For a ‘Concrete Analysis of the Concrete Situation’
Reply to Decker/Dorn on ‘Russian Imperialism’
—Riley, 15 July 2013
“…the concrete analysis of the concrete situation is not an opposite of ‘pure’ theory, but – on the contrary – it is the culmination of genuine theory, its consummation – the point where it breaks into practice.”
Comrades Decker and Dorn’s 19 June response to my 3 June document takes up in some detail to many of the arguments I set out for why Russia is not imperialist. I think that their response is seriously flawed, as I will try to demonstrate below, but it is important that we are at last seriously engaging on the programmatically significant issue of how Marxists categorize contemporary Russia.
Some comrades may find it frustrating to read contributions from both sides of this dispute, each of which seems plausible and apparently factually documented. But we cannot both be right. So the only way to work through this problem is to really study the question and carefully read and consider the arguments and expert testimony submitted by each side (and perhaps do some further investigation).
When I reviewed the articles cited by Decker/Dorn in their critique I found that, on balance, they did not project a very different picture of the political/economic reality of present day Russia than the assessments by the U.S. State Department and the Economist quoted in my document. This has put me in the fortunate position of being able to rebut the core propositions put forward by my critics largely with citations from documents they themselves introduced into the discussion. I think the implications are fairly obvious, and hope that by reviewing this material together we may find ourselves moving closer to a common understanding of the present character of Russia and its position in the international world order.
A key sentence in the intro to the Decker and Dorn document sums up much of their dissatisfaction with my contribution:
“Aside from dismissing major sectors of the economy and failing to fully consider the role that Russia plays in global imperialist rivalries over markets and spheres of influence, Tom’s document paints a misleading portrait of Russian finance capital and its status in relation to capital export.”
The comrades generously allow that I am not deliberately attempting to falsify things, but that my views “likely stem from a tendency to ‘read’ the data on the basis of a pre-established view of Russia.” I regard Decker, Dorn and their co-thinkers in exactly the same light—as good comrades whose errors on this question stem from a tendency to attempt to make reality fit their pre-established construct. While they characterize my view of Russia as “a sort of basket case” I would simply say that while Russia is a significant player in global politics and a formidable military factor, it is, in terms of economic development, not qualitatively different than Brazil, which is to say not an imperialist country.
Before looking at the substantive economic questions there are a couple of open-ended, but undeveloped, propositions in the Decker and Dorn piece that I want to address.
1) The first is a complaint that my document failed “to fully consider the role that Russia plays in global imperialist rivalries over markets and spheres of influence.” It is unclear exactly what this entails. On the basis of the IEC’s unanimous adoption of the text “On Imperialism,” I had presumed:
“We are agreed that the imperialist world system operates to channel wealth from relatively backward countries to the elites of the ‘developed’ capitalist countries. Those countries that are active participants in what Trotsky referred to as ‘the expansionist policy of finance capital’ (a policy at least partially mediated through a complex web of international political and particularly economic institutions) can properly be considered imperialist.”
—“Is Russia Imperialist?”, 3 June
I presume we are still agreed that if a country does not meet the “finance capital” criterion, it does not matter if it attempts to enlarge its sphere of influence. As we noted in 1917 No, 29, Iran is contesting dominance in the strategically vital Persian Gulf region with the US/NATO axis, but no one concluded that it had somehow become imperialist.
The recent rivalry between Qatar and the Saudis for influence in Egypt provides another example:
“The aid package [of $8 billion from the Saudis and UAE to the new government] underscored a continuing regional contest for influence between Saudi Arabia and Qatar, one that has accelerated since the Arab uprising upended the status quo and brought Islamists to power.
“Qatar, in alliance with Turkey, has given strong financial and diplomatic support to the Muslim Brotherhood, but also to other Islamists operating on the battlefields of Syria and, before that, Libya. Saudi Arabia and the Emirates, by comparison, have sought to restore the old, authoritarian order, fearful that Islamist movements and calls for democracy would destabilize their own nations.”
“The Saudis and Emiratis were nearly buoyant at the military’s move to oust Mr. Morsi. Both are deeply hostile to the Brotherhood’s Islamist-cum-democratic agenda, which they see as a threat both to their own monarchical legitimacy and to regional stability. Qatar, by contrast, provided about $8 billion in aid to Mr. Morsi’s government during his yearlong tenure, and Turkey offered loans of $2 billion.”
—New York Times, 10 July
The scale of this aid has apparently been sufficient to (temporarily) free Egypt from dependence on the IMF:
“The Qatari and Turkish financial aid to Mr. Morsi’s government last year helped him to avert painful economic reforms being urged by the International Monetary Fund as the price for its own $4.8 billion aid package.”
Of course Qatar, Saudi Arabia etc. are no more imperialist than Iran. So it is not clear exactly what Decker/Dorn’s “sphere of influence” criticism entails. If it is only a suggestion that the document would be improved by a few sentences indicating that the Russian bourgeoisie pursues its own interests, e.g., seeks to resist NATO plans to dominate countries like Syria with which it has a long term alliance, that of course is agreed. I hope that it does not represent a gesture in the direction of a “multi-factoral” (rather than finance capital) model of imperialism.
