Economy

An Economic Crisis May Be Looming For Russia

It was prepared during the global economic collapse of 2008, but it isn't now.

Trouble ahead in Moscow?
Trouble ahead in Moscow?
Aleksander Zotin

-Analysis-

MOSCOW — On Aug. 17, 1998, the Russian government announced a default on short-term obligations and a currency devaluation. The financial system was practically destroyed. Ten years later, in 2008, there was another crisis, this time a global one, that hit all the world’s economies, including Russia’s.

There were both similarities and differences between the two crises — each resulted from internal and external shocks. But we haven’t learned our lessons from them, and there are reasons to be worried that a new economic catastrophe is on the horizon.

Although it’s been five years since the last global crisis, it wouldn’t be accurate to say that the world economy is truly healthy. An exterior shock similar to the one that caused the economic collapses in 2008 and 1998 is still possible. In 2008, the epicenter of the crisis was the United States, but today the biggest threat comes from China — and from the fact that the entire developed world still balances on the edge of recession. If, in addition to that, there is a major shock from China, such as a slowdown in growth to just 3%, the world will be faced with another economic meltdown. A slowdown in demand for metals, for example, is already a menacing hint that this could happen.

Ominous signs

Nobody knows whether, or when, the global economy will suffer another body blow, but what is clear is that while Russia was relatively well-prepared for the 2008 crisis, we don’t have the same safety cushion today. Instead of a surplus, we have a deficit, and the non-oil and gas deficit is exceptionally high, with experts predicting that said deficit will be 10.7% of GDP this year.

In 2007, the country adopted new rules about how income from oil and gas could be spent, and it was meant to be used increasingly for government savings. But the crisis wrecked that plan, as the government tried to spend its way out of its economic problems. Russia not only failed to save its income from the oil and gas industries during the crisis years, but it also emptied its reserve fund. The non-oil and gas deficit rose to 13.5% of GDP. The crisis of 2008-2009 passed, but Russia still didn’t heed the World Bank’s recommendation to keep the non-oil and gas deficit below 4% of GDP. The gold reserves are also less important now than they were in 2008, and the private sector’s international debt level is much higher.

We are also more vulnerable now to external shocks than we were in 2008 because of domestic factors. We have witnessed economic stagnation this year even with high oil prices. There are also serious weaknesses in the Russian financial system. There has been a boom in credit and debt, which caused a quick rise in family incomes that has now become the expected norm. Consumer debt has now reached 15% of GDP. That’s low compared to other developed countries, but the advantages of having a low level of indebtedness are negated by the high cost of debt service and the fact that most of the debt is borrowed over very short terms.

In fact, Russians spend 11% of their income paying down debt, more than even the United States, where citizens pay on average 10.5% of their income for debt service, researchers say. This is the case even though household debt is 78% of GDP in the United States, much higher than Russia’s 15%.

If there is a sharp drop in prices for natural resources, a new crisis will be unavoidable. And there were not be many choices: either devalue the ruble or cut government spending.

On Aug. 14, 1998, President Boris Yeltsin announced, “There will be no devaluation. I am announcing that clearly and firmly.” Three days later, what he promised would not happen in fact did.

Now the Russian government is saying there will be no recession, though there might be long-term stagnation. You can’t really call that a crisis — it's just a matter of terminology. But it’s important to remember that Russia not only is vulnerable to an outside shock, but also that the vulnerability is growing. At the same time, internal risks are increasing as well, with experts seriously discussing the possibility of a collapse in consumer credit.

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Society

The Food Truck, A Sign That The White And Wealthy Are Moving In

In San Diego, California, a researcher tracked how in the city's low-income neighborhoods that have traditionally lacked dining options, when interesting eateries arrive the gentrification of white, affluent and college-educated people has begun.

Balboa Park Spring Fling Food Truck festival

San Diego Food Trucks via Facebook
Pascale Joassart-Marcelli

SAN DIEGO — Everybody, it seems, welcomes the arrival of new restaurants, cafés, food trucks and farmers markets.

What could be the downside of fresh veggies, homemade empanadas and a pop-up restaurant specializing in banh mis?

But when they appear in unexpected places – think inner-city areas populated by immigrants – they're often the first salvo in a broader effort to rebrand and remake the community. As a result, these neighborhoods can quickly become unaffordable and unrecognizable to longtime residents.

An appetite for gentrification

I live in San Diego, where I teach courses on urban and food geographies and conduct research on the relationship between food and ethnicity in urban contexts.

In recent years, I started to notice a pattern playing out in the city's low-income neighborhoods that have traditionally lacked food options. More ethnic restaurants, street vendors, community gardens and farmers markets were cropping up. These, in turn, spurred growing numbers of white, affluent and college-educated people to venture into areas they had long avoided.

This observation inspired me to write a book, titled The $16 Taco, about how food – including what's seen as "ethnic," "authentic" or "alternative" – often serves as a spearhead for gentrification.

Take City Heights, a large multi-ethnic San Diego neighborhood where successive waves of refugees from places as far away as Vietnam and Somalia have resettled. In 2016, a dusty vacant lot on the busiest boulevard was converted into an outdoor international marketplace called Fair@44. There, food vendors gather in semi-permanent stalls to sell pupusas, lechon (roasted pig), single-sourced cold-brewed coffee, cupcakes and tamarind raspado (crushed ice) to neighborhood residents, along with tourists and visitors from other parts of the city.

