The perception of performance of a totalitarian regime centers entirely upon its leader. The attributions of success and failure all find their way to that leader ultimately to provide some reckoning as to whether the costs of submission were worth the necessary sacrifice of individual and societal liberties. Given sufficient time, as these attributes accumulate upon the balance sheet of history, a decision is rendered, from the outside and within, of whether history smiles upon that leader and, accordingly, the complicit nation in question, or turns away in disgust. Seen from without, Vladimir Putin’s Russia is acknowledged now by most nations as belligerent and threatening, devoid of humanity, and untrustworthy. From within, with its current trajectory, it is destined to become a failed state, contaminated by an innate and inherent corruption and incapable of adequately delivering the basic services needed for several of its widespread territories. After more than 20 years, Putin’s leadership has brought shame upon Russia and its people and economic circumstances that will continue to haunt the country in succeeding generations. It is time to look at Putin’s Russia from within.
Russia is currently not regarded as a “developed” nation according to socioeconomic criteria outlined by Investopedia, a leading global source of financial content on the web. These criteria include per capita gross domestic product (GDP), the nation’s overall GDP, level of industrialization and technological infrastructure, and standard of living. Over the past decade, poverty has remained widespread, involving 13% of the population, mostly children. Russia is ranked 78thin the world for per capita GDP, below 76th ranked China which has approximately 10 times the population. In keeping with this, Russian wealth inequality under Putin has only increased such that, in 2020, nearly half of the country’s total wealth was in the hands of 1% of the population.
Health care system delivery is grossly uneven throughout the country, favoring urban settings like Moscow and St. Petersburg over largely rural territories that occupy vast stretches of land. Moreover, it is poorly managed and chronically underfunded. Although infant mortality has seemingly declined, its current rate of 4.8 deaths per 1,000 live births trails that of the European Union (EU) which registers 3.4 deaths per 1,000. The total life expectancy at birth in 2021 was 72 years although, for males, it was 64, dropping from 68 in 2018. Comparative EU male life expectancy in 2022 was 77.7 years. The average lifespan recorded for the Russian male will continue to worsen as mortality figures mount at an alarming rate in Putin’s current war in Ukraine. Sadly, a life satisfaction score reported by Russians on average amounted to only 2.1 out of 10, a verdict upon life in Putin’s Russia that brings to mind Hobbes’ sentiment that life is ‘solitary, poor, nasty, brutish and short.’
With presidential terms in Russia lasting six years, Putin is now within a year of completing his fourth term in office, and expecting to be “re-elected,” as they say in Russia, in early 2024. A brief review of Russia’s economy during Putin’s tenure shows it influenced by several factors, not least of which have been his leniency toward corruption, his willingness to engage in illegal foreign incursions, a childlike paranoia of the West and its intentions, imperialist notions of a resurgence of past Russian grandeur, and a general disregard for the welfare of his people. Prior to Putin’s ascendancy in 2000, the Russian economy had largely floundered during the 1990s reaching a low in GDP growth of -12.57% in 1994. It showed recovery in 1999 to 6.40% with the outbreak of the Second Chechen War (1999-2009) and rose to 10% the following year. It was Putin who gave impetus to the war by inflicting false-flag operations upon his own people, blaming Chechen terrorists for the bombing of apartment dwellings in the vicinity of Moscow and elsewhere. Feigning righteous vengeance for the resultant killing of over 200 Russians, he unleashed a particularly brutal military campaign upon the Chechens and installed a puppet regime that has continued to act on his behalf to the present day.
Soon after the bulk of the fighting was over, the economy slowed again with a GDP growth of 4.70% by 2002. Gains were made subsequently with rising commodity prices and growth of the Russian middle class although a widening income gap was appearing as Putin favored his enriched inner circle above others. The GDP peaked in 2007 at 8.5% while inflation was trending upward into the double digits before the arrival of the Great Recession (2007-2009). For Russia, the recession was further complicated by Putin’s 2008 invasion of Georgia over a territorial dispute. The desire to invade was actually fueled by both Georgia and Ukraine pressing for improved relations with the West and by a recent pronouncement by the North Atlantic Treaty Organization (NATO) to support their applications for membership at its Bucharest Summit which Putin had attended by invitation. Putin’s disregard for a nation’s sovereign right for self-determination in favor of his imperialist aspirations for Russia would continue to influence his foreign policy. Sanctions instituted in response to the invasion now added further grief to the financial crisis. Unfortunately for Putin and Russia, a coincident dramatic drop in the price of its crude oil had also occurred and brought to the fore the unwise and overly optimistic dependence of Russia’s economy upon a singularly dominant commodity. In fact, energy export (i.e., oil and gas) accounted for over 50% of government revenue and almost 20% of its GDP.
