Vladimir Putin is “sitting on top of an economy that has nuclear weapons and oil wells and nothing else.” (Joseph Biden, July 2021)
Russia’s economy is a “primitive economy based on raw materials and endemic corruption” (Dmitry Medvedev, President, 2009)
“There is no need to grieve, you’ll make yourself ill. After us, the deluge.” (Madame de Pompadour, mistress of King Louis XV, 1757)
It wasn’t supposed to happen that way. Fourteen years ago – in Putin’s 2nd term – the Kremlin approved a national economic strategy that envisioned Russia becoming one of the world’s top five economies by 2020 and establishing itself as a major financial center and global leader in technological innovation.
After 14 years it is still stuck in 11th place and has been overtaken by Italy and South Korea. It ranks 45th in global innovation (42 rankings below the U.S.); remains a net exporter of capital ($47 billion in 2020) rather than a magnet for international finance, and has precipitated a 10% decline in living standards.
And it only gets worse. During those 14 years, while the world as a whole enjoyed average annual 1.5% increase in its economic output (GDP) and a total increase of 51% from its $58 trillion base in 2007, Putin’s Russia actually showed a decrease from its 2008 base of $1.661 to $1.647 trillion (est) for 2021.
Its economy makes up only 1.6% of global GDP compared to the U.S. 24.7%. The economic output that provides Russia with the means to sustain the nation and maintain its military force is less than four cents for every dollar earned by NATO countries.
However, it gets even worse than that. The statistics above demonstrate that the Russian economy is, and has been, in full stagnation for the last 14 years of Putin’s rule, boosted periodically with higher for oil and gas prices. But a number of external and unavoidable factors are now beginning to converge and will gather increasing force over the next 5-10 years, creating additional problems for Russia, the Kremlin, and its military.
Russian military
Russia’s military might is half hype and half real. It does have the nukes, but they are largely useless unless Putin is ready to risk nuclear devastation to his own country, fortune, and power. Putin is anything but reckless, so let’s put this one aside.
Russia does have a large conventional force, but the U.S. and NATO far outmatch it in quality and quantity.
Russia still relies heavily on Soviet-era ordnance but its decisive competitive advantage over Ukraine is in its aerial power which may overwhelm Ukrainian forces in a “shock and awe” assault, but not without a reciprocal severe mauling in casualties and logistics. It may take Russia years to recover.
An occupation force of 800,000 is needed to occupy Ukraine. But Russia can barely scrape up more than 900,000 personnel for its whole active duty force (30% of which are 1-year conscripts) because of financial and demographic constraints.
Russia’s demographic crisis severely impacts both its labor force and mobilization potential. In 2020 there were 14.25 million men in the 20-34, draft- eligible age group. The U.N. estimates a 20% decrease during the 2020s. Even at the higher 2020 age group the militarization rate to maintain a 900,000 military force was 6.31% which will increase to 8.01% by 2030. By comparison, very few nations are even close to 4%.
For Russia these rates are particularly acute because every male in that age group entering the military will adversely impact growth.
De-carbonization
Oil and gas export is the life-blood of Russia’s economy. providing a quarter of Russia’s GDP and fiscal revenue and 40% of its federal budget. But its political elite gives very little thought to the world’s transition to a post-carbon future. Russia is acutely exposed to coming shifts in global demand.
Human Capital
There has been a colossal decrease in the quality of Russia’s human capital. Although Russia inherited a competitive advantage in its education system and respect for human capital, the system is being demolished. Its educated people are leaving; there is little demand for professional skills; low-end universities grant shoddy degrees as high-quality credentials; there is a high degree of social apathy and mistrust; falling incomes; lack of basic medical care in the countryside; shortage of working-age laborers. In short, Russia is ill-prepared for the challenges it faces.
Uprisings
The recent events in Kazakhstan and Belarus are merely the beginning, not the end, of Putin’s problems. He has now established Russia’s position as the guardian of all repressive regimes that remain loyal to the Kremlin.
The State’s aversion to reform
The prevailing sentiment of the Russian ruling class seems to be that of Madame de Pompadour: “there’s enough to last for our lifetimes” The political elite shares a “consensus of inaction” by failing to take action or speak openly about problems because it may cost them positions in the establishment. They believe in authoritarianism and state capital so long as the state can suppress civil society and media, and keep propaganda channels open. Why risk major reforms if such measures jeopardize political stability?
The Russian people
According to Levada surveys, most Russians cheered Putin’s take-over of Crimea because they truly believed that Russia had a valid historical claim to the peninsula. Putin’s subsequent war in Donbas did not meet with much approval. Russians are simply tired of wars, body-bags, and the financial burdens needed to pay for Putin’s exorbitant ambitions.
While the state’s continuing Ukrainophobic propaganda has succeeded in increasing anti-Ukrainian sentiment, the majority do not want war with Ukraine. Of particular interest is the finding that 66% of Russia’s younger generation (18-24) have a positive or very positive attitude towards Ukraine.
The monumental folly
With an economy going nowhere except down; a demographic crisis; and a nation looted, impoverished, dumbed-down, and repressed; attacking Ukraine and risking economic collapse and a military debacle would be the most monumental of Putin’s several follies.
