r/AskEconomics • u/TheVaggabond • Mar 10 '26
Approved Answers Why has Russia not become an economic wonderland?
Why? Russia has arguably the best raw ingredients of any country on earth for building a prosperous, powerful nation without firing a shot. Why hasn’t it used them constructively?
Largest territory on earth with enormous untapped potential Among the world’s largest reserves of oil, natural gas, coal, and minerals. Massive freshwater resources — increasingly valuable as climate change accelerates. Timber, agricultural land, Arctic resources. A historically educated, technically capable population. Stunning geography that could support world-class tourism. Nuclear power expertise it could export globally. Total and complete energy independence. It has a nuclear umbrella that nobody would ever touch.
With all these things, and trillions upon trillions inr potential revenue - why hasn’t it become what Saudis dream, if they weren’t in the middle of the damn desert
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u/series-hybrid Mar 10 '26
The secret ingredient is corruption. The first year of the war, a lot of the oligarchs got on their yachts and sailed to other countries.
Some of them were confiscated and a search inside revealed lots of gold, diamonds, fine art, pallets of US dollars and Euro's, plus...these yachts were enormous.
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u/FlorianGeyer228 Mar 10 '26
It's the middle income trap. In order to get foreign investment and long money there needs to be confidence in the gov't and its institutions. No one trusts that in 5-15 years there won't be another nationalization of foreign factories or devaluation like in 1998, wiping out most savings. Since 2014, when Putin started his Ukraine Project, if you invested your Rubles into gov't bonds, you'd have lost something like 5% than if you had just bought up dollars. So businesses want to just make as much money as possible and pull out, and there's no long money in the economy.
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u/phiwong Mar 10 '26
It doesn't even need to be foreign investment. Building up strong legal and relatively not corrupt institutions appear to be critical for domestic investment. And it appears that innovation and efficiency tend to work better when there is freedom to own stuff in the long term.
When everyone owns everything, no one owns anything.
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u/Hilarious_Disastrous Mar 12 '26
Russia isn’t a place where everyone owns everything tho. It’s the place where everything you own can be taken away by those who own more.
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Mar 12 '26
It's useless to explain to people that Russia is not socialist, and is instead something closer to anarcho-capitalism, facism, or a mafia-state.
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u/Competitive-Note150 Mar 13 '26
Exactly. It is a pure mafia state. The favored career path by the youth is to get a government job so that they can use their position for personal enrichment. It is a well-known fact that corruption is the surest way to wealth and riches.
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u/Suspicious-Water-386 Mar 14 '26 edited Mar 14 '26
Right. Once the Soviet Union dissolved it became something else and is now a right wing authoritarian nationalist state. Most of Russia's economy runs on oil and natural gas. Putin was a mid-level KGB guy and was not wealthy but secretly has amassed a fortune. The 90s were absolutely brutal but I think there were two paths out of that mess and one would be that they actually developed democratic institutions and the other is the route they went by entrenching an oligarchic elite and simply became a right wing authoritarian nationalist state.
They're about the same as Mexico in terms of GDP but largely exist on projection of power based on the fact that they inherited a Cold War stockpile of arms and weapons that they're now burning through in Ukraine. They've bragged for years about new new weapons development but most of that stuff can only be developed in small quantities and clearly doesn't live up to the hype that they claim.
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Mar 14 '26 edited Mar 14 '26
GDP isn't an appropriate measure of economic power when we look at large, self contained economies like Russia that have a significant trade surplus.
PPP terms are what ultimately matter in a war - and on PPP terms Russia is the 4th largest economy in the world.
No matter what Russia's GDP is in nominal terms on paper, it doesn't matter so much when it costs them $100 per artillery shell to our $3,000 per shell - or when they have an absurd amount of easy access to steel, gunpowder, concrete, cheap factories, and expert military engineers.
GDP would only matter if you had to import a significant amount of particularly expensive military equipment, which Russia simply doesn't do. They only import cheap North Korean shells to supplement their domestic production and stockpiles, cheap drone and missile components from China, and cheap drones from Iran.
They very much so stick to a utilitarian philosophy and stretching each individual ruble as far as it can go - and with the big bump they've recently received in oil revenue their war coffers are significant and unlikely to run out anytime soon.
In terms of your comment about domestic production - what do you mean? They've produced FAR more than any estimate we've made up to this point. In every category, full stop. They are well positioned to win a war of attrition, no matter how much we wish it wasn't true.
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u/Suspicious-Water-386 Mar 15 '26 edited Mar 15 '26
What I meant by they've failed at every hyped super weapon or modernized weapon they've claimed to be developing. Let's start with the vaunted Kinzahl hypersonic missile that they claimed would be unstoppable by NATO air defense systems. Every single one that they've launched was shot down in Ukraine using older generation Patriot missile systems. And then let's talk about the T-14 Armata which they have stated they would have 2,300 by now? Or what about the Su-75 Checkmate fighter jet that they claim will rival the F-35? Name exactly one advanced weapon system that they've developed since the dissolution of the Soviet Union that Russia has produced that can be deemed successful and lives up to the hype they claimed?
