After several years of monetary prudence, the Russian government has committed the age-old sin of trying to inflate its way out of its economic woes. After the devaluation this summer, the ruble lost half its value relative to the dollar. Latest reports are that inflation is running at nearly 40 percent a month. Russian peasants standing in lines at stores complain that prices rise three times before they reach the checkout counter. Hyperinflation appears to be right around the corner.
Cronyism is another debilitating feature of the Russian economy.
A recent poll of Moscow businessmen revealed that several thousand bribes are given and taken in the capital every day. Corruption and crime act as confiscatory taxes and make normal, unfettered commerce a virtual impossibility. Few Americans appreciate the extent of the economic collapse in Mother Russia. While in Silicon Valley, I recently spoke with a CEO from a major semiconductor company who had recently visited a leading Russian chip maker. He said the plant was an anachronistic joke.