The New Observer Book Reviews,Reviews,Russian Economy,Russian Federation Book Review: The Russian Economy – Richard Connolly – a very short introduction

Book Review: The Russian Economy – Richard Connolly – a very short introduction

This is what it says it is; a very short introduction to the Russian economy. It is up to date as of 2020 and so covers the situation post-2014 sanctions.

The author is a Professor in the Centre for Russian and East European Studies at Birmingham University. The book offers a brief history of the Russian economy since the fall of the USSR and a model for understanding how the economy functions. It is a serious work largely free of anti-Russia sentiment. One strength of the book is that the author fully takes account of both Russian history and geography. This means that he understands Russia’s path to development in context. For example; he points out that the sheer size of Russia with its long borders has always meant that defence has placed strong demands on the budget. (The Russians don’t spend a lot on defence because they are ‘aggressive’ – which is the usual nonsense – but because of the size of the country and its long borders in different continents).

Of especial value is the analsyis of the Russian economy into 3 sectors. Sector A contains industries in the fields of armaments, natural resource extraction and nuclear power. This sector is owned or controlled by the state. It is competitive on the world stage. It generates revenue for the state. Sector B is focussed on production for the domestic market. Industries in this sector include ship-building, automotive and less efficient armaments companies. This sector is supported by the state either through placing orders with it or through direct subsidies. It includes State Owned Enterprises. These SEOs may be tasked by the state with undertaking tasks related to e.g. regional development – tasks which cannot be justified in profit-seeking terms. Sector B is not competitive on the world stage. Sector C accounts for perhaps just 20% of the economy. This sector comprises SMEs in private hands. Retail is strongly represented in this sector. Connolly points out that the overall level of involvement in the state is rather high in Russia at 60-70% of GDP. SMEs count for a smaller percentage of employment (20%) in Russia than is typical in Europe (40%).

After the chaos of the 1990s and “shock therapy” Russia has seen a steadying of the economy since 2000. The period since 2000 has seen something of a retrenchment by the state with the role of the state in the economy being reasserted. Growth was high between 2000 and 2008 – when Russia was caught up in the global financial crisis. Post reintegration of Crimea and the imposition of Western sanctions GDP growth was negative in 2015. However the underlying economic stability and the strong role of the state in the economy has meant that Russia has been able to reduce the impact of sanctions. GDP returned to growth in 2016. There have been significant efforts in the direction of import substitution. Connolly questions whether the approach of using the state as the lever to develop the economy and address sturctural problems (e.g. lack of investment and competitiveness), which is the current plan, can continue to deliver results. However Connolly does not automatically support the call of liberal critics of Russian economy policy who call for more market reforms and a reduced role of the state. Connolly appears to be willing to consider that it may be more realistic to see what can be done from the perspective of the existing state-centric model. Interestingly, Connolly points out that Russia is not alone in following a state centric path to economic development; the Gulf States and Turkey, for example, also follow this model.

Russia does have a manufacturing base outside of natural resource extraction though this sector produces primarily for domestic consumption. It is also open to trade; in 2018 trade accounted for 47% of GDP. (Naturally oil and gas resources figure strongly in this trade but Russia is also an exporter of food). These factors mean that Russia should not be understood simply as a petro-state. Nonethess it continues to be highly dependent on revenues from oil and gas and this means it is vulnerable to fluctuations in the world price for these commodities.

This is a very useful introduction to the Russian economy. Obviously written by someone with a clear and deep knowledge of the subject. Highly recommended.

The Russian Economy – Richard Connolly – a very short introduction. OUP. Kindle Edition