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RUSSIA and Mexico: A comparison of the economies

Of our discussion on "RUSSIA: and MEXICO: A comparison of the economies", Cameron Sawyer says:. "Fair enough. Political stability has always been the big question here; so far so good, but everyone understands that this is a new democracy with a brand new economy and unexpected twists are inevitable. A significant act of Islamic terrorism, God forbid, would be a major blow. Comparing Russia to Mexico, one sees that the rate of foreign investment in Mexico is about ten times (!) that of Russia. Anti-globalist Chris Jones may see this as a disadvantage for Mexico, but I do not--in fact this is a huge advantage for Mexico which reduces capital costs and creates the whole basis for development. In fact, Russia’s biggest economic challenge is the high cost of capital, which is exacerbated by the relatively low rate of foreign investment. Another difference between Mexico and Russia is birth rates. I won’t say that Mexico’s high birth rate is a great advantage, since this is rooted in the pre-industrial, impoverished nature of the Mexican countryside, but Russia’s low birth rate is definitely a huge disadvantage. The rate of emigration from Russian has fallen dramatically and the rate of immigration into Russia has increased, so population loss has slowed. But Russia still has a net annual loss of population, a huge obstacle to economic growth not shared by Mexico. Lastly, Mexico has the incalculable advantage of a free trade agreement with the world’s largest economy, which provides it with an inexhaustible market for its exports. Another of Russia’s biggest economic problems is trade barriers to many of its export products, particularly steel and agricultural products. Perhaps we should take Russia into NAFTA!

Otherwise, compared to Mexico, Russia is simply a much more developed, industrialized country with a very highly educated and technologically sophisticated population. Mexico has a great deal of illiteracy (more than 10%); Russia’s literacy rate is in fact higher than that of the U.S. (according to the CIA, literacy in Russia among males is 100%). Compared to Mexico, Russia has less foreign debt and is less dependent on oil, with a much more diversified export base. It is true that Russia is the world’s second leading oil exporter, but oil makes up only about a quarter of Russia’s exports. Russia is the world’s leading exporter of natural gas, the world’s leading exporter of weapons, the world’s leading exporter of timber, of non-ferrous metals, and also the world’s second leading exporter of steel, more in all than $100 billion annually of exports. Russia has less corruption, has a more open political system, and has much lower taxes. Russia’s development challenge is more straightforward than Mexico’s: it needs to restructure a misdeveloped industrial economy rather than create a developed economy out of a more primitive one. It is perhaps too soon to declare a Russian "economic miracle", but there are more and more signs of one, and the phrase is gaining currency. Of course, I hope that also Mexico will experience rapid growth and improved living standards for its people. It’s about time. Mexico is a lovely country that does not deserve to be mired in poverty.

I don’t not know what Christopher means by Putin’s "arrogance". Putin’s position, on the contrary, is to minimize the remarkable accomplishments of the last few years and to emphasize, over and over again, how much there is left to do. He has set the task of doubling the size of the economy in ten years and has declared that the overriding priority of state policy. In my opinion he exaggerates the importance of the oil boom, but it is gratifying that his government has shown the budget discipline necessary to set aside tax surpluses for future debt payments, and to pay off foreign debt early, against the worst-case scenario of oil price collapse and revenue collapse".

RH: I would never describe Putin as arrogant.

Ronald Hilton - 7/1/03