Putin Unfiltered

A short comment on economic warfare, the Russian state, and self-defeating Western prejudices

Recently, Russian president Vladimir Putin has given an important half-hour speech before the Russian Union of Entrepreneurs and Industrialists. His remarks were very interesting, especially with respect to the ongoing process of rapprochement between Moscow and Washington. In this short note, I am focusing on only one of them because it struck me personally: as an academic who teaches – among other subject matters – Russian history, I regularly find that even smart and diligent students are surprised to realize that Russia has a tradition of impressive government and sophisticated achievements by the state. For reasons that, I believe, are rooted in Western stereotypes and not Russian reality, this fairly obvious fact has often escaped them. Indeed, they sometimes believe the opposite.

As readers will see, Putin made a comment in his address that bears on this issue, indirectly but in currently very pertinent ways. I am permitting myself to elaborate on it. (For those who would like to read or watch the whole speech, it can be found on the website of the Russian presidency; on the video, the president’s remarks begin at about 10.00)

Specifically, Putin acknowledged that “recent years” – meaning, clearly, more than a decade of conflict over Ukraine that was caused most fundamentally by the West’s reckless policy of NATO expansion and triggered by its regime change operation in Kiev/Kyiv in 2014 – have come with “serious challenges” for Russian business. These have included “powerful sanction pressure, most of all limitations on international settlements and operations in foreign markets.”

At the same time, the Russian president pointed out, “Russian entrepreneurs have learned to work under sanction conditions, adapted to them, devised and launched alternative mechanisms of cooperation with foreign partners, with those who want to work with us.” Indeed, Putin correctly believes that “in their own way, the sanctions have even become an additional catalyst of positive structural changes in our economy, including in the financial [and] technological spheres [as well as] in many other key areas.”

With these remarks, Putin addressed one of the most consequential questions of current international politics, namely: What has been the real effect of more than a decade of escalating Western economic warfare – that is what the sanction regime is, of course – against Russia?

Recall in this context that many Western proponents of sanctions as well as observers initially assumed that sanctions would have a quick and massive effect. Their expectations included, for instance, “turning the ruble into rubble” (former US president Joe Biden in March 2022); “weaken[ing] Russia's economic base and its capacity to modernise” so as to “drain” Russia’s economy as a whole as well as specifically its “war machine” (EU de facto boss Ursula von der Leyen, also in spring 2022); simply and boldy Russia’s “ruin” (then German foreign minister Annalena Baerbock in February 2022).

It has been easy to see for a while already that whatever has happened in reality, the above was nothing but Western wishful thinking.

Elementary macroeconomic data is enough to demonstrate this fact: According to the International Monetary Fund (IMF), Russia’s economy did take a hit in 2022, Gross Domestic Product shrinking by 1.2 percent (it had been growing by 5.9 percent the year before); according to Russia’s own Rosstat statistics office, the shrinkage even amounted to 2.1 percent.

But that dip needs to be put in context: Compare Russian GDP decreasing by 7.8 percent in 2009 or, if we look outside Russia, Germany dipping by 4.1 percent as recently as2020 (when it was neither at war nor targetted by the most aggressive sanctions regime in post-World War Two history, as Russia was two years later).

So, even at its lowest point since the escalation of February 2022, the Russian economy was hardly on the ropes: it took some moderate damage, well within the range of what can happen in peacetime, too, and be survived easily.

And 2022 was, indeed, the worst year. After that, annual GDP growth has increased and remained positive: plus 3.6 percent (again according to the IMF) in 2023, plus 3.6 percent again in 2024, and a predicted plus 1.3 percent for 2025. Indeed, in 2024, Russia was one of the growth leaders in the G20, after India, China, and Indonesia.

To get a sense of what this figures mean within the specific context of international politics (and rivalry, to put it mildly), compare, for instance, with Germany – plus 3.7 percent (2021), plus 1.4 percent (2022), minus 0.3 percent (2023), 0 (2024), and a predicted plus 0.8 percent for 2025.

More data points can be added, but two key facts are clear: First, whichever way you slice it, Russia has definitely not been “ruined,” “drained,” or turned into financial “rubble” by the West’s economic warfare. Second, it has on the whole been doing well. That may last or not. As in every economy, the future is open.

But for the recent past the record is clear: the Russian economy has already proven resilient and capable of adapting; and, a point all too often neglected, the Russian state has shown that it can oversee and steer such an adaptation (by capital controls, expanded spending, deliberate import substition, and smart and fast policies of reorienting trade, for instance).

