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Political and Social Roots of the Russian Economy and Prospects for National Development


An in-depth examination of Russian economic development since the collapse of the Soviet Union and an analysis of Russia’s future challenges.

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Putin has been in power in Russia for more than 20 years since 2000. During this period, apart from recovering its growth at a higher rate with the help of high oil prices before 2008, since 2009, the Russian economy has been hovering at a low rate of growth and even fell into recession several times. The economic miracle that Putin has repeatedly promised has failed to materialize, and Russia’s position in the world economic system continues to decline uncontrollably. Thus, an important question naturally arises for the researcher: What causes such a result? There are, of course, different dimensions when studying this issue, and the results may also be a matter of opinion. I will attempt to explore the influence of political system and social ecology on Russia’s economic development from the perspective of the reaction of the superstructure to the economic base.


1. Trajectory of Russian Economic Development


According to the policy adjustment at the subjective level and the economic performance at the objective level, we can divide the Russian economic development over the past 20 years into four stages.


The first phase, from 2000 to 2004, can be called the “reformist” period. During Putin’s first presidential term, the “Gref Program” was formulated and implemented, which the government adopted in 2000 as The Socioeconomic Development Strategy for the Russian Federation until 2010. During this period, the government advanced taxation, progressive pension and civil service reforms, passed the Land Law, vigorously removed administrative barriers to starting a business, and accelerated negotiations for Russia’s accession to the WTO. With these reforms, Russia’s economic growth accelerated, foreign investment inflows increased, and the ruble began to strengthen.


The second phase was from 2004 to the first half of 2008, running through Putin’s second term as president. This stage can be called the “state capitalism” stage, and its most prominent feature was large-scale re-nationalization. Marked by the “Yukos Incident,” the Russian government tried to lead the economic revival by building a large state-owned enterprise behemoth. During this period, most reforms ceased, and major reforms continued only in the macroeconomic and financial spheres. The first phase of reforms, however, undoubtedly brought tangible results: The national debt was almost fully paid off, and a stabilization fund and a key element of a competitive banking system, the deposit insurance system, were established. Falling inflation and the introduction of deposit insurance have created new opportunities for the development of the financial sector and increased corporate and consumer lending. Macroeconomic stability and investment rating upgrades have contributed to a sharp increase in foreign investment. During Putin’s first two presidencies, the economy grew at an average annual rate of about 7 percent. In the decade from 1999 to 2008, Russia’s economy nearly doubled (GDP growth in dollar terms was higher, from $210 billion in 1999 to $1.8 trillion in 2008, a 7.5-fold increase, due to rising oil prices and foreign investment inflows that led to a substantial strengthening of the ruble). This was the most glorious decade in Russia’s modern economic history, with economic growth comparable to the economic recovery during the New Economic Policy (NEP) period and higher than the average annual growth rate of 5% during the Soviet Union’s industrialization under Stalin. Of course, in addition to the follow-up effects of the first-stage reforms, the sharp rise in international oil prices has become an important external factor for the relatively high-speed growth of the Russian economy in this decade. From 1998 to 2008, the average international oil price rose from US$13 per barrel to US$97, an increase of almost 6.5 times. Therefore, some Russian economists believe that high oil prices contributed to 30-50% of the economic growth under Putin’s first two presidential terms.


