Russian Markets on “Rollercoaster Ride”
By Sean at 23 January, 2008, 11:17 am
Stock markets around the world continue to fall despite the Bush Administration’s preemptive strike before the New York Exchange opened on Tuesday. The Federal Reserve tried its own version of shock and awe as it cut interest rates a “dramatic” 0.75 percent. The monetary defibrillator worked for a bit. The New York Exchange didn’t dive as much as expected. The Dow shaved off only 1.5 percent of its value. Few however believe that the rate cut will do much to plug Recession’s bullet holes. According to the Financial Times, economists at Davos are unconvinced the monetary shock will “succeed in boosting a sickly US economy.” Stephen Roach of Morgan Stanley called the Bush response “a dangerous and reckless and irresponsible way to run the world economy”. One can’t help note the irony when the free marketeers cry to the State for help in managing a floundering economy.
Back in Russia, the Fed’s jolt sent markets on a “rollercoaster ride.” The RTS dove 5.8 percent, climbed back to the black by afternoon, but then dipped again before closing. The net loss was 1.6 percent for the day. The MICEX was in the next car. It too rode the market’s wave. It dropped 8.7 percent, but climbed to end with a net loss of 1.1 percent.
Russian investors are not worried. They see Russia’s economy as still too detached from “Western woes.” Maybe. Considering that Russia’s economy is based on the high rates of oil and gas consumption in Asia and Europe, one has to wonder if dives in those regions will eventually hit Russia down the road. The fact that Russian markets fell with the rest of the world must worry some. So much so that Finance Minster and Deputy Prime Minister Alexei Kudrin made a point to speak up at Davos and reassure the world of Russia’s stability. “In the past few years Russia has managed to achieve economic stability piling up substantial international reserves, which play the role of an airbag. I believe Russia will soon be the focus of attention as a haven of stability.” A survey cited by the FT suggests that 73 percent of Russian CEOs agree and are fully confident that 2008 will bring growth in revenue. This is compared to 36 percent of American CEOs, 31 percent of Japanese, 43 percent of British, and 28 percent of French. Only CEOs in China (73 percent) and Brazil (63 percent) join their Russian counterparts in having a positive outlook for 2008. Well, we are only 23 days into the year. We still have a lot of time to see if that confidence pans out.
It’s true, as some have pointed out, that Russia doesn’t have many of the features of the current global economic slide. It doesn’t have much of a financial system, no widespread mortgage system, very little by way of a credit system. Yet, Russia’s so-called detachment from the global economy has failed to shield it from global economic slumps of the past. Russian economic “detachment” didn’t save it from the pinches of the global economic crises of the 1870s, 1890s, and 1970s. It was only during Stalin’s tripartite “Revolution from Above” did Russia escape the pangs of global economic slide.
The question now is where will Russia present economy be when all is said and done. And so the waiting game begins.
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“Russian economic “detachment” didn’t save it from the pinches of the global economic crises of the 1870s, 1890s, and 1970s.”
I am not sure the situation is truly comparable.
Certainly for the 1970’s. In fact, the Soviet economy did relatively well then because of higher prices for its oil, probably prolonging its lifespan for a decade or so.
On the other hand in the late nineteenth-century much of the expansion of Russian industry expanded was funded from abroad (German metalworks, French rails, British textiles, etc). Presumably crises in the West would have reduced Western investments.
This is in contrast to the situation today, where most growth is powered by domestic capital and besides Russia sits on a half trillion dollar foreign currency reserve with which it could plug in gaps in foreign investment.
If the darker prognoses (sustained recession in the US/Europe) turn out to be right, I would expect Russian growth to slow down to 4-5%, maybe even lower, but I doubt there’ll be an actual Russian recession.
“It was only during Stalin’s tripartite “Revolution from Above” did Russia escape the pangs of global economic slide.”
I’m certain that Russians would happily accept those ‘pangs’ in exchange for the Reign of Terror they had to live through.
