“Why Russia — a country with less money than Canada and fewer people than Nigeria — runs the world now” wondered the Canadian newspaper National Post in January. The piece doesn’t give useful answers: nuclear weapons, good diplomacy, yes, but also the usual claptrap about “ruthlessness” and “Abandon[ing] economic worries to double down on efforts to grab geopolitical status”; in short only a brute lashing out in delirium tremens. The editors should better have wondered whether the headline even made sense: the first point is wrong and the second irrelevant. But, like so much of what passes for analysis in the Western media, it’s written backwards: it’s decision-based evidence making.
Talking about the relative insignificance of Russia’s GDP is an old game: Wikipedia says Canada’s GDP is greater than Russia’s and Germany’s is about two and a half times greater. These comparisons all assume that the price of the ruble in US dollars is a measurement of Russia’s production; a mere tweak in the relative exchange therefore knocks Russia from Number 8 down to below Spain according to Business Insider in 2014. Easy to calculate, easy to write, these head nodders are just feel-good junk: Russians don’t actually eat dollars, they don’t buy their necessities with them and they won’t have to eat grass and Putin speeches when a ruble buys fewer USDs.
There’s something deeply misleading and, in fact, quite worthless about these GDP comparisons. Whatever rubles are selling for at the moment, Russia has a full-service space industry which has the only other operating global satellite navigation system, the only taxi service to the ISS, much of which it built, and, apparently, the only rocket motors good enough for US military satellites. Neither Canada nor Germany, let alone Spain, does. It has an across the board sophisticated military industry which may be the world leader in electronic warfare, air defence systems, silent submarines and armoured vehicles. Canada, Germany, Spain do not. It builds and maintains a fleet of SSBNs – some of the most complicated machinery that exists. Ditto. It has a developed nuclear power industry with a wide range of products. Ditto. Its aviation industry makes everything from competitive fighter planes through innovative helicopters to passenger aircraft. Ditto. It has a full automotive industry ranging from some of the world’s most powerful heavy trucks to ordinary passenger cars. It has all the engineering and technical capacity necessary to build complex bridges, dams, roads, railways, subway stations, power stations, hospitals and everything else. It is a major and growing food producer and is probably self-sufficient in food today. Its food export capacity is growing and it has for several years been the leading grain exporter. It has enormous energy reserves and is a leading exporter of oil and gas. Its natural resources are immense. Its pharmaceutical industry is growing rapidly. It is intellectually highly competitive in STEM disciplines – a world leader in some cases. Its computer programmers are widely respected and regularly win the ACM International Collegiate Programming Contest. (Yes, there is a Russian cell phone too.) Its social networking apps attract users outside Russia (especially with fears that US-based ones may be censored or otherwise controlled). It’s true that many projects involve Western partners – the Sukhoy Superjet for example – but it’s nonetheless the case that the manufacturing and know-how are now in Russia.
Germany or Canada has some of these capabilities but few – very few – countries have all of them. In fact, counting the EU as one, Russia is one of only four. Therefore in Russia’s case, GDP rankings are not only meaningless, but laughably so. While Russians individually are not as wealthy as Canadians, Germans or Spaniards today, the foundations of wealth are being laid and deepened every day in Russia.
And, speaking of oil prices, what these head-scratchers all miss is this simple fact: Russia sells oil in dollars but produces it in rubles. So, whatever the exchange rate, things pretty well balance out. In fact, thanks to the exchange rate, Russia had some of the lowest production costs, measured in USD, in the world in 2015. It also funds its space effort, automobile production and wheat fields in rubles. And sells whatever exports they produce in dollars.
What of the future? Well there’s a simple answer to that question – compare Russia in 2000 with Russia in 2017: all curves are up. Meanwhile sanctions are driving the Russians to create new industries, oilfield services for one, or to boost others: agricultural products are now the second-largest export sector. Understandably, many Russians prefer the long time gain to the immediate (and declining) pain and hope the sanctions continue. For what it’s worth, PwC predicts Russia will be first in Europe in 2050, but, even so, I think it misses the real point: Indonesia and Brazil ahead of Russia? No way: it’s not GDP/PPP that matters, let alone how many USDs your currency buys, it’s full service. (Anyway, by 2050 the renminbi or gold will likely be the measure and how will the USA itself look by that measurement?).
Russia has a full-service economy and it won’t become any less so in the next 30 years. And there’s very few of them. And… in that little group of four autarkies on the planet, which are on the rise and which not?
Simple-minded GDP comparisons by exchange rate cause people to get it wrong over and over again. A more intelligent question would be to wonder whether Russia, hampered in the past by autocracy and Marxism-Leninism, might be about to show its real possibilities.