Location: Russia
Inter-Regional Convergence in Russia
There was no inter-regional convergence in Russia during the 1990s but the situation changed dramatically after 2000. While interregional GDP per capita gaps still persist, the differentials in incomes and wages decreased substantially. Interregional fiscal redistribution has never played a major role in Russia, so understanding interregional convergence requires an analysis of internal capital and labor mobility. The capital market in Russia’s regions is integrated in a sense that local investment does not depend on local savings. Also, the barriers to labor mobility have come down. The situation is very different from the 1990s when many poor Russian regions were in a poverty trap: potential workers wanted to leave those regions but could not afford to finance their move. After 2000 (especially later in the first decade), these barriers were no longer binding. Overall economic development, as well as the development of financial and real estate markets, allowed even the poorest Russian regions to grow out of the poverty trap. This resulted in some convergence in the Russian labor market; the interregional gaps in incomes, wages and unemployment rates are now comparable to those in Europe.
Russia’s Regions are Finally Converging
Large interregional differences have always been an important feature of Russia’s transition to a market economy. This has been explained by the pre-transition geographical allocation of population and of physical capital that was determined by non-market forces. Soviet industrialization policies often pursued political or geopolitical goals. Even when they reflected economic realities, the economic decision-making was distorted substantially by central planning, price-setting and subsidies. In addition, the allocation of production was intended to serve a different country – the Soviet Union (or even the whole Council for Mutual Economic Assistance countries) rather than Russia alone. Moreover, believing in economies of scale rather than in competition, Soviet planners created many monotowns.[1] These towns, cities or even regions relied on a single industry. Therefore economic restructuring and inter-sectoral reallocation implied not only moving workers or capital between employers in one town, but also required moving workers or capital between cities.
Despite the need for geographical reallocation during the transition to a market economy, the differentials between Russian regions remained high (and even increased!) throughout the 1990s. However, after 2000 (especially later in the first decade) there was substantial convergence in incomes and wages (Figure 1). By 2010, this resulted in reduction of the inter-regional differences in incomes in line with European levels. In Figure 2, while inter-regional differences in Russia are still substantially above those in the US and Western Europe, they are comparable to those in the EU.
Figure 1. Differences among Russian Regions in Terms of Logarithms of Real Incomes, Real Wages, Unemployment, Real GDP Per Capita
Source: Guriev and Vakulenko (2012). Note: All variables measured as population-weighted standard deviations.
Figure 2. Income Differentials in Russia, Europe and the US
Interestingly, despite income convergence, there was no convergence in GDP per capita among Russia’s regions. Inter-regional dispersions in GDP per capita remain high not only by European standards, but also by standards of less developed countries. Indeed, in Figure 3, Russia is placed in the international context using the data recently developed by Che and Spilimbergo (2012).
Che and Spilimbergo calculate interregional differences for 32 countries in a compatible way and plot them against GDP per capita (averaged out for 1995-2005, in real PPP-adjusted dollars). Their main finding is that that there is a negative correlation between interregional differences and GDP per capita.
Since Russia was not in Che and Spilimbergo’s dataset, Guriev and Vakulenko (2012) reproduced their calculations for Russia, both for the 1995-2005 average (as they do for the other countries) but also for the individual years 1995, 2000, 2005 and 2010. It turns out that while Russia was “abnormally uniform” in the early 1990s, it did experience substantial divergence in the late 1990s. There was continuing, albeit weaker, divergence even in the early 2000s – so Russia became “abnormally unequal” given its GDP level. Even though there was some convergence late in the first decade, Russia is still “abnormally unequal”. Given the fast economic growth since 2000, Russia should have become substantially “more uniform” – at least given the downward-sloping relationship between income and inter-regional inequality in Che-Spilimbergo’s data.
Source: Che and Spilimbergo (2012). Note: The trend line is calculated without Russia.
Why didn’t income convergence happen in the 1990s and only start after 2000? Why hasn’t GDP convergence taken place? Large interregional differences are consistent with reduced income, wage, and unemployment differentials if the factors of production (labor and capital) have become more mobile while the productivity differences (due to geography, political and economic institutions, and inherited differences in infrastructure) remain in place. Therefore, in order to understand income convergence, an understanding of labor and capital mobility is needed.
Interregional Labor Mobility in Russia
Andrienko and Guriev (2004) studied internal migration flows in Russia in the 1990s and showed that the lack of convergence was explained by a “poverty trap”. In general, Russians did move from poorer to richer regions. However, in Russia’s very poor regions (in about 30% of the regions hosting about 30% of Russia’s population) the potential outgoing migrants wanted, but could not afford, to leave; so for these regions, an increase in income would have resulted in higher rather than lower outmigration.
What changed since 2000? Why did barriers to mobility come down? There are multiple potential explanations: (i) economic growth simply allowed most of Russia’s regions to grow out of the poverty trap; (ii) the development of financial and real estate markets reduced the transactions costs of moving therefore reducing the importance of the poverty trap; (iii) the development of capital markets increased capital mobility; (iv) federal redistribution reduced interregional differences.
According to Guriev and Vakulenko (2012), federal redistribution played a very minor role, while the other three explanations are consistent with the data. Our analysis of capital flows is, however, limited by the lack of detailed data, but our study of panel data on net capital inflows and investment shows that, first, capital does flow to regions with higher returns to capital and with lower wages and incomes, thus contributing to convergence. Second, investment in Russia’s regions is not correlated with savings which suggests that Russia’s capital market is not regionally segmented. As our data on capital are limited to the period after 2000, we cannot compare the recent years to those during the 1990s, but at least we can argue that recently, the capital market was functioning well and was contributing to convergence.
It is striking to what extent the poverty trap and liquidity constraints used to be, but are no longer, binding for labor mobility. Figure 4 is a graphical illustration of the poverty trap. Based on a semiparametric estimation with region-to-region fixed effects it shows the relationship between income in the origin region and migration (both in logarithm). Each dot on this graph represents migration from one region to another in a given year (during 1995-2010). As discussed above, the relationship is non-monotonic. If the sending region is poor, an increase in income results in higher out-migration; for richer regions, a further increase in income results in lower migration. The peak is at log income equal to 8.7 which amounts to average income equal to exp(8.7) ≈ 6003 in 2010 rubles and 1.02 of the Russian average subsistence levels in 2010. The regions to the left of the peak are in the poverty trap while the regions to the right are in a “normal mode” where liquidity constraints are not a substantial barrier to migration.
While in the 1990s tens of regions were below this threshold (and therefore were locked in the poverty trap), by 2010 only one region was below this threshold. In this sense, overall economic growth allowed Russian regions to overcome liquidity constraints by simply growing out of the poverty trap. We ran additional tests to show that financial development also contributed to relaxing liquidity constraints.
Figure 4. Income in the Origin Region and Migration[3]
What Next?
Should we be worried about high interregional differentials in GRP per capita? Not necessarily. In order to ensure inter-regional convergence in incomes and wages, convergence in GDP per capita is not required. As long as barriers to labor and capital mobility are removed, mobility (or even a threat of mobility) protects workers. Therefore, the very fact of remaining large inter-regional dispersion in GDP per capita should not serve by itself as a justification for government intervention (e.g. region-specific government investment).
As reducing barriers to mobility is important for convergence, this is exactly where policies can contribute the most. Developing financial and housing markets and improving investor protection are better policies for reducing inter-regional differences in income; these factors have already reduced income differentials among Russian regions.
We should, however, provide an important caveat. Our analysis was done at the regional level. We therefore do not address the sub-regional level and have nothing to say on the need for town-level government interventions. There may well be many cases where individual towns (e.g. so called mono-towns) are locked in poverty traps. In those cases government intervention may be justified and desirable. Our results show that poverty traps did exist in Russia in the 1990s at the regional level. These may well still exist at the town level even now. We cannot extrapolate the quantitative value of the income threshold we identified for the poverty traps from regional level to the town level but our analysis provides very clear qualitative criteria for government intervention. If the average citizen of a town would benefit from moving out but cannot finance the move (e.g. because his/her real estate is worthless), then the government can and should step in through supporting financial intermediaries that could finance the move. Therefore our analysis is fully consistent with the rationale for the government’s mono-towns restructuring program.
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References
- Andrienko, Yuri, and Sergei Guriev (2004). “Determinants of Interregional Mobility in Russia: Evidence from Panel Data.” Economics of Transition, 12 (1), 1-27.
- Che, Natasha, and Antonio Spilimbergo (2012). “Structural reforms and regional convergence.” CEPR Discussion Paper No. 8951.
- Guriev, Sergei and Elena Vakulenko (2012). “Convergence among Russian regions.” Background paper for the World Bank’s Eurasia Growth Project.
[1] Russian law defines monotowns as town where at least 25% employment is in a single firm. Even now, the Russian government’s Program for the Support of Monotowns lists 335 monotowns (out of the total of 1099 Russia’s towns and cities) with the total of 25% of Russia’s urban population. [2] EU (19): Belgium, Czech Republic, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Latvia, Lithuania, Netherlands, Austria, Poland, Portugal, Slovakia, Finland, Sweden, United Kingdom. For EU (19) we consider only those NUTS-2 units for which there is data for each year. Western Europe: Austria, Belgium, Germany, Ireland, Greece, France, Italy, Netherlands, Norway, Portugal, Finland, Sweden, United Kingdom. [3] The graph shows the relationship between the logarithm of the real income in the sending region and the logarithm in migration controlling for income in the receiving region, unemployment and public goods in both sending and receiving, year dummies and other factors influencing migration. Moscow and Saint Petersburg are excluded.
