poemless. a slap in the face of public taste.

March 24, 2010

LQD: What’s really wrong with Russia?

Filed under: Politics: Russia — poemless @ 1:16 PM

[Note the invisible “w” in front of the word Russia.]

Ben Aris has an article in Business News Europe titled, “What’s really wrong with Russia.”

I spend some effort exposing terrible journalists and good journalists’ mistakes. I don’t actually have anything against the traditional media, I just have high expectations of them. I should point out the good with the bad. Aris’ piece is not brilliant, nor do I agree with every assertion made in it. But it is refreshingly sober. Earlier today I witnessed two people writing about Russia go at it. Both had valid points, but the tone became hysterical and weirdly personal. I wanted to scream “Stop! Neither of you are helping yourselves and you certainly are not helping your readers…” Then I read this BNE article and thought, yes, this is what I’d like to see more of. Well organized, impersonal, full of data while not painfully wonkish, entertaining while not substituting entertainment for analysis. Sadly this is what passes for exceptional journalism these days…

The article begins with a quintessentially Russian little anecdote about a couple who breeds rabbits in their garden and desire to open a little corner store and sell rabbit meat, fur and livers. There is no law against this, but corrupt local bureaucrats keep thwarting their dreams of becoming bunny-mongers. What a great story! For the bunnies, anyway.

Aris points out that corruption is a serious issue in Russia, but this problem is not unique, esp. among emerging markets. He also notes that Russia per-capita income has doubled in the last five years, performing much better than some of her less corrupt neighbors. So he poses the question, “Once you start digging into the detail, the picture becomes quite confusing, begging the question: what is really wrong with Russia and are things getting better or worse?” He proceeds to take a look at some of the issues commonly cited in answer to, “What’s wrong with wRussia?”

On Infrastructure:

“Russia’s most obvious problem is that its Soviet-era infrastructure is crumbling and won’t be serviceable for much longer. A massive amount of investment is needed into pretty much everything. The hot spots are power and transport.

Before the crisis knocked the economy onto its back, the demand for electricity matched the country’s ability to generate it. Any further economic growth was going to result in blackouts, which in turn would become a major drag on growth. The crisis has brought the Kremlin some time, but the problem will resurface in the next few years as the economy recovers.

Happily, the Kremlin is well aware of this problem and has already done much of the groundwork.[…]

The big omission here on the Kremlin’s part is that while they are spending on power and trains, they have ignored badly needed investment into social infrastructure. The president’s modernisation programme is doomed to fail unless the state spends equally heavily on education. Likewise, the World Health Organisation released a study a few years ago that concluded the very best returns on investment for the economy were investments into the health system: not only does a healthy population work harder for longer and retire later, but the savings made from not having to care for sick pensioners for decades is incalculable.

And the Kremlin’s botched pension reform must be fixed. The Kremlin has just hiked pensions by 50%. However, there is a hole in the pension fund that already accounts for a quarter of this year’s deficit. As the demographic window closes, caused by the aging population, the pension system must be made to pay for itself or this problem will only get worse.

Behold! One can acknowledge both the Kremlin’s accomplishments AND failures, without poof! turning into a gremlin. Hell, even suggesting they’re giving any thought to their problems is considered radical in some circles…

On Oil addiction:

“…Russia’s economic growth is closely tied to the price of oil.

However, the state has actually been pretty prudent when dealing with oil revenues. Oil is heavily taxed, with the state taking 90 cents on every dollar when prices for oil are over $27. The extra revenue has been used to subsidise income and profit taxes (13% and 24% respectively) in an effort to boost economic diversification. Even this largesse can’t soak up all the petrodollars, so the excess cash is siphoned off into the “lockbox” of the Stabilisation Fund and kept out of the reach of free-spending MPs by Finance Minister Alexei Kudrin. It is hard to see what else the Kremlin could have done to minimize the impact of Dutch disease on Russia. Indeed, even with oil prices at $150 a barrel the government still managed to bring inflation down into single digits at the start of 2008. (Ukraine let its inflation rate soar to 25% in the same year, the highest in the world.)

