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A damaged building in Kharkiv, after Russian missiles hit the city in northeastern Ukraine, killing at least one woman and injuring three others.
đĄ SPOTLIGHT
The militarization of Russia's economy, and the demise of the oligarchs
By putting the economy on a war footing, Putin risks returning Russia to the days of Stalinist totalitarianism, where there will be no oligarchs or businesses left, only loyal administrators, writes Boris Grozovsky in Russian-language independent website Vazhnyye Istorii/Important Stories.
The war with Ukraine has not gone according to Vladimir Putin's plan. Eleven months have passed, but less than 17% of Ukrainian territory, including Crimea, is under Russian control.
Moreover, the war has been much longer and more expensive than Putin expected: Russia is under international sanctions, oil prices are frozen and oligarchs are trying to withdraw whatever shreds of their money they can from the country.
Under these conditions, the Russian president has been forced to roll back social support and squeeze everything out of the economy for the war budget. Russian economic observer Boris Grozovsky tells Vazhnyye Istorii what Putin's policies will mean for Russia.
Putin has enough money for the long war, but it's becoming harder and harder to get. Sanctions against Russian exports are beginning to have an effect, and oil and gas revenues have fallen. The federal budget will receive less money, and the economy will shrink: the government predicts a 0.8% drop in GDP this year, but experts predict a threefold decline.
Accounting for inflation, oil and gas exports will likely be 20-34% less than they were in the second half of the 2010s, predicts CMACP, a think tank connected to the Russian government. With this decline in revenue, the budget and the entire economy will have to adjust to a much poorer and simpler life.
It is impossible to calculate the exact cost of the war: the statistics are now classified, and some military expenditures are disguised as civilians â described as pensions, industry, etc. â and the share of classified budget expenditures has grown from 16% in 2021 to 22.4% in 2023.
But from what is disclosed, it is clear that spending on military and security increased from 24% to 32% of the budget, an unprecedented amount.
This soaring spending means cuts to civilian expenditures, and squeezing more money out of the economy. For example, increases in social spending will barely cover inflation, even though a third of the population depends on government aid.
But cutting spending alone won't be enough. Russian oligarchs worry that the logic of war will lead the government to nationalize or transfer businesses from less loyal owners to more loyal ones, as happened with Yandex and Tinkoff. Some big companies are reported to have commissioned studies by historians on how the Nazi and fascist Italian regimes dealt with large private property.
The most radical, like Duma Speaker Vyacheslav Volodin, have already proposed confiscating the property of Russians who moved abroad and "publicly slung mud at Russia."
Russian officials are bound to come to the same conclusion that the government should take control of businesses whose owners don't vigorously support the war.
Revenue mobilization has already begun. Last year, the government added Gazprom's profits to the budget, and in December, it looked at increasing dividend payments to state companies and making a one-time payment to the budget for coal and fertilizer producers.
Members of the Russian elite know that this will end badly. The war has already cut off Russian business from world markets, and the billionaires from their foreign wealth and property. The next step is the regulation of profits.
A wartime economy is characterized by central planning and mobilization â otherwise, it is impossible to make businesses and people work for the war. During World War II, Britain and the United States had to switch to centralized planning and distribution of goods needed for the front and investments. Russia's mobilization approach is even more peculiar.
In the late 1920s, Stalin accelerated mobilization planning, making it the center of preparations for a future war, believing that the entirety of the country's human and material resources were needed to ensure military success. Stalinist militarism required a forced transformation of economic and social structures toward militarization â similar to what Russia is experiencing now.
Since Stalin, wars have become much more technologically advanced. The Americans did not need to mobilize for the war in Iraq. Putin thought the war in Ukraine would be similar and did not plan to radically change the socioeconomic system. But now, that is becoming a necessity, as long as the Russian government cannot admit defeat by withdrawing from Ukrainian territory.
Despite the clearly failed preparations for February 2022, all that Russia needs is a redoubled effort to finally "press the enemy" â this is more or less how Russian military commentators reason.
In the mid-1930s, the Soviet army was considered the strongest in the world. Then, it suffered humiliating defeats, losses in the millions, and, finally, victory â but at the cost of unimaginable casualties and with the help of allies. Putin, who likes to compare himself to Peter the Great, does not mind repeating Stalin's successes on occasion.
Both Russian military leaders and business people remember this history. So they are soberly aware that a continuing war, which will require a significant increase in arms production, would not leave their business empires untouched.
Direct nationalization won't be necessary â price regulation, scheduled deliveries of goods needed for the army, as well as high taxes or profit-taking, which have already begun, will suffice. Businesses will collapse or move to the hands of managers loyal to the state as a result.
The economy will not come to this immediately. So far, the state buys products from businesses at market prices â but the logic of wartime and government action will almost inevitably lead to an economy geared toward war. First, the limitation of profits (it is unpatriotic to make much money from military orders), then of prices (everything for the front, everything for victory). Welcome to the mobilization economy.
â Boris Grozovsky / Vazhnyye Istorii/Important Stories
đ 7 THINGS TO KNOW RIGHT NOW
⢠Russian shelling kills civilians in Kharkiv and Kherson: A missile hit a block of flats in Kharkiv, killing one woman, injuring at least three others and causing widespread damage. Three people were also killed in the southern city of Kherson amid renewed Russian shelling. Also, while Germany confirms that it will not send fighter jets to Ukraine, a top European official declared that Russia is attempting to shift the war to a conflict âagainst NATO and the West.â
⢠Pakistan mosque bombing kills dozens: At least 32 people were killed and 150 others wounded in an explosion at a mosque in the northwestern Pakistani city of Peshawar. Authorities have yet to confirm how the attack was carried out.
