineyards, which had absolutely nothing to do with Russia’s alcohol epidemic, at least as it related to population health). Its effects faded away almost as soon as the campaign dissolved away in the chaos of the Soviet collapse.

In contrast, what occured in recent years was the introduction of many legal regulations which exist in the West – elementary things, like restrictions on advertising and banning vodka sales after 10pm and from kiosks – as well as a gradual change in tastes and mentality that have propeled a shifting preference for beer and wine over vodka. (This is good, since beer and wine isn’t near as bad for you as vodka). In 2014, vodka production in Russia fell by a further 22%. Deaths from alcohol poisoning today, while still much higher than in normal countries, are as of 2014 lower even than they were during the height of Gorbachev’s anti-alcohol campaign. There is also good evidence indicating that Russian demand for vodka is slowly but surely becoming largely delinked from its price, as is the case in any Western country.

The modest decrease in the vodka price planned for 2015 will surely do not good, but it is highly unlikely to reverse or even stop the powerful trends that have been leading the decline in vodka bingeing for the past decade.

 
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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.