Putin and the Modernization of Russia – a Chimera?
Vladimir Putin is once more the Russian President and a new government has been formed consisting of most of the same faces and mentality. Putin’s victory looks complete – yet there is a very real risk that it will be Pyrrhic. Even if the ‘managed’ political and economic system – rooted in a lack of competition and openness – that has been his defining project can remain stable, it will continue to sap the country’s vitality. In the election campaign, even Putin acknowledged the country’s lack of modern and competitive industries, as well as a business environment plagued by corruption, cronyism and excessive regulation. Yet, in calling for further modernisation of the economy, Putin has also called for more of the same policies, notably a central role for the Russian state in supporting new industries and technological leadership; a newly established State Corporation for Siberia and the Far East is a case in point.
However, this very model has so far achieved very limited results. Oil and gas still account for nearly 70% of total merchandise exports and around half of the federal budget. While relying on publicly funded and managed entities – such as Rusnano – to shepherd the economy into more diversified and more productive spaces, particularly in high-tech activities, has also yielded a relatively meagre harvest. Rusnano itself has already acknowledged the limited portfolio of innovative projects to fund.
In the arena that provides the most compelling metric of competitiveness – export markets – relatively few Russian firms compete in international markets and very few do in higher value added trade. Ricardo Hausmann (2007) has argued that the products that a country exports also reflect the proximity of products and their reliance on similar sets of inputs, such as physical assets and knowledge or skills. Near the start of Russia’s transition it has been calculated that Russia had comparative advantage in only 156 out of 1242 product lines when using a 4-digit SITC classification. Most were natural resources. In contrast, China had comparative advantage in 479 product lines. And as regards proximity, few of Russia’s export products were closely connected to other products, meaning that there was limited scope for enhancing exports. Yet, by 2010 our research shows that there has been an increased concentration on natural resource exports. The contraction of manufacturing has, further, been associated with a fall in the number of Russian product lines with comparative advantage to 103. In contrast, the number for China increased in 2010 to 513. So, despite Putin’s rhetoric, the Russian export basket has become even more concentrated since the mid-1990s. Moreover, the ability to shift into proximate products, as well as diversify into new ones, remains very restricted. This is due to several factors.
A common diagnosis is that failings in the business environment are to be blamed. This is not a new complaint. While the options for limiting these constraints may not be straightforward but the broad policy direction and options are well understood. The challenge is in enforcement. In this – as also with improving governance and further reducing the role of public ownership – improvement is only likely to start with serious political commitment. That is still lacking.
But modernising the economy depends on much more than a good business climate. Critically, it depends on what sorts of skills and knowledge are available to the economy. Yet, even here where many have believed that Russia is relatively favourably situated, on closer inspection, the situation turns out to be far more problematic. In fact, our evidence indicates deterioration in the quality of both skills and education over time, including limitations on the supply of high quality management. Evidence from surveys suggests that Russian firms face problems in finding workers with the appropriate skill profile. While this may be the situation for existing firms, it seems likely that potential entrants to new, diversified activities may, if anything, face even steeper constraints. To understand whether this is indeed the case, the leading – 270 – recruitment firms in Russia were surveyed using face-to-face interviews in 23 locations in Russia, including Moscow and St. Petersburg. This included a small experiment looking at skills availability for work in more innovative activities, such as web technology aimed at social networking and marketing. The aim was to see whether innovative activities faced more binding constraints when trying to hire.
The results of this survey are unequivocal. Not only are there widespread skill gaps for all types of skills, but it takes firms a much longer time to fill vacancies for skilled personnel. This is particularly true for relatively innovative activities. Recruiting managers or high level professionals in the major Russian cities on average takes 3-5 times longer for innovative activity. Even in Moscow, recruiting a manager or high level professional would take between 3-4 times longer; the gap was yet greater in the Urals, Siberia and the Far East.
Moreover, looking at the sorts of skills that are lacking for each type of potential recruit (e.g., a manager); recruiters also report an absence of basic or essential skills. For example, lack of problem solving and management skills were overwhelmingly the most commonly cited limitations for managers, with high level professionals most commonly lacking both problem solving and practical skills. Among the consequences, many firms decide to postpone launching new products and/or modernizing plant.
In short, our evidence shows not only widespread skill shortages but also major barriers on the availability of personnel for firms wishing to establish new or relatively innovative activity. At the same time, anecdotal evidence also suggests that among the thin layer of top talent – likely to be essential for high tech and other innovative activities – many prefer to emigrate. In contrast, Russia fails to attract talent from other countries, not least because of a restrictive migration regime.
The last decade has seen an emphasis on modernising and diversifying Russia. The results have been depressingly limited. Yet Putin and his government propose more of the same. In effect, they are continuing to take a huge gamble by relying on a mix of energy prices and publicly funded industrial policy to paper over the structural weaknesses of the economy. As this article has shown, what Russia currently produces and exports – and the underlying skills and knowledge – provide a very weak base for achieving the goals of modernisation.
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References
- Denisova, I., and S.Commander, S.Commander and I. Denisova (2012), ‘Are skills a constraint on firms? New evidence from Russia’, EBRD and CEFIR/NES, mimeo
- Hausmann, R., and Klinger, B., (2007), “The Structure of the Product Space and the Evolution of Comparative Advantage”, CID Working Paper No. 146
- Volchkova, N., Output and Export Diversification: evidence from Russia, CEFIR Working Paper, 2011
Buyer Power as a Tool for EU Energy Security
In this policy brief we address the recently revived idea of a common energy policy for the EU – an idea of the EU acting as a whole when dealing with energy security issues. We focus on a particular mechanism for such a common policy – the substantial “buyer power” of the EU in the natural gas market. We start by relating the “buyer power” mechanism to the current context of the EU energy markets. We then discuss the substitutability between “buyer power” and alternative energy security tools available to the EU. In particular, we argue that two main energy security tools – the diversification of the gas sources and the liberalization of the internal gas market – may counteract such buyer power, either by decreasing the leverage over the gas supplier(s) or by undermining coordination. Thereby, investing both into diversification, market liberalization and energy policy coordination may be inefficiently costly. These trade-offs are often overlooked in the discussion of EU energy policy.
The security of energy supply has been part of the European political agenda for more than half a century – at least, since the creation of the European Coal and Steel Community (ECSC) in 1952. However, the Community’s view on the energy security policy and its desirable tools has been changing over time. In the early decades of European integration energy security issues were predominantly seen as belonging to the national competence level. Due to substantial variation in the energy portfolios and energy needs among the Member States, attempts to create a common energy policy were largely unsuccessful. The first large move towards a common energy policy came in the mid-1980s with the idea of developing a common internal energy market. The focus was on liberalization, privatization and integration of the internal markets, with an objective of achieving more competitive prices, improving infrastructure, and facilitating cooperation in case of energy supply shocks. In particular, the internal market was seen as a tool to (partially) overcome the disparity in the energy risk exposure among the Member States. A considerable effort was put in this direction and a certain progress was accomplished.
The second half of 2000s has been characterized by a number of gas crises between one of the largest EU gas suppliers, Russia and the transit countries – Ukraine (in 2006, 2007 and 2009) and Belarus (in 2004 and 2010). These crises repeatedly caused reduction, and sometimes even complete halts, of Russian gas flows to the EU. As a result, the focus of the EU energy policy shifted towards measures ensuring the security of external energy supply. The policy debate has been stressing the dependency of the EU on large fuel suppliers, such as Russia in case of gas, and the need to lower this dependency. Suggested remedies included diversification of gas sources (in particular, away from Russian gas – such as construction of Nabucco pipeline or introduction of new LNG terminals), strengthening of the internal market, and more efficient energy use. The debate was further heated by the construction (and late 2011 launch) of the Nord Stream pipeline, which, according to popular opinion, would further increase the EU dependence on Russia.
In what follows, we address this external energy policy debate. We argue that the dependence per se is not necessarily dangerous for the EU and can be counteracted with due coordination between the Member States. Further, we argue that in dealing with large gas suppliers, there is certain substitutability between such coordination and other proposed energy policy measures, such as diversification of the energy routes or further market liberalization. Thereby, the EU would be better off by carefully choosing an appropriate mix of energy policy tools, rather than by getting all of them at once.
Indeed, the dependency of the EU on Russian natural gas is large. The share of Russian gas in the total EU gas consumption is around 20%,1 and for the group of EU Member States importing gas from Russia this share constitutes around one third.1 Furthermore, in a number of EU Member States – such as Austria, Bulgaria, Estonia, Finland, Lithuania and Slovakia – the share of Russian gas in total consumption is above 80%.3
However, it is important to remember that the dependency is mutual. The current share of gas exports to the EU of total Russian gas exports is around 55%,1 and these gas exports constitute around one fifth7 of Russian federal budget revenues. These observations suggests that the EU as a whole would also possess a substantial market power in the gas trade between Russia and the EU, and this market power can be exercised to achieve certain concessions.
More precisely, this situation could be viewed through a prism of what the economic literature refers to as “buyer power”. Inderst and Shaffer (2008) identify buyer power as “the ability of buyers (i.e., downstream firms) to obtain advantageous terms of trade from their suppliers (i.e., upstream firms)”.5 The notion of buyer power is typically used in the context of vertical trade relationship between a small number of large sellers and a few large buyers. As there are only a few agents, each with considerable market power, the outcome of such trade would typically be determined through some kind of bargaining procedure, rather than via a market mechanism. In such bargaining, the extent of buyer power depends on the seller’s outside option, or, in other words, on the ease for the seller to cope with a loss of a large part of its market.
