A Post About Boilers

Commenter Alex M. chimes in under this post on the subject of boilers, and I thank him for that:

My plumber has a handy sideline reselling perfectly good boilers than people replace because they fall for all the guff about modern energy-efficient equipment. New boilers may use slightly less oil but the savings will never cover the cost of replacing an old serviceable boiler, never mind the much higher maintenance costs and the fact that new condensing boilers are only designed to last around ten years. A bog-standard 20th century non-condensing boiler will last fifty years or longer with regular servicing.

It is probably not surprising that I never owned a property with a boiler until recently.  My employer has always been generous enough to supply me with accommodation wherever I’ve been posted, and the place I bought in Thailand back in 2009 has nothing more than a small water heater for showers and washing up, for obvious reasons.  That changed when I bought a property in Annecy a couple of years ago, a modern apartment which was fully electric (i.e. no gas) and independently heated (i.e. unlike the older apartment complexes, there was no centralised heating system for the whole development).  The boiler was new, so the previous owner told me, and he had receipts to prove it.

When II collected the keys I didn’t even have a place to sit down, and so after looking around I switched off the water and the power and went back to Paris.  That’s one of the advantages of an apartment over a house: you can drop the shutters, switch everything off, and just leave it unattended for months.  Do that with a house and you’ll find things have gotten inside and taken up residence.  Anyway, I made a habit of visiting the place every few months and then switching everything off when I wasn’t there.

I arrived at the property on 22nd December last year, intending to spend Christmas there, and found the boiler leaking.  It wasn’t a bad leak and fortunately there was no damage to my property or that of my neighbour, and I could even still take showers, but something had gone wrong with the boiler.  I found it odd that the leak wasn’t coming from the bottom, but about halfway up.  I couldn’t see any hole but I could feel that below the leak the casing was warm, but above it was cold.  The water was dripping down the inside of the casing.

My first reaction was to swear loudly.  This was 3 days before Christmas, remember.  And plumbers are known to be cheap and readily available, especially with foreigners close to a major holiday, oh yes.  My second reaction was to pull out the warranty.  I called the service number and as I was on hold a passage in the warranty terms caught my eye: the warranty is void if the power has been off for more than 24 hours.  Mine had been off for seven months.

I’m an engineer, mechanical according to the certificate.  Not a good one, but an engineer nonetheless. I know about corrosion and how it works.  I’d suspected the leak was caused by corrosion, but was struggling to figure out how the hull had been breached so fast.  Now I knew.  Modern boilers are made from paper-thin steel to save costs, make them lighter, and make them more energy efficient.  This is inherently sensible.  The problem is corrosion: even the slightest degradation of thin steel will cause a hole to appear.  All boilers deal with corrosion by using sacrificial anodes, but they need to be replaced every few years increasing servicing costs.  You can avoid this by using a powered anode, which does not deteriorate with time but – as the name suggests – needs to be powered.  When I pulled apart my boiler I found a small 9V battery underneath: that would be the emergency supply when the main power is switched off for whatever reason.  The anode wouldn’t need much power, but a 9V battery is not going to keep it working for seven months.  As such, the anode stopped working and the boiler itself corroded in short order.

This all came as a surprise to me.  The house in which I grew up in rural Wales had a boiler, which from memory was made of steel an inch thick and probably needed a crane to install.  If the anode lost power there would be enough allowance in the steel to withstand months or even years of corrosion before springing a leak.  But modern boilers have no such margin, they will be made using thin steel and will become useless at the slightest sign of physical degradation.  So you have to keep the damned things powered up.

I was fortunate enough to find a decent plumber in Annecy who replaced it on 23rd December with a better one for 1,200 Euros including installation, taxes, etc.  It was a bit of a dent in the wallet, but it didn’t mean Christmas was ruined.

This isn’t a rant about disposable boilers, though. Old-style boilers might last forever, but that comes at a cost too: you need a strong floor to put them on, and you certainly can’t hang them from a wall like you can the modern ones.  You also can’t install them with one person and another one helping, you’d need some serious kit to move them in and out.  And they’d also be more expensive to run.  There is a reason why modern French apartments are all electric: heating technology and insulation has gotten so good that you no longer need a heavy, industrial central heating system or a gas-fired boiler, and all the equipment you need can be bought from a DIY store and chucked in the back of your car (just about).  In the long run, I suspect the savings on heating costs would easily pay for replacing the boiler once every ten or fifteen years (though perhaps not every seven months).

But there’s another point, which as an employee of an oil company I understand well: CAPEX versus OPEX.  Most people would rather pay for a cheap boiler and replace it every ten years – $700 up front, then two $1,000 payments at year 10 and 20 respectively, totalling $2,700 – than pay $2,000 up front on Day 1 and not pay anything for the next 20 years.  What do economists call it?  The time value of money, or something.

And that’s the real benefit of modern boilers: they are cheap according to the price tag hanging off it in the shop.

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Les Brocantes

As a follow-up to yesterday’s post on the folly of diverting Sweden’s labour pool to repairing bicycles instead of just letting white collar professionals buy replacements, I want to talk about the very French event called a brocante.

As the linked site says:

The flea markets, second hand markets and car boot sales are very popular in France especially in the summer and before Christmas, in fact, that’s an understatement – it seems to be the national pastime to spend weekends visiting the different types of second hand markets.

Some of these brocantes are permanent, but the ones I have seen are held periodically in each suburb perhaps once or twice per year.  The local municipality closes off a few streets and sets up collapsible tables and the local residents come out with all their old junk and spend the day trying to flog it.   These events are very popular and people pack the streets, but from my observation most of them are just nosing around and not buying anything.  They can also be a pain: I woke up one Sunday morning in June to find a brocante going on in my street; clearly I’d not bothered reading the signs that had been posted.  As such, I couldn’t get my car out of the underground car park to go anywhere.  The French expression governing what to do in such a situation is “toff sheet”.

A brocante is basically the French equivalent of the British car-boot sale or jumble sale, or the American yard/lawn sale.  They are also similar to the school fetes which used to go on in the 1980s when I was a kid, where parents would bring junk they wanted to sell.  I have no idea if this still happens.

It might be my memory playing tricks on me, but I seem to remember the jumble sales and school fetes of my childhood turning up some bargains for my various family members.  Decent books were a favourite, and I managed to snag myself a hardback second edition of The Lord of the Rings for 50p back in 1992 which I still have.  But you also stood a chance of finding a good piece of furniture, some tradesmen’s tools, gardening equipment, kitchenware, sports gear, and other items which were bargains in the sense that to buy them new would cost a lot more, assuming they were available.  I recall people used to get quite excited by what you could find, myself included (I was usually after piles of old Beano and Dandy comics).

By contrast, when I walked around the brocantes of Parisian suburbs I found there is little of any value and nothing that could be considered a bargain.  It is mostly toys, children’s clothes, shoes (I always wondered who bought second-hand shoes; that was the one item that was not hand-me-down when I was growing up), and obsolete rubbish like CDs, VHS cassettes, and mobile phone chargers.  You might find the occasional fishing rod or ski gear, but not much else.  Even the books seem to be junk, very little by way of early edition hardbacks and lots of Da Vinci Code.

