How Are Things Going In Russia?

Sometimes it seems that all the news you read is about Russia.  Russian hacking; Russian "collusion"; Russian military adventurism; Russian "meddling."  On Thursday (March 1) Vladimir Putin gave his big annual speech (equivalent of an American President's State of the Union address).  I don't recall this annual speech ever previously getting front page news coverage in the U.S., but then these are crazy times. The New York Times reported the speech in a big front-page article in Friday's edition.  

The Times's current anti-Trump obsession calls for building up Russia to be as big and scary as possible, and Putin played right into that by making Russian military prowess his main theme.  So the Times ate it up:

President Vladimir V. Putin of Russia threatened the West with a new generation of nuclear weapons Thursday, including what he described as an “invincible” intercontinental cruise missile and a nuclear torpedo that could outsmart all American defenses.  The presentation by Mr. Putin, which included animation videos depicting multiple warheads aimed at Florida, where President Trump often stays at his Mar-a-Lago resort, sharply escalated the military invective in the tense relationship between the United States and Russia, which has led to predictions of a costly new nuclear arms race.

Missing from the article, of course, was any perspective on Russia's actual economic and geopolitical situation.  Therefore once again it falls to the Manhattan Contrarian to fill in the facts you may be missing.  (See this post from January 2017 for my previous data collection on Russia.)  

In fact, things are going remarkably badly for Russia on the world stage.  I submit that if you were a Russian -- let alone, if you were Vladimir Putin -- you would have very serious cause not just for concern, but for alarm.  Consider:

GDP.  I don't find a final number anywhere for Russian GDP for 2017.  Trading Economics has a final figure for 2016 of $1.283 trillion, with a growth rate of 1.08%.  By comparison, U.S. GDP for 2016 was $18.624 trillion, with a growth rate of 2.50%; and for 2017 U.S. GDP was well over $19 trillion.  That's about 15 times as large as Russia's GDP, and pulling away.  But it gets much worse.  In 2013 Russia's GDP was $2.230 trillion, and the U.S. GDP was $16.691 trillion -- less than 8 times as large.  Then came the oil price collapse of 2014, accompanied by international sanctions against Russia imposed the same year after Russia's incursions into Ukraine.  Those two things brought about a collapse of Russia's GDP of more than 40%.  It's hard to grasp how huge a decline that represents.  By comparison, the percentage decline in U.S. GDP from the peak year (2008) prior to the "Great Recession" to the next year (2009) when the recession hit bottom was just over 2% ($14.718 trillion to $14.418 trillion).  And the U.S. economy has long since left the Great Recession far behind, while Russia has only just begun to recover from the huge collapse of its economy, and is nowhere near getting back to the 2013 peak.

Obviously the biggest problem for Russia on the economic front is its huge dependence on the oil and gas sector.  A 2014 World Bank report calculates the oil and gas sector as contributing 16% to Russia's GDP in 2012; meanwhile the U.S. EIA gives much higher percentages for the contributions of the Russian oil and gas sector to government revenues (52%) and to exports (70%).  By contrast, the Commerce Department's Bureau of Economic Analysis has the oil and gas sector contributing less than 1% to U.S. GDP in 2016.  As a result, even severe downturns in this very cyclical sector barely register on U.S. GDP growth.  Yet the U.S. and Russia produce roughly comparable amounts of oil and gas annually (for example, for oil, about 9 million BBL/day for the U.S. and 10 million BBL/day for Russia)

Population.  Russia's population hit a peak of 148.3 million in 1995, and since then has declined.  The 2017 figure from Worldometers is 143.9 million.  In 2017 there was an excess of deaths over births of about 134,000 (1.82 million against 1.69 million).  For that year, the country managed to eke out a slight population increase by means of net in-migration of about 160,000 -- although most of that consists of Russian speakers and nationals coming from even-worse-off former Soviet satellites like Ukraine, Uzbekistan and Tajikistan.  Very few non-Russians seek to immigrate into Russia.  The place is vast, and mostly empty.  (By comparison, the U.S. has net in-migration of about 900,000 per year -- and many more would like to come if they were allowed.)  

