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Time to recognize Russia for what it is
June 20 2005
Baku Azerbaijan is already on the way to becoming like an ‘old Beirut’ on the Caspian - a swinging town with money, women and fast cars. Nothing will keep a population docile like wealth, well clad women, and opportunity. Oil in the next 5 years will finally start flowing to Turkish ports through a new BP controlled pipeline that avoids Russia, Armenia and other hotspots, enriching the family managed Azerbaijani society and ensuring that Baku is the regional playpen. Maybe even one day, as prosperity flows Azerbaijan will become democratic. The development of new oil reserves, distribution and trade patterns is necessitated by the War on Terror, and the instability of Russia. Until Western eco-fascists recognize that nuclear power is the future, oil supply is prima inter pares in political and economic stakes and avoiding Russia is sound policy. No need to give the nomenklatura in Moscow more international leverage.
Putin is a strange, multi-faced Russian leader. He was anointed by Yeltsin for his loyalty, lack of deep political roots, youthful energy, and acquiescence in granting Yeltsin’s family and friends immunity from money laundering [of which they were certainly guilty, probably $5 billion was laundered in Switzerland by the Yeltsin clan]. Putin was a new man, controlled by the Yeltsin clan, but sufficiently presentable and politically neutral that he would not offend the newly made tycoons, the corrupt regional administrations or the petty clans of the Kremlin. In agreeing to supporting the Yeltsin clan and working with their advisors and granting them immunity from destructive prosecution Putin demonstrated that he was a man that could be trusted by the elite and counted upon to follow the same awkward and jolting steps of Russia’s first president.
But now times are changing. Putin has been distancing himself from the Yeltsin clan for some time now. His policies try to appeal to all Russian classes. Boring, pasty faced, small, undeniably ugly, yet fluent in 5 languages, cunning, nationalist, and authoritarian he not only physically excites middle aged Russian women but is bent on developing a political Russian ‘third way’ – a type of Oriental Bonapartism, fusing total control with some smattering of Western oriented financial and economic reform suffuses with alterations between pro and anti-Western policy. In this regard Russia is one of the few countries that makes a dysfunctional democracy in France or Canada look good. Putin’s iron fist is everywhere in Russia and it is hard to tell what direction the Russian people want to pursue or what they desire. Apparently since no one in the Kremlin asks or much cares for their opinion it is not surprising that most Russians don’t have one. Oriental societies like Russia are not managed for the benefit of the people, but for the elite.
One thing is clear however – that appeasing Russia by letting it sit on the G8 [Group of 7 Industrialised nations plus Russia], fund rogue regimes like Iran and China, and engage in anti-liberal behavior at home can no longer be tolerated. Yes Russia has oil – it accounts for 40-50 % of its Federal budget - and with oil prices touching $60 per barrel provides an enormous economic stimulus. EU imports of Russian oil and natural gas are already at historic highs and fully 100 % of energy needs are supplied by Russia to the Ukraine and Baltic states. This economic leverage translates into political power. But so what. Russian needs investment money, technology and skills exchange. It is doubtful that even Putin would totally close off the Russian economy and pursue Stalinism in one country. Besides other oil reserves abound in the world, from Central Asia to Western Canada and these reserves must be developed post haste to marginalize Russian international blackmail.
Russia under Yeltsin was dysfunctional but at least old Boris and his clan allowed press freedom, economic reforms and appreciated that the westernization of Russian society is inevitable if Russia is to become a mature nation. Russian GDP is still below 1990 levels and smaller than Holland’s [$450 billion vs. 500 billion], the average per capita income is 72nd in the world, the economy is controlled by the state with the Kremlin owning oil, gas and electricity markets. A consumer economy is existent but the lack of banking, financial, and market liberalization has created an unstable country, with a small and inactive middle class and a great crush of poor, or near poor people desperate for jobs and money. Without market liberalization, the creation of viable non-energy based businesses and without a middle class unafraid of the political qua mafia elite, Russia will never become a stable partner of the West.
Though the economy is growing at 5 % per annum thanks to high oil prices, most business sectors, and personal incomes are not in good shape. Inflation since 1998 has taken the Ruble-U$ exchange rater from 6:1 to 30:1. Wages do not reflect this devaluation leaving purchasing power for the average consumer weak. Adding to this economic distress is social and psychological manipulation. There is no free media in Russia. Gazprom the national gas company and Putin’s hammer of choice, recently just digested a popular and quasi free Moscow daily Izvestia. The energy sector is as well coming under Gazprom control. Now Putin and his planners are ordering Gazprom to build up other parts of the economy. Putin just ordered Gazprom to invest a billion dollars in building up oil and gas distribution in the northern part of the country – an investment that will never make a return and only destroys shareholder wealth. Putin and his friends are using Gazprom to effect economic policy and redistribute money. It will fail utterably.
Signs of failed economic policy abound. Taxes on oil over $25 per barrel approach 80 % for businesses. Since regulations, arbitrary law, government seizure of private property and the lack of market incentives characterize Russia, Gazprom and energy billionaires prefer to buy yachts, women and football teams than invest in Russian industry. Capital outflows in 2004 during the unlawful destruction of Yukos by Putin, was $35 billion and in 2005 the outflow will be even higher. No significant foreign investment exists to offset this capital outflow. When oil prices subside, and they will, then the current Russian surplus will go into deficit. At this point the reaction of the Russian elite will be to impose more state measures, force Gazprom to take over more industries and probably raise taxation to raise revenues. The economy will of course decline.
Putin’s policies are failures from bygone era’s. What Russia needs is market liberalization, the rule of law, foreign investment and a natural market based diversification away from energy. It does not need to create Gazprom into the state’s economic tool. State regulation, arbitrary and changing taxation and private property seizures illustrate the immaturity of Russia’s development. Yeltsin might have been a vodka loving swindler, but at least he had the common sense to impose law, a free media and market based diversifications.
CraigRead.com ©
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