The main negative consequence of Dutch disease is considered to be the fact that the processing industry, which usually suffers during the expansion of the raw materials sector, generates a lot more positive effects than the latter (although research shows that this is not always true). In 1943, when it became clearer that the war was going in allied favor and that the Soviet Union would not outright lose the war, one of the most important tasks became to restore the national economy. In particular, this means that a considerable part of rent went not to the country itself, but to the countries receiving oil and gas at subsidized prices. The second option seems more likely, considering that the Soviet Union did sharply raise the deliveries of high-tech products in the 1970s. All these mechanisms could be divided between the purely economic and the political-economic. In the 1960s–1980s, the main benefits in energy savings—three-quarters—were achieved by decreasing the second kind of energy efficiency. In particular, it was noted that a high share of natural resources in exports can illustrate weak development of the economy’s nonresource sectors rather than the fact that the nation exports too many raw materials.50 But even such a situation does not mean that there is no dependence on material exports as the currency supply is exposed to extremely high volatility due to the volatility of raw material prices and a high share of raw material exports. Essentially, it largely determines the political economy of the society, which lives off resource rent. When oil prices increased (and they continuously increased between 1974 and 1980), there was a temptation to boost imports even more. This means that the economy has to undergo very painful changes in its industrial structure. In most cases, it’s the government that withdraws the principal part of this rent. Between 1960 and 1973, the amounts of energy used in the OECD nations and in the Soviet Union were growing at the same rate as their GDPs. On June 30, 1941, the Committee for the Distribution of Labor (later the Committee for Accounting and the Distribution of Labor) was created under the Bureau of the Council of Constituencies. In this case, it would have been even more exposed to fluctuations in world oil prices (as it used a more complex scheme of determining oil price when trading with allies: first, the moving average over five years, then—over three years; this enabled the leveling out of the short-term oil price fluctuations). Dekabrist-I – credits sovboats.ru Main class of Russian ocean submersibles in 1941, she was also the oldest. Nevertheless, the advocates of the second option included the ministers of the oil and gas industry and the geology minister, so this strategy won. In addition, the most extensive railway network was in the occupied western part of the country. The only alternative oil sources available for the Germans were in the Soviet Union and the Middle East fields controlled by Great Britain. Manzano and Rigobon also found that resource-rich countries have an incentive to borrow excessively. Indeed, its oil production in 1965 (173.5 million tons) was still far from the maximum that it reached ten years later (about 225 million tons). Distribution of world oil production I’ve been googling a bit but I can’t seem to find hard figures showing how world oil production in 1939-1945 was distributed. By that time, a primitive oil industry had already begun to appear, and by 1829 the area had eighty-two hand-dug wells. For an extended period of time, the Soviet Union was the world’s largest producer of energy resources. [3], Joseph Stalin's five year plans hoped to industrialize the Soviet economy and were designed to overcome the weaknesses that had destroyed the Russian economy during the first world war. This is largely to do with the way Soviets designed and mass-produced weapons. In 1977, the CIA prepared a set of reports that forecasted, in particular, a decline of oil output in the Soviet Union to 400 million tons, which would have made the country a net importer of this resource.48 However, this forecast was far from reality (in 1987, the country produced 625 million tons49). But the Soviet Union conducted “classic” import substitution policy without constantly increasing the requirements for the subsidized enterprises to increase exports (as in the case with most East Asian nations) and closing inefficient companies. Oil geology. After 1965, eleven of the biggest deposits were discovered, five of which had over 1 billion tons of initial in-place resources (Samotlor had 6,684 million tons; Fyodorovskoye had 1,822 million tons; Mamontovkoye had 1,349 million tons; Lyantorskoye had 1,954 million tons; and Priobskoye had 1,987 million tons).58. In accordance with these decrees, workers and employees were recognized as mobilized