2) The second Decker/Dorn proposition is the assertion that if we agree that Czarist Russia circa WWI was imperialist while also “far more backward than modern-day Russia” it “is difficult to see why Russia circa 2013 is not imperialist.” We treated the question of Czarist Russia as imperialist in a separate document in which we noted that Trotsky and Lenin considered that the massive investment by Russia’s bourgeoisie in adjacent backward countries qualified Russia as imperialist despite the fact that it remained a predominantly peasant-based society governed by a feudalist autocracy that posed a major obstacle to domestic capitalist development. The question we must seek to answer is whether Russian capitalists today have a similar relationship to the countries of the CIS etc or whether they are more similar to countries like Brazil, India or Greece whose bourgeoisies have investments in some more backward countries, but not on a scale that would qualify them as imperialist. In today’s “globalized” capitalist economy many relatively backward countries engage in foreign investments. For example the “World Investment Report 2012,” cited by Decker and Dorn, reports that in 2011 in the CIS, “The takeover of Polyus Gold (Russian Federation) for $6.3 billion by the KazakhGold Group (Kazakhstan) was the largest.”
* * *
It does not seem to me that the comrades were entirely successful in rebutting what they describe as the “misunderstandings/misleading analysis” in my document, nor do I think they succeeded in “placing the data in context and comparative perspective” as I will seek to demonstrate. I think that in adding new information they seem to have been tempted to “cherry pick” their sources and ignore aspects (often rather substantive ones) that did not support their conclusion.
CIA & EU: Russia is Resource Dependent & Technologically Backward
Decker/Dorn first cite the CIA Factbook to demonstrate that the proportions between agriculture, industry and services in the Russian economy “resembles the economies of the most advanced imperialist powers.” True enough, but the CIA’s “Overview” also says:
“Russia’s reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices. The government since 2007 has embarked on an ambitious program to reduce this dependency and build up the country’s high technology sectors, but with few visible results so far. The economy had averaged 7% growth in the decade following the 1998 Russian financial crisis, resulting in a doubling of real disposable incomes and the emergence of a middle class. The Russian economy, however, was one of the hardest hit by the 2008-09 global economic crisis as oil prices plummeted and the foreign credits that Russian banks and firms relied on dried up…. The economic decline bottomed out in mid-2009 and the economy began to grow again in the third quarter of 2009….. Russia has had difficulty attracting foreign direct investment and has experienced large capital outflows in the past several years, leading to official programs to improve Russia’s international rankings for its investment climate.”
This describes a country desperate to improve its status with the mavens of international finance capital in order to attract the foreign investment necessary to raise its technological capacity to world standards and break free of the traditionally non-imperialist role of supplier of raw materials to more advanced economies. As such it is not exactly congruent with what comrades Dorn and Decker’s snippet was supposed to demonstrate.
Their next source, a June 2012 EU study on “The Economic Significance of Russia’s Accession to the WTO,” is also cited for what it says about the composition of GDP. The comrades admit that the country remains backward in many ways and “and in some respects Russian capitalism lags massively behind” but caution that it is “important to get a sense of perspective, and not to accept on face value caricatures of Russia.” Perspective is good, and I would not dispute the EU study’s observation that the size of the service sector in Russia is somewhat closer to the EU than China or Indonesia. (Of course neither of those countries experienced the forcible liquidation of peasant smallholders carried out during Stalin’s forced collectivization.) What is far more significant in gauging a country’s relative position in the world economy than the size of its service sector is whether or not its commodities are competitive internationally. By this measure Russia does not fare so well, as the EU study observes:
“Russia’s comparatively poor performance during the Great Recession led many in the ruling elite to conclude that Russia’s vulnerability was caused by its technologically backward and natural resource oriented economic structure.” <p21>
The EU report contains an overall assessment that essentially tallies with what the comrades colorfully referred to as a “basket case” when I cited similar comments:
“It is plausible that Putin’s new term may presage renewed efforts at economic reform in Russia. However, even if this were to occur, there is still the important issue of whether or not the Russian state possesses the administrative capacity to implement either new economic reforms, or, at a more minimal level, the legal commitments made as part of the accession agreement. Russia’s low ranking on indicators measuring corruption and the rule of law all suggest that the low quality of public administration might prevent Russia from doing either. Indeed, the role of the state in the Russian economy is particularly pernicious, with officials and those close to them using their positions to both extract kickbacks and expropriate assets from Russian businesses on a frequent basis (see Table 1). The data presented in Table 1 are further supported by a wide range of other international measures that illustrate that the quality of public administration and legislation are comparatively poor (including the World Bank’s Ease of Doing Business Index, the World Economic Forum’s Global Competitiveness Report, and many more).
“Such corrupt practices as informal collusion between state officials and well-connected businessmen permeate every level of Russian society, from the federal level to regional and local levels. In all instances this collusion and the use of public office and laws to benefit private interests is used to stack the economic rules of the game in favour of well-connected incumbents.”
