Gathering Storm – The Generals Warning of Russia’s War Machine. Why Memories Mould Us. And the Weirdest Ad of 2024. Plus more! #193
Grüezi! I’m Adrian Monck – welcome!
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1️⃣ The Gathering Storm? War in Europe...
Are Europe’s Generals sounding the alarm, or looking for cash?
Europeans wanting a good night’s sleep should stay away from the continent’s generals. They’re telling anyone who’ll listen that war is coming.
The Dutch Army chief told Telegraaf:
“The Netherlands should not think that safety is guaranteed with us because we are 1,500 kms away. Russia is getting stronger.”
Belgium’s top commander in VRT News:
“Russia has switched to a war economy. I think we would be right to be worried...”
From NATO candidate Sweden, the toughest talking:
Not everyone agrees.
After Swedish army chief Micael Bydén’s bleak warning, one commentator spelled out the alternative:
What [Bydén] is really saying is: Give us even more money.
War in Ukraine and the question mark over NATO thrown up by the Trump administration (and its possible return in late 2024) have shocked Europe into ramping up military budgets.
But even if the generals are right, Europeans may find they can’t afford guns or butter.
⏭ Britain’s military – one of Europe’s biggest – has a $22bn spending shortfall.
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2️⃣ Russia is Becoming a War Economy
Bad news for Europe, Ukraine – and Russia.
I’m currently re-reading Adam Tooze’s brilliant account of the Nazi economy and the German military’s pact with Hitler to boost military spending. It set Germany on the path to global war. Is Russia heading the same way?
Ding Xiaoxing – a leading Russia analyst at a Chinese think tank – gets a privileged peek inside Russia’s economy. Here’s what he thinks (in Chinese).
TL; DR Russian GDP outgrew everyone’s expectations in 2023 at 3.5%, wages are up, and unemployment down. Why? Redirecting energy exports, getting round sanctions and war spending.
Let’s break it down.
Redirected energy exports
Europe bought 40-45% of Russian oil pre-war, now it’s just 4%.
India now takes a third of its oil from Russia, imports have jumped 22x since 2022. China, Egypt, Morocco, Myanmar, and Pakistan are also buyers.
Avoiding sanctions
China is replacing Western goods – especially cars. Its exports to Russia are up nearly 50%, hitting a record $230 billion in 2023.
War spending
Military spending was 40% of Russia’s 2023 budget.
Investment went to arms-related industries like metal products (+73%), electrical equipment (+59%), machinery (+44%) and vehicles (+41%), facilitating rapid growth.
Tank production has increased nearly six-fold. Artillery and ammunition production is up 17.5x.
The downside?
Inflation hit 7.5% in 2023, wiping out real wage gains, especially for Russia’s lowest paid.
There food and fuel shortages. Social spending has been squeezed.
Russia faces labour shortages, made worse by conscription and emigration.
Russia’s economy is militarising. This holds long-term pain, as Konstantin Sonin notes in Novaya Gazeta:
“During the collapse of the USSR, where the military-industrial complex had grown beyond all proportion, millions of people lost their jobs because production levels could no longer be maintained.
“Similarly, when the Russia-Ukraine war ends, the industries that are now booming will suddenly become hotbeds of unemployment.”
⏭ It may work for now, but Russia’s war economy is unsustainable.
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3️⃣ Davos Prepares For The World to Descend
‘Jaw-Jaw is better than War-War’ as Churchill said.
Summer in the Nevada desert sees Burning Man, a frenzy of psychedelia infused self-indulgence.
Next week, winter in the Swiss alps brings us Earnings Man, aka Davos – a frost-bitten festival of fondue-fuelled CEO self-promotion. Or so critics would have you believe.
Since first going in 2008, I’ve seen – behind closed doors – the good the World Economic Forum and its kind, cheerful and idealistic staff have helped make possible, applying a little grease to the oft-seized engine of global cooperation.
For big global corporations it’s CEO boot camp, an immersion into a world beyond familiar industry sectors and silos.
Davos is an opportunity for leaders to test the possibilities – and learn the limits – of corporate diplomacy.
Emerging political leaders like Keir Starmer can get their voices heard internationally.
Savvy global operators – like Christine Lagarde, Ngozi Okonjo-Iweala, Kristalina Georgieva and Ursula von der Leyen – can kickstart initiatives and coalitions in one of the few informal meetings on the global agenda.
They know the Forum’s indefatigable founder, Klaus Schwab, can be relied on to persuade even the most implacable of foes to put down their pitchforks in private.
Me? I’ll be sparing a thought for Forum friends and colleagues who can – occasionally – be heard to mutter “The egos have landed” when some special folks show up in the snow.
So if you’re taking the Rhätische Bahn next week – remember one of Forum president Børge Brende’s favourite sayings:
“It’s nice to be important, but it’s more important to be nice.”
⏭ The WEF just published its Global Risks Report for 2024.
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4️⃣ France Just Got a 34-Year-Old Prime Minister
But why do we choose youth over experience?
Funnily enough, new economic research suggests an answer. And it’s to do with the experiences that make us who we are.
Our Minds Are Moulded By Our Memories
Memories – not manners – maketh man. What we’ve been through both educates us and imprisons us. Take inflation:
People who lived through high inflation expect higher future inflation decades later. Older Italians who lived through double digit inflation in the 1970s and 80s were more likely to predict high inflation in the 2010s than younger ones.
Americans who saw poor stock market returns earlier in their lives went on to invest about 10 percentage points less in stocks decades later compared to those who experienced higher returns.
Even Experts Are Affected
Central bankers – those bywords for economic neutrality – are heavily influenced by the inflation rates they personally experienced in their early lives.
So even inflation forecasts and monetary policy decisions can be swayed by past events.
Given the way experience shapes us, its not surprising that switching generations in leadership can shift behaviours, expectations and – of course – outcomes.
⏭ You can find out more about Gabriel Attal – “a political chameleon” – here.
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5️⃣ Is 2024 Nuclear Fusion’s Year?
One steel-making company is banking on it.
⏭ You can read more about the plans here.
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6️⃣ The Best Political Speech You’ll See
Just don’t try and imitate this 21-Year-Old New Zealand lawmaker.
⏭ Hana-Rawhiti Maipi-Clarke gave her maiden speech just before Christmas.
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7️⃣ The Weirdest Ad of 2024
A magnificently barmy end to this tale of generational conflict.
It might alienate Australian vegetarians.
⏭ Non-carnivorous reading on Bea’s book club podcast.
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If you enjoy this newsletter – please recommend it!
Best,
Adrian
