Wednesday, November 30, 2011

Historians Versus Stalin and His Gulag: A Report From the International Conference on the Gulag, Moscow, October 28-29.

Russian and international scholars gathered at the end of October in Moscow to discuss Stalin’s Gulag.  The Russian State Archive on Social and Political History, in which the Katyn execution order and Stalin’s July 3, 1937 “mass operations” telegram reside, provided an appropriately somber setting. 

Russian scholars largely from the provinces, presented their findings from their research in local and regional archives.  This cadre of dedicated and relatively young scholars represents Russia’s best hope of eventually coming to terms with its tragic past. They have provided invaluable case studies of camps, special settlements, and sharashki in which millions of innocent Russian citizens were imprisoned and in which many perished.

Stalin continues to hold his own despite this amassing scholarly evidence on his crimes against the Soviet people. Illustrious keynote speakers reported with regret that some half of the Russian people continue to view Stalin in a positive light. Without his iron fist, the backward USSR could not have carried out its “overtaking development,” they believe. Too many Russians believe in a presumed defective genetic code that requires authoritarian rulers for Russia. Too many look at remote Norilsk or  the Moscow University Skyscraper and conclude: “We would not have these things without the Gulag.”

Few Russians think about the immense economic and social costs of  Stalin’s crimes. Few know that Russia had the fastest growing industry in Europe on the eve of 1917. Too few ask how other backward countries, such as Japan, “caught up” without the slaughter of  their people, or how can any mass extermination of innocent people serve any positive function?

According to figures presented at the conference, more than a quarter of the adult Soviet population had been a victim of Stalin’s repression the day Stalin’s death was announced to a hysteric and grieving Russian people. Less than a quarter of these would be considered “criminal” in other societies. In the United States, lower rates of incarceration among black youths have basically destroyed the black community.

The corrosive effect of  the repression of one in four adults, most innocent of any real crime, can in no way be compensated for by the so-called economic achievements of the Stalin rule.

Monday, November 28, 2011

Chinese Stock Alarm? Sino-Forest May Be the Best of the Bunch

Sino-Forest is a Wholly-Owned Foreign Enterprise that harvests, processes, and sells wood from leased or owned tree plantations in various Chinese provinces. Its international management hails from Hong Kong, China, and Canada. Sino-Forest trades on the Toronto Exchange, is audited by Ernst & Young, and its glossy annual reports boast of master agreements, huge markets, a plantation strategy, and possible a billion dollar loan from Chinese banks.

If you want to invest in China, Sino-Forest appears (or appeared) to be among your best bets.

Sino-Forest’s compelling story generated a market capitalization of six billion dollars and a share price that rose from $10 to $23 while stocks were collapsing worldwide.

That was then. A critical report sent the share price tumbling eighty percent, trading has been suspended for possible violations of security laws, and the Canadian Mounties are investigating for fraud. The company’s outside directors hired PriceWaterhouseCoopers to investigate.

The investment community finally got a clear picture of how business is done in China, did not like what it saw, and dumped the stock. It’s as simple as that.

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Sunday, November 27, 2011

The Booing Heard Round the World

Vladimir Putin accepted his party’s nomination to be its presidential candidate. No surprise in this. But this time round, he goes before the voters without a claim to legitimacy. Russian politics have entered a new phase. The public has awakened to his corruption and stumbling economic policies. They do not want him back.

In his last election, Putin would have won big even without his evisceration of liberal opponents.  Oil prices were high. He could compare the relative stability of his years with the chaos of the Yeltsin years. Now, Putin’s public-opinion favorables are falling and his negatives are rising. His administration tried to suppress videos of the unprecedented booing he received at an appearance at a martial arts competition, but cell-phone videos of his embarrassment have gone viral on the internet.

Putin’s reelection is inevitable. He will not allow any legitimate challenger on the ballot. His only opponents will be the communist and nationalist parties, whose leaders both have negative popularity ratings.

 Russia will join a large number of countries with an unpopular leader who could not be elected in a fair race. Putin’s third term will be for six years, and he is eligible for another six. He will become Russia’s Mubarak and well understands this fact.

Wednesday, November 23, 2011

In Many Cases, There Is No Compromise

The Arab League and everyone else tell Bashar Assad to compromise with the Syrian protesters. Republicans and Democrats are urged to be “moderate.” The European Union urges Germany to put up more bailout money to save the spendthrifts of the South.  Protesters tell the Egyptian military to be gone.

