28 February 2007

Third World Russia--Like Dinosaurs, Sinking Into the Tar Pits

Nationalisation of industries--such as oil and gas--is a sign of the impending decline of a nation's economic production. It happened in Iraq under Saddam, it is happening in Venezuela under Chavez, and now it is happening in Russia under Putin. Nationalisation leads to decline in infrastructure investment, with inevitable declines in production as the infrastructure crumbles.

The Russian government has had opportunities to rise above its medieval third world authoritarianism and dictatorial economic control. Yes, more than ample opportunities for an enlightened people. Unfortunately, the Russians have never had the opportunity to grow up--out of the choking grasp of a Tsar, a Communist dictatorship, or a corrupt Mafiocratic oligarchy.
The Russian pipelines are not only short of what’s needed, they are also old. Two miles in three were laid over 20 years ago. Breakdowns and leaks are becoming increasingly common. Last year’s survey of the 1960s-era “Druzhba” (Friendship) pipeline, which carries 1.2 million barrels a day to Eastern and Central Europe, found almost 500 “damaged points.”[7] Last July, 11,000 gallons of crude leaked from the Druzhba near Russia’s border with Belarus, briefly shutting down the route and sending world oil markets up to about $75 a barrel.

Russia's oil woes stem from the decision to join the worldwide trend toward the nationalisation of all oil and gas production and transport. Nationalised oil companies now control the easiest to obtain petro-resources, leaving the more difficult and expensive resources for the more technologically competent multi-nationals.

This means that a large part of the world's easily available oil and gas reserves will either lie untouched, be diverted to the black market, or will leak out and be wasted--due to the general corruption and incompetence of the national oil and gas industries. That creates a mild artificial "peak oil" that will likely continue for the next few decades. Rather than an abrupt mega-shock peak oil from resource depletion, we have instead a slow political peak oil with much of the reserves remaining in the ground.

For non-ideological students of economics, this is a recurring pattern: third world nations invite multi-nationals in to help develop their resources. Then when most of the research and development funds have been spent, the third world governments move to nationalise the developed production facilities. Next, the inevitable corruption and breakdown of technological infrastructure occurs, which eventually leads to a change in government. Then the new government invites the multinationals in for their technological expertise, and the cycle repeats.

The sad reality is that Putin and his cronies, by grabbing all private assets and facilities and placing them under state control, are driving Russia down the same road of decline and corruption as the oil dictators in the middle east, Africa, and Latin America.

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Blogger Michael Anissimov said...

Sad stuff. My grandfather, who runs a Russian-American charity organization, predicted things would get a lot better after Yeltsin, now concedes that progress in the right direction is very slow. It's pathetic that the approval rating of Putin is so damn high even though he is nothing but a gangster. All I can say is that I'm happy my family left Russia in the early 20th century. Long Live America! :)

Wednesday, 28 February, 2007  
Blogger Michael Anissimov said...

What about this?

Also note that state-controlled energy maintained the superpower of the USSR for ages and maintains China today. Are you sure you're not just a big fan of libertarianism, willing to look for holes in nationalization wherever you can? Clearly it fails sometimes, but it seems to do okay in some cases.

Wednesday, 28 February, 2007  
Blogger al fin said...

Interesting link, Michael, but these are two distinct issues. Russia certainly has rich potential human resources in mathematics, physics, and other scientific and technical areas. But Russia needs outside investors to develop these human resources. By pushing out foreign investors in the energy sector, Russia is making foreign investment in Russia potentially more difficult in other areas.

I suspect you are putting me on. You must be quite aware of the sad history of state-ownership of enterprise in the capitalist era. Let me know if you are serious.

Wednesday, 28 February, 2007  

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