GDP growth consequently fell abruptly to -7.8% in 2009, recovering in 2010 to 4.5% but showed a continuing negative trend subsequently, falling below 2% in 2013 until 2018 when it then hovered below 3% until 2020 and dropped again to -2.66%. Another financial crisis resulted from collapse of Russian currency in late 2014 sparked by a loss of confidence in the Russian economy and was again partly attributable to a 50% drop in the price of crude oil in the latter half of the year. More importantly, the crisis was prompted by the introduction of economic sanctions following another one of Putin’s foreign incursions upon a sovereign nation. This happened now to be in Ukraine when Russian paramilitary operatives overtook Crimea followed by its illegal annexation. The Crimean intrusion was prompted by the ouster of a pro-Putin and corrupt regime in Ukraine following the Maidan Revolution of 2013-14. The latter had been driven by an overwhelmingly popular Ukrainian sentiment to join with the EU, counter to Putin’s wishes. Putin saw this as another threat to imperial Russia given Ukraine’s historically strategic value both geopolitically and militarily. Moreover, the strengthening of democratic values through Westernization of a neighboring nation would undoubtedly further demonstrate disparities with Russia that would come about through enhancement of social welfare programs, creation of greater judiciary transparency, and increased prosperity brought by closer trade relations with the EU.
Russia’s GDP growth rate for 2021 had increased to 4.75%, back to where it had been a decade previously, only again to see a downturn with Putin’s invasion of Ukraine on February 24, 2022. On March 2, the credit rating agency, Fitch, that provides a measure of the relative ability of a sovereign entity or corporation to meet its financial commitments, downgraded Russia’s Issuer Default Rating (IDR) to a ‘B’ from a ‘BBB’ over concerns regarding the severity of rapidly tightening international sanctions and Russia’s “willingness to service government debt.“ A week later, on March 8, well before its next scheduled issuance on May 27, Fitch further downgraded Russia’s sovereign IDR to ‘C’ on the suspicion of an imminent default which actually took place in June. According to its statement at the time, the report cited World Bank Governance Indicators (WBGI) in Fitch’s Sovereign Ranking Model rating Russia at the 29th percentile. This reflected “weak rights for participation in the political process, weak institutional capacity, uneven application of the rule of law and a high level of corruption.”
Before the outbreak of Putin’s war upon Ukraine, the Investopedia 2021 ranking of world economies placed Russia’s GDP 11th, below that of South Korea. In the last quarter of 2022, with the war ongoing, the GDP fell 2.7% followed by a further decline of 1.8% in the first quarter of 2023, marking four consecutive quarterly contractions attributable to Western sanctions, as reported by Russia’s Federal State Statistics Bureau. There was already much to make up from the previous year’s performance when, after three months of war, the May 2022 GDP already indicated a 4.3% annual GDP contraction.
The retaking of the majority of Russia’s economy by Putin back under state control and the reining in of those oligarchs who once led the energy and financial sectors provided him the ability to direct the flow of cash to better suit his purposes. Regulatory procedure was corrupted accordingly. Foreign investment in Putin’s Russia became a risky undertaking as has been well documented by Bill Browder and others. Federal government involvement in business transactions relating to many of Russia’s major industries and services provided those within Putin’s inner circle and others more peripheral to it with opportunities for profiteering. Public procurement became a lucrative enterprise affording preferred elites a means to embezzle considerable amounts of tax-payers’ money. Facilitating such graft has been a corrupt judiciary which has failed to uphold its legal standard, showing inconsistencies in practice and allowing for a lack of transparency that undermined the entire process of justice. Prosecutorial misconduct took on the appearance of vengeful acts by the government against entities that resisted the process as it was practiced. This matter pertained to political dissidents and business enterprises alike and would include any other agency perceived as a threat to the authority of the system.
