Transcript TRANSITIONAL ECONOMIES IN THEORY AND PRACTICE THE GLOBAL FINANCIAL-ECONOMIC CRISIS AND THE RUSSIAN ECONOMY: EFFECTS, CURRENT ISSUES, AND CHALLENGES FOR THE FUTURE Dr.

TRANSITIONAL ECONOMIES IN THEORY AND PRACTICE
THE GLOBAL FINANCIAL-ECONOMIC CRISIS
AND THE RUSSIAN ECONOMY:
EFFECTS, CURRENT ISSUES, AND
CHALLENGES FOR THE FUTURE
Dr. Richard Connolly
Centre for Russian and East European Studies
University of Birmingham
Email: [email protected]
Structure
 Part 1:
- How did the GFEC affect Russia?
- How does the Russian government propose
to deal with the effects of the crisis?
- Is the existing plan a feasible strategy for

-
-
success?
Part 2:
What type of system exists in Russia today?
How does this relate to other countries?
Will Russia’s place in the world change?
Outline
 Russia was particularly badly hit by crisis.
 Russian elite has recognized the need for
modernization and diversification (i.e., structural
transformation).
 But this requires a sustained increase in the rate
of investment.
 What has held back investment in Russia?
 Identifying the binding constraint is the best
starting point for guiding policy action.
PART 1: Outline
 1. Sources of Russia’s strong pre-crisis economic




performance.
2. But investment is relatively low,
notwithstanding increase 2005-8.
3. Brief overview of growth diagnostics
framework.
4. Application to Russia: what is the binding
constraint on investment?
5. Desirability of current policy and prospects for
success.
1. Pre-crisis economic performance
1999-2008: one of the fastest $ GDP
expansions in the world (e.g., faster than
China)
Why?
1. Rising commodity prices improve Russia’s
terms of trade (rising incomes, corporate
profits, etc).
2. Market reforms of 1990s
3. Post-1998 price competitiveness
(devaluation)
4. Investment-light growth due to low
capacity utilization
5. Low level of monetization, facilitating
incoming currency flow absorption
6. Sensible macroeconomic policies (partial
implementation of Gref program, but slows
after 2005), although oil funds good
7. Favourable demographic tendencies help
labour contribute to growth
1. Pre-crisis economic performance
1999-2008:
episode of growth
acceleration
(Hausmann,
Pritchett and
Rodrik, 2005)
60%
50%
30%
20%
10%
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
1947
1939
1936
1933
1930
0%
1913
perspective (i.e.,
relative to US per
cap income)
40%
1820
•But still Russia has
made little
progress from
long-run
1. Pre-crisis economic performance
But still a laundry list of problems (or why modernize?)...
1. Property rights (domestic and foreign) infringed in NR sectors (Yukos, TNK-BP,
etc).
2. Leads to slow expansion of state in ‘strategic industries’ – leads to dual economy
(Sutela, 1999; Hanson, 2007)
3. Rent distribution sustained non-productive firms (Gaddy and Ickes, 2010).
4. Productivity still low (c.30 per cent of USA, McKinsey, 2009).
5. Productivity growth lower in state-controlled firms (Guriev et al)
6. Continued low ratings in corruption, ease of doing business, etc.
7. Build up of external debt in private sector, although not excessive by international
standards ; fast domestic credit growth in years prior to crisis
8. Persistently low investment rate (even comparatively low as capacity utilization
was stretched in later boom years)
9. And, crucially, dependence on favourable commodity prices – source of boom
and bust;
