Baltic
02-13-2006, 02:07 PM
By MARK N. KATZ
WASHINGTON, Feb. 12 (UPI) -- The recent translation into English of an article by Vladimir Putin originally published in 1999 in a Russian technical journal allows Western audiences to gain important insight into his economic thinking. The article lays out a plan for building Russia's economic strength that Putin has largely followed -- with considerable success -- since his surprise elevation to the presidency at the end of 1999. The article, however, also reveals certain assumptions on Putin's part which his continued adherence to negatively affects Russia's economic growth both now and in the future.
The English translation of Putin's article appears in the January-February 2006 issue of Problems of Post-Communism -- a highly regarded American academic journal. It was translated by Professor Harley Balzer of Georgetown University -- one of America's leading experts on Russia. In an introductory note, Balzer estimates that Putin must have completed the article in 1998 -- at about the time he became director of the Federal Security Service (the successor to the KGB).
In the article, Putin makes the following points:
1) the Russian economy must grow at twice the growth rate in the West in order to reduce "Russia's lag behind the developed countries in terms of GDP per capita;"
2) Russia can achieve such a rate of economic growth "on the basis of extraction, processing and exploitation of mineral raw material resources" such as oil and natural gas, which Russia has an extraordinary abundance of;
and 3) the profits from the raw materials sector can be used to develop other sectors of the economy, which will provide far greater employment opportunities than the raw materials sector allows.
Putin recognized that Russia needed to create corporations "capable of competing on equal terms with Western multinational corporations." However, the legacy of the Soviet planned economy with its "complete isolation from world markets" made this difficult. But while Putin understood the need for Russian corporations to be able to compete in the free market, he did not trust the free market to produce Russian corporations that could or would do this. State guidance, he asserted, was needed to defend the "interests of society as a whole," and adjudicate between competing business interests. For if allowed to act on their own, corporations would engage in "monopolistic behavior...that in many cases inhibits innovation."
Herein lies one of Putin's assumptions that negatively affect the Russian economy: Putin expressed the belief that private corporations (at least in Russia) would not innovate, and thus needed state guidance in order to do so effectively. Western experience, of course, shows that private corporations are far better at the sort of innovation that leads to economic growth than are governments.
The fact that he held this belief in 1998 shows that Putin was predisposed to reasserting state control over independent Russian oil firms such as Yukos even before he became president. Putin's success in seizing control of Yukos without completely frightening away foreign investment or reducing Russia's ability to sell oil, though, suggests that his acting on this belief has at least not harmed Russia. But will state-run petroleum firms, whose leaders report to the Kremlin, be as active and energetic as Yukos was in exploration and marketing? They do not seem to be so far.
More problematic, though, is Putin's assumption that the state-directed approach can be used to create Russian corporations that can compete with Western multinationals outside the raw materials sector. Because of their need for them, foreigners are going to buy Russian oil, gas, and other raw materials whether the Russian raw materials industry is controlled by the Kremlin or not. For Russia to sell manufactured goods or services to the rest of the world, though, these will have to be competitive with those being sold by private producers elsewhere. It is true that Russia has been successful at exporting high tech products in the armaments and atomic energy sectors. The customers for these, however, have usually been governments which the West has been unwilling to sell these products too. In other words, Moscow has been able to sell these products in these markets because for the most part it has not faced Western competition in them.
The real test for Russia is whether it can produce goods and services that appeal to consumers and businesses both abroad and at home in competition with those produced by foreign multinationals. To do this successfully, Russian firms will have to constantly innovate in order to keep ahead of competitors. But will the apparatchiks from the security services whom Putin likes to put in charge of enterprises be imaginative enough to do this? And will a Kremlin that increasingly feels threatened by anything it does not control be willing to allow this? The answer to both questions is: probably not.
Putin foresaw the development of Russia's raw material sector leading to overall Russian economic development. His distrust of private enterprise and insistence on Kremlin control, however, is resulting in a rich government living off of Russia's raw materials wealth while much of the rest of Russian society languishes. The sad thing, of course, is that it does not have to be this way. Unless Putin revises the faulty thinking that he displayed in his 1999 article, however, it will remain so.
