Posted on 08/07/2022 10:09:11 AM PDT by dennisw
Western leaders undervalued the size and global reach of the Russian economy Headlines concerning the collapse of the Russian economy under sanctions have been many and varied, although more recently observations have been made that sanctions imposed by the West aren’t working to the extent intended.
Writing this from Moscow, I can observe that supermarkets are full, there are no shortages, and gasoline is US$3.1 a gallon. That compares with Washington at US$4.99, London at US$8.16, Berlin at US$6.73 and Rome at US$7.31.
Why has the effect of sanctions upon Russia been so widely misunderstood? It’s a complicated question yet comes with a simple answer: politicians aren’t economists.
The French economist Jacques Sapir has recently explained the mistakes politicians have made when assessing Russia, with the United States constantly stating the Russian economy as being insignificant when compared to the US and being about the same size of Italy’s. That is a miscalculation.
According to Sapir, the reason for this disparity is exchange rates. If you simply convert Russia’s GDP from rubles to dollars for comparison, it would be seen as an economy as large as Italy’s. However, such comparisons are meaningless without adjusting for purchasing power parities, (PPP) which account for productivity and living standards, and thus per capita welfare and resource use. In fact, PPP is the preferred measure of most international institutions, from the IMF to the OECD.
So what happens when the PPP methodology is used to compare the actual size of the Russian economy?
Doing so reveals a much larger and significant beast – it becomes clear that Russia’s economy is rather more similar to the German economy at about US$4.4 trillion versus Germany’s US$4.6 trillion.
This means that the West’s politicians has grossly under estimated Russia’s economy as being a small, somewhat sickly European economy to being close to the largest in Europe and one of the largest in the world.
Concerning Russia, Sapir also asks: “What is the share of the services sector compared to the share of the products and industry sector?” In his view, today’s services sector is grossly overvalued compared with the industrial sector and commodities such as oil, gas, copper, and agricultural commodities, all of which Russia possesses in massive amounts.
If we reduce the importance of services as a proportion of the global economy, Sapir says, “Russia’s economy is much bigger than Germany’s, and accounts for up to 5-6% of the world economic output.”
That puts Russia on a par with Japan rather than Italy.
This makes intuitive sense. When times are tough, it is common knowledge that it is more valuable to provide people with the things they need, such as food and energy, rather than intangibles such as entertainment or financial services.
When a company like Netflix trades at a price-to-earnings ratio three times higher than Nestle, the world’s largest food company, that is more likely a reflection of frothy markets than actual reality. Netflix is a great service company, but as long as some 800 million people in the world are undernourished, Nestle still offers more value. And Netflix shares and earnings have indeed begun to slide post covid as consumers concentrate on the essentials. (Netflix also recently exited the Russian market).
There are lessons to be learned from this – the current situation in Ukraine helps to clarify values on what have been regarded as “archaic” aspects of the modern economy, such as industry and commodities, but whose prices have soared this year; compared with overvalued services and “technology” whose value has recently diminished, such as Netflix and Facebook.
There is more. The size and importance of the Russian economy has been further distorted by ignoring global trade flows, which Sapir estimates Russia’s portion “may account for 15%”.
For example, while Russia is not the world’s largest oil producer, it has been the largest oil exporter, surpassing even Saudi Arabia. The same is true of many other basic products, such as wheat, the world’s most important food crop, of which Russia controls about 19.5% of global exports, as well as nickel (20.4%), semi-finished iron (18.8%), platinum (16.6%) and frozen fish (11.2%).
This means that Russia has such an important position in the production of so many basic commodities, that along with several other countries, is in fact a key part of the globalized supply chain.
The United States has largely failed to acknowledge this and persuaded the European Union to follow the same thinking over sanctions while grossly underestimating both the size of the Russian economy and the role Russia has in global trade. The US has had success in imposing “maximum sanctions” on countries like Iran and Venezuela but trying to cut Russia off from world markets has resulted in and will continue to bring about a huge restructuring of the global economy that may take several years to absorb.
In fact, by controlling large sections of the oil, gas, food and other global commodities, the sanctions pain bought to bear upon Russia by the United States and its Allies has shifted to the originators of these – and their own populations.
Including the ones the China doesn't currently make and does not currently have the technology to make?
China is not the world’s #1 chipmaker. Taiwan/TSMC is, then Samsung in South Korea.
