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When Russian economist Sergei Guriev and The Conversation sat down to speak on the morning of February 16, the news of the death of opposition leader Alexei Navalny hadn’t yet broken. In fact, we discussed how the international community could best protect Guriev‘s imprisoned friend.

Guriev has since described Navalny’s death, decried by the West as a political assassination orchestrated by Kremlin, as “terrible news – not only for the future of Russia, but also for Ukraine, Europe and the entire free world.”

He also endorsed Yulia Navalnaya as a “strong and independent leader” on Twitter days after the opposition leader’s widow – herself a trained economist – announced that she would be taking up her husband’s mantle.

Our Q&A, which focuses on the state of the Russian economy almost two years after Russia’s invasion of Ukraine, remains more relevant than ever, as the West begins to unleash a new wave of sanctions in response to Navalny’s alleged murder.

One of Russia’s most prominent economists, Guriev was once a linchpin of the government of Dmitri Medvedev (2008-2012), writing speeches for the president and serving on the boards of many state companies.

He fled Russia in 2013, because of fears for his freedom after co-authoring a report critical of the treatment of Mikhail Khodorkovsky, a then-imprisoned oil tycoon at the centre of the Yukos affair.

Guriev is now a professor of economics and the provost of Sciences Po Paris, and has just been named dean of the London Business School – news that prompted Navalny to offer his congratulations from his cell in the Arctic penal colony.

Since Russia invaded Ukraine, Guriev has also been one of the leading minds behind Western sanctions on his country through his work for Stanford University’s international working group “Making Putin Pay.”

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The Conversation: Since Russia’s invasion of Ukraine, there have been countless Western sanctions. But it also appears that Russia has proved more resistant to them than thought. In fact, the International Monetary Fund even predicted its economy would grow by 2.6% this year, buoyed by extensive state spending – what some have dubbed “military Keynesianism.” So how is the economy really faring? Is it shrinking, or growing?

Sergei Guriev: It’s a question of definition. If we associate economic growth with GDP growth, there is no question that the Russian economy is growing. However, GDP is not the same measure of economic performance in wartime as it is in peacetime.

When you spend a substantial part of GDP on producing tanks and artillery shells and recruiting soldiers who are being wounded or killed in Ukraine, that means that it is equivalent from the civil sector’s point of view to just printing money and injecting it in the economy.

We count this as part of GDP because things are produced and people are employed as soldiers, but that has nothing to do with economic performance within Russia. When we talk about military spending, remember that it was 3% of GDP, and in 2024 it is 6% of GDP. This gap is enough to explain whatever growth is happening in the Russian economy.

And of course there is an additional set of sectors which are not directly involved in military spending, but also involved in producing military services and goods. So I think it’s quite misleading.

A number that is more informative, I think, is retail, trade turnover. If you look year on year, from 2021 to 2022, you see a fall of around 6.5%. If you actually look at December 2021 to December 2022, it shows minus-10.5%; 2023 data will be published soon. There will be no fall, and even some growth, but overall, Russian consumption is not doing well.

You mentioned “military Keynesianism.” I think it’s somewhat misleading as well. Keynesianism is a policy which you use when you have slack in the economy and high unemployment in a bid to employ people through government spending.

The risk of Keynesianism is that the economy becomes overheated. And, of course, [John Maynard] Keynes published his ideas in 1930s, in the course of the Great Depression, when you had unemployment in the United States reaching 25%. Today, unemployment in Russia is very low, because people are either living there or recruited for fighting in Ukraine.

In fact, the economy is rather overheating. Inflation is higher than the target at 7%, which the central bank is extremely worried about. If anything, now is not the time for Keynesianism.

TC: You are part of Stanford’s International Working Group on Russian Sanctions, “Making Putin Pay.” Could you tell us how the group has managed to shape sanctions on Russia thus far, and what you hope yet to achieve?

SG: The group is very inclusive, including economists, political scientists, former government officials from the US, Europe, other countries. And its purpose is to publish papers, currently at 18. I’ve been part of about five working papers – the first four and the one on energy sanctions of September.

The idea is to inform policymakers about trade-offs involved in sanctions, as well as their potential impact. We want to make sure that this war is more costly to Russia and therefore [President Vladimir] Putin has fewer resources to kill Ukrainians and destroy Ukrainian cities.

TC: And has it had tangible impacts? Can you directly link some of the sanctions that have been put forward with the papers that have been released?

SG: We’ve always argued in favor of oil embargo, and that’s happened. We’ve always talked about the necessity of oil price cap, tightening technological sanctions, financial sanctions, they have happened. Whether we were pivotal, I don’t know.

TC: To what extent do you believe sanctions are effective? Only last week, The Conversation published an article indicating that German bank subsidiaries located in zones blacklisted by the Financial Action Task Force were 151% more likely to lend to sanctioned countries.

SG: I think the right way to ask this question is: “What would be the case if sanctions were not in place?” When we ask the question, “Are sanctions effective?” we shouldn’t compare what’s happening now with what we wish to be happening. We should compare what’s happening now in the presence of the sanctions and would have happened in the absence of the sanctions.

