Author: Admin
Conflict, Minorities and Well-Being
We assess the effect of the Russo-Georgian conflict of 2008 and the Ukrainian-Russian conflict of 2014 on the well-being of minorities in Russia. Using the Russian Longitudinal Monitoring Survey (RLMS), we find that the well-being of Georgians in Russia suffered negatively from the 2008 Russo-Georgian conflict. In comparison, we find no general effect of the Ukrainian-Russian conflict of 2014 on the Ukrainian nationals’ happiness. However, the life satisfaction of Ukrainians who reside in the southern regions of Russia in close proximity to Ukraine is negatively affected. We also show that the negative effect of conflict is short-lived with no long-term legacy. Additionally, we analyze the spillover effect of conflict on other minorities in Russia. We find that while the well-being of non-Slavic and migrant minorities who have recently moved to Russia is negatively affected, there is no effect on local minorities who have been living in Russia for at least ten years.
Militarized conflict affects a myriad of socioeconomic outcomes, such as the level of GDP (Bove et al. 2016), household welfare (Justino 2011), generalized trust and trust in central institutions (Grosjean 2014), social capital (Guriev and Melnikov 2016), and election turnout (Coupe and Obrizan 2016). Importantly, conflict has also been found to directly affect individual well-being (Frey 2012, Welsch 2008).
However, previous research studying individual well-being in transition countries largely abstracts from heightened political instability and conflict proneness, while this has been particularly pertinent in transition countries. Examples of transition countries facing various types of conflicts are abound, such as Yugoslavia, Ukraine, Tajikistan, Russia, Armenia, Azerbaijan, Moldova, and so on. Therefore, it is imperative to explore how conflict shapes well-being in transition countries.
In a new paper (Gokmen and Yakovlev, forthcoming), we add to our understanding of well-being in transition in relation to conflict. We focus on the effect of Russo-Georgian conflict of 2008 and the Ukrainian-Russian conflict of 2014 on the well-being of minorities in Russia. The results suggest that the well-being of Georgians in Russia suffered negatively from the 2008 Russo-Georgian conflict. However, we find no general effect of the Ukrainian-Russian conflict of 2014 on the Ukrainian nationals’ happiness, while the life satisfaction of Ukrainians who reside in the southern regions of Russia in close proximity to Ukraine is negatively affected. Additionally, we analyze the spillover effect of conflict on other minorities in Russia. We find that while the well-being of non-slavic and migrant minorities who have recently moved to Russia is negatively affected, there is no effect on local minorities who have been living in Russia for at least ten years.
Data and Results
We employ the Russian Longitudinal Monitoring Survey (RLMS) which contains data on small neighborhoods where respondents live. Starting from 1992, the RLMS provides nationally-representative annual surveys that cover more than 4000 households with 10000 to 22000 individual respondents. The RLMS surveys comprise a broad set of questions, including a variety of individual demographic characteristics, health status, and well-being. Our study utilizes rounds 9 through 24 of the RLMS from 2000 to 2015.
In this survey, we identify minorities with the question of “What nationality do you consider yourself?” Accordingly, anybody who answers this question with a non-Russian nationality is assigned to that minority group.
We employ three measures of well-being. Our main outcome variable is “life satisfaction.” The life satisfaction question is as follows: “To what extent are you satisfied with your life in general at the present time?”, and evaluated on a 1-5 scale from not at all satisfied to fully satisfied. Additionally, we use “job satisfaction” and “health evaluation” as outcomes of well-being.
Our results suggest that our primary indicator of well-being, life satisfaction, for Georgian nationals has gone down in the Russo-Georgian conflict year of 2008 compared to the Russian majority (see Figure 1). The magnitude of the drop in life satisfaction is about 39 percent of the mean life satisfaction. Our estimates for the other two well-being indicators, job satisfaction and health evaluation, also indicate a dip in the conflict year of 2008. Lastly, our estimates show that the negative impact of the conflict does not last long. Although there is a reduction in the well-being of Georgians both on impact in 2008 and in the immediate aftermath in 2009, the rest of the period until 2015 is no different from the pre-2008 period.
Figure 1. Life Satisfaction of Georgian Nationals in Russia
Source: Authors’ own construction based on RLMS data and diff-in-diff estimates.
Furthermore, when we investigate the effect of the Ukrainian-Russian conflict of 2014, we find no negative effect on the life satisfaction of Ukrainians. One explanation for why the happiness of Ukrainians in Russia does not seem to be negatively affected in 2014 is that the degree of integration of Ukrainians into the Russian society is much stronger than the degree of integration of Georgians. On the other hand, our heterogeneity analysis reveals that in the southern parts of Russia closer to the Ukrainian border, where there are more Ukrainians who have ties to Ukraine, Ukrainian nationals are differentially more negatively affected by the 2014 conflict. The differential reduction in the happiness of Ukrainians is about 19 percent of the mean life satisfaction.
Moreover, we also look into whether there is any spillover effects of the Russo-Georgian and the Ukrainian-Russian conflicts on the well-being of other minorities. We first carry out a simple exercise on non-Slavic minorities of Russia. We pick the sample of non-Slavic ex-USSR nationals that are similar to Georgians in their somatic characteristics, such as hair color and complexion. This group of people include the nationals of Azerbaijan, Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan. We treat this group as “the countries with predominantly non-Slavic population” as their predominant populations are somatically different from the majority Russians, and thus, might either have been subject to discrimination or might have feared a minority backlash to themselves during the times of conflict. This conjecture finds some support below in Figure 2 in terms of violence against minorities. We observe in Figure 2 that hate crimes and murders based on nationality and race peak in 2008.
Our estimates also support the above hypothesis and propose that there is some negative effect of the 2008 conflict on non-slavic minorities’ happiness as well as their job satisfaction, whereas 2014 conflict has no effect.
Figure 2. Hate Murders in Russia over Time
Source: Sova Center
Next, we investigate the spillover effects of conflict on Migrant Minorities. Migrant minorities are minorities who have been living in their residents in Russia for less than 10 years. We conjecture that these minorities, as opposed to the minorities who have been in place for a long time, could be more susceptible to any internal or external conflict between Russia and some other minority group for fear that they themselves could also be affected. Whereas other types of longer-term resident minorities, which we call Local Minorities, are probably less vulnerable since they have had more time to establish their networks, job security, and most likely also have Russian citizenship. Our estimates back up the above conjecture and demonstrate that migrant minorities suffer negatively from the spillover effects of the 2008 conflict onto their well-being captured by any of the three measures, and not from the 2014 conflict, whereas there is no negative impact on local minorities.
Conclusion
In this paper, instead of focusing on the direct impact of conflict on happiness in war-torn areas, we contribute to the discussion on conflict and well-being by scrutinizing the well-being of people whose country of origin experiences conflict, but they themselves are not in the war zone. Additionally, we show that some other minority groups also suffer from such negative spillovers of conflict. Being aware of such negative indirect effects of conflict on well-being is essential for policy makers, politicians and researchers. Most policy analyses ignore such indirect costs of conflict, and this study highlights the bleak fact that the cost of conflict on well-being is probably larger than it has been previously estimated.
References
- Bove, V.; L. Elia; and R. P. Smith, 2016. “On the heterogeneous consequences of civil war,” Oxford Economic Papers.
- Coupe, T.; and M. Obrizan, 2016. “Violence and political outcomes in Ukraine: Evidence from Sloviansk and Kramatorsk”, Journal of Comparative Economics, 44, 201-212.
- Frey, B. S., 2012. “Well-being and war”, International Review of Economics, 59, 363-375.
- Gokmen, Gunes; and Evgeny Yakovlev, forthcoming. “War and Well-Being in Transition: Evidence from Two Natural Experiments”, Journal of Comparative Economics.
- Grosjean, P., 2014. “Conflict and social and political preferences: Evidence from World War II and civil conflict in 35 European countries” Comparative Economic Studies, 56, 424-451.
- Guriev, S.; and N. Melnikov, 2016. “War, inflation, and social capital,” American Economic Review: Papers & Proceedings, 106, 230-35.
- Justino, P., 2011. “The impact of armed civil conflict on household welfare and policy,” IDS Working Papers.
- Welsch, H., 2008. “The social costs of civil conflict: Evidence from surveys of happiness” Kyklos, 61, 320-340.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Gender Equality and Economic Development: From Research to Action
It’s increasingly being acknowledged that gender inequality is not just a human rights issue, but of first order importance for economic development. It is also an issue of high priority for the Swedish government, with the feminist foreign policy gaining a lot of attention worldwide. This policy brief shortly summarizes presentations held during a full day conference at the Stockholm School of Economics on June 1, 2018. The event focused on how gender discrimination negatively impacts the productivity of low and middle income economies, but also how reforms and specific initiatives can better the situation. The perspective was both long term, how norms and laws governing women’s rights have evolved over time, and short term, illustrating the current challenges women and societies face, with a particular emphasis on the situation in Eastern Europe. This was the 7th installment of SITE Development Day – a yearly development policy conference organized with support from the Swedish Ministry for Foreign Affairs.
From Research: Causes, Costs and Remedies
Cross-country differences in gender equality are often explained by variation in formal institutions such as laws and policies, and informal institutions such as social norms, religion and culture. A recent literature has focused on understanding the underlying drivers behind the variation in gender norms, arguing that these norms themselves may be functions of predetermined fundamentals such as geography, language and external shocks such as wars, revolutions or the slave trade. An influential line of research has emphasized that certain agricultural conditions have given prominence to technologies that require more muscular strength (the plow), whereas in shifting agriculture, hand-held tools like the hoe and the digging stick, require less upper body strength, are more labor intensive and easier to combine with child care. The former conditions are therefore associated with a stricter gender division of labor that generated a norm that the natural place for women is in the home. That these differences still linger have been empirically shown looking at cross-country variation in outcomes such as female labor force participation, political representation, inheritance rules, polygamy, parental authority and women’s freedom of movement. The variation is also found among second generation immigrants, where the attitudes from the parents’ ancestry are reflected also among those born and raised in western societies with more equal gender norms.
