Adam Smith, the Scottish economist of the 18th century, is considered the father of modern economics. In his work "The Wealth of Nations" (1776), he outlined the theory of absolute advantage, which explains why countries benefit from specialization and trade. According to Smith, each country should focus on producing goods that it can create more efficiently than others, meaning with lower resource costs per unit of output. Then, through trade, nations exchange these goods, increasing overall welfare. For example, if Portugal produces wine cheaper than England, and England produces cloth, then specialization and exchange make both countries richer.
This idea seems simple and logical, but in the real world, it takes paradoxical forms, especially when it comes to countries with distorted economies, such as the Russian Federation (RF). Russia, despite its vast natural resources, demonstrates a classic example where absolute advantages turn into a trap. Let's examine why the RF cannot compete in "peaceful" sectors but, according to some assessments, has found its "niche" in something destructive—weapons, fear, and terror.
Russian Economy: Dependence on Imports and Lack of Competitiveness
Russia is a country with powerful potential, but its economy is deeply dependent on imports in key sectors. Take the automotive industry: domestic cars, such as Lada, have long lagged behind foreign analogs in quality and technology. Before 2022, the RF imported over 80% of auto components from Europe, China, and South Korea. After sanctions imposed due to the war in Ukraine, car imports sharply declined, but domestic production could not fill the gap—it remains primitive and inefficient.
The same applies to household appliances. Russian brands, such as "Vyatkа" or "Biryusa," cannot withstand competition from Samsung, Bosch, or Haier. Most appliances are imported from China and Turkey because local production suffers from outdated technologies, corruption, and lack of investment. Even in oil and gas extraction—the main source of income for the RF—the country depends on imported equipment. Drilling rigs, pumps, and software for geological exploration are supplied from the West (for example, from Schlumberger or Halliburton). After sanctions from 2022–2025, Russia is trying to replace this with Chinese analogs, but efficiency drops, and costs rise. According to 2025 data, imports of oil and gas equipment from China have increased, but overall dependence on foreign technologies reaches 70–90%.
Why is this so? According to Smith's theory, the RF lacks absolute advantage in these sectors due to low labor productivity, corruption, and isolation from global innovations. The RF economy is a classic example of the "resource curse": 63.8% of exports come from raw materials (oil, gas, metals), while industry stagnates. Imports grew by 1% in 2025, but this does not solve the problem—domestic production is simply inadequate.
Paradoxical "Gold Mine": Weapons, Fear, and Terror as a Competitive Advantage
But here is the paradox: if Russia loses in peaceful goods, then in the sphere of weapons and geopolitical influence, it claims absolute advantage, especially in Eurasia. Smith did not foresee that advantage could be destructive, but the reality of the RF illustrates this vividly. The Russian military-industrial complex (MIC) is one of the few sectors where the country has a historical legacy from the USSR. The RF is the second (after the USA) exporter of weapons, although with a 92% drop from 2021 to 2024 due to the war in Ukraine and sanctions. Arms exports reach billions of dollars, with key clients in India, China, and Africa. Russian weapons (T-90 tanks, Su-35 fighters, S-400 air defense systems) are considered cheap and reliable for third-world countries where ultra-modern technologies are not needed.
Moreover, Russia "exports" not only weapons but also fear and terror. Its military doctrine, evolving from Soviet times, now emphasizes asymmetric warfare: hybrid operations, cyberattacks, disinformation, and "limited war" below the threshold of nuclear conflict. This allows the RF to dominate in Eurasia without full-scale war—from the annexation of Crimea to interventions in Syria and Africa. In Eurasia (from Central Asia to the Caucasus), the RF has no real competitors: China focuses on economics, Turkey on regional interests, and the West avoids direct conflict. The Russian strategy of "military Keynesianism"—stimulating the economy through military spending—turns war into a "business model." The MIC creates jobs, but this is an illusion of growth: real incomes stagnate, and corruption in defense contracts reaches billions.
This "competitive advantage" is a gold mine. The RF has "found" it through historical circumstances: the USSR legacy, resources for the MIC, and readiness for aggression. But this is a paradox: instead of productive growth, as in Smith, Russia specializes in destruction. The war in Ukraine is an example: peace agreements are perceived as a tactical pause for preparation for greater aggression, because abandoning "terror" would mean losing this "advantage."
Smith's Paradox as a Trap for the RF
Adam Smith's theory teaches that absolute advantages lead to prosperity through trade and specialization. But in the case of the RF, this turns into a paradox: the absence of advantages in peaceful sectors pushes toward a destructive niche—weapons and terror. This is not sustainable growth but a path to isolation and collapse. Peace agreements will not force the RF to "abandon" this vein, because they are tactical: a pause for accumulating forces before a new war. To change this, not only sanctions are needed but also internal reforms, but in an authoritarian system, this is unlikely.
This paradox shows the limits of Smith's theory: when advantage is based on fear rather than creation, it destroys not only enemies but also the country itself. Russia is a living example of how a "gold mine" can become a grave.
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