SOCIETY
“The 2020s are the ‘new 1990s.’ But only with a worse outlook and possible outcomes.”
February 22, 2023
- Igor LipsitsProfessor, Dr.Sci. (Economics)
- Yevgeny Sen’shinInterviewer
Igor Lipsits writes that after years of budget surpluses Russia again started running a budget deficit and is recklessly spending the National Wealth Fund. This is a disaster for Russia, as 60% of the population lives off the income itcreceives from the state.
The original text in Russian was published in Republic. A fragment is republished here with their permission.
Under Chair Elvira Nabiullina, Russia's Central Bank managed to stabilize the economy and financial sector, but at the cost of destroying the currency and stock market. Source: Wiki Commons
Yevgeny Senshin: A year after February 2022, the Russian economy has not seen a new 90s, as some economists had expected. Who should we thank for that?
Igor Lipsits: To begin with, I do not agree with the idea that there is not a new 90s.
Like some other Russian economists, I believe that the 2020s are the “new 1990s.” But only with a worse outlook and possible outcomes.
In the 1990s, we were shifting from a planned to a market economy, and we had a lot of credibility with the outside world – everyone wanted to do business with Russia. At that time, I met with foreign businessmen every day and explained to them what Russia is and why it is worthwhile to do business here. I lured them in!
Now it is the reverse – Russia is isolated. The potential of the Russian market is already clear to everyone after 30 years of cooperation and does not generate great enthusiasm. Besides, there are sanctions, logistics complications, trouble with receiving money for goods shipped... So, there is not a rosy outlook ahead. We have lost the ability to attract foreign technologies, foreign capital, foreign equipment, foreign specialists to make the Russian economy work better.
Why there was no big crash in the first year [of the conflict] is easy to explain. In my view, four factors should be considered.
First, we have a well-functioning financial and economic block in the government: the Central Bank, the Ministry of Finance, the Tax Service. Over the last 30 years, our monetary and fiscal apparatus has learned a lot. Many [people there] are well qualified, and they have taken specific steps that have put out the fires caused by the crisis. But at a high price. The Central Bank stabilized the economy and the financial market at the cost of destroying the currency and stock market. As a result, the Russian economy stabilized, but people have cannot do what they want with their foreign-currency savings anymore. Only in May 2022 were people allowed to move currency abroad, with restrictions. True, “unfriendly” countries then refused to accept this money. Nevertheless, the first panic was extinguished and a run on the banks was avoided.
Second, the payments and benefits for the poorest segments of the population were effective, so a potential social catastrophe did not happen. But the price of that was that the government’s fiscal reserves were eaten away.
Third, unlike in 1992, we now have a skillful private sector. With their great efforts, these people stabilized the market. They were able to find alternatives for sanctioned goods and goods of foreign companies that left Russia, and thanks to this, the shelves remained full, and hunger and shortages did not take place.
Fourth, though there were big plans with sanctions, Europe did not go for a knockout right away. Sanctions on oil came into force only in December, and sanctions on oil products started in February 2023. In other words, the biggest blows against Russia were merely announced but not carried out. And this created an extremely advantageous and even speculative situation for Russia. Throughout 2022, the West tried to punish Russia without hurting itself. But it turned out that the outcome of that "game" was skyrocketing oil and gas prices, which meant large, extraordinarily large revenues for the Russian budget.
Igor Lipsits: To begin with, I do not agree with the idea that there is not a new 90s.
Like some other Russian economists, I believe that the 2020s are the “new 1990s.” But only with a worse outlook and possible outcomes.
In the 1990s, we were shifting from a planned to a market economy, and we had a lot of credibility with the outside world – everyone wanted to do business with Russia. At that time, I met with foreign businessmen every day and explained to them what Russia is and why it is worthwhile to do business here. I lured them in!
