6:   Russia’s Population Shrinks

William Krehm

Russians are dying younger, having fewer children and resisting immigration. The result is a population freefall and the risk of economic ruin. Moscow Globe and Mail correspondent Graeme Smith trekked across Siberia and the Far East, where the demographic crisis is most acute. He begins in Muhyen, an all-but abandoned forestry town resurrected by Chinese immigrants. And encounters some amazing Russian reactions.

"The town of Muhyen was once a jewel in Russia’s remote wilderness. As centre of the Soviet Union’s biggest logging operation, this tiny outpost about 6,200 kilometres east of Moscow was blessed with famous mineral springs and well-stocked stores.

"But when the Soviet Union collapsed in the early 1990s and the forestry business went bankrupt, residents abandoned the town in droves, part of a mass exodus out of Russia’s eastern settlements when the lifeline of subsidies from Moscow was severed.

"People who didn’t escape Muhyen were left with little to do except drink and contemplate the town’s bleak scenery of empty shops and factories.

"Where the Russians saw only despair, the Chinese saw opportunity. They injected millions into the bankrupt forestry company, cleared debts, rebuilt the town’s roads and refurbished classrooms. These days, timber clatters and diesel engines rumble as the town comes back to life.

"But the local residents aren’t grateful. Troublemakers have started sabotaging company equipment: breaking windows, setting fires and stealing the spark-plugs from trucks.

"Last summer, in an apparent prank aimed at the Chinese, somebody photocopied a handwritten advertisement in Russian and posted it on walls and doors: ‘Chinese man will buy Russian dogs, cats and girls.’ A price was fixed for the animals, but said the girls were ‘negotiable.’

"‘Why would the people of Muhyen try to drive away the foreigners who are saving the town from ruin? I rack my brains about this every day,’ said Cai Guowen, deputy general director of OOO Muhyen Forest. ‘Why aren’t they happy?’"

Our own history should caution Canadians about being wholly baffled by the incredible forms that racial prejudice will assume. When the CPR was being built through the Rockies thousands of Chinese were brought to Canada for the most dangerous jobs – handling explosives for the tunnelling. Those permitted to reenter or stay were not allowed to bring in their wives, because the dreadful rumour was that the Chinese women "bred." We have fortunately grown up to appreciate the contribution of numerous, highly educated, and hard-working Chinese fellow-Canadians. However, we are all victims of our own history and prejudices, and those of the Russians can be found to blood-freezing degree across a major part of Europe where the work force is being divided by governments into the newcomers and younger natives who have no job security and the elder members of the work-force who have. Introduce a continually widening gap between one group of workers and another, and you start mining a world of prejudice and irrationality. Obviously in a continent with an aging labour force such as Europe, increasingly dependent on immigrants to keep the economy running, this makes little sense.

Washington’s Version of Democracy Imposed on Russia

The case of the Russians, however is particularly troubling. They had their years of Utopia in the Communist Revolution, that promised a classless world and ended up delivering one of the bloodiest dictatorships on human record. Notwithstanding which, the Russian people did the major fighting to defeat Hitler in the Second World War, underwent immense sacrifices, and at the end of it found their late allies nursing ever more deadly versions of the atomic bomb with them in mind. And when the Stalinist regime collapsed under the weight of the arms race that the US had deliberately thrust upon it, generations of sacrifice and idealism turned into a nightmare. Their late allies refused to let them adjust to a more democratic regime retaining many of the positive institutions of their years of hope and sacrifice. Instead, Washington insisted the economy be privatized with shares of state corporations distributed to citizens who hadn’t the slightest notion of what to do with them except sell them to the first bidder. And former commissars, plant managers and speculators who knew where value was to be got for a wink and a song were around in plentiful supply. And the American advisers – well-rewarded out of the American loans to Russia – gave them precisely the advice that suited the Americans. And that is where the result of sacrifices of generations in war and peace disappeared. This could only have contributed to the alcoholism and a spread of drugs that had come to dominate the Russian scene,

And meanwhile there was the dominating American Consensus patter with its dependence on high interest rates to eliminate any alternative to the free market in its most rapacious versions.