—“The Economic Significance of Russia’s Accession to the WTO,” p23, emphasis added
The authors of the EU report anticipate that with integration into the WTO “foreign firms [will] gain greater access to the Russian market,” competition will increase and prices for consumer goods will fall:
“Product market competition is a driver of productivity growth by spurring innovation either directly or indirectly, through what Joseph Schumpeter termed processes of ‘creative destruction.’. In Russia, the empirical evidence suggests that openness to foreign competition boosts domestic productivity growth (Aghion and Bessonova, 2006; OECD, 2009). The effect is considered strongest in firms that are closer to the technological frontier. For less productive firms, the threat of entry tends to reduce the incentive to innovate by reducing their ‘life expectancy’ and thus shortening their time horizons. Sectors in which producers are far from the technological frontier, and therefore less likely to adapt and more likely to suffer from import competition, include light industry, mechanical engineering, machinery, food processing, textiles and clothing, building materials, and agriculture (especially beef and pork production). In business service sectors, such as telecommunications and financial services, Russian firms that are not either part of joint ventures with foreign firms are likely to suffer (e.g., Jensen et al., 2006).”
The “World Investment Report 2012,” (p57) also cited by Decker and Dorn makes a similar projection that accession to the WTO will “boost foreign investors’ confidence and improve the overall investment environment” although “in the manufacturing sector, domestic and foreign investors will most likely consolidate as the landscape becomes more competitive.” The term “consolidate” is of course a euphemism for what the EU report referred to as the process of “creative destruction” of existing non-competitive Russian firms as integration proceeds.
The sunny projection in the EU report that integration into the WTO will involve the “creative destruction” of much of actually-existing Russian capitalism derives from the authors’ view that, “on the whole, Russia is not competitive, in both industrial and services exports” (p26). Comrades Decker and Dorn take a different view, without providing supporting evidence: “[D1] The Russian economy continues to combine considerable backwardness with important elements of the most advanced capitalism based on high technology.” The authors of the EU document offer a somewhat bleaker assessment:
“A number of recent studies show that Russia enjoys Revealed Comparative Advantage (RCA) in only a few industrial activities (Cooper, 2006; Connolly, 2008, 2012b).17 Apart from hydrocarbons and some other raw materials (such as precious metals and timber), Russia only exhibits a comparative advantage in a few medium- and high-technology products, such as military equipment, nuclear reactors and other power generating machinery. These are traditional Soviet manufactured products, presently exported by Russia to the markets that were developed in the Soviet era. The only industrial activity in which Russia has managed to achieve RCA during the post-Soviet period is in microscopes. Here, NT-MDT, a company that specialises in scanning probe microscopes, is ranked second in terms of sales volumes on the world market (Connolly, 2011b). Russia’s low levels of competitiveness in higher value-added industrial activities compares unfavourably with many other large low- and middle-income economies, including Brazil, China, India, and Turkey. Moreover, with the exception of Information Technology (IT) and some financial sector activity in the former Soviet states, Russia is not competitive in international services trade, either (Figure 6).”
—“The Economic Significance of Russia’s Accession to the WTO,” p26, emphasis added
It is hard to overstate the significance of this—the unfavorable comparison to Brazil, India and Turkey is particularly striking. It raises the question of whether Decker and Dorn, who introduced this document into our discussion, took the time to actually read it.
The authors of the EU report appear to agree that, “the inability to produce products that are competitive internationally”(“Is Russia Imperialist?”) lies at the core of the difficulties of Russian capitalism. They also seem to share the view that Moscow’s “ability to reduce the gap separating it from its more advanced capitalist rivals” is blocked “by backwardness and bureaucratic corruption”:
“Overall, the chances of Russia benefitting from increased market access abroad will be determined by how successful the country is in effecting structural transformation over the medium- to long-term.…Therefore, we come back to the issue of whether or not the Russian elite is willing and able to commit to forging ahead with meaningful and relatively far-reaching economic reform. It is this, along with sensibly designed industrial policies, which will ultimately determine whether Russia will become a successful exporter of higher value-added goods and services in the future.”
If the Russian ruling class can manage to carry out such a transformation and raise its labor productivity to world class levels it will indeed emerge as a genuine imperialist power in the Marxist sense. But that is a big “if,” and one that seems increasingly improbable with the passage of time. (The very fact that it is an ”if,” rather than an accomplished fact, of course signifies that Russia is not yet a member of the imperialist club.) The EU report’s authors caution that even after formally submitting to the WTO, “considerable informal administrative tools remain available to Russian elites, both at the federal and local levels, which may be used to restrict access to some Russian markets.” Yet they speculate that ultimately Russia will have to go along to get along which will provide lucrative opportunities for EU corporations:
“Notwithstanding some of the important issues outlined above, as a result of Russia’s accession EU strengths in business services (especially financial services, telecommunications, and IT and software services, areas where EU countries possess RCA), light industry, mechanical engineering, machinery, food processing, textiles and clothing, building materials, and agriculture (especially beef and pork production), are all likely to see EU firms in these sectors benefit from improved access to the Russian market.”
None of the sources Decker/Dorn cite treat Russia as an “advanced capitalist” (i.e., the bourgeois euphemism for imperialist) economy. Without exception Russia is referred to it as an “emerging” or “developing” or “transitional” country precisely because of the gap which exists—the same gap which the EU imperialists anticipate will set the stage for “creative destruction” once they get into the tent.
To be fair, in their critique, the comrades do allow that Russia is far behind the “high income” OECD countries (i.e., the imperialist countries) in terms of labor productivity, but insist, without explanation, that it should be bracketed with economies 250 percent more productive (“other imperialist countries”) rather than those which are at a comparable levels of overall development (e.g., Brazil).
