Seldom discussed since the Russian aggression against Ukraine are the vast disparities between the economic wealth of the west versus the much smaller, communist/socialist dictatorship economies of Russia, Iran and North Korea (RINK) Here are two numbers to make my point perfectly clear: GDP of combined NATO countries is $47 trillion. Combined GDP of RINK is $3 trillion. The USA alone is $28 trillion at year end 2023, compared to Russia’s $2.5 trillion, or more than 10 times larger. If wars are won purely based on economic strength, the Russian aggression should have been repelled and ended with Russia crawling back to their side of the Ukraine border within a few months had the NATO countries acted with resolve and the military might their economies can support.
When considering whether to spend another $60 billion on Ukraine (most of which is recycled through American miliary equipment manufacturers), Americans might be surprised to learn what they are getting for their $150 per person contribution. They would be supporting a fierce fighting force in relatively poor country with a per capita income level of less than $5000, compared to the USA which enjoys per capita income of $70,000. The Ukrainians are fighting to the death for many historical reasons, one of which is to escape the stunted economic growth the country has experienced while under the control of the Kremlin. Ironically, Ukraine is poor because unlike its former USSR neighbor countries, it failed to achieve escape velocity from the iron grip of the corrupt Russian government between 1990 and 2014, when the Maiden protests finally succeeded in expelling the Kremlin’s puppet dictator Yanukovych.
Thinking about what the Ukrainians have achieved with such a relatively poor country is extraordinary. A nation with 44 million people (or roughly 35 million after the outflow of refugees) is holding off a nation of 150 million people with vast oil and gas reserves to pay for their military. The disparity in GDP between Russia and Ukraine is even more stark, barely $200 billion for Ukraine versus $2.5 trillion for Russia. This is why financial assistance is essential for Ukraine. NATO countries excluding the USA have combined GDP of $18 trillion, with Germany being the largest at $4 trillion. Total NATO GDP is $47 trillion or almost 20x that of Russia. The west and NATO citizens need to seriously adjust their perception of this ”war” and the massive imbalance in economic might. Russia’s propaganda machine has everyone believing they have some form of economic parity and have successfully done a workaround our sanctions. When the fact is that Russia and their corrupt economy is holding by threads and with a hundred billion or more of military spending by the west, which as we have said is a very small price to pay, Russia would retreat. Putin knows this, fears this and explains his irresponsible nuclear threats.
Since WW2, Russia has been framed in the American mindset as the other superpower in terms of nuclear weapons. But what most Americans probably do not know is that Russia is far from a peer in economic terms. As stated earlier, USA GDP is $28 trillion at year end 2023 and Russia is under $3 trillion, yet Russia is able to fund upheaval, repression and bloodshed in Ukraine, the Middle East with Hamas and Iran, Georgia, Venezuela and Cuba to name just the most obvious trouble spots. Russia will spend some $80 billion on military this year, or 3.2% percent of GDP, and up to $600 billion between 2022-2025. But aside from the inner circle of oligarchs, the average Russian lives on well under $15,000 a year and in constant fear of speaking out about the police state in which they reside.
The US will spend about the same percentage of GDP, or about $840 billion in 2023 alone. Thus, in pure economic terms the additional $60 billion for Ukraine amounts to just an additional 7% of defense spending and just 2/10s of one percent of GDP. Given that Russia is disrupting American interests worldwide, most notably in Ukraine, the supplemental spending bill is a very small price to pay to stop Russia. The Ukrainians have done a brilliant job depleting the Russian military. Now Russian soldiers like American soldiers in Vietnam are not committed to what they are fighting for. Whereas the Ukrainians are fighting for their independence, thus united in their conviction that they are on the right side of history. With the proper amount of support, Ukraine together with NATOs financial superiority can push Russia back to Russia.
Consider Russia’s two favorite collaborators in global upheaval. Iran has a GDP of under $400 billion and North Korea has unreliable data which suggests GDP of $100 billion. Conditions for the average Iranian and North Korean are dismal, with per capita income levels of $4,400 and $2,000. Their leaders care far more about global aggression than the lives of their citizens. Adding the GDPs of Russia, Iran and North Korea total some $3 trillion, hardly a match for the USA or NATO combined, which account for almost half of global GDP.
