Here it is:
Here it is:
“Imperialist Putin “Steals” Ukraine”… If only all those hysterical newspaper articles were true!
In reality, the only thing he stole was Ukraine’s credit card debt. He’s no idiot, of course, and is in no rush to pay it off. The drama certainly hasn’t ended. But a geopolitical pivot on the model of Khmelnitsky’s 1654 decision this is not.
Let me try to explain the actual motivations of everyone involved:
(1) The EU wants the Ukraine. No, have to be more precise. The Poles, Balts, Swedes, and Anglos want Ukraine in the EU, without Yanukovych. Scratch that. They want Russia without Ukraine without a Yanukovych. As long as Ukraine politely waits in the queue alongside Turkey and Egypt and all those other peripheral countries enjoying the glories of “European civilization” with Associate memberships, all is well.
(2) Putin wants a weak Yanukovych – because Yanukovych is loyal to his oligarchs, not Putin (duh!) - in control of Ukraine. He also wants Ukraine in the Customs Union. (But not its credit card debt). To do this he has been applying pressure, with Russia banning the import of Roshen chocolates, which belong to a particularly outspoken proponent of the EU, the oligarch Petroshenko. There are warning that EU Association will mean the setting up of tariffs on Ukrainian imports (Russia does not, after all, wish to have to compete with European goods on level territory at this stage). Russia’s long-term goal (with the Eurasian Union) is gradual convergence with EU standards, and eventually even integration. But that is very far off (2040′s maybe). The greater the scope of the Eurasian Union, the more advantageous the terms on which said integration can occur. There is no hurry.
(3) Yanukovych wants what the Donbass oligarchs want. The Donbass oligarchs want to legitimize and secure their wealth by integrating into Western institutions. But the Donbass oligarchs also want their main protector to remain in power. And unfortunately, things like raising gas prices by 40%, salary freezes, and big spending cuts – as demanded by the IMF in return for loans – is going to collapse whatever remains of Yanukovych’s support in the east and south. And why does the EU/IMF demand such stringent concessions? See above. They want a Ukraine without Yanukovych! It’s all logical.
Hence, when PM Azarov says that the decision to suspect the EU deal is “tactical,” he is in all likelihood saying the truth – as opposed to opposition claims that it is all some kind of elaborate conspiracy concocted with Putin to deny Ukraine its “European choice” and return it to imperial moskali domination.
It is also worth noting that during much of the summer, Ukrainian TV channels were propagandizing the benefits of EU association. This is presumably what caused support for the EU to start exceeding support for the Customs Union/Eurasian Union. It would have been exceedingly stupid and irrational to carry out this information campaign with the ultimate intention of performing a volte face and turning back to Russia. It would just piss off the Ukrainians who had become more energized about Europe. An own goal. Why would they possibly do it?
Now that we have a more realistic idea of how things actually work – as opposed to the fanciful tales that the Lithuanians are spinning of Russian blackmail towards Yanykovych, and its faithful repetition in the Western media – we can now look to the future.
Even a few months ago, it looked as if Ukraine had taken a significant step towards Eurasian integration by signing up as an observer to the Customs Union between Russia, Kazakhstan, and Belarus. However, in the past month, evidence is emerging that it was but a temporary ploy to appease Russia while in reality speeding up the Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union. This is scheduled to be signed in Vilnius late this November.
The Ukrainians say that that does not preclude further integration within the framework of the Customs Union. However, it is difficult to see how it could simultaneously have free trade with Europe while simultaneously being a part of strategic protectionist bloc. Although it is entirely possible that in the Customs Union will eventually be gradually merged with and into the European economic area – Putin himself has hinted as much – any such scenario will likely be decades in the making.
Putting aside for the moment geopolitical (Atlanticism vs. Eurasianism) and cultural (European civilization vs. Orthodox-Slavic brotherhood) considerations for the moment – which have been overdiscussed anyway both on this blog and Leos Tomicek’s and many others, with the result that there is now little left to add – I would like to frame the debate in economic terms.
Total helicopter construction has now basically converged with the levels of the late RSFSR.
Aircraft construction is only halfway there, but its state is nonetheless leagues better than it was in the depths of the post-Soviet freefall. As the blogger points out, its poorer performance via-a-vis helicopters can be explained by the fact that the technologies used in Soviet civil aircraft was outdated, so the Russian industry essentially had to start over from scratch. Nonetheless, it seems to have reached the point of a rapid further up-trend, presumably driven by the Sukhoi SuperJet 100 as it enters mass production. The United Aircraft Corporation, the holding company into which independent Russian aircraft companies were consolidated in 2006, projects production increasing to 160 units by 2020.
