Wednesday, July 23, 2014
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Can Russia Be Great?

CAMBRIDGE – In the 1950’s, many Americans feared that the Soviet Union would surpass the United States as the world’s leading power. The Soviet Union had the world’s largest territory, the third largest population, and the second largest economy, and it produced more oil and gas than Saudi Arabia.

Moreover, the USSR possessed nearly half of the world’s nuclear weapons, had more men under arms than the US, and had the most people employed in research and development. It detonated a hydrogen bomb in 1952, only one year after the US, and it was the first to launch a satellite into space, in 1957.

In terms of soft power, communist ideology was attractive in post-World War II Europe, owing to its anti-fascist credentials, and in the Third World because of its identification with popular national-independence movements. Soviet propaganda actively fostered a myth of the inevitability of communism’s triumph.

Nikita Khrushchev famously boasted in 1959 that the Soviet Union would overtake the US by 1970, and by 1980 at the latest. As late as 1976, Leonid Brezhnev told the French president that communism would dominate the world by 1995. Such predictions were bolstered by reportedannual economic growth rates of 5-6% and an increase in the USSR’s share of global output, from 11% to 12.3%, between 1950 and 1970.

After that, however, the Soviet growth rate and share of global output began a long decline. In 1986, Mikhail Gorbachev described the Soviet economy as “very disordered. We lag in all indices.” A year later, Foreign Minister Eduard Shevardnadze told his officials, “You and I represent a great country that in the last 15 years has been more and more losing its position as one of the leading industrially developed nations.”

What is surprising in retrospect is how wildly inaccurate Western assessments of Soviet power were. In the late 1970’s, a “Committee on the Present Danger” argued that Soviet power was surpassing that of the US, and the 1980 American election reflected such fears. Yet in 1991, the Soviet Union collapsed.

The end of the Soviet Union left Russia significantly shrunken territorially (76% of the USSR), demographically (50% of the USSR’s population), economically (45% of the USSR’s output), and in terms of military personnel (33% of the USSR’s armed forces). Moreover, the soft power of communist ideology had virtually disappeared.

Nonetheless, Russia had nearly 5,000 deployed nuclear weapons, and more than one million armed forces, though its total military expenditure was only 4% of the world total (compared to 40% for the US), and its ability to project power globally had greatly diminished.

In economic resources, Russia’s $2.3 trillion GDP was 14% that of the US at independence, and its $16,000 per capita income (measured in terms of purchasing power parity) was roughly 33% that of the US. Its economy was heavily dependent on revenue from oil and gas, with high-tech goods representing only 7% of its manufactured exports (compared to 28% for the US).

In terms of soft power, despite the attractiveness of traditional Russian culture, Russia has little global presence. In the words of Russian analyst Sergei Karaganov, Russia has to use “hard power, including military force, because it lives in a much more dangerous world and has no one to hide behind from it, and because it has little soft power – that is, social, cultural, political, and economic attractiveness.”

Russia is no longer hampered by communist ideology and a cumbersome central-planning system, and the likelihood of ethnic fragmentation, though still a threat, has waned. Whereas ethnic Russians comprised only 50% of the Soviet Union’s population, they now make up 81% of the Russian Federation.

The political institutions needed for an effective market economy are largely missing, and corruption is rampant. Russia’s robber-baron capitalism lacks the kind of effective regulation that creates trust in market relationships. The public-health system is in disarray, mortality rates have increased, and birthrates are declining. The average Russian male dies at 59 – extraordinarily low for an advanced economy. Estimates by United Nations demographers suggest that Russia’s population may decline from 145 million today to 121 million by mid-century.

Many Russian futures are possible. At one extreme, some view Russia as an industrialized banana republic whose corrupt institutions and insurmountable demographic and health problems make decline inevitable.

Others argue that reform and modernization will enable Russia to surmount its problems, and that its leadership is headed in this direction. Late in 2009, President Dmitri Medvedev issued a sweeping call for Russia to modernize its economy, wean itself from a humiliating dependence on natural resources, and do away with Soviet-style attitudes that he said were hindering its effort to remain a world power.

But, as Katinka Barysch of the Centre for European Reform argues, Russian leaders’ concept of modernization is overly statist, particularly given that public institutions function so badly. “An innovative economy needs open markets, venture capital, free thinking entrepreneurs, fast bankruptcy courts and solid protection of intellectual property,” she argues. Instead there are “wide-spread monopolies, ubiquitous corruption, stifling state interferences, weak and contradictory laws.”

Dysfunctional government and pervasive corruption make modernization difficult. Peter Aven, president of Alfa Bank, argues that, “economically, it looks like the Soviet Union more and more. There is a huge dependency on oil, a need for capital, a need for serious reforms, while the social burden is very strong. Stagnation is the main threat.” A Russian economist says flatly that, “there is no consensus in favor of modernization.”

Whatever the outcome, because of its residual nuclear strength, its great human capital, its skills in cyber-technology, and its location in both Europe and Asia, Russia will have the resources to cause major problems for or to make major contributions to a globalized world. We all have an interest in Russian reform.

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