What is happening in the Russian economy?

Enforced separation from the world market has reinforced moves back towards nationalisation and planning.

Ever since the treacherous ‘secret’ speech given by Soviet premier Nikita Khrushchev in 1956, the reputation of the revolutionary period of socialist construction in the USSR (personified in the figure of Joseph Stalin) has been routinely traduced and slandered to the descendants of those who built it – first by revisionist leaders and then by their openly capitalist successors across the formerly Soviet territory.

This was done in spite of the fact that these leaders stood on the achievements of this period – as even Mikhail Gorbachev was forced to admit in his book Perestroika. Revisionism degenerated to such a degree that by the time the Soviet Union entered its period of counter-revolutionary collapse (1989-91), the leadership of the Party and state was dominated by openly anti-communist leaders who sought to bury Stalin – and with him all the great achievements of the revolutionary period.

Advanced economy destroyed by looting and imperialist domination

As the planned economy was destroyed, the 1990s saw the impoverishment on a mass scale of the Russian working class, with devastating effects that President Vladimir Putin has recently stated were similar to a war.

It was indeed a war – a brutal class war unleashed by the Russian comprador bourgeoisie, during which many of the achievements of the socialist period were destroyed by the ‘market reforms’ enacted by Boris Yeltsin’s regime, under the firm tutelage of the IMF, the World Bank and all those other US-aligned bastions of ‘freedom’ and ‘democracy’.

During his speech to the Valdai Club in November 2022, President Putin reflected on the effect that the unrestricted flow of foreign capital had had upon Russian industry.

How are things going today? If the West is selling medicines or crop seeds to other countries, it tells them to kill their national pharmaceutical industries and selection. In fact, it all comes down to this: its machine tool and equipment supplies destroy the local engineering industry.

I realised this back when I served as prime minister. Once you open your market to a certain product group, the local manufacturer instantly goes belly up and it is almost impossible for him to raise his head. That’s how they build relationships. That’s how they take over markets and resources, and countries lose their technological and scientific potential.

This is not progress; it is enslavement and reducing economies to primitive levels.”

This is indeed what happened to Russia in the period of the comprador Yeltsin regime. Many long-established and very advanced industries in Russia were destroyed by the actions of the compradors and their American masters.

The telling description of Russia by the late senator John McCain sums up the approach of imperialism to its victim countries. When McCain called Russia a “gas station run by a dictator”, this was not really a correct definition of Russia in the Putin era, but it was an accurate description of how the American imperialist bloc wishes Russia to be.

As President Putin observed, the effect of Western ‘investment’ in Russia during the period of unbridled looting of the Soviet people’s wealth had been to set the country back economically and socially by decades.

Gradual restoration of national sovereignty

The story of the Putin era has been one of a slow, incremental repair of the economy and state, with the US imperialists screaming about Putin the ‘dictator’ every time he took a step to restrict their interests or those of their puppets within Russia. The Putin era represents the slow turn away from the Yeltsin period – and the reassertion of the power of the Russian state over the national economy has become an ever more important factor in this process.  It is in this light that we should understand the moves being made by in Russia’s ruling circles to learn lessons from the great period of industrialisation represented by the five-year plans of the 1930s, 40s and early 1950s.

In June of this year, a meeting was held in the Kremlin as part of the St Petersburg International Economic Forum (Spief). It was attended by high-ranking members of the Putin administration and regional governors including Denis Pushillin, acting head of the Donetsk People’s Republic. The meeting was focussed on a discussion of a new book by Aleksandr Galushka entitled Crystal growth – on the Russian economic miracle. The Kremlin website read-out of the meeting was remarkable, after decades of anti-Stalin propaganda, for its positive assessment of the Soviet revolutionary period:

In the face of even stronger Western sanctions than today, the [Soviet] economy without external financing grew 14 times, became the first in Europe and the second in the world, and the average annual growth rate was 13.8 percent – excluding four war years. At the same time, life expectancy increased by 26 years, the population – by 46 million people, despite the Great Patriotic War, which falls in the middle of this period of rapid growth.” [Note well this large population growth despite the incredible losses of the war!]

The report also made an important observation about the changing international situation:

The participants of the meeting emphasised that today Russia is at the epicentre of the formation of a new world order, and answers to some questions that need to be addressed in order to form a new model of economic growth can be obtained by analysing historical materials related to THE PERIOD OF PHENOMENAL GROWTH OF OUR ECONOMY IN 1929-55” (Our emphasis).

