In the area of securing Economic Growth, the mechanism of ticad aims at:
Policy and regulatory reforms to improve investment climate.
Promote infrastructure development, including promotion of Public Private Partnership (PPP).
Importance of agriculture sector for the economy and food security. Need for strengthening food supply capacity by promoting PPP as well as focusing on small scale farmers and women.
Promote regional integration and intraregional trade for trade facilitation.
Promote efforts on tourism and cultural exchange.
African countries and their more prospering partners around the world pledged to attempt TO HALVE (to bring down by 50 percent) the EXTREME POVERTY (i.e., the percentage of people living on less than $1 per day) on the Black Continent by the year 2015, and also to achieve universal ELEMENTARY SCHOOL education. To this end, Japan promised 90 billion yen, mostly in form of grants, to finance new educational and health facilities in Africa.
Topic 11. “TRANSITIONAL SOCIETIES – II”: COMMON AND SPECIFIC FEATURES OF VARIOUS "POSTSOCIALIST" COUNTRIES
Although the term "transitional societies" is NOT such a new one, its frequent use when discussing international political and economic affairs is a rather NEW phenomenon.
Nowadays, this term usually embraces:
DEVELOPING countries, with their common strive toward industrialization, modernization of social structures, national sovereignty and economic selfsufficiency,
"POSTSOCIALIST" societies, painfully giving away the heavy heritage of centrally planned state economy and moving toward a kind of normal market economy and political democracy (in this second case sometimes also the term “transitioning societies” is being used – for example, by the IMF).
These two big groups of societies form an important element of modern global (world) system and should be given special attention by politicians, business people and social workers.
We must learn both WHAT these groups of countries have IN COMMON, and WHAT makes them DIFFERENT from each other and, in some respects, OPPOSITE – at least as far as their particular interests and modes of political behavior are concerned.
* If we take the features of SIMILARITY between the developing and "postsocialist" countries, i.e. WHAT they have IN COMMON, following issues come to mind:
the countries of BOTH groups are in a TRANSITIONAL state: a) the DEVELOPING countries make transition FROM primitive, manual workbased and mostly rural (agrarian) economy with much feudal, or semifeudal, features TOWARD industrial economy and developed domestic market system; b) the "postsocialist" countries go through a deep and principal CHANGE of their DEVELOPMENT MODELS – FROM highly centralized STATE economy TOWARD more efficient MARKET economy based on private property relationship and free initiative of individuals,
in BOTH cases national societies are undergoing deep STRUCTURAL upheavals (change) in their ECONOMIES with farreaching SOCIAL consequences,
BOTH groups are facing big and complex problems of ADJUSTMENT to new modes of PRODUCTION and MARKETING activities and to INTERNATIONAL (GLOBAL) ENVIRONMENT, in which the transition takes place,
in BOTH cases the development goes in the direction of MORE "open" economies, MORE actively INVOLVED in international economic relations and characterized by GROWING export orientation and the necessity to CONTROL importation of goods and services through some protectionist and/or importsubstitution policies,
BOTH groups suffer from LACK of FUNDS (financial resources) for development, and have to rely, at least partly, on foreign PRIVATE (corporate) INVESTMENT and/or on foreign AID (financial assistance),
BOTH are in badly need for foreign TECHNOLOGY, MANAGEMENT and other aspects of the socalled "technology transfer" and "technical aid", which usually go together with FOREIGN DIRECT INVESTMENT (FDI) and such modern forms of international cooperation as JOINT VENTURES (a kind of MIXED companies representing BOTH foreign and local capital),
in BOTH cases the MODERN sector of economy (to some degree exportoriented and importbased) COEXISTS with many OLDFASHIONED production and market structures,
for BOTH groups, painful but helpful POLITICAL development is typical, FROM different kinds of totalitarian or authoritarian rule TOWARD democracy and parliamentarian system in various forms.