But The Lord in heaven may take a well-earned nap now and again, but once refreshed He tends to even accounts too much out of line. Not only has Russia emerged as the second largest producer of oil that the US stands in such need of today. So great is its thirst for oil, that even minor oil producers among the countries victimized for decades by the American-inspired IMF may hold the fate of the US in their hands. Listen to The New York Times (23/04, "Once Marginal But Now Kings of the Oil World" by Jad Mouawad): "Oil futures settled above $75 a barrel last week, and analysts blamed the usual cocktail of geopolitics and domestic instability. There was Iran’s challenge to the West over its nuclear research program, as well as the seemingly endless conflicts within Nigeria and Iraq. All these countries are major oil exporters, producing some 8 million barrels a day. Now, add Chad’s problems to the mix.

"Idriss Deby, Chad’s president, threatened to shut off the country’s production of 180,000 barrels of oil a day by May if Exxon Mobil and other oil companies don’t pay $100 millions in new oil taxes. The threat was the latest in Chad’s attempts to get the World Bank to loosen an agreement that limits how much oil money the graft-ridden government can spend.

"Chad, which has been producing oil only since 2003, isn’t a big player on the oil market. And in the non-distant past, what happened in Chad was of little consequence to oil traders, analysts or drivers pulling up at the pump. Similarly, the fate of Sudan or Yemen, Azerbaijan, or the Congo Republic didn’t matter much to the balance of global petroleum supplies."

That is no longer the case.

"‘Today’s exceptionally tight market gives marginal producers unprecedented power and greater geopolitical importance,’ said Ian Bremmer, the president of Eurasia Group, which specializes in assessing how politics affect oil markets. ‘They have leverage.’"

The fact is that much of the world – not excluding Canada – has had the autonomy that goes with sovereignty sacrificed by what passes under the name of "Globalization and Deregulation." This answers the compulsion of financial corporations to grow across boundaries and oceans to expand at an exponential rate. Hiroshima and Nagasaki acquainted the world with what exponential growth signified in physics – and it should not be overlooked that the third most devastating instance of nuclear destruction was a peace-time disaster in Chernobyl under the Soviets not far from Kiev, the capital of the Ukraine. Only now are we experiencing the significance of exponential explosion in deregulated finance.

Economists Like Maths: Why Don’t They Make Serious Use of Them?

Its mathematics are the precise equivalent of the physical version – the atomic bomb. It could not have been spelled out more explicitly for late learners: the rate of growth of the rate of growth and all higher rates of growth to infinity are always equal to the value already attained by the function itself. All this is neatly arranged by adapting Newton’s binomial theory that you learned in your first year high-school. The disappearance of the higher powers of the second infinitesimal terms was put to theological use by the famous Bishop Berkeley, but since Hiroshima it has been identified as the work of the Devil rather than of the Lord. And now we are faced with the consequences of adopting the exponential growth by our financial sector.

Let’s return to The Globe and Mail’s reportage:

"Russia needs immigration, but most Russians don’t want it. A group of young professionals sat around a dinner table in the Siberian city of Krasnoyarsk, The hosts were Roman Zhabko, 34, a computer network administrator, and his wife, Olga, 28, who manages a small business. ‘Demographics is an acute problem in Russia, and it’s discussed by everybody,’ Ms. Zhabko said as she put another dish of meats and cheeses on the table.

"More and more immigrants will come to Russia and they will bring their own culture. Russian culture will disappear. This is the most horrible vision I can imagine. We are one of the ancient, rich cultures of the world.

"At the moment, times are good. Russia’s resource-blessed economy is booming, even if the wealth is shared by few. But the future looks far less certain. The country’s population can’t keep shrinking without provoking an economic disaster. The World Bank estimates that the number of Russians could decline from 143 million to 100 million within the next half-century. The population has already dropped between 700,000 and 750,000 a year in the past decade, and the pace is accelerating with Russia’s unique mix of low birth rates, plunging life expectancies and low immigration.

"The demographic situation is especially acute in the Far Eastern region, where Muhyen is located. This is a territory more than two-thirds the size of Canada, with less than 5% of Russia’s population. Towns that didn’t disappear completely have ended up as quiet husks of their former selves, with scenes of broken windows, boarded doorways and midday drunks slipping off their chairs at the town’s only café.

"Many Western countries face a milder version of Russia’s demographic problem, because most industrialized countries have low birth rates. But the number of people who die in Russia every year is roughly three times higher than in other G8 countries. Russia isn’t replacing its losses with any system of large-scale immigration.

