Liam Halligan, in Moscow for the city's 850th celebrations, wonders about the bad news from Russiaby Liam Halligan / November 20, 1997 / Leave a comment
Published in November 1997 issue of Prospect Magazine
In the early 1990s, with the loss of an empire still hurting, and the country lurching between coups, Russians cared deeply what other countries thought about them. Now, growing national confidence seems to mean a healthy indifference to foreigners’ views. On a late summer break to visit Moscow’s 850th birthday celebrations, I found that the new generation of Russians is almost grateful to be underrated. Something very special is happening here, they are saying, whether you westerners like it or not-we are about to rewrite history before your eyes. Even the unfortunate timing of Princess Diana’s funeral-on just the wrong weekend for the 850th celebrations-was greeted with equanimity by politicians. Given the lavish $60m programme of events, including a recital by Pavarotti in Red Square and an open air concert by Jean-Michel Jarre, the French synthesiser wizard, one might have expected the country’s leaders to begrudge losing out on some decent foreign coverage. Because decent foreign coverage is not something Russia has been getting. While preparing to leave London, intelligent friends asked in earnest if I had packed food parcels and a bullet proof vest. Rarely is Russia presented favourably, as a country of endless commercial possibilities, which since the collapse of the USSR in 1991 has taken large strides towards political and economic sanity. Little is made of the fact that despite inheriting a grossly distorted Soviet economy, the Russian authorities have reduced annual inflation to 14 per cent, stabilised the rouble and brought interest rates under control. International reserves of $25 billion, up from $14 billion at the beginning of 1997, mean that talk of a hard currency and lasting macro stability is credible. Yet Russia is still portrayed in lingering Soviet clich?s: as a no-hope nation founded on organised crime, prostitution and vodka. Why is the news coming out of Russia so bad? Why don’t we hear that Mars, Coca-Cola and Hewlett Packard have each made direct Russian investments exceeding $100m? Why is it not widely known that Nestl? enjoyed Russian sales of $500m last year, while the big six accountancy firms are expanding aggressively-some now employing over 1,000 professionals. Only now, with the Russian stock market increasing fourfold since early 1996, and the country’s credit rating outstripping those of Brazil and Mexico, has the commercial side of the Russian story begun to seep out, and only among a highly specialised audience. General perceptions, as my friends’ questions confirmed, remain overwhelmingly negative. Part of the explanation is that most western commerce here is happy for the horror stories to continue. Foreign companies-from cigarette and detergent manufacturers to law firms and fashion houses-are, after all, engaged in a ferocious battle for market share. Keen to avoid extra competition from home, they keep their successes quiet. Negative images of Russia also serve powerful western interest groups. One hardly needs to be a conspiracy theorist to conclude that Nato’s defence industry-with orders worth tens of billions of dollars each year-benefits from alarmist Russian news. The World Trade Organisation, similarly, gains from Russian horror stories. As long as it can be argued that the country remains a “non-capitalist economy,” Russian exporters can be accused of “dumping”-which protects markets in the US and Europe. The third side of the negative news triangle is the media itself. Reporters, inevitably, prefer stories of money-laundering and drunken presidents to hard-headed analyses of commerce and bond markets. Yet it is in companies’ balance sheets and in interest rate differentials that the undeniable evidence of Russia’s economic revival is to be found. Journalists are not helped by the inadequacy of Russian statistics. Output figures suggesting a 40 per cent reduction in the size of the economy over the last decade are flawed, though widely cited. A key problem is that whereas Russia’s punitive tax rates drive much private sector activity off companies’ books, Goskomstat-the state’s statistical oracle-makes only token adjustments to growth data for the “underground” non-tax economy. In fact, little effort is made to measure Russia’s burgeoning new private sector. Goskomstat’s surveying techniques, designed to track a centrally planned economy, have hardly changed since Soviet days. While production at large state-owned factories continues to be monitored in detail, surveys of newer and smaller private firms have barely begun. Russia’s service sector, which has grown exponentially since Soviet days, is also only partially included. So when underestimates of output today are combined with the propaganda driven over-estimates from the dying days of communism, Goskomstat’s figures exaggerate the drop at both ends. Despite all these shortcomings, official figures now suggest growth is on the horizon. If modern survey techniques were adopted, Russia would already be expanding at more than 3 per cent per year. This is, after all, the level suggested by proxy measures of economic activity, such as commercial electricity consumption and freight transportation.