for the period of the war. But many studies have found low correlation between resource wealth and trade barriers.29 Thirdly, social arguments work best when nongovernmental actors have a priority right to the resource rent. History has no place for the subjunctive mood, but, proceeding from the political-economic explanation of resource dependence, it may have been likely. This drop was due to a number of factors, including labor unrest surrounding the 1905 revolu- tion. But oil dependence was not an issue back then as absolute volumes of exports were small and prices were not highly volatile. In 1945 the oil production of the Caucasus was down by 50 % compared to 1940 : 13 million to 27 million,and still the Soviets were in Berlin. The Soviet Union took part in World War II from 1941 until the war's end in 1945. This can translate into excessive borrowing, which negatively affects the economy both in the short- and long-term periods.25 Excessive borrowing on the global market leads to the devaluation of the national currency in the long term. 1, 170 (as cited by Slavkina, 262). The first scenario can be considered moderate. "[22] Soviet Union's GDP is significantly lower when compared to the axis countries in Europe. After World War II, efforts at first focused on resuming oil production in the Baku area, but subsequently, the extraction moved to the north to the Volga-Urals basin. Between the beginning of the twentieth century and 1974, the country was the world leader in oil production, but it was never mentioned as a nation that suffered from the resource curse. The oil production of Middle East was not exceptional, but would have been of great help for the Axis (that was mostly based on Rumanian oil: 7,153,000 t in 1937 and 6,603,000 in 1938). Known today as Lend-Lease. In 1944, the volume of industrial production when compared with the volume of industrial production in 1940 was at 103-104%. In the beginning of the 1980s, experts in the energy sector realized that “the abundance of cheap energy resources led to a notable weakening of the energy saving trend already taking place in the 1970s. This approach presupposes that manufacturers and workers in extractive industries of Latin American nations were used to the rent coming from the extraction sector and opposed the departure from the ISI. It is not clear how the authors drew the difference between actual and natural oil and gas costs. When the war started in September 1939, Germany was heavily dependent on iron ore imports for the manufacture of steel. then we started to come to the conclusion that this wealth had at the same time seriously undermined our economy; the due and overdue reforms were continuously postponed.”114, In turn, historian Steven Kotkin writes that oil money made it possible to boost salaries and expand perks and privileges of the constantly increasing number of Soviet elite. However, the analysis should be prolonged to the present time, as another downturn started in 2014, the end of which is still unknown (some researchers think oil prices will never fully recover due to the technological revolution both in cheaper alternative energy sources and in oil and gas production.) 25, d. 9250, l. 28. 57 Maltsev, Igrevskiy, Vadetskiy, 148 (as cited by Shafranik and Kryukov, 150). (This is, of course, an exaggeration for foreign trade, but it’s still important to remember that oil and gas accounted for about four-fifths of the Soviet Union’s exports in the 1980s.). If, in addition to the above, the USSR sharply reduced procurements of these products (which would be natural in these circumstances), it would have two choices: to create the necessary production inside the country (subsidized at the expense of resource rent) or to increase procurements in developed nations (at the expense of oil and gas deliveries). But this was based on the assumption that the Volga-Urals oil-and-gas-bearing region still had significant and relatively easy-to-extract oil deposits. What if Western Siberian oil was never found? The first wells were drilled in 1871-1872 and over 20 small oil refineries were active in 1873. one-third of prewar shipments. Mechanisms of extracting and distributing rent in the USSR were quite unusual and mostly hidden. Similar models (of overlapping generations) assume that the current generation has no intention to leave an inheritance and gets credits at the expense of resource revenues for future generations. The following table shows the employment of Soviet workforce during the years of the war starting with 1940, a year before the war. This required the country's leadership to take urgent measures to strengthen the nations economy, with a pri… If gas deposits are located far from consumers, control over deposits makes little sense if there is no control over pipelines. It’s important to remember that a country’s amount of resource rent does not reflect the extent to which the country is exposed to the resource curse. 