This represents a significant step away from the hysterical anticommunism of the 1990s, which has been slowly fading since then but is still very much present in Russian bourgeois-liberal circles. And this changing perspective is at the root of the survival of the Russian economy in the face of the attempt to kill it via the imposition of ever-greater sanctions after 2014. These were meant to destabilise the Russian economy by cutting it off from European markets in particular, but what actually ended up happening turned out to be a net positive for Russian economic development. It has now come to be acknowledged, even by reports in the imperialist press, that the sanctions campaign waged by the US and its allies against the Russian Federation has failed.  US president Joe Biden promised in 2022 to “reduce the ruble to rubble” as Russia launched its special military operation in Ukraine, and this quickly failed as well.

The strategy that the imperialists had been trying to pursue ever since 2014 (when Crimea voted to rejoin the Russian Federation rather than submit to the diktat of a West-imposed fascist junta in Kiev) was to unbalance and cause a crash in the Russian economy – one which would in turn cause the collapse of President Putin’s government. All these attempts have failed, and the Russian economy continues steadily to improve its performance. Despite everything the imperialists have thrown at the country, and amidst a worldwide global crisis of capitalist overproduction, the Russian Central Bank is predicting GDP growth of around 2 percent for this year.

Ending the reign of the comprador class

So why has this happened? One answer lies in the slow reorienting of trade towards China, India and Central Asia over the course of the last decade. This has enabled the Russian government to avoid too negative an impact from the sanctions placed upon the previously lucrative energy trade that had been built up with the countries of the European Union.

According to work done by Richard Connolly of the University of Birmingham, who has written one of the few serious studies of the Russian economy by a bourgeois academic, the sanctions regimes introduced since 2014 have triggered a fundamental restructuring of the Russian economy which have made it much less reliant on imports and foreign capital. This has involved the Russian state taking a far greater role in economic planning than was previously the case. Russian government ministers (and President Putin himself) still sing hymns in praise of capitalism, but the reality of their actions tells a different story.

The restoration of capitalism in Russia was defined by extreme parasitism. The comprador elements of the new ruling class (bandits and mafiosi every one) destroyed large areas of the economy as they asset-stripped and closed down production on behalf of their imperialist masters. The only area that saw significant investment during the 1990s was the energy industry, in which British and US-based monopolies had become major players, seizing hold of large sections of the country’s assets.

This period of unbridled gangsterism started to come to an end in 1998, when an economic collapse triggered the devaluation of the rouble and a default on the country’s foreign debt.  At that point, the remaining authority of the Yeltsin regime was critically damaged and the Russian parliament (the Duma) forced him to appoint a coalition government, headed by former Foreign Minister Yevgeny Primakov and including two communists – Yuri Maslyukov (finance minister) and Gennady Khodreyev (anti-monopoly minister).

One can imagine the panicked response of the imperialists after the reappointment of Communist Party members to government positions, even if only for eight months. The cabinet lasted from September 1998 to May 1999, but it was an important development in Russia in that it represented a fatal blow to Yeltsin and also set the stage for much of what was to come by increasing state control over the economy, ending the free-for-all that had enriched the comprador clique, and imposing such measures as capital controls.

The Primakov ministry was also significant for its shift in approach to foreign relations. It was the first post-Soviet Russian government to oppose the actions of the US, with Primakov publicly opposing Nato’s bombing campaign against Yugoslavia.  Although Yeltsin succeeded in dismissing Primakov in May 1999, he was himself forced out of office six months later.  The return to elements of state control from 1998 onwards has been noted by Connolly in his analysis:

The process of building a market economy was uneven and SUBJECT TO REVERSAL from the late 1990s onward.  Consequently, what emerged was not a smoothly functioning market economy based on competition and strong property rights. Instead, A HYBRID SYSTEM of political economy emerged, in which pockets of relative freedom and competition coexisted alongside large swathes of the economy in which market-oriented economic change proved intractable” (our emphasis).

