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Macedonia, Economy of

Western pressures, mainly the EU's and NATO's, yielded an agreement between Macedonian and Albanian political parties regarding the future of Macedonia. But such an agreement is bound to be rejected by both Macedonians and Albanians who already deeply distrust both their own politicians and the West. In the medium term this may lead to vigilantism and sporadic fighting and atrocities by paramilitary groups.

The strong anti-Western sentiment is unlikely to deter foreign direct investment by Greek firms. But it is likely to give U.S. and Western European investors pause. Manufacturing contracts awarded by foreigners to the Macedonian textile industry have been cancelled. A major investment in a shopping mall has been frozen. Capital flight - at this stage mainly in the form of Macedonian export firms avoiding the repatriation of their export proceeds - is taking hold.

Macedonia's central bank, the NBRM, has used more than $100 million of its pre-crisis $700 million in reserves to defend the currency, which has depreciated by 10 percent against all major currencies since February.

There is no panic buying, but hard currency is hard to come by. The Macedonian banks have rationed foreign exchange sales and the numerous exchange offices are only buyers. The spreads between the sale and purchase prices of foreign exchange have widened considerably. Still, the demand is not driven by households, but by the economy's corporate behemoths, such as its oil refinery, Okta, and its largest bank, Stopanska Banka.

As both exports and imports have fallen as much as 20 percent, Macedonia's financing gap in its balance of payments has grown from nil to $65 million (about 2 percent of gross domestic product). Even this figure is based on optimistic scenarios regarding GDP growth (+2.5 percent) and inflation (4 percent). Should the country deteriorate in to civil war, negative growth will be the likely outcome.

Four weeks of negotiations with the IMF regarding Macedonia's future arrangement were broken when the visiting mission was recalled to Washington due to safety considerations. Talks are to resume in mid July. The parties are very close to an agreement, but it still can be jeopardized by an escalation in the war.

The country's reformist Minister of Finance, Nikola Gruevski, is hoping to obtain the funds to close the financing gap in a donor conference at the end of July. But with Macedonia now being gradually cast by the West as the intransigent and belligerent party, this hope may prove to be unfounded.

In the conference of EU ministers of foreign affairs in Luxembourg on June 24, Macedonia was explicitly threatened with the withholding of EU aid unless it ceases all military operations against Albanian insurgents. The United States is also lukewarm.

Still, Macedonia's economy is holding together surprisingly well. Its currency is pretty stable. Its foreign exchange reserves equal 3 months of imports. Foreign investment is flowing in. The budget deficit is likely to be about 6.5 percent of GDP following a 0.5 percent financial transactions tax levied as of July 1 and projected to yield about 2 percent of GDP in added revenues. The overall tax burden is a reasonable 37 percent, and all manner of taxes - from the personal income tax to the corporate profits tax - have actually been reduced lately, concurrent with the introduction of a 19 percent Value Added Tax. The revenue side of the budget is hurting, but the government has a cushion of about 9 billion Macedonian Denars ($180 million) deposited with the central bank and about 700 million deutschemarks ($320 million) - the proceeds from the sale of the local telecoms company to Hungary's MATAV. Moreover, tax collection in western Macedonia - the fighting zone - has anyhow always been insubstantial.

The absurdity is that the economy may actually revive owing to the heavy, expansionary, military outlays by both the Macedonian security forces and NATO. But this is far outweighed by the economic disruption caused by 60,000 refugees and 30,000 internally displaced persons, which costs the government about $6 per capita per day. It is a burden the government cannot carry for long without sharing it with the international community.

Macedonia has always been an economic dependency. Even in the clunky Yugoslav Federation, Macedonia (one of Yugoslavia's republics) subsisted on transfers from Belgrade, sometimes amounting to 40% of its GDP. Similarly, international aid and credits often made up 10% of GDP in Macedonia's first decade of independence (1991-2001).

Macedonia is on its way to yet another (and much postponed) donor conference. Donor conferences are charades. They consist of photo opportunities for donor and recipient politicians signing agreements sealed long beforehand. But even as charades go, the existence of an IMF arrangement with the needy country was hitherto considered a sine qua non.

Yet, Macedonia has no such arrangement. It is under IMF "staff monitoring". This means that it may apply and even qualify for stand-by loans - but also that its finances are in disorder. The victim of seriatim external shocks (transition, reluctant independence, embargoes, wars, and, lately, a civil war) - Macedonia's economy is in disarray. Social tensions are rising both due to a long overdue restructuring of Macedonia's obsolete industry and to the shameless corruption that permeates every government organ and state-owned enterprise.

In the last two years, Macedonia has re-written most of its economic laws. It has started to implement anti-money laundering measures. It has dismantled the venal payment system and privatized it to the banks. It has rationalized its tax system and introduced VAT. It has shut down or sold most of the industrial loss-makers. It has sold Macedonia's largest commercial bank to the Greeks and its telecom to MATAV. It has applied to join the WTO and plans to join CEFTA. It is in the throes of modernizing its capital markets. It deserves the $228 million it would like to get (and the $173 million promised).

The money is supposed to plug Macedonia's financing gap - and, thus, be out of the reach of avaricious politicians. Yet, money is a fungible commodity and Macedonia has squandered a lot of the international aid and credit it has received - not least by installing in power one kleptocracy after another.

Only $36 million out of $120 million disbursed for the construction of a railway line were traced in September 2001. No one was able to tell what happened to the rest. In another celebrated case, the former Minister of Defense, Paunovski, absconded with 13 million DM of the Ministry's funds. Having been accused of as much on state television by the Prime Minister - he retorted by threatening to expose the latter's alleged corruption in the privatization of the nation's only oil refinery, Okta. Paunovski resigned but was never persecuted. An audit team dispatched by the Ministry of Finance meekly went nowhere.

Macedonia deserves any help it can get. But flooding it with poorly supervised and poorly monitored funds only serves to enrich its politicians. Many Macedonians believe that this, precisely, is the intention of the West and that the donor conference is a massive backhander. The receipt of the funds was explicitly tied to political and constitutional concessions - and never conditioned on structural reforms. The IMF's departing (and often bravely and unusually outspoken) Chief of Mission, Biswajit Banerjee, has distanced himself from the conference.

Yet, even the most avid disciplinarians understand that Macedonia might collapse without these funds. It has an enormous trade deficit (close to $600 million - or 15% of its GDP), the result of an overvalued currency. It cannot rectify this by devaluing the denar because inflation is rearing its ugly head again. The monetary pillar of Macedonia's policy of economic stabilization far outweighs its fiscal pillar.

Moreover, in a year of early elections (the latest date bandied about is June 30) - budget discipline is likely to suffer. For a few scary months last year, Macedonia's budget deficit reached 9% of GDP (it later settled around 5-6%, saved by a reluctantly introduced "war tax" levied on all financial transactions). Tax collection is tottering as more than 26,000 firms (the majority of all active companies) have become insolvent. Macedonia has almost double the average private sector credit default rate among countries in transition.

Macedonia is asking for $65 million to plug the gap in its balance of payments, another $63 to reverse the effects of the civil war (which many observers fear is about to start again), $40 million for reconstruction, and $23 to cover expenses associated with the implementation of the Ohrid Framework Agreement. Some of this money has been already (and irresponsibly) advanced by the EU (mainly by the Netherlands). The World Bank will help with funds to ameliorate the social effects of the industrial devastation wrought by the transition (the latest loss-maker to be shuttered this week is "Jugohrom"). The EBRD and the IFC plan to establish a microcredit bank.

Macedonia can use all the help it can get. But effective help is predicated on circumventing Macedonia's hopelessly crooked politicians and bankers and on the strict and micromanaged enforcement of good governance clauses. Alas, the donors are so eager to prevent another conflagration that they are ignoring these important caveats. In doing so, they foster further instability. The lesson learned by Macedonia's unscrupulous decision makers may well be that conflict, war, and terrorism pay handsomely.

Macedonia's post-electoral euphoria faded into arduous coalition-building negotiations replete with arm-twisting by the worried representatives of the "international community". Albanian and Macedonian youth clashed in a chilling reminder of the country's inter-ethnic fragility.

Macedonia seems bent on breaking its own record of surrealism. The prime minister designate, Branko Crvnkovski, vowed to learn from his and his party's past mistakes when they venally ruled the land until 1998. But while politicians in other countries in transition strive to be noticed for not stealing - their Macedonian counterparts aim to steal without being noticed.

The previous government plundered the country shamelessly. A local rag, "Start", recently accused the outgoing prime minister, Ljubco Georgievski - a virtual pauper when he attained power - of owning land and a residential building in the capital's most expensive neighborhood. In a sudden and politically-motivated resurrection, the high court scrutinizes the "Okta" deal - the opaque sale of the country's loss-making refinery to the Greeks in 1999. Heads will roll, promise both the election victors and their Western sponsors.

Corruption and terrorism both enhance social mobility in this tiny, landlocked, country of 2 million impoverished people. The former terrorists of the Albanian National Liberation army are now poised - courtesy of Western pressure and Albanian voters - to occupy crucial ministries with lucrative opportunities of patronage.