To be fair, even in the West, not everyone is entirely detached from reality: “Sadly,” an author with Britain’s Royal United Services Institute think tank (RUSI) admitted two months ago, Western hopes of bringing down Moscow through economic warfare “are likely to prove misplaced. Russia’s economy has confounded expectations throughout the war and, despite suffering several complications, remains well-placed to support the Kremlin’s ambitions in Ukraine and beyond.” Factor in British understatement, and this reads: “We’ve lost; they are winning.”

Putin’s pride in what has been achieved is plausible, in the face of a direct and massive Western sanctions campaign that was explicitly meant to be lethally destructive for Russia, its whole national economy (and thus population), and government. But it is also, of course, what you would expect from a political leader taking credit – in this case, for good reason – and keeping up morale. Yet Putin also made a point of congratulating his listeners, representing Russia’s entrepreneurs: it was their achievement, he stressed, that the country’s economy has been weathering the storm much better than Russia’s declared enemies would have wished.

He was right about that, too: without them, his government could not have done it. Fair enough. But, here, let’s focus on the display of top-notch state capacity is something Western Russophobes will, it seems, never learn from: The fundamentally racist legend of Russians being too disorganized to run a state well will persist. (Racism as an ideological construct does not, of course, require the presence of race; and Russians are, also obviously, an ethnos and nation but not a race.)

Never mind that it was, actually, the Russian state that peacefully managed the single biggest and most pervasive social reform among the major powers of the nineteenth centure (of course, the emancipation of the serfs – yes, it was not perfect but no policy ever is). Or the fact that it was the – in essence – Russian state that not only outfought but out-organized the self-blindingly arrogant Germans between 1941 and 1945 (notwithstanding an almost catastrophic beginning of the German-Soviet war).

Or, indeed, the fact that it is now again the Russian state – decision-makers, experts, and administrators, central, regional, and local – that, next to private business, has made a key contribution to stymying the most ferocious economic warfare attack since World War Two.

From a central point of view, from Moscow, the Russian state is now spending an unprecedented share (in the history of post-Soviet Russia) of its yearly roughly 25-26 trillion rubles (about 340-350 billion US dollars) federal budget on military purposes.

In 2021, the last year before the escalation of 2022, the equivalent of 3.6 percent of GDP went into defense. For the fiscal year 2025, it will be 7-8 percent, similar to 2024. Expressed as a share of the annual budget, traditional military outlays will reach a third, but if “internal security” is added, which contains expenditure for organizations also involved in the war, such as the intelligence services or the National Guard, then that share rises to 40 percent or a little more even. Yes, close to half of the state budget (not GDP) will be spent on war and security-related purposes. At this point, it is sensible to call Russia’s economic policy a case of military Keynesianism. Inevitably, this means that other expenditures have, for now, lesser priority.

Even though, another term popular with Western observers, “war economy,” makes much less sense. For Russia does not, to put it simply, an economy mobilized solely or even mostly for the purpose of waging war. That would look very different again. And the West would be wise to hope to never get to see it. What Russia has now is a state budget and economic policy (not even remotely the same as “the economy,” precisely because this is not the Soviet Union anymore) heavily weighted toward war-making capacity and security.

For now at least, this policy, it is important to note, has popular support, as realistic Western observers note. For instance, “workers in manufacturing sectors,” long suffering from disadvantages, are now reaping “rewards,” with real incomes rising “by 5.8 per cent in 2023 according to the state-run Russian statistics office Rosstat.” On the whole, “wages in manufacturing have more than tripled, in some cases even increasing fivefold.” One consequence of this trickle-down-with-a-bang effect has been “the fastest sustained growth in consumer spending in over a decade” (again, this is from the same RUSI expert, who finds it “unfortunate” that “hopes of an imminent economic crisis are unlikely to be realized.”)

Like it or not: While the Russian leadership is well aware of inefficiencies, flaws, and failures (and talks about them publicly, by the way), by international comparison – which is decisive for geopolitical outcomes – it has just shown that is highly capable of organizing the country during a massive, high-stakes stress test.

Those in the West who will stick to harebrained, hackneyed, hoary stereotypes about “anarchic, sloppy Russia,” instead of registering this fact of superior Russian can-do, will only have themselves to blame when Russia will frustrate them again. Likewise, Western commentary still desperately seeking to dismiss the empirical fact of Russia’s economic resilience as “illusory” only shows that it is Western propaganda and, indeed, illusions that cannot adapt to reality.

Here’s a bet: if the US, UK, or Germany, for instance, were to face a similar task, they would all do worse, probably much worse, than the current Russian state. If they were wise – which especially the Europeans are not – they would not risk a direct comparison in practice. And yet they might. If so, they are likely to be astonished how badly not only their economies, but also governments would pass a test of direct conflict with Russia.