Russia No longer Among World Market’s Top Players

By 2010 Russia can hope to obtain 15^th place in the world in GDP. Experts from the Institute Of Economic Analysis (IEA) came to this conclusion in their investigation, “Russia in the Changing World.”

The investigation shows that in 1950 and 1970 the buying power parity GDP of the Soviet Union was, accordingly, $410 and $1107 billion, which allowed the country to claim second place after the United States in the world-wide rating. The breakup of the USSR and the subsequent economic crisis immediately moved our economy from the heavyweights to the top 20 industrialized nations. In the 1990s, as a result of dynamic economies growth in other nations, Russia was outpaced by Brazil, Indonesia, Mexico, Canada, and South Korea. Now the GDP is 14^th in the world.

As for per capita GDP, here our achievements are even more humble. From 1950 to 1990 the GDP in Russia (as a separate part of the USSR) was at 21-30 percent of the U.S. level, consistently topping the average world level indicator. According to the investigation’s report, in 1997 the GDP dropped approximately to 15 percent of the US level, which makes it 33 percent lower than the average world level.

As Andrey Illarionov, Director of the IEA, announced at the presentation, Russia’s GDP is now 102^nd among the 209 countries of the world. We were topped by the Dominican Republic, Brazil, Columbia, Panama, Peru, Tunis, Surinam, Ecuador, and Botswana. And coming up are Namibia and Morocco.

According to IEA experts, even in the best-case scenario in the upcoming years, Russia is destined to a sort of vegetable life among second-class states. Provided economic growth starts in 1998 (2 percent in government projections) and from 2000 to 2010 the average annual growth rate is at 4 percent, Russia will be able to retain 15^th place among nations in its GDP. If this rate is “only” 3 percent then we will take up an even lower position. “Russia”, as the authors conclude in their investigation, “in the historical perspective has left the club of economic superpowers forever.” “What’s left is but to hope that the Russian economy will force the world to reckon with it, by adhering to the principle, “not quantity, but quality.”

(Moscow News, October 2-8, 1997.)

Key terms.

1. Goods

2. Services

3. Commodities

4. Scarcity of resources

Unit 3 The Oil Price Shocks

Oil and its derivatives provide fuel for heating, transport, and machinery, and are basic inputs for many household products ranging from plastic utensils to polyester clothing. From the beginning of this century until 1973 the use of oil increased steadily. Economic activity was organized on the assumption of cheap and abundant oil.

In 1973-74 there was an abrupt change. The main oil-producing nations belong to OPEC — the Organization of Petroleum Exporting Countries. OPEC decided in 1973 to raise the price for which their oil was sold. OPEC correctly anticipated that a substantial price increase would lead to only a small reduction in sales volume. It would be very profitable for OPEC members.

People respond to prices. When the price of some commodity increases, consumers will try to use less of it but producers will want to sell more of it. These responses, guided by prices, are part of the process by which most Western societies determine what, how, and for whom to produce.

Consider first how the economy produces goods and services. When, as in the 1970s, the price of oil increases sixfold, every firm will try to reduce its use of oil-based products. Chemical firms will develop artificial substitutes for petroleum inputs; airlines will look for more fuel-efficient aircraft; electricity will be produced from more coal-fired generators. Higher oil prices make the economy produce in a way that uses less oil.

How does the oil price increase affect what is being produced? High prices not only choke off the demand for oil-related commodities; they also encourage consumers to purchase substitute commodities. Higher demand for these commodities bids up their prices and encourages their production. Designers produce smaller cars, architects contemplate solar energy, and research laboratories develop alternatives to petroleum in chemical production.

The “for whom” question in this example has a clear answer. OPEC revenues from oil sales increased from 35 billion $ in 1973 to nearly 300 billion $ in 1980. Much of their increased revenue was spent on goods produced in the industrialized Western nations. In contrast, oil-importing nations had to give up more of their own production in exchange for the oil imports that they required. In terms of goods as a whole, the rise in oil prices raised the buying power of OPEC and reduced the buying power of oil-importing countries such as Germany and Japan.

The OPEC oil price shocks example illustrates how society allocates scarce resources between competing uses.

A scarce resource is one for which the demand at a zero price would exceed the available supply.

We can think of oil as having become more scarce in economic terms when its price rose.

Notes

1. ranging from... to — начиная с... и кончая...;

2. increased steadily — постоянно росло;

3. on the assumption of cheap and abundant oil — исходя из того, что нефть была дешевая и в изобилии;

4. the price for which their oil was sold — цена, по которой продавалась их нефть;

5. a substantial price increase — значительный рост цен;

6. these responses guided by prices — эта реакция на цены;

7. consider first — рассмотрим сначала;

8. increases sixfold — увеличивается в 6 раз;

9. choke off — подавляют;

10. bids up — поднимает;

11. contemplate — размышляют;

12. much of — большая часть;

13. in terms of goods as a whole — что касается товарооборота в целом;

14. buying power — покупательная способность.