There has been an increasing emphasis on trying to estimate how gender inequality inhibits economic development, and to put numbers on the foregone economic development and growth from continuing inequality. A key indicator of inequality in this respect is the gender gap in labor force participation. There has been progress globally in this respect, but we are still far from equality and outcomes vary dramatically across regions and countries. Traditional approaches to estimate the benefits of increased female labor force participation (flfp) has assumed perfect substitutability between men and women. New evidence suggests that this may not be true, that men and women are complementary, which implies that increased flfp increases production beyond just the fact that more people are put to work. This also means that more women in work increases the productivity of men, in other words a win-win situation. This complementarity effect can take place at the workplace (think of diversified company boards), but recent research suggests that this is particularly true at the macro level. This is likely because men and women tend to work in different sectors and occupations that are themselves complementary, yielding the additional benefit at the macro level. Estimates of welfare gains of eliminating barriers to female labor force participation to levels seen in the US, suggest improvements of on average 22 % in South Asia and 18 % in the Middle East and North Africa region.
One important policy tool to influence gender outcomes, and sometimes also gender norms, is tax and benefits policy. These sets of policies are almost never explicitly gender biased, but the impact of details of policies in areas such as inheritance law, parental leave, pensions and taxes all affect the incentives that men, women and couples face. It is also important to understand that these policies often operate in an environment that is far from being without a gender bias, suggesting that there may be motivation for government intervention to correct outcomes and also lead the way to slowly change norms. As models of household decision-making suggest that partners may not operate as a unitary actor maximizing joint welfare, and women typically have lower bargaining power within the household, policies that leave discretionary power to the couple may lead to highly unequal outcomes. Instead policies may need to be individualized, such as tax policy and parental leave policy.
The conference also contained a panel specifically focusing on Eastern Europe. The communist legacy meant that these countries, in some dimensions such as flfp, started from much more equal levels than other countries at comparable levels of income in the 1990s. The most immediate gender crisis in some ways was on behalf of men, whose life expectancy dropped dramatically. This crisis for men also created externalities in the form of domestic violence and orphaned children. Since 1990, there has therefore been some reversals in gender outcomes, and in some areas, such as political representation, the region on average performs quite poorly. Individual countries also face very different challenges. In Georgia the sex ratio at birth increased dramatically in the 1990’s as economic hardship and conflict coincided with the introduction of new technology to determine the sex of a child in utero. In Belarus inequality strikes both ways, with men having more than 10 years lower life expectancy, have higher retirement age and are drafted to military service. On the other hand women are under-represented in politics and largely responsible for unpaid homework, partly due to a very generous 3 year-long paid maternity leave policy. The tradition of bride kidnapping in parts of Central Asia (as high as 10-25 % of women in parts of rural Kyrgyzstan) was brought up, and research showing birthweight losses of children to kidnapped mothers equivalent to those measured elsewhere in conflict zones (100-200 g) suggest that this is indeed a real violation of these women.
To Action: Policies for gender equality
The SDG 2030 agenda and the concurrent finance for development process both emphasize the importance of having all sectors of society onboard in the quest of achieving the new development goals. The event therefore included representatives of both the private, public and civil societies, and featured a range of different initiatives across these sectors. A sector in which many women work for foreign companies in developing countries is textile. Here foreign companies can lead the way through initiatives beyond direct wage and employment policies that improve women’s welfare, such as information campaigns devoted to personal hygiene or policies that transfer salaries directly to the personal account of the employees (an approach that matters when there is unequal bargaining power within the household, as shown through research). Also initiatives to reduce harassment and support female careers can make a difference. A sector on the other side of the spectrum is the telecommunications sector, which is very male dominated. This bias typically start from an early age, and is reinforced by gender stereotypes. Active work in the community to early on reaching out with tech programs explicitly targeting girls can make a difference, and so can making people aware of unconscious biases.
Aid agencies and NGOs also play an important role in promoting gender equality in partner countries. Research shows that women in relative terms tend to spend resources in ways that benefit the family more, and discrimination can be counteracted through policies specifically targeting women and trying to strengthening their situation both outside and inside the household. Initiatives that give women access to credits, and foster collective action and political engagement have been tested on large scale in for instance India. Aid financed investment funds target female entrepreneurs, and engage in programs to integrate women into the investment process. Investors also have the leverage to stress the importance of partner companies investing in their female employees, for instance though education, safe transportation and separate changing rooms. A major player like Sida can engage in a dialogue also with partner governments to incentivize them to live up to commitments made in conventions and treaties, but also empower change agents that can put pressure on patriarchic structures. In the health sector, priority is given to sexual and reproductive rights, but beyond targeted interventions it is also important to mainstream a gender perspective into all types of projects and programs. It’s acknowledged that measuring impact is a challenge, and some partners are perceived as more receptive than others, but the perception is that attitudes are changing.
A Government Perspective
From the Swedish government’s side it was emphasized that gender equality is a goal in itself, as well as a prerequisite for economic development. The by now well-known feminist foreign policy is based on three R’s: that all women and girls should have access to rights, representation and resources. The policy is backed up by an action plan with clearly expressed goals in areas of peace and violence, political representation, economic empowerment and sexual and reproductive health rights. These goals will be evaluated for results (a fourth “R”) and, due to international demand, the foreign ministry is currently preparing a handbook for feminist foreign policy to document the process and the lessons learned. In the collaboration with Eastern Partnership countries, gender equality became part of the summit declaration in 2015. There’s an increasing willingness to talk about gender in the partnership countries, but many challenges remain, as also exemplified by recent experience from working in the government of Ukraine. Swedish initiatives are often a catalyst for change, though, with EU politicians and administrators slowly following pace. It was emphasized that to argue for the case of women and girls, data and research is crucial, so the FREE initiative to create a center of excellence in gender economics (FROGEE) was received with much appreciation.
To get more information about the presentations during the day and references to the data and literature discussed above, please visit this page.
Participants at the conference
- Ann Bernes, Ambassador for Gender Equality and Coordinator of Sweden’s Feminist Foreign Policy, Ministry for Foreign Affairs.
- Raphael Espinoza, Senior Economist, IMF.
- Paola Giuliano, Associate Professor of Economics, UCLA, Anderson School of Management.
- Michal Myck, Director at CenEa, Poland.
- Anna-Karin Dahlberg, Corporate Sustainability Manager at Lindex.
- Richard Nordström, General Director at Hand in Hand.
- Karin Kronhöffer, Director Strategy and Communication at Swedfund.
- Anne Larilahti, VP Head of Sustainability Strategy at Telia.
- Jesper Roine, Deputy Director, SITE.
- Charles Becker, Research Professor of Economics, Duke University.
- Tamta Maridashvili, Researcher, ISET-PI, Georgia.
- Lev Lvovskiy, Research Fellow, BEROC.
- Elsa Håstad, Director at the Department for Europe and Latin America at Sida.
- Inna Sovsun, Vice President at Kyiv School of Economics (KSE), Ukraine.
- Anna Westerholm, Sweden’s Ambassador for the EU Eastern Partnership.
- Carin Jämtin, Director General at Sida.
- Torbjörn Becker, Director at SITE.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Understanding Currents in the Contesting Information Spheres
Computers and internet merely added new forms to age-old forms of propaganda. Its general purpose is, as it always has been, dualistic: to shape citizens’ image of their own country, and to streamline their views of foreign partners, competitors or enemies. Studies on information wars are often one-dimensional, i.e. presenting only actions directed against one’s own state. New Russian textbooks on information wars have a more complex approach and present long historical retrospective overviews.
Reports on disinformation campaigns are nowadays regular in the information sphere in Sweden, as in the West in general. The changes of today’s propaganda compared to classic stereotypes of the Cold War confrontations seem obvious. However, many debates on how to counter a feared information war or fake news campaigns apparently lack a long-term historical perspective. Therefore, they appear unnecessarily alarmist and might even miss their claimed purpose – to promote a sound political debate on domestic and international affairs.
Trends in Swedish information spheres – a retrospective overview
From time to time, a dominant political climate and consensus is challenged. During the prosperous 1950s, Sweden formed a self-image of the “golden middle way” between capitalism and socialism. Many aspects of this self-image were indeed partly myths. A Swedish author, Göran Palm, happened to be one of the succinct observers to challenge our prejudiced visions. His books “An unjust reflection” and “Indoctrination in Sweden” reached a wide audience and forced many to reconsider our achievements as a welfare state. Gunnar Fredriksson, editor of a Social-Democratic newspaper, alerted readers to the intricacies of “the politicians’ language” as a means to distort realities or evoke positive or negative emotions.
These books from the late 1960s were milestones for heightening the public awareness of mass media manipulation. A similar trend and radical change of Sweden’s self-image is taking place today. Until recently, the predominant view has been that Sweden represents a successful experience in forming a multicultural society, despite a few obvious crisis phenomena.
However, an awareness concerning the stress on the social fabric has spread from outsiders in the political scene towards mainstream parties. One example can highlight how changes have occurred. In January 2017, the Swedish journalist Katerina Janouch was scolded for an interview on Czech television, in which she inter alia stated her own personal view of the many problems that Sweden definitely is confronted with. After a vivid debate with harsh arguments involving even high-ranking politicians over her apparently controversial statements, she wrote a diary-like book “The Image of Sweden”. On a micro level, this fascinating personal experience succinctly shows how the image of Sweden changed over the last year, what has been accepted and what is still hotly debated concerning economics, migration and social problems.
Picture 1. “Bilden av Sverige” Book Cover
Over a short period, new political trends appeared. The political agenda has changed; serious debates treat formerly taboo topics. This is essentially because objective challenges to the economic stability, social fabric and cohesion cannot be ignored.
Even more noteworthy is, that given the outcome of the US presidential election campaign and the Brexit plebiscite of 2016, in particular the alleged role of outsiders’, supposedly decisive, involvement in these political events, Sweden has revitalized its organs on countering foreign political propaganda, which had been inactive after the Cold War era. Leading newspapers jointly with radio and TV intend to cooperate in order to thwart any attempts in 2018 to covertly interfere or overtly influence the upcoming parliamentary elections in September. Alerts against supposed disinformation campaigns by Russian mass media were at the center-stage of an annual defense policy conference in Sälen. The previous attempts to describe and analyze the supposed Russian information war efforts towards Sweden as presented hitherto seem, in my view, to lack in source collection from Russian mass media and blogospheres. They merely illustrate rather than form a structured picture of the Russian information spheres as a multiform complex.