* However, there are also some typical FEATURES characterizing these TWO groups of countries which, often being of rather SIMILAR nature as well (just like the previous group), nevertheless provoke CONTRADICTIONS between them and give birth to CONFLICTING INTERESTS, which we have to consider seriously:
they are COMPETITORS on the world markets – exactly because BOTH are traditional exporters of RAW MATERIALS and BOTH want to enhance their international sales of MANUFACTURES (especially FINISHED GOODS),
they have to SHARE internationally available DEVELOPMENT FUNDS (for example, if "postsocialist" countries get MORE of international AID and foreign INVESTMENT, then there probably would remain LESS for the developing world),
although practically all "postsocialist" nationstates have many features of UNDERDEVELOPMENT characterizing their economic and social STRUCTURES, psychologically, developing countries tend to regard them (first of all – Russia and the EastEuropean nationstates) as an INTEGRAL PART of the "Industrial North" (in contrast to the "Agricultural South" to which they themselves belong),
MANY "postsocialist" countries are ALREADY rather highly INDUSTRIALIZED nations (that this industrialization was very specific – SELForiented and MILITARYoriented but not HUMANoriented or, more exactly, not CONSUMERoriented – is another matter); thus, as such, those countries are MORE ready to except NEW approaches to international cooperation – "trade, NOT aid", "investment, NOT aid", etc., than the majority of developing nations,
after decades of totalitarian rule and Soviet domination, many "postsocialist" countries are NOT inclined to continue tight economic relations with the former Soviet Union (and between each other, for that matter); the CENTRIFUGAL forces in the former "socialist community" are very strong, while the developing countries, with all differences between them in individual regions and worldwide, tend to COOPERATE and to use JOINT ACTIONS in their relationships with the industrialized world (in the WTO and UNCTAD negotiations, etc.),
* At the core of TRANSITIONAL societies, i.e., the very thing that MAKES them "TRANSITIONAL", are their ECONOMIC REFORMS aimed at the creation of MARKEToriented production and envisioning (foreseeing) deep changes in the whole ECONOMIC MECHANISM. It happens namely through introduction of ever new ELEMENTS of the MARKET MECHANISM with its COMPETITION (which brings about and affirms the major role of INDIRECT ties) instead of centralized PLANoriented system of DISTRIBUTION of resources for production and consumption by the STATE organs (based on absolute predominance of DIRECT, administrative ties).
Now, please, turn back to Diagram 1.2.3 from Topic 2 – to remember the principal BUILD of a MARKET STRUCTURE. The THREE LEVELS of economic activity are in dynamic functional INTERACTION, and only ALL TOGETHER form a sound and effective system of MARKET relations.
If the existent FUNCTIONAL STRUCTURE of an economy LACKS vital ELEMENTS of this "THREELAYER CAKE", there is NO other WAYOUT as to create them. Deep CHANGES, usually on ALL THREE levels of the country's ECONOMIC STRUCTURE, become necessary, and to secure these changes the REFORMING ACTIVITY of the country in question must develop SPECIAL POLICIES and INSTRUMENTS .
Necessary changes we are speaking about can be clearly observed on the Diagram 1.11.1.
> First of all, the normal MICROLEVEL of the market structure should be created, with many PRIVATE FIRMS ("autonomous production units") working for the MARKET and buying necessary resources on the MARKET. Under the socalled "Socialism" with its STATE ECONOMY and overwhelming CENTRAL PLANNING, independent activities of this kind did hardly exist at all. So the key process here becomes the PRIVATIZATION in various forms, foreseeing for the majority of state enterprises their CORPORATIZATION, I.e., transition to the JOINTSTOCK form of ownership (through issuing SHARES and their DISTRIBUTION in the society, mostly through SUBSCRIPTION or SALE).
> On the MESOLEVEL, a system of specialization and cooperation of producers as well as of coordination of their business activities DID exist, but in RIGID, distorted form of ADMINISTRATIVE DISTRIBUTION of resources and manufactured products by centralized PLANNING ORGANS.
On this level, the task is to transform this system of DIRECT vertical ties into a regular MARKET SUPPLY based on CONTRUCTING and SUBCONTRACTING relationship, i.e., on INDIRECT horizontal ties. This process is developing right now, but very slowly and painfully. The old (PLANbased) system is already quite destroyed, while the new (MARKETbased) system still is at an early or intermediate stage of emergence.
> On the MACROLEVEL, processes are also developing in the direction of more CIVILIZED forms of STATE REGULATION, although many oldfashioned administrative instruments and structures still remain trying to exercise their former power over the economy.
* What is going on in the way of SELFREFORMING inside particular STATES and their NATIONAL ECONOMIES (and many of such states are very young, i.e., just emerging as INDEPENDENT POLITICAL ENTITIES) repeats itself on INTERNATIONAL scale.
