Luxembourg Beyond the Arctic Circle

Is there a benefit to leaving the Russian Federation?

Illustrated by Fill

“All economic calculations are black magic,” an economist responded when I asked how the economy of the regions that make up the Russian Federation would change if they were to leave Russia.

Not satisfied with his response, I decided to analyze the economies of the regions which constitute the Russian Federation under Vladimir Putin’s rule and make an approximate prediction about the change should this “Potemkin village” state disintegrate. The reasons why my predictions are approximations will be clear later, after we take a “virtual” stroll through the second floor of the Central Universal Department Store (TSUM) located about a kilometer from Red Square in Moscow.

You can buy an exclusive Baccarat Zénith Flou chandelier on the company website for 85,000 euros,^[1] or approximately 7.5 million rubles at the exchange rate in mid-April 2023. This chandelier sells in TSUM for nearly twice as much — 12.5 million rubles.^[2] In the windows of the other boutiques, with their young, pretty salesgirls smiling widely to show off their perfectly white teeth, you can also find a lynx fur coat selling for 20 million rubles and a sable fur coat for slightly less — 11.5 million rubles. Despite international sanctions imposed on Russia for its war against Ukraine, Valentino, Ralph Lauren, Brioni, Chopard, Dolce & Gabbana, and dozens of other luxury brands have not disappeared from the shelves of boutiques in downtown Moscow; they’ve only become more expensive. The streets of this city of over 10 million people are still teeming with pizza and sushi delivery cars 24 hours a day, and on New Arbat Avenue you’ll see a 1990s Opel stuck in a traffic jam next to the latest Tesla model.

“It’s time to open a Russian embassy in Moscow,” Russian Comedy Club comedians quipped in 2010. And they had a point. Moscow has long ago changed from being the capital of the Russian Federation to a full-fledged state within a state, with a small enclave in St. Petersburg, so it’s not surprising every third resident of Russia lives in these two largest cities or their suburbs. The villages and peripheries of the empire are dying out or their residents are emigrating, while the Russian capital lays new sidewalks and goes to movie theatres to watch John Wick: Chapter 4. The movie earned $7.5 million at the Russian box office,^[3] paying taxes into Russia’s state budget from the ticket sales.

The surplus profits earned from the sale of minerals from the distant Russian regions are concentrated in Moscow. Meanwhile, according to official statistics, in 2022, 17 million people in Russia (11.8% of the population) lived below the poverty line.^[4] If you take into consideration that in late 2022 the poverty line ranged from 13,000–14,500 rubles (approximately $171) per month, you can conclude every tenth citizen of the Russian Federation could not afford to buy food or pay utilities. Installing indoor plumbing and a toilet is certainly too much of a luxury, making dilapidated wooden outhouses still quite popular and in great demand. Since official Russian statistics usually significantly underestimate the true scale of problems, the actual poverty figures in the country are likely much higher.

Signs read: We are the greatest! Love the Tsar! Beat the Pindos! Obey! Son: “Papa, why do we live in shit?” Father: “Because of the Pindos & Banderites!” Note: Pindos is Russian slang for Americans, much like the epithet Gringos. Banderites (or Banderovtsi) is the slur used by Putin when he needs a boogeyman.

Although the Russian regions are legally part of a federation, it’s by no means a real federation. Democratic federal tendencies, and in some cases even confederate ones, floated around Russian territory in the early 1990s, but Boris Yeltsin and Vladimir Putin vented these Western propensities out the window, shutting the door to Europe behind them. Ichkeria, which was independent after the collapse of the Soviet Union, was practically destroyed during the two Chechen Wars as retribution for trying to leave the empire. Similar attempts in Tatarstan to escape the Russian Federation’s tight embrace were thwarted with the help of fictitious treaties and corrupt politicians who delegated more and more powers to Moscow.

The decentralization of revenues or power in the Russian Federation would eventually lead to the country’s collapse, because Russia is being held together, on the one hand, by a strong power vertical, and on the other, by the bribery and brutal suppression of any real opposition. And we’re not talking about the so-called “liberals” whose attempts to reform the empire’s façade and fight corruption are in fact legitimizing the Kremlin’s imperialist policy — which they’re fine with to some degree or another. Alexei Navalny dines at the “Crimea Sandwich Shop” and doesn’t believe illegally seized territories should be returned to Ukraine; Dozhd and Meduza, “opposition” channels in name only, worry about “our guys” on the front (meaning Russian occupation forces), claiming they need help with uniforms and food.

