Democracy. Russia. CIS.

Russian “Re-Sovietization” versus global capitalism: Who’s going to blink first?

Posted by democratist on October 20, 2010

20th October 2010,

Today, Democratist has been listening to a podcast of a lecture given by Professor Niall Ferguson (Philippe Roman Chair in History and International Affairs at the LSE) on “The Political Economy of the Cold War.”

It explores the competition that existed between the US and Soviet economic systems during the Cold War, and how far the outcome of the Cold War was economically pre-determined.

Among other things, Ferguson demonstrated in detail that, from the high hopes of the 1950’s, the Soviet economy stagnated, and from 1975 negative productivity growth was a clear sign it was on the critical list;

  • Growth rates declined dramatically after Khrushchev, and total factor productivity plummeted to the point that Soviet factories eventually became value subtracting.
  • The planned economy did not work, because in the absence of market signals, resources were misallocated.
  • Corruption was endemic to the planned economic system because incentives were completely misaligned.
  • The only thing that kept the Soviet show on the road after 1969 was the subsequent rise of the oil price on international markets.
  • The Chernobyl disaster demonstrated the USSR’s inadequate allowance for depreciation of the capital stock.
  • By the end of the Cold War Soviet GDP was 36% of US GDP. In order to match the US, the Soviets had to spend a significantly larger portion of GNP on the military: 14% by 1991.
  • Life expectancy rates flatlined from the 1960’s (followed by a collapse after 1990).

From Democratist’s perspective, what is most interesting about this analysis is the opportunity it presents to examine the continuities from the Soviet period, and the trend of “partial re-Sovietization” of Russia since 2000;

  • Whereas the command economy is long gone, corruption has had a considerable continuing influence on the misallocation of resources/lack of diversification.
  • But, from the late 1990’s until 2008, high raw materials prices (accounting for 70% of exports) again came to act as a mask to cover deeper structural problems.
  • Inadequate allowance for depreciation of the capital stock has continued, noticeably in relation to Russia’s military (and broader military-industrial complex), and also resulted a number of disasters linked to antiquated infrastructure.
  • National resurgence remains a key aspect of official ideology, and the government is currently planning to embark on a new round of defence spending.
  • Life expectancy crashed in the 1990’s, partly as a result of social dislocation, but also as a result of inheritance of Soviet social trends (alcoholism, smoking). Demographic decline is set to remain a problem.

But, as we have argued repeatedly, despite the fall in hydrocarbon prices over the past three years, there has been little indication the regime has any serious intention of changing course: What we have seen so far remains essentially a superficial invocation of the need for change through the offices of the “liberal” President, designed to drum up additional investment from the West, while the regime waits for a resurgence in commodity prices.

But there is currently little indication that the oil price will revert to 2007 levels any time soon, and foreign investors appear to be getting wise to the Kremlin’s game (why invest in Russia, when there are so many more attractive options?).

It must surely be slowly be dawning on at least some in the nomenklatura that just “going through the motions” isn’t going to be enough.

In the contest between Re-Sovietization and global capitalism then, the question is therefore increasingly, “Who’s going to blink first?”

One Response to “Russian “Re-Sovietization” versus global capitalism: Who’s going to blink first?”

  1. […] by corrupt businessmen and the security forces, and the Russian government is, ”…an oligarchy run by the security […]

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