Tuesday, December 6, 2011

Russia and Its Dysfunctional Society

Russia provides one of the most intriguing national stories, and it has been covered here several times. In Russia and Its Uncertain Future the failure to modernize and its endemic corruption were discussed. The article, Russia and Its People: A Death Spiral?, focused on the poor health and unusual demographics of the population. More recent articles provide us with other perspectives from which the peculiarities of Russian society can be examined.

An article in The Economist, Time to shove off, illustrates the depth of dissatisfaction with life in Russia today.

"A recent opinion poll by the Levada Centre shows that 22% of Russia’s adult population would like to leave the country for good. This is a more than threefold increase from four years ago, when only 7% were considering it. It is the highest figure since the collapse of the Soviet Union, when only 18% said they wanted to get out. Those who are eager to leave are not the poor and desperate. On the contrary, most are entrepreneurs and students."

Consider the following graphic.

The categories of people who are most interested in leaving are the ones a nation would be most interested in keeping. The graph below illustrates the reasons why people are dissatisfied with their lives in Russia.

It is suggested that stagnation is the impression most citizens have about their country and its economy. While Russia is rich in gas and oil, it has not chosen to use that wealth wisely.

"Instead of investing in human capital—such as better schools and hospitals—and modernising the oil and gas industry, Russia has used the money to perpetuate the inefficient structure of the Soviet economy in exchange for political support. Instead of encouraging people to look for newer opportunities, Russia ties them down with handouts to dinosaur enterprises and one-company towns."

"Five years ago Russia needed $50-a-barrel oil in order to balance its budget. Next year the price will have to be $120 to meet its spending obligations. The current price is $113 a barrel....its budget expenditure (which is already growing by more than 10% a year) is bound to increase."

Perhaps even more troubling is a climate of corruption that stifles foreign investment and local entrepreneurship.

"When Walmart tried to buy a retail chain there—a three-year flirtation that eventually ended last year—it was apparently fobbed off by bureaucrats who, according to a source familiar with the negotiations, ‘did not want another whiner like Ikea, which had exposed corruption’."

"That corruption crushes the prospects of active and talented people. The rent-seeking behaviour of Russia’s rulers, who control the money and the levers of repression, stifles competition. Many of the elite have backgrounds in the security services; their instinct is to raid, grab and control, rather than create and compete....Investing in innovation and raising productivity makes little sense when your well-connected competitor can hire the tax police and prosecution service to force you out of business."

There is a general acceptance of things being the way they are. One commentator says of the middle class that "they would rather exchange their country than change it."

"According to the World Bank, 77% of Russian science and engineering students studying in America will never come back."

"A recent survey by Campden Media and UBS, a bank, of 19 Russian businessmen with a personal wealth of more than $50m and a turnover of $100m showed that 88% had moved their personal wealth abroad and were prepared to sell their companies. Few planned to pass their businesses on to their offspring, which is hardly surprising, since most children of the rich and powerful are now ensconced in the West. Parents send their children abroad not to learn to run their businesses more efficiently, but so they never have to come back."

Putin is apparently not worried about a brain drain or about the flight of capital abroad.

"The Kremlin undoubtedly likes things that way. It has learned from the mistakes of the Soviet Union, which raised levels of education and science to compete with America, but in the end created pressure from within the system that it could not contain. This is one reason why Mr Putin is so keen for Russia to have a visa-free travel arrangement with the rest of Europe. The other is that it would give the Russian elite unhindered access to their European properties."

Even given this type of environment, the number who will emigrate is likely much smaller than the 22% who would like to. The question for Russia is: what will those who remain and are dissatisfied do?

The recent election may provide a clue. The Economist provides here an update on what occurred.

"YESTERDAY'S parliamentary poll in Russia was always going to be more a referendum on Vladimir Putin and the ruling United Russia party than a real election. The genuine opposition was barred from taking part long before polling day; television, which remains the main source of news and views for most of the country, has been working at full propaganda throttle; and governors and mayors across Russia were given specific targets for United Russia's voting figures and told to meet them."

"The absurdity of the rigging became clear as results came in. In some regions the sum of votes cast for all parties exceeded 140%. In Chechnya, ruled by Ramzan Kadyrov, a Kremlin-friendly strongman, United Russia’s result was 99.5%. A similar result was achieved in a Moscow psychiatric hospital."

The lower than expected results for Putin’s party is attributed to an erosion of legitimacy among Putin’s core supporters. How this gets propagated into the future is anyone’s guess. The cynical are predicting that the response will be to make the next election better rigged, and any genuine competition will be completely eliminated.

Will the Russian people have a response to all this? At least some of them are angry and letting their feelings be heard. Perhaps even more will have voted with their feet by the next election.

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