20分钟详解 - 俄罗斯经济到底是怎么回事儿？

Russia A very fascinating country That is in existence No one dares to underestimate this country When it comes to politics and military It has the world's largest land area And possess the most nuclear warheads But at the same time when economy is being mentioned It doesn't seems to have anything to do with Russia In just half of century It has went through Political turmoil Hyperinflation Oligarchs Gangs Rapid development War Government default Financial crisis

Radical reformation and etc Today Lin Will comb through This intricate But one of a kind Russian economy To see what is actually happening Let me be clear The economy of a country Is indeed too complicated So I can only choose The part where I think is more important and interesting To share with everyone But what I think are important Are usually important If you have any opinions Or ideas Welcome to discuss about in the comment section

Let's make it clear Please comment politely And don’t start fighting And finally I will make a brief overview On Russian economy If you are not interested in what's happening in the middle And would just want to watch the simplest overview You can fast forward to the end However I'd still recommend To watch the entire video Afterall, not a lot of people Could explain this complex issue In a concise and interesting manner Like Lin in this world

You can give a thumb up to show support Talking about Russian economy We have to start from prior to Soviet Union I'll slightly throw in some history To help refresh your memory In February 1917 A democratic revolution happened during Tsarist Russia Which forced the Tsar to step down After that, the Russian Social Democratic Workers’ Party led by Vladimir Lenin Overthrew the interim government After 5 years of civil war Soviet Union was established on 1922

Two years later In 1924, this man rose to power to become highest leader of former Soviet Union He is Joseph Vissarionovich Stalin From then on, Soviet Union began To implement planned economy Planned economy means all economic resources From production to distribution And even part of the consumption Are all going according to plan For example, if there's a shortage of supplies here With just one order from above All the supplies will be dispatched

Another example We are now going to start developing heavy industry And need everyone to start building factories Again, with just one order from above All the workers will rush to build factories It doesn’t require time To wait for market to self-regulate If you have a clear direction Or when you want to conduct a comprehensive Large scale reformation This model is highly effective Soviet Union at the time Was inadequate in terms of Industrialization and modernization

Planned economy was very suitable for Soviet Union So from 1928 Stalin's first three 5 years plan Yield outstanding result The former Soviet Union rapidly changed from An underdeveloped agricultural country to An industrial power house This is former Soviet's GDP per capita From 1920 to 1940 It had increased by 3 folds Imagine during that time The US in 1929 Was experiencing the Great Depression The Western countries were all suffering In these 20 years

Stalin had led The former Soviet Union's economy And brought it to a new high Although there were political persecution The great purge But from economic point of view It was indeed exceptional On one hand, they've tasted the sweet fruits of planned economy On the other, the international standing of Soviet Union Had improved greatly They were in a really good position Followed by another period of rapid growth However, from the 60s onwards

This economic structure of former Soviet Union Was getting to be more complex And the economic development was beginning to stabilise It was not easy to plan as before Without invisible hand To regulate the market Even a powerful government can't Plan the economy In perfect order Moreover This highly centralised planned economy It has a problem Under normal circumstances, They go where the leader instructs Which lead to Serious corruption problem in former Soviet government

Innovation of enterprises would be severely impaired From 1964 until 1985, Former Soviet Union entered era of stagnation This is the GDP per capita Of former Soviet during this period At a glance It seems like it was not too bad, increasing slowly But when you put US on the chart And compare then you can see the difference As the Cold War intensified Former Soviet had to spend a Large amount on military The red line in the diagram

Is Soviet Union The blue line is US The government was in serious debt Many former Soviet's citizens Had to spend a few hours every day To queue up in order to buy food In 1985 Gorbachev rose to power He thought that no this is not good, If this continues, the citizens would starve to death He decided to carry out A radical reformation from two sides First is to restructure In Russian it is called Perestroika

This means to restructure the political and Economic system of former Soviet Union Lift up the central government's absolute control Over pricing and some industries The second one is to open up, Glasnost This means to increase transparency in government institutions Crackdown on corruption At the same time, lift up the control on public opinion These two words are Transliteration from Russian language However after Gorbachev era They became proper noun Specifically mean to restructure and to open up

