Capitalism blooms in Russia's chaos

ECONOMIC VIEW

It is deeply unfashionable to be optimistic about Russia. Yet it is a sign of our times that the OECD, the rich countries' "club", should now be producing its first economic survey of the country.

True, Russia is not yet a member of the OECD, and true, it would not qualify for membership. But it is already possible to see a world where Russia has become a "normal" market economy and, for the truly optimistic, a full-status developed one. It is natural that the OECD should seek to chart the progress of what will in time become one of its most important members.

Because that day is some way in the future, this report has a rather different feel to it from most OECD studies. It has, for a start, rather fewer graphs and statistics than usual. The graphs it does have seem usually to head downwards instead of upwards and the authors acknowledge that the statistics, like the graphs, may well be misleading. There is also a slightly pained tone to the text absent from other reports. It noted, for example, that Russians were suffering from reform fatigue and added "it seems that many ministries and institutions are suffering from 'foreign adviser fatigue' ". This made the gathering of information "significantly more difficult".

The result is a touch-and-feel analysis rather than a number-crunching one. In a way this is refreshing, because the story has to be told in words rather than in figures. Not only did the figures of the pre-reform Soviet Union grossly inflate the real output of the government-controlled sector; they also excluded the large informal economy, much of which operated outside the law. Since the formal economy was over-stated and between 20 and 35 per cent of the GDP was military spending, the official figures have plunged. But though the old informal, extra-legal economy has seen rapid growth, since some of this remains outside the law, it is hard to estimate how much growth there has really been.

Still a big picture emerges and it runs like this. Take 1991 as a base. Official figures say GDP has halved. Production figures of specific items, including consumer goods, would tend to confirm this. Thus bread production has fallen by 32 per cent. If, however, you look at consumption, things are different. Bread consumption, far from going down, has risen by 12 per cent. Practical things that you can measure reasonably accurately, like electricity consumption, are now about 80 per cent of the level at the beginning of 1991. The service sector, hard enough to measure in an economy like ours, let alone in Russia, has undoubtedly grown fast, but almost certainly not fast enough to offset the decline in industry.

And real living standards? They have fallen. Even allowing for things that are difficult to measure, like the time once spent queuing, people on average are worse off. But they are perhaps 15 per cent worse off, not 50 per cent worse off. Differentials have widened, but not by as much as the figures suggest, for much of the official class's income before 1990 came in perks rather than pay. Finally, though personal incomes certainly fell fast during the early stages of reform, it seems they have stopped falling and may be rising.

Looking ahead, the OECD is tentatively bullish. The economy is growing at the moment. Exports rose 17 per cent in dollar terms in the first five months of this year compared with the same period of 1994. Imports rose by 13 per cent on the same basis. The OECD thinks that with the right policies, growth could speed up to 10 per cent next year. If that were to happen Russia would be the fastest-growing large economy in the world. With the wrong policies, however, the upturn could falter.

It needs little imagination to work out what the OECD thinks the right policies are: cut the budget deficit, keep interest rates up, cut back inflation, build business confidence, encourage repatriation of flight capital, crack down on corruption and crime, and so on. If it does, the future is bright. It is still all to play for.

This is surely right. The transformation of what was essentially a war economy onto a peace-time basis was always going to be difficult. The worst fear, that 70 years of a command economy had so eroded the entreprenurial spirit that establishing a market economy would be virtually impossible, has proved unfounded. There is plenty of get-up-and-go. The main trouble is that this spirit is most evident in the extra-legal economy: bringing that inside the law, setting reasonable rules of behaviour, takes time.

But it is happening. In the financial services sector, the reputable share dealers have established settlement procedures amongst themselves. They know which registrars are reliable and trade in shares where the register is properly administered and the title to shares can be properly established. Commercial self-interest is producing a legally effective framework for share trading. And it is getting better. While the settlements system is expensive by Western standards, it is much more secure than it was, say, two years ago.

If you step outside the chaos, you see a large country with enormous human skills and great natural resources. It has a trade surplus. It has relatively low foreign borrowings. Its citizens hold large external funds. Tax and other reforms are taking place gradually, which will correct some of the present internal imbalances in the economy. Given where Russia started five years ago, and given that there was no adequate road-map of how it should travel, surely the achievements so far are not too bad.

What Russia needs is a perception of success. It is perfectly possible that just such success will come in the next year. And once the pendulum swings, suddenly it will become fashionable to welcome Russia to the capitalist world.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
News
people
ebooks
ebooksA special investigation by Andy McSmith
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee