Russia’s Economic Future: Part 2
Part C. Later Putin Period
- Post-2014 Invasion of Crimea
The impact on Putin’s psychology of his increasing time in power and of rising tensions with the West led Putin to wonder about his approach to political-economic issues.
The example of China has increasingly suggested to many people – not only Putin — that it is possible for a government to exercise tight political control while allowing “business” to flourish, and this has likely impacted on Putin’s thinking. While there are a number of factors underpinning the Chinese performance that are unlikely to be repeated in Russia – such as the level of economic development, the focus on exports, and the size of its domestic market – elements of the Russian bureaucracy seem to have convinced themselves that technological and economic sovereignty is an aim that can be successfully achieved to a large degree.
In 2016 Alexei Ulyukaev, Minister of Economic Development, was arrested (and later jailed) for taking a bribe in relation to state controlled Rosneft obtaining a stake in Bashneft, a large “privatised” oil producer. The arrest of Ulyukaev — which Rosneft CEO Igor Sechin carried out apparently with the help of FSB officers seconded to Rosneft — was seen by many people as “the privatization of elements of the state power apparatus by a political player who used this resource to attack a federal minister (ie. the state) for his own purposes and interests”.[1]
Whatever the exact truth of the case, a clear message was sent that people close to Putin — as is Sechin — have a some immunity if they can claim to be acting in the state’s interests.
Between 2015 and 2021, the IT sector in Russia was responsible for more than a third of the growth in GDP, even though that constituted just 3.2% of total GDP.[2] After the invasion of Ukraine, about 50-70 thousand IT specialists left Russia as a result of the first wave of migration, the Russian Association of Electronic Commerce (RAEC) estimated.[3] Other estimates are that up to 10% of employees of IT companies left the country during two waves of migration and did not return.
Other estimates are that “about 100 thousand IT specialists are now outside Russia. At the same time, 80% of them continue to work for Russian companies while in friendly countries.”[4]
The Ministry of Digital Development reportedly believes that a total ban on such remote work “may lead to a slowdown in the development of Russian digital platforms and solutions, which may ultimately have a negative impact on their Russian competitiveness”.[5] The Ministry has subsequently claimed that, based on data from SIM cards, up to 85% of those who fled have returned to Russia.[6] To keep software developers in the country, the Ministry proposed a package of measures, which, among other things, included tax and loan benefits for IT companies and their workers and deferment from conscription for military service.[7]
According to estimates by demographer Alexei Raksha, between 550,000 and 800,000 Russian citizens may have left the country in 2022. Analysts at Alfa Bank have placed the wave of emigration to be around 1 million people.”[8] Russia’s Economic Development Ministry in September estimated a decrease in the workforce — or citizens between the ages of 18 and 65 — of 600,000 people. “Russia has lost over 23% of top programmers; state and private clinics have reported the departures of highly skilled doctors, and a survey by the Gaidar Institute among top managers and business owners in the industrial sector revealed a severe shortage of skilled workers.”[9]
Some reports say the waves of emigration “personally affected” Putin. “Those whom he had been counting on mobilizing were leaving the country without hesitation, and the authorities, observing the events in real-time, did not have the legal means to stop it.” “The exodus infuriated [Putin]. He gave instructions to prevent similar situations in the future and to cultivate patriotism in people.” The response was the law on digitized summons which creates a registry of citizens who are not allowed to leave Russia and significantly restricts the rights of draft dodgers, including a prohibition on selling property and driving a car.[10]
Sociologist Lyubov Borusyak, who has been researching Russian emigration since the invasion of Ukraine, said many of those coming back are emigres from the second wave, which was sparked by Putin’s mobilization for the war in Ukraine. “The main reason they return is the lack of employment and money. Mostly, they departed spontaneously and in a panic,” she said. “People without a financial cushion had to return.”[11]
I spoke to quite a few young people before I left Russia in October 2022 and it was common to be told that they would like to leave but did not have enough money to do so.
In March 2022, the Kremlin blocked access to foreign social media platforms such as Instagram, Facebook, and Twitter, a move that helped keep Russians in an information-controlled bubble,[12] although many – like me while I was in Russia until October – used VPNs. Controlling online content is not the only way Russia wants to exercise digital sovereignty. After sanctions were introduced, the government started urgently promoting the goal of building up an entire self-contained tech ecosystem, encompassing everything from services and financing to hardware and supply chains. [13]
In addition to military censorship, Russia imposed restrictions on the release of economic statistics, removing an unprecedented amount of data from public view, including: information about international reserves; international trade data; export and transportation of energy resources (primarily oil and gas); and electricity production. “Banks were no longer obliged to disclose their balance sheets and state companies (and many private ones) were permitted to conceal information about management structures and transactions. Finally, the Finance Ministry ceased publishing detailed data on the national budget.”[14]
Official directions on the ability and obligation of companies to publish information on their activities are quite complex and has been subject to several adjustments. On 6 July 2023, Kommersant reported that the government has “extended the regime of secrecy in the corporate reporting of companies in order to reduce sanctions risks. New rules for the disclosure of sensitive information by issuers deprived them of the right to completely refuse to publish data, but significantly expanded the non-disclosure regime.”[15]
Kommersant reported that the head of the Central Bank, Elvira Nabiullina, has repeatedly called for the restoration of the publication of data by issuers, at least with exceptions. “Very important for investments is accessible and high-quality information about issuers and instruments. There will be no investment without disclosure. Therefore, we need to restore the publication of reports. It is important that ‘under the guise’ of the risks of sanctions do not hide the information that is needed for the development of the market.”[17]
- National Projects
Following a May 2018 presidential decree[1], early 2019 saw the release of a document showing total expected expenditure equal to about 3% of GDP annually in the 2019-2024 period on various sectors of the Russian economy, including healthcare, education, the demographic situation (including increasing the fertility rate), culture (including strengthening Russian civic and national identity feelings), roads, city living conditions, ecology, science, promotion of SMEs, the digital economy, labour productivity, and international economic cooperation and exports. In addition to these twelve National Projects, there is a another concerning very large-scale modernization and expansion of large infrastructure such as pipelines, transport and ports (especially in the Russian Far East).[2]
The early 2029 document specified spending “targets and key results”. It was a generally well-prepared document with laudable aims, although it suffered from the typical Russian tendency to put specific target numbers on policy goals rather than explaining the rationale for them and the general principles at stake.
