Dec 26, 2022
The Jamestown Foundation
Staunton – The Putin regime has used a variety of macro-economic indicators to suggest that the war and the sanctions it has sparked have not had that great an impact on Russia and that the country is weathering the current problems far better than anyone might have expected, Vladimir Milov says.
But those indicators form a kind of “Potemkin village” that conceals the real cost of the war to Russians: they are now 20 to 25 percent poorer than they were in 2013 and 10 to 15 percent poorer than they were only ten months ago, the opposition politician and economist says (theins.ru/opinions/vladimir-milov/258141).
This is far from the only price Russians have had to pay for Putin’s adventurism and aggressiveness – they have suffered from increased repression and increased isolation — but it is a high one, likely to create a situation in which economic problems will become political ones in unexpected ways in the future, he continues.
To understand the true state of affairs in the Russian economy, Milov says, one must not use the macro indicators so beloved by Kremlin propagandists. For example, GDP, something which has one meaning in peacetime and quite another in wartime, is a fact the Putin regime ignores.
In peacetime, GDP “consists of profit, pay and taxes” and has a multiplier effect; but in wartime, it includes the production of arms and ammunition which also “add value” but are quickly expended without making a contribution to economic dynamism. Because that is the case, talking about how small the decline in GDP has been is deceptive nonsense.
The same thing is true of other gross measures. Unemployment is growing but remains largely hidden because people are kept listed as employed even when they don’t get all or even any of their pay. Inflation is something that is profoundly affected by the methods used to calculate it, and the regime uses those which show it to be lower than it is in fact.
Investment, which the regime claims is actually growing, isn’t taking place when the country is experiencing a record capital flight; and the ruble’s supposed strengthening is the product of the government’s controls rather than any increase in demand. In reality, demand has collapsed, but you’d never know that from government claims.
If one looks beyond these “Potemkin indicators,” the economist continues, one gets a better idea of what is going on. Production is collapsing in many sectors, demand has collapsed as people
try to feed themselves at a time of rising prices and falling incomes, budget deficits are growing, and import substitution has failed.
If one considers these, Milov says, it becomes obvious that there are no positive prospects; and “for Russians, this means only one thing: they will continue to get poorer and the quality of their life will get worse.” That is the real price of “Putin’s imperialism and geopolitical adventurism,” he concludes.