Comic relief was provided by the International Crisis Group. Its representative in Macedonia went to Prilep to conduct an impromptu investigation of the thriving cigarette smuggling trade. Posing to the cameras he declared that only the local leaf-rolling plant was not involved in this pernicious line of work.

Macedonia is the hub of expats and consultants in the Balkan. Ante Markovic, an Austria-based former Yugoslav prime minister, who served as a much-criticized economic advisor to the government until he was dumped, is now suing Macedonia for $1 million. The youthful former minister of finance, Nikola Gruevski, was asked by the Serbian government to serve as its consultant on matters of reform of the financial system.

The country's new minister of finance, Petar Goshev, a former socialist high-level functionary, is known for his integrity. His top priority would be to eradicate corruption by instituting structural and legal reforms. His newfound socialist partners - he heads a center-right outfit - may find this bizarre ardor unpalatable. Expect fireworks sooner rather than later.

The country is a shambles. In the wake of a civil war, the official unemployment rate is 31 percent. Close to 100,000 people are employed by the bloated central and local administrations. The trade deficit is an unparalleled 17 percent of GDP. Last year, the budget deficit climbed to 5 percent, though it was since halved.

"The Heritage Foundation" has ranked Macedonia 97 out of 155 countries in terms of economic freedom. The country is "mostly unfree", it correctly concluded in its report, though it cited mostly erroneous data. A moderate level of trade protectionism, low tax rates, moderate inflation, a moderate burden of the government, moderate barriers to capital flows and foreign investment, and moderate intervention in the economy - are offset by a dysfunctional banking system, intervention in wages and prices, low level of protection of property, a high level of regulation, and a very high level of activity of the black market.

Owing to the IMF's misguided emphasis on exchange rate stability, the currency is inanely overvalued. The manufacturing sector has all but evaporated. Industrial production declined by a vertiginous 20 percent in August compared to the average last year - or by 11 percent year on year.

Macedonian steel is exempt from the latest bout of American protectionism, but not so its textile industry. Europe is fending off the country's agricultural products. People make their meager and desultory living catering to the needs of an ever-expanding international presence or dabbling in illicit activities. Piracy of intellectual property, for instance, is thought to yield c. 1 percent of GDP.

Close to half the population is under the poverty line. The number of welfare cases increased by 70 percent between 1994 and the present. Generous and incessant multilateral and bilateral credits sustain the faltering economy, recently buffeted by floods.

In a much-ballyhooed donor conference, the pledges amounted to a whopping 15 percent of GDP. The governor of the central bank, Ljube Trpski, cheerfully predicted that these handouts will cover the gaping hole in the balance of payments. Macedonia also stands to receive 7.5 percent of the gold reserves of the former Yugoslavia of which it was a component. At c. $700 million net, foreign exchange reserves are at an all-time high.

Both the IMF and the World Bank - who did their best to obstruct the previous government in its last few months in power - promised a speedy return to business as usual. An hitherto elusive standby arrangement is likely to be concluded by the end of the year. World Bank funds, frozen in material breach of its written contracts with the state, will flow again. The EU promised development funds if the new government acts in a "European spirit" - i.e., obeys the diktats of Brussels.

The incoming administration is likely to enjoy a 100 days of grace with both the trade unions and international creditors. Strikes and demonstrations by dispossessed miners and underpaid railways workers have waned. But Macedonia joined the WTO last month and will be forced to open even more to devastating competition. Labor unrest is likely to re-erupt soon.

Foreign investment in the country has mysteriously increased - some of it laundered money reinvested in legitimate businesses.

On a few occasions, domestic firms, using international fronts, have bid for local factories, such as the textile plant "Astibo". The national payment card project has been guzzled by two banks incestuously close to the outgoing ruling party, VMRO-DPMNE.

But there are real investments, too. The capital's central heating utility was purchased by a unidentified French energy outfit, announced the general manager. The utility's shares are about to be listed in the Athens stock exchange. The Macedonian construction firm "Granit" will build a $59 million highway in Ukraine, with which Macedonia enjoys an unusually cordial relationship, to American chagrin.

Macedonia is now preparing for a contentious census in the first two weeks of November. It is part of the "Ohrid Framework Agreement" which ended the internecine fighting last year. If fairly conducted, the count is likely to show that Albanians make c. one third of the population rather than one quarter, as most Macedonians spuriously insist.

The restive Albanians are likely to coerce enfeebled Macedonia into translating this numerical reality into political and economic clout. The Macedonians are likely to resist. The West will intervene. Macedonia is facing a hot spring and a sizzling summer.

Maritime Piracy

The rumors concerning the demise of maritime piracy back in the 19th century were a tad premature. The scourge has so resurged that the International Maritime Board (IMB), founded by the International Chamber of Commerce (ICC) in 1981, is forced to broadcast daily piracy reports to all shipping companies by satellite from its Kuala Lumpur Piracy Reporting Center, established in 1992 and partly funded by maritime insurers. The reports carry this alarming disclaimer:

"For statistical purposes, the IMB defines piracy and armed robbery as: An act of boarding or attempting to board any ship with the apparent intent to commit theft or any other crime and with the apparent intent or capability to use force in the furtherance of that act. This definition thus covers actual or attempted attacks whether the ship is berthed, at anchor or at sea. Petty thefts are excluded, unless the thieves are armed."

The 1994 United Nations Convention on the Law of the Sea defines piracy as "any illegal acts of violence or detention, or any act of depredation, committed by individuals (borne aboard a pirate vessel) for private ends against a private ship or aircraft (the victim vessel)". When no "pirate vessel" is involved - for instance, when criminals embark on a ship and capture it - the legal term is hijacking.

On July 8, seven pirates, armed with long knives attacked an officer of a cargo ship berthed in Chittagong port in Bangladesh, snatched his gold chain and watch and dislocated his arm. This was the third such attack since the ship dropped anchor in this minacious port.

Three days earlier, in Indonesia, similarly-armed pirates escaped with the crew's valuables, having tied the hands of the duty officer. Pirates in small boats stole anodes from the stern of a bulk carrier in Bangladesh. Others, in Indonesia, absconded with a life raft.

The pirates of Guyana are either unlucky or untrained. They were consistently scared off by flares hurled at them and alarms set by vigilant hands on deck. A Colombian band, riding a high speed boat, attempted to board a container ship. Warring parties in Somalia hijacked yet another ship last month.

A particularly egregious case - and signs of growing sophistication and coordinated action - is described in the July 1-8 report of the IMB:

"Six armed pirates boarded a chemical tanker from a small boat and stole ship's stores. Another group of pirates broke in to engine room and stole spare parts. Thefts took place in spite of the ship engaging three shore security watchmen." Piracy incidents have been reported in India, Malaysia, Philippines, Thailand, Vietnam, the Red Sea, the Gulf of Aden, Nigeria, Brazil, Colombia, Dominican Republic, Ecuador, Peru, Venezuela.

According to the ICC Year 2001 Piracy Report, more than 330 attacks on seafaring vessels were reported last year - down by a quarter compared to 2000 but 10 percent higher than 1999 and four times the 1991 figure. Piracy rose 40 percent between 1998 and 1999 alone.

Sixteen ships - double the number in 2000 - were captured and taken over. Eighty seven attacks were reported during the first quarter of this year - up from 68 in the corresponding period last year. Seven of these were hijackings - compared to only 1 in the first quarter of 2001. Nine of every 10 hijacked ships are ultimately recovered, often with the help of the IMB.

Many masters and shipowners do not report piracy for fear of delays due to protracted investigations, increased insurance premiums, bad publicity, and stifling red tape. The number of unreported attacks in 1999 was estimated by the World Maritime Piracy Report to be 130.

According to "The Economist", the IMO believes that half of all incidents remain untold. Still, increased patrols and international collaboration among law enforcement agencies dented the clear upward trend in maritime crime - even in the piracy capital, Indonesia.

The number of incidents in the pirate-infested Malacca Straits dropped from 75 to 17 last year - though the number of crew "kidnap and ransom" operations, especially in Aceh, has increased. Owners usually pay the "reasonable" amounts demanded - c. $100,000 per ship. Contrary to folklore, most ships are attacked while at anchor.

Twenty one people, including passengers, were killed last year - and 210 taken hostage. Assaults involving guns were up 50 percent to 73 - those involving mere knives down by a quarter to 105. Piracy seems to ebb and flow with the business cycles of the host economies. The Asian crisis, triggered by the freefall of the Thai baht, gave a boost to East Asian maritime robbers. So did the debt crises of Latin America a decade earlier. Drug transporters - armed with light aircraft and high speed motorboats - sometimes double as pirates during the dry season of crop growth.

Pirates endanger ship and crew. But they often cause collateral damage as well. Pirates have been known to dump noxious cargo into the sea, or tie up the crew and let an oil tanker steam ahead, its navigational aides smashed, or tamper with substances dangerous to themselves and to others, or cast crew and passengers adrift in tiny rafts with little food and water.

Many shipowners resorted to installing on-board satellite tracking systems, such as Shiploc, and aircraft-like "black boxes". A bulletproof life vest, replete with an integral jagged edged knife, was on display in the millennium exhibition at the Millennium Dome two years ago. The International Maritime Organization (IMO) is considering to compel shipowners to tag their vessels with visibly embossed numbers in compliance with the Safety of Life at Sea Convention.

