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. Last Updated: 07/27/2016

A Squandering Nation

Alexei Bayer
There has always been great irony in the fact that Peter the Great chose Holland as a model for reforming Russia. The imperial tricolor, which is derived from the Dutch flag, is the only thing he managed to transplant successfully onto the Russian soil.

The two countries couldn't have been more different. Nature gave Holland few riches -- not even enough land. But the Dutch cultivated wisely whatever they had and won more territory from the sea. They quickly learned to husband their one resource, natural gas, after first spending wildly in the 1970s and endangering their industrial infrastructure.

Russia has always had plenty of everything, and it has always been extremely careless with its reserves, even under the tsars. But squandering on a monumental scale started only after Russia, ironically once again, imported Marxism from Germany -- the land of thrift, industry and the Protestant work ethic.

Soviet leaders were especially wasteful with the people, long viewed as the country's most abundant resource. Tens of millions were killed outright or fed as cannon fodder into the maw of World War II. Equally insidious, a social crisis still decimates the nation's population, producing low birth rates, high mortality rates and very low life expectancy.

Perversely, the Soviet regime specifically targeted the most educated and productive citizens, eliminating most of those who could read and write in the 1920s, killing productive peasants in the 1930s and purging able managers, scientists and doctors until the early 1950s. It also encouraged a brain drain from the 1970s to the 1990s by pushing about 2 million Soviet Jews to emigrate.

But ordinary people were destroyed by the millions as well -- not just by dislocation and starvation, but through alcoholism and poverty in towns and, especially, in the countryside. Coupled with harebrained collectivization, this turned one of the world's breadbaskets into a massive grain importer by the 1970s.

The country's profligate ways changed little with the collapse of communism. During the 1990s, Russia managed to lose the few genuine achievements of the Soviet Union, such as its education system, science establishment and universal -- albeit rickety -- health care network.

Despite the loss of its empire, Russia still has plenty of resources, including its land and population, to go on wasting and to resist pressures for rational management. The old ways persist under the leadership of President Vladimir Putin.

On paper, the country has restored strong centralized authority. In reality, however, little of the social or physical infrastructure has been rebuilt, while the plundering of assets continues unabated. For instance, predatory logging in the Far East, run by organized crime with lumber being exported to China, has been destroying the natural habitat of the endangered Amur tiger.

This is a minor example, but it is indicative of what happens on a national scale. In the Soviet Union, most oil was consumed wastefully by the country and its satellites in Eastern Europe and elsewhere. Industry was run to pump oil and mine iron ore to build machines in order to pump more oil and mine more iron ore to build more machines.

Now this vicious cycle has been broken, and Russia is exporting a lion's share of its oil -- as well as natural gas, metals and other commodities -- for hard cash. Some of the money has been squirreled away in the form of Central Bank reserves, which have surpassed $400 billion. In addition, the stabilization fund is nearing $150 billion.

But if commodity prices crash -- which may very well happen if the global financial crisis spreads -- Russia will have little to show for a decade of spectacular petrodollar windfalls. Except, of course, for the fat Swiss bank accounts held by its bureaucrats, sweet memories of debauches in Courchevel and receipts from airport duty-free boutiques.

Alexei Bayer, a native Muscovite, is a New York-based economist.