“Aggregate labor productivity in Russia is admittedly low compared to other imperialist countries (just over 40% of ‘high-income’ OECD countries), and the significant progress that was made in the 2000s has slowed since the onset of the global economic crisis. On the whole, Russian manufacturing is not particularly competitive, but there are sectors that can compete globally – most notably, chemicals and metals, though other key industries (e.g., transport vehicles) lag behind (Ye.Yasin et al., “Russian Manufacturing Revisited: Industrial Enterprises at the Start of the 2008 Financial Crisis,” Bank of Finland).”
—Decker /Dorn, 19 June
The Bank of Finland article is slightly more optimistic than the EU report, noting:
“True, Russian manufacturing generally lacks international competitiveness and still relies extensively on obsolete technologies. But there is also strong evidence that some Russian manufacturers have made significant advances in recent years.” [p4]
The most outstanding example of the latter was that “Russian manufacturing saw labor productivity soar 50% on average during 2005-2008” (p4). Yet despite this, “As a whole, Russian manufacturing firms failed to substantially improve their global competitiveness in the period” (p5). The authors, like every other serious analyst, take for granted that the appropriate comparators for Russia are its fellow “developing” BRICs. In discussing “Government-business relations,” they write:
“We can suppose that local and regional authorities in more advanced regions in Russia worked to attract investment and encouraged firms to restructure their businesses. This is similar to the experience of China, Brazil and many other developing countries.” [p6]
The Bank of Finland report offers the familiar negative assessment of the dominant political culture:
“An important obstacle to manufacturing competitiveness in this period was the lack of progress in institutional development. As a result, respondent assessments of business barriers in 2005 and 2009 are largely unchanged.” [p8]
One of the things in this report which may have come as a surprise to Decker and Dorn is the information that Russia is falling behind other “transitional economies” (i.e., former deformed workers states of the Soviet bloc):
“The absence of significant improvements in Russia’s business climate against a background of positive developments in the institutional environment in other transition economies is notable as Russian enterprises saw their competitiveness erode vis-à-vis their peers in these economies. According to the BEEPS [Business Environment and Enterprise Performance Survey] Russia in 2002 looked better on average than 26 other surveyed transition economies in three-fourths of business climate parameters. By 2005, Russia led in only half of the surveyed parameters. In 2009, it lagged the average in 16 of 18 parameters among the 29 surveyed countries.” [pp 9-10]
The authors describe Russian industry’s relative technological backwardness as a “vicious circle”:
“Comparison of the 2005 and 2009 findings shows the sectors have not converged in the area of technology absorption. The leaders have become stronger and the laggards have slipped farther behind. Most manufacturing industries found themselves ensnared in a catch-22 situation. According to V. Polterovich (2009), this vicious circle of backwardness means innovation cannot drive economic growth as backward production does not create demand for innovation and suppresses supply, while absent supply in its way tends to be a drag on demand.” [p12]
The authors also observe:
“Probably the most important trend here, however, was toward wider equity participation of foreign owners (investors) in Russian manufacturing firms. In the early 2000s, empirical studies found the share of foreign interest in manufacturing was only 1-2%. The above-mentioned 2005 survey found that foreign investors accounted for up to 4% of equity in manufacturing overall, and the foreign equity participation in joint-stock companies was just under 10%.”
The Bank of Finland finds that in terms of competitiveness, there is “an explicit positive correlation with foreign co-ownership, similar to what has been earlier observed in other advanced and transition economies.” They report that:
“Half of the firms classified as most innovative in our study were firms with foreign participation. (At this point, we offer a caveat: this may be due to a positive selection effect, i.e. foreign investors tend to cherry-pick among the most efficient enterprises when targeting participation.)” [p15]
Once again the pattern is far more typical of the relationship between imperialist portfolio investors and the indigenous bourgeoisie of a “developing” or “emerging” economy than between capitalists in two “developed” economies.
On Recent Fluctuations in FDI figures for Brazil & Russia
The EU study discussed above sums up the relationship between Russia and the EU as one “characterized by asymmetries in size and production profiles, with the role of EU energy imports central to the economic relationship” (p5). In a footnote (p21) the authors speculate that:
“it is likely that Russia’s particularly poor performance [in the ‘Great Recession’ of 2008-09 can be explained by a combination of: exposure to the drop in commodity prices; poor institutional characteristics; and an openness in its capital account that is unusual for a country in its stage of development.”
This touches on the same weakness noted in the CIA overview—Russia needs massive investment to bring its economy up to global standards but its “poor institutional characteristics” (i.e., corruption and the arbitrary actions of state authorities) has resulted in a low rating by international finance capital as an investment destination. This problem is far more characteristic of neo-colonial or relatively backward capitalist countries than imperialist ones. Several examples of (unsuccessful) attempts by the Kremlin to find quick fixes for this problem were cited in “Is Russia Imperialist?” The relative ease with which money can be pulled out and sent to various offshore tax havens doubtless has a lot to do with the fact that “Russia has been a relative exporter of FDI [foreign direct investment] flow” as comrades Decker and Dorn put it. But the significance of this phenomenon cannot be presumed to be identical to investment flows from countries like the UK, Germany or Sweden.
