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Monday, October 23, 2006

Greenspan Warns Off Russia

The Moscow Times reports that esteemed economics guru Alan Greenspan has put the kibosh on Russia:

Former U.S. Fed chief Alan Greenspan on Thursday criticized Russia's national champions as economically harmful and anti-competitive.

Greenspan, one of the world's most respected financial minds, said the very idea of creating industry titans blessed by the state was antithetical to modern capitalism because it protected corporations that were inherently less competitive.

"I don't believe in national champions -- national champions by definition are those which do not maximize profitability," Greenspan said at an investors conference in New York.

He said that the creation of United Company Russian Aluminum -- from RusAl, SUAL and the alumina assets of Glencore -- would indeed produce a giant aluminum company, but he observed that such giant companies do not tend to be innovators, especially if they are protected by the state.

The former chairman of the Federal Reserve also warned of the onset of Dutch disease, an economic malady that affects countries with natural resource wealth.
His remarks came in stark contrast to a largely upbeat assessment from Renaissance Capital CEO Stephen Jennings.

"Russia is also building national champions, in oil and gas, metals and mining, transportation, defense, aerospace, machinery and nuclear power," Jennings told the conference, sponsored by RenCap Securities. "It's building these industries in a different manner and by different means than it is done in the U.S. and Europe today, but ultimately with the same effect and purpose: governments supporting financially and politically industries they deem 'strategic.'"

Oil, gas and aluminum are classic 20th-century industries, and Greenspan said Gazprom would have done better to follow through with its plans to produce liquefied natural gas, a newer technology that would be more competitive in the 21st-century economy.

"Competitiveness will not come from the large companies -- it will come from the medium size," he said.

Greenspan said Russia's heady rate of GDP growth could help its economy resemble Western Europe's in the near future, as long as the Kremlin avoided certain missteps.

"If it weren't for this national champion issue, which I find very disturbing, ... it could close the gap on Western Europe very quickly," he said.

In response to an investor's question, Greenspan acknowledged that the governments of European countries and even the United States could be protective of certain large, successful industries that lie within their borders.

"It's the same malady, but I'm just fearful that Russia's got a deeper virus than the rest of us," Greenspan said. "The Russians are just doing it with a little more fervor."

Besides the national champions, Greenspan warned of the dangers of Dutch disease, in which a country with natural resource wealth experiences a sharp rise in the value of its local currency, strangling the competitiveness of other industries, especially manufacturing.

But he praised the work of his "friend," Finance Minister Alexei Kudrin, in keeping oil revenues flowing to foreign reserves and the stabilization fund, where they are effectively "sterilized" from having a damaging effect on other parts of the economy.

Besides Central Bank intervention in the currency market, Greenspan said the best defense against Dutch disease in the past had been a large, healthy economy diversified away from natural resources. "Russia is somewhere in the middle on this issue," he said.

Greenspan said Russia's economy continues to be hobbled by an underdeveloped banking system, partly as a result of the small role of banks during Soviet times.

In addition to a couple of large, state-controlled banks, Russia is filled with a "very large group of institutions which are called banks, but I'm not sure what they are."

The banking sector will benefit from the death of these financial institutions, as well as the growing presence of foreign banks in Russia, he said.

"They will spread 21st-century banking throughout the Russian system," Greenspan said of the foreign banks. "Remember, they operate under Russian law -- this is not a foreign invasion."

Foreign participation in the financial sector has been a contentious point in Russia's negotiations to join the World Trade Organization.

In all, Greenspan struck a cautiously optimistic tone on the future of the Russian economy, assuming the people and their elected representatives eventually recognize the folly of establishing national champions.

"I trust that in the years ahead the Russian people will see that is the case and venture forth with the type of economy which they deserve, finally," he said.

9 comments:

17 ugly raccoons said...

Greenspan to Putin.

1. Don't establish big companies, because we in US don't want competitors.

2. It is good you don't allow your money to work for your own country. Just keep buying worthless US papers.

3. Give our banks access to your money. Now.

4. Perhaps, in the future you'll understand market economy is not complete cr@p.

I'm not sure what Putin will answer (as I said, he is coward and will not stand for Russia), but as far as I am concerned, Mr. Greenspan may go and pound the sand.

La Russophobe said...

UGLY: Yeah, no need to listen to one of the world's most experienced and well respected economics geniuses. Who cares what he or anyone else thinks? Russians know it all! Just look how very well Russia is doing on its own: it has a $300/month average salary and will be an unpopulated desert in less than one and a half centuries from now.

17 ugly raccoons said...

LR: it has a $300/month average salary

You ever tried compare prices and charges?

and will be an unpopulated desert in less than one and a half centuries from now

Oh, you've expanded time you gave us. Thanks. I am attributing it to my healthy influence.

