Monday, September 14, 2009

Ghost Towns in Siberia

In the global recession, “Many of the old Soviet factories have been forced to close down,” says BBC News. When this happens in a factory town in Siberia, like Baikalsk, which built up around a paper mill in 1961, the only thing that can happen is that the town starts to empty out.

It is one of the ironies of the boom and bust cycle that the areas that were overbuilt during the boom are not necessarily the ones that go down during the bust. Economic collapse is just as likely for areas that were underbuilt because the boom years choked off their access to capital. The Baikalsk paper mill, for example, probably needed just $1 million in new equipment to cut its operating costs, but couldn’t get that money because people were investing instead in imaginary things that went up in smoke when boom turned to bust. During the bust years, as governments spend money to try to keep the wheels of commerce turning, it is the actual productive capacity of the economy that is likely to be neglected. In this way, the bust can leave the economy even more out of balance than it was during the boom.