The IMB also advises shipping companies to closely examine the papers of crew and masters, thousands of whom carry forged documents. In  54 maritime administrations surveyed last year by the Seafarers' International Research Centre, Cardiff University in Wales, more than 12,000 cases of forged certificates of competency were unearthed.

Many issuing authorities are either careless or venal or both. The IMB recently accused the Coast Guard Office of Puerto Rico for issuing 500 such "suspicious" certificates. The Chinese customs and navy - especially along the southern coast - have often been accused of working hand in glove with pirates.

False documents are an integral - and crucial - part of maritime piracy. The IMB says:

"Many of the phantom ships that set off to sea with a cargo and then disappear are sailed by crewmen with false passports and competency certificates. They usually escape detection by the port authorities. In a recent case of a vessel located and arrested in South-East Asia further to IMB investigations, it has emerged that all the senior officers had false passports. The ship's registry documents were also false."

As documents go electronic and integrated in proprietary or common cargo tracking systems, such forgery will wane. Bolero - an international digital bill of lading ledger - is backed by the European Union, banks, shipping and insurance companies. The IMO is a proponent of a technology to apply encrypted "digital signatures" to electronic bills of lading. Still, the industry is highly fragmented and many ships and ports don't even possess rudimentary information technology. The protection afforded by the likes of Bolero is at least a decade away.

Pirates sometimes work hand in hand with conspiring crew members (or, less often, stowaways). In many countries - in East Asia, Latin America, and Africa - Coast Guard operatives, corrupt drug agents, and other law enforcement officials, moonlight as pirates. Renegade members of British trained Indonesian anti-piracy squads are still roaming the Malacca Straits.

Pirates also enjoy the support of an insidious and vast network of suborned judges and bureaucrats. Local villagers along the coasts of Indonesia and Malaysia - and Africa - welcome pirate business and provide the perpetrators with food and shelter.

Moreover, large tankers, container ships, and cargo vessels are largely computerized and their crew members few. The value of an average vessel's freight has increased dramatically with improvements in container and oil storage technologies. "Flag of convenience" registration has assumed monstrous proportions, allowing ship owners and managers to conceal their identity effectively. Belize, Honduras, and Panama are the most notorious, no questions asked, havens.

Piracy has matured into a branch of organized crime. Hijacking requires money, equipment, weapons, planning, experience and contacts with corrupt officials. The loot per vessel ranges from $8 million to $200 million. Pottengal Mukundan, Director of ICC's Commercial Crime Services states, in a recent IMB press release:

"(Piracy) typically involves a mother ship from which to launch the attacks, a supply of automatic weapons, false identity papers for the crew and vessel, fake cargo documents, and a broker network to sell the stolen goods illegally. Individual pirates don't have these resources. Hijackings are the work of organized crime rings."

The IMB describes the aftermath of a typical hijacking:

"The Global Mars has probably been given a new name and repainted. Armed with false registration papers and bills of lading, the pirates - or more likely the mafia bosses pulling the strings - will then try to dispose of their booty. The vessel has probably put in to a port where the false identity of vessel and cargo may escape detection. Even when identified, the gangs have been known to bribe local officials to allow them to sell the cargo and leave the port."

Such a ship is often "recycled" a few times. It earns its operators an average of $40-50 million per "cycle", according to "The Economist". The pirates contract with sellers or shipping agents to load it with a legitimate consignment of goods or commodities. The sellers and agents are unaware of the true identity of the ship, or of its unsavory "owners/managers".

The pirates invariably produce an authentic vessel registration certificate that they acquired from crooked officials - and provide the sellers or agents with a bill of lading. The payload is then sold to networks of traders in stolen merchandise or to gullible buyers in a different port of destination - and the ship is ready for yet another round.

This January, the Indonesian Navy has permanently stationed six battleships in the Malacca Straits, three of them off the coast of the secessionist region of Aceh. A further 20-30 ships and 10 aircraft conduct daily patrols of the treacherous traffic lane. Some 200-600 ships cross the Straits daily. A mere 50 ships or so are boarded and searched every month.

The Greek government has gunboats patrolling the 2 miles wide Corfu Channel, where yachts frequently fall prey to Albanian pirates. Brazil has imposed an unpopular anti-piracy inspection fee on berthing vessels and used the proceeds to finance a SWAT team to protect ships and their crews while in port. Both India and Thailand have similar units.

International cooperation is also on the rise. About one third of the world's shipping traffic goes through the South China Sea. A conference convened by Japan in March 2000 - Japanese vessels have become favored targets of piracy in the last few years - pushed for the ratification of the International Maritime Organisation's (IMO) 1988 Rome Convention on the Suppression of Unlawful Acts against the Safety of Maritime Navigation by Asian and ASEAN countries.

The Convention makes piracy an extraterritorial crime and, thus, removes the thorny issue of jurisdiction in cases of piracy carried in another country's territorial waters or out on the high seas. The Comite Maritime International - the umbrella organization of national maritime law associations - promulgated a model anti-piracy law last year.

Though it rejected Japan's offer for collaboration, in a sharp reversal of its previous policy, China started handing down death sentences against murderous pirates. The 13 marauders who seized the Cheung Son and massacred its 23 Chinese sailors were executed two years ago in the southern city of Shanwei. Another 25 people received long prison sentences. The - declared - booty amounted to a mere $300,000.

India and Iran - two emerging "pirates safe harbor" destinations - have also tightened up sentencing and port inspections. In the Alondra Rainbow hijacking, the Indian Navy captured the Indonesian culprits in a cinematic chase off Goa. They were later sentenced severely under both the Indian Penal Code and international law. Even the junta in Myanmar has taken tentative steps against compatriots with piratical predilections.

Law enforcement does not tolerate a vacuum. "The Economist" reports about two private military companies - Marine Risk Management and Satellite Protection Services (SPS) - which deploy airborne mercenaries to deal with piracy. SPS has even suggested to station 2500 former Dutch marines in Subic Bay in the Philippines - for a mere $2500 per day per combatant.

Shipowners are desperate. Quoted by "The Economist", they "suggest that the region's governments negotiate the right for navies to chase pirates across national boundaries: the so-called 'right of hot pursuit'. So far, only Singapore and Indonesia have negotiated limited rights. Some suggest that the American navy should be invited into territorial waters to combat piracy, a 'live' exercise it might relish. At the very least, countries such as Indonesia should advertise which bits of their territorial waters at any time are patrolled and safe from pirates. No countries currently do this."

Massively Multiplayer Online Role Playing Games (MMORPG)

Games and role-playing are as ancient as Mankind. Rome's state-sponsored lethal public games may have accounted for up to one fifth of its GDP. They often lasted for months. Historical re-enactments, sports events, chess - are all manifestations of Man's insatiable desire to be someone else, somewhere else - and to learn from the experience.

Last week, Jeff Harrow, in his influential and eponymous "Harrow Technology Report", analyzed the economics of Massively Multiplayer Online Role Playing Games (MMORPG). These are 3-D games which take place in comprehensively and minutely constructed environments - a medieval kingdom being the favorite. "Gamers" use action figures known as avatars to represent themselves. These animated figurines walk, talk, emote, and are surprisingly versatile.

Harrow quoted this passage from Internetnews.com regarding Sony's (actually, Verant's) "EverQuest". It is a massive MMORPG with almost half a million users - each paying c. $13 a month:

"(Norrath, EverQuest's ersatz world is) ... the 77th largest economy in the [real] world!  [It] has a gross national product per capita of $2,266, making its economy larger than either the Chinese or Indian economy and roughly comparable to Russia's economy."

In his above quoted paper, "Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier", Professor Edward Castronova, from California State University at Fullerton, notes that:

"The nominal hourly wage (in Norrath) is about USD 3.42 per hour, and the labors of the people produce a GNP per capita somewhere between that of Russia and Bulgaria. A unit of Norrath's currency is traded on exchange markets at USD 0.0107, higher than the Yen and the Lira. The economy is characterized by extreme inequality, yet life there is quite attractive to many."

Players - in contravention of the game's rules - also trade in EverQuest paraphernalia and characters offline. The online auction Web site, eBay, is flooded with them and people pay real money - sometimes up to a thousand dollars - for avatars and their possessions. Auxiliary and surrogate industries sprang around EverQuest and its ilk. There are, for instance, "macroing" programs that emulate the actions of a real-life player - a no-no.

Nor is EverQuest the largest. The Korean MMORPG "Lineage" boasts a staggering 2.5 million subscribers.

The economies of these immersive faux realms suffer from very real woes, though. In its May 28 issue, "The New Yorker" recounted the story of Britannia, one of the nether kingdoms of the Internet:

"The kingdom, which is stuck somewhere between the sixth and the twelfth centuries, has a single unit of currency, a gold piece that looks a little like a biscuit. A network of servers is supposed to keep track of all the gold, just as it keeps track of everything else on the island, but in late 1997 bands of counterfeiters found a bug that allowed them to reproduce gold pieces more or less at will.

The fantastic wealth they produced for themselves was, of course, entirely imaginary, and yet it led, in textbook fashion, to hyperinflation. At the worst point in the crisis, Britannia's monetary system virtually collapsed, and players all over the kingdom were reduced to bartering."