"Persuading families to have more children hasn’t worked in any industrialized society with educated women. The burden of illness, alcohol, violence, suicide, traffic accidents and a host of other deadly problems that give Russian men a life expectancy of 58 years – 16 years less than men in Western Europe and well down from a modest peak of 65 in the 1960s.

"The unreliable government figures show that net migration – the number of people arriving minus the number leaving – isn’t nearly enough to replace the demographic losses. Canada’s net migration rate is 5.85 people per 1,000 every year, while Russia’s amounts to only 1.03 per 1,000."

Russia has in fact been an emigrating country, with persecuted minorities like the Jews, the Doukhobours, non-Communist and Communist national minorities. Many of these groups were prominent in supplying migrants to Canada.

But to the historic cultural prejudices, there has now been added the most cock-eyed imbalance of the distribution of the national income. That has been Washington’s peculiar gift to this major human crisis in the making.

One of the most disturbing products of the problem has been the growth of Russian skinhead punks, that Graeme Smith reports "to number up to 50,000 members and is spreading from major regional centres into small towns and villages. These violent punks first appeared in Moscow and St. Petersburg in 1992 and started copying European neo-Nazis. Though only a fringe element in Russian society, they are symptomatic of a growing concern about demographics. Nationalist politicians are increasingly vocal in their calls for a clampdown on immigration. Even more troubling, observers say, is the tendency of law-enforcement and other authorities to tolerate the skinheads. Police rarely name racism as the motive for [murderous] attacks. In the few cases where an offender is prosecuted, the charge is usually ‘hooliganism’ which carries mild penalties. Rights groups estimate that 67 people died in racially motivated attacks in the last two years, but those numbers make Timur Kazantsef, 16, the leader of a skinhead group engaged in often fatal attacks on dark-skinned non-Slavs. ‘They never write us up. Nobody wants the people to know what we are doing.’ The vendor whose skull he cracked had serious injuries, but he got only a conditional sentence. He says many police officials sympathize with his cause."

The decay of Russia, even in the midst of its present oil wealth, is the ultimate judgment on "Globalization and Deregulation."

The rapid decline of the Russian population would seem to remove it from the list of serious challengers of Washington’s tottering lone superpower position. But the Pentagon’s nightmares must be peopled with visions of the coalescing of Russian oil and China’s immense population and military power.

The American bottomless thirst for gas and oil is certainly seen as a potential weakness of the American colossus. The New York Times (26/4, "Russia, Rich in Wells, Aims to Buy into the Retail side of Oil and Gas" by Andrew E. Kramer) presents the other side of the tale of population decay in the midst of unprecedented oil prosperity for the upper crust. "Moscow – Just a couple of years ago, Russia’s big energy companies hardly ventured outside the former Soviet Union. These days, they are trying to horse-trade on a global scale, swapping stakes in their giant oil and gas fields for ports, pipelines and networks of gas stations around the world.

"Executives streaming in from China, Israel and India are lining up outside Gazprom’s headquarters, hoping for a piece of Russia’s natural gas reserves. But the company’s accounts – and indeed those of the government, too – are already flooded with petrodollars. So, the Russian government and its oil and natural gas operators want to swap for something else: they want to build large retail networks to reach consumers in the US, Europe and China.

"Gazprom is seeking to trade access to its Russian reserves for a chance to help build or gain a stake for liquified natural gas, or LNG, in the US. And Rosneft, the state oil company wants to build a network of gas stations in China.

"In the deals, analysts see the larger ambitions of Russia as a power broker in the worldwide energy market, with the power to dictate terms to companies like Chevron or BP, and to sell energy products directly to consumers in the US. Russia’s crude oil reserves are the largest outside OPEC. Russia’s natural gas reserves are the largest in the world.

"Situated 550 kilometers north of Murmansk in the Barents Sea, the Shtokman gas field is well positioned for exports to the Eastern seaboard of the US and is expected to be the object of the largest energy deal to close in Russia this year. Gazprom is in the final stages of choosing partners. The initial investment is likely to exceed $10 billion. But the negotiations are not all about money, say bankers and energy executives involved. A chief aim for Gazprom is to use domestic reserves to build its international profile.

"Gazprom’s ambitions have a political as well as a commercial dimension, so it is not surprising that Russian officials endorse Gazprom’s strategy of reciprocity as it expands into Europe and even the US and Asia. After all, Western companies have tried to enter the Russian markets for decades.