10. Russia overshadowed by nearly all emerging market economies in export of
medium- and high-technology goods (Cooper, 2007; Connolly, 2008)
NEED FOR STRUCTURAL TRANSFORMATION RECOGNIZED BY ELITE
2. The effects of the GFEC on the Russian economy
•
EFFECTS ON RUSSIA:
•
Swing from growth to recession was sharpest
among G20 economies (nearly 15 per cent in
rouble; c.25 per cent in $ terms); only BRIC
economy to experience recession.
•
•
•
•
During crisis (i.e., 2007-2009) Russia ranks 175
out 183 countries in degree of swing between
pre-crisis and crisis output.
•
•
Industrial production (down 10.8 per cent,
2009); investment (down 17 per cent); reserves
fell by a third; rouble fell; CA surplus halved;
domestic credit collapses.
•
•
•
Domestic demand contracted sharply;
•
state has swung from surplus (5.4 per cent in
2007) to deficit (5.9 per cent in 2009).
•
Anti-crisis measures have mainly focused on
businesses close to state (see rouble defence
as well as direct transfers); measures for
poorer more modest (see Yakovlev et al, 2009)
– Putin fulfils his side of “protection racket”
bargain.
•
•
Why so severe?
1.Commodity dependency
(expectations of oil price being
primary driver of confidence).
2. Institutional weaknesses (previous
confidence turned out to be fragile)
3. Private sector external debt
burden amplified by ‘sudden stop’
(Calvo) and ex rate depreciation.
Lessons drawn by elite:
Shakes confidence of elite in NR rentdistribution model
Reinforces belief that Russian
economy needs a new model –
diversification and modernization
But how? Russia caught between
high-tech Europe and low-cost Asia.
3. State-led development agenda
2000-7: Putin (energy-led process – extract more value from resources, use to develop other
areas)
2008: Medvedev : ‘four Is’ – innovation, infrastructure, institutions, investment (driven by state)
2009: “Forward Russia” – Medvedev (Commission on the Modernization and Technical
Development of the Russian Economy); InSoR report on Russia in 21st Century
2010: Putin’s Commission on High-Technologies and Innovation
Both reiterate same themes of modernization first outlined in Putin’s early speeches.
Both emphasize role of state in a top-down process.
Culminated in MER’s 2020 plan (2008): role of goskorporatsii ; limited FDI in strategic sectors;
focus on innovation, raising R&D, reducing corruption, improving state administrative quality,
etc.
Crisis reduced fiscal capacity of state – assumptions for plan excessively optimistic and
unlikely to receive same degree of state backing
Also, reorganization of most goskorporatsii to JSCs
New ideas from InSoR (Gontmakher, Golts, Yurgens) – modernization conceived in broader
political terms
Polarization of modernization agenda: liberal (InSoR, Medvedev?) v. conservative (Surkov,
Shuvalov, United Russia, Medvedev?)
4. State-led development agenda
•
•
•
•
•
•
•
•
•
•
•
General aims of 2020 Plan:
Fifth largest economy in the
world, biggest in Europe
‘Best place on earth for
humans to live in’ (Putin, 2008)
GDP, % 2007 = 226
Investment, % 2007 = 368
Population, 143 million
Life expectancy = 75
Share of middle class, = % 5070
Average pc income = (2007 =
6000 USD) $30000
Exports, % 2007 = 154
Energy intensity, % 2007 = 5560
 Innovation goals of
2020 plan :
 Increase in Russia’s role
as a trading power,
particularly in CIS
5. Growth diagnostics approach: identify binding constraints

