Don't buy the hype: Russia's military is much weaker than Putin wants us to think

Discussion in 'Europe and Russia' started by DFI_COAS, Feb 24, 2016.

  1. DFI_COAS

    DFI_COAS Regular Member

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    Today is Defenders of the Fatherland Day in Russia, a public holiday and a celebration of all things military: triumphalism about the latest weapons, about operations in Syria, about the seizure of Crimea. Meanwhile, from the West we hear bloodcurdling warnings about the threat posed by the Kremlin’s war machine.

    Perceptions matter, though: Arguably being thought to be dangerous is actually a more powerful geopolitical asset than actually being it. So long as the West believes Russia could surge into Ukraine, escalate in Syria, or even roll into the Baltic states, it inevitably feels a greater pressure to make concessions and invite Vladimir Putin to the table.

    No one seems willing to question just how formidable Putin’s new military really is — and he seems to be counting on that.

    Ever since he first strode into the Kremlin, at the end of 1999, Vladimir Putin has been pouring money into his military. But he was trying to modernize a military that was in a truly catastrophic state after not just years but decades of underfunding and neglect. It had performed abysmally in the first Chechen War. Draft dodging, embezzlement, and corruption were rife.

    IN ORDER TO SEND NAVAL SQUADRONS FLYING THE FLAG ACROSS THE GLOBE, MOSCOW HAS TO ACCOMPANY THEM WITH TUGS FOR WHEN THEY BREAK DOWN

    Certainly Russia’s military has lifted itself up from this pitiful state, but it’s still very much a work in progress.

    Today, Russian military might as we know it is halfway between a fact and a psychological warfare operation.

    Russian special forces seized Crimea in February 2014 with respectable precision and discipline, and looked the part of cutting-edge soldiers. But they were among the very best Moscow can muster, and faced no opposition.

    Russia has been able to turn the tide in Syria — and the politics of that war — with its bombers. But in order to keep up the tempo of operations in Syria, Moscow has had to send its best pilots, and even buy old Turkish ships to supply them. Besides, bombing a disorganized rebel force with no meaningful air defense is hardly much of a test of the new Russian air force.

    In Ukraine, where Russia has had units deployed since summer 2014, Moscow has had to send improvised "battalion tactical groups" patched together from the best companies of soldiers across the country. After all, almost half of Russia’s soldiers are conscripts serving just a single year. Russian officers speaking off the record admit that between their training and their final demobilization month, the majority are only usable for maybe three months of that year.

    In order to send naval squadrons flying the flag across the globe, Moscow has not only to accompany them with tugs for when they break down, it then has to put the ships in dock for months after fixing them. And while Russia had great plans for new warships, the gas turbines most would have used came from Ukraine, and so it’s back to the drawing board.

    In other words, so far, we have seen the very best of the Russian military in the ideal conditions but not the rest of the force, or how they would cope facing a real threat. It is a little bit like assuming you can judge all of US education by visiting Harvard, or its health care from the Mayo Clinic.

    As a result, we mistake Russia’s still large but overstretched and only partly reformed armed forces for a terrifying threat to the West and to the global order as we know it — and we (over)react accordingly, giving the Kremlin far more leverage than it actually deserves.

    So why is the West so worried? In part, this is the usual human habit of overcompensation. After Crimea and Syria showed unexpected Russian capabilities, assessments, once more measured, swung to the other extreme.

    There are also vested interests at work. Industries talking up the Russian challenge as a way to justify more defense spending and new weapons systems. Front-line nations wanting to assert their pivotal role, their need for support. Military establishments, whose job is to think of worst-case scenarios and prepare accordingly.

    This is all understandable. From Tallinn in Estonia, for example, it is hard to be sanguine about Moscow’s capabilities and intent, when Russian commandos have kidnapped one of your security officers across the border, when Russian bombers buzz your airspace, and when Russia stages snap exercises clearly wargaming a potential invasion on your border.

    But the problem is that this also plays into Putin’s hands. His calculation appears to be that the scarier he seems, the more political traction he has.