The major organization in charge of economic cooperation between about a dozen of former "socialist" states (mostly European ones) – the Council of Mutual Economic Cooperation (or COMECON) has dissolved immediately after dramatic events around antidemocratic "PUTSCH" (or "RIOT") in Moscow in August 1991.
Up to its inglorious end, the COMECON has regarded as its main task "coordination of national plans" and served as mighty administrative tool in distribution and redistribution of resources inside the "socialist community". In fact, it was major tool of "SOVIET" (USSR's) domination in the world economic system which at that time was controlling up to 20 percent of the world's cumulative OUTPUT (GNP).
Now, the CENTRIFUGAL (DIVIDING) forces inside the dispersed group of former COMECON members – mostly "TRANSITIONING SOCIETIES" in Central and East Europe – are much stronger than the CENTRIPETAL ones (directed at UNITY and COOPERATION).
As for the future, it is obvious: when the time comes for normal economic relations between former "brother states" to reemerge and grow again (and there are many objective factors acting in that very direction, including HIGH degree of COMPLEMENTARITY in their ECONOMIC STRUCTURES), these relations should and necessarily will take shape of mostly indirect MARKET ties, first of all – in the field of INTERNATIONAL TRADE and of PRODUCTION COOPERATION.
* During the era of the historic confrontation EastWest, a large group of “Eastern” countries has been dubbed "historically planned economies" (or HPE). Those were mostly the same countries we now call "postsocialist", plus some nations in the Third World at one time characterized by the socalled "socialist orientation" of their economic and political development – like Algeria, Angola, Cambodia, Chile, Congo, Cuba (a former member of the COMECON), Ethiopia, Guinea, Mongolia (another former COMECON member), Nicaragua, Yemen, etc.
It is worthwhile to notice that NOWADAYS practically ALL such former "developing countries with socialist orientation" have lost their ideological coloring and politicalsatellite status and are on their own trying to build up normal MARKETbased economic and social system.
In historical and political literature, you can also find other names used for a wide variety of countries outside the First World ("capitalist" or "industrial") and the Third World ("developing" or "lessdeveloped") – like the Second World, or "communist" countries, or "nonmarket economies" (NME), or "centrally planned economies" (CPE), or Eastern bloc. Now, these terms have LOST their objective basis in global IDEOLOGICAL and SOCIALECONOMIC divide which was characteristic for GLOBAL political SYSTEM some decades ago.
However, among the HPE group, countries VARY in whether their highest political bodies have or have NOT made a commitment to become a MARKET ECONOMY and DEMOCRACY.
For example, the Czech Republic, Slovakia, Hungary, Poland, Slovenia and, from 199798, also Bulgaria, Romania and Albania (in Europe), or Mongolia (in Asia) and Chile (in Latin America) have clearly made such a commitment. However, two very peculiar cases, those of China and Vietnam (by the way, both in Asia), maintained that a combination of CENTRAL PLANNING and ONEPARTY RULE, on the one side, and MARKET ECONOMY, on the other side, is possible. And only few countries, like North Korea (in Asia) or Cuba (in Central America), have committed neither to a MARKET transformation nor to POLITICAL reforms.
* There are many typical PAINFUL PROBLEMS or "STUMBLING BLOCKS" on the way to a market economy and democracy. Among them we shall call but MAJOR ones:
SOCIAL TENSION when going through ECONOMIC SHOCKS of the reforming process, especially on its initial stage, when the NEGATIVE consequences for the population are obvious (decline in production, growing unemployment, surging inflation, etc.), while the future BENEFITS are still far away and questionable,
EXCESSES and negative BYPRODUCTS of PRIVATIZATION, which hardly can and should develop otherwise as a slow and cumbersome process, often undermining SECURITY of former state employees, bringing growing social inequality and PUBLIC SCANDALS with CORRUPTION charges, etc.,
sharp DETERIORATION of the overall FINANCIAL SITUATION – because collected TAXES diminish, while the BUDGET FINANCING of unprofitable state enterprises still goes on (the socalled "SOFTBUDGET finances"), due PAYMENTS for goods and services, as well as WAGES and SALARIES in the STATE SECTOR, tend to be in arrears (i.e., come too late if ever), etc.,
acute NEED in RESTRUCTURING HUMAN RESOURCES – because mammoth bureaucracy of the "socialist" times should be replaced by flexible and lean modern management, the LABOUR FORCE should be reeducated and retrained, the FREEENTERPRISE traditions both of URBAN and RURAL population restored or created from scratch, etc.,
on the POLITICAL front, SOCIAL and (even more!) INTERETHNIC tension has tendency to grow dramatically, because some people get VERY RICH, while others become EVEN POORER than ever before, and especially – because the MULTINATION STATES tend to disintegrate; the inner borders of FEDERATIONS crumble and become subject to disputes provoking armed conflicts and even cases of GENOCIDE in form of "ETHNIC CLEANSINGS" (remember the Chechen wars in the former Soviet Union, as well as desperate attempts of the then Serbia's leader Slobodan Milosevic to stop the disintegration of Yugoslavia by waging brutal wars in Bosnia, Croatia, and Kosovo),
new MULTIPARTY political system emerges on the background of strong TOTALITARIAN and AUTHORITARIAN tendencies, on the other hand, and on the other – LOW and ORDER get weak (at least, for a time being), etc.