Still, Russia’s economy already has a bad case of Dutch disease. Russia has some the best scientists and engineers in the world, but yet it doesn’t export anything of note other than oil and arms. Everything in Russia is now expensive. Choosing one example at random: according to Moscow’s real estate consultants, the cost of building a distribution centre in Moscow is 34% higher than building the same thing in London, which is crazy.”

Moscow recently fell down the list of most expensive cities. Though I am sure “to live in” and “to do business in” look at different criteria.

On Diversification and top-down reform:

Katinka Barysch, deputy director of the Centre for European Reform, spoke for many recently in a recent paper when she wrote: ‘A genuine modernisation alliance would have to be bottom-up and driven by the private sector. The Russian leadership is pursuing a model of modernisation that is state-centric and top-down. It throws money at new institutes to foster research, it nationalises big industries, it tells state-owned banks which sectors to lend to. It does not do the things that would be required for genuine economic diversification.’ […]

Barysch assumes there is a foundation of business that will flourish if the shackles of government are removed, but the Kremlin is facing an economy where rafts of products and services are simply missing and can’t get started.

State spending is inherently wasteful, but as Russia has the money thanks to oil, the issue at hand is not the efficiency of state spending, but rather its effectiveness: can the spending create sectors that don’t exist now or upgrade those that can’t compete now? ‘As there is no vibrant [small and medium-sized enterprise] sector, the only option left is heavy state spending. The Kremlin is doing this not because they want bigger versions of the existing state-owned behemoths, but because how else are they going to change the nature of the Russia economy?’ says Plamen Monovski, a veteran investor into emerging Europe and CIO-designate at Renaissance Asset Management.”

This is something I rarely hear and frequently think: Why do we commonly assume that the Kremlin’s strategies are always ideologically motivated, and not often simply reflections of a lack of alternatives or short-term practical solutions?

On Corruption and bureaucracy:

“When he was president, Vladimir Putin called for something to be done about corruption in every one of his State of the Nation speeches – and absolutely nothing happened. But since Dmitry Medvedev took over as president in 2009, the new president has launched Russia’s first ever concerted attack on graft. […]

You can question the size of the official numbers, but clearly the government has gone on the offensive. However, the actual numbers prosecuted are still tiny compared to the million-plus strong army of bureaucrats. This is no anti-graft pogrom, like in Georgia where Mikheil Saakashvili sacked the entire police force (which worked beautifully). Rather, the strategy currently seems to be to fire a warning shot over the bows of government to say: ‘Change is coming, mend your ways.’ But it will take years, if not decades, to make a real dent in the problem.”

I think I remember Putin had a few people fired and put in jail… But he was less Mighty Mouse about it.

On Political risk:

“Conventional wisdom has it that Putin is a virtual dictator, but bne’s sources in diplomatic, business and government circles say that Putin is visibly under an increasing amount of strain, frustrated by the government machinery’s failure to implement his plans. On top of this, bringing in Medvedev has considerably weakened his position. ‘Two camps have formed around Medvedev and Putin. The first wants to see Medvedev go further with the liberalisation of the economy and politics, whereas the people close to Putin want to keep things as they were prior to the crisis – where they were making money,’ says an economist who has been advising the government at a top level. ‘Putin is visibly stressed, as some people are starting to ignore him and others are openly calling for him to leave.’

Putin’s big gift to Russia was political stability. As a lone figure at the top of the political tree, he was able to balance all the interests of the various factions. But the arrival of Medvedev has upset that balance, as now there is an alternative power centre.”

Aris ends with a a joke his top secret sources say is making its way around the Kremlin:
“There are two camps that belong to Vladimir Vladimirovich and Dmitry Anatolevich. The only question is: which camp does Dmitry Anatolevich belong to?”

Bad duh bum!

Since I’ve quoted quite liberally, you are now required to go click through and apply for a subscription to BNE. Seriously, these LQD’s are probably copyright infringements, all 30 of you having read for free here what you technically should have had to read for free at BNE, and the outlet could probably use the money to buy sources with better access to jokes.

Anyway, discussion is open.


  1. I’d just note that Russia IS investing heavily in its health system, and there has been some pretty significant (though far from mindblowing) improvements in health indicators over the past few years. The Kremlin has continued to invest in health despite the harsh economic downturn of 2009, an indication that they understand the urgency of the matter. Would I like to see the Russians spend even more heavily on health? Yes, but given the piles of rubles they’ve already shoveled into the National Priority Projects it’s impossible to claim they haven’t done anything.