Britannia - run by Ultima Online - has 250,000 "denizens", each charged c. $10 a month. An average Britannian spends 13 hours a week in the simulated demesne. For many, this constitutes their main social interaction. Psychologists warn against the addictive qualities of this recreation.

Others regard these diversions as colossal - though inadvertent - social experiments. If so, they bode ill - they are all infested with virtual crime, counterfeiting, hoarding, xenophobia, racism, and all manner of perversions.

Subscriptions are not the only mode of payment. Early multi-user dungeons (MUD) - another type of MMORPG - used to charge by the hour. Some users were said to run bills of hundreds of dollars a month.

MMORPG's require massive upfront investments - so hitherto, they constitute a tiny fraction of the booming video and PC gaming businesses. With combined annual revenues of c. $9 billion, these trades are 10 percent bigger than the film industry - and half as lucrative as the home video market. They are fast closing on music retail sales.

As games become graphically-lavish  and more interactive, their popularity will increase. Offline and online single-player and multi-player video gaming may be converging. Both Sony and Microsoft intend to Internet-enable their game consoles later this year. The currently clandestine universe of geeks and eccentrics - online, multi-player, games - may yet become a mass phenomena.

Moreover, MMORPG can be greatly enhanced - and expensive downtime greatly reduced - with distributed computing - the sharing of idle resources worldwide to perform calculations within ad hoc self-assembling computer networks. Such collaboration forms the core of, arguably, the new architecture of the Internet known as "The Grid". Companies such as IBM and Butterfly are already developing the requisite technologies.

According to an IBM-Butterfly press release:

"The Butterfly Grid T could enable online video game providers to support a massive number of players (a few millions) (simultaneously) within the same game by allocating computing resources to the most populated areas and most popular games."

The differences between video games and other forms of entertainment may be eroding. Hollywood films are actually a form of MMORPG's - simultaneously watched by thousands worldwide. Video games are interactive - while movies are passive but even this distinction may fall prey to Web films and interactive TV.

As real-life actors and pop idols are - ever so gradually - replaced by electronic avatars, video games will come to occupy the driver seat in a host of hitherto disparate industries. Movies may first be released as video games - rather than conversely. Original music written for the games will be published as "sound tracks".

Gamers will move seamlessly from their PDA to their PC, to their home cinema system, and back to their Interactive TV. Game consoles - already computational marvels - may finally succeed where PC's failed: to transform the face of entertainment.

Jeff Harrow aptly concludes:

" ... History teaches me that games tend to drive the mass adoption of technologies that then become commonplace and find their way into 'business'.  Examples include color monitors, higher-resolution and hardware-accelerated graphics, sound cards, and more. And in the case of these MMORPG games, I believe that they will eventually morph into effective virtual business venues for meetings, trade shows, and more. Don't ignore what's behind (and ahead for) these 'games', just because they're games..."

(Mass) Media (in Countries in Transition)

Karl Marx decried religion as "opium for the masses". Yet no divine worship has attained the intensity of the fatuous obsession of the denizens of central and east Europe with the diet of inane conspiracy theories, gaudy soap operas and televised gambling they are fed daily by their local media. There is little else on offer except the interminable babble of self-important politicians. It is the rule of the abysmally lowest common denominator.

In Macedonia, it is impossible to avoid a certain entertainer, a graceless Neanderthal hulk with a stentorian voice, deafeningly employed in a doomed attempt to appear suavely quaint and uproariously waggish. The natives love him. Private, commercial, TV in the Czech Republic - notably "Nova" - has surpassed its American role models. It has long been reduced to a concoction of soft porn, soundbite tabloid journalism and Latin American "telenovelas". Jan Culik, publisher of the influential Czech Internet daily, Britske listy, once described its programming as "sex, violence and voyeurism ... a tabloid approach".

The situation is no different - or much improved - elsewhere, from Russia to Slovenia. As Andrew Stroehlein, former editor in chief of Central Europe Review, so aptly put it - "Garbage in, money out". This sad state of affairs was brought on by a confluence of economic fads (such as privatization, commercialization and foreign ownership) and technologies of narrowcasting - satellites, video cassette recorders, cable TV, regional and local "stealth" TV stations and, in the not so distant future, Internet broadband and HDTV.

Writing in Central Europe Review about the Romanian scene, Catherine Lovatt observed that "television was one medium through which Romanians could vicariously experience the 'Western' dream. The popularity of programmes such as Melrose Place indicates a preference for certain lifestyles - lifestyles that are as glamorous as they are out of reach. The seemingly unabating craving for commercial TV has been fuelled by the need to escape the Communist past and the stresses of today's reality."

Grasping its importance as a tool of all-pervasive indoctrination, television was introduced early on by the communist masters of the region. Still, tortuous stretches of personality cult and blatant, laughable, propaganda aside - monopolistic, state-owned communist TV, not encumbered by the need to compete, offered an admirable menu of educational, cultural and horizon expanding programming.

It is all gone now. The region is drowning in cheaply produced mock talk shows, hundreds of episodes of Latin American serials, hours on end of live bingo and lottery drawings, tattered B movies, pirated new releases and sitcoms and compulsively repeated newscasts.

From Ukraine to Bulgaria, commercial channels are prone to featuring occultists, conspiracy theorists, anti-Semitic "historians", hate speech proponents, racists, rabid nationalists and other unadulterated whackos and have taken to vigorously promoting their pet peeves and outlandish conjectures.

The intrigue-inclined postulate that this visual effluence is intended to numb its hapless recipients and render them oblivious to the insufferable drudgery of their dreary, crime-infested, corruption-laden and, in general, rather doomed, lives. It is instigated by unscrupulous politicians, they whisper, eyes darting nervously. It is a form of state-sponsored drug, also known as escapism.

How to reconcile this paranoid depiction of a predatory state with the fact that most private television stations throughout the region are owned by hard-nosed, often foreign, businessmen?

The suspicious point to the fact that "local content" and "cultural minimum" license requirements are rarely imposed by regulators. National broadcasting permits were granted to cronies and insiders and withheld from potential "troublemakers" and dissidents.

It is also true that, as Stroehlein puts it, there is a massive "repatriation of profits generated from newly private stations to Western firms." As a result, "local production companies are losing out, and the loss of funds damages the domestic entertainment and arts industry and the economy as a whole."

And the collusion-minded have a point. The dumbing-down of audiences is as dangerous to newfound political and economic freedoms as are more explicit forms of repression. Both democracy and the free market will not survive long in the absence of an informed, alert, intellectually agile public. It is hard to retain one's critical faculties under the onslaught of televised conspicuous consumption and the unmitigated folly of mass entertainers.

Many scholars and media observers believe that the battle has already been lost.

Péter Bajomi-Lázár, associate professor at the Communication Department of Kodolanyi University College, Budapest-Szekesfehervar in Hungary, wrote in January 2002 in a comparative study titled "Public Service Television in East Central Europe":

"The transformation of public service television from a tool of agitation and propaganda into an agent of democratic control has been but a partial success in East Central Europe. Public service television channels have failed to find their identities and audiences in a market dominated by commercial broadcasters. Some of them are underfunded and their journalists encounter political pressure."

But even where public broadcasters enjoy the proceeds of a BBC-like television tax - like in Macedonia - they fail to attract spectators. The stark reality is that when people are faced with a choice between intellectually demanding and challenging programs and easily digestible variety shows they always plump for the latter. It is easy to condition people to complacent passivity and inordinately tough to snap out of it once exposed. The inhabitants of central and east Europe are mentally intoxicated. The hangover may never happen.

Aleksandr Plotnikov died last month in his dacha. He was murdered. He has just lost a bid to restore his control of a local paper in Tyumen Oblast in Russia. Media ownership is frequently a lethal business in eastern Europe. The same week, Ukrainian National Television deputy chief, Andryi Feshchenko, was found dead in a jeep in a deserted street of Kyiv. Prosecutors suspect that he was forced to take his life at gunpoint.

In an interesting variation on this familiar theme, a Moldovan parliamentarian accused the editor of the government-run newspaper, "Moldova Suverana", of collusion in his kidnapping.

Governments throughout the region make it a point to rein in free journalism. Restrictive media statutes are being introduced from Russia to Poland. Romania's Senate approved, on June 6, a law granting persons offended by a print article the right to have their response published in the same media outlet and to seek monetary compensation all the same.

The Romanian president attacked the media and said that he is "amazed" at their "talent to distort" his statements. He attributed this to a "lack of information, lack of culture, or malevolence." In Belarus, journalists are standing trial for defaming the president. They face 5 years incarceration if convicted.

Russia has just introduced a decree regulating the licensing of audio and video production duplication rights. According to abc.ru, a license from the Media Ministry will be required to make copies of any multimedia work. The Culture Ministry will henceforth license such oeuvres for mass audiences.

The frequency of A1+, Armenia's most vocal independent TV station, was auctioned off to politically-sponsored business fronts, forcing the hard-hitting station off the air on April 3 - just in time for next year's elections. The new owners - "Sharm" - promised to concentrate on "optimistic news".