    After all, on most objective grounds, Russia is hardly a great power. It has nuclear weapons, but ultimately these are of little practical value. Continued rearmament depends on money, and Russia’s economy is dependent on oil that is now selling for bargain-basement prices. Russia’s economy is the 13th largest in the world, just between Australia and Spain, about half the size of France’s, about a fourteenth of the USA’s. Even before the value of the ruble collapsed, Russian military spending was around one-seventh of America’s.

    What the Kremlin does have is the will to take risks, ignore the rules, and hope that the other side is more sensible, more cautious, more willing to make concessions than it is to call Russia's bluff.

    In the main, this has worked so far. But Putin’s bad-boy geopolitics and military postures are wasting assets already beginning to prove to be liabilities.

    The Russian defense budget as it stands is unsustainable. Already this year it has been cut by 5 percent, and a range of future projects are being quietly scaled down or pushed back.

    Even with the cut, the defense budget is bleeding the Kremlin of resources needed for economic diversification and the public services needed to pacify an increasingly disgruntled population.

    Russia has squandered its "soft power," its moral authority in the world, by which it once might have claimed to be an alternative to the Western-led order. It is now more unpopular than ever; only in Vietnam, Ghana, and China is it seen positively.

    Precisely because Putin has been so successful at talking up his unpredictability and aggressive capabilities, NATO is now more united than it has been for a long time; defense and security spending in Europe, long neglected, is now beginning to be addressed, due to rise on average by more than 8 percent this year.

    Of course, NATO needs to take the Russian challenge seriously. But that also means not giving Putin more credibility and authority than he deserves.

    WE ARE GIVING PUTIN GREATER GLOBAL CLOUT THAN THE LEADER OF A DECLINING, IMPOVERISHED, UNDERPOPULATED COUNTRY DESERVES

    Every time some new alarmist statement appears — such as when Chairman of the Joint Chiefs of Staff General Martin Dempsey said "Russia presents the greatest threat to [US] national security" — not only does Moscow’s propaganda machine get a new headline, but Putin must feel a certain satisfaction.

    Rightly or wrongly, as far as Putin is concerned, it is only fear that gets the West talking to him and paying attention to Russia’s interests. So far, we seem to be validating that view.

    By our panics and hyperbole, not only are we in effect encouraging him to consider more adventures, we are giving him greater global clout than the leader of a declining, impoverished, underpopulated country stuck between a prosperous Europe and a rising China deserves. At present, the West is Putin’s PR team.

    Were we to be more laid back, less inclined to jump every time he rattles his saber, in the short term it might infuriate him, encourage some new act of brinkmanship, although he has few safe options now and faces powerful states and alliances alert to his usual tricks. But in the long term, if he finds himself being treated not as a fearsome threat but an annoying (and sometimes even laughable) upstart, he may come to realize that his current antics are not a shortcut to great power status.

    After all, even Putin is not a lunatic or a fanatic, and the people around him are in the main selfish pragmatists. Ultimately, not giving in to the hype, not letting Putin shape the geopolitical agenda with that saber, might be the most effective response to his tantrums.
     
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  3. dhananjay1

    dhananjay1 Regular Member

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    The left in the US hate Putin and that's why they use continuous anti-Russian propaganda from news, talk shows, news-comedy-daily shows.
     
  4. spikey360

    spikey360 Crusader Senior Member

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    Pffft... lot of hot air from idiot author. I bet the author is a Jew or a Pole, or both.
     
  5. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    Only Putin fanboys would not like to hear it.

    Russia has a smaller economy than India and that too dependent on mineral resource exports. It does not take a genius to figure it out. But yes, Russia has definitely made better moves than US in the past some time.
     
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  6. garg_bharat

    garg_bharat Senior Member Senior Member

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    I think Russia is strong. The reason is history. USSR fought a cold war for 45 years during which it prepared for a nuclear war with the West. Most of this infrastructure and knowledge passed to Russia as successor state.

    I believe Russia may still possess 200+ ICBMs and a similar number of nuclear tipped cruise missiles. It may also have thousands of air dropped nukes.

    There is no doubt West has better conventional strength, but Russia may surprise when defending its territory. We saw some of it in Ukraine battles.

