The monopolistic rulers of resource-bound states do not guarantee property rights. They cannot rely on their own capital, keep it in the country or hand it down to their children. Along with their subjects, the rulers also suffer from the absence of public goods such as fair justice or clean air. Oiligarchs build their yachts with foreign firms and sail them in foreign seas, which are safer and cleaner. They prefer to settle their conflicts in foreign courts. Their spouses require private goods which only labor-dependent states are capable of offering. Their children need the kind of quality education that is only available beyond the border. If their currency is convertible, then textiles, gadgets and even weapons can be purchased abroad. But safe parks, clean beaches and good schools are not available for import. The middle class, always fragile in resource-bound states, also transfers its modest needs and pleasures beyond the border. This is the underlying cause of capital flight, in which people from resource-dependent states transfer their assets to labor-dependent states.
What is a resource curse for the extracting country is a blessing for its trade partners. Exported capital - a converted form of grain, timber, oil or gas - turns into a bank deposit in Switzerland, a chateau in France, a business venture in Germany or shares in American corporations. This capital, significant by any standards, brings profits to its recipients. The Swiss bank gets a percentage, London property prices skyrocket, and new businesses pay taxes in the host countries. If this wealth trickles down, then those who benefit live far away from the places where it was pumped or mined. Paradoxically, the resource-holding elite invests in the same institutions abroad that it neglects, or even destroys, at home: the legal system, universities, parks and hospitals. According to John Rawls's principles of justice, it is morally right if some people become richer than others as long as the poorest do better as a result.9 In resource-dependent economies, the first possibility is realized in one place while the second is realized in another. Wealth trickles down far away from the places where it has been created. Disparities are doomed to grow.
Loss of industry
After 1991, neoliberal reforms left millions of Russians on the brink of survival. Among the victims were the Soviet-era intelligentsia - scientists, engineers and other professionals whose careers were previously guaranteed by the state and protected from international competition. Deindustrialization hollowed out the big Russian cities that had sprung up around paleo- modern factories, mining agglomerations and military plants. But unemployment remained relatively low. By subsidizing coal and gas for industry, and diesel fuel for farms, the government supported the circulation of goods and food throughout the country. It was a special kind of sustainability, secured by traditionally low salaries, gradual depopulation and fossil fuel subsidies. All this made the deindustrialization process even more dramatic. Received in exchange for carbon, hi-tech imports displaced locally manufactured goods. The mining and steel-making agglomerations of the Urals and Siberia were so dependent on military procurements that they could not survive the detente of the 1990s. The rate of return on oil and gas developments was higher than the risky profits from airplanes and nuclear reactors. The country lost most of its civil engineers and metal workers. In the 2010s, none of the machines needed to manufacture other machines were made in Russia. With the reduction in demand, the Soviet competences of long-term planning and reverse engineering were quickly lost.
With Putin's war in Ukraine and the resulting Western sanctions, all this became clearer than ever. The Russian military used foreign-made chips and sensors that were awkwardly installed in its Soviet-designed armor. A study of Russian weapons recovered in Ukraine in 2022 showed that they routinely used imported devices, which had been illegally smuggled from Western countries by state-owned manufacturers.10 Alexander Kuleshov, the head of Skoltech University that was founded in 2011 in Moscow in collaboration with MIT, admitted that all its high-tech equipment was imported. Because of the sanctions, if a chip in his supercomputer stopped working, he would have to spend months organizing a replacement shipment from Europe. In the 1980s, Kuleshov explained, Soviet engineers would take an American processor and abrade it, reengineer- ing the chip layer by layer. This worked up until the launch of the 386 processor, created by Intel in 1986. Subsequent processors were so thin that they couldn't abrade them. Since then, no chips have been produced in Russia.11 Sanctions made it impossible to import them and difficult to substitute them: in order to make one chip, you need many others, and how could you make a chip if you couldn't get your hands on any?
Cars were an element of paleomodernity that survived into the new era. From the 1960s, global standards required that motor vehicles have safety belts and lights; later, airbags were made mandatory. A new revolution in the auto industry started together with the revolution that buried the Soviet Union. In 1992, the Euro 1 directive stipulated the maximum emissions for all cars sold in Europe. Russia adopted this standard in 1997; until recently, it was not possible to register a car in Russia that was inferior to the Euro 5 standard. Safety belts belong to paleomodernity, emission standards to gaiamodernity, but they should work together in every car. Better, cheaper cars complying to the standards were assembled in Russia from ready-made foreign parts. The old Soviet car factories were shut and repurposed. For German or American corporations, it was cheaper to build an assembly factory from scratch than to reconstruct an old Soviet shell. The poor, however, still drove old cars that did not meet modern standards, and Russia had the highest number of road deaths per population in the world.12 In response to the invasion of Ukraine, the major car corporations left Russia. Having appropriated their assembly lines, native businesses could not make cars that met the EU standards. The solution was simple: in April 2022, the government issued a decree that abolished the European requirements for Russian-made cars. Free to pollute, they were no longer fitted with airbags.
Even in the mundane sector of construction materials, Russia's industrial dependence was total. The construction industry preferred local components: bulky and inexpensive, they were produced in proximity to the construction sites. However, in June 2022, it became clear that even the fabrication of these components - from bricks to pigments to nails - required imported materials. The factories hoped to source replacements from China and Iran, and spoke of "the barbari- zation of production."13
With two-thirds of its territory having no access to the grid, the country needed alternative sources of energy. As a producer of hydropower, Russia ranked seventh in the world, competing with Japan and Norway. In nuclear energy, another relic of paleomodernity that survived into the new era, Russia was a major player. But progress in the use of renewables such as solar and wind was painfully slow. Even with their prices plummeting, renewable energy was still more costly than burning domestic gas or coal. Although the government was awash with money and could buy any number of solar panels or wind turbines, it chose not to. In 2010, at a business conference in Berlin, Putin mocked the very idea of an energy transition.
"I do not understand what fuel you will use for heating. You do not want gas, you are not developing the nuclear power industry, so you will make heat from firewood?" Putin asked the audience. "You will have to go to Siberia to buy the firewood there."14 Ten years later, solar and wind together made up less than 0.5 percent of Russia's energy production, compared to 42 percent in Germany and 10 percent in China. Per capita, Russia produced six watts of wind energy a year, compared to 1,000 in Denmark and 200 in China.15