The comrades’ commentary (L1 – L8) puts considerable emphasis on discussing recent developments in global FDI figures, without, in my view, paying sufficient attention to some key underlying fundamentals. Claiming that “The most recent figures demonstrate that Russia has further entrenched itself as a finance capital power” (L1), Decker/Dorn note that “Russia accounted for 3.6% of world FDI outflow in 2012” (L2) As we agree the majority of Russia’s FDI outflow has tended to go tax havens, from whence a substantial portion returns to Russia, the actual figure is almost certainly substantially lower than 3.6 percent. In a footnote the 2012 EU Parliamentary report (p11) observes:
“It should be noted, however, that Russian companies invest far more than is normal (by international standards) in tax havens, such as the British Virgin Islands, Bermuda, Cyprus and Switzerland. Some of this OFDI is then repatriated in the form of IFDI, thus inflating the ‘real’, non-Russian FDI flows, both inward and outward.”
Decker and Dorn point out that similar practices are common among established imperialist countries and cite recent information that “In 2011, approximately 10% of the inward FDI stock in the UK was from ‘UK offshore islands’ and the tiny ‘grand duchy’ of Luxembourg alone.” While the amount of money involved is substantial, the proportion relative to the overall capital stock is substantially less—ten percent for Britain, compared to estimates in recent years ranging as high as two-thirds for both Brazil and Russia.
Decker and Dorn cite figures since 2007 contrasting Brazil’s falling outward FDI (ODFI) flow as a percentage of global totals, with rising figures for Russia. They conclude: “Brazil’s profile is more erratic, and it does not appear to play the same role as Russia” in terms of global finance capital. They do not comment on the fact that tables they reproduce for ODFI stock—rather than “flow”—in L1 and L3 show the opposite trend over the same period; Brazil’s climbed from 0.7 to 1.0 while Russia’s fell from 1.9 to 1.7. We should recall that as recently as 2006, (the year that Vale, a Brazilian mining conglomerate, acquired Canadian mining giant INCO) Brazilian FDI exceeded Russian. I would presume we all agree that there has been no qualitative change in either country’s status since then.
The comrades comment that Russia “has, unlike Brazil, jumped onto the outward FDI flow scene in a big way since 2000-2001, when the two countries were fairly similar in profile” (L4). Russia’s “jump” of course corresponds to a steep rise in global oil prices, which produced a bonanza for all oil-exporting countries. As might be expected there was a corresponding upturn in outward directed investments from major Middle East oil producers during the same period (see Appendix A). According to the Financial Times, between 2003-07 and 2008-12:
“The second highest increase in FDI outflows was recorded by the United Arab Emirates. It was the 14th largest outbound investor in 2008 to 2012, moving up nine places compared with the 2003 to 2007 period. It now ranks above larger countries such as South Korea and Australia.
“Elsewhere in the Middle East, investments from Kuwait, Bahrain and Qatar have also increased significantly between the two five-year periods, although they are still far behind UAE levels. Comparing the two periods, the number of outward FDI projects from Kuwait doubled, the number from Qatar increased threefold and the number from Bahrain increased fivefold.”
—FDI Intelligence, 10 April 2013
When a similar upturn took place during the early 1970s OPEC oil crisis no one interpreted the massive flow of petrodollars from OPEC countries back to imperialist financial centers as evidence of the emergence of Kuwaiti or Saudi Arabian “finance capital.”
The steep decline in Brazilian ODFI flow (into negative territory) has attracted attention from academics as well as financiers. A recent study from Columbia University sheds some light on what appears to be a rather complicated phenomenon:
“Between 2000 and 2010, Russia and China had higher rates of growth of their OFDI stocks than that of Brazil’s. On average, the growth rate in 2000-2010 of Brazil’s OFDI was 14% below the average of the BRICs. In 2009, most likely in response to the world-wide economic and financial crisis, OFDI outflows from Brazil were negative, with Brazilian companies repatriating US $10 billion from their foreign affiliates through intra-company loans. Annex table 2 shows a peak outflow in 2006 of US $28 billion from Brazil.”
—“Outward FDI from Brazil and its policy context, 2012,” Milton de Abreau Campanario et al, Vale Columbia Center, 10 May 2012, p2
The authors suggest that Brazilian OFDI fluctuations may, at least in part, have reflected a deliberate strategic calculation:
“Outward M&As [mergers and acquisitions] by Brazilian firms plummeted sharply in 2009, although the effects of the crisis in Brazil were relatively limited. In 2010, Brazil’s GDP growth was 7.5%. Equity investments made by Brazilian MNEs [multinational enterprises] in foreign affiliates reached US $11.5 billion in 2010, 3.9% of world of world outward equity investment flow, reaching the 5th position in the world, behind the United States, China, Hong Kong (China), and Belgium.”
If it had been Russia, rather than Brazil, that had risen so rapidly in global equity investment tables the comrades might have been tempted to interpret it as evidence that “Russia has further entrenched itself as a finance capital power.” I think it would a mistake to do so (for Brazil or Russia) even if figures on equity investments (acquisition of actual corporate assets) presumably need not be as steeply discounted as gross ODFI figures must be.