Now it is the reverse – Russia is isolated. The potential of the Russian market is already clear to everyone after 30 years of cooperation and does not generate great enthusiasm. Besides, there are sanctions, logistics complications, trouble with receiving money for goods shipped... So, there is not a rosy outlook ahead. We have lost the ability to attract foreign technologies, foreign capital, foreign equipment, foreign specialists to make the Russian economy work better.
Why there was no big crash in the first year [of the conflict] is easy to explain. In my view, four factors should be considered.
First, we have a well-functioning financial and economic block in the government: the Central Bank, the Ministry of Finance, the Tax Service. Over the last 30 years, our monetary and fiscal apparatus has learned a lot. Many [people there] are well qualified, and they have taken specific steps that have put out the fires caused by the crisis. But at a high price. The Central Bank stabilized the economy and the financial market at the cost of destroying the currency and stock market. As a result, the Russian economy stabilized, but people have cannot do what they want with their foreign-currency savings anymore. Only in May 2022 were people allowed to move currency abroad, with restrictions. True, “unfriendly” countries then refused to accept this money. Nevertheless, the first panic was extinguished and a run on the banks was avoided.
Second, the payments and benefits for the poorest segments of the population were effective, so a potential social catastrophe did not happen. But the price of that was that the government’s fiscal reserves were eaten away.
Third, unlike in 1992, we now have a skillful private sector. With their great efforts, these people stabilized the market. They were able to find alternatives for sanctioned goods and goods of foreign companies that left Russia, and thanks to this, the shelves remained full, and hunger and shortages did not take place.
Fourth, though there were big plans with sanctions, Europe did not go for a knockout right away. Sanctions on oil came into force only in December, and sanctions on oil products started in February 2023. In other words, the biggest blows against Russia were merely announced but not carried out. And this created an extremely advantageous and even speculative situation for Russia. Throughout 2022, the West tried to punish Russia without hurting itself. But it turned out that the outcome of that "game" was skyrocketing oil and gas prices, which meant large, extraordinarily large revenues for the Russian budget.
"This does not mean at all that, thanks to people who left and their statistical contribution to GDP, the Russian government’s opportunities to continue the war are growing. Generally speaking, it is quite the opposite."
Russia’s GDP – evolution from 2018 to 2023. Source: World Bank (January 2023), IMF (January 2023), OECD
Now – a year late – we will see how sanctions gradually wreck the Russian economy. A 5% cut to oil production in the country has already been announced – in the hope that this speculative measure will make global oil prices go up. But there is no guarantee of success.
With these four factors in effect, people got the feeling that nothing bad had happened: ‘we are not afraid of sanctions, we have been through much worse!’
In fact, everything is just beginning, and the Russian economy is facing a long period of contraction and deterioration.
YS: What can you say about inflation, the bane of the average consumer. Should we expect it to accelerate?
On the one hand, we are experiencing an increase in the cost of imports, as we bring them in through all sorts of roundabout ways. And that results in a large increase in the cost of transportation and logistics overall – it becomes very expensive. Because of this, costs are rising, and you need to somehow compensate for that by raising prices. But it is impossible to do that, as the population is getting poorer and cannot and will not pay.
If your costs are rising but you cannot raise prices, then you start to run losses. Then, so you do not go broke, you begin to take the biggest-loss-making goods out of your assortment, lessen quality, reduce the quantity of goods at the old price. Thus, the highest quality and most expensive goods will be taken out of the offering. There will be only low-quality, cheapest-to-manufacture goods, sold at the lowest prices that the business can take. That will slow down inflation. But we should not be excited at that prospect.
We now have an economy in which there may not be high inflation and unemployment, but that is not evidence that things are going well. It only indicates that there are counteracting but calamitous trends dampening inflation and unemployment.
