[Boris Kagarlitsky]

"The Moscow Times", Friday, Jan. 19, 2001. Page 8

Who Should Fear the Crisis?

By Boris Kagarlitsky

At least according to the papers IТve read, astrologers are predicting a good year in 2001 "relative to last year." Considering that most analysts think that last year wasnТt so bad, 2001 should be spectacular. Unfortunately, the astrologers donТt specify for whom the year will be good Ч for Chechen rebels, for instance, or for Russian generals; for debtors or for creditors; for workers or for capitalists; for the International Monetary Fund or for the anarchists who have been protesting against globalization?

Economists, though, are less optimistic. Many are warning of a looming global economic slowdown. While such predictions are not necessarily more reliable than those of astrologers, in this case the analysis of statistics seems to confirm what common sense tells us: Since market economies work in cycles, the present boom cannot continue forever.

The impending global crisis will be particularly bad for Russia. Just two years ago, as a result of ruble devaluation, our economy finally began to really grow. However, that growth has not solved any real structural problems since investment has been chronically insufficient to replace aging plants. Capital flight has continued and even increased. Growth in production is based on miserly wages to workers and, therefore, has not led to a significant improvement in average living standards. The economy continues to be dominated by raw-materials monopolies that are simply not interested in developing the domestic market or in improving living conditions.

Nonetheless, itТs certainly true that a "bad" boom is better than a "good" recession. If global conditions remained favorable, Russia could probably muddle along on inertia and the remains of its Soviet inheritance until about 2005. However, if a crisis comes, the picture will be quite different.

In 1998, English economist John Ross observed that under positive economic conditions prices for raw materials increase faster than prices for finished goods. This is good news for Russia. Unfortunately, the opposite is also true: In a recession, raw-material prices fall faster. Any country that has nothing but raw materials to offer on global markets will be really hurting.

Two and a half years ago, the Asian crisis seemed to many to be the beginning of a global collapse. However, it ended up really hurting only a few Latin American countries and Russia. The West stood firm. In the end, the devaluation even stimulated growth in Russia and we began to think we had weathered the storm.

Now it seems that the 1997-98 crisis was just a harbinger of worse things to come. It should have summoned Russia to undertake needed structural reforms. Unfortunately, the time afforded by high global energy prices was not used effectively. Nothing was done, and now it is time to pay.

There may be some comfort in the thought that we wonТt be the only ones to suffer. The world will awaken rudely from the dream of globalization and may find, instead, increased nationalism and flaming ethnic and social conflicts. It will learn that the boom has resulted in the weakening of mechanisms for maintaining stability and social responsibility.

Apocalyptic prognoses are usually just as superficial as overly rosy ones. Our "patriotic" politicians who are rubbing their hands in anticipation of the collapse of the West are in for a disappointment. The end of the economic boom will not be the end of the world for America, which may well be able to muster resources to minimize its negative effects.

Russia, like all the worldТs peripheral countries, will have to pay twice. Once for its own mistakes and once for the grandiose financial bubble that the Americans have irresponsibly inflated. But maybe the astrologers are right. The Chinese word for "crisis" is denoted by two characters, one meaning "danger" and one meaning "opportunity." Clearly, the problems of the coming crisis will force Russia to adapt new solutions and listen to alternative ideas. The conceit of our ruling elite will be toppled. And that canТt help but be good for society.

Boris Kagarlitsky is a Moscow-based sociologist.

[Boris Kagarlitsky]
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