The Vale Center report also suggests:
“FDI can be indirectly financed through trans-shipment investment by using foreign affiliates in third countries or institutions such as SPEs [‘special purpose entities’ that conceal ownership], which are constructed in hubs, such as Luxembourg, Austria and Hungary, in that order. In 2009 and 2010, the stock of Brazilian ODFI in the Cayman Islands and other tax havens was considerably lower than in any year during 2000-2008. Also in 2009 and 2010, the stock of Brazilian ODFI in Europe rose considerably….
“At the same time, FDI from Brazil in the primary and secondary sectors increased, while that in the tertiary sector, and in financial services in particular, decreased. Further research could throw light on the relationship, if any, between these sector and geographic changes and their possible links to MNEs’ risk-mitigating strategies during and immediately following the financial crisis of 2008-2009”
The FDI Intelligence item cited above (and attached as Appendix A) reported little change in the relative position of Brazil and Russia in terms of outward investment. I would presume that this is because the figures are discounted for round-tripping, tax avoidance, money laundering, etc.:
“A comparative analysis of investment outflows before the financial crisis—between 2003 and 2007—and during the crisis—between 2008 and 2012—reveals that, while China performed very strongly, the rate of outward investment from Brazil, Russia and India did not increase significantly between the two five-year periods. ….
“According to greenfield investment monitor fDi Markets, China increased its outward investment by 152% between the two five-year periods, the biggest increase of any country in the world. This made it the 12th largest outward investor in the world between 2008 and 2012, moving up from its ranking as the 17th largest investor in the 2003 to 2007 period.”
. . .
“India moved only two spots up the ranking, from the 13th largest outward investor to the 11th, while Russia and Brazil remained in the same positions at 20th and 31st, respectively.
“Outward greenfield FDI from the BRICs was impacted by the debt crisis in Europe, and by stuttering growth in Brazil and much slower growth in China,” says Dr Henry Loewendahl, a senior adviser for fDiIntelligence, the FDI analytics unit of the Financial Times to which fDi Magazine also belongs.”
—FDI Intelligence, 10 April 2013, emphasis added
As regards investment in Africa, the comrades acknowledge (O6) that Russia “is still a relatively minor player (even compared to some non-imperialist countries, particularly China).” They cite a 25 March 2013 UNCTAD report that states “The expansion of Russian TNCs in Africa is fairly recent but rapid, reaching US$1 billion in 2011.” The report includes a table (p7) listing the top 20 investors in Africa for 2011 which does not include Russia for “FDI flows” (while China is listed in 4th place and India in fifth). Russia is listed in 15th place for “FDI stock” for 2011 with South Africa, China and India occupying the 5th to 7th slots.
Brazil & Russia — Shifting From Regional to Global FDI
A feature of Brazilian ODFI which parallels that of Russia is that, as it has grown in scope, the proportion going to its own hinterland (the rest of Latin America and the CIS respectively) has fallen as investment is increasingly directed at more “developed” economies. The pithy and informative 2008 Deutsche Bank report that comrade Decker originally introduced into the discussion in 2011 noted that “the percentage of Russian investment going to CIS declines sharply as total Russian ODI grows—from 59% of the total in 1997-99 to 12% in 2004-06.” In the case of Brazil:
“The distribution of Brazil’s ODFI and its concentration in the Americas has changed somewhat over time. Data from BACEN suggest that, between 2001 and 2010, there has been a systematic decrease in the participation of Latin America and the Caribbean, coupled with an expansion in Europe and the United States….”
—“Outward FDI from Brazil and its policy context, 2012,” Milton de Abreau Campanario et al, Vale Columbia Center, 10 May 2012, p3
The comrades have not commented on what would seem to be a critical factor in evaluating the significance of investment in the CIS. According to the Columbia FDI Profiles’ “Russian outward FDI and its policy context” (attached to “Is Russia Imperialist?”): “Russian investment in CIS grew from $.13B in 2000 to $10B in 2008. (But the majority of this went to Belarus, see Table 4 page 14).” I observed:
“Russian investment in CIS countries in 2007 and 2008 was overwhelmingly concentrated in Belarus, which at that time was a close ally. This implies that political, rather than economic, calculations were dominant. See Appendix C ‘Belarus Bailout Hinges on Russia’ in which the author quotes an analyst’s observation that ‘Financially, Belarus is becoming another South Ossetia.’”
Not only does most Russian ODFI flow to the “developed” countries, but what goes to the CIS was, for a lengthy period, “overwhelmingly concentrated” in one small country for political reasons—i.e., “another South Ossetia.” This is not finance capital pursuing superprofits, but a state subsidy to a dependent regime for geopolitical reasons. I suspect that comrades who view Russia as imperialist may wish to ignore this because of the importance of the “exploitation” of CIS counties by Russian capitalists in their scenario. But Marxists have a responsibility to attempt to account for facts that do not fit a pre-conceived model, and sometimes, if the gap between the model and reality becomes too great, be prepared to rethink the position.
Brazil’s Oil Sector Compared to Russia’s
Brazil’s oil industry is apparently fairly technologically advanced:
“Petrobas, the largest Brazilian company, ranks fifth in the list by foreign assets in annex table 5 [Brazil: major MNEs headquartered in the country, ranked by foreign assets in 2009 and 2010]; it is a leading technology player in the sector, including in bio-fuels. The Government controls 56% of the voting shares in Petrobas. The company has drilled the world’s deepest exploration well: the Tupi offshore oil field (7,000 meters below sea level). It has the potential to turn Brazil into a global oil producer. Today, Brazil has reserves of 26.9 billion barrels of oil.”