The station appealed the tender procedure to the Armenian Economic Court and opposition groups took to the streets. AFP carried a statement by the self-appointed watchdog, Raporteurs Sans Frontieres, that called the tender "the muzzling of the country's main news voice ... the most serious violation of pluralism in Armenia in years".

Even the US Embassy in Yerevan stirred:

"A1+ performed a valuable public service in offering substantial media access to a broad spectrum of opinion makers, political leaders, and those holding differing views."

The Azerbaijani prime minister promised to allocate $3.5 million in credits to media outlets - but, tellingly, made this announcement exclusively on the state-owned channel. The bulk of the television tax in Macedonia ends up in the coffers of the somnolent and bloated state channel which caters to a mere one quarter of the viewers. The independent media - both print and electronic - face unfair competition in attracting scarce advertising revenues.

The managers of six Latvian private television and radio stations published an open letter to President Vaira Vike-Freiberga, Prime Minister Andris Berzins, the Competition Council, the National Radio and Television Council (NRTC), the State Support Monitoring Commission, and political parties.

They deplored the commercialization of the public media. State support - fumed the signatories - allows these outlets to undercut the prices of advertising airtime. They urged a major revision and modernization of the law. Latvia is considering the introduction of a monthly mandatory "subscription fee" to finance its state-owned media.

Media properties are awarded to loyal cronies and oligarchs - having been expropriated from tycoons and managers who fell from official grace. Such assets are often "parked" with safe corporate hands ad interim. Russian energy behemoth Gazprom, for instance, acquired a media empire overnight by looking after such orphan holdings. It is now dismantling these non-core operations.

In Russia, the tendered broadcasting rights of TV6 were allocated to Media-Sotsium, a consortium led by regime stalwarts such as Yevgeni Primakov, a former prime minister and the current chief of the Chamber of Commerce and Industry and Arkadi Volski, head of the Union of Industrialists and Entrepreneurs. The group included leading managers and active political figures. The consortium's general director is none else than Yevgeni Kiselev, the erstwhile general manager of TV6.

TV6 was taken off the air by the Kremlin last year - as was Russia's most popular independent station, NTV. Quoted by Radio Free Europe Radio Liberty, the Editor in Chief of the Ekho Moskvy radio station commented that this "completes the redistribution of television property in Russia from one oligarch who was not loyal to the authorities to others that are".

Gorbachev, whose group bid for the station, concurred wholeheartedly. In a rare show of consonance, so did the communist Zyuganov. Muscovites polled in April said they hoped TV6 would become a sports-only channel.

In a speech to the National Press Club in Washington on April 9, Russian Media Minister, Mikhail Lesin, admitted that "developments surrounding the NTV and TV-6 companies certainly had a political background, and there is no denying it". He promised to substantially cut funding to "politically oriented mass media".

Russian media, insisted the Minister, is having "growing pains". Referring to the older and more mature media in America, he asked: "Let us remember how this 100-year-old gentleman looked when he was 10 years old. He did not have any problems at that time?"

State interference rarely stops at the ownership level. Subtle self-censorship by obsequious or terrorized journalists is often coupled with governmental micromanagement. The license of NTV, the eponymous successor of the shuttered independent Russian TV station, was renewed only recently for another five years - after many delays and public statements casting doubts on the outcome. This form of subtle pressure to self-discipline is common.

The Russian business daily Kommersant commented:

"(The delays were intended to) stimulate Gazprom to more quickly sell its shares in the company and to frighten (NTV's General Director) Jordan into being a bit more attentive to what NTV puts on the air."

Belarusian president, Alaksandr Lukashenka, instructed the chief of the Belarusian Television and Radio Company to "work around the clock" to improve programming. "The Belarusian Television and Radio Company works in the same information field with powerful foreign broadcasters: ORT, RTR, NTV, Radio Rossiya, Radio Mayak, Radio Liberty, Radio Racja, and others. It is in a state of ideological competition with them and, speaking straightforwardly, sometimes in confrontation."

"Belarusian Television, as before, remains an information supplement to foreign television companies." - he was quoted as saying by REF/RL. How would such a turnaround be achieved with a shoestring budget was left unarticulated. Belarus couldn't pay Kirch Media the $500,000 it demanded for the World Cup rights.

The Belarusian Language Society appealed to UNESCO and the EU to help launch a Belarusian heritage and culture satellite broadcast on the Discovery Channel. Russian-language broadcasts, they noted ruefully, account for a crippling 97 percent of airtime.

Lukashenka finished his diatribe with a practical advice: "Beginning from tomorrow, every manager in the Belarusian Radio and Television Company has to sleep with a television set." In a country where disagreeing with the president can be the last thing one does, his wish is a command.

The situation is especially egregious in the fiefdoms of Central Asia.

In Georgia, the politically-pliant tax police, often an instrument of intimidation of opponents, raided Rustavi-2, an independent thorn in the irate government's side. In Kazakhstan, last November, all the media properties of Alma-Media - including its prized Kazakh Commercial TV - were suspended. Malicious rumors were spread by the police against the editor of the outspoken newspaper, "Karavan". The rumors were promptly denied by the Kazakh Minister of Internal Affairs.

If all else fails, crime does the trick. the independent Kazakh paper, "Delovoe-Obozrenie-Respublika", was first firebombed and then - five days later - closed by the court because it failed to provide a publication schedule. OSCE slammed Kazakhstan for its new Administrative Offenses Code which is replete with 40 media-related transgressions.

RFE/RL quoted a statement by Rozlana Taukina, head of the Independent Media Association of Almaty, in a press conference in Moscow. She complained that 22 independent media outlets have been closed in Kazakhstan over the past month.

Another instrument of suppression are libel suits which invariably result in exorbitant and destructive penalties.

Aleksandr Chernov, a Krasnodar judge, won in February $1 million in compensation from "Novaya Gazeta", a paper owned by the disgraced and self-exiled oligarch Boris Berezovsky. Senior Russian public figures issued a passionate plea to reduce the fine and prevent the paper's bankruptcy.

In an unrelated lawsuit, Mezhprombank, alleged by "The Moscow Times" to be a money laundering venue, won c. $500,000 in damages from the aforementioned besieged "Novaya Gazeta". Court bailiffs seem determined to force the closure of the paper despite a pending appeal.

The largest circulation Slovak paper, "Novy cas", was ordered to pay a whopping $100,000 in compensation to Real Slovak National Party (PSNS) Chairman Jan Slota. The paper reported that he had been seen drunk.

Vladimir Putin, Russia's president, encapsulated the philosophy of state interventionism neatly in an interview he granted to ITAR-TASS and other Russian news agencies:

"If freedom of the press is understood as the freedom of a handful of so-called oligarchs to buy journalists, to dictate their will in the interests of their groups, and to protect the way of Russia's oligarchic development that was thrust on the country over the past decade, then yes, it is in danger ... (The authorities should not) allow individuals to shape the country's strategy the way they like, (while) filling their pockets with illegally earned money ... (Freedom of the press) implies the ability of journalists and their groups to freely, openly, and fearlessly define their position on key problems of the development of the country and society, to criticize actions of the authorities (and to make sure that the authorities react properly)."

Putin harked back to the nanny state, calling Russian media immature and still in the development stage. They need assistance in developing ways to secure their future economic independence. The state will create the necessary conditions for the "economic freedom of the press".

The president's aide, Aleksei Volin, was quoted by REF/RL as having told radio Ekho Moskvy that state-ownership of the media is rendered meaningless in an age of multiple channels. The state, said the aide, should concentrate on programming and thus "ensure its role in television media".

Russia's Media Minister, Lesin, hastened to make clear that the state has no intention of privatizing its television media holdings, ORT, the second channel (RTR), and Kultura, an educational cum entertainment network. The government - a minority shareholder in ORT - denies meddling in the editorial affairs and policies of either of these federally-funded channels. ORT and RTR just paid c. $40 million for the Russia World Cup rights.

A bill, introduced in the Duma by independents, failed to pass last week. It would have reduced state ownership of mass media outlets to 25 percent within 6 months. Anti-government deputies claimed that the state controls 90 percent of all the media in the vast country. Their colleagues from the coalition cited a figure of 10 percent.

In Moldova, a committee of lawyers, journalists, and deputies of parliament issued a report on May 3, advocating against privatization of the media. Both radio and television, they intoned, must remain in the safe hands of the state, though in the form of an "autonomous" public broadcasting authority. This flew in the face of recommendation issued earlier by the Parliamentary Assembly of the Council of Europe (PACE).

In response, incensed journalists, intellectuals, and lawyers established Public Television Company. Modeled after the BBC, it will be sponsored by private sector donations and advertising revenues - they told Infotag, the news agency. The head of an EU visiting delegation went as far as warning the Moldovan government that ignoring PACE's advice "will have catastrophic consequences both for the current government and the citizens".

The new Hungarian government is considering to shut down one or more of the state-owned TV channels and to reform the media law. But, EU-orientated statements to the contrary - Hungary's state media is still under the collective thumb of its politicians. According to the May 15 issue of "Nepszabadsag", the Socialist party media spokesman publicly "suggested" that the President of Hungarian Television should resign due to his bias during the elections.

Journalists on all levels readily collaborate with political masters. The staff of Hungarian Pannon Radio took over the previous location of the station and are broadcasting virulent nationalistic propaganda with the financial and political backing of the extremist MIEP - the Hungarian Justice and Life Party.

