23 JANUARY 2015 – 09:00
Putin’s Russia offers important lessons for SA and proves that a reinvention of current political-economic dispensations is necessary, writes Shawn Hagedorn
RUSSIAN President Vladimir Putin presides over a huge and frequently frozen nation, yet its similarities with, and lessons for, SA are profound.
• Exiting isolation. About 25 years ago Russia began to reinvent its basic economic and political structures. It needed to reverse the stultifying effects of sustained isolation. A decade earlier no one could have imagined the extent to which China’s economy would tower over Russia’s today. The key difference was that China sought to integrate into the global economy through developing highly competitive companies and workers while Russia relied on extracting resources.
• Local patronage versus international positioning. Russia’s rulers can purchase patronage through redistributing rural land to poor people while carving up extracted riches among wannabe oligarchs. Such political-economic manoeuvres reflect chiefdom-like aristocratic structures, which became outdated during the industrial era. They preclude success in today’s global information age. Russia’s political patronage system and the corruption that follows undermines its abilities to create — or attract — large numbers of globally competitive companies. This restricts the size and purchasing capacity of its middle class.
• Peak oil and peak manufacturing jobs. The peak-oil scenario routinely envisaged a few years ago has been cancelled. Rather, scientific developments and commercial ingenuity are gaining the upper hand in competing with traditional oil producers, while many consumers are starting to migrate towards less resource-intensive habits and desires. Energy exploration may be about to permanently taper off as a significant portion of today’s proven reserves might never be extracted. Meanwhile, manufacturing’s share of total jobs has permanently peaked.
• Today’s hard power. Putin has inadvertently provoked Western leaders to demonstrate through sanctions how hard power today is mostly about discretionary income and the skills and knowledge that support it. The West still accounts for about two-thirds of global discretionary income. Putin misses the key economic insight of the past several decades: the primary beneficiaries of the prevailing world order have been developing countries focused on selling value-added goods and services to Western countries that can buy them in quantities sufficient to propel profound upliftment. Putin has now proven the core corollary to this insight: even huge quantities of land and underground riches are inadequate to achieve national prosperity within a patronage-centric polity.
• Integrated growth economies; isolated extraction economies. The East and West continue to fuse into a single, increasingly prosperous global economy. There are also what can be termed the “Opec-styled” countries. These include the members of the Opec oil cartel plus the other countries — mostly in Africa, the Middle East and central Asia — in which ruling elites capture mineral wealth while failing to invest adequately in their people. The ruling elites of such extraction-focused economies are rarely inclined to make the investments in physical and human resources necessary to compete in an information-driven global economy. To integrate their populations into the global economy requires various forms of openness and investments in education, which provoke opposition towards how resource wealth is narrowly distributed within patronage-based political structures.
• Growth models. To put it another way, Russia, among others, is floundering for lack of a growth model. Funding current consumption by extracting nonrenewable assets doesn’t cut it. The wealthy and emerging economies of the world have become quite effective at advancing their mutual interests but this requires that national economies focus on competitiveness and building a large middle class.
In each paragraph above “Russia” can be replaced by “SA”. Putin has demonstrated how the trajectories of Russia’s and SA’s economic progress will remain inadequate until their political-economic dispensations are reinvented. Key shifts will include: tamping down patronage; making competitiveness and middle-class growth top objectives; and having government departments become genuinely pro-business. Both should also be co-ordination agents to advance regional and global economic integration. This will require new ways to diffuse skills while inspiring investment in fixed assets.
Thank you, Mr Putin, for confirming SA’s policies are unsustainable
Published by Business Day