* Still, in EVERY country the configuration of FACTORS is different, the current SITUATION and main ISSUES of REFORMING demand various domestic and foreign POLICIES; the ACHIEVEMENTS and CRISES come in different time and different sequence. Individual countries have rather different CHANCES to achieve SUCCESS in their REFORMING POLICIES, etc.
"Postsocialist" countries are also very DIFFERENT between themselves. For example, Russia and China are "empirelike" GIANTS with roughly industrialized but selfsufficient economic complexes and with very complex ETHNIC composition of population. At the same time, the former East Germany has been SMALL in size, rather wellindustrialized and ethnically homogeneous, which means it could be quickly and naturally INTEGRATED into ALLGERMAN economic and social structure.
Czechoslovakia has come apart (disintegrated) forming TWO new nationstates (the Czech Republic and Slovakia). Poland, Hungary, Romania and Bulgaria, as well as former "Soviet Baltic Republics" – Lithuania, Latvia and Estonia – ALL have taken rather INDEPENDENT economic course with ONE feature in common – ALL have given up (at least, for a certain historical time) their "special relations" with Russia (the former Soviet Union) and ALL tend to establish close ties with Western Europe and to be ultimately integrated into the European Union.
Various countries are getting different FINANCIAL ASSISTANCE internationally. The size of FOREIGN DIRECT INVESTMENT (FDI), both as annual INFLOWS and accumulated STOCK value, also vary dramatically from rather BIG (like in Hungary, Poland, or Czech Republic) to very SMALL (like in Lithuania, Latvia, Moldova, Belarus, Uzbekistan or Albania).
So, obviously, the BEST way for us is to analyze SOME EXAMPLES of REFORMING in individual countries, looking for typical situations and political solutions, trying to understand specific circumstances connected with unique cultural, political and business ENVIRONMENTS in individual countries.
Case 1. CHINA. From all the countries of the heterogeneous (variable) group of TRANSITIONAL SOCIETIES, it was China, who FIRST began economic and social changes in the direction of MARKET economy (way back in 1978). As a result, in the last decades China's giant economic complex has been developing at UNPRECEDENTED annual rates (of about 10 percent), its structural composition has been rapidly changing, and GEOGRAPHICALLY the country has become ever MORE divided:
into MODERN SECTOR of economy of the COASTAL regions with their THOUSANDS of "free market areas" (or "special economic zones" SEZ) and many BILLIONS of dollars invested in joint production and marketing, and
into TRADITIONAL ("quasisocialist") SECTOR of economy of the INNER regions with the stateowned and centrally planned HEAVY INDUSTRIES and only partly privatized, yet already rather efficient AGRICULTURE.
However, the FUTURE of this great nation remains vague (unclear). ECONOMICALLY China represents strong case in favor of MARKET ECONOMY and a clear example of achievements and hardships on the path TOWARD it and AWAY from "socialist" tenets (dogma). But POLITICALLY it remains a PARTYruled totalitarian state with NO or LITTLE democracy.
The fact that the Communist Party is undergoing deep IDEOLOGICAL crisis looking for NEW inspirations as well as for justification of its rule in the Confucian heritage does NOT change much. No one knows, just WHAT is in score for the country – new "cultural revolution" and bloodshed, like one that has taken place at Tiananmen Square in 1989, or a Chinese kind of "political perestroika" and, finally, COLLAPSE of the ONEPARTY system.