Gorbachev wanted to activate Soviet and Liberate centralisation through these two methods But unexpectedly the reformation Caused the dissolution of Soviet Union This topic is a bit complicated, Today we talk about economy So let's not elaborate on this Let's jump ahead to the result December 1991 when Soviet Union collapsed Take a look at GDP of US was $6.2 trillion Russia's GDP at the time Was only $520 billion Only 1/12 of US GDP So basically It was incomparable

The first president of Russia was Boris Yeltsin He was a radical person Some said his personality is quite like Trump Very straight, very aggressive and very bold In speech and action When he rose to power he wished to Revitalise Russia's economy quickly After all, they used to be A big rival power to the US Yeltsin had always been Close to the West, He liked the extremely free market In which the government doesn’t interfere much In economics

It is called as Neoliberal Economy In 1989 In order to guide Economy reformation in Latin America International Monetary Fund (IMF) World Bank and government of US Introduced a set of neoliberal economic policies Neoliberal economic policies As this policy Was introduced in Washington It was later coined as "Washington Consensus" The basic idea is that The government should let go of everything Whether it's interest rates, currency Trading, land etc

Just don’t get involved in any way, reduce government expenditure reduce State Owned Enterprise (SOE), reduce regulation and intervention Just don’t appear anywhere in the market Let the market decide everything Although this policy Was prescribed to Latin America for economic reformation but Yeltsin liked it a lot He thought that US developed so well under such policy, Russia could too But the problem was that Under the former Soviet regime For nearly a century

At the time, Russia's economy from its skin to the bones was unable to escape from the shadow of planned economy Now we want to start marketisation We want free economy It's two extremes Imagine you want to reform from one extreme to another extreme If do it slowly step by step Towards the middle If a wrong step was taken in the middle It could backfires So I might as well skip the transition Or any soft landing

I'll just do a big job Drop the hammer Start a Shock Therapy Look at this term Shock Therapy It doesn’t sound nice isn't it So it certainly was not proposed by Yeltsin It was a term later coined by people to describe the economic reforms in Russia at that time.

What does it mean by Shock Therapy It means let's just go straight for it Market economy You want it to be open, to be free I'll give it all There will be no planning now You are free You can do anything you want Let supply and demand Let the invisible hand of the market Guide you to wherever it should be Sounds pretty radical right It's like in a movie Or in martial art novel

Where the hero was suddenly poisoned Or badly Injured So what is he going to do?

It's not letting it heal slowly Instead he would crack All the bones And let it regrow on its own Sounds kind of weird to you right This therapy Might sound radical But it does have a history of success For example in 1985 Bolivia was experiencing high inflation When the new president sworn in He adopted this radical therapy And managed to suppress inflation Again for instance, In 1989 When Poland was trying to reform

From planned economy to market economy They adopted a similar shock therapy method Although the economy at the time Faced some recession and decline But it didnt take long for the economy to get back on track So it counts as a success story But for a country As big as Russia With such complex situation If you use shock therapy straight away that’d would make Russia really in Shock Due to sudden liberation on price Top with new debt

made by Russian government to pay for former Soviet's old debt Short-term hyperinflation occurred In 1992, inflation was as high as 2500% What does this mean?

It means in the beginning of the year A cup of milk tea would cost 10 Ruble At the end of the year It would cost 250 Ruble In the following 7 years Russia’s unemployment rate rose from less than 5% to 14% and GDP was halved In sharp contrast, during this period, The GDP of US and China continued to rise Leaving Russia by a wide margin But these are not the worst result of shock therapy

Because to be frank a drop in GDP high inflation, high unemployment rate are the results that can be predicted by economists Just like martial arts experts Imagine if all his bones were all broken Then in the beginning he must experience a very painful stage Like we mentioned before Poland when experiencing similar shock therapy Had to go through this stage too Actually everyone had mentally prepared for that Only by going through this inevitable path

can the economy moves forwards to the road of rapid development towards liberalisation But the shock therapy left a very serious consequences that affects Russia until today Let us first take a look on What Yeltsin did when he implemented shock therapy There are a few main things First, release price control Second, open up export and import Third, liberalise interest rate Fourth, privatised SOE It is at this point, the privatisation of SOE Something went wrong