Again – and typically – detailed “KPIs” were prominent. These included for such things as the number of articles by Russian researchers published in international scientific journals and the proportion of Russian scientific researchers aged 39 or less, 900 domestically produced pianos to be provided to children’s art schools by 2024 and 140 new war memorials, specific numerical export targets for various industry sectors (for example, increase in agricultural exports to $45 billion, and “service” exports to $100 billion) etc.
The “digital economy goals and targets” included expenditure of 1,634.9bn rubles in the period from 1 October 2018 to 31 December 2020. Of this, 1.7bn rubles was earmarked for “regulation of the digital environment”, 772.4bn rubles for “information infrastructure”, 143.1 rubles for “human resources for the digital economy”, 30.2bn for “information security”, 451.8 for “digital technologies”, and 235.7bn for “digital public administration”.
Furthermore, the cost of developing the digital economy as a percent of GDP is specified for 2019, 2021 and 2024, with a breakdown into several types of expenditure. By the end of 2024, 120 thousand people are to be admitted into higher education information technology programs and 10 million people are to receive training via online digital development programs.
Also specified is 1350 “commercially orientated scientific and technical projects in a specified field will receive grant support by the end of 2021. And there are specified 2021 and 2024 numerical targets for such things as “share of households with broadband access to the internet”, “share of “socially significant infrastructure with the capability of connecting to broadband internet”, “Russia’s share of the world capacity for data storage and processing services”.
Implementation of the National Projects[3] initially was slow and erratic according to the Russian Accounts Chamber.
In July 2023, Prime Minister Mishustin told Putin that “the average level of achievement of national projects’ indicators is 98.95%.” The assessment methodology is based on three principles: all events spelled out at strategic sessions as ways of implementing national projects, finances and feedback on national projects, Mishustin noted.”[4]
I have no evidence to the contrary, but this extremely high percentage is extremely suspicious – even laughable! The national projects are highly diverse and measurement of “achievement” would be incredibly complex. Mishustin may be deluding himself because he has previously apparently pushed the idea of using Artificial Intelligence (AI) to do this based on project KPIs – something that I wrote about in December 2020.[5]
Also in July 2023, Kommersant reported that during a Forum of Future Technologies “Putin proposed to prepare a new national project for the formation of a data economy for the period up to 2030″. Putin “explained that it was not only about combining existing tools to support the development of the digital economy, AI and high-tech projects, but also about building a ‘holistic mechanism’ for the creation and implementation of advanced developments.”[6] “The national project should cover all stages of data life: collection, transmission and development of communication systems, storage, protection, standards and protocols for working with data, processing and analysis.”[7] “A part of the project will be ‘road maps’ on quantum communications and computing.”
According to the same Kommersant article, Deputy Prime Minister Dmitry Chernyshenko later explained that the project is “practically insurance that scientific developments will continue in the absence of the large guaranteed demand now” for them.[8] “It should be noted that the increased interest of the authorities in ‘quanta’ can be explained by the impetus that they are able to give to digital development. So far, the main customer of research is the state, according to Chernyshenko.”[9]
Pavel Rudnik, Deputy Head of the HSE Institute for Statistical Research and Economics of Knowledge, explained to Kommersant that “the main issue of further digital development is still the problem of data”. “Promising digital technologies, including artificial intelligence and the Internet of things, are based on data, the widespread introduction of innovations involves the constant production and circulation of large amounts of information, and there are tasks in this area, requiring state intervention: it is necessary to form mechanisms for interaction between producers and consumers of data, including regulating the processes of buying and selling, exchanging data arrays and enriching them by market participants.”[10] “The country has already created an extensive ICT infrastructure, and the removal of barriers and restrictions in the field of data will provide conditions for the realization of the accumulated potential.”[11]
As I noted earlier, these is now a tendency to restrict availability of much official and some non-official Russian data.
According to Kommersant, “the director of ANO Information Culture, Ivan Begtin, in his Telegram channel noted that the president did not say anything about the openness of data.”[12] “A clear focus on the data economy without openness is a ‘play’ towards large corporations that negotiate with the state on the use of citizens’ personal data, and, conversely, an increasing collection of information about citizens by the state through corporations.”[13]
- Information Control, Education and Research
Informal censorship of Russia television – in terms of who could appear and what topics could be covered – began before the 2014 annexation of Crimean and gradually expanded to cover all information and social media forms following the February 2022 invasion of Ukraine. Referring to the “special military operation” as a “war” became a crime, and the effect on the way people spoke – including in my private conversations as I was still living in Russia at that time – and communicated in text messages was almost immediate, such was the accumulated fear of Putin and the Russian government.