Contests between the information spheres in Russia and the West
Therefore, as the Swedish proverb goes, “let’s turn the keg” and try to see things in a new perspective, by turning our usual modes of thought and preconceptions upside-down. A broad awareness on state propaganda in Russia, in the past as well as at present, can deepen our understanding of ongoing information wars. How does a Russian student in political sciences become aware of the formations of their nation’s self-image, as well as of foreign propaganda against their country? How do Russian scholars analyze their recent conflicts with neighboring states? What can they tell us of the general awareness concerning information warfare in the Russian public?
Three Russian historians, Viktor Barabash, Gennadii Bordiugov and Elena Kotelenets, all active in AIRO-XXI about which you can read more of here, give a broader perspective on how state propaganda has changed since the early 20th century till our times. They illustrate how countries at war, starting during World War I, directed propaganda to mass armies with, in general, literate soldiers and by that tried to influence the enemy’s morale. They evaluate how effective various forms of propaganda were, given the new technologies radio and TV during the Second World War and the Cold War eras.
After several in-depth chapters on the technological changes in the information era, on the cyber technological advances that have radically transformed traditional espionage, they finally describe how the information wars were carried out in Russia’s conflicts since 2000 (South Ossetia in 2008, Ukraine during the “Orange Revolution” and “Euro-Maidan”). Particular emphasis is devoted to how the conflicting parties formed their propaganda to their own population, on the one hand, and versus the opposing state, on the other hand.
Picture 2. ”Gosudarstvennaia propaganda i informatsionnye voiny” Book Cover
It is striking that in contrast to the Russian textbook by Barabash, Bordiugov and Kotelenets, very few analysts in Sweden have managed to present the contemporary information wars as a two-sided conflict; with two sides mutually intertwined in their mass media and social media strivings. Instead, information warfare is described as originating solely from more or less sophisticated “troll factories” in various locations in Russia. A couple of obviously forged “documents” ascribed to Swedish political leaders are sometimes referred to, although their actual effects have been nil.
In Sweden, as well as in the West in general, much has been stated on the real or imagined disinformation campaigns launched by Russia. Sometimes, they are said to direct public opinion in other states or even to influence the electorate (USA, United Kingdom). The role of relatively peripheral news agencies like RT (Russia Today) or Sputnik have seen their role amplified beyond reasonable belief. A further simplification is to reduce any Russian interpretation of events as a piece of falsification (fake news). Warnings of “Putin’s narrative” or “Russian Television fake stories” are common in mass media. In comparison, students of the Barabash textbook must undertake textual analyses of conflicting Russian and foreign opinions.
If one does not know history, you are likely to repeat its mistakes – so goes the proverb. Just as likely is the case where one repeat past generations’ mistakes because you are leaning on the mythology surrounding many events in your country’s past.
Minister of Culture Vladimir Medinskii has carried out a broad research project on the shifting images of Russia in the West, from eldest time when written sources by travelers are available. Although other historians criticized his original thesis on this subject for certain methodological flaws, there is no doubt that Medinskii accomplished a great feat as a popularizer of intricate phases in Russia’s history.
One book concerns the new historiography of the 1939–45 war on the Eastern Front. Since the late 1980s, many formerly taboo topics concerning the war were studied based on formerly secret archives as well as on interviews with veterans. In his book on the Great Patriotic War, Medinskii carefully unravels old myths and rejects new simplifications or distortions of battle histories.
Picture 3. “Mify o Rossii” Book Cover
Every historical nation tends to develop its own historiographical paradigm, which might be more or less objective and in conformity with general interpretations in other nations. However, just as often one nation’s image of their neighbors, former enemies or partners may differ substantially; thus are created the stereotypes of “the others”. In his grand comparative survey of Russia from the 12th century to the present, Medinskii provides the engaged reader with a plethora of examples of distortions of Russia’s history, created not only by foreign observers but also by ideologically motivated compatriots. Many legends on “eternal traits” in Russia are challenged. A Western reader of Medinskii’s book is bound to reflect on the various measures by which his or her country is evaluated in comparison with Russia.
In conclusion, the information contests or wars are only one element in the wider concept of cyber and hybrid wars. Observing our Swedish debate on the nefarious effects of alleged Russian disinformation, the absence of self-awareness is remarkable on how our own image of Russia (in our mass media and in the public opinion) is in itself the unconscious product of a pre-war attitude (sometimes alluded to as our age-long Russia-fear /Rysskräck/).
On the contrary, the legacy of the Soviet epoch has apparently raised the cultural curiosity among the Russian public. Mass media and publishing companies created a multidimensional panorama of their country’s past. The concerned Russian readers seem fairly well aware of politicization of historical issues and international affairs. Not for nothing do they often get substantial “food for thought” from the foreign news media translations, provided online by the InoSmi.ru site; a translation bureau, which took over the task of the Soviet-era magazine “Za Rubezhom”, and which lends its commentary fields open for anyone to comment. Even a cursory survey of commentary fields reveals their spontaneous character, rather than something created by Kremlin’s purported “troll armies”.
It goes without saying that a general and highly sophisticated awareness of overt or covert forms of meddling by a foreign state in the political process of any country must be welcomed and promoted. However, it is an open question how successful certain organized counter-disinformation strategies will be, e.g. EU’s site EUvsDisinfo.eu, NATO’s East StratCom Task Force or the Swedish joint public radio and TV with leading newspapers to “combat fake news”. Leaving much broader fields in the information sphere for freer opinion making in mainstream media as well as in the blog sphere might prove to be a sounder path towards dialogues, debates and mutual understanding.
References
- Barabash, V. & G. Bordiugov & E, Kotelenets, Gosudarstvennaia propaganda i informatsionnye voiny (2015), AIRO-XXI
- Fredriksson, G., Det politiska språket (1966 and later editions), Tiden.
- Janouch, K., Bilden av Sverige (2017), Palm Publishing.
- Palm, G., En orättvis betraktelse, (1966) and Indoktrineringen i Sverige (1968), PAN/Norstedts
- Medinskii, V., Voina: Mify SSSR, 1939 – 1945 (2011) and Mify o Rossii (2015), Abris/OLMA
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Women Entrepreneurs in Belarus: Characteristics, Barriers and Drivers
This policy brief summarizes the results of the research on aspects of female entrepreneurship in Belarus. The aim of this work was to shed a light on what the features of female-owned business in Belarus are and whether there are any differences in the motives and barriers it faces compared with male-owned companies. Results show that female-owned companies are smaller in size, less likely to grow fast and less effective in the monetization and promotion of their innovative products and ideas. This is partly due to differences in social roles, motives, decision-making process and macroeconomic factors.
Women’s entrepreneurship is not just a question of gender equality but one of the sources for the sustainable economic development of the country. The presence of women among decision makers is beneficial for companies’ performance, effectiveness and innovativeness, and impacts the growth of profitability of the company (Akulava, 2016; Noland et al., 2016).
Little is known about the state of women’s engagement in economic governance in Belarus. According to the 5th wave of the BEEPS survey conducted by the World Bank, female top managers operate in around 32.7% of Belarus’ firms and 43.6% of firms have women among their owners (The World Bank, 2013). At the same time EBRD research shows that, on average, for every 10 men taking loans for the development of their own enterprise, only one woman did. Furthermore, the probability of loan rejection is 55% higher for women than for men in Belarus (these average numbers were presented by EBRD representatives during the conference “Business Territory: Women’s View”, Minsk, 2017). Unfortunately there is no information on the size and purpose of the loans, but potentially this may be a sign of discrimination and constraints on women’s economic activity.
We tried to expand the understanding of the role of women in Belarus’ private sector and to uncover individual, social, economic and cultural barriers that affect economic behavior and career choices of women, as well as introduce new drivers for female entrepreneurship in Belarus.
For this purpose we conducted interviews in 3 focus groups with the involvement of women entrepreneurs and also ran a survey that covered 407 owners and top decision-makers in the small and medium enterprises (SMEs).
The data analysis showed that around 30% of businesses belong to women (Table 1). Women tend to choose to operate in wholesale/retail trade, manufacturing, and medical/social services. Trade is the most popular with 28.9% of female-owned companies being part of this industry, while manufacturing stays second (10.1%). Trade also attracts the largest share of the male-owned companies (29.6%), next go manufacturing (23.9%) and construction (18.9%).
Table 1. Sectoral distribution by gender of the owner
| Female-owned | Male-owned | |
| Share in total sample (%) | 30.3 | 69.7 |
| Sectoral distribution | ||
| Trade | 29.0 | 29.6 |
| Manufacturing | 10.1 | 23.9 |
| Construction | 7.3 | 18.9 |
| Medical and social services | 8.7 | 1.3 |
| Hotel and catering | 8.7 | 2.5 |
| Transport | 7.3 | 10.1 |
| Other | 29.0 | 13.8 |
Innovative behavior changes slightly depending on the gender of the owner (33.3% of female- and 38.9% of male-owned companies have implemented innovations during the last 3 years). The measure of implemented innovative activities includes information on whether the company introduced any radical or incremental innovation (product/service/novelty in business processes/new strategy) during the last three years.An average female-owned firm grows much slower than male-owned business (Table 2). The annual sales gain and the sales gain over the last 3 years are 4 times and 2 times smaller respectively. The average number of employees is also smaller among female-owned companies (10 vs. 17 employees). On average, the owner of the male-owned firm has almost 15 years of relevant working and 13 years of managing experience. Similar characteristics for female owners are 12.8 and 9.7 respectively.
However, the realization of the implemented innovations as well as their relevance look more successful among the male-owned businesses. According to the answers in the survey, the profit share due to implemented innovations equals 28.8% among male-owned businesses and just 16.4% among female-owned. Thus, the major part of return is generated by the established business model and not the novelty.