Consider for example a single seller serving a few buyers. Intuitively, were there a disagreement between the seller and a small buyer, it should be relatively easy for the seller to reallocate the freed-up capacity to the remaining buyers, making each of them consume just a little bit more of a product. However, the larger is the freed-up capacity of the seller in case of a disagreement, the more difficult it is for the seller to reallocate this capacity to the rest of the market. Moreover, allocating this relatively large capacity to the remaining buyers is likely to suppress the price and lower the monopoly profits of the seller. Inderst and Wey (2007) show that, under some relatively standard modeling requirements, “the supplier’s loss from a disagreement increases more than proportionally with the size of the respective buyer”.6 In other words, an increase in the size of the buyer undermines the seller’s outside option, thereby weakening the seller’s bargaining position and allowing the buyer to negotiate a preferential treatment.
It is relatively straight-forward to see the parallels between this argument and the gas trade relation between the EU and Russia. In a sense, the buyer power theory provides an economic (rather than political) rational for the September 2011 European Commission proposal to coordinate the external energy policy in order to “exercise the combined weight of the EU in external energy relations”.2 At the same time, the large buyer mechanism also allows us to see more clearly, why such a coordination policy may come into conflict with the other proposed energy policy tools.
In particular, consider the diversification of the gas supplies across producers. The argument for the diversification is that it decreases the dependency on each particular supplier, thereby lowering the exposure to the idiosyncratic risks of these suppliers. However, lower volumes of gas imports from such suppliers imply a loss of the EU’s buyer power vis-a-vis these suppliers. This would worsen the terms of the respective gas trade deals or undermine the stability of the supply. Of course, this argument suggests by no means that a diversification strategy is useless or harmful for the EU energy security; however, one would need to account for the relative importance of lower dependency vs. lower buyer power in making the diversification decisions. In other words, the EU can achieve the same level of gas supply stability by investing either into further diversification of gas supply or into better coordination among the members. Trying to achieve both objectives at the same time may result in efficiency loss, at least from the gas supply security perspective. Importantly, this tradeoff has been largely overlooked in the discussion of the EU energy policy.
Another energy policy objective pursued by the EU in the last decades is the creation of an integrated and deregulated internal gas market. Again, the relationship between this energy policy objective and the buyer power is two-fold. On one hand, better integration of internal gas markets would help to even out the disparities in the gas supply risk exposure across the Member States, thereby facilitating cooperation and lessening the tensions between the energy security interests on the national vs. community-wide level. On the other hand, gas market liberalization and a push towards more competitive gas trade environment within the EU may come into conflict with the supranational coordination of buyer power. Once large state-run gas purchasing actors are dissolved and replaced by multiple private, not necessarily domestic, and possibly small market participants, it might be much more difficult, if at all possible, to achieve coordination in bargaining with the gas supplying side. As Finon and Locatelli (2007) argue, “if the major gas buyers are weakened in the name of the principles of short-term competition, their bargaining power and their financial capacity to handle large import operations would be reduced”.4 Moreover, there is a clear conceptual contradiction between coordination among gas buyers and the competitiveness principles of the European gas market. Again, this tradeoff needs to be taken into account in the common energy policy design.
Finally, it is important to mention that the “large buyer” argument is less relevant for the EU markets for other fuels, such as oil, liquefied natural gas, or coal. The key difference comes from the inherent structure of the gas market, as compared to the one of oil, coal, etc. Indeed, the EU imports most of its natural gas via pipelines, which makes it difficult for both sides of the deal to switch to an alternative partner. In other words, the natural gas market serving the EU is effectively a local market. Instead, fuels like oil, liquefied natural gas, or coal are traded more globally, and are much more fungible (that is, it is much easier to find an alternative supplier or a consumer). Global markets imply smaller market shares of the EU (indeed, the EU consumes only about 16 %1 of the world oil). This, coupled with better fungibility of oil, LNG, etc. undermines the power of the large buyer argument for other fuels.
To sum up, the EU has a noticeable potential for improving its position in the gas trade deals and enhancing the stability of its gas supplies. This potential comes from the large buyer power possessed by the EU in the gas market, and is in line with the long considered and recently revived idea of “one voice” common energy policy. At the same time, the extent to which the buyer power can be used as an energy policy tool may be limited by the other policy instruments, such as diversification of gas supplies, a shift towards LNG or alternative fuels, or internal market liberalization. This has to be taken into account in choosing the optimal energy security policy mix.
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References
- BP, 2011, Statistical review of the world energy
- European Commission, September 2011, Speaking with one voice – the key to securing our energy interests abroad, press release
- Eurostat
- Finon D., Locatelli, C., 2007. Russian and European gas interdependence. Can market forces balance out geopolitics?, LEPII – EPE working paper #41
- Inderst, R., Shaffer, G., 2008. The Role of Buyer Power in Merger Control, chapter prepared for the ABA Antitrust Section Handbook, Issues in Competition Law
- Inderst, R., Wey, C., 2007, Buyer Power and Supplier Incentives, European Economic Review, 51, pp. 647–667
- Our own calculations based on Ross Business Consulting data from February 06, 2012 and Russian Federation Federal Law N 357 about Federal budget for 2011
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.
Property Rights and Internal Migration
Authors: Paul Castañeda Dower and Andrei Markevich, CEFIR.
Russia currently faces an important policy challenge related to relatively high levels of regional inequality. Regional imbalances that persist, especially in unemployment, reflect inefficiency and may lead to political instability. National capital and labor markets should work to correct these imbalances. This policy brief focuses on the labor market. In particular, why internal migration is relatively low in Russia, and suggests a new direction of policies to increase the mobility of the Russian workforce.
Interregional differences in income and unemployment remain high in Russia relative to the US and Europe (Andrienko and Guriev 2004). Figure 1 shows the change in unemployment for Russia’s regions between 1992 and 2007 plotted against the level of unemployment in 1992. We calculate the change in unemployment using 2007 since the global financial crises led to a different type of convergence, a widespread increase in unemployment. The absence of a downward slopping trend demonstrates that convergence across regions is not taking place.
Internal migration could solve regional imbalances in unemployment by matching unemployed individuals from areas with high unemployment to job vacancies in areas with more employment opportunities. In the US, for example, Blanchard and Katz (1990) show that regional economies adjust to region-specific shocks mainly through internal migration. However, disparities persist in Russia, in part, because of the lack of internal migration, which is relatively low compared to the US and Europe (Andrienko and Guriev 2004). It is not surprising then that a recent report by the World Bank (World Bank 2010) claims that Russians should be moving more within the country than they currently are, considering the economic costs and benefits of migration. The remainder of this policy brief discusses the connection between property rights and internal mobility in order to understand why the Russian labor market allows such high levels of regional disparities.
To address this issue, we look to the past since there is evidence from the late Tsarist period linking property rights to internal migration that has modern day policy implications. For most of Russia’s history, labor mobility has been restricted and controlled. Serfdom limited peasants’ mobility for centuries; restrictions survived after emancipation under the Russian repartition commune regime. The Soviet propiska system introduced in 1932 heavily regulated internal migration till the very end of the USSR and there are remnants of this propiska system even today. However, the extensive state control over internal mobility was not always the case. In the late Russian Empire, internal mobility was relatively unrestricted by the state and internal migration worked to correct regional imbalances (Markevich and Mikhaillova 2012). This historical period offers a good opportunity to investigate the economic causes of labor mobility in Russia without the veil of legal and political restrictions.
Figure 2 shows a startling pattern in the migration flows from the European provinces to the Asian part of the empire during this period. The sparsely populated regions of Siberia and Northern Kazakhstan that had abundant virgin land were attractive destinations for Russian peasants. We propose that an important factor in understanding the explanandum is the Stolypin agrarian reform, the timing of which is exhibited by the vertical dotted line in Figure 2. The annual number of migrating households was about 15,000 before the reform but dramatically increased to a level of 40,000 households per year after the reform. We argue that the reform increased migration flows largely because it improved the liquidity of peasants’ assets, providing greatly needed funds to finance migration.
The Stolypin titling reform can be thought of as a quasi-natural experiment through which one can judge the importance of financial constraints. For our purposes, the reform’s impact on liquidity is limited to forty-one European provinces (guberniya) where at least five percent of the rural population resided in repartition (peredel’naya) communes. The remaining nine European provinces, where few, if any, peasants were members of repartition communes, constitute the control group. The reform gave households the right to exit from repartition communes and convert their communal allotment to individual ownership of land recognized by a land title. The conversion to individual ownership improved the liquidity of land and made migration more attractive since migration no longer entailed losing one’s allotment and households could more easily sell their land allotments to finance migration.
Using a panel dataset of regional migration to the Asian part of the empire, we apply a difference-in-differences analysis using the distinction between treatment and control groups mentioned above. Our results indicate that 160,000 of the 441,000 households that migrated after the reform can be attributed to the reform. In other words, the relaxing of land liquidity constraints explains at least 18.1% of all post-reform Europe-Asia migration in the late Russian Empire. To understand how large of an impact the reform had, we make a back of the envelope calculation that yields an estimate of 0.12 percentage points of GDP growth per year or about 5% share of total economic growth during this period (Chernina et al 2012).
