Clifford G. Gaddy

Resource Rents and the Russian Economy

The paper, by two prominent American specialists on the Soviet and post-Soviet economies, explores the role of Russias energy resources. The authors offer a more inclusive definition of oil and gas rents than is traditionally given and analyze how the mechanisms for distributing those rents have changed over time. They show how fluctuations in the level of rents have played a key role in Russian economic performance. Oil rents, in particular, are shown to have varied widely over the past 35 years. The paper also examines how the distribution of rents affects the sustainability of production. It concludes with some reflections on the proper organization of the energy sector. Journal of Economic Literature, Classification Numbers: E60, O13, O17, Q43. 6 figures, 23 references, 2 appendices.

Russia after the Global Financial Crisis

Two prominent American specialists on the Russian economy present a fundamental analysis of basic economic factors explaining how the global financial crisis has played out in Russia and its implications for the countrys future. More specifically, the authors examine the consequences of Russias dependence on and addiction to resource (oil and gas) rents and of the management system put in place under Vladimir Putin to maintain, secure, and distribute these rents. They then investigate how each of these factors has emerged from the crisis and how it might evolve in the years ahead. Focusing on the distinction between rent dependence and addiction, the authors question the conventional wisdom that diversification of Russias economy (away from oil and gas) is a desirable objective that will render it less vulnerable to external shocks. Journal of Economic Literature, Classification Numbers: E020, F020, G010, O130. 15 figures, 44 references.

Well-being and unemployment in Russia in the 1990s: Can society's suffering be individuals’ solace?

This paper studies the effect of regional unemployment rates on subjective well-being in post-Soviet Russia. Research conducted in Europe and the United States has documented that higher unemployment rates lead to lower reported life-satisfaction. By contrast, our Russian study finds a small but significant effect in the other direction. We estimate that during the period of our study (1995-2001), each percentage point increase in the local unemployment rate was correlated with the average well-being of people in the region increasing by an amount equivalent to moving 2% of the population up one level in life satisfaction measured on a five-point scale. Our intuition is that the so-called comparison effect drives this result: when individuals observe their peers suffering in a troubled economy, they lower their standards of what is good enough. All else equal, they thus perceive themselves to be better off in worse times. In highlighting the dependence of subjective well-being scores on expectations and reference groups, we sound a note of caution against using happiness data from economies in crisis to draw macroeconomic policy conclusions.

An Accounting Model of the Virtual Economy in Russia

Two noted American specialists on the Russian economy outline the concept of the “virtual” economy and present a simple model explaining its operation. The model makes it possible to trace the movement of value through the economy from points where it is created (resource-producing enterprises) to sites where it is lost (manufacturing) and identifies mechanisms whereby such losses are concealed and accommodated through barter, arrears, offsets, and delayed wage payments. The authors devote particular attention to motivations underlying participation of major actors in the virtual economy and examine why programs to combat corruption and improve tax collection could be compromised. Journal of Economic Literature, Classification Numbers: C50, H30, O52, P51. 1 figure, 3 tables, 14 references.

Perspectives on the Potential of Russian Oil

A prominent American specialist on the economy of the former USSR comments on Russian oil in light of a preceding paper on the subject. Noting the congruence of Russias economic growth with world oil prices, the author points out that the countrys growth is endangered by sharp declines in those prices. He also recalls how an oil windfall shaped Russian thinking in the 1970s, questions how long Russia can pump oil at its maximum level by invoking the American experience from 1859 through the peak in 1970 until the present, analyzes the two corporate models in the Russian oil sector, and briefly outlines Putins new approach to foreign investment in the sector. Journal of Economic Literature, Classification Numbers: L71, O13, O18. 3 figures, 8 references.

The Russian Economy in the Year 2006

he good times that Russia has enjoyed for the past six years continued in 2006. I will describe some of the elements of this remarkable recent performance, but only briefly. My main remarks will rather focus on two broader issues. The first is how I view Russia’s political economy working today. This is the system of “rent sharing” that Professor Barry Ickes of Penn State University and I have written about. I will also discuss Vladimir Putin’s key role in shaping and managing this system. The second topic is the fundamental challenges the economy faces for the longer term. I will especially focus on the pitfalls along the way. In a new book we are writing, Barry Ickes and I describe them as the “bear traps.” I will conclude by asking how, against this background, Russia’s economy may evolve in the shorter and longer term.

Open for business : Russia's return to the global economy

In December 1991 the Union of Soviet Socialist Republics--born in violent revolution and dominated for more than six decades by highly authoritarian rule--was dissolved by its constituent republics. The causes for this remarkable event will be probed for many years to come. Our understanding of it may never be complete. Nevertheless, it is evident even now that part of the story lay in a conscious redirection of policy by specific individuals. Those at the center of political and economic power understood the flaws in their system well enough to initiate a process of reform, but one that triggered a more massive transformation than they had intended. The process has left enormous turmoil in this wake. Political power has dissipated in all the new states emerging from the fragmented former USSR, and all are struggling to establish some constitutional order. They do so under conditions of severe austerity as they seed to reconstruct their once integrated, highly concentrated, internationally isolated economy into independent instruments of national viability. With no detailed blueprint available, and with only fractured mechanisms of policy control at their disposal, these new nations are being carried along by the inertia of state enterprises and by a spontaneous process or regeneration at the grass-roots level. This book, which analyzes Gorbachevs foreign economic strategy, provides a window for understanding the disintegrative forces that stymied his reforms and eventually defeated him, undermining the country he sought to preserve. Gorbachev was committed to ending Soviet isolation from the world economy and at the same time saving Soviet socialism. Ironically, it is the destructionof Soviet socialism and the emergence of new post-Soviet states, that has begun to break down the isolationist barriers erected over the last seven decades. This book documents the incredibly complex legacies that Russia and the other new post-Soviet states face as they see to integrate themselves into the global economy.

Toward a “Reaganov” Russia: Russian Security Policy after Putin

Russia’s military annexation of Crimea in early 2014, and the ensuing crisis in its relations with neighboring countries and the Western world, brought to the fore an age-old question that had faded from the central attention of policymakers: what are Russia’s long-term foreign policy ambitions and military grand strategy? U.S. policymakers are more concerned at the moment about Vladimir Putin’s immediate goals, and the associated possibility of further trouble in eastern Ukraine or elsewhere. That issue is clearly important. But for longer-term U.S. security policy planning, it is also essential to ask about broader underlying trends. Where is Russia headed, now that it has regained some of its economic power and political confidence (despite the country’s recent economic troubles) that was shattered at the end of the Cold War? For the foreseeable future, perhaps another decade, this question will be largely indistinguishable from the personal proclivities of Mr. Putin, who could remain president until 2024. But it is also useful to try to disentangle the differences, if any, between Putin and the broader Russian strategic culture in which he operates. This will be crucial for long-term U.S. strategic planning—and for setting realistic expectations about what we can anticipate, and work toward, in the Western relationship with the Russian Federation.

The Siberian Curse: Does Russia's Geography Doom Its Chances for Market Reform?

This article summarizes Fiona Hill and Clifford Gaddy’s The Siberian Curse: How Communist Planners Left Russia Out in the Cold (Washington, DC: Brookings Institution Press, 2003). A Russian translation appeared in EKO, 2004, no. 6, pp. 72–95. Fiona Hill and Clifford G. Gaddy are senior fellows at the Brookings Institution, Washington, D.C. Problems of Economic Transition, vol. 48, no. 11, March 2006, pp. 7–29.