I think the reason for this is that a lot of stuff is so cheap now that when it breaks it is simply thrown away and replaced:, e.g. tools, kitchenware, and furniture for example whereas before this stuff could stay in a family for generations before being packed up for a jumble sale after a clear-out.  Perhaps another reason is that nobody would buy items which can break, e.g. kettles, microwaves, lawnmowers, DVD players, bicycles, drills, flashlights, etc. when buying one brand new with a warranty is only marginally more expensive and people have more disposable income.  There’s also the effect of eBay: there is no need to trawl through jumble sales looking for an obscure item at a bargain price when you can do that sat on your sofa with an iPad.

In short, things getting cheaper and more readily available has killed the second-hand market for many items which would have appeared in jumble and car-boot sales a generation or two ago.  It’s the same reason why people are choosing to replace broken appliances and other items in Sweden rather than having people fix them.  It is nice to engage in a nice spot of nostalgia about going through a jumble sale and finding a set of vintage cast-iron kitchen scales for a fiver, but the very fact such an item was being traded second-hand shows they were expensive new and not within reach of everybody.  Cast-iron kitchen scales might look nice, but it is probably better that every household can now buy an electronic set for ten quid in Argos and there is no second-hand market any more.  It’s called progress, and it’s a sign we are all better off.

Perhaps the Swedes ought to have taken a wander through a brocante or two before meddling with their economy.

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Sweden’s Economic Brainwave

I’m sure Tim Worstall will get around to this, but I’m going to tackle it anyway.

To combat its ‘throwaway consumer culture’, Sweden has announced tax breaks on repairs to clothes, bicycles, fridges and washing machines. On bikes and clothes, VAT has been reduced from 25% to 12% and on white goods consumers can claim back income tax due on the person doing the work.

Years ago I had a Russian friend who moved from Dubai to Sydney.  Within a few weeks of her arrival she told me she found some aspects of living in Australia frustrating.  The example she gave was that she needed an old, decrepit wardrobe removed from her house, only to do this she had to call a removal company which could come some time next week and charge $200 for the job.  Whereas in Russia, she said, you just find a couple of alcoholics and buy them a bottle of vodka or two and they’d happily do it.  They’d probably go on to sell the wardrobe, too.

One of the big differences I noticed while moving between countries as economically diverse as France, Nigeria, Australia, Russia, and Thailand is that the wealthier a country is, the more difficult it is to get simple repair or semi-skilled trade jobs carried out.  The reason for this is obvious: as a country gets wealthier and more educated, the value added by each individual in the workforce increases, and a lot of low-value jobs simply disappear.  For example, in a poor country a guy can make a reasonable wage repairing bicycles: it might be the best way for him to make money and other people can’t afford to just buy a new one.  Whereas somebody living in London can make more money doing almost anything other than repairing bicycles, and he’d anyway have to charge so much that customers would find it easier and possibly cheaper to just buy a new one.  Economics, in other words.

You would therefore expect a developed country with an educated population like Sweden to have its workforce employed doing high-value jobs: technology, services, manufacturing, etc. rather than low-skilled jobs like repairing clothes.  And funnily enough that’s what they have, but now they’ve decided this ought to change:

The incentives are intended to reduce the environmental impact of the things Swedes buy. The country has ambitious targets to reduce greenhouse gas emissions, but has found that the impact of consumer choices is actually increasing.

They appear to have stumbled on the concept that a low-tech economy in which consumers have fewer choices produces fewer greenhouse gases.  Now they want to move to such an economy, which is in the precise opposite direction everyone else is moving.  We have the developed world.  We also have the developing world.  Sweden wants to kick-start the undeveloping world.

The scheme is expected to cost the state some $54 million in lost taxes, which will be more than outweighed by income from a new tax on harmful chemicals in white goods.

Erm, okay.  But isn’t the point of this new scheme to reduce the number of new white goods being bought?  So if it is successful, this new tax take won’t materialise, will it?

Moreover, Sweden’s economy is growing strongly and the government has an $800 million budget surplus.

My bank account is in surplus.  I’m therefore going to quit heart surgery and take a job in McDonald’s.

I interviewed the man behind the scheme, deputy finance minister Per Bolund, a member of the Green party and a biologist by training.

Ah.

He spoke about nudging people towards better choices; creating jobs for skilled manual workers; and Sweden’s six-hour working day.

Moving workers from skilled to semi-skilled jobs is a better choice?  This doesn’t seem to be consistent with the history of the human race.

I think many of us have had a bike standing around broken and we don’t fix it and then start using other modes of transportation.

Which suggests the individuals concerned aren’t so interested in riding a bike, doesn’t it?

This will expand the number of companies giving these kinds of services, so it’ll be easier for consumers to have things repaired.

How many unrepaired bikes are lying around in Sweden, exactly?

And sometimes you can be surprised by how a small change in fees can really change behaviour.

Oh no, we are quite aware of how fees – especially taxes – can change behaviours.  For example:

And in white goods, the tax break is actually quite substantial since most of the cost of repair is actually labour, so it can really make a quite big difference.

You’ve taxed labour to the point semi-skilled jobs have vanished.  Now you need a tax break to bring them back again.

It’s actually a tax on chemicals. So if the appliance has harmful chemicals in the production process or incorporated in it there will be a levy, but if, on the other hand, you decrease the amount you can actually get a much lower levy, or even a zero increase. So that will give an incentive to producers to decrease the use of harmful chemicals, and we know that appliances are a major contributor to the amount of them in the everyday environment.

Great.  But what if by using less of the harmful chemical the appliance becomes less efficient, thus needing more power for the same performance?  I’m pretty sure this would apply to a fridge or air conditioner.  I’m also pretty sure nobody has thought about this.

The idea is to help the private and municipal sectors use nudges to make it easier for consumers to act responsibly and reduce their environmental impact with everyday choices.

Translation: we’ll make you pay more if you live in ways of which we don’t approve.

We don’t anticipate that this will make people avoid buying things overall, but hopefully it will be easier for people to buy high-quality products because they know it’s affordable to have them fixed if something breaks. So it’s a lessened incentive to buy as cheap as possible and then scrap something.

People generally buy high-quality products because they don’t want them to break.  Nobody buys a high-quality product thinking it is a smart purchase because when it breaks, Olaf from around the corner can fix it on the cheap.  All people will do is buy the cheaper (and probably less efficient) appliances and get them fixed if and when they break.  The high-end appliances, subject to the “harmful chemical” surcharge, will suffer a drop in sales.  And I bet the repairs will still be too expensive compared to scrapping and replacing goods made in China.

And we also know that repairs are more labour-intense than production, which has been largely automised, so expanding repairs could actually contribute to an expanding labour market and a decrease in unemployment.

So you want to go from a lower-cost, automated process to a high-cost, manual process to achieve the same result?  Progress!

Especially because repair services often require high skills but not very high education,

Highly-skilled jobs requiring no education.  I suppose this is the theory underpinning Sweden’s immigration policies.

so we believe there’s a currently unemployed part of the labour force that could benefit.