This historical evidence of the relative importance of liquidity of land for internal migration translates well into the contemporary policy discourse. After consulting both qualitative and quantitative studies on internal migration in Russia, Andrienko and Guriev (2005) conclude that “the most important barrier to migration is the underdevelopment of financial and real estate markets.” Figure 3 shows the relationship between growth of unemployment in a region and the share of privatization of residences using an added variable plot. Here, we condition the relationship on GDP per capita in 2000 and include federal district fixed effects in order to more closely isolate the liquidity effect of privatization. We use as base year 2000 instead of 1992 as in figure 1 because not all regions had initiated privatization until as late as the mid to late 90’s. While this correlation is not strong and is merely suggestive of an underlying relationship between private ownership and mobility, the graph illustrates that those regions with greater levels of privatization in 2000 subsequently experienced greater declines in unemployment during 2000-2007.
In summary, the ability of property rights to affect the financing of migration as well as the role that property rights play in the opportunity cost of migration calls for policymakers to include the issue of property rights when considering barriers to internal mobility. These findings fit well within the new economics of migration literature that criticizes and widens the previous narrow focus on wage differentials. In transition countries, these findings also point towards the importance of how privatization occurred. Different ways of organizing private ownership lead to different transaction costs incurred in buying and selling residential property. For example, in some former Soviet Republics, the privatization of individually owned apartments often did not fully specify property rights concerning the ownership of the apartment building and the internal structures that support the individual apartments. These ambiguities increase transaction costs and reduce the liquidity of the asset. Policies concerning internal mobility should therefore pay closer attention to the liquidity of Russians’ assets and how to improve it.
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References
- Andrienko, Y., Guriev, S. (2004). “Determinants of Interregional Labor Mobility in Russia.” Economics of Transition 12(1).
- Andrienko, Y., Guriev, S. (2005). “Understanding Migration in Russia.” CEFIR Policy Paper Series 23.
- Blanchard, O. and Katz, L. (1992) “Regional Evolutions”, Brooking Papers on Economic Activity, 1.
- Chernina E., Castañeda Dower P., and Markevich, A. (2012) “Property Rights, Land Liquidity and Internal Migration” NES Working Paper.
- Markevich, A. and Mikhailova, T. (2012). “Economic Geography of Russia” in The Handbook of Russian Economy. Oxford University Press, eds. Alexeev, M. and Weber, S.
Presidential Elections in Russia: Massive Vote Fraud Ensures that Legitimacy is in Doubt, but the Policy Direction is not
The March 4th, 2012, elections formally returned Vladimir Putin, the paramount leader of Russia since 1999, to the presidency. Despite Draconian restrictions on entry, financing, campaigning by other candidates, Putin’s dominance of TV, blatant use of state employees and funds to his own advantage, and significant vote fraud, the victory was underwhelming in the end. While the official tally was only 63.6 percent in Putin’s favor, estimates of his vote share by independent observers relying on networks of tens of thousands of volunteers were in the range of 49-57 percent of the turnout; even lower. (If his share was truly below 50 percent, a run-off vote would have to take place between Putin and the runner up) The second major outcome of the elections was the successful attempt by civic society to ensure a fair vote count in Russia’s largest city and capital, Moscow, where Putin’s official vote share (45 percent) on March 4th was the same that United Russia achieved in the December 4th parliamentary elections. (Generally, Putin polls much higher than United Russia.) The third outcome was the emergence of Mikhail Prokhorov, a billionaire with negligible experience in politics, as a major political force representing large cities and young educated voters.
The Success of Civic Society in Moscow and Vote Fraud Elsewhere
The central issue in the wake of the March 4th elections is the extent of fraud organized by the incumbent. Massive fraud during the December 4th parliamentary elections generated mass protests in response. In total, hundreds of thousands of Muscovites took part in four large rallies held during this winter. (No political rallies of comparable size, except for the state-sponsored pro-Putin ones, have taken place during the last 15 years.) A similar discrepancy between the actual vote and official returns was expected to generate even larger protests this time round.
Despite dozens of reported and video-documented cases of organized groups brought in to Moscow to vote multiple times and the presence of tens of thousands of observers, public outrage after massive vote fraud in the parliamentary elections last December is likely to have prevented the most outrageous and blatant forms of fraud during these elections. No less important, it is also likely that they generated less directly observable forms of electoral manipulation. Not surprisingly, for Moscow, the vote count by Citizen Observer, Golos, and other independent and highly respected observer organizations nearly coincided with the official election results, certified by the widely despised Central Election Commission (CEC). (Since December, the name of the head of CEC, Vladimir Churov, has become a synonym for incompetence and of fawning loyalty to the incumbent.) This does not mean, however, that no fraud took place outside the capital.
Figure 1. Cross-plot of the United Russia (Putin) vote share vs. turnout in the December 4, 2011, parliamentary elections and the March 4, 2011, presidential elections in Moscow. (Courtesy of Alexei Zakharov, HSE and Citizen Observer, using the CEC data.)
A side effect of the fair vote count on March 4th, 2012, in Moscow was that it highlighted the extensive centrally-organized fraud in parliamentary elections held on December 4th, 2011. (See the December 2011 issue of the FREE Policy Brief for a snap analysis of the parliamentary elections.) Figure 1 shows that the suspicious-looking relationship between the turnout and the Putin-led United Russia Party, highly visible in December (top figure), completely disappeared in March (bottom figure). Thus, the strong correlation between turnout and the United Russia vote share is a result of ballot-stuffing rather than anything else (theoretically, such a correlation might be caused by some socio-demographic characteristics of United Russia’s supporters). Similarly, Figure 2 exhibits a “normal” (Gaussian) distribution of total votes for United Russia/Putin by turnout (this is what should be expected theoretically, and is consistently observed in democratic elections around the world) on March 4th (bottom figure) and an unusual distribution, a result of changed voting protocols on December 4th (top figure).
Figure 2. Number of ballots by turnout in the December 4, 2011, parliamentary elections, and the March 4, 2011, presidential elections in Moscow. (Courtesy of Maxim Pshenichnikov using the CEC data.) Note the spikes on 70,75,70,85, and 90 percentiles on the left graph, a result of “targeting” by election officials. 
Outside Moscow, the situation was different. Across the country, independent observers documented ballot stuffing and manipulation of local vote returns. St. Petersburg, the second largest city in Russia with a population of just over 4 million and the cradle of the “Putin’s team”, is a case in point. The preliminary estimates, based on a (nearly random for these purposes) sample of 269 polling stations (which is about 12 percent of the total number of station in the city), shows that the actual vote share for Putin was 50 percent rather than the officially reported 65 percent, while for Prokhorov it was 22 percent instead of 14 percent, and for Zyuganov 15 percent instead of 11 percent in the official tally. These estimates are based on the comparison between the official results as certified by the Central Electoral Commission with official copies of vote protocols signed by accredited observers and members of local electoral commissions at the polling stations. In other words, the discrepancy is a result of vote fraud at the level of the territorial electoral commission instead of more conventional forms of fraud, such ballot-stuffing at polling stations.
New Faces of Russian Politics
Three of the four competitors against Putin on March 4th were veterans of Russian politics. The Communist party Chairman, Gennady Zyuganov, lost presidential elections to Boris Yeltsin in 1996, Putin himself in 2000, and to Dmitry Medvedev, Putin’s figurehead “heir,” in 2008. (In 2004, the communists ran a minor candidate). Vladimir Zhirinovsky, a perennial nationalist candidate for presidency since 1991, has maintained a parliamentary faction for his one-man party for 20 years, but has never come close to winning the presidency. Sergei Mironov, a former Putin ally (in 2004 he ran for presidency with the announced goal “to help Putin win presidency”), was the main beneficiary of the December 4th, 2011, vote when many people supported his party primarily for the reason that parties they would have otherwise voted for were banned from participation. By official tally, Zyuganov got 17.2 percent (2nd place), Zhirinovsky 6.2 percent (4th place), and Mironov 3.9 percent (5th place). Despite the fact that these three have been on the ballot for a long time, they have never succeeded in presenting a genuine alternative choice for Russian voters at the polls and therefore posed no serious threat to Putin’s authority.
Mikhail Prokhorov, the 2nd richest person in Russia according to Forbes, ran a campaign that was watched warily by both Putin in Kremlin and Putin’s opponents in the liberal camp, and came in 3rd place with an official total of 8.0 percent. In Moscow, his result was even more impressive with 22 percent of the vote, second only to Putin’s 45 percent. While Prokhorov certainly benefited from the absence of Grigory Yavlinsky, who failed to clear the (unheard of in democratic countries) requirement to collect 2 000 000 signatures, and other liberal politicians, his results exceeded the previous combined returns of the liberal parties and candidates in parliamentary and presidential elections in 2000. The success of his candidacy have raised doubts on a long-held assumption in Russian politics that a rich, not to mention very rich, candidate has no chance of gaining traction in popular vote.
Another new face in Russian politics, Alexei Navalny has a law degree, business background, and was a member of the leadership in the Yabloko party (expelled in 2007) before becoming a famous blogger and shareholder activist in the beginning of 2010. His blog (navalny.livejournal.com) is now one of the most popular blogs in Russia, with more than 66,000 followers. A major boost to its popularity was the “Rospil” project that focused on protecting minority shareholders of large state-owned companies (and, by extent, on the management of the taxpayers’ property by the Putin government). Navalny used his blog to organize large-scale petitioning and litigation campaigns related to corruption in state-controlled companies. As a result of these activities, Navalny was described by the BBC in 2011 as “arguably the only major opposition figure to emerge in Russia in the past five years.” (Obviously the BBC has not foreseen the rise of Prokhorov.) After December 4th, 2011, Navalny became a major leader of the protests and organizers of election observers.
