Monday, November 12, 2007

Dutch Disease and Democracy in Russia

I just got back from Tokyo, Kyoto, Osaka, Moscow, and St. Petersburg, completing a circumnavigation of the Earth.

One preoccupation in Russia was whether democracy is necessary for international legitimacy, prestige, and change. As one senior college student at St. Petersburg State University asked me: Do states need to democratize in order to globalize? I responded that democracy helps countries cope with the increased openness that is associated with globalization. I drew Ian Bremmer's J-curve on the blackboard (my interview with Ian about his book last year is here). Of course, the students wanted to know where Russia was on the J-curve.

Ian, a Russia specialist, devotes a whole section to Russia in his book: "Whether or not Putin's consolidation of power is the means to help Russia navigate the bottom of the curve and ultimately to make the transition from closed to open, left to right, remains to be seen."

Another big concern in Russia is the so-called Dutch Disease, which Russia has probably contracted. My presentation with Zhenia Bessonova in Moscow was about the effect of FDI on Russian industries. Companies that are competitive will respond to FDI by increasing efficiency while uncompetitive companies will exit. Russians are concerned about inflation and their heavily natural resource based economy.

Thinking about the bubble in the Shanghai real estate sector in China and the luxury condos between Bangkok and the airport in 1997, I noted that the road from the hotel to the airport in Moscow is dotted with new car dealerships--from Toyota to Ford to Audi. Is it bubbly in Russia too?


Ember said...
This comment has been removed by the author.
Ember said...

Something quite remarkable is at play in Russia. Nationalism. Russians don't want a sell out of a politician who would compromise Russian sovereignty (read pride) in lieu of FDI.

And it's not just a theory really. Even the blind could see that democracy and Boris Yeltsin made Russia a stumbling, crumbling and withering giant where people were free but starving.

Whereas the current oligarchy and well managed dictatorship has resulted in recovering economy, resurgence of Russia in international affairs and of course the favorite game of Russians, bullying the neighbors and other Europeans.