ISSUE #69: The US downplayed the significance of Russian economy.
It's normal for the Western officials to be wrong all the time but this one was a blunder.
A few examples of the West’s understanding of the Russian economy:
“Putin, who has an economy the size of Italy, is playing a poker game with a pair of twos and winning,” said Sen. Lindsey Graham in 2014 after Russia invaded Crimea.
Speaking of Russia’s rising geopolitical influence in Europe, the Middle East and East Asia, The Economist asked in 2019, “How did a country [Russia] with an economy the size of Spain… achieve all this?”
Even this year, following Russia’s invasion of Ukraine, Biden said, “As a result of these unprecedented sanctions, the ruble almost is immediately reduced to rubble,” which showed what he thinks of the Russian economy.
The 3 months since the US imposed sanctions on Russia have made it clear that the West’s understanding of the Russian economy’s global significance was utterly wrong. French economist Jacques Sapir explained recently that the war in Ukraine has “made us realize that the Russian economy is considerably more important than what we thought.”
For Sapir, one main reason for this misjudgement is exchange rates. If you are trying to judge the significance of Russian economy on the global scale simply by converting its GDP from rubles to the US dollars, you indeed get an economy the size of Spain’s. By this method, the Russian economy stands at $1.68 trillion, which is comparable to Spain’s $1.4 trillion GDP. The problem with this approach is that we don’t get a clear picture of the economy we are looking at, because the exchange rates keep varying depending upon a number of things: the government policies, the interest rates, traders speculation, currency devaluation, etc.
But the results may shock the apologizers of the US empire when we measure Russia’s GDP based on Purchasing Power Parity (PPP). PPP based GDP is more accurate version of comparing economies than market-exchange rates based GDP. International institutions, from the IMF to the OECD, agree with this. The US has the highest exchange rate based GDP in the world, but that doesn’t necessarily mean the standard of living in the US is better than anywhere in the world because this version of calculating GDP doesn’t take into account the purchasing power of the currency. You can learn more about PPP here.
Russia’s GDP based on PPP is $4.4T, which is comparable to Germany’s $4.6T. Now we are talking about one of the largest economies in the world.
Russian economy’s global significance increases dramatically and the West’s view of Russian economy appears laughable when you look at how much the commodities and industrial sector contributes to the Russian economy versus the service sector, which includes intangible services like entertainment and financial services.
According to Sapir, today’s service sector is grossly overvalued compared with industrial sector and commodities like oil, copper, agricultural products, etc. That explains why Netflix - a subscription streaming service and production company - has 3X P/E ratio than Nestle - the world’s largest food company. When shit hits the fan, we know people value food and energy ( the essentials for survival) vastly more than a streaming service.
When we reduce the proportional importance of the service sector in the global economy, Sapir argues that “Russia’s economy is vastly larger than that of Germany and represents probably 5% or 6% of the world economy.”
Russia is the largest exporter of oil, 19.5% of the global wheat exports come from Russia - 20.4% Nickel, 18.8% Semi-finished Iron, 16.6% Platinum, and 11.2% frozen fishes. These numbers give us a hint regarding how important Russia is for the world. The country is a linchpin of the global production chain. You can’t sanction such a country without the world paying price for it.
Looking at exchange rates GDP, which is NOT an appropriate measure, would make anyone think that the Russian economy has little or zero global significance. But when you look at the situation through the lens of reality, you get a completely different picture that the Western media don’t want you to look at.
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