24 May 2004 00:00
Why Russia is better growing than green AMITY SHLAES
ByLine: By AMITY SHLAES
Russia, what a tease. First it dithers on ratifying the Kyoto Protocol on
global warming. Next, its bad boy diplomats humiliate the blue suits from the
European Union by continuing to dither - even when the EU types beg. Finally,
President Vladimir Putin says Russia will probably ratify. But he will string
out the process as long as possible, even though the EU will now support his
country's World Trade Organisation membership.
Russia's inconsistency seems rash. Kyoto will go into effect if it is
ratified by nations that emit 55 per cent of the developed world's
carbon gases. Because the US, that other rogue, refuses to ratify, only
Russia carries the weight to take the treaty across that 55 per cent line.
Under the treaty, developed nations must cut their carbon emissions; the same
rule won't apply to developing nations.
One might think that Russia would leap at a chance to prove itself the
world's multilateral hero. After all, there are things Russia wants from
Europe as well - not least that WTO membership. Besides, it is not every day
that a former superpower gets the chance to save the planet.
Still, the image of Russia as rash tease is too simple. Andrei Illarionov,
presidential economic adviser to Vladimir Putin, noted during a recent swing
through western capitals that it is possible to defend Russia's Kyoto
stalling in four simple words: "Russia needs to grow," he said over
the phone last week from Washington, where he was preparing the ground for
next month's Group of Eight summit in Sea Island, Georgia. Russia is not
"developed" - it is "developing" and therefore cannot
afford to cut emissions, he reasoned. As for the Kyoto treaty, Mr Illarionov
calls it "a killer of living standards"; compliance would simply
cost Russia too much.
This argument sounds like a stretch. After all, Russia has come so far that
it is beginning to feel "developed" to outsiders. Under the
presidency of Vladimir Putin its economy has expanded by more than 5 per cent
a year. Surely Moscow can spare a percentage point or two if it means doing
something important for the environment. Surely sacrifice is part of what it
means to be a G8 member: noblesse oblige.
Well no, not really, says Mr Illarionov. There is almost no instance when a
government should put a grand international cause before domestic growth, he
contends. Indeed, the country that ceases to view itself as
"developing" and instead views itself as comfortably
"developed" sets in train the mechanism of its own decline. As he
speaks, the listener imagines a sort of Platonic ideal: the eternally
developing nation.
The growth-above-all rule is not one the Putin team worked up retroactively
to get out of Kyoto responsibility. It is their philosophy, one they intend
to be very different from the socially driven philosophies of postwar western
Europe. Just as communist Russia once pursued top-down growth with zeal,
Russia's free marketeers are enthusiastically seeking to establish the
small-government conditions for growth from the bottom up.
Recently Mr Putin ordered Russian government offices and ministries to reduce
staff by 20 per cent. He has reduced the number of ministries by a third. Oil
money has helped the budget, but so have policy changes: a radical flat tax
of 13 per cent reduced tax evasion and increased revenues.
Some may ask whether such a go-for-broke policy would not be lethal for the
environment. Certainly that was the case in the Soviet era. Again, not
really, says Mr Illarionov. The difference is that Russia is now a freer
market. In such a market, progress leads to environmental protections, but
only when the nation puts private sector growth first. His argument springs
from economic research showing that when economies grow they begin to do away
with pollution because it is simply wasted output. This phenomenon is known
to economists as the environmental Kuznets curve.
What's more, Mr Illarionov argues, the best environmental reforms come
out of voluntary actions by the locals in the private sector, municipalities
and so on; the worst come out of compulsory international law. Of Kyoto, he
says: "It looks like it is very nice, similar to the way in which
communism and socialism looked very nice." Despite Kyoto's talk of
market-friendly mechanisms, its potential to become a supranational monster
is "a fact of life". Such arguments will be too strong for some.
They may not even determine Russia's Kyoto policy, as Mr Putin indicated
recently.
Regardless of whether Russia ratifies Kyoto, the general Russian emphasis on
dynamic growth is important, especially in the context of the Sea Island
summit. G8 attendees France and Germany these days seem to confirm the
Illarionov thesis that the term "developed" can be treacherous and
that big-spending, complacent and collectivist nations bring about their own
decline. In France, one in four youths is unemployed. In Germany, the
consensus is now that the country muffed the economics of reunification and
brought disaster upon itself by spending when it should have cut. Western
Europe's crises are genuine and demand action.
Of course French and German leaders may choose to make their own lives easier
by devoting Sea Island and future summits to chattering about growth while
doing nothing about it. Or to dithering over Iraq, oil prices and Kyoto while
neglecting growth. But doesn't that make them the rash ones?
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RUSSIA IN FACTS
