Blog: Dave LeggettPiling in...

Dave Leggett | 8 December 2006

The auto industry is now piling in to Russia. It has been busy piling in to China. I just want to make the point that the deepening economic and business ties going on seem to be rather disconnected from the political landscape these days. Once upon a time, the West (First World) was on a crusade (oops, a loaded term now, sorry) to bring democracy, free markets and capitalism to the world. The 'East' (Second World) was a grey, dark world where the Communist creed held sway. The 'South' (Third World) was just a place where there are lots of very poor people, most of them starving.

Western governments and companies tended to be singing from the same hymn sheet. The world was a simpler place - the good guys and bad guys had easy to understand labels.

The South is still struggling to feed itself. But the East is now opened up and fair game for business. China can get away with ignoring human rights and democracy. Western business snouts are well buried in the trough, so let's not worry about that too much. And the people there are enjoying the novelty of having a consumer binge anyway.  Real bottom line - check the trade stats: China's low-cost industrial output keeps American consumers happy, period.

Now Russia looks a little like it is going the same way in the sense that maybe people 'look the other way', focused on short-term gains. It is not a liberal democracy, by any stretch. And how could it be, realistically, so soon after the collapse of the Soviet Union? Russia has been through amazing times over the last fifteen years and I reckon Mr Putin is probably the best shot they have, right now, on the back of an energy sector boom that is finally breathing life into the economy. The economy and consumer demand are expanding rapidly. 

But Russia is different to China. 

For one thing, Russia is part of Europe and I'd like to see Russia offered more incentives to get into the European fold soon (yes, EU, surely - if Turkey, Romania, Bulgaria, why not Russia?) before it's too late. Russia needs help in building appropriate institutions, for sure, but it's a major power on Europe's doorstep. Let's get on with it. 

Establishing a stable democracy in Russia won't be easy, but that's what Western influencers need to be nudging Russia towards. Simply cashing in in the short-term is actually short-changing ordinary Russians - who have been through one heck of a lot.

Putin is a lot better than what went before (eg Yeltsin unable to get off the plane because he was drunk), but what comes next - who will succeed Putin? And when energy prices have gone south, what happens to the economy? Those are questions that auto industry investors in Russia might like to ponder. There's more work to be done in Russia before the business risk is really down, even if it is still moving slowly in the right direction. And it is, don't get me wrong.

It's good that Russians can hold their heads high and Mr Putin has played an important role in that. Right man at the right time (big picture, anyway). But that doesn't mean a blank cheque and ignoring human rights or democracy. Sooner or later, people with economic empowerment want a degree of political empowerment. Or you create conditions that create instability, which isn't good for business, either. Actually, that is maybe something for China also. Naaaazzztrovia!

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