Mr Thomas Friedman Pays a Visit to Professor Vladimir Mau. (February 5, 2006)

    New York Times  peripatetic Op-ed columnist Thomas Friedman was in Moscow the other day and happened to drop in on Vladimir Mau.

Vladimir Mau, president of Russia’s Academy of National Economy

Professor Mau is the president of Russia’s Academy of National Economy and after preliminary pleasantries Mr Friedman assumed to guise of his fellow NYT columnist, Princeton  Professor of Economics and International Affairs Paul Krugman and brought up the subject of the decline and fall of the Soviet Union.

Mr Friedman writes that in Professor Mau's opinion, "it was 'high oil prices' that killed the Soviet Union."

Friedman goes on to explain, and what follows ought to give pause to those who are responsible for the husbanding Australia's well being through the resources boom.

The sharp rise in oil prices in the 1970s deluded the Kremlin into overextending subsidies at home and invading Afghanistan abroad — and then the collapse in prices in the ’80s helped bring down the overextended empire.

 

...the 1973 Arab oil embargo and the sharp upsurge in oil prices — Russia was the world’s second-largest producer after Saudi Arabia — gave the Soviet Union a 15-year lease on life from... “oil and gas,” Professor Mau said.

 

The oil windfall gave the Brezhnev government “money to buy the support of different interest groups, like the agrarians, import some goods and buy off the military-industrial complex,” Professor Mau said. “The share of oil in total exports went from 10-to-15 percent to 40 percent.” This made the Soviet Union only more sclerotic. “The more oil you have, the less policy you need,” he noted.

 

In the 1970s, Russia exported oil and gas and “used this money to import food, consumer goods and machines for extracting oil and gas,” Professor Mau said. By the early 1980s, though, oil prices had started to sink... "it started borrowing from abroad, using the money mostly for consumption and subsidies, to maintain popularity and stability.” Oil prices and production kept falling as Mr. Gorbachev tried reforming communism, but by then it was too late [and the Soviet Union collapsed].

Thomas Freidman goes on to point out that the current Iranian government is in a similar bind:

In 2005, Bloomberg.com reported, Iran’s government earned $44.6 billion from oil and spent $25 billion on subsidies — for housing, jobs, food and 34-cents-a-gallon gasoline — to buy off interest groups. Iran’s current populist president has further increased the goods and services being subsidized. So if oil prices fall sharply again, Iran’s regime will have to take away many benefits from many Iranians, as the Soviets had to do.

 

[T]he best tool we have for curbing Iran’s influence is not containment or engagement, but getting the price of oil down in the long term with conservation and an alternative-energy strategy. Let’s exploit Iran’s oil addiction by ending ours.

When the resources boom currently feeding the Australian economy slackens it is unlikely that a collapse comparable to that of the USSR will occur, but unless strong steps are taken to relieve our dependence on the export of primary products were are "cruisin' for a bruisin'".

The Coalition government's approach of stroking the voters with cash handouts rather than investing the surpluses it has accumulated in projects to bolster the economy through reducing Australia's economic dependence on primary resources export, all the while watching out trade deficit increasing, is at best economic mismanagement coupled with a cynical manipulation of the voting public.