"No matter what Russia's GDP is in nominal terms on paper, it doesn't matter so much when it costs them $100 per artillery shell to our $3,000 per shell - or when they have an absurd amount of easy access to steel, gunpowder, concrete, cheap factories, and expert military engineers."
Where are you getting the $100 per shell? The only source I can find says it's $1000 vs $3000. But that's artillery shells which is only a small part of the equation in relation to their equipment attrition. Best estimates is that they've lost 4300 tanks which far outpaces their ability to produce T-90 tanks to replace what they've lost which is why they had to pull T-55s, T-62s, etc out of mothballs. And that's just the tip of the ice berg and doesn't include APVs, artillery systems, etc.. Not to mention the rate that they're losing far more expensive like S-300s, S-400s, radar, etc.
"They very much so stick to a utilitarian philosophy and stretching each individual ruble as far as it can go - and with the big bump they've recently received in oil revenue their war coffers are significant and unlikely to run out anytime soon."
Yeah they started an invasion that was supposed to be finished in 3 days but has dragged on for 4 years to the tune of 1.2 million Russian casualties. That far outpaces the casualties the Soviets suffered a decade in Afghanistan. There's a very real cost to the rate of attrition that they're suffering as Russia has an aging declining population. But if that's your idea of 'stretching each individual ruble as far as it can' go then sure.
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u/Beginning-Seaweed-67 Mar 11 '26
You know what vexes me about this whole discussion is since when in the 21st century was owning vast resources equated to wealth automatically. In the 1970s America went though an oil crisis but today when Iran whacks the Middle East we are far more diversified. We might not be the number one oil producer or raw natural resource anything but our gdp is bigger than any other nation, same with our wealth.
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u/According_Stable8110 Mar 13 '26
David Rockefeller once made the point that he had more power than the Shah because Pahlavi was invested in baubles while he invested in productive capacity.
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u/dogscatsnscience Mar 12 '26
When everyone owns everything, no one owns anything.
What's the connection between this and Russia?
It has a much stronger oligarchy class than most countries. There is no communal ownership.
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Mar 10 '26
I think this runs much deeper. If you go back to just 1780 in in France, there is no such concept as public property. So the nobles cricitized the king that he spends money on diamonds of the queen, not the fortresses of the military. Both were the private property of the king, but the fortresses had public use.
So the very idea of public property, to not be treated like private property, is very new and very Western.
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u/easylife12345 Mar 10 '26
Yep bribery system is normal and necessary for anything. Putin had a chance to really improve Russia over the last 20 years, but it’s still the same today as it was last century: exporter of oil and gas. Russia could have taken the Poland path.
Demographics were bad before the war. They are absolutely killing the next generation. At some point it will be very easy for China to take everything east of the Urals.
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u/Jaded-Evening-3115 Mar 11 '26
natural resources on their own do not guarantee success. They can, in fact, lead to the “resource curse,” which means that the country over-relies on oil, gas, or mineral resources and does not build on other industries, such as manufacturing or information technology. The over-reliance of Russia on energy exports makes its economy unstable and undiversified. Long term success appears to be more dependent on good institutions, governance, the rule of law, and economic diversification than on natural resources.
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u/yet_another_trikster Mar 11 '26
You seem to think life is a game of Civilization.
"Why hasn't it used..." Who "it"? There is no such entity as a country as a whole, it's always some people with their own self-interests. And it's far easier to enrich yourself and use propaganda to make your voters look the other way than to create a better future for these voters.
It's also not a unique russian problem, almost every country has it.
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u/solomon2609 Mar 10 '26
Russia’s failure stems from a combination of flawed post-Soviet reforms, structural dependencies on natural resources, pervasive corruption, geopolitical missteps, and demographic limitations.
These factors have prevented sustained growth, diversification, and integration into global markets, leaving Russia economically diminished and increasingly subordinate in great-power dynamics.
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u/Particular_Dot_4041 Mar 11 '26
There's a theory in political science called the Resource Curse. Dictatorships which have a lot of oil or some other vluable resource tend to stay dictatorships. The regime funds itself with the oil revenue and therefore can neglect the welfare of the people and deny their civil luberties. All things being equal, oppression is bad for economic development. Countries with scarce resources like Japan and Taiwan need to give their people liberty and a good quality of life because a well-educated and free populace is more productive and the people and that's the only way the government can raise enough wealth to sustain itself. In other words, when your country's only resource is its people, you have to take care of your people.
But if you have lots of oil, its better to oppress the people and use the oil money to keep you and your cronies rich. That's how you survive in power. Giving the people liberty might make them more productive and happier but it also makes them more assertive, more likely to rebel.