How to increase private
investment and
entrepreneurship?

Identify ‘binding
constraints’

Wholesale reform v.
second best reform

Target largest distortions

Rodrik, Hausmann and
Velasco (2006)

Appropriate for Russia

Wholesale institutional
reform unrealistic (will
informal behaviour match
new formal rules?)

Government should focus
on a limited number of key
areas

State administrative
capacity is a weakness
GD methodology

1. Any binding constraint should have a high actual or shadow price. E.g., if
human capital is binding, the returns to those that receive a good standard
of education ought to be very high.

2. Movements on the presumptive binding constraint should be correlated
with movements in the aggregate rate of investment or growth.

3. A constant cannot explain a variable (e.g., ‘Russianess’ not the problem).

4. Agents less intensive in the binding constraint should be more likely to
survive and thrive, and vice versa.

5. When searching for binding constraints on private investment and
growth it is useful to benchmark the performance of an economy against
appropriate international comparators.
6. Investment in Russia
Table 1. Gross capital formation, 1990-2008 (per cent of GDP)

Investment is pretty low.

State accounts for c.20
per cent.

FDI, though increasing,
accounts for a relatively
small proportion.

Large firms account for
much.

Regional concentration.

Poor quality?
Brazil
China
India
Indonesia
Mexico
Poland
Russia
Ukraine
Vietnam
1990
20.7
25.9
23.0
28.3
17.9
21.0
28.7
23.0
..
1995
18.3
34.4
24.4
28.4
16.1
17.7
21.1
23.3
25.4
2000
16.8
34.1
22.7
19.9
21.4
23.7
16.9
19.7
27.6
2001
17.0
34.4
23.6
19.7
20.0
20.7
18.9
19.7
29.2
2002
16.4
36.3
23.8
19.4
19.2
18.7
17.9
19.2
31.1
2003
15.3
39.4
24.9
19.5
18.9
18.2
18.4
20.6
33.4
2004
16.1
40.7
28.4
22.4
19.7
18.1
18.4
22.5
33.3
2005
15.9
42.2
31.0
23.6
20.0
18.2
17.7
22.0
32.9
2006
16.4
42.5
32.5
24.1
20.7
19.7
18.5
24.6
33.4
2007
17.5
41.0
34.0
25.0
20.8
21.6
21.1
27.1
38.3
2008
19.0
42.0
34.8
27.6
22.1
22.0
22.0
25.6
36.0
Average
(1990-2008)
17.5
35.8
25.5
24.6
19.6
20.0
19.9
22.2
30.0
Figure 2. Investment and growth in Russia, 1994-2008
30

Growth is extremely
sensitive to investment
growth, despite the
relatively low level.
What accounts for recent
growth and previous
deficiency?
Annual Rate of GDP Growth

2007
2006 2000
R² = 0.93
20
2004
2003
2005
2008
2001
1999
2002
10
1995
-15
-10
-5 1996
1998
2009
1994
0
-10
0
1997
5
-20
-30
-40
Rate of Fixed Capital Investment Growth
10
15
7. Working down the decision tree


1. Is the problem a high cost of finance?
High savings suggest that the problem isn’t liquidity constraint
7. Working down the decision tree
 1. Is the problem a high cost of finance?
 Interest rate spreads are narrowing....
 … with investment sensitive to this narrowing (r = 0.72)
Interest rate spread (lending minus deposit rate)
50.0
45.0
40.0
Brazil
35.0
China
30.0
India
Indonesia
25.0
Mexico
Poland
20.0
Russia
Ukraine
15.0
Vietnam
10.0
5.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
7. Working down the decision tree


1. Is the problem a high cost of finance?
And yet firms see finance as becoming an increasing problem, particularly after crisis.
7. Working down the decision tree
 1. Is the problem a high cost of finance?
 Doesn’t compare favourably with sample comparators on index of
financial sophistication (ranked out of 133 countries, WEF).
2004
2005
2006
2007
2008
2009
2010
Brazil
19
26
28
31
64
51
50
China
72
77
93
91
109
81
57
India
37
32
32
33
34
16
17
Indonesia
63
40
83
50
57
61
62
Mexico
32
35
38
67
66
73
96
Poland
57
59
56
64
68
44
32
Russia
87
72
84
109
112
119
125
Ukraine
93
81
81
85
85
106
119
Vietnam
82
90
90
97
80
82
65
7. Working down the decision tree











1. Is the problem a high cost of finance?
Russia has a small and poorly performing financial sector
Why?
1. State controlled - now around 55 per cent (Vernikov, 2010).
- Low competition and negative real interest rates lead to credit rationing.
2. Large number of banks; regional concentration (at least half around
Moscow); regions and SMEs poorly served.
- A dual financial system.
3. Bank-centric: few alternative sources of finance.
- Underdeveloped equity and bond markets; limited pension fund
development.
4. Limited role for foreign organizations.
- 8 per cent of total assets in 2002 to 20 per cent in 2008. Plus, regional and
social concentration tends to follow domestic banks.
7. Working down the decision tree