“Staying the Course”
President-elect Vladimir Putin will start his new 6-year term in difficult times. The election raised questions about his true legitimate level of popular support, yet there is little doubt that he does not face any viable alternative challengers in the near future. Given that Putin has proven himself extremely rigid in the choice of policy and personnel (he would not get rid of close subordinates even if wide-spread corruption allegation would make them a visible drag on his popularity), the new government is not expected to be radically different from the current one (which features most of the ministers serving for 5-10 years in their current capacity). His anointed prime-minister is not a new face either. Dmitry Medvedev, who served as Russia’s president for the last 4 years, is not expected to bring forward any major policy changes.
Fortunately for Putin the opposition is not organized and cannot settle on any particular message or alternative policy direction, let alone viable leader. The protest movement during the winter of 2011-12 was characterized more by decentralized leadership, featuring a number of prominent literature, arts, and entertainment figures. With its goal to ensure fair elections, it has, however, united a very diverse group of smaller movements ranging from radical young communists to libertarians despite its not having provided an alternative leader to Putin. In the end, the outcome of the March 2, 2012, presidential election has ended the myth of a significant Putin majority, casted considerable doubt on his legitimacy and has shown that Russians seem hungry for a change. It has, however, also left a big question mark on what the opposition’s next steps are and who the alternative could be.
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Is Regional Policy Effective in the Long Run? Learning from Soviet History
Regional inequality has been a pressing issue in many countries, and also between the countries of the European Union. Unequal economic development, where some regions develop successfully and prosper while other regions stagnate, is often viewed as a source of social instability and economic inefficiency. Many kinds of regional policy have been proposed in order to mitigate such a situation by promoting growth in lagging regions. The policies range from subsidies and favorable tax policies for business investment to large-scale government investment projects. The ultimate goal of all regional policies is to create an environment for sustainable growth in regions that have fallen behind. In theory it might appear that a policy, which is implemented during a specific period of time, would be sufficient to achieve sustainable development: subsidies or creation of infrastructure would lure firms into a region and create a favorable environment for economic agents (both firms and people). The temporary policy would create agglomeration externalities that would ensure sustainable development even after the policy is discontinued.
However, are such regional policies in fact successful? Researchers often observe a short-run impact, but it is less clear whether regional policy can make a difference in the long run. From the literature on historical “natural experiments”, we know that spatial structures of economic activity are very resilient to temporary impact. For example, the wholesale destruction and loss of life in WWII seems to have had little or no effect on the regional shares of population and manufacturing in the long run. On the other hand, significant and permanent (or long-lasting) changes to market access, such as the division ofGermanyafter WWII, do reshape the spatial economy in the long run.
Our study looks at the long-run patterns of Soviet city growth in light of Stalin’s industrialization and WWII. The Soviet government’s investment decisions during that period were dictated to a large extent by military strategy and ideology. Massive relocation of productive resources from west to east before, during, and after WWII represents a unique natural experiment, in which production factors were destroyed in some parts of the USSR, while new production facilities and infrastructure were created in other regions of the country. Using a unique dataset, we test whether Gulag camps, wartime evacuation of industry, and location near the war front had a long-run effect on city size.
In the 1930s-1950s, Stalin’s system of penal labor camps (the Gulag) was widely used as a source of cheap labor, especially in remote locations where there was no other available labor force. Penal labor was used in a variety of sectors (logging, mining, manufacturing and construction). Presence of a camp near a city or town usually meant that this location was chosen by the Soviet government for an investment project. We trace the impact of having a camp nearby on city growth from 1930 to the present day.
Evacuation of enterprises from western to eastern regions of the USSR (to avoid their possible capture by the advancing German army) is traditionally named among factors that determined post-war growth of cities in the Urals andSiberia. Indeed, data show that the majority of evacuated enterprises never returned to their original location in the westernUSSR. Western cities that sent enterprises into evacuation often lost their significance in the immediate post-war period. We test whether evacuation affected the growth of cities in the longer run, ceteris paribus.
Unfortunately, no detailed data on deaths and destruction in Soviet cities during WWII are publicly available. We therefore measure the impact of wartime damage by constructing a set of indicators for cities that were occupied or were close to the front line during WWII.
The results show that (controlling for pre-war city size, rate of growth, and geographical location) occupation and location 30 km or 200 km from the front line do have a negative and statistically significant effect on city size by 1959. However, this effect disappears by 1970. This is consistent with findings forJapanandWestern Germany, where pre-war trajectories of city growth were restored after 25-30 years.
Surprisingly, the result is roughly the same for cities which hosted evacuated enterprises. Controlling for pre-war size and growth rate, geography and presence of Gulag camps, cities that received evacuated plants grow faster until 1959, but the difference is not statistically significant in 1970 and later. Thus, contrary to the commonly held belief, the effect of evacuation was only temporary.
By contrast, the presence of a Gulag camp increases city size in a long time horizon. Gulag cities grow faster not only in the 1930s-1950s when the Gulag system was operational, but also in the 1970s and 1980s. On average, the Gulag effect only disappears in the 1989 population census.
Specialization of the camp also makes a difference. Effect on city population from a camp where prisoners were involved in agriculture or logging is short-lived. Such camps were not used to build capital or infrastructure, so the nearby cities did not become more attractive for free labour. However, if a city had a camp where prisoners worked in manufacturing, mining, or construction of production facilities or housing, its population increased permanently. Compared with the best match from a control group (a city of similar characteristics, but without a Gulag camp), such a city accrued 50% more population, and this difference remains statistically significant even until the census of 2010.
Overall, the evidence on Soviet city growth supports the common finding: the direct effects of WWII were relatively short-lived. The experience of enterprise evacuation shows that one-shot relocation of production factors by the state also fails to produce robust changes in the geographical redistribution of economic activity in the long run. However, when the Soviet government established new industrial centers in the eastern parts of theUSSR, and made massive investments in production facilities and infrastructure using Gulag labor, it managed to permanently shift the geography of economic activity. This example illustrates the size and scope of impact that is required to affect economic geography in the long run.
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Russia and the WTO
Eighteen years after the start of the accession process, Russia is closer than ever to joining the World Trade Organization (WTO). The negotiations have been long and hard as Russia had to agree the accession terms with 57 out of the 153 WTO member countries which formed the working group. Moreover, the number of goods for which the extent and timeframe of the change of Russian tariffs were agreed exceeded 10,000. The negotiation team led by Maxim Medvedkov has done an immense amount of work and found compromises on sensitive issues such as pay for the flights of foreign planes over Siberia, compensating European producers for the discriminatory law on industrial assembly, the amount of support for the agricultural sector, access to the market of banking services, etc. Now, all these differences have been ironed out and the WTO has agreed with all the participants, and put on the table the final terms of Russia’s accession.
Terms of Accession
It has to be noted that the change of tariffs after Russia’s accession to the WTO will be insignificant. Average tariffs on goods after all the agreements have come into force will decrease to 7.8% from 10% in 2011.
The tariffs on agricultural goods will drop to 10.8% compared with the current level of 13.2%, and for manufactured goods from 9.5% to 7.3%. The duties on some goods will, however, drop significantly. For example, the tariff on new cars will be cut by half from 30% today to 15%. On the other hand, one has to bear in mind that the agreed decrease of all tariffs will not happen overnight after the Russian accession. It will rather take place gradually at a rate which has also been agreed on with the WTO members. The tariff for new cars will drop to 25% immediately after accession and will remain at that level for the next three years before the cuts resume at an annual rate of 2.5% over the following four years to reach the targeted level of 15%. Russia has no commitments to reduce tariffs any further. The tariffs on used cars up to 7 years old will be fixed at 25% at accession and will not change over the next five years before being cut to 20% over the following two years. Duties on cars older than 7 years will not change at all. On the whole, tariffs will be changed completely immediately upon accession only on one-third of the goods. For many goods the process will extend over three years, and for some over 8 years after accession.
Not only trade in goods, but also service and foreign direct investment spheres will be liberalized. One of the most difficult negotiation items was the banking sector, where some WTO member countries (notably the USA) demanded a total opening up of the Russian market of banking services to foreign financial and lending institutions. Moscow, for its part, insisted on preserving the current situation where only the subsidiaries and not branches of foreign banks operate in the Russian market. The difference between the former and the latter is that the activities of subsidiaries on Russian territory are regulated by the Russian Central Bank, while branches are regulated by the laws of the country of origin. The Russian position prevailed, which means that the situation for foreign banks will not change and the cost of entering the Russian market will remain at the current level. Accordingly, the cost of banking services for Russian clients will not change. This is not good news for Russian small and medium-sized enterprises which had hoped that a massive entry of foreign banks could help bring down the interest rates on loans.
Major changes may take place in the insurance market when Russia allows branches of foreign insurance companies. However, a nine-year transitional period appears to be enough for all the stakeholders to prepare themselves.
Assessment of the Consequences of Russia’s Accession to the WTO for the Economy
The question that is uppermost in the minds of all Russians is whether the economy stands to gain or lose as a result of WTO accession. On the one hand, opponents of accession point to the not very successful experience of accession to the WTO of some former Soviet republics. These opponents paint lurid pictures of the social consequences of the closure of a large number of Russian enterprises. By contrast, the advocates of accession cite the success of China whose export-led growth accelerated significantly after the country joined the WTO. Time will tell what the results of a WTO accession will be for Russia. The result will in many ways depend on well-thought-out and coordinated actions of the Russian federal and regional authorities. In the meantime, we can only talk about what we expect from accession and what its potential consequences may be. The Russian government and the World Bank have conducted several major studies, seeking to determine the economic consequences of a WTO accession. While there are some discrepancies in evaluating the quantitative changes in specific sectors and at the economy-wide level, researchers more or less agree in qualitative terms. The general consensus is that the changes in outputs, consumption, prices and welfare due to the new tariff agreements are likely to be fairly small. Because the overall reduction of import tariffs in Russia will be insignificant, one may expect that changes in specific sectors, too, will not be dramatic (within plus-minus 1-3% of the base level).