Question for the military historians? How many wars were fought where one side was allowed to bomb its neighbor into oblivion and send tens of thousands of troops across their border into their small neighbor, but the nation being attacked is told by its “allies” that it cannot cross the border and attack inside the aggressors’ territory? This is the miscalculation of NATO, while the brave Ukrainian people endure nightly missile attacks.
The widely held view that Putin would not stop at the border of Ukraine if he were victorious was echoed by President Biden in his State of the Union address last week. But he failed to credit the incredible work of the Ukrainian people to date in repelling the Russian onslaught given their much smaller population, economy and military resources. Given the threat posed by Putin, the money spent to date and the money proposed by the White House amounts to about $250 per capita spend by each American.
For this small expenditure as a percentage of the defense budgets and GDP of the USA and NATO GDP, the Ukrainian accomplishments to date are truly remarkable:
Ukrainians Aspire to Independence and Higher Quality of Life Than Russia Can Offer
Since the fall of the USSR in 1991, the countries that became independent democracies and members of the EU have seen their nation’s wealth and per capita income rise significantly more than that of Russia or the countries stuck under Russian de facto control (e.g. Belarus to this day and Ukraine until 2014). In 2014 Ukraine was finally able to get rid of their Russian imposed President after the Maiden protests, but Russia almost immediately invaded Crimea and the eastern part of Ukraine and has forced democratic Ukraine to get bogged down in a war for independence ever since.
Former USSR states that have joined the west have experienced increases in GDP and per capita income of 8 to 10 times, or compound annual growth rates (CAGR) in the mid-teens since 1990. Ukraine and its neighbor Poland were equivalent at about $65 billion of GDP when the USSR collapsed, but a capitalist democratic Poland which joined the EU and escaped the yoke of Russian oversight has seen its GDP increase from $65 billion in 1990 to $688 billion as of 2022 the most recent year of full data. Poland’s per capita income has grown from $1,731 in 1990 to $18,321 as of 2022. The same extraordinary growth has been generated by Lithuania, Latvia, Czech, Estonia and other East European countries. For example, Lithuania grew GDP from $7 billion in 1990 to $70 billion in 2022 and per capita income grew from $2,168 to $24,827 in 2022.
Compare these success stories which were accomplished by the hard work and ingenuity of their people in a free capitalist system, to the Russian experience. Russia has experienced GDP growth from $516 billion to $2.5 trillion, mostly the result of their oil wealth, a fourfold increase, or about 7% annually, but much less than the 13% annual growth of the nations that joined the EU. Per capita income has increased from $3,493 to $15,345 in that time frame. Thus, Russia grew at a much slower pace than their former subjugated states and on a per capita basis Russia fell behind their former colonies. Bear in mind, Russia has the benefit of tremendous natural resources wealth which has been siphoned off by oligarchs due to corruption, which significantly inflates the Russian numbers. Unfortunately, the average Russian citizen is far below the average per capita number as a result.
Ukraine has the potential to achieve the same economic growth as Poland and other neighboring states once the war and Russian aggression ends. The Ukrainians were outraged in 2013 when the Russian puppet leader Viktor Yanukovych vetoed the opportunity to sign an association agreement with the EU and this ultimately led to the Maiden Riots in 2014 which forced Yanukovych out of the country. Unfortunately, Ukraine has suffered terribly from Russian interference since 1990. The current GDP before the invasion in 2022 was just under $200 billion, or per capita income of $4,534.
Once Ukraine’s population is allowed to blossom as a democratic capitalist society more closely aligned with the west rather than living under the thumb of the corrupt Russian regime, the economy should experience growth in the teens as well and eventually make good on debts to the west. A free capitalist Ukraine would experience a return of millions of skilled computer scientists and other highly educated citizens who could contribute to Ukraine and all of Europe via EU membership.
Bruce Harting serves on the Board of a Bank and is a Managing Director at a US investment banking firm
