Bhuvan—Russian Gulags and Economic Development
One of the most paradoxical aspects of human nature is that we are capable of extraordinary kindness and, at the same time, of horrendous cruelty. One enduring example of this duality is the reign of Joseph Stalin over the erstwhile Soviet Union from 1922 to 1953. Historians disagree on the exact number, but Stalin was responsible for the deaths of anywhere between 6 million and 20 million people.
One of the darkest aspects of his horrible legacy was the forced imprisonment of millions of citizens in labor camps called "gulags." Between 11 and 18 million people passed through these brutal camps, and a couple of million died there. However, despite this horrific atrocity, there was a surprising positive outcome.
The regime referred to the people sent to the camps as "enemies of the people." These were political opponents, wealthy peasants, members of the educated elite (such as artists, engineers, and professors), and various ethnic groups.
While this dark phase in human history has been well documented by historians, the developmental or economic effects of the gulag system have remained underexplored. Two economists, Gerhard Toews and Pierre-Louis Vézina, studied just this—that is, the consequences of gulags on the regions where they were located—and found something peculiar. They published their findings in a paper titled "Enemies of the People," a fascinating read.
Before discussing the findings, I believe this paper is important because economists typically construct elaborate statistical models to study economic effects. While these models help us understand many phenomena, they are, at best, fuzzy representations of reality. As the famous statistician George Box once said:
"Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful."
This flaw in models is what makes natural experiments in economics so important. Unlike models, natural experiments rely on variations that occur naturally rather than being artificially induced. For example, if one state in a country increases the minimum wage while another does not, this variation can be used to study the impact of wage increases on employment. This was demonstrated in a famous study conducted by Nobel laureates David Card and Alan Krueger.
The "enemies of the people" case serves as a natural experiment, which makes the paper and its findings particularly fascinating. A striking aspect of Stalin's drive to target dissent was that "enemies of the people" accounted for 33% of the gulag population. This meant that gulag prisoners were, on average, more educated than other prisoners. In fact, 1.8% of gulag prisoners had tertiary education—three times higher than the 0.6% in the general Soviet population in 1939. Moreover, 14.7% of the "enemies of the people" had tertiary education, making them the most educated group among prisoners.
Given the years of imprisonment, millions of people had nowhere to go because they had lost everything—from their health and wealth to their careers and families. Many even developed a strong psychological attachment to the regions where they were imprisoned.
Stephen Cohen, an influential historian of Russia, explains why most Gulag inmates remained after being freed during the 1956–57 mass liberation:
“_[M]illions of other survivors simply had nowhere to return. Years of imprisonment had destroyed everything associated with ‘home’—family, career, possessions, and their mental and physical health... Some exiles had already started new families with other exiles and free spouses, which tied them to their remote locales; and some zeks and exiles, deprived of alternatives, had developed a strong psychological attachment to their areas of long-time imprisonment. Millions of survivors thus chose to remain, now as free citizens and paid employees, in the vast region of the dismantled Gulag empire... Indeed, so many did so that their liberated presence dramatically changed the demographic, social, and political character of several former administrative centers of the Gulag.” — Link
After Stalin's death in 1953, the gulag camps began closing, but since millions had nowhere else to go, many settled in and around the regions where the camps were located. In addition, political and economic constraints—such as restricted mobility, limited economic opportunities, surveillance, and re-arrests—further bound these individuals to their localities. Perhaps more importantly, these people had built their social and professional ties in these regions.
The results of this resettlement are fascinating:
- Firms near gulags with a higher share of "enemies of the people" pay higher wages today.
- A one standard-deviation increase (28%) in the share of enemies leads to a 22% increase in average wages, a 65% increase in profits per employee, and a 58% increase in nighttime lights per capita, a proxy for economic activity.
- Higher education levels persist across generations. The children and grandchildren of those labeled as enemies are more likely to be college-educated.
- Gulag districts exhibited lower levels of trust and higher levels of mafia activity; in fact, gulags were instrumental in the development of the Russian mafia.