"Commercially, Gazprom could increase its margins by selling retail rather than wholesale. In Europe, retail prices range from 1.9 times wholesale prices in France to 6.7 times in Denmark. Retail sales prices are higher, of course, to cover the additional costs of building and maintaining distribution networks. Gazprom’s wholesale revenues in Europe last year were more than $25 billion.

"Similarly, Gazprom is pushing American companies to help Russia ensure access to American pipelines for eventual exports from Shtokman, according to an American banker who has sat in on talks between the Russian company and Chevron.

"That could be a delicate task after Congress gave a chilly reception to Middle Eastern and Chinese foreign investors recently. Two high-profile bids by foreign companies to buy US assets failed. Indeed, the reluctance – or inability – of the American partners to help Gazprom enter the American market may be holding up the talks.

"Another keenly awaited energy deal this year is the expected initial public offering of stock in Rosneft. Rosneft is also in talks with Chinese companies over opening a network of filling stations in China in exchange for a 5 to 10 percent stake in Rosneft, according to Aleksai N. Kornschikov, an oil and gas analyst at the UralSib brokerage firm in Moscow."

Public Ownership without Communism

But at this point we must introduce the complex character of the giant Russian fuel corporations, and the growing extent to which they combine the roles of corporations owned by shareholders and agents of the Russian government in areas having little connection with their main business. In the development of this complex role, we not only recognize a trait of the Soviet government industrial corporation that took over supply problems for their employees in isolated parts of the country – including farms to grow the food for staff, and educational and other municipal activities. Russia’s US advisers were particularly determined to stamp out this pattern so alien to the Washington Consensus that seemed to have inherited the keys to heaven and earth. Now a better-funded version of the same joint-purposes of Russian mega-corporations has reappeared, bearing the personal stamp of President Vladimir V. Putin, former up-and-coming secret service bureaucrat in St. Petersburg and East Germany.

Thus The New York Times (24/04, "Workers’ Paradise Is Rebranded as Kremlin Inc." by Andrew E. Kramer and Steven Lee Myers): "Krasnaya Polyana – Here in the Caucasus above Sochi, Russia’s only subtropical city, an elite ski resort is rising beside the Layura River. The resort, a multi-million-dollar project with a hotel and conference center, cottages, six lifts, and miles of trails, is a centerpiece of Sochi’s improbable bid for the Winter Olympic Games of 2014.

"Even more improbable is the project’s developer: Russia’s state gas monopoly, Gazprom.

"Gazprom is a vast and powerful energy giant, a company now worth more than $240 billion, having gained $10 billion in value in one week in April alone. Ranked by the value of its stock, Gazprom is the fifth largest corporation in the world, having in the last year leapt over Wal-Mart, Toyota and Citigroup. Its executives vow to make it the biggest.

"It has become something else, too: the new model of a new Russian capitalism that has emerged since President Vladimir V. Putin came to power in 2000. It is an economic system increasingly built around huge state-owned, state-directed companies open to investors’ dollars and euros but tightly controlled like much else here in business and politics, by Mr. Putin’s Kremlin.

"As the project at Krasnaya Polyana shows, Gazprom is not just a state-owned monopoly, but also a powerful instrument of Kremlin policy at home and abroad. It has undertaken an array of projects that have little to do with its stated corporation interests, but much to do with politics, including buying up independent media, sustaining unprofitable farms to subsidizing Russian industries with cheap fuel.

"It has also been at the center of Russia’s foreign policy, used as a cudgel in recent disputes over gas prices with the Ukraine and other neighbours. Its chief executive, Aleksei B. Miller, recently warned Europe not to block further expansion into European markets, lest it decide to sell its natural gas elsewhere.

"Andrei N. Illarionov, former economic adviser to Mr. Putin, who has become an increasingly outspoken critic since being dismissed last December, has called Russia’s economy today a form of ‘corporate state.’

"He described a coterie of highly placed officials who control big business using their posts to make not just policy, but profits. Some have dual hats: Gazprom’s chairman is Dmitri A. Medvedev, the former Kremlin Chief of Staff, the first deputy prime minister and a man widely viewed as a possible successor to Mr. Putin. ‘They look not like state business,’ he said, ‘but the business part of the state.’

"Mr. Putin’s Kremlin, in this view, is not renationalizing industries so much as redistributing the assets to a new group of tycoons, enriching favored investors, and even members of his own administration, while ensuring that the Kremlin itself has influence over the most important parts of the economy.

