Behind Every Great Crime
The bullish case for Russia
“The statesman's task is to hear God's footsteps marching through history, and to try and catch on to His coattails as He marches past.”
Otto von Bismarck
When one of the great biographers of our time, Ashlee Vance, was asked if he had given any thought to his next subject after Elon Musk – the answer returned swiftly but assuredly: it was, of course, Vladimir Putin.
On further introspection, that answer makes sense. There are few names who breathe the glamorized air at the top and many not for long; other contenders for the spot may include MBS, Xi Xinping, Trump or even Kanye West. This is especially true nowadays as the pace of change has accelerated – a rare minority are lucky to simply taste the spotlight, much less remain in it for a lifetime.
Yet, both Putin’s life and vision for Russia, despite all the surface-level media attention, have never really been understood across the west and – given his shadowy background with the FSB – may never be. There is much to know, and little that will ever be discovered.
But, the future of the Russian economy, and therefore the fate of Eastern Europe, all rests in Putin’s hands. And, despite what the establishment claims, Russia’s power isn’t going anywhere: the Kremlin retains the largest stockpile of nuclear weapons globally, the best geographical position in Eurasia, and a vast abundance of natural resources.
Therefore, a strong US-Russia alliance would be the best case scenario for everyone (sans China). They would be a vital ally in acting as a bulwark against the Middle Kingdom, addressing conflicts in the Middle East, and most importantly, assuaging the threat of a broken Europe once the EU fades into the ether.
To that end, understanding what the future of the Russian economy holds is an important question, and to what extent Putin may be able to transform the nation into one of the most powerful players of this century.
A Gentleman in Moscow
Looking back to Vance’s quip, Putin is perhaps the most interesting name among the other potential contenders: his rise to power over the last twenty years is certainly one of the century’s greatest stories thus far. Brecht’s line is particularly apt in this circumstance: “behind every great fortune, lies a great crime.” For Putin, this rings true as Russia’s elite can attest; although, doing so and surviving was a miracle in and of itself.
This is largely due to the fact that acquiring power is far easier than staying in power, especially in Russia where power has always been personified in a single entity. There is a significant key-man risk when the fate of the economy, and everyone’s livelihood, depends on one person.
Further, one could argue an autocracy doesn’t have much merit in a knowledge based economy, unlike a commodities-based market, where groups of actors must band together to invent something new. The economic parable of the resource curse tells us that when a country is infused with a plethora of natural resources, like oil, that the country typically performs poorly over the long run.
That alongside an aging population, indomitable oligarchy, and an exodus of Russia’s intellegentsia indicates why the country hasn’t had stronger economic growth. Providing more technology to their citizens means exposing them to loathsome western ideas, which the Kremlin is currently hesistant to do (owing to the times, this mentality is slowly changing).
So far, the countries that have a strong culture of innovation mimic the vanilla liberal, democratic governments we’re all familiar with (whether or not China can pull off strong economic growth over this decade remains to be seen).
But, Russia is following China’s example more and more – putting the final nail in the coffin for pundits who believed that developing nations would eventually transform into liberal paradises. More recently, Alexei Navalny’s desperate attempt at dislodging Putin from his throne has ended in abject disaster.
The first real democratic attempt at power, in over 20 years, ended with the upstart near-dead after a particularly brutal assassination attempt on an airplane. Now, like other contenders of the past, he’s counting away his days in jail. Perhaps Navalny should have paid more attention to one of Stalin’s quips: “Those who vote decide nothing. Those who count the vote decide everything.”
But, with all that said, Russia may be able to move on from its challenges sans the democracy.
The death of the dollar
Often, the way to win is to simply outlast your competition. Russia only experienced a minor shinkrage of 3% GDP growth in the past year, despite an excess mortality rate that reached far beyond America’s. What is impressive though is the extent to which Russia has managed to remain independent from the world economy, shoring up its financial reserves even as others spiraled out of control.
