The blog provides a left-wing non-partisan perspective on socio-economic issues in Russia and throughout the world. The focus is on qualitative development of national economic systems and ensuring flexibility in economic policies to meet the challenges of the 21st century. Email: leftistobserver@gmail.com

EXTENSIVE AND INTENSIVE ALTERNATIVES


I am convinced that the current crisis is a crisis of the neoliberal model of transnational capitalism. The model envisaged global expansion of supranational forms of international business, deregulated financialization of the entire global economy and artificial stimulation of consumption by means of credit made possible by expanded money supply. It had been assumed that debt-driven solvent demand would continue to rise but internal economic/financial problems (mainly associated with households’ growing debt-to-income ratio) in the United States, the largest consumer in the global economy, has caused the current contraction of the global economy. The hopes of the transnational elites have been dashed.

Technically, there are two ways to address these economically turbulent times – an extensive one and an intensive one, which is a standard situation for any economic system. The former approach is associated with a quantitative change of the system and the latter approach has to do with a qualitative change.

The intensive approach means a thorough reform of the existing economic model and has two alternatives: a) a new economic system conforming to the interests of the present transnational elite (this will entail another crisis of over-accumulation once the consumption potential of the new system is exhausted); b) a new system based on society-oriented approaches (this will face active resistance of enormous proportions from those with money and power).

The extensive approach would involve a mere expansion of the existing economic model, which implies an increase of the geographical area servicing the economic system. The interests of the transnational oligarchy will be preserved. But this will entail resistance from those compelled to join the globalized economic system. The use of force is more than likely in this case, it is inevitable. The sad thing is that all the tragedies involved will turn out to be in vain later on when the global economy faces another crisis thus repeating the fate of the first intensive alternative mentioned above.

Boris Anisimov

RUSSIA'S TOUGH LUCK


When comparing modern Russia to other countries, we fail to take several things into account that make Russia an expensive place to do business (which is reflected in the fact that even domestic capital has been on the run abroad ever since the collapse of the USSR):

  1. Vast territory with unequally distributed natural resources (most natural resources are in Eastern territories while main consumption markets for them are in the Western territories, hence high transportation costs throughout the country);
  2. The direction of navigable waterways (which are the cheapest way of transportation) does not match the direction of the main flows of goods within the country (hence higher transportation costs again and the need for expensive transportation infrastructure (e.g. oil pipelines));
  3. Sever climate conditions with average temperatures lower than in countries like Finland and Sweden (hence low profitability of agriculture, higher capital investments requirements, higher construction costs, high heating costs);
  4. Ethnical diversity of the population with conflicting values and traditions, etc.

Besides in an economy with various social and economic structures functioning within a single society, modernization of some sectors occurs at the expense of others (Stalin’s industrialization “plundered” agriculture, the military-industrial complex later “plundered” the light industry and consumer sector).

In these conditions, the Russian economy’s profitability has always been low with the state acting as the main investor since private business reasonably leans towards more profitable and less capital-intensive sectors. In an attempt to boost profitability, businesses place some their burden on the shoulders of consumers or the government by reducing the quality of products, lowering customer service standards, evading taxes, etc. They are very reluctant to invest in long-term projects preferring a “hit-and-run” approach to conducting business. Large companies benefit from economies of scale, which monopolizes the economy and grants to the most privileged access to the most profitable sectors (e.g. oil and gas).

Boris Anisimov