Essay: Why the corrupt, authoritarian regimes of China and Russia are losing their long term competitive edge relative to the USA

The flag of the United States

Previously, I wrote the essay at: The United States will be the leading power in the world for the foreseeable future

Research indicates that in the long-term, non-authoritarian countries are more likely to experience greater economic growth. See: Time Under Authoritarian Rule and Economic Growth, CORI Working Paper No. 2007-02

Questions: Are the corrupt, authoritarian regimes of China and Russia are losing their long term competitive edge relative to the USA? If so, what are the major underlying reasons this is the case?

Corrupt authoritarian regimes are not competitive long term in a dynamic, competitive world with major technology-driven changes where people can vote with their feet

During his annual phone-in with the public in 2019, President Vladimir Putin described low productivity as “one of the most acute and important” problems facing Russia.

The best and the brightest are fleeing China and Russia. Wealthy and educated people are leaving China and Russia. Russia is experiencing a brain drain

Both China and Russia are corrupt, authoritarian regimes (See: What drives Xi Jinping and Vladimir Putin? and Vladimir Putin is a corrupt kleptocrat and an authoritarian).

There is currently a talent war in the world due to technology and labor productivity increasing being important in terms of the prosperity of a country.

Investopedia says about the importance of labor productivity to an economy, "Labor productivity is largely driven by investment in capital, technological progress, and human capital development. Labor productivity is directly linked to improved standards of living in the form of higher consumption. As an economy's labor productivity grows, it produces more goods and services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price."

In 2023, the USA was over 200% more productive in terms of labor productivity than Russia when measured using purchasing power parity. In 2023, the USA was over 400% more productive in terms of labor productivity than China when measured using purchasing power parity.

Countries’ competition for talent is forecasted to become fiercer over the next ten years as both uncertainties and international tensions continue in trade, investment and politics. And right now, the United States is competitive in this talent war and China/Russia are not which is one of the reasons why people are fleeing China/Russia (See: Top 12 reasons why people are flocking to the USA and leaving the corrupt, authoritarian countries of China and Russia and The world’s best and brightest are flocking to these countries, CNBC, 2023).

In the long term corrupt authoritarian regimes are difficult to economically sustain

China's multiple economic crisis

See also: Slow and steady growth over the long term via capitalism and the rule of law versus short-sighted authoritarian economic growth that is costly to the long term economy

Corruption is so widespread in China that Wikipedia, an online encyclopedia founded by an atheist and agnostic, has an article entitled "Corruption in China". On October 20, 2019, Wikipedia's Corruption in China article indicated, "Corruption in China post-1949 refers to the abuse of political power for private ends typically by members of the Chinese Communist Party, who hold the majority of power in the People's Republic of China."

In modern history, corrupt, one political party regimes are not known for their great longevity such as lasting over 100 years and China has one-party rule - namely the Chinese Communist Party. Mint News reported that "Chinese President Xi Jinping is expressing concerns about the potential collapse of the Communist Party of China (CCP) as millions worldwide are renouncing their affiliation with the party."

China fueled much of its economy in the past via debt-fueled projects which have had a low return on investment over the long term (ghost cities, etc.). In September of 2023, Reuters reported: "China’s debt-to-GDP ratio has doubled to a whopping 280%, opens new tab, with the bulk of liabilities held by local government financial vehicles (LGFVs)." See also: Slow and steady growth over the long term via capitalism and the rule of law versus short-sighted authoritarian economic growth that is costly to the long term economy

Presently, communist China is facing multiple crisis with the three major crisis below being signs of growing deflationary pressures on their economy:

• Chinese real estate crisis (2020–present)

• Chinese stock markets crisis (Since 2021, China’s stock markets have lost about $7 trillion in value.)

• Youth unemployment in China

Since 2021, China’s stock markets have lost about $7 trillion in value.

Wars are expensive and the war in Ukraine is costly to Russia's long term economy

The Russian economy is too dependent on oil/gas.

Countries and economies that are more diversified in revenue sources are more resilient, stable and sustainable.

Before the war in Ukraine, Russia faced two major issues to their long term economy which I covered in the three essays below:

Namely, Russia is facing a demography crisis and it has an economy too dependent on oil given that the golden age of oil production will be over by 2030 according to oil industry experts.

• Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

• Russia's economy is that of a shrinking, aging, and poorly qualified population

• Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies

Key points:

1. According to the Russian demographer Salavat Abylkalikov the war in Ukraine makes Russia's demographic crisis worse.

Salavat Abylkalikov indicates:

“

In 2022, Russia's population growth rate was -0.38%. Assuming this rate persists, the population will halve in 184 years (according to Rosstat figures, Russia currently has 146.4 million inhabitants — The Bell). According to the UN's latest projection, Russia's population will be 112.2 million by 2100 under average circumstances. The Covid-19 pandemic caused life expectancy in Russia to fall by 3.3 years. It quickly began to recover in 2022, rising by 2.7 years. However, the war has disrupted this progress, and life expectancy is now impacted by war-related deaths and stress-induced substance abuse. Lower incomes and worsening access to medication, diagnostics, equipment and treatment are further reducing life expectancy. The war may also cause a decrease in inward migration, which has previously helped offset Russia's natural population decline. From 1992-2019, the natural loss was 13.8 million people, but inward migration compensated with 9.6 million. Russia could now find itself in a situation where natural and migratory losses reinforce one another... Shifts in the age structure of the population pose a substantial demographic risk for Russia's economy. The generations born in the 1990s and 2000s, when Russia's birth rate was at its lowest, are now entering the labor market. This will exacerbate the existing crisis due to a lack of young workers. Meanwhile, the post-war generations of the 1950s and 60s are aging and approaching retirement.

”

2. The Russian economy is too dependent on oil/gas.

Countries and economies that are more diversified in revenue sources are more resilient, stable and sustainable.

In 2023, OilPrice.com reported in an article entitled Analysts Predict 42% Decline In Russian Oil Production By 2035:

“

But Moscow cannot continue defying the odds indefinitely. BP Plc (NYSE: BP) has predicted that the country’s output is likely to take a big hit over the long-term, with production declining 25%-42% by 2035. BP says that Russia's oil output could decrease from 12 million barrels per day in 2019 to 7-9 million bpd in 2035 thanks to the curtailment of new promising projects, limited access to foreign technologies as well as a high rate of reduction in existing operating assets. In contrast, BP says that OPEC will become even more dominant as the years roll on, with the cartel’s share in global production increasing to 45%-65% by 2050 from just over 30% currently. Bad news for the bulls: BP remains bearish about the long-term prospects for oil, saying demand for oil is likely to plateau over the next 10 years and then decline to 70-80 million bpd by 2050. That said, Russia might still be able to avoid a sharp decline in production because many of the assets of oil companies that exited the country were abandoned or sold to local management teams who retained critical expertise.

”

Stratfor, an American strategic intelligence publishing company, reported in their 2020 article The Golden Age of Russian Oil Nears an End:

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In the next 10-20 years, Russian oil will become more expensive as extraction from less accessible basins becomes necessary to maintain current export levels. Internal inefficiencies within Russia's oil sector, as well as the remote locations of remaining reserves and potential shifts in future oil demand, add up to a murky future for the country's energy-reliant economy. Moscow may adjust its budget to ensure plummeting oil prices don't cut into its government spending, but proper economic diversification away from energy remains a complex and unlikely process.

”

3. The expensive and bloody war in Ukraine is a war on Russia's labor force size and human capital investment. Russia is not spending enough on robotic automation.

The flag of Japan.

In 2023, annual sales of industrial robots in Russia didn't exceed 2,300 pieces, whereas Japan sold as many as 38,000 with a much smaller population.

On December 15, 2023, The Insider noted:

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The nationwide mobilization (and the resulting outflux of qualified professionals abroad) exacerbated the crisis in the Russian labor market, already profoundly affected by the demographic decline. Russia's workforce shortage will only increase, experts warn, and may reach 4 million people by 2030. Developed economies compensate for insufficient human resources by driving labor productivity (using such tools as AI, among others), but Russia is also faced with the degradation of industrial processes due to international sanctions. Igor Lipsits, Doctor of Economics, explains how Russia's government policy has caused a labor market catastrophe and why the deteriorating educational system cannot remedy the situation... As early as 15 years ago, when the 2020 Strategy was in the making, the debate was ongoing as to whether defense spending should be cut in favor of supporting education to prevent its decay. No practical steps were taken, though, and Russia currently ranks 82nd in the world by education spending... Since 2006, Russia’s working-age population has shrunk by 13 million. That is, this category is going through a rapid decline. The resulting workforce shortage will cost Russia 1-2% of its GDP each year, according to a market study by Yakov & Partners (former partners of McKinsey in Russia)... From 2018 to 2023, the number of vacancies in Russia has grown by 80%, exacerbating the shortage of human resources. By 2030, the gap will have reached 2–4 million employees. The most affected category is professionals with vocational training (1.1–2.2 million people). The shortage of specialists with a high education will vary from 700,000 to 1.4 million.

