It seems probable that Russia will emerge from the Ukraine war as a stronger military power than before, with a relatively stable and growing economy and far from being the internationally isolated pariah, predicted by NATO three years ago. The end of the war is unlikely to lead to and end to the sanctions, so the process of redirecting its international trade from West to East and South and of changing its economic structure, reindustrialising and improving its technological capacity will probably continue.
There will be an immediate challenge for Russia when the war in Ukraine ends, as a transition from military to civilian production will be necessary. Historically, the transition from war to peace has often led to a recession in capitalist economies, as it was the case in Western Europe after World War II. However, Russia has the privilege of being a major exporter of oil, gas, minerals, grain etc., which under normal conditions implies that the Government has a considerable financial capacity that potentially makes it possible for it to manage the transition from war to peace without too much economic pain. When the war ends, a large number of soldiers and other military staff will have to be demobilised, and even if production of military equipment will continue for a period to replenish stocks and fulfil postponed export orders, the orders for the military industries will no doubt diminish. So the task will be to transfer the liberated personnel and financial resources to production of goods for civilian use. Taking into account the present lack of manpower everywhere in the economy, the absorption of the demobilised should not be a too difficult task, but it will of course require investment in retraining. The fact that State-owned enterprises, many of them under the Rostec Corporation, are responsible for the bulk of arms production and most of them produce civilian products too (for Rostec as a whole it is around 46%), they will no doubt be tasked with expanding the share of production of civilian use. Most of the destruction in Ukraine has taken place in Donbass, not in Central and Western Ukraine, and Russia will have to make heavy investments in reconstruction, as it has already done in Mariupol. To this comes that there are ongoing and planned major national infrastructure investments projects that will keep up demand from the public sector (expansion of the rail and motorway network, construction of high-speed railways of which the Saint Petersburg-Moscow line is presently under construction, expansion of ports and airports, and so on). So a post-war economic crisis is not very likely.
State-owned Rostec Corporation is responsible for the delivery of 80% of the arms for the war in Ukraine, but almost half of its production is actually civilian products, among these commercial aircrafts (on the photo the MC-21 with domestic PD-14 engines - almost all foreign components have now been substituted with domestic ones, and the aircraft is still in process of certification).
But it will be a changed society that comes out of the war, as the sanctions and Russia’s response to these have had a profound impact on the society and the leading classes in Russia (often called the “elite”).
In the nineties, President Boris Yeltsin’s criminal privatisation of State-owned assets led to the formation of an oligarchic class. This new class was principally interested in assets that could produce quick profits, so they went for the natural resources: oil, gas, minerals and so on. They also grabbed industrial productive assets but few showed any interest in developing them, so they were used as a short-term source of profits and left to decay. Thousands of productive enterprises were simply stripped of their assets and closed down. This new class wielded enormous political power under Yeltsin, but unsure of what the future would bring, many of them took their capital with them and settled in the West, preferring London, Israel and Cyprus, and they made sure to get a second passport, just in case. Their main source of income continued to be their companies in Russia, which in many cases were now formally owned by holding companies established abroad. These oligarchs became famous for their lavish mansions, mega-yachts and sumptuous life style, while their workers in Russia received a miserable pay. Russia depended in those years mainly on exports of natural resources and imports of everything else.
Those were the happy days. On the photo, Privatiser-in-chief Anatoly Chubais is shaking hands with IMF director Michel Champdessus in 1997. They carried out what has been named the ‘robbery of the century’, where Russia’s wealth was grabbed by a small group of people under the benevolent eyes of the Western Powers. After leading state-owned company Rosnano into bankruptcy, Chubais is now in self-imposed exile in Israel, where he has opened a think-tank. Most of his senior staff in Rosnano is either detained or on the run, accused of embezzlement. For some strange reason there is no order of arrest against Chubais himself (maybe his old friend Vladimir Putin is protecting him?).
During the first decade of this century, some changes took place. Vladimir Putin, who took over from Yeltsin in 2000, at a meeting basically told these oligarchs that they could keep their ill forgotten fortunes, but they should keep out of politics (implying that they would be reduced from real oligarchs, which means wealthy and politically powerful, to just wealthy). The remaining state-owned enterprises, many of them in deep financial trouble, were concentrated in state corporations: Rostec, Rosatom, Rosneft, Gazprom, Roscosmos, Rosetti and so on, and most of these are now profitable (Roscosmos had problems in 2024 after losing its Western customers). These state corporations are now an important part of the Government’s power base. Since 2022 the wealthy Russians living outside the country have been forced to either redomicile their companies to Russia, or sell them to residents in Russia. A number of them have distanced themselves from Russia and renounced their Russian passport, and many of them are now living in Israel.
