Russia in Crisis?

[Feanor]

I do think you have a tendency to be overly pessimistic on Russian issues
I don't think the picture is rosy, nut it certainly is not as grim as you fear it to be, and few will doubt that things will continue improving, at least economically. While I understand what problems you're referring to, and it sometimes is really hard to overcome the negative attitude that one inevitably gets on the prospects over there after encountering the problems first hand, BUT one has to look at the bigger picture. Corruption is a huge problem, but so it is in India (to a greater degree perhaps), so is political and economical set up in China, so is the socio-economic situation in Brazil, yet they are all set to grow tremendously. And so is Russia. And this statement is not my personal opinion, I would have been more pessimistic myself, but an opinion of most financial analysts from all the major investment houses in the world, who have been predicting inevitable and fast growth in Russia for the foreseeable future. And that is the real authority on such matters.

P.S. What is strategically important about Avtovaz? I'm not aware of them making anything other than crappy cars...
Also, Putin, figure-head... Smells like another conspiracy

So.. here's the promised thread.

 

[Feanor]

So first thing is first, the problems are more extensive that is commonly understood to be the case. Just a few unpleasant factors, symptomatic of the underlying issues, the MVD is larger then the MoD. The only viable opposition groups don't even participate in the election system. The electoral rigging gets worse every year, despite repeated calls from the top for honesty. The MIC in many cases simply can't produce the necessary weapon systems, even when funding is available.

The budget next year is coincidentally cutting spending in key infrastructure areas. Life expectancy for males is still around 63. The problem of hazings in the army has not been overcome, with a particular series of incidents recently at the Baltic fleet.

But even on a much smaller level, when the police pulls you over, you ask how much and pay them. They didn't pull you over because you did something wrong, they pulled you over because you were driving what looked like a decent car and they figured that means you can afford to pay. Your average 12 year old can still run down to the corner store and buy vodka. Sex starts as young as 12. Affordable housing is still a dream. Buying a new apartment is a huge problem.

 

[PhysicsMan]

So first thing is first, the problems are more extensive that is commonly understood to be the case. Just a few unpleasant factors, symptomatic of the underlying issues, the MVD is larger then the MoD. The only viable opposition groups don't even participate in the election system. The electoral rigging gets worse every year, despite repeated calls from the top for honesty. The MIC in many cases simply can't produce the necessary weapon systems, even when funding is available.

The budget next year is coincidentally cutting spending in key infrastructure areas. Life expectancy for males is still around 63. The problem of hazings in the army has not been overcome, with a particular series of incidents recently at the Baltic fleet.

But even on a much smaller level, when the police pulls you over, you ask how much and pay them. They didn't pull you over because you did something wrong, they pulled you over because you were driving what looked like a decent car and they figured that means you can afford to pay. Your average 12 year old can still run down to the corner store and buy vodka. Sex starts as young as 12. Affordable housing is still a dream. Buying a new apartment is a huge problem.

You are right about all of these, nothing to argue about here. Well, maybe except the merits of abstinence
However, there are fundamental reasons why the economy is consistently predicted to grow despite of the problems it faces. The result of the soviet break up was not only to destroy a lot of what held the country together - economically, socially, etc., but also to open up inevitable opportunities for development. The service sector (the fastest growing there I believe) was nonexistent before in many areas and now it's thriving, accounting for more GDP than oil and gas, btw. Consumerism, driven almost to nothing by the Soviet reality, is driving a lot of the current growth, and as wages continue to grow it will only increase to do so. As this growth continues the budgets on all levels grow, leading to more investments (including industry and MIC), even if a serious chunk of that money is lost to corruption.
While the political environment may have gotten worse in the country, the economic reforms under Putin are widely recognized to be effective and successful. IMO it's important to distinguish between the political situation in the country from its economic state. It may seem important to outsiders that 'democracy" flourish there but to people it's far more critical to have financial stability - which it has seen only increase in the last decade.
The progress is incremental, for sure, but isn't it always? Only disasters like the Soviet break up can be sudden, putting things back together is a lot more arduous (2nd Law of thermodynamics).

