The New Observer Russian Economy,Russian Federation The size of the Russian State

The size of the Russian State

How big is the Russian state in the Russian economy?

Western economists sometimes criticise Russia for having too great a state sector in the economy – and (logically) not enough private enterprise. This brief article attempts a brief look at the role of the Russian state in the economy. H

State ownership of major companies

The two major companies in which the state has a significant share are Gazprom and Rosneft.

The Russian State owns just over 50% of shares in Gazprom. (Partly directly and partly through another state owned enterprise). [1]

The Russian State owns just over 50% of shares in Rosneft through JSC ROSNEFTEGAZ. [2] However the state may have some additional stake: 10.97% of the shares in Rosneft are controlled by the National Settlement Depository. [2] This in turn is largely owned by the Moscow Stock Exchange which in turn counts some institutions amongst its shareholders which are part owned by the State. [3]

Rosneft and Gazprom account for more than 10% of Russian GDP. (Source: Finlands Bank quoting Russian Presidential Academy of National Economy and Public Administration. 2017). [4]

Beyond controlling stakes in these two major natural resource companies the Russian state at both Federal and local level has a significant role in the economy.

The Size of the Russian state

We are assessing this using two measures. Firstly; the extent of the involvement of the state in economic activity and secondly government spending as a percentage of GDP.

1) State role in GDP

It is difficult to obtain clear figures for the extent of the involvement of the Russian state in economic activity. An IMF report of March 2019 [5] quotes independent researchers as saying that in 2016 the share of the state in GDP was 34%. This figure appears to have been approximately stable since 2003. The IMF report authors say that this is in line with European Bank for Reconstruction and Development estimates. [6] (The measurement is complicated because many entities are part-owned by the state. In such cases the figure should reflect the value added by the company as a ratio of the extent to which it is owned by the state). On this measure the share of the Russian state in GDP is less than that of Norway and Denmark but greater than that of Sweden according to the IMF report authors (though they do not provide figures). For comparison the most recent figure I have for the UK is from 1997. At this point SOE (State Owned Enterprise) share of gross value in the UK was just 2.2%. This extremely low figure was the result of the relentless campaign of privatisation in the 1990s. In 1979 the figure was 10.9%. [7] Since 1997 privatisation has continued – for example with the Royal Mail being privatised in 2013 so the current figure is likely to be less than 2.2%. For Sweden the figure (which appears to be up to date as of 2016) is 12%. [7] For Germany the figure is under 5%. [7 xxx2] For Italy under 8%. [7 xxx2] For approximate comparison for Norway one figure I have sourced is that in 2005 the state owned 32% of shares on the Oslo Stock Exchange. [xxx1] State involvement in the economy also appears to be high in Finland. In Finland the state owns 40% of the capital of corporations (both private and public). [7 xxx2]

So. On the measure of state contribution to GDP the Russian state appears large. The state sector of the economy is larger than in Germany, Italy and the UK. But, it is not uniquely large. It is comparable with some Scandinavian countries.

2) Public Spending as a percentage of GDP

The same IMF report cited above states that government expenditure as a share of GDP in Russia is 35%. For comparison in 2018 the equivalent figure for the UK was 38.4%. (Source: HM Treasury). [8] (These figures are corroborated by data from the OECD for 2015. This shows that in 2015 public expenditure in the UK as a percentage of GDP was 42.2% and for Russia 34.5%. [9] The UK figure has, of course, been falling because of planned government reductions in spending). For Germany the figure is 43.7%. For the Netherlands 44.6%. The figure for Sweden for 2015 is 49.6% [9].

Considered in terms of public spending as a proportion of GDP the size of the Russian state is comparable to or less than that of many Western European countries and much less than that of some Scandinavian countries.

In summary; the Russian state is more heavily involved in the economy on the value added side than the states of most European countries and much more significantly so than the UK state. However the involvement of the Russian state in the economy is not unique. The Norwegian state is also heavily involved in the economy, according to a 2019 IMF report to a greater extent that the Russian state.  Considering government spending as a share of GDP the Russian state is comparable to but at the low end of the scale of European countries.

Should the Russian State retrench its position as a significant generator of GDP?

The theoretical arguments about the size of the government stake in economic activity – value creation – seem to revolve around a) efficiency and profitability and b) ‘governance’. Certainly those who can remember the privatisation campaigns in the UK in the 1990s will recall that the main arguments put forward in favour of privatising state industries was that the private sector could produce more efficiently and the sales would raise much needed public revenue. This is summarised by the EU report cited above:

A large majority of state-owned enterprises in the United Kingdom were privatised between 1979 and 1997 under successive Conservative governments. In response to the prolonged economic crisis of the 1970s, the United Kingdom government started to privatise profitable entities with a view to raising revenues and thereby reducing public-sector debt. In the 1980s, the focus shifted to privatising core utilities in the belief that that privatisation would make them more efficient and productive. A further retrenchment of state ownership took place in the 1990s. [7]

