20 August 2003 00:50
How to ensure that Russia can overcome its habit of performing below its full potential
>From Mr Alasdair Rankin.
Sir, As a former student of the Soviet and now the Russian economy, I read
your summary of the Russian economy's present position by Andrew Jack
and Stefan Wagstyl (Comment & Analysis, August 18) with close interest. I
was not surprised to learn that many of the underlying problems firmly in
place before the 1998 default have persisted. And they have not run their
course.
It is said that Yuri Andropov, Soviet leader from 1982 to 1984, once told the
up-and-coming Mikhail Gorbachev that the Soviet economy functioned only
because of the revenues brought in by oil exports and the tax on vodka.
Although there may be a wider range of commodities today, there is room to
wonder whether the picture is fundamentally different.
To say that Russia ought to be significantly wealthier than it is points to a
persistent problem about the economy over many decades: why it has performed
in so many respects so far below its potential. The answer to the first part
lies largely in the kinds of economic activity and organisation permitted by
an avowedly ideological state. Since 1991, the answer to the second, Russian,
part lies substantially in the very weakness of the state. The fact that
Russia seems to need an armed tax police to enforce payment is a sign of that
weakness, not of strength.
Russia's best economic prospects lie in the development of its
manufacturing industry and less in the further exploitation of its
hypertrophied extractive sector. An essential part of that development must
be confidence that contracts and investment obligations can be enforced
through legal process rather than threats, sometimes to life. That is
especially so as the economy cannot achieve high and sustainable levels of
growth without similar levels of foreign investment.
It was painful to read that net foreign investment was close to zero last
year. But that would surely change radically if Russia could develop the
necessary legal framework for the economy that would at least broadly
continue through changes of government. Can it?
Alasdair Rankin, Edinburgh EH10 4HT
[FTI [The Financial Times]] |
RUSSIA IN FACTS