Ben Aris of BNE wrote a very good article in August 2023 about the working situation of Russian journalists.[1] He quotes the editor of Kommersant newspaper: “It’s not a question of pushing press freedoms outwards, but of preventing them from shrinking inwards.” Aris also generally praises Kommersant’s attempts to be objective in a difficult political environment, and I agree with what he has written – and I have quoted many Kommersant articles in this report.
Aris notes that the most Russians get their news from television, and newspapers are not the main target for information control.
A notable step along the way to information control was the Yarovaya Law which from July 2018 required “online data distributors” (ie messenger and social media providers) to record information on all types of communication and to store that information in Russia.[2] But the technology to do this had been progressively put in place at least as long as Putin has been in power”.[3]
According to Gavin Wilde of the Carnegie Endowment for International Peace (CEIP): “The Yarovaya Laws forced telecoms companies and ISPs in Russia to retain all content (voice, text, video, and images) for six months and metadata (to, from, timestamp, and location indicators) for up to three years, as well as to make this data available to the authorities upon request. The logistical costs of adherence to these regulations were to be borne solely by service providers. In 2020, the FSB started demanding unfettered, remote access to all user data without exception, as well as automatic decryption of their communications.[4]
There have been reports that “Western sanctions and export controls put in place after Russia’s invasion of Ukraine have succeeded at blocking the Russian government from purchasing the technology it needs to prop up its sweeping surveillance of internet traffic and phone calls.”
According to CEIP,[5] “Russia has intensified its grip on domestic internet service providers (ISPs) in the wake of the invasion, and by summer 2022 the Russian Digital Ministry moved beyond fines and began stripping ISPs of their operating licenses if they were found to be out of compliance.” “Moscow’s shift from attempting to completely block the popular Telegram messaging app in 2018 to eventually adopting its widescale use by 2023 suggests some ability to decrypt traffic — either with or without Telegram’s assent.”[6]
According to the CEIP paper, while equipment from Nokia and Ericsson is already in place it can’t be serviced and updated, making it increasingly ineffective.”[7] “Nokia and Ericsson together had serviced nearly half of the total cellular base stations in Russia.”[8]
“Tech companies likely make up about 20% of the Western entities that withdrew from Russia in the wake of the war” and that “among other things, killed the Digital Ministry’s plans for a 5G rollout due to the lack of Western equipment.”[9]
I have previously written about Russia’s 5G prospects and highlighted the fact that Russian software abilities far exceed the country’s ability to produce 5G hardware.[10] “More recent signs point to this reality, as both the Digital Development Ministry and industry insiders acknowledged in spring 2023 that a broad-scale 5G rollout across Russia is unlikely until at least 2030 — blaming a lack both of foreign-made componentry and of domestic production capacity that might compensate for this.”[11]
For example, Kommersant reported that foreign-made computing servers comprise half the current Russian market. Dependency on China would bring its own risks, as outlined in a recently leaked memo from Russia’s Digital Development ministry to national security officials dated summer 2022.[12]The document warned of dangers not only to the functioning of critical information infrastructure, but also to the viability of homegrown tech firms, and suggested curbs on imports of Huawei and other Chinese equipment. Western sanctions appear to have dissuaded Chinese tech companies ike Huawei and ZTE from supporting Russia.[13] While Huawei (unlike Ericsson and Nokia) will continue to maintain and upgrade installed equipment in Russia, it has restricted Russian operations and halted new orders.
On the education front, Putin has increasingly sought to introduce nationalism and anti-Western thought into the system. Sitting before a group of children on their first day back at school in September 2022 in the Russian region of Kaliningrad, Putin set out the importance of Moscow’s “special military operation”, saying: “An anti-Russian enclave has begun to be created on the territory of today’s Ukraine that threatens our country. Our guys fighting there are protecting both the inhabitants of the Donbas and Russia itself.”[14]
The address by Putin was part of the first “important conversation” program to take place in Russian schools after the concept — designed to foster patriotism — was earlier announced by the Education Ministry. “Important conversations” include discussions about the “special military operation” in Ukraine as well as the virtue of “dying for the motherland,” Education Minister Sergei Kravtsov told a conference.
According to the “Important conversations”[15] internet site, “every Monday in all schools and colleges across the country begins with ‘Talk About the Important’ classes. The main topics cover key aspects of human life in modern Russia. A set of methodological materials for teachers is advisory in nature.” “Russian 3rd grade students will be told that ‘the happiness of the motherland is more precious than life’, and that ‘it’s not scary to die for the motherland’ alongside learning about national heroes like Soviet cosmonaut Yuri Gagarin.”[16] “Additionally, the Education Ministry materials suggest older age groups, starting with fifth grade, will be taught directly about the ‘special military operation’. This will include discussion about the ‘heroes’ of the special military operation and how ‘military assistance from the collective West increases the number of victims.”[17]
The “heroes” are regularly invited to schools to talk about patriotism. To boost morale, school and kindergarten administrators line up and lay out children in the form of the letter Z, the symbol of the Russian war against Ukraine. Schools are installing “hero desks” in classes featuring images of Russian soldiers who lost their lives in Ukraine.[18]
There is a new set of history textbooks for 10th and 11th graders, with that for the latter students containing an entire section is devoted to the “special military operation”.[19] Titled “Russia today: The special military operation”, it covers topics such as relations between Russia and the West in the 21st century; “pressure from the US”; “the falsification of history”; and the “rebirth of Nazism”. Among other things, the book says the idea of “destabilizing the situation inside Russia” is the “idée fixe” of Western countries.[20]
The text includes a quote from Putin in which he says that Russia launched the “special military operation” in order to “end the hostilities in Ukraine.” It also includes a photo taken in the Kremlin after Russia’s annexation of Ukraine’s partially occupied territories as well as one of Nurmagomed Gadzhimagomedov, the first Russian to be posthumously named a Hero of Russia.[21]
The textbook also covers the withdrawal of Western companies from Russia, saying: “Such unique times are rare in history. After the withdrawal of foreign companies, many markets are open before you all. That means you have fantastic opportunities for careers in business and for your own startups. Don’t miss this chance. Today’s Russia truly is a land of opportunities”.[22]
The new history books will be used in Russian schools starting on September 1, 2023. According to Kravtsov, new history textbooks will be issued for 5th–9th graders next year.[23]
“Students at Russian universities will be required to attend mandatory lectures on state ideology – “Foundations of Russian Statehood” – from September 2023. The lecture content is being developed under the supervision of the Kremlin’s first deputy chief of staff Sergei Kiriyenko and will aim to teach students ‘where Russia is headed and why”.[24] One of the authors of the “Foundations of Russian Statehood” project, Andrei Polosin, has recently been active in explaining the idea to Kremlin officials, deputy governors, and political scientists.[25] “The West is rotting, it has tried repeatedly to weaken Russia, but its time has passed.” “We [Russians] have a great future, a rich history and culture. We must take advantage of this moment of crisis and get everything from it.”