 

[Feanor]

The point is that the social and political issues impede economic development. You can't start a new business without bribes, and you can't become a major economic player without concessions to the ruling clan. Transportation is a huge issue, with roads in a horrible state, including some major highways that are still unpaved (turning into oceans of mud when the rains come). Growth of the service sector is just really another way of saying that the money from the basis (oil, gas, some industry) is trickling down to the majority of the population via corruption, state support, etc. and is now being spent. The things it's being spent on are generally imported which basically means that the money that used to accumulate in oligarch bank accounts now goes into conspicuous consupmtion by the general population. Economically this is not a model of long term sustainable growth, unless the industry sector makes a large come back. And the structural factors that I mention, including the political ones, are some of the main impediments to it.

 

[riksavage]

Corruption is a major impediment to investment, which may not impact the economy whilst commodities continue to drive GDP, but when they start to dwindle or countries look for alternate and greener energy sources then the Russian economy will take a severe turn for the worse. China is sucking in the majority of Western Investment, and will increasingly benefit from the knock-on effect of any dovetailed R&D activity. No one in there right minds will JV with Russian Companies unless it involves extraction of raw materials inside Russia, and even then its become a very painful exercise.

Currently there isn't a single Russian University or Technical Institution in the top global 100, this does not bode well for a new creative and innovative Russian populous. Most cutting edge design / solutions are driven out of well funded Universities, which then go on to drip feed talent into high-tech industries.The Russian academic brain drain to Western Europe, USA and particularly Israel has severely impacted Russian creative thinking. The country has zero world class industries outside that funded by the military. Can anyone name a single household or non-military product invented in Russia in the last 25 years?

 

[The Swordman]

Some problem

Just two more facts about Russia.
1) unemployement is rising fast and a big chunk of the industry system is outdated;
2) looks like thtat the next election for president will be an home affair; Putin vs Medvedev... that say all you need to know about the concept of democracy in Russia.

 

[PhysicsMan]

Corruption is a major impediment to investment, which may not impact the economy whilst commodities continue to drive GDP, but when they start to dwindle or countries look for alternate and greener energy sources then the Russian economy will take a severe turn for the worse. China is sucking in the majority of Western Investment, and will increasingly benefit from the knock-on effect of any dovetailed R&D activity. No one in there right minds will JV with Russian Companies unless it involves extraction of raw materials inside Russia, and even then its become a very painful exercise.

Currently there isn't a single Russian University or Technical Institution in the top global 100, this does not bode well for a new creative and innovative Russian populous. Most cutting edge design / solutions are driven out of well funded Universities, which then go on to drip feed talent into high-tech industries.The Russian academic brain drain to Western Europe, USA and particularly Israel has severely impacted Russian creative thinking. The country has zero world class industries outside that funded by the military. Can anyone name a single household or non-military product invented in Russia in the last 25 years?

Yes, the commodities are continuing to be the key element of growth there. It must be noted, however, that in a world with so many fast-developing economies the demand for most of those commodities is only set to grow, including oil and gas, so it's more than likely that Russia is only going to benefit even more in the future from its raw materials wealth, barring the inevitable fluctuations. Not that it's a healthy way to sustain economy (I believe they call it "the Dutch syndrome") but at least it assures financial growth and stability, and if they manage to avoid the pitfalls of the above mentioned syndrome they may be able to diversify away from commodities.

When comparing Russia to other states that fell victim to this disease they have an advantage in a solid educational base in its population. You're correct that currently higher education is suffering a decline over there, but even in a decline it's still a highly educated and technically trained population. And while it's true that the majority of higher ed institutions are in a dismal state there are quite a few very solid ones. And the fact that they're missing from the "Top lists" isn't telling the story very well, as I know first hand that some top Russian schools are regarded extremely highly for their educational strength, at the very highest level in the US. I can speak of physics education in particular and tell you that there's no top university in US that wouldn't love to recruit students for PhD or higher level technical studies from schools like MFTI, MGU, NGU, and a bunch of others. In fact, their knowledge base is significantly broader and deeper than that of most top US counterparts. So the potential exists, it just remains to see if they're able to use it well.