The third stage is from the second half of 2008 to 2013, which covers the global economic crisis and Russia’s economic recovery. In fact, the high-speed growth of the Russian economy all but ended in 2008. Although the government formulated The Concept for Long-term Social and Economic Development of the Russian Federation 2020 in 2008 and put forward the development ideas of integrating into the global economic system, increasing investment in human resources, and realizing innovative development, however, with the advent of the global financial crisis, the plans proposed by the development concept have come to naught, and no substantial reforms have actually taken place. In the decade after the crisis (2010-2019), the Russian economy grew at an average annual rate of less than 2%. In January 2011, Putin instructed the HSE University and the Plekhanov Russian University of Economics to organize a large number of experts to formulate a new Strategy 2020. To this end, 21 working groups were set up to reformulate a comprehensive reform plan. The main goal of Strategy 2020 was to try to remove barriers to investment in business and human resources and create a “new model of economic growth.” At the same time, in order to participate in the 2012 presidential election, another plan for the development of Russia was released in 2012 and became Putin’s election platform. Its economic section was published in January 30, 2012 issue of Sputnik under the title We Need a New Economy. On May 7, 2012, after being re-elected as president, Putin signed the 12-item May Decree, one of which was a decree on the country’s long-term economic policy. He proposed to promote a fundamental improvement in the investment climate, reduce excessive state intervention in economic life, and predicted that this would increase labor productivity by half within seven years and increase investment to 27% of GDP. In reality, however, the promised reforms have not been implemented and the expected economic outcomes have not been realized. After a brief recovery after the 2010-2011 crisis, economic growth began to decline rapidly again.

第三个阶段是2008年下半年至2013年,这是遭遇全球经济危机和实现经济复苏的阶段。实际上,俄罗斯经济的较高速增长在2008年就已经基本结束。尽管政府在2008年就制定了《2020年前俄罗斯联邦社会经济长期发展构想》,提出了融入全球经济体系、加大人力资源投资和实现创新发展的发展思路,然而随着全球金融危机的到来,发展构想所提出的计划化为泡影,实际上没有进行任何实质性的改革。在危机后的十年(2010~2019年),俄罗斯经济年均增长率不到2%。2011年1月,普京指示高等经济大学和普列汉诺夫国民经济学院组织大批专家制定新的“2020年战略”。为此成立了21个工作组,重新制定了全面的改革计划。“2020年战略”的主要目标是试图消除商业和人力资源投资的障碍,打造“经济增长新模式”。与此同时,为参加2012年总统大选,有关俄罗斯发展的另一个计划也在2012年出炉并成为了普京的竞选纲领,其经济部分以《我们需要一个新经济》为题发表在2012年 1月30日的《导报》上。2012年5月7日,普京在重新当选总统后签署了包括12项内容的“五月法令”,其中一项就是关于国家长期经济政策的法令。他提出要促进投资环境的根本改善、减少国家对于经济生活的过度干预,并预言这将使劳动生产率在七年内提高一半,投资增加到GDP的27%。但实际上,承诺的改革并未落实,预期的经济成果也没有实现。在经历了2010年至2011年危机后的短暂复苏之后,经济增速又开始迅速下降。

The fourth phase, from 2014 to the present, is the period in which Russia has become increasingly isolated and stagnant from the global economy in the wake of the Crimea crisis. In fact, the Russian economy was weak in 2013, when the economic growth rate was only 1.8%. The subsequent drop in oil prices, the Crimean crisis, Western sanctions, and the COVID-19 pandemic have hit the Russian economy hard, with an average annual growth rate of only 0.35% from 2014 to 2020. Russia’s GDP in dollar terms remained at 2008 levels, and its share of the world economy fell from 3% in 2008 to 2% in 2018. Investment did not grow to 27% of GDP, but stayed at 20-22%. Foreign investment declined and capital outflows accelerated, totaling US$320 billion from 2014 to 2018.


2. Sociopolitical Roots of Economic Downturn


There are undoubtedly many reasons why the growth of the Russian economy has grown from a relatively high speed to a sustained low level, such that it even fell into recession several times in the past 20 years. External factors such as falling oil prices and Western sanctions have indeed limited Russia’s economic development to a certain extent, the most fundamental reason, however, is that the political system, political culture, method of governance, social ecology, and other superstructure factors have made the endogenous power of economic development insufficient.


Beginning with the Yukos incident in 2003, the previous institutional environment, which was based on a socialist market economy and the reduction of state intervention, gradually changed and gave way to a new political and economic system centered on political authoritarianism and state capitalism. The increasing vertical power system constantly changes the political atmosphere and social ecology in Russia and has had a significant negative impact on economic development.