To understand what is going on in Russia, we must get away from the usual set of economic indicators. It used to be that you looked at GDP, inflation, unemployment, exchange rates and sort of understood the state of the economy. Now, in times of trouble, we must look at different things. Then, you will see that in the last year, Russia has lost a chunk of its economic sovereignty. Russia is now a country with very limited economic sovereignty. Russia, its government, its companies can no longer decide for themselves to whom we sell, how much we sell, how much we sell for, how we deliver what, from whom we buy, what currencies we use for trade. Russia has now been driven into a sanctions corridor, and it has to get out of that corridor. For example, there was talk recently that Indian refineries have begun paying in UAE dirhams for most of the Russian oil they buy through traders in Dubai. To settle oil trading, Russia is not only afraid of using dollars, but even rupees. It wants all payments to go through third-party banks, like the UAE, so they are not affected by the sanctions.
Another serious topic and area of worry is the Russian budget. All sane Russian economists are now watching it.
For 20 years, Russia has been learning how to properly manage fiscal revenues and expenditures so as not to repeat the 1998 default. But in 2022, everything achieved in that sphere was destroyed.
After several years of budget surpluses and 13 years of money being accumulated in the National Wealth Fund (NWF), Russia again started running a budget deficit and recklessly spending the NWF. Moreover, a budget deficit is now penciled in until the end of 2025.
This is a disaster for Russia, as we have a state economy. In reality, 60% of the population of Russia lives off the income it receives from the state: salaries, pensions, benefits and so on. Now, the percentage will be even higher: private business is being curtailed, people will be looking for work in the public sector – recruiters are already seeing this trend. In other words, the population depends on the state, and the state is in the process of wrecking its finances, which spells trouble for everyone who depends on payments from the budget.
It would be fitting for economists to place bets on when Russia will spend the entire NWF. Optimists say that it will happen in 2024, while pessimists believe that the liquid part of the fund will “evaporate” as soon as the summer of 2023. It is impossible to calculate exactly – the state is so quickly and unpredictably spending money on defense and weapons production, while it is finding it very hard and expensive to replenish the treasury. As a result, in recent weeks there has been an ugly bargaining between the government and large Russian business, from which the state wants RUB 250-300 billion as a “voluntary” one-off contribution. Who will win and what amount the "high contracting parties" will agree on is worthy of another bet.
But let's keep going down the list of what the special military operation has cost the country.
With these four factors in effect, people got the feeling that nothing bad had happened: ‘we are not afraid of sanctions, we have been through much worse!’
In fact, everything is just beginning, and the Russian economy is facing a long period of contraction and deterioration.
YS: What can you say about inflation, the bane of the average consumer. Should we expect it to accelerate?
On the one hand, we are experiencing an increase in the cost of imports, as we bring them in through all sorts of roundabout ways. And that results in a large increase in the cost of transportation and logistics overall – it becomes very expensive. Because of this, costs are rising, and you need to somehow compensate for that by raising prices. But it is impossible to do that, as the population is getting poorer and cannot and will not pay.
If your costs are rising but you cannot raise prices, then you start to run losses. Then, so you do not go broke, you begin to take the biggest-loss-making goods out of your assortment, lessen quality, reduce the quantity of goods at the old price. Thus, the highest quality and most expensive goods will be taken out of the offering. There will be only low-quality, cheapest-to-manufacture goods, sold at the lowest prices that the business can take. That will slow down inflation. But we should not be excited at that prospect.
We now have an economy in which there may not be high inflation and unemployment, but that is not evidence that things are going well. It only indicates that there are counteracting but calamitous trends dampening inflation and unemployment.
To understand what is going on in Russia, we must get away from the usual set of economic indicators. It used to be that you looked at GDP, inflation, unemployment, exchange rates and sort of understood the state of the economy. Now, in times of trouble, we must look at different things. Then, you will see that in the last year, Russia has lost a chunk of its economic sovereignty. Russia is now a country with very limited economic sovereignty. Russia, its government, its companies can no longer decide for themselves to whom we sell, how much we sell, how much we sell for, how we deliver what, from whom we buy, what currencies we use for trade. Russia has now been driven into a sanctions corridor, and it has to get out of that corridor. For example, there was talk recently that Indian refineries have begun paying in UAE dirhams for most of the Russian oil they buy through traders in Dubai. To settle oil trading, Russia is not only afraid of using dollars, but even rupees. It wants all payments to go through third-party banks, like the UAE, so they are not affected by the sanctions.
