Streetwise Professor

September 25, 2013

Meet the Primitives, or FSU=TFU

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 6:15 pm

If you want an illustration of the primitiveness of the Russian economic and political system, and that of the systems in the Former Soviet Union generally, look no further than this story.

In terms of economic primitiveness, the fact that a dispute over potash (potash! FFS)  is elevated to a matter of state requiring the direct involvement of heads of state illustrates perfectly the dependence of FSU countries on the production and export of basic materials.  For all the yammering about economic transition, all the FSU economies, including notably Russia’s, remain dominated by the production of basic materials.  As witnessed by evidence accumulating day-by-day that the FSU countries are becoming economic satrapies of China, as demonstrated by the Chinese acquisition of a large stake in Uralkali, the mooted Chinese acquisition of huge tracts of land in Ukraine, and the plethora of Chinese energy deals in Kazakhstan and Turkmenistan.

But the episode is more interesting for its demonstration of the institutional primitiveness of Russia, and the other FSU countries.  In advanced countries, commercial disputes are adjudicated or arbitrated through institutional processes:  indeed, they would have never have progressed to the point at which Belarus and Russia now find themselves.  But the institutional underdevelopment in Russia and Belarus and other FSU states means that rule is personalized, and commercial disputes between large businesses must be resolved-or not-through the personal intervention of heads of state.

Could anything illustrate more tellingly the personalized, de-institutionalized nature of rule in Russia than Putin’s personal involvement in such a matter?  Could you hallucinate, even after a bender that would put the Hangover I, II, or III to shame, Obama or Bush or Clinton doing any such thing?  And this is not a one-off.  Putin is repeatedly involved in grubby commercial negotiations (usually over natural resources) within Russia, and between Russia and other FSU countries.

This is a perfect illustration of why I have long believed that Russia is doomed for perpetuity to exist in an economic limbo as a natural resource state falling further and further behind not just more advanced, institutionally developed nations like the US, but even other institutionally challenged countries like China.

In other words, the Former Soviet Union is Totally F’d Up.  And will remain so.

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21 Comments »

  1. Not to mention “jail time” for a business failure. While Moscow is interesting to visit as a theme park; the place hasn’t evolved from the days of the Cheka. The city has gotten noticeably cleaner and more European (restaurants, tourist sights, hotels, etc.; one still walks wondering when a “cop” will shake one down on some silly rule. You still have to register with the police on arrival at each city. The streets are much less chaotic than 6 years ago.

    Comment by The Pilot — September 25, 2013 @ 7:04 pm

  2. @Pilot. Jail time for the lucky! Dirt nap time for the unlucky. Like the banker found in his swimming pool with his arms tied behind his back: the authorities ruled his death a suicide.

    Yes. Moscow has a veneer of respectability now, but underneath it is the same old lawless place.

    I’ve traveled a good part of the world, and Russia is the only place I have felt less secure when I see a cop. No doubt I would feel similarly in Nigeria, say. But that says it all, no?

    The ProfessorComment by The Professor — September 25, 2013 @ 7:38 pm

  3. Especially the street and traffic cops–they live on the shakedown. I was told not to worry about the cops driving Mercedes or Porshes–they shakedown the rich and don’t bother those walking. Having spent a week there recently, I never cease to be amazed at the ” new rich” throwing around unearned wealth in a country not notable for entrepreneurial ways. Is there any exportable goods that would generate wealth that supports the crowd of business jets at Vnukovo or the expansive dachas seen on the ground or the fleets of expensive cars? No, just “wise guys stealing from each other with Putin’s approval.

    Comment by The Pilot — September 25, 2013 @ 8:55 pm

  4. @Pilot. Yup. The street cops had what can only be described as a wolfish look. “Which sheep should I devour next”? I saw cops shaking down Caucasian street vendors on the edges of Red Square. My favorite memory is a cop standing at the side of the road just waving over random drivers, again quite close to Red Square. “Yes! You might already be a winner!”