Compromise is not possible when there is no middle ground. It seems this truth escapes domestic and world politicians and pundits.

The majority of the citizens of Syria want Assad either dead or gone. He wants his opponents dead, in jail or thoroughly cowed. There is no middle ground. The outcome is  “either or.”  Either Assad is killed or flees or he kills or jails enough of his opponents to subdue them. He knows he must lose if he cedes ground.

The Democrats want a larger and more intrusive federal government.  The Republicans think the federal government is already too large and powerful. The “middle ground” is nonexistent. Republicans fear that any further increase in government will lead to more increases. Democrats fear that even small reductions in the size of government will be a repudiation of the New Deal. Neither will budge in such a situation. It was foolish to expect “compromise” from the congressional deficit commission.

The thrifty Germans do not want to bail out the spendthrift Greeks, Portuguese and Italians. Germany’s southern neighbors would like to continue as is with the help of German transfers. Germany’s taxpayers will not accept further bailouts of their southern neighbors, and the Greeks, Portuguese and Italians do not intend to enact real austerity measures.

Protesters on Tahir Square tell the Egyptian military to “leave” and to give up power. The military controls much of the Egyptian economy and is not about to give up this largess. Where is the compromise on such an issue?

In democracies, we hope that elections will resolve such impasses. In authoritarian states, impasses are resolved by violence, not by diplomacy.

Tuesday, November 22, 2011

Why Are the British Investigators Looking Only at the Murdochs?

I have not paid attention to the British tabloid scandal. All I know is that Murdoch’s News of the World stands accused of sleazy and perhaps illegal tactics in gathering news stories on celebrities and crime victims. The allegations broke when Murdoch’s company was about the acquire Sky News and turn it into a British Fox News. The timing looks suspicious to me.

From the press coverage, it would seem that only News of the World engaged in such dirty tricks.  Can this be true?

I understand that British tabloids compete against each other fiercely. If only one uses sleazy techniques to get juicier stories, the others would lose out in the competitive struggle.

As an economist, I pose a hypothesis: If only the Murdoch papers (News of the World and the Sun) used underhanded and sleazy methods to get news scoops, their share of the tabloid market would be rising over time. Only they had the really salacious stories. Other tabloids would be boring in comparison.

British tabloid circulation statistics do not support the hypothesis. Both News of the World’s share of Sunday tabloids and The Sun’s share of daily circulation remained stable against a backdrop of declining overall tabloid circulation.

This statistical fact tells me that “everyone did it.” But why are only the Murdochs being investigated?

Sunday, November 20, 2011

Are One In Five American Children Hungry?

Childhood hunger is a nice, safe issue. No politician can be against hungry children, and we are told that the U.S. faces a child hunger problem of massive proportions. Advocacy groups repeat over and over that 16.2 million children (one in five) “struggle with hunger in the United States.” Television appeals show dispirited children going to bed hungry.

Childhood hunger and nutrition are one of the constants of political discourse. While the Super Committee stalemates, Congress debates whether pizzas should be counted as a vegetable in school lunch programs. The Occupy Wall Street crowd deplores childhood hunger as “violence against children.” Liberals complain that Rush Limbaugh jokes about childhood poverty. Sinister pizza, cola, and salt lobbyists block valiant efforts to make school lunches healthier.

Statistics that become part of our folklore should raise suspicion. When we dig into them, they are usually wrong. I cite as examples Bill Clinton’s “100,000 new cops on the street” or the “miserly pay of teachers.”

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Thursday, November 17, 2011

“Die Linke:” A Platform For Occupy Wall Street?

The Occupy Wall Street crowd is criticized for not offering an alternative to the capitalism that it says has failed. Maybe they should take the platform of Germany’s Die Linke (The Leftist) Party. It seems to suit their protest signs.
Die Linke’s base consists of young radicals and true-believer former members of the East German communist party. Its top leaders broke with the mainstream Social Democratic Party for having forgotten its Marxist roots.

As a minor party, Die Linke’s goal is to win enough votes to enter the German parliament and do well in local and state elections. Their platform rules out participation in coalition governments. It is therefore an electoral party that can be fairly open about its anti-capitalist agenda. It only has to win about five percent of the votes nationally to be a success.

