Trick or Treat

Halloween, a mainly American (and British, Canadian, and Irish) holiday celebrated on 31 October, is a fun affair.  As such, its celebration has been steadily spreading and becoming internationalized.

Many Americans mistakenly believe that Halloween is rooted in the Mexican Día de los Muertos.  In fact, Halloween's roots are in the Celtic festival of Samhain and the Christian All Saints' Day holiday.

Lovely Mexican Maidens from Día de los Muertos

In the US, Halloween is a festive affair mainly intended for the youth.  Visiting neighbors to trick or treat while wearing disguises in order to receive lots of cheap, disgustingly-sweet candies that lead to a many insulin shocks is a hallowed American tradition reserved for the last day of October.  In the rest of the world, Halloween has become raison de fête for young (and not so young) adults.  It is an excuse to party and engorge on libations on yet another day that would otherwise be spent unproductively.  

In 1989 the Berlin Wall, the symbolic division between East and West, fell.  Thanks to this historic event, Americans can now purchase Stolichnaya Vodka every day of the year where, in exchange, Russians can celebrate Halloween in disguise once a year.  It seems like a fair trade.

Lovely Moscovite Maidens from Хэллоуин

Corrosive Corruption

I have written a few posts recently regarding corruption in Russia.  As evidenced by an article in today's Washington Post, the sad truth about Russian corruption is that it silently and slowly subverts the nation by eroding citizens' confidence in the government and increases international distrust of Russia and Russians.  It is an acrid acid that is corroding the nation from the inside.  Here are a few telling quotes from the article:

There is, [Yelena Panfilova, director of the Moscow office of Transparency International] said, a "catastrophic gap" between civil society and "state sabotage." Corruption is everywhere - in hospitals and in schools, in utilities and courts, and especially in the ranks of the traffic police - but she said Russia is falling ever more deeply down the international list because of a sense of immunity in the higher levels of government ...

According to the report, Russia was the most corrupt among the G-20 nations. The United States, because of financial scandals, dropped out of the top 20 least-corrupt nations for the first time since Transparency International began issuing its annual list 15 years ago. The United States fell from 19th place to 22nd, behind Chile* ...

Nearly 80 percent of Russians say that corruption is a major problem and that it is much worse than it was 10 years ago, said Denis Volkov, who analyzes polling data for the Levada Center in Moscow. A majority say Medvedev is right about the problem of corruption and think he is sincere about it. But 71 percent in the most recent poll say any government efforts to fight corruption will amount in the end to window dressing ...

But now corruption has been monetized. Satarov [head of the Indem Foundation in Moscow] calculated in 2005 that corruption amounted to $316 billion that year, or more than Russia's federal budget. He thinks it has grown since then ... Corruption has become a nearly insurmountable obstacle to Russia's economic development, he said.

Because the way corruption appears to be structured here, which appears to be a pyramid scheme in which many participate while a few powerful elite get obscenely wealthy, there is little incentive to change the system.  Basically, because it tends to be those that are in control that benefit the most from corruption, there is no real incentive to kill the goose that lays the golden egg.

Transparency International's World Corruption Map

There are three potential end-states from the current situation:

1. A structural, anti-corruption reform cleans up Russia and makes the country a better place by making it more equitable and competitive on the world stage;
2. There is stasis, and the elite few keep the situation under control while trying to reap the profits of corruption;
3. Corruption becomes bad enough that it leads to radical structural changes in hopes of a better system, analogous to the 1917 revolution.

Scenario 1 is the only sane option forward.  This is because, while scenario 1 is the only positive path, scenarios 2 and 3 are not real options.  Scenario 2 requires discipline and strong centralized control.  But, maintaining discipline is hard when greed, a fundamental character of the human nature, will drive individuals towards extracting more profits from the system.  As such, scenario 2 will eventually lead to scenario 3.  Having lived through a revolution myself, I can attest that it hardly serves anyone's interest except those who have the inclination to be the most brutal for the longest period of time**.