The ideology course will consist of “sections on Russian history, Russian culture, Russian foreign policy, and Russia’s ‘future image’. Each section will be assigned to a state-aligned expert in the discipline, such as the director of Russia’s State Hermitage Museum and the head of Russia’s Council on Foreign and Defense Policy, Sergei Karaganov. Students of history and political science will reportedly be required to attend the ideology classes throughout their studies, while those studying other social sciences and humanities disciplines will take the course for at least a couple of years. All other students will be expected to attend one year of ideology studies.”[26]
“As part of the university subject, students will be taught about the values supposedly intrinsic to Russian civilization. Apparently, a human is equivalent to creation, family to tradition, society to agreement, the state to trust in the intuitions of government, and the nation to patriotism. The course’s authors are also convinced that Russians believe ‘the authorities are competent and effective’, ‘the authorities and society as a whole are on the same side’, ‘there is trust in elections’” and “it’s important to ensure natural population growth”.[28] “The presentation of the course included a list of values supposedly inherent to all Russians, including service, sovereignty, and stability.”[29]
“In a bid to give their efforts some academic weight, the authors of the Kremlin’s faux ideology claim that their conclusions were reached as a result of real research. That isn’t the case: instead, they used brainstorming sessions attended by officials, teachers, and political pundits, and focus groups of pro-Kremlin students.”[30]
I find it hard to comprehend to what degree various officials and analysts actually believe these education themes and to what degree they have decided to conform for reasons of ambition and/or fear. In my view, most of what is related above is extremely ignorant thinking – and verges on pathological -and when combined with ideas of technological sovereignty will have a very significant adverse effect on Russia for many years.
A2022 paper joint authored by Andrey Klepach says: “Despite certain positive results, in general, the sphere of technology development and especially science is the Achilles’ heel of the modern Russian economy.”[31] “Russia is lagging behind developed countries in terms of R&D funding, patent and publication activity, and the number of research personnel is declining.”[32] “The problems that had accumulated over the years sharply escalated under the conditions of the hybrid war launched by the west against Russia, including actions to isolate the Russian scientific community from world science and a technological blockade.”[33] “The lag behind developed countries in the field of science and technology is quite large, which carries the preconditions for a ‘brain drain’.”[34] “The structure of scientific publications, as well as patent activity in Russia, is largely concentrated in the fields of mathematics, physics and engineering, in contrast to medicine and information technology, which are a priority in the West.”[35]
Klepach and his co-authors say that Russia has a “high share of public funding” of R&D “compared to Western countries”.[36] “In terms of absolute volumes, both state and, even more so, private funding per employee or per key area of research and development is extremely small. At the same time, Russian private business with large incomes, unlike Western countries, is concentrated mainly in the fuel and energy and raw materials sectors, where the relative level of R&D expenses in the West is also low.”[37]
Klepach and his co-authors say that “in contrast to Soviet times, the coordination of scientific and technological developments in the civil and military spheres is low.”[38] “The overall structure of science expenses in Russia is close to the similar structure in foreign countries. However, it is the sphere of applied research and development that is the most capital intensive, while in Russian conditions it is here that the main deficit of investments and equipment is concentrated. At present, the weakest link in the structure of the Russian scientific and technological complex is the link that ensures the transition from the stage of research and laboratory samples to pilot plants and small-scale production, refining and scaling new technologies.”[39]
“The system of innovation development institutions that has developed in Russia is mainly focussed on a variety of startup support mechanisms: the Innovation Promotion Fund, the Skolkovo Foundation, Rosnano, National Technology Initiative (NTI), RVC, etc. The activities of development institutions, for all their importance for the development of innovations, are characterized by limited scientific, especially the fundamental, component. Domestic startups in the overwhelmimg majority do not develop, but use technologies of varying degrees of readiness for the commercialization of products based on them.”[40] “The range of technologies developed by state-owned companies is very wide and is not inferior to the level of development in the leading foreign peer companies. However, in terms of microelectronics technologies, space and energy technologies, there is a significant lag behind the world level.”[41]
- State Control of the Economy
Russian government control – and even ownership – of the economy will be tightened by the combination of increased spending for the war effort, the push for government directed economic/technology sovereignty, and the withdrawal of foreign companies and the forced takeover of many of their Russian assets.
