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Business Last Updated: Jun 27, 2022 - 12:20:40 PM


Growth Through Conquest Backfires
By Strategy Page, June 26, 2022
Jun 26, 2022 - 11:04:51 AM

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Russia finally completed its delayed (by covid19) census. These are carried out every ten years and Russia had some good news which, on closer examination, was anything but. Before providing details of the census, Russia announced that the population increased 1.4 percent since 2010. This was unexpected because the trend since 1991 has been falling birthrates and growing death rates. For a while, as the Russian economy began growing again in the late 1990s, Russia benefited from more migrants, usually from former parts of the Soviet Union. Many of these migrants were not ethnic Russians (Slavs) but various other minorities, some more acceptable than others. Russia as a source of jobs for migrants lasted less than a decade before a global recession and unexpected growth in American oil production lowered the value of Russia's main export; oil and natural gas.

The ex-Soviet migration to Russia ceased and more Russians left. Russia solved this problem by seizing Crimea from Ukraine in 2014 and later annexing it and its 2.3 million people. This was contrary to international law and a 1994 agreement Russia signed that guaranteed Ukrainian territory would not be subject to Russian annexation. Ukraine protested the loss of Crimea to no avail and began reforming its military and mobilizing foreign support to take back Crimea and portions of eastern Ukraine (Donbas) that Russia also seized in 2014 but not as successfully as in Crimea. Donbas has not been annexed yet.

The 2022 invasion of the rest of Ukraine was the Russian solution for Ukrainian refusal to reunite with Russia. This is an ancient Russian tradition that many Russians understand, but often do not accept because times change. It’s no longer 1200 or 1700, two pivotal times in Russian history. About a thousand years ago the Russians began to regularly defeat efforts by invaders and stronger neighbors to do a Crimea on Russia. By 1700 Russia was a conqueror to be feared and began absorbing foreign populations to the point where the Russian empire reached its peak under the monarchy in the late 19th century, only to be undone by military defeats and communist misrule for 70 years. In 1991 it all fell apart for many reasons, chief among them that half the population, including major Slavic groups like Ukrainians and Belarussians, wanted out of Russian subjugation. Many Russians saw their departing subjects as ungrateful and disloyal. None of the departed has asked to return, despite Russian economic and military aid and promises of more if they became Russian again. None of the new states were interested and many were developing closer relations with more economically successful groups. Ukraine wanted to join the EU (European Union) and NATO. In Central Asia the former Soviet subjects were developing new relationships with China as well as prosperous Western and East Asian nations.

Russia and Russians went through many fundamental and welcome changes. This included freedom to travel, or immigrate, and switch jobs freely. Millions did move out of Russia, especially after Russia went to war with tiny Georgia (in 2008) and the much larger Ukraine in 2014 and 2022. Inside Russia there were long-delayed internal migrations that the Soviets did not allow. This led to the population of Moscow and other large cities increasing while many Russians abandoned the countryside, especially in Siberia and the Far East (Pacific Coast). Russians with skills, be they in production, management or the sciences, could now seek jobs that suited them best. That meant better pay and working conditions and increasingly it meant taking jobs and keeping jobs outside Russia. As part of an effort to keep more Russians in Russia the government had to promise to get rid of conscription as soon as the economy could support that. In the meantime, conscription laws were changed to reduce the service period to one year and prohibit the use of conscripts in foreign wars.

None of this encouraged enough Russian couples to have more children while bad habits like alcoholism, drug use and ignoring good health in general saw the death rate increase. It was common for affluent nations to see declining birth rates but in Russia it was failure to improve the post-Soviet economy that caused the birth rates to plummet. This began towards the end of the Cold War (and Soviet Union) and was a problem primarily with the Slavic groups. The 2020 census showed that the number of Russians of working age is declining. The 2020 census showed working age Russians declined from 66 percent in 2010 to 59 percent and most of those not working are drawing a pension, not growing to be an adult.

There are population problems that Russia does not like to admit exist, namely in former parts of the Soviet Union that were mostly non- Slavic. This means Central Asia where the locals (mainly Turkic and other non-Slavs) always resented Russian domination. The ethnic Russian minority soon left after 1991 and now the number of locals who can speak Russian is rapidly shrinking. Since the early 1990s, these unwilling areas of the Russian empire have lost between a third and half of their Russian speakers. In the West (the Baltic States) the favorite second language is now English while in the east it is Chinese (mainly) and English. During the Soviet years the majority of the locals could speak or at least understand some Russian. The speed with which that disappeared was amazing, and demoralizing for Russians.

Russia still has a lot of non-Slav minorities and these minorities have higher birth-rates than the ethnic Russians. For centuries Russia (rebranded as the Soviet Union in the early 1920s) was considered a threat to its neighbors in part because of its larger population. But since the Soviet Union fell apart in 1991 and half the population broke away to form 14 new nations, the remaining Russian population has been in decline. Twenty years after the Soviet Union collapsed, the Russian population implosion was getting worse. While in the 1990s the population was shrinking at a rate of .1 percent a year, in the first decade of the 21st century that increased to .2 percent a year. This was because the non-Slav Russians are having fewer children, just as the Slavs have been doing (or, rather, not doing) for decades. The Russian population had declined three percent since 1989, from 147 to 142.9 million in 2017. The proportion of the population that is ethnic Russian (Slav) declined from 81.5 percent to 77 percent in that same period. The Russian slide could have been worse had it not been for the fact that millions of ethnic Russians in the 14 new states felt unwelcome with government controlled by the locals, not Russians in far off Moscow. Often the locals wanted the ethnic Russians in their midst gone and Russia made it easy for those Russians to return to the motherland. This prevented the Russian population decline from being closer to ten percent.

