Puny Putin

Russia may dominate world maps, but it is an economic pygmy compared with the developed nations as a bloc

Is Putin's muscle really that impressive in the light of day?
Tim Congdon
On 9 April 2014 20:10

Russia's intervention in Crimea has led to much talk about the return of Russia as an actual or potential superpower. President Putin has made no secret of his wish to restore his country to the sort of geopolitical status that, in his eyes, it enjoyed before the collapse of the Soviet Union.

In May 2002 he twisted a famous quotation (which he attributed, debatably, to Churchill) by saying, "Russia is never so strong as it wants to be and never so weak as it is thought to be."

In the modern world the ultimate determinant of diplomatic clout is a nation's share of world output. The capacity to produce goods and services in general is not the same thing as the capacity to produce advanced weapons, but the two tend to be related.

Meanwhile in peaceful cooperation between states their ability to export to and import from each other is what matters above all. The ability to export and import is obviously linked to productive potential. 

On this most basic of economic criteria, how is Russia placed today? Newspaper coverage of the crisis in Ukraine remains influenced by a well-known misperception due to cartography. The size of Russia, with its vast Siberian hinterland, is exaggerated by the standard Mercator projection. In most atlases every map of the world has Russia with a larger territory than Europe or the United States of America. This exaggeration still colours beliefs and perceptions. 

The truth is that Russia is at best a middle-ranking nation in economic terms. According to the International Monetary Fund's database, its share of world output was just under 3 percent last year. But that figure was calculated in terms of so-called "purchasing power parity", a technical method which is best if living standards in different countries are being compared.

If the economic size of a nation is instead to be measured by its ability to import from other nations and to participate in international trade, the right technique is to calculate gross domestic product "at current prices and exchange rates". 

On this basis Russia may still be a medium-sized nation, but it is overshadowed by four much more significant powers. World Bank data show that in 2012 Russia's output was $2,015 billion, the same as Italy's, whereas the outputs of the US, the European Union, China and Japan were $16,245 billion, $16,687 billion, $8,227 billion and $5,960 billion respectively. Even Brazil has a slightly higher GDP than Russia. In the EU four nations (Germany, France, the UK and Italy) produce the same as or more than Russia. 

The notions of "the West" and "the rest" may have been overworked recently, but they give us a way of thinking about the issue. The West may still be viewed as a fairly cohesive group, with its membership represented in the Organisation for Economic Cooperation and Development, and its spokesmen generally on the same wavelength in G20 gatherings.

The US, the EU and Japan, plus Australia and Canada, are all recognised OECD nations. Their combined GDP in 2012 was $42,245 billion, more than 20 times that of Russia. Russia may dominate world maps, but it is an economic pygmy compared with the developed nations as a bloc.

Putin has overseen large rises in defence expenditure, apparently convinced that extra soldiers and weapons enable Russia to project more power on the international scene. His government has also tried to accede to the OECD, which requires that members tick a number of boxes (respect for property rights, acceptance of international patent law and the like), but so far Russia has been turned down.

The intervention in Crimea surely means that OECD membership is out of the question for Russia, perhaps for many years. 

The OECD nations have been at peace for almost 70 years. They tend to see eye to eye in international negotiations and are held together by a number of longstanding alliances, of which NATO is only one. Expenditure on weaponry is not a clever way to achieve soft power in today's world, but how much would Russia need to spend to match the OECD bloc?

Typically nowadays an OECD nation spends about 3 percent of GDP on defence. Russia would have to spend 60 percent of GDP to match that and, even then, it would have no guarantee that its expenditure was of the same technical standard and military effectiveness. 

Putin's aggression may or may not recover Crimea for Russia. But a safe prediction is that its long-run effects will be bad for Russia economically and will postpone the catch-up of its living standards to Western European levels.

Almost 80 years have passed since left-wing thinkers were impressed by Stalin's industrialisation of Russia. Their intellectual heirs should note that today Russia's exports of manufactured goods are a fraction of those of South Korea or Mexico, and it will now fall further behind. 

Tim Congdon is a leading economist and honorary chairman of the Freedom Association. His latest book is Money in a Free Society (Encounter). He is the author of an annual study for UKIP, How much does the European Union cost?


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