The extent of this control before the invasion of Ukraine has been open to much debate, and depends significantly on the methodology used for calculations. According to a recent “Russia Matters” article, “respected international organizations and researchers have offered plenty of competing assessments, mostly in a range from 25 to 55 percent, and several experts queried by Russia Matters agree that the most realistic numbers they’ve seen in the past two years fall between 33 and 46 percent.”
Following the invasion of Ukraine many foreign companies withdrew from Russia ether by selling or abandoning assets, while some have had their assets effectively nationalized. Even if not formally controlled or owned by the state, the nature of what has happened – and the nature of the Putin regime – means that the numbers will become much greater than the above mentioned “between 33 and 46 percent”.
In August 2022, “Putin issued a decree banning foreign investors from “unfriendly countries” (as determined by the Russian government) from selling or transferring their stakes in strategic companies operating in Russia’s financial and energy sectors, from which only he may grant exemptions. Later, in December, the government introduced a rule forcing foreign companies leaving Russia to dispose of their assets at a discount of no less than 50% of market value.”[1] In March 2023, those requirements were expanded to include a compensation payment (of 10%) to the state, while in April, Putin authorized the expropriation of foreign-owned assets in response to the seizure and freezing of Russian assets abroad. These include the local subsidiaries of Finland’s Fortum and Germany’s Uniper, both energy companies.[2]
In April, Putin signed decree which obliges the Russian authorities to respond immediately to any actions affecting Russian assets in so-called “unfriendly” countries. Like other anti-sanctions laws adopted by Russia during the war in Ukraine, Putin’s decree leaves ample room for creative interpretation.[2]
Putin was supposedly “furious” when he heard about Poland’s seizure of assets of one prominent Russian businessman: “The boss [Putin] doesn’t care about yachts and cars, but assets are sacred.”
Seized companies are under “temporary management” of the Federal Property Management Agency.[3] According to Andrei Kolesnikov of the Carnegie Endowment for International Peace,[4] these companies are technically owned by the state but controlled by individuals appointed by those in power. These mini-, midi-, and macro-oligarchs are required to share super-profits with the state and consider the interests of the ruling group.”[5]
The Federal Property Management Agency has the right to change their structure, appoint a new board of directors and, most importantly, conduct an audit and come to its own assessment of the asset’s value. During this process, damaging findings might allow the asset to be sold off by court order. “Of course, nobody will act in the interests of the previous owners,” one source told The Bell.[6]
“But the Kremlin has set no clear rules about what would prompt nationalisation, leaving foreign investors unsure about how they will be treated.”[7] “There is no system as to who gets permission to sell, even at a deep discount, and who simply loses everything. All that matters is whether the asset is valuable or wanted by someone close to Putin,” said one person advising on an ongoing exit.[8] Natasha Tsukanova, whose firm Xenon Capital is advising on several exits, said: “No one wants to sell to a sanctioned buyer, let alone companies that are under sanctions themselves. However, those unaffected by sanctions often lack sufficient funds.”[9] “With Russia blocked from international capital markets because of the war, domestic buyers take out loans either from Russia’s top banks — all of which are sanctioned — or smaller lenders with questionable track records, she said.”[10]
Despite the advantages of state ownership for control of the Russian economy, advantages are also seen in privatization – particularly of abandoned or seized assets previously owned by foreign companies.
According to Ekaterina Kurbangaleeva, VTB CEO Kostin “joined in backing privatization by the government’s financial and economic bloc, led by Central Bank Governor Elvira Nabiullina, Finance Minister Anton Siluanov, and Economic Development Minister Maxim Reshetnikov. Their preference, however, is for limited rather than mass privatization.”[1] “Kostin’s argument in favor of privatization is that “it must be introduced to generate interest among investors and stem the outflow of capital.”[2]
Kurbangaleeva forecasts that “financial firms, natural resources, and other energy companies will be absorbed by state banks and companies in a kind of quasi-nationalization or pseudo-privatization”.[3]
She then offers an interesting take on privatization of “nonstrategic assets, such as in retail” which will be redistributed among the nouveau riche and the upper middle class: generally, the generations aged 35-55 and university-educated, whose wealth has come from either state-adjacent projects such as roadbuilding, or senior positions at state companies and private firms with Western investors.”[4] “Public servants, including representatives of the security state, may also get in on the action, having enriched themselves through petty corruption, though they will be sure to involve themselves strictly through proxies.”[5]
Thus, in the view of Kurbangaleeva, “the regime’s economic foundation will now consist of the state’s expanded asset base in natural resources, energy, and heavy industry”. “Meanwhile, at the top of the new social hierarchy will be the trusted lieutenants of the president and their heirs, along with select officials holding significant stakes in state-adjacent companies or directorships. The more the state brings under its control, the more such people there will be.”[6] “The middle layer of Russia’s social structure will be shaped by the redistribution of assets among those well-off Russians forced to focus on the domestic market by international sanctions. In return for their loyalty, they will receive high-quality assets at a significant discount, which may turn them into a pillar of the regime and a source of patriotic optimism and even radicalism. There could even be a ‘people’s privatization’, in which the wealthy are awarded minority stakes in state companies.”[7)
Russian Management
In 2019, Agge V. Nielsen[1], a European businessman with much experience in Russia wrote that Russian management techniques lagged those in Europe, summarising it this way: “Combine Russian engineers with Western management skills, culture and habits, and you have a winner!”
He wrote that “investments in technology, production facilities, support systems, etc. are one side of the coin, but the success of these investments depends on the ‘soft’ side of the coin, ie the ability to adapt management, middle and operational management, and other employees’ skills and culture in order to ensure improved productivity.” Nielsen, based on his extensive experience, says that many Russian companies lack these “soft skills”.