If you look at overall fertility for Russia, it doesn't look too bad -- until you break it down.  In 2015, Russia's total fertility rate was 1.8 children per woman, which is below replacement rate (about 2.1), but not by much.  However, in the more prosperous, urban areas in the West and Northwest of the country (e.g., Moscow, St. Petersburg), the fertility rate was more like 1.4, while much higher rates closer to 3 prevail in poor, Southern (and predominantly Muslim) areas of the country, like Chechnya.  The ethnic Russian population of Russia looks to be in a state of accelerating decline.

Per capita income and wealth.  As a result of the GDP collapse, per capita GDP in Russia is now only about $8000.  In the U.S., per capita GDP has recently surpassed $60,000 -- 7.5 times as high.  Russia's per capita GDP is less than, for example, that of Mexico ($9707 in 2016) or Brazil ($10,826 in 2016).

Consequences for military spending.  U.S. annual military spending is estimated at $886 billion.  (This figure includes not just the Defense Department, but other large components of military spending, like the nuclear weapons program located in the Energy Department.)  That's about 4.5% of the U.S. economy.  With a total GDP of only about one and a quarter trillion, you can see how completely impossible it is for Russia to compete -- matching the U.S. militarily would take up to 75% of their entire economy.  According to RIA Novosti, Russia's defense budget in 2016 was about $69 billion.  That's close to 6% of Russia's GDP, but still well less than 10% of U.S. defense spending.

So Russia cannot have the full complement of military capacity to compete on the world stage, and needs instead to concentrate its very limited resources on a few specific things.  That's the real significance of Putin's focus on his new "invincible" nuclear missile in his big speech.  For probably a few billion dollars of R&D, he claims to have succeeded in restoring the situation where the U.S. did not have the capability to knock his missiles out of the sky.  To give him his due, that is a significant achievement -- if it is true.  On the other hand, this has been the situation during my entire life up to the last few years, during which the U.S. anti-missile capacity had improved to the extent that Russia's first-strike capabilities had come into doubt.

Meanwhile, Russian military capacities in other areas are nothing special.  It has a big one aircraft carrier, the Admiral Kuznetsov, which was built in the late 80s/early 90s in what is now Ukraine, and based in the Black Sea.  Then that country took a hike.  Now the Kuznetsov has to go home to Kola in the Arctic.  (The United States has 10 aircraft carriers and associated groups of support vessels, and another nine vessels that are somewhat smaller but also carry aircraft.). Russia supposedly has plans to build a new class of nuclear-powered aircraft carriers, but those plans appear to be on hold due to budget constraints, let alone that all the shipbuilding expertise was located in Ukraine.  The National Interest calls Russia's "supercarrier" plans "a total pipe dream."  Similarly, Russia has supposedly been developing a new class of advanced fighter planes since some time in the late 1980s, but the numbers planned for procurement keep shrinking toward zero.  As recently as 2010 there were plans to procure 150 of these planes.  By 2014 it was 55.  In 2015 they announced a new figure of 12.  

The outlook.  You do need to hand it to Putin for making relatively effective use of very limited resources.  But the fact is that Russia's pretensions to returning to great power status are completely hollow.  

To compete in a bigger way on the world stage, Russia needs a much larger economy and many more people.  But who is going to make a big investment in Russia, let alone move there?  Russia needs to move away from oil and gas and into a diversified modern economy.  To get there, they need to encourage entrepreneurs and start-ups.   Such an approach is inconsistent with the authoritarian, crony-capitalist model of Putinism.  It's not going to happen, at least not any time soon.

So expect Russia to continue to experience relative decline compared to the rest of the world.  That decline has been quite rapid in the past few years, and could even accelerate.