Rhetoric about it being “Nigeria with snow,” “Zaire with permafrost,” “Upper Volta with missiles,” “gas station masquerading as a country,” etc., regardless, the fact of the matter is that Russia does have a respectable manufacturing base.
This should be pretty obvious just from a quick perusal of the sorts of manufactures Russia produces:
- A vast military-industrial complex that produces (and exports) on a scale and versatility exceeded only in the US.
- Rosatom is building an amazing 40% of all the nuclear power plants currently under construction in the world. 10% of the world’s power turbines are made at the Leningrad Metallurgical Factory.
- More prosaic but also more generally indicative, Russia produces about 2 million cars annually, which is about the same as in the UK and France, and thrice more than in Italy. This satisfies around 70% of its total domestic sales – virtually the exact same percentage as in the US and UK
This is not, of course, to make Russia out to be some kind of manufacturing behemoth like Germany, Japan, or Korea. It is however on approximately the same level as the European economic Middle Powers of France, Italy, and the UK, as well as that of fellow BRIC members Brazil (which has a 35% larger population) and India (which has eight times its population). In other words, it is broadly what you would expect based on its GDP and status as an upper middle income country.
This is pretty elementary stuff any other journalist or pundit can discover for himself through a quick glance through the various economics statistical databases on the Internet. The figures below were derived from the World Bank’s data on nominal GDP and the share of manufacturing in the economy for 2013.
| Country | Manufacturing Output in 2013 |
|---|---|
| China | $2,923bn |
| USA | $2,081bn |
| Japan | $912bn |
| Germany | $829bn |
| Korea | $404bn |
| Italy | $327bn |
| India | $321bn |
| France | $318bn |
| Russia | $308bn |
| Brazil | $276bn |
| UK | $259bn |
And here is a historical graph showing Russia’s manufacturing sector on a global perspective (log scale) since the early 2000s.
To be sure, yes, Russia exports very little of this. As mentioned, its manufacturing base is to a very large extent domestically orientated. Instead, its exports are dominated by oil, natural gas, and metals, of which it has a cornucopia.
Why? Because comparative advantage, otherwise known as Economics 101. A concept that in Russia’s case the Western media consistently has trouble with.
Cue the famous graph of Russia’s exports structure that supposedly makes it a gas station:
… which if so would then make Australia, a well educated nation and one of the richest in the world, nothing but a coaling station.
Incidentally, what makes the “Nigeria with snow” rhetoric so convenient is that it can be – and is – wielded against Russia regardless of what actually happens to the oil price. If it goes up, emphasis can be put on the increasing dependence of the Russian budget, exports, and overall economy on hydrocarbons. If it goes down, you can instead focus on the imminent fiscal collapse – no matter that Russia has almost $400 billion socked away and that its current budget deficit is close to non-existent. Regardless of what happens with the oil price, doom is always preordained. And there is nothing that Russia can do about this “oil dependence” in anything but the very longterm short of nuking all its oilfields.
I would write more but Ben Aris writing in February 2014 in response to a typical hackneyed Economic editorial on how Russia is hopelessly addicted to oil and about to collapse any moment now has made any such effort redundant, so I will instead save myself some work and quote him in extenso:
“this achievement was founded almost entirely on oil and gas prices, which have climbed fivefold since 1999.”
So now we launch into the core of the attach, the increasingly hackneyed argument that “all Russia’s prosperity is due to its gift of oil and the government has done nothing else to make life better.”
This argument is becoming extremely tiring and moreover as time passes it is demonstrably not true. Oil remains very important but a lot has changed in Russia in the last decade, which is being willfully ignored.
Firstly oil prices didn’t take off until about 2005. Prior to that the long-term average was $25/barrel. And yet Russia put in 10% GDP growth in 2000 and continued to grow at least 4-5% until 2005. And only then did oil prices take off lifting growth to 6-8%.
So if Putin is so rubbish and all the good stuff depends on oil, how did he manage to get all that growth in the years when he had the same oil prices as Yeltsin had??? Could it be that something else happened? Could it be that the devaluation of the ruble had a positive effect? Could it be that oil companies invested more in themselves in 2000 than in all the 1990s. Could it be this started off a virtuous circle of growth, investment and rising wages that lead to other companies appearing to take advantage of this new money? And if not, where did all those consumers come from that have been driving Russian growth in last five crisis years? Just askin’… because according to the Economist analysis it appears that oil pours directly into Russians pockets which they then go out and spend in the shops.
“Dependence on energy exports is greater even than under the Soviet Union: they now account for 75% of the total, against 67% in 1980.”