How valid are reports that Russian industry is severely hampered by lack of computer chips and related items in the production of military equipment and automobiles? Also reports that Russians are stealing washers and driers among other things in quantity when they capture cities and towns? I remember reports that Russia was stealing indoor plumbing when they marched into Germany in WW2.
If Russia cannot get Taiwanese advanced chips they cannot produce hi-tech hardware; there only tank factory has shut down for that reason.
Washing machine etc chips are not going to produce items with the same capabilities as the original design: case in point - the Orlan-10 artillery drone is already reduced in its original capabilities because of the lack of any replacement chips.
More serious is the embargo on high tech Swedish ball bearings; pretty much everything with wheels or tracks uses these ball bearings - there is no substitution.
I guess Taiwan as a source of advanced chips is one, perhaps the best, reason for the Pelosi trip. We want to keep Taiwan supplying us with chips and not supplying them to Russia, especially for more tanks. We must convince Taiwan we are serious about supporting them from strong Chinese aggression. Nice that Sweden is joining NATO, and unlikely to sell ball bearings to Russia any time in the near future.
Like what?
there only tank factory has shut down for that reason.
Russia has plenty of tank factories and they can get all the chips they need for their tanks from China. Tanks don't need 5nm chips. 14 nm chips or bigger will do and China makes lots of those.
Washing machine etc chips are not going to produce items with the same capabilities as the original design:
Who the heck needs super high tech washing machines with 5 nm chips? Not Russians or anybody.
Nope.
We've been getting chips from Taiwan with no problems long before Pelosi went there. Pelosi’s visit has only pissed off he Chinese.
Dear FSB Troll,
The dear Motherland has 2 (TWO) tank factories. The small one makes mostly tractors and it shut down back in April, I believe. The big one shut down, after it churned out the last T-90Ms, a month or more ago.
You cannot make tanks without high strength ball bearings which are only made in Sweden and now embargoed.
The Taiwanese embargoed their high tech chips needed for almost everything military and a lot of civilian stuff and refused to sell them the tools needed to make them. Worse, The Netherlands refused to sell them the lithographic equipment (only made there) to make the tools.
As for your assessment of what size chips are needed - well just keep smoking whatever it is you smoke, which is certainly not tobacco.
https://en.wikipedia.org/wiki/List_of_Soviet_tank_factories
What more ya got?
Perhaps you will explain how the Russians managed to manufacture tens of thousands of battle tanks to fight and defeat the Germans in WW II with no access to Swedish ball bearings, yes?
Perhaps you will explain why russians are gifting so many tanks to Ukrainian farmers? Mostly antique tanks, though.
Hoping Russia resettled more of the south Africans who are being attacked and persecuted.
Perhaps 20k relocated.
Just like the other communists before them they are fanatics and bullies who easily tap into the fountain of human hatred and revulsion that lies below the civilized surface.
The aim is to bully intimidate hate kill and dominate. Communism and its brother Socialism provide the most effective tool.
They are dangerous killers.
Perhaps you will explain how the Russians managed to manufacture tens of thousands of battle tanks to fight and defeat the Germans in WW II with no access to Swedish ball bearings
—
What the hell are you smoking? Powerful stuff obviously.
That was WWI, this is the 21st century where you imagine the are still using the sort of parts with the same specifications they used 80 years ago? Have you no idea how much more sophisticated T-80s, T90s are over WWII T-34s?
Suggest you finish High School and get back afterward.
Perhaps Taiwan was being threatened for selling us chips and Pelosi went to reassure them that we were still strongly for them. As to Swedish ball bearings, perhaps Sweden would sell them to Russia, once Stalin entered the fight on tha Allies side, or maybe we supplied good quality ball bearings as part of Lend Lease.
Dear Joe- there is the edited and editable wiki page and then there is reality - the two do not meet.
Did you happen to notice that several of the plants are in Ukraine and are now obliterated? That some are making other things, some are closed or bankrupt? No probably not.
Reality, a difficult concept for you obviously - like actually reading your “Cliff Notes”.
When Sweden became the sole manufacture of high quality ball bearing, I don’t know, but it was likely sometime after WWII. Stalin and WWII are not relevant to this discussion.
When were the oldest tanks Putin gifted to Ukraine farmers actually produced? Were they models for which modern steel ball barings were not needed? Are modern quality ball bearings another product no longer produced in the US?
Russia’s economy is collapsing, but it doesn’t even have to. Russia was not and is not strong enough to keep this up.
https://www.youtube.com/watch?v=ZAMz5kgb7V4
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.