Russia is wasting economic, scientific and political achievements it achieved in the past

The stunning collapse of the Moscow-backed regime in Syria, following prolonged Russian intervention in the country, is a major blow to the Kremlin’s ability to influence global affairs. Even with the advance of Russian forces in Ukraine, about three years after the beginning of the war, estimates indicate that the losses will be heavy, with a significant decline in Russian influence across the continents of Asia and Europe.

One of President Vladimir Putin’s early successes that earned him international respect was strengthening Russia’s financial position and ending the hyperinflation that plagued the country in the 1990s. After introducing a flat tax, the Kremlin created a system of sovereign wealth funds in the early 2000s to create reserves and offset federal expenditures, as it moved to reassert national control over Russia’s vast energy reserves.

Years of rising prices for basic commodities exported by Russia have filled Moscow’s coffers with reserve currencies, allowing the Russian state to maintain relatively low levels of debt.

Successful efforts

The depletion of the Russian sovereign fund as a result of the war represents a strong blow to Russian economic influence. Before that, Moscow tried to use the fund to lure Kiev into joining its trading bloc in 2013. On the eve of the war, the fund’s liquid assets totaled $114 billion, and now the fund is rapidly depleting, with some analysts concluding that Russia is using deception to inflate the perceived value of the assets remaining in the fund. , and ultimately risks bankruptcy in the medium term.

Putin also put the country’s “reform fiscal” into effect, in an attempt to improve the country’s demographics and fund maternity payments for families. These efforts were, for an industrial society, moderately successful. Russia’s fertility rate was 1.2 in 2000. By 2015, it had reached 1.78. On the eve of the war it was 1.4, roughly equivalent to the EU average.

Nearly three years later, the BBC’s Russian Service estimates that between 140 and 170,000 Russians, most of them men, had died in the war by October 2024, with hundreds of thousands wounded. The war’s impact on Russia’s demographics is likely to continue for several decades, as was the impact of World War II in the Soviet Union.

However, the killing and wounding of hundreds of thousands of men of reproductive age is a disaster for the country, and a blow to the gains made during the previous two decades of Putin’s pro-reproductive policies.

Innovation stagnation

In July 2024, Arkady Voloz, founder of Yandex, Russia’s most successful Internet company, fled the country after abandoning all assets, taking with him hundreds of specialists and a plan to build the most powerful artificial intelligence systems in the Netherlands. He made the mistake of criticizing the war, and the Kremlin called him a traitor.

Voloz’s departure is only the latest episode in the Kremlin’s failure to move toward an innovative economy and move away from commodity exports. The legacy of the Cold War – of competition in science and technology – has left Russia with a large number of engineering and applied science institutes across the vast country. Combined with the Russian Federation’s abundant natural resources, this highly educated workforce could develop an innovative economy attuned to global competition. Perhaps the former Soviet republics would remain in Moscow’s orbit. However, the higher education system has expanded into Central Asia and the Caucasus over the past two decades, opening satellite branches, and at the same time, Moscow continues to educate tens of thousands of future elites at Russian universities.

Huge gains

The huge gains in commodity revenues that began in the early 2000s, combined with the legacy of the Cold War, could have been used to carefully shape Russian companies through import substitution and building national capabilities to compete in the global market. These were the policies that South Korea and Taiwan successfully pursued in the post-war period, moving them from former Japanese colonies to the forefront of electronics producers. Russia’s sophisticated state-sponsored hacking groups could have expanded beyond traditional political and military objectives to include industrial espionage, as practiced by Beijing. Instead, Russia is now left struggling to implement import substitution with dwindling resources and a continuing brain drain. Russia was developing a competitive information security sector in the first decade of the 21st century, as companies such as Kaspersky and the IP Group gained a large number of international clients. However, the arrest of the IB Group founder in 2021 and a senior Kaspersky researcher on treason charges in 2017 proves that the free market is still subject to the Kremlin’s capricious whims.

The World Intellectual Property Organization’s Global Innovation Index for 2023 estimated that Russia’s performance – relative to GDP – is below expectations, placing it in 51st place among the 134 economies surveyed. This is in stark contrast to the position of China, which ranked 12th. Beijing’s industrial policy, combined with a healthy dose of industrial espionage, has paid huge dividends, as Beijing’s exports – from electronics to cars – compete with the industrialized world. About “National Interest”

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Putin’s favorite project

While much analysis of the Ukraine war has focused on how the protracted conflict is diminishing Moscow’s ability to determine security affairs in the Caucasus and Central Asia, and especially the subsequent war between Armenia and Azerbaijan, recent developments have also cast doubt on the possibility of expanding the Russian president’s project. Vladimir Putin’s preference, represented by the “Eurasian Economic Union”, is more widespread in Asia and Europe.

Russian Prime Minister Mikhail Mishustin met with Uzbek President Shavkat Mirziyev in September 2024, most likely in an attempt to pressure Tashkent to officially join the Eurasian Economic Union. However, Deputy Speaker of the Lower House of the Uzbek Parliament, Akmal Saidov, announced in late October that after a careful review of thousands of documents, the country would remain an observer and would not seek formal membership.

. Russia is now left struggling to implement import substitution with dwindling resources and a continuing brain drain.