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Russia Risks Becoming a 'Raw Materials Colony' for China

VADUZ, Liechtenstein, February 4, 2014 /PRNewswire/ --

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Russia's economy is being crippled by Soviet-era industrial policies and is in dire need of modernisation, writes Professor Stefan Hedlund in World Review. But the bulk of the industrial base is located in company towns, known as monotowns, that epitomise the federation's countrywide industrial decline.

'Unemployment in these towns of sometimes hundreds of thousands is often double or even higher than the national average of 5.7 per cent. They embody Russia's current predicament,' he says.

A comparison between the respective track records of the Russian and the Chinese economies over the past two decades demonstrates the consequences of Russia's reliance on its natural resources.

'While Beijing has achieved rapid technological change, Moscow has faced increasing 'primitivisation'. Russian economists fear that the Russian economy will be reduced to little more than a raw materials colony for the voracious Chinese economy,' he adds.

The monotowns' growing desperation is seen by many analysts as a ticking timebomb ready to explode in a wave of nationwide protests.

'Many of the towns were built around a single enterprise which was obliged to assume responsibility ranging from housing, childcare and pensions, to communal heating and the local hockey rink,' explains Professor Hedlund. 'When the Soviet Union collapsed in 1991, and central economic planning ceased, foreign investors wishing to buy into the huge metals industries and paper mills that were put up for privatisation discovered they received more than they bargained for. Local authorities and local residents expected the foreigners to assume responsibility for the full package of social obligations.'

From a political point of view, it is tempting to allow the monotowns to muddle on, operating at a loss, providing employment and keeping the lights on in towns that do not have a future. 'But from an economic angle this translates into allowing labour and capital resources to remain locked into failing enterprises, to the detriment of future economic development,' he says.

The non-decision on what to do with the monotowns provides perhaps the most important reflection on how the Russian government is searching - fruitlessly - for a new economic growth model and development strategy.

Read the full World Review report here

About the Author

World Review author Professor Stefan Hedlund is Research Director at the Centre for Russian and Eurasian Studies, at Uppsala University, Sweden.

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