Archives for February 2012

Education as the Elixir of Growth III

Just in case you thought the correlation between human capital and economic development was an artifice of the post-socialist world, here is a similar graph (R2=0.4273) for all the world’s countries that have participated in the Math and Science portions of the PISA or TIMMS (8th grade) international standardized student assessments.

education-economy-global-1

The methodology is the same as described in the previous post. As you can see, the relation is every bit as strong at the global level. However, you may point to a few outliers. How to explain them?

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A Short History of Venezuela, c.1800-1950

Caracas, Venezuela.

January 2019: I have just reread an essay I wrote – a short history of Venezuela from c.1800-1950 – for an economic development class during my Berkeley days. It’s not entirely irrelevant given current events, so I am posting it for perusal.


The beginning of Venezuela’s integration into the world economy can be dated to 1522, the start of Spanish colonization. It did not produce gold or silver, so colonial control was lax; local and municipal officials enjoyed a degree of leeway unusual for the rest of Spain’s American possessions. Apart from grain grown for subsistence, the 16th century economy was dominated by ranching, with the livestock raised by Indian herders, using Spanish-introduced horses, for their Spanish landlords on the llanos grasslands. By the 17th century, the cash economy came to be dominated by cocoa, cultivated by imported African slaves. This ushered in the basic format of Venezuela’s subsequent integration with the world economy: Primary commodities exports to the North Atlantic markets filtered through the Caracas-based bureaucracy. It allowed the capital to develop as an economic and cultural center; the Universidad Central de Venezuela was founded in 1721, and – thanks in part to the lack of censorship, which provided Venezuelan luminaries access to Enlightenment European thinkers such as Voltaire and Rousseau – it would come to play an important role in the war for independence.

In general, however, the country remained underdeveloped, 90% rural, and almost entirely illiterate; indeed, as late as 1936, only 35% of school-aged children were enrolled and the literacy rate was at only 20%[1] (this is comparable to 17th century England, late 18th century France, or c.1900 Russia). This of itself greatly constricted possibilities for economic development, and deeply stratified Venezuelan society. The hacienda system of cocoa exports required slaves, and from the 16th century yjod would come to define Venezuelan society, hardening it into a caste system in which white Spanish peninsulares and criollos, their descendents, occupied the top of the economic chain, while mixed race pardos and African slaves filled out the bottom rungs. Although slavery was abolished in 1854, the basic structure has remained to this day, reflected in income inequality that has remained very high by global (if not Latin American) standards, even under the Chavez administration. This inequality had intellectual underpinnings, in the form of Laureano Vallenilla Lanz – a sociologist who worked under the Gomez administration – who in his Cesarismo Democrático (1920) wrote that the pardos had to be ruled by white caudillos in order to maintain order, for such was the “unconscious suggestion of the majority[2].” Under the Gomez regime, passports were issued for the first time, which identified carriers by the color of their skin; this system remained in place until the 1980’s. This served to reinforce socio-racial stratification in Venezuelan society.

To the extent that Venezuela saw industrialization before the developmentalist era it was almost entirely confined to the oil industry, which exploded in the 1920’s. This would be the latest, and by 1927 by far the most dominant, commodity to dominate Venezuelan exports; by 1929, it was the world’s single largest petroleum exporter. But even this sector’s development was constrained, as the dictator Juan Vicente Gómez, who ruled Venezuela at this time, forbade the construction of oil refineries on Venezuelan soil because of his distrust of trade unions and industrial labors. The proceeds of the oil boom were narrowly distributed: US oil corporations were allowed to write Venezuela’s early petroleum laws[3], and Gomez himself came to possess a $400 million fortune upon his death in 1936, making him the country’s richest oligarch[4]. Meanwhile, apart from a patrimonial bureaucracy that grew up alongside the oil industry, benefits from the oil boom were meager: Education and other social services were neglected, while the in-flood of oil revenue contributed to high inflation, with food prices running ahead of average incomes.