Whatever the deleterious impact of a corrupted government and judiciary upon foreign business relations was in Russia beforehand, the departure of well over 1,000 multinational businesses following the 2022 outbreak of war would now affect the employment of 12% of Russia’s workforce with a loss of revenues amounting to 35% of its GDP. Worse still came Putin’s misjudgment of Europe’s dependence upon Russia’s natural gas which had once accounted for 86% of sales. A mild European winter coupled with alternative global sources of energy in the form of liquified natural gas (LNG) effectively heralded the closure of this market for Russia reducing its gas revenues by 80%. The decision by the Group of Seven coalition (G7), Australia and the EU to secure a $60 per barrel price cap on seaborne Russian crude oil in December 2022 further curtailed Putin’s profit margin. As an added insult, the move provided China and India the opportunity to profit, by upwards of 30%, from the deeply discounted prices for Russian oil.
Because Russia has relied largely on being a global commodities supplier rather than a manufacturer of products for export, save perhaps for the armaments industry, global consumers will increasingly seek other suppliers with the adoption of alternate supply chains that exclude Russia for its poor reliability. The shortfalls in revenue that have accumulated in the recent past have caused the government to seek out other sources of funding. The 2022 federal budget continued to show a decline with a 2.3% deficit despite massive transfers from Russia’s sovereign wealth fund, asset sales and now the imposition of windfall taxation of major national corporations.
The effort to finance the war has begun to negatively impact the Russian economy in such a way as to affect the Russian people. Inflationary pressures are mounting as money is printed in excess causing Russian banks to purchase debt that is nearing worthlessness. Emigration over the past 1.5 years coupled with the military mobilization of 300,000 has led to estimates of Russia losing 1.3 million young workers by 2022. Factories are facing the highest labor shortages since record-keeping began in 1998 with 42% of Russian industries reporting deficiencies in July 2023, up from 35% in April and, to worsen matters, workers are protesting low wages. The impact of such a loss of productivity and youthful intellect cannot be measured only in the present circumstance but, rather, well into the future given the greater opportunities and freedoms afforded this generation elsewhere which will encourage them to stay away from Russia.
A recent assessment of Russia’s annual rate of consumer price increases points to a dramatic inflationary trend prompted by a decline in the ruble’s exchange rate. Although the Central Bank of Russia had indicated an expected July 2023 increase in inflation of 11.1%, estimates by leading economist, Steve Hanke, would suggest the figure to actually be 60%. The July value of the ruble had fallen to a 15-month low of 94.48 against the USD. The weakened currency resulted in a rush of withdrawals from the Central Bank which was further fueled by the political uncertainty brought on by the recent Wagner mercenary rebellion.
A number of other economic woes have befallen Russia in the current quarter and will further enhance the gravity of its fiscal situation. Tax revenue from Russian oil and gas product sales in June declined 36% compared to the previous year with profits down by 31%, a consequence of the previous year’s price caps. Russia’s current account surplus during the second quarter fell 93% from $76.7 billion (USD) in 2022 to $5.4 billion (USD) in 2023, largely because of Western sanctions. Wartime sanctions interfered with Russia failing to meet its sovereign debt obligations leading, in June 2022, to its first default since 1918. This may well serve to complicate future borrowing costs should Russia regain access to global markets.
Living conditions in Russia worsened over the past decade since Putin’s invasion of Crimea and impacted the least privileged, in particular, because of their greater inability to manage the inflationary prices of staple goods or simply have access to them. The Human Development Index (HDI), used by the United Nations Development Program (UNDP), takes into account both the economic and social development of people within the global community based on national life expectancy, education, and per capita GDP. Of 191 nations, Russia was ranked 52nd, below that of Germany (9), Canada (15), United Kingdom (18), United States (21), and France (28). According to Russia’s federal statistical office (Rosstat), a 2019 survey identified 48.8% of the population as having sufficient funds for food and clothing but not for consumer durables, 16.1% with difficulty purchasing clothing and managing household costs, and 1% having insufficient money for food. Access to health care, particularly in the rural areas, has reached a critical stage. The number of health facilities within the territories fell by 75% including drops in the number of district hospitals of 95% and local health clinics of 65% between 2005 and 2013. These circumstances have been further affected by the recent coronavirus pandemic which further exposed the weaknesses of public health in Russia raising concerns regarding preparedness for further such occurrences. Chronic federal underfunding for health care coupled with sanction-related shortages of pharmaceuticals and medical equipment continue to add to the deteriorated state of the health care system.