    Comment by Mark Adomanis — March 24, 2010 @ 3:51 PM | Reply

  2. What to discuss? This must be translated into Russian.

    Comment by Evgeny — March 25, 2010 @ 11:17 AM | Reply

    • 1. I don’t know. Does anyone have any quibbles with his statements. For example, Mark was able to respond to the healthcare issue.

      2. Why? I mean, I not not against translation. The more the better. But as you can see, I do not try to write for a Russian audience.

      Comment by poemless — March 26, 2010 @ 10:07 AM | Reply

      • Here is how it seems from outside.

        In Russia, everybody looks at the results of a leaders rule, and makes dark hints about their motivations from those results.

        In the US, the opposite happens – everybody looks at the ‘alleged’ motivation of the leaders [e.g. the current great ‘white’ chief] and feels happy [for some time, that wears off over time].

        Every leader has their limitations, and their strengths. In a particular situation, a particular member of a group steps forward, and assumes responsibility, and does the needful. Sometimes for example, you need the powerful silent leader who crushes dissent.

        But that isnt sustainable. So you need different forces working together, different kinds of individuals. Just as you need both males and females to lead and play roles.

        Every force [kind of individual] has to believe in its way, and play its role, and influence the other individuals, while respecting them in their own role. So there is a natural tension between all individuals in such a group, and the resultant equilibrium is what we see as the decision/path taken by the frontman [to borrow a term from the structure of music bands].

        Democracy cant be imposed on a country, it can only come from a genuine diversity of opinions and people – and this diversity needs to emerge in the representative class, not just the people at large.

        Given the dangers of forces [external or otherwise] which would seek to subvert democracy if the country were to leap into democracy ala the 90s, political controls play a role similar to, but greater than that of capital controls – they limit external influence, while ensuring that no extreme fringe can take control of power.

        The next step is to allow the diversity at the very seat of power to proliferate, and to change the representative class. But for that to happen, the representatives must buy into the ideology, the methods/strength, the stability/belief, or the passion of the individuals on top. It is hence a slow process, and cant be rushed, or achieved smoothly. Friction is the natural consequence of diversity, and must be managed with maturity.

        The very nature of Russia demands such diversity – demands some form of democracy, because of the sheer variety of all the forces pitted against each other.

        This however has to be earned, it cant come easy, and the quest for simple, direct, absolute solutions has led to the downfall of several extreme forces over time [e.g. Stalin].
        For some reason, the country has to go through great pain before it refuses monocultural forces, and instead accepts leaders and people who are more inclusive in their approach.

        Viewed from this lens, one may point out that it is easy to talk about clashes, and factions, and one faction pitted against each other, and believe this is all some great decay, disintegration, war, or struggle for dominance. But a more profound view of the same would seem to be point towards a natural, difficult struggle between forces – not to dominate, but to work towards an equilibrum.

        And the root of that is the dedication towards a vision for the country.

        And to an outsider, looking at the two countries I mentioned, the one with leaders with a vision is the former, not the latter. Where they go with that vision, or whether they succeed or not, or how aligned that vision is with the views of all their countrymen, one cannot say.

        One can only say that vision takes great scales of time to be made reality, and a sensible observer would use criticism of the implementation / short term issues as a way to play their role in shaping the ultimate realization of the vision.

        Destroying the only vision a country or society has is a sure way to destroy your spirit.

        Comment by blitzen — March 26, 2010 @ 12:57 PM | Reply

        • Wow – what a spectacular comment! I really have nothing to add to it. Thank you for your observations and insights.

          Comment by poemless — March 26, 2010 @ 1:01 PM | Reply

      • Poemless, when I am talking to you, do I address Western audience or am I simply talking with you? When you respond to me, do you address Russian audience, or do you simply speak to me?

