Hungering for Economic Freedom

Russia’s oil and gas industries may be booming, but that doesn’t mean much to the 22,000 residents of the Saint Petersburg suburb Pikalevo. Endemic joblessness, hunger, and a recent lapse of hot water supplies drove 200 of them to storm their own town hall last Wednesday.

We have a catastrophe! People have no money even for food,” said Svetlana Antropov, head of the cement-manufacturer’s union, to Moscow daily newspaper Moskovsky Komsomolets.

Pikalevo has been in survival mode since last winter, when the three mainstays of employment—the Metakhim chemical factory, Basel Cement cement plant, and alumina-maker Pikalevsky Glinozem—all shut down for good. The three sites had employed half the working population of the city.

How bad did things subsequently get? Ask Moskovsky Komsomolets correspondent Igor Karmazin, who saw hunger turn so severe that people were eating  field grass.

Courses prepared with cabbage soup nettle, salad of dandelions, and grass multiplied,” he wrote. And that was before last week, when the region’s electric companies shut off heating and hot water to Pikalevo over Basel Cement’s unpaid debts.

Pikalevo’s economic troubles actually date back to 2000, when Apatit, the three factories’ supplier of nephelin concentrate, raised the price of its concentrate to 873 rubles a ton – more than 2.8 times its previous rate. Pikalevsky Glinozem sued, citing Russia’s “anti-monopoly” statutes (for what they are worth). The court sided with Apatit. The two companies compromised on 686.4 rubles a ton, per a contract that was to remain in force until June 30, 2005. When June 30, 2005, rolled around and the contract expired, Apatit announced it would hike the price to a new height of 1372.79 rubles a ton. Pikalevsky Glinozem refused to pay, and Apatit simply stopped shipping concentrate.

Production in Pikalevo immediately started declining. The three plants just proceeded to burn through their reserves of concentrate, which would only last them so long. At that date, Valery Serdyukov, governor of the Leningrad Region, called on the Federal Antimonopoly Service to step in to save the situation. It denied him.

Every wise business leader wants to get his or her money’s worth. That is natural and good. But when an enterprise is able to raise its prices so high that a slew of vital industries cannot afford it and are driven into bankruptcy, taking down thousands of jobs with them, then clearly one is seeing a system work against itself. That system, which we are seeing now in Russia, is hurting from a lack of competition—why else could Apatit get away with such obsene price hikes? And where, pray tell, is antitrust law when Russia’s people so clearly need it?

Flashing forward four years to the present, there is an additional problem: Russian leadership’s fixation on oil and natural gas. Pikalevo is not the only town in Russia that has lost exorbitant numbers of manufacturing jobs. The Russian manufacturing sector’s output fell 14.9% in the first quarter of 2009. And its output was 8.1% lower in March 2009 from where it had stood in March 2008. All of this, even while Russia’s oil output has edged up since last March, much to OPEC’s displeasure.

Oil lines and gas lines are great sources of revenue, by all means. But no country in the world can live on them exclusively. Pipeline networks don’t claim hubs into every city. They may create jobs in some places, i.e., where the oil field and gas sites are. But other locales are going to have to have other means. So far, too many of Russia’s locales don’t.

Serdyukov, still governor, seems to have become painfully aware by now of the futility of the whole situation. This time around, he opted to wash his hands of Pikalevo’s plight, telling reporters Thursday that “the situation should be dealt with by the local authorities.”

He also delivered a public downplay of the troubles, one that would be shocking in its audacity—except that this, after all, is Russia: “There is no hot water there in Pikalevo… Well, it happens. And not just there. It happens even in Moscow and Saint Petersburg, that the water is turned off for a couple months. There is no tragedy here. As for heat, well, I don’t think it’s needed so much during the summer.

He did changed his mind the next day, and forwarded the Pikalevo government 20 million rubles in emergency “compensation for falling revenues.” Not that a quick cash infusion is any substitute for permanent industry. But it is better than nothing.

Unfortunately, Serdyukov’s comments about hot-water shutoffs expressed an indisputable truth. In Russia, these things do happen. That the residents of a town near Saint Petersburg—a major commercial hub by Russian standards—would be reduced to foraging for grass for food speaks volumes. What of the townspeople in communities around lesser cities like Samarov, Vladivostok, or in any of the vast expanses of underdeveloped tundra and taiga stretching across Siberia? How much worse off are they? How many more of their own people are going hungry?

More importantly, how long will they have to stay hungry before Russia’s officials warm up to genuine economic reform and a functional free market?

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One Response to “Hungering for Economic Freedom”

  1. La Russophobe Says:

    Hi Rick,

    Great blog! We’d be delighted to publish you work on La Russophobe if you would like to submit something. Keep up the good work!

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