Another serious topic and area of worry is the Russian budget. All sane Russian economists are now watching it.
For 20 years, Russia has been learning how to properly manage fiscal revenues and expenditures so as not to repeat the 1998 default. But in 2022, everything achieved in that sphere was destroyed.
After several years of budget surpluses and 13 years of money being accumulated in the National Wealth Fund (NWF), Russia again started running a budget deficit and recklessly spending the NWF. Moreover, a budget deficit is now penciled in until the end of 2025.
This is a disaster for Russia, as we have a state economy. In reality, 60% of the population of Russia lives off the income it receives from the state: salaries, pensions, benefits and so on. Now, the percentage will be even higher: private business is being curtailed, people will be looking for work in the public sector – recruiters are already seeing this trend. In other words, the population depends on the state, and the state is in the process of wrecking its finances, which spells trouble for everyone who depends on payments from the budget.
It would be fitting for economists to place bets on when Russia will spend the entire NWF. Optimists say that it will happen in 2024, while pessimists believe that the liquid part of the fund will “evaporate” as soon as the summer of 2023. It is impossible to calculate exactly – the state is so quickly and unpredictably spending money on defense and weapons production, while it is finding it very hard and expensive to replenish the treasury. As a result, in recent weeks there has been an ugly bargaining between the government and large Russian business, from which the state wants RUB 250-300 billion as a “voluntary” one-off contribution. Who will win and what amount the "high contracting parties" will agree on is worthy of another bet.
But let's keep going down the list of what the special military operation has cost the country.
Now – a year late – we will see how sanctions gradually wreck the Russian economy. A 5% cut to oil production in the country has already been announced – in the hope that this speculative measure will make global oil prices go up. But there is no guarantee of success.
With these four factors in effect, people got the feeling that nothing bad had happened: ‘we are not afraid of sanctions, we have been through much worse!’
In fact, everything is just beginning, and the Russian economy is facing a long period of contraction and deterioration.
YS: What can you say about inflation, the bane of the average consumer. Should we expect it to accelerate?
On the one hand, we are experiencing an increase in the cost of imports, as we bring them in through all sorts of roundabout ways. And that results in a large increase in the cost of transportation and logistics overall – it becomes very expensive. Because of this, costs are rising, and you need to somehow compensate for that by raising prices. But it is impossible to do that, as the population is getting poorer and cannot and will not pay.
If your costs are rising but you cannot raise prices, then you start to run losses. Then, so you do not go broke, you begin to take the biggest-loss-making goods out of your assortment, lessen quality, reduce the quantity of goods at the old price. Thus, the highest quality and most expensive goods will be taken out of the offering. There will be only low-quality, cheapest-to-manufacture goods, sold at the lowest prices that the business can take. That will slow down inflation. But we should not be excited at that prospect.
We now have an economy in which there may not be high inflation and unemployment, but that is not evidence that things are going well. It only indicates that there are counteracting but calamitous trends dampening inflation and unemployment.
To understand what is going on in Russia, we must get away from the usual set of economic indicators. It used to be that you looked at GDP, inflation, unemployment, exchange rates and sort of understood the state of the economy. Now, in times of trouble, we must look at different things. Then, you will see that in the last year, Russia has lost a chunk of its economic sovereignty. Russia is now a country with very limited economic sovereignty. Russia, its government, its companies can no longer decide for themselves to whom we sell, how much we sell, how much we sell for, how we deliver what, from whom we buy, what currencies we use for trade. Russia has now been driven into a sanctions corridor, and it has to get out of that corridor. For example, there was talk recently that Indian refineries have begun paying in UAE dirhams for most of the Russian oil they buy through traders in Dubai. To settle oil trading, Russia is not only afraid of using dollars, but even rupees. It wants all payments to go through third-party banks, like the UAE, so they are not affected by the sanctions.
