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Saturday, June 16, 2007

Neo-Soviet Economics: Fact and Fiction

Bloomburg's recent status report on the Russian economy, with La Russophobe's running commentary:

Russia's economy expanded in the first quarter at the fastest pace in six years as production of building materials and electronics increased. Gross domestic product grew an annual 7.9 percent in the first quarter, compared with 5 percent in the first quarter of last year, the State Statistics Service said on its web site Thursday. GDP figures are not seasonably adjusted in Russia. The economy, which expanded 6.7 percent last year, will probably advance 6.5 percent this year, according to the Economic Development and Trade Ministry's forecasts. GDP may even grow 7 percent by the end of the year, Deputy Prime Minister Alexander Zhukov said Thursday, Interfax reported.

LR: So let's see now. Growth this quarter was higher than last year, but growth for this year is projected to be lower than it was last year. Looks like Russia is in for a rough winter. And why is it that the West never remembers to report that this data is coming directly from the administration of a proud KGB spy and therefore has credibility issues (i.e., it's a best-case scenario)? And why isn't the puny per capita size of the Russian economy ever mentioned? Is it because the story would be less sensational if we knew that this growth translates into just pennies per Russian, far less money per person that would be produced by a much lower rate of growth in a real economy with a real base, like America's for example? If so, shame on Bloomburg.

The growth, boosted by energy sales, has trickled down into the economy in the form of higher salaries in other industries and increased retail sales.

LR: In other words, it's not actually economic growth at all, just the happenstance of rising energy prices. In other words, the very term "economic growth" is highly misleading where Russia is concerned.

Real wages surged 18.5 percent over the first four months of 2007, boosting average monthly wages to 12,510 rubles ($480), while retail sales jumped 13.4 percent in the first quarter, compared with 10.4 percent in the year-earlier period, according to the statistics service.

LR: Why is it that reports like this always fail to mention that a salary of $480 per month is a puny $3 per hour for a 160-hour work week (four 40-hour weeks). And that's the AVERAGE wage, not the median. Median would mean that half the salaries are above that, half below. That data is never given. Average means that Russia's relatively huge class of billionaires can inflate the figure for the vast class of working people far above what they actually earn. In fact, La Russophobe has never seen data for the median wage in Russia, and would love to be referred to it by some better-informed reader. Seems the Kremlin keeps it a closely-guarded secret. Notice too that the report doesn't mention Russia's crushing double-digit consumer price inflation the basic market basket of goods a $3/hour employee can afford. Without information like this, the hapless Westerner would think a salary increase of 18% means the same in Russia as it does in the west, and rush to invest in the Russian economy.

Milder temperatures gave a boost to industrial output, helping the economy expand faster, said Vladimir Tikhomirov, chief economist at UralSib. Industrial output increased 7.9 percent in the first quarter of the year, compared with 4.1 percent in the same period last year, according to the statistics service.

LR: So not only is the Russian economy dependent on the vagaries of the international markets for its survival, but also the weather? That's not exactly a roadmap for stability. Why is it that Russia's puny industrial base is never mentioned in reports like this, so that the per capita value of 7.9 percent growth can be seen? Then again, all you have to do is ask yourself when you've ever seen a Russian industrial product available for sale in your neighborhood (or, indeed, any Russian product of any kind) to understand how misleading this data really is.


Anonymous said...

Actually, median would mean that half the salaries are above that and half below, not mean. Minor correcion

Dr. Michel Bouchard said...


Just one quick correction. The MEAN is the average, while the MEDIAN is the middle number: i.e. half are above and half are above. The MODE is the most common number.


Dr. Michel Bouchard said...

Just a quick comment/correction. The MEDIAN in statistics is the number that falls in the middle of a sample (i.e. a MEDIAN salary would indicate that half of the salaries are above and half of the salaries are below). The MEAN is the average, while the MODE in statistics would be the most common number.

In Russia, the median would be more indicative of an "average" wage in my opinion as it would factor out the small and very wealth elite: one billionaire would be cancelled out by one person earning zero or close to zero per year.

But, you are right about the dangers of manipulating statistics. To cite a often quoted maxim by Mark Twain: "There are three kinds of lies: lies, damned lies and statistics."

La Russophobe said...

Thanks for the correction! We are most grateful for all types.

Schubiak said...


i don't understand your comment about billionaire oligarchs... Do they receive billions in wages? If not, how do they skew the data?


La Russophobe said...


Thanks for the question!

A billionaire has a higher monthly income than most people. Hundreds of times higher. The data reflected here is the average monthly income for people in Russia and, unless you have some data to the contrary, rich people are included. If we compute the average income for a group of ten people and one earns $1 million per month as a CEO and nine earn $100 per month as Russian wage slaves, the total income for the group is $1,009,000 and the average is $10,090 per person. But in fact, that $10K figure does not accurately reflect the income status of the group.

Get it?

Anonymous said...

Russia's economy has had high growth since 1999 and continues along this path. Oil, Natural Gas, Timber,Metals and other Natural Resources are the backbone of the growth.
Russia also is the largest Weapons Exporter in the world indicating it does have a high level of technology and expertise.
The Steel Sector is booming and Russia also is investing in other Manufacturing facilities across the country so thier industrial base is being expanded again.
Go to Moscow or any of their major cities and one can see the boom is for real.
Russia is building millions of homes and flats for it's citizens across the country along with many Commercial Developements.
Would it not be nice to have Oil like Russia?
We used most of our Natural resources up years ago and now depend on foreign sources and speaking of manufacturing the U.S. has lost over half of it's factories since the early 1980's.
What is that about?
Current Account Deficit close to 1 trillion annually.
For every dollar of GDP Growth in the U.S. economy we are adding 6 dollars in new debt. It used to be 1.79 of debt for each dollar of GDP growth in the 1970's.
Where is our Growth? Debt?
We are becoming a Colony of Europe and Japan since they are buying everything up here!
That's what happens to Debtor Nations!

Schubiak said...

Actually, the question is: when average wages are calculated, are incomes from business and capital gains included? Otherwise, it's just wages, and most 'rich' people don't earn wages.

Would be nice of you to find out the definition used by the Russian government.

La Russophobe said...


You're entirely mistaken. A CEO like Mikhail Khodorkovsky can have a salary that runs into the millions of dollars. This is actually a large controversy in the USA.

But the other point you raise is a good one: It's quite true that nothing the Russian government, run by a proud KGB spy who spent his life learning how to lie, can be trusted. There's absolutely no reason to think they would publish the true extent of their failure, especially not while provoking the USA into a new cold war.