Global Crisis Blog

Russia’s President Tells the Truth:

“Russia’s Economy is Archaic, Hollow”

By Shlomo Maital

Nov. 13/2009

     Harvard Business School Professor Chris Argyris conveys a simple, powerful message to his students and clients:  “Tell the truth!”.   Organizations that cannot face the brutal facts by definition are incapable of dealing with them.  “Tell the truth” is not a Sunday School moral lesson but a key principle of management.

      Take Russia, for instance.   It is widely assumed that former President Putin, who reinvented himself as Prime Minister, still pulls the strings.  But new President Dimitri Medvedev  (pronounced med-vye-dev,  few TV and radio broadcasters — and even George W. Bush —  take the trouble to learn to pronounce it properly)  is asserting himself and becoming a strong leader.  And he tells the truth.

      In a recent speech, he said it bluntly:  Russia’s economy is archaic and hollow.    The money pouring in from oil is highly deceptive and dangerous.  Russia can, and perhaps has,  become like an oil-rich Mideast sheikhdom,  drowning in paper but with no real economy apart from sticky black goo. 

   Here is an excerpt from an IMF report on Russia:  

GDP went from less than $1 trillion (£600bn) in 1998 to $2.1tn (£1.26tn) in 2007 but has since dropped sharply (IMF).  Exports as a portion of GDP soared from 20% in 1990 to more than 60% in 1992, but had fallen back to 33% by 2008 (World Bank).  Mineral products accounted for 70% of exports in 2008, machinery – 5% (Russian government statistics).   


Here is what Medvedev said, in his speech, according to the BBC:

   Russian President Dmitry Medvedev has called for profound reform of the economy in his annual state of the nation address.  The Soviet model no longer worked, he said, and Russia’s survival depended on rapid modernisation based on democratic institutions.  An oil and gas-based economy had to be reworked with hi-tech investments.  Inefficient state giants should be overhauled and issues of accountability and transparency addressed, he said.  “Instead of a primitive economy based on raw materials, we shall create a smart economy, producing unique knowledge, new goods and technologies, goods and technologies useful for people,” Mr Medvedev said.  “We can’t wait any longer,” Mr Medvedev said.   “We need to launch modernization of the entire industrial base. Our nation’s survival in the modern world will depend on that.”

   The BBC Moscow correspondent Richard Galpin, commented on the speech: 

    Mr Medvedev is certainly establishing more of a political identity by focusing on the modernisation theme. But there is still deep skepticism about his ability to deliver on any of the reforms he has called for because his power base is extremely limited and there will be many vested interests to overcome to bring about real change.

           Russia is for many companies a potentially rich market, but fraught with huge difficulties — corruption, bureaucracy, chaos.   We should watch Medvedev and Russia closely in the coming years.   Former IMF Deputy Director Stanley Fisher once said that the world   believed Russia, as a nuclear power, could not be allowed to collapse; yet in August 1998, it did and no-one came to the rescue.  One can imagine a failed, hollow archaic Russian economy run by Mafia — and the immense mischief it could cause to the interests of freedom and stability in the world.