The Putin era essentially carried forward the work that the Primakov ministry had already begun, with the Russian state exerting increasing control over the economy – beginning with the removal of the most egregious compradors such as Boris Berezovsky. As Professor Richard Sakwa noted in his book The Putin paradox:

Putin threw the old-style oligarchs out of the Kremlin and in the famous Round Table between business and state representatives in July 2000 imposed a new balance in relations. This was accompanied by elements of ‘business capture’ by the state, in which businesses could conduct their affairs AS LONG AS THEY ALIGNED THEIR STRATEGIES WITH THOSE OF THE STATE” (2020, our emphasis).

Increasing state control in the national interest

The model that has emerged through this period is one where the state plays a central role in crucial economic sectors such as energy. In these areas, state-run firms such as Gazprom, Rosatom and Rosneft play a dominant role, and even privately-owned companies are obliged to follow state direction. According to Connolly, the government has used profits accrued from Gazprom to promote growth in important industrial sectors that had been run down to the point of collapse. The machine tools sector, for example, has had its turnover boosted by the Russian government’s taking a more protectionist line since the 2008 global economic collapse.

This evolved further following the beginning of the Ukraine crisis in 2013. According to Sakwa: “This was not outright nationalisation, but it certainly impeded the implementation of the various plans for privatisation. This was a quasi-war economy, which anticipated confrontation with the West and allowed Russia to weather the sanctions from 2014.”

Recent changes in the defence sector, it must be noted, were starting from a substantial base. Still in existence from the Soviet period were such facilities as the giant tank production plant at Uralvagonzavod. While Gorbachev and Yeltsin had overseen partial privatisation and extensive production cuts (laying off three million workers in the process), this began to change direction in the late 1990s and reversed definitively in the Putin era. Now the defence sector is organised under several giant conglomerates over which the state has direct control. According to Connolly, the decision to re-arm was taken in Moscow after the war with Georgia in 2008, which had been instigated by the US puppet regime of Mikhail Saakashvili. Since that time, Russia’s defence industry has steadily grown in terms of budget and importance in the economy. “By reducing the industry’s dependence on imported items, and by maintaining predominantly Russian ownership (usually by the state) of the means of defence industrial production, the country’s ability to preserve an independent capability to produce a wide spectrum of military equipment was sustained” (Richard Connolly, op.cit.).

This has been crucial in allowing Russia to sustain its production of war materiel during the 18 months (so far) of the special military operation. Having decided to boost its defence capabilities, Russia’s leaders were able to make use of their immense Soviet legacy, building up a war industry that was free from foreign interference. The ability of the Russian war industries dramatically to upscale their production on demand also speaks to a far superior industrial capacity than exists across the entire US imperialist bloc – and is a direct legacy of the model of Soviet economic planning.

Meanwhile, the Russian government also encouraged import substitution in the food industry, rebuilding Russian agriculture and drawing upon the legacies of heavy investment made in the Soviet period. This has enabled the Russian government to free itself from dependency on European and US imports – and thus to free its people from many of the tools of imperialist blackmail and coercion. The evermore draconian rounds of sanctions enacted against Russia by the US-led imperialist bloc since February 2022 have, therefore, failed because the Russian government had spent almost a decade building up self-reliance in key areas such as energy and food production, as well as creating a system of state planning to direct certain vital economic sectors, having realised that ‘the market’ was in actual fact a very poor master in any area that really matters for a country’s independent survival.

The unparalleled power of Soviet central planning

In this situation, it is not surprising that a greater openness now exists even in government circles towards learning from the period during which the USSR succeeded in the teeth of the opposition of the entire imperialist world – and when the latter was much more powerful than it is today. Added to this is, of course, a growing partnership with the People’s Republic of China, with its rapid advances on all important fronts and its new position as the world’s biggest manufacturing economy.

The renewed Russian interest in the USSR’s successful building of a strong and resilient industrialised economy (one that not only survived imperialist economic attacks but which broke the back of the Nazi war machine in WW2) is perhaps unsurprising after the imperialists have spent a decade trying to put Russia into a state of siege.

Reflecting upon the successes of this period, Russian Communist leader Gennady Zyuganov observed recently in a programme document of his party (CPRF):

Under the brutal blows of the war, the agriculture of the USSR also confidently survived. In the eastern regions, the acreage increased by five million hectares during the war. Agricultural science had successfully worked on the development of new, more resistant to cold grain crops. Winter crops in Siberia increased by 64 percent, in Kazakhstan and in Central Asia by 44 percent. Sixty-seven million wagons of cargo were transported from these regions to the front and other areas of the rear.”