Besides, how isolated was Stalin’s Russia from global political and economic events, really? Is it a coincident that Stalin’s Terror roughly coincided with the downturn in global economy and deep crisis in capitalistic systems? True, the first 5-year plan started before the markets crush in 1929, but nobody expected things would turn as brutal as they got. Terror intensified as global economy worsened. At the peak of Terror, large part of Russian economy was supported by forced labor camps. Terrible irony was that the long awaited crisis of Capitalism didn’t open the way for Communism advance but instead led to unheard of terror and enslavement of Communist subjects.
I think Soviet leaders in 1930-s were trying to cope with the world-wide economic crisis, just like any other country. Considering Capitalism appeard to be on the death bed and their own Communism was always a sham, they tried to steal a page from Mussolini and Hitler, because Fascist countries seemed to be the most successful in dealing with the global crisis back then. And like all the other times in Russian history they were being clumsy, stupid and horribly brutal in their imitations.
At the peak of Terror, large part of Russian economy was supported by forced labor camps.
Can you provide some evidence to support this because this is the first time I’ve heard it?
Sean – the question you’re asking is which? Whether a “large part” of the economy was supported by the camps, or that some part was?
There’s lots of testimony available on production from the camps or works projects undertaken using them. But I’ve never heard convincing evidence that this generated a net return, after accounting for direct costs and, of course, the opportunity costs of compulsory labour on deficient rations, short life expectancy, etc.
Is that what you’re wondering?
I want evidence that a large part of the Soviet economy was based on forced labor camps in 1937. I know about the conditions and even the numbers of inmates. I just have never seen anyone claim that forced labor from camps contributed to a large part of the prewar economy. Another question is what a “large part” means.
Actually the only study I know of on the role of the camp labor to the economy is Edwin Bacon’s Gulag at War. He says that camp inmates contributed substantially to the war through the production of munitions and the release of 1 million prisoners to serve at the front. Besides that I’ve never seen any other claims about Soviet forced labor contributing a “large part” to the overall economic output of the Soviet Union in the 1930s. I’m not saying it didn’t. I just don’t know.
Btw there is one other book on the economics of Soviet forced labor. The Economics of Forced Labor ed. Paul Gregory 2003. I don’t know this book and have only read a review of it in the Slavic Review. From the review, the authors note the significant role forced labor played in certain aspects of the economy–gold mines in Magadan, Belomor, etc. I don’t know what if anything they say about the over all Soviet economy in the 1930s. I’ll look up the estimated figures of the forced labor camps in a bit and post them as well as whatever other info I can dig up on this.
For prisoners being released to serve at the front, here’s the best “source” I know of, or at least the one that’s most appropriate to cite today. Actually, it’s hard to think of many (any?) aspects of Soviet life from Stalin to Brezhnev not covered by one Vysotsky song or another. Thanks, Sean, for doing a post about him.
Yep – understood. It’s an inordinately complex question, as you’ll know, and involves all sorts of sensitive issues. A bit like studies of slavery, but even more complicated because of the difficultues of unraveling social cost from economic return. It’s disturbing that so little serious academic work has been done on it (compared with more journalistic work, as in Applebaum etc.).
I do have an acquaintance who was researching something like this a couple of years ago. I’ll call him on the weekend to see where he got.
But — intuitively, I agree with you: It’s very unlikely that camp labour contributed much if anything to the wider economy. The costs per inmate were obviously low, but it could not possibly have been a “profitable” enterprise. The whole Belomorkanal saga is evidence of that.
More likely, “free” labour and the need to deploy it somehow encouraged lots of hair-brained and utterly uneconomic activity.
Well there has been a lot on the Gulag, but most of it is about the endless numbers debate. Which for me isn’t too interesting. I’m surprised that there isn’t (at least to my knowledge) a work on the political economy of one camp and its relationship with the the communities surrounding it.
