Bellerbys Economics - Mr Stephenson

Tuesday, December 04, 2007

United Russia

Even allowing for the fact that the results may have been tweaked a little bit, there's no doubting that United Russia's victory in the Russian election was impressive and based to a large extent on the general popularity of President Putin.

What's more interesting to economics students perhaps is that it provides confirmation for the 'Singapore Solution' that Russia has adopted under Putin's reign as its business and economics model. This is an economic system where government and big business are largely indistinguishable - with Government providing the infrastructure that business needs in order to develop. In exchange, big business operates in the best interests of the economy and the nation as a whole.

This is not entirely unique to Russia of course - the Chinese economy is developing in a very similar way - and the basic tenets of government-directed economic development, but with smaller businesses being free to develop and progress on the margins of the economy (sometimes called the Beijing Consensus). This may turn out to be the elusive third way between capitalism and communism that New Labour dreamed about when they came to power - but without apparently having the economic skills to bring it about.

This has been remarkably successful in Russia in the last seven years with economic growth averaging 7-8% a year every year. The Russian budget deficit is in fact a surplus of around 7% of GDP, there is virtually no public debt and a huge stablilisation fund is being used to buy shares in companies worldwide to ensure long-term revenue flows - and also to take money out of the economy as inflation is still running at 10% (too much oil money boosting demand).

There are still weaknesses, however - corruption is high and the business environment for small businesses is too restrictive with many regulatory barriers. These will be the two main targets of the new government in the next four years - the big question is, who will be Prime Minister?

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