April 28, 2007

On Russian economics

very interesting stuff ..


If you dont' go to the link, let me at least mention that this ran in the Globe & Mail's Report on Business; There is NO anti-Soviet nor anti-Russian "tone" to it.

I highly recommend it. The book in bold below, sounds like a GREAT read.

V

Tax reform, not oil, fuelled Russia's revival

Richard H.K. Vietor teaches business and political economy at Harvard Business School. In his new book, How Countries Compete: Strategy, Structure and Government in the Global Economy,

Professor Vietor says Boris Yeltsin, first president of post-Marxist
Russia and tragicomic free-market reformer, got double-crossed by
Viktor Gerashchenko, the chairman of Russia's central bank.

When Mr. Yeltsin abruptly lifted price controls on 90 per cent of

all consumer goods in 1992, he says, the central bank needed to limit
the growth in money supply immediately - or risk runaway inflation. It
cranked up the printing presses instead.

*snip*

Russia's murder rate tripled in five years, making the country the

second most homicidal in the world (after South Africa). Amid this
anarchy, alcoholism rates soared - as did HIV/AIDS rates. The Russian
mafia acquired a kind of authority akin to the sovereign authority of
governments. Close to national bankruptcy, Russia defaulted on its
domestic debt. Mr. Yeltsin took an emergency $10-billion (U.S.) loan
from the International Monetary Fund - from the West.

To finance the residual operations of government, Mr. Yeltsin sold

off Russia's state-owned corporations at corrupt auctions - the process
by which Mikhail Khodorkovsky acquired Yukos, Russia's biggest oil
company, for $309-million; even in the 1990s, long before the rise in
oil prices, it was worth more than $15-billion
.
The auctions, all
together, yielded Mr. Yeltsin a mere $800-million "in exchange for
priceless assets." But he came not to care. In the end, Professor
Vietor says, he would be satisfied with the complete, irreversible
destruction of the Soviet economy.

In the past few years, Russia's economic success has been explained

away as a consequence of high oil prices.

*snip*

Since 2000, according to a Deutsche Bank report, Russia's GDP will
have increased sixfold in real, inflation-adjusted dollars by the end
of this year - from $1,334 per capita to $8,350.

*snip*

evertheless, Professor Vietor says, "resource endowments" are hard to manage wherever they are. They drive "unwise government spending,"induce corruption and - in the long run - reduce economic growth. Oil wealth can be almost as dangerous, in other words, as a saboteur in thecentral bank or a despot in the presidential palace.

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