Fiona Hill’s and Clifford Gaddy’s The Siberian Curse documents how the Soviet/Russian obsession with developing Siberia led to a colossal waste of resources. From the blurb:
This is a provocative look at a problem that has been overlooked since the collapse of the Soviet Union. Using economic statistics, economic geography, and history, the book argues that what traditionally has been perceived as one of Russia’s major strengths – its enormous size – is in fact its greatest weakness. The authors describe how years of forcing people and economic activity out into the vast, resource-rich, but inhospitably cold, territory of Siberia has burdened Russia with huge problems and costs. Defying nature as well as the market, the Bolsheviks forcibly industrialized the gigantic landmass they inherited from the Tsars in 1917. They deployed slave labour to build factories and cities and operate industries in some of the most forbidding places on the planet. They then used costly incentives to attract new workers when the prison camps closed. Today, people and factories languish in places communist planners put them – not where market forces would have attracted them. The book explains why this problem was not rectified in the 1990s and why it is likely to persist. Russian leaders still see Russia’s future prosperity as intimately linked to Siberia and its resources. They focus on Siberian redevelopment rather than resettlement to the warmer, western regions of the country. The authors conclude by considering ways in which Russian leaders should rethink the relationship between Russia, its economy, and its territory, especially Siberia.
In another Russian chapter of the Satayana Chronicles, it appears that Putin has similarly grandiose plans to develop Siberia. Indeed, it is Satayanesque in both choice of goals (exploitation of Siberian mineral wealth) and means (a state corporation endowed with special privileges):
Putin is pushing development of the Far East and eastern Siberia, and with it a revival of some mines dating back to Tsar Nikolai II, after winning another six-year term as president. During campaigning for the March 4 election, he said a state corporation was needed to speed up projects.
Putin’s first deputy, Igor Shuvalov, may be a candidate to head the body, Vedomosti said yesterday. Russia may use earnings from the 2.6 trillion-ruble ($90 billion) National Well-Being Fund, it reported, citing a law drafted by the Economy Ministry.
“The driver of Russia’s development isn’t in Europe any more, it’s in Siberia,” said Artem Volynets, chief executive officer of En+ Group, billionaire Oleg Deripaska’s mining and energy holding company. “China has emerged as a major economy in the last decade and is ready to consume commodities from across the border. If we don’t do it, somebody else will: Africa or Australia.”
This drive is predicated on the belief that proximity to the Chinese market will make these developments profitable. But economic geography is not measured only as the crow flies. Climate, and its effect on human habitability, and the nature of the terrain are as or more important. And it is not as if the distances are small: to the contrary, they are still vast. Moreover since these distances must be overcome through the construction of infrastructure that must cope with climatic and terrain challenges: the developments proposed are scattered, and hence cannot exploit the economies of density that characterize transportation costs. Most telllingly, they must also overcome the arguably heavier burden of corruption, and its consequent inflation of costs.
Yes, Brazil or Australia are further from China than Siberia, but ocean transport is cheap compared to the cost of constructing low density transport infrastructure across alternately boggy and frozen wastes.
The development plan recognizes that these initiatives are not commercially sustainable. Subsidies are needed, including subsidies to pay the compensating wage differential necessary to induce people to live and work in Siberia-a region where people have been fleeing from since the collapse of the USSR made this possible:
The state won’t be able to exile prisoners into Siberian labor camps like Stalin, who also sought to stifle Zionist calls for a home in Palestine by setting up the Jewish Autonomous District. Instead it will need to lure workers to the region by ensuring employment and building roads, houses and schools.
The Far East lost more than 20 percent of its population from 1990 to 2011, according to data compiled by Andrei Kokoshin, a former deputy defense minister now at the Russian Academy of Science. To reverse the trend, Russia must provide startup funds and cheap mortgages, he said.
At least $425 billion of investment is needed by 2030, with the state providing a quarter of that, or $6 billion a year, six times its rate of spending in the past decade, Kokoshin said.
Some of these monies will likely come from the National Well Being Fund. Such a huge subsidy from the state makes the unviability of these efforts plain. The Fund monies could be much better spent on human-scale projects in the populated part of Russia. But that’s not the Russian way. The projects will also benefit from highly favorable tax treatment (zero percent profits tax) and effectively unlimited rights of eminent domain. It is exempt from numerous laws and regulations.
The organization of the state corporation is rather remarkable. It reports directly to the President-Putin, for the foreseeable future-and appears outside any real legislative checks, such as they are in Russia. It is therefore a marvelous source of power, and corruption.
The scale of the project is so vast, and the powers carved out by Putin so expansive, that it has drawn comparison to Ivan IV’s oprichina, a state-within-a-state. I doubt that Putin’s men will be roaming the countryside toting dogs’ heads, as did Ivan’s oprichniki, but there is more than a little justice in the comparison. As described, this seems very much like a private Putin enclave, separate from the formal structures of the state. It is more state than corporation.
The Russian government’s plans to create a mega state corporation to develop Russia’s depressed eastern Siberia and the Far East will make the investment climate in the country worse, former Finance Minister Alexei Kudrin said on Tuesday.
The bill to create the state corporation, already nicknamed “Far Eastern Republic,” was finalized by the Economic Development Ministry and filed with other ministries for approval. The mega-corporation will be partially exempt from federal legislation and be subordinate only to the president.
“These plans immediately cross out the target for Russia to jump to the 20th place in international doing business ratings from the current 120th position,” Kudrin said.
. . . .
“The creation of such a market player capable of implementing any private project, considering the state’s administrative resource and using special preferences, means that any other investor in this area must be aware that at any moment another player with special preferences, special administrative resources and special access to finances may come to the market,” he said.
Kudrin is now more outsider than insider, so it is doubtful that his trenchant criticism will make the slightest difference.
No, this seems to be an extractive institution par excellence, both literally (in that it is focused on mining) and figuratively (in the Acemoglu-Robinson sense). A vast tunneling scheme that takes resources from the Russian state, and directs them to exorbitantly expensive projects directly under presidential control, permitting the skimming of vast sums. Credit Mobilier on PCP. Just think of the possibilities. Putin and his minions can issue huge contracts to favored firms (in which they hold stakes, or from which the collect bribes), and pay for them with state money. They can allot development rights to favored parties, and collect some boodle by various means.
Under the USSR, it is at least possible that there was an ideological basis for the obsession with Siberian development, as demented as the idea was in practice. Putin should have the advantage of learning from the failure of the Soviet efforts. Either he is insane in the Einstein trying-the-same-thing-repeatedly-expecting-a-different-result sense, or he just views this as a marvelous opportunity to accumulate power and money. I’m not ruling out the former, but I’m leaning heavily towards the latter.