Under the new political and economic system, the state’s intervention in all processes of the political, social, and economic system has increased substantially. Since 2003, government intervention has continued to increase in almost all major macro- and micro-economic links such as investment, pricing, profit distribution, rates of return, imports and exports, procurement and sales, and regulations and policies on taxation, tariffs, and finances. Similarly, adjustments have increasingly restricted business operations. Although the government has not yet controlled all economic resources and has not implemented comprehensive control over the economy, the market allocation of resources and the space for business entities to operate independently have been greatly compressed, making it difficult for business entities to operate fully and freely such that economic efficiency is becoming increasingly low. If the nature and speed of the expansion of administrative regulation remain unchanged, the market space may be further compressed in the next few years which may eventually lead to a full-blown conflict between the market and regulation. Russian economist Sergei Guriyev believes that “the political system of excessive state interference in all areas of social life limits economic growth” and that this “super-centralized management system is not suitable for managing a country as large as Russia.” Another Russian scholar Nikita Maslennikov also stressed that “the fundamental reason why economic problems have not been resolved for many years is excessive power. It is simply impossible to achieve rapid economic development within the existing institutional framework. Furthermore, a future transition of power could have a disproportionate impact on the political and even the economic system.”


No political or economic model operates in a vacuum, and the human factor is crucial in real politics. This is especially true in terms of the behavior of power elites which, to a large extent, affects the investment environment, social ecology, human resources, and even changes in popular sentiment. Since 2003, the re-nationalization of Russia has been accompanied by a new round of distribution of interests and power struggles (such as the Ulyukayev incident). During the process of re-nationalization, many senior government officials served as the chairmen of the boards of directors or the boards of supervisors of large state-owned enterprises, while their relatives, friends, and former students seized favorable positions in these state-owned enterprises and enjoyed the dividends of state-owned assets.


Compared with S&T progress, innovative development, and optimization of human resources, these people were more concerned with how to divide up natural monopolies and financial resources, leading to the overall low efficiency of state-owned enterprises. State-owned enterprises have occupied market resources and are protected by the government, resulting in a long-term business environment that is not conducive to the growth of small and medium-sized enterprises. More importantly, re-nationalization has led to a loss of confidence among domestic and foreign investors in the willingness and ability of the Russian government to protect reliable private property rights, leading to a long-term large-scale outflow of capital that remains difficult to effectively contain.


After mastering the power to manipulate economic resources, Russian political elites have lacked clear strategic planning and practical actions on how to achieve long-term economic development and deal with the increasingly fierce economic competition between major powers. Despite the increasing concentration of political power in Russia in 2003, electoral politics was still ostensibly practiced. On the one hand, to maintain power stability and even govern over the long term while also gaining the support of voters, under the pressure of the inherent tension of such a goal, buying the votes of the people by providing basic living stability and social welfare has become the basic logic of Russia’s political and economic life. In this context, maintaining macroeconomic stability and controlling inflation have become the core issues of the government’s economic policy. The stability fund and national welfare fund established with petrodollars earned when oil prices are high have become important “airbags” but have not been effectively invested in the strategic development of the economy. Much of the money the Russian banking system has drawn from the oil and gas industry over the past 20 years has ended up in international speculative business rather than domestic real-economy investment. In this regard, Glazyev, the former economic adviser to the Russian president, believes that the main reason for recession in the countries is because, for many years, senior economic officials such as Kudrin, Gref, and Nabiullina have adhered to the Chicago School of monetary policy, restricting the monetary supply to reduce the rate of inflation. Vladimir Kimperson believes that the key to Russia’s economic recession is the gap and contradiction between the current government’s conservative policies and the long-term modernization trends of technology, education, and culture. According to a September 2021 study by the Carnegie Center in Moscow, the authors of the study confirmed in multiple conversations with people who understand the logic of high-level thinking in power that the principle of survival for those in power is “as long as there is enough oil and gas to generate revenue for the federal budget in our years in power, it is enough for us to use budget spending to buy voter loyalty and suppress civil society and media opinion. After that (2036), what happens happens.” It can be said that under the current institutional environment, quite a few Russian power elites are short-sighted and indifferent to the long-term strategic risks facing the country, not only fundamentally rejecting modernization efforts but also losing pragmatic strategic thinking. Many of them are satisfied with the existing management model, are accustomed to living in a comfortable “small world,” ignore the rapid changes in the external environment and unprecedented new challenges, and are increasingly reluctant to listen to the opinions of experts. Not only that, but policymakers are quite conceited that the economic policies they make are ideal. Instead of thinking about economic development in a holistic and systematic way, they self-righteously divide the economy into different parts such as exports, state-owned economy, and social consumption and have even deceived themselves into believe that “everything is fine.” Under the situation of the bureaucratic system, society and the people have lost their political and economic autonomy. They are like diners at a restaurant who can only eat what the chef enjoys because the chef knows better than the diners what he likes to eat best.


