The Three Major Issues Plaguing Russia (Name) (University) (Date) The Three Major Issues Plaguing Russia Identification Energy Scenario The energy scenario can be viewed from three different viewpoints viz. the demand and price of natural gas, that of oil and that of electricity…
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As Paltsev and Reilly (2009) point out, the US and Europe remain wary of energy rich nations like Saudi Arabia and Russia. Weak Institutions Russia ranks 133rd out of 144 countries in the World Economic Forum’s (WEF) Global Competitiveness Index (GCI) 2012-2013. According to Aidis and Estrin (2005), the formal institutional environment is the main barrier in developing entrepreneurship in Russia. Corruption is the important factor due to the low income of the governing classes. Business cannot develop when property rights are not fully enforced, and there is no rule of law which provides a conducive environment for entrepreneurship. Adequate finance for private enterprise to flourish, is also lacking. Social Unity 100 billionaires own 30% personal wealth in Russia compared to a global figure of less than 2%. Russia has a dearth in social capital, which is based on trust, values and networks. Putnam and Pollock opine that social capital is “the capacity for self-organization and collective action in pursuit of some common good” (Menyashev & Polishchuk, p 2). Social capital can lead to economic development in two ways. One is by cutting transaction costs in the private sector and the other by finding a solution to the agency problem between the government and society. Policies Energy Scenario Russia has diversified to find new customers in China, Japan and North America for natural gas. The state-owned Gazprom owns most of the gas reserves and pipelines after the Soviet disintegration. It has also created new pipelines that would bypass the other ex-Soviet republics. It has the eighth largest oil reserves in the world. Production of oil increased from 2000 to 2004 after which there has been a slowdown. On the other hand, the electricity sector has been reorganized, which has attracted foreign players. Russia formed the Gas OPEC or Troika inspite of which, spare capacity has moved beyond the OPEC. When it moved beyond usual production by exploiting the Arctic and East Siberia, US became oil independent. Moreover, many countries also increased their oil production. When it reduced subsidies, maximized energy efficiency, and upgraded energy infrastructure, it did not offer reform to the sector and the politicized firms could not take advantage of this development. The demand for oil reduced because of factors like energy efficiency measures, Europe bypassing Russia and the breakthrough in energy resources. This has been despite a growth in population of Russia. Weak Institutions Due to excessive bureaucracy, there is a growth in informal networks, which help to mobilize resources. There is intimacy and reciprocity in such networks. The entrepreneurs use only short-term finance which could point to an underdeveloped banking sector with poor collateral laws. The liability ratio is less than one which restricts the scale of enterprise whether as a startup or for the purpose of expansion. Trade credit in the form of loans from one firm to another in the supply chain is used and the profit earned is ploughed back into the business. Unclear bureaucratic policies increase the cost to business. According to Transparency International, public officials and civil servants, including the police, are the most corrupt institutions in Russia. In 2012, Russia ranked 101 in the overall quality of infrastructure. Though Russia is one of the most educated countries, the quality of education is declining. Life expectancy is low when compared to countries with similar GDP. The number of
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