[sho]

"Face it: IKEA drains money from the country"

This is a common misconception and almost certainly wrong; you may need to brush up on your knowledge of economic theory if you harbour such fallacies. Perhaps start with comparative advantage:

http://en.wikipedia.org/wiki/Comparative_advantage

[ilyak]

The problem with comparative advantage is: For what products do Russia have comparative advantage? Besides oil, because being an Oil banana republic suck, and also all kinds of banana republics gravitate towards corruption and despoty.

If we'll find that we don't have comparative advantage over China in all manufacturing, we have two choices: - Ruin all the country manufacturing and hope for economical tooth fairy to save us - Fotrify economy against comparative advantage by introducing tariffs on imported goods.

It's noble and cool to think that every country have its own comparative advantages, but, some don't. In this case you either lose your manufacturing entirely, or defend it.

[laut]

A comparative advantage is not the same as an absolute advantage.

Have you read this: http://en.wikipedia.org/wiki/Comparative_advantage ?

[sho]

Give me a break. Russia has huge natural resources, a large aerospace and military industry, and a promising if undeveloped IT/maths/science sector. The possibilities and potential is endless.

There are plenty of things highly skilled Russians can and should be doing rather than making crappy, expensive furniture. But you know this, of course. This is what every other country does.

And there are plenty of other countries which earn the bulk of their foreign currency in commodity exports, mine included, and it's not a hotbed of corruption. In fact, minimising corruption can be a comparative advantage in itself.

"In this case you either lose your manufacturing entirely, or defend it."

Who would want to defend their furniture manufacturing capacity!? Yes there are strategic industries you can make a case to defend. But furniture? "Mr. President, we must not allow... a furniture gap!"

Anyway, if you're going to protectionist your way to the poor house, at least do it legitimately as part of a top level economic strategy. Local corruption is absolutely not the way to enforce a tariff.

[berntb]

Check "resource curse theory" on Wikipedia. Really fascinating.

[sho]

Thanks for mentioning that theory, yeah I'd heard about it.

I don't really buy it, though. It strikes me as being too cute by half and I can think of any number of counterexamples. For example, Norway, Canada and Australia have immense resource wealth per capita and no-one would say they're bad places to live. And Canada has 3x Russia's oil reserves, with 1/5th the population!

I think resource wealth is just a multiplier. If you have a bad government, it can make it even worse, but with good management it can provide a useful flow of income.

[berntb]

I think there is some benchmark that a country doesn't become a democracy if it has a certain percentage of export income from natural resources.

Norway was a democracy before the oil income. (I don't know about export incomes and Canada/Australia. Do they get most income from that?)

Edit: Syntax, so it will parse in your brain.

[sho]

Well, I don't know about Canada but in AU there's a mining lease fee, then corporate and income tax, then ownership restrictions (majority local ownership of shares). The government certainly gets its pound of flesh, in fact we're running our first deficit in 15 years mainly because commodity income is down, heh.

But yeah, good point on being a democracy before the money started to flow. That might indeed be the key. Resource income enables an otherwise uncompetitive, poorly-run country to keep its head above water, and sustain the worst sort of government even in the absence of advanced industry. And Russia is certainly pumping its oil as fast as it possibly can.

Who knows though. A bit of oil money would probably help North Korea. At least they'd have something to trade, some link to the outside world, some foreign currency to buy food. That's what I don't like about nice neat theories like that - they try to simplify the inherently unsimplifiable ..

[ilyak]

Money aren't the problem when you sit on a sea of oil.

However: employing 140M people is a problem; distributing those money between regions is a problem; not turning into banana republic is a problem (already failed that one).

Those problems can be, to some extent, solved by having manufacturing intact and working, if slightly inefficient.

I'm not saying it's only about furniture. This question is probably orthogonal to the whole IKEA discussion. Sorry :)