Journalism 101: “when citing statistics, you need to attribute them to the valid source so they can be checked.”
This number is flat out wrong, or made up, or I don’t know as the author doesn’t say where it comes from. The last number I have is from the Russian customs service and is 49.4% export revenues for oil and 11.7% for gas in 2013 – a total of 61.1% of export revenues which is LESS than the “Soviet number” (where ever that is from).
No one is denying that oil and gas play do provide funds to pay for lots of other things the government wants to do – and so impede reforms because the government is so actively throwing money at problems. But the statistic that everyone who makes this argument always skips over is that oil and gas only account for about 15% of GDP in terms of value created according to Rosstat; the service sector made up just over 50% of GDP in value terms last year. Russia is not just a black and white petroeconomy.
Oil is of course even more important than that as it has direct knock on effects to other industries. A paper from the highly respected Bank of Finland economic analysis team (BOFIT) tried to assess exactly how important oil and gas are to the Russian economy. It adjusted the number up to about 25% of GDP and made this conclusion: “When adjusted to reflect the oil and gas sector’s actual contribution to GDP, Russia is on par with Norway (Table 2). This is much less than traditional oil states such as Saudi Arabia, which generates about half of its GDP directly from the oil and gas sector.”
Lets just pause for a moment and take that in: Russia’s dependence on oil and gas is the same as that of NORWAY…. not a true petro-economy like Saudi Arabia.
…
“Ten years ago the Russian budget balanced if oil was around $20 a barrel; today it needs to be around $103.”
Yeah, and ten years ago you could buy a coffee in London for 50p and not the £5 a cup it costs now. This “balance-the-budget” price of oil is another myth.
What you need to look at is the non-oil budget deficit (the federal budget deficit Russia would have if you magic all the oil and its revenue away). In the boom years of 2006-2008 Russia was running a health budget surplus, but it as also running a non-oil budget surplus of about 1%. In other words it had broken its addiction to oil as the real economy was producing enough tax revenue to finance everything before a dollar of oil tax money was received. That changed in 2008 when the non-oil deficit when down to 14% and the state poured rescue money into the economy, but has recovered somewhat since and the plan is to take the non-oil deficit back to about 4-5%. In other words the government was to modest subside the budget with oil money. It is actually an extremely reasonable plan and how the budget was run in the first half of the last decade.
However, in the 90s the non-oil deficit was over 25% of GDP. In other words under Putin the fiscal oil dependence has steadily decline as that service sector and other industries increase their share of the economy, but the crisis was a big set back – and thank god for that oil as it is the cushion that has given Russia a soft landing.
Bear this in mind whenever you encounter the next loud proclamation about how Russia is [insert banana country]-with snow that doesn’t produce anything.
I’m always shocked when people say “Russia doesn’t make anything”, given the last century.
I read Rockets and People Volume 1 by Boris Chertoff, seems to me they were first at making a whole great many things, including the massive TB-3, which when it landed in America for an exhibition, it was viewed with “Great Interest” by Boeing. To say nothing of the R-7, the first TV Satellite Network, etc.
“Russia’s dependence on oil and gas is the same as that of NORWAY…. not a true petro-economy like Saudi Arabia.”
Norway’s export treemap doesn’t look too different from that of Russia (except for some more exports of complex machinery):
https://upload.wikimedia.org/wikipedia/commons/thumb/b/b7/Norwar_Exports_Tree_Map_%282009%29.pdf/page1-768px-Norwar_Exports_Tree_Map_%282009%29.pdf.jpg
But Norway being so strongly dependent on oil and gas seems inconsistent with its claimed natural resource rent share of GDP of 10.7% in 2013:
http://data.worldbank.org/indicator/NY.GDP.TOTL.RT.ZS?order=wbapi_data_value_2013+wbapi_data_value+wbapi_data_value-last&sort=asc
However, Norway has an extremely high level of barrels of oil produced per year per person, while Russia’s is much more modest.
Russia’s natural resource rent share of GDP is comparable to that of Chile, recently dissed by A. Karlin. Chile also has a similar GDP/capita to Russia.
Wait. The program Secretary of State suggests that Russia is a Banana Republic that wants to invade Ukraine.
I think the more educated critique of the state of Russian industry isn’t so much that it doesn’t make anything but that it 1) is heavily geared toward heavy industry, 2) does not compete well internationally, and 3) does not efficiently allocate capital. And moreover that 4) there does not seem to be any sign that such deficiencies will change anytime soon despite many advantages Russia enjoys such as a high degree of literacy especially in STEM fields, a long history of innovation and technical development, and a vast amount of liquid capital generated by resource exports.