CEFIR jointly with the Belgian TML Centre and the German ZEW with the support of the European Union Seventh Framework Programme, recently build a general equilibrium model of the Russian economy SUST-RUS (CEFIR 2011) which makes it possible to assess the effect of a Russian WTO accession on specific sectors. Several scenario calculations have been made to model the short term (one or two years after the reduction of all the tariffs) and long-term (five or six years after the reduction of all the tariffs) effects of a Russian WTO accession. The results of the scenario modeling should be seen as an indication of the direction of market processes caused solely by a WTO accession without taking into account any other possible changes in the economic environment (for example, a change of energy prices, the strengthening or weakening of the ruble against the leading world currencies, changes in the domestic market, etc.).
The short-term scenario assumes only a change of the tariff timetable. The long-term scenario has a further assumption concerning the return on foreign direct investments for the business service sector. Business services include banking insurance, financial services, transport services, wholesale trade, etc. Some terms of Russia’s WTO accession pertain to the business service sphere and envisage considerable liberalization of foreign companies’ access to these sectors. One can expect that lower barriers to entry would push down prices in these sectors and make them more accessible for Russian enterprises, which in turn would reduce their costs, boost production and create more jobs. The general equilibrium modeling of this mechanism assumes a conservative reduction of barriers for foreign investments of about 10% of the current level.
According to CEFIR’s results, the potential growth of welfare in the economy caused by a WTO accession in the short term will be 0.4% per year, and in the long term 1% per year. Budget revenues will fall due to diminished tariffs, and there may be a dip in the rate of GDP growth in the short term. Model calculations show a significant change of the trade balance, possibly a reduction of the trade surplus to 10%. At the sectorial level, a WTO accession will reduce domestic prices of timber and articles made from wood, foodstuffs, transport means, as well as equipment, clothes, chemicals and petrochemical products by 1.5-2.5% in the short term and by up to 3% in the long term. This will increase consumption by between 0.2% and 0.4% in the short term and up to 1.5% in the long term. It has to be noted that the liberalization of the service sphere is a very important assumption of these calculations as it accounts for half of the long-term gains for consumers.
The World Bank has also carried out a study of the consequences of a Russian accession to the WTO in 2004 (Jensen et al, 2004). That study put the net positive gain from liberalization of tariffs at 3.4% of the GDP. That analysis was based above all on the economic effect from a change in import tariffs. Trade liberalization is historically associated with lower tariffs. Most sectors stand to gain from accession. Because the authors identify two main causes of the gains from liberalization – easier access to foreign markets and cheapening of the ruble in proportion to the change of tariffs – the sectors that will benefit are those which has a high share of exports, and which have not been heavily protected by tariffs to begin with.
The biggest beneficiary will be metallurgy, with a 25% increase in output and employment in ferrous metallurgy and 15% in non-ferrous metallurgy. The growth in the chemical and petrochemical industries can be up to 10% and in coal mining up to 6%. The significant gains predicted by the World Bank study owe something to the optimistic view of the possible terms of Russia’s accession to the WTO. For example, it assumed that all the import tariffs would be cut by 50% and all (100%) of the administrative barriers to investment in business services would be removed. More modest assessments of the potential gains for Russia in other studies reflect the smaller Russian commitments to liberalization of import tariffs and the services sphere. For example, CEFIR’s results show that steel-making enterprises will not experience difficulties after a WTO accession and may grow by about 2% in the long term.
Along with the cut of import duties, Russian producers will face tougher competition on the part of foreign goods for which prices will be cut. Accordingly, Russian producers will also have to cut their prices to be competitive. This is good news for consumers. Not all domestic producers will be able to cut their prices. The enterprises whose production costs turn out to be higher than the new prices, and which fail to cut their costs, will be pushed out of the market. The sectors where one can expect a drop in production are above all those which have long been protected against international competition by high import duties. CEFIR’s study has shown that in the short term, negative consequences may ensue for the food industry, pharmaceutical companies and textile enterprises which may see their output drop by between 0.5% and 2%.
According to the World Bank study, the biggest decline in output and employment may occur in the machine-building sector (12%) and in the food and light industries as well as in the construction-material industry (up to 7%). The above figures of decrease or increase refer to the summary effect from liberalization accumulated over a period of 7-10 years after a Russian accession to the WTO. Several studies have been devoted to the consequences of a WTO accession for regional economies. For example, World Bank experts (Rutherford and Tarr, 2006) point to positive, but uneven consequences of a WTO accession for Russian regions. The biggest beneficiaries from lower tariffs are likely to be the Tyumen region, the North Western District as a whole, and in particular, St. Petersburg, where welfare may increase by 1%. Low growth or no growth may be expected in the Central District and in the Urals. These results tally with the assessments of the consequences of WTO accession for the Russian regions made by the Independent Social Policy Institute (ISPI 2004) which also included some regions of the Volga Federal District among the high-risk regions.
Results of studies of changes in the labor market in the wake of WTO accession, generally accord with the other findings. The International Labor Organization (ILO 2003) predicts an average loss of 6000 jobs in industry in the year following accession and up to 1000 jobs in seven or eight years’ time. The biggest number of jobs will be lost in the light-industry sector (up to 15,000 during the transitional period). Such a drop in employment will hardly make any difference to the unemployment situation in the country as whole, but may differ from one region to another.
Most studies agree that Russia may gain from easier access for Russian enterprises to foreign markets after a WTO accession, but that the gain will not be great compared to the potential gain from the liberalization of the service sphere. There are not many export-oriented enterprises in the country, but they exist. There are about 6,000 export-oriented enterprises in the processing industry. These enterprises include chemical, metallurgical and high-tech enterprises, and are the most efficient and competitive producers in the country. These enterprises may be expected to pick up the slack in the labor market due to redundancies in sectors that will be affected by a WTO accession. The coordinating role of the state is very important in creating conditions for movement of labor. The gradual reduction of tariffs may dampen the social consequences of Russia’s WTO accession. In the regions where some production facilities are “doomed”, programs for retraining of labor must be launched without delay, especially in information technologies, and the services and skills required for starting a new business. The aim of such retraining should be to enable those who lose their jobs to be employed in other spheres of the economy. It is equally important to develop new forms of financing migration of the population within the country. The solution of this task may become one more – and very important – result of the WTO accession for Russia.
References
- CEFIR. 2011. SUST-RUS project. www.sust-rus.org
- ILO. 2003. “Social consequences of Russia accession to WTO.” Moscow office of ILO (in Russian)
- ISPI. 2004. “Russia’s accession to WTO: real and imaginary social consequences.” (In Russian)
- Jensen, Rutherford, Tarr. 2004. “Economy-Wide and Sector Effects of Russia’s Accession to the WTO.” World Bank
- Rutherford, Tarr. 2006. “Regional Impacts of Russia’s Accession to the WTO.” The World Bank
A Resonant Signal: the Russian Parliamentary Elections of December 2011
Days before December 4, prospects of electoral democracy in Russia looked bleak. Consolidation of the authoritarian rule of Vladimir Putin, Russia’s paramount leader since 1999, adoption of non-democratic electoral laws and politically-motivated law enforcement, constant harassment of media, civil society organizations, and election observers, and outright involvement of the government in the electoral process gave little hope that elections would make the political leadership accountable. The courts and electoral officials were used to prevent most opposition leaders from registering a party or participating in elections; opposition financial supporters had been driven into exile. Parliamentary elections in December 2007 and presidential elections in March 2008 were marred by such irregularities that many observers, myself included, had stopped counting. However, the outcome of December 4, 2011 will arguably have a major impact on future political developments in Russia.
Firstly, the official results of United Russia, the party that is led by Vladimir Putin and had a constitutional majority in the previous parliament, showed a significant drop in support for the current political leadership among the general public. Despite overwhelming presence on state-controlled TV channels, significant support by government officials, and outright vote fraud, the official results show the ruling party deserted by more than a quarter of its supporters (12.8 million out of 44.7 million who voted for United Russia in 2007).
Secondly, those who turned out to vote (the turnout was significantly lower than at previous parliamentary elections) showed obvious discontent with Putin/United Russia policy and, possibly, with the way elections were conducted. In particular, millions of Russians voted for Just Russia, a party with no charismatic leader and a platform that is not substantively different from that of United Russia.
Thirdly – and perhaps most importantly – there was a visible and dramatic upsurge of voter activism on the Election Day. Without any large-scale centrally organized campaign, hundreds of volunteers went to polling stations to work as election observers. They witnessed, prevented and/or reported hundreds of violations by electoral officials via social networks (despite coordinated DDoS attacks on the most important networks and popular news sites on the Election Day) and via You Tube. By December 5, some of the You Tube clips showing electoral fraud had more than 1,000,000 hits.
