Russia's Great Leap Downward

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In late 2001, a now-famous financial study from Goldman Sachs predicted that the global share of gross domestic product (GDP) among four of the world's largest emerging economies, Brazil, Russia, India, and China (dubbed the "BRICs"), was set to rise in the decades ahead, and that with this rise, these "BRICs" would achieve increasing influence and wield greater leadership in both the world economy and global decision making.[1] "BRIC" became an everyday term for students of world finance and international affairs, and the prescience of the report seemed affirmed by the continuing rapid rates of growth in all four of these economies. But the BRIC report, perhaps in its enthusiasm, did not stop to reflect upon the importance of these countries' human resources to their future growth prospects. If it had, it would have been immediately apparent that one of the BRIC countries was not like the others.

While Brazil, China, and India posted impressive rates of economic growth over the past decade in spite of rising energy prices, largely through policies that capitalized upon the rising levels of health and education in their workforce, Russia appears to have followed almost a very different trajectory. As energy prices soared, Russia's enormous oil and gas reserves allowed it to grow robustly over the last decade, but these windfalls from natural resources were not reinvested in the country's human resource base. That looks to be a critical error. For the Russian Federation faces a serious demographic challenge, a fact perhaps more clearly exposed today, in light of the onset of the ongoing global economic crisis. Russia's human resource crisis is not new--but it is becoming more acute. The country must eventually confront this human security challenge. It is a challenge with strategic as well as economic implications. The reverberations of Russia's success--or failure--in meeting this challenge, furthermore, are likely to be felt well beyond the borders of the Russian Federation.

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Nicholas Eberstadt is the Henry Wendt Chair in Political Economy at AEI and Apoorva Shah is a research associate and Jacobs associate at AEI.

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