The economics of South Ossetia

by on March 19, 2014 at 1:10 am in Current Affairs, Economics, History | Permalink

They are not good, despite high expectations from some of the initial Russian sympathizers:

These days South Ossetia’s economy is entirely dependent on budgetary funds from Russia. Unemployment is high, and so are prices, since goods must now be shuttled in through the tunnel, long and thin like a drinking straw, that cuts through the Caucasus ridge from Russia.

Its political system is controlled by elites loyal to Moscow, suddenly wealthy enough to drive glossy black cars, though the roads are pitted or unpaved. Dozens of homes damaged in the 2008 war with Georgia have never been repaired. Dina Alborova, who heads a nonprofit organization in the South Ossetian capital, Tskhinvali, said her early hopes “all got corrected, step by step.”

The full story is here.

Therapsid March 19, 2014 at 1:26 am

The relevant issue is whether South Ossetia is falling behind the rest of the rump Georgia. The article didn’t give a firm account on that score. As a result, it reads as tired Western propaganda.

Regardless, Crimea is apparently going to be annexed to Russia which is a distinct scenario. South Ossetia and Abkhazia are not integral parts of the Russian Federation.

Crimea, by contrast, will be as a region a matter of national prestige. Imagine the investments made into neighboring Sochi and inflate them to give a sense of what lies in store for Crimea. For that matter, consider the reconstruction of Chechnya.

dan1111 March 19, 2014 at 3:53 am

Georgia is one of the fastest-growing emerging economies in the world, according to the authoritative source on all things:

http://en.wikipedia.org/wiki/Economy_of_Georgia_(country)

So South Ossetia does seem to be clearly falling behind. Of course, maybe that area would have been poor even if it had remained under Georgian control.

In any case, the point that expectations about Russian rule were not met is relevant.

Brian Donohue March 19, 2014 at 6:57 am

Yeah, I can’t help but feel like we’re being played a bit here though. “Dozens of homes damaged in the 2008 war with Georgia have never been repaired.” Dozens?

As for Crimea the 96% yes vote looks suspiciously Soviet-era, but is anyone making the case against a substantial majority there preferring Russia?

This feeling of being jerked around gets stronger and stronger. I don’t wear a tinfoil hat- I even voted for Obama in 2008 – but the regular media outlets (I listen to the very bland top of the hour CBS radio news in my car driving to and form work) are really creeping me out lately with their relentless Narrative.

Christian March 19, 2014 at 7:47 am

Tskhinvali has about 30,000 inhabitants only. And as anyone familiar with the former East Bloc knows, home means (in urban or urban-type settlements) a large prefab concrete building housing dozens if not hundreds of people. So yes, dozens of homes damaged not being repaired is significant.

Brenton March 20, 2014 at 8:13 pm

There are plenty of uninhabitable houses in rural parts of the USA but it doesn’t necessarily mean anything. If supply is greater than demand then some homes will not be repaired. Not familiar with South Ossetia but I thought that most of the rural East Bloc has been experiencing population decline.

Dan Weber March 19, 2014 at 8:35 am

I wouldn’t be too surprised if a majority of Crimea wanted to join up with Russia, but a referendum happening immediately after an occupation isn’t the way to find out.

mishka March 19, 2014 at 11:57 am

Of course, a better way is to wait for the guys from “Svoboda” come over from Kiev and to explain what is the right vote should be in a free society.

This is how it was explained to a director of the National TV channel yesterday (the guys doing explanation are PMs and the words are mostly obscenities).

http://www.youtube.com/watch?v=1c6eYId4fPE

dan1111 March 19, 2014 at 9:59 am

“is anyone making the case against a substantial majority there preferring Russia?”

A better question would be, “does anyone have actual data on what Crimeans prefer?”

Mo March 19, 2014 at 11:03 am

Well, you have 25% of the population who are Ukranian and about 12% of the population are Crimean Tatars, who were ethnic cleansed by Stalin. So there’s nearly 40% of the population that would be strongly opposed to joining Russia.

Locke March 19, 2014 at 9:44 am

“Crimea, by contrast, will be as a region a matter of national prestige. Imagine the investments made into neighboring Sochi and inflate them to give a sense of what lies in store for Crimea. For that matter, consider the reconstruction of Chechnya. – See more at: http://marginalrevolution.com/marginalrevolution/2014/03/the-economics-of-south-ossetia.html#comments

Yeah, these places clean up pretty well after a little ethnic cleansing.

mkt March 19, 2014 at 3:27 pm

Yes, as you say it reads like Western propaganda — I suspect it’s probably reasonably accurate, but who knows.

