Summary: The inaccurate descriptions of Russia in the western media shows its fraudulent nature. Today we have an excerpt from Truth & Beauty that gives a more accurate picture of one the world’s three great powers.
Today we have an excerpt from the September 14 issue of Truth & Beauty, by Eric Kraus and Alexander Teddy. They shine the clear light of common sense on Russia, cutting through the fog of misinformation emitted by the western news media. This is “Through Western Eyes – Russia in the Media”, about the politics and economics of Russia. Reprinted with their generous permission.
- About Russia? The Good. The Bad. The Ugly.
- About the author
- About Truth & Beauty
- For More Information about Russia
(1) About Russia. The Good. The Bad. The Ugly.
Truth & Beauty is seen as a vehement supporter of Putin and a perennial Russian bull, perhaps blind to the failings of our adopted land. This is a half truth at best – yes, we firmly believe that the rise of Vladimir Putin was the best thing to have happened to Russia for the past millennium (not, overall a particularly good one – happily, the millennium now just getting underway appears far more promising…), however we are blind neither to his failings, nor to the weaknesses of the system which he has put into place.
T&B has never subscribed to democratic fundamentalism. Indeed, some of the main weaknesses of the current system may be due to an obsession with at least the outer trappings of Democracy, and thus, the failure to at least pass through a Chinese-style system with continuity provided by a reformed Party, with individuals replaced as necessary, without affecting the continuity of overall policy.
Our, first, and most obvious, worry is that – despite all appearances to the contrary – Vladimir Putin is mortal; we have no way of knowing who would follow him were he no longer able to govern. There may be a well thought out plan – or there may not be; it would be interesting to know. We believe that the appointment of Dmitry Medvedev was intended as an experiment to see whether he would make an adequate successor. If so, it was a poor choice. Medvedev had none of the characteristics needed to successfully govern Russia. Perhaps Mr Putin’s greatest weakness is his systematic loyalty to a small circle of men he has known for a long time, and who may or may not deserve that trust.
Fortunately, as Russia grows richer and more conservative, with entrenched economic interests for whom continuity is vital, one would assume that a transition of power would be far less traumatic than those of the previous decades, however some well-articulate succession plan would be reassuring.
With the exception of the Communists (whom are no longer in the competition for the leading role) Russia has no real political parties. While the Chinese Party has substantial internal democracy channelling local and regional input up to the national level, the system in Russia appears obscure and somewhat dysfunctional. Again, Putin has done an extraordinary job of maintaining stability while the economy self organises, but the weakness of the administration and legislative bodies has resulted in very sub-optimal economic development.
The reintroduction of regional gubernatorial elections gives some hope for the development of a constructive opposition, with some actual experience in governance; this will be, at best, be a long, slow process.
Whereas in his first term Vladimir Putin managed to be very much all things to all men, as Russian society develops and diverges, this is no longer possible. Instead, as his popularity increases in the heartland where he has made inroads into the Communist and nationalist electorates, he has lost the cities – in particular, the young, urban elites. Like Western politicians, Putin clearly caters to his own electorate – perhaps reminiscent of Richard Nixon’s play for the “Silent Majority” during the long period of the American reaction against the relative liberalism of the 1960s. While the realignment probably represents a net gain in terms of votes, it does not advance our hoped-for evolution and transformation of Russian society – not in the direction of some imposed Western model, but rather, towards a reformed, specifically Russian variant.
As regards the macroeconomics, we are very sanguine. Macroeconomic management has been excellent. Russia has extremely low debt, declining inflation, and improving social welfare; the politics are quiet, the banking system a net foreign creditor, with confidence in the banks supported by their performance during the Global Crisis. Both the Central Bank and Finance Ministry proved highly competent during periods of financial stress.
We think the fashionable obsession with “diversification” and high-tech totally misguided – a waste of both time and money. Russia will not become a major producer of mobile phones or fast-moving consumer goods in our lifetimes – it is simply not in the business culture. While there are several poles of technological excellence ripe of development – software, aeronautics, weaponry, etc. the obvious areas for economic growth are agriculture, services, domestic infrastructure and transformation of natural resources. Agriculture should someday outweigh oil.
The impact of corruption is real but grossly overstated. The corruption surveys measure not corruption but the perception of corruption, and Russians compete to tell wild tales of official misdeeds. If the surveys were remotely credible, then Russia would simply not have the foreign reserves it does. That said, not just administrative corruption but especially, inefficiency and old-fashioned pig-headedness are a major impediment to the development of the sort of network of small and medium enterprises that have been so important in Northern Italy and Germany.
Russia, the top agricultural importer for most of the 20th century, is now a world-class grain exporter, and, more impressive still, is set to become a net exporter of poultry; a huge animal husbandry project is now underway aimed at reaching self-sufficiency in beef. Given the deep Chinese market at Russia’s doorstep, this is an obvious pole for development.