What makes this natural experiment particularly interesting is that the arrests and imprisonments of "enemies of the people" were random. There was no economic rationale behind these actions; rather, they were driven solely by political ideology. The authors found that neither geography nor economic activity predicted the share of enemies.
A Few Charts from the Paper:
The descendants of enemies are more educated, and so are their parents
Share of enemies vs. night lights per capita across gulags
Employees, wages, and profits in Russia: 2018
More than 60 years after the death of Stalin and the demise of the gulag, areas around camps that had a higher share of "enemies of the people" are richer today, as captured by firms’ wages and profits, as well as by nighttime lights per capita. We argue that the education transferred from forcibly displaced "enemies of the people" to their children and grandchildren partly explains prosperity across Russian localities. Our paper can be seen as a natural experiment that identifies the long-run persistence of higher education and its effects on long-run prosperity. Sadly, it also highlights how atrocious acts by mad individuals can shape the development path of localities over many generations. — Link
Krishna—Should “nuclear” be renamed?
I had written about nuclear energy a while back here, covering India’s nuclear history, the Atomic Energy Act, the 123 Agreement, and the Civil Liability for Nuclear Damage Act. Since then, I’ve done a little more reading (still a lot more to explore). Here’s what else I came to know.
Let’s start with Small Modular Reactors (SMRs)—something I missed entirely in my previous piece. These are advanced, factory-built reactors with a smaller capacity than traditional nuclear plants (typically 10 to 300 megawatts). Their modular design means they can be built in parts, transported, and assembled on-site, cutting down construction time and initial costs. In theory, SMRs also have built-in safety features, allowing them to shut down or cool off without human intervention if things go wrong. But scaling this tech to bring down costs remains a challenge. The latest Budget makes a big push for SMRs, allocating ₹20,000 crore for research and development. The government hopes this will reduce India’s dependence on fossil fuels while supporting its net-zero targets by 2070.
But nuclear isn’t just about technology. Costs are a nightmare. When nuclear power plants were first built in the 60s and 70s, they were relatively affordable. Today, they’re one of the most expensive energy projects in the world. Why? A lot of it has to do with labor and safety regulations. Every part of a reactor—from the concrete foundation to the wiring—has to meet insane quality standards because any failure could lead to catastrophic consequences. It’s like running a space program but underground. On top of that, after disasters like Chernobyl and Fukushima, governments around the world tightened safety requirements, which made costs spiral even more. Construction delays, red tape, and constantly changing designs are now par for the course in nuclear projects.
Speaking of Chernobyl and Fukushima—people really hate nuclear energy because of those disasters. The Chernobyl explosion was so bad that entire towns had to be abandoned, and parts of the surrounding area are still radioactive. Fukushima, meanwhile, didn’t have an explosion, but the plant’s cooling systems failed after a tsunami, causing three reactors to melt down. Radioactive water leaked into the ocean, sparking global panic. Even though scientists say the radiation diluted quickly, the psychological fear of anything “nuclear” remains deeply embedded in public perception.
Then there’s the waste problem. That’s where things get tricky. Countries like Finland are working on deep underground repositories, but most nations—including India—are still stuck debating where and how to store this stuff permanently. If waste leaks, it can contaminate water and land for centuries, which is why people freak out over storage issues.
On top of all that, financing nuclear power plants is a headache. A single large reactor can cost upwards of $10 billion, and it can take 7 to 10 years to complete. Meanwhile, investors don’t see returns until the plant starts generating electricity. Delays and cost overruns are almost guaranteed, making nuclear projects risky compared to solar and wind, which are faster to build and get up and running.
So why is China ramping up nuclear while other countries hesitate? It boils down to energy security and climate goals. Nuclear provides a reliable, domestic alternative. China’s state-backed companies like CNNC have government support, allowing them to build reactors without the financing struggles seen elsewhere.
As for India, nuclear development has been slow due to regulatory bottlenecks and legal complications, particularly with the Civil Liability Act. The clause that holds suppliers liable for accidents drove away foreign players like Westinghouse and Areva. But with plans to amend the Act, the government is finally trying to remove this barrier and attract much-needed investment.