Informal street vendors are casualties.

A public-private partnership called the City Heights Community Development Corporation, together with several nonprofits, launched the initiative to increase "access to healthy and culturally appropriate food" and serve as "a business incubator for local micro-entrepreneurs," including immigrants and refugees who live in the neighborhood.

On paper, this all sounds great.

But just a few blocks outside the gates, informal street vendors – who have long sold goods such as fruit, tamales and ice cream to residents who can't easily access supermarkets – now face heightened harassment. They've become causalities in a citywide crackdown on sidewalk vending spurred by complaints from business owners and residents in more affluent areas.

This isn't just happening in San Diego. The same tensions have been playing out in rapidly gentrifying areas like Los Angeles' Boyle Heights neighborhood, Chicago's Pilsen neighborhood, New York's Queens borough and East Austin, Texas.

In all of these places, because "ethnic," "authentic" and "exotic" foods are seen as cultural assets, they've become magnets for development.

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

A call for food justice

Cities and neighborhoods have long sought to attract educated and affluent residents – people whom sociologist Richard Florida dubbed "the creative class." The thinking goes that these newcomers will spend their dollars and presumably contribute to economic growth and job creation.

Food, it seems, has become the perfect lure.

It's uncontroversial and has broad appeal. It taps into the American Dream and appeals to the multicultural values of many educated, wealthy foodies. Small food businesses, with their relatively low cost of entry, have been a cornerstone of ethnic entrepreneurship in American cities. And initiatives like farmers markets and street fairs don't require much in the way of public investment; instead, they rely on entrepreneurs and community-based organizations to do the heavy lifting.

In City Heights, the Community Development Corporation hosted its first annual City Heights Street Food Festival in 2019 to "get people together around table and food stalls to celebrate another year of community building." Other recent events have included African Restaurant Week, Dia de Los Muertos, New Year Lunar Festival, Soul Food Fest and Brazilian Carnival, all of which rely on food and drink to attract visitors and support local businesses.

Meanwhile, initiatives such as the New Roots Community Farm and the City Heights Farmers' Market have been launched by nonprofits with philanthropic support in the name of "food justice," with the goal of reducing racial disparities in access to healthy food and empowering residents – projects that are particularly appealing to highly educated people who value diversity and democracy.

Upending an existing foodscape

In media coverage of changing foodscapes in low-income neighborhoods like City Heights, you'll rarely find any complaints.

San Diego Magazine's neighborhood guide for City Heights, for example, emphasizes its "claim to authentic international eats, along with live music venues, craft beer, coffee, and outdoor fun." It recommends several ethnic restaurants and warns readers not to be fooled by appearances.

Longtime residents find themselves forced to compete against the "urban food machine"

But that doesn't mean objections don't exist.

Many longtime residents and small-business owners – mostly people of color and immigrants – have, for decades, lived, worked and struggled to feed their families in these neighborhoods. To do so, they've run convenience stores, opened ethnic restaurants, sold food in parks and alleys and created spaces to grow their own food.

All represent strategies to meet community needs in a place mostly ignored by mainstream retailers.

So what happens when new competitors come to town?

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

Starting at a disadvantage

As I document in my book, these ethnic food businesses, because of a lack of financial and technical support, often struggle to compete with new enterprises that feature fresh façades, celebrity chefs, flashy marketing, bogus claims of authenticity and disproportionate media attention. Furthermore, following the arrival of more-affluent residents, existing ones find it increasingly difficult to stay.

My analysis of real estate ads for properties listed in City Heights and other gentrifying San Diego neighborhoods found that access to restaurants, cafés, farmers markets and outdoor dining is a common selling point. The listings I studied from 2019 often enticed potential buyers with lines like "shop at the local farmers' market," "join food truck festivals" and "participate in community food drives!"

San Diego Magazine's home buyer guide for the same year identified City Heights as an "up-and-coming neighborhood," attributing its appeal to its diverse population and eclectic "culinary landscape," including several restaurants and Fair@44.

When I see that City Heights' home prices rose 58% over the past three years, I'm not surprised.

Going up against the urban food machine

Longtime residents find themselves forced to compete against what I call the "urban food machine," a play on sociologist Harvey Molotch's "urban growth machine" – a term he coined more than 50 years ago to explain how cities were being shaped by a loose coalition of powerful elites who sought to profit off urban growth.

I argue that investors and developers use food as a tool for achieving the same ends.

When their work is done, what's left is a rather insipid and tasteless neighborhood, where foodscapes become more of a marketable mishmash of cultures than an ethnic enclave that's evolved organically to meet the needs of residents. The distinctions of time and place start to blur: An "ethnic food district" in San Diego looks no different than one in Chicago or Austin.

Meanwhile, the routines and rhythms of everyday life have changed so much that longtime residents no longer feel like they belong. Their stories and culture reduced to a selling point, they're forced to either recede to the shadows or leave altogether.

It's hard to see how that's a form of inclusion or empowerment.The Conversation

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Pascale Joassart-Marcelli is a Professor of Geography and Director, Urban Studies and Food Studies Programs at San Diego State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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