Guided by this way of thinking, the power class is more concerned with “dividing the pie” rather than “making it bigger.” As the economist Andrei Movchan said, Russia as a social system does not create value, but extracts value by exporting raw materials and distributes that value domestically. Compared with the diversified economic development premised on competition, this distribution of benefits is easily in the hands of the ruling class, who benefit more in the process. This also leads to a situation wherein “preserving control over the value distribution process presupposes the suppression of independent value-forming centers, resulting in suppression of both entrepreneurial processes and also diversified economic growth.”


This analysis reveals, from another perspective, the political and social roots of the “raw materialization” of Russia’s economic structure, which has long been difficult to reverse.


Although the vast majority of the profits from resource exports are obtained by the powerful, because they can still receive a share of the profits for the time being and given their fear of being repressed for showing dissatisfaction, thus angering the powerful, the vast majority of Russians choose to accept their fate. The top power core is also staunchly opposed to any change, content with maintaining stability “in the Kremlin way,” attempting to meet challenges by increasing the rigidity of the system.


Proponents of vertical power systems argue that concentration of power increases decision-making efficiency. However, more than 20 years of Russian political and economic practice have shown that because the centralization of managers conflicts with the objective trends of social development, the result of the increasingly intensified vertical power system is low administrative efficiency. There is a negative correlation between power concentration and management ability. The concentration of power and resources often causes the internal power of the market to stall, officials in power are unwilling or do not know how to take responsibility, and more and more minority interests are ignored.


In the process of modern economic decision-making, structural policies should be the result of communication and continuous dialog between economic decision-makers and multiple participants in the economic system. However, the growing expansion of Russia’s vertical power system for more than 20 years has disrupted the channels of information exchange between the state and society. Obligations to superiors lead to the lack of a normal and timely information feedback loop in the decision-making process, and authorities at all levels are reluctant to understand the real situation and listen to expert opinions. When officials do their best to avoid angering their superiors, the phenomenon of “reporting good news but not bad news” becomes increasingly common. This completely distorts the normal decision-making process of making real and sober analysis, forecasts, and plans based on comprehensive, objective, and accurate data and assessments. Lack of feedback and communication, including with professionals, hinders sound economic policy development. In the officialdom culture where everyone is at risk, “inaction” has become the consensus of officials at all levels, and even the high-level political elites at the core of power are afraid to lose their official positions and thus stay silent, never daring to discuss issues openly. This phenomenon is very similar to what happened at the end of Brezhnev’s reign. In addition, the authorities widely use modern information technologies such as big data, video surveillance, and facial recognition to collect data and information on ordinary citizens, suppress social dissent, and prevent public protests. Instead of being a tool to help governments and society communicate with each other, new technologies are doing the opposite. Since the existing public administration mechanism operates on the will of the top power elites rather than on social feedback, it does not introduce modern technological solutions for the benefit of the masses, nor does it provide timely corrections to those distorted information used in decision-making.


