Why Russia is better growing than green

Russia, what a tease. First it dithers on ratifying the Kyoto Protocol on global warming. Next, its bad boy diplomats humiliate the blue suits from the European Union by continuing to dither - even when the EU types beg. Finally, President Vladimir Putin says Russia will probably ratify. But he will string out the process as long as possible, even though the EU will now support his country's World Trade Organisation membership.

Russia's inconsistency seems rash. Kyoto will go into effect if it is ratified by nations that emit 55 per cent of the developed world's carbon gases. Because the US, that other rogue, refuses to ratify, only Russia carries the weight to take the treaty across that 55 per cent line. Under the treaty, developed nations must cut their carbon emissions; the same rule won't apply to developing nations.

One might think that Russia would leap at a chance to prove itself the world's multilateral hero. After all, there are things Russia wants from Europe as well - not least that WTO membership. Besides, it is not every day that a former superpower gets the chance to save the planet.

Still, the image of Russia as rash tease is too simple. Andrei Illarionov, presidential economic adviser to Vladimir Putin, noted during a recent swing through western capitals that it is possible to defend Russia's Kyoto stalling in four simple words: "Russia needs to grow," he said over the phone last week from Washington, where he was preparing the ground for next month's Group of Eight summit in Sea Island, Georgia. Russia is not "developed" - it is "developing" and therefore cannot afford to cut emissions, he reasoned. As for the Kyoto treaty, Mr Illarionov calls it "a killer of living standards"; compliance would simply cost Russia too much.

This argument sounds like a stretch. After all, Russia has come so far that it is beginning to feel "developed" to outsiders. Under the presidency of Vladimir Putin its economy has expanded by more than 5 per cent a year. Surely Moscow can spare a percentage point or two if it means doing something important for the environment. Surely sacrifice is part of what it means to be a G8 member: noblesse oblige.

Well no, not really, says Mr Illarionov. There is almost no instance when a government should put a grand international cause before domestic growth, he contends. Indeed, the country that ceases to view itself as "developing" and instead views itself as comfortably "developed" sets in train the mechanism of its own decline. As he speaks, the listener imagines a sort of Platonic ideal: the eternally developing nation.

The growth-above-all rule is not one the Putin team worked up retroactively to get out of Kyoto responsibility. It is their philosophy, one they intend to be very different from the socially driven philosophies of postwar western Europe. Just as communist Russia once pursued top-down growth with zeal, Russia's free marketeers are enthusiastically seeking to establish the small-government conditions for growth from the bottom up.

Recently Mr Putin ordered Russian government offices and ministries to reduce staff by 20 per cent. He has reduced the number of ministries by a third. Oil money has helped the budget, but so have policy changes: a radical flat tax of 13 per cent reduced tax evasion and increased revenues.

Some may ask whether such a go-for-broke policy would not be lethal for the environment. Certainly that was the case in the Soviet era. Again, not really, says Mr Illarionov. The difference is that Russia is now a freer market. In such a market, progress leads to environmental protections, but only when the nation puts private sector growth first. His argument springs from economic research showing that when economies grow they begin to do away with pollution because it is simply wasted output. This phenomenon is known to economists as the environmental Kuznets curve.

What's more, Mr Illarionov argues, the best environmental reforms come out of voluntary actions by the locals in the private sector, municipalities and so on; the worst come out of compulsory international law. Of Kyoto, he says: "It looks like it is very nice, similar to the way in which communism and socialism looked very nice." Despite Kyoto's talk of market-friendly mechanisms, its potential to become a supranational monster is "a fact of life". Such arguments will be too strong for some. They may not even determine Russia's Kyoto policy, as Mr Putin indicated recently.

Regardless of whether Russia ratifies Kyoto, the general Russian emphasis on dynamic growth is important, especially in the context of the Sea Island summit. G8 attendees France and Germany these days seem to confirm the Illarionov thesis that the term "developed" can be treacherous and that big-spending, complacent and collectivist nations bring about their own decline. In France, one in four youths is unemployed. In Germany, the consensus is now that the country muffed the economics of reunification and brought disaster upon itself by spending when it should have cut. Western Europe's crises are genuine and demand action.

Of course French and German leaders may choose to make their own lives easier by devoting Sea Island and future summits to chattering about growth while doing nothing about it. Or to dithering over Iraq, oil prices and Kyoto while neglecting growth. But doesn't that make them the rash ones?

© Copyright 2004 Financial Times

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