Table 2. Business characteristics by gender of the owner
| Female-owned | Male-owned | |
| Sales growth 1yr (%) | 7.6 | 27.1 |
| Sales growth 3yr (%) | 18.4 | 36.1 |
| Size of the company (employees) | 10.6 | 17.3 |
| Age of the company (years) | 8.8 | 10.2 |
| Relevant experience of the owner (years) | 13 | 14.7 |
| Managing experience of the owner (years) | 9.7 | 12.8 |
| Owners with a higher education (%) | 91.3 | 86.2 |
| Implemented innovation (%) | 33.3 | 38.9 |
| Profit share of implemented innovations (%) | 16.4 | 28.8 |
One of the potential reasons for differences in characteristics and performance indicators between genders is self-selection, meaning that women are choosing less productive sectors in order to have more flexibility in balancing various social roles they play. In order to check for this, we compare the characteristics mentioned above in three different sectors (manufacturing, wholesale/retail trade and medical/social services) (Table 2a). The male-owned companies form the majority in the manufacturing sector, while medical/social services industry is mostly presented by female-owned business. Finally, the wholesale/retail trade sector is located somewhere in between and is well presented by both female- and male-companies.
Table 2a. Business characteristics by gender of the owner in manufacturing, wholesale/retail trade and medical/social services
| Wholesale/Retail Trade | Manufacturing | Medical and social services | ||||
| Female-owned | Male-owned | Female-owned | Male-owned | Female-owned | Male-owned | |
| Sales growth 1yr (%) | 9.8 | 31 | 2 | 26.2 | 10 | n/a |
| Sales growth 3yr (%) | 16.4 | 37.9 | 5.6 | 42.3 | 17.5 | n/a |
| Size of the company (employees) | 5.9 | 14 | 23.7 | 19.8 | 13 | 8.5 |
| Age of the company (years) | 8.8 | 7.8 | 16.1 | 9.2 | 12.6 | 16 |
| Relevant experience of the owner (years) | 13 | 13.8 | 15.3 | 14.8 | 15.2 | 16 |
| Managing experience of the owner (years) | 9.8 | 11.2 | 12.3 | 13.3 | 10.3 | 22 |
| Owners with a higher education (%) | 85 | 83 | 100 | 89.5 | 100 | 50 |
| Implemented innovation (%) | 35 | 34.1 | 57.1 | 57.9 | 16.7 | 50 |
| Profit share of implemented innovations (%) | 2.5 | 25 | 30 | 34.1 | n/a | n/a |
There are differences in size and age of the businesses subject to the industry of the businesses. However, controlling for industry does not reveal any significant changes in the picture in terms of companies’ performance and effectiveness. Male-owned firms are still growing faster and are more successful in promoting implemented innovations Thus, this is likely not an issue of self-selection but of the way male and female owners operate their businesses.
The analysis revealed a number of internal and external barriers creating obstacles for doing business that breaks down into the following categories: social roles, educational patterns, decision-making process and general macroeconomic factors.
Women’s social roles in Belarus
Women in Belarus are mainly at the wheel of domestic responsibilities, which are rarely shared with male partners. According to the survey results, 40% of female and just 9% of male entrepreneurs are responsible for at least 75% of family duties (Table 3). 37% of female and only 0.74% of male owners said that they are in charge for taking care of kids. The same is true for the responsibility to stay at home when kids are sick (32.6% vs. 1.28).
Table 3. Distribution of domestic responsibilities by gender of the owner
| Women | Men | |
| Family duties | ||
| less than 25% | 10.91 | 37.5 |
| around 50% | 49.10 | 53.5 |
| more than 75% | 40.00 | 9.00 |
| Kids | ||
| taking care of kids | 36.96 | 0.74 |
| staying at home, when kids are sick | 32.61 | 1.48 |
At the same time, participants of the focus groups admitted that particularly childbirth motivated them to start their own business with flexible working hours and the possibility to work from home, which is generally not possible in corporate business in Belarus. Thus balancing between family and business becomes challenging, impacting career decisions. That motive also appeared in the survey where on average 13% of female and 2.5% of male owners started businesses in order to combine work with parenting. This trend does not change much if we control for industry.
Education
There is no significant gender difference in the educational level of business owners. According to the survey data, 91.3% of female and 86.2% of male owners have a university degree or higher. However, the established social role models of Belarusian women influence both their career and educational choices. Usually girls tend to choose education in arts and humanities, law or economics, rarely going to technical universities. Lack of technical background further prevents their access into hi-tech profitable industries.
Business and economic environment
During the interviews, women stated that “Both men and women businesses face generally the same obstacles in starting up, operational management and strategic development. But in an unfriendly environment – mostly men survive”. Similar messages were obtained from the survey, with almost no significant difference in the estimation of barriers was revealed. The main external barriers mentioned were government control (32.2% of female and 29.3% of male owners), administrative burden (44.1% vs. 41.1%) and tax system (33.5% and 30.5%) (Table 4). Almost all barriers were equally mentioned by the respondents except for corruption. Corruption is the only obstacle that differs between men and women, pointed out by 50% of women, while just 12% of men considered it a problem. We interpret it as women being more risk-averse and less likely do bold and dangerous actions in business like bribing. That corresponds to the literature, which finds women more risk-averse than men (Castillo and Freer, 2018; Croson and Gneezy, 2009).
Table 4. Main obstacles and motives for doing business by gender of the owner
| Women | Men | |
| Main barriers | ||
| Government control | 32.2 | 29.3 |
| Administrative burden and legal system | 44.1 | 41.1 |
| Tax system | 33.5 | 30.5 |
| Corruption | 49.7 | 11.8 |
| Human capital | 16.1 | 17.1 |
| Unfair competition | 28.5 | 26.9 |
| Motivation to start-up business | ||
| Sudden business opportunity | 47.8 | 42.8 |
| Willingness to earn more | 29 | 34.6 |
| No chance to continue the previous activity | 14.5 | 13.2 |
| Improvement of state’s attitude to entrepreneurs | 13 | 13.2 |
| Possibility to combine work and parenting | 13 | 2.5 |
Conclusion
The statistical evidence showed that female-owned businesses are smaller in size and grow more slowly compared with male-owned competitors. There are no signs of gender differences in entrepreneurial innovativeness. However, the monetization of implemented innovations is more successful among male-owned companies.
Altogether, the barriers of female entrepreneurship in Belarus are associated with the huge burden of household duties and childcare; hindered access to technical and business education; lack of managerial experience and industry knowledge. The existing exogenous barriers, excessive control, contradictory regulations and unfriendly entrepreneurial ecosystems are seen as additional constraints and contribute to the quality and dynamics of female business.
The obtained results confirm the necessity for adding a gender perspective to SME’s policy support in Belarus as well as for taking it into account when estimating the potential effects of business support programs and policies.
Further research of women entrepreneurship, collection of reliable statistics, comparison of the results with other transition countries are vital. These will give an encouragement to new gender specific initiatives and will contribute to economic growth and innovative perspectives of Belarus.
References
- Akulava, M. (2016a). Gender and Innovativeness of the Enterprise: the Case of Transition Countries. Working Paper No. 31.
- Castillo, M. and M. Freer. (2018). Revealed differences. Journal of Economic Behavior & Organization, 145: 202-217.
- Croson, R. and U. Gneezy. (2009). Gender Differences in Preferences. Journal of Economic Literature, 47(2): 448-474.
- Noland, M., Moran, T. and B. R. Kotschwar. (2016). Is gender diversity profitable? Evidence from a global survey. Peterson Institute for International Economics. Working Paper No. 16-3.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Career Women and the Family – A New Perspective on the Role of Minimum Wage
This brief finds that whereas in the 1980s richer women had fewer children than women near the middle of income distribution in the US, it is no longer true today. It argues that the rise in inequality is the main driver for this change. Greater income inequality enables high-income families to outsource household production to lower-income people. Changes to minimum wage laws are thus likely to affect the fertility and career decisions of the rich.
“I have frequently been questioned, especially by women, of how I could reconcile family life with a scientific career. Well, it has not been easy.”
– Marie Curie, 1867-1934
Much has been made of women “leaning in” at work at a cost to their families. Indeed, this discussion has become more prevalent as women have surpassed men in higher education in most developed countries, and have entered prestigious careers en masse, a fact reinforced by public policy. For example, in 2012 the European Commission published a special report on women in decision-making positions, suggesting legislation to achieve balanced representation of women and men on company boards. One natural question to ask is, how high is the cost of a woman’s career to her family? This is a difficult, multifaceted, and even sexist question to ask.
High-income women have historically had fewer kids (Figure 1 for the year 1980). Social scientists’ leading explanations rely on the difficulty of combining children and a career. Under this view of the world, as more women focus on their careers, they have fewer children. On the other hand, the evidence shows that more educated (or wealthier) women produce more educated children. Given these two regularities, the majority of children are born to poorer mothers, and thus receive an inferior education. Moreover, this creates a feedback loop that depresses the average education through time making us question our ability to sustain a satisfactory average level of education.
Figure 1. Fertility rates by income deciles, 1980 and 2010
Notes: Calculated using Census and American Community Survey Data. The sample is restricted to white, non-Hispanic married women. Fertility rates are hybrid fertility rates, constructed by age-specific deciles. Deciles are constructed using total household income.
However, the negative relationship between family income and fertility ceases to hold after the 2000s. Figure 1 shows that for the year 2010, the cross-sectional relationship between income and fertility has flattened or even become a U-shape. Today, high-income women have higher fertility rates than those of women near the middle of income distribution. This is a result of a substantial increase in fertility among women in the 9th and 10th decile of family income: they increased their fertility by 0.66 & 0.84 children, respectively. The rise in fertility of high-skilled females was first documented in Hazan and Zoabi (2015), discussed in a previous FREE Policy Brief. The implications are profound; children are more likely to be born to wealthier or more educated mothers than in the past. This has a far-reaching impact on the future composition of the population.
