Category Archives: Agriculture

kovane On Russia’s WTO Accession

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By far the best and most comprehensive article I read on the subject: Russia at the WTO Gate: Locking the Status of a Raw-Materials Supplier, or Striding Toward a Modern Economy?

I really recommend you read it all, but here is the conclusion.

The optimistic scenario, hailed by liberal economists, proclaims almost immediate benefits for everyone. Consumer will get lower prices on a wide range of goods, businesses will become more integrated into the world economy, and the WTO will improve Russia’s law system and investment climate. The World Bank’s research forecasts a gain of 3.3% of GDP in the medium term, inflow of FDI and the reduced cost of business services. Moreover, according to the report, 99.9 percent of the households will gain from 2 percent to 25 percent of their household income, poor households slightly more than rich ones. The influence of the WTO on particular industries is presented here.

This scenario also stirs questions. The experience of Ukraine and Georgia shows that any expectation of significant price reduction is somewhat inflated. As a consequence, the described gain of households will be significantly lower. The inflow of FDI due to the lowered administrative barriers is also a very bold assumption. The WTO accession is no magic elixir to such deeply-entrenched ills of the Russian economy. And Russia is certainly not the first choice of foreign investors. But the hope for improvement in the law system is not baseless, and Russia certainly could use it, especially in the customs code and accounting.

The WTO entry is a necessary step for any country aspiring to develop a modern economy, however the timing and conditions leave much to be desired. The problems encountered by Ukraine highlight the dangers of a rash decision to seek membership in the WTO no matter the cost and an inconsistent economic policy. But the Russian government has all means to deal with the challenges of a more open economy. And the way it will carry out the complete revamping of the economic policy will be a litmus test for the ability of Putin’s Administration to modernize the economy. However, the price of error here is very high, and all that remains for the common voter is to wait and watch.

Russia Burning: Not Apocalypse, but its Prelude

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This post is a meta-commentary on media coverage of Russia’s drought and wildfires. Now make no mistake, I admire the yeoman work of some journalists in covering Russia burning: no doubt a few will even make their way into the classical cannon such as The Saga of the Burned Foot (Miriam Elder) or The Tale of How Aleksandr Pochkov Quarreled with Vladimir Vladimirovich (A Good Treaty). :) But in my opinion, they almost all fail to consider the key facts that render their Kremlin criticism moot and fail to grasp the “big picture”: the Great Russian Heatwave of 2010 as a mere herald of things to come.

In summary: 1) There is nothing the Russian government could have done to contain a natural disaster of such magnitude, 2) many of the lectures about how Russia could have done better to prepare itself would have been counter-productive had they actually been implemented, 3) the hysteria about Moscow turning into a giant morgue from heat stress and smog or radioactive ash clouds is overblown, and 4) the real problem, or rather predicament, is global warming, the effects of which are expected to transform Russia’s heartlands into Central Asia within the next few decades.

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Reconsidering Parshev

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In most Russian bookstores, there is a bookshelf or two dedicated to so-called “patriotic literature” – reappraisals of Stalin against “liberal revisionism”, overviews of Russia’s secret super-weapons, the exploits of its special forces and Russian theo-philosophy. Much of it is (apparent) nonsense, but the economic crisis has forced me to reconsider one particular “patriotic” thesis – Andrei Parshev’s Why Russia is not America.

His big idea, an elaboration and tying together of earlier work, is that Russia’s economy is structurally uncompetitive on the world stage, and that integrating with the global economy will lead to catastrophe. This is because of his counter-intuitive observation that Russia is overpopulated. Though its population density is low on paper, the cold climate, huge landmass and poor riverine connections means that the carrying capacity of north Eurasia is nowhere near as high as that of the world’s other centers of economic and political power – the US, China, and Europe. Because manufacturing is inherently loss-making on the Eurasian plains, it is much more economically “efficient” to just ship out Russia’s mineral resources to fuel manufacturing in warmer, coastal regions such as the Pearl River Delta or the Great Lakes. No more than 20mn Russians are needed to service the pipelines and grow fat from the proceeds; the other 120mn are free to eke out a subsistence living on Russia’s marginal lands, or die out (as indeed many did during the era of neo-liberal reforms). He recommended a return to sovereignty, autarky and sobornost as the solution to these woes.

I agreed with Parshev’s analysis upon my first reading of his book in 2002, a time when I still thought Putin was no more than a better-dressed, sober gangster in Yeltsin’s mold and the country showed little signs of real recovery. Yet as evidence mounted that Russia really was prospering by the mid-2000′s and I became influenced by Krugman’s criticisms of competitiveness, I increasingly came to reject his ideas (e.g. see this comment). However, since then increasing awareness of the vital role played by protectionism in “catch-up” industrial development, the reality of peak oil and above all the economic crisis forced me into reconsidering Parshev.

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News 2 May: Russia’s Second Oil Peak

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For all the noise being made this month about Georgia, about NATO, about Tibet, etc, possibly the most portentous is that it seems Russia hit its oil peak (strictly speaking, its second – the first happened in 1987), well in line with peakist predictions. Production increases via application of new technology, as seen in the late 90′s and early 2000′s have been mostly exhausted; there are no megaprojects to bridge the gap beyond 2010. (There has been some noise about new oil field discoveries off Brazil’s coast which could contain as many as 33bn barrels, which has our dear Economist rejoicing: “the discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil”. Just two problems. The issue is not about the world running our of oil – it’s about economically damaging declines in production which will, and are, hitting crucial sectors like transport and agriculture. Secondly, and more to the point, even the high estimate of 33bn barrels is enough for less than half a year of today’s demand of 85bn barrels.) Massive expansion in Russia has been the main reason while oil is peaking now, rather than five years ago. This, coupled with stagnant Saudi Arabia ‘refusing’ to increase oil production so as to leave more for future generations and oil prices rising to 120$, looks set to vindicate the Oil Drum predictions below.

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