Dynamics of Russian economy have been quite counterintuitive. Many, including myself expected the quick crash of the Russian currency. Indeed, usd/rub exchange rate initially skyrocketed. But since March 10 ruble started growing quickly🧵
One could assume that the ruble price somehow correlated with Russian military successes. Indeed, Russians were advancing quickly. And still, less quickly than almost everyone had expected. Plus subsequent Russian retreat from the north in early April didn't stop the ruble rise
Much better and more obvious explanation would be: the price of the ruble dependent primarily on the trade balance rather than with what was happening on the Ukrainian battlefields. Strong ruble is a result of the trade surplus. And the Russian trade surplus skyrocketed in 2022
Trade balance depends on exports and imports. Now what does Russia export? That's the figures of 2017 but that's good enough to see the structure of its exports. It's overwhelmingly raw materials. Fossil fuels, ore, metals, mineral fertilisers. Very little machinery or equipment
Now let's have a look on Russian import structure. It's nearly reverse. Machinery, equipment, components. It's not only the consumption products but also pretty much everything that is necessary to keep the Russian industry going from the machine tools to the cassette bearings
To illustrate my thesis, I'll give you some examples from Russian civilian machinery, military machinery and transport. NB this is not a *proof*. That's an illustration. Let's start with civilian machinery. See an interview with the trade union leader of the Avtovaz car producer
Now let's do Russian military industry. That's a vacancy description of a construction bureau designing missiles. They are looking for a technician who would be able to write soft for machines operating on Sinumerik 840D (Siemens) & Heidenhahn software
The massive use of Western, specifically German machines and software in the Russian military industry, including missiles and rockets isn't secret. It's openly shown on the Russian TV. See this Россия 1 broadcast from Kalinin plant on 3:01
"Heidenhahn"
FYI: this Heidenhahn using Kalinin plant in Yekaterinburg is a produce of the Russian air defence systems, including the С-300
There's a massive evidence that most of software used on Russian programmable machines in the military industry is either
Siemens
Heidenhahn
Discussions of the Russian military capacities miss one crucial element: it's total dependency upon the technological import. And vice versa, discussions on the EU-Russia relations miss the economic dependency of so many European producers upon the technological export to Russia
Strange behaviour of Germany during the war in Ukraine might make more sense if we consider that German and Russian economies are surprisingly compatible
Indeed, German economy may have been a major benefactor of Putin's militarism
1. Putin builds the army 2. Pumps cash into the military industrial complex 3. Massive purchases of German machines, tools, components
Christian Thones who talked on lobbying the German politicians ("to the extent it is possible") in 2015, after Crimea, when the war in Ukraine was already going, is now the Chairman of the Executive Board of the DMG MORI
In this 2020 article DMG MORI was described as *the* main producer of the machine tools for the Russian military industry before the rise of Russian state-controlled STAN company. I think this is an exaggeration. Still, that's a thing to consider
While Germany was the major supplier of machine tools and equipment for the Putin's military industrial complex, France was also quite important as a supplier of armaments and components
Now let's do transport. Russia is not the Upper Volta with nukes. It's the Brazil with railways. [=absolutely reliant on railways]. Railways are the main means of:
1. Cargo 2. Long distance passenger 3. To the lesser extent, daily commuting within large urban agglomerations
New Russian cargo trains use cassette bearing. In 2022 there were only three producers in Russia:
Тимкен ОВК (joint venture with the American Timken)
ЕПК-Бренко (joint venture with the subsidiary of the American Amsted Rail)
ООО СКФ (Swedish SKF)
They all stopped production
I gave three brief illustrations of Russian total dependency upon technological import in:
1. Civilian machinery 2. Military machinery 3. Transport
After the start of the war the technological import stopped nearly completely, even in industries not touched by sanctions
After February 26 two things happened:
1. Sudden and almost complete obliteration of import 2. Actual increase in the export value (partially due to the rising prices on raw materials)
As a result, Russian trade surplus skyrocketed (see the graph) and the ruble grew stronger
Paradoxically enough, the growth of raw materials export in combination with obliteration of technological import boosted the trade surplus. But this situation is simply unsustainable. Russia can't do without the technological import. It can't even sustain its fossil fuel export
This is a very illustrative case. Nordstream gas supply decreased by 40%. Why? Siemens was supposed to repair a gas compressor and deliver it back to Russia. But due to the Canadian sanctions it can't, so the supply decreased dramatically. Now they're working on a solution
Now let's sum up. Why has ruble grown stronger?
