No Need To Fear Russia. The Bear Is Broke

For all Vladimir Putin’s military adventures, the Russian economy is now shrinking — far too small to pose a real threat to the West

Tim Congdon

Strongman or poseur? Despite his military adventures in Crimea and Ukraine, Putin is constrained by his country’s economic weakness (©MARIA JONER/CC-BY-SA-4.0)

Twisting a quotation variously attributed to Talleyrand, Metternich and Churchill, Vladimir Putin opined in 2002 that Russia is “never so strong as it wants to be and never so weak as it is thought to be”. Sure enough, Russia has probably never been as strong as it wants to be. Geopolitical over-ambition may be a permanent curse on a nation which lies straddled between Europe and Asia, and does not know to which continent it belongs. But, whatever the situation in 2002, there is no truth in the claim that today’s Russia is more powerful than the standard media representation. On all the key metrics except one, Russia is far weaker than most people realise.

The size of its economy is fundamental in assessing any country’s global importance. The ability to create goods and services is correlated with the ability to export those goods and services, and hence to pay for imports. The ability to spend money on imports then matters to suppliers in every country and to all the world’s citizens. Big nations with open markets can impress and influence small nations, simply because prosperity is inter-linked and mutual. Further, a country with a large national output can readily afford the expenditures associated with both soft and hard power. It can spread a favourable image of itself and its culture, disburse aid and support international organisations, and yet at the same time build up its military strength. Ultimately, the dominance of “the West” (meaning Western Europe and North America, with some Asian adjuncts) in the last two centuries has been based on economics. The West has been home to only a fraction of the world’s population, but these have been by far the richest people. Indeed, so high has been the typical income per head that the combined output of Western nations has been well over half the global total for most of the time since 1800.

Is Russia a great power in economic terms? One method of comparing national outputs is to calculate them at current prices and exchange rates. It is certainly relevant to the ability of a nation to import, to invest in soft power and to cover military expenditures in foreign currencies. World Bank data show that in 2015 Russia’s gross domestic product on this basis was $1,326 billion, which made it the 13th largest in the world. It was therefore in the select group of 15 nations that had a GDP above $1,000 billion.

But a glance at Chart One shows that Russia is a dwarf compared with the world’s only two economic superpowers, the US and China. The US’s output is almost 13 times Russia’s while China’s is more than eight times as large. Evidently, on the most familiar and basic criterion of international significance — national output expressed in dollars — Russia is not among the top nations. It is at best a medium-weight power, jostling for position with countries such as South Korea and Mexico — hardly major players in 20th-century global diplomacy. Let it immediately be conceded that the numbers in Chart One, despite having the World Bank as their source, are not conclusive.

Measuring output at current prices and exchange rates suffers from several flaws. It can be misleading, particularly if judgments are being made about relative living standards. Haircuts and taxi journeys are much the same all over the world, but their value in countries with limited export capability is recorded at a much lower figure than in countries that are export champions. A further and well-recognised weakness is that exchange rates can move erratically in response to temporary and reversible changes in market conditions for a nation’s exports and imports. Russia suffers from this difficulty at present, because it is a major energy exporter, and the prices of oil and gas are depressed.

An alternative approach is to calculate national outputs at so-called “purchasing power parity”. The idea is easy enough in principle. The average Russian citizen may have a much lower income, when translated into dollars, than the average American, and could not on that income pay at all for a taxi journey or afford a decent haircut in the US. But — because prices in roubles in Russia are much less — he can comfortably afford the occasional taxi and a smart haircut in his own country. As it happens, both the World Bank and the International Monetary Fund conduct research into these awkward measurement issues. Indeed, the IMF regularly publishes data on its members’ share of world output, where output is measured (or perhaps one should say guesstimated) on a purchasing-power-parity basis.

Forecast numbers for 2016 are available, and are incorporated in Chart Two. With PPP-adjusted data, 17 nations have output that exceeds 1 per cent of the global total. The nations do not overlap precisely in our two charts, which shows how difficult the subject can be. A salient message is that Russia is much more important with this different method of calculation. Whereas it accounts for about 1.75 per cent of world output on a current-price-and-exchange-rate basis, the figure is 3 per cent on a PPP basis. It ranks 13th in the world on the former approach, but sixth on the latter.

