[lbo-talk] Russia's economy (was Kvetching, Sarkozy etc.)

James Heartfield Heartfield at blueyonder.co.uk
Wed May 9 07:14:55 PDT 2007

Doug, to Chris:

"If oil prices were to fall hard, Russia would feel it. Investment rates of 18% of GDP are more like a developed economy (US, EU) than a "developing" one (China's at 40%, but that's almost outlandishly high). You can't sustain rapid internal growth with investment rates that low. They are consistent, though, with an oil- and credit-driven boom."

But then Russia is a developed economy, in a way that China was not. Russia's development followed a slightly perverse path, because the bureaucratic planning system was not very good at allocating social labour (to borrow Hillel Ticktin's analysis). That made some big problems, but Russia did industrialise and urbanise under the Stalinist system (whatever we call that) in a way that China did not.

Also, I think it is wrong to extrapolate from the GFCF rates over the 1990-2007 period when they are expressed as a percentage of GDP, because GDP has grown quite quickly, meaning that the series masks a large increase in investment, in a declining rate of investment.

And also, the likelihood of a fall in energy prices is a theoretical possibility, but not a likelihood in the near future. I think the Rand corporation's judgement that Putin's economic nationalism has succeeded in husbanding oil receipts for indigenous development is probably sound.

"Are those consumer goods of domestic manufacture or are they imports?" Luxury goods are more likely imported, but most Russians are not meeting their consumption needs through imported goods (unlike Americans, I am tempted to add).

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