As I have said repeatedly, Russia has tremendous potential and can credibly become a member of G5*** (versus G20).  Whether this becomes a reality heavily depends on the Russian will, capacity, and capability to implement scenario 1.

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* Indeed, US is moving in the wrong direction.  On 24 October I wrote: "Not long ago, similar [corruption] situations existed in the US (and unfortunately they seem to be making a comeback)."  The article's rankings prove the point.

**  The American Revolution is the only revolution in history that has not been followed by a prolonged period of bloodshed.  All other revolutions have been followed by a period of cataclysm.  This pattern is unlikely to be disrupted by future revolutions.

*** The G5 are five of the world's leading economies in mid-1970s — France, Germany, Japan, the United Kingdom, and the United States.

China Decries Democratic Decline In Russia

I am not making this up, seriously!

Here are some of the more interesting quotes:

Russia puts itself on the same level as China in not electing the mayor of its capital, unlike all the big Western powers against which Russia likes to measure itself.

I do not believe that quote as intended to be a compliment.  There are a few more jewels in the article to add insult to injury, like this one:

With the liberal opposition not represented in the Moscow parliament, ironically it was left to the Communists — the remnant of the party that once ruled the entire Soviet Union — to gripe about the methods used.

You see, even the communists are not happy!

Moscow's Millionaire Fair

Shucks, I missed it!  Here is a New York Daily News article on the topic.

Sauce is Saucier in a $209,000 Diamond-Studded Saucepan

And fresh, from the comments section:

Yes Little Girl, it's kinda all about being attractive to little girls ... wait, why do I feel nauseated?

Why Are Russian Roads So Expensive?

Hint:  This article has it partially correct, but the account is likely incomplete.

The comparative costs per mile (in millions of dollars) that the article cites are:

• China:         $ 1.3
• US:            $ 3.6
• EU:            $ 4.2
• Russia:        $10.5
• Moscow region: $31.0

A Bargain at $10,500,000 per Magnificent Mile 

The article goes to to explain the reasons for these dramatically high costs and correctly identifies Russia's massive and sprawling bureaucracy as one of the key issues.  The Itar-Tass article also suggests that a Soviet legacy, namely complicated contractual schemes, is part of the problem.  In other words, the suggestion is that there is a legal structure and code, the respect for which is driving up costs.

Even A Better Buy at $31,000,000 per Monstrous Mile

Indeed, there are laws in Russia, but there are no rules.  For example, demanding bribes is against the law.  However, "public servants" behavior - like the police or elected officials - suggests that this is no rule against demanding bribes.  Therefore, everyone does it, and the doing appears to be systematic.

In a recent trip to St. Petersburg, I befriended a local man who told a story of a police captain overseeing some 500 policemen.  This police captain claimed to gross €10,000 a month by collecting a portion of the bribes collected by the 500 foot soldiers.  His net intake was lower because he had to kick up a portion of his earnings upstairs.  A Moscow friend talks of a very close relative who, despite being a decent man, is a bribe-taking police officer.  When my Moscow friend asked his relative about this corrupt behavior, the relative responded by effectively saying that taking bribes was a job requirement and code of conduct.  The relative went on to say that if he were to behave honestly and ethically, he risked losing his job or even his life.

Anecdotal indications are that much of the income being made in Russia by the elite are on the backs of ordinary people who pay a heavy tax for merely being a citizen of their country.  This tax, paid in the form of bribes and kickbacks, is not part of the official 13% income flat tax or other official, on-the-book taxes.  Here are a couple of other commonly used Russian mechanisms for funneling fees from the public into a few pockets:

• A government official grants a contract to an uncompetitive bidder with the clear expectation that the bidder will pay dues to that official after winning the contract.  For example, if a job costs $20 to complete, the official may accept a bid for $50, allowing the bidder to give a $20 kickback to the official.  As such, we have a win-win-lose scenario.  The bidder wins a sweet deal, the official collects a sweet kickback, and the tax payer loses by having to finance a bigger tab.
• When it comes to commercial real estate in Moscow, book values are typically 10% of their actual market value.  This allows real estate investors and developers - most of whom have strong government ties - to pay much less in taxes.  To make the arrangement succeed, the bulk of the transaction is conducted in cash, in offshore banks, and in an invisible and corrupt form.