        Comment by Evgeny — March 26, 2010 @ 5:38 PM | Reply

  3. “…I do not try to write for a Russian audience…”

    Well, maybe you do not; but everybody who knows english enough can read your blog, and I can attest lots of russians do. I am your fan ever since your
    EuroTrib days, and I assume there are more people like me in Russia and the world over, always waiting for another post full of brilliance. Well, of course that brilliance thing is just another subjective opinion, but I think everybody who had read your blog for a while agrees that from a certain point of view you’ve got a grasp of this whole USA-Russia matter like nobody else does, and that is pretty significant point of view.

    So, just thought I should say this: you might not try to write for a russian audience, but russian audience still reads you.

    Comment by myrix — March 27, 2010 @ 12:22 PM | Reply

    • ” I think everybody who had read your blog for a while agrees that from a certain point of view you’ve got a grasp of this whole USA-Russia matter like nobody else does,”


      ” I am your fan ever since your EuroTrib days”

      Do I know you? Your e-mail doesn’t ring any bells.

      Of course this entire conversation is a little perverse. Anyone who writes anything online is technically writing for the whole world. And if Russians read my blog regularly, I am writing for them as much as I am writing for anyone.

      You must understand this is not what I meant when I said I do not try to write for a Russian audience. What I meant is that I’m not courting a Russian audience.

      I write in English. I could theoretically write in Russian, but I do not have the time, and the result would be like reading policy paper written by a seven year old. I just don’t see how that would enhance my credibility. πŸ™‚

      One of the things that gets under my skin enough to motivate me to write is the “lecturing” Americans like to give Russia. Pisses me off. So I’ve really no intention of carrying on that tradition. I don’t plan to tell Russians what I think is best for their country. And why should they listen to me anyway? Just very not interested.

      However, I do think I can competently explain to my American and Western European peers why what they read in the papers about Russia is wrong, unhelpful, biased, incomplete, nonsensical, etc. I do think I can competently fill in a lot of information gaps for my American and Western European peers. And I can try to convince my American and Western European peers to care about all of this.

      This does not mean I don’t want to listen to, hear from, debate with, etc. any Russians. I just think they’re not the ones who need a reality check about US-Russia relations. Their input is welcome and appreciated and often very helpful.

      Comment by poemless — March 27, 2010 @ 2:02 PM | Reply

      • “Do I know you? Your e-mail doesn’t ring any bells.”

        Well, no; I’m of the read everything, comment almost never variety.

        Thanks for clarifying that bit about not writing. Definitely I’m not saying you should start writing in russian if you’re not inclined. And as for promoting understanding real Russia, Russia as it is, I sincerely appreciate your doing, especially since that’s _my_ country which is being misinformed about.

        Comment by myrix — March 27, 2010 @ 4:07 PM | Reply

        • OMG – You are actually right! My “referred by” list is suddenly filled with Russian twitter accounts and yandex perevod pages of my blog. Craziness…

          Comment by poemless — March 30, 2010 @ 5:02 PM | Reply

  4. Poemless, you might take some interest with a Russian discussion thread on Ben Aris’es article:



    Comment by Evgeny — April 6, 2010 @ 7:32 AM | Reply

    • πŸ™‚ Not sure “less Mighty Mouse about it” translates… Do they have Mighty Mouse in Russia?

      Actually, this post got picked up by a lot of people, a lot of Russians, on Twitter last week. Which is weird. I mean, it wasn’t the original article by Aris that was picked up, but my copy and paste job of it.

      Comment by poemless — April 6, 2010 @ 11:39 AM | Reply

      • Oh, and spasibo, of course!

        Comment by poemless — April 6, 2010 @ 11:40 AM | Reply

      • I’ve just now seen the comments. Wow, they’re very interested in the rabbits! lol.

        Comment by poemless — April 6, 2010 @ 11:50 AM | Reply

        • ( I am afraid that the “Mighty Mouse” does not translate. However everybody knows about Mickey Mouse, so could possibly guess it’s a sort of a superhero?

          I also did not understand what’s does the “LQD” mean. I suspected it was to mean something like “likbez”, but ultimately left it untranslated. )

          Many thanks for the post :-). Looks like the most people liked it. However, a huge mistake on my part is that Ben Aris’es article and your blog were not properly separated. I should have introduced you in the middle! As a result, some reader mistook it for a single article + comments.

