[YEDG]the 2nd of Feb. 9,30 AM Sunday Morning English Discussion Meeting near Shinchon St.
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Russia and the world
The triumph of Vladimir Putin
Successes abroad and the Winter Olympics make Russia look strong; but where it matters, it is weak
Feb 1st 2014 | From the print editionIN 2008, soon after winning the competition to stage the 2014 Winter Olympics, Vladimir Putin, the country’s president, announced that “at last Russia has returned to the world arena as a strong state—a country that others heed and that can stand up for itself.” Next weekend sees the opening of Russia’s first Olympiad since the summer games in Moscow in 1980. At the president’s behest, the games are being held at Sochi, an unsuitable subtropical resort, and the government has spent $50 billion—four times the cost of the jamboree in London in 2012—on staging the event. Big posters proclaim “Russia—Great, New, Open!” State-owned Sberbank offers the faintly menacing motto, “Today Sochi, tomorrow the world.”
The Olympic celebrations come after a good year for Mr Putin. At home, he has seen off the huge protests that greeted his return to the Russian presidency in 2012. Lacking any serious challenger, he has felt confident enough to free both Mikhail Khodorkovsky, a business oligarch whom he jailed in 2003, and the Pussy Riot protesters.
Abroad, Mr Putin has used his UN Security Council veto to see off Western ideas of military intervention in Syria, instead brokering a deal on chemical weapons and sponsoring a Syrian peace conference. His brutal ally, Bashar Assad, remains in power. Mr Putin has taken some comfort that NATO’s campaign in Afghanistan has been as difficult and frustrating as the one the Soviet Union endured 30 years ago—and a lot longer (see article). He has raised Russian defence spending. And he has left European diplomats looking flat-footed by deploying a mix of money and threats to persuade Ukraine’s president, Viktor Yanukovych, to walk away from a trade deal he was preparing to sign with the European Union.
Yet the revival of Mr Putin’s fortunes is not quite as impressive as it seems. It is not just that Russia’s political model has little appeal to others. Its resurgence is limited by a corrupt, state-directed economy that seems to be condemned to stagnation (see article).
A skater with feet of clay
After Mr Putin became president in December 1999, economic growth was strong enough for Russia to be classed in the BRIC group of fast-growing countries. Russians’ incomes rose in tandem, and pensions and welfare benefits improved—and were paid on time. This was a large part of the explanation for Mr Putin’s popularity with ordinary Russians. They supported him not just because he promised to make Russia strong, but also because he was seen to have brought stability and rising living standards after the chaos and ruin of the 1990s.
However, this achievement was founded almost entirely on oil and gas prices, which have climbed fivefold since 1999. Dependence on energy exports is greater even than under the Soviet Union: they now account for 75% of the total, against 67% in 1980. In 2012 Russia’s total bilateral trade with America was worth only $28 billion, and its trade with China, despite a long, shared border and copious amounts of commodities to sell, amounted to just $87 billion. By contrast America’s trade with China was worth $555 billion.
At home, high labour costs and low productivity make much of Russian industry uncompetitive, so most goods in the country’s shops are imported. Investment is too low; capital continues to leave the country, along with talented young Russians. A bloated and inefficient state, plus the firms it controls, account for half of GDP. And, as the Sochi costs indicate, corruption is endemic. Graft and inefficiency cost Gazprom $40 billion in 2011, according to the Peterson Institute, an American think-tank. An even larger sum is siphoned off by well-connected oligarchs—and squirrelled away in countries like Switzerland and Britain that are prepared to tolerate the crooks whom America wisely rejects.
Ten years ago the Russian budget balanced if oil was around $20 a barrel; today it needs to be around $103. The “Urals blend” price has fallen to $108. Meanwhile, new shale gas, which Mr Putin loves to ridicule but in fact typifies the American entrepreneurialism that could never thrive in his kleptocracy, promises to push oil and gas prices down.
Now that energy prices have stopped rising, best estimates of GDP growth have been cut to below 1.5% in 2013 and to 2% in 2014. America and Britain are both doing better, and Russia’s BRIC competitors, Brazil, India and China, are growing far faster. Russia is in the same growth league as the flagging euro zone—the weak countries Mr Putin pours scorn on.
Inspiration from Ukraine
The problem, as always, is governance. The list of needed reforms is familiar: more competition, the privatisation of state firms, better protection for investors, a more reliable legal system and a transparent regulatory framework. Yet the regime cannot implement such changes, for it exercises political control by controlling the economy: the status quo in Russia is preserved through monopoly rents, state-owned companies, a malleable judiciary, an opaque regulatory system and firms that rely on Mr Putin’s favour. So long as the current political system prevails, Russia will remain economically enfeebled.