At various stages in my times in Russia since 1991 (see: www.russianeconomicreform.ru) I spent months investigating privatised Russian companies for a foreign fund manager, and later several years freelance teaching English to a very large variety of businesspeople — and I particularly made a point with all of them to discuss their approach to their business and the difficulties they faced. I have also taught international relations and business courses at four Russian universities (Moscow and Irkutsk), as well working with universities and business in Shanghai. In my view, there are many very good Russian managers who are capable of operating in a very difficult regulatory and business environment – and indeed more so than many managers that I have worked with in Australia.[2]
But the odds are now stacked against Russian “managers” doing sensible long-term corporate development. In my view, “Russian engineers” will make a good attempt at “technological sovereignty” –a very important issue to be discussed in detail later in this text — but cutoff from Western influence and international competition and under pressure from Putin and technological nationalism, Russian “managers” will often find it convenient to revert to more traditional Soviet-type authoritarianism and abandon the “soft skills” that Nielsen spoke about.
I elaborated on this in a 2020 article,[3] and quoted. a long-time head of Morgan Stanley’s closed Moscow office as saying that the Russian state “thinks that it can solve problems relating to scientific and technical progress by simply giving everyone KPIs”. I discussed the fetish for KPIs earlier when looking at Russia’s National Projects.
Moreover — and importantly — the increased emphasis on anti-Western ideology in the education system will impede the development of up-and-coming future managers in all areas of Russian society and the economy for many years to come.
[1] Aage V. Nielsen, Managing Director and Senior Partner, Vitus Bering Management Ltd and Deputy Chairman of the AEB Working Group on Modernisation & Innovations, “Improving productivity in Russian-based companies: challenges and barriers”, Association of European Business Quarterly Magazine, Spring 2019.
[2] After completing economics and history degrees I become a junior executive in two manufacturing companies before moving to the public service sector, including the central bank. Later I was chief economist of HSBC Australia and even later senior economic and taxation adviser in an Australian business association.
[3] https://russianeconomicreform.ru/2020/12/russia-kpis-and-ai/
[1] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[2] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[3] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[4] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[5] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[6] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[7] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[1] Alexandra Prokopenko, “Nationalization of Western assets heralds broader property redistribution”, The Bell, 22 July 2023
[2] Alexandra Prokopenko, “Nationalization of Western assets heralds broader property redistribution”, The Bell, 22 July 2023
[3] Alexandra Prokopenko, “Nationalization of Western assets heralds broader property redistribution”, The Bell, 22 July 2023
[4] Anastasia Stognei and Max Seddon, “Trapped or nationalised: walls close in on western businesses in Russia”, Financial Times, 19 July 2023
[5] Anastasia Stognei and Max Seddon, “Trapped or nationalised: walls close in on western businesses in Russia”, Financial Times, 19 July 2023
[6] Alexandra Prokopenko, “Nationalization of Western assets heralds broader property redistribution”, The Bell, 22 July 2023
[7] Anastasia Stognei and Max Seddon, “Trapped or nationalised: walls close in on western businesses in Russia”, Financial Times, 19 July 2023
[8] Anastasia Stognei and Max Seddon, “Trapped or nationalised: walls close in on western businesses in Russia”, Financial Times, 19 July 2023
[9] Anastasia Stognei and Max Seddon, “Trapped or nationalised: walls close in on western businesses in Russia”, Financial Times, 19 July 2023
[10] Anastasia Stognei and Max Seddon, “Trapped or nationalised: walls close in on western businesses in Russia”, Financial Times, 19 July 2023
[1] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[2] Ekaterina Kurbangaleeva, “Russia Looks to Economic Redistribution to Shore Up the Regime”, The Moscow Times, 18 July 2023
[1] Stanislav Tkachenko , Andrei Terekhov, “US CHIPS and Science Act and Its Impact on Russia’s High-Tech Sector”, Valdai Discussion Club, 13 April 2023
[1] Jeff Schubert, “Russia’s Huawei 5G Conundrum”, 11 February 2019
AND Jeff Schubert, “Russia Can Use Huawei 5g to its Own International Advantage”, 30 June 2020
[2] Jeff Schubert, “Russian economy, technology and military power”, 16 April 2019
[3] “Russia Risks Return to Planned Economy – Central Bank”, The Moscow Times, 15 June 2023
[4] “Тест на отсутствие аналогов”, Kommersant, 29 June 2023
[5] “Тест на отсутствие аналогов”, Kommersant, 29 June 2023
[6] “Государство выложит венчуры на витрину”, Kommersant, 21 July 2023
[7] “Государство выложит венчуры на витрину”, Kommersant, 21 July 2023
[8] “Государство выложит венчуры на витрину”, Kommersant, 21 July 2023
[9] “Государство выложит венчуры на витрину”, Kommersant, 21 July 2023
[10] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[11] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[12] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[13] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[14] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[15] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[16] “Товарам выдадут паспорта”, Kommersant, 24 July 2023
[1] Ben Aris, BNE Intellinews, “Russia and China sign off $165bn of energy and transport deals in Xis second day in Moscow”, 21 March 2023
[2] Junhua Zhang, “Failing aircraft venture highlights strains in Chinese-Russian relations””, GIS, 17 August 2022
[3] https://www.vedomosti.ru/business/articles/2019/04/18/799607-rossiisko–kitaiskogo–samoleta
[4] https://tass.ru/ekonomika/15073925?utm_source=t.co&utm_medium=referral&utm_campaign=t.co&utm_referrer=t.co
[5] “Sanctions-Hit Russia Wary of Over-Reliance on Chinese Tech – Bloomberg”, 19 April 2023
[6] Светлана Ермилова, “Russia’s Import Substitution Policy In The Field Of Agriculture”, SSRN, 24 Jun 2022
[7] Florian Vidal, “Russia’s Mining Strategy Geopolitical Ambitions and Industrial Challenges”, French Institute of International Relations (Ifri)”, Russia/Eurasia Center, 3 April 2023
[8] Florian Vidal, “Russia’s Mining Strategy Geopolitical Ambitions and Industrial Challenges”, French Institute of International Relations (Ifri)”, Russia/Eurasia Center, 3 April 2023
[9] Indra Overland and Julia Loginova, “The Russian coal industry in an uncertain world: Finally pivoting to Asia?”, Energy Research & Social Science, 8 June 2023
[10] Filip Rudnik, “Unfulfilled ambitions: Russia’s LNG sector in the grip of sanctions”, OSW, 2023-06-05
[11] Семь тощих лет газа”, Kommersant, 7 August 2023
[1] Richard Connolly and Philip Hanson, “Import Substitution and Economic Sovereignty in Russia”, Chatham House, June 2016.