1. You can't judge the Russian economic dynamics on the monetary indicators 2. Trade surplus skyrocketed due to the export booming and import reduced dramatically 3. This situation is unsustainable. Russia can't do without import
How is Russia dependent upon import?
1. Civilian manufacturing 2. Military manufacturing 3. Transport
Are all critically dependent upon imported tools & components, although the main chokepoints vary. Russian UAVs are component-dependent rather than tool dependent for example
Why is Germany supporting Russia?
Because their economies are so compatible. Putin's militarism creates demand on German precision manufacturing tools & components. Thus German industrialists try to influence German politicians to be pro-Russian "to the extent it is possible"
Why is France advocating for peace?
Because it helped to keep Putin's military machine going after Crimea. After the 2014 it became much harder for the Russian military to get components for their industry. Fortunately, the French obliged and issued all the necessary licenses
Why China can't compensate for the loss of European suppliers?
Because Russian military producers didn't want it and the state didn't allow it. On public Putin conflicted with Europe and befriended China. In practice he didn't allow to switch to the Chinese technological import
Theoretically Russian state imposed heavy import substitution requirements for the tools for the military industry. In practice though the law is used selectively. You won't be *really* jailed for supplying a German tool pretending it's Russian. But you will be jailed for Chinese
According to the law, supplying a foreign-produced tool as Russian to meet the import-substitution requirement is fraud. But Russia has a rule *by law*, not *of law*. The law is used selectively. If you supply German stuff, it won't be applied. Chinese though? To the jail you go
Hypothesis:
Friendship with China is a political project. It's quite possible that the Russian political leadership and the upper bureaucracy don't *really* trust the Chinese machines, tools and components as much as the Western
National divergence
Russian economy is falling, but it's falling unevenly. Consider a visualisation of the unemployment prognoses by a Russian state think tank ЦСР. There is a negative correlation between the economic complexity and the prognoses of unemployment increase
Consider these two clusters of losers. Volga cluster (Tatarstan, Samara, Ulyanovsk) and Kaluga. What unites them? Complex non-military machinery production. This sector is obliterated. Everyone who specialised on complex non-military manufacturing is destroyed by the war
Let's compare Kaluga (red) with nearby (Tula) yellow. They are both heavily industralized but Kaluga is obliterated and Tula is doing okayish. Why? Tula is a cluster of military industry, while Kaluga made its regional economic miracle, becoming a major car production cluster
Who's doing okayish macro economically? The agrarian south - huge yellow area to the south of Moscow. They didn't suffer that much. Moreover, according to the info I can't prove some regional elites of Southwest regions especially in Rostov are the major benefactors of the war
Look at this map again. It doesn't only reflect the current macroeconomic situation in Russia. It's also reflecting a very long and fundamental trend - Russia is shrinking southwestward, with the demographic and economic center gradually shifting in direction of Krasnodar
Now who's doing the best unemployment-wise? Look at the green. Those are poor and underdeveloped ethnic regions. Caucasus, Tuva, Astrakhan. That's Putin's cannon fodder
Much of the local youth will be recycled in Ukraine and those who don't will at least be employed in the army
That's a powerful signal for the Russian regions. Your specialisation determines your fate
You serve as the cannon fodder or produce armament -> You survive
You build a complex civilian manufacturing, especially with FDI help -> You get obliterated
Lesson for the future
It's not only about Russia going the North Korea scenario right now. It's also about the signal Russian business, officials and let's be honest the people are getting. Which is:
The best way to survive is to serve the military machine of the state. Self-reliance is suicidal
Should Russian empire survive, its imperial ethos will be very much reinforced. On regional level, on company level, on personal level those who serve the war are doing the best
There is no salvation beyond the state and its military machine
That's what Russians gonna learn
Indeed, this is exactly the reason why Russian imperialism and militarism exists in the first place
Because those who serve the war machine are being systematically rewarded and those who pursue other strategies are systematically selected out
They'll be selected out again
Should Russian empire survive this crisis it will become more aggressive and militaristic, no matter who rules in Moscow. People, companies, regions will once again learn that only within the state you can find salvation and that will define their future strategies
Indeed, Putin's decision to invade which many perceived as "madness" may look less mad if we consider that Russian demographic and economic centres are objectively shrinking southwestward, towards Krasnodar. In this context, decision to expand southwest kinda makes sense
Here I gave only few preliminary considerations regarding the Russian regional dynamics based on one single indicator - unemployment prognoses by a Russian gov think tank ЦСР. I'll give more details and sources in my next thread on the National Divorce. End of 🧵
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- What is long, green and smells with sausage?
