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Siberian Diary
by Vieno Vehko
2015-01-18 12:48:26
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Warm weather, -8, with a strange thaw yesterday that created slushy sidewalks and brown snow on the streets.

Madeline managed to get dollars wired to her via Western Union. “I feel sorry for all those poor Russians and their worthless currency,” she said, “And yet I'm very happy to get 75 rubles to one dollar. They will only allow the true rate in international wire transfers. If you go to the bank to change your money, you’ll only get 50-55 rubles to the dollar. That’s so unfair.” 

Bad ruble jokes have appeared among my colleagues. For example: “They say to save your money in rubles. So put all your dollars in a bag of rubles and no one will look there, much less steal them,” said Natasha. 

All the news agencies are blaring out that Russia is again in a cycle of a “time of troubles.” US leaders seem both envious and contemptuous of his absolute power over his citizens, and of his enduring popularity as the ‘strongman’ ruler of Russia. The fact that the country is heading for another very serious economic crisis has not caused the local population in Irkutsk to lessen their respect for Mr. Putin. If anything, Putin retains his popularity, while all the country’s economic woes are being blamed on outsiders – the US and Europe. "Putin will protect us," said my friend Sasha. 

Hard times have been cyclic throughout the centuries in Russia. In recent decades, however, the success of Vladimir Putin’s rise to power in 1999 was correlated with another recent economic downturn. In 1991, the Soviet Union crumbled. In 1998, another grave economic crisis added to the existing woes. Putin stepped in as the country’s problem solver, first as prime minister and then as president of the Russian Federation. In 1999, while the Russian economy was at the tail end of a massive depression, all kinds of societal infrastructure lay in serious decay. Western economists expected that, after financial meltdown in August 1998, Russia was heading toward complete collapse and economic default.

When Putin ‘successfully’ turned this situation around, Moscow’s political elites must have gloated in their ability to turn Russia back into the arena of being considered as an international power. In the early 2000s, their mood was euphoric, and Russians told me that that had a sense of finally coming into their own in regard to Europe and the USA. Significantly, both ordinary people and the political elites continued to perceive China as a poor neighbor, a country that once relied on the Kremlin’s experts to hold up their communist economy. Siberians resent the influx of Chinese migrants, legal and illegal, but still refuse to consider China as an economic threat or as an equal superpower. Moscow continues, with arrogance and some aplomb, to ignore China’s rising and powerful star. Instead, Russian citizens, both elite and ordinary, seem obsessed with catching up to the West. 

Now, in December 2014, that obsession has turned to resentment, as European and American sanctions have helped cause the Russian ruble to plummet. Today in Irkutsk it was listed as 56 to the dollar, with dollars being sold at 68 – this attempt by banks located inside Russian territory only serves to show how desperate the situation is becoming. Soon I will have shady characters hiss at bus stops and ask me, as during the Soviet era, if I have dollars to sell.  

Certainly, the United States, too, has serious issues to contend with. American scandals associated with too many wars and wars and military misadventures plague the administration. But the price of gas and oil has fallen, and people in the US, as well as Europe, are breathing a sigh of relief. The drop in oil means that the Kremlin has lost hope of having a stranglehold on Europe; Europeans can buy gas and oil elsewhere. Putin has turned to China, to make his deals, in the hopes of stopping inflation and economic troubles. The Chinese leader, Xi Jin Ping, however, is now the one ruling those talks. No Russians are happy that their one mild Asian neighbor now can dictate the prices of Russia’s resources. Natural resources are all the Russians have to keep themselves going in the world and at home. 

This problem: a lack of manufacturing inside of Russia - has weakened the country’s ability to recover from any kind of monetary crisis. Russia needs long-term sustainability, which can only come by building and supporting entrepreneurship. The country is crying out for small businessmen and for corporate leaders, for innovation and creativity in all aspects of the market. Russia today (and the USSR in the past) has no competitive edge, and nothing to sell but raw natural resources: timber, hydrocarbons, diamonds, and other assorted rocks and stones, and uranium. 

Unfortunately, raw materials have little value added; they do not require sophisticated human capital to harvest and sell them off to hungry nations, like China. Moreover, Russia only returned in 2007 to GDP levels achieved in 1989, before big economic changes occurred. Putin’s initial economic success was not as dramatic as the Russian press asserted; in fact, Putin just barely managed to compensate for the drop in GDP by around 40 percent (under President Boris Yeltsin). By reaching 1989 standards Putin established ‘recovery growth.’ 

Sadly, Russian economic growth in the 1980s was flat, or about 25 years of roughly zero economic growth. Since the USSR collapsed, Russians have encountered plunging fixed-capital investment that in turn created massive disinvestment. How did this come about? Predatory strategies emerged when state controls were relaxed. Russian state coffers were, in effect, looted by those who were grabbing power. The result was a veritable collapse in fixed-capital investment.