So imagine indeed that all European banks – including German banks – located in Europe continue lending to Russia: Putin has unlimited access to funding. He has unlimited access to his central-bank reserves. He has unlimited access to French and German technology. And he can also actually recruit soldiers all over the world. He keeps selling oil and gas to Europe at full European price.

So imagine this world. Would the Ukrainian army have a more difficult time? The answer is “yes.”

Now, Putin has learned how to circumvent sanctions. The West is doing more to fight this. And you see that Putin is increasingly struggling to work through Turkey, even through China. You see that Chinese and Turkish banks and Central Asian banks are more and more vigilant regarding payments to Russian counterparts.

Now, if Putin can circumvent sanctions, it is through third, fourth, and fifth countries that charge him intermediary fees. And the more that is given to intermediaries, the less is put in his pockets, and that’s good. But of course, more effort needs to be invested in tightening sanctions and enforcing sanctions.

TC: Sanctions have hit Russia’s ability to modernize, and that also includes the world’s fourth-largest emitter’s ability to green its industry at a time of climate emergency, be it through import restrictions on technology, collapse of foreign capital sources or the freezing of international programs. Do you have any thoughts on how we might help the country carry out the energy transition, while hitting the Kremlin where it hurts?

SG: Well, I think you formulated it very well: Putin’s access to technology is limited. And while this is indeed not my area of expertise, if there is technology that cannot be used for military production but only be used for the green transition, the US should continue to export this technology to Russia. My understanding is there’s very little of that.

And one of the things which we’ve seen in 2022 and 2023, is that Putin has imported a lot of civilian technology – like dishwashers or fridges – just to have access to microprocessors, to produce missiles and kill Ukrainians. Russia is also suffering from lack of chips in credit cards. As a result, banks are now recycling them.

So I’m not sure there is advanced civilian technology for decarbonization that Putin cannot use for military production. But that’s a question I’m not a specialist in. Now, the most important contribution to the green transition while limiting Putin’s ability to fight this war is the decarbonization of Western economies.

If the West decarbonizes faster and reduces its demand for fossil fuels, that will reduce oil prices globally and therefore the revenues Putin can use for killing Ukrainians.

TC: In 2018, Christine Lagarde, then the head of the IMF, lauded the current head of the Russian central bank, Elvira Nabiullina, as the woman who could “make central banking sing.” How vital has she been in keeping Putin’s war machine running? And what do you make about the speculation about her health after she allegedly underwent surgery in January?

SG: I have no idea about her health. She definitely has not been showing her support for the war. She’s never spoken against the war, but already in 2018, she would use her way of dressing to signal the sentiment of the central bank’s monetary policy.

In her press conferences, she would be using brooches to signal whether the central bank was more hawkish or more dovish. She would have a bro0ch with a dove to signal that the central bank is more likely to lower interest rates and some other brushes or colors of her dress to signal whether the central bank is optimistic or pessimistic regarding the state of the Russian economy.

Since the beginning of the war, she started to dress in black, though my understanding is that that recently changed. So I think she wants to signal to the world that she’s unhappy.

On the other hand, she continues to work, and indeed, as you rightly said, she’s an important instrument in financing Putin’s machine. And that is something that I think history will not judge her on positively.

And while she may say that she’s fighting inflation to protect the most vulnerable parts of Russian society, every billion, 10 billion or 100 billion dollars that is saved for Putin’s budget is another billion, 10 billion, or 100 billion that Putin can use to buy Iranian drones, artillery shells from North Korea, recruit soldiers and kill Ukrainians.

TC: Finally, what would be the best and yet realistic case scenario one could hope for Russia right now?

SG: Vladimir Putin has shown that he has no respect for human rights and international law. I don’t think that if Putin stays in power, we can have any optimistic scenario for Russia. The only optimistic scenario is his departure in whatever way and a democratic transition.

Maybe not immediately, but in a matter of several months or a couple of years, there will be something like Perestroika 2.0. I don’t see how Russia can become a North Korea or Syria. There are people who will try to do that, but I think Russia is too diverse, too large, and too educated, and frankly just too rich to tolerate a Stalinist regime.

And I think there will be enormous willingness of people who succeed Putin, even his closest entourage. These people want to stop this war. They want to re-engage with the West.

They will try to negotiate something and that will lead to an increase in political liberties and openness in Russia, which in turn should lead to some immediate improvement and hopefully substantial improvement in the relationship with Ukraine and Europe over the next decade.

TC: Do you see Russian elites rebelling against the Kremlin any time soon? We’ve seen a lot of businesspeople moving to Dubai.

SG: So business elites are of course unhappy, but they’re also aware that rebelling against Vladimir Putin is physically dangerous. We’ve seen a lot of “suicides” in recent years.

People are extremely aware of the risks related to opposition to Vladimir Putin. Very few of them openly spoke against the war. You can actually count people like this on one hand with Oleg Tinkov and Arkady Volozh, who spoke openly against the war.

But we also see that people are not speaking in favor of the war, and that includes business elites, heads of civilian agencies and ministries. They are all extremely unhappy. Their lifetime projects are destroyed.

And in that sense, we may not see a rebellion like [Yevgeny] Prigozhin’s rebellion, but once Vladimir Putin disappears, there will be time for change. But maybe there is also a coup being prepared as we speak. The coups that are successful cannot be prepared openly.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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