Nigel Gould-Davies
Associate Fellow, Asia Programme and Russia and Eurasia Programme
What was conceived as a response to the West highlights the country’s weaknesses and strategic tensions over how to approach the global economy.
Sergei Glazyev and Vladimir Putin. Photo: Getty Images.Sergei Glazyev and Vladimir Putin. Photo: Getty Images.

On 13 May, Vladimir Putin approved a new economic security strategy for Russia, the first since 1996. The revival of this Yeltsin-era tradition was conceived in response to the renewal of Western sanctions; Putin noted that ‘even very recently it seemed such documents were not needed, but judging by what has happened we must think about all threats’.

But the strategy has ended up focusing on wider factors, notably Russia’s persistently sluggish growth since the 2008 global financial crisis, and the ‘exhaustion of the resource export model’. In the process, it has become a critique of Russia’s own political economy.

Significance

The strategy is clearest and most trenchant in its diagnosis of the economic challenges and threats that face Russia. For while it mentions external challenges – including discrimination against Russian exports, sanctions and global financial instability – it puts greatest emphasis on the domestic sources of Russia’s weakness: lack of competitiveness, low investment and failure to innovate. The stated causes include, among others, high levels of criminality and corruption, excessive administrative barriers, ineffective state administration, a large shadow economy, lack of long-term investments, decline in the quality of education, poorly-developed market infrastructure and lack of participation in global supply chains.

The strategy also draws attention to long-term trends moving against Russia: changes in the global structure of energy demand and supply, exhaustion of Russia’s producing oil and gas fields, the absence of Russian representation among global companies outside the natural resources sector, the country’s inadequate labour resources and the competitive global market for talent.

Remarkably – given its prominence since 2014 – ‘import substitution’ is not mentioned at all (the strategy refers just once to ‘overcoming critical dependence on imported supplies’, a much weaker formulation). Rather, the strategy suggests that deeper engagement, on better terms, with the global economy is needed to drive higher growth (outlining the strategy, Putin said Russia must achieve a higher growth rate than the global average by 2020).

But the strategy is selective about this engagement. It calls for deeper co-operation, in particular, with regional groupings such as the Commonwealth of Independent States, the Eurasian Economic Union, the Shanghai Cooperation Organization and the BRICS. Significantly, the West is not mentioned at all, despite the fact that the EU remains overwhelmingly Russia’s most important economic partner.

Underlying many of these weaknesses is a failure to innovate and develop new technologies. There is an echo, no doubt unintended, of the decline of the Soviet command economy in the 1980s: failure to respond to a new scientific-technological revolution causing Russia to fall further behind the rest of the developed world.

Implications

Thus, the strategy’s concept of ‘economic security’ has come to focus less on defending sovereignty against foreign threats than on maintaining Russia’s strength as a great power by creating the conditions for it to compete more effectively in the global economy. Yet it seeks to do so even as relations with its major economic partners remain constrained by sanctions and distrust.

Since Russia’s economic insecurity lies mainly in its own domestic policies and institutions, the solution is to introduce reforms that will tackle the chronic inefficiency and corruption and other disincentives to investment and innovation. This is the wish list of familiar ‘tasks’ (the strategy lists 78 of them), most of which have been discussed throughout the Putin era. They include educational reform, prevention of artificial bankruptcy and other forms of illicit corporate raiding, better management of state assets, prevention of money laundering, better property rights, a more attractive investment climate (but one with more effective control over foreign investment in strategic sectors), and so on. Left unsaid is why they have not been achieved, or even in many cases seriously pursued, what the prospects are for doing do so now, and what obstacles – including from powerful interests – stand in the way.

The strategy thus reflects the latest shift in Russian thinking since the break-up of the Soviet Union over how and on what terms to engage with the global economy. On the one hand, a ‘securitization’ agenda seeks to protect Russia from pressure or manipulation of interdependence by hostile foreign powers. On the other hand, more liberal voices recognize that competitiveness and engagement are essential for Russia’s own long-term prosperity. The first approach is well represented in the Security Council that commissioned the new strategy, and the second in the Ministry of Economic Development that drafted it.

These tensions also lie at the heart of differences now being publicly aired  between teams of advisers tasked with drawing up alternative reform plans to be implemented after the 2018 presidential election. Ex-finance minister Alexei Kudrin leads one group. Deeply concerned about Russia’s growing backwardness, he recently declared that ‘our entire foreign policy should be subordinated to the task of technological development’. Others, notably Putin’s economic adviser Sergei Glazyev, have pressed more isolationist and domestically-oriented proposals. What Putin selects from these, and other proposals, is likely to form an important part of his re-election programme.

Throughout his presidency, Putin has sought to manage the tension between different approaches to the global economy on which Russia remains heavily, and inescapably, dependent. They cannot be resolved while Russia seeks to be both a prosperous country and a revisionist great power. On the contrary: as Russia’s relative economic position weakens, this tension will only deepen.

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