Konstantin Sonin, a renowned economist from the University of Chicago, has sounded the alarm about the precarious state of Russia’s economy. He asserts that the ongoing war in Ukraine is setting the stage for a significant economic meltdown in Russia.
Sonin points to the war’s impact on Russia’s economic fabric. He argues that the Kremlin’s efforts to tighten control over the economy, driven by the need to respond to Western sanctions, have led to the disintegration of key market institutions. This disintegration is evident in the imposition of export restrictions on vital commodities and the forced sale of major companies, like Heineken, for nominal sums. Russia’s attempt to prevent companies from leaving the country further underscores the government’s increasing control.
Sonin highlights the Kremlin’s unsustainable approach to financing the war. He states that they are “borrowing from the future,” diverting funds away from essential public programs and boosting military spending. This unsustainable strategy, he argues, is leading to a gradual dismantling of the market institutions that Russians painstakingly built during the reforms of the 1990s.
The economic outlook painted by Sonin is bleak. He warns that the nationalizations of recent years will have enduring negative effects on Russia’s economy once the war ends and the country attempts to re-enter international trade. This warning is echoed by other economic analysts who point to declining long-term economic indicators and a growing worker shortage in Russia.
While Russia’s GDP is projected to grow by 3.2% this year, buoyed by war spending, Sonin foresees a perilous future. He emphasizes that the war is not only inflicting a lower standard of living on Russians but also condemning future generations to economic hardship due to the government’s unsustainable policies.