106 Russian State Archive of Contemporary History, Fund 89, Inventory 42, Case 66, List 6, as cited by Slavkina, 331. 9 See review of Prebisch-Singer hypothesis in: S. Yermolayev, O. Vasilyeva, A. Mishura, Phenomenon of Resource Curse in Economic Development (Moscow: Plekhanov Russian University of Economics, 2012). The political-economic mechanisms of the consequences of resource abundance are not as well known and not as empirically backed up as purely economic mechanisms. 114 Georgy Arbatov, Man of the System (Moscow: Vagrius, 202), 313, 315 (as cited by Slavkina, 327). Moreover, in the mid-1960s, many experts working in Gosplan and the oil and gas industry did not expect that this could happen at all. We will adhere to its initial interpretation, which is the reduction of long-term economic growth rates of a country along with the growth of certain indicators of its resource availability (the share of raw materials in exports, total raw material exports, or raw material extraction per capita). However, in 1980, output was 188 million tons; it fell to 135.5 million tons in 1985, and only 109 million tons in 1990.54 But what is even more important than how it was falling is the fact that it was doing so faster than the authorities expected (experts started to point toward negative trends in the mid-1960s55). Despite the sharp increase in production in Western Siberia, the country’s establishment demanded the extraction of even more oil. The actual Soviet oil output amounted to three quarters of the total Middle East production.”35. 1 Mr Manmohan S, Kumar and Kent Osband,“Energy pricing in the Soviet Union,” Working Paper, no. Immediate gains in defense production came to fruition as several factors made that possible. Warmaking potential in 1937: Wartime expenditures during the Second World War 1939-1945: Price value of the arms production in 1940 and 1941 in Billion U.S. dollars (for prices in 1944: $1 = c.£0.21 = c.RM 2.22): Military Arms Production Index of Germany: Value and index of military arms productio… There is evidence that in some periods its supply curve sloped downward.100 In other words, it could have sold more oil when it was cheaper and exported less when it was getting more expensive. This was largely due to the loss of the Ukrainian Soviet Socialist Republic, which produced most harvest for the Soviet Union. This leads to certain conclusions. And in the short term, the company has no opportunity to avoid nonrecoverable capital investment (that is, in the worst case, it is ready to downplay the prices until the loss exceeds the amount of amortization of these capital investments). 1779 Massachusetts Avenue NW Seven major oil compnies dominated the production and export of oil at the time Hitler and Stalin launched World War II. In other words, if an economic agent doesn’t receive the full amount of rent (and/or the government is a part of this rent), a share of this rent goes to someone else or to consumers (who buy at an underrated price) or to suppliers of resources for production (who sell at inflated prices). Damage Soviet Oil Production Joel Hayward EVEN before Operation Barbarossa petered out in December 1941, Germany's oil reserves were severely depleted. To make things more simple, assume that they make up a fixed share of profits: τ for fixed taxes and τ' for informal taxes. . approximately to 11 percent of GDP.”71. Unfortunately, we don’t have data for such an analysis, but we repeat: starting from 1986, the Soviet Union had to invest a lot of effort into boosting oil production because the price of oil dropped sharply in 1986. By 1939, they dropped to 0.4 million tons. Gustafson uses a metaphor to compare the Soviet economy with a warped tree that has grown under the strong northerly wind of industrialization. So, possibly these industries would create even more problems. G., and Barry Ickes, Bear traps on Russia’s road to modernization (Routledge, 2013). Rossiiskii Tsentr Khraneniia i Izucheniia Dokumentov Noveishei Istorii, f, 71, op. The output of nonferrous rolled metal, cable products, and ball bearings, had almost completely ceased. In 1987, one of the USSR Gosplan employees noted at a meeting of economists: “If Samotlor oil did not exist, perestroika [reconstruction] of the economy would have occurred 10-15 years sooner.”113, Georgy Arbatov, a member of the Soviet Academy of Sciences, gave an excellent insight to the reasons why hydrocarbon exports were authorized by government officials the following way: “It seemed a cure for all problems. This happens because of the high uncertainty regarding the maintenance of this rent, and this is known to make economic agents discount future revenues and focus on the short-term horizon. In a strict sense, resource