In its party congress in Erfurt, symbolically a century after the Revolutionary Social Democratic party adopted its famous Erfurt Program, Die Linke adopted the following platform for the upcoming national elections:


53 percent tax rate for incomes of 65,000 Euros for singles or 130,000 for married couples (one Euro equals around $1.34).
5 percent annual wealth tax on a million Euros or more.
One percent tax on all security market transactions.


Investment program of 200 billion Euros per year to create two million jobs, half in the public sector.
Nationalize banks.
State control of the financial sector
Employees get ownership shares of companies that receive subsidies.


All atomic power generation should be stopped.
All energy from renewable energy.
Energy concerns to be nationalized.

Labor and Social Sphere:

Minimum wage of 9 Euros per hour to be raised each year.
Long term unemployed receive unemployment benefits basically for an unlimited amount of time.


All citizens must pay into “citizen’s health insurance” program.
All health care is free.
Employees in health care should be compensated according to fixed wages.

Foreign policy:

Replace NATO with a collective security system including Russia.

I imagine the American Left would embrace Die Linke platform, if it, like its German brethren, could be honest with the voting public.

The five percent wealth tax on a million Euros would be attractive. Millionaires who earn less than five percent will see their wealth fall each year. In a world of bad markets and low interest rates, we could get rid of marginal millionaires in a few years.

Wednesday, November 16, 2011

Berezovsky vs. Abramovich: Insecure Oligarchs Spell Bad Russian Economy

Two Russian oligarchs are battling in a London civil court over the spoils of Russian privatization.  One is “in” with the Kremlin. The other is “out.” The one who is “out” played the game of Russian politics and lost. Their case shows that the Kremlin decides whether they can keep their spoils or not. Their testimony reveals why such insecure oligarchs have little incentive to create value. As long as the owners of Russia’s “national champions” have such insecure property rights, Russia cannot be a major player in the world economy, member of the WTO or not.

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Monday, November 14, 2011

Back to Constitutional Basics: Madison On Class Warfare

James Madison was the Father of the U.S. Constitution. Madison, more than any other of the Constitutional framers, insisted on limited government. Madison argued that the Constitution’s task was to limit the powers of government:  “You must first enable the government to control the governed; and in the next place oblige it to control itself.”

Few today know that Madison’s greatest fear was of an “overbearing majority” that would act against minorities. Madison and the other founding fathers used the separation of powers and the protection of private property (the Fifth Amendment) to rein in out-of-control majorities. In Madison’s words: “Measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority.”

What minorities might fear the majority? In a burst of what today might be regarded as political incorrectness, Madison wrote: “The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government.”

In other words, people have different skills, education and talents. Hence income and wealth will be unevenly distributed. The majority will have less income and wealth than the fortunate minority and it “must be rendered, by their number and local situation, unable to concert and carry into effect schemes of oppression.”

Government must protect minorities against unfair laws: “It is of great importance in a republic not only to guard the society against the oppression of its rulers, but to guard one part of the society against the injustice of the other part. Different interests necessarily exist in different classes of citizens. If a majority be united by a common interest, the rights of the minority will be insecure.”

If we translate the Father of the Constitution into modern English, we can say that Madison warned about class-warfare appeals to an overbearing and jealous majority.  This was Madison’s fear.

We are about to enter Madison’s nightmare. Although class-warfare appeals are as old as the hills, we now have an income tax system in which soon a majority of the population will pay no income taxes. Those we do not pay income taxes, but receive benefits from the state will be “overbearing” in their support of higher taxes on the “rich.” They will be unable to view the problem of this type of approach from Madison’s eagle-nest view.

They do not understand that such policies can kill the golden goose.

Wednesday, November 9, 2011

Moscow Sights and Sounds: November 2011

Over the past decade, I visited Moscow some twenty five times.  But this visit to attend the International Conference on the Soviet Gulag was my first in three years.  The conference hotel was in the center of old Moscow, a few minutes from Tverskaya and the Kremlin. I had a chance to walk around and check out familiar sights.

My ten-minute walk to the conference, in the former Institute of Marxism Leninism, took me past the Moscow Mayor’s office. Older people still refer to it as the Moscow Soviet (Mossovet), but most call it the Maiory (Mayor’s office). Nikita Khrushchev occupied this historic red-brick building as head of Moscow during Stalin’s rule.