Another serious topic and area of worry is the Russian budget. All sane Russian economists are now watching it.
For 20 years, Russia has been learning how to properly manage fiscal revenues and expenditures so as not to repeat the 1998 default. But in 2022, everything achieved in that sphere was destroyed.
After several years of budget surpluses and 13 years of money being accumulated in the National Wealth Fund (NWF), Russia again started running a budget deficit and recklessly spending the NWF. Moreover, a budget deficit is now penciled in until the end of 2025.
This is a disaster for Russia, as we have a state economy. In reality, 60% of the population of Russia lives off the income it receives from the state: salaries, pensions, benefits and so on. Now, the percentage will be even higher: private business is being curtailed, people will be looking for work in the public sector – recruiters are already seeing this trend. In other words, the population depends on the state, and the state is in the process of wrecking its finances, which spells trouble for everyone who depends on payments from the budget.
It would be fitting for economists to place bets on when Russia will spend the entire NWF. Optimists say that it will happen in 2024, while pessimists believe that the liquid part of the fund will “evaporate” as soon as the summer of 2023. It is impossible to calculate exactly – the state is so quickly and unpredictably spending money on defense and weapons production, while it is finding it very hard and expensive to replenish the treasury. As a result, in recent weeks there has been an ugly bargaining between the government and large Russian business, from which the state wants RUB 250-300 billion as a “voluntary” one-off contribution. Who will win and what amount the "high contracting parties" will agree on is worthy of another bet.
But let's keep going down the list of what the special military operation has cost the country.
With these four factors in effect, people got the feeling that nothing bad had happened: ‘we are not afraid of sanctions, we have been through much worse!’
In fact, everything is just beginning, and the Russian economy is facing a long period of contraction and deterioration.
YS: What can you say about inflation, the bane of the average consumer. Should we expect it to accelerate?
On the one hand, we are experiencing an increase in the cost of imports, as we bring them in through all sorts of roundabout ways. And that results in a large increase in the cost of transportation and logistics overall – it becomes very expensive. Because of this, costs are rising, and you need to somehow compensate for that by raising prices. But it is impossible to do that, as the population is getting poorer and cannot and will not pay.
If your costs are rising but you cannot raise prices, then you start to run losses. Then, so you do not go broke, you begin to take the biggest-loss-making goods out of your assortment, lessen quality, reduce the quantity of goods at the old price. Thus, the highest quality and most expensive goods will be taken out of the offering. There will be only low-quality, cheapest-to-manufacture goods, sold at the lowest prices that the business can take. That will slow down inflation. But we should not be excited at that prospect.
We now have an economy in which there may not be high inflation and unemployment, but that is not evidence that things are going well. It only indicates that there are counteracting but calamitous trends dampening inflation and unemployment.
To understand what is going on in Russia, we must get away from the usual set of economic indicators. It used to be that you looked at GDP, inflation, unemployment, exchange rates and sort of understood the state of the economy. Now, in times of trouble, we must look at different things. Then, you will see that in the last year, Russia has lost a chunk of its economic sovereignty. Russia is now a country with very limited economic sovereignty. Russia, its government, its companies can no longer decide for themselves to whom we sell, how much we sell, how much we sell for, how we deliver what, from whom we buy, what currencies we use for trade. Russia has now been driven into a sanctions corridor, and it has to get out of that corridor. For example, there was talk recently that Indian refineries have begun paying in UAE dirhams for most of the Russian oil they buy through traders in Dubai. To settle oil trading, Russia is not only afraid of using dollars, but even rupees. It wants all payments to go through third-party banks, like the UAE, so they are not affected by the sanctions.
Another serious topic and area of worry is the Russian budget. All sane Russian economists are now watching it.
For 20 years, Russia has been learning how to properly manage fiscal revenues and expenditures so as not to repeat the 1998 default. But in 2022, everything achieved in that sphere was destroyed.
