IV.Communicative practice. Situations

1. Your friends and you are preparing for a career in business. What sort of business might it be? What, how and for whom could you produce? Discuss your plans.

2. Enlarge upon the situation “Robinson Crusoe on the desert island”. What sort of economic problems did he face if any? Make up a monologue or a dialogue with Man Friday.

3. Relations between theory and practical experience. One of you is an economist, the other one is an ordinary consumer. Role play a dialogue on a train (on a beach, in a restaurant).

Russian Experience

1. Think and say:

a) What are three basic problems of everyday life in Russia?

b) What is the central economic problem for our society?

c) Why is it helpful to have a clear understanding of these problems?

2. Read the texts and write a paragraph “Theory and facts in Russia”. Focus your analysis on the right issues. Explain your conclusions.

Gauging the True Size of Russia’s Economy

In 1990 a conference was held in Washington. Its participants — Soviet and American economists, and CIA experts — attempted to discover the size of the Soviet economy. One of the organizers was the well-known American economist Igor Birman, an emigre from the Soviet Union. A recent talk that Moscow News had with Igor Birman confirms that the problem of determining the size of the Russian economy, and its rank in the world, is still relevant.

MN: Even without a study you could notice that salaries are small in Russia. But, as far as we know, in the course of your study you came to the conclusion that despite the sharp decline in production, living standards in Russia have not fallen proportionately.

IB: This is actually not a conclusion, but a reason to ask: How , despite a slump in industry and agriculture, in the military as well as the consumer goods sector, despite countrywide disorder, and despite high prices and low wages, Russians still make both ends meet?

MN: How, in your opinion, do they?

IB: According to the State Satistics Committee (Goskomstat), about 10 percent of consumer items come from what is called “cottage production.” Ten percent is an incredibly high figure for the end of the 20^th century. “Cottage production” includes not only the potatoes and onions one grows in one’s kitchen garden, or the pigs one raises for consumption, but also the hair-cut at home. Many people do not go to an expensive barber’s shop, and they sew their own clothes. About 40 percent of the Russian population (a high proportion) use products from their own land. American statistics do not count the fruit grown in gardens with less than 50 trees. Few Russians have 50 trees, but overall, cottage production plays an important role.

MN: What other things are helping people?

IB: The structure of consumption is fundamentally different in Russia than in America. Here are the figures for 1995. Food takes up about 14 percent of the budget of an American family, but 52 percent for a Russian family. The share of tobacco in the family’s expenses is the same in both countries, but the share of alcohol is 2.5 times greater in Russia. An American family spends about five percent of its budget on clothes and footwear; a Russian family, more than 15 percent. But rent, heat and electricity take up 32 percent of the family budget in America, compared to approximately nine percent in Russia. Transport (including the purchase of a car, gasoline, maintenance service, plus public transport) accounts for 19 percent in the U.S., compared to about six percent in Russia.. It turns out that an American family spends about 20 percent of its budget on food (including alcohol and tobacco), clothes and footwear; a Russian family, 70 percent.

MN: The difference is enormous. What is your conclusion?

IB: The point is that in the rest of the world, the needs for food, clothes and footwear are incomparably easier and cheaper to meet than the needs for housing and consumer durables.

MN: Do you mean to say that Russians are in a way lucky?

IB: Yes, but in a very limited way. Given a situation where the consumption structure is backward for the end of the 20^th century, but basic needs — food and clothes — are relatively easy to meet, the fall in living standards in Russia has not been so terrible.

MN: A curious conclusion. Do you think there are other factors that have helped our consumers?

IB: Yes. Another factor is the large scale of rather cheap consumer imports. To be more precise, it is not the scale of the imports, but their share in Russia’s consumption. In 1995, consumer imports from the far and near abroad, including goods brought in by shuttle traders, totaled about $30 billion. These imports do not seem to include what non-traders who go abroad bring in, but this is not of key importance. The important thing is that imported goods accounted for 54 percent (the share of imports from other CIS countries is estimated to be less than one-third of total imports) of the retail trade turnover, that is, the total amount of goods bought by Russians inside and outside “organized trade.”

And it can be inferred from Goskomstat figures that these imports account for some 38 percent of the population’s total expenses on goods and services. In other words, imports are largely responsible for the population’s ability to survive. By the way, imports amount to 18 percent of Russia’s gross domestic product) (GDP).

MN: It is good that imports do help.

IB: It is, indeed. However, this huge proportion of imports in consumer spending is balanced by exports of mostly raw materials. The problem lies in the structure of the imports.

Imports in themselves are not something terrible. We in the United States eat Australian mutton and New Zealand apples, drink Chilean wine, and use Japanese electronics. But although the total of consumer imports into the United States ($86 billion) exceeds that of Russia’s imports, it comes to just over one percent of the U.S. GDP.

MN: You seem to have come to one of your favourite subjects — the true size of the Russian economy. At the conference held in the spring of 1990 in Washington, economists — at any rate most of them — came up with a sensational figure: that the USSR’s GDP was about 20 percent of that of the United States.

IB: Western experts (including those of the CIA) overstated the size of the USSR’s GDP. I first pointed this out in the early 1980s. I was not criticized for that. I was simply ignored because my figures differed greatly from the existing estimates. But in the late 1980s I was of course proud that my estimates proved to be correct.

Still, was the American economy 50 percent larger than the Soviet economy, or was it five times larger? We have since had a better understanding of the size of the Russian economy in relation to other economies. However, it seems to me that the significance of this issue is ignored as before.

MN: Aren’t you exaggerating the “significance” of this issue?

IB: This question is as important for the economist as chronology is for historian. If history does not interest you, you would probably be indifferent to the sequence of events. If the real size of the Soviet economy doesn’t interest you, then you probably are not that interested in economics.

MN: It’s simply that it’s difficult to astonish us nowadays. Besides, we have become pragmatists. Though the question of who we are — Gulliver in the land of Lilliputians, or the other way round — can be a pragmatic as well as a philosophical issue.

IB: I doubt that you have become pragmatists. And it is not my mission to “astonish” anyone, even if my conclusions are surprising. These include the conclusion that I would like to draw from the figures we have been discussing. In 1995, Russia’s entire import of consumer goods amounted to 18 percent of its GDP. We know that the equivalent of this 18 percent is $30 billion. This means that Russia’s GDP should be $167 billion.

MN: But the official GDP estimate is four times greater.

IB: At any rate, Goskomstat writes in its books that by using purchasing power parity, Russia’s 1995 GDP was $664 billion.

MN: Russia’s GDP is equal to approximately 60 percent of the former Soviet Union’s. That is, in that period Russia’s GDP was equal to about 12 percent of the United States’. Over the last seven to ten years, Russia’s GDP has fallen by roughly half, and should today be equal to six percent of its U.S. counterpart. Since America’s GDP has grown by 20 percent during that time, Russia’s GDP today should be equal to four or five percent of the GDP of the United States. Since the size of America’s GDP is not subject to doubt (around $7 trillion), that of present-day Russia should be $300 billion to $350 billion. No?

IB: More or less. As you can see, we have come to the figures we spoke about. It follows from these figures that Russia’s per capita GDP is 12 or 13 times smaller than that of the United States. Russia has 148 million inhabitants; the United States, about 260 million. If we take the official figure — that is, if we accept that Russia’s GDP is indeed more than $600 billion — then Russia’s per capita figure would be one-sixth or one-seventh the U.S.figure.

You mentioned the “practical” significance of such comparative studies. In part, it consists in looking at matters as they actually stand. Let us grasp the true size. Also, let us admit honestly that Russia still has a long way to go.