Most probably, since the handover of Hong Kong to China on June 30, 1997, this "Special Administrative Region" (SAR) may play major role in influencing further structural changes in Chinese society, both in direction of MARKET ECONOMY and POLITICAL PLURALISM.
However, we have yet to see if the "ONE COUNTRY, TWO SYSTEMS" principle can really work for long. In the summer 1999, as the world marked the TENTH ANNIVERSARY of the bloody Tiananmen massacre by vigils in remembrance of its victims, as well as on several other occasions since then (but, fortunately, NOT in 2009 – twenty years after that ugly state crime!), there have been worrying signs that the CENTRAL POWER in Beijing has been preparing a massive attack on the "SPECIAL STATUS" of the SAR and the HUMAN RIGHTS of its population (fortunately, it hasn’t materialize).
Case 2. VIETNAM. China's southern neighbor, Vietnam shares a DUAL character of its society. On the one hand, Vietnam remains a "communist" state with ONEPARTY rule and CENTRAL PLANNING of economy. On the other hand, the socalled "DOI MOI" ("renovation") policy foresees: (a) FREEMARKET reforms; (b) further INDUSTRIALIZATION; (c) EXTERNAL OPENING of the economy as the THREE major evolutionary processes in national development.
One of the last party congresses set the ambitious longterm goal of making Vietnam by 2020 an INDUSTRIAL country with a GNI (formerly called GNP) of a size EIGHT to TEN times the 1990 level. Till now, about 80 percent of the population lives in RURAL areas, while the share of AGRICULTURE in the GNI is almost the same as that of INDUSTRY (between 25 and 30 percent).
In achieving these largescale goals, Vietnam has in mind to rely heavily on FOREIGN DIRECT INVESTMENT, albeit it does NOT go as successfully as in China. In particular, Vietnam tries to attract both Japanese and South Korean investors (the famous "CHAEBOLS"). Korean companies have earmarked some $2.3 billion for 169 projects in Vietnam including several big ventures in OIL and MANUFACTURING sectors. The Daewoo Group is the biggest foreign investor in Vietnam nowadays.
However, at the same time ruling Vietnamese communists in their policy report swear "to thwart resolutely all issues of 'democracy' and 'human rights' which stir up political trouble" as well as "not to accept pluralism and multiparty system". Although Vietnam remains a STATEDOMINATED economy, the party congress made it clear that the aim is to have even MORE state control over economic development and to enhance the role of "stateowned enterprises" (SOE).
Case 3. MONGOLIA. Generally, this southern neighbor of China goes more stable REFORMING course. The hardline communism was thrown off two decades ago, and in 1996 the People's Revolutionary Party was tossed out and lost its ruling position (Mongolia has been known as the SECOND oldest "communist" country in the world). However, in May 1997, in the already FOURTH “free and fair” election in Mongolia's history, the communist candidate N. Bagabandi was elected president (and in May 2001 he was reelected). People liked that his government actually SLOWED DOWN the painful transition from a CENTRALIZED economy to a kind of "Mongolian capitalism".
And yet, even with communist president, Mongolia changes rapidly enough returning to Buddhist roots, and mixing more and more Asianmade Toyotas and Hyndais to its automobile park of Russianmade Ladas and Volgas.
When Mongolia embarked on sweeping DEMOCRATIZATION and FREEMARKET REFORM efforts in the early 1990s, Japan and other industrialized nations provided generous ECONOMIC ASSISTANCE in hopes of making the small pastoral nation a SUCCESSFUL MODEL for other Asian nations. Now, we see that this endeavor brought its fruits.
At the same time, Mongolia is NOT as attractive for PRIVATE foreign INVESTORS as Vietnam or China. Vietnam is located in the world's fastest growing region and was duly admitted to the ASEAN. Mongolia, on the other hand, is handicapped for geographical and other reasons. It is an INLAND country SANDWICHED between the two BIG POWERS – China and Russia. It is still UNKNOWN how much NATURAL RESOURCES Mongolia has, and its HUMAN RESOURCES are scarce and NOT very well educated.
Before becoming a DYNAMIC economy like Vietnam, Mongolia may have to wait for the possible formation of a kind of SUBREGIONAL ECONOMIC ZONE encompassing several East Asian neighbors including China, the Russian Far East, and South Korea.