How can we understand the change in fertility patterns over time? We argue that rising wage inequality played an important role. Data for the years 1980 and 2010 show that average real hourly wages, quoted in 2010 $ grew from $28 ($51) to $50 ($64) for women (men) in the 10th decile of the income distribution. This increase was accompanied by stagnant wages for women (men) in the 1st decile, precisely the people who are most likely to provide services that substitute for household chores (Figure 2). Thus, growing wage inequality over the past three decades created both a group of women who can afford to buy services that help them raise their children, and a group who is willing to supply these services cheaply. In a recent paper, we found that the increase in wage inequality from 1980 and 2010 can actually explain the rise in high income fertility (Bar et al. 2017). Moreover, this rise in inequality has resulted in a large increase in college attendance through the changing patterns of fertility. This is because more children are now born to highly educated mothers.
Figure 2. Wives’ Wage by Income Decile 1980 & 2010
Notes: Calculated using Census and American Community Survey Data. The sample is restricted to white, non-Hispanic married men. Deciles are constructed age-by-age, using total household income. Representative wages for each decile is the average of these decile-specific wages from ages 25 to 50.
Our new understanding of the interrelation between income inequality, the relative cost of home production substitutes, fertility pattern and educational choice induces us to rethink some typical economic debates. For instance, consider the minimum wage. The typical debate about the minimum wage is focused on how it affects lower wage individuals in terms of income and their ability to find work. However, if people who earn the minimum wage are disproportionately also those who help raise wealthier families’ children, or simply make running a household easier, then a higher minimum wage can make home production substitutes more expensive for high wage women, making it harder for them to afford both a family and a career. While indirect, this effect can be significant. Figure 3 shows the distribution of the real wage, relative to the minimum wage, both for the industries of the economy associated with home production substitutes and other sectors of the economy. The figure clearly shows that workers in industries associated with home production substitutes are concentrated around the minimum wage and thus are much more likely to earn wages that are close to the minimum wage.
Figure 3. The distribution of real wages, relative to the effective real minimum wage in each state and year, by sector of the economy
Notes: Data from Current Population Survey, 1980–2010, using all workers.
Interestingly, we calculate a change in the cost of home production substitutes following an increase of the Federal minimum wage from $7.25 to $15/hour, as suggested by Bernie Sanders during the 2016 presidential election. It turns out that this increase in the minimum wage would increase the cost of market services that substitute for household chores by about 21.1%. Indeed, the minimum wage has a strong impact on the average wages of workers producing home production substitutes. However, how does this increase affect the economy?
According to our theory, higher costs of home production substitutes would affect women’s choice of how to allocate their time between labor force participation and home production, including raising children. The higher cost of these substitutes induces women to buy less of them and spend more of their time producing home production goods. Indeed, we find that the increase in the minimum wage decreases fertility and increases mothers’ time at home, and more so for higher income households. The magnitudes are large. A 10th (5th) decile household decreases fertility by 12.8% (9.4%), while the mother spends 9.7% (2.5%) more time at home. Notice that these numbers are calculated under the assumption that women can adjust fertility. What about those who are “locked in” their fertility choice? We recalculate changes in mother’s time at home for these mothers using the model’s fertility in 2010 with the increased cost of market services that substitute for household chores. A 10th decile mother increases time at home by 25.9%, while a 5th decile mother increases it by 13.1%. These numbers are larger as the family has not had a chance to scale back fertility. The short run effect on labor supply is also very large. The average reduction in labor supply by women in the 9th and 10th deciles is 3.5%.
Whether an increase in the minimum wage is good or bad for the society is a big question. Not only does it lie beyond the scope of our theory, but also beyond the scope of social sciences. However, the one modest contribution we try to make is in observing that an increase in the minimum wage heightens the rivalry between a woman’s career and family. As such, it forces women to forgo one in order to opt for the other.
The sexist nature of our question lay in the implicit assumption that it is the mother’s responsibility to look after the children or home production in general, rather than the father’s. While once this was a nearly universal attitude, it is now increasingly common for fathers to take a more central role in childcare rather than leave everything to the mother. How does this change in gender roles affect our analysis? In modern times, both spouses’ careers are potentially affected by children, as both parents take a role in child care. Fathers are now facing the same tradeoffs as mothers did in the traditional gender role story: children vs. careers. As a result, marketization is more important than ever for career oriented parents.
Talk to a high wage family and no doubt that they’ll readily tell you how important their ability to purchase daycare, prepared food, or other help at home is to their success as parents. Perhaps parents don’t realize that the price of these goods are so intricately linked to inequality or the minimum wage, but the policy maker should bear in mind that these are key factors for career women and the family.
References
- Hazan and Zoabi (2015), “Do Highly Educated Women Have Smaller Families” The Economic Journal
- Bar, Hazan, Leukhina, Weiss, and Zoabi (In progress) “Is the Market Pronatalist? Inequality, Differential Fertility, and Growth Revisited”
Political Responsibility for Economic Crises
This brief summarizes the results of research on the political costs of large-scale economic crises. In a large historic sample of countries, we study the impact of different types of crises, such as sovereign and domestic defaults, banking crises and economic recessions, on political turnover of top politicians: heads of the state and central bank governors. According to the findings, only default on domestic debt increases the probability of politicians’ turnover but not the default on external debt. As argued, this is due to the fact that the latter is not directly felt by the voters. In addition, we find that although currency crises increase chances of head of central bank turnover, it does not affect tenures of heads of state. Presumably, this is the case since currency crises are in the eyes of the public the responsibility of CB governors. These findings are relevant for both developed and transition economies, but are especially important for the latter as political turmoil and economic recessions are more prevalent in developing nations.
Overview and Key Findings
Large-scale economic crises are associated not only with the economic downturns, but also with political turnover. When the national economy is in a critical state, a default declaration often turns the economy back to growth as it is typically viewed as an act of acknowledging a problem and showing readiness for changes. However, politicians responsible for the economy and leaders of the states are often reluctant to declare default and try to postpone it, which worsens the situation. One of the reasons behind such unwillingness to act is a fear of a political turnover following the open acknowledgement of a problem.
This brief summarizes the findings Lvovskiy and Shakhnov (2018). We investigate the statistical evidence of political costs related to different types of economic crises.
We find that the effects of a crisis depend on the crisis type and on whether it was in the area of responsibility of a given politician. For example, external sovereign defaults have no effect on political turnover, which we interpret as external sovereign default having a small impact on the general public. On the contrary, domestic sovereign defaults have a large impact on the country population and often lead to the replacement of the top executive. In turn, banking crises are followed by the downfall of the government at the level of chief executive as well as the governor of the central bank.
While there is large literature on career concerns of politicians and political turnover, the majority of papers either focus on the regular changes through elections in democratic regimes (Treisman, 2015) or study a particular non-democratic country, like China (Li and Zhou, 2005). However, throughout history, crises have often happened in transition, non-democratic or not fully democratic countries. Furthermore, even in democratic countries many changes of government have been irregular. Since a delay in default declaration usually harms economies it is important to understand the mechanisms behind it in different institutional settings. Our paper contributes to this understanding by analyzing the impact of economic crises on political survival in a wide set of countries and regimes. Better understanding of the political costs that the top executives face while making such decisions is crucial for the prediction of these decisions as well as for international default negotiations and consultations.
Below we describe our finding in some more detail.
Statistical Analysis and Results
Our analysis consists of two main parts. We start with the political turnover for heads of state, who are in charge of the performance of the whole economy, which we measure by the GDP growth. Then, we look at central bank (CB) governors, who are in charge of the monetary policy, price stability, stability of the financial sector and banking supervision.
Table 1. Head of state changes
Table 1 presents the estimated linear probability regression models for the head of state turnover. As expected, elections have a strong impact on the probability of the turnover of the head of state. Further, as Column 1 in Table 1 shows default on external debt has no significant impact on the head of state tenure while default on domestic debt increases the yearly chances of being displaced by 34 %. This supports the idea that voters care more about their own savings than about the general situation with the state’s budget. When we look at the effect of past crises (the predictor variable in this case is whether a crisis took place last year), Column 2 coefficients for both external and domestic defaults appear to no longer be statistically significant. Instead, banking crises become significant. This situation could be due to the fact that one of the common consequences of domestic defaults is an ongoing distortion of savings which often leads to deposit runoffs, so the effect of the previous year’s domestic default now acts through a banking crisis.
Table 2. Central bank governor changes
Table 2 presents similar results but this time the left hand side variable is CB governor turnover. Similarly to the case with the head of state turnover, only default on domestic debt has a significant effect on the CB’s governor tenure and not the one on external debt. The main differences with Table 1 are that elections do not statistically predict turnover of CB heads while currency crises do. The former result is expected since in most countries there are no direct elections of central bank governors and central banks often have some degree of independence from the government. The latter result, that currency crises have a significant impact on CB governors’ tenures, implies that since currency control is one of the roles of a CB, its head is held accountable for currency crises and not the head of a state.
Conclusion
We examine the political cost of different types of economic crises, and find non-uniform effects of different types of crises on the political survival of various key officials. Domestic defaults, and recent banking crises are shown to be costly both for heads of states and central bank governors, while currency crises only have an impact on the political survival of the latter.
Interestingly and importantly, we find no evidence of the impact of (external) sovereign default on political turnover of the head of state or central bank governors. In other words, contrary to Yeyati and Panizza’s (2011) suggestion, it seems that there is no immediate political cost at the top associated with (external) sovereign default. One possible explanation is that the public does not punish a politician for defaults because by defaulting, the politician makes the optimal decision. In a modern world, many developing nations experience rapid growth of their sovereign debt. The presented evidence brings partial optimism that even if economic mistakes have already been made, top politicians would understand that acknowledging a problem and making steps toward its solution may not always be as costly for them as has previously been thought.
References
- Li, Hongbin; Li-An Zhou, 2005. “Political turnover and economic performance: the incentive role of personnel control in China,” Journal of Public Economics, 89 (9), 1743 – 1762.
- Lvovskiy, Lev; Shakhnov, Kirill, “Political Responsibility for Different Crises”, BEROC working paper #50, 2018
- Treisman, Daniel “Income, Democracy, and Leader Turnover”, American Journal of Political Science, 2015, 59 (4), 927–942.