The ownership of electronic media is the electoral trump card in most countries in transition. Papers are little read. According to Emil Danielyan in RFE/RL:

"There are several newspapers that are highly critical of the authorities but their impact on public opinion is limited, as their combined daily print run does not exceed 10,000 copies (Armenia's population is just over 3 million)."

In Macedonia, the circulation of "Dnevnik", the country's leading paper, is thought to be c. 20,000 copies on a weekday - compared to more than 500,000 regular viewers of A1, the dominant independent TV station, owned by business interests. No weekly sells more than 3000 copies in this country of 2 million people.

Foreign ownership of media is still a rarity. Xenophobia and crookedness combine to drive away potential investors. Central European Media Enterprise (CME), an American holding company for central European media properties, endured the most grueling experiences in the late 1990's in the Czech Republic and Slovenia.

Tele5, a new Polish television channel, is owned by Fincast, a Polish subsidiary of Italian Eurocast Italia and more than 70 percent of Poland's regional media are in the hands on two Western companies. The second largest paper, Rzeczpospolia, is owned by a Norwegian firm. But these are the Polish exceptions that only highlight the regional rule.

Poland is atypical on other fronts as well. Poles are avid devourers of broadsheets. More than 20 percent of them feast on the Gazeta Wyborcza every day. Proposed amendments to the existing law will prevent the formation of media monopolies by restricting media ownership to one nationwide broadcasting license or one nationwide daily. The Wyborcza would thus be prevented from taking possession of the private Polish TV station, Polsat, one of many.

Adam Michnik, an erstwhile dissident turned influential editor, remarked acidulously to "The Economist":

"Of course (prime minister) Miler (a former senior communist) should know how evil a monopoly can be ... (The government wants to render Wyborcza) cowardly, toothless, and servile. Authoritarian states like such papers, but Polish democracy does not need one."

Admittedly, Poland is not above harassment and intimidation. The managers of Rzeczpospolita - 49 percent owned by the government - were hounded by tax inspectors and their passports were confiscated. "An action usually reserved for big-time criminals" - notes "The Economist" dryly.

The board of the state-owned television is packed with sycophants and cronies. Now, the widely-held theory goes, Miller has his sights on the print media. He wants to force the Norwegians to sell to Trybuna, the little-read mouthpiece of the ex-Communists.

But the media in the post-Communist territories may be simply reaping what they sowed.

In an article published by "Central Europe Review", I summed up the state of the media in Central and Eastern Europe thus:

"What sets the media in the countries in transition apart from its brethren in the West is its lack of (even feigned) professionalism, its venality and its tainted and ulterior motives. In these nether regions, journalism amounts to influence peddling. Journalists are easily bought and sold and their price is ever decreasing. They work in mouthpieces of business interests masquerading as media. They receive their instructions - to lie, to falsify, to ignore, to emphasize, to suppress, to extort, to inform, to collaborate with the authorities - from their Editor in Chief. They trade news for advertising.

The commercial media - the likes of 'Nova' TV in the Czech Republic - are poor people's imitations of the more derided aspects of American mass culture. Overflowing with lowbrow talk shows, freaks on display, malicious gossip which passes for 'news' and glitzy promos and quizzes - these TV stations and print magazines derive the bulk of their income from advertising. Then there is the mercenary media. These are groups of hired pens and keyboards - so called journalists - who offer their services to the highest bidder. Their price is often pathetic: a lunch a month, one hundred euros, a trip abroad and a dingy hotel room. They collaborate with their editors and share the spoils with them.

The mercenaries often work in 'business-sponsored media outlets'. These are TV stations, daily papers and periodicals owned by the oligarchs of malignant capitalism and used by them to rubbish their opponents and flagrantly and unabashedly further their business interests. This phenomenon used to be most pronounced in Russia, where virtually all the media was once identified with mafia-like interests - before it was taken over by the newly authoritarian state."

According to a poll conducted last month by a few Russian Web sites in collaboration with radio Ekho Moskvy, more than 57 percent of all respondents in all age groups supported state censorship. The main concerns were overt and excessive violence and pornography.

Aware of this popular mandate, Putin's alma mater, the FSB (formerly known as the KGB) moved to further its hijacking of the media. ITAR-TASS reported that FSB Lieutenant General Aleksandr Zdanovich, former chief spokesman and head of the public relations center of the spy organization, was appointed deputy director of the VGTRK, the state broadcasting company.

Middle Class (in Russia)

A conference held, at the beginning of the month, in St. Petersburg, was aptly titled "Middle Class - The Myths and the Reality". Russia is way poorer than Slovenia, the Czech Republic, Hungary, or even Poland. But, as income disparities grow, a group of discriminating consumers with the purchasing power to match, is re-emerging, having been submerged by the 1998 implosion of the financial sector.

The typical salary in the large metropolises is now more than $600 per month - four times the meager national average. Some 20 percent of the workforce in Moscow earns more than $1700 a month, comparable to many members of the European Union. Real average wages across Russia have surpassed the pre-1998 level in May.

Moreover, Russians are unburdened by debt and their utility bills and food are heavily subsidized, though decreasingly so. Few pay taxes - lately dramatically reduced and simplified - and even fewer save. Every rise in disposable income is immediately translated to unadulterated consumption. Takings are understated - Russia's informal economy is probably half as big as its formal sector.

A study, financed by the Carnegie Foundation, found that only 7 percent of Russians qualify as middle class. Another 12 percent or so have some bourgeois characteristics. Sixty percent of them are men, though the Komkon marketing research agency says that the genders are equally represented.

Figures culled from the census conducted this year throughout the Russian Federation - the first since 1989 - are expected to confirm these findings. About one fifth to one quarter of all Russian households earn more than the average monthly income of $150 per person.

Political parties which purport to represent the middle class - such as the Union of the Forces of the Right (SPS) - garnered 10-15 percent of the votes in the 1999 parliamentary elections. Direct action groups of the "third estate" may transform the political landscape in forthcoming elections.

In a recent study by sociologists from the Russian Academy of Sciences' Institute of Philosophy, more than half of all Russians self-flatteringly considered themselves middle class. This is delusional. Even the optimistic research firm Premier-TGI pegs the number at 19 percent at most.

Businesses adapt to these new demands of shifting tastes and preferences. The St. Petersburg-based cellular operator Delta Telecom, owner of the first license to provide wireless-communications services in Russia, intends to test the market among middle class clients.

Ikea, the Swedish home improvement chain, has plunged $200 million into a new shopping center. French, German and Dutch cash-and-carry and do-it-yourself groups are slated to follow. Russian competitors, every bit as sleek, have erupted on the scene. The investment spree has engulfed the provinces as well.

Last month, Citibank opened a retail outlet for affluent individuals in Moscow - though its standards of transparency may yet scare them off, as Gazeta.ru observed astutely. A private cemetery in Samara caters to the needs of the expired newly rich. Opulently-stocked emporiums have sprouted in all urban centers. TV shopping and even online commerce are on the up. According to the Washington Post, Moscow retail space will have tripled by the end of next year from its level at the beginning of 2002.

The Russian Expert magazine says that the middle class, minuscule as it is, accounted last year for a staggering 55 percent of all consumer goods purchased and generates one third of Russia's gross domestic product. The middle class is Russia's most important engine of wealth formation and investment, far outweighing foreign capital.

Russia's post-1998 fledgling middle class is described as young, well-educated, well-traveled, community-orientated, entrepreneurial and suffused with work ethic and a desire for social mobility. It is almost as if the crisis four years ago served as a purgatory, purging sins and sinners alike and creating the conditions for the revival of a healthier, longer-lived, bourgeoisie.

But being middle class is a state of mind more than a measure of wealth. It is an all-encompassing worldview, a set of values, a code of conduct, a list of goals, aspirations, fantasies and preferences and a catalog of moral do's and don'ts. This is where transition, micromanaged by western "experts" failed.

The mere exposure to free markets was supposed to unleash innovation and entrepreneurship in the long-oppressed populations of east Europe. When this prescription - known as "shock therapy" - bombed, the West tried to engender a stable, share-holding, business-owning, middle class by financing small size enterprises. It then proceeded to strengthen and transform indigenous institutions.

None of it worked. Transition had no grassroots support and its prescriptive - and painful - nature caused wide resentment and obstruction. When the dust settled, Russia found itself with a putative - and puny - middle class. But it was an anomalous beast, very different from its ostensible European or American counterparts.

To start with, Russia's new middle class is a distinct minority.

Prism, a publication of the Jamestown Foundation, quoted, in its August 2001 issue, the Serbian author Milorad Pavic as saying that "the Russian middle class is like a young generation whose fathers suffered a severe defeat in a war: with no feeling of guilt and no victorious fathers to boss them around, the children of defeat see no obstacles before them".

But this metaphor is misleading. The Russian middle class is a nascent exception - not an overarching rule. As Akos Rona-Tas, Associate Professor in the Sociology Department at the University of California, San Diego, notes correctly in his paper "Post Communist Transition and the Absent Middle Class in Central East Europe", a middle class that is in the minority is an oxymoron:

"In democracies the middle class is the nation proper. The typical member of a national community is a member of the middle class. When democratic governments need a social group they can address, a universal class that carries the overarching, common interest of the country, they appeal to the middle class. This appeal, while it calls on a common interest, also acknowledges that there are conflicting interests within society. The middle class is not everyone, but it is the majority and it represents what everyone else can become."

