How Sick Is The Russian Bear?

Echoes of America's Depression

Many experts believe that the cause of the recent collapse of the Russian economy was the convulsion in currency markets that began in Asia and spread rapidly to developing nations around the globe. In this view, Russia was undergoing an acutely painful but necessary transition to a democratic, free-market system--a transition that was abouT to yield positive results but was cruelly short-circuited by the aftereffects of the Asian crisis.

Not so, claims political economist Stephen D. Shenfield of Brown University. In a book he's writing on Russia's future--in a chapter completed before the Russian meltdown and circulated on the Net earlier this year--Shenfield predicted that the economy was headed for collapse. "It happened a bit earlier than I thought," he admits, "but I believe it was inevitable."

The basis for Shenfield's prediction: a wide range of statistical evidence that demonstrates that Russia's social and economic structure has been deteriorating sharply since the end of the cold war.

Using private as well as government statistics that give weight to Russia's large informal economy, Shenfield estimates that Russian gross domestic product fell about 45% from 1989 to 1997. Real capital investment plunged by 92% over the same period, and net productive investment has turned negative as aging equipment has become unusable.

Output of oil, for example--a major export--is down 50% from its peak and continues to fall in the absence of needed investment, and much of the nation's infrastructure--from electric-power generation to railroads to sewage systems--continues to deteriorate. Meanwhile, some two-thirds of the federal budget in mid-1998 was devoted to debt-servicing, Shenfield reports.

In human terms, too, the toll is growing. Shenfield notes that real wages fell 78% from 1991 to 1997, and surveys indicate that two-thirds of those nominally employed are not being paid fully or on time. Based on polls and official statistics, he estimates that at least 40% of the population is in serious distress and suffers from chronic malnutrition. According to one official estimate, 40% of children are chronically ill and 60% suffer from vitamin deficiencies.

The picture painted by demographic and health statistics is especially stark. The number of officially recorded active tuberculosis cases is now close to 100,000. (Some 2 million are believed to be infected.) Recorded cases of syphilis have exploded, from 8,000 in 1990 to 450,000 in 1997. Meanwhile, life expectancy for adult men has fallen below what it was a century ago, and the number of children born each year has plunged 50% since the mid-1980s.

What all of this portends, says Shenfield, is a huge socioeconomic disaster comparable in magnitude to the calamities suffered by the Russian people during World War II and the Stalinist period of forced industrialization and collectivization. In this context, he says, Western focus on such economic measures as debt repayment, monetary restraint, and eliminating housing subsidies could prove counterproductive--at least over the near term.

"In many respects," he says, "Russia's crisis in human terms resembles that experienced by the American people during the Great Depression, and it is likely to give rise to a similar period of state-led economic experimentation to bring it to an end."

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