—“Outward FDI from Brazil and its policy context, 2012,” Milton de Abreau Campanario et al, Vale Columbia Center, 10 May 2012, p5, emphasis added
This technological capacity contrasts with Russia’s oil magnates who had to rely on U.S. firms when they won the right to access Iraqi oilfields, (see “In Rebuilding Iraq’s Oil Industry, U.S. Subcontractors Hold Sway,” Appendix A of “Is Russia Imperialist?”) Decker and Dorn only address this obliquely, acknowledging that Russian energy firms are relatively backward, while arguing that the “partnerships” they form based on technological dependence are more analogous to alliances between imperialist corporations, rather than the exploitation of more backward countries by more advanced ones:
“[F1] Although many imperialist countries are home to powerful corporations specializing in fossil fuels (e.g., BP, ExxonMobil), the suggestion here is that oil and gas capital in Russia don’t really count as finance capital due to the relative technological backwardness of Russian natural resources industries. While it is true that Gazprom and other Russian energy companies have partnered with other companies to borrow their technology, this does not render the Russians dependent on Britain, for example. Such partnerships are normal across imperialist countries. Nor does Russia’s relative technological backwardness in these strategic sectors mean that it is working with shovels. The fact that large Russian energy corporations in many respects lag behind their U.S. competitors is hardly a reason to disqualify them as examples of imperialist finance capital.”
Do the comrades consider the sizeable, but relatively technologically backward, national oil companies of Saudi Arabia, Kuwait, Venezuela, etc. (all of which form similar “partnerships” with the oil majors) to be similarly qualified as “examples of imperialist finance capital”? If not, why not?
We explained why Russia’s energy oligarchs were more successful on the world market than most of their contemporaries during the early Yeltsin years:
“The privatization drive was supposed to create a new generation of dynamic entrepreneurs who, by shrewdly forging strategic partnerships with foreign investors, would obtain the investment and technical inputs necessary to make Russian industry competitive internationally. But the chaotic looting of the planned economy produced an entirely different result:
“‘Before long most Russian businessmen, including the oligarchs, would realise that the surest way to build fortunes was not to waste time and energy on the back-breakingly difficult job of changing the way factories were run. The real money-spinner was to grab a piece of Russia’s vast mineral wealth….’
—Freeland, op cit
“The biggest winners in the privatization sweepstakes were the oil and gas executives of the Soviet era (the neftyankiki and gazoviki). Unlike the industrial managers, who had to worry not only about production but also marketing, shipping and raw materials, the former bureaucrats who grabbed chunks of the Soviet oil and natural gas industry had ready-made markets and established transportation networks. Their control of Russia’s fuel supplies, and the profits they made in export markets, gave them substantial domestic political clout.”
—“Russia: A Capitalist Dystopia,” 1917 No24
As long as 1970s Soviet infrastructure continues to pump oil and gas out of the ground there will be money to be made, but with very little investment, Russia’s hydrocarbon industry has been gradually losing ground to its competitors:
“Gustafson observes that the Russian oil industry relies, to a degree that is unusual in international terms, on its ‘brownfields’ – fields that entered production decades ago. The boom of the 2000s had less to do with the energies of new entrepreneurs than with the accumulated inheritance of the Soviet era: fields, pipelines, geological knowledge and drilling techniques remain largely the same. The surge in production since the late 1990s seems impressive only because of the slump that immediately preceded it; Russian oil output has not matched its 1987 peak even today. In Gustafson’s view, ‘the Soviet legacy assets have acted as an anaesthetic, delaying the adaptation of the Russian oil industry to modern management and technology, allowing it to remain relatively isolated and poorly equipped to compete globally.’ Post-Soviet oil companies have done relatively little exploration of their own: most of the fields brought online since 1991 were found by Soviet geologists, and only one major new field discovered since 1988 has entered production – Vankor, in the far north of the Krasnoyarsk region, operated by Rosneft since 2009.
“The combination of high oil prices and a massive expansion of production that proved so beneficial to Putin is ‘not simply unlikely to happen again – it is impossible.’ Russia’s geological luck is running out: West Siberia’s fields, which today account for almost two-thirds of total production, began to decline in 2007, and new sources of petroleum have yet to be found in sufficient quantities to make up the shortfall…. The hopes of the Russian oil industry are increasingly focused on the offshore ‘bluefields’ of the Arctic and Sakhalin, but these require huge levels of capital investment as well as forms of expertise the Russian companies generally lack. Hence the series of partnerships Rosneft has recently formed with international oil companies: with ExxonMobil and Eni last April, with Norway’s Statoil in August and with BP in October, all of them geared to joint explorations of the Arctic shelf in the Barents and Kara Seas.”
