As we approach the third anniversary of Russia’s attack on Ukraine, as the world braces for Trump’s inauguration, as the military and diplomatic balance threatens to shift against Ukraine there has been a noticeable shift amongst Western commentators on the economic front.
Being Russian and actually having recently been to Russia - my best analysis is that Russia and perception of Russia in the West is currently undergoing a mini version of what the West is undergoing itself and its perception of Ukraine conflict. Let me unpack. I firmly believe that Western actions in Ukraine, and its perception of Ukraine, are determined by internal Western matters, i.e. an interplay between Western economy, Western lobbying groups, and Western problems. Ukraine and perception of Ukraine is important only insofar they affect the above.
Now, current set up in Russia is such that a large portion of the economy and lobby groups attached to it are getting killed by high interest rates. It is a very real problem, obviously, but as the author points out, it's manageable. However, this situation is unbearable for those lobby groups, and they create an artificial reality/narrative, exactly the same way their counterparts on the West do with regards to Ukraine. And since this narrative plugs in seamlesly into what those Western counterparts NEED to hear in order to continue pushing their interests in Ukraine, it gets lifted wholesale out of Russian discourse and presented as something real in the Western discourse. It is not real, it is simulacrum squared, reality's cousin twice removed,
It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.
Naturally, the same happens on the Russian side, when bits and pieces of Western narratives, created for internal purposes, fit current interests of this or that power group with control over some sort of media.
Sorry for the long winded post, I didn't intend for it to read as a piece out of a French philopher text.
Our foreign policy vis a vis Russia is characterized by a lack of understanding as to the size, wealth, and national character of Russia. (In that order.) This failure has been firmly entrenched here for over one hundred years. In our common American government perception Russia is a nasty little central European country like Hungary or Bulgaria. Decade after decade we miss he point. We got into Afghanistan because we failed to realize that when Russia met defeat there it was not due to any inherent weakness on Russia's part. Size does matter. We simply and mistakenly thought, "We can do better."
"What we need to know is how Russia’s political economy is actually put together." Why face reality when the western created narrative help kick the can down the road. Otherwise, the bilateral trade with China has reached almost 250 billion dollars per year (worth of, because likely majority was not done in USD...)
This is so sensible, and a welcome corrective to the usual "Russia Fail!" (not unlike the endless stream of "China Fail!") narratives continuously flogged in the Western corporate media organs.
Too many observers fail to inquire the extent to which Russia actually relies upon external resources in order to prosecute its military operations in Ukraine -- if that number is low (and I suspect that it is, given the quantity of raw resources and native manufacturing available within the country itself), then the sanctions aren't going to have anywhere near the effect advertised. Perhaps the most idiotic trope constantly repeated is that Russian fossil fuel export profits "pay for" the war -- this can ONLY be true the extent to which Russia relies upon imports for military purposes, but this necessary connection is always missing in typical Western narrative construction. Most of it isn't analysis -- it's wishcasting ...
Thanks for the excellent comment on Russia´s war economy,and the distinction between analysis and propaganda intended to undermine confidence.Another clear case is the "China peak" theory.
Is there a comparison to be made between Russia today and Germany of the mid to late 30’s. From a lay persons perspective, both took advantage of low domestic demand after a period of austerity and used large amounts of credit to fuel rapid growth in military industries - all of which seems unsustainable in the long run. Should we expect history to rhyme in the future?
Finally, after the speculations, ifs ands and buts, the real question:
'...if we actually want to get a realistic assessment of Russia’s long-run power potential, images like a “House of Cards” are an indulgence. What we need to know is how Russia’s political economy is actually put together.
Great piece Adam. I wish some of these authors predicting doom and gloom would take a step back and reflect on whether their article might as well have been written in 2022 if you were to solely look at their predictions. A financial crisis spawned by the credit bubble bursting is an especially hilarious fantasy, considering that Nabiulina and the CBR spent half of the 2010's cleaning up system from unhealthy financial structures. They can't do much about an inflation fueled by wage growth in the face of a deficit of lobby supply, at least short of killing the economy outright with hikes, but betting against them being able to manage credit-based systemic risk is certainly a take, given the CBR's recent history.
