Archives for February 2015

Russia: from Rags to Riches and Back

sad broken matryoshkaIt was only three years ago that the prevailing expectations of the Russian economy and where it was headed over the next years was favorable (or even very favorable). The evolution of Russia from the ashes of the USSR to a seemingly fairly solid direction towards a market economy and its increasing role in the international community had only a little over two decades. Granted, nothing is perfect. Nonetheless, that expectation was indeed widespread and had some reasonable foundations behind it.

Moreover, Russia was not alone at that. The then popular acronym of BRICs was widely used, to refer to a very evident accelerated development of Brazil, Russia, India and China. The expectation was that, given enough time, the sizeable critical mass of those four nations, coupled with an economic growth rate well above the average of the developed nations, would propel them to an increasing level of world influence.

What a difference a few years can make. Among the four BRICs,  both Russia and Brazil have experienced a huge reversal of fortune.

How can such a dramatic turn have occurred to Russia in just a few years?

The core of the answer to the previous question lies in the extremely poor-governance system Russia has. For practical purposes, Russia is a fully underdeveloped nation in this regard, not far from many struggling nations in the world. There is no significant checks-and-balances system in place. As a result, Vladimir Putin (or whoever happens to be in power, as long as the system isn’t significantly upgraded) operates with an almost total freedom with null or very poor supervision of its congress. Unfortunately, and as it is now very evident, Putin’s administration wasn’t really involved in a meaningful agenda of elevating Russia’s competitiveness when compared with the rest of the world. Russia has essentially been living of the relatively high income provided by the then high oil prices, supplemented with foreign debt.

Very sadly, the Russian economy is not functional. It needs drastic and very carefully implemented changes. Instead, Putin has embarked on a self-destructive campaign of territorial expansion, destroying along the way the relatively good atmosphere with the rest of the world before things deteriorated so rapidly, with no end-in-sight.

What are the lessons to be learned?

Ignorance of how the free markets and the world as a whole work, coupled with utter disdain for good and effective governance are a recipe for disaster.

The way the world functions is far from perfect. However, there is a lot of suffering, famine, wars, and hard work of many generations before us that have taken the world to where it is today. Hostility and military aggressiveness are not, at all, a sensible solution to anything.

Any well-thought, good-intentioned initiative to improve the world should be very welcome. Yet, respect and coordination among nations is imperative in order to truly gain any significant global and self-sustainable benefit. Today’s Russia is exactly at the opposite end, the wrong side of history. Let us hope for a substantial and not so distant change towards a virtuous cycle. Not only does Russia need it badly, but the whole world would benefit enormously with a sincere and passionate change towards constructive attitudes among nations.

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