Reported Results and Corrections for Voter Fraud
As is always the case in a semi-democratic state, result of the official count may deviate significantly from how people actually voted. In Russia, the parliament is formed by representatives of political parties: voters vote for party lists, rather than for individual candidates. The officially announced results were: 49.5 percent for United Russia, 19.2 for Communist party, 13.2 for Just Russia, and 11.7 for the Liberal Democrats (Vladimir Zhirinovsky). Other parties, including Yabloko, the only liberal-leaning party that was allowed to participate in elections, fell short of the 7 percent required to enter parliament. However, the observations of international observers concur with those of opposition parties and independent Russian observers: ballot stuffing in favor of United Russia was witnessed/recorded and was widespread; electoral laws, draconian in themselves, were grossly violated by state officials, including police, at polling stations. In a number of cases, the elections results certified by local election boards do not coincide with the data presented by the central electoral commission, with every major discrepancy being in favor of United Russia.
Results obtained by the Citizen Observer project, which brought about 500 Moscovites to 160 polling stations as observers, give an impression of the scale of the fraud. Unfortunately, the project did not use a randomized distribution of observers, which would make the sample statistically representative of the whole of Moscow. However, Moscow districts have demonstrated fairly homogenous voting patterns in the last two decades, and there is no reason to think that any major change in this pattern occurred, so the report offers a fairly reliable estimate of election fraud. Averaging across polling stations where the observers did not report any serious violations, the Communist party won 25.3 percent of votes, United Russia 23.4, Just Russia and Yabloko 17.6 percent each, and the Liberal Democrats 12.5 percent. Turnout was 49 percent.
I would therefore estimate the effects of irregularities at 10 percentage points, i.e. the real share of votes cast for United Russia nationwide would be 39 percent rather than the reported 49 percent. But it would be reasonable to suppose the effect of irregularities at between 7 and 15 percentage points, so real votes for United Russia would be between 34 and 42 percent of votes cast. It is conceivable that the real share of votes cast for the Communist Party in Moscow (19.4 percent in official returns) was close to that of United Russia; it is not inconceivable that the Communists won the majority of real (not “counted”) votes by Moscovites.
Explanations
Following such a major surprise, any explanation offered only three days after the event risks being way off mark. Public opinion surveys predicted a significantly larger plurality for United Russia. (Personally, I have doubts about the quality of surveys of electoral intentions by major Russian polling firms. I find it particularly disturbing that, in the past, such firms have proved good at predicting – supposedly based on voter intentions – the reported results, rather than the results as adjusted by a realistic estimate of electoral fraud.)
The most obvious explanation for the United Russia setback is economic. Russia suffered more than any other G20 country as a result of the world financial crisis in 2008-09: an EBRD Transition Report 2011 found, based on an extensive survey of Russian citizens, that 38 percent of households had to cut their food consumption as a result of the crisis (11 percent of West European households were affected the same way). This is a major impact. In a democracy, such economic impact alone would most probably result in loss of power for the incumbent leadership.
Another explanation is growing discontent among Russians with the harshness of Putin’s administration and with rampant corruption. When oil prices were rising and real incomes were growing by double digits, the Russian public exhibited markedly high tolerance even when political decisions ran contrary to the will of the majority (for example, no opinion survey in five years showed majority approval of the abolition of regional gubernatorial elections, which was a cornerstone of Putin’s political changes) or when they had to pay substantial corruption premiums in the marketplace. In harder times, people are less willing to have their wishes ignored or to tolerate high and rising prices.
Consequences
In the Yeltsin era, such an outcome of parliamentary elections (even by the official count, United Russia lost almost 13 million votes as compared to 2007) would have triggered a major change in the composition of the cabinet. In 2011, there is even more reason for such a change: a number of prominent cabinet members, who had remits to run United Russia slates in specific provinces led their slates to dismal results (low 30s by the official count). However, low mobility in the upper echelons of the Russian elite during the last decade suggests that drastic changes in the near future are unlikely.
More important than the loss of seats in parliament for United Russia is the possibility that Vladimir Putin, the current prime minister with de facto presidential powers and the head of United Russia, is no longer assured a safe victory in March 2012 presidential elections, which looked a foregone conclusion just a couple of months ago. He is still arguably the favorite, even if (very improbably) there is no ban on opposition candidates participating in the elections (in 2008, the field was restricted to three contenders, all of them effectively pseudo-candidates; in 2004, other candidates were de facto prohibited from raising money for the campaign, while the incumbent had the full capacity of the state at his disposal). With a ban on opposition participation, he is the overwhelming favorite. However, we do not rule out an initiative by the government to make outcome of presidential elections even more secure in the near future by a major crackdown on the opposition.
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Do Russians Oppose Anti-Tobacco Policy?
Russia is known as a persistent leader in terms of high adult mortality rates among the middle-income countries. Unhealthy lifestyle, smoking and excessive alcohol consumption have been confirmed as major causes of the high mortality rates in Russia. Each of these causes are estimated to cost about 10 years of life. While alcoholism receives some attention in public debate (though not that much in policy decisions), the dangers of smoking are often downplayed. This is in a country where 60% of males and 22% of females smoke, cigarettes are very cheap (about 60 euro cents per pack), and smoking prevalence among teenagers is very high: almost 25% of those in the 15-18 age group smoke.
The tobacco industry lobby has used the threat of potential protests by the Russian public as an argument against policies to fight smoking. The New Economic School and Quirk Global Strategies conducted a survey of 1200 adults in December 2010 in order to gauge attitudes of the Russian public towards a national policy for reducing tobacco use. The fieldwork was conducted by Moscow-based ROMIR in 93 urban and rural settlements across the country.
Russians believe that smoking is harmful and that tobacco use is a serious problem
The vast majority of Russians (95%) believe that smoking cigarettes are harmful (72%, including a majority of smokers, say that it is very harmful) . In addition, nearly seven out of ten Russians think that smoking and tobacco use is a “very serious” problem in the country.
Figure 1. Attitudes towards a national policy to reduce tobacco use.
Eight in ten Russians (80%) support a national tobacco control policy to help reduce tobacco use in the country (see Figure 1). The policy has support across Russia’s demographic and geographic spectrum. Even nearly two-thirds of regular smokers (63%) support a national policy to help reduce tobacco use. Overall, just 14% of Russians oppose the idea.
Increasing the price of tobacco products and tobacco taxes
Most Russians believe that the price of a pack of cigarettes is either about right (40%) or too low (31%). Very few (16%) think that the price of cigarettes is too high. Even among regular smokers, just 20% view the current cost of cigarettes as too high, which is nearly identical to the number of regular smokers who think that cigarettes are too cheap (19%).
There is support for the idea of increasing the price of tobacco products, including raising tax on tobacco, as part of an effort to reduce tobacco use in the country (Figure 2). It was found that 70% of Russians support price increases, and 41% strongly support such increases. The share of respondents who oppose increasing the price of tobacco products is 27%, and very few (7%) are in strong opposition.
Figure 2. Attitudes towards a price increase.
There is majority support for higher prices for cigarettes in every region of the country, although the level of support varies. The strongest level is in the Southern region (82%), while the Volga (61%) and Ural regions (66%) are less supportive. A slight majority of regular smokers opposes raising prices for cigarettes (51% against 47% in favor), including tobacco tax increases. However, nearly two-thirds (65%) of the occasional smokers, support the idea.
A majority (54%) of Russians believe that smoking rates will stay the same and 24% believe that smoking rates will decrease after the modest tax increase announced by the Russian Ministry of Health goes into effect. However, a plurality (44%) believes that smoking rates would decrease if cigarette prices tripled to approximately 75-100 rubles per pack.
If the Russian Government did decide to increase the price of tobacco products to approximately 75-100 rubles per pack, fewer than one in ten Russians (9%) would be very displeased (a total of 28% indicate that they would be displeased). Indeed, a plurality (38%) of Russians would be pleased with such a significant price increase for cigarettes and another 27% would be apathetic.
Russians support other specific policies to reduce tobacco use
Strong majorities in Russia favor other specific policies to help address tobacco use in the country. These policies include a ban on tobacco advertising (86%), funding tobacco prevention programs (85%), stronger health warnings on cigarette packs (81%), and prohibiting smoking entirely in public places and workplaces, including restaurants and bars (82%).
The latter result is reinforced by the finding that 72% of Russians view the rights of customers and employees to breathe clean air in restaurants and bars as more important than the rights of smokers to smoke and business owners to allow smoking (see Figure 3). Even 53% of regular smokers think the same. It was found that 24% of Russians consider the rights of smokers to smoke and business owners to allow smoking in restaurants and bars as more important.
Figure 3. Attitudes towards the right to breathe clean air and the right to smoke in restaurants and bars.
To sum up, the vast majority of Russians think that tobacco use is a serious problem in the country. Accordingly, there is a high level of support for a national policy to reduce tobacco use in Russia. In addition, there is support for the idea of increasing the price of tobacco products, including raising tax on tobacco, as part of an effort to reduce tobacco use in the country.
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.
What Does Modern Political Economics Tell Us About the Fate of Russia’s Reforms?
After the 2008-09 crisis, Russia is facing a new set of challenges. The pre-crisis sources of growth have been exhausted. In order to implement its growth potential and catch up with OECD countries, Russia must improve its investment and business climate. Although the reform agenda has been repeatedly discussed, it is not being implemented. The explanation is provided by modern political economics: what is good policy (in terms of social welfare and growth) is not necessarily good politics (for a country’s rulers). In this sense, modern Russia is a perfect example of the non-existence of a political Coase theorem. Although everybody understands that the status quo is suboptimal, the most likely outcome is further postponement of reforms.
Whither Russia?