Seen in this light, recent events in Ukraine look like a manifestation of Russia’s weakness, rather than of its strength. Mr Yanukovych’s repressive, corrupt government is drifting ever closer to Mr Putin’s, which it increasingly resembles (see article); but many Ukrainians do not want to go any farther down that road. That is one of the reasons why Ukraine matters so much to Mr Putin. It is not just that without it, his vaunted Eurasian Union—a sort of Soviet Union-lite—would lose its point: it is also that, if Ukrainians succeed in rejecting the Putin-Yanukovych model, and set their country back on a democratic European path, they might inspire Russians to do the same.
International sporting jamborees are fun; outfoxing a timid American president is good for morale; but in the end it is the health of a country’s economy that determines its fate. The Soviet Union fell not just because its people rejected its ideology but because its economy crumbled. Unless Mr Putin can get Russia’s working, his regime will go the same way.
From the print edition: Leaders
Schumpeter
We want to be your friend
Brands are finding it hard to adapt to an age of scepticism
Feb 1st 2014 | From the print editionONE of Kingsley Amis’s many bêtes noires was pretentious advertisements for beer. The poet laureate of alcohol thought that all such ads needed were three things: the name of the beer, a picture of a mother-in-law falling over and the slogan: “Makes You Drunk”. These days advertisements are even more pretentious than they were when Amis was harrumphing. Guinness’s blather on about the true nature of human character, and so on.
But spare a thought for the poor admen. Their industry is going through a particularly difficult time. Not only are they confronting a proliferation of new “channels” through which to pump their messages; they are also having to puzzle out how to craft them in an age of mass scepticism. Consumers are bombarded with brands wherever they look—the average Westerner sees a logo (sometimes the same one repeatedly) perhaps 3,000 times each day—and thus are becoming jaded. They are also increasingly familiar with the tricks of the marketing trade and determined to cut through the clutter to get a bargain. Scepticism and sophistication are especially pronounced among those born since the early 1980s. A study by the Boston Consulting Group found that 46% of American “millennials” use their smartphones to check prices and online comments when they visit a shop.
In Western societies particularly, respect for traditional voices of authority—from priests to political leaders—has eroded. So has their faith in brands. Havas Media, a big marketing agency, says trust in them has been declining for three decades. Last August it published the latest in a series of worldwide surveys, in which 134,000 consumers in 23 countries were asked what they thought of 700 brands. A majority of those taking part would not care if 73% of them just vanished. In Europe and America 92% would not be missed. Only in places like Asia and Latin America, with lots of newish consumers, is there a bit more attachment to brands, though Havas Media reports that it is declining there too.
Some advertisers think there is an advantage in acknowledging consumers’ scepticism. An ad for FirstBank, of Colorado, showed a new leather sofa and television in the middle of a square, with a large sign saying: “Free”. People strolled by, ignoring the bounty. A voice-over asks: “What if ‘free’ really just meant ‘free’?” A second method is to drown the scepticism with humour: a depressing number of brands nowadays rely on chirpy talking animals. A third is to disarm it with honesty. In 2009 Dominos launched a campaign featuring consumers talking about how awful its pizzas had been for the past 50 years. Then there is do-goodery: innumerable brands argue that the best way to save the planet or help the poor is to buy their products.
The holy grail of advertising is to make friends with the consumer. Companies used to do everything possible to convey authority and reliability. They adopted solid-sounding names like Bank of America or Fidelity and employed authoritative figures like doctors and dentists to deliver their “messages”. Now they are more interested in conveying chumminess. They are giving themselves jolly names like Wonga, Giffgaff and Ally. They are also finding clever ways to persuade ordinary people to endorse their products. Coca-Cola filmed students reacting with delight when one of its vending machines dispensed not just free soft drinks but also free pizza and bunches of flowers.
Many companies want to go further and bypass conventional ad campaigns altogether. It has long been known that “earned media”—word-of-mouth recommendations from friends, family and news articles—are highly trusted. Nielsen’s studies show that strangers’ comments on social media and online forums are also now seen as credible sources, rivalling traditional “paid media”. So companies are seeking to shape the public conversation about their products. Some have done it clumsily, planting fake reviews on consumer websites or paying bloggers to eulogise them. Others have been more subtle. Mercadona, a big Spanish retailer, is a master of word-of-mouth advertising. In 2005-06 it invited close to half a million women to visit its refurbished cosmetics departments, offering advice and free samples. Its sales have grown rapidly, despite Spain’s recession-ravaged economy.
