IN LONG RUN, RUSSIA IS STILL THIRD WORLD

September 8, 2008

Russia has fallen back into its historical tradition of a centralized and authoritarian government, a regulated and manipulated economy and suspicion and hostility toward the West.  A closer look at the Russian economy reveals a nation that is practically a caricature of the stereotypical Third World country, says Richard Ebeling, a senior research fellow with the American Institute for Economic Research.

For example:

  • Almost 65 percent of Russia's export earnings come from oil and gas, while another 16 percent comes from precious metals and other raw materials.
  • More than 10 percent of Russia's population is still engaged in farming, compared with less than 3 percent in the United States.
  • The number is so high because some 70 percent of the agricultural land remains collective farms, now disguised as private corporations (heavily tied to and financially dependent on government).
  • The 30 percent of the land that is legitimately tilled by private farmers is responsible for over 56 percent of crop and livestock production.

A long-term decline in global oil and gas prices could, of course, quickly undermine Russia's current economic strength.  Russian Finance Minister Alexei Kudrin acknowledges that revenues from international oil and gas sales have probably peaked and that by 2015 the Russian government will probably have to start dipping into its reserve fund to finance increases in government spending.

This reserve fund, however, may have to be drawn upon sooner than Kudrin thinks, says Ebeling.  According to the Russian Central Bank, in the week following the start of the Georgia conflict, foreign investors withdrew more than $16 billion from the Russian market, an amount larger than total combined 2007 foreign direct investment in Russia by Germany, France and the United States.

Source: Richard Ebeling, "In Long Run, Russia Is Still Third World," Investor's Business Daily, September 5, 2008.

 

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