Who’s also paying for Putin’s war? The Russian people, with gross inequality

In a video posted to social media from the Ukrainian city of Melitopol in the early days of the Russian invasion, an elderly civilian can be seen confronting Russian troops: “Don’t you have problems in your own country to solve?”

The soldiers offer little in the way of reply, but if I may offer a response in their stead: boy, do they ever.

Russia is the most unequal of the world’s developed economies. Before the pandemic, the richest 10% of Russians owned 87% of its wealth, compared with 76% in the US and 66% in China. And COVID has only made things worse. The wealthiest 500 Russians now control 40% of the country’s wealth, while the other 144 million have seen poverty rise, incomes fall and food costs surge.

It is not only galling that President Vladimir Putin should focus his attention on territorial conquest while his citizens are suffering. His imperial expansion relies on the deliberate deprivation of ordinary Russians; his government diverts the nation’s largely fossil fuel-derived revenue to its war chest instead of spending it on improving citizens’ health, welfare and economic opportunities.

Ukrainians are the foremost victims of this shameful invasion. But it is worth unpacking how the Kremlin’s regressive economic agenda, a key buttress of its armed offence, hurts the Russian people too.

Putin’s austerity politics

Putin rose to national leadership in 1999 promising to arrest skyrocketing inequality and inflation. After initially stabilising the growing chasm between rich and poor (though it may have already begun levelling off), it has remained stagnant at world-leading highs throughout his two-decade reign, despite Russia significantly increasing revenue from fossil fuel exports.

This hasn’t merely been due to Putin’s infamous circle of oligarchs corruptly siphoning off funds. It is also due to various austerity policies, such as strict budget and foreign account surpluses (exports exceeding imports). Russia was one of very few nations to run a budget surplus in 2021 despite the raging pandemic. Some brave Russians even protested the lack of government support in a country where protest can incur draconian punishment — but the Kremlin steadfastly refused to cough up.

Such miserly savings, including the significant sums in the country’s national wealth fund, meant Russia was effectively stockpiling its fossil fuel revenue that could have lifted millions out of poverty.

Such economic conservatism only renders Putin’s left-wing apologists embarrassingly hypocritical.

This “rainy day fund” appears to be the reason he thought he could invade Ukraine and withstand the inevitable economic sanctions. But since Western nations have imposed much harsher measures than many anticipated, including effectively nullifying the parts of Russia’s holdings denominated in foreign currencies, Putin has wasted mountains of stashed cash that could have significantly improved the lives of struggling Russians.

What remains of his war chest is now being spent on corporate stocks and bonds to prop up ailing Russian companies, but such belated spending will hardly trickle down to those most in need — and will hardly be enough to stem the bleeding he provoked.

Other countries do it too

Putin isn’t the only authoritarian leader squeezing his people to finance the elite’s pet projects — Chinese President Xi Jinping pioneered this strategy. Harsh financial and welfare policies have diverted excessive amounts of China’s export revenue from citizens’ incomes to state-led investments, leading to white elephant projects like empty cities, while the lower and middle classes are held back.

And before the West gets too cocky, some of our allies are guilty too. Germany has long explained away its foreign account surpluses by boasting about its strong exports. But this export revenue hasn’t translated into greater domestic spending due to the Bundestag’s fiscal austerity, which it foist on other European nations after the global financial crisis, and because too much of it flows to the richest who are least likely to spend.

Their excessive focus on balanced budgets has constrained German investment in renewable energy, which increased its reliance on Russian gas. Beyond the environmental cost, the national security implications of this have been magnified by the Ukraine crisis.

On balance: frugal governments are often complicit in the crimes of despots. Whether it’s Putin’s cronies beavering away foreign currencies to cushion the blowback from his next military adventure, or miserly bureaucrats brutally balancing their bean-counters from a misplaced notion of “fiscal responsibility”, denying the people the fruits of their labour forgoes investments in a better future.

As that brave Ukrainian senior reminded us, the world has more pressing problems than indulging imperial delusions — if only our leaders can marshal the resources to solve them.