[3] http://kremlin.ru/events/president/news/47173
[5] https://kruzhok.org/en/iniciativy/post/nacionalnaya-tehnologicheskaya-iniciativa
[6] Jeff Schubert, “National Technology Initiative – Waiting for High-Tech Tooth-Fairy”, 30 June 2016
[7] “ехнологии посчитали”, Koммeрcaнtь, 18 April 2023 https://www.kommersant.ru/doc/5939916
[8] “Концепцию технологического развития России до 2030 года планируется утвердить в марте текущего года”, Минобрнауи России, 23 января 2023
[9] Sergey Sukhankin, “Gosplan 2.0: Is Russia Taking Another Step Toward a Planned Economy?”, Eurasia Daily Monitor Volume: 19 Issue: 130, 7 September 2022
[10] Sergey Sukhankin, “Moscow Wants Russian Society to Pay for War in Ukraine (Part One)”, Eurasia Daily Monitor Volume: 20 Issue: 60, 12 April 2023
[11] Sergey Sukhankin, “Gosplan 2.0: Is Russia Taking Another Step Toward a Planned Economy?”, Eurasia Daily Monitor Volume: 19 Issue: 130, 7 September 2022
[12] “Инвестбум на низком старте”, Komмeрcaнtь, 18 April 2023
[13] Vladimir Vinogradov, “Technological Sovereignty of Russian Energy”, 1 March 2023
[14] “Инвестбум на низком старте”, Komмeрcaнtь, 18 April 2023
[1] Anna Nadibaidze, “Understanding Russia’s Efforts at Technological Sovereignty”, Foreign Policy Research Institute, 8 September 2022
[2] Sergey Sukhankin, “Gosplan 2.0: Is Russia Taking Another Step Toward a Planned Economy?”, Eurasia Daily Monitor Volume: 19 Issue: 130, 7 September 2022
[3] Security chief says Russia has all necessary resources to reach economic sovereignty”, Tass, 10 January 2022
[4] Coordination Centre of the Russian Government, “Mikhail Mishustin holds a strategic session on strengthening technological sovereignty”, 11 April 2023
http://government.ru/en/news/48211/
[5] “Концепцию технологического развития России до 2030 года планируется утвердить в марте текущего года”, Минобрнауи России, 23 января 2023
[6] “Концепция технологического развития России до 2030 года обеспечит технологическим компаниям господдержку”, Минобрнауи России, 7 апреля 2023
[1] Ben Aris, “LONG READ: How do Russian journalists work in a time of war?”, BNE, 15 August 2023
[2] Sergey Medvedev and Ilya Goryachev, “Yarovaya Law and new data storage requirements for online data distributors”, Gorodissky & Partners, 7 August 2018
[3] Suzanne Smalley, “Russia’s vast telecom surveillance system crippled by withdrawal of Western tech, report says”, The Record, 19 July 2023
[4] “Can Russia’s SORM Weather the Sanctions Storm?”, Gavin Wilde (Carnegie Endowment for International Peace, Washington D.C.) DOI: 10.3929/ethz-b-0006
“Russia’s Technological Sovereignty”, Russian Analytical Digest, No.298, 18 July 2023
[5] Suzanne Smalley, “Russia’s vast telecom surveillance system crippled by withdrawal of Western tech, report says”, The Record, 19 July 2023
[6] Suzanne Smalley, “Russia’s vast telecom surveillance system crippled by withdrawal of Western tech, report says”, The Record, 19 July 2023
[7] Suzanne Smalley, “Russia’s vast telecom surveillance system crippled by withdrawal of Western tech, report says”, The Record, 19 July 2023
[8] Suzanne Smalley, “Russia’s vast telecom surveillance system crippled by withdrawal of Western tech, report says”, The Record, 19 July 2023
[9] Suzanne Smalley, “Russia’s vast telecom surveillance system crippled by withdrawal of Western tech, report says”, The Record, 19 July 2023
[10] Jeff Schubert, “Russia Can Use Huawei 5G to its Own International Advantage!”, Russian Economic Reform, 30 June 2022
[11] “Can Russia’s SORM Weather the Sanctions Storm?”, Gavin Wilde (Carnegie Endowment for International Peace, Washington D.C.) DOI: 10.3929/ethz-b-0006
“Russia’s Technological Sovereignty”, Russian Analytical Digest, No.298, 18 July 2023
[12] “Sanctions-Hit Russia Wary of Over-Reliance on Chinese Tech – Bloomberg”, 19 April 2023
[13] “Can Russia’s SORM Weather the Sanctions Storm?”, Gavin Wilde (Carnegie Endowment for International Peace, Washington D.C.) DOI: 10.3929/ethz-b-0006
“Russia’s Technological Sovereignty”, Russian Analytical Digest, No.298, 18 July 2023
[14] “Russian Schoolchildren Return to Classrooms Changed by War”, Moscow”, Moscow Times, 2 September 2022
[15] “Разговорыо важном”
[16] “Russian Schoolchildren Return to Classrooms Changed by War”, Moscow”, Moscow Times, 2 September 2022
[17] “Russian Schoolchildren Return to Classrooms Changed by War”, Moscow”, Moscow Times, 2 September 2022