Russia has a long way to go to achieve this ubiquity. Its middle class, far from representing the consensus, reifies the growing abyss between haves and haves not. Its members' conspicuous consumption, mostly of imports, does little to support the local economy. Its political might is self-serving. It has no ethos, or distinct morality, no narrative, or ideology. The Russian middle class is at a Hobbesian and primordial stage.

Whether it emerges from its narcissistic cocoon to become a leading and guiding social force, is doubtful. The middle class' youth, urbaneness, cosmopolitanism, polyglotism, mobility, avarice and drive are viewed with suspicion and envy by the great unwashed - the overwhelming majority of Russia's destitute population. Empowered by their wealth, the new bourgeoisie, in turn, regards the "people" with naive admiration, patronizing condescension, or horror.

Granted, this muted, subterranean, interaction is not entirely deleterious. It is the social role of the rich to generate demand by provoking in the poor jealousy and attempts at emulation. The wealthy are the trendsetters, the early adopters, the pioneers, the buzz leaders. They are the engine that engenders social and economic mobility.

A similar dynamic is admittedly evident in Russia - but, again, it is tampered by a curious local phenomenon.

Writing for the Globalist, two Brookings Institution scholars, Carol Graham, a Senior Fellow of Economic Studies and Clifford Gaddy, a Fellow of Foreign Policy and Governance Studies described it thus:

"The eyes of Russia's middle class, on the other hand, are figuratively directed downward, towards the poor. In fact, as poverty in Russia increased dramatically in the 1990s, the middle class's reference norms shifted downward as well. As a result, Russia may be the only country in the world where the 'subjective poverty line' is falling. That is, the amount of money that Russians say that they need in order to stay out of poverty has been steadily falling over the past five years. It is even below the objective poverty line. For the time being, at least, these curious Russian attitudes, along with the existence of the non-monetary virtual economy, have insulated the country against political upheaval."

The list of anomalies is not exhausted.

The new middle class comprises the embryonic legitimate business elite - entrepreneurs, professionals and managers - but not the remnants of the financially strapped intelligentsia. It is brawn with little brains. In dissonance with western Europe, according to a survey published in the last two years by Expert magazine, the majority of its members are nationalistic, authoritarian and xenophobic. Their self-interested economic liberalism is coupled with social and political intolerance. But two thirds of them support some kind of welfare state.

Thus, there are major differences between the middle class in the West and its ostensible counterpart in Russia.

The Russian parvenus - many of them women - do not believe their state, their banks, or their compatriots. They fear a precarious future and its inevitable calamities though they are not risk averse and are rather optimistic in the short run. They keep their money under the proverbial mattress, invest it surreptitiously in their ventures, or smuggle it abroad. They are not - yet - stakeholders in their country's stability and prosperity.

Often bamboozled by other businessmen and fleeced by a rapacious bureaucracy, they are paranoid. Tax evasion is still rampant, though abating. They trust in equity and avoid debt. Some of them have criminal roots or a criminal mindset - or are former members of Russia's shady security services.

Three fifths, according to the Expert-Komkon survey, find it "hard to survive" when "observing all laws". "Strong leaders are better than all sorts of laws" is their motto, quoted by Izvestia. Generally, they are closer to being robbers than barons.

Early capitalism is always unruly. It is transformed into a highly structured edifice by the ownership of land and realty (the prime collateral), the protection of private property, a functioning financial system comprised of both banks and capital markets and the just and expedient application of the rule of law.

Russia has none of these. According to Business Week, bank deposits amount to 4 percent of the country's mid-size GDP - compared to half of GDP in other industrialized countries. Mortgages are unheard of, deposits are not insured and land ownership is a novel proposition. The judiciary is venal and incompetent. Might is still right in vast swathes of the land.

The state and the oligarchs continue to represent a rent-seeking opportunity. Businessmen spend time seeking concessions, permits, exemptions and licenses rather than conducting business. The "civic institutions" they form - chambers of commerce, clubs - are often mere glorified lobbying outfits of special and vested interests. Informal networks of contacts count more than any statute or regulation. In such a mock "modern state" no wonder Russia ended up with a Potemkin "middle class".

Middle East, Economies of

Yesterday, in the Islamic Financial Forum in Dubai, Brad Bourland, chief economist for the Saudi American Bank (SAMBA), breached the embarrassed silence that invariably enshrouds speakers in Middle Eastern get-togethers. He reminded the assembled that despite the decades-long fortuity of opulent oil revenues, the nations of the region - excluding Turkey and Israel - failed to reform their economies, let alone prosper.

Structural weaknesses, imperceptible growth, crippling unemployment and deteriorating government financing confined Arab states to the role of oil-addicted minions. At $540 billion, said Bourland, quoted by Middle East Online, the combined gross domestic product of all the Arab countries is smaller than Mexico's (or Spain's, adds The Economist).

According to the Arab League, the gross national product of all its members amounted to $712 billion or 2 percent of the world's GNP in 2001 - merely double sub-Saharan Africa's.

Even the recent tripling of the price of oil - their main export commodity - did not generate sustained growth equal to the burgeoning population and labor force. Algeria's official unemployment rate is 26.4 percent, Oman's 17.2 percent, Tunisia's 15.6 percent, Jordan's 14.4 percent, Saudi Arabia's 13 percent and Kuwait sports an unhealthy 7.1 percent. Even with 8 percent out of work, Egypt needs to grow by 6 percent annually just to stay put, estimates the World Bank.

But the real figures are way higher. At least one fifth of the Saudi and Egyptian labor forces go unemployed. Only one tenth of Saudi women have ever worked. The region's population has almost doubled in the last quarter century, to 300 million people. Close to two fifths of the denizens of the Arab world are minors.

According to the Iranian news agency, IRNA, the European Commission on the Mediterranean Region estimates that the purchasing power parity income per head in the area is a mere 39 percent of the EU's 2001 average, comparable to many post-communist countries in transition. In nominal terms the figure is 28 percent. These statistics include Israel whose income per capita equals 84 percent of the EU's and the Palestinian Authority where GDP fell by 10 percent in 2000 and by another 15 percent the year after.

Faced with ominously surging social unrest, the Arab regimes - all of them lacking in democratic legitimacy - resort to ever more desperate measures. "Saudisation", for instance, amounts to the expulsion of 3 million foreign laborers to make room for indigenous idlers reluctant to take on these vacated - mostly menial - jobs. About one million, typically Western, expat experts remain untouched.

The national accounts of Arab polities are in tatters. Saudi Arabia managed to produce a budget surplus only once since 1982. Per capita income in the kingdom plunged from $26,000 in 1981 to $7000 today. Higher oil prices may well continue throughout 2003, further masking the calamitous state of the region's economies. But this would amount to merely postponing the inevitable.

Arab countries are not integrated into the world economy. It is possibly the only part of the globe, bar Africa, to have entirely missed the trains of globalization and technological progress. Charlene Barshefsky was United States Trade Representative from 1997 to 2001. In a recent column published by the New York Times, she noted that:

"Muslim countries in the region trade less with one another than do African countries, and much less than do Asian, Latin American or European countries. This reflects both high trade barriers ... and the deep isolation Iran, Iraq and Libya have brought on themselves through violence and support for terrorist groups ... The Middle East still depends on oil. Today, the United States imports slightly more than $5 billion worth of manufactured goods and farm products from the 22 members of the Arab League, Afghanistan and Iran combined - or about half our value-added imports from Hong Kong alone."

Indeed, Jewish Israel and secular Turkey aside, 8 of the 11 largest economies of the Middle East have yet to join the World Trade Organization. Only two decades ago, one of every seven dollars in global export revenues and one twentieth of the world's foreign direct investment flowed to Arab pockets.

Today, the Middle East's share of international trade and FDI is less than 1.5 percent - half of it with the European Union. Medium size economies such as Sweden's attract more capital than the entire Middle Eastern Moslem world put together.

Some Arab countries periodically go through spastic reforms only to submerge once more in backwardness and venality. Oil-producers attempted some structural economic adjustments in the 1990s. Jordan and Syria privatized a few marginal state-owned enterprises. Iran and Iraq cut subsidies. Almost everyone - especially Lebanon, Egypt, Iran and Jordan -  increased their unhealthy reliance on multilateral loans and foreign aid.

Young King Abdullah II of Jordan, for instance, dabbles in deregulation, liberalization, tax reform, cutting red tape and tariff reductions. Aided by a free trade agreement with America passed by Congress in 2001, Jordan's exports to the United States last year soared from $16 million in 1998 to $400 million.

A similar nostrum is being administered to Morocco, partly to spite the European Union and its glacial "Barcelona Process" Euro-Mediterranean Partnership. But, as everyone realizes, the region's problems run deeper than any tweaking of the customs code.

The "Arab Human Development Report 2002", published in June last year by the United Nations Development Program (UNDP), was composed entirely by Arab scholars. It charts the predictably dismal landscape: one in five inhabitants survives on less than $2 a day; annual growth in income per capita over the last 20 years, at 0.5 percent, exceeded only sub-Saharan Africa's; one in six is unemployed.

