XVI century Spain and XX I century in Russia: History Repeating itself?

John Heelan writes: You might want to invite Cameron Sawyer to comment on the following article (my translation) by Gabriel Tortella, Professor of Economic History of the University of Alcalá, which appeared in El País (7/21/04).   He compares and draws interesting parallels between Philip II's governance of Spain and Vladimir Putin's current governance of Russia.

Philip II and Vladimir Putin: economic parallels?

The hagiographic exhibition in El Escorial in 1998 commemorating the centenary of Philip II omitted many of the negative aspects of his history, in particular the economic ones.  Nothing was said, for example, about the three resounding bankruptcies that marked his reign (1557, 1575 and 1596) and brought ruin to both Spanish and foreign bankers and business people, as well as making access to credit more onerous for the government each time . Philip II's fiscal disorder had many deep economic repercussions, and, in the long term, military and political:  it could be seriously considered that the famous Spanish decadence in the seventeenth century, commonly attributed to the incompetence of his successors, had its origins in the so-called "prudent king".  Instead of matching his policy to his potential budget (the concepts of "budget" and "deficit" are modern: realities are as old as the history of the State),- Philip II tried desperately to match his income to what he perceived as the needs of his government, thereby making a series of mistakes that were costly for the long-term interests of monarchy and nation.

In the first place, he increased the fiscal pressure to then unheard of limits, resorting to  the famous royal warrants (alcabalas), tithes (tercias) and  export taxes (almojarifazgos) in such a way that many workers and merchants, drowned by the taxes, abandoned their businesses and  became beggars or took up one of the many roles encompassed by the word "picaresque".   The fiscal paroxysm took place after the loss of the Armada, when he imposed extraordinary taxes ominously called "services of millions" (?) (servicios de millones) which gave the coup de grace to the Castilian economy in the latter days of the reign.

Secondly, the practice of selling appointment and patents of nobility became common, which, on the one hand, increased the venality and corruption of government servants and on the other hand decreased future income since the nobles paid comparatively much less in taxes that the common people.

Thirdly, public debt increased by the famous requisitions (asientos) and bonds (juros) which implied forced loans.  The Crown resorted to confiscations, characteristically appropriating to itself the private property on merchants in exchange for pensions whose payment was more than doubtful.  It was typical of the Crown to take control of  silver arriving from the Indies  which belonged to private agents, offering in exchange bonds, theoretically of equivalent value but in reality were of reduced or uncertain value.    Combined, these confiscations were the bankruptcies (also confiscations as much as they implied the debt would not be repaid),  together ruined the already diminished credit of the Spanish state, which resulted in increasing difficulty in obtaining loans and the intensification of  seizures and judgements;  it was a disastrous spiral that peaked in the catastrophes of the seventeenth century.   It also involved the ruin of Spanish bankers and put the Crown in the hands of increasingly rapacious and unscrupulous foreign bankers.   Also ruined were traditional allies of the Crown, like the foreign bankers- the Fuggers, who had to go out of business. Probably the most serious of all that was the introduction of coercion and sovereign arbitrariness in the economic sphere together with the lack a defined right of private property, on which the system of productivity and distribution flourished in the early days of the sixteenth century, caused irreparable damage that lasted centuries.

Can one compare the President of the twentieth century Russian Republic with the sixteenth- century King of the Spains?   Evidently, there are large geographical and chronological distances; but there are parallels. The Russian bureaucracy of today and Spanish one the sixteenth century are famous for their power, their arbitrariness and their sclerosis. Russia today and Spain then were the centre of enormous empires, inspirers of respect and fear, and a certain admiration as well. Regarding economy, the differences are very big, but there are also interesting parallels:  increasingly Spain depended on South American and Caribbean silver; Russia today depends increasingly on Siberian oil; this dependency, in both cases, is initially a source of power but in the long term can become an Achilles heel.   In the case of Imperial Spain, silver decidedly converted into a two-edged weapon. Dependency on a large mineral product could lead Russia to the "Dutch Disease", something that Spain suffered in the sixteenth century and Holland in the twentieth:  the abundance of silver made prices rise in such a way that Spanish products stopped being competitive, giving way to the mono-exportation of silver and the importation of nearly everything else.   Something similar happened to Holland in the 80s with petroleum (and in other countries e.g. producers of crude oil) and could very well happen to Russia in the near future.  Perhaps the big difference is that Spain started from a flourishing economy, while Russia comes from a poor start point, the legacy of Communism from which Russia has been recovering over recent years.

There are more parallels.  Perhaps it is an exaggeration to compare Chechnya with the Low Countries , but Russia's rulers decide to treat the rebellion of a province as did Philip II, renouncing dialogue and conciliation and resorting to brute force.   In both cases, the response of the rebellious province was much more energetic and tenacious than expected and a violent confrontation ensued whose end is more and more uncertain.   Another parallel is that Vladimir Putin is more and more inclined to give priority to military and political questions and to treat the economy as a tool that can be used and moulded as needed.  That can provide a short-term result, as possibly is happening in Russia today, but if it is not rectified, the legacy that Putin leaves to his successors could be a poisoned chalice.