It is all too easy for advertisers to mess up when trying out new ways to reach consumers, and affecting an irreverent tone of voice. Hyundai, a carmaker, suffered a backlash when it produced an online ad, in the hope that it would go “viral”, in which it sought to demonstrate its vehicles’ lack of noxious emissions by depicting someone attempting suicide. Companies often hope their campaigns will be shared and commented on in social media, giving a multiplier effect to their ad spending. But if just a few people find the ads objectionable, the offence-taking can spread like wildfire. KFC found this out when it ran a viral campaign for boneless chicken pieces with the slogan, “I ate the bones”: it triggered a vibrant online discussion, but much of it was about whether the ads were racist or sexually suggestive.
Trouser worship
Combating the public’s scepticism and mistrust is made all the more difficult by the existence of a powerful counter-current in some people’s attitude to brands: a loyalty that can sometimes verge on idolatry. Those supposedly streetwise, sceptical millennials seem more willing than baby-boomers to follow the recommendations of celebrities, or to kid themselves that by wearing this or that brand they will help save the world. Yet they are fickle, and may turn against their favourites in an instant if others seem to be doing so. Amis recognised one problem for advertisers: that they were so intent on appearing clever that they forgot simple truths, such as beer’s main purpose. The problem today is that they may be so keen on dispelling scepticism that they end up reinforcing it.
Google and Lenovo
Motonovo
Jan 30th 2014, 9:52 by M.G. and V.V.V. | SAN FRANCISCO AND SHANGHAIThe proposed transaction, which will need a green light from government bodies in America and China, will give Google a way out of a business that it has struggled to make headway in. The company bought Motorola primarily to get its hands on the firm’s vast portfolio of patents, which it said it needed to help defend its Android mobile operating system against legal challenges by rivals. Much of the hefty purchase price reflected Google’s estimate of the value of those patents, many of which it is hanging on to. (As part of the deal, it has agreed to licence some patents to Lenovo.)
The web firm sold Motorola’s set-top box and cable modem business for $2.3 billion soon after acquiring the company. But it kept the handset business in the hope that it could help it to churn out stunning new phones that would force all other makers of Android devices to raise their standards too. Although Motorola has produced some respectable new offerings such as the Moto X, these have failed to set enough pulses racing. Google lacked the in-house know-how to turn the business around and the scale to make it viable. In a blog post announcing the deal, Larry Page, Google’s chief executive, acknowledged that Lenovo’s expertise in device manufacturing made it a more attractive home for Motorola.
For Lenovo, the acquisition makes sense on two counts. First, it should fuel its steady rise in the league table of smartphone manufacturers. IDC, a market researcher, currently places Lenovo fourth globally, behind Apple, Samsung and China’s Huawei. Its phones sell well in China, Indonesia and Russia, but have struggled to make headway in Latin America or the United States. Lenovo says it will retain Motorola’s strong brand in those markets. Yang Yuanqing, the firm’s boss, also touts Lenovo’s “much shorter” product development cycle and ability to cut manufacturing costs through scale efficiencies.
This week’s deal is also a part of Lenovo’s grander quest. In 2005 the firm bought IBM’s struggling personal-computer business; despite the global shift from PCs to handheld devices, the firm has managed to rise to the top of this sector. Last week Lenovo also agreed to buy IBM’s low-end server business for $2.3 billion. Mr Yang says his long-term goal is to transform Lenovo into a global technology innovator on par with Samsung and Apple.
Google will no doubt be happy to see another powerful player align itself behind Android. And firms such as Samsung may feel better now that they will no longer compete head-on with the operating system’ creator in the handset business. Google and Samsung recently struck a deal that involves cross-licensing patents, which should also reduce tensions between them.
In his blog post, Mr Page said that although Google is making a tactical retreat in the “super-competitive” smartphone market, it still has big ambitions in other areas of hardware. The firm recently snapped up Nest, a maker of smart thermostats and home alarms, for $3.2 billion, and is championing wearable computers such as its Google Glass smart specs, which can now work with prescription lenses. It has also bought a range of robotics companies. Not all of these will turn out to be money-spinners. But expect Google to dial up its investment fast in those areas that are.
Casey Lartigue, Jr.
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Casey Lartigue, Jr.
Casey Lartigue, Jr.
I usually do volunteer work on Sunday mornings so I can't join on a regular basis, but with the school on vacation, I was able to join!