I would imagine one difficultly in assessing the economic contribution or drain, (I think that you are right in thinking that it was a negative contribution to the economy, but that this is just a guess) is simply trying to get a sense of the pure graft that was occurring. I have no doubt that the NKVD people running camps were robbing and selling it on the side or using it to build dachas etc. After all , if you read James Harris’ book on the Urals, factory and party officials were falsifying all sorts reports demanding materials and then skimming off the top. I would think that a lot of the profit, if any, extracted from forced labor went straight in the pockets of local NKVD and to whoever they had to payoff to keep the operation running. But this is only guesswork based on other instances of mass economic graft occurring in the 1930s.
I found some data on forced labor population. Of course right after I said that the numbers debate didn’t interest me, what I have to offer is numbers. I haven’t found any estimates on forced labor economic output (assuming that they exist) but the population numbers might help us understand the extent forced labor might have contributed to Stalin’s economy.
The initial data I have is for for 1939 not 1937. Stephen Wheatcroft in his article “On Assessing the Size of Forced Concentration Camp Labour in the Soviet Union, 1929-56″ Soviet Studies 33:2, 1981, estimates that “some four to five million is the maximum number of concentration camp labourers who could have existed in 1939.” This is out of an estimated total workforce of 87 million people. I would have to say that just from the numbers the contribution of forced labor to the overall economic output of the USSR was rather small.
But even then, archival evidence published by Getty, Zemskov, and Rittersporn in 1991 say that the camp population in 1937 and 1938 was 2.5 million and 2 million respectively. So even Wheatcroft’s 1981 estimates might be too high.
Wheatcroft provided numbers of the Gulag population again in 1999 (“Victims of Stalinism and the Soviet Secret Police: The Comparability and Reliability of the Archival Data. Not the Last Word”, Europe-Asia Studies, Vol. 51, No. 2. (Mar., 1999)) where based on Zemskov’s data in 1937 the Gulag population was 996,367 on Dec. 31. One year later it was 1,317,195. For 1939, it was slightly higher, 1,344,408 Assuming that these numbers are somewhere near correct, then the forced labor population was even smaller than he estimated in 1981.
Based on this, I find it difficult to believe that forced labor contributed to a “large part” of the Soviet economy. But who knows, maybe there is more economic data out there that would give a different impression.
Stephen Roach of Morgan Stanley called the Bush response “a dangerous and reckless and irresponsible way to run the world economy”. One can’t help note the irony when the free marketeers cry to the State for help in managing a floundering economy.
I haven’t read Stephen Roach’s comment outside the context in which it is presented here, but it doesn’t sound to me like a cry to the state for help: it sounds to me like it is criticising the state intervention which Bush has ordered. Of course, his comment might be criticising the state intervention for not going far enough, but that is not how it is presented here, so I can’t see the irony.
Incidentally, there is also nothing ironic about free marketeers crying to the state to help in this situation, unless you are unable to distinguish between genuine free marketeers and those who pretend to be so only when times are good. Genuine free marketeers would recommend the state stand by, do nothing, and let the private banks and business go to the wall.
This is in contrast to the situation today, where most growth is powered by domestic capital and besides Russia sits on a half trillion dollar foreign currency reserve with which it could plug in gaps in foreign investment.
Russia still needs huge foreign investment to develop its oil and gas industry. As things currently stand, Gazprom is the most heavily indebted company in Russia. If it wants to develop the Shtokman field, it will need huge foreign capital. Indeed, I can’t think of a single major oil and gas development in the world which hasn’t been funded by the international banks. Even the Arab countries find themselves without sufficient liquidity to fund a giant project.
Sean,
Here is one of the latest sources:
http://www.hooverpress.org/productdetails.cfm?PC=1026
While prisoner labor was used on a fairly wide scale both
in prerevolutionary Russia and during the early postrevolutionary
years, the fundamentally new system of the Gulag economy didn’t
emerge until the end of the 1920s and beginning of the 1930s, as a
result of the policy of the great industrial leap forward, forced
collectivization, and the mass repressions that accompanied them.
