does not settle the equally important issues of hegemony, hard power, market power, political power, corruption, inequality, economic justice, social justice, civil rights, environmental purity, other intangibles and well-being. Faster growth, full employment and modest inflation achieved within Russia’s imperfectly competitive market system with Muscovite characteristics will bolster the Kremlin’s economic power, but this is unlikely to prevent Moscow from continuing to undervalue consumer utility, abuse large segments of society and structurally militarise and browbeat its neighbours.
Tea Leaves and Productivity
The World Bank’s approach to economic crystal ball gazing is congruent with Western tradition, especially the important role assigned to globalisation and TFP. The approach is sensible, but too often misses critical turning points (Rosefielde, 2005b, 2017). The Soviet economy grew rapidly under Stalin’s autarky during the polarised Cold War era of 1955–1968. TFP calculations suggested smooth sailing ahead, encouraging some observers to conclude that planned economy and communism would triumph, but then the USSR fell prey to “growth retardation” driven by a declining marginal capital productivity. The CIA warned about the danger of Soviet secular stagnation (zero growth) in the 1980s; however, it did not take its own warnings seriously in part because Gorbachev pressed market reforms after 1986 and promoted economic integration with the West (globalization). The CIA was shocked when the wheels came off the cart in 1989.
Later, after Boris Yeltsin privatised business property on a freehold basis, encouraged free enterprise and opened Russia’s economy, the catastrophic result took the World Bank entirely by surprise. It expected Russia to recover “up the J-curve” rapidly (Brada and King, 1993), but this never happened. Then, 7 years later when Russia’s economy finally began recovering, the World Bank predicted rosier and rosier futures with Russian GDP advancing at 8% per annum until reality hit. GDP fell 8% in 2008 and never rebounded to the fast growth track.
Obviously, neither globalisation nor TFP have proven to be trustworthy indicators of Soviet and Russian economic prospects. This has multiple explanations beyond exogenous economic and political shocks. Statistical fraud and military concealment stand at the top of the list. The Soviets indulged in a practice called “spurious innovation” where they treated established goods as new ones, raised prices and mischaracterised the price increase as value-added instead of inflation. Inflation increased, but it was disguised as real GDP and hence the term “hidden inflation”.
Much of the per capita income growth claimed by the Soviets was fake (Rosefielde, 2007). The opposite was true for defence. The Soviets and now the Russians understate military activities, especially weapons procurement in their GDP statistics. The World Bank ignores the issue and the impact of military activities on TFP and macroeconomic stability across arms procurement cycles. Russia’s double-digit arms build-up 2010–2015 is invisible in the World Bank’s assessment of Russian economic performance and prospects for harmonious globalisation. Caveat emptor.
Merit
The World Bank’s data, methods and assessments do not provide inclusive pictures of Russian economic merit (Rosefielde and Pfouts, 2014). They misgauge consumer utility assuming perfect market competition and pay inadequate attention to aspects of well-being omitted from their national income statistics (social externalities and other nonmarket aspects of personal fulfilment). These defects give an unduly favourable impression of Russia’s inclusive economic performance. Russian well-being and quality of existence are substantially lower than the World Bank’s indicators suggest (Trudolyubov, 2019),13 while the Kremlin’s military and political power are higher. Russia is not a typical lower tier advanced economy playing a benign part in the global order. It is a great military power at odds with Western-led globalising that privileges kleptocratic servitors at the expense of ordinary consumers. A system’s merit, like beauty, is in the eyes of the beholder. This is a matter of values. Nonetheless, one important aspect of Russia’s economic potential should be beyond dispute. Russia can persevere on its current course without foregoing guns, butter, growth and modernisation. It can remain on a Muscovite trajectory as long as the regime holds power by successfully repressing full democratisation.
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