    Russia has particularly good air defense. It can knock down thousands of aircrafts and cruise missiles even when facing a massed attack.

    Russia possesses military power disproportionate to its economic power.
     
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  7. Bahamut

    Bahamut Senior Member Senior Member

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    Russian economy is mainly on domestic consumption while Indian economy is now export oriented economy ,there are a lot of more figure to check the condition of economy like debt per person,Total production factor,import export ratio etc .Russia is now under going a change from minerals to advance technology export similarly to what Israel did in 90s ,plus there is a lot of disinformation about their economy and it offers a conflicting picture ,take this link for example
    http://russia-insider.com/en/business/spin-those-numbers-how-forbes-makes-russia-propaganda/ri13122
    Also what Russia buy in military is paid in ruble and the value of ruble does not effect the change in defense budget.The author of this article lacks common sense and lie are pathetic ,so transparent.
     
    Last edited: Mar 2, 2016
  8. spikey360

    spikey360 Crusader Senior Member

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    Ah, and so spake our in-house Russian Military and Economy cum Putin expert, Sakal.
     
  9. indiandefencefan

    indiandefencefan Regular Member

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    5000+ nuclear warheads give Putin all the power he needs :rofl::rofl::rofl:
     
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  10. no smoking

    no smoking Senior Member Senior Member

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    :facepalm:

    Wrong, we all know Russia is relying on her oil/natural gas exportation to balance her book;
    Wrong, you can hardly call a country of trade deficit as an export oriented economy.
     
  11. VaghaDeva

    VaghaDeva The Wise Wolf

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    wouldn't they have already overrun all of western Ukraine by now? The Ukrainian military is doing better than I had expected against Russia

    [​IMG]
     
    Last edited: Mar 3, 2016
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  12. citizen Krane

    citizen Krane Regular Member

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    Putin is the last tzar of the soviet era , after him Russia will decay into a crmublehole
     
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  13. garg_bharat

    garg_bharat Senior Member Senior Member

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    Russia has a trade surplus, even after huge drop in oil price.

    Where do you get your figures? Do you even live in China?
     
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  14. garg_bharat

    garg_bharat Senior Member Senior Member

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    Putin is the first Czar of new Russia.
    There are many more to come.

    Do you really live in Iran? Your government wants Russia to supply hundreds of Su-30 planes. With your views it seems your government is crazy.
     
    Last edited: Mar 3, 2016
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  15. garg_bharat

    garg_bharat Senior Member Senior Member

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    There are only two outcomes: first is USA conquers Russia, second is USA is defeated.

    There is no third outcome.

    My bet is that USA will be defeated. I also predict the fall of Sunni Islam.

    There will be a great upheaval. The political structure will change. I know China is sitting on the fence right now (and seems on USA side) but eventually China will side with Russia.
     
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  16. garg_bharat

    garg_bharat Senior Member Senior Member

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    Europe is a crazy beast. It will obey who can tame it.

    If USA's control becomes slack, the beast will run amok.
     
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  17. garg_bharat

    garg_bharat Senior Member Senior Member

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    Ukraine lost 80% of its serviceable tanks in two episodes of large battles in Aug14 and Feb15.

    It is wrong to assume that Russia wants to control Ukraine. Russia is very happy that EU pays for Ukraine.

    Russia only wanted Crimea. Even the Donbas region does not help Russia. However Russia had to come to the aid of Donbas due to strong historical connections.

    My take is that Russia will neither withdraw nor invade. The situation will stay the same for some time, unless Kiev decides to go for a major escalation. Small changes of control of land are immaterial.

    If Kiev escalates in a major way, then Kiev can lose more territory.
     
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  18. garg_bharat

    garg_bharat Senior Member Senior Member

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    Putin is no dictator. Such characterizations are nonsense.

    Putin merely represents the elite of Russia. This elite comprises the businessmen and military leaders mainly, but also the leaders of political structure.

    It is the Muslim countries that have dictators.

    There may be poll fraud in Russia, but majority is still with Putin.
     
