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Streetwise Professor

August 23, 2011

Manifest Absurdity

Filed under: Economics,Politics,Russia — The Professor @ 3:25 pm

Presidential statements about economics and social science–regardless of the country the president leads–are usually cringe-worthy.  But even against such competition, this disquisition on alcohol and alcoholism by Russia’s president Dmitri Medvedev stands out:

Russia’s winemaking industry should be developed to help tackle widespread alcohol abuse, President Dmitry Medvedev said on Monday.

“Winemaking is one of the branches that should be developed and contribute to the eradication of alcoholism. Countries where this branch is strong, have no problems with alcohol abuse,” the president said at a meeting with the governor of Russia’s southern Krasnodar Territory, Alexander Tkachev.

I mean, what obstacles could there be to such plans?  Other than culture and climate, I mean.

Adam Smith and Ricardo both noted that it would be possible, but inefficient to grow grapes for wine in England or Scotland.  For instance, in Wealth of Nations, Smith wrote:

By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expence for which at least equally good can be brought from foreign countries.  Would it be a reasonable law to prohibit the importationof all foreign wines, merely to encourage the making of claret and burgundy in Scotland?  But if there would be a manifest absurdity in turning towards any employment, thirty times more of the capital and industry of the country, than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted, there must be an absurdity, though not altogether so glaring, in turning towards any such employment a thirtieth, or even a three hundredth part more of either.  Whether the advangates which one country has over another, be natural or acquired, is in this respect of no consequence.  As long as one country has those advantages, and the other wants them, it will always be more advantageous for the latter, rather to buy of the former than to make.  [Book IV, Chapter 2.]

Since the climate of Russia is even less hospitable to viticulture than that of Scotland, just think of the multiple of capital required to grow wine grapes in Russia, than in France, or Chile, or Australia, or California . . . or Missouri or Texas, for that matter.

And how, pray tell, would Medvedev support the development of viticulture?  Let’s say he mandates the tried-and-true method of import protectionism, via quotas or tariffs.  Tariffs would have to be quite high, and even then, it may be the case that domestic demand for wine is insufficient to support more than a very small industry.

Tariffs or quotas would raise the price of wine relative to other spirits.  Which would encourage Russians to substitute towards these other products.  That is, attempting to encourage domestic wine production would discourage domestic wine consumption and encourage the consumption of other liquors.*

What other liquors?  Vodka, of course–not to mention the vile home brews that thrive in Russia (samagon).  And apparently now vodka is the Adult Beverage That Shall Not Be Named:

Medvedev said problems with alcohol abuse stem from “other drinks.”

So what Medvedev proposes is indeed manifestly absurd.  It would be absurd on crass protectionist grounds.  It is doubly or trebly absurd on the social policy grounds of attempting to induce substitution away from vodka and samagon towards wine.

No, a far more reasonable policy would be to permit unrestricted imports of wines.  From Georgia maybe.  (Ironic, isn’t it, that Russia banned importation of wines from Georgia–one of the most popular and economical sources of the stuff.)

But such a policy would be unlikely to change this map.  Medvedev’s Vinyard of Dreams–if we build it the culture will change–is beyond manifestly absurd.  It ignores the path dependence of culture, and presumes that habits are highly malleable.  That France, say, has both abundant wine production and a low rate of alcoholism, is a deep cultural fact determined over millenia–just as vodka consumption is a deep cultural fact that evolved centuries ago.  Even if global warming were to make Russia a viable wine producing region tomorrow, it is unlikely that this would result in a profound change in Russian consumption habits in Medvedev’s lifetime–a period over which a good chunk of the male Russian population and more than a few women will succumb to alcohol-related death.

And there are also data points that contradict Medvedev’s story that domestic production of wine would engender a deep cultural shift.  The Economist blog post that includes the map linked above notes that Moldova is the world’s leader in alcohol consumption, much of it home brew–and it is also the home of a vibrant domestic wine industry.  An industry which was, ironically, more vibrant before Russia banned imports of Moldovan wine.  So a domestic wine industry is not sufficient to produce consumption of alcohol in moderation.  And Moldova has far closer cultural affinity to Russia, than France or Italy: just ask any Slavophile.