Each time as I passed by the Mayor’s office, I counted the number of black Mercedes, Audis and BMWs waiting outside for their bosses. The average number was around thirty. The chauffeurs and body guards engaged in idle conversation as they waited. Russian politicians do not mind displaying their wealth and influence.

I do not like Russian television. It is idiotic game shows (20 years ago the prizes were like worth $10), singing contests, or soap operas, but I forced myself to watch the evening news one evening. In Soviet days, a dour announcer read the news accompanied by impersonal news reels.  Things are different now.

The news segment I watched was a slickly-produced exercise in modern PR.  It featured Moscow’s new mayor, appointed to replace long-time mayor Luzhkov, strolling through the city with a TV reporter lobbing softball questions at him. The Putin-Medvedev team decided that Luzhkov was too powerful, and they put this guy in his place. (Luzkov and his billionaire wife are hiding somewhere in Europe).  He like every other politician was so corrupt that no one seemed to regret his departure.

At each destination, the telegenic new mayor cheerfully pointed out how he had corrected the mess that Luzhkov had made. He removed the more noxious billboards from Tverskaya. Gorky Park  now had free rides for children. Most importantly,  he rid the markets around  train stations of criminal dark-skinned elements.  The message was more subtle than in Soviet times but was perfectly clear.

The segment ended with a preview of an expose of Luzhkov, showing him clad in a tux waltzing with his wife at a gala ball. (Quite a change. They used to show him as ordinary-Joe playing football with his team).

Back to automobiles: As one walks along Tverskaya,  cars enter from arched side streets. In virtually any other society, the drivers watch out for the pedestrians, but if the car is a black limo with official license plates, pedestrians must make way. Experienced Muscovites know that the back limo has right of way and will not hesitate to run them over. I learned this rule quickly when  one almost took me out.

The biggest improvement I encountered is Aero express –   non-stop trains from the three major airports to inner-city train stations. Arriving air passengers are now spared the nightmare of Moscow traffic. The Domodedovo Aero express has been operating for quite a while, but now it is spotless, offers a business class section, and has on-board catering. I assume Aero express is privately owned, but its slick brochure does not mention by whom. I could imagine the “fees” it has had to pay to get the rights of way. I can also imagine that it will be “taken over” by the political elite if it becomes too successful. Another Russian entrepreneur will eventually bite the dust.

On the Aero express back to Domodedovo, I  engaged in an impromptu conversation with a woman who works as a lawyer in the criminal court system. She was fed up with Putin and with corruption and didn’t mind telling a stranger about this (Another significant change form the Soviet period). According to her, criminal justice is for hire. You can buy your way out of a serious criminal charge for less than one thousand dollars. You can buy yourself out of a murder conviction for more, but crooked judges and defense attorneys must first locate a fall guy to confess. The fall guy’s family is then taken care of financially. She herself has been approached but has refused. They know not to come to her any more, but she is one of few. She is counting the days to retirement.

I was not able to talk with many people from diverse backgrounds on this trip, but I did not find one person who wanted Putin to return to the presidency. The results of my fully unscientific poll do not jibe with the official polls that show Putin overwhelmingly popular.

The people with whom I spoke registered a deep sense of frustration and helplessness. They were going to the stuck with “that guy” for other six or twelve years. I do not envy them or Russia.

Tuesday, November 8, 2011

If State Capitalism Is So Good, Why Are Russian And Chinese Entrepreneurs Fleeing?

State capitalism was touted by Lenin as a positive step on the road to socialism. By state capitalism, Lenin meant a “commanding heights” of large businesses and trusts controlled by a state that served the interests of the working class.

Lenin’s transitory state capitalism of the 1920s was replaced by Stalin’s command economy. Postwar France’s dirigisme and Japan’s industrial policy were both failed experiments with state capitalism, but it is alive and, some think, well in China, Russia, Brazil, and many other countries.

I spent four days in Moscow last week, attending a conference on the Gulag system and renewing old acquaintances. On my last visit three years ago, I encountered mixed opinions on Vladimir Putin. He had some strong defenders and few vehement opponents.  This time, the common response to Putin’s return to the Presidency was: “Why do we need that guy back?”

go the