Russia’s post-communist economy has received a fair amount of negative labels from mainstream Western observers, from ‘crony capitalism’ to ‘anarcho-capitalism,’ and ‘the Wild East.’
Russian blogger Matt Rodina however says his country’s system is basically just good old fashioned mercantilism – the economic system that used to be dominant in the West until the mid 19th Century. He argues that the economic system in Russia is working relatively well, but western observers deride it because it represents a challenge to the reigning free-market economic orthodoxy supported by the U.S and Great Britain.
Rodina points out that one of the leading intellectual adcovates of mercantilism, Philipp von Hornick, described the key principles of this protectionist economic system, way back in the late 1600s – nearly a hundred years before the publication of Adam Smith’s treatise on free-trade, The Wealth of Nations.
In the 20th Century, mercantilism’s popularity has shifted from West to East, as former supporters like the United States and Germany have shifted to a more liberal economic model based on promoting free trade and attracting foreign investment. Subsequently, mercantilism’s main supporters today are East Asian nations like Japan and Korea, with China opting for a third way combining laissez-faire development zones with state support for industry.
In contrast to neoliberal capitalism, mercantilism pays little regard to economic transparency, which is both a strength and a disadvantage. The lack of transparency tends to encourage higher sayings rates and less dependence on foreign capital, but also leads to higher levels of corruption and secrecy.
The downside of Russia’s secretive economy was bought into focus a few months back with the calamitious disaster at one of the country’s biggest hydro-electric power stations, which has left over 60 people dead and western observers wondering what other cock-ups the Russian government may be trying to sweep under the carpet.
In comparison to protectionist states like Russia, economically neoliberal countries like New Zealand tend to have very low rates of corruption, and receive highly favorable coverage in the international business media. The downside of this openess and transparency though, is a low savings rate, lack of freedom in economic decision making, and ongoing balance of payment problems from a hollowed-out industrial sector.
Over the next few decades it’s going to be interesting to see whether mercantilism’s emphasis on the long-term health of the national economy, wins out over the short term focus on individual prosperity that characterises contemporary western capitalism.
Posted by mikecourtman 