The use of the term “federation” in this country’s name is absurd: the federal treaty is purely declarative in nature, like the Soviet constitution. At the time it was adopted in 1936, the Constitution of the USSR was one of the most democratic on the planet.^[5] But while man-made famines like the Holodomor, arbitrary arrests, executions, and deportations raged in the “democratic” Soviet Union, genuinely democratic Czechoslovakia was torn apart first by Hitler in 1939 and then by Stalin immediately after the country’s “liberation” from the Nazis starting in May 1945.

The Russian population is detached from reality thanks to pro-government television and online resources which create an alternative world for Putin’s subjects in which America is to blame for all of Russia’s problems, the Russian Orthodox Church protects people from gay propaganda, the so-called “Anglo-Saxons” shake in their boots in the face of Russians, and the federation is not a feudal entity but a mighty state with an advanced space program.

Since the federal budget of Russia didn’t get the memo we’re living in the 21^st century, it continues to function as it has in the past: the colonies still give their earnings to the metropolis and then Moscow decides on its own how much money to allocate to each of the nearly one hundred regions. Incidentally, until recently, Ukraine had a similar structure, but the decentralization policy launched in 2014^[6] gave local communities more control over the distribution of their own revenue.

It’s too late to come up with ways to reform Russia. Reforming the imperial economy would mean, first and foremost, improving conditions in the army and battling corruption, but it was thanks to these factors, along with a loss of revenue, that over the years Russia went from being a serious geopolitical player to an aggressive outsider who makes life unpleasant for its more civilized neighbors by blasting Russian chanson (pop music), banging its radiators with hammers, and throwing trash out the window.

I decided to calculate how much money the empire’s enslaved regions currently hand over to Moscow and compare it with how they could succeed economically were they to break free from the clutch of aggression.

Methodology

Instead of writing another article about the problems of the Russian government and predicting the empire’s collapse, I relied on what I learned during the five years I spent at the economics faculty of the Dnipro Polytechnic University and calculated whether it would make sense for the Russian regions to leave this ersatz federation and become independent states.

Looking at the map, Russia is comprised of 21 republics, 9 krais, 46 oblasts, 4 autonomous okrugs, the Jewish Autonomous Oblast, and two federal cities.^[7] Obviously, we don’t take into account the occupied Ukrainian territories the Muscovites include in their statistics. Some of the regions are disproportionately rich in minerals and thus feed the rest of the empire. But these regions are grossly mismanaged with problems including total corruption on all levels, an obscure process for protecting private property and investments, and the appointment in and by Moscow of leaders (aka governors) who know little about the republics where they serve but are completely loyal to the central government.

Corruption in this country is the foundation upon which the state is built and without which the system simply cannot function. Take for example Dmitry Medvedev, who once headed up the government and formally performed the function of President of the Russian Federation, and now spends his time drinking^[8] and working part-time producing fodder for Twitter memes. Dmitry receives elite homes in the Moscow suburbs as bribes and funds his extravagant lifestyle with money from the state budget of the Russian Federation in the form of credit from Gazprombank.^[9] Putin went even bigger, building himself a 19,000 square meter estate worth $3.5 billion on the Black Sea^[10] using schemes similar to Medvedev’s. All this is paid for by workers in Yakutia, Siberia, Yamal, and other republics, where many of the villages lack electricity or paved roads. But they do have large deposits of oil and natural gas.

Canada has an equalization formula which aims to maintain a financial balance among all the ten provinces.^[11] The Russian model of rigid centralization could be effective too if it ensured the transparent distribution of revenues between rich and poor regions, respected the rights of enslaved peoples (which sounds absurd in and of itself), implemented reforms, fought corruption, and maintained living standards and purchasing power at approximately equal levels throughout the country. But this would require giving up power, which the Russian leadership is categorically against doing.

