Johnson’s Russia List #6583, 3 December 2002
Wow, what’s been happening on the JRL pages lately! A debate on the Russian economy! First, we had an Aslund piece that was a bit too optimistic, then there was an opposing Stieglitz piece that was a bit too technical and very critical of Aslund, and finally there was a piece that completely demolished Stieglitz’ argument, a piece that I personally found convincing. Whom to believe? I wish I had studied economics! Let me try to sort it out to the best of my ability.
Ever since graduating from the Moscow School for Mildly Mentally Retarded with High Honors in Personal Grooming and in Drawing the Vowels, I liked simple definitions. I define “economics” as “when people produce things that other people consume”. If it is easy to produce things that other people need, then I define the state of economics as good, but if such things are not produced, then the economics must be bad.
Everyone wants to advance in this life, and so my Russian classmates and myself decided to produce mouth wipes for the Severely Mentally Retarded, as in Russia everyone who lives on a pension is salivating at the sight of food. As soon as we started production, some bandits came and demanded 20% of our profit. When we said we don’t even know what “profit” was, they hit us over the head. It hurt. We then called in the militia. They came, stole our tissues and harassed our secretary. They said they could do so because they work in law enforcement. We then went to court. The judge named his price. When we stated our belief that a case must be decided on the basis of fairness, the judge suggested that we must be Severely Mentally Retarded, which is a put-down, since we are Mildly Mentally Retarded.
Then the Tax Inspectorate came. We heard that in normal countries, taxes are structured in a way that rewards success, promotes investment, and encourages making your enterprise more competitive. We heard that taxes are just a salary that people pay to the government for provision of social services, to be done under control of people’s democratically elected representatives. Here, we get no social services and just pay so that the bureaucrats who strangle us for a living can ride in expensive cars. The taxes were many, and together with the Racket Tax and Normal Cost of Business Tax (which means that you have to bribe everyone and can never hope for justice) they were prohibitively high. It is not just that these taxes made us uncompetitive on the international market (unless we are lucky enough to steal resources elsewhere, such as getting the cheapest electricity rates in the world, or selling oil that used to be a part of national treasure): these taxes condemned us to never showing any legitimate profit. When we tell people that in Russia the only way to structure a business correctly is to make sure it is operating at a loss, people say that we must be Mentally Retarded, and we are.
Since taxes are just a bribe determined in a course of a negotiation with a tax inspector, we could stay in business only by reclassifying our accountant to Severe Amnesia and Advanced Paranoia. Instead of investing to increase our competitiveness, this accountant was placing money under the mattress, or buying for the director of an enterprise that pays its workers $200 per month (so they surely are not consumers in the modern sense of the word) a villa in France costing $5M. These millions have not come from production: they are more likely to have come from stripping assets or impeding production (robbing those who try to produce against all odds simply because they need to eat). Assets are something that you need for production in the future. Impeding production means raising the costs of doing business and making it less competitive.
We are told that normal people keep their money in the bank. Bank is an honorable, tightly controlled, and accountable institution that finances worthwhile business projects thereby earning money that it pays back as interest to its depositors. In Russia, banks are financial institutions created by people more honest of whom already had criminal convictions. These institutions were created to facilitate transfer of money abroad, asset stripping, robbing the general public, and for carrying out Gaidar’s privatization. Such banks never finance viable businesses: they bankroll well-connected individuals, bankroll at the expense of citizens who kept their life savings there and at the expense of small businesses that were required to keep accounts there. When a bank would run out of money it would simply close its doors and pay back nothing, leaving many of its Mildly Mentally Retarded depositors feeling like Severely Mentally Retarded.
Another very important economic instrument is a stock market. In Russia, stock market is when a strongman that used illegal tactic to acquire significant assets, usually the assets that form a foundation of the Russian national destiny, wants some easy money to finance his trip to a French casino. He then goes looking for some Mentally Retarded (or for those who manage other people’s money and may be willing to compromise their principles) and sells them some paper that states that they are entitled to “profits” and even to the “opinion as to the management of the company”. Since showing profits means paying Russian taxes and paying Russian taxes means being Severely Mentally Retarded, the company shows no real profits, and then distributes (or even then does not distribute!) these “profits” to shareholders. It is the same with us, Mildly Mentally Retarded: the state says the food at our mental institution is financed to the tune of 30 cents a day (which is not a lot, since we are human), but we only get seven cents worth of food. It’s not the economy, stupid, it is who is distributing. If you want Russian profits, you need to run a Russian company, and a good way to run one is to kill those who are running it now. Do not forget to take the rubber stamp from the cadaver’s pocket: without the rubber stamp the bank will not transfer the company money to your personal account!
