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In Russia, there's room only at the top Add to ...

It is common to refer to many a developing nation as a “land of contrasts,” but Russia is different, a land of outright contradictions.

The government heavily controls what is said on TV but not in the papers. Russians have an average annual income of around $13,000 but are probably the only people this rich who live in fear of frequent power outages. Many Muscovites drive around in fancy German cars, but there is no organized taxi service. If you want a cab you either call a radio car or flag down a freelancer in an unmarked car.

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A major exporter of wheat, Russia has to import millions of tons of meat and poultry for its domestic consumption. No wonder outsiders struggle to figure out what's going on, and change their minds so often. Since it was opened to the world in 1995, shortly after Communism fell, the Russian stock market has finished most years among either the three best-performing in the world or the three worst.

They say money talks and wealth whispers, but in Moscow wealth dances on the bar. It is the world capital of oversized displays: the wild parties on weekdays and the ten-thousand-dollar champagne bottles. I see plenty of excess in other emerging-market capitals, but this one takes it to a new level: I know Moscow businessmen who go mushroom picking on weekends-by helicopter. Local historians say it feels as decadent as the last days of ancient Rome. Yet other than St. Petersburg, Peter the Great’s canal-laced showcase, the second cities of Russia are grey and grim, still Soviet in look and morality.

Travelling inside Russia is like travelling through time: Moscow and St. Petersburg are connected by a high-speed rail system imported from Germany, but the average age of trains in the rest of the Russian fleet is twenty years, and many rail cars date to the Soviet era. Travelling the 440 miles from Moscow to St. Petersburg takes less than four hours; travelling roughly the same distance from Moscow to Kazan, referred to as the “third capital” of Russia, is a thirteen-hour overnight journey. The government is investing so little-investment represents just 20 per cent of GDP, less than half the level in China-that the cracks in the system are growing. While auto sales are increasing at a double-digit pace (and are particularly strong in the luxury class), roads around Moscow are falling apart, resulting in the worst traffic jams of any world capital.

These contradictions are not mere cultural peculiarities. They go to the heart of how things work today: The Kremlin allows entrepreneurs to thrive in retail, Internet, media, and other consumer areas, even as it continues to exert state control over strategic sectors, especially oil and gas. Though oil and gas officially account for a bit more than 20 per cent of GDP, the World Bank has said the number is probably too low, for complex accounting reasons, and it certainly understates the critical role of oil, which now makes up about half of federal revenue, two-thirds of exports, and most of the economic dynamism: If oil prices were to fall 30 per cent, the economic growth rate would fall to zero. The result is one economy under two systems, one somewhat free and one authoritarian. In 2007 I saw these contradictions as a stage that Russia would work through on the way to emerging as a European economic power. Now it looks more like a semi-permanent condition. Russia is an oil state that has lost its way.

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Reprinted from Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma. Copyright (c) 2012 by Ruchir Sharma. With the permission of the publisher, W.W. Norton & Company, Inc.

 
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