As the golden 30 years of market globalization come to an end, the economy is back where it probably always should have been: at the hand of or at least on par with, but certainly not above, the other major areas of human knowledge and action. So, in this final edition before the summer holidays, I try to put the tools of economics into service with perhaps the most important geostrategic question of 2023: How long will Russia be able to sustain the war in Ukraine?
Industrial recovery
Russia is sending back, from space, smoke signals that reveal an industrial recovery under way. Through the use of satellite imagery, it is actually possible to measure industrial production across the country (see chart above). And the signs are unmistakable: Russia is poor, and it has devolved into a war economy, but it seems to be emerging from the recession that hit it last year; It did so thanks to the fruitful recovery of the military-industrial complex. If this stability is confirmed, then perhaps in the coming months Western governments should prepare to support Kiev in a war that will drag on for at least another year and a half. Vladimir Putin’s regime is far from strong: as Yevgeny Prigozhin’s failed “March for Justice” reveals, Russian institutions are devoid of meaning and capacity and the entire country appears to be governed by the fragile agreements typical of the state mafia. The elites’ support for the dictator is passive and unreliable.
flexibility of the Russian economy
but Economic stabilization of the Putin regime is by no means a last resortFor example, the Soviet Union would have been at the end of Mikhail Gorbachev’s term. On the contrary, it is experiencing what my colleague and co-author Alexandra Prokopenko calls a “military Keynesian” phase. To understand why, parentheses over the method. Russia is photographed and photographed every day by the orbiting satellites of the National Center for Space Studies, the French space agency. At 232 monitoring points in Russia, the Parisian company QuantCube Technology is carrying out an analysis of pollutant emissions. From these, Quantube’s team of statisticians, mathematicians and computer vision engineers deduced the direction of industrial production to provide updated data to its clients (among them the European Central Bank, the World Bank and large private groups such as JPMorgan or Moody’s). Analysts measure the activity of factories on the basis of the intensity and quality of the gases emitted in the various regions of the union.
How much does Moscow produce?
Since each region corresponds to certain production sectors – for example, defense and metallurgical companies are concentrated in the St. Petersburg region – it is possible to get an idea of \u200b\u200bactivity in various sectors. And since each type of plant produces specific emissions, identifiable from space thanks to the concentration of gases—for example, metallurgical furnaces emit nitrogen dioxide—analysts can distinguish between different activities even in regions like Chelyabinsk, where weapons, cement, electricity, and metal production overlap. Thus QuantCube estimates that Russia’s defense industry as a whole on May 22 was producing 2 percent more than six months earlier. In fact, this is a slowdown compared to the pre-war period: in May 2021, in the run-up to the war, arms manufacturing in Russia was growing by 18% on a six-month basis. But then there was a decline in the industry for most of 2022.
Resumption of the war industry
Now it seems that the impact of Western sanctions has been partially overcome and the recovery of the military industry is evident. It is no coincidence that the strongest growth in emissions is observed in regions where many important or significant military-production plants are located, such as Chelyabinsk, Kaluga or Samara. And it is not surprising that, telling Alexandra Prokopenko in her newsletter for The Bell, spending on “national defense” and “national security” this year will amount to 6.2% of GDP and almost a third of all public spending in the state budget. In other words, Russia has become, like Hitler’s Germany, a war economy that distributes benefits to those who are part of this supply chain: from the oligarchs to the workers employed in the arms factories.
“Military Keynesian”
Moreover, it’s possible that “military Keynesianism” is dragging other sectors as well, based on data captured by QuantCube on satellite emissions. Electricity generation from non-nuclear sources in the middle of last month was 3% higher than it was six months ago. Pollutant emissions from the metals industry, after a long decline in 2022, are up 4% from where they were six months ago. Even oil refining and building materials production have put the fall of 2022 behind them and have shown an acceleration of between 2.5% and 3.5% (again every six months). “We cannot be too precise and certainly Russian industrial production is not shining, it is only recovering from recession – says Benoit Belloni, head of research at QuantCube -. But there is a certain comment. The economy is not crippled by sanctions ». All this resistance is largely explained by trade with China and, among other factors, Saudi Arabia’s choice to double imports of refined petroleum products from Russia by two hundred in April and May this year, compared to the beginning of 2022. Whatever the reasons, Western governments now have to deal with A power system similar to the creaking Putin, but not giving up.
Beijing help
The crunches have been seen before and talked about courier Before the Prigozhin uprising. To give another example, on June 7, when Margarita Simonyan, the famous Putinist propagandist and director of Russia Today, proposed a cease-fire live on television on state channel One “to avoid new attacks on Russian soil” (and was not punished). But the fact that the regime is holding on can be seen at least in the data on the war economy, which, for the moment, seems largely sustainable because China is helping it. At this point, however, I have to add another variable, to assess the sustainability of Putin’s regime: Is public opinion tired of the war dead and hundreds of thousands of conscripts? The wave of fleeing youth sparked by the mobilization last September suggests that the new call to arms could lead to more open defections. There is no doubt that the army will still need men to throw them into the furnace of war. But Dmitry Alperovich, an American analyst just back from Kiev, points to a final indictment of Ukraine’s military leaders: Russia continues to recruit 20,000 men a month, without big announcements and in a disingenuous way to avoid public backlash.
The Shock of War and Putin’s Goal
Finally, the question of the dead and wounded in the war: how serious is the shock of the losses in Russian public opinion. A recent analysis by Medusa puts the number of Russians killed in the war at 50,000 and four severely wounded for every death, for a total of 250,000 families hit hard by a loved one. If one imagines that each of these 250,000 dead or seriously wounded soldiers had a social network of 100 people — family, friends, colleagues, fellow students — the trauma of the war would have spilled directly into 25 million Russians. A deep wound in society, to be sure, but not enough to lift another 120 million people out of their historic political apathy. So Putin will think at this moment – I hope wrongly – that he can still go ahead in Ukraine. Which has no interest in negotiating anything, at least until it knows whether Donald Trump will return to the White House in November 2024 and the Kremlin can hope for a decline in US support for Kiev. So today Putin does not want to negotiate. He does not want peace or a cease-fire. Those who make it believe here in Italy – unfortunately – don’t know what they’re talking about or aren’t in good faith. It is not a simple picture. But it is a framework within which those who care about a free world, who do not legitimize blind aggression and violent oppression of peoples, must not give up an inch. Perhaps the most dangerous stage is just beginning.
This article is from Federico Fubini’s “Whatever It Takes” newsletter. Click on this link to register.
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