But does that make it a great power? Can a particular state swagger around and puff itself up relative to the rest of the world if the rest of the world produces more than 30 times as much as it does? And is not this sort of bravura rather odd, when we remember that its relative economic position is flattered by a generous estimate of the value of domestic service production, including such items as haircuts and taxi journeys? Of course, there is ample scope for debate about the merits of the various methods of measuring different nations’ income and output. But it should be emphasised that, on the most favourable possible interpretation, Russia in the early 21st century is no more than a medium-weight power in economic terms.

In spite of that, Russia is described in the press as though it were still the giant that in 1945 could justify its status as one of the five permanent members of the Security Council at the United Nations. The cover of the May/June issue of Foreign Affairs, one of the world’s most august and influential publications on international relations, averred that Putin’s Russia was “down, but not out”. Seven of the 15 articles in that issue were devoted to discussing Russia’s geopolitical positioning. Would Foreign Affairs’s editorial priorities allow it to commit half an issue to the geopolitical positioning of Brazil and Indonesia, or even of the UK and France, nations which have at least as much economic clout as Russia? At a less sublime level, the Sun carried a story on September 7 which judged that, because of their military expenditure, “Russia and China could soon rival the US in terms of power and prestige”. The newspaper’s verdicts on major geopolitical questions may prompt chuckles rather than cause concern, but a trawl of many British newspapers in recent months would identify statements that are similar in drift and implication, although not so direct.

Why is there all this guff? The pathetic truth is that the media have started to worry about Russia, and to talk about it in such a hyperbolic and overstated way, since it embarked on military adventurism. The invasion of the Crimea in late February 2014 was both unexpected and delinquent. In the Atlantic Charter of 1941 the US and Britain agreed that they would renounce the use of force in their own territorial disputes; they would instead always seek authorisation from a newly-constituted future body, the United Nations, if such disputes arose. This notion — that force is unacceptable without UN endorsement — has been crucial to world order for over 70 years. But, when its stooge in Kiev was removed by democratic elections, Russia ignored the niceties and just walked in. Fighting between Ukraine and Novorussia (as the Donetsk People’s Republic and the Lohansk People’s Republic sometimes call themselves) is much reduced, but tensions persist. No one doubts that Russia continues to back Novorussia and will do so with more weapons, if provoked. Over and above that, in autumn 2015, Russia started to back President Assad in the Syrian civil war. It fired 26 cruise missiles in early October — the first time it had used these weapons — supposedly aimed at terrorist targets. These pyrotechnics surprised and impressed many defence pundits.

It is only because of the use of force in Ukraine and Syria that Russia is again being talked about as a great power. Paradoxically, the period since early 2014 has been catastrophic for the Russian economy. In the last two and a half years it has been hit by the slump in oil and gas prices, the collapse in the rouble, and extensive damage to its international trade and financial flows due to the sanctions imposed after the Crimea invasion. Whereas GDP in current prices and exchange rates was at an all-time peak of over $2,200 billion in 2013, it fell in 2014, and crashed in 2015 and early 2016. Indeed, the 2016 number could be even lower than in 2015, with the IMF projecting $1,267 billion, little more than 30 per cent of Germany’s figure on the same basis.

The Russia-is-a-great-power verbiage is plausible merely because a remarkably large number of commentators become agitated and overawed if any nation resorts to force. There seems to be a tacit (if very naive) assumption that if one country boasts about its weapons and activates them, and others do not, the active country is more assertive and hence more powerful, even if the other countries are not involved in conflict at all. Unfortunately, far too many journalists are swayed by military fireworks and glorify aggressors regardless of their actual strength, economic, diplomatic, military or whatever. (The same pattern was found in early 1991 ahead of the first Gulf War and Operation Desert Storm. Preposterous exaggerations of Iraq’s military capability appeared in the international media and arose, so it seems, simply because it had been a vicious bully to a small neighbour.)