[18] Alla Hurska, “Generation Z: Russia’s Militarization of Children”, Eurasia Daily Monitor Volume: 20 Issue: 134″, 18 August 2023
[19] “Such unique times are rare in history”, Meduza, 8 August 2023
[20] “Such unique times are rare in history”, Meduza, 8 August 2023
[21] “Such unique times are rare in history”, Meduza, 8 August 2023
[22] “Such unique times are rare in history”, Meduza, 8 August 2023
[23] “Such unique times are rare in history”, Meduza, 8 August 2023
[24] “Russian Universities to Introduce Mandatory Ideology Lectures”, Moscow Times, 26 October, 2022
[25] Andrey Pertsev, “The Faux Ideologies of Late-Stage Putinism”, Carnegie, 2 August 2023
[26] “Russian Universities to Introduce Mandatory Ideology Lectures”, Moscow Times, 26 October, 2022
[27] Andrey Pertsev, “The Faux Ideologies of Late-Stage Putinism”, Carnegie, 2 August 2023
[28] Andrey Pertsev, “The Faux Ideologies of Late-Stage Putinism”, Carnegie, 2 August 2023
[29] Andrey Pertsev, “The Faux Ideologies of Late-Stage Putinism”, Carnegie, 2 August 2023
[30] Andrey Pertsev, “The Faux Ideologies of Late-Stage Putinism”, Carnegie, 2 August 2023
[31] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[32] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[33] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[34] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[35] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[36] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[37] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[38] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[39] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[40] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[41] “Russian Science and Technology: Rise or Progressive Lag (Part I)”, Klepach AN, Vodovatov LB, Dmitrieva EA. Russian Science and Technology: Rise or Progressive Lag (Part I). Stud Russ Econ Dev. 2022;33(6):631-644. doi: 10.1134/S1075700722060077. Epub 2022 Nov 28. PMID: 36466731; PMCID: PMC9707188.
[1] “Президент подписал Указ «О национальных целях и стратегических задачах развития Российской Федерации на период до 2024 года»”, 7 мая 2018 года
http://kremlin.ru/events/president/news/57425
[2] Национальные Проекты: Целевые Показатели и Основные Результаты
http://static.government.ru/media/files/p7nn2CS0pVhvQ98OOwAt2dzCIAietQih.pdf
[3] “О национальных целях и стратегических задачах развития Российской Федерации на период до 2024 года (Указ Президента Российской Федерации № 204 от 07.05.2018)”
[4] “Average level of achievement of national projects’ indicators totals 98.95% — Mishustin”, Tass, 5 July 2023
[5] Jeff Schubert, “Russia KPIs and Artificial Intelligence (AI), Russian Economic Reform, 8 December 2020
[6] “Данные высшего уровня”, Kommersant, 16 July 2023
[7] “Данные высшего уровня”, Kommersant, 16 July 2023
[8] “Данные высшего уровня”, Kommersant, 16 July 2023
[9] “Данные высшего уровня”, Kommersant, 16 July 2023
[10] “Данные высшего уровня”, Kommersant, 16 July 2023
[11] “Данные высшего уровня”, Kommersant, 16 July 2023
[12] “Данные высшего уровня”, Kommersant, 16 July 2023
[13] “Данные высшего уровня”, Kommersant, 16 July 2023
[1] Илья Матвееи, “Кругом — сплошной «Вагнер». Как Путин разрушил государство в России”, iStories, 27 June 2023
[2] Masha Borak, “How Russia killed its tech industry”, MIT Technology Review, 4 April 2023
[3] “Шадаев назвал преждевременным полный запрет на удаленку для айтишников”,
[4] “Шадаев назвал преждевременным полный запрет на удаленку для айтишников”,
[5] “Шадаев назвал преждевременным полный запрет на удаленку для айтишников”,
[6] “Шадаев назвал преждевременным полный запрет на удаленку для айтишников”,
[7] “Шадаев назвал преждевременным полный запрет на удаленку для айтишников”,
[8] The Moscow Times, Putin Orders Measures to Reverse Mass Wartime Exodus, 12 May 2023
[9] The Moscow Times, Putin Orders Measures to Reverse Mass Wartime Exodus, 12 May 2023
[10] The Moscow Times, Putin Orders Measures to Reverse Mass Wartime Exodus, 12 May 2023
[11] Sophia Didinova, “Russia Seeks to Lure Back Wartime Emigres – But Offers Few Incentives”, The Moscow Times, 11 July 2023
[12] Masha Borak, “How Russia killed its tech industry”, MIT Technology Review, 4 April 2023
[13] Masha Borak, “How Russia killed its tech industry”, MIT Technology Review, 4 April 2023
[15] “Купите то — не скажем что”, Kommerant, 6 July 2023
[16] “Купите то — не скажем что”, Kommerant, 6 July 2023
[17] “Купите то — не скажем что”, Kommerant, 6 July 2023