From http://www.upi.com/InternationalIntelligence/view.php?StoryID=20060211-104028-5038r
WASHINGTON, Feb. 12 (UPI) -- The recent translation into English of an article by Vladimir Putin originally published in 1999 in a Russian technical journal allows Western audiences to gain important insight into his economic thinking. The article lays out a plan for building Russia's economic strength that Putin has largely followed -- with considerable success -- since his surprise elevation to the presidency at the end of 1999. The article, however, also reveals certain assumptions on Putin's part which his continued adherence to negatively affects Russia's economic growth both now and in the future.
The English translation of Putin's article appears in the January-February 2006 issue of Problems of Post-Communism -- a highly regarded American academic journal. It was translated by Professor Harley Balzer of Georgetown University -- one of America's leading experts on Russia. In an introductory note, Balzer estimates that Putin must have completed the article in 1998 -- at about the time he became director of the Federal Security Service (the successor to the KGB).
In the article, Putin makes the following points:
1) the Russian economy must grow at twice the growth rate in the West in order to reduce "Russia's lag behind the developed countries in terms of GDP per capita;"
2) Russia can achieve such a rate of economic growth "on the basis of extraction, processing and exploitation of mineral raw material resources" such as oil and natural gas, which Russia has an extraordinary abundance of;
and 3) the profits from the raw materials sector can be used to develop other sectors of the economy, which will provide far greater employment opportunities than the raw materials sector allows.
Putin recognized that Russia needed to create corporations "capable of competing on equal terms with Western multinational corporations." However, the legacy of the Soviet planned economy with its "complete isolation from world markets" made this difficult. But while Putin understood the need for Russian corporations to be able to compete in the free market, he did not trust the free market to produce Russian corporations that could or would do this. State guidance, he asserted, was needed to defend the "interests of society as a whole," and adjudicate between competing business interests. For if allowed to act on their own, corporations would engage in "monopolistic behavior...that in many cases inhibits innovation."
Herein lies one of Putin's assumptions that negatively affect the Russian economy: Putin expressed the belief that private corporations (at least in Russia) would not innovate, and thus needed state guidance in order to do so effectively. Western experience, of course, shows that private corporations are far better at the sort of innovation that leads to economic growth than are governments.
The fact that he held this belief in 1998 shows that Putin was predisposed to reasserting state control over independent Russian oil firms such as Yukos even before he became president. Putin's success in seizing control of Yukos without completely frightening away foreign investment or reducing Russia's ability to sell oil, though, suggests that his acting on this belief has at least not harmed Russia. But will state-run petroleum firms, whose leaders report to the Kremlin, be as active and energetic as Yukos was in exploration and marketing? They do not seem to be so far.
More problematic, though, is Putin's assumption that the state-directed approach can be used to create Russian corporations that can compete with Western multinationals outside the raw materials sector. Because of their need for them, foreigners are going to buy Russian oil, gas, and other raw materials whether the Russian raw materials industry is controlled by the Kremlin or not. For Russia to sell manufactured goods or services to the rest of the world, though, these will have to be competitive with those being sold by private producers elsewhere. It is true that Russia has been successful at exporting high tech products in the armaments and atomic energy sectors. The customers for these, however, have usually been governments which the West has been unwilling to sell these products too. In other words, Moscow has been able to sell these products in these markets because for the most part it has not faced Western competition in them.
The real test for Russia is whether it can produce goods and services that appeal to consumers and businesses both abroad and at home in competition with those produced by foreign multinationals. To do this successfully, Russian firms will have to constantly innovate in order to keep ahead of competitors. But will the apparatchiks from the security services whom Putin likes to put in charge of enterprises be imaginative enough to do this? And will a Kremlin that increasingly feels threatened by anything it does not control be willing to allow this? The answer to both questions is: probably not.
Putin foresaw the development of Russia's raw material sector leading to overall Russian economic development. His distrust of private enterprise and insistence on Kremlin control, however, is resulting in a rich government living off of Russia's raw materials wealth while much of the rest of Russian society languishes. The sad thing, of course, is that it does not have to be this way. Unless Putin revises the faulty thinking that he displayed in his 1999 article, however, it will remain so.
From http://www.upi.com/InternationalIntelligence/view.php?StoryID=20060211-104028-5038r