Russian academics drawn different interpretations of the reasons for the erosion of the feedback loop in the decision-making process. Sergei Guriev emphasized that “deliberately destroying the feedback system is an active strategy of the authorities, because from the point of view of developing alternatives, the risks involved in the feedback system outweigh the benefits of receiving the feedback for the Russian authorities.” In his view, “Russian authorities are fully aware of all the risks that exist, but their interests are different from those of ordinary citizens, whose interests are contrary to the interests of the country’s development. Their goal is to retain power and be completely content with the status quo. In this sense, it should come as no surprise that their actions are aimed at strengthening repressive institutions, increasing scrutiny, investing in propaganda rather than human resources, and using foreign policy for internal purposes.” Mikhail Krutikhin’s view was relatively moderate, arguing that “it is impossible for the authorities to be unaware of the challenges. Th power elites are more like temporary workers, without a real long-term plan or strategic vision. What they are concerned with is how to allocate and monetize administrative resources.” Another risk, noted by Mikhail Dmitriev, is that “populism among the population may increase under the influence of a crisis, while development needs weaken. This will become an obstacle to the democratization of the political system and will limit the possibility of implementing economic policies aimed at development.”


Under the existing profit distribution pattern, the energy and military industries are not only important pillars of support for national fiscal revenue but are also core areas for attracting investment. Yet it is precisely the priority of these two industries that perpetuates the deformed structure of the Russian economy, leaving Russia behind in the pace of the new energy revolution and the fourth industrial revolution. As Mikhail Dmitriev put it, “adaptation to the conditions of the global energy transition is hampered by powerful interest groups representing the traditional energy and raw materials sectors, as well as by the increased operating risks of large and medium-sized companies. This will inhibit innovation and the development of new markets in non-resource sectors that need to grow faster to compensate for losses in traditional sectors of the Russian economy.”


More importantly, with the advancement of the global decarbonization process, the Russian energy industry will face increasingly severe medium and long-term challenges, which will put enormous pressure on national finances. Russian economic experts predict that even a modest global energy transition and decarbonization scenario will bring growing losses to the Russian economy over the next decade. With the implementation of the EU carbon tax, Russian exporters are losing at least $300 million to $5 billion a year. As the most important fossil energy consumption market shrinks, the Russian energy industry will lose its previous active position. By 2040, the reduction in demand for fossil fuels could cause serious problems for Russian state revenues, and tax incentives to stimulate oil and gas production and exports will not help. What follows will be a deterioration of the state’s fiscal position, and the problem of heavy domestic and foreign debt burdens of the 1990s will inevitably re-emerge.


Many experts believe that Russia’s technological backwardness is closely linked to a political system that is immune to innovation and prone to self-isolation. Mikhail Krutikhin believes that “the technological backwardness of protection under the conditions of parasitic natural resources will lead to Russia’s separation from the world economic system by the middle of the 21st century, and the population and economic situation will seriously deteriorate.” Oleg Yolkin emphasized that technological backwardness will also lead to difficulties in maintaining the balance of forces and the development of new weapons, estimating that after 15-20 years, Russia’s possibility of maintaining military-technical autonomy will be limited. “There is a threat of disruption of the military-technical balance between Russia and the United States and even China,” he said, because “the global trend in modern conditions is that the development of weapons is achieved by the transfer of technology from the civilian industry to the defense industry, not from the military to civilian industry as it was decades ago.”


Some Russian scholars believe that the political line of the existing regime tends to be conservative, which runs counter to the objective trend of global modernization and itself will inhibit development. In addition, it distorts the understanding of domestic and foreign affairs, triggering false or irrational responses to world trends. An important manifestation is the radicalization of Russia’s foreign policy after 2007, which was caused by various factors. In particular, the two wars against Georgia and Ukraine have caused a large-scale deterioration of Russia’s external environment. After the 1998 financial crisis and the 2008 international financial crisis, Russia also ushered in a “sanctions crisis.” In the foreseeable future, in order to boost the presidential election in 2024 and 2030, Russia may make major moves on the issues of the Russia-Belarus Union and Ukraine, so it is difficult to significantly alleviate this sanctions crisis. The closed investment, idea, and technology climate combined with tensions with the United States and the European Union have place Russia in a state of “self-isolation.” Furthermore, self-isolation exacerbates the already existing economic lag – without engaging in international cooperation, without access to advanced ideas and technologies, and without access to the experience and capital of developed countries, Russia is doomed to remain behind. Thus, a vicious cycle ensues — as the economy deteriorates, sanctions restrictions grow, and the threat of inflation returns.