    The ProfessorComment by The Professor — September 25, 2013 @ 9:18 pm

  5. In advanced countries, commercial disputes are adjudicated or arbitrated through institutional processes

    Sadly not:

    “Canada blocked BHP Billiton Ltd.’s $40 billion hostile bid for Potash Corp. of Saskatchewan Inc., saying a sale of the world’s largest fertilizer company wouldn’t provide a “net benefit” to the country.”

    Russia doesn’t have a monopoly on its government sticking its beak into the business of corporate takeovers. And who remembers France placing yogurt manufacturing on its list of strategic industries following the rumour that Pepsi would take over Danone?

    Comment by Tim Newman — September 25, 2013 @ 11:13 pm

  6. I’ve traveled a good part of the world, and Russia is the only place I have felt less secure when I see a cop. No doubt I would feel similarly in Nigeria, say.

    When it comes to the road police, there isn’t much between them…but I’d take the Russian cop over his Nigerian counterpart every time. I’ve been pulled over by both sets, and the Russians were often assholes. The Nigerians were *always* assholes.

    Comment by Tim Newman — September 25, 2013 @ 11:16 pm

  7. “But the institutional underdevelopment in Russia and Belarus and other FSU states means that rule is personalized, and commercial disputes between large businesses must be resolved-or not-through the personal intervention of heads of state.”

    No doubt, but it’s not like we didn’t notice. What’s new is the touching institutional simplicity is getting even more touchingly simple with the Uralkali disaster. The only intriguing part about it is the part played by Lukashenko’s Russian friends. They failed to take over Uralkali in 2010 but why not try again.

    I have some hope left because things were not so bad in the early 2000s while Putin was not the dictator he is now, and Medvedev managed to sort out the arbitration court system while he was president. Also, Russian businesses understand the value of institutions pretty well, which is why they preferred Cyprus with its English corporate law.

    Comment by Alex K. — September 26, 2013 @ 2:46 am

  8. @Tim. I’ll defer to your experience re Nigerian vs. Russian cops. You’ll understand why I’ll gladly take your word for it, rather than test your assertion personally 😛

    Re BHP & Potash. US did something similar with CNOOC and Gulf. So it’s not unknown outside of the FSU, but pretty clear that the problem is much more acute in the latter.

    The ProfessorComment by The Professor — September 26, 2013 @ 3:17 pm

  9. FSU is not all bad.
    Take a look at Baltic States for example.

    Comment by Driver — September 27, 2013 @ 3:09 pm

  10. > Russia is the only place I have felt less secure when I see a cop. No doubt I would feel similarly in Nigeria, say.

    I suppose if you live in Manhattan, you see cops on foot. But in the rest of America, where public transportation is probably worse than even in Nigeria, most cops that I see are in cop cars, and when I see them I know that all they want is to make their quotas for making money off of you, just searching for some pretext: seat-belt, light not working, anything. Once I got a speeding ticket for doing 56 in a 55 mph zone in perfect weather.

    Do drivers in Nigeria feel similarly insecure when they see a cop car?

    Comment by Vlad — September 28, 2013 @ 4:44 am

  11. @Driver-The Baltics are the exception that proves the rule. They are the least Sovok of the ex-republics, the most Westernized, the least Slavic.

    @Vlad-you have to be freaking kidding me. @Tim-please enlighten him on the hazards one runs with Nigerian police vs. American ones.

    The ProfessorComment by The Professor — September 28, 2013 @ 10:03 am

  12. @Professor,

    I have no idea about Nigeria but it is easier to deal with Russian traffic cops than the American ones. And 50 times cheaper, although they stop you more often.

    Comment by Vlad — September 28, 2013 @ 4:45 pm

  13. Vlad, you are an idiot.
    The only time you will have a problem with an American cop (as a general rule) is when you are doing something illegal.
    I know illegal behavior is pretty endemic amongst Slavic culture in general, and the Russians in particular but hey…..

    Comment by Andrew — September 29, 2013 @ 2:53 am

  14. Andrew, first of all, you should learn how to act like an adult and avoid constant personal insults towards others here.

