THERE is a saying that Russia is Europe’s gas station (or something to that effect), and that despite its massive geographic size, its economic power is only comparable to that of Texas and Spain, both of which have much smaller populations and geographies.
Although true, the comparison with Texas and Spain is misleading. Russia’s relative lack of economic importance has been roundly disproven by the Russian-Ukraine War. Measured in Gross Domestic Product, Russia’s economy is indeed relatively small, but GDP is not enough to understand the country’s economy. Despite its size, Russia produces food and energy, both of which – as the world is learning – is much more important than Netflix or iPhones.
The problem with GDP is that it measures all economic activity as though they are equal, and that is just not true. A country which produces an outsized portion of critical commodities or services will always play a major role in the world economy regardless of its size. Good examples include Saudia Arabia (Oil), Greece (Shipping) and Taiwan (Semiconductors).
In contrast, countries which don’t offer anything critical or are not heavily integrated into global supply chains are not likely to have an outsized effect on the global economy. It can reduce overall economic activity, but it’s not likely to cause the kinds of problems Russia and Ukraine is creating.
Take Sri Lanka, for example. Its economy is effectively dead right now, and it is not affecting any part of its region as far as I know, except perhaps inspiring India and China to grow their influence in the country.
Another example is Turkey, which is a relatively important country, given its location and size. The collapse of its currency as well as its economic woes has not affected the global economy in any meaningful way.
The thing is the GDP is a concept meant for a world at peace, where growth and stability is the norm. It’s a concept that measures the economy in economic terms. In a world of uncertainty, however, that’s a bad idea, because in the latter situation, you need to prioritize what’s politically and existentially important as opposed to what is financially convenient./PN
