Productivity (or not) in Russia

After reading an American business article breathlessly gushing about the supposed strength of Russia's economy, with such details as a high employment rate under 3%, it seems worthwhile to draw attention to facts known about the topic.

More than 40% of the enterprises in Russia – including both civilian business and firms dedicated to military production – are shorthanded. Want to expand your business, or buy a house? The Bank of Russia has set its benchmark rate at 16% and still expects inflation not to fall quickly. A commercial loan isn't going to be made at the bank benchmark rate.

The same article that celebrated Russia's economic "strength" reported that Russia's employment situation benefitted from Russia's "voluntary" military recruitment model. Sure, there are some Russians who signed contracts to kill Ukrainians for $2,000 per month; that's true. But there's also a regularly scheduled conscription system that pulls several hundred thousand young Russians into the military each conscription cycle and, despite Russian law that states conscripts cannot be sent abroad to war, they've been sent to Ukraine from the very start of the war. These hundreds of thousands of men haven't had an easy time of it; Western estimates put the number of dead and wounded over 400,000. Few of them will work normal jobs again. More workers have fled Russia to avoid conscription – the UK Ministry of Defense estimated fleeing Russians numbered 1,300,000 in 2022 alone. Many of the fleeing Russians have been the most employable: young people in technology work who left because it was easy to do their work abroad.

That full-employment picture looks less cheery when one considers how many Russians fled the country or were sent to Ukraine to die, to get Russia to its low unemployment rate. And those who are working are being courted by military supply firms to lure them from economy segments that sustain and improve Russians' quality of life. Inflation is a direct result of military suppliers outbidding civilian employers to satisfy Russia's demand for weapons and ammunition.

When calculating GDP in Russia, translation into dollars is tough: selling rubles for dollars is illegal, so there is no market value for rubles. The rate of exchange for rubles is a government-promulgated fiction. Who knows what it'd be worth.

Russia is still in the war in Ukraine for the simple reason that enemies of the democratic West – primarily China, Iran, and North Korea – are showering Russia with supplies from which to make war materiel. It should be no surprise that Ukraine requires support itself. Like the Cold War ended when Russia bankrupted itself in an arms race against the so-called "Star Wars" (technically the Strategic Defense Initiative) defense programs, the conflict with fascist dictatorships allied against the West may be won luring them into an escalation of commitment to an unwinnable fight to expand Russia's borders.

And the more Russia embarrasses itself failing to defeat Ukraine, the more Russia's neighbors will be emboldened to reach out to make alliances with the capacity to support them in improving their quality of life.