Why not get them doing jobs that need doing, rather than getting them to do tasks which without meddling with the tax system nobody has a demand for?

Of course it is a boost for the local labour market because repairs are by their nature done near where you live. So hopefully this will contribute to the growth of jobs locally all over the country. Whereas large-scale manufacturing is very centralised and can only happen in a few locations around the nation and internationally.

A blast-furnace in every garden!

We’ve managed quite well to decrease emissions within Sweden – by some 25% since the early 1990s – but we see that the environmental effects of consumption are actually moving in the opposite direction, they’re increasing. And since Sweden wants to be a leader in sustainable development on a global scale, we feel a responsibility to do what we can domestically to decrease the impact of consumption.

No new bike for you, Erik!  The government has decided you must get your old one fixed.

What do you think of the six-hour working day, which is being tried in Sweden?

There’s no national scheme, but municipalities and private employers have tried it, and in general found it quite beneficial for the labour force. They experience better working conditions and you can see some effects when it comes to health, you get fewer sick days.

The fewer hours people work, the fewer hours they spend off sick.  Who knew?

And what I think will really change consumption patterns is the growth of the sharing economy, which has so many benefits for the individual – getting easy access to things like vehicles without the responsibility of ownership and maintenance. That could be a game-changer.

Oh, it’ll be a game-changer all right.  Look at how well the Soviets got on with collective farms which had no responsibility of ownership or maintenance for machinery and vehicles.

I think this is what happens when you make a biologist the deputy finance minister of a country.

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More Food for Thought

A friend has pointed out that in yesterday’s post about supermarkets and expired food I overlooked the practice of their deliberately destroying the food that goes into their bins.  The complaint of many seems to be that supermarkets do this simply because they don’t want poor people hanging around their bins.  Taking this at face value, it would sound pretty callous that supermarkets are denying hungry folk food simply because – for whatever reason, but probably because they are just bastards – they don’t want poor folk nearby.  Or maybe they don’t want poor folk feeding themselves for free when they can be forced into paying for it?

But there are valid reasons why supermarkets wouldn’t want this, aside from their just being bastards for fun.  Having anyone regularly rummaging through your bins is probably going to come with additional problems, such as people camping semi-permanently beside them waiting for food to be dumped and being a nuisance for staff and the public.  Private householders wouldn’t want people in their back yard rummaging through their bins, so I don’t see why supermarkets would be happy about it.

But in reality it feeds in (sorry!) to the main point I made yesterday regarding liability.  A company is still responsible for its waste products up until custody changes hands in the collection process.  A supermarket has a duty of care towards the public which includes doing everything reasonably practicable to ensure they are not harmed by its operations and products, which includes the waste food as it lies outside discarded in the bins.  This will also include ensuring nobody will come to any harm if they decide to climb into the bin to eat something: if somebody does so and injures themselves somehow, the supermarket is liable.  Stupid, but this is how the law works.  The supermarkets are also liable should somebody fall ill by consuming waste food which by the supermarket’s own definition is unfit for consumption.  The supermarkets are especially liable because they know in advance that people will try to gather and consume this stuff, so they cannot claim ignorance for not doing more to prevent it.

And this is the issue: the supermarkets are legally obliged to prevent people from eating out of their dumpsters.  If they just leave them open and unguarded, they are being criminally negligent in their duty of care towards the public.  And this is what the campaigners don’t get: those among their numbers have imposed these rules and regulations and set these legal precedents and this is the result.

Supermarkets have two realistic options here: secure the bins in such a way that nobody can get at them, or destroy the food so thoroughly that nobody will try.  This new law will be discarded as soon as a liability case arises, it is pointless posturing by the wealthy middle-classes.  If the welfare programmes that exist to ensure nobody goes hungry are failing, they need to be fixed: but that would likely involve shaking up bureaucracies and firing useless managers, and that would never do.  So instead they take a cheap swipe at the supermarkets for dealing with a set of conditions that they themselves created.

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Will Pike and the Costs of Legislation

There’s another video doing the rounds on social media made by a chap called Will Pike, a Brit who was injured in the 2008 Mumbai terror attacks and is now wheelchair bound.  It goes without saying that I have every sympathy for Mr Pike and his predicament, and I can imagine the frustration he feels when he encounters the difficulties presented in the video:

His problems are real, and I take no issue with them.  But I have a problem with his proposed solutions:

The law protecting disabled people from discrimination when accessing goods and services has existed for 10 years and is supposed to be enforced by the Equality and Human Rights Commission. The Equality Act requires that service providers make reasonable adjustments to make sure disabled people are not disadvantaged when accessing their services. However, there are significant flaws with the enforcement of the act. In the majority of cases it is left to disabled people to sue service providers for discrimination. Moreover changes to legal aid have made it much harder to start legal action. Court proceedings can be very time consuming and costly. They are not accessible to all disabled people, many of whom just want to get on with their life.

The main issue here is one of expectations versus reality of what passing a law can achieve.  Since I was a student and I became aware of these things there seems to have been a headlong rush in the developing world to solve every problem in existence by passing a law, as if by doing so the problem merely goes away.  Only if this worked, nobody anywhere would be doing drugs.  Oops.

The key word in the legislation is “reasonable”:

The Equality Act requires that service providers make reasonable adjustments…

What is reasonable or not depends on the individual.  Most viewers of the video would see a flight of steps in a clothing store and think “Why can’t they put a lift in?”  A building services expert hired to testify on behalf of a company defending a case brought before the EHRC would explain in detail the costs and practicalities of doing so, and an engineer would go further, into details of the structural design of the building.  London is an old city, the buildings are old.  Retrofitting a lift or making substantial modifications to a building could well cost as much as demolishing it and building a new one.  Not in all cases for sure, but in some.  It could be that the owner of the shop premises doesn’t own the whole building, or maybe even the floor above.  Whatever the case, it is not immediately obvious that the lack of a lift in a shop means the owners or the tenants have not made all reasonable adjustments to allow disabled people access to their services.

There is one answer to this.  Take away the “reasonable” qualifier and ensure all companies provide full disabled access that caters for every type of individual that might cross their threshold.  This would cost a phenomenal amount of money, which would be passed directly onto customers, and would entail moving almost every business out of city centres and into purpose-built retail parks or strip malls, but it is certainly possible.  Only major complaints I hear from the sort of people who campaign for greater disabled access are: the cost of living in Britain (especially London) is already way too high and we need government intervention to force companies to pay employees a Living Wage; town centres are dying and everything is moving to purpose-built retail parks in the outskirts; and independent “local” shops are disappearing, replaced by endless outlets of multinational chains who “send their profits overseas and out of the local community”.

So which is it to be, folks?  Strip-malls filled with faceless multinationals with full disabled access, or smaller franchises and independent shops in city centres and high streets?  You can’t have both for simple reasons of practicality and economics. And if you insist on having both, you’ll end up with neither: nobody is forced to open a shop, and anyone doing so much be able to envisage an economic return.  Sadly, I suspect people will insist on having both and wonder why their towns look empty.  This has already happened.