As far as shareholder rights, it is even funnier. Remember how the racket hit us over the head? It hurt. Since very often our racketeers is your majority owners (with rare exceptions, who else could own big business in Russia BUT the criminal racket?) raising an issue of minority shareholder rights could get you reclassified into Severely Mentally Retarded, or even into Dead.
Since Russia has no concept of private property but instead has conditional temporary possession based on informal personal relationship with power, we Mildly Mentally Retarded cannot even understand what the term “Russian stocks” stands for. One Mildly Mentally Retarded had some stock in Gusinsky’s NTV television station, but exchanged it for a bright red plastic cup he could quietly spit into whole day long, and he did well, gained some value.
Before you invest in Russian stocks, yet again, after the 1998 debacle, let me tell you the test we use. If we hit a person over the head once and he does not want it repeated - then he must be Mildly Mentally Retarded or better, but if after the first hit he does not care if he is hit again or not, he is Severely Mentally Retarded or worse. Stocks must reflect underlying value and represent secure lawful ownership. You cannot always hope that you will find someone even more stupid than you are to unload your stocks to since you are already Mentally Retarded enough to have bought them.
At the Boston Investment Symposium we heard that the Russian economy is booming and is the envy of the world. Well, we have one Severely Mentally Retarded who is spending his days trying to scratch back of his head with his toe, even though we keep telling him that this is a Useless Pursuit. But Russian economy is just like this: instead of producing, a Russian director spends his days begging some bureaucrat to let him breathe. There are so many hours in the day, and the resources are also limited, so that if you spend most of your time and resources on unproductive activities, the economy cannot be efficient. Russian economy suffers from an extremely low creative potential because it continues to be envy-based, and envy is about destruction of resources. How can an economy which is backward, structurally inefficient, based on a dilapidated infrastructure, has virtually impenetrable barriers to entry into business, makes doing business an extremely risky and humiliating proposition, has no banking system and no laws, has population whose average disposable income is extremely small, and suffers from severe demographic and health crises be efficient or poised for sustainable growth? Russian Minister of Labor Alexander Pochinok claims that it could, and if you believe Pochinok one wonders if your mental retardation is really all that mild.
Let me introduce a new verb, to pochinok, and here is its definition. To pochinok people (and to give them gref) is to assemble intelligent, normal, and Mildly Mentally Retarded people together (as happened in Boston recently) and to give them figures that make no economic sense, as if the audience consisted exclusively of Severely Mentally Retarded.
Another Pochinok figure had to do with falling Russian unemployment. In our mental institution there are two types of personnel: ones that give us food and ones that beat us with nightsticks. When we hear that in Russia more people are employed, we want to know whether they are the ones that feed or the ones that hit. Russia needs to employ MORE of the first category and LESS of the second category, and that means that the fact that less people register for unemployment is not illuminating. In Russia, gangs are always hiring, while the heroin distributorships offer a sign-up bonus, a free dose or two. So this decline of unemployment does not make me laugh uncontrollably with glee, as Pochinok did in Boston: I am not an Idiot, you see, but Mildly Mentally Retarded.
Since Russian economic life takes place in secret, against the government’s best efforts to control it and to stifle it, it is very hard to measure, particularly since it is more and more based on such things as drug trade, international credit card fraud, and prostitution. Yet, Mr. Pochinok actually had the absence of mind to compare Russian economy and the Russian stock market FAVORABLY to the American ones. Well, since in our mental institution we are segregated by sex, we are reduced to measuring the lengths of our penises for (questionable) sexual satisfaction. But our physics teacher once told us, “Don’t measure your penis while standing next to a male elephant: it will feel much smaller than it actually is.” I would say to Mr. Pochinok that Boston is not a good venue to brag about Russian economic success: Russian specialists may well be Mildly Mentally Retarded, but they are not Blind: a hundred miles out of Moscow - and the true state of Russian economy will show. Russian economy does have great potential and it will grow if we succeed in changing the basic principles on which it is operating, and we cannot start this process unless we get down to discussing what is it that makes Russian economy so unique and so catastrophically inefficient.
And just consider : Sorry, have to stop here: I am being led away to pee.