Privatisation means the public could invest in these big SOE Sounds like it’s fair but the actual consequences is that it allows those big SOE from former Soviet fall into the hands of the few very very few at a very low price This had allowed wealth to Accumulate rapidly in the hands Of these very few people Not only that In 1996 Yeltsin was running for re-election as president At that time, he had run the economy

into the ground Moreover the first war with Chechnya was not ideal Which resulted in very low approval ratings Several polls had put him in fourth and fifth place, Making it almost impossible for him to be re-elected But we have to say, Yeltsin does had a knack for politics He secretly summoned Seven of the biggest names in Russian banking and made a secret pact with them Which basically says now you're all here to help me get re-elected

after I've been re-elected, I will secure your glory and wealth After a few months, Yeltsin really achieved a big reversal and was re-elected Then according to the agreement, the seven secret people we mentioned just now had become the seven oligarchs who can control half of Russia We call them the Seven Bankers You might think They were only bankers But these 7 bankers controlled The bank, natural gas, petroleum, media and etc

These are major industries that is the lifeblood of the Russian economy It is no exaggeration to say that Even if Yeltsin wanted to do something, He had to seek their approvals Although the candidates for the oligarchs are constantly changing But the oligarchs' control of the economy and their influence on politics will affect Russia for years to come We said that there is a big consequences to oligarchs So what are they?

Lin summed up the following three points First, it stifle competition and innovation If it’s a free market economy Then everyone would try to be creative Look for new ways to cut cost Expand market share But it’s different with oligarchy market The main target would be trying to keep competitors out So most of the time I wouldn’t be thinking about innovating to provide better products Instead, the priority is how to keep my territory

Second is corruption and gangs Oligarchy economy caused business and political disputes which resulted in serious corruption and the prevalent of gangs Think about it The government is basically bought off by these oligarchs If anything happens The police could just close an eye The seven oligarchs can through various dark means, such as murder, bribery, intimidation and collecting protection fee to suppress other competition In Russian, We’ve been learning a lot of Russian today

There is a term called as крыша It means roof To put it bluntly, there is someone covering you Which means collecting protection fee This is common in Russia Everyone knows about the roof No matter what small business you want to do You have to pay the protection fee Everybody knows EPL team Chelsea right For the past few years they've been making people feel like they are loaded and Chelsea's boss is Roman Abramovich

Let's call him Ab here He is one of the oligarch in Russia Of course he is not one of the seven oligarchs He is the oligarch after them But he is an oligarch When I was writing the script I happened across a news mentioning Ab wanted to sell Chelsea But why are we mentioning Ab?

Because at the time Ab was in a litigation with one of the seven oligarch Boris Berezovsky Ab goes to public and openly sue Berezovsky I gave you 2 billion USD as protection fee to get me into the energy industry but you took the money and didn’t do anything The fact that a $2 billion protection fee can be used to sue a person so openly shows that this is not unusual in Russia

It reminded me of one thing These protection fees and bribes are definitely not included in Russia's GDP Just this one exposé by Ab reveals $2 billion If these Income were to be put in Russia GDP it'll certainly increase the GDP by 20% I'm just being sarcastic on the calculation of GDP Okay off topic, now let's go back At that time due to corruption, oligarchs and gangs Russia's economic was in total collapse

This was the GDP at the time I'm not going to say anything on this The collapse of GDP is only one side of the story The prevalent of the oligarchs brought about the third important issues and that is wide wealth gap The 98 richest people in Russia at that time held 421 billion dollars They have more savings than all other Russians The top 10% owns 89% of Russia's wealth and this is coming from the official data

The actual figure is certainly going to be more than this Generally we economists Not we Generally economists if they wanted to measure the wealth gap of a country they'd use a tool That is Gini Coefficient This number is normally 0 - 100 If it is 0 that means everyone possess equal amount of wealth If the number is 100 It means all the money is in the hand of one person So when the number is smaller

the wealth gap is smaller The number is bigger, the gap is wider According to the statistic by World Bank Look at this diagram The Gini Coefficient in England at the time was about 35 It was higher in the US, about 40 + Let's take a look at Russia You might think that Russia's number would be as high as 70 or 80 But when you look at the diagram, it's even lower than US You must be saying

how is the wealth gap very wide in Russia?

Let's take a look on this Actually the number shown by Gini Coefficient is widely deviated First it is the data released by the government It excludes all off-the-book incomes But these tycoons and oligarchs Most of their trades are being conducted under the table Therefore it surely won't be included in Gini Coefficient Second, the Gini Coefficient measures domestic income In the early 90s Russia was experiencing hyperinflation and the political environment was unstable If you were a tycoon

what would you do in this situation?