Chronic abuse–and that term seems to mild by far–of The Adult Beverage That Shall Not Be Named is indeed a national tragedy in Russia.  One suspects that Russian leaders despair at the prospects of combating this scourge.  Medvedev’s pathetic proposal illustrates just how futile their past efforts have been.  (And when not futile, destructive: Gorbachev’s anti-vodka campaign put a huge whole in the USSR’s finances, and accelerated its collapse.)  It would be truly perverse–and peculiarly Russian–if Medvedev were to act on his crack-brained theory, protect the domestic wine industry, and encourage more consumption of that which he believes is wreaking havoc on his nation.

* The analysis of subsidies is more complicated.  Subsidizing wine production could reduce the price of wine relative to other spirits.  This would also have income effects, though, which are more difficult to trace through.  For instance, the taxes required to pay for the subsidy reduce incomes.  This could lead to reduced consumption of all kinds of spirits, but it could also lead to increases in the consumption of things like samagon (which are plausibly Giffen goods). And regardless, it would be more efficient to reduce relative prices by reducing restrictions on wine imports, than by subsidies of domestic production.

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13 Comments »

  1. [...] Professor argues against the bad economics of promoting Russian wine production to turn consumption patterns from [...]

    Pingback by Russia: Intoxicating Economics · Global Voices — August 24, 2011 @ 4:45 am

  2. [...] Economics and alcholism. [...]

    Pingback by Stones Cry Out - If they keep silent… » Things Heard: e186v3 — August 24, 2011 @ 7:12 am

  3. The similarities between Medvedev and Dukakis are striking. The faux military photo ops, the Belgin Endive solution etc.

    The more Putin is painted a man of the common folk, the more Medvedev is painted as a ridiculously out of touch elitist. I am sure Medevedev has cooperated fully to appear this way.

    I think I speak for many in saying very cheap wine would be good and provide an excellent feedstock for home distillation of Grappa. :)

    Comment by pahoben — August 24, 2011 @ 8:58 am

  4. @phaoben–and I think that’s *exactly* the role Putin has appointed him to play. The effete, ineffectual foil.

    The ProfessorComment by The Professor — August 24, 2011 @ 11:25 am

  5. Yeah, Putin has fully mastered the “surround yourself with idiots in space and time (Yeltsin) to make yourself look good” shtick. BTW, vodka’s advantage is that it’s easy to control its supply and quality. It’s basically diluted ethanol. There are only a few major distillers in Russia (government-controlled?) which supply the bottlers. Wine is much harder to control. Apparently Moldova exported more wine that it could physically grow at one time. Anyway, the youngins are switching to beer.

    Comment by So? — August 24, 2011 @ 7:32 pm

  6. As usual I think you are exactly right. Sadly I think Medvedev believes he is being honest and providing a viable presidential option.

    Putin made a very good choice in Medvedev. It was a no lose, very low risk choice.

    I am sure gaurs tee you that he considered the selection of Medvedev

    Comment by pahoben — August 24, 2011 @ 8:05 pm

  7. Darn IPhone.

    Putin considered the selection of Medvedev as the most personally high risk decision he made as president. His selection has proven to be correct.

    Comment by Pahoben — August 24, 2011 @ 8:11 pm

  8. Darrn darn IPhone.

    Medvedev was Putin’s riskiest personal while President. He chose correctly and now is free to resume presidency as he decides.

    Comment by pahoben — August 24, 2011 @ 8:41 pm

  9. Anyway, the youngins are switching to beer.

    I always had beer in Russia down as an “as well as”, not an “instead of”. The young Russians I knew switched to cognac, rum, or whisky.

    Comment by Tim Newman — August 25, 2011 @ 2:52 am

  10. “Anyway, the youngins are switching to beer.”

    No, they are switching to cocaine and heroin.

    Comment by La Russophobe — August 25, 2011 @ 4:58 am

  11. Yeah… http://www.proz.com/kudoz/russian_to_english/idioms_maxims_sayings/1602950-%D0%9F%D0%B8%D0%B2%D0%BE_%D0%B1%D0%B5%D0%B7_%D0%B2%D0%BE%D0%B4%D0%BA%D0%B8_%D0%B4%D0%B5%D0%BD%D1%8C%D0%B3%D0%B8_%D0%BD%D0%B0_%D0%B2%D0%B5%D1%82%D0%B5%D1%80.html

    Comment by So? — August 25, 2011 @ 7:51 am

  12. And Крокодил.

    The ProfessorComment by The Professor — August 25, 2011 @ 9:01 am

  13. @So–somebody needs Tinyurl or the like.

    The ProfessorComment by The Professor — August 25, 2011 @ 9:02 am

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