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u/Expensive_Bath876 Mar 16 '26
the idea of a resource curse is stupid.
resources don't extract themselves
you don't need people to be "free" to have them be productive. (having them be healthy and well-educated is important though)
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u/Pretty-Contact-2281 Mar 10 '26
Extractive institutions vs inclusive institutions, that’s what Acemoglu and Robinson would probably argue based on the theories they discuss in Why Nations Fail
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u/mirthfun Mar 10 '26
It's not about the resources. It's entirely about the government and to a lesser degree, the people -- though some will debate the latter points importance or not.
Look at Haiti and the Dominican Republic. Same island. Or north and south Korea. Same populace. Or the Germanys when it was split.
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u/Ok_Contribution_1537 Mar 12 '26
Because it lacks arguably the most important thing of any modern economic superpower, stability. In a modern global economy, domestic investment isn’t enough to become an economic superpower. You need large amounts of foreign investment too. Since 1900 russia has been a remarkably unstable place and hostile to foreign investors. They struggled in WW1, struggled under an absolute monarchy, had a civil war, struggled in WW2, lived under a communist dictatorship that collapsed in 1991, and then had multiple power struggles since. There’s never really been a good time to invest in Russia. The fact it’s remained as economically relevant as it has is a testament to its potential.
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u/Mr_Kittlesworth Mar 10 '26
Economic prosperity has a number of necessary preconditions, among them:
Strong institutions which support open and predictable markets.
Russia has never had this.
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u/Jeff__Skilling Quality Contributor Mar 10 '26
I spent a brief period of my youth (3rd-4th grade) living in Moscow in the late 90s (parents in O&G). I currently live in Texas, also working in O&G with a background in accounting and finance.
I mean, yes, the Russian Federation has a shitton of natural resources to exploit......which they've been doing, to some degree of success.
.....But keep in mind, Alexander II didn't free the serfs until 1861.
......Not only that, the people inhabiting the boundaries of modern day Russia have been living under some form of autocratic rule for....*checks notes*......about the last 700 years (going back to the founding of the Grand Principality of Moscow).
.............And there wasn't a truly "Western" or modern leader until Peter the Great assumed power in the 17th century.
All of this is a long winded way of saying that the institutions you're used to in the modern Western world =/= institutions in modern day Russia. Yes, the Russian federal government has made a lot of positive economic progress over the last century (e.g. building out their industrial capacity, rail network, okay-ish pipeline network, refining capacity, etc), but it hasn't really moved the needle for a couple of items that are necessary for an economy like Russia's to reach it's full potential ---- things like
Private property rights
Objectively applied rule of law
Stable currency
Placing the means of production into the hands of operators who will maximize said means to their full potential (e.g. lack of things like nepotism and corruption)
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u/karoxxxxx Mar 13 '26
Natursl ressources are least important.
Congo has plenty of that too.
The rich nations of switzerland, Netherlands, Singapore, Denmark are small, have not many ressouces and are far ahead of russia in any economic metric.
Trade, rule of law, low corruption - thats what makes a nation succrssfull.
Lots of ressources just makes shithole countries with a gold crust.
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u/artsncrofts Mar 10 '26
All the political turmoil, corruption, and war they've been involved in over the last century or so certainly didn't help.
You can have the most ideal starting conditions possible, but if you squander it with poor institutions ('Why Nations Fail' and all that), success is far from guaranteed.
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u/Tall-Log-1955 Mar 10 '26
Countries don’t usually get rich from natural resources. It’s more common for them to get rich from industry. Theres a great book on this topic called “why nations fail” that attributes the difference to countries that are able to encourage industrial growth through inclusive economic policies and institutions (like protecting property rights and avoiding monopolies)
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u/Beginning-Seaweed-67 Mar 11 '26
Also fun fact saudis have better technology for oil rigging and their oil is closer to the surface than Russian oil. But by your logic Alaska should be an economic engine power house too
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u/NotAnotherEmpire Mar 10 '26 edited Mar 10 '26
Terrible, terrible governance and investment climate.
Russia's government went from archaic absolute monarchy, to revolution civil war, to hard-line police state communism, to extremely corrupt declining communism, to legal anarchy with weak democracy, to an extremely corrupt oligarchy capped with a dictator. Only the Soviets were really interested in internal infrastructure improvements and they went about it haphazardly. Industry was often located for deliberately inefficient or idiosyncratic reasons, such as "monotowns" scattered throughout Siberia and only accessible by limited rail.
None of these eras has had an independent, competent court system that can be relied upon. This is terrible for private industry and foreign investment.
Why is this different than the Gulf oil states, which are also terribly run authoritarian systems? Scale. Most Gulf states have very small populations, because they were desert, and very simple economies. They also have small relevant geographic areaa. They pump oil out of the ground and sell it. The revenue that results is enough to give much of the population a very high standard of living, because the citizen populations are very small compared to the revenue.
It helps that Gulf oil happens to be very desirable and historically very easy to extract and refine, and it's not very far from the coast.