Bill Browder and Martin Wolf Q&A
© Financial Times

The leaders of the Group of Eight industrialised nations gather in St Petersburg for their annual summit on July 15. Host nation Russia has chosen energy security and the fight against infectious diseases as the priority issues for discussion.

What do you think should be on the official agenda? Do you expect there to be progress made on some of the more sensitive and divisive aspects of energy security? With Dick Cheney attacking Russia’s democracy record this month and urging George W. Bush to put pressure on Russia, is the summit in danger of becoming an embarrassment for the host nation?

Martin Wolf, the FT’s chief economics commentator (above right), and Bill Browder (above left) of Hermitage Capital Management, the investment advisory firm, answer your questions below.

Mr Browder, a UK citizen and Russia’s largest foreign portfolio investor, has been barred from entering Russia since November, although Russia’s foreign ministry and the Kremlin have both declined to comment on his case. US senators and British officials have lobbied for the issue to be raised with President Vladimir Putin at the G8 summit.


How is it possible to reconcile the repudiation by the Russian state of the basic principles of competition policy (eg. the recent affirmation by the state Duma of the monopoly position of Gazexport in the export of Russian gas) with membership of the World Trade Organisation? Would Russian entry into the WTO merely set the scene for an endless procession of disputes?

Martin Smith, London

Martin Wolf: The WTO does not have a general view on competition policy. Thus, it is perfectly possible for a country to have a monopoly, state-owned exporter and be a member in good standing of the WTO. The European Union tried to bring competition policy issues into the Doha round, but failed. The WTO is, in fact, almost entirely concerned with access to markets by foreign exporters. Provided Russia accepts WTO rules and offers acceptable market access, it is entitled to become a member.

Of course, there may be disputes after it joins, but they are likely to be over market access and intellectual property. If a state monopoly in an important export industry were inconsistent with WTO membership, Mexico could not be a member in good standing, as it is. Personally, I think questions of competition and restraints on trade should be incorporated into the WTO, but the members do not agree.

Bill Browder: The WTO is constructed of 149 member countries who all have different interests. In the years of negotiations leading up to this point, many countries expressed their concerns in negotiations, like raising gas prices so Russian fertiliser companies don’t have an unfair advantage, allowing foreign access to insurance companies, intellectual property rights, etc. In those negotiations, nobody made gas export access a deal breaker. Perhaps some feel now like it should have been, but it looks like the WTO deal is too far “cooked” at this point to be re-negotiated.


Because the G8 represents about two thirds of the world economy, it is an ethical obligation for its members to help fight poverty in third world countries.

They have certainly been decent, or perhaps good, at lending money, giving away food, vaccines, and financing research projects in those places.

But we all agree that what these countries need, along with the money, is good intellectual and honest leaders who can promote and finance education and entrepreneurship along with laws that allow freedom of expression. The G8 also needs to help these countries have control over their growing debt, which needs to be interest free (to ease payment from the borrower) and inflation adjusted (to be fair to the lender).

Is this a way to keep the third world countries in the same situation because it is cheaper to give away money than to help build a potential competitor?

Is it that the G8 has enough problems to worry about and it just decides to give the financial resources and let the third world be responsible?

Or is it that the third world just cannot be helped?

Ely Fall, Atlanta

BB: The West always tries to influence these situations, but third world countries cannot rise above their lot in life without their own efforts. Looking at Asia over the last 30 years makes this point very well. Because of good economic policies countries like China and India have become key economic players. Having said that, if the G8 ignores economic development, then other less palatable countries will exploit the West’s absence, and you end up with terrorism and other unpleasant things.

MW: I agree with you that there is an ethical obligation to fight poverty in poor countries. Aid has, in fact, not been very generous. In 2004, net aid from the high-income countries was $80bn or just 0.26 per cent of their aggregate gross national incomes. The US level was only 0.17 per cent of GNI.

I agree that developing countries need good leaders and tolerably decent governments. But it is not up to outsiders to choose them. I do not understand the comment about debt. There seems to be a confusion here between private flows, which are necessarily on commercial terms and go largely to relatively successful emerging market economies, and official aid. Increasingly, official aid is already on grant terms. I don’t think there is any plot to keep developing countries poor, though there may not be sufficient effort to help them get richer.

One thing we can do is open our borders to imports from developing countries. Unfortunately, the failure so far of the Doha round of multilateral trade negotiations shows that it is very hard, largely because of protection against competing farm products. But we should not despair over the third world. Not so long ago, China and India were considered basket cases. Just look at them now.


With countries like Venezuela, Iran and Russia and Saudi Arabia able to thumb their noses at democratic reform due to their economic strength generated from oil revenue, what more can be done make both the EU and US less dependent on foreign oil?

Larry May, New York

BB: It is all a question of which is the least worst option. Countries can go back to coal and have pollution, they can use nuclear and have all the security and spent fuel issues, they can try alternatives, but that takes decades and billions of subsidies, or they can use oil. In the end, unless we stop using our cars, we are going to be spending our money on oil. And unfortunately most oil comes from some pretty inhospitable places.