Looked at objectively, Russian intervention in the Crimea and Ukraine has been a disaster for both Russia itself and the areas it has annexed or supported. As the Novorussian republics have no international recognition, their formerly close trade ties with the rest of Ukraine have not been replaced by other commercial links. Living standards have slumped, causing emigration — reportedly of as much as two million Russian-speaking people — to Russia itself. In the main Russian cities the influx has created a refugee problem, which coincides with the severe economic downturn and heavy job losses. The budgetary cost of the refugee population, as well as of expensive aid to Crimea and Novorussia, has come just as tax revenues from the energy sector are being squeezed.

Meanwhile Russia’s alignment with Assad in the Syrian conflict has resulted in barbarism, including the bombing of innocent women and children, which has infuriated world opinion. Again the sequel to its actions cannot, logically, be in Russia’s interests over coming decades. Aleppo may be flattened by Russian bombs and Assad may “win” in some sense. But the Alawites are less than 20 per cent of Syria’s population, while an Alawite-led Syria will always be neighboured by more powerful Sunni countries that are potential enemies (and also of course by Israel).

Nevertheless, Foreign Affairs commissions expert articles to speculate on Russia’s next move, and the Sun warns that Russia is about to overtake the US in power and prestige. This is bizarre. It seems that the more suicidal are Russia’s militarism and assertiveness, and the greater the damage that these do to its long-run prosperity, the more its fan club proclaims its immediate power, importance and success. In the case of Vladimir Putin, the gap between hype and reality has reached absurd levels. He is said to have a “strategy” which results from “deep thinking”, with Russia outsmarting the West. He is characterised as “wily”, “crafty” and “disciplined”, but above all as “a strongman”. Donald Trump’s enthusiasm for Putin was indeed one theme in his presidential campaign and, amazingly, it did not seem to do him much harm.

But, if the notion of “strategy” means anything, it refers to plans that unfold in connected stages towards a desirable eventual aim, which may be a long way ahead. Is it not obvious that Putin has no strategy in this sense whatsoever? Roughly speaking, the countries in the North Atlantic Treaty Organization have a combined national output that is at least 15 times (and perhaps 30 times) Russia’s. If Russia were to spend a quarter of its GDP on weapons, the Nato members would match that if they set aside 1.5 per cent of GDP for the same purpose. A fair generalisation is that, because of its economic inferiority, Russia can never outspend the West in weaponry. Since the numbers in this article are well-known in intelligence and diplomatic circles, what is Putin’s game? Similarly, the interventions in south-east Ukraine and Syria are barmy from any rational long-run standpoint. Russia has been marginalised and impoverished since 2013, and the marginalisation and impoverishment can only worsen if Putin and his gang continue to behave as they have done since February 2014.

Let it be admitted, as I said at the start, that there is one metric on which Russia is a great power. Because of history it is entitled to have nuclear weapons. Moreover, newspaper reports of Putin’s speeches tell us that it has a large and growing arsenal of the horrid things. In the 1980s President Reagan countered the danger in his proposals for “star wars”, the Strategic Defence Initiative, by which anti-missile missiles would destroy incoming nuclear ballistic weapons. The widespread verdict was that the then Soviet Union could not copy the US, because it lacked American technology and economic might. But what does that imply about Russia’s capability to threaten the West today? The Soviet Union no longer exists and Russia itself has fewer people and less resources. Are we seriously to believe that Russia, with a GDP around that of Mexico’s, can develop advanced missile defence systems comparable to Nato’s?

The question remains, “What is Putin’s game?”. One thesis is that he faces serious challenges from inside Russia, as opposition within the elite interacts with dwindling popularity in the nation at large. Putin’s true popularity is widely thought to be exaggerated in elections, which are rigged to some degree. In the past his circle tended to refer to the opinion surveys conducted by the allegedly independent Levada Centre to confirm Putin’s popularity. But a few weeks ago the Levada Centre was listed by the government as a “foreign agent”, after it had reported a fall in support for Putin’s party. Indeed, there have been reports that it has closed.

The surmise must be that the military adventurism since February 2014 has been for domestic consumption, to justify the enforcement of loyalty to an increasingly unpopular regime. Putin and his cronies may dream of the restoration of great power status, and the useful idiots in the Western media may be conned by Russia’s latest indulgence in Potemkin display and charade. But the key facts about Russia’s economic, diplomatic and military position are blatant. It is less strong than its rulers want it to be and much weaker than is commonly thought. 

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