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Monday, June 30, 2008

EDITORIAL: Russia, Bringing up the Rear (Again)


Putin's Russia, Bringing up the Rear (Again)

Much attention has been paid of late to the so-called "BRIC" group of nations -- that being Brazil, Russia, India and China. Apparently, Russia entertained some sort of fanciful notion that at least in that company it might attain some type of leadership position. If we look at the economic performance of this group, however, then we see that, just as is the case with the G-8, Russia is woefully bringing up the rear, by far the least qualified member of the clan.

With just 143 million people, Russia lags in the basic criteria of population. Brazil has 188 million, India 1.1 billion and China 1.3 billion. All of the other three countries have vigorous, growing populations. Russia's population is dramatically shrinking, expected to halve by the middle of this century.

According to the 2008 World Wealth Report published by Merrill Lynch and Capgemini, India led the group in creation of millionaires in 2007 at the rate of 23% growth, with China in second place at 20% and Brazil in third at 19%. Russia brought up the rear at a lowly 14% growth. All of the other three showed an increase in the rate of millionaire production, but not Russia, whose rate fell from 16% the prior year. (America still dominates the ranks of the world's millionaires, with one out of every three found there.)

You might think the return of 19.2% on Russia's RTS stock market index was impressive -- until you looked at the return of the Indian Sensex towering above it at 47%, or Brazil's Bovespa index at 44%. Then you'd see Russia's performance as being rather puny indeed. And they all pale next to China's Shenzhen index, which returned 167%. Why would anyone in their right mind even consider investing money in the Russian market when Russia is ruled by an autocrat, a proud KGB spy who has infamously confiscated the resources of foreigners on a regular basis. With a democracy like India or Brazil beckoning, Russia can only be seen as sloppy seconds.

And of this group only Russia is a net exporter of oil. Only Russia relies on the price of crude oil on international markets to bolster its economic performance. The other three nations are all net importers, in other words burdened by that price as an inhibiting factor, yet they still dominate Russia in economic performance. Do you dare to imagine the situation that would prevail if oil prices were much lower?

Is there any group of nations you can collect where Russia isn't seen as a silly junior partner?

In a truly appalling statistic, Merrill Lynch reports that even though the rate of millionaire creation in Russia fell in 2007 compared to 2006 by nearly 13%, the market capitalization of Russia's millionaires increased by a whopping 38%. In other words, wealth continued to accumulate in the hands of a tiny group of oligarchs to an increasingly obscene extent -- Merrill Lynch reports that orders from yachts longer than 200 feet were larger from Russians than for any other nation in the world including the United States, which has by far the largest single concentration of such persons. So just as in Tsarist times, not only is Russia's national wealth being greedily hoarded by a tiny elite cadre, but they are every bit as blatantly shameless about conspicuously consuming that wealth. It's almost as if they feel they could lose it any second in some catastrophic event -- like, say, the collapse of the monarchy and the Soviet dictatorship all in the space of less than 100 years.

The Financial Times reports: "The EU is by far Russia's most important trading partner and also its biggest source of investment. Russia is the EU's third largest partner, after the US and China." In other words, Europe is much more important to Russia than Russia is to Europe, yet Russia demands to be treated as if that were not the case, and apparently seeks similar treatment within BRIC. It is behaving just like the old USSR used to do, demanding respect rather than earning it, and the result can be no better than the USSR experienced.

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