          Comment by Evgeny — April 6, 2010 @ 1:01 PM | Reply

          • LQD = Lazy Quote Diary. Meaning it’s mostly just a copy and past of someone else’s work.

            Comment by poemless — April 6, 2010 @ 1:30 PM | Reply

    • Now I’m wishing I hadn’t seen all the comments. Beside the rabbit talk, it doesn’t seem they like me very much. And someone said this site isn’t user-friendly? 😦 Inoforum isn’t userfriendly! You don’t have to sign any agreement to comment on this blog!


      Here is a story maybe you can appreciate, Evgeny:

      A Russian girl began e-mailing me about this blog, saying she was a big fan, asking for help with some film school project. We exchanged several e-mails. She was like very complimentary of me and the blog. Then one day we were talking, and I said, a few things that totally pissed her off. I said I was American. Which is just an unavoidable fact. I said she should leave comments on the blog, because what she was saying might be interesting to others. She flipped out and said she’d never speak to me again. I’m thinking she was just a psycho stalker. But I just don’t have luck communicating with Russian strangers in English online.

      Comment by poemless — April 6, 2010 @ 5:06 PM | Reply

      • Being a guy, I always thought that gals are a mystery. Consequently, girl-to-girl relationships are a mystery squared. But I do not rule out the possibility that you were just used to get English language help.

        Regarding InoForum comments,

        1) As for me, your unplanned performance there was much promising. You did not like that folks there did not love you. But the Russian folks are much cautious while assessing people. It takes time.

        For me, it would be much worse it you were praised or blamed for any your external features, such as your nationality. But that did not happen — you were met there moderately well, with only that default friendliness that Russian people are ready to share with a stranger. At Inoforum we try to see people for who they are, not for what they look like.

        So, you did just well so far. I hoped it would be more encouraging for you, but that’s what we have. The initial expectations are always lower, because people just do not know you.

        2) The rules you are to sign to join the forum are just the rules of good behaviour. You should not use obscene lexic, incite ethnic or religious hatred, post spam messages. Otherwise, your messages would be moderated, and you would risk a ban. You do not sign to anything more than that πŸ˜‰

        3) Regarding the interface… Possibly that person could tell you more if you liked. I don’t know, I just guess. There are the IT-folks among the Inoforum people (well, to begin with, they built the website themselves and maintain it !), so I can’t rule out it was a comment of a qualified person. Although can be everything.

        4) Certainly there would be always the 5% of people who would not like you. No idea, why. Whatever point you make, it will irritate some 5% of people.

        Comment by Evgeny — April 7, 2010 @ 5:11 AM | Reply

        • She didn’t ask for any English language help – just to point her in the direction of a few film reviews, which seemed fair enough to me.

          Thanks for the reassurance about the comments. (I can’t stop thinking about those damned rabbits!)

          It’s not something I can tell from the site: is there any particular political identification common to the participants?

          BTW, I might be older than you, but not old enough to be your aunt. Unless you are like 15 years old.

          Comment by poemless — April 7, 2010 @ 2:40 PM | Reply

          • Poemless, that’s a little bit of slang. πŸ™‚ More an indication of gender, feebler indication of age and no indication of relationship.

            Well, basically we just try to keep our minds open. The primary idea was to stay informed about the media views in the world. That leads to the basic understanding of the situation in Russia/West. (I.e., the people read the same newspapers you do, that leads to similar reactions.) However, the diversity of views is pretty broad and you have unlimited freedom of action.

            Comment by Evgeny — April 8, 2010 @ 1:37 AM | Reply

      • Another minor consideration…

        Only fewer people said “thanks to poemless”, while more people said “thanks to the scout and the translator”. If only you chose to be a scout, a half of those thanks would have been to you πŸ™‚ You might be not writing for the Russian audience, but you still can seek for recognition from the Russian audience.

        In fact, scouts and translators basically work independently, and there are other truly good translators, much better than me. But the major idea, any way, is that people generally liked your blog post/comments. That’s a very, very good result. πŸ™‚

        Comment by Evgeny — April 7, 2010 @ 6:06 AM | Reply

  5. Note also a much earlier discussion thread at the InoSmi:



    Comment by Evgeny — April 6, 2010 @ 7:58 AM | Reply

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