  19. Bahamut

    Bahamut Senior Member Senior Member

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    Natural resources are their main export to west but they do not export Natural resources to Iran ,North Korea or CIS countries .By the way even China has trade deficit .A export oriented economy has more the 50% of its GDP indirectly depended on export ,for India is near 55% of GDP.Do you know that Russia is now the largest exporter of submarine ,military plane ,space technology ,military ship etc and one of the largest exporter in IT and electronics and has a emerging pharmaceutical industry ,just do a little more research on economy and avoid western sources .
     
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  20. Bahamut

    Bahamut Senior Member Senior Member

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    @no smoking ,@Sakal Gharelu Ustad
    Here is a nice article
    Russian Economy – It's Disease Is Liberal, Not Dutch
    • Russia's domestic economy is actually highly diversified, it is only among exports that energy predominates
    • This is a result of the 1990s de-industrialization but is changing rapidly today as its new or transformed industries mature
    [​IMG]Jon Hellevig [​IMG]
    (Awara) [​IMG]
    1 hour ago | 247 10
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    Originally appeared at Awara
    There has lately again been a slew of articles in the Western business press denigrating Russia’s efforts to develop its industry, condemning the drive for import substitution to failure, and casting the curse of Dutch disease over it.

    I have taken part of these stories just as I was preparing my own article reporting in fact on the success of Russia in these fields.

    I must say that I am a bit tired of arguing with those witless self-styled experts regurgitating the same old propaganda lines, but nevertheless I decided to take up the challenge and combine my report with a discussion of the Russian import substitution program and the imaginary Dutch disease.

    The gist of my account is that Russia is not suffering and has never suffered from the fabled Dutch disease, which perhaps is nothing more than an academic platitude to start with. I will explain why I would much rather say that what Russia has been suffering from something best termed the Liberal disease.

    While Russia has now largely cured itself from that affliction, it continues to suffer the effects of the Liberal disease, this time in the form of being subject to the foolish harangues of Western liberal economists and their stage-managed opposition mouthpieces back home in Russia (or Paris, or wherever they happen to be perched from time to time). – In fact, it is not even as clear as that, because it seems to me that a large portion of the ruling elite, including those in government, are still very much advocating the failed Liberal disease.

    One gets the feeling that President Putin and his administration is in this respect on the sane pragmatic side whereas the other parts of the government still pull to the liberal side, which is not good at all.

    Before I launch into a more detailed discussion on that subject, I would like to set out the facts as they are presently.

    Oil & gas share of GDP around 12 to 14 per cent

    First there is the persistent misconception about the purported share of oil and gas in the Russian economy.

    In a recent article in the Forbes titled Despite Weathering Sanction Storm, Russia’s ‘Dutch Disease’ Gets Worse Kenneth Rapoza wants us to believe that the share of oil & gas of Russia’s GDP would following a recent decline be “around 25% to 30%”.

    We can only lament that such a prestigious business publication as the Forbes allows such a blatant error in print. In fact, the share of oil & gas was 16% as of 2013 according the data from the World Bank. (This can be verified from this link; it gives 18.8% for Russia, but that is the figure of total natural resources, not only oil & gas).

    There is no official data out on years 2014 and 2015 as of yet, but we too must concede it has declined in the recent years.

    This is only natural when we consider that the oil price has gone down some three times while the overall economy is down much less, the combined growth of GDP for 2014 and 2015 being approximately -3%.

    Deducing from these facts, I would think the present share of oil and gas must be somewhere around 12% to 14%.

    The domestic industry has become virtually self-sufficient and exports are diversifying

    In general, these people suffer from the incapability of distinguishing between what is a diversified economy and what is a diversified structure of exports.

    It is the exports that have been dominated by energy, but not the overall economy. The domestic sector is, in fact, amazingly diversified.

    This is best evidenced by the import statistics following the two years of sanctions warfare and low oil prices.

    Russia’s imports are nowadays very low indeed. In January 2015, the imports were down a further 18% from last year’s 41%, total down 50% from 2014. The import volume was $8.1 bn (without imports from CIS, which could add one more billion), which is less than 2 times the value that tiny Finland imports with a 30 times smaller population.