1. Is the problem a high cost of finance?

And yet, as credit supply loosened 2005-8, investment took off.
Annual Percentage Growth in Gross
Domestic Investment
15%
10%
5%
0%
0%
5%
10%
15%
20%
25%
30%
-5%
-10%
Annual Percentage Growth in Domestic Credit to the Private Sector
7. Working down the decision tree
 1. Is the problem a high cost of finance?
 Overall:
 1. Investment moves in line with changes in credit supply,
suggesting supply, not demand, is the problem. When this eases,
investment takes off, growth follows.
 This suggests investment demand is significant.
 2. Agents constrained in factor are not large companies with either
close links to state or access to foreign capital (these avoid credit
rationing).
 Conversely, those that perform poorest (SMEs, remote regions) are
precisely those most sensitive to changes in the credit supply.
 In short, poor availability of finance because of supply-side
weaknesses appears to be a strong contender for biding constraint.
7. Working down the decision tree
 2. Is the problem low social returns?
 A. Infrastructure?
 Not bad by international standards.
 Not widely cited by survey evidence.
Table 6. Global Competitiveness Index Rankings: Quality of Infrastructure, 2004-2010
2004
2005
2006
2007
2008
2009
2010
Brazil
47
59
79
78
78
74
62
China
55
62
65
52
47
46
50
India
70
63
69
67
72
76
86
Indonesia
51
44
96
91
86
84
82
Mexico
52
61
60
61
68
69
75
Poland
73
86
72
80
96
103
72
Russia
60
64
85
65
59
71
47
Ukraine
59
65
70
77
79
78
68
92
91
89
93
94
83
Vietnam
76
Source: World Economic Forum (2004-10)
7. Working down the decision tree

2. Is the problem low social returns?



B. Human capital?
Again, comparatively good.
Not cited as particularly important in aggregate survey data.
Table 7. Global Competitiveness Index Rankings: Quality of Education, 2004-2010
2004
2005
2006
2007
2008
2009
2010
Brazil
72
85
114
120
91
94
103
China
50
65
87
73
41
37
53
India
36
39
25
31
31
33
39
Indonesia
49
35
23
29
48
49
40
Mexico
74
77
82
92
92
97
120
Poland
44
56
34
49
40
39
62
Russia
39
49
54
46
45
57
78
Ukraine
40
47
47
47
55
61
56
Vietnam
62
89
100
112
88
69
61
7. Working down the decision tree






3. Is the problem low appropriability of private returns?
A. Taxation?
Table 8. Global Competitiveness Index Rankings: Extent and Effect of Taxation, 2004-2010
Not great by
2004*
2005
2006 2007 2008 2009 2010
international
Brazil
101
103
125
131
134
133
139
standards.
China
29
30
46
47
36
32
29
Ranks high in
India
59
19
21
29
28
29
36
survey evidence.
Indonesia
36
27
11
8
16
22
17
But, a constant
Mexico
90
71
74
80
89
91
113
cannot explain a
variable: taxation
Poland
87
99
64
101
128
110
107
has always been
Russia
96
73
94
97
94
99
97
cited as a problem, Ukraine
98
102
101
123
127
128
136
yet investment
61
55
54
60
53
48
58
grows despite this. Vietnam
Source: World Economic Forum (WEF), Global Competiveness Reports (2008-10)
It doesn’t move
with the dependent
variable.
A constraint, but is
it binding?
7. Working down the decision tree

2. Is the problem low appropriability of private returns?






B. Institutions?
Among the worst in the world.
Ranks top problem in survey data.
But investment tends to grow even as perceptions
of corruption and poor institutional quality
increase!
Again, a constant cannot explain a variable.
Can this be the binding constraint?
Summary
 Russia performed badly during global recession.
 Russia needs an investment boom to modernize and





diversify.
But investment is relatively low in Russia.
Binding constraint appears to be poor financial
intermediation: demand is there; supply isn’t.
Supply of finance is the only variable that moves with
investment (and growth); other variables are constraints,
but not binding.
Existing state policies do not address the binding
constraint; therefore, they are unlikely to result in greater
investment, leading to continued structural stagnation.
Russia appears to be entering the inertia scenario (see
MER, 2008).
PART 2: Outline
 What type of system prevails in Russia today?
 How does this help Russia fit in with the
external environment?
 Will the emerging multi-polar world order reflect
domestic structures?
 Exercise in scenario mapping to assess what
types of risk exist today in Russia, and what may
emerge in the future.
State of the art:
 Existing contributions focus on either:
 1. Domestic structures or interests: e.g., Tsygankov
(2009), Wood (2009), Timofiev and Melville (2008)
 2. International distribution of capabilities: Freidman
(2009), Goldman Sachs (2005)
 However, need to incorporate both if we are to have any
chance of exploring what the future might look like.
 Domestic forces likely to be shaped by events on
international stage, and Russia’s international role likely
to be shaped by domestic considerations.
 Traditional realist accounts of IR: Kissinger, Gilpin, EH
Carr, all see world politics as ‘two-level game’ (Putnam)
Methodology:
• Not an exercise in forecasting.
• Projections are based on relatively simple assumptions and
•
•
•
•
are used to generate alternative scenarios for future
development of both Russia and world.
Scenario approach used by business (Shell), government
(RAND), military (NIC),and scholars (Gustafson and Yergin,
1995)
Purpose here is to set out alternative scenarios to facilitate
identification of key variables that will likely shape Russia’s
future trajectory, whatever the scenario.
As such, can help focus attention on policy priorities to
prepare for future.
Identify four basic drivers of politics: (1) demographic; (2)
economic; (3) military; (4) political
Overview:
 1. State Russia’s position on the four drivers at
the current time.
 2. Outline three scenarios for future Russian