One reason for this is that Putin was front and center of the Russia crisis during 1998 while he worked for Boris Yeltsin, the failed puppet-president. After he took power a year later, Putin rebuilt the structure of the entire economy on two principles: low debt and procuring large financial reserves. This helped enormously after the Great Recession, when the country had a third of its GDP in cash, to bail out the banks; but, after America slapped sanctions on Russia in 2014 and oil prices tanked, the over-leveraged firms went under.
That was a rough time for Putin. Suddenly, he knew that his mission was to remove Russia’s dependence on the dollar and on American trade as a whole. He succeeded. Now, Russia owns more gold than dollars in its coffers; less than half of its Chinese trade is settled in dollars and nearly all of its EU trade is done in Euros: a blistering turn of events considering the state of the country two decades ago. Couple this with the facts that the government ran budget surpluses in 2018 and 2019 and its national welfare fund is at its highest level since 2009; one starts to realize that Russia is very much alive.
Meanwhile, America’s only trick in dealing with the Kremlin is to bury them with economic sanctions. The sanctions have merely sped up Russia’s mission to become independent from America. The game theory behind sanctions is that you have to be willing to go the distance; to bury the opposing country absolutely. Because Putin’s country is built off hydrocarbons, an embargo on energy exports would neatly do the trick. However, the EU is the biggest customer of this energy and so Biden’s hand is forced – he can’t take appropriate action without destroying the global economy.
If Russia is indeed evolving beyond the pale of American power, how are they thinking about the future?
History has begun
In past pieces, like The Sober Thought Experiment, I argued that America’s extrication from the world order, coupled with the effect of the coronavirus, would cause a meltdown in emerging markets. In effect, that’s already happening and the real panic hasn’t even begun yet.
If globalization is the free movement of goods, people, capital, and ideas then the majority of these nations aren’t prepared for an era with lower trade, immigration, or a crackdown on internet usage or idea sharing. Russia, however, is well-placed for such a world.
Putin emphasized this point in an epochal interview with the Financial Times in 2019; he made it clear that Russia was a nation steeped in tradition and spirituality while the west was on the path to moral and financial bankruptcy – a path he didn’t want to follow. Therefore, national sovereignty was wholly necessary to stave off the collapse. Now, Russia is actually beginning to escape from the international order and if a disaster were to happen, Putin believes the Kremlin’s enormous financial reserves and general isolation from the world stage would protect them – at least until a second act emerges.
In terms of industry, Russia is deeply leveraged on energy, particularly oil; this is to the point where any innovation beyond hydrocarbons would mire the country in deep depression for years to come. Yet, that doesn’t seem likely in the near future – there is enough time for them to catch-up, and expand in other sectors, even if it may not be in Putin’s reign.
Technologically, Yandex – Russia’s main technology firm – has beat the likes of Uber inside of Russia, even merging with them in 16 or so different countries around the region. Furthermore, Yandex’s search engine has nearly as much market share domestically as does Google; globally, Telegram, made by Pavel Durov, another Russian citizen, has caught on fire. It is also a Russian social media company, VK, that dominates the region, not Facebook.
These services might not have as much scale as their western counterparts, but they’re a good example of how Russia is blessed with a deep well of talent: eventually, in a more decentralized world, these individuals will put the country on the world stage. Currently, it’s fashionable for the best of the best to evacuate the country because of better opportunities elsewhere, but in the event of a synchronous market or moral collapse in these western nations or the advent of a few further freedoms in Russia, they would return. If, as many think, we will all soon become sovereign individuals, Russia is well-poised for a renaissance.
Ultimately, the future of the Kremlin is nowhere near as bleak as many like to claim. While the nation has severe demographic issues, the situation looks much better than most of continental Europe – especially the PIGS.
What is clear is that Putin is incredibly sharp and prepared for a future that looks remarkably different from the past. It never bodes well when one bets against a man that has significant reserves of charisma, energy, and intellect (not to mention absolute power). Rephrasing Lenin, the western capitalists – out of greed or sheer laziness – may soon hang themselves from their own rope, leaving modern Russians to inevitably pick up the pieces.
