From Russia a tough-love message for SA
Vladimir Putin presides over a massive and frequently frozen nation yet its similarities with, and lessons for, SA are profound.
Exiting isolation
Roughly a quarter century ago Russia began to reinvent its basic economic and political structures. It needed to reverse the stultifying effects of sustained isolation. A decade earlier, no one could have imagined the extent to which China's economy would tower over Russia's today.
The key difference was that China sought to integrate into the global economy through developing highly competitive companies and workers whereas Russia relied on extracting resources. Russia's considerable industrial might was never transformed to achieve global competitiveness. It rarely sells industrial and consumer goods beyond its "near abroad".
Local patronage versus international positioning
Russia's rulers can purchase patronage through redistributing rural land to poor people while carving up extracted riches among wannabe oligarchs. Such political-economic manoeuvres reflect chiefdom-like aristocratic structures which became outdated during the industrial era. They preclude success amid today's global information age.
Russia's political patronage system and the corruption which follows undermines its abilities to create - or attract - large numbers of globally competitive companies. This restricts the size and purchasing capacity of its middle class. Wealthy and emerging nations are not averse to Russia becoming more prosperous. They seek customers for their goods and services. Patronage is what limits Russia.
Peak oil and peak manufacturing jobs
The peak oil scenario routinely envisaged a few years ago has been cancelled. Rather, scientific developments and commercial ingenuity are gaining the upper hand in competing with traditional oil producers while many consumers are beginning to migrate toward less resource-intensive habits and desires. Energy exploration may be about to permanently taper off as a significant portion of today's proven reserves might never be extracted. Meanwhile, manufacturing's share of total jobs has permanently peaked.
Today's hard power
Kremlin strategists appreciate that their nuclear weapons have only deterrent value and that no country is interested in marching to Moscow. High growth rates and purchasing power parity adjustments make emerging market countries look more potent than they are.
While Europe's growth trajectory is projected to be quite weak for several years, Mr Putin has inadvertently provoked western leaders leaders to demonstrate through sanctions how hard power today is mostly about discretionary income and the skills and knowledge which support it.
The West still accounts for about two-thirds of global discretionary income. Russia's president misses the key economic insight of the past several decades: The primary beneficiaries of the prevailing world order have been developing countries focused on selling value-added goods and services to western countries that can buy them in quantities sufficient to propel profound upliftment.
Mr Putin has now proven the core corollary to this insight: Even massive quantities of land and below land riches are inadequate to achieve national prosperity within a patronage-centric polity.
Integrated growth economies; Isolated extraction economies
The East and West continue to fuse into a single, increasingly prosperous global economy. There are also what can be termed the "OPEC-styled" countries. These include the members of OPEC plus the other countries - mostly in Africa, the Middle East, and central Asia - whereby ruling elites capture mineral wealth while failing to invest adequately in their people.
The ruling elites of such extraction focused economies are rarely inclined to make the investments in physical and human resources necessary to compete in an information driven global economy.
To integrate their general populations into the global economy requires various forms of openness and investments in education which provoke opposition toward how resource wealth is narrowly distributed within patronage based political structures.
Growth models
To put all this another way, Russia, among others, is floundering for lack of a growth model - funding current consumption through extracting non-renewable assets doesn't cut it. The wealthy and emerging economies of the world have become quite effective at advancing their mutual interests but this requires that national economies focus on competitiveness and building a large middle class.
As in each paragraph above, "Russia" can be replaced with "South Africa", Mr Putin has persuasively demonstrated that the trajectories of Russia's and SA's economic progress will remain hopelessly inadequate until their political-economic dispensations are reinvented.
Key shifts will include: tamping down patronage; making competitiveness and middle class growth top objectives; and having government departments become genuinely pro-business. Both nations should also serve as coordination agents to advance and align regional and global economic integration. This will require new ways to diffuse skills while inspiring investments in fixed assets. Thank you Mr Putin for confirming that SA's current policies are unworkable.
Shawn Hagedorn is an independent strategy adviser.
This article first appeared in Business Day.
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