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Russia's future glory?

From Moscow, Cameron Sawyer sends this long comment on the posting about a Russian plan for a grand Eurasian alliance. I tried to indicate that I posted it simply as one Russian plan, not because I thought it represented a definitive position. It is significant only because of the position of the author. As for China, I was puzzled as to how it fitted into the grand design; it was scarcely mentioned. Since Cameron is in Moscow, his opinion is valuable:

"I am not aware that anyone in Russia fears a US-China friendship. What friendship is that? It is Russia which has just signed a flurry of treaties with China and which considers its alignment with China to be a bulwark of sorts against the West. I am just back from three days of driving through Germany with a Russian friend, a member of parliament who just led a Russian parliamentary delegation to China a few months ago. His view, which I believe is widespread in Russia, is that demographic and economic factors trends point to China s eclipsing the U.S. as the predominant world power in just a couple of decades. This is good for Russia, he thinks, because anyway China understands Russia better than the West does, and is therefore a more reliable partner. That is a pretty pathetic statement about our relations with Russia, since Russia's road to reform was liberal and Western-looking and has had almost nothing to do with the Chinese model. And least of all does Russia have anything in common with Western Europe. The European Union (burned by its experience with Ireland) has informed Russia that with its low-tax and excessively laissez faire economy , it has no chance of joining the Union in the foreseeable future.

Low tax and excessively laissez faire? The news reporting about Russia is so devoid of information that few Americans know about this. Russia did a couple of years ago what Ronald Reagan couldn t pull off; it has introduced a flat personal income tax. The single rate for earned income 13%. The corporate income tax rate is 24%, and it is widely considered (even by the Communists) that this is still too high. Dividend income is taxed at 6%. Social taxes are regressive, starting at about 35% but falling to less than 1% for incomes over a few thousand dollars a month. The value added tax is high at 20%, and the Putin administration s next tax bill will propose halving that to 10%. Laissez faire? The state has practically withdrawn from direct involvement in the economy, and with more than 90% of GNP produced in the private sector (including GNP which is supposed to be produced in the shadow economy), Russia is (by that measure) the most capitalist country in Europe. No wonder the old socialists in Brussels are worried about Russia. In Russian universities, obscure Austrian economists dominate the economics courses. The cover story of one issue of Kommersant weekly (Russia s Wall Street Journal) this past January marked the 49th anniversary of Schumpeter' s death (if I remember correctly). [Joseph Schumperter died on January 8, 1950, so it must have been his 52nd anniversary, if I remember my arithmetic. I was surprised that he has such an influence in Russia; he represents dog-eat-dog, law of the jungle economics, which I judge a sure route to social disaster.RH.].

Russia s natural ally is the United States, whose political and economic system Russia has emulated. In the early 90 s, when Russia embarked on its breathtakingly radical reforms, many Russians assumed that the U.S. would be right there to help and that the whole geopolitical situation would be realigned. But nothing turned out the way it was supposed to, and those early market romanticists (as they are called in Russia) were bitterly disappointed. The program of privatization miscarried in an orgy of thievery and criminality, and the U.S. did little to show even symbolically that relations had changed. Economic reform did not help average Russians, whose standard of living hit rock bottom in 1999 after the ruble devaluation in August 1998. And the real turning point in U.S.-Russian relations was when the U.S. bombed Russia s old historic ally Serbia, without any serious attempt to significantly involve Russia in its historic sphere of influence.

But despite lack of support from the West, and despite the fiasco of privatization, Russia stayed the course. Parliamentary democracy (on the U.S., not European model) is firmly established, together with other liberal institutions such as an independent judiciary. The Communist Party, in contrast to the situation in every other post-socialist country, never managed to get back into power, and is now at low ebb. Privatization is more or less over; there is practically nothing left to privatize. The economy is in its third year of strong growth, and personal incomes are rising. Crime is falling, and the murder rate in Moscow is now lower than in Atlanta (maybe that s not saying much).

And yet, and yet Russia is isolated and misunderstood. It is very funny, but Russia already considers capitalism and democracy to be its own institutions, with no debt to the West. The WTO, absurdly, does not even classify Russia as a market economy, with the result that all kinds of Russian exports are subject to nearly automatic anti-dumping tariffs (this is being remedied, but years late). As a result Russia has been drawn into this very odd strategic alignment with China, and the centuries-old Russian obsession with being a great power has been encouraged and intensified. A strategic opportunity has been squandered.

That is our loss, because Russia is, potentially, of great importance to the U.S. for all kinds of reasons. More or less immediate reasons include natural resources, of which Russia is the world s leading exporter (Russia is the world s leading exporter of energy --#1 in natural gas, #2 in petroleum --, timber, and non-ferrous metals). Another is weapons, of which Russia is a leading exporter (and leading supplier to China, India, Iran), giving it great potential for creating mischief. Of longer term significance is Russia s enormous economic potential. Russia, with its natural resources, highly educated population of 150 million people, developed heavy industrial base, and fundamentally capitalistic economic system, could become an economic superpower in a relatively short period of time".

Ronald Hilton - 3/4/02