Remember Alice Cooper? Boy, I sure do. He gave my teen years meaning, and “School’s Out” blew the rivets out of the rock charts in 1972. Those raucous opening chords made me offer up my worthless soul to be able to play guitar like Glen Buxton. Perhaps just as well, my offer was never accepted. Parents used to get a look on their faces when you mentioned Alice Cooper’s name that suggested they might be trying to swallow a chicken foot that someone fished out of the sewer – which was, like, the final nod of approval.
Know what he does now? He’s a radio DJ, and although he still performs occasionally, his life is radio. Alice knew when it was time to let go.
What if he hadn’t? What if he had continued to live a life that – as his drummer once said in describing now-dead guitar strangler Buxton, – “made Keith Richards look like a boy scout”? What if he showed up at your son’s bar mitzvah, fat and drunk and all smeared with blurry make-up like a blind transvestite, with his Depends adult diaper bunched up under his skin-tight jeans, mumbling, “Schooolllzz…OUT…you fuckers” as he tripped over the coffee table and sprawled in a sodden heap? Mmmmm…awkward.
I got a little bit of the same feeling when La Russophobe showed up recently at Mark Adomanis’s new Forbes blog, fat and drunk and mumbling, “Russia is dying because of capital flight” over a couple of posts, like that person who gets so loaded at parties that their poor abused brain can only keep broadcasting the same nonsense over and over, while they lie in an embarrassing state of post public urination at the base of a tower of empty beer cans. Okay, perhaps the fat and drunk parts were just a vibe, but it didn’t require much of an imaginative leap.
I’m sure I’ve mentioned before that I enjoy economics pretty much as I imagine I’d enjoy squeezing both sides of my face at the same time with a red-hot waffle iron. But we’re going to do one of those two right now. I pick…economics.
Can somebody tell me the difference between “Capital Flight” and “Capital Outflow”? Anyone? It’s mostly journalism, and narrative. “Capital Flight” is a term often used to describe money that leaves a country – frequently as part of the process that came to be known as “money laundering” – that is probably never coming back. Sometimes after it goes through the bath of legitimization, it’s hidden in an offshore account. Sometimes it’s turned into something else of value. But often it never returns, because governments are probably looking for it. With a view to confiscating it.
“Capital Outflow” is money that leaves a country for a variety of reasons. Foreign direct investment (FDI) in ventures in other countries, balances of payments, foreign aid. As Willem Buiter and Ivan Szegvari point out in their “Capital Flight and Capital Outflows from Russia; Symptom, Cause and Cure“, “Capital flight is a fuzzy concept. We shall argue that it is also an unhelpful and, in some respects, even misleading concept. It means different things to different people and even different things to the same person. It lumps together capital outflows driven by greatly diverging motives and incentives.
At the respectable, legal and (privately as well as socially) beneficial end of the spectrum, we find capital outflows motivated by portfolio diversification and similar risk-sharing
considerations. The sources of the funds are legitimate; their transfer abroad is in accordance with the law; and neither tax evasion nor tax avoidance is an issue.”
Get it? Although capital outflow and capital flight are just similar enough that someone motivated to put things in the worst possible light can claim all capital outflow is capital flight, not only is that inaccurate, but some degree of capital outflow is critical to the conduct of trade and legitimate business. Capital outflow that is money laundering or just rich oligarchs trying to get as much of their ill-gotten gains as possible out of the country could qualify as capital flight, because it’s flying away, never to be seen again in the country it left. Too much money going out while not enough is coming in – in the form of direct investment or payment for services or resources – could also be classified as undesirable capital outflow, and if such a situation persists the government usually steps in. Too much money coming in and not enough going out, and you will probably be looking at runaway inflation. It’s a constant balancing act.
Is Russia any good at it? Well, don’t ask me – let’s talk to Steven Jennings, CEO of Renaissance Capital (by way of Russia: Other Points of View – thanks, guys), the leading independent investment bank operating in Russia, Central and Eastern Europe, Africa and Asia. Half-owned by newbie political candidate Mikhail Prokhorov, Renaissance Capital posted a 530% increase in new loans in 2010 year-over-year, and returned to pre-crash profitability. Mr. Jennings?
“Economics, politics and geopolitics are being transformed by accelerating global change. Fast-growing economies, including Russia, are becoming the leaders of the new economic order. Russia is also one of the bridges linking these new super economies…Look no further than the IMF’s recent economic outlook, which predicts that the world economy will grow at about 4½ percent a year in both 2011 and 2012, but with advanced economies growing at only 2½ percent while emerging and developing economies grow at a much higher 6½ percent.”
Well, that certainly sounds like a grim forecast for Russia – I smell a serious capital flight problem in the offing. Can’t you tell us something positive?
“Russia has transformed beyond all recognition over the last 20 years. Real sustainable growth started after the 1998 crisis and since then nearly any economic indicator you care to name has improved massively….Russians are now the wealthiest of the BRIC countries.Government debt has fallen to one of the lowest levels in the world…Reserves went from $600 billion to a low of $340 billion during the 2008 crisis, but within 18 months, they recovered almost fully…In the decade to January 1 2010, all the major Western stock market indices lost money — the UK and the US were both down more than 20%. In the same decade almost all the EM markets were up — and by triple digits. Russia was the best performing in the world of all the significant markets, up 727%, perhaps the most objective message of the extent to which Russia exceeded expectations.
Amongst country specific funds, Russia did even better: Specialist Russian funds ended the decade as the 1st, 2nd, 3rd, 4th and 6th best performing funds in the world, with the very best returning over 3,000%, according to Morningstar. So much for Russia’s dismal investment returns.”
Mmmm…yes. Very interesting. But how does Russia plan to deal with its capital flight problem, which is bringing the country to its knees under the merciless and continuous ass-raping it endures from proud KGB spy Vladimir Putin?
“Russia has considerably and consistently exceeded consensus expectations over the last 20 years; I predict that it will continue to do so over the next decade and beyond. In particular, amongst the BRIC countries Russia has the greatest potential and likelihood of out performance over the next decade.”
You’re not listening to me, Steven. CAPITAL FLIGHT, can you get that through your thick investment-banker noodle? School’s out, you fucker, SCHOOL’S OUT FOREVER, Ahhhhhhh!!!!!!! Ahhhhhh!!!! Get away from me with that net!!!!
Oh, it wasn’t all sunshine and dark chocolate – Mr. Jennings addressed corruption problems quite boldly, and did in fact recommend political changes, including more open and inclusive government; I encourage you to read the full article, it’s quite an eye-opener. Current practices, he suggested, were stifling business to some extent, although it’s hard to see how that translates to a capital flight problem that will see the country implode right about….now. Okay, now. Oddly enough, he did not recommend the country be handed over to the liberals.
Will this make La Russophobe stop riding the capital flight pony so hard? Sadly, no. But now perhaps when you see her doing it, you and I can enjoy a laugh together.