development.
3. Describe main contours of world today.
4. Two alternative scenarios for development of
world along four variables.
5. How do domestic scenarios interact with
international scenarios?
6. Key issues for Russia’s future development.
Russia today: demographic trends
 Causes: health crisis; low male life expectancy; declining
fertility rates.
Russia today: demographic trends

End of its final decline in dependency ratio.

Implications: lower savings rate, higher state expenditure, labour squeeze.
Russia today: economic trends
 One of the world’s fastest dollar increases in GDP between
1999-2008.
 Correlated with rise in commodity prices, but other causes...
Russia today: key economic features
 Growth caused by:
 Current problems:
 Move to market incentives
 Dual economy (state
 Final demographic

dividend
 Increased employment
 Capital utilization



 Higher productivity

 Rising commodity prices

 Appreciation of rouble


capitalism)
Rising dependency ratio
Tighter labour market
Low investment (FDI and
domestic)
Slowing TFP productivity
NR dependency
Dutch disease
Need for diversification
Rule of law/corruption
Russia today: the military
 Main features today:
 Future challenges:










Structure skewed towards officers,
conscripts
Force structure geared towards old
threats (large conventional conflict
with NATO) – flawed military
doctrine?
Low readiness and low effectiveness
Low morale (dedovshchina, pay for
kontraktniki)
Largely obsolete weaponry
Mixed quality of modern weaponry
Not network-centric
Defence industry sustained by
exports
Defence industry inefficient and
dispersed








Professionalization (permanent
corps of NCOs, less senior staff,
contract soldiers)
Lighter, more mobile forces to deal
with more imminent threats
More responsive and effective
Improve morale
Modernization of weapons
Improved communication and
information systems
New export customers
Clear domestic demand profile
Consolidation and re-organization
of defence industry
Russia today: key political features
Russia today: key political features
 Main features today:
 Future challenges:
 Limited-access order (North et
 Increased economic competition
al, 2009) – those in power use
rent disbursements to sustain
existing power structures
 Link with economic structure;
state control of key sources of
rent
 Patrimonial state uses resources
to capture federal and regional
politics
 Low level of demand for
provision of rule of law
 Weak civil society, weak political
parties, weak business interests
through diversification of
economy
 Reduction of state control of
economy
 Generate demand from below
for rule-based government
 More and stronger organizations
independent of state
 Move to universally applicable
rules as basis for state rule
Three scenarios for future
Scenario 1: Optimistic
-Demographic trends remain
same, but higher female
participation rate, better
education, etc
-Economic growth model based
on: higher investment
(diversification), productivity gains
(not innovation), reduction in state
ownership, sensible fiscal policies,
etc.
-5 per cent average
-Military: smaller, professional
armed forces (1 mil); budget of 3
per cent of GDP; smaller, more
efficient defence industry; focus on
fewer, but better equipment
-Political: not a Western
democracy, but more open-access
(i.e. more universal application of
rules), more representation of
organizations that emerge with
economic growth and
diversification
Scenario 2: Muddling
through