In 2009, the New Economic School joined the Russia Balance Sheet project launched by two DC-based think tanks: the Center for Strategic and International Studies and the Peterson Institute for International Economics. The aim of the project was to assess Russia’s assets and liabilities. Similarly to compiling a company’s balance sheet, the project estimated the potential for long-term development and growth, and the problems that could prevent Russia from realizing this potential.
The main output of the project in 2009-10 was the book “Russia after the Global Economic Crisis”, which was published in English in the Spring 2010 and in Russian in the fall of the same year. The book looked at a broad range of issues that could be classified as Russia’s “assets” and “liabilities”, extending from economic, political and social issues to energy, foreign relations, climate change, innovation and military reform. Interestingly, despite the breadth of the analysis, the authors of the book’s different chapters arrived at similar conclusions, which might be summarized as follows: while Russia came out of the crisis in a reasonably good shape and has nothing to fear in the near term, it has serious long-term problems that need to be addressed as soon as possible; however, it is, unfortunately, the case that Russia is unlikely to implement the required reforms, since they go against the interests of the ruling elite.
This argument is especially clear with respect to Russia’s economic problems – that Aleh Tsyvinski and I analyzed in the first chapter of the book. In the short run the Russian economy is certainly doing quite well. So long as oil prices stay high, the budget remains balanced, the economy grows, and sovereign debt is virtually non-existent (in marked contrast with debt burdens of OECD countries). Contrary to what is claimed by many critics of the government, pre-crisis growth did trickle down to all parts of Russian society, and that has ensured that the government enjoys sufficient political support.
However, in the long run, the situation is very different. The pre-crisis sources of economic growth (rising oil prices, low capacity utilization and an underemployed labor force) have all been exhausted. Oil prices are high, but are unlikely to rise much further. Production capacity and infrastructure are over-utilized. The labor market is very tight. In order to grow at the rates, which Korea and other fast-growing countries achieved when they were at Russia’s level of development, Russia needs new investment. Hence, Russia has to improve the business climate and the investment climate. This, in turn, depends on reducing corruption, improving protection of property rights, building an effective and independent judiciary, and opening the economy to competition (both domestic and international).
Good Policy, Bad Policy
The changes that are needed in order to ensure strong growth are obvious, but they are unlikely to happen. The reason is very simple: the political equilibrium is such that Russia’s political elite is not interested in change. There is nothing unusual about this. As Bueno de Mesquita et al. (2003) have argued: good policy may be bad politics and vice versa. If achievement of economic growth depends on surrendering control over the commanding heights of the economy (through privatization, strengthening the rule of law, deregulation, and encouragement of competition), the ruling elite may fear a weakening of its hold on power and ultimate loss of power as the price of achieving growth. In this case, the ruling elite will prefer to stay in charge of a stagnating economy (and enjoy a big piece of a small cake) rather than risk losing power (and having no piece of a bigger cake).
Can society somehow buy out the vested interests of the rulers? One of the most powerful theoretical results in economics, the Coase theorem, would suggest that the answer is yes. However, the conditions of the Coase theorem are not met in the instance of political economy, which we are considering. In our case the ruling elite does not merely trade goods or even assets: by allowing reforms it would lose the power to expropriate and protection from being expropriated. Unsurprisingly, there is no “political Coase theorem” (see Acemoglu, 2003).
As we discuss in Guriev et al. (2009), this problem is particularly acute in resource-rich transition economies without established political and legal institutions. In such economies, the lack of institutions means that the rulers are less accountable and can therefore appropriate a large share of the resource rents. The resource rents increase the incentives to hold on to power and provide the rulers with the resources which they need in order to maintain the status quo.
In the opening chapter of “Russia After the Global Economic Crisis”, Aleh Tsyvinski and myself argued that this is precisely Russia’s problem. We punningly defined the status quo as a “70-80 scenario”: if the oil price stayed fairly high ($70-80 per barrel) then Russia would be likely to follow the 1970-80s experience of the Soviet Union, when reforms were shelved and the economy stagnated. That period ended with the bankruptcy and disintegration of the Soviet Union.
Certainly, the differences between modern Russia and the 1970-80s Soviet Union are substantial. Although the government controls the commanding heights of the modern Russian economy, the nature of the latter is capitalist and not command. Also, Russian economic policymakers are much more competent and, unlike their Soviet predecessors, they can easily believe that if a country runs out of cash, the government is removed from office: they have seen it happen to those same Soviet predecessors.
This brings us to a conundrum: if it is clear that the status quo is a dead-end, what is the ruling elite hoping for? On the one hand, the elite understands all too well that reforms are risky – everybody remembers the last Soviet government, which initiated change and lost power as a result of that change. On the other hand, it is clear that in order to remain in power the government needs growth and that growth can only come from reforms.
Rational Overconfidence
The solution to this conundrum is to be found, not in modern political economics, but in the realm of behavioral economics and studies of leadership. In recent years, economists have been keen to integrate insights from psychology into their models of markets and organizations.
Psychologists know very well that human beings want to be happy, and are therefore disposed to forget bad news and remember only good news. They also like to persuade themselves that they are good (or at least better than others). This explains why investors always want to believe in more optimistic scenarios (hence bubbles, see Akerlof and Shiller, 2009). Furthermore, a certain degree of over-optimism on the part of leaders is actually “rational” or “optimal” (see Van den Steen, 2005, and Guriev and Suvorov, 2010). Over-optimistic leaders are more resolute, and they attract more capable and enthusiastic followers. In this sense, in an environment with weak political institutions, over-optimistic political leaders always crowd out more realistic leaders (who do not promise as much). Where there are strong political institutions that ensure political accountability (e.g. via political parties), this behavior is not sustainable. But if there is no accountability, over-optimism almost inevitably prevails as a result of political selection.
This may explain why the Russian political leadership hopes for the better. So far the model “whenever we are in trouble, the oil price goes up and saves us” has worked, and it will keep working until the oil price goes down and undermines both macroeconomic and political stability. Once again, resource abundance is important as it helps to feed the over-optimism: the fortunate leaders that rule during the period of high oil prices can easily believe that their luck is permanent and their belief (or, as the leadership literature calls it, “vision”) will be consistent with the evidence – but only until the oil price plunge.
The 70-80 Scenario: Two Years On
We started to write the 70-80 chapter in the fall of 2009, when the oil price was already back from $40 per barrel to the fiscally comfortable range of $70-80 dollars. What has happened since then to the likelihood and sustainability of our scenario?
What we find is that, although the 70-80 pun no longer works, our main argument has been reinforced. First, the oil price is no longer in the range of $70-80 per barrel, but has risen higher due to events in the Middle East and Japan, as well as increased demand for oil as a store of value reflecting diminished confidence in dollar and euro assets. Second, the Arab Spring has made the Russian government suspect that its hold on power is more tenuous than it previously believed, and it has started to spend even more aggressively. Russia’s budget is no longer in surplus at $70 per barrel: it can now only be balanced if the oil price is at $125 per barrel (!). In this sense, $70-80 per barrel is no longer a “high” price – it is both below the current market’s expectations and below the Russian government’s fiscal benchmarks.
However, our main argument has been reconfirmed. High oil prices have encouraged the Russian government to become further entrenched in the status quo scenario. While there has been a substantial increase in rhetoric about privatization, deregulation, competition, rule of law etc., actual change has been lacking. On the contrary, there is increasing reliance on government ownership and increasing probability that Russia will move further down the road to stagnation after the presidential elections of 2012.
Can There Be An Alternative to Stagnation?
In “Russia After the Global Economic Crisis” we also charted an alternative scenario based on reforms that help to realize Russia’s substantial growth potential. Is this scenario feasible? Certainly, the laws of political economy are not deterministic. Even though the status quo path is preferable for the country’s rulers, a leader (or a sub-group in the elite) may emerge who is long-term-oriented and is not over-optimistic. If this leader or group manages to create a critical mass of stakeholders for reforms, there may be a “run” on the status quo. For example, if the oil price decreases and there is fiscal pressure to privatize, then a critical mass of private owners may emerge who are interested in protection of property rights and the rule-of-law.
However, even though a positive scenario is possible, it is not very likely. Investors have already reached this conclusion: Russia has been experiencing large capital flight since the fall of 2010 (net capital outflow is about of 5% of GDP). Investors are not yet ready to bet their money on the good scenario. Nor would political economists recommend them to do so.
References
- Acemoglu, Daron (2003). “Why Not A Political Coase Theorem? Social Conflict, Commitment, And Politics,” Journal of Comparative Economics, 31: 620-652.
- Akerlof, George A., and Robert J. Shiller (2009). “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism”. Princeton University Press.
- Åslund, Anders, Sergei Guriev and Andrew Kuchins (2010). Russia after the Global Economic Crisis. Peterson Institute for International Economics. Washington, D.C.
- Bueno de Mesquita, Bruce, Alastair Smith, Randolph M. Siverson, and James D. Morrow (2003). “Logic of Political Survival”. MIT Press.
- Gilbert, Daniel (2006). “Stumbling on Happiness”. Knopf.
- Guriev, Sergei, Alexander Plekhanov, and Konstantin Sonin (2009). “Development Based on Commodity Revenues.” European Bank for Reconstruction and Development Working Paper No. 108. Available at SSRN: http://ssrn.com/abstract=1520630 (Also available as Chapter 4 in the Transition Report 2009).
- Guriev, Sergei, and Anton Suvorov (2010). “Why Less Informed Managers May Be Better Leaders.” Available at SSRN: http://ssrn.com/abstract=1596673
- Van den Steen, Eric J. (2005). “Organizational Beliefs and Managerial Vision.” Journal of Law, Economics, and Organization, 21: 256-283.
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.