The Foreign Service Journal, December 2003

growth than by governments picking the right eco- nomic projects to support. First of all, governments are universally bad at picking projects and the bigger the project, the bigger their mistakes. This is not just true of Soviet-style command economies. In the energy sector, one only has to witness the U.S. syn- thetic fuels (e.g., shale oil) fiasco in the 1980s and the ongoing debate in the U.S. Congress on ethanol sub- sidies. The luxury of higher oil prices has stalled the reform process in the Russian energy sector. The les- son of productivity gains due to privatization of the oil sector has led to only timid restructuring of the power sector and no progress in reforming the so-called nat- ural monopolies in natural gas or oil pipelines. As a result, both sectors are starved for investment that would allow them to better serve the Russian econo- my. The lack of reform is not due to the caprice of management in Gazprom (the state-controlled monopoly in natural gas production, transportation and export) or Transneft (the state-owned monopoly in main oil pipelines), although this could be a factor, but rather to policy requirements of the government as understood by political leaders. Subsidizing energy consumption or inefficient industry in a transitional economy may be under- standable policy or at least good politics. However, such policies also distort the market, encourage the arbitrary exercise of bureaucratic power, invite abuse of political control, promote corrupt business prac- tices and dampen sound investment — as is evident throughout the Russian petroleum industry. Reform is a continual journey in a dynamic market economy, not a terminal destination at times of temporarily favorable external economic conditions, such as high world oil prices. This is an area where the U.S. can truly be helpful in advancing the cause of economic reform in Russia. It is easy to forget today that the U.S. energy sector was a maze of over-regulation and distortion of mar- F O C U S D E C E M B E R 2 0 0 3 / F O R E I G N S E R V I C E J O U R N A L 37 Home Suite Home The next time you’re going to be in DC for an extended stay, make yourself at home at Georgetown Suites. With our discounted monthly rates and large, comfortable suites, you’ll feel right at home. Plus we’re near the State Department. Call today! Georgetown Suites the fun place to stay in DC 1-800-348-7203 www.georgetownsuites.com sales@georgetownsuites.com