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:
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.
My latest for VoR/US-Russia Experts panel. Hope you like the title.
The political fragmentation of the Soviet Union was one of the major contributing factors to the “hyper-depression” that afflicted not only Russia but all the other constituent republics in the 1990′s. The Soviet economy had been an integrated whole; an aircraft might have its engines sourced from Ukraine, its aluminium body from Russia, and its navigational ball-bearings from Latvia. Suddenly, border restrictions and tariffs appeared overnight – adding even more complexity and headaches to a chaotic economic situation. Although the region was in for a world of hurt either way, as economies made their screeching transitions to capitalism, disintegration only served to further accentuate the economic and social pain. In this respect, Putin was correct to call the dissolution of the Soviet Union one of the 20th century’s greatest geopolitical tragedies.
It is no longer possible – and in some cases, even desirable – to restore much of the productive capacity lost in that period. Nonetheless, renewed economic integration across the Eurasian space – with its attendant promise of less red tape (and hence lower opportunities for corruption), significantly bigger markets offering economies of scale, and the streamlining of legal and regulatory standards – is clearly a good deal for all the countries concerned from an economic perspective. There is overwhelming public support for the Common Economic Space in all member and potential member states: Kazakhstan (76%), Tajikistan (72%), Russia (70%), Kyrgyzstan (63%), Belarus (62%), and Ukraine (56%). The percentage of citizens opposed doesn’t exceed 10% in any of those countries. A solid 60%-70% of Ukrainians consistently approve of open borders with Russia, without tariffs or visas, while a further 20% want their countries to unite outright; incidentally, both figures are lower in Russia itself, making a mockery of widespread claims that Russians harbor imperialistic, “neo-Soviet,” and revanchist feelings towards “their” erstwhile domains.
This I suppose brings us to Ariel Cohen, neocon think-tanks, Hillary “Putin has no soul” Clinton, and John “I see the letters KGB in Putin’s eyes” McCain. They studiously ignore the fact that the Eurasian Union is primarily an economic association, and not even one that insists on being exclusionary to the EU. They prefer not to mention that the integration project has strong support in all the countries involved, with Russia not even being the most enthusiastic about it – which is quite understandable, considering that as its richest member it would also be expected to provide the lion’s bulk of any transfer payments. In this respect, it is the direct opposite of the way the Soviet Union was built – through military occupation, and against the will of the vast majority of the Russian Empire’s inhabitants. Though expecting someone like McCain, who one suspects views the “Tsars” and Stalin and Putin as matryoshka dolls nestled within each other, to appreciate any of that is unrealistic and a waste of time.
Enough with entertaining the senile ramblings from those quarters. Integration makes patent economic sense; it enjoys broad popular support throughout the CIS; and there are no global opponents to it – official China, for instance, is supportive - barring a small clique of prevaricating, anti-democratic, and perennially Russophobic ideologues centered in the US and Britain. Neither the West nor any other bloc has any business dictating how the sovereign nations of Eurasia choose to coordinate their economic and political activities.
If you remember a couple of weeks ago, the Internet was rocked – for a total of about one or two days – by a wave of leaks from the ICIJ about the identities of offshore account holders in the British Virgin Islands. What juicy revelations did we have about the henchmen of the kleptocratic Putin regime?
Other high profile names identified in the offshore data include the wife of Russia’s deputy prime minister, Igor Shuvalov, and two top executives with Gazprom, the Russian government-owned corporate behemoth that is the world’s largest extractor of natural gas.
Shuvalov’s wife and the Gazprom officials had stakes in BVI companies, documents show. All three declined comment.
So that comes to one Minister who has always been open about the wealth which he made in the 1990′s as a law firm manager and then multiplied by leaving it in a blind trust invested into the Russian stockmarket; and a couple of top executives at one of the world’s biggest companies, are the two most prominent names that have been dredged up.
Rather underwhelming, TBH.
Incidentally, in most countries there is nothing particularly illegal about having offshore bank accounts. Morally questionable? Perhaps. For some, yes. And I can understand why countries like Germany (mistakenly, IMO) might not want to contribute to bailing out alleged tax havens like Cyprus, or why the US demands Switzerland reveal the identities of Swiss secret bank account holders to the IRS.
But is keeping money offshore illegal? No, it isn’t. Not in the US, not in Russia, not practically anywhere else. Not in any country that supports the principle of basically free movements of capital. Now if said money is suspected to have been laundered or otherwise acquired illegally then yes, investigations can follow. But the past few years of pressed government budgets have seen the big countries lean heavily on alleged tax shelters to reveal more information about their clients so it is arguably a much smaller problem than it was, say, a decade ago.