Greed and panic after a collapse are perhaps to be expected. But in reviewing the German and Japanese economies after World War II ended, a different story emerges. These nations had a high rate of fixed-capital investment. With this capital renovation and reconstruction of damaged infrastructure and production facilities was possible. Recovery strategies emphasized improving technology and supporting human capital in terms of education.

My first impression, coming to both the Republic of Buryatia and Irkutsk Province, was shock. Buildings badly needed repairs. Services – medical, social, educational – seemed bankrupt. A dismal sense of being abandoned pervades the educational institute where I work. Yet there are elite private language schools that gleam with technology, available to those who can afford to pay. There are private medical clinics, and even a deluxe shopping mall that reminded me of the snooty 'Shops of Santa Fe.' If you have money, another world, a more beautiful world, with delicacies and luxuries, exists for your pleasure. If you don’t have a thick wallet, you board an ancient bus, and cram yourself in with other resigned, tired people who wear fur coats that thaw as the bus rides, and smell sadly like an old dog. You go to the central market and chat with Uzbecks and Tadjjiks, and haggle over the price of oranges. Then you sigh over the price of dairy with the Buryat vendors, and sling your bag of groceries over your shoulder. You trudge to the tram stop and wait patiently and silently in the cold to board a tram so ancient that the conductress must get out periodically and slam her iron crowbar at the tracks to keep the tram going. No one complains, no one even jokes over this dismal life. 

Russians are resigned. They have not overcome their sense of siege and lack of a decent life that began in the 1930s, under Stalin’s collectivization, which continued with the economic devastation of post-World War II. The Soviet deficient mentality has not left the post-Soviet mind. Facing another economic crisis is not really facing crisis: it is simply living just another ordinary day. Listening to my colleagues, and to people on buses and trains, I get the distinct impression of Russian culture as resembling the mind-set of a terribly abused child.

No one complains or blames, because no one feels entitled to complain or blame. This is simply the way life is, it “is part of our heritage” said an old granny at the central market. “I’ve lived through worse, let them triple prices, it’s nothing I haven’t seen before.” She was proud of her ability to endure, just as I had once been proud of my own neurotic ability to take on jobs and work assignments my other colleagues in the US refused. “That’s not reasonable,” an American teacher said to me, “You’re crazy to work that much and enroll for graduate studies.” I had gloated to myself how much stronger, smarter and successful I was than my friend, but I had never stopped to consider that she might have been right. Maybe the cost, in terms of stress and social isolation, was too much? Maybe the assignment was unreasonable? Just as the Russians, with their resignation and pride, never consider that their wrecked economy might be a situation that should be contested, and a situation that demands a leadership that cares about them instead of robs them blind and then orders them to endure. The Russians, like I was, feel pride in their ability to tolerate what no one else can. Russians are lost in the mind-set of being a victim nation. 

Nothing is made in Russia. One can make fun of 'made in China', but their economy is booming and their population continues to grow. In years past, 'made in Japan' was also a kind of a slur: now it is a mark of quality. In Russia, however, I have yet to find a souvenir of worth to tote home. This lack of investment in manufacturing and small businesses is related to investment priorities. 

The one thing Russia has: oil and gas, is transported by old, out of date pipelines. Power plants are also in disrepair. Much money needs to be invested simply to ensure that the gas and oil can flow safely to residents and as an export. Few Russian investors are looking toward the long-term. (A looter’s mentality is never long-term). 

The second issue is cultivating much-needed entrepreneurship from ordinary folks. American scholars claim that that no one in Russia has ever founded a large corporation. Two of my private students are hopeful Russian entrepreneurs who are losing their enthusiasm as the crisis takes shape. One wants to immigrate with his family to Australia; the other worries that her business may suffer from those in racketeering. Neither has much expectations regarding due process in Russian courts of law.

The last problem issue that concerns me directly is concerned with higher education in the Russian Federation. Prestigious faculties, institutes and have eroded physically, financially and academically since the fall of the USSR. Soviet science has lost ground. The most significant thing, however, is the dearth of new young scholars in all areas of academia. “Young Russians don’t see education as viable anymore,” said Svetlana, an English teacher. “They want to work, make money, travel – do anything but dedicate themselves to the academic community. It requires much work and the pay appears low in their eyes.” This “internal brain drain,” lures young Russians away from scholarly careers; they prefer more lucrative occupations, which sometimes may be built upon dubious moral foundations.

A decade ago, Russia rose to be deemed international power after the collapse of the USSR. But the country stood on weak economic legs. The foundation has become even more fragile over time, as power became consolidated between Putin and his cronies. Such centralization of wealth and power is not new to Russian history: American scholars call it boyar economics.  

In the west, the “market economy” is based upon several ideal principles. Prices are fixed voluntary market exchange. In an ideal system, the exchange offers participants fair and accurate information regarding available opportunities, which can be used to adjust quantities in order to be competitive and maximize profit and utility. Ideally, the customer drives the market. Participants play fair and obey the golden rule: not doing to others what they do not want done to them.