As you rightly point out the growth during war is largely growth that could have taken place earlier if not for the simultaneous insistence on austerity and sanctionsproofing the economy in the 2010's. A much more interesting counterfactual is actually that of the impressive pre-war growth rate of 2021; sure, high commodity prices are the primary culprit, but how much growth did Russia lose out on by refusing to let loose the financial bazooka for a decade? If everybody was getting much richer, much faster, could the war have been averted? It might sound dumb or naive, but suppose both Russia and Europe let go of the economic malaise that is ordoliberalism in early 2016, rather than waiting until the Covid shock, would the path to war have been different? We'll never know, but I think so. The incentives for not letting relations hit rock-bottom pre-war would simply be different.
"as the military and diplomatic balance threatens to shift against Ukraine " Threatens to shift? Good grief. As the Russians roll over Ukraine along a 1500 km front, completely destroy electricity supplies, completely dominate air space; as thousands of Ukrainians desert . . .And how is the Ukranian economy doing?
Russia’s oil proceeds to the state budget increased by almost a third last year to the highest since at least 2018, spurred by higher crude prices as the nation adapted to international sanctions.
I have no idea what the state of Russia's economy is today. For that matter, can anyone predict when the next 2008 will happen in the U.S. or the next 1929? I do know that there was a collapse of the USSR, which I don't think was really expected. So could Russia be a house of cards? Absolutely. But is it a useful discussion? IMHO, all of this speculation seems pointless. I would suggest that the underlying question is whether 'we' (The West) see Ukraine's defense as a chance to avoid WWIII in the sense that many say a stronger response to Germany's pre-WWII move on Czechoslovakia might have averted WWII. If so, then you fight like hell because losing isn't an option you want to live with. It's certainly not an option Ukraine can live with. If the West collectively decides it doesn't believe that, then Russia wins. And only time will tell whether that matters to anyone outside of Ukraine.
The USSR collapse is sui generis it's occurance and unlikely to reoccur. It's was a collapse as much from restrained and placid leadership that put in has made his career out of being nothing like. A coup or assad sequence revolt and violent suppression causing a rebellion are much more probable.
Maybe so. I don't presume to know when a conflict is the next Vietnam or Afghanistan and when it is a replay of the 1930s. But I also don't assume that it won't ever be...
Another variable to consider is the gradual draw down of the massive stock of Soviet-era equipment. YouTuber Perun makes the case that Russia will run into a few different limits in 2025 as these supplies run dry. He argues that Russia cannot produce equipment at a rate that matches its attrition in Ukraine. Nonetheless, even limited efforts to maintain the war effort will add to the strain on labour and investment in 2025.
'The upshot is that Kennedy's report is correct in the essentials, but its alarmist tone is overdone in my book if you dig into the details. Kennedy’s big takeaway is that to solve all these problems, Putin needs to stop the war and get some sanctions relief and so Ukraine actually has more leverage in the mooted talks than first appears.'
And a bit longer essay last week:
Putin 25 years in office - has he been a boon or a bane for Russia?
There seems to be two groups that are talking at somewhat at cross purposes. Those that emphasise the strength of the economy are looking at the significant reserves of economic power Russia still has, if it can tap them. The other group is emphasising that these reserves are going to be needed v soon. These reserves are that the high rates & labour shortages for the non-military economy will soon crush parts of it, freeing up labour and capital for the defence industry, and that taxes & inflation on the masses will go up, reducing their living standards and outweighing the 'war Keynesianism'.
Stephen Kotkin for eg would say that as Putin has the guns, he can push all this through but he's clearly shown reluctance, like with mobilisation, and the West would be smart to ensure both of these things are forced on Putin, to see if the Russian public & elite is prepared to suffer further for his genocidal war of choice.