Case 4. RUSSIA. Before August 1998, it looked like our native country has had its MOST SEVERE economic troubles behind it. With all its DRAWBACKS and inherent PALLIATIVE character, PRIVATIZATION was proceeding and generally fulfilling its aim – creation of a NEW "middle class". The former party functionaries, communistyouth organizers and "red directors" were in a haste to become businessmen, and to find their place in the new way of life. The related process of CORPORATIZATION injected new blood in many formerly STATEOWNED plants and giant combines (at the same time bringing, however, a dramatic increase in CONCENTRATION of economic POWER in the hands of several PRIVATE CLANS).
The vertically organized STATE DISTRIBUTION system has COLLAPSED and was being SUBSTITUTED by normal horizontal (contractbased and profitoriented) MARKET relations. The largescale plants were going through CONVERSION (toward CONSUMER goods and away from MILITARYoriented production). The STORES and CITY MARKETS were full of food and variable industrial goods, BOTH foreign and domestic. Within the country, the ruble has become CONVERTIBLE, and you could exchange rubles for dollars practically everywhere. Although PRICES were still moving UPWARD, the most dangerous phase of INFLATION was obviously OVER.
The "ECONOMIC TEAM" of young reformers which the reelected, although not very strong physically, President B. Yeltsin gathered around him was much more efficient and MARKETECONOMYminded than people who made Russian economic policy under M. Gorbachev. Considerable foreign MONEY was flowing into the country, there were thousands of new JOINT VENTURES in action, big investment projects in Siberia, in the North and in the Far East were being negotiated by the leading resourcesoriented TNC, the FIRST ever sale of Russian fiveyears Eurobonds attracted American, European and South Korean investors, etc.
And yet, in 1998, as the financial and economic CRISIS in Asia deepened and a new wave of DEVALUATIONS threatened to undermine the shaky and nontransparent INTERNATIONAL FINANCIAL SYSTEM, the situation in Russia again turned for the WORSE.
In August, quite unexpectedly, the ruble was devalued. Russia DEFALTED on some FOREIGN DEBT (did NOT pay on time). Shortterm foreign capital fled the country. All this unleashed a wave of INFLATION and provoked a near meltdown of the BANKING SYSTEM. Even the most wealthy and mighty "oligarchs" found their own and their closest friends' private banks in a pitiful state.
The only fivemonths old government of energetic Sergei Kiriyenko had to go. After a short political crisis, a new government was formed by a compromise figure – rather old and experienced Yevgeny Primakov, the former KGBboss and, later, foreign minister. His cabinet included rather many communists, but only few reformminded professionals. By May 1999, however, his turn came to be dismissed and forgotten. Although at that time Primakov's anticrisis program was still in the making, the public opinion praised him for "bringing stability". Then, for pitiful 82 days, it was Sergei Stepashin's government that stood at the helm of the country.
However, already in August 1999, president Yeltsin arranged a new reshuffling of the cabinet, making the then spy chief Vladimir Putin his next prime minister and declaring him "heir apparent", i.e., the main contender in presidential election (which, at that time, were due in June 2000) enjoying full Kremlin backing.
Soon, a Chechen guerrilla expedition into neighboring Dagestan and four successive terrorist bombings, two of them in Moscow, have provoked a new massive military campaign against Chechen warlords. V. Putin's firm stance in this prolonged conflict was generally regarded as major factor contributing to his rising popularity among the Russian electorate before the end of the year which brought the unexpected dramatic abdication of President Yeltsin.
Thus, in January 2000, Vladimir Putin became acting President, the presidential elections were moved from June to March, and he won them with flying colors. After four years in office, on March 14, 2004, Vladimir Putin was reelected for a NEW fouryears term, and in spring 2008 D. Medvedev, as the candidate of the Yedinaya Rossiya party, won the next presidential election, while V. Putin was heading the federal government.
So, since May 2000, Russia has a succession of young and physically fit presidents who proclaim strong federal power, further economic reforming and active foreign policy. For example, during his first four years as Russia’s President, V. Putin was engaged in a practically nonstop political dialogues with the U.S., European Union and the NATO, and also was negotiating with Japan on a wide scope of economic and political problems including the painful territorial issue and an eventual peace treaty. Though without final success, he actively pushed the creation of a Eurasian Economic Community with the four former Soviet republics (Belarus, Kazakhstan, Kyrgyzstan and Tajikistan)..
