Russian Economy and the Indian Kids of the 80s

Crude might have showed just a slight decline (thanks to a slowing economy), but leaders at IMF and World Bank are already losing sleep over the petroleum dependent economy of Russia. It seems, for a fall of every one dollar in the price of oil, the Russian government loses around 1.65 billion dollar in oil-related taxes over the course of a year. Though, the cash reserves Russia has amassed [$185 billion] should help it sustain through a 2009 like $60-per-barrel period for two years.

Witnessing the events in and around Russia in the last decade, one can’t help but recall Friedman‘s first law of petropolitics. He states, and I quote, “Price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. The higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them”.

This could easily be seen in Putin’s dealings with dissidence, both internal and external, in the recent past. But what really represents and helps understand the economic decisions of Russia’s leadership is the phenomenon of Dutch Disease or the more generic Resource Curse, in simple words, the tendency of an entity to mis-manage its finances and underperform when there is an abundance of resources. Russia saw a surge in its oil output in the early 2000’s, attributed to privatization and import of technology. A simultaneous increase in the oil demand, and thereby prices, globally, helped Russia in revitalizing its economy. But it failed to take a leaf from the world’s collective history and became increasingly dependent on Oil.

Now, Russia’s fate will be decided by its political will and social conscience. They might understand the importance of diversifying their windfall, or ignore the history lessons and delay reforms until it’s too late. But, the fact that the learning applies equally well to not just other countries, but organizations, people and even processes, should not be lost on any one of us. Scarcity not only promotes judicious use of resources, it also encourages creative ideas for increasing efficiency. Abundance, on the other hand, leads to mis-use and deters growth. This does not imply that abundance is bad; It implies that abundance of any resource comes with an inherent tendency of it being mismanaged and undervalued. Be it the abundance of time, as on a long break between two exams, or money, or even friends (Am kidding!! :D), on a personal level, the effects of “too much” can be easily seen.

I believe Indians (and Asians in general) who were born in the 80’s to middle or higher class parents, can actually look at their entire lives and blame the abundance they witnessed in the upbringing they received, from their parents in specific and the society in general, for a chronic sense of impatience, dissatisfaction and lack of confidence. There was no struggle for basics at home, or vacancies and facilities in public schools. There were plenty colleges where they could graduate when they needed to, and a booming IT, ITeS industry ready to employ them by the time they graduated. A generation which was served everything on a platter not only lost the art of evaluation but also the ability to persevere and face adversity with poise. This I think should be called the “Curse of the Blessed”.

2 thoughts on “Russian Economy and the Indian Kids of the 80s”

  1. The Russian example can be analysed from a different perspective. It can be made to show through empirical evidence that Resource Curse or stuff like the Dutch Disease affects certain economies but I believe it is the structure of the political and economic system itself that carries a much greater significance when it comes to determining the way the resources are being used. Russia is a new nation when it comes to being a democracy and it does not have powerful institutions like the US or other western democracies to control the distortion in the efficient use of resources which in turn causes a distortion in the administrative structure.
    Also, in what manner do the higher educational and law and order systems change according to changes in the technological penetration in a society determines how a particular generation behaves and not only by the excesses they are ‘blessed’ with. So, the behavioral aspects of a generation are a function of the amount and type of exposure to various kinds of information which is determined by the law and order system in a society. Compare China and Japan vis-a-vis the USA…

    1. I agree with your point partially. Even Friedman states his First Law of Petropolitics with an exception. He says the law applies only to “states that are both dependent on oil production for the bulk of their exports or gross domestic product and have weak state institutions or outright authoritarian governments”. USA is a glaring example of a country which has large amounts of Oil, being the third largest producer, and yet manages to deliver a free and democratic environment to its citizens.

      But regarding the universality of the law of abundance, I disagree a bit. Abundance of any kind changes the very behaviour which dictates human function. The very foundation of Japan, and the moral integrity of its citizens, stands on a lingering sense of scarcity. Be it the unavailability of land or of mineral resources, or as of today, a severe lack of youth.

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