 

[Feanor]

Corruption is a major impediment to investment, which may not impact the economy whilst commodities continue to drive GDP, but when they start to dwindle or countries look for alternate and greener energy sources then the Russian economy will take a severe turn for the worse. China is sucking in the majority of Western Investment, and will increasingly benefit from the knock-on effect of any dovetailed R&D activity. No one in there right minds will JV with Russian Companies unless it involves extraction of raw materials inside Russia, and even then its become a very painful exercise.

Currently there isn't a single Russian University or Technical Institution in the top global 100, this does not bode well for a new creative and innovative Russian populous. Most cutting edge design / solutions are driven out of well funded Universities, which then go on to drip feed talent into high-tech industries.The Russian academic brain drain to Western Europe, USA and particularly Israel has severely impacted Russian creative thinking. The country has zero world class industries outside that funded by the military. Can anyone name a single household or non-military product invented in Russia in the last 25 years?

So a few factors. Generally you're right, but there are actually joint ventures, especially Aero-Space. The Ka-226T is a French-Russian transport/utility helo. There are joint ventures with France in regards to space technologies, and launching the Soyuz. There are joint agreements between Italian airlines, and Aeroflot.

Also Moscow State University was in the top 100 iirc. You're right in principle, with the exception of aerospace, we are in the ditch.

Physicsman just keep in mind our oil supplies are dwindling, and the investment isn't there to continue production growth. Same with gas, though not quite as critical.

Just two more facts about Russia.
1) unemployement is rising fast and a big chunk of the industry system is outdated;
2) looks like thtat the next election for president will be an home affair; Putin vs Medvedev... that say all you need to know about the concept of democracy in Russia.

The unemployment rise is probably temporary. The real issue isn't employment, it's the economic basis. Employment is basically a reflection of how the oil and gas income is distributed. As for elections... who cares? It's still the same people pulling the strings. Look who's on the boards of directors for GasProm...

 

[PhysicsMan]

PH

begin{Offtopic}
While I don't completely disagree with you, one has to ask the question (assuming that they do regulate); Why does they manipulate the currency? What does the economy gain/loose by the manipulation?

The reason is the same as that for China pegging yuan to dollar - to make the economy more competitive. The imported goods become more affordable, the exports become more profitable.

 

[PhysicsMan]

Actually I suspect that if the ruble was released, it would fall, not rise, in relation to the dollar. It's current cost was propped up during the financial crisis by the Central Bank. But we're again getting off topic. There's a reason I made a whole separate thread for this.

It was a temporary side effect of the crisis and low oil price, now it's back to appreciation - for the last several months the central bank has been buying up dollars, to keep the ruble from gaining too much on the dollar. This trend is likely to continue in the future.

 

[PhysicsMan]

Physicsman just keep in mind our oil supplies are dwindling, and the investment isn't there to continue production growth. Same with gas, though not quite as critical.

The supplies that are developed are dwindling. This is a business where profit margins allow to re-invest substantial sums of money, and they are bound to do so in Russia. The notion that the supplies have reached the peak is nonsense IMO - in Russia and in the world in general. The dire predictions of the oil peaking have been around for half a century, to be disproved again and again, with new technologies allowing to find and develop new fields all the time. The fact is that Exxon has been finding more oil each year for the last 15 years than it pumped! In no small part thanks to their Russian assets. So much for an argument from many hysterical "green" idiots to develop "alternative" sources - analysts predict that in 2100 (!) between 70% and 80% of the world's energy supply will still be oil and gas, comparing to 90% today. Why do I say all this? Because Russia is the place where much of the new fields are going to be developed in the future - in the northern and northeastern Siberia. If you're interested in this topic, look up Rex Tellerson, Exxon's head (what a name for the head of the world's largest and most profitable company!), read what this straight-forward man has to say. Here's a good article that I can reference right now:
Why Exxon Mobil doesn't care about alternative fuels - April 30, 2007

 

[Feanor]

This is why they've made no major investments into developing those new fields? I'm not saying that the oil isn't there at all. I'm saying that accessible oil supplies are shrinking quickly.

There's a reason why they recently made the discovered numbers on oil supplies a secret....