Scenario 3:
Recentralization
-Demographic trends remain same, but no
-
Demographic trends remain same,
but no changes in female
participation rate, education, etc
-
Economic growth model based on:
state ownership of strategic sectors
and some non-strategic, higher
investment , lower consumption,
lower productivity, populist fiscal
policies, continued dependence on
NR revenues, etc.
-
3 per cent average
-
Military: larger, conscript-based
armed forces (1.5 mil); budget of 5
per cent of GDP; similar inefficient
defence industry; equipment quality
declining as Soviet investment
recedes and exports dry up
-
Political: No semblance of
democracy, arbitrary
changes in female participation rate,
education, etc
-Economic growth model based on: state
ownership of strategic sectors, stagnant
investment , modest productivity gains,
sensible fiscal policies, continued
dependence on NR revenues, etc.
-4 per cent average
-Military: smaller, conscript-based armed
forces (1 mil); budget of 3 per cent of GDP;
similar inefficient defence industry;
equipment quality declining as Soviet
investment recedes and exports dry up
-Political: Persistence of patrimonial Putinist
model
-
The world today: demographic trends
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Country
China
India
USA
Indonesia
Brazil
Pakistan
Nigeria
Russia
Japan
Mexico
Germany
Turkey
Iran
Thailand
France
UK
South Africa
Korea
Argentina
Chile
2010
1354
1214
318
233
195
185
158
140
127
111
82
76
75
68
63
62
50
49
41
17
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Country
India
China
USA
Indonesia
Pakistan
Nigeria
Brazil
Russia
Mexico
Japan
Turkey
Iran
Germany
Thailand
UK
France
South Africa
Korea
Argentina
Chile
2030
1485
1462
370
271
266
227
217
129
126
117
90
90
78
73
68
66
55
49
47
20
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Country
India
China
USA
Pakistan
Nigeria
Indonesia
Brazil
Mexico
Russia
Japan
Turkey
Iran
Thailand
UK
Germany
France
South Africa
Argentina
Korea
Chile
2050
1614
1417
404
335
289
288
219
129
116
102
97
97
73
72
71
68
57
51
44
21
The world today: demographic trends
One of the highest in sample
Russia
One of the lowest in sample
The world today: GDP (current $US)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Country
United States
Japan
Germany
United Kingdom
France
China
Brazil
Mexico
Korea
India
Argentina
Turkey
Russia
Indonesia
South Africa
Thailand
Iran
Chile
Pakistan
Nigeria
2000
9951
4667
1906
1481
1333
1198
644
629
533
462
284
266
260
166
133
123
96
75
74
46
% of Group
40.9%
19.2%
7.8%
6.1%
5.5%
4.9%
2.6%
2.6%
2.2%
1.9%
1.2%
1.1%
1.1%
0.7%
0.5%
0.5%
0.4%
0.3%
0.3%
0.2%
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Country
United States
China
Japan
Germany
France
United Kingdom
Brazil
Russia
India
Mexico
Korea
Turkey
Indonesia
Iran
Argentina
South Africa
Thailand
Nigeria
Pakistan
Chile
2010
14704
5263
5187
3326
2745
2353
1724
1364
1339
953
855
591
569
359
296
286
282
186
179
160
% of Group
34.4%
12.3%
12.1%
7.8%
6.4%
5.5%
4.0%
3.2%
3.1%
2.2%
2.0%
1.4%
1.3%
0.8%
0.7%
0.7%
0.7%
0.4%
0.4%
0.4%
The world today: military trends
 Full spectrum dominance of US military
 Even regional powers relatively weak vis-à-vis
US
 Reinforced by strong alliances
 Low prevalence of war between countries that
can be considered as ‘powers’, usually large v.
small
The world today: political tendencies
 Dominance of democratic, market economies in
international institutions
 Dominance of same countries in share of world
population and economic output
 World order reflects this distribution of power
 Same countries also the most technologically
advanced
The world in the future: two scenarios
 The fast rise of the rest:
 The slow rise of the rest:

USA aside, demographic tendencies
suggest rising powers will have more
favourable demographic characteristics

Rising dependency ratios in EEs slow
savings, investment, consumption
growth, etc.

Sensible economic policies are carried
out; orderly shift to greater
consumption, less investment

Policies not always conducive to
consistent growth.

US remains global ‘consumer of last
resort’

Next two decades punctuated by
periodic economic and political crises

Emerging economies take place of US as
global consumer

No economic or political crises

Current leading economic powers suffer
from less favourable demographic
features, slowing productivity growth,
and slower growth associated with being
closer to EEF.

