Professor Eric Werker on Why the Russian Economy is Heading for Collapse By James Reed
The high quality liberal-Left blog, The Conversation.com is always worth a read to see what the opposing thinkers are thinking, and it would be foolish to dismiss anybody because they come from a different political perspective. In this age of uncertainty and despair, we need to evaluate as many positions as possible to try and find the truth. That being said, the other disclaimer is that I am not an expert on economics, or on anything really, but that has never stopped me from voicing an opinion.
Thus, Professor Eric Werker makes the case that the present perfect storm of economic conditions, including sanctions, will wreck Russia’s already fragile economy, which is the 22nd largest in the world, not much better than some US states. That is something often forgotten, as Russia has given priority to military expansion and making new weapons of mass destruction, rather than improving the living standards of its people. But, what happens then?
https://theconversation.com/the-russian-economy-is-headed-for-collapse-178605
“To justify invading Ukraine, Vladimir Putin has painted Russia as a hegemonic power re-asserting its rightful claim to imperial greatness. Yet even before the invasion, Russia’s economic capabilities were hardly capable of sustaining an empire.
Now, with foreign sanctions presiding over a plummeting Russian ruble, Russia’s economic standing has fallen further still. If measured at today’s exchange rates, Russia’s economy would be the 22nd largest in the world, with a gross domestic product (GDP) not much larger than the state of Ohio’s.
That’s a far cry from the past, when Russia was a true world power. According to data assembled by the late economic historian Angus Maddison, it was the fifth largest economy in the world in 1913, behind the United States, China, Germany and Britain. By 1957, when the U.S.S.R. outpaced the United States to launch the first satellite into space, the Soviet economy was the world’s second largest after America’s.
Putin’s quest for greatness
Putin was elected president following the chaotic disintegration of the Soviet Union and the 1998 financial crisis in which Russia defaulted on its debt and abandoned its fixed exchange rate.
At the time, Russia’s market-value GDP had bottomed out at US$210 billion, making it the world’s 24th largest economy, behind Austria. (All contemporary GDP figures are from the October 2021 World Economic Outlook published by the International Monetary Fund.)
Putin established an informal social contract with the Russian people based on his ability to deliver strong economic growth. Under Putin’s rule, and buoyed by a commodity price supercycle that would stretch well into the 21st century, Russia’s GDP in market exchange rates rose tenfold, returning Russia to global relevance and providing purchasing power to its middle class.
However, Russia researchers argued that as Russia’s economy began to flag, from a peak in 2013, Putin sought new legitimacy to govern through foreign policy actions to re-establish Russia’s status as a “great power.” These efforts were epitomized by the Crimean annexation of 2014.
Russia’s invasion of Ukraine, against the backdrop of Russia’s market-rate GDP losing a third of its value between 2013 and 2020, represents a doubling down of Putin’s strategy to seek legitimacy from “great power status,” rather than economic performance.
Yet the West’s unrelenting financial and economic sanctions have only accelerated Russia’s economic downfall.
Russian stocks traded on the U.K. market have fallen by 98 per cent, wiping out US$572 billion of wealth, while stocks on Russian exchanges remain suspended.
The Russian currency has fallen to 155 rubles per dollar — a drop of more than 50 per cent from 75 rubles per U.S. dollar before the invasion. If not for recent captial controls and the rising prices of commodities — brought about by the sanctions themselves — that make up the majority of Russia’s exports, it would fall even further.
Domino effect
A country’s market-rate GDP is its GDP converted to a global currency like the U.S. dollar. While there are other ways to measure GDP, when it comes to global trade and investment — and economic power — the market rate is what matters.
Russia’s market-rate GDP in 2021 was US$1.65 trillion, enough to make it the world’s 11th largest economy, behind South Korea. If we crudely convert Russia’s 2021 estimated GDP by March 7, 2022, currency rates, rather than the average exchange rate used last year, and place it against the 2021 market-rate GDP table, the rankings change and Russia slides to 22nd place, falling between Taiwan and Poland.
This drop is likely an underestimate. While a falling ruble lowers Russia’s exchange rate of its GDP to U.S. dollars, its weakening economy lowers its ruble GDP directly. And Russia’s isolation will erode its economic competitiveness, widening the economic gap further in the medium term.