MW: Not much. The world is not going to consume less energy overall. Nor are the world’s high-income countries. So the alternatives are coal, of which the domestic supplies are large and sources diverse, but costs are high and problems of pollution huge; renewables, which are expensive, difficult to scale up and not very useful for transport (which is the most important single user of oil); and nuclear, which is politically controversial, for many reasons. We use oil because it is useful and cheap, given what it does for us. It is not even clear that we would reduce dependence in any meaningful sense by lowering overall consumption of oil and gas, since it would be the marginal (and so less vital) uses that would tend to get squeezed out. What remains would be the most important uses of energy. But, personally, I think we should increase use of nuclear as a way of diversifying sources of electric power.


It looks like Mr Putin, by timing the Rosneft IPO with the G8 meeting, is trying to obtain the sanction of the world’s leaders to his model of a renewed Russian aristocratic autocracy where the old princes are replaced by the new oligarchs. Such a regime would be completely opposed to the west’s neo-liberal model, and would become a serious impediment to economic globalisation as the world depends on Russia’s energy resources. Shouldn’t the G8 leaders publicly show their disapproval of this Russian economic model?

Does the G8 meeting make sense when the leaders of the main users of energy resources and of much large economies than Russia, like China and India, are not members?

Hugo O’Neill, Setubal, Portugal

MW: Yes, you are right, Mr Putin is trying to obtain approval for his version of the age-old Russian autocratic model. From the western point of view, it is highly unattractive. But I do not believe his regime will prove a serious impediment to globalisation. Russia will have to sell its energy resources, since these are the most valuable things it has. It is sad that Russia has ended up in this depressing state. But it is also a country with which the west can do business.

As to the group of eight, it no longer makes much sense: either Russia should be out, because it is not a western democracy, or others should be in, because the G8 no longer includes all the world’s most important economies. A decision has to be made on whether the G8 should be the club of the major rich democracies (in which case Russia should be out), or the club of the world’s major democracies (in which case India and Brazil should be in and Russia out) or the club of the world’s important economies (in which case China , India and perhaps Brazil should be in, alongside Russia).

BB: In my opinion, China and India should be members of the G8. It doesn’t make sense for Russia to be in and not them. In the world of investing, there is the well developed BRIC concept (BRazil, Russia, India and China). As far as energy consumers colluding to influence suppliers, it never worked the other way around when there was too much supply with OPEC. I don’t see how it would work when there is too much demand as we have now. There will always be an incentive for one party to defect from the collusion.


Russia as a G8 member, and soon to be WTO member, has to accept certain G8 level responsibilities. Don’t you think that it is imperative for global economic stability that Russia, as major energy producer, provide clear energy supply guarantees to its customers and participate in a long term policy discussion addressing future global energy needs at acceptable prices?

I believe that the Rosneft IPO is a total sham. The Russian government is not privatising the company as Mr. Gorbachev seems to illogically argue in a recent FT editorial. It is an IPO to subsidise repayment of credits used to illegally acquire Yukos assets, as well as a vehicle by which the Russian government will use foreign funds to subsidise the company and extract high value from other players as an entry ticket to the Russian energy market (à la BP, China, India, etc.). Do you think that Western investors should support such an IPO strategy?

John Barnes, Geneva

BB: On gas pricing and policy, I think that the Russians have gotten a bad rap. They supplied Europe over thirty years (including Soviet times) without anyone raising issues about security of supply. For 14 years after the end of the Soviet period Russia subsidised Ukraine to the tune of $2bn to $4bn per year in return for Ukraine being part of Russia’s sphere of influence. When the Orange revolution took shape and the Ukrainians said they no longer wanted anything to do with Russia, the Russians said “why should we continue to give you this subsidy?” the Ukrainians response was “you have to because the pipeline flows through our country and we will sabotage supplies to Europe if you give us a hard time”. And so both sides ended up escalating to the point of January 1st. Of course the Russians could have handled themselves much differently, but in the end, the Russians have no more of a duty to subsidise the Ukrainians than any other country in the world.

On Rosneft, you are right. It has a controversial past for sure, but I can tell you similar stories behind many other Russian companies that are listed on the LSE. The only difference was that the people who lost out in those other situations did not have the same resources as Khordorkovsky to get their point across.

MW: You ask two different questions. On the first, I think it would be useful if rules were introduced for trade in energy. There is no need to single out Russia. The general point, as I have argued in a recent column on energy security, is that we need a global commitment to arms-length market principles for trade in energy products. Consuming countries should not try to obtain specially favourable terms, since that will only lead to ruinous political competition among them. Similarly exporters should not use energy as a tool of foreign policy or as a means of blackmailing their customers. It would be very helpful if there were also some international agreement on the terms on which foreign investment in energy resources were permitted.

On your second point, I agree about Rosneft, though the circumstances in which Yukos obtained its assets were also - how does one put this delicately? - rather hard to defend.


There has been a lot of talk about a proposal making the rounds at the G8 Summit in St. Petersburg concerning an initiative to create a magna carta for globalisation. The idea was apparently forwarded by Robert Bridge, a writer in Russia. Have you heard about this proposal and do you believe it is an idea worth the attention of the G8 leaders?

John Fairbanks, Montreal

MW: No, I don’t. I don’t know what a magna carta would do for the world as a whole. You can argue we already have one in the United Nations Charter. What we need to make the global economic and political system work are well-defined international institutions designed to achieve specific objectives. These work far better than aspirations to create a global legal order binding on all states.

BB: I don’t know much about this particular proposal, but the G8 has a real agenda that addresses many of the issues that have been brought about by globalisation like fighting infectious diseases, terrorism, and energy security.



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