The industrial policy implemented in Russia since 2014, and particularly since 2022, has implied the appearance of a new class of capitalists with little relation to the old oligarchs, and the weight of the small and medium enterprises in the economy, while still low, has increased to around 20% of GDP and is projected to increase substantially in the future. A whole new high-tech sector has appeared, including IT and e-commerce companies, and Russia now has newly coined billionaires owning firms as Wildberries and Ozon (‘Russian Amazon’), Yandex (‘Russian Google’), Telegram (‘Russian Whatsapp/X’), C1 (‘Russian SAP’) and the like. A new group of industrialists has appeared, linked to the Russian home market and dependent on subsidies from government programmes to stimulate import substitution and ‘technological sovereignty’, so their interests are not identical to the old oligarchs. They actually depend on the present industrial policy to continue, at least until they have consolidated their businesses and are ready to withstand increased foreign competition.
Among the new tech billionaires is Tatyana Kim. She used to be an English teacher, but during maternity leave she started an on-line retail seller Wildberries, which has since grown into a multi-billion dollar business (‘the Russian Amazon’). Photo from Wikipedia.
It is doubtful whether this change in policy and hence in the composition of the leading classes could have taken place without Western sanctions. The Western countries have actually done Russia a favour by going after the wealthy Russians living in the West and confiscating their assets, as this helps reducing the capital flight (the money is now less insecure at home than abroad). The discrimination against all things Russian in the West has also helped Russia reduce the ‘brain-drain’ as it makes it less attractive for scientists and tech-specialists to stay there, and at the same time the growing Russian economy opens opportunities for them at home. Apparently, quite a lot of them are now returning to Russia.
Limiting corruption will be a challenge as the industrial policy, which relies heavily on subsidies, creates a lot of opportunities for shady deals. There is presently an avalanche of high-profile corruption cases being investigated and brought to court, but it is difficult to say if that is because corruption has become more wide-spread, or because the Government is getting tough on corruption. There have also been several cases of revision of the legality of earlier privatisation which have resulted in renewed nationalisations – or deprivatisations.
There have been several high-profile corruption cases in Russia recently, among these the Deputy Defence Minister Timur Ivanov (on the photo), who has been detained accused of bribe-taking. It is not clear whether this is because corruption is increasing or because the authorities are making more efforts to clamp down on corruption.
Once the war ends, powerful groups in the country, both within the business sector and the State bureaucracy, will no doubt lobby for a return to a rapprochement with the West, return to neoliberal policies and a prioritisation of natural resource exports, which worked wonderfully well for them in the past. But that would imply that much of the investments made in ‘Technological Sovereignty’ would be lost, and for an important part of the workers and the new class of capitalists, the lifting of Western sanctions is more a risk than an opportunity. It will be interesting to see how that plays out. Of course, President Vladimir Putin will be the great arbitrator in this internal power struggle, and it seems he is unwilling to go back to the old policies, which he earlier favoured, even if sanctions are partially lifted. So long as he is around, the present course will probably be maintained.
As a means to renew the Russian “elite”, the Government has started a programme called “Time of Heroes”, administered by the Higher School of Public Administration, RANEPA. The programme recruits distinguished soldiers and war veterans for training and education with the aim of subsequently promoting them to top jobs in the administration and public enterprises. According to President Putin, ‘the (old) elite has lost credibility because of individuals who had hoarded wealth for themselves during the economic chaos of the 1990s’. Who knows how that will work.
What happens when President Putin is not around any more, is of course an open question. My guess is that the majority of common people in Russia will not be keen on returning to Yeltsin-style neoliberalism, and that tech-oriented government officials and leading cadres of the state-owned enterprises together with part of the new capitalist classes linked to the domestic industrial and technical development will work as a countervailing power to the old oligarchs. But it is of course only a guess.
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I have been writing on the Russian economy since 2014. I am not an expert on Russia at all, but because of all the obvious nonsense that purported experts have been publishing in mainstream media, I have felt the need to read what better informed people are writing and look at the data myself. To read earlier articles on the Russian economy, click on the links below.
January 2025: How (not) to control inflation in Russia
January 2025: Is Russia’s economy finally collapsing?
July 2023: Is the Russian economy really a mystery?
October 2022: Why does most of the world not participate in the sanctions against Russia?
August 2022: Can sanctioned countries survive?
October 2017: The dying bear.
September 2017: The imminent demise of Russia.
October 2015: Putin – the man we love to hate.
September 2014: Will sanctions hurt Russia?