Thomas K. Tiemann Jefferson Pilot Professor of Economics Elon University

1. The “R” in BRIC: Russia in the Global EconomyUnderstanding Russia and its NeighborsMarch 23-24, 2011World View, An International Program for EducatorsSponsored by Center for Slavic, Eurasian, and East European Studies,UNC-CH Thomas K. Tiemann Jefferson Pilot Professor of Economics Elon University

2. The Russian Nation • The largest in world in land area • 139 million people (US = 313 million) • 80% Ethnic Russian • 99.4% of those over 15 can read and write • 73% Urban (US = 82%) • Median age is 38.7 years (US = 36.9)

3. What Russia Makes • Rich in minerals: Oil, Natural Gas, Coal, Metals • Rich farmlands: Grains, Sugar Beets, Beef • Manufacturing: Transport equipment, machinery, consumer durables, textiles • Basic industry: Steel, Aluminum

4. What Russia Sells • Largest exporter of natural gas (to Europe and Ukraine) • Second largest exporter of Oil. • Exports chemicals, Wood Products, Military Equipment, various manufactured goods.

5. Russia’s Economy Today • GDP: $2.229 trillion (US = $14.72 trillion) • Unemployment rate: 7.6% (US = 9.7%) • Gini coefficient measure of inequality (Closer to zero is closer to equality): 42.2 (US = 45) • Modest trade surplus • Inflation of about 6.5% in 2010 • But…GDP per capita (PPP) is only $15900 (US = $47400)

6. Why aren’t Russians better off? • By many indicators, they should be better off: • Well endowed with natural resources • Literate population • Largely urbanized • But GDPPC is 1/3 of that in US. • Is it something in their history?

7. The Transition • We know about 75 years under communism. • Russia has made a huge transition since the early 1990s, going from a centrally planned economy to a more-or-less market-based economy. • This transition was marked by scandals, corruption, gangster-style murders, jailing of business owners. Some still goes on today.

8. From last week… • Moscow’s Ex-Mayor Faces Legal Scrutiny • By ANDREW E. KRAMER The New York Times, March 19, 2011. • MOSCOW — For years, opposition politicians accused the longtime mayor of Moscow of ruling over a sprawling empire of crony capitalism. • His friends got rich, and his wife got even richer, they said, becoming a billionaire real estate magnate who controlled much of the city’s development. • Through it all, the mayor, Yuri M. Luzhkov, and his wife denied everything. Not that it seemed to matter. Mr. Luzhkov, a close ally of the Kremlin, was never investigated. • But last fall, Mr. Luzhkov fell out of favor and was fired. And suddenly, prosecutors seem to be finding corruption everywhere. They are examining a wide circle of Mr. Luzhkov’s acquaintances, family members and supporters. One by one, his allies are being arrested.

9. Russia’s economic backwardness goes back centuries • Russia has long been ruled by autocrats. • Until very recently, Russia lacked a middle class. • Russia has never been a meritocracy, valuing personal loyalty over ability. • Russia does not have a tradition of a rule of law.

10. Some Russian History • It’s hard to decide exactly when Russia became “a country,” but I’ll start in the 15th and 16th Centuries. • Russia had Grand Dukes who had loose control over the Boyars, the local gentry. • Ivan IV became Grand Duke (at age 3) in 1533 and Russia was ruled by regents, including a rotating set of Boyars.

11. Some Russian History. ii • At 16, Ivan declared that he would be the Czar and replaced the council of Boyars who had advised the dukes with his own ”chosen council,” made up of gentry who owed their position to Ivan. • He soon created the “Oprichniki,” a group that reported directly to him. These were given estates by Ivan, but they held them at Ivan’s will.

12. Some Russian History. iii • Ivan was suspicious of the Boyars and instituted a reign of terror that earned him the name “Ivan the Terrible.” • He had fits of rage, and even killed his own son in one of those fits. • Generally, he was arbitrary, suspicious, cruel, and demanded loyalty • He also modernized the army, expanded Russia into Siberia, and introduced printing.

13. Some Russian History. iv • After Ivan, the centralization of power went on, and the Boyars lost influence. • There was not a “real rule of law,” and there was suspicion of Europe. • The Boyars were compensated for their loss of influence by being given more land and more power over the peasants. • Cities were unimportant, and only a small middle class developed.

14. Some Russian History. v • By the early19th century, Russia was backward, isolated, and had not really participated in the modernization that took place across Europe. It was still medieval. • The Czars were politically conservative and kept power close to them. They resisted the general political liberalization that took place across Europe along with industrialization and urbanization.

15. Some Russian History. vi • When the Revolution arrived in 1917, Russia was still largely agricultural, and still almost feudal. • The country was ruled by a small group which was suspicious, arbitrary, often cruel, and demanded loyalty. • It shouldn’t be surprising that the new government was often suspicious, arbitrary, often cruel, and demanded loyalty.

16. Some Russian History. vii • Under communism, people were purged, exiled, and executed as one “ruler” or another gained and lost power. • A ruling class of Nomenklatura who owed position to the ruler evolved. • The country (now the USSR) made economic progress and became an urban society with a large manufacturing sector.

17. The Russian Economy’s Problems Today • Russia's long-term challenges include • a shrinking workforce, • a high level of corruption, • difficulty in accessing capital for smaller, non-energy companies, and • poor infrastructure in need of large investments. • CIA World Factbook, 2011 • Dependence on exports of commodities (oil, steel, grain) whose prices are volatile.

18. The Russian Economy’s Problems Today. ii • So, the history lives on: • The Oligarchs have replaced the Nomenklatura as the Nomenklatura replaced the Oprichniki. • Personal loyalty to a superior is still important, even the oligarchs must be aware of who is in charge. • The rule of law is weak and the rule of the bribe and the side deal is strong.

19. What will you experience? • Moscow is a glittering city with many new buildings and beautiful old one. • You won’t be able to read anything since the alphabet is different. It’s worth it to spend some time becoming familiar with the Cyrillic alphabet so you can sound out signs, etc. • Moscow is expensive. To try to keep track, there are about 28 rubles to the US dollar. If you think that a ruble cost 4¢ (it actually costs about 3 ½), that 100 rubles is $4, you’ll avoid unpleasant surprises on your credit card bill when you get home. • Be careful of fiddles, and don’t be angry with yourself for paying the “stupid tax” a few times. It’s usually small.

20. What will you experience? • You could fix all the potholed roads, fine the taxi drivers for overcharging, and even introduce hotel staff to study that strange concept known in the West as 'customer service', but then Moscow would no longer be MoscowA big city with a big character, Moscow has an energy and pride that's hard to match. Sometimes intimidating, bullying even, the city itself can terrify the casual tourist, but the rewards to be had from taking the time to learn about it and fight back are tremendous!. • Moscow Life http://www.moscow-life.com/ March 21, 2001.