The non-illegal nature of offshore banking is the reason why Romney isn’t being prosecuted for his $250 million stash in the Cayman Islands, and why revelations that many wealthy Germans keep bank accounts in Panama has led to a lot of media noise but no legal proceedings. Is it because Germany is a kleptocracy in which the elites corruptly protect their own? To ask the question is to mock it.
But funnily enough whenever it comes to Russia even otherwise neoliberal or even Randian commentators start frothing at the mouth and demanding populist, Bolshevik reprisals against any Russian – that is, if he isn’t opposed to Putin – with money abroad.
The latest US-Russia.org Experts Panel discussion was about Russia’s burgeoning partnership with China. I especially recommend Mercouris’ contribution which – although unfortunately titled by VoR’s editorial staff)) – is otherwise quite brilliant. My own effort follows below:
First of all, let me preface that I’m one of the biggest China bulls around. Its economy in real terms will overtake that of the US by the mid-2010’s, if it hasn’t already. It’s already bigger in a range of industries, from traditional heavy industry (steel, coal) to consumption (car sales, e-commerce). Its manufacturing wages have caught up with Mexico’s, which is a quintessential middle-income country. If the average Chinese is now about as prosperous as the average Mexican, then the PRC’s total GDP – taking into account its vast population – is now well ahead of America’s.
Nor is it a house build on sand, as many Sino pessimists would have you believe, but on solid, steel-reinforced concrete. Its economic growth is NOT dependent on cheap exports. And fantasies about its “exploited” cheap labor force, which will become increasingly uncompetitive as it develops, belie the fact that the average Chinese now scores higher in international standardized tests than the OECD rich country average. Given the centrality of human capital to economic growth, China’s rise to the top tables of world power is all but assured.
It would be very worrying if China’s ascent was accompanied by the bellicose rhetoric and militaristic posturing adopted by other rising Powers of the past, like the Kaiser’s Germany. But “yellow peril”-type hysteria aside, this does not seem to be the case. China spends a mere 2% of its GDP on its military, i.e. about twice less in proportional terms than both Russia and the US. This is a most fortunate confluence of events, especially for Russia, as competing with China is unrealistic in the long-term – not when its economy is an order of magnitude bigger. On the other hand, deep engagement with China hold out a number of benefits.
First, China gets access to Russian energy resources, bypassing the vulnerable routes past the Strait of Malacca (either overland via Siberia, or across the top of the world via the thawing Northern Sea Route), while Russia gets access to Chinese capital and technologies – much of the latter purloined from the West, true, but so what? Second, both countries secure their frontiers, allowing them to focus on more troubling security threats: The Islamic south and possibly NATO in Russia’s case, and disputes with Vietnam, Japan, and a USA that is “pivoting” to the Pacific in China’s case. Third, resources can be pooled to invest in Central Asia and root out Islamist militants and the drug trade – an issue that will assume greater pertinence as the US withdraws from Afghanistan.
Frankly, the West is too late to the party. It had an excellent chance to draw Russia into the Western economic and security orbit in the 1990’s, but instead it chose the road of alienation by pointedly welcoming in only the so-called “captive” nations of East-Central Europe. Putin’s reward for his post-9/11 outreach to the US was a series of foreign-sponsored “colored revolutions” in his own backyard. While in rhetoric both he and Medvedev continue to affirm that Russia is a European country, in practice attitudes towards them have come to be based on practicalities, not lofty “values” that they don’t even share. So it is only natural that with time Russia came to be more interested in pursuing a relation with the BRICS (“The Rest”) in general, and China in particular.
The West’s response hasn’t been enthusiastic. The BRICS are written off as a bunch of corrupt posers with divergent geopolitical ambitions that will stymie their ability to act as a coherent bloc. Russia and China come in for special opprobrium. While there’s a nugget of truth in this, it misses the main point: The BRICS might be poorer but by the same token they are growing faster and converging with the West, or at least China and Russia are; and while they don’t see eye to eye on all things, they agree on some fundamentals like multi-polarity, a greater say for developing nations in the IMF and World Bank, and the primacy of state sovereignty.