Yeah, no need to listen to one of the world's most experienced and well respected economics geniuses.

I respect Greenspan. I believe he is a good citizen of his country, so what he is doing and suggesting is aimed for good of his country, not mine. Do you prefer Greenspan stands for Russian interests rather than for US? Do you want him to give advices profitable for Russian and not for US?

Your naivete is amusing.

La Russophobe said...

UGLY: Are you saying that the quality of a visit to a doctor in Russia and in America are the same? Because if not, the fact that the doctor visit in Russia is cheaper means nothing. Even if you multiply $300 by 10, it's still totally pathetic. Go on in your Russian-water-induced hallucination, just like in Soviet days, that Russians are happy with their salaries, while I watch your country turn into a desert.

You still haven't answered: When will Russia's population decrease halt?

You're classically paranoid. That kind of paranoia destroyed Russia once and will do so again. What's more, you are arrogant and assume you are smarter than Americans, just like in Soviet times. Otherwise, you'd know that if Greenspan was your enemy he'd recommend the opposite of what he wants, thinking that's what you'd do knowing he's your enemy.

La Russophobe said...

UGLY: Just curious. Do you believe Russia can continue to deterioriate indefinitely? Or do you think Russia has been improving all this time?

17 ugly raccoons said...

LR:Are you saying that the quality of a visit to a doctor in Russia and in America are the same?

No, I can't say that because I never visited US doctor. You never visited Russian doctor too, I presume?

Now, about your logic... at least I have a suspicion you call this thing 'logic'. Even if Russian doctor is of worse quality than US doctor, patient will get some help anyway, so 'means nothing' is incorrect conclusion. Now, try to ask me how much costs bread, meat and so on, how much I pay for my apartments by month ($75)...

that Russians are happy with their salaries

Who said you that?

You still haven't answered: When will Russia's population decrease halt?

I answered. I said question is too complex and sophisticated, I cannot make predictions of such complexity (even if question of precision is unsignificant). You are happy to gave simple/foolish predictions any day. Sorry, I have some self-respect unlike you.

destroyed Russia once and will do so again

And again... and again... and again... world will forget even the name 'America' and that kind of paranoia will destroy Russia again and again. I am all for it.

What's more, you are arrogant and assume you are smarter than Americans, just like in Soviet times

If you say so. I don't give much meaning to this question. I have my patents for inventions, and it's enough for my self-confidence.

Otherwise, you'd know that if Greenspan was your enemy he'd recommend the opposite of what he wants, thinking that's what you'd do knowing he's your enemy.

Try to go to the end of that way and catch your own tail.

My answer about current Russian stance. In some aspects, deteriorating (Putin's time compared to Yeltsin's) is slowing or stopping, in other aspects it's continuing unabated. I think Putin done much less than he could and should. Wrong ideology, wrong goals, wrong means, wrong personnel (of course, my definition of 'wrong ' and yours are hardly compatible). And, as I said before, whole system should be changed, Constitution rewritten and 'Russia for Russians' attitude should be established firmly and correctly.

La Russophobe said...

UGLY: Your problem is quite simple really. Being Russian you have no understanding of concepts like character, reputation or integrity, and you're an egomaniac You think that Greenspan would destroy his reputatation just so as to provide false information to Russia about how to improve its economic performance just so as to harm Russia, which apparently you think he's obsessed with, like the rest of the world. The fact is that the vast majority of the world's population couldn't care less about Russia, and Greenspan isn't Russian so he doesn't tell lies for "patriotic" reasons.

And if you think Russia's trajectory is a stable and progressive one over the past few centuries rather than a chaotic and destructive one indicating ultimate failure, you're a true psycho. You make no attempt whatsoever to document such a claim, as usual.

17 ugly raccoons said...

You think that Greenspan would destroy his reputatation just so as to provide false information to Russia about how to improve its economic performance just so as to harm Russia

How many westerners throughout history destroyed their reputation intentionally doing things harmful for Russia? Churchill, maybe? Or Reagan? Moreover, it was not some official advice from Greenspan. And even more, harm from such advices is coming in a long perspective and majority of western public has awfully short memory, I learned that.

Greenspan isn't Russian so he doesn't tell lies for "patriotic" reasons.

Then Powell with flask of white powder in UN is complete Russian.

And if you think Russia's trajectory is a stable and progressive one over the past few centuries rather than a chaotic and destructive one indicating ultimate failure, you're a true psycho. You make no attempt whatsoever to document such a claim, as usual.

You want me to made this claim and back it up with documents over *centuries* of history in *comments * of this blog? Care too see some technical, not mental, problems for me?

BTW, I'll not make claim that 'trajectory' was stable and progressive. But measure of stability and chaos, progressive and destructive, is quite interesting question.

La Russophobe said...

No, just name one way in which Russia is better off now than 100 years ago. That will do for a start.