- Yeyati, Eduardo Levy and Ugo Panizza, “The elusive costs of sovereign defaults,” Journal of Development Economics, January 2011, 94 (1), 95–105.
Focus on Investment: A Brief Look at Regulatory Developments in EU Telecommunications
The European Commission recently proposed a revision to its existing regulatory framework for telecommunications, the details of which have been amply discussed and are currently being negotiated. A pivotal theme of the revision is a stronger emphasis on stimulating investments into broadband networks capable of delivering high-speed (100+ Mbps) internet services. This brief highlights and briefly discusses some key changes in that regard.
Introduction
High-speed broadband networks are the backbone of the fast-growing digital economy. Promoting citizens’ access to such networks has been one of the European Commission’s stated policy priorities at least since 2010, when it launched its “Digital Agenda for Europe” (EC, 2014). Its policy mix of choice involves measures and funds facilitating deployment of so-called next-generation access networks on the one hand (commonly taken to mean access networks capable of delivering speeds exceeding 100 Mbps), while on the other hand regulating access to such networks to the extent perceived necessary to deal with potential problems resulting from incumbent network operators’ degree of market power. As regulation may harm incentives to invest in network infrastructure in the first place, a balance between investment promotion and competitive safeguards needs to be struck.
Motivated by what it considers to be a sub-optimally low speed of network upgrading in at least some of the EU’s member states, the Commission has sought to adjust its policy balance in favor of investments by proposing a revision (EC, 2016) of its regulatory framework for electronic communications, called the European Electronic Communications Code (EECC), which defines a standard approach to regulating fixed broadband network operators deemed to possess significant market power. That revision has been commented upon and discussed by the European Parliament and the European Council as well as various private and public stakeholders (Szczepański, 2017). Several amendments have been proposed and further discussion is ongoing to reach a compromise between the European institutions.
Background
Telecommunications networks were until more recently typically owned by vertically integrated, often formerly state-run, national incumbents who even after their privatization and the elimination of most legal barriers to entry were considered to possess significant market power. The EECC’s key remedy to such market power is so-called network unbundling at the wholesale level: considering the retail market for internet service provision potentially competitive, unbundling means granting competing internet service providers regulated access to the incumbent operator’s physical local-area access network, which is commonly regarded as the key bottleneck in internet service provision. Choosing the intrusiveness of the access obligation is up to the national regulatory authority (NRA), ranging from merely demanding that the incumbent publicly post a reference offer, to stricter measures such as non-discrimination, “fair and reasonable” pricing, and ultimately, full-on access price regulation, typically implemented with price caps derived from regulatory costing models. A recommendation from 2013 (EC, 2013) outlines methodological guidelines to national authorities.
Key changes
The proposed EECC revision makes the abovementioned recommendation binding, which may partly be an attempt to further harmonize regulatory practice between member states, with a view to encouraging cross-border investments by operators and service providers. It also encourages NRAs to, where possible, abandon more rigid price regulation in favor of margin squeeze tests. Margin squeeze occurs when a vertically integrated firm with market power in the wholesale segment of a production chain “squeezes” retail competitors by setting high wholesale and low retail prices, to the extent that even equally efficient, or at least reasonably efficient, retail competitors cannot survive if they are dependent on the dominant firm’s wholesale product. Moreover, and more importantly in terms of boosting deployment, the proposal encourages lighter-touch regulation for operators deploying new network infrastructure (Art. 72), and specifically relaxes regulation for deployment projects open to co-investments between operators (Art. 74). It also extends the market review period, i.e. the frequency at which NRAs are expected to update their market analysis and regulatory policy, from three to five years, giving operators a longer planning horizon, and encourages NRAs to consider any existing commercial wholesale offers in their market analysis, which can be interpreted to mean that anything short of full market foreclosure should be looked upon benevolently (Articles 61 and 65). In line with this latter development, which suggests a focus on wholesale access per se, is Article 77. This article exempts so-called wholesale-only networks – non-integrated networks whose very business model is selling access to interested internet service providers – from strict access price regulation, at least ex-ante. Typically, a presumption of consumer harm absent regulation is sufficient for intervention. Article 77 turns the tables on regulatory authorities by requiring evidence of actual consumer harm.
A counterpoint to these deregulatory elements is Article 59.2, which under certain conditions not only allows but obliges NRAs to impose access obligations on owners of existing physical infrastructure “up to the first concentration point”, in practice affecting mostly in-building wiring and cables, even when these owners have not been identified as dominant in any relevant market. In countries such as Sweden, where in-house wiring is often not owned by any operator but rather by the respective building’s owner(s), implementing such obligations may pose a regulatory challenge.
Finally, Article 22 requires NRAs to chart existing infrastructure as well as deployment plans across the country and enables them to define “digital exclusion areas” where no high-speed broadband infrastructure exists or is planned. In such areas, they may organize calls for interest to deploy networks, also with a view to resolving potential coordination problems between operators resulting from so-called “overbuild risk”: deployment in some lower-density areas may only be profitable if most of the customer base in that area can be captured, leading to a standoff between operators who cannot, do not want to, or are not allowed to communicate and coordinate their deployment strategies. As a result, investment is delayed.
A rather piquant detail here is that the proposed code allows NRAs to take action against operators it suspects of “deliberately” providing “misleading, erroneous or incomplete” information about their deployment plans. Included to prevent gaming, this provision carries the risk of suppressing investors’ appetite for the designated exclusion areas lest they be punished in case they change their mind. A minimum of mutual trust between the national regulator and market participants seems crucial for this mechanism to succeed.
Conclusion
The Commission’s proposed new regulatory framework emphasizes investment in, and take-up of, high-speed (100+ Mbps) broadband networks, explicitly defining such enhanced connectivity as a new regulatory objective on equal footing with the existing ones, most notably the promotion of competition. The present brief points out some key regulatory changes aimed at the fulfilment of these respective objectives. In terms of the revision’s impact on high-speed broadband deployment in the EU’s member states, it is difficult to make a general prediction since Europe is somewhat heterogeneous with respect to high-speed broadband penetration. For example, the 2016 EU overall NGA coverage was 75.9 % of households, but coverage rates of individual countries ranged from 99.95 % and 99.86 % in Malta and Belgium respectively to 47.0 % in France and a mere 44.2 % in Greece (EC, 2017). To the extent that the new code encourages investment relative to the old regime, regions with lower current coverage stand to benefit more. To the extent that the lower pace of deployment in those areas is the result of other factors orthogonal to regulation (one example being demand uncertainty), it will have a limited effect.
References
- European Commission, 2013. “Commission Recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment.”
- European Commission, 2014. “The European Union Explained: Digital agenda for Europe.”
- European Commission, 2016. “Proposal for a Directive of the European Parliament and the European Council establishing the European Electronic Communications Code (Recast).”
- European Commission, 2017. “Broadband Coverage in Europe (2016): Mapping progress towards the coverage objectives of the Digital Agenda.”
- Szczepański, M., 2017. “The new European electronic communications code”, EU Legislation in Progress briefing, European Parliamentary Research Service.
When Fair Isn’t Fair: Framing Taxes and Benefits
Taxes and benefits create incentives for people to adopt or avoid certain behaviours. They create premiums for (socially) preferred states. A premium can be determined by either taxing unwanted behaviour or by subsidizing desired behaviour. The resulting economic incentive for changing one’s behaviour is nominally equivalent under both mechanisms. However, the choice of frame for an incentive to be either described in terms of a tax or as a benefit can strongly influence perceptions of what is fair treatment of different, e.g. income, groups. Using a survey-experiment with Flemish local politicians, we show policy-makers to be highly susceptible to such tax and benefit framing effects. As such effects may (even unintendedly) lead to sharply different treatment of the same group under the two mechanisms, important questions arise, particularly for the design of new tax and benefit schemes.
The design and implementation of redistributive policies usually evoke much discussion. Opinions, both in public and often also in political debate, tend to be driven by ethical and fairness considerations. However, such concerns can lead to unintended consequences and – at least in terms of ex-ante intended fairness – to ex-post imbalanced incentive structures for different (income) groups.
An important function of taxes and benefits is the creation of premiums for certain behaviours or actions. Either unwanted behaviour may be taxed and thereby sanctioned, or desired behaviour may be encouraged through benefits. Irrespective of the method chosen, an economic incentive is created for individuals to opt for the desired behaviour.
The way such premiums are defined can usually be thought of as a two-step process. First, a baseline for a given behaviour, action, or state is chosen as a reference-point. For instance, baseline behaviours could be to not have retirement savings, to not use safety-certified equipment or follow accepted standards at work, or to not have children. Arguably, these are cases warranting the creation of incentives to encourage people to adopt the socially desirable behaviours of saving money for their old age, working in a safe environment, and having children. The second step, then, requires a choice of mechanism to create an incentive. The mechanism can be to either punish the unwanted behaviour – such as not adhering to safety standards at work – or to grant (cost-reducing) subsidies and benefits for taking the desired action, such as saving for old age or having children.
Importantly, the combination of the chosen reference point and the mechanism to create the incentive can influence the way people think about the fairness of an incentive when the targets belong to different (income) groups. Schelling (1981) demonstrated this point in an in-class experiment, which, somewhat simplified, runs as follows:
Families typically receive some child benefit: they get a certain sum per child. Imagine there are two families, one poor and one rich, both with their first child. What amounts of child benefit should each family get? Should the poor get more than the rich, should both families get the same, or should the rich family get more for having a child than the poor family? Schelling’s students would tend to voice support for either the poor getting more or both families getting the same. After all the rich family is surely already affluent enough to support their child. At the extreme, the rich family would get nothing for having a child, and the poor family quite a lot.
Now think of a world where the standard is to have a child, and couples who do not have a child have this ‘socially undesirable’ behaviour ‘penalised’ through a fee, for instance in the form of a tax. Should the poor couple pay a higher fee, should both couples pay the same, or should the rich couple pay a higher fee? The students now overwhelmingly supported requiring the rich couple to pay more. After all, they have more disposable income. However, in this case, the rich couple receives a lot for having a child (they no longer need to pay the steep fee), whereas the poor family may get no (additional) economic incentive for having a child. The treatment of the same family thus obviously drastically differs between the two frames. At the extreme, the poor family gets quite a lot for changing from having no children to having one child in the first frame, but nothing in the second frame. For the rich family, the situation is the reverse: there is no premium for having a child in the first frame, but potentially quite a high premium for having a child in the second frame.