The Russian Federation is an empire. The same tyrannical ruler has sat on the throne for more than 20 years, his underlings cruelly suppress any discontent (or dissent), and all the boyars (nobles) are appointed based on loyalty rather than knowledge and experience.

Janusz Bugajski describes the causes and process of the empire’s collapse in his book Failed State. However, we have to understand not only the potential scenarios of Russia’s collapse, but its consequences as well. I won’t take into consideration the military scenario because the economic model of the regions and the connections between them will be broken and current statistics won’t help with planning. For obvious reasons, we don’t include territories temporarily occupied by Russia because Ukraine will carry out reforms independently in the Crimean Peninsula, Mariupol, and Donetsk.

So, once Russian ultimately collapses, will life become easier for the people in its regions, or will it be a tragedy for them?

(Dis)connecting the Dots

The economy of the Russian Federation is heavily reliant on the sale of fossil fuels. They’re mined in the Asian part of the country and a large share is then transported west through multiple regions. Russia’s mining industry accounts for nearly one-quarter of Gross Domestic Product (GDP) and 70% of exports. In 2022, slightly more than 800,000 of the country’s total 17 million square kilometers was cultivated for crops,^[12] which is less than 5% of the country’s territory. For comparison, prior to the full-scale Russian invasion, Ukraine had 286,000 km² of arable land,^[13] or 48% (almost half) of the total territory of our country. Thus, practically all of Russia’s territory is unsuitable for cultivation and, in most cases, it’s also unsuitable for living.

As a result, some of the present-day regions of Russia only provide logistics for the transport of minerals from mining sites to customers or processing points. The living standard of the local population is of little interest to the Kremlin, so all regional revenues from the transport of the mined minerals and from the maintenance of roads or pipelines are also transferred to Moscow. Therefore, regardless of whether a region is rich in minerals or only provides transport, all its revenues end up in the common, so-called “federal” budget, where they are stolen so that the girlfriends of government officials can stroll around the trendy boutiques in TSUM and buy chandeliers for the price of an apartment in Spain.

What is it? It’s our money running away.

The term “central government” is also rather nominal, since the distance between Tuva and Moscow is more than 3,500 km, making it faster and easier for a Tuvan to get to Japan, South Korea, Mongolia, or China than to their own country’s capital. Not to mention they share a cultural heritage with neighboring Mongolia.

According to a report by Iwona Wiśniewska of the Polish Centre for Eastern Studies (OSW),^[14] the regions hit hardest by Russia’s war against Ukraine are those associated with the automobile industry (Kaliningrad Oblast), processing wood for Europe (Karelia), and metallurgy (Vologod and Chelyabinsk Oblasts). Those affected the least have been regions related to the oil industry and those existing on subsidies: Tuva, Altai, Ingushetia, and Dagestan.

Most of the population of Russia was satisfied with their relatively comfortable lives, but recent sanctions have cut the country’s revenues to the point where people have felt them in their everyday lives. According to the Federal State Statistics Service (Rosstat), in 2018 there were 18.9 million people living below the poverty line (12.9% of the population),^[15] and in 2016 this figure was the highest in 9 years.^[16]

Unlike in 2014, the drop in living standards in 2022–2023 didn’t just affect those in the empire’s peripheries; it affected people in large Russian cities as well. Sushi became more expensive, flying to Milan for the weekend became more difficult, and a new Tesla had to be ordered from Kazakhstan.

There were already separatist movements in some of the regions prior to the start of Russia’s war against Ukraine, but they were usually small. Any serious manifestations of dissent were quickly crushed by the police and prominent activists were persecuted, tortured, and killed. Since the start of the full-scale Russian invasion of Ukraine, these movements have become more active, dissatisfaction with the Kremlin’s policies has grown, and movements against the center have intensified with every major failure of the Russian Army (even though reports say there are no military losses). It’s important to understand that economic difficulties and the fear of being drafted, not the war against peaceful Ukraine, is what usually motivates Russians who flee the country or protest.

“???” “wtf” – “Surrender, Laowai!” “You’ll get a catgirl!” Note: Laowai is Chinese slang for foreigners. According to memes about Chinese Communists, the Party will give you a bowl of rice and a catgirl to marry, if you behave.