I have my sympathy with Will Pike and his video might well have identified companies that could have provided better access at a reasonable cost but didn’t.  But I suspect most people sharing his video on Facebook won’t have thought much beyond the initial, emotional reaction to a guy in a wheelchair struggling through life.

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Food for Thought

Earlier this year France passed a law banning supermarkets from throwing away or destroying unsold food.

France has become the first country in the world to ban supermarkets from throwing away or destroying unsold food, forcing them instead to donate it to charities and food banks.

Charities will be able to give out millions more free meals each year to people struggling to afford to eat.

I’m not sure when the ban actually comes into effect, but there has been a recent spate of articles doing the rounds on social media about how wonderful this is and how the US should adopt the same laws.

The narrative is that supermarkets are callously destroying food while the starving, huddled masses are gathered outside their automatic doors pleading for some sweepings from the delicatessen floor.  Why not just give this food away?

I can already think of two reasons why not, with the first being that of liability.  I haven’t visited every supermarket in France, but I know British supermarkets pretty well and if you go to one in the late evening just before closing you see a section filled with produce expiring that day which has been marked down, and further marked down, and then reduced to almost nothing in a desperate attempt to get rid of it before it goes in the skip out the back.  As far as I know this is common practice among supermarkets everywhere, and there are a lot of people out there who have made buying groceries from these sections an art form.  In other words, supermarkets already go to considerable lengths to avoid destroying food.

There is a good reason why expiry dates are put on food, and it’s mostly to do with liability and ensuring the customer is adequately informed.  Present in the contract a customer enters into with the supermarket when he or she buys a product is the expectation that the food is fit for consumption; the onus is therefore on the supermarket to adequately inform the customer when he or she should consume it before it goes bad.  The dates on the products might be a bit conservative and sometimes even silly, but they exist in order to ensure the customer is informed and the supermarket has carried out its duty of care to the best of its ability.  If they fail in this duty of care and a customer gets ill, they can and will be sued for compensation and suffer a loss of reputation.  This is why supermarkets will not take the risk of selling food past its expiry date: customers could get ill, and both parties will suffer.  All of this is entirely sensible across a colossal, multi-billion dollar, international logistics operation – and it remains sensible even if somebody can pick up a can of beans a day past its expiry date and say “Oh, this is stupid, they are still perfectly edible.”

So what’s the supermarket to do with those few items they can’t sell before their expiry date (and as a percentage of overall stock the volumes will be tiny, even if the poverty campaigners will cite numbers which sound large in isolation)?  The most sensible and cost effective thing to do from a business and liability point of view is to toss it into a skip and replenish the shelves with fresh stuff for the hungry customers who come in the next morning, and indeed that is what they do.

But now they are being forced to give away food which they have deemed unsuitable for sale to their customers, several problems will arise.  The first of these is actually mentioned in the article, but being The Guardian they’re too dense to follow through:

The law has been welcomed by food banks, which will now begin the task of finding the extra volunteers, lorries, warehouse and fridge space to deal with an increase in donations from shops and food companies.

Lorries, warehousing, refrigeration, and distribution all cost money.  And by far the best people at doing these operations are supermarkets, as evidenced by their commercial success.  So if the supermarkets, with all their expertise, have decided these operations aren’t worth doing for certain items, maybe they are onto something?

But now the supermarkets have handed over the food, who is going to pay for these operations?  Where is the money for the refrigeration going to come from?  And more importantly, who is responsible for ensuring these products are handled and stored properly such that they are still fit for consumption when handed to the recipient, and that the recipient is correctly informed as to when he or she should consume it?  The expiry date on the package has already gone by, remember?  That was yesterday.  Are a team of volunteers and charities seriously going to be able to manage the receipt, storage, and distribution of thousands of tonnes of food at or near its expiry date such that nobody is going to get sick?  Are these charities and volunteers going to accept responsibility if somebody gets food poisoning and dies?  If not they, then who?

What’s happened here is some (undoubtedly wealthy middle-class) busybodies have decided they can effectively extend a supermarket’s operations beyond their doors at no cost and with no accountability, and now this has become law.  I suspect the liability issue alone will prevent this being adopted in the US, there would be lawsuits within the first month.  Only against Wal-Mart, probably.

There’s also another problem with forcing supermarkets to give away products, one that we’ve seen with food banks in the UK: some people will take the free stuff instead of doing regular grocery shopping.  Supposing a supermarket sectioned off a corner of its floorspace, filled it with free products, and opened it up to the public for an hour after normal shopping hours.  Now repeat across the country.  Very quickly this would be captured by organised third parties who would employ people (of the type you see on nightclub doors in Manchester) to swoop in and collect everything on offer in what would become a large-scale industrial operation: just as charity clothing has become a lucrative, large-scale, international business.  The idea that a little old lady whose pension won’t stretch to three meals per day would be able to get free food is ludicrous.

If people are substituting products they would have paid for with free stuff, the supermarkets (or the wholesalers) will be losing revenue.  Yes, it is true: if supermarkets are forced to give away products they would otherwise have destroyed, they will lose revenue because of the substitution effects.  This will either result in a fall in profits for the supermarkets – which is what the campaigners think will happen – or, more likely, they’ll just distribute the costs of the new law among the sale prices.  In other words, food will get more expensive.  How does that help the poor, again?

Practicalities aside, this whole thing is annoying me on another level.  For the first time in human history we as a species are able to produce and distribute enough food so that real hunger in properly-run countries is something only our grandparents knew about.  We do this so effectively we can feed ourselves and our families without any more inconvenience than a quick trip to a nearby supermarket.  Furthermore, we can obtain our food without worrying if it’s going to kill us if we eat it.  This in itself is one of the most astonishingly, staggeringly, brilliant outcome that humankind has managed in its existence.  We have solved the millenia-old problem of constant hunger.  So what do we do?  We moan like fuck and attempt to sanction those who have brought it about.  Like the attempts to dismantle our reliable energy supply and replace it with one that doesn’t work, historians are going to look back on this era and think we went collectively insane.

People do go hungry in the developed world, I don’t deny that.  This is why we have a welfare system, food stamps, charities, and a whole load of other measures in place to do what we can to alleviate poverty and hunger.  Supermarkets and their stock-management practices are not the problem, by contrast they are the very things that are keeping the majority of us fed so that we have enough surplus wealth and energy to help those who are not.

Finally:

Campaigners now hope to persuade the EU to adopt similar legislation across member states.

And people are wondering why Britain voted to leave.

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Russia sanctions itself further

Not content with denying themselves the pleasures of French cheese and Norwegian salmon at prevailing (i.e. non-smuggled) market rates, the Russian government has now decided its citizenry doesn’t want to go on holiday to Turkey:

“Some things are more important than beaches, the sea and all-inclusive holidays,” anchorman Dmitry Kiselyov boomed in his influential weekly news round-up on state television.”

Such as the egos of politicians.

It’s the second popular destination to be banned in under a month. Flights to Egypt were halted in early November, following a terror attack on a plane full of Russian tourists.

