{"id":28931,"date":"2022-03-10T04:16:00","date_gmt":"2022-03-10T04:16:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=28931"},"modified":"2022-03-11T15:56:10","modified_gmt":"2022-03-11T15:56:10","slug":"the-russian-economy-is-headed-for-collapse","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/the-russian-economy-is-headed-for-collapse\/","title":{"rendered":"The Russian economy is headed for collapse"},"content":{"rendered":"\n

Eric Werker<\/a>, Simon Fraser University<\/a><\/em><\/p>\n\n\n\n

To justify invading Ukraine, Vladimir Putin has painted Russia<\/a> as a hegemonic power re-asserting its rightful claim to imperial greatness. Yet even before the invasion, Russia\u2019s economic capabilities were hardly capable of sustaining an empire.<\/p>\n\n\n\n

Now, with foreign sanctions presiding over a plummeting Russian ruble<\/a>, Russia\u2019s economic standing has fallen further still. If measured at today\u2019s exchange rates, Russia\u2019s economy would be the 22nd largest in the world, with a gross domestic product (GDP)<\/a> \u2014 not much larger than the state of Ohio\u2019s.<\/p>\n\n\n\n

\"Graph
With foreign sanctions presiding over a plummeting Russian ruble, Russia\u2019s economic standing continues to fall. Author provided<\/figcaption><\/figure>\n\n\n\n

That\u2019s a far cry from the past, when Russia was a true world power. According to data assembled by the late economic historian Angus Maddison<\/a>, 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\u2019s second largest after America\u2019s.<\/p>\n\n\n\n

Putin\u2019s quest for greatness<\/h2>\n\n\n\n

Putin was elected president following the chaotic disintegration of the Soviet Union<\/a> and the 1998 financial crisis in which Russia defaulted on its debt and abandoned its fixed exchange rate<\/a>.<\/p>\n\n\n\n

At the time, Russia\u2019s market-value GDP had bottomed out at US$210 billion, making it the world\u2019s 24th largest economy<\/a>, behind Austria. (All contemporary GDP figures are from the October 2021 World Economic Outlook<\/a> published by the International Monetary Fund.)<\/p>\n\n\n\n

Putin established an informal social contract<\/a> with the Russian people based on his ability to deliver strong economic growth. Under Putin\u2019s rule, and buoyed by a commodity price supercycle<\/a> that would stretch well into the 21st century, Russia\u2019s GDP in market exchange rates rose tenfold, returning Russia to global relevance and providing purchasing power to its middle class.<\/p>\n\n\n\n

However, Russia researchers argued<\/a> that as Russia\u2019s economy began to flag, from a peak in 2013, Putin sought new legitimacy to govern through foreign policy actions to re-establish Russia\u2019s status as a \u201cgreat power<\/a>.\u201d These efforts were epitomized by the Crimean annexation of 2014.<\/p>\n\n\n\n

Russia\u2019s invasion of Ukraine, against the backdrop of Russia\u2019s market-rate GDP losing a third of its value between 2013 and 2020, represents a doubling down of Putin\u2019s strategy to seek legitimacy from \u201cgreat power status,\u201d rather than economic performance.<\/p>\n\n\n\n

Yet the West\u2019s unrelenting financial and economic sanctions have only accelerated Russia\u2019s economic downfall<\/a>.<\/p>\n\n\n\n

\"People
Ordinary Russians face the prospect of higher prices and crimped foreign travel as western sanctions have sent the ruble plummeting, leading people to line up at banks and ATMs on Feb. 25 in a country that has seen more than one currency disaster in the post-Soviet era. (AP Photo\/Dmitri Lovetsky)<\/figcaption><\/figure>\n\n\n\n

Russian stocks traded on the U.K. market have fallen by 98 per cent, wiping out US$572 billion<\/a> of wealth, while stocks on Russian exchanges remain suspended.<\/p>\n\n\n\n

The Russian currency has fallen to 155 rubles per dollar \u2014 a drop of more than 50 per cent<\/a> from 75 rubles per U.S. dollar before the invasion. If not for recent captial controls<\/a> and the rising prices of commodities \u2014 brought about by the sanctions themselves \u2014 that make up the majority of Russia\u2019s exports, it would fall even further.<\/p>\n\n\n\n

Domino effect<\/h2>\n\n\n\n

A country\u2019s market-rate GDP<\/a> 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 \u2014 and economic power \u2014 the market rate is what matters.<\/p>\n\n\n\n

Russia\u2019s market-rate GDP in 2021 was US$1.65 trillion<\/a>, enough to make it the world\u2019s 11th largest economy, behind South Korea. If we crudely convert Russia\u2019s 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<\/a>, the rankings change and Russia slides to 22nd place, falling between Taiwan and Poland.<\/p>\n\n\n\n

This drop is likely an underestimate. While a falling ruble lowers Russia\u2019s exchange rate of its GDP to U.S. dollars, its weakening economy<\/a> lowers its ruble GDP directly. And Russia\u2019s isolation will erode its economic competitiveness<\/a>, widening the economic gap further in the medium term.<\/p>\n\n\n\n

Ukrainians confronted with the oncoming Russian army were wise to Putin\u2019s chimeric strategy. \u201cDon\u2019t you have problems in your country to solve? Are you all rich there, as in the Emirates?\u201d one elderly man heckled Russian soldiers<\/a>.<\/p>\n\n\n\n

Putin\u2019s next move<\/h2>\n\n\n\n

Robert F. Kennedy famously observed<\/a> that GDP failed to account for many things that we care about \u2014 like health and education. The fall in Russia\u2019s market-rate GDP cannot begin to describe the human tragedy playing out in both Ukraine and Russia.<\/p>\n\n\n\n

But what these figures do make clear is that Putin\u2019s claim to legitimacy through economic performance is all but destroyed. With \u201cgreat power status\u201d tied closely to economic power, Putin\u2019s back-door source of legitimacy from stirring up nationalist pride now seems closed as well.<\/p>\n\n\n\n

Putin may have led Russia from one \u201cTimes of Troubles<\/a>,\u201d but he has delivered it to another one. That\u2019s cold comfort to the Ukrainians, and indeed to the rest of the world, who are wondering Putin\u2019s next move.<\/p>\n\n\n\n

Eric Werker<\/a>, William Saywell Professor of International Business, Simon Fraser University<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Eric Werker, Simon Fraser University 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\u2019s economic capabilities were hardly capable of sustaining an empire. Now, with foreign sanctions presiding over a plummeting Russian ruble, Russia\u2019s economic standing has fallen […]<\/p>\n","protected":false},"author":44,"featured_media":28932,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[4473,224,11477,11478,234,949,11411],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/28931"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=28931"}],"version-history":[{"count":2,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/28931\/revisions"}],"predecessor-version":[{"id":28940,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/28931\/revisions\/28940"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/28932"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=28931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=28931"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=28931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}