Crisis for the Russian Bear

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Crisis for the Russian Bear

Nearly thirty year ago, on November 9th, 1989, the Berlin Wall fell.  Two year later, on Dec 25, 1991, the Soviet Union ceased to exist and the Cold War officially ended.  Since then, the real GDP of the Russian Federation has grown about 25%.  Meanwhile the GDP of the United States has grown by 91%, from a much larger starting point. Because of its role as the world’s second largest energy producer and holder of the world’s largest nuclear arsenal Russia remains a Geo-Political power.  But in every other respect, it’s just another poor eastern European country facing a bitter “demographic winter.”

As the brilliant George Friedman recently wrote in Geopolitical Futures, “Vladimir Putin failed to keep his promise to create a modern economy. And now he has to pay the price.”

According to a poll conducted by the Russian Public Opinion Research Center, only 33 percent of Russians said they trusted the president:  its lowest point in 13 years.  In a country like Russia, this type of result should be seen as an indicator of deep discontent arising from significant social and economic problems.

This mood is certainly not unprecedented for Russia.  Over a quarter of a century ago, the Soviet Union collapsed because things simply “stopped working.”  The Soviet state was the center of society and managed the economy. After Josef Stalin died, there was a sense of hope in Russian society about the economy — and that hope sustained the government, even when it failed to meet expectations. But by the 1980s, ordinary Russians’ belief that they could provide for their families and that the gulf between them and the bureaucratic elite would diminish, had faded. What changed their minds was not envy or anger — Russians had grown to expect a certain level of inequality — but a lack of hope. They had little and were not going to get more.  Worst of all, they lacked hope for their children.

This situation was a result of four factors.

  • First, the inherent inefficiency of the Soviet apparatus, which could not build a modern economy.
  • Second, the misallocation of available goods, not only to the elite, but also to a thriving black market that frequently operated in foreign currencies, which most Russians lacked.
  • Third, the decline of oil prices, which shattered the state budget. And,
  • Finally, a surge in defense spending, designed to both match U...

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