Here is a telling anecdote from an online acquaintance of his recent experiences with the European news channel, Euronews: “A feature of this site is that there’s a world map with happy and sad smileys on it to indicate good news and bad news. And there on Moscow I spotted a sad smiley, so I focused on it, thinking there would be a report on the already day-old and forecast to last another day blizzard that is raging right now across the Ukraine and European Russia… And the “bad news” that I read? The meeting between the Russian president and his Chinese counterpart together with a report and an analysis of the increase in trade between those two states. That’s really bad news, it seems, for some folk.”
And this is not so much an isolated incident, but a metaphor for the general state of West – Russia relations: While the former expects a certain degree of respect and even submission from the latter, it doesn’t tend to make reciprocal gestures, and then acts like a jilted lover when Russia gives up and goes to someone else’s bed. But that’s the reality of a globalized world, in which the West isn’t the be all and end all, and countries have choices. It is high time that the West mustered the humility to finally accept that it has been dumped.
The Russian economy is steadily converging on stagnation in the past few months. For real, this time. Businesses are becoming more pessimistic, and industrial production in the first two months of this year is 1.5% lower than for the corresponding period last year. What explains this? Alexander Mercouris explains:
Might this not be a good moment to discuss economic questions? … The reason growth has been so subdued is because monetary and fiscal policy is so tight. This in turn is because ever since Russia came out of the post financial crash slump the Russian government and the Central Bank have been prioritising inflation reduction over growth.
Basically what was happening before the crisis was that the government focused on getting its own financial house
in order and building up its reserves whilst leaving businesses to sort out and fund their investment plans often by borrowing on the international money markets. The financial crisis showed the danger of this approach so the priority since the crisis has been to strengthen the domestic financial system to the point where it is possible for it to sustain a long term investment programme by drawing on its own resources. This is only possible in a low inflation environment.
Though the inflation has roughly halved from what it was before the crisis, there was a significant inflation spike last year, which has forced the Central Bank to raise interest rates and to take further measures to restrict monetary growth. That inflationary spike was in turn caused by three factors (1) the poor harvest, with its effect on food prices (2) the over rapid credit growth at the start of 2012 and (3) the delay in the annual tariff increases to mid year and the way in which these were staggered throughout the autumn and winter.
Of these three factors (2) and (3) were surely a consequence of the political needs of the election period. It is a commonplace that governments seeking re election loosen the purse strings to create a “feelgood” factor with the bills being paid once the election is out of the way. Russia has just seen a very pale example of this.
Anyway the result is that Russia not only has real interest rates, which by international standards are extraordinarily high (in most of the developed world interest rates are currently in negative territory) but, adding to the downward pressure, the government is also tightening fiscal policy by introducing its budget rule.
The result is that demand and investment and therefore growth are being choked off. Not surprisingly the policy has its critics (Deripaska is being particularly outspoken) but it is a standard trade off that historically all advanced economies make. Japan during its glory days in the 1950s and 1960s repeatedly experienced growth pauses as the Finance Ministry and the Central Bank regularly tightened fiscal and monetary policy to deal with periods of surging inflation. Like Russia, Japanese policy in the 1950s and 1960s was haunted by recent memories of hyperinflation in the 1940s and early 1950s and of national dependence on foreign lenders. Of course an even more famous example of tight monetary policies being used to choke off inflation at the expense of growth (in that case even at the price of outright recession) was the Volcker Shock in the US in the early 1980s.
I don’t think there is any serious possibility of Russia going through a contraction anything like as severe. My own view is that with monetary and fiscal policy as tight as they are, all other things being equal, inflation should fall in the second half of the year. The Central Bank has given itself a medium range target of 5-6% but with policy this tight I would not be surprised if it overshoots it. One way or the other, if inflation falls, interest rates will come down, monetary policy will loosen and growth will resume though this time in a much more subdued inflationary environment. This ought over time to make it possible for businesses to borrow in order to invest and for banks to lend for the long term without concerns at both ends that the value of loans will be eroded. It should also encourage saving fostering capital formation through deposit growth.
In other words far from being an indicator of weakness the growth pause shows that the economy is being intelligently and responsibly managed and is not being sacrificed to reckless notions of growth at all costs. Without pointing any fingers, it is an altogether more responsible policy than what one sees in some other places.
I would finish by saying that this policy also makes a great deal of political sense. Though the policy comes in for noisy criticism from the likes of Deripaska (who as an industrialist has an obvious interest in getting the cost of borrowing brought down) Mark Adomanis has posted a useful graph from Levada on his blog that shows that inflation is far and away the most serious issue of concern for Russians.
Anyway that is my take of the present position. I’d be interested to know if anyone disagrees or thinks differently and of what those who actually live in Russia and who have more direct experience of the economic situation there think of all this.
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.
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.
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).