"Mr. Putin’s efforts initially appeared limited to imposing state control over the country’s natural resources.

"In recent months, however, the Kremlin has orchestrated the consolidation of several struggling state and private aircraft manufacturers into a newly created United Aircraft Corporation under the supervision of Mr. Putin’s appointed prime minister. The Kremlin has appointed its own directors from the country’s military export arm to oversee the largest automaker, Avtovaz. [The government disclosed on April 21 that it was considering consolidating various air-lines under the state-controlled Aeroflot.]

"‘Instead of properly regulating the economy,’ said Alexandr Y. Lebedev, a billionaire, whose own investments, he said, are now under pressure from the state.

"These large companies are continuing to absorb smaller ones, accumulating ever greater wealth and power. The state oil company Rosneft acquired the main subsidiary of Yukos in December 2004 after a prosecutorial assault against its former chairman, Mikhail B. Kondorovsky, now serving an 8-year sentence in a Siberian jail on charges of fraud and tax evasion that many say were politically motivated.

"The man most often linked to the Kremlin’s campaigns against Yukos is Igor I. Sechin, the deputy chief of Mr. Putin’s administration. In the midst of the legal battle over Yukos, Mr. Putin appointed him chairman of Rosneft, a company now valued at $57 billion. In 2004, before the demise of Yukos, Rosneft had been worth an estimated $8.6 billion.

"Sergei M. Guriyev, a professor at the New Economic School in Moscow, said estimates based on World Bank studies indicated that the government share of industrial output had grown to 40% from about 30% in 2003.

"‘The feeling is much worse,’ he said, ‘as even private owners know that their property rights depend on their relationships with the Kremlin.’

"Last year, for example, state and private oil companies reached a deal with the Kremlin – presented as a voluntary agreement – to cap the prices on gasoline.

"To his supporters, Mr. Putin has simply tamed Gazprom and other big businesses that actively undermined state authority in the turbulent transition that followed the collapse of the Soviet economy. In the case of Gazprom, he turned an unwieldy and corrupt gas monopoly into a gleaming example of the wealth to be had from energy exports, with export ambitions that include China and the US.

"He has done so by appointing to top positions associates from his days in St. Petersburg and dictating its moves in meetings with a small circle of advisers ‘in the Kremlin or at Putin’s dacha,’ according to Olga V. Kryshtanovskaya, a sociologist who has written extensively on the Kremlin hierarchy.

"Gazprom emerged in the early 1990s from the former Soviet Ministry of the Gas Industry – privatized in part but still under state control – and inherited more than the ministry’s core operations. It also inherited its piece of the Soviet Union’s paternalistic economy, in towns and settlements stretching from the Arctic gas fields to those along the maze of pipelines leading south.

"Gazprom employs 330,000 people at major divisions for exploration, pipelines and export sales, as well as a division for its newly acquired oil company, Sibnet, a banking arm, a media company and hundreds of subsidiaries. It generated $28 billion in 2004. Its managers poured billions into dying industries in the 1990s, made quick profits on construction and other projects and spawned great corruption in the form of shady, insider deals. And all the while it expanded its power in economic and political life, while richly rewarding investors from the proceeds of its energy sales. There was a time when such groceries would be available to the settlements only if produced by the state corporation’s own agricultural holdings. As once-proud Soviet farms failed and foreign imports overwhelmed Russia’s domestic production, Gazprom stepped in with financing and became the biggest single landowners of agricultural land in Russia."

The reader may remember that it was just this little detail that the IMF and World Banks refused to finance because it lay outside the Washington Consensus rules.

It is hard reconciling the shocking demographic decline of Russia, and the alcoholism and drug addiction of a growing portion especially of the male population during their shrinking average life, with the buoyancy of the gas and oil market. Certainly Russia is in no position to repeat its military victories of War II. A combination of Russian oil and gas wealth with the actual fuel that earns it would make the prospects of an alliance between China and Russia a reason for concern in the Pentagon, but the gross prejudices of the Russian masses make such an alliance difficult though not impossible. Yet even the theoretical possibility of such an alliance upsets the prospects of the US lone superpower position.

William Krehm

For conclusions on Russia’s growing internal contradictions, see "New Trading Patterns Reflect the Waning of the Lone Superpower."

- from Economic Reform, May 2006