Towards A Good Samaritan World

Sunday, May 01, 2005

News from Russia:

Popular demonstrations, organized by the trade unions, as well as by various political and civil-society organizations, took place in cities in Russia on the Day of Spring and Labor. Most of the meetings had one feature in common. Right, left and center all criticized the government.

The largest turned out to be the demonstration organized in Moscow by the trade unions and by "United Russia." [Putin's party] It enjoyed the participation of about 25 thousand people. The "United Russia" member who set the tone of the meeting was Moscow mayor Yury Luzhkov.

He blamed the government that it had failed to securely prop up the practical sector of the economy. "Already for 15 years the government has carried on a policy that we may describe as follows: survive however you can, and we'll create the conditions that make your life difficult," he said.

"We will not allow Russia to turn into a country that just extracts oil and gas. We will struggle to make our country a country of the most advanced stages of production and the highest technologies," he concluded.

The Union of Rightist Forces party conducted a demonstration with the slogans "Government helps those who help themselves," "Oil runs out, but minds won't," "An official is a servant, not an owner."

(translated, for what it's worth, by yours truly)

It doesn't sound much like the supine populace under Putin's proto-dictatorship that you imagine, does it? But why is Putin's party protesting against the government? Russia continues to mystify the West.


  • I wonder if Putin's party isn't looking to centralize their power on the basis that it is needed to improve conditions for the populace. I'm noticing that the provincial governors took the heat for some of the senior benefit cuts.

    By Blogger MaxedOutMama, at 5:25 AM  

  • Luzkhov and the protesters raise an interesting economic question, by the way. It sounds like good economic policy to avoid getting trapped in a ghetto of producing only oil and gas, and to try to move into "advanced stages of production" and "high technology." But is it?

    We can actually break this down into two questions: 1) is it worth striving to be in the advanced stages of production, and 2) is it a bad idea to be specialized in natural resources?

    The answer to (1) is relatively clear: NO. Comparative advantage is comparative advantage. If you're relatively better at producing low-end, labor-intensive goods, you should stick to that, and buy high-end goods from abroad. If you're relatively better at producing high-end, capital- and skill-intensive goods, your economy will come to dominate those sectors of itself, without any intervention by the government.

    If you intervene, using subsidies and tariffs, in order to start-up a domestic computer, or airplane, or car industry, when your citizens would otherwise prefer to buy foreign computers, planes and cars, you'll just waste a lot of resources, and it's very unlikely that you'll ever generate a successful industry.

    But (2) is a tougher question. Russia may be suffering from what is called "Dutch disease," or "the natural resource curse": because they have so many natural resources, it's hard for Russians to succeed in other industries. This is partly an exchange-rate problem and partly a political problem. Oil and gas drive up the value of the ruble, which makes other Russian goods less competitive. And the surplus revenues from oil and gas tends to be soaked up by the government, which as a result has less need to get the people to consent to be taxed and puts them in the business of distributing economic rents instead-- bad for democratic accountability.

    So, what can you do about it? Is there anything you can do about it? Should you do anything about it?

    One stock answer is: public investment. Build roads. Improve the schools. Build better airports. Then, as the oil runs out, infrastructure will make the rest of the economy more competitive. But, I don't know. Public investment tends to be inefficient, particularly because without the market, you don't know the real payoff of any investment.

    You could just save it. Just buy lots of securities abroad. This can be called "outward foreign investment," or "capital flight." There's plenty of that in Russia's case. The problem is that it's very wealthy individuals ("oligarchs") who are doing the investing-- but is that a problem? Hard to say. If those capital flows will reverse when the oil runs out, it might be a shrewd form of consumption-smoothing.

    Another option is just be to pay out monthly checks from the oil and gas proceeds to citizens and let them do what they want with it, for as long as it lasts, Alaska-style. That would probably raise present consumption, of course, and you would still be less competitive in low-end, labor-intensive industries.

    Tough nut to crack.

    By Blogger Lancelot, at 1:20 PM  

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