This economy was typified by huge projects whose construction and
operation required the large-scale use of unskilled workers, as a
rule, in regions that were hard to reach, that had an extremely
unfavorable climate, and that lacked a basic infrastructure. Relentless
exploitation of prisoners in hard physical work, mainly in construction,
mining, and logging, was the essence of the Stalinist
version of the forced-labor economy…
The
nucleus of this system was large construction projects and mining
complexes that required massive use of unskilled labor in extreme
conditions. By the beginning of 1935, more than 150,000 camp
inmates were building the BAM, and 196,000 were working on the
Moskva-Volga Canal. The White Sea–Baltic project—the system of
transport and industrial enterprises concentrated around theBBK—
employed 71,000 inmates. A total of 21,000 inmates from the
Ukhta-Pechora camp were extracting oil and coal. The Far Eastern
camps (60,000 inmates) were mining coal, building railroads and a
shipyard in Komsomolsk-on-Amur, and so on. The 63,000 inmates
from the Siberian camp were building railroads and carrying out
projects for metallurgical and other enterprises. At the Svir camp,
43,000 inmates were procuring lumber and firewood for Leningrad;
at the Temnikovo camp 35,000 inmates were performing similar
jobs for Moscow. The Karaganda and Central Asian camps (about
26,000 inmates each) specialized in agriculture, but they also supported
industrial enterprises and construction projects.7 In the mid-
1930s the Dalstroi trust (36,000 inmates in January 1935) was
rapidly building up the mining of gold. In the first six years of
operation (1928–33), 1,937 kg of gold was obtained on the Kolyma.
In 1934 a large leap occurred, and from 1934 to 1936, Dalstroi
produced more than 53 tons of gold. In 1937, Dalstroi produced
51.5 tons.8″
Candide, thanks for the link. I was looking at Gregory’s book yesterday on Amazon. But this site provides it on pdf. There are a few articles I’d like to read here.
Sean – Sorry, but the guy I was thinking about — the one I thought had been researching something involving camp economics — switched his topic some time ago (to the NEP, which is interesting too).
Candide’s Gregory link is great. It should be possible to make some rough input/output calculations using gold production. You make a good point about theft. But I imagine gold was surrounded by higher levels of security.
I’m uncertain how to account for the “value” of coercion. As Candide’s link says, camp labour was often in locations voluntary labour wouldn’t go.
I’m also uncertain about the weighting of politicals vs ordinary criminals. Should one make a distinction? Were all 36,000 Dalstoi inmates political and did they all work in gold production? Doubtful.
“camp labour was often in locations voluntary labour wouldn’t go.”
They would go if compensation was made attractive enough. If it’s possible to lure a Britisher to Sakhalin, it’s possible to lure a Russian to Kolyma.
I’m not so sure about camp labor was used in locations voluntary labor wouldn’t go either. Labor went to some pretty inhospitable places. But it seems that the enterprises that camp labor was used were very labor intensive with high operating costs. It seems to me that using camp labor in such costly enterprises as gold mines and canal construction might have been a way to cut costs. Wheatcroft cites a local study on Dalstroi. A. N. Pilyasov, Dinatnika pronimyshlennogo proizvodstva v Magadanskoi oblasti (1932-1992gg), Part 1
(Magadan 1993). Maybe that gives a better sense of things.
Another thing, at least in regard to Dalstroi. It was a joint OGPU and Directorate of Far Eastern Corrective Labor Camps operation. It’s no surprise that camp labor was used for the gold mines since the people that administered it had their own pool on hard to exploit how they saw fit. In terms of theft from Dalstroi. I don’t know of course, but I would imagine that it was pretty widespread if these two institutions were running things. That is unless OGPU officials suddenly became saints.
I would go to Sakhalin for free.
I would go to Sakhalin for free.
No need. Come for the booze and the women.
P.S. Bring money.
What’s average income in Yuzhno-Sakhalinsk nowadays (for a local I mean)?
What’s average income in Yuzhno-Sakhalinsk nowadays (for a local I mean)?
About $1200-$1500. Not sure this will sustain itself once the Sakhalin II construction will end. You get nothing but a lazy alcoholic for less than $1000 per month here.