That it has a (popular) authoritarian government should not be any barrier (South Korea, a tiny nation that is nonetheless an industrial and technological powerhouse began its “takeoff” under the authoritarian military regime of a general who came to power in a coup and who, parenthetically, managed get himself shot and killed by his intelligence chief in 1979 – his daughter is now the president of the country, the first female head of state in East Asia).
But if we are going to play the per capita game, Russia has something like 2.85 times the population of South Korea, a country that prior to the 1970’s had no history of industrialization and technical development, let alone anything approaching that of Russia.
This question will sound like trolling, but it is not, I ask out of sincere ignorance.
How much of Russia’s GDP gets poured down the drain every year just to hold together a vast, underpopulated country with eleven (!) time zones, the world’s largest by landmass, when Russia could be run so much more efficiently if it were a lot smaller?
And the follow-up, why doesn’t Russia sell a big chunk of its Far East to the People’s Republic of China? Lots of clean water and arable land plus mineral resources, the price could be astronomical but the Chinese (who just rescinded their one-child policy) might well consider it worth paying.
the birth control policy change will change nothing in China, at least not for Han People. South Koreans and Japanese have a similar TFR like China without any legal restriction.
If you think that after a slight change in regulations which were never the main factor keeping births down, the Chinese will start breeding like Africans, you will be disappointed.
[does not efficiently allocate capital]
This phrase is just neo-liberal throat clearing, like “class contradictions” from a Marxist.
Strange. I deleted this comment within the prescribed time after noticing that Erik Sieven’s making the same point had been published already, but despite a pop-up informing me of its deletion it has appeared anyway.
I agree Australia is a third world country, though one with a first world lifestyle. The most advanced (or senescent) country, Britain, which is having it’s nuclear power stations built by China, is abandoning any idea of national strength and devoted to the finance sector of business (the immigration policy especially). God only knows what will happen when the vampire economy of Britain faces the all too predictable (un)expected new challenges in a couple of decades.
I would say Russia is taking a much more balanced approach, but they don’t seem to think they can ever export consumer goods, and are concentrating on existing tech with military applications. https://en.wikipedia.org/wiki/Medvedev_modernisation_programme
Russia assembles (foreign) cars in substantial numbers, but doesn’t really develop and produce it’s own . Those refugees who get to Norway through Russia arrive on bicycles, which are of such poor quality that they are worthless. Russia forces credit card companies to set up local subsidiaries, and is trying to stop people going abroad for medical treatment 80% of medicines in Russia are imported.
As a low trust country Russia will probably benefit greatly from the application of blockchain technology in business, but it really would be reversing the trend of half a millennium for Russia to match the West in productive capacity, or to cease to be militarily powerful.
While anecdotes are not data, I know of a reasonable number of Chinese of mainland birth who now live outside China. They all have had at least two children. In one case their first child was born in China (and all their siblings have been restricted to one child) while their second was born outside China some 12 years after the first.
Further, I know of at least one highly educated Chinese person who obtained citizenship in another country and then went back to China to live, work and marry and who used that citizenship to remove his first child from the one-child-policy’s rules and thus had a second child.
I suspect we will see Chinese become very clever at getting around the two-child policy in time.
During the last years of the USSR, there was a lot of talk about how Soviet manufacturing produced large quantities of useless and/or sub par products. The cliche examples of that were (1) tanks and (2) combine harvesters. Soviet Union produced more combines than the rest of the world put together and was very proud of the fact, but the common wisdom in the perestroika era was that these machines were junk. I assumed that this was true and I figured that Russian combine manufacturers had disappeared in the 1990s, together with many of the former Soviet industries.
Recently, while searching for something else, I discovered that the former largest Soviet combine manufacturer, Rostselmash, is not only alive but is doing quite well. They design new models and sell them abroad. And abroad doesn’t just mean third world and the former Soviet republic. Under the brand name Versatile they sells their combines in US and Canada. (Versatile is a Canadian manufacturer that Rostselmash purchased several years ago.) Next year they are coming to UK. And in Germany they are selling their machines under their own brand name, Rostselmash.
I browsed some specialized forums and got an impression that Versatile combines have a good reputation for being rugged and easy to repair. Are they selling a lot? Probably not (yet?) But I find it interesting that the kind of people who buy and use combine harvesters had known for years that Russia has a presence in that market. But everyone else, from the bigfoot pundits, to random internet commenters like me, to (most likely) policymakers, have not a foggiest idea. Talk about flying under the radar.
What are Lada and UAZ?