When Egypt’s beaches became inaccessible, many Russians were re-directed to the Turkish coast.

And with the collapse of the rouble making Asia beyond the reach of most Russians, the number of holiday destinations from which they can pick is dwindling rapidly.

Still, people here seem broadly resigned to what has happened – even supportive.

“I think it’s the right response. Turkey has shown it’s a traitor,” said Andrei, taking a cigarette break from work, out in the snow.

Was Andrei planning on going to Turkey, then?  If not, his words are somewhat cheap.

Scheduled flights to Turkey are still running and the embassy stresses that Russian tourists are welcome. A spokesman said there were no plans to introduce visa requirements for Russians, despite Moscow doing that for Turks.

That’s because the Turks understood what Joan Robinson meant when she said “if your trading partner throws rocks into his harbor, that is no reason to throw rocks into your own”.

But any travel agencies caught selling Turkish tours have been warned they face sanctions.

Russia’s Federal Tourism Agency argues the ban will have a “hugely positive” impact on domestic tourism.

Well, yes.  The foreign travel policies of the USSR were also a great boon for domestic tourism too.  Just not from the point of view of the tourist.

Its head sees Russians opting for “staycations”, injecting their holiday funds into the local economy instead.

Opting to stay at home in the face of a ban on doing otherwise?  Some option.

They point to a lack of hotel capacity in Russia and poor infrastructure: “Patriotic” resort choices don’t generally offer the quality those who holiday abroad have grown used to.

No shit.

So travel agencies are offering them European destinations like Spain and Greece as alternatives – as well as Thailand and Vietnam.

Good luck with that Schengen visa process, folks!  Or the 13-hour flight plus a Thai baht which has doubled in value against the rouble in the past 2 years.

The business sanctions could hit Turkey much harder, albeit again at considerable expense to Russia:

Russia has announced a package of economic sanctions against Turkey over the shooting down of a Russian jet on the Syrian border on Tuesday.

A decree signed by President Vladimir Putin (in Russian) covers imports from Turkey, the work of Turkish companies in Russia and any Turkish nationals working for Russian companies.

A lot of the construction work in Russia – shopping centres, housing complexes, infrastructure – is carried out by Turkish companies, who exploit the fact that they can mobilise a sizeable, cheap workforce of their own countrymen to Russian cities which lack local expertise and manpower.  In short, Turkish companies have filled a gap in the market left open by Russians who either cannot do the work, or cannot do it at a competitive price*.  If these companies and their workers are now going to be booted out of Russia, future building works in that country are going to become very expensive or cancelled altogether.  I wonder how those Russians who have placed deposits on apartments in partially-completed developments being built by Turks feel right now?  Holidays destinations are probably the last thing on their minds.

*This reminds me of a joke, which I heard told by a young Russian man to answer a question some foreigners had put to him as to why it was so hard to do business in his country, and goes as follows.

A Russian city needs a bridge built, and so puts out a call for tender to three construction firms: German, Turkish, and Russian.  The Germans say they will build the bridge in 1 year and it will cost $20m.  The Turks say they will build the bridge in 2 years for $10m.  The Russians say they will build the bridge in 2 years for $50m.  The Head of Public Works in the city stares goggle-eyed at the Russian proposal, and brings in the company president to explain:

“How come your proposal is so high?” he asks.

The president of the Russian construction company smiles and says “$20m for me, $20m for you, and we’ll get the Turks to do it for $10m!”

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Incentives matter, so best not ignore them.

A story was doing the rounds last week that was drawing praise and admiration from various quarters:

The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.

The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

If it’s a publicity stunt, it’s a costly one. Mr. Price, who started the Seattle-based credit-card payment processing firm in 2004 at the age of 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year.

Those doing the praising were generally of a left-wing bent, and some went so far as to say this was a vision of the future and an example for other firms to follow.  Me, I’m not so sure, and I think Mr Price’s company is going to run into trouble over this at some point.

Now I’ll start by saying that Mr Price is perfectly within his rights to distribute his own salary among the workforce in such a manner.  And as I understand he is the owner, hell he can pay them $1m per year to watch TV for all I care.  I just don’t think he’s thought through the implications.  There are several problems which I think will arise, all of them to do with incentives.

The paychecks of about 70 employees will grow, with 30 ultimately doubling their salaries, according to Ryan Pirkle, a company spokesman. The average salary at Gravity is $48,000 a year.

His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

Firstly, if the lowest paid clerk is now on $70,000 per year there is almost no incentive for anyone to grow professionally by taking on more responsibility, tackling harder tasks, volunteering for the shit jobs, and putting in additional hours to increase their own value within the company.  If the clerk is on $70k, why would somebody from the middle-ranks with marketable skills and a higher education apply themselves if they were on similar wedge, or work extra hard just to earn $80k when by loafing he can earn $70k?  Better to take it easy and spend more time with the family.  And this will be made worse by the plan being phased in over 3 years.  Who is going to be interested in the new night manager role now the main incentive to take the crap hours is gone?  This will be felt even more keenly in sales: how much effort is the junior salesman going to put in now he’s on $70k per year?

Secondly:

Hayley Vogt, a 24-year-old communications coordinator at Gravity who earns $45,000, said, “I’m completely blown away right now.” She said she has worried about covering rent increases and a recent emergency room bill.

“Everyone is talking about this $15 minimum wage in Seattle and it’s nice to work someplace where someone is actually doing something about it and not just talking about it,” she said.

From the above quotation I think it is safe to assume that Hayley Vogt will never leave Gravity of her own free will because she is now paid 55% above market rate for being a communications coordinator.  Nobody above her is going to leave either, so it is an equally fair assumption that as long as Gravity exists, Ms Vogt – currently 24 – will be a communications coordinator.  So by the time she’s 40, Ms Vogt will still be a communications coordinator.  Do you see the problem here?  She’s undergone no professional growth.  She can’t be promoted internally because her superiors – also being paid well over market rate – will hang onto their jobs for all they’re worth.  So if Gravity goes tits-up in the future, Ms Vogt will find herself on the job market not only facing a severe cut in her income but also competing against people much younger from whom she cannot differentiate herself in any meaningful way.  For those on the lower rungs doing jobs which don’t require much skill or training, and thus youth, energy, and flexibility are major selling points, this could be a problem.

Of course, many people doing those kind of jobs aren’t looking for a career anyway, they just want to pay the bills.  Which brings me onto the third problem: with nobody leaving, how do you get rid of the underperformers?  Normally these people would leave because, having been passed over for promotion and higher pay for a few years running, want to try their luck somewhere else.  Now Mr Price is stuck with them.