Regrettably, in today's Russia, there is a pervasive and endemic culture of corruption nearly at every level*.  This culture demands hidden transactions that ultimately favor the elite few and produces a corrosive leak that eat away at Russia's productivity by artificially increasing costs across the board, including the very dear Russian roads.

In the very best case, the Itar-Tass article is an incomplete work by an incompetent journalist and his sloppy editor that failed to capture the obvious hidden cost in Russia's $10.5 million and Moscow's $31 million per mile roads. More likely, Itar-Tass has maintained its position as a propaganda arm, formerly Soviet, now Russian.

There is a silver lining:  Not long ago, similar situations existed in the US (and unfortunately they seem to be making a comeback).  New York's Democratic Party, Chicago's (primarily Democratic Party) political machine, and Los Angeles' police force were hallmarks of government corruption.  US did manage to turn a page and become more competitive and prosperous in the process.  Russia and Moscow may be (hopefully) following the same path.

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* Post Script:  I took a tour of Lenin's mausoleum on a hot day in July.  Waiting in a long serpentine line, a local man, who was fluent in English and identified himself as a professor and a hobbyist tour guide, approached me to ask if I wanted to go to the head of the line by paying a fee.  As it was hot and I was with my elderly parents, I agreed.  Making our way to the mausoleum entrance, the professor tour guide complained about corruption in Russia and specifically singled out Russia's high road costs as an example.  Once the story was done, he gladly accepted my money and then bribed the mausoleum guard to let us slip through.  The irony of the situation was rather palpable.

Inelastic Demand

I have discussed Moscow's very expensive restaurants, very fancy cars, very expensive housing, and very uneven resource distribution.  Put all of these "very" topcis together, and you have a picture like the one below.

Perfectly Inelastic Demand

Someone I highly respect recently said to me that "there are two types of people in Russia:  Those who know the difference between $1 and $1,000 and those who do not.  The problem is that only the people that do not know the difference have money to spend."  

Actually, Russians are Black

Having grown up in America, I have a sense of America's Black and white societal view.  One of America's tendencies is to be introspective along racial lines.  While this provides a simple model for understanding how the American society works, it is oversimple and often stupid.

For instance, a simple and stupid conclusion that many Americans have come to is that African Americans have a  propensity to overspend on luxury vehicles.  The (wrongheaded) reasoning goes something like this:

• Black people are poorer than white people (because that is what I have been told as it has been historically true)
• I see a lot of Black people living in cheap housing (in some movies)
• I see a lot of Black people driving nice cars (in some music videos)
• Therefore, Black people spend too much money on flashy cars (because I deduce)

Image Perfect for Stereotyping

Extending the same loopy logic, I can "prove" that Russians are actually Black:

• A lot of Russians live in cheap housing
• A lot of Russians drive really expensive cars
• Therefore, Russians spend too much money on flashy cars
• Therefore, Russians are Black

Yo - Flavor Flav Got Nothing On This Russian Brother!

Back to the Black and white societal view in America:  It would be far more useful if Americans examined their society through income and education levels instead of race.  Although I have not done any quantitative studies, I have observed numerous cases of profligacy on automobiles by under-educated folks.  These under-educated folks, who can belong to any racial group in America, also tend to make less money.  However, by incorporating a flashy car into their image - because a flashy car is cheaper, easier to attain, and more visible than a decent house - the under-educated can project a sense of prosperity.

The flashy car dynamics in Russia are different than in the US, but the goals of projecting a sense of prosperity are the same.  It is not uncommon for a Russian to spend 2X his annual salary in purchasing a high-end car.  But, unlike the American under-educated and low-income fellow, this Russian tends to be well-educated and a professional.

It is 2010 and Russia is (still) in middle of a massive social and economic transformation.  The Russian society has gone from a command-and-control economy where resources were poorly allocated to a freewheeling economy rife with corruption and inequality.  Although today's resource allocation has significantly improved over what was in existence during the Soviet era, corruption and lack of sufficient regulatory control still lead to poorly-allocated resources.  This situation makes some Russians extremely wealthy.  And other hard-working Russians, wanting to project a sense of self-worth and success, do what they can to display the image of belonging to the high-net-worth class.