You'd transfer all your wealth to overseas right So for all these tycoons The first thing they did when they got the money was to think of all the possible ways to transfer their wealth to overseas Some of them even trade directly overseas According to estimation At that time, these Russian tycoons had assets overseas worth between $800 billion and $1 trillion This is equivalent to two-thirds of Russia's GDP These are not Included

in the Gini Coefficient we mentioned earlier Speaking of the overseas assets of these tycoons I don't know much about the rest But just take a look at the area surrounding Manhattan Central Park Those are the most expensive properties Those Russian tycoons love buying properties in this area If you bought a property In Manhattan the information is publicly available But of course these tycoons are not that silly to use their own name to purchase properties

Normally they would establish a company like a LLC to purchase properties But think about it, when you purchase a property It involves tens of millions of dollars in transactions The media just need to dig a little deeper and it can still be exposed For example, Ab bought a few properties h total value of more than $100 million When he divorced his third wife She walked away with nearly $100 million These information were exposed

These Russians oligarchs and tycoons Their properties transaction records I've also heard that the most expensive properties among these are the penthouses The owners of these penthouses are mostly Russian tycoons We've strayed a bit too far talking about properties Back to the topic One of the most serious problem in Russia at the time is asset outflow According to Credit Suisse The report showed that if these incomes were to be calculated then Russia would have

the widest wealth gap among the larger economies Wide wealth gap means social unrest Death rate in Russia at the time was also continually rising So Russia was experiencing Social unrest, bad economy and unstable political environment This is like putting dry wood next to fire it just burns easily Russia was about to fail In 1998 a crisis happened The Asian Financial Crisis This is basically the last straw for Russia The fuse that put Russia to the ground

The investors quickly pulled out from Russian market Russian Ruble and government bonds were sold off and interest rates soared The Ruble was under pressure to depreciate On 17th August 1998 The Russian government could no longer hold on and declared default on the national debt At the same time they let Ruble to depreciate Since then, the Russian financial crisis broke out So with that said let's just summarize a little bit From 1991 until 1998

Russia's economy as a whole was already in bad shape Shrinking productivity, monopolisation by oligarchs, rampant corruption Unemployment and death rates continued to rise Add to that was the war in Chechnya He didn't manage it right, either So on 31st December 1999 One day before Y2K Yeltsin With six months left in his term announced his resignation and abdicate presidency to Putin Then Russia enter the Putin era

In the following 10 years The economic machine that Is Russia Suddenly it's back up and running GDP growth remained at over 5% GDP per capita from 1999 of less than 2000 dollars went up to $10k in 2008 Unemployment rate dropped from 13% to 6% Industrial production grew by 75% The average wage has increased eightfold Consumer credit expanded 45 times Poverty fell from 30% to 14% You must have doubt

Is Putin a god?

Without any buffer all economic indicators grew rapidly What kind of magic spell has he casted ?

In fact, in the early days of Putin's presidency he did push for the implementation market-oriented policies Example like income tax level Corporate tax cuts, less regulation, etc. All these policies had greatly improved people's incomes and living standards Also In 1998 there was the Russian financial crisis that caused Ruble to depreciate This allow Russia's export to be more competitive These are indeed really helpful But I personally believe that these are not the main reason

So what's the main reason?

I believe that actually Putin was in luck He happened to be at the right place on the right time Let's look at Russia's GDP This is the oil price trend Did you discover that Russia's GDP and oil price Is highly correlated I've been holding up till now Finally I'd like to say that the core of Russia economy is Energy Russia's natural gas reserves are the largest in the world The annual export of fossil fuel

can amount to hundreds of billions of dollars More than half of Russian government fiscal revenue comes from fossil fuel In layman's term, Russia's good economy (early 2000) is because He's got a mine under his ass So the higher the oil price Russia, as an export powerhouse makes more money This is why just now we looked at Russia's GDP and oil price are like good bros You go up, I go up

You go down, I go down, hand in hand Just now we said from the 80s till 1998 Russia's economy was bad One of the important reason is because of oil price Then from 2000 till 2008 That was when global economy entering the golden age of rapid development With rapid development the demand for oil will generally also increase steadily So the price of oil has gone up From less than $15 in 1998

gone all the way up to $100 in 2008 In these 10 years, Russia was basically just sitting there counting money The whole country was earning money That's sure to increase national confidence Credit expansion, investment increase When the economy is good you can put any of those words up Look Russia has such a huge natural advantage Plus it has a population of 150 million As well as the foundation left over from the former Soviet Union