Ukrainians confronted with the oncoming Russian army were wise to Putin’s chimeric strategy. “Don’t you have problems in your country to solve? Are you all rich there, as in the Emirates?” one elderly man heckled Russian soldiers.
Putin’s next move
Robert F. Kennedy famously observed that GDP failed to account for many things that we care about — like health and education. The fall in Russia’s market-rate GDP cannot begin to describe the human tragedy playing out in both Ukraine and Russia.
But what these figures do make clear is that Putin’s claim to legitimacy through economic performance is all but destroyed. With “great power status” tied closely to economic power, Putin’s back-door source of legitimacy from stirring up nationalist pride now seems closed as well.
Putin may have led Russia from one “Times of Troubles,” but he has delivered it to another one. That’s cold comfort to the Ukrainians, and indeed to the rest of the world, who are wondering Putin’s next move.”
Indeed Professor Werker is correct in this, an analysis I cannot fault, with economic devastation sweeping Russia, will Putin decide to go down with the ship, and press that little red button, as my uncle Joe used to say all during the Cold War. What does “Putin’s brain,” Alexander Dugin think about this? Why, the defeat of Russia will be the end of the world, even if no nukes fly.
“Russia’s fight in Ukraine is aimed at America and “global liberal elites,” according to Russian ultra-right ideologue Alexander Dugin, who has been called everything from “Putin’s brain” to “Putin’s Rasputin,” as well as “the most dangerous philosopher in the world.” He also warned that a Russian defeat would spell the end of the world.
Prominent Russian philosopher, historian and sociologist Alexander Dugin claimed in an interview with Al-Jazeera on Saturday that Russia faces an existential threat and is thus posed to succeed in the current conflict.
“Russia is destined to win. We have no other choice,” he said. “This is an existential threat to us, so victory is our only choice.”
“After our victory, the world will not be the same as it is today,” he added.
When asked if the fight in Ukraine was ultimately aimed at the U.S., Dugin, whose Foundations of Geopolitics helped reshape the views of Russia’s political and military elite in the late 1990s and gave a new form to old prejudices against the Western nations by means of the “Eurasianist” ideology, replied in the affirmative.
“This is a fight against American hegemony, but not only the hegemony of the Americans,” he said, adding that the current confrontation is also directed against “the global liberal elites who are trying to take over the world.”
In particular, the anti-liberal philosopher claimed Russia is “fighting against the hegemonic totalitarian liberal system, and not against the U.S. as a country, or Europe, or Ukraine as a country.”
“It is a war against (those) principles,” he added. “It is a war of ideas.”
Dugin also claimed Russia was seeking to provide other nations with their right to “self-determination.”
“We are fighting against the liberal world order, and in order to provide other nations and cultures with the right to self-determination, rather than being puppets of the Americans,” he said.
According to Dugin, had former President Donald Trump remained in power, the current scenario would never have unfolded.
“If Trump were still in power, all of this would not have happened,” he said. “He was realistic and refrained from exerting pressure on us. He did not care too much about Ukraine or the spread of NATO.”
Asked about President Vladimir Putin’s role, Dugin stated that the Russian president is somewhat “in the position of monarch or an emperor,” noting that Qatar — where al-Jazeera is based — which has a monarchy, “is doing very well” and “there is nothing wrong with that.”
“Putin is a natural monarch, not because he wants to be a monarch, but because we want him to be one,” he said.
“This is a popular monarchy by popular demand,” he added. “We want him to be a monarch and to become the embodiment of the Russian state and spirit.”
Ruling out the possibility of defeat “because that cannot happen,” and if it did then “there will be no Putin, no Russia, and no world, as far as I know, because we have put everything on the line,” the nationalist Russian philosopher warned of the importance of listening to Putin regarding a possible nuclear attack.
“If NATO intervenes, the retaliation will be in kind,” he said. “Therefore, the decision to continue with the operation to our last breath has been taken, and we have no choice but to win.”
Asked to clarify if he was warning that a Russian loss would result in Russian nuclear strikes, a subsequent nuclear holocaust and the world’s end, Dugin confirmed that that is “exactly” the case.
“These are the words of our president,” he said. “Without Russia, there is no humanity.”
“If you want to live on this Earth, you should accept Russia as an independent sovereign superpower.””
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