Being Russian and actually having recently been to Russia - my best analysis is that Russia and perception of Russia in the West is currently undergoing a mini version of what the West is undergoing itself and its perception of Ukraine conflict. Let me unpack. I firmly believe that Western actions in Ukraine, and its perception of Ukraine, are determined by internal Western matters, i.e. an interplay between Western economy, Western lobbying groups, and Western problems. Ukraine and perception of Ukraine is important only insofar they affect the above.
Now, current set up in Russia is such that a large portion of the economy and lobby groups attached to it are getting killed by high interest rates. It is a very real problem, obviously, but as the author points out, it's manageable. However, this situation is unbearable for those lobby groups, and they create an artificial reality/narrative, exactly the same way their counterparts on the West do with regards to Ukraine. And since this narrative plugs in seamlesly into what those Western counterparts NEED to hear in order to continue pushing their interests in Ukraine, it gets lifted wholesale out of Russian discourse and presented as something real in the Western discourse. It is not real, it is simulacrum squared, reality's cousin twice removed,
It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.
Naturally, the same happens on the Russian side, when bits and pieces of Western narratives, created for internal purposes, fit current interests of this or that power group with control over some sort of media.
Sorry for the long winded post, I didn't intend for it to read as a piece out of a French philopher text.
Our foreign policy vis a vis Russia is characterized by a lack of understanding as to the size, wealth, and national character of Russia. (In that order.) This failure has been firmly entrenched here for over one hundred years. In our common American government perception Russia is a nasty little central European country like Hungary or Bulgaria. Decade after decade we miss he point. We got into Afghanistan because we failed to realize that when Russia met defeat there it was not due to any inherent weakness on Russia's part. Size does matter. We simply and mistakenly thought, "We can do better."
"What we need to know is how Russia’s political economy is actually put together." Why face reality when the western created narrative help kick the can down the road. Otherwise, the bilateral trade with China has reached almost 250 billion dollars per year (worth of, because likely majority was not done in USD...)
This is so sensible, and a welcome corrective to the usual "Russia Fail!" (not unlike the endless stream of "China Fail!") narratives continuously flogged in the Western corporate media organs.
Too many observers fail to inquire the extent to which Russia actually relies upon external resources in order to prosecute its military operations in Ukraine -- if that number is low (and I suspect that it is, given the quantity of raw resources and native manufacturing available within the country itself), then the sanctions aren't going to have anywhere near the effect advertised. Perhaps the most idiotic trope constantly repeated is that Russian fossil fuel export profits "pay for" the war -- this can ONLY be true the extent to which Russia relies upon imports for military purposes, but this necessary connection is always missing in typical Western narrative construction. Most of it isn't analysis -- it's wishcasting ...
Thanks for the excellent comment on Russia´s war economy,and the distinction between analysis and propaganda intended to undermine confidence.Another clear case is the "China peak" theory.
Eugenio Bregolat
Is there a comparison to be made between Russia today and Germany of the mid to late 30’s. From a lay persons perspective, both took advantage of low domestic demand after a period of austerity and used large amounts of credit to fuel rapid growth in military industries - all of which seems unsustainable in the long run. Should we expect history to rhyme in the future?
No.
Finally, after the speculations, ifs ands and buts, the real question:
'...if we actually want to get a realistic assessment of Russia’s long-run power potential, images like a “House of Cards” are an indulgence. What we need to know is how Russia’s political economy is actually put together.
Great piece Adam. I wish some of these authors predicting doom and gloom would take a step back and reflect on whether their article might as well have been written in 2022 if you were to solely look at their predictions. A financial crisis spawned by the credit bubble bursting is an especially hilarious fantasy, considering that Nabiulina and the CBR spent half of the 2010's cleaning up system from unhealthy financial structures. They can't do much about an inflation fueled by wage growth in the face of a deficit of lobby supply, at least short of killing the economy outright with hikes, but betting against them being able to manage credit-based systemic risk is certainly a take, given the CBR's recent history.