Even after the forces of German imperialism had inflicted horrific damage upon the country, the planned economy was able to secure a recovery of the damaged areas in record time. As Zyuganov stated:

A third of the fixed assets destroyed by the Nazis were restored before the end of the war. The prewar level in industrial production was reached already in 1948, and in agriculture by 1950. Real per capita incomes in 1950 were 40 percent higher than in 1940. From 1946 to 1955, 201 million square metres of housing were put into operation – almost as much as during all the prewar five-year plans combined.

These incredible achievements were made possible by the fact that a planned economy makes far more effective use of resources than capitalism can ever do, and also because of the high level of involvement of the masses in the planning process. The workers in the USSR during the Stalin period understood that they were playing a vital role in the building of a new society in which they were the rulers.

When speaking of the results of the first five-year plan in 1933, Stalin observed: “The party’s confidence in the feasibility of the five-year plan and its faith in the forces of the working class were so strong that the party found it possible to undertake the fulfilment of this difficult task not in five years, as was provided for in the five-year plan, but in four years, or, strictly speaking, in four years and three months, if the special quarter be added. That is what gave rise to the famous slogan, ‘The Five-Year Plan in Four Years’. And what happened?

Subsequent facts have shown that the party was right.

“The facts have shown that without this boldness and confidence in the forces of the working class, the party could not have achieved the victory of which we are now so justly proud” (1933).

What the leadership of Communist Party of the Soviet Union (CPSU) understood at the time was that the planned economy was not a bureaucratic process but an expression of the direct role of the masses in the building of socialism.

The same holds true when we examine the achievements of other, even more backward societies which were able to achieve incredible results in reconstruction after the Second World War. Albania, for instance, starting from a very low base managed to industrialise, become self-sufficient in food production, and eliminate illiteracy by the mid 1950s. This was done by harnessing the revolutionary energy of the masses within the framework of a planned economy.

Speaking of these developments in Albania, British communist William Ash wrote: “Socialist economic planning takes the same form of democratic centralism, of the mass line, as every other aspect of Albanian life. It is based on the maximum participation of the masses

The meetings of working collectives on the fourth five-year plan, which ended in 1970 with greater increases than those proposed in every branch of the economy, involved 174,000 discussions in which 141,000 proposals were put forward. The fact that state plans for economic and cultural development ‘bear the marks of the people’ guarantees their being successfully put into effect.

The process by which the direct participation of the masses in the construction of the national economic plan is ensured, and by which the proletariat is thus equipped to truly become the ruling class, has of course been subjected to endless lies by revisionists and bourgeois academia alike. But now that the wheel of history is turning away from the unrestricted domination of the imperialists, much of this buried history is re-emerging – as can be seen from the evolving debate in Russia.

Once the question of the 1929-55 period is reopened in a spirit of learning, the central role of the masses cannot be ignored. The crucial part played by the revolutionary energy and creativity of the people in shaping and implementing the five-year plans of Soviet socialist construction was at the very heart of their success.

As President Putin’s recent speech shows, it is now commonly accepted in Russian government circles that the model imposed on the country via the compradors was a failure. The Russian masses, however, have always remembered the revolutionary period and Stalin far more accurately than the likes of Khrushchev, Gorbachev and Yeltsin would have liked.

It can thus be seen that the return to elements of economic planning marks a very important development within Russia – and is one of the key reasons the imperialists have increased their hostility towards President Putin every year since he came to power more than two decades years ago.

It is Putin’s slow but steady restoration of Russian sovereignty, his government’s slow pushing out of the compradors, and Russia’s moves towards a more state-directed economy that have animated the fury of the imperialists – and of the US in particular.

All over the world, the long period of suffocating domination by the global imperialist system is moving towards a cataclysmic – and potentially final – explosion as the concentration of capital reaches ever more absurd proportions, and the impoverished masses of the world are forced to confront the fact that without socialism and planning there is no way out of the downward death spiral.

The war in Ukraine and the economic changes it has brought about in Russia are all part of this process. There will be much more to come as US imperialist control continues to disintegrate and a new revolutionary wave is unleashed by the deepening crisis of the global imperialist system and its accelerating and self-destructive war drive.