A Social Progress Index (SPI) developed by the global nonprofit organization, Social Progress Imperative, provides data regarding the social and environmental health of world societies. Prior to the outbreak of Putin’s war, the 2021 SPI ranked Russia 62nd of 168 countries, below that of most of Eastern Europe. A measure of access to information and communication had Russia already standing at 154th globally for its draconian media censorship. Current wartime measures have only added to the near abolition of independent media. A ranking of 78th among nations for attention to basic human needs highlights Putin’s regime for its particular shortcomings when it comes to social welfare. Among the several contributing factors were issues of personal safety (141st) including death due to interpersonal violence (147th) and, of course, political killing and torture (143rd). Basic considerations such as shelter (70th) emphasized concerns over housing affordability (96th).
Issues of water and sanitation are highlighted by a 2019 report by the nongovernmental organization, WaterAid, that more than 20% of Russian households were without indoor plumbing and 22.6% were without a centralized sewage system. This was in keeping with an earlier 2015 report that Russia led the developed world with the worst sanitation record. In 2012, about 25% of the population or 35 million Russians resorted to the use of outhouses. Russia’s standing among 169 nations in the 2022 SPI has effectively not altered much with a ranking of 59th, below that of Ukraine (52nd) which it has brutalized in the past year and well below that of most Western countries. Of the latter, 16 EU countries ranked in the top 20 alongside Japan, Canada, Australia and South Korea. The United States (25th) and several eastern European countries are included in the top 50.
Education is also underfunded in Russia although educational achievement by adolescents appears to remain close to the average seen in countries within the Organization for Economic Cooperation and Development (OECD). The quality of higher education, however, is below standard with no Russian university ranked in the top 150 schools in the 2022 Times Higher Education world university rankings and only six ranking in the top 500. The massive emigration of young Russians in the past year, prompted by Putin’s conscription notice, undoubtedly included young academics, technicians and engineers and will affect current and future scholarship in a nation that has already fallen below standard. The 2021 SPI ranked Russia 132nd for academic freedom but, whether educated or not, Russians have for some time been limited regarding their personal rights such as the simple freedom of expression with Russia ranking 131st. The situation for Russians in this regard has only worsened in the past year particularly as it regards opinions about the war.
The economic calamities that Russia suffers because of Putin’s continued obsession with his genocidal war in Ukraine will impose only greater strains upon the Russian people. Current hardships will become accentuated and will raise questions regarding whether Russia’s people will come to see the fallacy of bearing the same sort of stoic suffering of past generations for the sake of supporting a leader who has only brought them to ruin and cast a stain upon their nation while caring very little for their welfare. Putin’s response to this obvious threat has been to embrace the war as one mounted against the contaminating influence of the West’s moral depravity upon Russia’s traditional cultural purity. It’s a deeply flawed anachronistic Soviet era sentiment that places Putin among those of past generations and not of the current time. It is indeed time for Russia to be rid of him and those like him.
Copyright @Kost Elisevich, MD, PhD 2023. All rights reserved. Any illegal reproduction of this content will result in immediate legal action.
Not surprising. In 2018, my husband and I took a river cruise from Moscow to St. Petersburg. We noticed that on some tours, the superlatives that tour leaders used were grossly inaccurate. Air conditioning in some of the great halls was lacking. People barely survived in rural towns. Their children were leaving to Moscow and St. Petersburg for jobs. At one point, I asked where do the rich Russians live. The response was Miami and London! My friend who had been on that cruise several years earlier noted that people on the ship were much more guarded. Putin’s picture was everywhere. How sad.
Excellent article. Gives behind the scenes information that the media does not dig into. Russia is a sick country and that illness may finally catch up to Putin. He will be gone at some point. What then?
Putin and his regime are very much a product of their Soviet era upbringing and are inclined to resort to familiar patterns of repression when confronted with possible social resentment and unrest. State security surveillance is pervasive and the citizenry is wary of incrimination so that much is hidden, particularly when there are clear indications that not only is the war going badly but the economy is becoming seriously degraded. Depleting federal reserves, labor shortages, depressed consumer spending, falling oil export revenue, protracted sanctions, foreign seizure of Russian assets and rising inflation will effect funding of the war effort upon which Putin’s survival depends. Something will break soon. It will be for Russia and its youth to decide whether they wish more of the same or become part of a global community that prefers discourse over barbarism.