Does this thought-experiment matter outside the classroom (see also Traub 1999, McCaffery & Baron 2004), beyond the context of child benefit, and among those actually exposed to the design considerations of tax and benefit systems? In a recent paper (Kuehnhanss & Heyndels 2018), we test the occurrence of such framing effects with elected local politicians in Flanders, Belgium, who are involved in the budgetary decision-making in their municipalities.
Framing experiment
We invited 5,928 local politicians to take part in an online survey on economic and social preferences in spring 2016. Participation was voluntary, not incentivised, and questions were not compulsory, allowing respondents to skip them if they so chose. In total, 869 responses to the survey were registered and (N1=) 608 participants provided usable answers to the questions relevant to the framing effect described above.
Participants were randomly allocated to one of two groups, each receiving a slightly different wording of the following question:
“In Belgium couples receive financial benefits from the state. Suppose that it is not relevant how the transfer is funded, and ignore any other benefits, which might come into play. How much [more / less] should a couple [with their first child / without children] receive per month than a couple [without children / with their first child]?”
One group saw the question in the benefit frame with only the italicised phrases in the brackets displayed; the other group saw the question in the tax frame with only the phrases in boldface displayed. In both groups, participants were then asked to fill in amounts they would consider appropriate for each of three couples with different monthly net incomes: €2,000, €4,000, or €6,000, respectively.
With framing effects – and distinct from classic rational choice models – the expectation is that the three couples would be treated differently depending on the phrasing of the question. In the italicised benefit version the amount granted should be decreasing with the income of the family. In the boldface tax version the stated amount should be increasing with the families’ income.
Figure 1. Results child scenario
Source: Kuehnhanss & Heyndels (2018, p.32)
As Figure 1 shows, the results strongly conform to this pattern. The low-income (€2,000) couple is granted an average of €330 in the benefit frame, but only €178 in the tax frame (recall that the premium in the latter arises from no longer receiving less – or ‘paying a fee’ – once there is a child). For the high-income (€6,000) couple, the amounts granted average €132 in the benefit frame, but a much higher €368 in the tax frame.
Environmental taxes and benefits
Child benefit systems are usually a well-established part of countries’ tax and benefit systems. The design of new instruments is more common in policy areas undergoing, for instance, technological change or being newly regulated. A relevant example is policy on the promotion of environmentally friendly behaviour and technologies, e.g. through ‘green’ taxes and subsidies. To test the validity of the hypothesised framing effect, we also included a second scenario in our survey related to the municipal interests of our respondents, namely car taxes. Flemish municipalities receive income from a surcharge levied on the car taxes paid by motorists. Consequently, we asked our participants (N2 = 525, see the paper for details) to imagine the introduction of a new environmental certificate for cars in Belgium, and to provide amounts they would consider appropriate for the difference in annual tax paid on cars with or without the certificate. Specifically, roughly one half of participants was asked how much less the owner of a certified car should have to pay in annual car tax than the owner of a non-certified car (the subsidy frame). The other half was asked how much more the owner of a non-certified car should pay in annual car tax than the owner of a certified car (the tax frame). The question was again asked for three different levels, proxying wealth via the cost of the cars: €15,000, €30,000, and €45,000, respectively.
Figure 2. Results car scenario
Source: Kuehnhanss & Heyndels (2018, p.32)
Figure 2 shows the results. The effect is less pronounced in this scenario, as the slope for the granted amounts in the subsidy frame remains largely flat or slightly increases. Nonetheless, a substantial framing effect remains. In the tax frame, the amount of the premium (i.e. the amount of taxes no longer owed once a certificate is obtained) strongly increases with the cost of the car. Taking the most expensive car (€45,000) as an example, we thus observe differential treatment across frames also in this scenario. In the subsidy frame, the premium for having a certificate is €778, in the tax frame it is a much higher €1,333.
Conclusion
These results suggest a strong and economically meaningful effect of framing among policy-makers with a stake in tax and benefit systems. While the exact mechanism driving the results invites further research, the strongly divergent premiums, and hence distribution of incentives, across baseline frames raise concerns of unintended effects in the design of taxes and benefits. Especially new schemes – e.g. ‘green’ policy, reform, or regulatory expansion – may benefit from increased scrutiny in the design process. Awareness of susceptibilities to framing and its potential influence on the formulation of individual tax and benefit instruments may help to align intended fairness, incentive structures, and redistributive outcomes.
References
- Kuehnhanss Colin R.; and Bruno Heyndels, 2018. ‘All’s fair in taxation: A framing experiment with local politicians’ Journal of Economic Psychology, 65, 26-40.
- McCaffery, Edward. J.; and Jonathan Baron, 2004. ‘Framing and taxation: Evaluation of tax policies involving household composition’ Journal of Economic Psychology, 25(6), 679–705.
- Schelling, Thomas C., 1981. ‘Economic reasoning and the ethics of policy’ Public Interest, 63, 37–61.
- Traub, Stefan, 1999. Framing Effects in Taxation. Heidelberg: Physica-Verlag
Is There a Dutch Disease in Russian Regions?
The low economic diversification in Russia is commonly blamed on the abundance of energy resources. This brief summarizes the results of our research that investigates the presence of Dutch disease effects across Russian regions. We compare manufacturing subsectors with different sensitivity to the availability of natural resources across Russian regions with varying natural resource endowments. We find no evidence of differential deindustrialization across subsectors, thereby offering no support for a Dutch disease. This finding suggests that the impact of energy resources on Russian manufacturing is more likely to go through the “institutional resource curse” channel. Thereby, we argue that more efficient policies to counteract the adverse effect of resources on the Russian economy should focus on improving the institutional environment.
Russian abundance in oil and gas, and the ways it could negatively affect long-term economic performance and institutional development is not a new debate. One of the key concerns is the influence of energy resources on Russian industrial structure. Energy resources are often blamed for the low diversification of the economy, with an extensive resource sector and the dominant oil and gas export share.
In a forthcoming chapter (Le Coq, Paltseva and Volchkova), we contribute to this debate by exploring the channels through which abundance in energy resources influences the industrial structure in Russia. Our main focus is on the deindustrialization due to the expansion of the natural resource sector, the so-called ‘Dutch disease’. Specifically, we explore the impact of energy resources on the growth of manufacturing subsectors in Russian regions. Adopting a regional perspective allows us to separate the Dutch disease mechanism from the main alternative channel of the institutional ‘resource curse’. This brief summarizes our findings.
Dutch disease vs. institutional resource curse
The Dutch disease and the institutional resource curse are, perhaps, the most discussed mechanisms proposed to explain the influence of natural resources on economic performance (see e.g., earlier FREE brief by Roine and Paltseva for a review). In an economy facing a Dutch disease, a resource boom and resulting high resource prices shift production factors from manufacturing industries towards resource and non-tradable sectors. As a result, a country experiencing a resource boom would end up with a slow-growing manufacturing and an under-diversified economic structure. Since the manufacturing sector is often the main driver of economic growth, the economic development may be delayed. If, instead, an economy is suffering from the institutional ‘resource curse’, it is the interplay of weak institutions and adverse incentives created by resource rents that leads to a slow growth of manufacturing and delayed development.
Importantly, offsetting the potential negative impact of these two channels requires different policy interventions. In the case of a Dutch disease, a state can rely on direct industrial policy mechanisms targeted towards increasing the competitiveness of the manufacturing sector and isolating it from the effect of booming resource prices. For example, it can use subsidies or targeted trade policy instruments, or channel money from increased resource prices out of the economy through reserve fund investments abroad.
In the case of an institutional resource curse, on the other hand, resource rents and weak institutions may undermine and disrupt the effect of such policies. In this case, state policies should be targeted, first and foremost, towards promoting good institutions such as securing accountability and the transparency of the state, and protecting property rights. This suggests that properly understanding the channels through which resource wealth impacts the economy is necessary for choosing appropriate remedial measures.
In our analysis, we address the differential impact of energy resources in Russian regions. This regional perspective allows us to single out the Dutch disease effect, and disregard the mechanisms of a political resource curse to the extent that the relevant institutions do not differ much across regions.
Resource reallocation effect vs. spending effect
The mechanism of a Dutch disease implies two channels through which a resource boom negatively affects the manufacturing sector. First, a resource boom implies the reallocation of production factors from other sectors of economy such as manufacturing or services to the resource sector, a so-called ‘resource reallocation effect’. Second, an additional income resulting from a boom in the resource sector leads to an increase in demand for all goods and services in the economy. This increase in demand will be accommodated differently by different sectors, depending on their openness to world markets. Namely, in non-tradable sectors, isolated from international competition, there will be an increase in prices and output. This, in turn, will increase the prices on domestic factor markets. For tradable manufacturing sectors the price is determined internationally and cannot be adjusted domestically. As a result, production factors will also reallocate away from manufacturing to non-tradable sectors, a so-called “spending effect”.
The strength of either effect is likely to be different across different subsectors of manufacturing depending on the sectoral specificities. In particular, subsectors with higher economies of scale are likely to be more affected by the outflow of factors towards the resource sector through the “resource reallocation effect”. Similarly, subsectors that are more open to international trade are likely to be affected by the “spending effect”.
These observations give raise to our empirical strategy: we access differences in growth of regional manufacturing subsectors with different sensitivity to the availability of energy resources, where sensitivity reflects economies of scale, for the first mechanism, and openness to the world market, for the second mechanism. In other words, we test whether manufacturing subsectors with higher economies of scale (or openness) grow slower than subsectors with lower economies of scale (or openness) in regions rich in energy resources, as compared to the regions poor in energy resources. Observing differential deindustrialization, depending on the industry’s exposure to the tested mechanism, would offer support to the presence of a Dutch disease.