Nuclear energy is messy, expensive, and politically divisive, but it’s still part of India’s long-term strategy to reduce emissions. Whether it can shake off its reputation and overcome the many challenges ahead—only time will tell. For now, I’ll keep reading and digging deeper into this fascinating but controversial world.
Pranav—What’s happening with chocolate?
This morning, we were at Kinya, a posh little cafe full of hot, well-dressed people that always reminds me how, deep down, all I want to be is a bougie snob that thumbs my nose at the world.
My wife and I ordered mochas (chocolatey coffees, for those of you that aren’t coffee-hipsters yet). Only, something seemed off. Our drinks were a touch too bitter, and worse still, they didn’t feel chocolatey. Had they messed up? Did they accidentally just give us normal-ass coffee? We chatted up one of their baristas to ask them what had changed. Turns out, for the first time in months, they added real chocolate (98% dark) to our drinks. Before this, their vendors didn’t have any, forcing them to make do with some sugary mixture. It was the sugar that we were missing, not the chocolate.
Why so? Well, that’s something I learned today: for most of last year, there was a terrible chocolate shortage in the market.
Last summer, the world’s chocolate producing zones — Ghana, Ivory Coast, etc. — had a terrible harvest. With back-to-back El Ninos, the weather was terrible. Chocolate usually grows between 21°C and 30°C — but West Africa was seeing temperatures hover around 41°C. On top of that, their crop was eaten up by something called the ‘black pod’ disease. It was the perfect cluster-fuck. Cacao supplies crashed, and there was a global chocolate shortfall of nearly 4 lakh tons. Prices zoomed by as much as 200%.
They’re lower than that peak, but they’re still not back to normal.
What does that mean? As a rough-and-dirty heuristic, if you know the amount of cacao in a product, you know how sensitive it is to prices. If you’re selling 50% dark chocolate, for instance, half your raw material would briefly have tripled in price. You can imagine the hit on your bottom line.
In a more equitable market, cacao farmers may have been more resilient. If they received the upside in years of good harvest, they would have the capital they needed to replant and invest in disease prevention. Sadly, the world isn’t equitable. This is a market where middlemen, and not farmers, pocket most of the profit. And so, in bad years like this, the whole system grinds to a halt.
Things became even worse because of all the other trading challenges we’ve been talking about — from the Red Sea shipping crisis to a depreciation of the Rupee — all of which contributed an extra 30-40% to India’s chocolate import bills.
Now, unlike most of the rest of the world, India isn’t entirely dependent on Western Africa for its chocolate. We also produce cacao domestically. Almost all South Indian states have cacao plantations — with Andhra Pradesh and Kerala leading the way. Unfortunately, in commodity markets, when prices go up in one part of the world, they go up everywhere. So Indian cacao, too, became more expensive — from ₹250 a kilo to ₹1,000 a kilo.
That’s not a bad thing, though. Indian farmers should have such opportunities to earn well. That signals to other farmers that growing chocolate is a smart idea. In fact, for India, this could be an opportunity wrapped in a crisis. It might help us get a foothold in the $130 billion global chocolate market.
So, how did businesses deal with these elevated prices? The fancy specialty chocolatiers and patisseries — the guys that sell to snobs like me — were still relatively better off. Their customers could pay a premium to get their hands on the good stuff, so they could keep things the same for longer. But that doesn’t mean life was easy — especially if you were straddling the line and selling to price-conscious customers, in the manner that a ‘mass-tige’ brand like Theobroma might. Many businesses cut down the number of chocolate-based items on their menu, pivoted to fruit-based desserts, and slowly hiked prices.
Mass-market FMCG players, on the other hand, hit a crisis that was much worse. Getting past it was a task. They cleaned up their supply chains to the extent they could. After all, if there’s less cacao at the very source, the least you can do is ensure that there aren’t any leakages down the line. They also scrambled to find new formulae to manage prices — from passing on costs, to launching new ‘bite-sized’ products that they could charge more for.
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