    This betrays an interesting fact about the charade that Russia has not diversified its economy. How is not diversified when a country of 150 million people with a standard of living fit for developed countries lives and functions practically without imports?

    Russian industrial production is slightly down over the two years of crisis, but this is within the big frame of things only a small decrease, which merely reflects the slightly lower consumption, and this mostly due to the punitively high interest rates that the Central Bank maintains. (I have written about this problem here). By and large, all the industries are functioning and developing, and this with minimal import inputs.

    Against the barrage of insipid condemnation of the non-diversified structure of Russia’s exports, I have constantly maintained that it is mostly a question of time before such exports emerge.

    My contention is that Russia’s industrial potential was largely devastated by the end of 1990s, and only after the ascendance of Mr. Putin to the presidency in 2000, there started a reindustrialization. It has then been very natural that the newly emerged industries spent the first ten to fifteen years satisfying the tremendous need on the domestic markets and hence did not have capacity for exports.

    As a matter of fact, I do not think that any company ever has started its lifecycle with the export markets - that would be utterly illogical! Export is not something companies do because it is fun (although some executives for sure enjoy the excitement of business travel), or so as to satisfy macroeconomic statistics; exports are done when the company is financially solid enough and mature in its product offerings. And it is only now that the young Russian industry is reaching this maturity.

    I will return to this discussion below with the criticism of dragging in the phony Dutch disease to a discussion of the Russian economy. In the meanwhile, let’s look at some statistics which indeed show that the structure of exports has started to diversify.

    The statistics speak for themselves

    The good news is that Russia is edging towards the coveted state (be it as foolish a dream as it is) where the proportional share of energy exports is rapidly falling as can be seen from the below charts.

    I have chosen to present the data by giving the monthly statistics for December for each of the years instead of the full year, this in order to more clearly express the dynamics of the change.

    [​IMG][​IMG]

    [​IMG]

    The blue area represents export of crude oil and gas, whereas the red (reddish brown) area stands for refined oil products.

    In 2013 the exports of oil & gas amounted to 70.5% of total exports, leaving 29.5% of all the rest. However, strictly speaking the refined oil products are industrially manufactured goods and should therefore be treated separately from crude oil. Considering this we see that crude oil & gas exports amounted to 47.3% whereas the other exports where 52.6%.

    By December 2015 the share of the total oil & gas exports had fallen to 53.5%. If again we group refined oil products with manufacturing, then the share of crude oil and gas had fallen to 35.7%, or approximately one third of total exports.

    All in all the December 2015 pie-chart depicts quite a healthy export structure. What is remarkable is that the share of export of machinery and equipment had reached 13.2%.

    Above I qualified the dream (yes, they dream of it) of diminishing the share of energy exports as being foolish. By this, I mean that I do not see any wisdom in such a goal; for sure Russia should sell as much oil and gas it can even if that would equal 90% of the exports. That is not the question, the question is how much in absolute terms Russia exports of other goods and manufactured products.

    Now, when we look at the presented statistics we see that this lib-dream (lib for liberal and libido) has on first sight so far been achieved mostly through a reduction of the energy exports as opposed to a growth of the other segments.

    However, that would not be a quite accurate interpretation as it betrays the fact that there has indeed been a significant increase in the physical volumes of the exports of food and manufactured goods.

    We must understand that the ruble has depreciated some three times to the dollar and yet the dollar value of the non-energy exports remains fairly stable. In this connection, we must remember that the inflation has at the same time been much lesser (about 25% for the years of 2014 and 2015).

    This then means that Russian companies now fetch vastly more rubles for their exports giving them a healthy profit, which enables further growth and product development.

    In fact, it is quite misleading to look at the Russian exports and other macroeconomic statistics from the point of view of the U.S. dollar and rarely is this practice applied to other countries.

    There is something else these export figures show us namely, that Russia indeed has and did have an export industry other than oil & gas.

    Below charts depict how the gap between these figures have closed so that today the non-oil & gas exports almost fully cover the imports, leaving oil & gas exports to ensure the positive trade balance.