The Harvest

Gross Domestic Product (GDP) is the main marker of economic development and the most complete indicator of the volume of goods and services produced in a country over a given period. The equivalent of GDP for a region is called Gross Regional Product (GRP). When calculating the economic benefit of leaving the Russian Federation, I used 2019 GRP data for each region from the Rosstat reports published in 2020.^[17] I converted rubles to dollars using the official exchange rate at the beginning of 2020.

Of course, the reports of any Russian state agency should be viewed with great caution, and the official ruble to dollar exchange rate does not always correlate with changes in consumer prices. But these are the only official data that we have. Since these are regional statistics, they should present a general picture accurate enough to reach conclusions on a larger scale. I used the International Monetary Fund (IMF) World Economic Outlook report to compare GDP and GDP per capita in other countries.^[18] IMF statistics do not include non-member countries (Lichtenstein, Monaco, and North Korea), so I took those data from the Central Intelligence Agency (CIA) World Factbook.^[19]

Considering the population varies greatly depending on the region, we will use GDP and GRP per capita. This allows us to approximate the share of the resources a person earned for the state and was allowed to keep based on which region of Russia they live in.

On this map, regions where the GRP per capita is lower than the Russian average are marked in red and those where it’s higher are in green. Only one-quarter of the regions have a GRP per capita higher than the national average. Ever since the times of the USSR, people from all the Soviet-occupied regions went to the north to earn easy rubles, so it’s not surprising all the regions contributing the most to the GDP of the Russian Federation are, without exaggeration, in the north. It is these regions that “feed” the empire.

The wealthiest region of Russia by GRP per capita is the Nenets Autonomous Okrug in the Arkhangelsk Oblast. In 2019, each resident of the region produced on average $121,723 worth of goods and services. If this okrug were to become an independent state, its residents would rank second in the world based on this indicator, topped only by Lichtenstein with $139,100, and followed by Luxembourg, Monaco, and Switzerland.

In 2019, Japan’s GDP per capita was approximately $40,000. In the same year, GRP per capita in the Yamal-Nenets Autonomous Okrug (YNAO) was $92,000, more than double Japan’s, while GRP per capita in the Khanty-Mansi Autonomous Okrug and Sakhalin were roughly at Japanese levels. However, comparing life expectancy rates is informative, and in Japan in 2019 people lived 84.4 years.^[20] Meanwhile life expectancy in the YNAO was 74.2, in Khanty-Mansi it was around 75, and in Sakhalin it was 70.3^[21] — all far lower than in Japan.

Life expectancy is the most relevant demographic indicator and is usually lower in less developed countries and regions.

Almost all revenues from the regions first go to Moscow, and on this map you can see a resident’s average income from GRP per capita. In other words, this map shows what percentage of the results of their work a resident in each region retains on average.

And here the situation changes unexpectedly: residents of the North Caucasus republics get the largest percentage of the profits. Chechnya is first, followed by Dagestan, Ingushetia, and Kabardino-Balkaria. The only other regions in the top ten are the Ivanovo Oblast and Adygea Republic. Russian statistics include the temporarily occupied Ukrainian Crimean Peninsula and Sevastopol, which would also be among the leaders based on these indicators.

The North Caucasus region belongs geographically to Eastern Europe. Under Russian occupation it has become deeply depressed, subsidized, and underdeveloped. Were the North Caucasian republics to leave the Russian pseudo-Federation and start cooperating with Ukraine, and should Kuban (Krasnodar Krai) potentially become part of Ukraine, this could radically change their geopolitical situations and allow Ukraine to connect the Caspian and Black Seas with a single trade route through its own or friendly territories.

At the bottom of the list are the richest regions of Russia: the Nenets and Yamalo-Nenets Autonomous Okrugs, Khanty-Mansi Autonomous Okrug–Ugra, Tyumen Oblast, and Sakhalin. The residents of the 18 regions rounding out this list keep, on average, less than 5% of the country’s GDP generated by them, while the residents of the Nenets Autonomous Okrug, with an average monthly salary of $1,361, get only 1.12% of the GRP they generate per resident.^[22]

The wealthiest people live in the north and in Moscow, where the head offices of the main contributors to the country’s GDP — mining and processing companies — are located.