—London Review of Books, 6 June
Russian companies’ “partnerships” with imperialist oil corporations are analogous to those formed in other countries where the national oil corporations lack the technology to exploit their own resources. The fact that “Such partnerships are normal across imperialist countries” is irrelevant—joint ventures between imperialist oil majors with world class technology (BP, Exxon and Shell etc,) are hardly equivalent to arrangements they may work out with Kuwait, Saudi Arabia, Venezuela or other countries which cannot access their own resources without paying a surcharge for foreign assistance. These sorts of relationships were described in 1922 in a document adopted by the Fourth Congress of the Comintern:
“The progress of indigenous productive forces in the colonies thus comes into sharp contradiction with the interests of world imperialism, since the essence of imperialism is its exploitation of the different levels of development of the productive forces in the different sectors of the world economy, in order to extract monopoly super-profits.”
—“Theses on the Eastern Question,” emphasis added
Brazilian Tech Successes & Putin’s Aspirations
Brazil’s energy industry is apparently not the only area in which Rio de Janeiro is at least quantitatively ahead of Moscow. Brazilian aerospace companies have been able to compete successfully with imperialist ones in some sectors:
“Embraer is the largest Brazilian MNE in the high-technology aerospace industry. Founded in 1969 as a state-owned enterprise, this firm became the world’s third largest manufacturer of commercial aircraft and a leading producer of regional jets with up to 120 seats….In 2002, it opened a factory in China (Harbin Embraer Aircraft Industry—HEAI), in association with China’s state-owned company AVIC in which its holds a 51% stake, for assembly, sale and post-sale support.”
—“Outward FDI from Brazil and its policy context, 2012,” Milton de Abreau Campanario et al, Vale Columbia Center, 10 May 2012, p6
The authors also discuss how the Brazilian government’s policy “indirectly encouraged FDI”:
“First, a steady reduction in tax barriers to imports, mainly in the capital goods and final consumer goods industries, has opened the country to higher levels of international trade, particularly imports of capital goods. This process has directly increased industrial productivity and strengthened the competitiveness of Brazilian enterprises. Second, the privatization of industries such as steel, energy, mining, chemical products, and telecommunications in other economies has stimulated FDI from Brazil in those industries. Incentives for mergers of domestic firms offered by BNDES [government supported development bank] have also indirectly helped to promote the internationalization of Brazilian firms by facilitating the creation of large MNEs, most notably in the past five years.”
This is roughly what Putin et al aspire to but as yet have made little progress toward achieving:
“Diversifying the economy away from oil and gas remains an obligatory rhetorical goal for the Russian elite as a whole. In September 2009, Medvedev – he was then president – described the country’s dependence on hydrocarbons as ‘humiliating’; in his most recent state of the nation address to the Duma, Putin insisted that ‘we cannot put up with the Russian budget and social sector being kept hostage by financial and resource markets.’”
—London Review of Books, 6 June
Reviewing the evidence, it does not seem reasonable to conclude that Russian capitalism is more advanced than Brazilian. Of course this is a bit of an awkward fact for those who believe that Russia is imperialist and Brazil is not.
‘Global Challengers’ — Brazil Compared to Russia
I found the comrades’ response to the Deutsche Bank footnote on “global challengers” to be unsatisfactory:
“P 2 Note that Russia has only 6 companies rated as “global challengers” compared to 20 for India and 13 for Brazil (footnote #4). [”Is Russia Imperialist?”]
“[K1] Actually, the Deutsche Bank report was citing a Boston Consulting Group paper with a measure of “global challengers” that was more restrictive than what DB itself included in Chart 1 – DB said that the global reach of the Russian corporations was “not clear-cut” from its own perspective. DB did note, however, that “Russia’s ODI stock became the second largest among emerging markets in 2006” (Hong Kong [China] was the largest).
“[K2] Nonetheless, Brazil’s foreign investment has reached impressive levels – while there are good reasons to view Brazil as playing a qualitatively different role in the global economic system, there is no reason to deny that on certain important measures it is quantitatively close to Russia.”
As noted above, it was comrade Decker who originally introduced the Deutsch Bank survey in his 2011 document in which he sought to prove that Russia was imperialist. In response to why it reports that there are far fewer Russian companies on a list of “global challengers” than Brazilian (which would undercut the notion that Russia is in fact in a higher—i.e., imperialist—league) the comrades take a two-pronged approach: 1) raising the irrelevant issue that Deutsch Bank was using some other company’s research—they obviously considered it legitimate or would not have cited it); and 2) shifting the topic from global challengers to relative size of ODFI. In an implicit acknowledgement that perhaps they had failed to prove their point, they conclude with an assurance that while Brazil and Russia may have much in common there are (unspecified) “good reasons” to see Russia as qualitatively different than Brazil. This is of course the nub of our difference, and it is necessary to spell out what these “good reasons” might be, and particularly to provide evidence to substantiate them.
If we are to have a serious discussion it necessary for both sides to address the substantial arguments put forward by the other, not to ignore or sidestep them. For example, it is clear that neither Russia nor Brazil is currently a globally significant center of finance capital. In this case of Russia this is highlighted by a recent NYTimes report that Warsaw, not Moscow, is emerging as the regional stock exchange for the countries of the former Soviet Bloc (see Appendix “G” of “Is Russia Imperialist?”). Fitting this within the framework of “Russian Finance Capital” would seem to present a formidable challenge. Perhaps this is why comrades Decker and Dorn offered no comment. In the absence of any evidence to the contrary this simple fact would seem, on its face, to be a “good reason” to think that Russia is not imperialist in the finance capital sense.