A professor of economics at Missouri State University cautions that economic isolation of Russia will take a toll on international trade.
“You have to punish Russia somehow for just being blatantly aggressive, but the long-term implications could be that it halts the push toward globalization and integration,” said David Mitchell.
It’s a catch-22, Mitchell said – the Russian invasion of Ukraine, which began Feb. 24 and has since offered horrific scenes of Russian attacks on hospitals, civilian shelters and refugee evacuation routes, requires an international response; however, limiting international trade could hurt more than just Russia in the long run.
And Mitchell noted it’s small businesses, not global corporations, that will pay the biggest price, through increases in costs of goods and disruptions in supply chains.
Business owners respond
Locally, in one of Springfield’s smallest businesses, Nadia’s Bakery owner Nadia Pshonyak is doing what she can to help people in her homeland. She’s a native of Lviv, Ukraine.
Pshonyak, who has extended family in Ukraine, is donating proceeds from some March sales to Sunflower of Peace, a U.S.-based nonprofit providing medical supplies and humanitarian aid in Ukraine.
Pshonyak works from home with a single oven and two mixers. There was a huge response – almost too huge – to her social media promotion of her fundraising campaign, she said.
“I’ve been overwhelmed in a good way by the outpouring of support by people around town,” she said.
Most supporters are first-time customers of Nadia’s Bakery.
“I’m a one-woman shop, working as fast as I can around the clock to get these orders out in a timely manner,” she said.
Pshonyak received more than a hundred orders during her weeklong fundraiser, and she may offer another. She makes cupcakes and cookies, plus a Ukrainian cake with nine layers of crispy wafers and caramel filling.
“I was just looking for a way to help out in my home country,” she said. “It’s a sad and frustrating and scary situation that’s going on.”
Unlike Nadia’s Bakery, with its European confections, Airflow HVAC Plumbing & Remodeling LLC shows no outward signs of being a company with Ukrainian roots. But owner Vladi Garbuzov was born in Mariupol. Like Pshonyak, Garbuzov has extended family in Ukraine, including a cousin who is missing.
“He’s still not answering,” Garbuzov said. “I hope he’s OK.”
Through his church, Bread of Life in Ozark, Garbuzov and other congregants are raising money to help the people of Ukraine, including refugees who are trying to get out of the country.
Garbuzov said a lot of customers and friends don’t know how to approach him about the Ukraine invasion.
“I feel most people are fine, but with a few people I feel some kind of pressure,” he said.
It has to do with being a familiar face for a tragedy taking place on the other side of the world, he said.
“Before, it was all normal; they were just saying hi and all that,” he said. “Now, they’re kind of silent.”
Garbuzov’s hometown has been hit hard in the invasion.
“I can’t really go back to my city because everything’s been destroyed,” he said. “My school is destroyed; I’m not sure about my house.”
Nick Marchuk, who hails from western Ukraine, is an administrator at Bread of Life, whose congregation of 430 members, not counting children and occasional attendees, has a large number of Eastern European congregants.
The church is collecting money to give to churches in Ukraine, which are trying desperately to keep people sheltered and fed. According to its website, Bread of Life is working toward a $50,000 goal and has raised nearly $2,000 so far.
There are a lot of business owners in his church, Marchuk said, including Ukrainians and Russians. Some Russian congregants are supportive of Ukraine, but not all, he said.
“There’s some people who are pro-Russian. How could you even say that?” he mused.
In addition to Bread of Life, humanitarian relief nonprofit Convoy of Hope has stood up a headquarters in Poland to help refugees, and Springfield-based Connect Church is also in the country providing aid.
Globalization in peril
Mitchell, who is director of the Bureau of Economic Research and of the Center for Economic Education at MSU, predicts the attack on Ukraine will have long-lasting implications for the global economy.
“One of the things I believe over the past 50 years that has really helped raise tons of people out of poverty has been international trade,” he said.
In the past five to 10 years, Mitchell said, there has been a movement away from international commerce.
“The Ukrainian situation helps that along, which is probably the wrong idea,” he said. “You need to have some kind of sanctions on Russia and apply whatever pressure you can, but I’m concerned this will become a permanent shift.”
Each day, the media report on leading global companies – like Visa, McDonald’s, Coca-Cola and Levi’s – halting sales and closing stores in Russia.
As Russia becomes an unlikely place to invest, Mitchell said, so does Ukraine, which experienced an invasion in Crimea in 2014 and is being invaded again right now.
“Who’s to say they won’t be invaded 10 years from now?” Mitchell said.
In other words, a company could build a plant in Ukraine, and Russia or another country could destroy it the next time it decides to invade.
“People will take away that we need less trade – we need more self-reliance,” he said. “Self-reliance sounds good; it’s an American trait. But from an economic standpoint, a country trying to make it on its own, whether that’s the United States, France, Ethiopia, whatever, is kind of a bad idea on balance.”
Mitchell said there is a threat that countries will accelerate toward autarky, the economic term for self-sufficiency and limited trade, possibly culminating in an entirely closed economy.
Meanwhile, supply chain problems persist, and the warring countries are the source for important resources – inert gases like neon, used in a lot of electronics, coming out of Ukraine, or oil, natural gas, nickel and magnesium from Russia. Ukraine, too, is widely considered Europe’s breadbasket, but the war threatens this year’s crop production.
“People complain about the price of oil going up, and I completely agree, but the price of wheat has gone up even more,” Mitchell said, noting cereals, bread and beer will continue to climb, and even meat prices could be impacted.
He wonders what will happen when other countries decide they don’t like the actions of the U.S. – when China decides it doesn’t want to buy dollar-denominated treasuries, for instance.
“Where you see people saying, look, we’re going to have less foreign direct investment, less international trade, less reliance on other countries, I don’t think in the long term that’s a good strategy,” he said.
Mitchell said the more economically integrated countries become, the more economic growth there is. With markets closing, local companies may want to prepare themselves for even more difficult times ahead, according to Mitchell.
“They’re going to see more price increases, more supply-chain issues,” he said. “They need to make sure they have more inventories than they normally would have. That means higher costs, and they have to find a way to pass that on to their customers.”
While it may be intuitive that global industries, like General Motors or Apple, will suffer the most in reduced international markets, that’s not the case, Mitchell said.
“The smaller businesses are the ones that are going to get hurt the most,” he said. “GM has what we would call economies of scale. If the price of nickel goes up 5%, they have economies of scale to help absorb that. Smaller local businesses do not have economies of scale and economies of scope to be able to shift away from these huge increases in the cost of inputs.”
Wellness Collective LLC launched downtown; I Love Tacos Taqueria LLC expanded; and MLP Accounting & Consulting moved.