By Anjan Roy
The Russian war in Ukraine has completed four years this week with the peace talks still showing no signs of an agreement. Meanwhile, the Russian economy has entered what is known, in the language of high-altitude mountaineering, as the “death zone”, while Ukraine is struggling to hold back President Putin’s forces with strong European support.
On way to the Everest summit, there is a stretch at above 25,000 feet, where the maximum numbers of death on summit attempts happen. At this altitude, the human body burns up more than it can be repaired. Blood and oxygen is denied to other organs to provide energy to the body. Unless a person quickly quits this abnormal height, death becomes inevitable.
The London Economist, well-known and highly respected weekly, has carried a specialist article arguing that over the period of its fight with Ukraine for the last four years, the Russian economy has entered a stretch when it is consuming itself more in producing the surplus to fight its war than its outermost capability.
It is starving its productive sectors and drawing resources from these into its defence industries to produce outputs meant for immediate destruction. Thus it is as if working in its furious pace to burn itself up rather than getting into a virtuous cycle of production, income and growth.
This is the prognostication of Alexandra Prokopenko of Carnegie Russia Eurasia Centre, Washington. She detects the basic flaw of the Russian economy now as a “negative equilibrium”: holding itself together while steadily destroying its own future capacity.
According to Prokopenko’s analysis the Russian economy is now spilt into two separate entities, one is the military and allied industries, which get the first priority in securing essential inputs. In today’s Russia, labour is the scarcest commodity and this sector gets the most of them. These industries are hiring fresh and growing with infusion of capital.
The rest of the economy is receiving at best a step-motherly treatment for essential inputs and services, Prokopenko is suggesting. Small businesses are struggling, consumer industries seeking to keep their heads above water in the current situation. The economic muscles of the system are being drained to provide blood flow and energy to the military sector.
Export earnings are falling, mainly as the Russian oils are going deeper into discounts. Its biggest market, China is slowly tripping into recession and oil demand slowing down. As a result, an economy overly dependent on oil exports, its budget deficits are rising. Currently, deficits are close to 3% of GDP. The scope for raising father tax revenues are limited as the carrying capacity of tax payers are reached.
In a situation like this, the interest burden on the government’s budgets are spiking. These are putting the economy’s ability to further push up the military sector at the cost of the rest of the economy should also be getting thinner.
The longer the Russian economy stays in this region, the more difficult it would be for it to emerge out of its unscathed. In the situation, a rational decision-maker would try to get out of this morass as fast as it can. However, the present leadership of Russia, headed by Vladimir Putin, are doing the opposite.
The Russia-expert had given her own explanation of this behaviour. She sniffs out that apart from watching his own oxygen saturation, Putin is more intent on seeing those of his rivals —Western Europe, Ukraine and USA.
The Ukraine war is now a waiting game between Russia on the one hand and the western bloc on the other. It will crucially depend on the USA how far the west can go without blinking. If USA is unwavering, then Russia is doomed. This is why Volodomyr Zelensky is fervently appealing to USA not to leave its side.
The problem is given the current state of US domestic economy and the numerous scraps the president is getting into, US policy drift is huge. If anything, it is the US president who is helping Vladimir Putin to carry on his war of attrition. The other pillar for Putin’s war is the Chinese president, Xi Jinping. China is bankrolling Putin’s war in Ukraine by providing funding as well as war ammunitions.
Notwithstanding knowing these, Europe is playing along and even courting both Trump as well as Xi Jinping. The Ukraine war is being interpreted as Europe’s existential war. Nonetheless, Europe does not have the gumption to take on the problem straight on. Taking advantage of this situation, Putin might become even more an adventurist. That is the overwhelming risk in the evolving paradigm. (IPA Service)
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