    Second, in addition to getting a speeding ticket for doing 56 in a 55 zone, twice in my life I was falsely given a ticket by a cop, and then these cops tried to cover up by lying in front of the judge. I caught them lying, but the judge still made me pay, because he said he believes cops more than their prey.

    Comment by Vlad — September 29, 2013 @ 5:45 pm

  15. > illegal behavior is pretty endemic amongst Slavic culture in general and the Russians in particular

    First of all, you sound like a racist 5-year old child with learning disabilities. Are you the Andrew from the Rep. of Georgia that used to police the La Russophobe blog?

    Second, let us look at the incarceration rate by country:

    1 United States 716
    2 Seychelles 709
    3 Saint Kitts and Nevis 701
    4 U.S. Virgin Islands 539
    5 Cuba 510
    6 Rwanda 492
    7 Anguilla 487
    8 Russia 484
    9 British Virgin Islands 460 c.

    94 Czech Republic 154
    177 Slovenia 69

    First of all, we see that Slavic countries like Slovenia and Czech Republic are among the most law-abiding nations on Earth, with the crime rate in Slovenia being more than 10 times lower than in the USA.

    Second, the USA has the highest incarceration rate in the world, along with some Carribean countries and Rwanda. This means that either:

    1. Americans are the most criminal nation on Earth

    or

    2. The American cops and justice system are the most cruel, devious, irrational, scary in the world.

    And it is the latter. We don’t think of it in these terms, but actually the USA is an incredibly corrupt corrupt country, with much of the money that the IRS takes from the taxpayer going to the Washington lobbies: military-industrial complex, prison-industrial complex, oil-industrial complex, even corn-industrial complex. The politicians put $hundreds of billions of taxpayer money into the pockets of these special interest groups, who in turn share the loot with the politicians thought campaign contributions and later employment as lobbyists.

    Prison–industrial complex
    From Wikipedia, the free encyclopedia
    The term prison–industrial complex (PIC) is used to attribute the rapid expansion of the US inmate population to the political influence of private prison companies and businesses that supply goods and services to government prison agencies.

    As I recall, half of the US prison population are the victims of the notorious “War on Drugs”, some rotting in jail for nothing more than smoking grass in the privacy of their homes.

    And this makes the US penal system by far the most evil, corrupt and insane in the entire world. As the libertarians re-phrase John Kennedy’s famous words: “Ask not what your government can do for you, ask what your government can do TO you!”

    One of the favorite methods that the US police use to railroad innocent people is a “confession to a snitch”. The police put the accused in a prison cell with somebody who wants to get a reduction in their charges/sentence and tell this “somebody” to get a confession. So, soon this somebody says: “Yes, my cellmate confessed to me, and if I get a reduction in my charges, I will testify in court”. Often these “testimonies” are the strongest evidence against the accused.

    Comment by Vlad — September 29, 2013 @ 9:23 pm

  16. LOL Vlad,

    There is a big difference between incarceration rates and criminal activity Vlad, though given your lack of understanding of most subjects you expound on, I’m not surprised you can’t see the difference.

    You forget the pervasive aspect of organized crime, not to mention being able to buy your way out of trouble for things that would get you a conviction in any other country. Even by their own admission, most crime in Russia goes unreported because nobody wants contact with the militia/police. Then there is the problem of domestic violence in Russia, which the police refuse to become involved in (perhaps a good reason why Russian women prefer European/American/Caucasian men to Russian men, which may go some way to explaining Russian racism….)

    Russia has a criminal culture second to none, a by product of centuries of oppression of the general populace and rule of criminals (including the communists one might add)

    As for getting a ticket for going 56 in a 55 zone, well you exceeded the limit, in my experience being polite to the officer involved would usually get you a warning. I suspect (based mainly on your posts admittedly) that you probably acted high and mighty or insulted them.

    With regards to the cops lying, quite possible, but then again what you consider lying and the judge considers lying are two different things. You could well be lying yourself. Though you do seem to be getting your nose out of joint over something fairly minor. In the same situation in Russia you would be in for a world of hurt.

