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I've been genuinely quite scared about recent events in Georgia, but was relieved to be reminded of Richard Cobden's enduring thesis about trade binding nations in peace. "Our" fear that Russia will turn off the pumps is shared by "their" fear that we'll stop buying gas. It's a shame we don't have closer economic relations.
Update: Here's a blog of interest
An interesting article in The Economist, reviewing 4 new books on Russia. As previously mentioned I find Anders Aslund's empirical accounts of transition appealing, (e.g. here) and in particular his somewhat brief foray into the establishment of the rule of law throughout the region. It seems that for most academics anarchy is automatically associated with chaos and instability, suggesting a lack of exposure to the likes of Ed Stringham, Ben Powell and Pete Leeson who have really pushed forward the anarchy research agenda outlined by the likes of James Buchanan. The lesson I took from Dani Rodrik's Cato Unbound response to Leeson, is that it's an empirical issue. In other words, a green light for genuine research.So it's interesting to see the emerging historical accounts of life in the Russian jungle, and as yet realise that (with the exception of Aslund) it is built on an assumption that this is a bad thing. The question should always be "compared to what?" Compared to Russia, and compared to communism, the most "anarchic" countries seem to be doing pretty well.
In my lecture on Transition Economics I talk briefly about Norilsk Nickel, a Russian mining company that was at the center of the loans-for-shares scandal. One of the chief claims I make in that lecture is that many of the biggest scandals were one of the following:
In the case of privatisation, I ask the question "What actually happened to the companies at the centre of the loans for shares scandal?" Without claiming to have a definitive (or even authoritative) answer, I do point out that in the case of Norilsk Nickel:
So I read with interest this week's Economist confirming this narrative:
The privatisation was indefensible from almost any point of view—but it worked. Today Norilsk Nickel is more transparent, efficient and profitable than it has ever been. It has a proper board of directors, professional managers and is worth nearly $60 billion.
From a Coaseian perspective (focusing on efficiency outcomes rather than distribution effects) the loans-for-shares "scandal" was not an unambiguous failure of the transition process. But to what extent was it part of an economic transition process?
The loans-for-shares auctions took place in the politically charged run-up to the 1996 presidential elections when a deeply unpopular Yeltsin was badly trailing Communist challenger Gennadii Zyuganov. Organized by Berezovskii, the oligarchs contributed generously to Yeltsin's campaign and used their media empires to guarantee the president positive coverage - and frighten the public with the specter of a return to totalitarianism.
My claim is that Norilsk Nickel encapsulates the view that the greatest controversies in the transition process were either (i) overstated; or (ii) contrary to economic advice. In this case, it probably demonstrates both.
The problem with such an ideological construct, says Andrei Zorin, a professor of Russian culture at Britain's Oxford University, is that its sole purpose is to preserve the status quo and keep Mr Putin in power. “But a conservative ideology demands respect for institutions, while an ideology of a charismatic leader requires a grand vision. They have neither."
That's from a fascinating article in the Economist. I recommend the whole thing.
"Build like you would for yourself!"
Amazing Propaganda Posters, from Russ Roberts
"Individuals play the game, but teams win championships"
For those of you who missed the first episode, Michael Palin's new series on Central and Eastern Europe is on BBC One at 9pm, Sunday. I'm expecting to be frustrated at some elements of the economic history, but overall Palin's humble enough to uncover rich narratives rather than impose them. It's what makes him a masterful travel journalist. (This contrasts starkly with Kirsty Wark's "Tales from Europe", which I thought was horrible.)
Last weeks visit to the former Yugoslavia majestically spliced present-day footage with images from the war, reminding us all how fresh, violent, and senseless it was, and how culpable "old" Europe should feel. I get the genuine impression that Palin isn't simply going through the motions, but bringing both focus and depth to on of the chief cases of the impact of ideas on society.
Buy the series on DVD. Unofficial blog here. Daily Telegraph article here. The Times here.
Boris Yeltsin has died, the grand-master of transition, and a better leader for Russia than what went before (or since). It seems appropriate to discuss the economic liberalism that accompanied the political freedom he delivered, because we're in danger of judging "shock therapy" a failure, and an indictment of free-market reforms. Only the former is true.
Any reform process is a matter of credibility, and the rhetoric of liberalisation must be accompanied by deep, geniune, and credible structural reforms. According to Pete Boettke, "Yeltsin's Shock Therapy Applied Too Little Voltage".pdf - the signal that prices were free was a deceit, and financial markets didn't buy it. At the time free market economists like Larisa Piyasheva were making this point, but reforms had been "outsourced" to a Harvard team with the full weight of the Washington bureaucracies of financial expertise.
Monetary expansion in 1994 undermined the legitimacy of the Central Bank resulting in a collapse of the ruble. The state retained controls of the supply of resources: corruption became rife, entrepreneurship blocked. The price liberalisation began in earnest in January 1992, but by March Yeltsin was already condeming "profiteering" and imposing quantity limits on sales. Privatization was corrupt, slow, and self-defeating:
“As a result of privatization, managers and workers ended up owning about 70 per cent or more of each company, with managers obtaining far more than they got in closed subscriptions... Workers and management collude to maintain their existing position with subsidies from the central bank. In a typical large-firm privatization, only 14% of shares are owned by outsiders.”