    [​IMG]

    Russia could double its exports in five years

    Looking at the development trends of the exports and the industry in general – and the de facto successful import substitution programs of which Alexander Mercouris recently wrote– I see a huge potential for further growth of exports of the non-energy sector.

    If Russia manages to maintain the present currency parities, that would alone lead to increased exports across all the segments. But, Russia will also get an export boost from concentrated efforts of industrial development.

    Most importantly, the aviation industry promises to be a huge growth sector with new and renewed planes being rolled out gradually over the next five years (prominently among them the Irkut MC-21). The aviation industry alone could in the next five years add some 50% to the present export volumes (of non-energy).

    Other new export sectors with big potential are shipbuilding, electronics, pharmaceuticals, and vehicles. With Russia’s recent successful display of its arm’s arsenal on the world scene, we could expect a further boost in that sector also. (Apart from it also serving as an icebreaker for all the other exports).

    Putting the plough before the sword, the export of food has made considerable strides in recent years, having already overtaken the arms industry in volume, but there is still potential for significant growth in that sector, too. In addition to the raw agricultural commodities, we should expect to see Russia entering the world markets with meat and processed food as well.

    Considering all this, I think you do not have to be overly optimistic to expect at least a doubling of Russia’s non-energy exports within five years.

    At the same time, the present Western exporters have reason to worry. Russia is not the only non-Western country that is on the march, others are also taking market share from the West.

    One remarkable thing about the Western exports is that most countries are hugely dependent on exports of vehicles, airplanes and pharmaceuticals. They seem to be selling cars to each other.

    This poses a major risk for those economies. Russia’s and China’s entry into the aviation business should also worry the West, both what comes to the risk of losing market share and ruining their price margins. I would say there is a big question mark with pharmaceuticals as well.

    Now, let’s return to the discussion of the misguided idea to apply the Dutch disease on Russia.

    There is no Dutch disease

    In the above referred article Mr. Rapoza argues that the “Dutch disease, that nasty virus that attacks resource rich countries, is still in Russia’s blood”. However, he provides absolutely no evidence that this would be the case. He does not even refer to a single item of statistics, except for the blatantly faulty claim, which he has plucked from thin air, that the share of oil & gas would be “25% to 30% of Russia’s GDP”.

    So, in this respect that article is of no interest. It is not any better in other respects either, but it does provide a good sample of the liberal virus that has so permeated Western economic analysis on Russia. One of the syndromes of this virus is that the afflicted person starts to imagine Dutch diseases where there are none.

    The term is best explained by The Economist, who coined it in the first place. Here is what they say about it now:

    “The Economist coined the term in 1977 to describe the woes of the Dutch economy. Large gas reserves had been discovered in 1959. Dutch exports soared. But, we noticed, there was a contrast between “external health and internal ailments”.

    From 1970 to 1977 unemployment increased from 1.1% to 5.1%. Corporate investment was tumbling. We explained the puzzle by pointing to the high value of the guilder, then the Dutch currency.

    Gas exports had led to an influx of foreign currency, which increased demand for the guilder and thus made it stronger. That made other parts of the economy less competitive in international markets.”

    This actually confirmed my suspicion, you should always be skeptical to these much hyped economic truths (well, in everything, de omnibus dubitandum). See, it is not quite clear that even the original conception of the concept was correct. Maybe there never was a Dutch disease in the Netherlands either? For all, I know the period of 1970s that The Economist in its wisdom refers to coincided with similar adverse conditions across Europe, which can be gleaned from this article.

    But these kinds of boilerplates are persistent with economists, they love to use them hoping these witty cliches gives the economists the aura of doing real science.

    But, whatever, let’s assume that there would have been such a Dutch disease, then the diagnosis would be roughly as follows:

    Dutch disease means that when a significant portion of the national wealth is derived from (exports) of a dominant natural resource, then other sectors decline. This would follow from the appreciation of the country’s currency because of the hefty export revenue of this dominant natural resource. Then the nation’s other exports would become less competitive (more expensive) on world markets, while imports become cheaper. Hence the other sectors would be less profitable and receive less investments while the natural resource sector chokes up all the resources.”

    The only thing of this that is applicable to Russia is that its exports have been overwhelmingly dominated by oil & gas. But none of the suggested consequences hold true for Russia.