Turning to the financial markets, while we have seen vast improvements in the management of the banking system, of public and private debt, and of the currency, we remain deeply frustrated by the equity market. There are virtually no truly public companies; most firms are controlled by a majority shareholder or group of shareholders, whose interests are frequently not aligned with those of the minorities, about whom they care very little.
The main weakness of the banking system is the lack of both domestic liquidity and of capital for further growth – regulatory capital requirements are fairly draconian and we see no risk of a banking crisis, however the sector is almost totally dependent upon the Central Bank for the provision of liquidity.
Any number of recent stories in the oil, mining, banking and telecommunications sectors have left equity investors feeling randomly exposed to machinations by majority owners about which they are generally the last to know. Furthermore, until recently, dividend flows have been niggardly and share buybacks almost unheard of. That, at least, is now changing, as more companies begin to announce transparent dividend policies and to increase their pay-outs.
As we have been repeating for the past 15 years, the fundamental weakness of Russian financial markets is the absence of deep pools of long-term domestic liquidity. The pensions reforms have been botched, repeatedly, and we see little or no effort at creation of the sort of domestic, long-term investment capital that could begin to render the Russian market independent of global risk-capital flows. Yes, the fusion of the Micex and the RTS, along with the establishment of a single depository are important and long-overdue steps, but without domestic financial institutions, the market will remain something of a casino.
As a destination for direct foreign investment, Russia is unmatched. The great majority of foreign companies doing business in Russia are performing extremely well, and most are increasing their investments as Russia continues to outperform its neighbourhood. A new automobile plant is being opened each year in Russia, as they close down elsewhere in Europe. The generally happy outcome of foreign investment in Russia forms a sharp contrast with the very unfortunate experiences of numerous foreign investors in China…
We remain somewhat sceptical about the benefits of WTO membership. Most of the expected benefits are intangibles. We far prefer the tangible kind!
© Eric Kraus
(4) About the author
Eric Kraus is a French expatriate living in Russia. He’s worked in several investment-related capacities for investment banking firms. He started publishing Truth and Beauty in 1997.
Please join Eric Kraus and Alexander Teddy at the Truth & Beauty website, where you will find back issues, articles of interest, and some lively debate. Readers are encouraged to contribute their views, or suggest articles or research to post.
(5) About Truth & Beauty
Truth & Beauty was born 14 years ago on the eve of the Great Russian post-Soviet Financial Meltdown – which, in fact, marked the beginning of the Russian Resurrection under President Vladimir Putin.
Seeing the need to counter the widespread disinformation in the Western Media, and to guide investors interested in accessing what were to prove to be the world’s best-performing bond and equity markets, Eric Kraus and collaborators rode out against the windmills – bent oligarchs, hypocritical neocons, and lazy journalists. Today, we continue to do battle with those who would intentionally mislead Western perceptions of the complex and ever changing Russian reality.
Since 1997, T&B has endeavoured to shine the clear light of common sense on the irregular world of Russian finance, geopolitics, sociology and night-life – which fascinate and frustrate to equal degrees. Of course, as Russia has gradually normalized and integrated with the global economy, local markets are increasingly moved by the global macroeconomic context – to which we now give far greater attention.
With this website, T&B seeks to encourage not only a greater readership, but also to develop greater intellectual debate on both Russia and the wider macro environment.
(6) For More Information
(a) Other posts with excerpts from Eric Kraus’ Truth and Beauty:
- Truth and Beauty: on the collapse of the world’s other monetary zone, 28 July 2008
- Big changes loom before us; why are they invisible to most experts?, 29 July 2008
- Rumors of financial war: Russia vs. US, 22 September 2008
- The evil of socialism approaches!, 22 October 2008
- A free lesson from Russia: how to manage a banking crisis, 6 February 2009
- A different perspective on the US and China, seen by an Frenchman living in Russia, 23 March 2009
- A view of the world from Russia, 30 May 2010
- Something obvious about today’s world that’s seldom mentioned by our journalists, 21 April 2011
- The Truth and Beauty about the Pussy Riot, 26 September 2012
(b) About Russia:
- More news about Russia’s demographic collapse, 6 June 2008
- Rumors of financial war: Russia vs. US, 22 September 2008
- Before we reignite the cold war, what happened in Georgia?, 12 December 2008
- More weekend reading; information you want to have!, 23 December 2008 — Russia as the last man standing in a region of demographic collapse.
- A free lesson from Russia: how to manage a banking crisis, 6 February 2009
- How the Soviet Menace was over-hyped – and what we can learn from this, 13 October 2009
- Is America fighting the tide of history? Are we like the Czars in the 19th century?, 29 July 2010
9 thoughts on “The Truth and Beauty about Russia”
Interesting article about Russia by a French guy living there? Is this credible, or is it overly optimistic? Sounds a bit rosy. Foreign reserves don’t necessarily prove much about corruption. And exporting poultry to China doesn’t seem very ambitious.