Until the 2014 invasion of Ukraine, sanctions and lower oil prices, the Russian birth rate was growing again. That has stopped since the invasion of Ukraine and more Russians are seeking to emigrate as are many foreigners working in Russia. The extent of this can be seen in Moscow where rents for high-end (“Western”) apartments (for wealthy Russians and foreign professionals) have declined by at least 50 percent since 2014

Russian leaders admit that the sanctions plus the covid19 recession forced the government to adjust its economic goals. In 2018 the government announced an economic recovery plan that would move Russia to fifth place (from sixth) in the world economic rankings by 2024. This would be measured using the "purchasing power parity" (PPP) method. This is a concept that recognizes, and calculates the different costs, for the same things, in each country. Most people know this by the more familiar term, "cost of living adjustment." It's more expensive to live in Moscow. GDPs are also measured in “nominal” (dollar) terms. In nominal terms the Russian GDP is 11th worldwide. Russian leaders now say it will take until 2030 to improve GDP so that in PPP terms it is number five worldwide.

That may be too optimistic because the rest of the world is not standing still. In nominal terms (ignoring PPP and just counting everything in dollars, which is the standard for international trade and especially for the oil market) smaller nations like Australia will pass Russia in GDP over the next decade, if not over the next few years. Currently the Russian nominal GDP is slightly larger than Australia’s, a nation with a much smaller (25 million) population. Australia is handling the covid19 crises more effectively than Russia which means Australian economic prospects are much brighter than Russian ones.

Until the Russians invaded all of Ukraine in 2022, Russia was still hurting from low oil prices. These were headed up in 2018, peaking at $74 a barrel in early October then falling over 40 percent (to $43) by the end of 2018. Oil prices recovered a bit in 2019 but the prospects of much more price growth in 2019 were not good. The major customer for oil, China, continues to reduce use because Chinese economic growth continues to decline and it is feared China might even suffer a major recession because of the continued economic problems. Meanwhile, North American oil and gas production continued to soar and the U.S. began to take business from Russian gas producers, supplying LNG (Liquefied Natural Gas) at a lower cost than Russia provides via pipeline. European customers don’t trust Russia, partly because of the war against Ukraine but also because of the increasing belligerence against NATO. This is all about an imaginary NATO scheme to weaken Russia. Russians seem quite capable of doing that all by themselves.

Although Russia was able to bring the inflation rate down (from 12 percent in 2015 to about 4 percent in 2018-19) the cumulative effect was a continued reminder to Russians that the economy is still weakened by the sanctions and low oil prices. Worse, Russians now tend to blame their own government for this, not “the West.”

The government has less economic activity to tax and as a result, government spending has to be cut. The cuts in retirement benefits were particularly unpopular as were the cuts in infrastructure (roads and utilities) maintenance and improvements. At the same time, the defense budget suffers fewer cuts, mainly because Russia is still racing the clock to replace elderly Cold War weapons and equipment. There is still a lot of that pre-1990 stuff around. The navy is something of a lost cause, mainly because the major ships are so expensive and were never as much of an export item as armored vehicles and warplanes. The shipbuilding industry is uncompetitive. Aviation and armored vehicle exports are thriving and because of that the military received a hundred new aircraft in 2018 and will get about the same in 2019. Most of these are improved models of late Cold War designs (especially the Su-27/30) and some late-Cold War helicopter designs that were completed in the 1990s. The air force inventory of modern aircraft is still shrinking but deliveries are keeping the shrinkage rate low. This comes at a cost. New aircraft designs, like the Su-57, are not going into production. Same with new tank designs (namely the T-14). These are too expensive and too untried. The generals prefer to get improved models of what they know works rather than untested new designs.

All this malaise has also expressed itself in accelerated population decline. Not just birthrates but also migration. In the last year the number of people moving to Russia declined over 40 percent and the number who left went up 22 percent. More people are leaving than arriving. Add that to more people dying than being born and the shrinking population becomes more visible. Even expatriate Russians who send money to kin still in Russia are less active. Before the 2014 sanctions, expats sent nearly $20 billion a year back to Russia. Those amounts have since declined by a third and continue to shrink. Russia is paying the price for not addressing corruption and an atmosphere that discouraged the formation of new businesses. Russia also found that the conquered populations in Crimea, Donbas and elsewhere violently resisted assimilation, especially when Russia sought to force them to support the Russian military operations in Ukraine. For those areas occupied in 2022, many locals prepared for the possibility of Russian occupation and had well concealed supplies of weapons, ammunition and other supplies that were put to use once the Russians thought they were in control of the area.

Dependence on natural resource exports is hard to get away from and that failure has doomed Russia. Restoring the economy and population through conquest doesn’t work either. That was demonstrated several times during the 20th Century and rather than learning from that the post-1991 Russian government eventually ordered the textbooks changed to ignore the lessons of the past and support the mistakes of the present.


Source:Ocnus.net 2022

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