💡 5 Quick Questions for … economist Branko Milanovic on the Russian economy, global capitalism, and more
"The problem with Russia is what I called her 'circular economic history.' To get rich, nations need internal and external peace, not chaos."
Back in March, in the early days of Russia’s invasion of Ukraine, I wrote an essay that attempted to answer the question, “Why is Russia so poor?” as a way of highlighting some of the factors that influence a country’s potential for economic growth and technological progress. Among the possible suspects for Russia’s failure: the messy legacy of communism, the “resource curse,” an anti-business attitude that extends back to the Tsars, and a deep pessimism about the future.
As to that last point, I quoted one Russian academic and think-tanker: “Today, ordinary [Russians] survive on their own and bureaucrats also act on their own, enriching themselves as much as they can. Neither the lower social strata nor the elites have any vision of the future. The absence of such a vision generates a deficit of historical optimism, pushing the system towards a debacle.”
For more on this subject, as well as a few additional ones, I recently had an email exchange with Branko Milanovic, a senior scholar at the Stone Center on Socio-economic Inequality at the City University of New York. He previously served as lead economist in the World Bank’s Research Department for almost 20 years. Milanovic is also the author of several books, including Worlds Apart, Global Inequality, and Capitalism, Alone, the subject of our 2020 podcast chat. He also has a great Substack, Global Inequality and More.
1/ Russia is a nation with vast natural resources, a well-educated population, and a deep scientific base. Yet on a per person basis, Russia is only the 67th richest nation in the world. Why?
The problem with Russia is what I called her “circular economic history.” To get rich, nations need internal and external peace, not chaos. One might remember Adam Smith’s famous statement that “peace, easy taxes and tolerable administration of justice” are sufficient for countries to transit from very low to very high income. Russia has not had that experience for a whole century. The period of fast economic growth after the elimination of serfdom in 1861 — that is, before the end of slavery in the United States — ended with World War I and then with the Bolshevik revolution and the civil war. Another acceleration of growth in the 1930s through Stalinist industrialization was stopped by World War II. The growth rebound of the 1950s–60s slowed down under Brezhnev — but at least there was no decline then. The decline came with the dissolution of the Soviet Union and the transition to capitalism. Russian GDP decreased by more than 40 percent (more than the American GDP declined during the Great Depression). In the final episode of the “growth-to-war-and-back” dynamic, the relatively good performance of Putin’s Russia up to about 2012, has now definitely ended with the war.
One can discuss other, perhaps more fundamental, reasons for the lack of technological advance of Russia, but I wanted to highlight a very simple fact which is often overlooked: to become developed and rich, countries need stability and constant growth over long periods of time. For every reasonable person (but Russia’s president), this simply translated into the fact that Russia needed at least fifty years of peace, stability and tolerable administration of justice to reach advanced countries. It never got that chance.
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