In Russia, when central planning collapsed, many assumed that deregulation would serve as a panacea. When the rubble was sorted and cleared, efficiency and a new and better kind of transition economy would appear. 

Western economists, however, did not factor in Russian culture. 

A primary principle of market economy is marketplace autonomy. Ideally, participants focus on horizontal relations in the marketplace. This makes the so-called game two-dimensional - there is no room for firms, organizations, or even states. The prior Soviet system was an extreme hierarchy, with the economy dictated solely by the state, and where private two party exchanges were deemed criminal. In Soviet times, property and capital markets were suppressed. The result was a highly corrupt system with a thriving underground black market. 

Significantly, scholarly assert that informal norms of the Soviet era had roots in distant Muscovy. These norms have passed into post-Soviet culture as well. Under Putin, rents were mobilized via a combination of tax reform and enhanced enforcement. Next, priorities were set to allocate rents. In effect, eliminating foreign debt and the associated dependence on the good will of foreign governments restored Russian sovereignty. Putin determined the sharing out of rents among rival factions.

In 2004, during Putin’s second term in office, the country’s energy complex was harnessed as a means to restore Russia to the status of superpower. Putin was even described as the “Lord of Oil and Gas.” Putin systematically edged out the foreign oil companies and forced them to sell their shares. BP, Shell, and Exxon all left Russia, making Putin and his cronies immensely wealthy. They all grabbed assets at bargain prices. In effect, Putin and his boyars own and manage the bulk of Russian wealth, with a great deal of it stored in bank accounts in Europe. 

This Russian crony capitalism is not new. The pattern precludes formal constraints of any type on the exercise of power, constitutional or otherwise. One can argue fruitlessly whether it should be called autocratic or authoritarian. Instead, it is better to note that in Russia, there have never been means by which their ruler can be held accountable. Historically, in the fourteenth and fifteenth centuries, it might have made sense for a Muscovy prince to wield absolute power. But in the 20th and 21st centuries? 

Another historical issue for crony capitalism concerns the absence of enforceable property rights. Whether rights to private property are labeled as conditional, warped, or absent, makes no matter.  What is important is the fact that the Russian ruler, the Russian state, does not recognize that Russian subjects have any unalienable rights, to property or anything else. In Russian past history, serious security threats may have forced a Russian grand prince to evade bargaining with propertied boyars. By having absolute power over his boyars, the prince could wield an effective defense. In this way ancient Muscovy, fought off enemies and emerged as a regional power.

The historical implications impact Russian leaders today. A secret diplomacy among the State ruler and his boyars, along with personalized games of influence, are played in private.  Given the culture and history, such a system can be expected: tradition depends upon the rule of men rather than on the rule of law.  Formal laws are always usurped by personal friendships and loyalties. “We Russians know this quite well,” said a young student of mine. “I never ask a policeman for help. It only causes more trouble and I must pay him, even if I’m innocent and seeking help. Instead, I seek out my network of friends and family. I may not be a big fish, but still I have some assets in my relationships with others.”

The Kremlin is committed to keep on playing the same old Muscovite game. The Russian track record of the past few centuries is dismal for the ordinary people, and the loud warning bells indicating a severe crisis in the coming year are tolling to resigned ears in Irkutsk.

“Why doesn’t anyone care?” I asked Irina, my Russian colleague.

“What can we do? What could we ever have done? Only endure and hope to survive. That’s the Russian Way,” she said, and smiled sadly. “We’ve lived through economic crises before. It’s just one more, and our leaders are trying to keep us warm and fed.” 

Russians are caught in their own cultural habits, just as Americans and French, Japanese and Finnish people are caught. Over centuries, economic windows of opportunity have been opened in Russia, only to be slammed shut after a decade or two. Any short-term successes have been reversed, with the wealth consolidating into fewer and fewer hands and the local population ignored and enfeebled. One could argue whether Russia has been modernized, given that stores before the sanctions had western goods and people had money to travel abroad. On the other hand, Russia, so far, has failed to Westernize: people have no rights and little opportunity to do more than survive. 

Behind the façade of a defiant superpower, leaders like Putin will continue to play by the rules of old Russia rather than of modern Europe. Russian citizens will continue to hope for a better life but accept with resignation a drab, post-Soviet existence. “We have our bread, we have our TV and Internet; it’s enough. I just want the conflict in the Ukraine to stop,” said Marina, a young linguistics student.


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ken2015-01-27 00:35:12
A well written and timely article, i thoroughly enjoyed reading it. I am saddened by Russia's difficulties, even though they seem to be mostly self inflicted. I wish the best to the Russian people and hope that Putin begins to care not for his image, but for his people.

David2015-01-27 16:11:11
One wonders why, in the current state of world affairs, East and West cannot get along. We have a common threat, one that Russia knows as well as Europe. That threat is Islamic Extremism, and has attacked us all. Time to put aside our petty differences and unite to make the world safer for Russia, the US, and the rest of Europe.

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