The Economic Costs of Nationalism

When I visited Moscow last year many things stood out.  Development projects, huge shopping centers, restaurants full of people, and a variety of entertainment events would make any Moscovite proud.  But what was also impossible to miss is the degree of nationalism that was spreading within Moscow, as well as the rest of the Russian society. 

This weekend, in fear of nationalist groups targeting foreigners in celebration of Hilter’s birthday, foreign students attending Russian universities are not leaving university premises.  This is not an isolated incident.  And some government actions seem to fuel the nationalism debate, while negatively impacting the state of the economy.

Last week, the New York Times reported on a recent government ruling that prohibits foreigners from selling goods in street markets, even if those workers are in the country legally and possess a valid work permit.

Under a government decree that took effect April 1, Mr. Umarov, as a citizen of Uzbekistan, has been banned from working as a vendor at any of Russia’s 5,200 markets, which were a mainstay for groceries and household goods through the 1990s and that still account for a fifth of all retail trade here.

Mr. Umarov is one of many being banned from working in markets.  And

[a]s a result, only 68 percent of the market stalls in Russia are occupied, according to government figures, while shortages and price increases are becoming acute in some regions. In one market in Chelyabinsk, in the Ural Mountains, prices for nonfood items rose 16 percent, according to the government, which surveyed 14 markets earlier this month. In Moscow, some 10,000 of the estimated 60,000 market stalls were vacant, according to the city government.

As economics goes to work and citizens are dealing with shortages and price increases,

[t]he share of retail trade taking place in markets, meanwhile, has dropped from 19 percent of the total in January to about 17 percent today, according to German O. Gref, the minister of economic development and trade, who has warned that the decree might spur inflation.

Nationalism is quickly becoming a central issue in Russia – from the social perspective, with attacks on foreigners increasing, and, as it seems, from the economic perspective as well.  As the government searches for ways to keep the situation under control, one thing is certain – it won’t be able to curb nationalism by simply arresting individuals after the crimes are committed or by banning foreigners from the public eye. 

Published Date: April 20, 2007