Lately, the treatment that the Russian government is giving to it "oligarchs" is sinister, more for its arbitrariness than its injustice. Undoubtedly, although it is true that Berezovski, Gusinski and Jordovski became spectacularly rich through more than debatable methods, the same was done by tens of other millionaires with the connivance of the State and whom the Russian police leave in peace.   On a much smaller scale, legal insecurity is very widespread in Russian life, in which extortion, gangsterism and corruption of government officials play a major role. It seems that the government shows no special interest in eradicating this plague; some of its aspects, like the hounding of oligarchs by police and the law, has more popular support than opposition. However, this systematic legal insecurity, especially with respect to property rights, together with the foolishness of the citizens who it seems are uninterested in democracy as demonstrated in election after election, could be converted into the most serious obstacle to future economic development.   Not so much that it discourages foreign investment, something it doubtlessly already does, but because it depresses internal investment.    It is feared that, in view of the current insecurity, savers prefer to stash their money or export it rather than invest it in the domestic economy and that the businessmen hold back as a result of threat and uncertainty.   On a grand scale, all of that could be a fierce brake on growth.

The errors of Philip II were recognised only recently; even today's historians seem to ignore them.  However, according to Santayana's oft-quoted phrase, those who ignore history are doomed to repeat the errors of the past.

John Heelan wrote: You might want to invite Cameron Sawyer to comment on the following article (my translation) by Gabriel Tortella, Professor of Economic History of the University of Alcalá, which appeared in El País (7/21/04).   He compares and draws interesting parallels between Philip II's governance of Spain and Vladimir Putin's current governance of Russia. John compared Moscow's mistreatment of Chechnya with Spain's cruelty in the Netherlands. Cameron replies:

I would say that comparing Philip II to Putin is quite a stretch, particularly in the field of economics, but the article is interesting in many respects nonetheless.
 
1.  The first point the writer makes is that Philip II was a big spender who increased taxes and spending and ran up public debts, thus ruining the Spanish economy.  Putin, on the other hand, has continued to cut back the public sector, to the extent that Russia now has one of the lowest rates of public spending in the world.  Putin is also a famous tax cutter who has pushed through some of the lowest tax rates in the world, including the famous 13% flat personal income tax.  Under Putin, Russia has achieved enormous budget surpluses surpassing, from time to time, 5% (!) of GDP, has seen personal incomes more than double, and has achieved one of the highest economic growth rates in the world.  Foreign debts (including all of the old debts of the Soviet Union, which Russia assumed) are being paid down ahead of schedule, and Russian sovereign bonds have achieved investment grade.  The parallel with Philip II escapes me here; in fact Philippian Spain and Russian today are nearly exact antipodes in this respect.
 
2.  The writer states that Philip II's Spain depended on South American and Caribbean silver; Russia "depends increasingly on Siberian oil".  First of all, a nit:  Russian oil is not all in Siberia.  Substantial reserves are in the Far East, North Caucasus, Ural, and Caspian regions.   Second, Russia's rapidly developing manufacturing and service sectors make Russia less and less dependent, not increasingly dependent on oil.  According to the OECD, Russian supposed dependency on oil is greatly exaggerated in any case, accounting for no more than 1% of Russia's 6.5% economic growth rate trend:  See Sources of Russian Economic Growth, www.oecd.org/dataoecd/56/0/32389025.pdf.  Lastly:  Russian oil comes from Russia, not from colonies.  In short, there are no signs of "Dutch disease" whatsoever.  Russian industrial production, far from suffering from imports purchased with oil money, is increasing at a 7% annual rate, and exports of manufactured goods, particularly high technology military goods, are increasing.
 
3.  As to the comparison between Chechnya and the Low Countries -- the writer notices the difference between a colonial possession and a province, and the comment about brutality is fair.
 
4.  As to treating the oligarchs in a manner "sinister, more for its arbitrariness than its injustice" -- this comment is insightful and true.  However, the "legal insecurity" the writer describes does not exist to nearly the extent claimed here.  Property rights are very secure indeed in Russia, perhaps not quite to the extent as in the U.S., but property as an institution is deeply respected in Russia and subject to serious legal protection.  Notice that in the prosecution of Khodorkovsky no one challenged his ownership of Yukos shares, even though it is fairly obvious to everyone he came by them illegally.  Khodorkovsky is being crucified over tax fraud.  As the writer correctly pointed out, there is nothing particularly unjust in this.  But Khodorkovksy's prosecution is certainly arbitary, as the crimes he is accused of were merely standard operating procedure for that ilk of businessman in the 1990's.
 

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