From: MSN NicknameEagle_wng  (Original Message)    Sent: 11/28/2005 1:09 AM

Monday, November 28, 2005

Russia's Big Problem Is a Three-Letter Word

By Alexei Bayer

During U. S. President George W. Bush's recent trip to Asia, there was a sharp contrast between his public call for more freedom and democracy in China and his closed-door meeting with President Vladimir Putin. Apparently, the White House has become convinced that Russians are only fit for a stunted kind of freedom and a mongrel "managed democracy."

It didn't seem that way during the 1990s, when Russia aspired to become a modern industrial democracy and a full member of the community of nations. What went wrong in recent years can be summed up in a single three-letter word -- oil.

The Soviet Union may have been repressive and sclerotic, but it was an industrialized state. Soviet citizens produced goods and performed services -- however shoddily or inefficiently -- and earned their modest bread by the sweat of their brow.

After the fall of communism, mistakes were made by Russian leaders as well as Western economic advisors. Instead of modernizing existing plants and equipment by bringing in foreign investment, the Soviet industrial base was allowed to fester and decay. Workers were paid illusory wages for illusory work while red directors pilfered everything they could lay their hands on.

Nevertheless, as recently as in 1998 there was still hope. After the overvalued ruble collapsed, investment in domestic manufacturing and food processing industries picked up substantially.

However, since 1999, when oil prices began to climb, the ruble has appreciated once more and imported consumer goods have swamped the country. Even though swaths of Russian industry still stumble on, Russia has effectively become an oil dependency.

Oil dependencies are invariably troubled. Just listing them provides a litany of woes: Algeria, Angola, Azerbaijan, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Venezuela.

Oil dependencies feature huge discrepancies between poverty and wealth. Yet, even their poorest citizens display a healthy aversion for hard work. Why should they break their back when their fellow-citizens -- whose only distinction is an ability to elbow their way to the oil trough -- wallow in petrodollars? What they want is a more equal distribution of oil revenues. What they get is authoritarian regimes, since those who enjoy the lion's share of wealth -- usually government officials and their cronies -- have no wish to spread it around.

This is exactly what is happening in Russia. Refugees from the former Soviet Union do the most work, while the average Russian rails against the fat cats who have stolen "his" oil. Putin was hired in 1999 by Yeltsin-era oligarchs to protect their wealth, but instead his cronies have appropriated oil assets for themselves.

Some countries have escaped oil dependence. Since joining the North American Free Trade Area in 1994, Mexico has built a domestic industrial base, which has provided it with higher standards of living and greater democracy, ending a decades-long monopoly on power by the Revolutionary Institutional Party. The new, modern Mexico was on display during Bush's previous trip to Argentina. His greatest ally in promoting a hemisphere-wide free trade bloc was Mexican President Vicente Fox. His staunchest opponent -- not surprisingly -- was Venezuelan President Hugo Chavez.

Oil dependencies, despite selling their oil in world markets, seem to have no interest in a stable world order. Chavez is but the latest on the list of mavericks, madmen and pariahs who have ruled oil-exporting countries. Even Saudi Arabia, which plays a responsible oil exporter, has produced Osama bin Laden, most of the 9/11 hijackers and a slew of Islamic radicals.

Elements of roguery have appeared in Russia, as well, when for example officials at a very high level accuse foreigners -- notably the West -- of supporting Chechen terrorism and aiding so-called color revolutions in the post-Soviet space. Russia's embrace of such odious figures as Belarussian President Alexander Lukashenko and Uzbek President Islam Karimov are steps in the same direction.

This casts a new light on Bush's reluctance to criticize Putin and speak out against Russia's backsliding on democracy. Washington may yet come to regret allowing Russia, which is still armed with thousands of nuclear warheads, to slide uncontested into oil dependency.

Alexei Bayer, a former Muscovite, is a New York-based economist.

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