In June 2001, China and Russia transformed what was previously known as the Shanghai Five into a fullblown new alliance called Shanghai Cooperation Organization (SCO) encompassing China, Russia, Kazakhstan, Kyrgizstan, Tajikistan and a new member – Uzbekistan. This new regional organization is aiming at combating Islamic militancy and at boosting TRADE and INVESTMENT cooperation among the resourcerich Asian neighbors.
On the home front, President Putin has been waging a prolonged and tough fight against GOVERNORS with their ambitions to be “small Czars” locally (who were finally robed of their right to be elected by their constituencies and began to be nominated instead by President himself), as well as against the socalled OLIGARCHS – with their ambitions to control massmedia channels (like Boris Berezovsky and Vladimir Gusinsky, both pushed into immigration) and with their fat foreign bank accounts often used to finance the emerging opposition parties (like Russia’s richest man – Michael Khodorkovsky, the main shareholder of Russia’s former second biggest oil producer YUKOS, who has spent a decade in Siberia sentenced to a labor camp term). In doing so Mr. Putin has given his opponents and the Western press some grounds for accusations in AUTHORITARIAN TENDENCIES and neglect of political freedoms, of human rights issues and of independent press.
* After all these dramatic developments, we may ask: WHAT has been and basically remains WRONG with our dear country? WHY do foreign firms NOT hurry to bring their capital to this new Bonanza and WHY do they run away at the first sight of the country's financial weakness? WHY do littlereformed Communists still enjoy considerable popularity while the MORAL (mood, spirit) among the working people is rather LOW?
In my view, the problem is that the ECONOMIC REFORMING has still gone NOT far enough. In particular, the authorities (president, government, parliament) for years did NOT give their sufficient backing to the creation of an adequate LEGISLATIVE BASE for normal business development (as well as NO sufficient GUARANTEES for foreign investors). The BUSINESS RULES remain indefinite, the PRIVATE OWNERSHIP (especially, in regard to LAND) still semilegal, the CUSTOMS REGIME – a paradise (heaven) for bureaucrats and blackmailers, the TAXES remain numerous and generally HIGH but many businesses still manage to evade them. All this tended to undermine the STATE BUDGET, led to scandalous ARREARS in the payment of WAGES, SALARIES and PENSIONS, and killed the impetus both for local BIG BUSINESS and for FOREIGN TNC to get involved in longterm INVESTMENT PROJECTS.
As a result, now as before, MONEY tends to flow out of the country. Swiss banks keep MILLIONS and BILLIONS in hard currency on special accounts belonging to Russian "new rich" including some government officials. Until now, payments due according to export contracts often do NOT cross the Russian border and remain in the West. The country is NOT ready for coming HIGH UNEMPLOYMENT, which is in store exactly because of inevitable STRUCTURAL CHANGE, and which so far has NOT materialized ONLY because this CHANGE is taking place so slowly and indecisively (to say nothing of the prolonged financial and economic crisis which developed worldwide since the second half of 2008 and has been influencing the Russian economy very strongly indeed).
* However, WHAT we should always keep in mind is:
Russia is tremendously RICH in natural resources and its generally welleducated and industries people are capable to work efficiently under adequate conditions; so, objectively, Russia may not only play its constructive role as a reliable source of raw materials and energy for its foreign partners but also contribute in a major way to the development of directly international production systems of European, American, Japanese and other TNC,
Russia can offer NOT only wide variety of cheap RAW MATERIALS, but also some HIGHTECH products – from quality armaments to aerospace machinery and equipment (with the CONVERSION still going on such opportunities may even grow in scope),
Russian MARKET is very big in ABSOLUTE terms (albeit RELATIVELY small, because the majority of people are still rather POOR); the DEMAND for modern MANUFACTURED GOODS including HIGHTECH products (the socalled “sophisticated demand”) is steadily growing,
Russia needs foreign technical knowhow, managerial experience and private investment capital MORE than it needs foreign assistance or commercial credits,
in Russia, foreign businesses may find BOTH private and statemanaged counterparts (partners); usually, it is MORE profitable and efficient to deal with PRIVATE actors, but sometimes former and current STATE enterprises (still in the process of PRIVATISATION and CONVERSION) look also attractive enough,