⢠South Korea drops indoor COVID policies: South Korea has scrapped a face mask mandate for most indoor public places in a major step to loosen COVID-19 rules, but many residents are opting to keep wearing coverings due to lingering concerns over infections. People are still required to wear the masks in public transport and medical facilities.
⢠Blinken starts Middle East tour: U.S. Secretary of State Anthony Blinken has arrived in Egypt, the start of a three-day tour that will also see him meet with Israeli and Palestinian leaders amid renewed tensions. The war in Ukraine and Iranâs nuclear program are also high on the agenda.
⢠Mass shooting in South Africa: Two gunmen killed eight people and wounded three others at a birthday party in Johannesburg on Sunday, with a manhunt underway to find the killers.
⢠Auckland floods: At least four people have died and a state of emergency order continues in Auckland, after floods were set off by the worst downpour on record in the New Zealand city. New Zealanders are bracing for more heavy rains this week with more severe weather alerts.
⢠RIP Wednesday: U.S. actress Lisa Loring, who rose to fame as the character Wednesday in the original 1960s Addams Family TV series, has died of a stroke at age 64.đď¸Â FRONT PAGE
Czech daily DenĂk devotes its front page to retired NATO general Petr Pavel, who beat former Prime Minister Andrej Babis with more than 58% of the vote in an election run-off to become the fourth president of the Czech Republic. Pavel, who advocates for the countryâs anchor in the EU and NATO as well as for support for Ukraine, will replace pro-Russian and eurosceptic President Milos Zeman in March.
#ď¸âŁÂ BY THE NUMBERS
22
A year after he was banned from participating in the Australian Open over his refusal to get vaccinated against COVID-19, Serbian tennis champion Novak Djokovic beat Greeceâs Stefanos Tsitsipas to win a 22nd Grand Slam, leveling up with Spaniard Rafael Nadal and marking the return of âNoleâ as world n.1. The achievement was celebrated by Serbiaâs daily Blic on its front page, which called Djokovic âGodâs racket.â
đ°Â STORY OF THE DAY
Eyes On U.S. â California, the world is worried about you
As an Italian bestseller explores why people are fleeing the Golden State, the international press also takes stock of unprecedented Silicon Valley layoffs. It may be a warning for the rest of the world.
đşđ¸đ§ł For as long as we can remember, the world has seen California as the embodiment of the American Dream. Today, this dream may be fading â and the world is taking notice. A peek at the Italian list of non-fiction best-sellers in 2022 includes California by Francesco Costa, a book that looks to explain why 340,000 people moved out of the state last year, causing a drop in its population for the first time ever. Why are all these people leaving a state that on paper looks like the best place in the world to live?
đ¸ The causes are manifold: rising crime, frequent wildfires and a stagnating yet increasingly polarized political debate. Two mass shootings this past week in California add to a deepening social anxiety. Still, the main reason is ultimately economics, particularly the cost of living in big cities like Los Angeles and San Francisco. Indeed, the latter â San Francisco, and the nearby Silicon Valley â is getting plenty of attention in recent weeks, as the giants of the internet that sparked the most recent of Californiaâs many gold rushes are forced to downsize for the first time.
â ď¸ From Europe, there may be a similar dynamic at play, as the cost of living in cities like Rome or London is becoming increasingly unaffordable. Costa says what happens in the Golden State is a distant warning for the rest of us. âCalifornia's crisis is unique in the world, but its reasons are not exclusively Californian: we are beginning to see them here too," he writes. "California forces us to question our reality and invites us to be careful what we wish for, because we might get it."
âĄď¸ Read more on Worldcrunch.com
đš THIS HAPPENED VIDEO â TODAY IN HISTORY, IN ONE ICONIC PHOTO
âĄď¸ Watch the video: THIS HAPPENED
đŁ VERBATIM
âBoris, I don't want to hurt you but, with a missile, it would only take a minute.â
â UK former Prime Minister Boris Johnson says Russian President Vladimir Putin threatened him with a missile strike during a phone call right after Russiaâs invasion of Ukraine where heâd warned Putin that the war in Ukraine would lead to serious Western sanctions and military involvement from NATO. Johnson went on to downplay Putinâs threat in what he called a most âextraordinaryâ phone call: âHe was just playing along with my attempts to get him to negotiate.â
đ¸Â PHOTO DU JOUR
A damaged building in Kharkiv, after Russian missiles hit the city in northeastern Ukraine, killing at least one woman and injuring three others. â Photo: Vyacheslav Madiyevskyy/Ukrinform/ZUMA
đ MORE FROM WORLDCRUNCH
⢠Ukraine Is The Ultimate Test Of The Franco-German Alliance â FRANCE INTER
⢠Modi Is Wrong: Russia's War Also Creates Real Risks For India â THE WIRE
⢠"Splendid" Colonialism? Time To Change How We Talk About Fashion And Culture â EL ESPECTADORâď¸ Newsletter by Ginevra Falciani, Inès Mermat, Laure Gautherin and Anne-Sophie Goninet
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