Venezuela shook off Spanish rule in the Venezuelan War of Independence, a brutal struggle that killed off a third to half the population. However, the subsequent state was weak and riven by constant internal infighting: From 1829 to 1899, Venezuela had no fewer than 41 Presidents and 30 insurrections. This was in large part a function of Venezuela’s social structure. White landowners controlled most of the land, many with a few hundred or thousand pardos tenants on it. Due to the profound weakness of the state, all it frequently took was for a local caudillo in the central and eastern llamas to make an inspiring speech, march to Caracas with a ragtag militia, and proclaim himself President.

Furthermore, while Venezuela was formally independent, in practice the post-Bolivar elites almost exclusively looked to Europe. Legislation was progressive – Venezuela became the first major state to abolish capital punishment, and – in theory if not in practice – free and compulsory education was prescribed in 1880-81. But the state remained a plaything for the elites rather than a motor of development. For instance, the late 19th century President Guzman Blanco divided his time between Caracas and Paris; during this period, he amassed massive loans, from which he happened to make a small personal fortune. When a coup was organized, his response was to just stay in Paris. The European powers intervened with gunboats in 1902-03 under Cipriano Castro when Venezuela, for a time, refused to honor the loans amassed under Blanco.

This caudillo system came to an end with the ascendancy of the Andean elites from 1899, of whom Gomez was the most prominent representative. A national army and telegraph system united the country, so caudillo insurrections became a thing of the past. However, the coups and political instability that plagued Venezuela would continue well beyond; indeed, Gomez himself took power in a coup against Castro in 1908, and would himself experience a crisis of authority in 1928 from student insurrectionists taking a cue from the experiences of the Mexican and Russian Revolutions, and the new thinking challenging colonialist relations with the developed world. From the time of Castro’s death in 1935, López ruled as a modernizing dictator; a partial (and unsustained) transition to democracy was made in 1945-46. It is around this time that the colonial period of Venezuelan can be said to have truly come to an end, as consequent regimes until the 1990’s would be dominated by interventionist developmentalists implementing import substitution policies.

In conclusion, Venezuela suffered from a number of features common to other Latin American countries under their conditions of integration into the pre-World War Two global economy. The most important of these, though they are interrelated, are export dependencies on primary products – from cacao to coffee to oil – which made budgets cyclical and encouraged the growth of “comprador elites” dependent on rents and culturally beholden to Europe; and the development of a caste system centered around race. This fostered an unstable form of government, i.e. the caudillismo that resulted in arbitrary authoritarian power structures at the local levels, despite the formally liberal and federal political macro-structure. These factors retarded progress, to the extent that despite its formidable resource wealth and forty years of substantial oil revenues, Venezuela in 1960 was still a very undeveloped country; its total fertility rate was at 6.62, a pre-industrial rate, and literacy was at a still modest 74% (about equivalent to India today).

[1] Sanchez, George I. (1963), The Development of Education in Venezuela, Office of Education (DHEW), Washington, DC., page v.

[2] Executive Power in Venezuela, Leo B. Lott, The American Political Science Review 50, #2 (June 1956), pp. 422–441.

[3] Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon and Schuster. 1990. pp 233-36; 432.

[4] Bart Jones. Hugo!: The Hugo Chavez Story from Mud Hut to Perpetual Revolution. Steerforth. 2007. Pp 31.

The Profound Irrelevance of Corruption, Institutions, And Ease Of Business To Economic Growth

That title sure caught you attention? Good. Now for the 1000-words-in-a-picture evidence.

gdp-human-capital-socialist-bloc-3

Human capital refers to educational attainment, as measured by the results of the PISA and TIMMS standardized tests*. As you can see, there is a very close correlation between human capital and GDP (PPP) per capita. The exceptions all confirm the rule. For now I have only done the post-socialist space, because of its sheer variety – different cultures, different rule-of-law and ease of business environments, difference resource endowments and political systems – which lets me illustrate just how irrelevant all those factors are compared to human capital. The same laws hold at the global level, and I intend to cover it in a consequent post, but that involves a lot more work so for now I’ll just settle for this.