Finally, how does Mr Price intend to bring new talent into the company?  Nobody is leaving, so that means only newly created positions will bring outsiders in.  Aside from not being a very healthy environment for any company, this creates an additional problem.  If a new position is created and advertised, every store clerk within 200 miles is going to apply for the job if it pays $70k per year.  Having an avalanche of CVs hit your desk is not helpful. When I worked in Dubai we advertised for an assistant accountant position and put an advert up somewhere.  Even though we were a small, unknown company we were receiving CVs by the thousand, mostly from Indians.  The problem was almost all the CVs were from labourers, forklift drivers, and other unskilled workers chancing their arm having seen a “big” salary (and indoor work) on offer.  Sifting through them all, trying to identify who was genuinely interested in the position and had the matching skills was a hopeless task.  Gravity Payments is going to find themselves with a similar problem: how many of the tens of thousands of CVs they will receive are from people who aren’t motivated solely by the incredible pay and couldn’t care less about the actual job?  And even those who are qualified, are they confident they will secure a suitable candidate from a shortlist all of whom are overwhelmingly motivated by the pay above everything else (and know they can likely loaf once they get in)?  HR departments in major oil companies will recognise this problem.

Despite his obvious success in business thus far, having set up Gravity Payments at he impressively young age of 19, I can’t help think Mr Price is still a bit wet behind the ears:

“Is anyone else freaking out right now?” Mr. Price asked after the clapping and whooping died down into a few moments of stunned silence. “I’m kind of freaking out.”

Whilst I might be persuaded that executive pay is too high in the US and the disparity between the lowest and highest paid is too wide in some companies, progressive pay scales are used and market rates adhered to for good reasons which might not be immediately obvious.  As Tim Worstall is fond of telling us, incentives matter.  Mr Price might end up learning this the hard way.

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Visiting Russia just got Harder

I missed this, but late last year Russia introduced compulsory fingerprinting for all foreign visitors:

Russia’s President Vladimir Putin has ordered fingerprinting of foreigners as part of the processing of visas to enter the country.

The decree, signed by Putin, explained that the move hopes to help the application of law enforcement, tackle illegal immigration and prevent terror attacks.

Decree…hopes…terror attacks.  Hmmm.  How many terror attacks within Russia have been carried out by foreigners?  And when I hear the word “decree”, why is it that I immediately think of this store?

“It is expected that biometric data will be collected mainly at the visa centers, which would make it possible to avoid long queues at the Russian diplomatic missions where, as you know, people come not only to get a visa but to resolve many other issues as well,” Yevgeny Ivanov, head of the consular department of the Russian Foreign Ministry, said.

Introducing new bureaucratic hoops will make it possible to avoid long queues?   More on that later.

The move comes after the Foreign Ministry proposed to introduce biometric data for foreigners entering Russia, in response to the EU’s proposed plan to take fingerprints of all Russians wishing to enter the Schengen area in Europe from 2015.

This is half the problem with Russian immigration laws: most of them are retaliatory.  Now I’m the last person to defend western immigration requirements, and the UK’s are as dumbassed as anywhere’s, but deciding to introduce additional hurdles for visitors to Russia in response to EU proposals is simply stupid.  Putin may not have noticed but his currency collapsed recently and the Russian economy – so dependent on imports – is in the shit.  One of the best ways to bring in hard currency is to get tourists to come and swap their Euros, Dollars, and Pounds for Rubles, and this will be much easier to do with a weak domestic currency.  Erecting barriers to make the entry of those tourists harder makes no sense whatsoever, but then Russians appear content with being poorer and less well-fed in return for being able to engage in ineffectual political posturing.

I heard about this new requirement because a British friend of mine is currently going through the visa application process, and had to go to the Russian embassy in person to get fingerprinted.  The agent advised that delays of up to an hour could be expected (so much for avoiding long queues), only when he got near the front of the queue the whole system packed up and he was told “to come back tomorrow”.  So far, so Russian.  Fortunately he lives in London and so this was easy enough, but anyone coming from say Manchester and visiting one of the two centres – located in Edinburgh and London – would have had to buy another train ticket or book a hotel, and take another day off work.

And this is where Russia is going badly wrong.  There are a handful of people who want to visit Russia, and they will go through this pantomime one way or the other.  But Russia loses out on the speculative tourists who plan to go “somewhere” and then look at their options.  A few years back another friend thought about going to St. Petersburg for a weekend and asked me what was involved.  By the time I had gotten halfway through the letter of invitation, the agent, the $100-$200 fee, the form-filling, the requirement to have a hotel booking, the registration on arrival, and the rest of it, he’d already said “Nah, forget it, I’ll go somewhere else” (and the fee has gone up since the fingerprint requirement came in).  So much of European travel is people looking for quick, easy breaks.  When people have a choice of Tallinn, Riga, Vilnius, Prague, Bratislava, Budapest, Krakow and a dozens of smaller cities in Eastern Europe that they can visit without a visa, why would anyone who wasn’t specifically interested in Russia go there?  The Ukrainians figured this out back in 2005, and allowed EU citizens to enter the country visa free, thus adding Kiev to the list of cities above.  Perhaps more importantly, it meant Europeans could visit Ukraine’s prime holiday area in Crimea much more easily, and that played a large part in my decision to go there in the summer of that year.  Only now Europeans wishing to visit Crimea need a Russian visa, which can’t have done much for the visitor numbers.

So of all those people considering a trip to Russia, how many will decide it’s simply not worth the bother, especially if the price ends up including a return train fare, a hotel in London, and two days off work?  My guess is a lot.  Putin’s decree has made it as costly and as much effort just to obtain a Russian visa as it is to take an actual holiday to a neighbouring country which offers better service at cheaper rates to begin with.

Somebody, somewhere, obviously thinks this is smart.

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Beware of a Man in Search of a Legacy

Historical legacies are interesting things, offering as they do a chicken and egg situation.  Was Napoleon motivated foremost to secure his name in history and his deeds merely the methods he used to do it?  Or did he simply fancy taking charge of France and conquer large swathes of Europe by deploying astonishing military skill, and the legacy simply resulted from his actions?  I’m more inclined to believe the latter.  Not that great historical figures don’t have enormous egos and are unaware of the significance of their actions, but I don’t believe Peter the Great thought “if I want to be remembered in history I’ll have to do something big” and then after weighing up various options decided upon building a new capital and developing a Russian navy as the way to go about it.  No, I think he decided on building a new capital and turning Russia into a European-facing naval power and his legacy resulted from this decision.

Of course, the only people who succeeded in creating a legacy were those whose actions were both successful and significant.  History is littered with those who had grand ideas that never came off, and others whose actions changed little in the grand scheme of things.  What we hear even less of, thankfully, are those who, longing for a place in the history books, decided to create a legacy and then based their actions around this goal.  How do we know such people existed?  Because they’re still with us.

I remember during the New Labour years in the UK, people were always on about Blair’s legacy.  I think that’s the first time I was politically aware enough to see that somebody’s policies are being driven by what he wants people to say about him in the future, rather than what he actually believes.  Education Education Education was one mantra, that came to nothing.  Whatever the state of British education now, Tony Blair isn’t going to be remembered for playing any significant part in it.  Insofar as he has a legacy, it is one of a disastrous war in Iraq.  Those who supported the war don’t think he has a legacy at all.

Barack Obama is another modern politician in desperate search of a legacy, hoping to go down in history for something other than his skin colour.  He may well achieve it with Obamacare when the bills finally start coming in, although not for the reasons he thinks.  But that’s not enough: ill-advised peace talks with Iran and muddled overtures towards Cuba have followed, as Obama seeks a geopolitical issue on which to hang his hat in the history books.  Both are bound to fail.

