Whatever happens, Russia can do no wrong

ECONOMIC VIEW

Whatever happens to the politics, there will be strong economic growth. Russia's economy which is now the size of California's, will grow faster over the next 20 years than most OECD countries and probably faster than most emerging markets (outside the Far East).

The quote comes from a book to be published next week, "The Coming Russian Boom", by Richard Layard and John Parker. It is worth drawing attention to it, now that the full gravity of President Yeltsin's health has been revealed, for two reasons. First, its judgements are already being proved right: the book was completed before the outcome of the Russian elections earlier this year and it is due to the usual publishing delays that it is only available now. It not only correctly forecast the election result, it also set out several longer-term scenarios for the Russian economy that might take place under alternative political developments. It has the right "feel" for the country's instincts, but does not force any one scenario on its readers.

Second, unlike many writers about Russia, the authors understand economics. Prof Layard is a professor at the London School of Economics and adviser to the Russian government's economic staff, John Parker a former Moscow correspondent for The Economist. There is a great temptation in the West to assume that politics in Russia will determine its future economic progress. To some extent that is true - for the past 100 years it has certainly been true - but there is a powerful argument to be made that the Russian economy is now at a point where progress will take place irrespective of government.

The authors set out four main possibilities for the next 10 years.

The first and, in their judgement, most likely is "more of the same". The present power group, led by Mr Yeltsin and Russia's prime minister, Viktor Chernomyrdin, will remain in charge. Economic progress will go "two steps forward, one step back". Gradually the legal system will improve but regulation will continue and corruption will persist. Inflation will remain high - 30 to 150 per cent a year - but economic growth will be good, averaging 5 per cent a year.

Option two, and the next most likely, is neocommunism. The communist party regains control, though its policies would be more akin to the popular statism of Peron in Argentina than old-style communism of 10 years ago. Inflation would increase as public spending ran even further ahead of tax revenues, privatisation would be halted, price controls would be applied but would fail. After a couple of years the economic policies would have to be reversed and financial orthodoxy re-established. Then, within five years, economic failure would encourage change: the young would take over from the old again.

But even under this less attractive scenario, there would, after the initial disruption, be economic growth. The authors suggest at least 4 per cent a year.

Third is right-wing nationalism, at present represented by Vladimir Zhirinovsky, but of course it could be presented by other people over the next 10 years. Prof Layard and Mr Parker acknowledge that this might be very uncomfortable politically, and it would be damaging to Russia's business relations with the West as well as its political ones. But such a nationalist government might be strongly pro-business and the economy might do better than it would under more muddled government.

Finally there is reform. This is seen as the least likely outcome, but if it were to happen there would be a surge in foreign investment, which could rise to more than $10bn a year, with economic growth at more than 6 per cent a year.

At the moment Russia seems to be hovering between number one and number four: muddling through is still the most likely outcome, although there is the tantalising possibility of a sustained period of economic reform. The death of Mr Yeltsin would lead to new elections and options two and three would re-emerge.

But then there was always a possibility that that would happen anyway: the communists or the nationalists could recover power in the next scheduled elections in 2001, or even before. So in one sense Mr Yeltsin's illness does not really alter the big picture: political insecurity is always in the background. But that does not stop economic progress.

This year looks like being the first since the collapse of communism when recorded output is going to rise. You have to say "recorded" because much of the present output is in unrecorded services or in the black economy, while much of the recorded output under the communist system was not really output at all, in the sense that the goods being produced were goods which could be sold. (A lot of Russian economic activity actually subtracted value, in that the output was worth less than the cost of the energy and raw materials that went into it.)

At any rate, recorded output is now almost certainly rising, and through actual has probably been rising for a couple of years, it is still comforting to see official figures heading in the right direction.

Some of these, taken from the summer Economic Outlook of the OECD, are shown in the graph. The OECD is forecasting 3 per cent growth next year and a further fall in inflation. Unemployment is still seen as rising next year, and the fiscal deficit, at 3.5 per cent of GDP, will be lower than that of the UK, and not that far from the Maastricht limit. Inflation, however, remains dreadful.

So by the standards of Western developed economies, the hard economic numbers for next year, with the sole exception of inflation, do not look out of place at all - quite good in fact. Of course the absolute level of output per head remains lower, but if the growth prospects described by Prof Layard and Mr Parker are accurate, economic growth in Russia will run well ahead of the west for the next decade.

Stand back from the chaos of transition and ask the tough question: what are the comparative advantages of Russia in the post-communist world? There seem to me to be three. The most obvious is the wealth of natural resources, a useful "fit" with western Europe, which is resource-poor. Equally obvious is the wealth of human capital, and not just what might be called the intellectual capital of Russia's top scientists, top mathematicians and top artists, but also the rough human capital of people who are now running its rough private sector economy.

There is a third, less obvious advantage. It is that Russia is the only country in the world which straddles two of the three global time zones, for it is both a European economy and an East Asian one. We seem to be moving to a three time-zone world, a world where economic activity is passed from one on to the next, maybe to the next, before being handed back to zone one. One zone performs the night-shift for the other. We talk of European countries having a time-zone advantage. London can trade with East Asia and North America. In a way, Russia also has a time-zone advantage, in that it runs two time-economies: if Europe provides only slow growth, it can benefit from the Asian boom. Only politics can hold it back.

And if Prof Layard and Mr Parker are right, that will not happen.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Written protest: Julia Donaldson, author of The Gruffalo, has sent an open letter to the Culture Secretary
books
Arts and Entertainment
The teaser trailer has provoked more questions than answers
filmBut what is Bond's 'secret' that Moneypenny is talking about?
Sport
Lewis Hamilton secured his second straight pole of the season
f1Vettel beats Rosberg into third after thunderstorm delays qualifying
ebooks
ebooksA special investigation by Andy McSmith
News
Johnny Depp is perhaps best known for his role as Jack Sparrow in Pirates of the Caribbean
peopleBut how did he break it?
Sport
footballDoes Hodgson's England team have an identity yet?
Travel
travel Dreamland Margate, Britain’s oldest amusement park, is set to reopen
News
news
News
Founders James Brown and Tim Southwell with a mock-up of the first ever ‘Loaded’ magazine in 1994
media
  • Get to the point
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: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss