Gaddy former visiting professor of economics johns

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Unformatted text preview: ecade,” Alexei Kudrin, who was finance minister during the entire period, said at a conference in Moscow last week. Spending surged fourfold on rising energy prices, leading to a 68-percent, 10-year rise in the economy , he said, adding, “That’s never going to happen again.” President Dmitry Medvedev, 46, proposed in September that Putin, 59, return to the presidency. A showing of less than 50 percent in March would force Putin into a runoff. The premier says Medvedev, whom he handpicked to move to the Kremlin because of a constitutional limit on serving more than two consecutive terms, may now become prime minister. Putin is almost certain to survive a runoff because voters remember how bad things were under former President Boris Yeltsin, said Michael Ganske, head of emerging-market research at Commerzbank AG in London, in a phone interview. Vladimir Putin 129 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 130 Oil DDW 2012 1 ***Russia Internal Links*** 131 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 132 Oil DDW 2012 1 A2 Dutch Disease 133 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 High oil prices are key to long-term economic stability – shifting the economy now collapses Russia Gaddy ’11 [Clifford G. Gaddy, former Visiting Professor of Economics, Johns Hopkins University, Senior Fellow, Global Economy and Development at brookings, 6/16/11] To ask whether the Russian economy will rid itself of its “dependence on oil” is to ask whether ideology will trump economics. Many people in Russia—including President Medvedev—seem to believe Russia should de-emphasize the role of oil, gas, and other commodities because they are “primitive.” Relying on them, they argue, is “degrading.” From the economic point of view, this makes no sense. Oil is Russia’s comparative advantage. It is the most competitive part of the economy. Oil and gas are something everyone wants, and Russia has more of them than anyone else . It is true that the Russian economy is backward, and that oil plays a role in that backwardness. But oil is not the root cause. The causes of Russia’s backwardness lie in its inherited production structure. The physical structure of the real economy (that is, the industries, plants, their location, work forces, equipment, products, and the production chains in which they participate) is predominantly the same as in the Soviet era. The problem is that it is precisely the oil wealth (the so-called oil rent) that is used to support and perpetuate the inefficient structure. For the sake of social and political stability, a large share of Russia’s oil and gas rents is distributed to the production enterprises that employ the inherited physical and human capital . The production and supply chains in that part of the economy are in effect “rent distribution chains.” A serious attempt to convert Russia’s economy into something resembling a modern Western economy would require dismantling this rent distribution system. This would be both highly destabilizing, and costly in terms of current we...
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