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Translation: Sergey Zhuravlev – The Reversal Of The “Russian Cross”

Sergey Zhuravlev is a Russian economist who runs a wonky but eminently readable and very useful, interesting blog and writes for Expert (author profile), which I may add is an excellent publication. You have met him previously on my blog as the inventor of a clever – if, in my opinion, flawed – argument that the 2011 Duma elections were marred by 5%-6% fraud, but were clean in Moscow; and if you read the Russia blogs, you may also have come across Mark Adomanis’ translation of one his articles about Russian regional inequality. Now I am presenting a translation of his Feb 13 article on what I called as the end of Russia’s demographic crisis: The Reversal of the Russian Cross. In my opinion, it has a few weaknesses; in particular, he is too cavalier about dismissing the “alcohol hypothesis” about post-Soviet Russia’s “supermortality”. But overall it is a brilliant and deeply informative survey of the origins of the Russian Cross – the crossover of the births and deaths graphs in 1992 – as well as of its recent reversal, to the extent that natural population decline is now almost stabilized and the overall population is able to grow due to net migrants.

The Reversal Of The Russian Cross

Last year our country’s population increased, for the first time in 20 years. Although positive growth in aggregate was only enabled by immigration from the Near Abroad, existing trends in rising fertility and falling mortality were maintained.

If we are to go by Rosstat’s figures, in the past year Russia’s population – for the first time in virtually the entire twenty years of Russia’s existence as a sovereign state – increased, exceeding 143 million people. The maximum population size was reached in 1992, at 148.56 millions, and has since decreased at a practically monotone rate. That said, it should be added that small population growth was previously observed in 1994 and 2009, and that the population fall in 2010 was, most likely, explained by cumulative errors over the period since the 2002 Census, and by the abnormal mortality during that summer’s heatwave [AK: There were c.56,000 excess deaths during the anomalous 2010 heatwave, which is basically equivalent to population decline of 48,300. Furthermore, the 2010 Census showed there to be 143.9 million Russians, which was one million higher than projections based on the 2002 Census; this implied that during the period, net immigration was underestimated by more than 100,000 per year. So its likely that even despite the heatwave, Russia’s population still eked out an increase in 2010].

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Making Sense Of Russia’s Arms Binge

In the wake of Putin’s article on national security for Rossiyskaya Gazeta, there has been renewed interest in Russia’s ambitious military modernization plans for the next decade. I am not a specialist in this (unlike Dmitry Gorenberg and Mark Galeotti, whom I highly recommend), but I do think I can bring much-needed facts and good sources to the discussion.

1. This is not a new development. In fact, the massive rearmament program was revealed back in 2010 (I wrote about it then). Russia’s armed forces were neglected in during the 1990’s and early 2000’s, and enjoyed only modest funding until now; relative to Soviet levels, they are now far degraded. The main goal is to create a mobile, professional army equipped with modern, high-tech gear by 2020.

2. To recap. With oil prices high and Russia’s fiscal situation secure, it IS affordable; it’s not like the old USSR (or today’s US for that matter) spending money it doesn’t have. I also don’t necessarily buy the argument that most of the additional funds will be swallowed up by corruption or inefficiency. Massive new procurement can create temporary bottlenecks, which raises prices, but on the other hand it also allows for economies of scale. The real question is whether Russia absolutely needs to retain the hallowed One Million Man Army, which would appear far too big for the modest anti-insurgency or local wars it may be called to fight in the Caucasus or Central Asia. (There is no possibility of matching NATO or Chinese conventional strength in principle, so that consideration is a moot point).

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Russia’s Demographic Crisis Has Ended

I will have a much longer and detailed post on this in the future, with new projections, but this breaking news (at least as far as it comes with dry demographic statistics) so I can’t refrain from writing a preliminary post on the matter.

For all intents and purposes, Russia’s demographic crisis – the infamous “death spiral” afflicting it for much of the post-Soviet period – is at an end.

Here is a summary of the preliminary data for 2011:

1. The population increased by 189,000. The rate of natural decrease, deaths minus births, is now at a mere 131,000; for comparison, it was consistently within the 700,000 to 1,000,000 range from 1993 to 2006. This was more than balanced by an uptick in net immigration, which rose to 320,000 this year. (This has not stopped the hackish Western media from slobbering on about Russia’s “brain drain” at just the precise moment in time that it finally came to a complete halt).