- Moscow-Tver train
Why? Well, under the USSR provincials had to go shopping to Moscow. Their shops had no food, often very literally. Today we'll learn an expression "supply category"🧵
Under the centrally planned economy it was the state which supplied food to the localities. It would assign each city one of four "supply categories" determining how much food there will be on shelves. Moscow was supplied far better than anyone while cities like Tver - horribly
Provincial Soviet cities of the lower supply categories might have no food on the shelves at all. Sometimes very literally. Sometimes they would have only the scraps from the table of the higher status city: like some algae, or the disgusting paste "Ocean"
I find this line of argumentation illustrative of the general state of Russian discourse, whether "patriotic" or "liberal". Everything Turkic occupies the same place in the Russian debates as everything Irish in the Imperial British. The Inner Other and the source of all the evil
Reading the Russian-Ukrainian debates with both sides accusing each other of racial impurity and having too many Steppe admixtures or influences, I noticed that their argumentation is mirroring each other. See this Russian nationalist material for example sputnikipogrom.com/history/15934/…
This mutuality and almost exact symmetry of Russian-Ukrainian accusations reminds me of a brilliant
thread on the British rule over the Ionian Isles. Bach then the discourse was similar. Brits and Greeks were constantly accusing each other of Irishness
Russian bureaucracy is *massive*. It's also diverse. Judging from my observations, it's less integrated than let's say the apparatus of the U.S. federal bureaucracy. Different agencies have different cultures and operate by different rules. Avoid sweeping generalisations (not🧵)
I see a very common attitude among the Russian pro-war community. It can be summarised this way:
"We expected dumb and incompetent bureaucrats to destroy our economy. But our glorious army would prevail against all odds. It turned out we were wrong. It's the other way around"
Now much of the Z-community argues that they greatly overestimated the Russian army (and the military apparatus). It's very, very much worse than anyone thought before. But they underestimated the economic bureaucracy. Which is very much better than they could have thought
No. Describing Russian regime as "kleptocracy" is misrepresentation. It's not technically false, just absurdly reductionist. Let's be honest, if Putinism was *entirely* about stealing it would not be able to wage wars or produce armaments. And it produces hella lots of them
Keep in mind that public rhetorics work according to the rhetorical logic. Public position doesn't have to be factually accurate, it has to be rhetorically advantageous for it to work. They talk about "corruption" so much because it's rhetorically advantageous. That's it
When you don't have a positive agenda/vision of future or it's too hideous, you talk about "corruption". Examples - Lukashenko or Yeltsin. "Anti-corruption fight" is an ideal topic for a power hungry politician. Because talking about corruption = avoiding the actual conversation
Kremlin may not have a grey cardinal. But it has a bald engineer. The Kinder Egg is a major architect of Putinism. In 1998 he made Putin the FSB Chief. In 2000s he dismantled the regional autonomy imposing the centralised rule. Now he manages Putin's domestic policy and Ukraine🧵
Sergey Kirienko was born as Sergey Israitel in a mixed Russian-Jewish family. After the divorce his mother changed his surname from father's "Israitel" to her own "Kirienko". That could be a pragmatic decision. A boy with a Slavic name would have better career chances in the USSR
In childhood Kirienko lived with his mom in subtropical Sochi. Here he started the bureaucrat career as a Komsomol manager (комсорг) of his high school class. NB: the role of Komsomol in Soviet to post-Soviet transition is underrated. Komsomol management were its main benefactors