Those who actively seek a legacy, rather than simply let it follow their actions, are doomed to fail largely because they lack the conviction to see their decisions through.  Historical legacies are not the results of popularity contests, in fact usually they’re the complete opposite.  Just ask Genghis Khan.  Those who succeed in pulling off great historical feats (both good and bad) do so from a position of absolute determination and self-belief in their actions, and will see them through regardless of the setbacks, or die in the attempt.  And the actions themselves are normally bold, brutal, and unprecedented.  This is in contrast to the modern politician seeking a legacy, who will be uncertain even on which path to take to achieve it, let alone the required actions.  At the first sign of trouble – an unkind editorial, an unfavourable opinion poll – most of them will backtrack and seek another way.  Abraham Lincoln didn’t suffer from this.  They also don’t think big enough: legacies are made by actions which affect millions for generations, permanently changing a country or continent, not tinkering with health policies or lobbing a few Tomahawks.

It is probably a good thing that today’s world doesn’t readily allow the actions that bring about the sort of legacies historical figures have left, given that most of them involved death and destruction on an industrial scale.  But the problem of those seeking a legacy, rather than simply doing their job, remains.  This brings me onto the current state of Russia under Vladimir Putin.

There is no doubt that Putin was very good for Russia in the early years: young, fit, and sober he was probably the best leader Russia has ever seen, although I should add that the bar is set extraordinarily low.  Russia in the ’90s was a terrible place, and Putin provided much needed stability and a reining-in of the oligarchs and gangsterism that plagued the country.  How much of this was down to him personally is debatable, but under his reign the currency stabilised, the economy grew, violence declined, and living standards rose as a new middle class of moderately wealthy Russians appeared.  The decade between 2000 and 2010 probably represented the best period Russia has ever seen (although again, the bar is set astonishingly low) and Putin deserves considerable credit for presiding over it.  Given what Russians lived through in the USSR and its aftermath it is not difficult to see why Putin was, and remains, so popular with his people.

Now we can argue that Putin should have done more, but I don’t take that view.  What he had achieved up until around 2006-7 had surpassed all expectations, and I don’t think anything more should have been asked or expected of the man.  That’s not to say there was not an awful lot left to do in Russia: there was.  It is to say that Putin was not the man to do it.

There are limits to what people can do in office, and that is often driven by time.  A two-term president in the US is usually in charge of a very tired administration in the final couple of years, regardless of how good they’ve been beforehand.  Even New Labour’s supporters were glad to see the back of Tony Blair after 10 years as Prime Minister; Margaret Thatcher left Downing Street a tired shadow of the vibrant woman who had entered almost 12 years previously; and despite the economic boom and rise in living standards Australia enjoyed under 11 years of John Howard, the population felt they were in need of a change when they kicked him out.  The optimum period in office for a leader in a modern democracy is approximately 7-8 years, after which their administration is plagued by various scandals, stumbling policies, tired rhetoric, and a population that has gotten tired of seeing the same damned face on the TV every night and could use a change.  Even the Soviet leaders eventually departed, unable to fulfill any more promises or bring about change in the way they could when they first took over.  With the exception of Stalin, few missed them.

By this measure, Putin’s time was up around 2007.  Having taken over as President in 2000, he was required to step down in 2008 when his two-term limit had expired.  This would have been a good time to usher in a protégé and retire from politics, having achieved so much and leaving the country in far better shape than he found it.  He would have been universally admired both at home and abroad, and gone down in history as a truly good, if not great, Russian leader.

But unfortunately, he was having none of it.  With the idea of amending the constitution to allow him to remain President floating around in the final years of his second term, he sidestepped the issue by installing a puppet President in Dmitry Medvedev, and slotted effortlessly into the Prime Minister’s role transferring his previous authority to his new office until it was time to return to his old job four years later.  Starting around 2006, buoyed by high oil prices that had brought enormous wealth to him and his friends and unprecedented wealth to many ordinary Russians, Putin started to strut his stuff at home and abroad.  A new wave of Russian nationalism took hold, taking the form of increased anti-western rhetoric, a re-positioning of Russia as the victim of foreign exploitation, and a desire to get more involved in global affairs in order to protect Russia’s perceived interests.  It was during this era that the Russian government intervened in several major oil and gas projects operated by western oil companies, citing legal or environmental irregularities as justification for bringing them back under state control.  At the same time, Russia decided the operatorship of the giant Shtokman project in the Barents Sea would remain with Gazprom, the state-owned energy giant.  In September 2007 I wrote that the policy of resource nationalism that Russia had pursued the previous summer could one day be seen as a turning point in the country’s development, the time at which the Russian leadership decided that the production of oil and gas by state-owned behemoths in an otherwise unreformed economy was the route to future prosperity.

For a while it was looking good for Russia.  The country was rocked by, but ultimately survived, the global financial crisis thanks to an oil price that quickly rebounded after an initial tumble.  But crucially, once he’d decided to remain in power, Putin failed to reform the economy beyond the Soviet-era export of natural resources, primarily oil and gas.  As I said earlier, given everything Putin had done to stabilise Russia I don’t think the onus was on him personally to reform the economy: such a daunting task would have had to fall to somebody else.  But by staying on, unless he was willing to double-down on his efforts and likely expend whatever energy and political capital he had, such a reform was postponed indefinitely.

It is not just the case that Russia is too dependent on oil and gas exports, it is that it is almost impossible for individuals to develop and grow a profitable business unless they are well connected to a rich and powerful entity in the locality.  For all practical purposes, this means being pals with the mayor or FSB of the local town, or the bigger politicians in the larger cities.  Otherwise, your business simply won’t be allowed to develop.  It is no surprise that most Russian towns feature one giant shopping mall owned by a local bigwig who also owns a nightclub and a few restaurants, with another one or possibly two smaller “empires” making up the bulk of the remaining local business portfolio.  If an enterprising but unconnected person decided to develop a small patch of land beside the river and turn it into a waterside restaurant, and by some miracle obtained the permits to get it up and running, within days of turning a profit (or even before) he would lose his business.  He would be forced out: either by a never-ending stream of regulatory authorities ranging from fire safety to health inspectors, all of whom would demand a cut of the proceeds to “allow” him to stay open; or simply by a gang of thugs working on behalf of a local bigwig who fancies co-opting the business (now that somebody else has done all the hard work) into his own empire.  In my discussions with Russians, this is something which is absolutely beyond dispute: the number of parasites that descend on private, independent businesses makes running a successful enterprise near-impossible.  In Russia, you may run a business only with the approval of the local power chiefs, and tribute must be paid.

