After three days of grandiose forecasts and pompous back slapping at the St. Petersburg Economic Forum, some sober and colder analyses of what had been said and claimed appeared in Kommersant Business Daily. The article by Andrei Illarionov {link in Russian only} former Putin's economic adviser starts off with a satirical title "Bananotechnology" - a reference to recently touted government investment in nano technology in Russia that is gradually acquiring the shape of Nikita Khrushchev's corn cob with a hint at a banana republic status. Some serious real successes (like reviving of the Aeroflot Boeing contract, and the total $14 billion worth of signed contracts) of the forum aside, "pink glasses" metaphor would do no justice to verbal and virtual gongs, incense, crystal balls and other Al Gore-like obscurantism in economic forecasting oozing from VIP participants of the forum like former World Bank head James Wolfenson, Russian President Putin, and his two minions - come democratically appointed heirs -Servey Ivanov and Dmitry Medvedev. As Financial Times noted sourly , the economic forum was reminiscent of old Soviet style gatherings
"where the only speakers were chosen by the ruling bureaucracy."
Here are some excerpts from Illarionov's article, mixed in with my comments. The article strikes hard by its uncompromising pro-capitalist drive. Not surprisingly, the discussion thread at Kommersant web site is full of nasty attacks by rabid nationalists calling the author a deserter, a traitor, a Yankee lap dog, a paid CIA stooge and what not. It was also quite interesting to read what some of them think of the US and how strong the fruits of the USSR propaganda still are.
James Wolfenson, a senile retiree from World Bank claimed Russian GDP increased five fold since 1995. Illarionov sardonically suggested Wolfenson should have consulted any number of acquaintances from his rolodex or maybe just try a simple Internet search to get a 55% figure instead.
In retrospect, both World Bank and Citigroup could probably do better then employ him in any intellectual capacity. I remember commenting about his senility some years back when he could not figure out why anarcho-antiglobalists were opposing his favourite Davos get together.
Mr. Putin's speech has been mentioned before and by this blog among others . Russian President proudly proclaimed that direct foreign investment in Russian economy grew by two and a half times. The following sentence mentioned accumulated foreign investment to have surpassed $150B.
Listeners might have had an impression that the latter number relates to the direct foreign investments mentioned in the first sentence. This however is not true.
As of April 1 2007 $151B is the total for foreign investment, including indirect, i.e. mutual, portfolio, bonds, and other instruments. According to Illarionov the main investment appeal indicator is direct private foreign investments. As of April 1 2007 Russia accumulated $73B. However serious this absolute figure might look, as a percentage of GDP this looks very modest - only about 7% GDP. Deduct direct investment in upstream oil and gas and the number gets even smaller: 4.5% of GDP. Compare this to direct foreign investment is Ukraine that exceed 19% of GDP, 25% of GDP in Latvia, Lithuania and Poland, 42% in Georgia and 59% in Estonia.
I already mentioned Mr. Putin's macroeconomic claim regarding G-7 countries' share of World economic output drop from 60 to 40 . I have to admit, I took the former number for granted without double checking. I have forgotten the predictable ease former Soviet apparatchiks show while dealing with numbers. Mr. Putin it appears had outright lied.
That in 2007 G-7's share of world economic output was 41% was true. But it is also true that G-7's share was not 60% but 51%.
But even these claims paled in comparison with forecasts. Mr. Wolfenson "promised" that Russian economy and economies of developed nations will grow 20 fold by 2050...But nobody seemed to have time to stop and think in St. Petersbourg, comments Illarionov.
For a country whose population declines so rapidly, a 20 fold GDP grows would translate into a 25 fold GDP per capita growth. History does not know anything even close among economic miracles of the past: in 43 years Japan's GDP per capita grew 10 times, 12 times in Korea, 13 times in Taiwan, and 17 times in China.
Someone is smoking something. This smacks of return to absurd and laughable gigantomania of USSR forecasting. One of Putin's potential democratically appointed heirs Sergei Ivanov advanced even more futurama claiming that by 2020 Russian GDP will be among the top 5 in the world and per capita GDP by purchasing power parity (PPP) would be $30,000 in 2005 prices. Another candidate for democratically appointed heir Mr. Medvedev agreed. That was the same Medvedev that lamented the death of capitalism when UK frowned at his Gasprom buying a UK energy supplier to create a vertical monopoly. No wonder they can spout any nonsense while they think that monopolistic capitalism is the true capitalism.
These two clowns do not understand what smart people elsewhere understand perfectly well: you can not reach 50% of per capita GDP of the most economically advanced nation. To reach such a level means to transcend the developing economy status that can drive economic growth simply by sheer power of expansion. At higher levels of development economic growth requires a completely different environment.
Growth rates depend more on social and state institutions like protections of private property, separation of powers, free mass media, independent judiciary, civil liberties, political rights, and law.
I had to do a double take when I read this next figure Illarionov mentions.
Russian economy could have experienced fast economic growth in the oil industry, but looting of Yukos by the state and other swindles {possible translations also include: fraud, shady deal, racket, and hustle} annual oil production rates have tumbled from 13% to 2%. Russian economy could have experienced fast growth in natural gas industry, but Gasprom is squeezing independent producers, while increasing its own production by 0.6% in 8 years.
These are horrendous numbers for a country so dependent on oil and gas sectors for almost everything, for a country where according to some figures up to 60% of Government Budget is derived from oil and gas revenues. Illarionov was one of the few on record predicting the 1998 default that crippled Russia big time. This time he is calling for a complete reversal of the current direction that Putin and both his heirs apparent represent.
Well, I know I have been neglecting my shows and my blog, and have not posted anything since August. And for that I am profoundly sorry.
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