Oakton, Virginia (2006)
Where I live in Northern Virginia, I often drive by a Lukoil gasoline station on my way to the local shopping center. Such a sight would have been unimaginable twenty, or even fifteen, years ago. For me, this Lukoil station is the most visible symbol of how Russia’s economic transformation has affected my life. And it is reassuring to know that if oil supplies from the Middle East are interrupted, Russia is a country that America can buy oil from.
But oil (in the form of gasoline) is just about the only thing I can buy fromRussia here in America. While there is no shortage of products I can buy from China, South Korea, and many other countries, I do not see any Russian products in my local shopping center. The one exception is that in the state-owned liquor stores (yes, we still have those here inVirginia), I can find vodka fromRussia—as well as from a lot of other countries.
What this illustrates, I believe, is that Russia faces a choice: Will it use its earnings from petroleum exports to invest in other sectors of the Russian economy so that they too can produce goods and services that Americans and other foreigners will be willing to buy? Or will Russia, like all too many other petroleum rich states, be satisfied to live off its oil and gas revenues, and thereby avoid the hard work of competing with others to produce goods and services that can sell in the world market?
Russia certainly has the human potential to make the first choice. To begin with, it has a well-educated work force. And while Russian workers do not consider it an advantage, the lower wages prevailing inRussia compared to the West give Russian business a comparative advantage over higher wage Western states on an important component cost of producing anything.
In addition, Russia now has a lot of managerial talent with experience both in Russia and abroad. There are also a large number of Western ex-pats who have worked in Russia for a long time with similar experience. Both of these groups can help Russian business compete effectively in the West.
Russia, then, undoubtedly could sell manufactured goods and services to foreign consumers and businesses. And doing so would have an enormously positive impact onRussiasince this would create far more jobs than the petroleum sector can. Indeed, this would allow Russia to enter the ranks of the “tiger” economies such as those in Asia and elsewhere. But for Russia to do this will require not just investment, but a sensitivity to ever changing market demands as well as the nimbleness necessary to meet them.
Doing this would enable Russia to join the ranks of China, India, South Korea, Brazil, and many others that successfully export their products to the West. If Russia is to do this, however, it will be accomplished by its businessmen (and women), not by its government. Bureaucrats—whether in Russia or anywhere else—are not entrepreneurs. Whereas businessmen take calculated risks, bureaucrats are risk averse. Whereas businessmen must be attuned to what markets want in order to succeed, bureaucrats are far more attuned to political and organizational interests. Bureaucrats, though, can make a singularly important contribution to the success of their country’s businessmen: they can create the conditions necessary for them to succeed, and then stay out of their way.
It clearly benefits Russia as a whole if on the way to my shopping center I stop at the Lukoil station to buy gas. But it would benefit Russia even more if after doing so, I go to the shopping center and buy a Russian scarf for my wife, a Russian DVD for my daughter, and Russian software for my computer (in addition, of course, to that bottle of Russian vodka for me). I—and other consumers—would do this not out of any particular sympathy for Russia, but because these products were of high quality and reasonably priced. Nor is there anything wrong with this, since the ability of Russian business to supply such goods is the best guarantee that it can profit from doing so. Our being nervous about China, after all, has not prevented us from buying its high quality, reasonably priced products.
I have no doubt that Russian business has the entrepreneurial and managerial talent as well as the capital necessary to export all manner of goods and services besides petroleum to the world market. The real question is whether Russian business is willing to undertake the constant adaptation to the world market’s ever changing demands that will be necessary for it do so successfully.
Originally published in Russian as “Benzin i vodka: Vzgliad iz SShA,” Top-Manager (St. Petersburg), May 2006, pp. 136-7.