After several years of budget surpluses and 13 years of money being accumulated in the National Wealth Fund (NWF), Russia again started running a budget deficit and recklessly spending the NWF. Moreover, a budget deficit is now penciled in until the end of 2025.
This is a disaster for Russia, as we have a state economy. In reality, 60% of the population of Russia lives off the income it receives from the state: salaries, pensions, benefits and so on. Now, the percentage will be even higher: private business is being curtailed, people will be looking for work in the public sector – recruiters are already seeing this trend. In other words, the population depends on the state, and the state is in the process of wrecking its finances, which spells trouble for everyone who depends on payments from the budget.
It would be fitting for economists to place bets on when Russia will spend the entire NWF. Optimists say that it will happen in 2024, while pessimists believe that the liquid part of the fund will “evaporate” as soon as the summer of 2023. It is impossible to calculate exactly – the state is so quickly and unpredictably spending money on defense and weapons production, while it is finding it very hard and expensive to replenish the treasury. As a result, in recent weeks there has been an ugly bargaining between the government and large Russian business, from which the state wants RUB 250-300 billion as a “voluntary” one-off contribution. Who will win and what amount the "high contracting parties" will agree on is worthy of another bet.
But let's keep going down the list of what the special military operation has cost the country.
"Due to the operation and the sanctions, the system of personal savings in Russia, which we had painstakingly created over the last 30 years following the collapse of the Soviet system of savings, is now in shambles."
It was a great idea to give people the opportunity to protect themselves from the vicissitudes of life and inflation, and to save money for old age. And in return the country would receive sources of long-term, parked funds for long-term investments, as is the case in all developed countries. The new package of savings instruments featured a wide range of solutions: currency, Russian and foreign securities, precious metal accounts, and so on and so forth. There was plenty to choose from!
And what do we have now? The Russian securities market is going to hell – the MOEX plummeted 43% for the year, in particular because the state is now taking profits out of companies for nothing, depriving their shareholders of dividends. Investing in foreign securities is blocked altogether. Thus, once again it is not clear how to save for old age, even if you have some money.
Instead of accumulating funds for investment in the Russian economy, the government has scared people and businesses to death.
And people have begun to massively move money out of the country. As a result, a record was set last year: $250 billion in capital outflows. There had never been such an outflow since 1994, when Russians were first allowed to hold and transport foreign currency (see more on capital flight from Russia in Maxim Blant’s article in Russia.Post).
In other words, Russian savers in 2022 clearly understood that keeping their money in Russia is not only unprofitable, but also risky. Thus, people are moving their money, depriving the country of funds for development. I take that outflow figure as the most accurate, albeit indirect, sociological data on the trust Russian citizens have in their government and president.
In 2022, a terrible blow was dealt to the demographic situation that will greatly weigh on the Russian economy. The authorities sent people to fight, die and become disabled. The prospect of such a fate scared away a big bunch of people of conscription age, who began to leave the country. Estimates of the emigration range from half a million to a million people. Whatever the number, it is a very big loss for a country with already bad demographics. (On the consequences of the war for Russia’s demographics see also Russia.Post articles here and here).
And this "echo” of the special operation will sound in Russia until the very end of the 21st century, just as the echo of the events of 1941-45 sounds every 25-30 years.
Yet the biggest trouble for the future Russia – which the mass of the population does not see, but which we economists, as well as businessmen, see – is that for a long time, perhaps for decades, the country will be cut off from the technology market, from the market of advanced manufacturing and technological services. Why is that so tragic? Because since the time of Peter the Great, Russia has developed by acquiring foreign technologies, foreign equipment, and having its own specialists learn abroad. Then it introduces innovations at home, which reduces the competitive gap relative to the advanced countries, and sometimes even gets ahead of them in some areas. Now the sanctions have broken this model for a long time. And that is the foundation for a decades-long technological stagnation.
I often hear: ‘Can Russia itself not invent and manufacture all these new technologies, equipment and products? The country does not have enough smart people, or what?’ For each of those tough questions I have disappointing answers.