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And The Wheel Spins On

“Despite it being a sad and fearful prospect, in my opinion a totalitarian reversion for a certain period of time is possible. But the danger lies not in the law enforcement agencies, the power organs, and not even the Army, but in our own mentalities – our people’s, our population’s, in ourselves. It all seems to us – and I admit it, at times it seems that way to me as well – that if we restore order with a firm hand then our lives will become better, more comfortable, and more secure. In fact, this sense of comfort will pass by quickly, because that same firm hand will soon start to strangle us. We will feel it on ourselves and on our families. It is only under a democratic system that officers from the law enforcement agencies – whether they are the KGB, MVD, NKVD, or go by some other name – know that tomorrow could see a replacement of the political leadership in their country, region, or city, and that they would have to answer this question: “Did you comply with the laws of your country? How did you treat the citizens under your power?” – Vladimir Putin, 1996.

“When Russia has no Tsar, there appears a Time of Troubles. When the supreme power weakens, civil war flares up. You understand, the precise name – Tsar, President, General Secretary, Chairman of the Supreme Council – has no relevance whatsoever. There has to be a strong power, a strong executive. If there is no strong power – there will be no united Russia, but constant wheeling-dealings, violence and reprisals.” – Boris Nemtsov, 1997.

Navalny’s Petty Racism

A few weeks back Navalny brought my attention to this lovely song extolling Putin’s achievements by Tolibjon Kurbankhanov, a Tajik singer from Dushanbe.

Navalny exhorts his minions to spread this clip far and wide. The writing between the lines is obvious. His reasons aren’t nice and altruistic, but utterly insidious, playing on xenophobia towards Central Asians. The idea being that hearing a Tajik singing in support of Putin will hurt his standing among “true” Russians. “Liberal fascism” may be met with bemused grins in the US, being the rhetoric of unhinged demagogues like Jonah Goldberg, but in Russia the term accurately describes the emerging alliance between liberal podpindosniki and ethnic nationalists, as best embodied by Navalny.

That said, I’m spreading this clip nonetheless. Not because I support Navalny, nor even because I support Putin, but because I support the idea of Russia as a multi-national federation. And because it really is a very nice song.

Whiskey Trickles Into Russia’s Drinking Culture

Russia has a long and proud drinking culture; according to the chronicle of its founding, the main reason it chose Christianity over Islam was the latter’s prohibition of booze. Vodka has been distilled there since at least the 12th century. As of the time of writing, it is the world’s largest spirits market by volume – 2.4 billion liters in 2009, according to the Scotch Whisky Association (SWA), of which more than 80% accrues to domestic vodka brands. Whiskey’s share is only 0.5%; but it is growing at explosive rates, and whiskey now account for two thirds of all spirits imports. Indigenous distilleries are sprouting up and conditions appear favorable for this growth to continue.

In the Soviet period, the only spirits available to most citizens were vodka and cognac from the Caucasus – a point illustrated by Erkin Tuzmukhamedov, one of Russia’s leading sommeliers and author of whiskey books, who got his first taste of Scotch by taking sips on the sly from the bottles his diplomat father brought home from abroad. This changed with the opening up of markets in the early 1990’s. Whiskey consumption has seen tremendous growth; the SWA says exports to Russia have risen from £5m to £31m in the past decade.

Though starting from a low base in comparison with the biggest Scotch markets, such as the US’ £499m, growth is expected to remain double-digit well into the future for three main reasons. First, rising incomes means Russians can afford to develop more refined tastes. Second, the growing segment of female drinkers favors spirits that can be sipped. Third,  the government plans to quadruple the currently low excise duties on spirits by 2014, thus narrowing the cost differential between vodkas and whiskeys. All this implies growth for blends, which dominate the Russian whiskey market – for a time, Tuzmukhamedov was Dewar’s chief promoter in Russia – and very strong growth for single malts.

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Far More People Protested FOR Putin Than Against, But You Wouldn’t Know It From The Western Media

The above photo, part of a photo report by Ridus, shows the Anti-Orange protest at Poklonnaya Gora in Moscow on February 4th. Does that look like 35,000 people to you, let alone 20,000 or 15,000? Because those were the most commonly cited figures in the Western media, apart from those cases where they ignored them altogether (The Guardian) or even tried passing them off as a ANTI-Putin rallies (e.g. Le Parisien).

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