An old tale…
On the banks of the river, watching the water rise from a recent storm, lay the peaceful, nice, agreeable frog. From an island in the center, now rapidly shrinking, he heard the scorpion call out.
“You there — Frog, come carry me to the bank on your back, before the water rises any further and I drown.”
The frog was suspicious, despite his good nature.
“I’m afraid you’ll sting me,” the Frog protested. The water was still rising.
“That doesn’t make sense,” the scorpion pleaded, “If I sting you – we both drown, why would I do that?”
The Frog was impressed with this logic, swam over, loaded the scorpion on his back and was half the way back across, when he felt the sting of the scorpion pierce him. As he swirled down to his death, with the scorpion still on his back, he choked out his final question: “Why?”
The scorpion replied with his last: “Because. I’m a scorpion.”
When the Soviet “Empire” crumbled under Gorbachev, and good economic numbers finally got out, it turned out to have an economy the size of Norway’s. The missile program and military technology stuff was real, but they had to starve nearly the entire nation for decades to do it.
Today, Russia has a partial market economy. That means, after a nearly 15 year delay following the fall of the wall – Russian GDP per capita had seriously started to recover from a long dismal history, but since it started among the world’s worst, (not counting Africa and the remaining third world), it’s exciting performance since 2000, apparently didn’t match Putin’s global hegemony ambitions. What he probably saw as an anemic performance was the best the country had done in 500 years.
It’s too bad he lost his patience and or just doesn’t understand economics because he had the first 10 years of solid growth going for him and if he had held that path (faster GDP growth per capita than the Western world) could have been Russia’s answer to George Washington, a Peter The Great type transformative figure that finally put Russia on the path to world GDP per capita parity, the Holy Grail of countrywide transformation.
Foolishly fearing the Ukraine pact with Europe endangered the progress and economic accomplishments already achieved, he caved in to what must be an almost irresistible urge world leaders have to make war. The Ukrainian pact with Europe would have benefitted the Russian economy, despite most people’s ignorance on this subject. Economies are most certainly not subject to net sum algorithms. This popular misconception cause more global pain than malaria.
And now the results are starting to trickle in.
Germain Moyon authored the following news item from AFP, the French version of AP just yesterday:
“The economy is close to recession,”
said Oleg Zasov, the head of forecasting at the economy ministry, according to Russian news agencies. According to the Moyon account,
“The ministry held its forecast at growth of just 0.5 percent this year, compared with 1.3 percent in 2013.”
Why has this happened? Because the German and American companies working inside Russia, have withdrawn technical support, collaborative deals and most importantly, financing, once Putin decided the Crimea and Ukraine would be his.
What a terrible shame. Russia with the help of Germany in particular, had finally gotten the Russian economy heading toward the magic 50% of GDP/PPP per capita line (against US GDP) that no major world economy has ever crossed upward, and then re-crossed backward. In other words, get the market economy running on a marginally productive footing and the country need never be poor again.
Putin was the first leader in 500 years to offer that opportunity to his people, and unless he somehow does an amazing 180 degree pivot and can reassure his German and American industrial and technology partners that he was just kidding about all this conquest nonsense, they’re gone for sure.
They tolerated the mess in Georgia and even to some degree the Crimean take over, but, German government and American government officials have made it clear that aren’t having to strong arm the companies into pulling out this time – the companies, virtually all of the big ones, have all made the decision themselves — that if Putin is going to keep on conquering his neighbors — they will not participate in his economy with their businesses, products, knowledge or financing.
This pleasantly surprises me, most of the time, the corporate interests prove themselves as greedy and tolerant of bad behavior as the autocrats themselves, but I think this time, they see the difference. Germany and Russia have danced before, at great pain. Even greedy industrialists know how close the German border is from Ukraine, by tank.