In the social sector, weak economic growth since the 2010s, stagnant real disposable income, and low-skilled jobs have worsened the quality of human resources. In turn, low-quality human resources limit opportunities for economic development and increased labor productivity. In the next 10 to 15 years, the human resource crisis will become a major constraint on the development of Russia. Today, the phenomenon of Russians preferring secondary vocational education to higher education has emerged on a large scale due to low household income and the desire to earn money as soon as possible, which has alarmed and worried many experts. Evgeny Gontmakher called the challenge “a challenge that touches every aspect of Russian life and will lead to the degradation of all institutions, including the state.” Sergei Guriev said with concern, “The important competitive advantages that Russia once had — the education system, the respect for human resources — are constantly being undermined. Educated people are being lost, and universities and schools are falling behind their competitors. In 10 to 15 years, Russia will not have a clear source of economic growth, nor will it close the gap with the developed world.”


An important manifestation of the deterioration of human resources is the accelerated outflow of knowledge and wealth elites. According to a study published in August 2021 by a Russian research agency, more than 10 million Russians currently live outside their home country. Between 2000 and 2020 alone, between 4 million and 5.5 million Russian citizens emigrated abroad. The period from 2016 to 2019 was the highest period of overseas immigration, during which more than 300,000 people moved overseas each year, for a total of 1,186,138 people. The period from 2006 to 2011 saw the lowest numbers over the past 20 years, when only 698,070 Russian citizens left the country. The results of the researchers’ survey of 20- to 70-year-old Russians who immigrated to 65 different countries showed that 55 percent of the migrants were between the ages of 30 and 40, and they were 20 to 40 years old when they left Russia. The level of education of 92% of immigrants is at least tertiary, and 14% have advanced degrees. The main reasons for emigration range from concerns about improving economic conditions and giving future generations a better education, to dissatisfaction with corruption, lack of freedom, and the fear, danger, and despair of living in Russia. The survey showed that 79% of the respondents enjoyed life in their new countries, and they spoke highly of the security of the place of residence, social tolerance, and the stability of the new country. A large-scale and high-quality brain drain will undoubtedly be a huge loss to Russia’s economic and social development.


It is also telling who is willing to adapt to the current political and economic environment and stay at home rather than who leaves. In fact, those who choose to stay are basically those who are under budgetary planning (“eat imperial food”), most of them are people who prefer a low salary but a stable job and do not want to take the risk of starting their own business. This accounts for the millions of various high-level government officials, security employees, military, and police. In the current social environment, most Russians tend to choose stable jobs, mainly in the public sector. The increase in the number of social classes that depend on the state budget for their livelihoods contradicts the expansion of state power, while the increase in personnel under budgetary planning reduces the activity and labor productivity of small and medium-sized enterprises.


Due to the peculiarities of the Russian labor market, the younger generation in Russia are more likely to choose to work in relatively stable state institutions or large companies. Although many young people dream of working in the private sector or freelancing, due to the unparalleled dominance of the state sector, it is easier for them to be employed as police officers or property managers, and secondary vocational education is sufficient. This indirectly confirms the underdevelopment of the knowledge economy in Russia, because the existing economic structure and labor market do not require sophisticated knowledge and modern capabilities. In addition to the decline in population quality, the regional imbalance of human resources is also increasingly prominent. In such a vast territory of Russia, the population is mainly concentrated in the Greater Moscow region, the Greater St. Petersburg region, and the Rostov-Krasnodar-Sochi region. In addition, the sharp deterioration in poverty, inequality, property rights, and human rights also poses a strong constraint on the quality of Russian human resources.


