Theme: Productivity

—“Q: Curt: Why is Russia not in the top 10 of the 2019 global competitiveness index?”—

THE SOCIAL ANSWER

Read the comment [on Quora] by Dima Vorobiev as it gives the Russian perspective – which isn’t wrong so to speak. In particular, it’s still a hierarchical rather than majority middle-class civilization. They don’t have the institutions of, or morals of, a rule of law people like northern Europeans – these are rules of a majority middle-class civilization. They don’t have a participatory government – that is a system of middle-class majority civilization. Northern Europeans developed rule of law because we developed a majority middle-class civilization (West Ukraine did – it was under Austrian rule, hence the division in Ukraine.). Russia only stopped serfdom in the late 19th century, never developed a middle class, and transitioned right into Bolshevism, Leninism, Soviet Communism. So, instead, as Dima states, they remain an aristocratic civilization, where there is an aristocratic political class, an aristocratic commercial class, and ‘the people’. My experience of life in Ukraine and Russia (which I prefer to America), that the people go about their civil and family work, the business class goes about its business, and the state goes about its business, and as such there is less conflict because everyone isn’t involved in everyone else’s business – which is a good thing since they don’t know enough to do so. (Unlike the presumption of Americans.) Russia had to bear the soviet era but has not fallen for western ‘decadence’ (destruction of the family, morals, civil life, and social responsibility). Family and civil life are still meaningful. And the only problem is the time it takes to create infrastructure and employment across eleven terribly cold time zones with only 140m people with an economy the size of Texas.

THE ECONOMIC ANSWER:

The correct answer is of course that the GCI is a political tool as much as an empirical one. Russia like China has been through the perils of the international system, which favors certain countries and not others.

The principle answer is Time. They need more time to develop. Unreported in the west is Putin’s success at creating rule of law in Russia. Overreported in the west is the Russian use of Jingoism to inspire the people. If you view Russia from the lens of 1992 until today, it’s not as grand as china, but it’s pretty impressive.

The second reason – which is just plain incomprehensible – is the decline the Russian workforce which is particularly suited to engineering and technology work (I prefer to hire them myself). This decline is due to declines in education and is in part due to the increase in (bad) entertainment. Seriously. Russians had the world’s best education system. And it needs it.

The third reason is the condition of the financial sector, which is not sufficiently entrepreneurial (risk-tolerant). This is (in my opinion) the central problem. Until sanctions are lifted OR Russia succeeds in building a sufficiently trustworthy entrepreneurial credit sector, it will be difficult to get the 1/3 of the population who still lives in ‘rustic’ conditions, out of them.

The fourth reason is the low trust society and its impact on rule of law. I tried to buy about a dozen tech companies in Russia rather than start one and it’s impossible to determine what’s true; difficult to trust a contract will hold; So relationships matter and always will. Russia is just like Americans except they trust the government 1000x less, and friends and family 1000x more.

In other words, Russians wouldn’t take this report very seriously. It just feeds into the hands of the same people who spent the past 70 years putting us in the current precarious position.