Internal versus World Prices in Raw materials, the development strategy and the developing of the manufacturing industry of Russia

(1) Exports from Russia are mainly composed from raw materials and semi-finished products. The situation is however pretty diverse going from energy products (Oil and natural gas) to agricultural products and some already semi-processed goods (laminate products from the steel-making industry, aluminium and some basic chemicals used for the production of fertilizers). The usual description of Russia as a raw material exporter is then generally overlooking the actual diversity of these productions. However this diversity is preventing a single policy to achieve the best results. No unified tariffs or prices policy could by itself solve problems coming from this structure of exports.

(2) Russia knows a situation where there are big differences between internal and exports prices. Sometimes internal prices are lower (energy) and sometimes they are much higher (metal products). Such a situation gave birth to the idea that Russia is subsidizing some exports. In the same time it is not a situation systematically effective for Russia, which is seeing part of the value of these productions captured by other countries (the best and wellknown example is Timber as Russia is exporting Timber and  importing some furniture made of the very Timber it has previously exported). This situation is compounded by the structure of some industry. Concentration and monopolization is frequently an unavoidable phenomenon (specifically in ferrous and  nonferrous metals) because of increasing return to scale frequently experienced in these industries. This is giving birth to cartel power and the usual answer to be given has been some kind of price regulations (price-caps and others).

(3) This is compounded by the “relative prices for tradable goods” problem. Usually it can be said that the prices of raw materials is getting lower and lower by comparison to the price of highly processed goods. This is why, historically, very few countries have been able to build a long-term growth only on the basis of raw materials. The only counter-examples are countries with a very low population (Canada, Australia, and Gulf countries). The problem has become however less clear in recent years because of the rises of some raw material prices induced by a phenomenon of relative scarcity. The best two examples are Hydrocarbons and Grains. Nevertheless even in these cases the high volatility of world prices, induced by the financiarisation of commodities markets (the development of derivatives markets and securitization), is having a very strong impact on the economic development of exporter countries. It can safely be said that having at least a mixed structure of exports (raw materials and some processed goods made with these raw materials) would have reduced the volatility of exports income and contributed much to the stability of the exporter economy.

(4) In the case of Russia, the presence of a high educated and pretty well trained population is also a strong argument for the development of a large processing industry. Development of services would be unable to provide jobs with high wages for sufficient numbers in this context. What is more the development of financial services, which could generate high wages, is a highly concentrated activity and would let unsolved the regional development issue. In this context the development of a large processing activity appears to be the only solution to provide employment at a decent level of wages for the Russian population.

(5) We are to examine here options open to Russia to develop more fully its internal industry and in the same time to reap the maximum advantage from its export potential. We will first examine what the situation is concerning relative prices and prices volatility in a world where we are facing both a growing scarcity for some goods and the transformation of some commodity markets into near financial markets. Then we will examine the logics of prices and the dilemma of developing industry. Then third we will examine measure to be taken by Russia for the sake of developing a manufacturing industry.

Référence

Jacques Sapir, Internal versus World Prices in Raw materials, the development strategy and the developing of the manufacturing industry of Russia, Report and Proposals, Centre d’Études des Modes d’Industrialisation (CEMI), EHESS, April 11th 2011, 16 p.

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Report on structural policies


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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