Inert Detritus The Internet's dust bunnies

9 April 2009 @ 8am

Russia’s future

The past few years have been a roller coast­er for Rus­sia. Putin’s efforts to remain in a posi­tion of pow­er and influ­ence were suc­cess­ful, and oil rev­enues swelled the gov­ern­ment cof­fers. Their eco­nom­ic house of cards is now tee­ter­ing, and threat­ens to take pri­vate busi­ness down with it. Where did this all start, and why are things going wrong now?

Rus­sia is a warn­ing to any multi­na­tion­al cor­po­ra­tion. Com­pa­nies and investors came because the poten­tial prof­its off­set the risk of a sud­den, Krem­lin-backed repos­ses­sion of assets (see: Yukos). But now, such invest­ment looks more fool­ish than ever, as the gov­ern­ment takes mon­ey meant for shoring up tox­ic assets and pro­vid­ing mon­ey liq­uid­i­ty, as has been done recent­ly in the Unit­ed States, and instead fun­nels it towards semi-autonomous pri­vate cor­po­ra­tions with heavy gov­ern­ment ties. Any hope of semi-respon­si­ble gov­er­nance has been killed dead.

Rus­sia will con­tin­ue to reap wind­fall oil and tax prof­its over the short and medi­um-term, as world­wide demand recov­ers and busi­ness­es fin­ish invest­ment of assets already com­mit­ted to the state. How­ev­er, only the most singly prof­it-moti­vat­ed and fool­ish of com­pa­nies will invest in Rus­sia in the long term. The cost of build­ing a prof­itable busi­ness must take into account the inher­ent risk posed by the cur­rent admin­is­tra­tion and gov­ern­ment offi­cials, who see any cap­i­tal­is­tic enter­prise in the state as mere­ly a source of future assets for capri­cious state seizure.

Rus­sia, until recent­ly, was often con­sid­ered one of the world’s pre­mier emerg­ing economies. Instead, slop­py gov­er­nance and prop­er­ty rights run over roughshod have turned it into a bot­tom­less pit for return-free investing.

(Edit: this was orig­i­nal­ly a draft writ­ten last while fly­ing back to San Fran­cis­co. A few things have changed since Novem­ber, but most impor­tant is this: Rus­sia, Venezuela, and oth­er oil-dri­ven gov­ern­ments are see­ing demand and rev­enues plum­met, and are fac­ing large bud­get short­falls as a result. Their short-term sta­bil­i­ty is right­ful­ly being ques­tioned, and they may turn to vio­lence and mil­i­tarism in an attempt to retain power.)

1 Comment

Posted by
9 May 2009 @ 1pm

The frus­tra­tion that you feel is com­mon to all who live in Rus­sia and yet retained their brains and com­mon sense..