New Russian Bling

Regarding the misleading blog title: It should be clear by now that Russians are about as Black as African Americans are about spending high dollars on flashy cars.  Despite what some Americans may (incorrectly) think about their fellow colored citizen, there is no race factor driving a certain ethnic group to purchase flashy cars.  There is only the interplay of economic logic and a sense of needing to project personal dignity in some way, no matter how misdirected that method may be.

Moscow's First Snow

The weather is hovering around the freezing point these days and it is actually rather pleasant.  However, prognostications are - probably based on some sketchy science - that this will be a particularly brutal winter in Moscow.  If prognostications are true, today's first sprinkling is a foreshadow of events to come.

зима = winter

Just for kicks, here is what the weather is supposed to look like for the next three days in Moscow, Russia, Palo Alto, California, and Austin, Texas respectively.

Moscow

Palo Alto

 Austin

Schwarzenegger Is In Red Heat

The Governator, aka Arnold Schwarzenegger, the Austrian-born American governor of California, starred as a Russian policeman in Red Heat in 1988.

To Russia, with Love

Twenty-two years later and actually in Russia, Arnold is once again in red heat (the non-capitalized kind).  Per a recent article in Bloomberg, Schwarzenegger said:

"I love places where there is an extraordinary potential,” Schwarzenegger, 63, said before he visited Skolkovo with Medvedev. “It’s almost like looking at a gold or diamond mine and saying: all you got to do is go in there and get it.”

Later, President Medvedev joked that if Arnold were a Russian citizen, he would have a shot at being Moscow's next mayor.  Of course, as Mr. Luzhkov demonstrated, being the mayor is a red-hot Russian recipe for a ride to riches.

Actually, Russia Is In The Middle East

Fatalists repeat after me:  Этo Россия.

Whenever asked about absurdities, contradictions, inequalities, or huge inefficiencies about the Russian societ, Этo Россия [this is Russia] is a familiar refrain.  You see, while Russians are proud of their heritage, they are rather sharply aware of their societal quirks and are bothered by them.  Yet, the quirkiness is explained away and inaction is excused by Этo Россия.

Having roots in the Middle East, I am well familiar with the fatalist nature of some societies; however, I had not expected Middle East-style fatalism Russia.   And like in the Middle East, "fatalism" in the Russian context is a double entendre - with the second meaning being "attempting to change the system can be fatal."

A Picture Is Worth A Thousand Words

Enough Said

Picture from an HSBC advertisement in Singapore (thanks om@).

What's Wrong with This Picture? Part II

Moscow's longtime mayor, Yuri Luzhkov, in office since June 1992, was fired on 28 Septemeber.  The unstated but obvious reason is that there was a power struggle between him and Russia's president, Mr. Medvedev.  In the campaign to unseat Mr. Luzhkov, a string of stinging news shows showed or implied significant corruption by Mr. Luzhkov and his wealthy wife, Yelena Baturina.

Mrs. Baturina's wealth was coincidental with her husband's tenure as mayor of Moscow.  This is obvious to Russians and a common subject of satirical remarks in daily conversations.  But only when her husband, Mr. Luzhkov needs to be sacked - and not a moment before - allegations of corruption arise.

What's wrong with this picture?

What's Wrong with This Picture? Part I

My young daughter used to play a game where she had to identify things that did not fit in a picture.   The sample below gives you a hint.

Spot the Odd Man Out

I play the "what's wrong with this picture" game in Moscow (sorry, no pictures).  Here is an example:

Moscow is consistently rated as one of the most expensive cities in the world in various studies.  It ranks with London, New York, and Tokyo.  Yet, in terms of infrastructure and standards of living, Moscow does not belong to this group.

Basically, Moscow has the extremely high costs of a world capital without many of its benefits.  What's wrong with this picture?

More importantly, why is this picture wrong?