As economist Oleg Yolkin concludes, “Russia’s loss of economic competitiveness on a global scale has political roots, and the main challenge facing the political system is related to weak economic growth. Russian political institutions have become rigid, in a state that does not allow for the creation of investment incentives, attracting foreign capital, protecting property rights, protecting competition, and ensuring equality before the law. Moreover, without this, it is impossible to expect economic growth.”


3. Development Prospects for Russia in the Next 15 Years


The development of any country depends not only on its own strategic planning, inner imagination, and policy declaration, but more importantly on a series of subjective and objective constraints. In the next 10 to 15 years, Russia’s development prospects will be affected by the interaction between the general trend of world development and the situation inside and outside Russia.


First, the world economic system is facing a new round of differentiation and reshuffling. On the one hand, with the accelerated development of the new global industrial revolution, whether a country can hop on the express train of this technological revolution and industrial revolution in general will largely determine whether it will be at the center or the edge in the global division of labor of the future. On the other hand, the international economic order is being reshaped. At a time when the WTO is facing many doubts, a variety of new regional trade and investment mechanisms, such as CPTPP, the new US-Canada-Mexico Free Trade Agreement, the Japan-EU Free Trade Agreement, and the US-Japan Free Trade Agreement, are being built at an accelerated pace, and it has not even ruled out that they will be integrated in the future to form a new cross-regional trade and investment arrangement of a series of emerging economies participating in a highly free zone centered around developed countries. Although Russia has led the establishment of the Eurasian Economic Union, its scale and quality cannot be compared with the above-mentioned mechanisms, and the connection between Russia and its dominant Eurasian Economic Union and the global economic system may be further loosened; in addition, the global product chain is also readjusting. However, due to factors such as economic structure, Western sanctions, and self-isolation, Russia cannot occupy a favorable position in the process of resetting the global production chain. To be sure, the above-mentioned changes will have a crucial impact on Russia’s position and role in the world economic system.


Second, the global energy transition is in full swing, and the traditional energy industry is facing multiple challenges. Traditional oil and gas producing countries and multinational companies are taking the initiative or being forced to transition. Although the “energy shortage” in Europe in the summer and autumn of 2021 has given Russia another strong performance opportunity, “even the greatest of mountains cannot keep rivers from flowing to the sea,” and Russia cannot reverse the general trend of global energy transformation. This will bring major challenges to the development of Russia’s energy industry, the national financial system, and even the stability of the political system.


Third, the international security situation has become tense, which not only brings opportunities for Russia to take advantage of chaos, but also brings many security risks. On the one hand, the situation in the Middle East and Central Asia has brought geostrategic opportunities to Russia. At the same time, Russia and the United States have restarted strategic stability negotiations and have attempted to jointly shape new international arms control rules. On the other hand, security risks have also arisen. For example, Russia faces multiple challenges from Turkey in the Caspian-Mediterranean region. Militarily, while Russia continues to use every opportunity to demonstrate its achievements in equipment modernization, the global military balance is changing at an accelerated rate. U.S. military spending is 10 times that of Russia. In the medium and long term, Russia will be unable to maintain the same strategic balance with the U.S. as during the Cold War. The reason why Russia keeps “showing its muscles” is precisely because it sees the severe challenges it faces in the future, and it is precisely to attract the attention of the United States, forcing the United States to sit down and negotiate with Russia, using the international arms control rules jointly negotiated by Russia and the United States to constrain the great-power military competition of the future.


Fourth, the strategic competition between major powers has been reactivated, and China and the United States have become the main axis of contradictions in the relationships between major powers. However, the relationship between Russia and the United States and Europe is difficult to improve in an all-round way. Russia also faces many challenges in the “post-Soviet space.” Ukraine, Moldova, and other countries are gradually drifting away from Russia, and other former Soviet Union countries have also grown alienated.


Fifth, Russia faces multiple internal and external pressures and maintaining the current regime in power for the long term is the core concern of the authorities. Creating the image of a “powerful country” is an important means to mobilizing populism and diverting people’s attention from economic recession and political rigidity.


Subject to the constraints of the above factors, Russia is likely to present the following development prospects in the next 10 to 15 years.