And what do we have now? The Russian securities market is going to hell – the MOEX plummeted 43% for the year, in particular because the state is now taking profits out of companies for nothing, depriving their shareholders of dividends. Investing in foreign securities is blocked altogether. Thus, once again it is not clear how to save for old age, even if you have some money.
Instead of accumulating funds for investment in the Russian economy, the government has scared people and businesses to death.
And people have begun to massively move money out of the country. As a result, a record was set last year: $250 billion in capital outflows. There had never been such an outflow since 1994, when Russians were first allowed to hold and transport foreign currency (see more on capital flight from Russia in Maxim Blant’s article in Russia.Post).
In other words, Russian savers in 2022 clearly understood that keeping their money in Russia is not only unprofitable, but also risky. Thus, people are moving their money, depriving the country of funds for development. I take that outflow figure as the most accurate, albeit indirect, sociological data on the trust Russian citizens have in their government and president.
In 2022, a terrible blow was dealt to the demographic situation that will greatly weigh on the Russian economy. The authorities sent people to fight, die and become disabled. The prospect of such a fate scared away a big bunch of people of conscription age, who began to leave the country. Estimates of the emigration range from half a million to a million people. Whatever the number, it is a very big loss for a country with already bad demographics. (On the consequences of the war for Russia’s demographics see also Russia.Post articles here and here).
And this "echo” of the special operation will sound in Russia until the very end of the 21st century, just as the echo of the events of 1941-45 sounds every 25-30 years.
Yet the biggest trouble for the future Russia – which the mass of the population does not see, but which we economists, as well as businessmen, see – is that for a long time, perhaps for decades, the country will be cut off from the technology market, from the market of advanced manufacturing and technological services. Why is that so tragic? Because since the time of Peter the Great, Russia has developed by acquiring foreign technologies, foreign equipment, and having its own specialists learn abroad. Then it introduces innovations at home, which reduces the competitive gap relative to the advanced countries, and sometimes even gets ahead of them in some areas. Now the sanctions have broken this model for a long time. And that is the foundation for a decades-long technological stagnation.
I often hear: ‘Can Russia itself not invent and manufacture all these new technologies, equipment and products? The country does not have enough smart people, or what?’ For each of those tough questions I have disappointing answers.
"In terms of advanced technologies, modern Russia is basically a desert. The only exception is nuclear power."
But in every other market for advanced products and technologies, you will not see Russia. Let me remind you that back in 2009, Vladimir Putin (then prime minister) stated that Russia lagged behind in terms of innovation, nano- and biotechnologies, and energy conservation, while Russia’s share of high-tech products in the world market is 0.5% or lower, versus 36% for the US and 30% for Japan.
And things are not too good with the "smart" people – too many good, skilled specialists have left the country over the past 30 years. Including in 2022.
Thus, Russia has suffered a very severe loss of human capital, i.e. people who are educated, skilled and creative. Even the official statistics indicate that there are now about three times fewer scientific workers in Russia than in the USSR. Alas, that is the national wealth that is both very valuable and very hard to replenish, and it takes many years to develop. And currently – something that is especially sad for me – it is not only scientists and engineers who are leaving, but also university professors.
All these troubles will wreck the Russian economy and turn it into a deeply backward and increasingly poor country for many years to come.
And things are not too good with the "smart" people – too many good, skilled specialists have left the country over the past 30 years. Including in 2022.
Thus, Russia has suffered a very severe loss of human capital, i.e. people who are educated, skilled and creative. Even the official statistics indicate that there are now about three times fewer scientific workers in Russia than in the USSR. Alas, that is the national wealth that is both very valuable and very hard to replenish, and it takes many years to develop. And currently – something that is especially sad for me – it is not only scientists and engineers who are leaving, but also university professors.
All these troubles will wreck the Russian economy and turn it into a deeply backward and increasingly poor country for many years to come.
Share this article
Read More