    Finally, yes Czech and Slovaks are very law abiding. Russians, Serbs, Belorussians etc not at all. The overwhelming majority of the Slavic population are living in kleptocratic states however.

    Comment by Andrew — September 30, 2013 @ 1:00 am

  17. Andrew, for a man so fond of ethnic stereotypes and prejudices (for example, how much do you know about the life and crime in faraway Slavic countries Serbia, Belarus and Slovakia?), as well as personal attacks, you possess a laughable lack of mathematical ability and logic. The very fact that the US leads the world in the number of incarcerations per capita means that either Americans deserve this (in which case we are a country of criminals), or that the majority of people in our prisons don’t deserve this cruelty (in which case our legal system is grossly evil), or a combination thereof. I believe it’s the second.

    And also as an example, please tell me more about the “kleptocracy” in Lukashenko’s socialist Belarus and compare it with the amount of US taxpayer money that the US Congress spends on the military-industrial complex, prison-industrial complex, oil-industrial complex, corn-industrial complex and all other programs for the lobbying interests.

    Comment by Vlad — September 30, 2013 @ 4:11 am

  18. Wait. I re-read what you wrote. You claim that Belorussians are NOT law-abiding?! Do tell me where you got this idea.

    And speaking of organized crime and “Caucasian men”, how do you explain why a disproportionate amount of organized crime in Russia consists of these “Caucasian men”?

    BTW, Andrew, given that I have seen 2 different Andrews here, could you please tell which of the two you are: Andrew from the USA or Andrew from the Rep. of Georgia. The reason I ask is that we are talking about the American penal system, and I would like to know whether you are an American who knows this system, or a foreigner, to whom I need to describe and explain it. Judging from your avoiding talking about the USA, I would guess that you are the Andrew from the Rep. of Georgia.

    Comment by Vlad — September 30, 2013 @ 4:39 am

  19. No Vlad, you have an obvious misunderstanding of the way the “legal” system works throughout Russia, Belarus, and large swathes of the former Russian empire where Russia still has great influence.

    in the USA the police are not able to be bought off in anything like the same way as they can in Russia,people are more likely to be caught and prosecuted in the US than in Russia. Furthermore victims of crime are far more likely to report even minor crimes such as petty theft than they are in Russia. Even in cases of murder Russians are (quite understandably) reluctant to have anything to do with Russian law enforcement. You never know when the crime committed has been committed by someone in power.
    Your lack of understanding of the criminal behavior of the Russian state is absolutely pathetic. I suggest you try living in Russia before stating that American police are worse.

    Comment by Andrew — October 1, 2013 @ 12:26 am

  20. Andrew, thank you for avoiding my question as to how much you know about the USA and thus confirming that you are the Andrew from Rep. of Georgia who wrote all that absolutely jaw-dropping nonsense in the La Russophobe blog.

    My intention here was never to whitewash the absurdity and nastiness of Putin’s legal system (as you seem to think). I was talking about my own country – the USA. I initially made the mistake of thinking you live in the USA and know about the life here. Your replies showed that you have no idea, which finally made me realize who you are and where you live. I apologize to the readers and to myself for wasting time arguing about the life in the USA with somebody who knows nothing about it.

    andrew> Your lack of understanding of the criminal behavior of the Russian state is absolutely pathetic. I suggest you try living in Russia before stating…

    I have actually lived in Russia, albeit not recently. I would also recommend that you follow your own advice: before opining about the day to day life in a country – be it USA, Belarus, Serbia or Russia – try living there first.

    Comment by Vlad — October 1, 2013 @ 1:47 am

  21. Actually Vlad, I have lived in the UK, Australia, Russia, the USA, and come from NZ.

    You obviously have a compulsion to lie if you are trying to claim you are not whitewashing Putins Russia. Despite the problems the USA has with its system of government, to compare it unfavorably with the genocidal Neo soviet maniacs in Russia is both morally and intellectually bankrupt.

    As I recall, there was a Vladimir posting the most racist comments about non Russian ethnicities in the FSU on LR.

    I guess that was you was it?

    Comment by Andrew — October 8, 2013 @ 12:51 am

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