First, Russia’s deindustrialization process continued after the collapse of the Soviet Union, while it did not catch up with the fourth industrial revolution. With the global energy transition, the energy industry, an important pillar of economic development, fiscal revenue, and even political stability, is also facing multiple challenges. At the same time, Russia’s S&T potential is generally shrinking, its subsequent development momentum is limited, and its ability to participate in global economic, financial, and climate governance is noticeably insufficient. Russian economist Nikita Maslennikov predicts that, from a medium-term forecast, Russia’s macroeconomic growth rate will lag behind the world average by 50%-100%, which can already be called a “stagnation with signs of a structural crisis.” Coupled with the accelerating transformation of the global economy in areas such as the ESG agenda (ecological, social and governance standards for businesses), energy transition, global corporate minimum tax, new trade and investment agreements, “Russia is still on the world economic train, but rather than still sitting in coach, the country now only stands where the cars are connected.”


Second, political governance is showing signs of fatigue, and corruption among officials at all levels is on the rise. As the economic and financial resources tend to be tight, the struggles of various interest groups will show an upward trend. Political participation is more limited, and social apathy has increasingly become diffused. A recent report from the Carnegie Center in Moscow argues that low living standards, persistence of poverty, stagnant or declining real disposable income, and social inequality in a broad sense have contributed to the loss of vitality of Russian society, high levels of social apathy, reluctance to strive to improve ones social status, and insensitivity to the deteriorating external environment is becoming the “new normal” of Russian society, and social indifference will trigger other systemic crises.


Third, the human resource situation in Russia will further deteriorate. On the one hand, the trend of population decline has not been effectively controlled. On the other hand, the exodus of knowledge and wealth elites has accelerated. The ethnic and religious composition of the domestic population is also showing a trend that worries the Russian top brass.


Fourth, it is difficult to see significant improvement in the external environment. In recent years, although Russia has achieved specific geopolitical goals through military operations such as the Russo-Georgian War, the Crimea crisis, and sending troops to Syria, it has received strong sanctions from the United States and Europe, and most countries in the post-Soviet space are also alienated from Russia. This trend is unlikely to change significantly in the next 15 years.


Although Russia faces many challenges, it will remain a variable that cannot be ignored in the international system. In the next 10 to 15 years, there are three issues that deserve attention: First, Russia will actively use hybrid warfare methods to achieve its own specific geopolitical goals with the help of the chaos in the process of international and regional system transformation. The impact it brings is worthy of high attention. Second, although it is difficult to comprehensively improve the US-Russia relationship, Russia will still actively seek to improve its relationship with the United States, and actively mobilize the triangular relationship between China, the United States, and Russia, utilizing the Sino-US conflict to relieve its own pressure. Third, before 2024, Russia may achieve a true Russia-Belarus alliance, while creating an image of a strong country, stimulating the market for the 2024 presidential election. Moreover, before the 2030 presidential election, other “frozen conflicts” in the post-Soviet space are likely to flare up again.


From the perspective of history, the tension between great power ambition and lack of strength is a key factor in determining Russia’s development trajectory. Looking back on the past, great ups and downs are an important feature of Russia’s historical development. Every failure and setback in foreign expansion will trigger a major turning point in Russia’s national development. In the next 15 years, stagnation in the broadest sense — from economic depression to social indifference — is Russia’s most probable development prospect. It is basically certain that in the next 10-15 years, Russia will face multiple challenges from climate change, energy transition, and the new industrial revolution, and Russia’s position in the global supply chain and value chain will further decline. At that time, the reactionary force of the lagging economic development on domestic politics and foreign policy will be revealed. By 2036 or even 2030, crises such as energy transition, economic stagnation, political rigidity, and aging leadership may break out in a concentrated manner, and Russia may usher in major historic changes.


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Cite This Page

冯玉军 (Feng Yujun). "Political and Social Roots of Russian Economy and Prospects for National Development [俄罗斯经济的政治社会根源及国家发展前景]". CSIS Interpret: China, original work published in Eurasian Economy [欧亚经济], February 14, 2022

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