Things will be worse for Russians

In my piece last week on how bad things could get, I gave short shrift to the situation inside Russia. I noted only that Putin is using his war against Ukraine as an opportunity to complete Moscow’s transition to autocracy. But there will be other consequences, especially on the economy. Branko Milanovic takes a look at these in two well-crafted posts, one on the short-term and one on the long-term. I recommend reading him, but I’ll offer here a layman’s account of what I think he says.

The short term is bad

Branko uses past economic crises in Russia, especially in the 1990s, to come to a rough guess at how sanctions might affect growth:

One can thus, very roughly, put the expected decline in 2022-23 at high single digits, or low double digits: it is not going to be as sharp as in 1992, nor as (relatively) mild as in 1998.

He also guesstimates that unemployment could go back up to 7-8%, with inflation rising sharply due to the ruble’s fall. That’s pretty bad, especially for lower incomes. He judges government policy responses so far “very weak,” because there are no good choices to be made.

Bottom line:

The coming years of Putin’s rule will thus look very much like the worst years of Yeltsin’s rule. 

https://braveneweurope.com/branko-milanovic-russias-economic-prospects-the-short-term

The long term is worse

Next Branko looks at the long term, assuming that sanctions will remain in place for decades, because that is what American sanctions generally do. He identifies two possible strategies for Russia: import substitution and a pivot to Asia. But Russia lacks the industrial base and growing labor supply required for import substitution as well as the infrastructure and investment funds required for a pivot to Asia.

Bottom line:

…the future of the Eurasian continent looks very much like its past: the maritime areas along the Atlantic and the Pacific coasts will be fairly rich, much better-off than the significant large continental areas in the middle. Th[is] opens up the question of how politically viable will be such an uneven distribution of economic activity: will migrations, or political reconfigurations “solve” such disequilibria?

https://braveneweurope.com/branko-milanovic-long-term-difficulties-of-import-substitution-and-delocalization

It’s not just the economy

Let me add a few words about the broader social implications of this dire scenario. Putin isn’t going to allow freedom of expression if most of it will be criticism of him. So he has already taken charge of virtually all the media and made criticism of the war in Ukraine (even calling it a war) illegal. Domestic oppression is the necessary counterpart to a war that most Russians did not expect and don’t want.

In addition, Western sanctions will create money-making opportunities for evading them. The miscreants will often be people involved in the country’s secret services and the managers of state-controlled businesses. Putin has surrounded himself with former colleagues from the KGB, the security service where he started his career. His chosen oligarchs are already strong.

The West will try to damage the interests of the KGBers and oligarchs with personal sanctions on their finances, foreign property, and travel. But the smartest and luckiest of them will wriggle free. A society already plagued with organized crime will find itself firmly in the grip of whoever can help Putin evade Western sanctions.

The West is not immune

A Russian Mafia state does nothing to help the cause of democracy and freedom. You can hope Russians will rebel and chase out Putin and his cronies, but hope is not a policy. Nor can anyone in the West be sure that some Europeans and Americans won’t help Putin’s corrupt governance, as some did before the Ukraine invasion. Germany didn’t wander blindly into the Nordstream 2 natural gas pipeline. German politicians, including former Chancellor Schroeder, guided Berlin there.

In the US, the Ukraine invasion has frightened most Republicans out of their romance with Putin. But some still spout his praise, especially lead talker Tucker Carlson and lead presidential candidate Donald Trump:

They admire him as a smart and decisive autocrat. They care not about corruption. Ukrainian President Zelensky is fortunate indeed that the president who tried to withhold weapons to extort dirt on candidate Biden is no longer in office.

In addition, the war is already roiling Western economies, hiking the price of oil, and creating vast uncertainty for European and American trade and investment. What happens in Moscow doesn’t stay in Moscow. Things will be worse for the Russians, but the West is not immune.