The Drought

Even black magic can’t help you predict what will happen in a country destined for collapse and a probable civil war. There are examples of similar upheavals when the embrace of Russia’s toxic love weakened and countries and regions were able to become part of the civilized world: the fall of the Berlin Wall and subsequent German reunification in 1990,^[23] the collapse of the Soviet Union and independence for numerous enslaved republics, the independent development of countries of the Warsaw Pact following its collapse, and so on. Since the economic development of democracies is closely intertwined with their foreign relations, namely imports and exports, it’s incumbent to estimate how the well-being of the newly formed states could change on the ruins of the modern Russian Empire.

However, it’s hard to make predictions for each of the nearly one hundred enslaved regions, so instead, I propose narrowing it down to the federal okrugs.^[24] Russia is divided into eight such okrugs. The division is very arbitrary from the point of view of population distribution by ethnic groups and economic and historic considerations, because for the past 100 years the USSR and the Russian Federation constantly changed the borders of regions, oblasts, and okrugs — some were eliminated, some were created, others had their borders changed. All of this was usually done to disperse and Russify the non-ethnic Russian populations and incite local interethnic conflicts to distract representatives of non-Russian peoples from criticizing Moscow. But this is a topic for another article. So let’s take these eight federal okrugs for which we have fresh economic figures.

The Canadian approach to a healthy distribution of resources never worked in Russia, leaving the collapse of the empire as the only possible way out of the Russian imperial crisis. After the regions leave the Russian Federation, they will be free to manage their own resources and foreign policy. Therefore, we would expect them to initially work much closer with their neighboring regions: China and Japan in the east, Turkey and the Middle East in the south, the United States, Finland, Sweden, and Norway in the north, and the European Union (EU), including Ukraine, in the west. After all, Ukraine is part of Europe.

I took the example of several former Soviet republics and countries from the Soviet sphere of influence that were able to free themselves and eventually join the European Union and the North Atlantic Treaty Organization (NATO). These include Poland,^[25] Estonia, Latvia, Lithuania, Slovakia, Czech Republic, Romania, and Bulgaria. I will not include Hungary, because de facto this country still has close relations with the current iteration of the Russian Empire and is therefore not an example of a democratic state. Romania and Bulgaria joined the EU in 2007, one year before the global economic crisis, after which the GDP of these countries fell briefly to their pre-EU membership levels. Because of this, I used the data on the change in GDP over the year to exclude the impact the crisis had on other EU members after their accession.

Each of these countries had different initial conditions, population size and type, etc., therefore I used GDP and income per capita, as well as the change in GDP in the two years after EU accession. Two years is how long you need to see the results of reforms and initial changes in revenue. Everything else depends on the political will of the leaders of the new states. For now, we are only estimating what awaits them in the first two years of freedom and close cooperation with the EU. As you can see from the table, the average growth in GDP per capita for these countries was 33.57% in the first two years following EU accession.

Then I took data for the 20 countries with the highest GDP per capita and when I calculated what percentage of GDP per capita on average the residents of these countries earn as wages, I got 7.33%.

Let’s take this percentage as the basis for developed countries, the level to which, I hope, the new post-Russia regions will strive, and calculate what their residents could earn using the previously mentioned GDP growth in these countries.

And now for the key statistic to answer the question, how would the earnings of the residents of the former republics of Russia change if revenues were distributed more fairly and there was mutually beneficial cooperation with other countries. (I suggest viewing this on a large screen so you can see the details.) The infographic shows the revenue of nearly all the federal okrugs would increase, except for one: the North Caucasian Federal Okrug (District), whose revenues would fall somewhat.

The residents of the Southern Okrug would earn a quarter more ($634 instead of $500), and incomes in the Volga (from $463 to $760) and Central Okrug (from $785 to $1323) would grow by a factor of over 1.5. Incomes in the Far Eastern (from $632 to $1155), Northwestern (from $638 to $1191), and Siberian (from $453 to $847) Okrugs would almost double. The residents of the Ural Federal Okrug would fare the best, their average income nearly tripling, from $601 to $1694.

