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

Doug Henwood dhenwood at panix.com
Wed May 9 09:11:30 PDT 2007

On May 9, 2007, at 10:14 AM, James Heartfield wrote:

> 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.

James, the growth has to come from somewhere - there has to be a dynamic leading sector. In rapidly growing economies that is usually investment in equipment and machinery. Yes Russia was developed in some sense, but the inheritance from the USSR was mostly junk by international standards, so any exposure to foreign competition would have killed it. Aside from weapons production - which is not a small thing - what advanced technology did/does Russia have?

The leading sector in Russia is unquestionably oil. I have no idea what the multiplier for spending on the oil sector is in Russia, but in the U.S. it's 2.79, meaning that every dollar spent in the oil biz results in another $1.79 of spending elsewhere in the economy. This is one of the highest multipliers for any sector in the U.S. So a doubling of oil prices over the last several years has an enormous impact on Russia's non-oil economy (oil itself doubles, and the nonoil sector nearly doubles beyond that).

I'm not hostile to Putin at all, so this isn't motivated by any desire to trash talk Russia. It's just a very different ball of wax than China or South Korea. Look how SK developed - starting with basic industry, moving up the ladder (steel to shipbuilding, assembling cars made from foreign components to designing and manufacturing them, etc.). I don't see anything like that happening in Russia, though maybe I'm wrong. I don't even know of them building on the oil sector. Is there a Russian company that's breathing down the neck of Halliburton in oil services?


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