Putin has in a few short weeks managed to completely destroy the Russian economy and make Russia radioactive to investment, trade, and business. It’s not just the sanctions. Those have been devastating. But it has gone far beyond that. The western brands that were an integral part of the rise of the Russian economy from the disastrous economy of the 90s are leaving. They were not required to leave by the sanctions. They just deemed that thanks to Putin, Russia was too toxic for business.
McDonalds closed 850 stores that employed 62,000 Russians. IKEA closed 17 stores that employed 15,000 Russians. As big brands leave it puts pressure on other brands to follow suit. In the age of social media, consumers are quick to punish brands that behave in ways that are considered unacceptable. This has created a stampede for the doors of western companies that had become a part of Russian consumers' lives.
When the first McDonalds opened in Russia 32 years ago, signaling the arrival of the Western good life, there were hours-long lines. Hours-long lines also formed on the last days before the closure of McDonalds and IKEA. It’s not just the economic impact and lost jobs that are damaging. Perhaps worse is the psychological damage to Russian consumer sentiment. These brands were a signifier to a growing middle class that Russia had a world-class economy. That it had left behind the bad old days of Soviet deprivation and isolation. Then in a week, that whole world collapsed.
An important part of that growing middle class was in the technology sector. Young software developers were plugged into the global tech revolution. Western companies outsourced development to Russian software firms. In the last 3 weeks, 250,000 Russians left Russia. Among them are the best and the brightest of the young tech workers. A brain drain that will be crippling to Russia’s economic future.
Then there are the sanctions. They are historic in their severity. The most devastating sanction of all is the sanction on the Russian Central Bank. Putin spent 8 years building up a war chest in the Russian Central Bank to withstand the sanctions that would come when he annexed Ukraine. It took 8 years to double the reserves and now half of that money is frozen. 8 years' worth of accumulated reserves is now beyond his reach. Meanwhile, his “special operation” in Ukraine is costing more than $20 billion a day. That cost may escalate as the Ukrainians destroy tons of expensive armaments. The main tank producing factory in Russia can’t produce tanks because of supply chain problems.
When credit markets freeze, economies collapse. It happened in 2008. It's happening now in Russia. The Russian stock market and the Russian Ruble have been wiped out. Credit cards, currency transactions, lines of credit - it's all up in smoke. Now just a memory of a time when Russia was a functioning part of the world economy (3 weeks ago). Putin has isolated Russia and done historic and long-lasting damage to its economy.
In a few weeks, he has wiped out 30 years of economic progress. Without warning or preparation, Russians have been plunged into an economic nightmare. They have overnight been returned not to the economic disaster of the 90s, but all the way back to the isolation and deprivation of the old Soviet 70s. Not only was Putin’s military completely unprepared for the reality of his decision to invade Ukraine. The Russian people are completely unprepared for the devastating and sudden consequences to their own lives of the invasion.
This may be far more dangerous to Putin than his abysmal military failures in Ukraine. It’s hard to see any way the Russian public after having experienced the last 30 years of hard-earned growth and economic progress accepting becoming an isolated impoverished hermit state ruled by a demented paranoid autocrat like North Korea.
Wednesday, Mar 23, 2022 · 4:58:55 PM +00:00 · Irenaeus
One thing I left out, that should be noted. McDonalds and other firms have called the closures ‘temporary’. A clear signal to the Russian government that when things change they would be back. However, Putin has begun the process of seizing the Russian property and assets of companies that have ‘temporarily’ closed. I can’t think of a better way to turn those temporary closures into permanent closures.
Putin has become the master of own goals. He has shot himself in the foot so many times that he must now be all out of toes.