There is a saying that “even paranoids have enemies.” Meaning, in this context, just because someone you dislike or disagree with says something doesn’t mean that something is always wrong.
Look at the Russian energy sector as a prime example. For a variety of reasons, it does not make as efficient use and allocation of capital as most Western energy sectors do.
I think the cliche example was deadly televisions that had a habit of bursting into flames in the middle of the night.
Based on decades old foreign technology, and not coveted by Russians.
I would love to see the Population Happiness Index for the given countries, in similar fashion. Producing oil, gas, ore, and even commercial goods is one thing, and what’s there for people is quite another.
You really think this added something to your previous comment?
Lada is still the most successful brand in Russia and UAZ is gaining market share.
Key to making sense of those statistics on manufacturing output is what is the definition used of a manufactured product.
Is refined crude + petroleum byproducts counted under that definition of manufactured output? If so then it’s a distorted picture of the competitiveness of the industrial base of Russia.
Refined crude and petroleum byproducts are products of the Russian industrial base.
This appears to be an outdated figure on the Wikipedia article for the company. The figure on the Wikipedia article is dated 2005 and the market has changed because of the further rise and dominance of Chinese power equipment manufacturers. Also this figure actually refers to the worldwide market share for steam turbines not all power turbines, this is a huge distinction.
There are hydro, nuclear, wind, and gas turbines, all of which are more sophisticated power turbines.
First world manufacturers are barely present in the steam turbine market (only Toshiba has a market share higher than 5% among them with Siemens and Alstom largely exiting the market and holding micro shares). Steam turbines are mostly made in China.
An Indian company (Bhel) is probably the largest steam turbine manufacturer in the world. It’s a domestic monopoly that public utilities are forced to purchase from.
So not much of an accomplishment for Russian industry to claim.
Go make some fooking babies, then I’ll be impressed. Biggest emptiest country in the world, start breeding like the Nigerians!
What else is important (I think). What is wrong with energy export at all? Like, hey, we still have 1/8 of land area of entire world (not counting arctic shelf) and, thus, we have a lot of resources. Why shouldn’t we use them? Don’t want to buy it, huh? Don’t need energy? Don’t need gasoline to fuel your car? Don’t need electricity to power your houses and plants?
Well, okay, one day we will become “developed” enough to stop export oil and gas, and we will look how they will talk then. 😀
The real reason under such talks is “they” really don’t want to buy it, “they” want to have it for free. And for this to happen Russia must destroy its oil/gas industry and giveaway it for “effective” western owners.
Don’t worry, in Russia all is good with hydro, gas and nuclear turbines too. 😀
You don’t think those 40% of nuclear power plant have some other than Russian turbines, do you?
Or maybe having such amount of gas Russia don’t produce energy from it “some” way?
Or doesn’t 1/8 of land area have enough of large rivers to build hydro power plants on it?
And don’t focus on export too much. I don’t know what about “world community”, but Russian economy must work mostly for Russian needs, not for someone else.
This is completely correct.
If you have a lot of resources, it is foolish not to exploit that. Certainly you have to do it wisely, setting up rainy day accounts and not letting your currency appreciate so much that it destroys your manufacturing sector, but Russia by and large hasn’t failed in that respect.
Likewise, there is no particularly magic process by which manufacturing or hi-tech exports are somehow “better” or more “reliable” than resource exports. It should be noted that global demand for durable goods can decline during global recessions even more so than does demand for oil or gas.
Isn’t that what happened to much, if not most of the Russian manufacturing sector thanks to embracing Gaidar’s motto “Why produce it yourself? All we need is exporting energy and noble metals. We can buy everything else.”
The statistic on nuclear power plant construction is inaccurate. There are 60-something nuclear power plants under construction currently (actual construction not scheduled or some other sort of half commitment). Maybe three of them are being built by Russia. Face it besides arms and may, be aerospace Russia doesn’t have much going on in terms of competitive manufacturing industries.
“If any new construction is happening at all in Rosatom’s projects, it’s only the new plants in China and Belarus (not long ago, it was also India, with Kudankulam-2, which was recently reported by the Russian media as completed). Back home, Rosatom promised to launch three new reactors in 2014, but only one started operation, at Rostov NPP in Southern European Russia. All new Rosatom construction sites where any work is being done are plagued by lengthy delays that translate into substantial cost rises. In Belarus, official statements made recently said the new NPP in Ostrovets would be completed at a later date than was scheduled initially.”
http://bellona.org/news/nuclear-issues/2015-05-survival-fittest-worlds-major-nuclear-builders-long-stretch-red