Robert Skidelsky, 1995 The Road From Serfdom Penguin p.156
In the end Yeltsin flirted with geniune liberalisation but never made the leap of making the requisite political reforms to convince capitalists that Russia was open for business. His leadership was a tragedy on two counts: avoiding the credibility needed to make Russia prosperous; and reducing the credibility of economic liberalisation. But it's a sad day, and worth pausing for reflection.
We are stuck halfway, having left the old shore; we keep floundering in a stream of problems which engulf us and prevent us from reaching a new shore.
Yegor Gaider is currently in hospital with suspected poisoning (FT, BBC, others) underlining the continued opportunity cost of the War on Terror. Inevitably the media will present him as the father of Russian privatisation (i.e. evil), making it an opportune moment for me to recommend an alternative take on Why Perestroika Failed.
George Bush declared that "You're either with us or against us in the fight against terror" (source), demonstrating that the political system is built upon an assumption of involvement. It should be deeply disturbing to realise that being apathetic makes you a terrorist. For some, apathy is a right.
When Janos Kador (Hungarian leader from 1956-1988) took to the streets of Budapest during the Hungarian revolution he said "All those who are not against us are with us", which (according to The Economist) is "turning Leninist logic on its head" (source). In that case silence was implied consent, and when people are afraid to speak out it should be. But what about when we have a free press. How should apathy be dealt with then?
I want to claim that people have different belief systems, and it's very hard for us to understand this. We're hardwired to assume that other people think like us, and that disagreements are solely down to mis-communication. The problem with this is the nature of these belief systems: some systems need to control non-members, some systems are happy left alone.
Take, for example, the simple distinction between the political left (socialism) and the political right (fascism). These two extreme results of democracy are both based on a prior assumption that collective choice is the best means to organise society. An alternative - individual choice - is libertarianism, and absent.
This week's Economist reports a new CATO study:
That is easily enough libertarians to tip an election. And their votes are up for grabs
Greg Mankiw demonstrates his own naivety about classical liberalism (source), but it's a naivety that underpins much political debate. Libertarianism isn't right wing. It isn't extreme conservatism. It's the opposite of both left and right. The reason so many people fail to grasp this point - I believe - is due to the availability bias that pervades the media.
Today is bullshit because it's interpretation of "balance" is hearing from both Labour and Tory MPs. Fox News claims to be "fair and balanced" and in one sense it is - it's guests are split 50-50 between the Democrats and Republicans - but these guests are all politicians, and this feeds into the myth that the two sides of any debate are to be found in the traditional political spectrum.
Why on earth should we assume that a balanced political debate = a balanced debate? Why must someone be political to count?
Sadly the great crimes of modern collectivism - socialism and fascism - have neglected the apathetic people. They present policy as solutions to those who aren't paying attention. And they refuse to let those people not pay attention. If we respected apathy (and the individualism that creates it) the c20th would have been more peaceful.
Only a collectivist would think it worth their time to engage in public debate - only someone who cares what other people say, and feels part of a common community. An individualist has no interest in contributing, they feel apathy toward politics, and consequently get trampled on. A fair political system would listen to all voices, even silent ones.
Belarus Election and Protests, from The Filter^:
I was there yesterday, [March 25th] hope you've seen the highlights on TV. My father told me later that CNN were coverning the events as Breaking News, and many european TV companies have made their reports after the meating.
Police forces used gas bombs to stop the demonstration. I was 100 metres from these attacks. I didn't suffer from it though, but it was a strong smell in the air.
I shot about eighty snapshots: http://thefilter.blogs.com/photos/belarus_2006/index.html
I tell you what: I am sure that this is the end of lukashenko's era. Despite today's inauguration many people here as well as abroad think the same way.
You know why I decided to take part in 25 march demonstration? Because I felt that we're going to win. Not right now, obviously, it will take time. But the fall of lukashenko's realm has begun.
When people were going down the street during the demonstration, many passing cars were bipping, and passengers were hailing us and showing their solidarity. I felt it distinctively, believe me. Their number impressed me so much. For the first time in many years I felt this spirit, when numerous Belarusian citizens got fed up with the regime and really keen to change things.
The worst thing for us is that Russia is still supporting lukashenko. He has concentrated all informational resources, able to influence public opinion: we only have state TV. And TV is definitely the most crucial PR and political instrument. Internet and opposition papers aren't so important, because their audience is already almost 100% pro-democratic.
But still, much bigger dictators, such as stalin, have fallen. USSR and eastern communist block have fallen as well. USSR, were the intelligence (KGB etc.) were much stronger than in modern Belarus. It clearly demonstrates that our time will come!!!
Russia threatening Belarus to rise up natural gas prices? We are the only former-USSR republiс that is paying about 46-48USD/1000 cubic metres. The others like geaorgia, baltic states, ukraine pay bigger money. This low price has been russia's "payment" to us for being loyal and close ally. Plus, our economy manage to exist only due to low natural gas prices (despite official propaganda, saying about our excellent and unique economy model:)
I'll be following the events and keep you informed.
Belarussian govt has resigned! Luka's going to for new govt. Weird, isn't it?
Sergei writes from Minsk
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