Why no liquidity? Are plutocrats still panicked about losing control of a small pie, instead of being excited about opportunities in an explosively growing pie?
This article makes Russian business sound very unprofessional, and still relegated to personal vs scalable management. for comparison, see some of the endless articles re corruption in Russia
Quite feckless critiques. Erickson’s comment nicely illustrates the authors’ point about the blinkered western view of Russia fostered by the western media.
(1) “Foreign reserves don’t necessarily prove much about corruption.”
How is that a rebuttal to the authors’ statement “If the surveys were remotely credible, then Russia would simply not have the foreign reserves it does”?
(2) “And exporting poultry to China doesn’t seem very ambitious.”
Most businesses are not “ambitious”. They provide mundane goods and services, and expand depending on the market opportunities develop. That’s how nations develop.
(3) “see some of the endless articles re corruption in Russia”
The pearl-clutching by Americans about corruption in Russia would be hilarious if it wasn’t so sad. Corruption has become built-in to the US government at the highest level, integrated so that it’s business as usual — and invisible to the sheep pretending to be citizens.
We saw this during the financial crisis when the full resources of the government were deployed to maintain bank profits. Loans on easy terms (interest, collateral), guarantees, straight-forward transfers of funds, waivers of accounting rules, allowing widespread violations of long-standing and important laws. Much of this remains hidden, and continues to this day (ie, the widespread violations of the faux-mortgage settlement).
The mining, oil, and defense industries are similarly based on extracting wealth from us.
Our State and National capital are in effect home to joint-stock companies where the public interest is packaged, marketed, and sold. That they’ve organized it so that it’s business-as-usual rather than explicit corruption is hardly an advance. That there are “endless articles” about corruption in Russia but few in America suggests something wrong with us more than them.
Fabius, I think you need to be more courteous in some of your replies to comments you disagree with.
Roger Erikson is simply asking Eric Kraus to provide a bit more substance and support to his claim that there is less corruption than commonly believed, which I think is a very reasonable request.
Yet you imply he is some sort of dupe of the media who believes everything he hears, simply because he questions what appears to be a minority opinion.
Maybe Eric Krause has some inside information, maybe the corruption surveys are wrong about the Russian government, and maybe there is in fact a correlation between foreign reserves and corruption. Or maybe not. It’s an interesting point of view either way and I enjoyed reading it, but you shouldn’t chastise someone for disagreeing.
If anything, I think you’re a bit too eager to accept contrarian points of view, without giving them the same scrutiny you give to the mainstream.
(1) “I think you need to be more courteous in some of your replies to comments you disagree with.”
Sad but true. I’m working on it. But this website is like being trapped in Groundhog Day for nine years, with posts too often receiving the same bogus replies. We winning in Iraq & Afgan! Inflation and hyperinflation are coming! We have vast amounts of oil & gas, so we can become Saudi Arabia! Doubts about CAGW or AGW = denial of global warming! America’s number ONE! European health care is a hellhole. It’s a long list.
It’s like being sentenced to eternity teaching evolution in a rural southern Bible College. I original (delusional) view was that comments would debate things on the edge of what we know, and contrasting values. Instead most of my comments debate intro level college (often advanced high school).
Good news: the comments section has greatly improved (perhaps prayer works). This will help restore something like a vestige of my former mental balance.
(2) On the other hand, as you note, I overreacted to “Foreign reserves don’t necessarily prove much about corruption.” It was not a question, nor a rebuttal to Kraus’ comment (which was quite correct), but should have been answered with an explanation.
(3) “I think you’re a bit too eager to accept contrarian points of view, without giving them the same scrutiny you give to the mainstream.”
That’s an interesting observation. My self-image is that I too-often uncritically accept mainstream views. Certainly those are the errors that dominate the Smackdown page, with corrections by non-mainstream thinkers like Oldskeptic.
Follow-up on comments
The quality of comments has been improving during the past few months — don’t know why, but probably nothing I’ve done — to reach a very high level.
The result has surprised me. Many are on such a high level so that I just applaud ( even if I disagree), with nothing to add. That’s success!
Russia is the only player that might be able to help… in the ME, Russia is rightly sensitive to its Muslim population’s sentiments and also those in Central Asia!
Russia still lives and dies by its natural resource exports, especially. oil and gas. If eurasia experienced something like the US’s natural gas boom, I’d expect more shenanigans out of Moscow, otherwise its happy billionaires, ok country.
Thanks for making this important point! Without its exports of raw materials, Russia would be much poorer!
“The pearl-clutching by Americans about corruption in Russia would be hilarious if it wasn’t so sad. ….”
Hear, hear. If we in the West spent a fraction of the time sorting out our own corruption as we do chattering away about others, then our economies and societies would be a heck of a lot better.