If you look at this data by region, there are two exceptions where leaving Russia would not be economically beneficial: Chechnya and Dagestan would lose almost 22% and 2% of their revenues, respectively. Clearly, the Kremlin currently buys the loyalty of their elites by subsidizing these regions. Nevertheless, leaving Russia would be beneficial for all other regions. The ones who could benefit the most from this would be the residents of the Nenets Autonomous Okrug (with an average income of $14,226 and 945% growth), Yamalo-Nenets Autonomous Okrug (income of $10,788 and 640% growth), Khanty-Mansi Autonomous Okrug ($5,164, nearly 500% growth), as well as the Tyumen Oblast and Sakhalin, where the average new income could reach $4,500, increasing by 453% and 361%, respectively.

Exit from Russia

There was an unspoken social contract during the first 15 years of Putin’s reign whereby in exchange for the constant growth of living standards in large cities, the majority of active civil society turned a blind eye to the lack of democracy, the practice of inheritance of power, propaganda, police misconduct, and persecution of a handful of activists. The West had almost forgiven the Russians for the two Chechen Wars, Dagestan, Transnistria, and wars in Georgia and Syria, which reinforced Russians’ sense of being the “chosen ones” who could do anything they wanted — until the annexation of Ukraine’s Crimean Peninsula, the war in Ukraine’s Donbas, and then the 2022 full-scale Russian invasion of Ukraine reminded Western society that “salami slicing tactics” are dangerous to democracy and could give rise to new Hitlers. Salami slicing tactics refers to the practice of using gradual small actions to achieve a goal. This term was used to describe the tactics employed by Hitler, who, after initially coming to power lawfully, gradually, step-by-step, slice-by-slice, usurped power in Germany and then began to occupy neighboring countries in the same manner. He has a worthy copycat in the 21^st century.

Putin has been slicing salami for a long time, but in the end, in addition to “deep concern,” he also received unprecedented sanctions. In 2021 Iran was the most sanctioned country in the world. After February 2022, Russia surpassed it by nearly double: it has 6,400 sanctions and counting. Russian propaganda pushes the line that sanctions don’t work, but sanctions have significantly reduced the Russian Federation’s revenues from the export of fossil fuels, which accounted for 80% of the country’s budget. More importantly, they’ve disrupted the social contract: the incomes of the population have started to fall, purchasing power has decreased significantly, and any manifestations of public disobedience continue to be traditionally suppressed by the police, which only intensifies discontent.

Russia responded by introducing sanctions on Western countries, but there is little chance they could have any effect. It’s hard for me to imagine what kind of impact banning British parliamentarians or U.S. and Canadian officials from visiting Russia was supposed to have.^[26] Is it wrong that Boris Johnson’s son now won’t be able to study at the Tyumen Industrial University? Is Justin Trudeau’s daughter forced to give up her dream of studying medicine in Saratov? I can’t even imagine what the Biden family is going through now that plans for their grandchildren to study at the Pitirim Sorokin Syktyvkar State University have been destroyed… Even the name “reciprocal sanctions”^[27] speaks for itself: it is a failed attempt to respond in kind. The Russian-imposed sanctions are designed at most to perhaps make some kind of an impression on the people of the Russian Federation.

Russia could have been successful. There are examples in history of rational, or at least not such senseless, use of profits from the sale of fossil fuels. But this country successfully squandered many unique chances to follow in the footsteps of Norway, Qatar, or even Saudi Arabia, and instead chose to not reform its army or courts, refused to diversify state revenues, and then unleashed the largest war since World War II.

Thanks to the Ukrainian military on the one hand, and Russian corruption on the other, and not to the so-called “liberals” or protests in Russia, Ukraine, which had been spending money on paving roads instead of weapons, and was preparing for a summer of barbecues, was able to repel the Russian attacks in the critical weeks of spring 2022 and is now successfully defending itself and mounting a counter-offensive. So let Russia be corrupt. It plays to Ukraine’s advantage. The collapse of the Russian Federation is the next logical step in the degradation of the Russian Empire and it’s time for the peoples enslaved by the Muscovite dictatorship to think about ways to leave the empire instead of how to survive on $171 a month.