rent is the sum of differences between the price and marginal costs of resources (not necessarily natural). Thus, the share of indirect taxes or turnover tax (which helped extract the rent) in these products’ retail prices amounted to about 80 percent.66, Describing the methodology of calculating the resource rent, Gaddy and Ickes point out that “both the revenues and the costs of production must be considered in relation to the most profitable alternative use of resources. The figure of marginal cost is almost always unknown. The USSR’s population was much bigger than Russia’s, almost 242 million in 1970 and 292 million in 1991,118 which is 68 percent and 103 percent higher than the Russian population in 2014.119 This means that oil and gas output per capita was much smaller (2.12 tons/person per year in 1989 against 3.72 tons/person per year in Russia in 2016).120 At the same time, in the 1970s, about 80 percent of the Soviet Union’s earnings in hard currency came from oil and gas, which can be compared with modern Russia. There were three sets of prices: wholesale prices of enterprises (producers’ prices); wholesale industrial prices, different from the producers’ prices as they included costs and profits of transport companies (plus the turnover tax in the case of refined products and natural gas); and end sale prices (differentiated by the type of consumers in the case of natural gas and electricity), which exceeded the wholesale industrial prices by the amount of costs and profits of trade intermediaries or distributors.65 The difference between end prices on refined products (gasoline, diesel fuel, lubricating materials, black oil fuel) or natural gas and the prices (on crude oil or natural gas) of producers was the main rent-extracting mechanism. 4 Mariya Slavkina, Oil and gas factor of domestic modernization 1939-2008 (Moscow: Ves Mir, 2015), 295–297. We can’t discuss FDI in regards to the Soviet economy, but we know the following fact about the change in the country’s terms of trade: the purchasing power in 1988 of one barrel of Soviet oil, expressed in items of West German machinery, decreased to one-quarter from the 1985 level.18 A change in terms of trade like this is highly painful for the economy; it means that the country had to export four times as much oil in order to buy the same number of imported goods. To ensure the transition of the country's economy to a total war economy, the Gosplan were sent to large industrial centers and defense enterprises. Egan Neuberger, Thane Gustafson,5 and, later, Gaddy and Ickes,6 put an emphasis on another important feature of the Soviet economic system: its accumulated effects, embodied in the country’s physical infrastructure. They were taken under the strong influence of the American engineer John Holland, one of the great pioneers of this field at the beginning of the century. Other huge deposits were explored shortly after this, including the immense Samotlor field in 1965 (it was rapidly put into service; the first industrial well was completed in April 196840). All the economic mechanisms of the resource curse we review presume the existence, in one form or another, of market mechanisms (that is, the existence of private economic agents who react to incentives). 8 (2005): 559-583, 569. Finally, the costs of exploring Western Siberia were supposed to be reduced by the broad use of a rotational system of work in which workers did not need permanent places of residence and all the necessary infrastructure. The lightest (over two tons) fighter aircraft of WWII, it had impressive characteristics of speed and maneuverability. During high-price years, according to the authors, the difference was no more than 10 percent.72, Now, let’s take a look at the estimation of the Soviet oil and gas rent, calculated in Matthew J. Sagers, Valery Kryukov, and Vladimir Shmat (see table 2).73. This happens due to a combination of two effects—the substitution effect and the income effect. This is linked to the fact that these countries mostly import final products, prices on which grow faster than prices on raw materials in the long term. 105 FAOSTAT data, 2005, as cited by Yegor Gaidar, Collapse of an Empire: Lessons for Modern Russia (Washington, D.C.: Brookings Institution Press, 2010), 101. 14 Sagers, Matthew .J, “Oil Production Costs in the USSR,” PlanEcon Long-Term Energy Outlook (Washington, D.C.: PlanEcon, Inc., Fall 1987), 43-54 (as cited by Gustafson, 266). The five year plants converted peasants into only residual claimants on the available food. Despite the fact that technologies quickly get old and change and, thus, the share of technological rent in the aging production also drops, the accumulated amount of know-how and skills allows the economy to quickly absorb new technologies and products. 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