Current leading economic powers suffer
from less favourable demographic
features, slowing productivity growth,
and slower growth associated with being
closer to EEF.

Military spending stays at existing levels
(as % of GDP)

Military spending stays at existing levels
(as a % of GDP)

No change in political systems

No change in political systems

In short, Goldman Sachs projections
with stable political development

In short, lower GDP projections for
Rising Powers, but same GS for
developed economies
The world in the future: economic
(fast
rise) 2020
Rank
Country
Rank
Country
2030
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
United States
China
Japan
Germany
France
United Kingdom
India
Brazil
Russia (Opt)
Russia (Muddle)
Mexico
Russia (Central)
Korea
Indonesia
Turkey
Iran
Thailand
South Africa
Argentina
Nigeria
Pakistan
Chile
19732
14794
6279
3741
3474
3260
3064
2994
2138
1924
1769
1730
1493
1127
1007
668
526
479
471
378
302
259
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
China
United States
India
Japan
Brazil
France
Germany
United Kingdom
Russia (opt)
Mexico
Russia (muddle)
Russia (central)
Indonesia
Korea
Turkey
Iran
Thailand
South Africa
Nigeria
Argentina
Pakistan
Chile
29913
25035
6863
6813
5101
4204
3999
3778
3482
2869
2848
2325
2129
1925
1695
1238
878
817
783
777
555
420
The world in the future: economic
(slow
rise) 2020
Rank
Country
Rank
Country
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
United States
China
Japan
Germany
France
United Kingdom
Russia (Opt)
India
Brazil
Russia (Muddle)
Russia (Central)
Mexico
Korea
Indonesia
Turkey
Iran
Thailand
South Africa
Argentina
Nigeria
Pakistan
Chile
19732
9764
6279
3741
3474
3260
2138
2022
1976
1924
1730
1168
985
744
665
441
347
316
311
250
199
171
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
United States
China
Japan
India
France
Germany
United Kingdom
Russia (opt)
Brazil
Russia (muddle)
Russia (central)
Mexico
Indonesia
Korea
Turkey
Iran
Thailand
South Africa
Nigeria
Argentina
Pakistan
Chile
2030
25035
19742
6813
4529
4204
3999
3778
3482
3366
2848
2325
1894
1405
1270
1119
817
579
539
517
513
367
277
The world in the future: military
 The fast rise of the rest:
 The slow rise of the rest:


US remains primary power,
greatest power projection
capabilities

Only China, and perhaps India, can
challenge on a regional level

Russian armed forces
overshadowed by all large powers
in all but optimistic scenario –
increased dependence on nuclear
deterrence.
Move towards regional alliances,
but US remains the decisive actor
(e.g., Indo-US alliance?)

Same as fast rise: Russia with no
relative power projection capacity
outside ex-Soviet sphere.

Dominant in ex-Soviet sphere


Less emphasis on conventional
forces make Russia more
vulnerable to low-intensity conflict
(primarily on southern border)
Only optimistic scenario provides
capacity to provide security
against low-intensity conflict


US still primary power, but full
spectrum dominance
compromised by rise of China and
other regional powers.
Move towards regional alliances;
less emphasis on US alliances.
The world in the future: political
 In either scenario, the distribution of economic activity and




population is strongly in favour of more democratic systems,
assuming no change in political organization of states.
Slower the rise of the rest, the longer existing practices
persist.
Only significant difference will be greater relative power of
large but poor (per capita) economies – implications for free
trade, welfare, etc.
For Russia, optimistic scenario provides more scope for
alliances based on values, internal structures (because there
are more potential allies).
However, presence of larger but poorer nations in top group
provides room for alliances based on interests rather than
values.
Conclusion:
 Best scenario for Russia is slower rise of rest alongside




optimistic domestic scenario.
However, in all but worst scenario, Russia will remain a
significant actor.
Like now, no power to decisively alter trajectory of world
politics, but power to cause problems and to act as swing
actor in a more fluid environment.
However, optimistic scenario will provide other ‘goods’:
human freedom, economic prosperity, security from lower
intensity warfare, more shared values, etc.
In no scenario can Russia improve on its position of relative
power that it has now.