Note that the validity of our empirical strategy relies on the fact that there is high variation in resource abundancy and structure of the manufacturing sectors across Russian regions (as illustrated by Figures 1 and 2).
Figure 1. Geographical distribution of fuel extractions relative to gross regional product; 2014, percent.
Source: Authors’ calculation based on Rosstat data. Note: Figures for regions exclude contribution of autonomous okrugs where applicable.
Figure 2. Regional diversity in manufacturing structure, 2014.
Source: Rosstat.
Data and results
Our empirical investigation covers the period 2006—2014. The data on manufacturing subsector growth and regional energy resource abundancy come from Rosstat, the sensitivity measures across different manufacturing sectors are approximated based on data from Diewert and Fox (2008) (economies of scale in US manufacturing), and OECD (sectoral openness to trade).
The results of our estimation show that the differences in growth rates of manufacturing subindustries across Russian regions with varying natural resource endowments cannot be explained by the sensitivity of these subindustries to the availability of energy resources. This can be seen from Table 1, where the coefficient of interest – the one of the interaction term between the measure of sectoral sensitivity if resource abundance and regional energy resource wealth – is not significantly different from zero, no matter how we measure the sensitivity: by the returns to scale or by openness to international trade.
Table 1. Estimation of Dutch disease effect with different sensitivity measures.
| Dependent variable: average annual growth index of sectoral output | ||
| Sensitivity measure: Economies of scale | Sensitivity measure: Openness | |
| Subsector sensitivity * Size of the fuel extraction sector in the region
|
-0.0353
(0.0873) |
0.0674
(0.0954) |
| Subsector fixed effect | YES | YES |
| Region fixed effect | YES | YES |
| Observations | 1,185 | 1,185 |
| R-squared | 0.1574 | 0.1577 |
Source: Authors’ calculations.
These results hold true if we control for differences in regional taxes, labor market conditions, and other region-specific characteristics by including regional and sectoral dummy variables, if we consider alternative measures of energy resource wealth, and if we use other, non-parametric estimation methods.
In other words, our data robustly offers no support for the presence of a Dutch disease in Russian regions.
Conclusion and policy implications
Diversification is often mentioned by the Russian government, as one of the top economic policy priorities, and the need for ‘diversification’ has been used in the political debate as an argument for an active industrial policy.
However, the policy measures that are necessary to counter the effect of abundant energy resources on diversification and, more generally, on economic development may be highly dependent on the prevailing channel through which resources affect the economy. In particular, while active industrial policy may be justified as a remedy in the case of a Dutch disease, industrial policy may well be ineffective, or even harmful, in the presence of an institutional resource curse mechanism.
In our study, we find no support for the Dutch disease effect when looking at the impact of energy resources on the growth of regional manufacturing sectors. Thereby, to counterbalance the resource curse effect on the Russian economy, we argue that it may be more efficient to improve the institutional environment than to use active government policies affecting industrial structures.
References
- Diewert, W. E and Fox, K. J. (2008) ‘On the estimation of returns to scale, technical progress and monopolistic markups’, Journal of Econometrics, 145(1-2): 174-93.
- Le Coq, C., Paltseva E., and Volchkova N., forthcoming. “Regional impacts of the Russian energy sector”, in Perspectives on the Russian economy under Putin, eds. Becker and Oxenstierna, London, Routledge.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The Russian economy under Putin (so far)
Russians are heading to the polling booths on March 18, but where will the economy head after Putin has been elected president again? This brief provides an overview of the economic progress Russia has made since 2000 as well as an economic scorecard of Putin’s first three tenures in the Kremlin and uses this to discuss what can be expected for the coming six years. Although significant growth has been achieved since 2000, all of this came in the first two tenures of Putin in the Kremlin on the back of increasing oil prices. In order to generate growth in his upcoming presidential term, Putin and his team will need to address the significant needs for reforms in the institutions that form the basis for modern market economies. Otherwise, Russia will continue to be hostage to the whims of the international oil market and eventually lose most of its exports and government revenues as the world moves towards a carbon free future. Perhaps this is beyond the scope of Putin as president, but not beyond the horizon of young Russians that will be casting their votes on Sunday and in future elections.
Let’s assume that Putin will be elected president again on March 18 (for once a very realistic assumption made by an economist). What will this mean for the Russian economy in the coming six years given what happened during his previous and current tenures in the Kremlin? To assess the future as well as to understand Putin’s power and popularity, this brief starts by looking back at the economic developments in Russia since Putin first became president.
Although many different factors enter the power and popularity function of Putin, economic developments have a special role in providing the budget constrain within which the president can operate. A higher income level means more resources to devote to any particular sector, project, voting group or power base. This is not unique to Russia, but sometimes forgotten in discussions about Russia, that often instead only focus on military power or control of the security apparatus and media. These are of course highly relevant dimensions to understand power and popularity in Russia, but so is economic development, particularly in the longer run.
Russia’s economy in the world
The economic greatness and progress of a country is usually assessed in terms of the size of the economy, how much growth that has been generated, and how well off the citizens are relative to the citizens of other countries. So, by our common indicator gross domestic product (GDP), has Russia become a greater and more powerful country since Putin first became president? Table 1 shows two things, the absolute level of GDP measured in USD at market exchange rates and the rank this gives a country in a sample of 192 countries in the world that the IMF collects data on (this brief is too short for a long discussion of the most relevant GDP measure, but GDP at market exchange rates makes sense when comparing the economic strength of countries in a global context, Becker 2017 provides a discussion of alternative measures as well). When Putin become president for the first time in 2000, the value of domestic production was estimated at $279 billion, which implied a 19th place in the world rankings of countries’ GDP. In 2016, almost three presidential terms of Putin later, Russia’s GDP had increased by 4½ times to $1281 billion and its ranking improved to 12th place in the world. This clearly is an impressive record by most standards. However, the Russian economy is still the smallest economy of the BRIC countries and corresponds to only 7 percent of the US economy in 2016. In other words, impressive progress by Russia but the country is (still) not a global superpower in the economic arena.
Table 1. Russia in the world (GDP in USD bn)
Source: IMF (2017)
For the average Russian, income per capita is a measure more closely connected to consumption and investment opportunities or ‘welfare’. Progress in this area is also more likely to affect how individuals assess the performance of its political leaders. Of course, progress in terms of overall GDP and GDP per capita is closely linked unless something unusual is happening to population growth. Therefore, it is not surprising that GDP per capita also increased by around 4½ times between 2000 and 2016 (Table 2). This is the first order effect of the economic development in Russia, but in addition, citizens of Russia moved up from a world income rank of 92nd to 71st. This has implications when Russian’s compare themselves with other countries and can in itself provide a boost of national pride.
It also directly affects opportunities and status for Russians visiting other countries. Being at place 71 may not be fully satisfactory to many, but we should remember that due to the rather uneven income distribution in Russia, many of the people that travel abroad are far higher up on the global income ranking than what this table indicate. Nevertheless, Russia is far behind the Western and Asian high-income countries in terms of GDP per capita. And although the picture would look less severe if purchasing power parity measures are used, the basic message is the same; Russia has still a lot of catching up to do before its (average) citizens enjoy the economic standards of high-income countries.
Table 2. Russian’s in the world (GDP/capita)
Source: IMF (2017)
The macro scorecard of Putin
So what generated the impressive 4½ times increase in income in USD terms from 2000 to 2016 and can we expect high growth during Putin’s next six years in office? The short answer to the first question is the rise in international oil prices and to the second question, we don’t know. Table 3 provides a comparison of different economic indicators for Putin’s two first terms in office compared with his current term (where GDP data ends in 2016 so the sample is cut short by a year). It is evident that the impressive growth over the full period is entirely due to the strong growth performance in the first two presidential tenures. Rather than generating growth in the most recent period, the economy has shrunk. This is explained by the evolution of international oil prices, which quadrupled in the first eight years and instead halved in the more recent period. These swings in oil prices have also been accompanied by significant shifts in foreign exchange reserves, the exchange rate, and the value of the stock market.
In Becker (2017) I discuss in more detail the importance of international oil prices in understanding the macro economic development in Russia. In particular, it is important to note that it is changes in oil prices that correlate with GDP growth and other macro variables and that the problems with predicting oil prices makes it very hard to make good predictions of Russian growth.
Table 3. A macro scorecard of Putin in office
Source: Becker (forthcoming)
Policy conclusions
To break the oil dependence and take control of the economic future of Russia, the president will need to implement serious institutional reforms that constitute the basis for a modern, well-functioning market economy in his next term. Otherwise, Russia will continue to be hostage to unpredictable swing in international oil prices and nobody—including the president, the central bank, the IMF and financial markets—will be able to predict where the Russian economy is heading in the next couple of years.
Figure 1. Reforms (still) needed
Source: World Bank (2017)
In the longer run, the prediction is much easier. With the world moving towards a green economy, the price of oil will see a structural decline that will rob Russia (and other oil exporters) of most of its export and government revenues. The reforms which basically every economist agree are needed are related to market institutions and Figure 1 provides a clear illustration of key reform areas. The progress during Putin’s years in office has been modest at best. Swedish institutions in 2016 have been added to the figure as a comparison and it is clear that the institutional gap between Russia and Sweden is significant. Of course, all countries are different, but Russian policy makers that are interested in reforming its economy are most welcome to Sweden for a discussion of what we have done to build our institutions.
References
- Becker, T. (2017). ‘Macroeconomic Challenges’, in Rosefielde, S., Kuboniwa, M., Mizobata, S. and Haba K. (eds.) The Unwinding of the Globalist Dream: EU, Russia and China, Singapore: World Scientific Publishing.
- Becker, T. (forthcoming), ‘Russia’s economy under Putin and its impact on the CIS region’, Chapter 2 in T. Becker and S. Oxenstierna (eds.) Perspectives on the Russian Economy under Putin, London: Routledge.
- IMF (2017), World Economic Outlook database, April 2017 edition available at http://www.imf.org/external/pubs/ft/weo/2017/01/weodata/index.aspx
- World Bank (2017), Worldwide Governance Indicators (WGI), 2017 update available at http://info.worldbank.org/governance/wgi/index.aspx#home