    For sure, the export revenues have affected the domestic price level, though to what extent it has done so is however by no means clear.

    The crux of the issue, anyway, is that the general price level in Russia has all the time remained significantly lower than in Europe and the West. This is verified by the fact that the purchasing power parity of Russia’s GDP has consistently been higher than the nominal.

    Furthermore, the oil & gas sectors have never employed any significant share of the human resources (around 2% of the workforce).

    Very tellingly, there has over all the years been a glut of capital in Russia, so much that we have constantly read in the business press about the “Russian capital flight”, which in reality means Russia investing its capital abroad.

    Thus there has been no shortage of capital for the other sectors. And as it has been demonstrated above, Russia has in fact tremendously developed all the other sectors of the economy, so much so that it is now virtually self-sufficient in all sectors of the economy.

    As I have pointed out, it is the exports that have not been sufficiently diversified while the domestic industry is so. – In this connection, I refer to a study I authored about the development of the Russian economy from 2000 to 2014.

    This study also shows how Russia, contrary to the core of the Dutch disease legend, has subsidized the other sectors of the economy by heavy taxation of oil and gas exports while applying relatively low taxes to business in general. In addition, one should consider the saving of the energy profits in Russia’s sovereign wealth funds.

    The Liberal disease

    Thus, there has been no Dutch disease. What Russia has suffered from is the Liberal disease.

    The Liberal disease goes back to Mikhail Gorbachev and the strategy of renewal of Russia’s (USSR) economy under the banner of Perestroika.

    In fact, I would not blame solely Gorbachev for that disaster. It is my belief that the strategy was conceived by the Soviet elite of the time, including the army and the intelligence services. Gorbachev was merely appointed as the figurehead for that drive. Of course, his hapless leadership exacerbated the disastrous liberal panic reaction that the Soviet leadership had adopted.

    When we compare the Soviet strategy with that of China we see precisely how totally the Soviet leadership failed in everything. China gradually liberated the market while it retained a strong state and government in form of the party dictatorship.

    The Soviets on the contrary made lopsided shifts in all aspects: they withdrew the government in form of diminishing the role of the Communist party and security services, but not fully, the carcass of it still stayed formally in power.

    The result was anarchy. They freed the markets, but only for the criminals. They totally neglected investments to modernize the industry, and let the assets and cash streams be openly or covertly stolen by insiders and the mob.

    The result was total chaos and the breakup of the Soviet Union.

    Then in 1991 Boris Yeltsin came to power in Russia and was unfortunately surrounded only by crooks and liberals. The latter pushed Russia to the most devastating economic and human experiment in history aptly called the “shock therapy”.

    What followed was a ruinous and deep-rooted anarchy. Obviously, it was not feasible to invest in industry, modernization and diversification under those conditions.

    Thus, Russia suffered for 15 years since Gorbachev to the end of the Yeltsin period in 2000 not under any Dutch disease but the Liberal disease.

    When Vladimir Putin finally took over in 2000, Russia’s economy and industrial base was utterly devastated. And only, from this point on can we analyze the development of the Russian economy in any intelligent economic terms.

    Comparing Russia’s conditions of anarchy with the Dutch conditions or those of any other country, which has benefitted from an orderly social and economic historic development is utterly nonsensical.

    With a gradual decrease in the weight of the liberal ideology, things have rapidly improved in Russia, and we have the impressive results of which I presently report. But, I stress, there has been only a gradual decrease in the Liberal disease, much remains to do for Russia to fully enter a sensible and pragmatic, non-ideological development trajectory.

    What is most important in all these analyses is time. Always consider the time frame. 15 years is short for kickstarting an industry from scratch and two years is short for fundamental results in import substitution. Whoever pretends to be an economist and ignores the time factor is just a charlatan.
     
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  21. garg_bharat

    garg_bharat Senior Member Senior Member

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    Russia is a very large country so dependence on natural resources is justified. The critical thing is development of domestic industry. The critique should wait at least 5 years. Economy is not something that transforms in a day. The Russians are on the right track in terms of their industry.
     
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