Russia Might Turn Into a Failed State
Plus, the bond market headwind
As I wrote on June 26, “Typically in Russia the penalty for dissent is death.” That’s how gangster organizations work, be they Soviet, Italian, or Putin-land. Prigozhin sowed and reaped.
I first started studying Russia when I read The Russians, a 1976 book published by New York Times reporter Hedrick Smith. I was 10 or 12. Russia to me was scary and impenetrable, the place the nuclear missiles were supposed to get launched from, but it was also where my Grandfather was born.
“Journalists are supposed to write about what is new and fresh,” Smith began, “what struck me as new and fresh to convey to readers was the human quotient, the texture and fabric of the lives of the Russian people.”
What surprised him was Russia’s paradoxes. Dissidents were indeed locked up, but sometimes dissidents, like the Nobel laureate Joseph Brodsky, were asked to offer constructive criticism of the amateur poetic efforts of their KGB interrogators. Right after college, I moved to Moscow and lived there for three years, meeting my wife and making lifelong friends. I’ve been studying Russia’s paradoxes ever since.
The paradox of Russia today is that it is both strong and weak. Strong in the sense that it is reigning terror in Ukraine day after day and that Putin just murdered one of his close associates and, for good measure, the other nine people with him. But the Kremlin is also weak, an empty shell devoid of morals or coherent vision. Killing hundreds of thousands of your own citizens in a senseless meat grinder has consequences for political stability.
Beyond the obscene loss of life, Russian wealth has fallen about 20% since the war began, as the currency chart below shows. People who are selling businesses are realizing just a fraction of the profits they would have before the war, or outright seeing businesses confiscated, like Danone and Carlsberg.
What exactly are Russian citizens getting from the state these days? Death, poverty, and a distorted sense of national pride? The list of failed states is long (Haiti, Venezuela, Somalia, etc), but never a nuclear-tipped one. That a Ukraine victory might bring a Russian collapse is a scary thought but not a preposterous one.