Sorry, But You're Wrong
Myth: Russia is only about oil and gas. Fact: Russia has begun to diversify its economy
The present economic crisis and collapse of energy prices give Russia more opportunity for diversification
Princeton University history professor Stephen Kotkin recently released a paperback edition of his book, Armageddon Averted: The Soviet Collapse, 1970-2000 with an addendum covering the last eight years in Russia. Writing over at the Russia: Other Points of View forum, Prof. Kotkin notes that the Western media often fixates on Russian leaders like Vladimir Putin and Cold War-style Kremlinology, to the detriment of reporting on changing economic and social conditions for ordinary Russians. Only in the last two and a half years, for example, has the Western media widely reported that middle class Russians are buying many of the same things that middle class Westerners once commonly took for granted, such as new cars, apartments, and vacation packages abroad.
Click on the extended post to read Prof. Kotkin's article.
The Economist and Wall Street Journal -- both oppose Western protectionism and harsh rhetoric against China, but are much harder on Russia, even though Russia, unlike China, actually has multiparty elections and does not censor the Internet or persecute religious dissidents. Why? Cynical observers would say it's because Wal-Mart stores across America aren't stocked with goods from Russia, but from China. However, Prof. Kotkin argues that historic myths about the end of the Cold War and the sources of Russia's economic recovery (i.e. the need for Western "reformers" to defend their record advising the Yeltsin administration during the 1990s) have a lot to do with it.
Prof. Kotkin contends that the rise of this new Russian middle class - nearly 40 million strong - is the result of the privatization reforms supposedly begun in the 1990s during the Yeltsin era that were actually achieved in the 2000s during the Putin Administration. Russia's eight fat years of consecutive 7%+ annual GDP growth, for example, began in 2000, well before the global prices for oil and gas and other commodities spiked in the middle of this decade. And the tendency towards concentrating power in the Russian President that so many of Putin's Western critics decry actually began during the Yeltsin years, often in the names of bypassing the Communist opposition in the Duma to unpopular reforms.
Finally, Kotkin points out the interesting fact that Russia is second only to the United States in the number of immigrants it has taken in the past twenty years -- a figure that should confound those Western critics who would try to portray the Russian people as perpetually xenophobic and backward. Nonetheless, Russia's future lies in the talents of its people, and not in the resources underneath its ground, and Prof. Kotkin (and the Kremlin-connected metals tycoon Oleg Deripaska in the article published below this one) both emphasize this fact.
- The Editors
How Did Russia Rebuild Itself? Sorry, But You're Wrong
By Stephen Kotkin
Which large country's global integration over the past two decades has radically transformed the world economy and geopolitics? Which large country is a defensive dictatorship that persecutes any sign of opposition? If you answered "China" to the first question, and "Russia" to the second, you would be in lock step with the prevalent view in America. Of course, if you answered "Russia" to the first question, and "China" to the second, you would also be right. Both countries are authoritarian, and both have globalized, with far-reaching consequences. But the story of China and globalization is well told in scores of books, and has reshaped the teaching of the history of China. The story of Russia and globalization has largely escaped the attention of analysts and historians. This is a challenge I attempted to meet, at least partially, in an updated edition of Armageddon Averted: the Soviet Collapse, 1970-2000 (Oxford), which contains a new chapter covering Russia during the years 2000-2008. That's the period when the prolonged collapse finally ended, and Russia enjoyed a spectacular revival.
Reagan Gave Gorbachev Breathing Room to Unwind the Soviet Empire
Placing contemporary Russia in global context would seem a no-brainer given that the dissolution of the USSR in 1991 is routinely put in international context. That context, however, is often Ronald Reagan centric. Too many analysts credit President Reagan with having helped bring down the evil empire (a phrase he used on rare occasion) by building up America's military and bankrupting the Soviets (who were forced to respond in kind). This overlooks the circumstance that Soviet military spending had shot up to astronomical levels in the 1970s, before Reagan, and that in the 1980s the Soviets concluded that Reagan's missile defenses would never work. Anyway, all the attention wrongly paid to Star Wars and the like obscures the contribution that Reagan actually made -- namely, he possessed the vital political credibility as a longstanding man of the right, as well as the vision, to respond seriously to arms control overtures by Mikhail Gorbachev, thereby giving the Soviets the room to destroy their own system unintentionally. In other words, invoking "Reagan" cannot explain why Soviet reform in the late 1980s took the form of a chimerical quest for "socialism with a human face" -- which proved devastating to the Soviet system, just as it had in Czechoslovakia during the Prague Spring of 1968.
