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#12 - JRL 7032
From: Ben Aris <benaris@online.ru>
Date: Fri, 24 Jan 2003 14:13:20 +0300
Subject: [RusBizList] RBL491 -- Jan 24 (just banks)

Russia Business List
#491
Friday, January 24, 2003

1. Bens Weekly comment
Ben Aris
24/1/03

This week Yukos CEO Mikhail Khodorkovsky complained that bureaucrats were
pushing Russia down the road towards the Saudi model of government.

"Half of the state budget of Saudi Arabia is wages for bureaucrats. This is
the road to nowhere," he said.

He said the number of young Russians that are competing in the exams to
enter the civil service where they can look forward to $200 a month wages
alarms him.

"Does this not tell us that society is projecting some sick ideas on our
youth? This is a serious problem. ... [When I see] what is happening with
youth today, I cannot help but be scared," he said.

But this should come as no surprise to Khodorkovsky. Last summer I went out
to the New Civilisation camp Yukos organises for young people from all
over the country. For two weeks they exist in a hypothetical society
complete with a parliament, private entrepreneurs and its own currency, the
rudol.

The idea is that the kids learn about democratic process by participating in
the governments decisions to levy taxes and pass laws that run their camp.
Everyone has the opportunity to either stand for election and become a
parliamentarian or go into the private sector.

It ended up being a fun story as ironically NewLand, as the participants
called their country, mirrored Russia a little more closely than the
organisers intended.

Alex, a diminutive boy from the Moscow region, ended the two weeks as a
rudol-millionaire, while most of his fellows had made, at best, a few
hundred rudols.

He bought the rights to develop the pier where the parliament meets for a
pittance and later noticed that there was a line in the budget for pier
upkeep of several thousand rudols. Having made a killing, when the
government was short of money he lent some of his cash back to the
government at usurious rates and multiplied his pile.

While everyone slaved away to make a living Alex spent most of his time
hanging out by the lake taking the sun. The whole story is not dissimilar to
the way Khodorkovsky, who sponsors the programme, made his billions.

But more to the point when I asked the other kids what they had learnt at
the end of their two weeks they told me: the best business is to work for
the government.

Faced with the choice of uncertainty and hard work in the private sector or
a steady income and a mindless job in the government, most chose to be
bureaucrats.

The parallel with modern Russia goes deeper as although potentially more
money could be made in the private sector you have to work very hard doing
unpleasant jobs like cleaning up your mates tent for a fee. The only person
who made any real money was a girl who sold jam sandwiches and gave
massages.

The flaw in NewLand is there are no means of production, without which the
only alternative is manual labour. Russia faces exactly the same problem.

The lack of industry and private business means that the opportunities for
young people remain limited. Of course there are some high paying jobs with
Yukos and other companies, but these companies employ a tiny fraction of the
population. The bulk of the hoi polloi shovel snow, clean apartments or flog
pirate CDs outside the metro.

Given the choice between the mindless drudgery of being a shop attendant in
the local producti or a pen pusher in the Ministry of Labour, at least at
the latter you dont actually have to do anything to get your few hundred
bucks a month.

The Russian economy has put in a spectacular performance over the last three
years, but we still face fundamental problems that are causing the current
slow down.

The bread and butter industries of raw material extraction at the top of the
economy and consumer good production at the bottom surround an unappetising
filling of dilapidated soviet industry of this Soviet sandwich.

Without more structural reform, bankruptcies and investment there will not
be enough work that people actually want to do to occupy the whole
population. Structural reform is happening, but slowly; a new bankruptcies
law has yet to pass thought the Duma; and fixed investment is static or
falling.

The Kremlin has correctly identified encouraging small and medium
enterprises as one of the fastest ways of making the sandwichs filling a
little more tasty but with SMEs only account for about 7% of GDP (up from 4%
two years ago) so there is still a long way to go.

In the meantime for most people a desk at the ministry of Labour is still
preferable to a trestle table in the snow.

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