This situation is a product of the enormous bureaucracies that govern Russian business life, coupled with the corruption that infests almost every corner of them.  Overhauling this is a mammoth task, and in all likelihood impossible.  But that doesn’t mean it shouldn’t be tried, and the starting point would be to strengthen the country’s institutions – particularly the courts and justice system, and insisting that governmental authorities everywhere follow the rule of law.  However, that would require giving them independence and devolving centralised state power over a much wider area, and neither the Kremlin nor the regional powers were prepared to do this.  Like a lot of leaders who have enjoyed unopposed power a while, Putin began to see himself as indispensable.  Far from state institutions being granted more devolved authority and independence, Putin centralised Russia’s powers further, notably around himself.

Further convinced of his own indispensability, in no small part due to genuine feelings of support for the idea from the Russian population backed by crushing election victories, Putin became yet more assertive in his dealings with the rest of the world, determined to restore what Russians consider to be their rightful place in global affairs, with himself in the role of saviour of the nation.  Somewhere along the way, Putin seems to have sniffed an opportunity of one day being held in the same esteem as Peter the Great, Katherine the Great, and maybe even old Joe Stalin.  Sometime after 2012, the ageing Putin perhaps thought time was running out for him to establish such a legacy, and so stepped up his efforts.  Confused mumbo-jumbo regarding Imperialist Russia and Soviet history underpinned much of his foreign policy, with vague ideas about manifest destiny thrown in for good measure.  Having trampled all potential domestic opposition and removed any dissenting voices from within his own circle, Putin fell into the trap of all long-serving authoritarians: he started believing his own bullshit, hearing nothing but rapturous applause every time he spoke.  So when the opportunity to reclaim Crimea for Russia presented itself, Putin moved quickly to take it.

Now regardless whether you believe the Russian claims that the annexation of Crimea was necessary to prevent the Americans establishing a base there, the fact is that in 2006-7 and again in 2010-12 Putin faced the choice of either reforming the economy by overhauling the state institutions and rooting out corruption, or improving Russia’s position with regards global affairs and its near-abroad with himself as the figurehead of Russia’s resurgence.  It is almost beyond question that doing both was impossible, and completely beyond dispute that he chose the latter.  In my view, he did so for two reasons: it was much easier for him, coming more naturally; and he thought this was the best route to establish himself in the history books alongside other great Russian leaders.

With that choice, any hope that the Russian economy could free itself from local strongmen and the national giants was lost.  The government remained dependent on a high oil price to balance its budget, while the rest of the economy remained unreformed, unreconstructed, and hopelessly inefficient.  As a result, Russia in 2014 found itself still heavily dependent on imports and produced little of value domestically: even the foreign car assembly plants set up in western Russia are dependent on imported parts, for which they must pay in Euros.

So long as the oil price remained high, none of this really mattered.  But with its collapse, and the western-imposed sanctions, the Russian economy has nosedived.  This article by Tim Worstall explains just how grim things are looking for Russia, but does not tell the whole story.  The middle-class consumer boom which took place in Russia over the last decade was driven mainly by personal debt: people borrowing from banks or credit card companies.  With the real prospect of incomes drying up and jobs being lost, a lot of households are going to struggle.  But what makes it worse is that credit in Roubles was being offered at interest rates of around 15-20% but consumers had the option of taking loans in Euros or USD which only attracted interest rates of 5-10%.  Many Russians took the latter option, and now face paying household debts in Euros or USD at a time when their Rouble salaries are worth half what they were.  Even those who borrowed in Roubles haven’t escaped: according to my Russian friends, banks are “renegotiating” the interest rates with their customers, which means higher monthly repayments.  Coupled with the rapidly increasing price of food (not helped one jot by Putin’s ban on imported products), we could see many households going into bankruptcy for the first time since 1998.  And this is before one considers the effect of the Rouble’s decline on the country’s main employers.  The head of Renault-Nissan in Russia recently came out and said manufacturing in the country is facing a bloodbath.

What will happen next is anyone’s guess, but a return to the grinding poverty and economic instability of the 1990s is looking increasingly likely.  Putin remains as popular as ever, having successfully dumped the nation’s economic woes squarely at the feet of the United States and European Union.  But as the economic reality starts to sink in, and increasing numbers of people with no jobs go hungry, issues such as political leadership and the inequality between the elites and the rest are going to become more pronounced.  Even if the Kremlin successfully manages to deflect the questions by piling on the anti-western rhetoric, this will not solve the underlying economic problems.

The trouble now is that it is too late.  The economy cannot be reformed with the sanctions still in place and the Rouble so weak, and so they have no choice but to ride it out until the oil price rises again, which on current forecasts could be a while.  Russians are facing the very realistic possibility of returning to the 1990s: empty shelves already line supermarkets, companies running package holidays abroad are going bankrupt by the dozen leaving local vacations as the only affordable option, and photos on Facebook show mass crowds buying TVs, video cameras, Ikea furniture, and other household items they don’t need in an effort to swap Roubles for something with a chance of retaining some value.  If this keeps up, it may be fair to ask exactly what progress has been made in Russia in the past 20 years.

Putin had the option of stepping down in 2008, his job well done, and handing over to a successor.  He chose not to, and instead opted to pursue what he hoped would become his legacy, which would be underpinned by the self-development of Russia’s vast hydrocarbon reserves.

The worst part is they didn’t even get that right.  The last major oil and gas development in Russia was the Shell-built Sakhalin II LNG project, which started up in 2008.  The Gazprom-led Shtokman development ground to a halt amid spiralling costs and disagreements between the partners.  Rosneft has been in the news mainly for its deals with BP, its appropriation of Yukos and Bashneft, and its staggering corporate debt rather than concrete development plans bearing fruit.  Umpteen grand announcements ranging from Nigerian gas deals and far-east LNG plants to Arctic developments and Chinese pipelines have come to nothing (or remain stuck on such details as pricing).  As of 2014, Russia remains as unpredictable, risky, and dangerous for an oil company – even a Russian one – to do business as it was in the 1990s.  For a country that picked hydrocarbon development as the sole political-economic strategy in lieu of reforming the economy and engaging with the west, this is a shockingly poor performance.

So what of Putin’s legacy?  If Russia hangs onto Crimea, which it probably will, it might warrant a note in a history book somewhere (offered as much prominence as Khrushchev’s transfer of the peninsula in 1954, which few knew about until recently).  But it’s hardly the stuff to warrant a mention alongside Katherine the Great or Ivan the Terrible.  As I said at the beginning of this post, the modern-day politician (of which Putin is one, no matter how much he wishes he belonged to another era) just doesn’t think big enough to create a proper legacy.  In the grand scheme of things, the annexation of Crimea is mere fiddling, and expensively at that.

The irony is that if he had stood down in 2008, he would have left a legacy of quite some merit.  Had he decided to stay and expended his considerable political capital in ramming through the economic and institutional reforms Russia so desperately needs, he would have created a legacy even greater (albeit one that carried a lot more risk of failure).  Instead it is looking increasingly likely that his early work will be completely undone, and his legacy will be one of having progressed Russia precisely nowhere since he took over, having gone the full circle from crisis-ridden poverty to stable wealth and back to crisis-ridden poverty in just 15 years.  Putin’s is a story more suited to Africa than Russia, with a legacy more akin to Robert Mugabe than Peter the Great.  What a terrible waste.  What a terrible shame.

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