Sunday, February 19, 2006

USSR Redux?

The country is run by a former KGB spy who once said, "the collapse of the Soviet Union was the greatest geopolitical catastrophe of the century." The country is in the bottom quarter of the Heritage Foundation's 2006 Index of Economic Freedom (IEF) and has hardly improved its standing in the index's twelve-year existence. Now Russia is taking for granted its only area of economic freedom: government intervention.

According to an Online Journal (subscription required) article today, the Russian government has seized control of a plant run by Russia's biggest automaker, OAO Avtovaz. The company has been taking part in a joint venture with General Motors valued at $340 million to locally produce GM products for use in Russia like the Chevrolet Niva and Viva. The article states that the move appears to be an attempt by the Kremlin to "revive Russia's ailing auto industry through direct state intervention."

We have already seen time and again what happens when this route is sought as a means to escape what looks to be inevitable. Unfortunately there is often an unexplored route in socialist/communist nation's that involves full private control. Unprofitable venutres such as the GM/Avtovaz partnership ("unprofitable" may be a speculative term) often need to go through cost-cutting measures as well as design changes to make an unwanted product more desirable in the domestic marketplace.

Russia, according to the IEF, is doing relatively well in the areas of fiscal burden and government intervention in recent years but are still suffering large inflation rates and low net foreign investment. Several cases of anti-democratic policies, including a $1 billion tax bill against BP's Russian joint venture partner TNK and friendliness toward other autocratic regimes (Venezuela and Syria come to mind), point to a future return to the days of yore when the hammer and sickle plagued the nightmares of those under Soviet rule.

The worst thing the Kremlin could do right now is to strong-arm General Motors out of the Russian automobile industry and take control of the marketplace. While it may not be the proverbial straw to break the camel's back, it would certainly be a big step in the wrong direction and part of a series of mistakes that could lead to a revived Soviet Union by decade's end ...

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