”

The Insider further noted:

“

According to pre-war data by the Russian Association of Robotics (today's indicators are likely even lower), annual sales of industrial robots in Russia didn't exceed 2,300 pieces, whereas Japan sold as many as 38,000 with a much smaller population. Russia ranks even lower than Mexico and Thailand. At the end of the day, Russia is both losing human resources and failing to replace them with robots; as its population is shrinking, so is the share of young workers capable of amassing human capital. Demographic forecasts suggest that by 2031, the share of the most productive workers aged 20-39 will have shrunk by 25% compared to 2020. Even by 2035, this indicator won't have rebounded to its 2020 level. As a result, Russia's economy is that of a shrinking, aging, and poorly qualified population.

”

Vladimir Putin should listen to Sun Tzu: "There is no instance of a country having benefited from prolonged warfare."

"There is no instance of a country having benefited from prolonged warfare." - Sun Tzu, The Art of War

Sun Tzu (c. 400 B.C.) was the author of The Art of War, a classic Chinese treatise on military strategy. Sun Tzu's strategies and tactics utilize the "Eastern tradition of strategy that emphasizes outwitting an opponent through speed, stealth, flexibility, and a minimum of effort."

Sun Tzu wrote:

"There is no instance of a country having benefited from prolonged warfare." - Sun Tzu, The Art of War

"What is essential in war is victory, not prolonged operations." - Sun Tzu, The Art of War

Russia is one of the largest countries in the world in land mass. It doesn't need more land. In addition, Ukraine is a much smaller country in population with a much smaller industrial base in terms of war production. Furthermore, Russia is a nuclear power and Ukraine is not. On top of this, the European nations of NATO are an aging population and most soldiers are not elderly. Professor John Mearsheimer due to Europe's aging population which is projected to shrink and its various current and projected problems, stated: “Europe doesn't matter anymore. You know, Europe is basically a giant museum.”

Right now, Russia is bogged down in an expensive and bloody war of attrition. Any "victory" Russia obtains in the war in Ukraine will be a pyrrhic victory.

How long do post WWII wars last?

Georgetown University's Center for Strategic and International Studies (CSIS) is a bipartisan, nonprofit policy research organization & think tank analyzing global issues.

The Center for Strategic and International Studies article How Does It End? What Past Wars Tell Us about How to Save Ukraine

“

Analyzing data compiled by the Uppsala Conflict Data Program (UCDP) on conflict termination since 1946, 26 percent of interstate wars like Ukraine end in less than 30 days and another 25 percent end in less than a year. Wars that end within a month last on average eight days, and 44 percent end in a ceasefire or peace agreement. Of wars that last over a month but less than a year, only 24 percent end in a ceasefire. When interstate wars last longer than a year, they extend to over a decade on average, resulting in sporadic clashes.

”

Georgetown University's Center for Strategic and International Studies indicates that most wars lasting over a year extend to over a decade on average, resulting in sporadic clashes.

Even if the war in Ukraine should beat the odds and be far less than a decade in length, for a number of reasons, Putin's decision to invade Ukraine in 2020 was foolish for a number of ethical and economic reasons which I covered in my essay at: Vladimir Putin's foolish decision to launch an invasion of Ukraine in February 2022.

Did the February 2020 invasion of Ukraine by Putin launch a just war? No, it did not.

See also: Just War Theory and Russian war crimes in Ukraine

Under jus ad bellum, only legitimate authorities can wage war for the right reasons (usually this means a defensive war, or a war of defending the weak against a violent oppressor ) and only as a last resort if every other peaceful means to avert war have been used to no avail. A just war can only be waged if there is a serious evil that needs to be stopped. Furthermore, there must be a realistic chance that the evil can be stopped without starting a greater evil. If this happens the war reaches a just conclusion. A war started for just reasons and justly waged may still reach an unjust conclusion.

The war in Ukraine has caused a big amount of bad consequences for Russia, Ukraine and the world at large (food prices around the world, etc.). It has caused a greater evil than the previous state of affairs.

Saint Augustine.

Just War Theory is a Christian theory of moral ethics that goes back to Saint Augustine and St. Thomas Aquinas.