Mar 7, 2014
Russia’s Economic Development to Offset Terrorist Fervor?
Posted on Feb 27, 2014
By Jeffery Sommers and Michael Hudson
This piece first appeared at Michael Hudson’s blog.
The Sochi Olympics were the great success Russia hoped for. The opening ceremonies proved a radiant display drawing on Russia’s most compelling cultural assets. This artful look back to Russia’s past greatness proved both a reminder and challenge to its own people to reprise their historical greatness going forward. Meanwhile, its closing ceremonies reprised these themes, reminding the viewer of Russia’s continued vibrancy in the arts.
From an economic vantage point, national hosts for Olympic games always use them as an occasion for enormous infrastructure spending for economic development. One of us (Hudson) was the economist for Montreal brokerage houses back in 1976 when every French Canadian family seemed to become millionaires on the games’ cost overruns. The usual argument by governments is to hire a Keynesian economist who will say, “Spend tens of $billions and the multiplier will generate hundreds of $billions in national income. Taxes at 20% will recover all the expense, so in an economy with under-employment, whatever you spend on the Olympics will be free.” This is the kind of argument that World Bank economists use to justify infrastructure investment by underdeveloped countries, and what any Olympic host city argues to minimize the vast cost overruns that always occur. Construction contracts are about as honest as figure skating judging.
At least this argument is better than trickle-down economics. For Russia, the Sochi Olympics did for that city’s infrastructure what the Olympics did for Los Angeles, Salt Lake City and other sites. But for Russia, it was the first real Keynesian-type investment in infrastructure to start rebuilding the nation physically – in an economy where construction has not been the strong suit that it is in Western economies.
If there were any time for those hostile to Russia to provoke an intemperate move, this was it. The games were supposed to show a positive Russian face to the world, helping heal the old Cold War tensions. So, from Mr. Putin’s vantage point, the worst thing that could happen would be a distraction to remind the world of old Soviet-era repression. So of course, this was precisely what the Western press played up. To read the New York Times or Washington Post, the real sporting event was whether the police would descend on Pussy Riot’s sideshow. Russia did itself no favors by sending Cossacks to deal with what would otherwise have been a nearly invisible Pussy Riot protest performance. If Putin’s aim was to promote a view of Russia as a modern developing country, that of the demonstrators was to identify his government as modern-day Stalinists.
Russia’s poorly conceived Cossack intervention aside, it refrained from doing anything on the scale of what Mayor Bloomberg did to Occupy Wall Street. This contrast was not drawn by the Western media. The last thing that they would promote was the idea of Russia’s new role as peacebroker on the international stage. So there was no mention of how Russian pressure on Bashar al-Assad in Syria prevented an escalation of conflict there that could have rippled through the Middle East, providing fertile terrain for the expansion of the Al-Qaeda franchise in the U.S.-backed alliance. Putin’s act in saving the US from a disastrous intervention might have helped the ‘reset’ on US-Russian cooperation and security relations.
Leading up to the Sochi Olympics were reports from US media of failed infrastructure on the ground. Hotel rooms were not quite ready. The water was yellow (as usually is the case in newly built and plumbed buildings). The real story, of course, was precisely the vast infrastructure investment in building. This was a new path for Russia, where construction had languished ever since 1917 as the economy pushed industrialization more than residential or commercial building.
Yet here was a regional city that had been living under near-Third World conditions before the Olympic reconstruction began. Sochi even lacked potable water – a condition still found in many parts of Russia since the collapse of the USSR. The economic success of Sochi has been to turn it into a modern city in the making, with infrastructure that will contribute to its long-term potential to become a tourist destination.
The Olympics thus served as a catalyst to bring money and development to the Caucasus. This is, after all, the best tonic against the Islamic fundamentalist movements that thrive most in poverty. The Sochi success thus is a first step in a constructive and peaceful mode of dealing with terrorism, in contrast to the devastation that has been wrought in post-revolution Libya, Iraq, Afghanistan and Syria.
Sochi represents the kind of development that should take place across all of Russia. It is much better than building up sovereign wealth funds to play in stock markets. Russia’s money and resources – above all its labor – is best employed at home, and construction has been lacking for too long. It typically accounts for 10 percent of GDP in advanced countries. (In hothouse Ireland it rose to 25% of GDP by 2007.) Where better to spend credit and money than on infrastructure to transform Russia’s economy and living standards?
What has collapsed the past two decades is not only much of Russia’s infrastructure, but its prospective middle class. Nothing would go further toward rebuilding prosperity than a national program to transform the country’s infrastructure. Sochi has shown the way forward. That is the real story that the Western media have sidestepped.
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