- Russia's brain drain has become its economy's biggest problem, an economist told Business Insider.
- The nation has been losing highly skilled workers, who have fled the war since 2022.
Russia's biggest problem isn't related to sanctions or its diminished energy trade. Its greatest dilemma is that it is losing its mostly highly skill workers, who are fleeing amid the third year of grinding conflict in Ukraine.
Richard Portes, an economist at the London Business School, foresees a grim future ahead for Russia as the nation continues looks locked into a war with no end in sight.
Portes predicts the future will largely be shaped by the countless Russians who have already fled the country, with Russia losing around a million of its own citizens in the year after it began its invasion of Ukraine.
Many of those citizens were from Russia's youngest and most educated demographics: 86% who left Russia in 2022 were under the age of 45, and 80% of those who left had a college education, according to an analysis from the French Institute of International Relations.
Many of those who left were also among the wealthier cohorts of Russian society, and they've taken their cash with them. The nation lost nearly $42 billion in 2022 as Russians transferred their personal savings abroad.
Those losses have coalesced into a Russian brain drain, and its impact has already been acutely felt, Portes said, adding that it will exacerbate other problems Russia is dealing with, such as a growing inflation crisis.
"Whatever the outcome of the war, in five years' time, Russia will have been depleted, worn out its physical capital except in the defense sector and will have lost a huge amount of knowledge capital, human capital," Portes told Business Insider, adding that he believed Russia's economy could deteriorate over the next decade. "So in terms of a modern economy, what is it that we most depend on? It's those well-trained people, almost whatever sector you're talking about."
Losing the cream of the crop
It's difficult to replace highly educated or skilled workers, especially since the loss of those workers means there's no one to pass knowledge down to the next generation, Portes said.
That's why he anticipates the effects of Russia's brain drain to be felt over the long-run, predicting the nation will soon see growth turn sluggish as its well of innovative people runs dry.
"Take someone who's 10 or 15 years out of graduate school, who's inventing something or designing some piece of software. You can't replace somebody like that with a new graduate," Portes said.
The long-lasting nature of brain drain makes the issue more serious than, say, inflation, which could be remedied by central bank maneuvering. It could be difficult to boost Russia's supply of skilled and educated workers, Portes said, especially as Russia loses men on the battlefield and continues to navigate its decade-long population decline.
Russia was short around 5 million workers in 2023, according to estimates from the Institute of Economics of the Russian Academy of Sciences, with sectors like manufacturing, construction, and transportation seeing the largest deficits.
Labor productivity in Russia also dropped more than 3% last year, according to CEIC data.
Meanwhile, patent filings fell 13% in Russia in 2022, and patent filings from foreign applicants dropped 30%, according to data from the Russian Patent Office.
Over the next decade, Russia's economy could devolve into one dependent mainly on its natural resources rather than on the most innovative industries, Portes speculated. That's similar to what other economic forecasters have predicted, with some warning Russia's economy could become de-industrialized as its resources are siphoned off by the war.
That also means a poorer quality of life for Russians, Portes said. as the quality of everything from education to medical care to public services declines.
"It will be reduced to a resource economy, a natural resource economy," he said of Russia's future.
Other economists have issued similarly dark warnings. At this point, Moscow's finances are so strained, the nation probably can't afford to either win or lose the war, according to an analysis from one European economist. Russia also looks on track to enter a severe recession by the end of the year, one UC Berkeley professor previously told Business Insider.
It's a stark change from what Russia looked like in the 1990s and early 2000s, Portes said, when growth was strong and investment in the nation was thriving.
"Russia was in some respects, highly developed," he added. "You can go from that to an economy that is rotting away, and it's not hard to do it if you really want to do it. And that's sadly what is happening."