#3
Moscow Times
November 20, 2001
Big Bubbles Spell Trouble
By Boris Kagarlitsky
It seems to be a pretty good rule of thumb: If the international business press and leading financiers start referring to a country as a success story, then that country should only expect problems in the future.
Not long ago the papers were full of stories about the Argentine economic miracle. Today, Argentina is on the verge of bankruptcy, unemployment is running high and the public has lost all trust in politicians. Following the collapse of the Nasdaq, the United States went from being one of the key motors of global economic development to being a source of problems for the rest of the world.
Russia's recent history confirms this rule. The August 1998 financial meltdown was preceded by enthusiastic reports from Western analysts predicting the onset of an unparalleled economic boom. After 1998, the same experts wrote Russia off as a complete basket-case, a place where reforms are not properly implemented and corruption and inefficiency prevail.
Of course, the Russian economy started to grow immediately after this. However, it took Western analysts about two years to notice.
Finally, in the third year of stable growth, Western business leaders recognized that Russia was a land of opportunity and once again declared that reforms were on track after all.
No sooner had Russia started receiving high marks from the world business community than oil prices started to fall and a new economic crisis became a real prospect.
The problem with the majority of economic analysts is that, generally, they don't analyze anything. If things are going well, then there is no sense in studying the specific reasons for success; everything can be explained by the consistent implementation of neo-liberal reforms. If problems arise, then either the reforms have not been carried out consistently or they have not been sufficiently radical.
Moreover, it doesn't seem to embarass anyone that the same countries -- whether the Czech Republic, Argentina or Russia -- are cited in turn as examples of where liberal reforms have been implemented successfully and then as paragons of inefficient bureaucratism.
Between 1991 and 2001, Russia underwent no radical structural economic reforms. All that happened was that the price of the ruble to the dollar fell and soon after the price of oil went up.
The moment that the flow of petrodollars dries up, structural problems in the economy will immediately come to the fore once again. Worse than that is the discovery that the standard set of liberal prescriptions at the government's disposal can do little to cure the various maladies.
Once again, the imbalance is exposed between the natural resource sectors that provide real revenues for the budget and the poor processing industries that provide a livelihood for the majority of the population.
The economic growth of the last few years was made possible only because natural resource monopolies found they had surplus funds, which have been distributed among other sectors of the economy in a somewhat random fashion. Now that these surpluses are no more, the rest of the economy is returning to its original moribund state.
The political monopoly of the Kremlin has been maintained on the back of high oil revenues and is likely to disappear along with them. The bubble will burst and the resulting market correction will unavoidably spill over into a political crisis. In fact, Russia's bubble has been more political than economic. It variously goes under the name of "strong presidential power," "strengthening of the state," or "increased manageability of the country."
Strong support for opposition candidates in major regional elections was seen even before the first symptoms of economic slowdown appeared. With the onset of winter, all the usual social problems will again come to the fore, and hopes that they can be resolved will vanish along with the flow of petrodollars.
In the Kremlin, they instinctively understand the problem and are getting nervous, but they can do nothing. No one can say exactly how the crisis will develop and what forms it will take.
The only thing that is clear is that when the political bubble bursts, the noise will be much louder than when the stock markets crash.
Boris Kagarlitsky is a Moscow-based sociologist.
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