until lately, Russia belonged to the "Group of Eight" (G8), a POLITICAL FORUM including HEADS OF STATE of the most influential industrial nations of the world, and could participate in its SUMMITS on regular basis (a desirable situation which might be reestablished sooner or later),
Russia was adopted into "Paris Club" which promises return of some "BAD DEBTS" the former Soviet Union has gathered in its relations with DEVELOPING countries; in its turn, using prolonged periods of favorable OIL PRICES, Russia was successfully attempting to balance the budget and also to pay back big sums to foreign creditors radically reducing its own INTERNATIONAL INDEBTNESS (all these may be regarded as signs that Russia has been rapidly INTEGRATING itself into the world community as its fullfledged and influential member),
for some time now, Russia has joined the WTO thus becoming a fullscale member in the MULTILATERAL trade system (this means both Russia’s ECONOMIC LEGISLATION and CUSTOMS SYSTEM will be further reformed along the lines compatible with the WTO standards),
although socialeconomic situation in Russia has not yet reached real stability, there are grounds to assume that the ECONOMIC REFORM is generally NONREVERSIBLE and will GO ON – maybe, even more energetically – under the current administration (in particular, because too many vested interests depend on its success),
so, in a long perspective, it does NOT seem correct for any eventual foreign partner to wait TOO LONG before seriously exploring Russian business opportunities (for example, the risk for Japanese business people to come TOO LATE, and to find all the places occupied by RIVALS from China, Europe and America, runs rather high),
however, Russia regards as matters of its PRIMARY interest and importance the PRESERVATION and DEVELOPMENT of ties WITHIN the area of the former Soviet Union (nowadays the Commonwealth of Independent States, or CIS); thus, cooperation with European, American or EastAsian partners (exactly in that sequence) is considered important, but NOT primarily important to the country,
modern Russia is NOT a political and military SUPERPOWER any more, nor is it an empire like its predecessors – Czarist Russia or the Soviet Union,
yet it is reasonably safe to assume that, as a great constellation of Eurasian peoples, the Russian Federation potentially is and will sure be one of the MAJOR ACTORS in the global affairs of the 21st century.
Case 5. EAST GERMANY (a very SPECIAL case). The integration of the former German Democratic Republic – GDR (now, the socalled "Neue Bundeslaender") into WESTGERMAN and EUROPEAN economy represented BY FAR MORE EASY a task, than the "SELFREFORMING" in Russia. WestGerman capital, WestGerman managerial experience, WestGerman administration facilities – ALL this was at hand to make the transition as painless as possible.
Still, there are many PROBLEMS to be solved before East Germany would become a 100percent SOUND integral part of an ALLGERMAN economic system. Among them figure extremely HIGH UNEMPLOYMENT, remaining INEFFICIENCY and LOW COMPETITIVENESS of many plants, moral depression among the population, and a kind of "nostalgia" for the UNPLEASANT but SAFE "socialist" times.
Case 6. ESTONIA (another SPECIAL case). Like other Baltic states, which emerged after the collapse of the Soviet empire, Estonia is strongly WESTORIENTED. Like them, it has a considerable RUSSIAN POPULATION which presents a wearisome SOCIAL PROBLEM to NATIONALISTminded authorities.
Estonia has achieved very much in bringing about MARKET ECONOMY conditions. It has built up a STRONG national currency (the "kroon") with a FIXED rate attached first to the Deutsche Mark and later to a basket of currencies. The country has gathered considerable gold and foreign exchange reserves. It has REORIENTED its trade toward the WEST and could strongly REDUCE its DEPENDENCY on Russian energy and raw materials supply.
Esnonia is among few countries which have overcome the consequences of the GLOBAL FINANCIAL CRISES rather quickly and decisively. Together with Czech Republic, Hungary, Latvia and Lithuania, Poland, Slovakia and Slovenia, Estonia belongs to the group of EastEuropean countries which have joined the European Union as of May, 2004. Since January 2011, it has become the 17th country – member of the Euroland (the club of countries using the EURO, which will also include Lithuania from January 2015).
It looks like ALL THREE neighboring Baltic republics (Estonia, Latvia and Lithuania), like Russia itself, represent an area very much suitable for FOREIGN INVESTMENT in manufacturing (assembly plants). The labor force is educated and skillful enough but, so far, NOT accustomed to HIGH incomes.
By the way, the Japanese and other foreign investment in Estonia could play a serious positive role in NORMALIZING the situation around numerous Russian workers – in particular, by creating NEW employment opportunities and helping them to better adjust themselves to local social and business environment.