Russia’s economy is heavily dependent on fossil fuels and mineral extraction. It has delivered riches for the nation’s oligarch class, but the broader populace was suffering from economic malaise. “Russians have weathered multiple crises in the post-Soviet period,” wrote The Wilson Center. “The ‘shock therapy’ of 1992, the August 1998 default, and the 2008–2009 global recession each had political consequences. Yet the current economic downturn is different: it is structural, protracted, and unfolding against the backdrop of a global pandemic, which limits the efficacy of government instruments in handling the crisis.” Its economy was projected to contract this year, even before the war, following a brutal eight years of GDP shrinkage.
Russia’s per capita GDP dropped from almost $16,000 in 2013, to $8,705 in 2016. It was barely above $10,000 in 2020. Vladimir Putin needed to do something to spur economic growth. “Even before the invasion and international sanctions, Russia’s economy faced two big problems, according to analysts: a need to develop new industries to reduce reliance on exports of hydrocarbons and other natural resources, and a falling working-age population,” reported the Financial Times.
Post invasion, add another challenge—falling world demand for Russian fossil fuels.Nord Stream 2, the pipeline connecting Russia to Germany, is dead-dead. Europe, its biggest market, has embarked on a plan to reduce dependence on Russian fossil fuels by 85%. Its friendly neighbors in Central Asia are poor, and unable to pay the prices Europe was paying. They also have their own energy supplies. Russian goods, including its oil, are globally taboo. That leaves China, which will gobble up some of that excess supply, sure, but not at European prices. Why would it? It has Russia in a vice. Furthermore, China itself is embarking on major renewable energy projects, leading the world in solar and wind production. China got 26% of its energy from renewable sources in 2019, compared to 17% in the United States, and is spending heavily to get that number to 50% by 2030. Russia’s market is shrinking, and even a hasty end to the war on Ukraine’s terms wouldn’t reverse these trends.
Then there’s the other problem mentioned above—Russia’s lack of a diversified technology and aging work force. And yet it is exactly those people fleeing Russia right now, to the tune of tens of thousands. “The long-term impact is a lack of hope for any progress or productivity growth. Sanctions will impose severe limitations on Russia’s ability to import technology, while self-imposed brain drains will drain Russia of human capital,” said a prominent economist to the Financial Times
JPMorgan last week forecast that Russia’s economy would contract 35 per cent in the second quarter, 7 per cent this year and 12 per cent overall before it recovers, as the western sanctions announced this month take effect.
If the thousands of young Russians who have already fled choose not to return, the economic blow will be long lasting, economists warn.
“There can be no doubt that he is losing the allegiance of the most productive part of his people,” said Daniel Gros, distinguished fellow at the Centre for European Policy Studies. “This is an added medium- to long-term unforeseen [for the Russian economy].”
And this is what the “Putin has too much to lose to use nuclear weapons” crowd doesn’t get. COVID should have taught all of us to stop expecting people to behave rationally, and we have no idea what’s motivating Putin these days. Reclusive despots have a habit of losing their minds in disastrous ways. Remember, Putin invaded because he wanted the world to treat Russia as a WORLD POWER. Now, his army is limping against an inferior enemy, his Air Force is for the most part AWOL, he is an international pariah, and his economy faces years of contraction and pain. That’s some serious indignities, and we really don’t know how he’ll deal with it.
Thursday, Mar 10, 2022 · 1:18:31 PM +00:00 · Mark Sumner
What does it look like to be doing something indisputably noble, in the most difficult conditions, and be utterly unbowed? Try this woman, standing on a desolate road, in an area that the Ukrainian army describes as the most dangerous location in the country, leading a group of disabled dogs recused from a ruined shelter.
Thursday, Mar 10, 2022 · 1:30:28 PM +00:00 · Mark Sumner
There are multiple views this morning of an armored column on the north of Kyiv being absolutely reduced to scrap by Ukrainian artillery. Throughout the invasion, there have been numerous scenes of Russian columns captured, mired in mud, or destroyed. But few of them see so ludicrously ill-thought-out as this attempt to bring a bunch of tightly group vehicles down the middle of a broad avenue. They didn’t quite put targets on top … but they kind of did.
Thursday, Mar 10, 2022 · 1:47:00 PM +00:00 · Mark Sumner
If you’ve wondered where those laws in Florida or Texas — the ones that encourage people to sue teachers for mentioning race, or turn in a young woman they think might be considering an abortion — are going, this is where. Russia is creating an expansive speech police, scouring the internet for anything that looks like non-sanctioned thought.
Thursday, Mar 10, 2022 · 2:07:08 PM +00:00 · Mark Sumner
As mentioned yesterday, the average American is worth around $79K. That's pretty low on the world stage (the average Canadian is worth $125K, the average Australian $238K). But the average Russian was worth just $5K. Before the war. Now their life savings are destroyed.
Russia was already very close to the poorest nation in Europe. Now it's moving steeply down the world charts; it's citizens finding that their salaries can't buy anything, that their savings aren't worth anything, that they are window-shoppers on a world they can't touch.
The situation inside Russia is already generating a flood of RUSSIAN refugees, fleeing from the economic collapse. We’re seeing that in expanded flight schedules from the few airlines still going into Moscow and St. Petersburg. People are going on “vacations” from which they never expect to return. But most of those getting out now are the ones with enough wealth, and enough Western contacts, to understand where this is going.
What's going to be left behind in Russia are 145 million deeply impoverished, disillusioned, desperate, and powerfully angry people. But there is absolutely no guarantee that they'll turn that anger toward it's author. Putin already has long experience in manipulating the Russian people, even as other members of the Warsaw Pact, and even other former Soviet Republicans, sharply outpaced Russian development. If Russia is reduced to a snarl of boiling anger on Europe’s flank, Putin may still be steering that anger.
Thursday, Mar 10, 2022 · 2:22:53 PM +00:00 · Mark Sumner
As the value of everything inside Russia turns to dust, those with anything resembling value that might be moved are doing their best to dispose of it. The FSB is one of the successors to the KGB, but here are people desperately trying to unload the one thing they still have which has value outside of Russia, in the one place that they are suddenly grateful the rest of the world does not consider to be part of Russia.
How many of these sales are going to converted into plane or boat tickets to anywhere else? A good bet that number is close to 100%.
Thursday, Mar 10, 2022 · 2:49:46 PM +00:00 · Mark Sumner
All those closed Western stores and restaurants in Russia could reopen at any time — though their selections may be a bit different. That’s because Putin has decided that trademarks, copyrights, and patents no longer apply in Russia. In a new decree, Putin has again threatened to nationalize resources of the closed factories and stores, but is now adding a layer of intellectual theft to the … plain old theft.