Western economists tend to argue that the Russian state should divest itself more of its holdings in commercial enterprises. The main driver for this view appears to be a belief that state owned businesses are either inefficient themselves or inhibit competition. A secondary view appears to be a belief that problems of corruption are more entrenched in State Owned Enterprises in Russia. These views are expressed in a 2013 OECD report on Russia:

SEOs occupy the dominant position in a number of important sectors (Figure 12) including banking, transport and energy. Their dominance poses a severe challenge to market entry and competition and preserves pockets of inefficiency. [xxx3]

The same OECD report also explains that the variety of SEO structures in Russia leads to a lack of transparency. The report also lamented that a planned privatisation programme adopted in 2010 was substantially reduced by 2013.

However; as we have seen, Finland and Norway both have higher levels of state involvement in economic activity than Russia. In Norway the model appears to be a form of state ownership which nonetheless allows the corporations to operate as regular private businesses. [xxx1] “Our aim is therefore that a state owned company should be run according to the same principles as a well-run private company”. Norway and Finland both have significantly higher GDP per capita than Russia.

Following the Norwegian model one can argue that a high-level of state ownership of corporations is not necessarily ‘bad for business’ if those state owned enterprises follow the principles of efficiently run private sector businesses. The 2013 OECD report cited above calls for greater transparency and better administration (less subject to direct state management) of state owned enterprises. On this model the argument is (essentially) that Russia should move in the Norwegian direction.

An altogether alternative argument is that a high-level of state involvement in the economy can be justified in strategic social terms, for example, as a way of ensuring fairness and social goals such as income equality. This was certainly part of the thinking during the Soviet Socialist period. Unfortunately, in modern Russian, a high level of state ownership is not associated with a high level of income equality. Russia has much higher levels of state involvement in the economy than the UK but a level of income inequality approximately equal to that of the UK. And, on the other hand, income inequality in Russia is significantly higher than in Norway which also has a high degree of state involvement in the economy. [xxx 4]

Russia’s relatively high levels of state involvement in value added activity seem to reflect a policy of the state maintaining a controlling hand in the economy (the state has a controlling share in Gazprom and Rosneft for example). The relatively high levels of state involvement do not appear to result in more social equality.

It seems clear that the leadership in Russia has decided to maintain a controlling hand in the economy. According to the authors of the OECD 2016 report a planned campaign of privatisations was heavily scaled-back in 2013. [xxx3b]. It seems that this desire for the state to maintain a controlling hand in the economy is not linked to achieving social equality (which would be the justification of the Communist Party of the Russian Federation). It may be that the purpose is linked to ideas of security and the ability of the state to quickly mobilise the economy in a given direction. As well as direct state acting in the economy Russia also has laws which limit foreign direct investment in areas of national security. The 2016 OECD report mentioned above calls for the list of protected sectors to be reduced. In reality since the introduction of sanctions following the annexation of Crimea and the events in Ukraine foreign direct investment in Russia has substantially fallen anyway. [x10]


The Russian State plays a greater role in the economy than is typical for Western European countries. There are restrictions on Foreign Direct Investment in strategic sectors. Sanctions have also played a part in reducing FDI. The state continues to play a significant role in economic activity – not just taxing and spending. The motive for this does not appear to be to create social equality. Under the current Russian leadership the strategy seems to be to develop the economy using Western capital where possible while retaining overall political control of development. This is different from a policy (of the Yeltsin years?) of seeking growth and development by allowing the untrammelled development of private enterprise including by foreign capital. Some in the “international community” are still calling for the latter. It seems likely that this kind of economic development would require a concomitant change in the political sphere – to control (or lack of control) by liberal leaning, free-market, parties.

Russia then is pursuing a policy which sees the state playing a significant role in the economy. It is doing this because the political leadership wishes to retain overall control of the economy, the society and the country. The state wishes Russia to develop economically (and socially) but without surrendering political control to free-market forces, especially global free-market forces. In Russia the political centre wishes to be able to control the country. To this end the Russian state will use Western capital but on its terms. (Sanctions are a specific attack on this policy by the US and EU – who are, in effect, saying; no finance unless you also integrate your politics and foreign policy with ours).


Gini index russia v. sweden TODO



  5. The Russian State’s Size and its Footprint:
    Have They Increased? by Gabriel Di Bella, Oksana Dynnikova and Slavi Slavov. IMF March 2 2019. WP/19/53 –
  6. Ibid. p10
  7. State Owned Enterprises in the EU. European Commission 2016.
  8. HM Treasury
  9. OECD General Government Spending chart
  10. Ibid. 7. p95

xxx1. Ownership function of the Norwegian State. Morten M. Kallevig. Deputy Director General. Royal Norwegian Ministry of Trade and Industry. OECD Presentation. 2005.

xxx2.  7 EU p12

xxx3 OECD Economic Surveys. Russia. 2014.

xxx3b p19