However there was a bit that did not read like Western propaganda, namely the reference to how the pro-Russian separatists had been battling the Georgian government forces for years prior to the Russian incursion. And if nothing else, that incursion did bring a decisive end to the ongoing combat. No more getting shelled by the Georgian army. That perspective was little reported at the time (at least in my recollection) is potentially very important. So the article did provide the reader a reason to pause and realize that there were some benefits, at least to some people, of the Russian incursion.

prior_approval March 19, 2014 at 2:21 am

A Russian I work with talked about this last week, explaining that the Russian idea of winning means that victory is claimed when an opponent’s eye is poked out – even though it cost the person doing the poking both eyes in exchange.

And yes, he was specifically referring to what happened recently in those two regions, and what the result of returning the Crimea to Russian ownership would mean in terms of ‘winning.’

Ray Lopez March 19, 2014 at 4:11 am

Common Balkan theme: it’s sort of Pareto optimal in the Balkans, in that somebody must lose for one to win. No “win-win” in the Byzantium regions. In the social sphere, you could say these regions have reached the optimal “Production Possibilities Frontier” if I use my econ-speak correctly, albeit they’ve not reached that frontier in the economics sphere.

BC March 19, 2014 at 7:43 am

Interesting. I wonder if this mentality is connected to their Communist past, either as cause or result. If they were marketing their ideas to the West, they might term it, “shared sacrifice to combat geopolitical inequality”.

BC March 19, 2014 at 9:10 am

On further reflection, the doctrine of mutually assured destruction did work as a nuclear deterrent during the Cold War. That’s obviously an extreme case, but it shows that there is some limit to how many of their own eyes Russians are willing to poke regardless of how many opponents’ eyes they can poke.

anon March 19, 2014 at 6:19 pm

Which is why the Soviets had plans to invade and occupy the United States in case of nuclear war (link below). The Americans had no such plans, because nuclear war was paramount to the end of all humanity.

http://www.airpower.maxwell.af.mil/airchronicles/aureview/1979/mar-apr/jenson.html

Anyway, the Russians 1) are an apocalyptic people who have a long historical memory of invasion after invasion and this guides their current behavior 2) are expansionist because a large country has saved them many times from invaders 3) love their clay, and the idea of victory is closely tied with physical occupation. I think we see this at play in Crimea.

Age Of Doubt March 19, 2014 at 6:49 am

Always amazed how post-Soviet union, every eastern bloc country ended up splintering into 20 ridiculously small states, because everyone there hates everyone else. Say what you want about totalitarian regimes, but they know how to keep the family together.

dearieme March 19, 2014 at 7:14 am

Put otherwise, Socialism turned out not to encourage brotherly love.

derek March 19, 2014 at 9:52 am

I suspect it is the opposite. If you kill, imprison or exile your smartest people who would be a threat to your power, those who would build economies or maintain social structures, when you are gone there is nothing left. All these folks make up the vibrant economic and social environments that we experience here.

Brett March 19, 2014 at 2:59 pm

That’s only happening with Yugoslavia, Georgia, and Ukraine – the rest have held together pretty well. Poland’s still solid, the Czech Republic and Slovakia split on amiable terms, and the Baltic nations are all whole.

Art Deco March 20, 2014 at 10:19 am

The physiography of the Caucasus lent itself to a number of mini-ethnicities. You have some of that in the Urals, but its less pronounced. Outside the Caucuses, colonization by Great Russians had usually left the older population in a minority position. I think the only exception was Tuva.

dearieme March 19, 2014 at 7:13 am

“long and thin like a drinking straw”: golly, so that’s what a tunnel is like.

Rob March 19, 2014 at 11:42 am

Dearieme, you are routinely one of the funniest, most acerbic, and insightful commentators on MR. Thank you for this and many other comments!

dearieme March 19, 2014 at 2:52 pm

Leave off the sarcasm, Bud.

Edgar March 19, 2014 at 11:04 am

So what happens to Ukraine’s national debt? Do they get to transfer the Crimeans’ share to Russia?

The Anti-Gnostic March 19, 2014 at 3:20 pm

No. They get to transfer it to the US/EU.

Freedom ain’t free, you know.

Art Deco March 20, 2014 at 10:15 am

There are 55,000 people resident in South Ossetia, with the concentrated population centers presumably summing to around 20,000 residents. The ‘economy’ for a unit of that dimensions would be local service trade, local construction, the state, the utilities, whatever agriculture or aboriculture or viticulture there is to be found locally, perhaps some extractive industries if there is any coal or tin in the ground, perhaps some tourist trade if the location is right, and some sort of small scale specialty manufacturing started because raw materials were nearby or because a local entrepreneur was committed to living in the place.

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