Country Without a Future
More arms may help drive back Russian troops, but only tighter sanctions offer any hope of changing the country for the better
Amid the distracting reports last week that President Donald Trump sent precious COVID-19 tests to Vladimir Putin at the height of the pandemic, the Russian government announced a shocking new budget. Defense spending will rise 25% in 2025 to roughly 6.3% of the country’s economic output (compared to 3.5% in the United States). Spending on the military and state security together will account for 40% of the budget, more than twice the commitments to pensions and other social spending.
The immediate significance is that Moscow clearly isn’t preparing for a negotiated settlement with Ukraine anytime soon. Far more importantly, however, the country is accelerating down a path of militarization and obsolescence as its global isolation grows. While financial sanctions have done little to stop the grinding attacks on Ukrainian cities, extending and tightening them may be the only way to force Moscow’s recognition that it’s heading for a dead end.
More weapons for Ukraine will unquestionably help hold off the Russian assault and perhaps even reclaim some lost territory. But since no one contemplates Ukrainian troops advancing to Moscow to install Jeffersonian democrats in the Kremlin, Europe faces a persistent threat. Regardless of the terms of any cease-fire or armistice, Russia will remain an insecure and nuclear-armed power that only political and economic isolation can hope to change.
As a Russian friend recently pointed out, Ukraine may be suffering a tragic present, but is headed ultimately toward a future of modernization, prosperity and integration with the European Union. “But my country,” she lamented, “has no future at all.”
Consider what has happened to Russia’s economy since the invasion began. After declining 1.2% in 2021 from the initial sanctions shock, it grew 3.6% last year and may post something similar this year. But the numbers are illusory, boosted by a rapid rise in military spending to replace the shocks from elsewhere.
Russian oil and commodity exports continue to be a crucial source of revenues, but they have been constricted and redirected from Europe to China and India. Domestic demand has been goosed by government spending and rising wages, but this will be unsustainable as the economy runs up against hard supply constraints.
The labor force has been shrinking from military conscription and mass emigration, driving wages sharply higher. Meanwhile, sanctions and export controls have starved the Russian economy of machinery and spare parts. Production capacity utilization has reached historic highs, according to the Bank of Finland, which is among the most astute observers of the Russian economy. Its forecasts now have Russia’s growth settling in at a long-term potential rate of 1% starting next year.
Meanwhile, inflation rages as a function of a government spending spike even as the supply side cannot respond. While the official reading is 9.1%, even the Central Bank of Russia seems to think the real numbers are much higher as it prepares to hike rates from the current 19%.
More than just a cyclical challenge for Russian authorities, this is Putin’s deliberate choice of a business model shaped by military priorities and international isolation that will only grow worse. Not only will the country fail to address its current productivity challenges, Russia will fall further behind as its global competitors introduce innovations in artificial intelligence, biotechnology and quantum computing.
It was isolation and impoverishment that forced South Africa’s Whites to abandon apartheid, and it was Mikhail Gorbachev’s visits to a vibrant and modern France before he came to power that convinced him the Soviet Union needed significant perestroiking.
While media reports highlight leaks in the sanctions regime imposed by the United States, Europe and allies, the regular efforts to refresh and tighten the restrictions have grown. European exports of machinery to Russia are running at one-tenth their pre-war levels. And threats of secondary sanctions against China, Turkey and the United Arab Emirates have squeezed Russian imports from those countries, too.
This decline and isolation could last decades as the examples of North Korea and Cuba suggest. But it was isolation and impoverishment that forced South Africa’s Afrikaaner nationalists to abandon apartheid, and it was Mikhail Gorbachev’s visits to a vibrant and modern France before he came to power that convinced him the Soviet Union needed significant perestroika.
As Putin hosts the BRICS Summit in Kazan starting next week, his guests will be happy to rail against U.S. dominance, but none can realistically hope to save Russia from its disastrous heading. China may be Russia’s biggest trading partner these days, but Moscow as an ally will never be as important to China as continued access to markets in Europe and the United States.
This means we had better dig in for the long haul on sanctions that are extended and tightened in a 21st-century version of containment. The sooner Russian leaders, likely those who follow Putin, understand they are heading nowhere, the sooner they may be able to reclaim a path to prosperity and Ukraine can hope for more than a cease-fire.