Why the USSR Collapsed: Ordinary Russians Wanted What Westerners Had
Whatever the misconceptions about Reagan's role, understanding the Soviet downfall without reference to the wider world is impossible. From its inception, the Soviet Union had claimed to be an experiment in socialism, a superior alternative to capitalism, and in the interwar period, during Stalin's violent crusade to build socialism, capitalism had seemed synonymous with world colonialism, Great Depression unemployment, and goose-stepping militarism. Against that background, the idea of a non-capitalist world--with the same modern machines but, supposedly, with social justice--held wide appeal. In the Second World War, however, fascism was defeated, and after the war the capitalist dictatorships embraced democracy. Instead of a repeat Great Depression (anticipated by Stalin and others), postwar capitalism experienced an unprecedented boom, which made being middle class a mass phenomenon. Capitalism also decolonized. Further, all leading capitalist countries embraced the "welfare state" (a term coined during the Second World War). In the event, affordable Levittown homes, ubiquitous department stores overï¬‚owing with inexpensive consumer goods, expanded health and retirement beneï¬ts, and democratic institutions were weapons altogether different from Nazi tanks. This was the competition that induced Gorbachev's fatal reform effort.
Post-Soviet "Reform" or Chaos?
What about post-Soviet Russia? It inherited everything that had caused the Soviet collapse, as well as the collapse itself. In the 1990s what continued to pass for "reform" was actually further breakdown, as the global economy subjected Communist legacies to a brutal re-evaluation in market terms, and surviving Soviet-era personnel and new officials continued to steal everything in sight. By 1998, Russia essentially capitulated, defaulting on its debts and drastically devaluing the ruble; even the international cheerleaders for "reform" admitted it was over.
Thereafter, though, another surprise awaited: Russia's collapse finally stopped. A resurgence began. Many structural reforms were, belatedly, actually implemented. By the close of 2008, Russia's GDP, which had sunk to a low of $200 billion, climbed above $1.8 trillion, making it the world's tenth biggest economy (sixth in terms of purchasing power parity). This colossal turnabout resulted from newfound fiscal restraint and some government reforms, especially in tax policy, but also from a relentless, China-driven rise in overall global demand that, with the cheaper ruble, helped call back from the dead Russia's vast unused capacity inherited from the Soviet era.
Russia's Growth Cannot Be Dismissed as the High Result of Oil Prices
In Spite of Global Crisis, the Russian Middle Class Continues to Grow
Ignore the chorus chanting that Russia's decade-long growth of 7 percent per annum after 1998 was fueled by hydrocarbons alone. Russia's boom began well before the price of oil skyrocketed. And in 2008, when the price of oil touched $147 a barrel, oil and gas made up 60 percent of the Russian government's budget revenues and 60 percent of the country's exports, but just 20 percent of Russian GDP. Rather, the key has been globalization and Asia's rise.
To be sure, the bulk of Russia's foreign trade is with the European Union, but in a globalized world everything is connected. Much of what the Soviet Union made or extracted, which tanked in the 1990s, began to go up in price and value not just because of European prosperity but because of the insatiable Chinese giant. Russian industrial plant finally started to be refurbished and restructured. And around that belated shift, something completely new formed -- a huge Russian services sector, spurred by ravenous domestic demand. In most American accounts of Russia, which obsess over Vladimir Putin and flim-flam oligarchs, one has to look very hard for any mention of Russian society. But today, there are forty million Russians in the middle class -- nearly forty million more than there were in 1998, and around 30 percent of the population.
Cheaper Oil and New Challenges for Russian Elites
Notwithstanding its authoritarian political system, which is nasty though far more fractious than it appears to be to outsiders, the new Russia is as open to the rest of the world as it has ever been. (Russia boasts the world's second largest inflow of immigrants, after the United States.) Obviously, the summer-2008 bursting of the global boom has further spotlighted Russia's myriad weaknesses, from bloated corporate-sector debt to a substandard judiciary and suffocating official corruption (Russia's number one industry). Still, the precipitous drop in the price of crude is exactly what Russia needed. The fall to around $45 a barrel as of early 2009 -- admittedly, nothing like the $10 per barrel of 1986 that bedeviled Gorbachev's perestroika -- could finally compel Russia's ruling elites to enact the many additional structural reforms they have long promised but failed to deliver. That's the thing about globalization: either a country can compete globally, particularly in human capital and innovation, or it is destined to be left behind.
Mr. Kotkin, a professor of history at Princeton, is the author of Armageddon Averted: The Soviet Collapse, 1970-2000 (paperback Oxford University Press, 2008).