The region's three "deficits", laments the report, are freedom, knowledge and manpower. Arab polities and societies are autocratic and intolerant. Illiteracy is still rampant and education poor. Women - half the workforce - are ill-treated and excluded. Pervasive Islamization replaced earlier militant ideologies in stifling creativity and growth.

In an article titled "Middle East Economies: A Survey of Current Problems and Issues", published in the September 1999 issue of the Middle East Review of International Affairs, Ali Abootalebi, assistant professor of political science at the University of Wisconsin, Eau Claire, concluded:

"The Middle East is second only to Africa as the least developed region in the world. It has already lost much of its strategic importance since the Soviet Union's demise ... Most Middle Eastern states ... probably do, possess the necessary technocratic and professional personnel to run state affairs in an efficient and modern manner .... (but not) the willingness or ability of the elites in charge to disengage the old coalitional interests that dominate governments in these countries."

The looming war with Iraq will change all that. This is the fervent hope of intellectuals throughout the region, even those viscerally opposed to America's high-handed hegemony. But this may well be only another false dawn in many. The inevitable massive postwar damage to the area's fragile economies will spawn added oppression rather than enhance democracy.

According to The Economist, the military buildup has already injected $2 billion into Kuwait's economy, equal to 6 percent of its GDP. Prices of everything - from real estate to cars - are rising fast. The stock exchange index has soared by one third. American largesse extends to Turkey - the recipient of $5 billion in grants, $1 billion in oil and $10 billion in loan guarantees. Egypt and Jordan will reap $1 billion apiece and, possibly, subsidized Saudi oil as well. Israel will abscond with $8 billion in collateral and billions in cash.

But the party may be short-lived, especially if the war proves to be as decisive and nippy as the Americans foresee.

Stratfor, the strategic forecasting consultancy, correctly observes that the United States is likely to encourage American oil companies to boost Iraq's postbellum production. With Venezuela back on line and global tensions eased, deteriorating crude prices may adversely affect oil-dependent countries from Iran to Algeria.

The resulting social and political unrest - coupled with violent, though typically impotent, protests against the war, America and the political leadership - is unlikely to convince panicky tottering regimes to offer greater political openness and participatory democracy.

War will traumatize tourism, another major regional foreign exchange earner. Egypt alone collects $4 billion a year from eager pyramid-gazers - about one ninth of its GDP. Add to that the effects of armed conflict on traffic in the Suez Canal, on investments and on expat remittances - and the country could well become the war's greatest victim.

In a recent economic conference of the Arab League, Egyptian Minister of State for Foreign Affairs, Faiza Abu el-Naga, pegged the immediate losses to her country at $6-8 billion. More than 200,000 jobs will be lost in tourism alone. Egypt's Information and Decision Support Centre (IDSC) distributed a study predicting $900 million in damages to the Jordanian economy and billions more to be incurred by oil-rich Saudi Arabia.

The Arab Bank Federation foresees banking losses of up to $60 billion due to contraction in economic activity both during the war and in its aftermath. This may be too pessimistic. But even the optimists talk about $30 billion in foregone revenues. The reconstruction of Iraq could revitalize the sector - but American and European banks will probably monopolize the lucrative opportunity.

War is likely to have a stultifying effect on the investment climate.

Saudi Arabia and Egypt each attract around $1 billion a year in foreign direct investment - double Iran's rising rate. But global FDI was halved in the last two years. This years, flows will revert to 1998 levels. This implosion is likely to affect even increasingly attractive or resurgent destinations such as Israel, Turkey, Iraq and Iran.

Foreign investors will be deterred not only by the fighting but also by a mounting wave of virulent - and increasingly violent - xenophobia. Consumer boycotts are a traditional weapon in the Arab political arsenal. Coca-Cola's sales in these parched lands have plummeted by 10 percent last year. Pepsi's overseas sales flattened due to Arabs shunning its elixirs. American-franchised fast food outlets saw their business halved. McDonald's had to close some of its restaurants in Jordan.

Foreign business premises have been vandalized even in the Gulf countries. According to The Economist "in the past year overall business at western fast-food and drinks firms has dropped by 40% in Arab countries. Trade in American branded goods has shrunk by a quarter."

These are bad news. Multinationals are sizable employers. Coca-Cola alone is responsible for 220,000 jobs in the Middle East. Procter & Gamble invested $100 million in Egypt. Foreign enterprises pay well and transfer technology and management skills to their local joint venture partners.

Nor is foreign involvement confined to retail. The $35 billion Middle Eastern petrochemicals sector is reliant on the kindness of strangers: Indian, Canadian, South Korean and, lately, Chinese. Singapore and Malaysia are eyeing the tourism industry, especially in the Gulf. Their withdrawal from the indigenous economies might prove disastrous.

Nor will these battered nations be saved by geopolitical benefactors.

The economies of the Middle East are off the radar screen of the Bush administration, accuses Edward Gresser of the Progressive Policy Institute in a recently published report titled "Blank Spot on the Map: How Trade Policy is Working Against the War on Terror".

Egypt and most other Moslem countries are heavily dependent on their textile and agricultural exports to the West. But, by 2015, they will face tough competition from nations with contractual trade advantages granted them by the United States, goes the author.

Still, the fault is shared by entrenched economic interest groups in the Middle East . Petrified by the daunting prospect of reforms and the ensuing competitive environment, they block free trade, liberalization and deregulation.

Consider the Persian Gulf, a corner of the world which subsists on trading with partners overseas.

Not surprisingly, most of the members of the Arab Gulf Cooperation Council have joined the World Trade Organization a while back. But their citizens are unlikely to enjoy the benefits at least until 2010 due to obstruction by the club's all-powerful and tentacular business families, international bankers and economists told the Times of Oman.

The rigidity and malignant self-centeredness of the political and economic elite and the confluence of oppression and profiteering are the crux of the region's problems. No external shock - not even war in Iraq - comes close to having the same pernicious and prolonged effects.

Migration (West to East)

The census in Russia, the first since 1989, is expected to find more than 2 million immigrants in residence. The Macedonian Ministry of the Interior, based on initial census figures, estimates that there are well over 20,000 foreigners in this country of 2 million people.

It is a little known fact that the polities of east Europe - let alone central Europe - are the targets of mass immigration from even poorer regions of the earth like India, Bangladesh, Pakistan, Africa and central and east Asia. Wealth is relative, though. Even destitute Macedonia is home to at least 200,000 migrants from the impoverished nether lands of Albania, Kosovo, Serbia and Bosnia.

The denizens of deprived members of the former Soviet bloc - such as Moldova, Ukraine, Belarus, Albania, Yugoslavia (Serbia, Montenegro and Kosovo), Bosnia-Herzegovina, Macedonia, Romania, Bulgaria, or the "stans" of central Asia - flock to the greener pastures of the Czech Republic, Poland, Hungary, Russia, Croatia, Greece, Austria and Germany. Add to these at least 500,000 permanent refugees - mainly from Croatia and Bosnia.

Most of these economic immigrants are unskilled and uneducated. They are employed in menial jobs in agriculture and services. They remit the bulk of their income home, thus contributing little to the local economy. They are ineligible for education, medical treatment, or social benefits and services.

The majority of them being illegal aliens, they rarely pay taxes. They do not enjoy the protection of the law and fall prey to rapacious organized crime gangs and avaricious indigenous policemen, judges and bureaucrats. Child labor, prostitution, drug abuse and other forms of petty delinquency are rampant among them.

Immigrants cause great resentment and consternation among the - always xenophobic - populace in east and central Europe. They compete directly with unskilled and unemployed locals - a sizable portion of the citizenry. Unemployment in the European Union is less than 10 percent compared to almost 20 percent in Poland, 30 percent in Macedonia and twice that in Kosovo.

But east Europe is target to another kind of immigration - from the rich West. Hundreds of thousands of expatriates and their dependants pepper these territories. Most of them are employed by non government organizations (NGOs), multilaterals, or international financial institutions.

They come for stints of a few years. Many stay longer, beyond the call of tenure. They spend their bloated salaries locally. This, usually, is their only input to their newfound domicile - a poisoned chalice driving up prices beyond the means of most inhabitants. These foreigners rarely pay taxes and are beyond the reach of native law. NATO peacekeepers, for instance, can be tried only in their countries of origin where flippant lenience is secured.

There are three categories of Western parvenus in the Wild East: the hustlers, the bureaucrats and the corporates.

The implosion of communism in central and east Europe has immediately sucked in an assortment of foreigners with checkered pasts and shady businesses. They colluded with emerging organized crime in their adopted countries, serving as a vital link to the financial infrastructure of the West. In cahoots with corrupt managers and venal cronies and insiders, they stripped the assets of state-owned enterprises and benefited from speculative bubbles.

Foreigners employed by multilateral organizations - such as the IMF, the World Bank, the Organization for Security and Cooperation in Europe, NATO, the European Union and a veritable avalanche of acronymed NGOs and academic outfits - are notorious throughout the region for their shameless conspicuous consumption and capricious meddling. Some of them have been implicated in corrupt dealings.

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