As you rightly point out the growth during war is largely growth that could have taken place earlier if not for the simultaneous insistence on austerity and sanctionsproofing the economy in the 2010's. A much more interesting counterfactual is actually that of the impressive pre-war growth rate of 2021; sure, high commodity prices are the primary culprit, but how much growth did Russia lose out on by refusing to let loose the financial bazooka for a decade? If everybody was getting much richer, much faster, could the war have been averted? It might sound dumb or naive, but suppose both Russia and Europe let go of the economic malaise that is ordoliberalism in early 2016, rather than waiting until the Covid shock, would the path to war have been different? We'll never know, but I think so. The incentives for not letting relations hit rock-bottom pre-war would simply be different.
"as the military and diplomatic balance threatens to shift against Ukraine " Threatens to shift? Good grief. As the Russians roll over Ukraine along a 1500 km front, completely destroy electricity supplies, completely dominate air space; as thousands of Ukrainians desert . . .And how is the Ukranian economy doing?
A touch melodramatic.
Russia’s oil proceeds to the state budget increased by almost a third last year to the highest since at least 2018, spurred by higher crude prices as the nation adapted to international sanctions.
I have no idea what the state of Russia's economy is today. For that matter, can anyone predict when the next 2008 will happen in the U.S. or the next 1929? I do know that there was a collapse of the USSR, which I don't think was really expected. So could Russia be a house of cards? Absolutely. But is it a useful discussion? IMHO, all of this speculation seems pointless. I would suggest that the underlying question is whether 'we' (The West) see Ukraine's defense as a chance to avoid WWIII in the sense that many say a stronger response to Germany's pre-WWII move on Czechoslovakia might have averted WWII. If so, then you fight like hell because losing isn't an option you want to live with. It's certainly not an option Ukraine can live with. If the West collectively decides it doesn't believe that, then Russia wins. And only time will tell whether that matters to anyone outside of Ukraine.
The USSR collapse is sui generis it's occurance and unlikely to reoccur. It's was a collapse as much from restrained and placid leadership that put in has made his career out of being nothing like. A coup or assad sequence revolt and violent suppression causing a rebellion are much more probable.
As long as "the West" imagines every conflict is a replay of 1930s Europe it will continue to blunder around from one idiocy to the next.
Maybe so. I don't presume to know when a conflict is the next Vietnam or Afghanistan and when it is a replay of the 1930s. But I also don't assume that it won't ever be...
Another variable to consider is the gradual draw down of the massive stock of Soviet-era equipment. YouTuber Perun makes the case that Russia will run into a few different limits in 2025 as these supplies run dry. He argues that Russia cannot produce equipment at a rate that matches its attrition in Ukraine. Nonetheless, even limited efforts to maintain the war effort will add to the strain on labour and investment in 2025.
https://youtu.be/TzR8BacYS6U?si=MW3Ktk13TmLUbP1Q
Ben Aris today also writes on the report and the RU economy:
Russia’s looming credit crisis
https://bneeditor.substack.com/p/russias-looming-credit-crisis
'The upshot is that Kennedy's report is correct in the essentials, but its alarmist tone is overdone in my book if you dig into the details. Kennedy’s big takeaway is that to solve all these problems, Putin needs to stop the war and get some sanctions relief and so Ukraine actually has more leverage in the mooted talks than first appears.'
And a bit longer essay last week:
Putin 25 years in office - has he been a boon or a bane for Russia?
https://bneeditor.substack.com/p/putin-25-years-in-office-has-he-been
There seems to be two groups that are talking at somewhat at cross purposes. Those that emphasise the strength of the economy are looking at the significant reserves of economic power Russia still has, if it can tap them. The other group is emphasising that these reserves are going to be needed v soon. These reserves are that the high rates & labour shortages for the non-military economy will soon crush parts of it, freeing up labour and capital for the defence industry, and that taxes & inflation on the masses will go up, reducing their living standards and outweighing the 'war Keynesianism'.
Stephen Kotkin for eg would say that as Putin has the guns, he can push all this through but he's clearly shown reluctance, like with mobilisation, and the West would be smart to ensure both of these things are forced on Putin, to see if the Russian public & elite is prepared to suffer further for his genocidal war of choice.