WASHINGTON, DC – The long-term sustainability of Russia’s economy is an open question. Cronyism is rife, and Russia’s heavy dependence on oil revenues means that it will suffer whenever oil prices are low. But if the Soviet Union taught us anything, it is that unsustainable systems can survive for many years.
The Russian system today reminds me of the Soviet system I experienced in 1983, when I lived in Moscow, and KGB disciplinarian Yuri Andropov (the “Butcher of Budapest”) was still in power (albeit in poor health). The common economic features, then and now, include low oil prices, a nonviable economic ideology, state ownership of crucial industries, and authoritarian rule.
But one notable difference is that Russia’s macroeconomic management is much more competent today than it was then. Russia is not at risk of running out of financing, despite continued Western sanctions. But its tight resources do limit the Kremlin’s foreign-policy options and aggravate tensions among Russian elites.
Since oil prices started falling in June 2014, Russia has slipped from sixth place to 14th in the International Monetary Fund’s global economic rankings; its GDP (measured in current United States dollars) has dropped from $2.1 trillion to $1.1 trillion – just 6% of US GDP. (And it spends only 8% of what the US does on defense.)