Russian economist and mathematician Konstantin Sonin noted in an article published in the US magazine Foreign Affairs that the Russian economy appears to be headed for a quick and sudden collapse due to the war in Ukraine.
The author wrote in this article that the international community's sanctions against Russia are expected to kill its economy, as well as the devaluation of Russia's national currency, the ruble, and the decline of the Russian financial market.
He also claimed that abject poverty and deprivation knocked on Russians' doors every day, and that the further one looked behind the GDP (gross domestic product) figures and inflation rates, the more the severity of the damage became apparent, while Russia The economy will also go to a long-term stagnation.
Eliminate market efficiencies:
Sonin, a professor of public policy at the University of Chicago's Harris School, noted that Russia was already meddling in the private sector before the war, and now that trend has become more pronounced and threatens to suppress innovation and eliminate market efficiencies.
He also believes that the only way to keep Russia's economy viable and sustainable lies in implementing fundamental reforms - which in no case are imminent, or institutional flaws of the kind that occurred when the Soviet Union collapsed .
The author argues that sanctions imposed on Russia will weaken its economy and reduce its GDP, adding that in the short term, the most logical expectation is a sharp drop in Russian imports.
He also said that at the start of the war - in late February and early March of this year - Russians rushed to buy dollars and euros to protect themselves from a possible collapse of the ruble. And over the next eight months, as Russia suffered mounting losses in Ukraine, the Russians bought more of the currency.
A sharp drop in imports
In Sonin's view, such activities usually lead to a sharp depreciation of the ruble. However, as a result of the sanctions, companies that imported goods before the war have stopped buying foreign currency to finance these imports, as imports have dropped by 40% in response. As a result, the ruble has strengthened against the dollar over the past few months.
The article notes that economic sanctions have had other immediate effects — Russia has been denied the right to import microelectronics, chips, and semiconductors, making it nearly impossible to produce cars and planes. Production in Russia's auto industry fell by a staggering 90% from March to August this year, as did the country's aircraft industry.
The same is true in the area of arms production, which is considered a top priority for the government. Russia's original expectation that it would be able to explore new avenues through China, Turkey and other countries that have not joined the sanctions against Russia to make up for Russia's loss of imports from Western countries, however, this expectation has been proven wrong.
High tech industry:
In this article, Sonin reminds readers that without these key imports, the state of Russia's high-tech industry will suffer a long-term deterioration.
Perhaps most impactful of the West’s imposition of sanctions on the tech industry has been Russia’s entry into an era of increased control of the private sector by those close to political power.
The article goes on to say that even before the war, Russian companies had received refusals to invest. Advanced industries that should have benefited most from foreign technology and foreign investment, such as energy, transportation, and communications, have received the most severe penalties.
A catastrophic war:
Sonin argues that the economy has been under government control for too long, but recent steps by President Vladimir Putin have taken that control to a new level.
In short, the lessons of the Ukraine war are "painful". Even if Putin eventually loses power and his successor implements important reforms, it will still be at least a decade before Russia returns to the level of production its private sector produced a year ago, the same level as the country was a year ago. Quality of life, "that's what happens with a catastrophic war."
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