So many economists predicted that Russia will rise to become global economic superpower But the result Well we know the result is often not what you wish for Russia didn’t fully utilise the golden age of high oil price in early 2000 to optimise its economic structure and to break away from the heavy dependence on these oil energy sources and oligarchic control over the economy In turn, the Putin administration was slowly taking back control of some of the

previously privatized industries The original seven oligarchs thought Putin was just a lad a puppet Little did they know, as soon as Putin sworn in, he drastically carried out crackdown on these oligarchs Got rid of those who are disobedient Some were banished Some were jailed Some committed suicide He began to tighten the economic policy from the Yeltsin era Nationalised more and more enterprises At the same time he formed a new circle

of oligarchs who are obedient to him to manage these semi-nationalised enterprises Ab, the one we talked about earlier Boss of Chelsea With the help of Putin he became the new oligarch How else would he afford to buy Chelsea Right?

Now more than half of Russia economy are under the control of the government through these obedient oligarchs The interests of the government and the oligarchs are increasingly intertwined And this further solidify Russian oligarchs situation This is often called as Crony Capitalism This is like the ones that we heard Like Japanese Zaibatsu or Korean Chaebol (Plutocrats) More or less has the same meaning So in the first 10 years of Putin’s presidency Although the economy is growing

and the structure has also been optimised But the country's dependence on energy oil and gas is also growing The price of oil can’t be rising forever right So naturally during the financial crisis in 2008 also affected Russia At the same time, the price of oil also dropped during this financial crisis This double whammy caused Russia to plunge into financial crisis After struggling for several years, The oil price hike up slowly and Russia managed to stabilise itself

But in 2014 The price of oil dropped sharply It’s bad enough as it is And Putin Was fighting in Crimea Let’s set aside the war But the implication on the economy is that the West were starting to put sanction on Russia On one hand there was sanction On another there was drop in oil price This double whammy again, hurt the Russian economy After 2014 Looked like everything has slowed down But in 2020 there was pandemic

And in 2022 , the conflict with Ukraine lead to another series of more serious sanction Alright, now lets take a quick look on Russia’s current economic state Are you ready?

Russia or Russian Federation With land across Europe and Asia Across 11 time zones It is the largest country in the world covering 1/8 of the earth's land area With population of 146 million Rank 9th in the world For nearly 40 years the population hovers steadily between 140 to 150 million GDP $1.7 trillion Rank 11th in the world GDP per capita $11k Rank 68th in the world This is how Russia’s GDP historical chart look like

Experiencing dissolution of Soviet Union, Shock Therapy Economic recovery, crisis Recovery Stable Crisis Agriculture accounts for 4.7% of GDP Industrial 32.4% Service industry 62.3% Inflation rate 3.2% Now it’s a pretty good number But prior to this, they’ve been struggling against high inflation During the dissolution of Soviet, the unemployment rate was as high as 13% now drop to 5.6% Russia is an exporter and importer of the economy Main export product is fossil energy

Main trading partner for imports and exports is China The economic coefficient is less than 38% But this number is not believable because Russia has a lot of foreign assets and shady deals coupled with wide wealth gap Well, after today's complete and wonderful combing of the Russian economy Let’s summarise a bit I think there are two main characteristics on Russian economy First, it’s highly related to energy Because Russia possess the highest natural gas reserve and energy reserve

Its economy relies heavily on the export of fossil fuels GDP and oil price are highly correlated Second, the keyword is Oligarchs They were formed during Yeltsin era Strengthened further during Putin’s presidency The binding relationship between oligarchs and the government formed Crony Capitalism This causes serious corruption Innovation is hindered and widen wealth gap And then, the Putin administration in Russia due to geopolitical issue was and is being sanctioned by the West in 2014 and 2022 respectively

This has enormous impact on economy In this video I also hope to talk to you as objectively and accurately as possible regarding Russian economy Also recently There are a lot of attention on conflict between Russia and Ukraine How to say this We definitely do not wish to see war happening But it never stop happening in this world Some people said that a wish is being called a wish because it cannot be fulfilled But I think

Even if it’s just a wish I sincerely hope for World Peace