The aftermath of the Russian-Ukrainian war has sparked intense debate over whether Russia is becoming wealthier or poorer, with no definitive answers emerging. However, the conflict has undoubtedly accelerated significant shifts in Russia’s political and economic policies.
Central to these changes is a renewed emphasis on Russia’s domestic material production, aimed at achieving greater self-sufficiency. For the first time since the Soviet Union’s collapse, Russia has directed industrial funding to factories, farms, and research institutes, enabling many sectors to surpass their Soviet-era production capacities.
Politically, technocrats are increasingly occupying key government positions, fostering a performance-driven environment. Russian officials have become active in promoting investment, industrial revival, and infrastructure development. This policy orientation, characterized by import substitution and export-driven mercantilism, has become mainstream. Russia’s ambassador to the UK, Andrei Kelin, highlighted this ideological shift, noting that Russia now ranks seventh globally in manufacturing output.
Among the sectors benefiting most from these policies, agriculture has undergone a remarkable revival. Russia is now self-sufficient in meat, potatoes, and aquaculture, with eggs nearing full sufficiency. And milk, vegetables, and melons meet food safety standards, fruit self-sufficiency lags at 46% due to climatic constraints. This agricultural resurgence has addressed longstanding food security challenges, stabilizing wartime food prices and ensuring both public livelihoods and political stability. This success has also bolstered national confidence.
Russia’s agricultural renaissance stems from its top-down mercantilism and industrial policies, with alfalfa cultivation serving as a representative case. Once a pillar of Soviet agriculture, the alfalfa industry collapsed after the dissolution of the Soviet Union due to its dependence on intensive systems and a robust meat and dairy supply chain.
Efforts to revive the industry began in 2014, with scholars advising the government and engaging in cultivation and industry reorganization. By 2018, these efforts culminated in a nationwide alfalfa initiative, achieving domestic self-sufficiency by 2021. This transformation reflects Russia’s broader strategy to rebuild key industries and reclaim economic autonomy, reshaping its political and economic landscape.
In 2022, President Putin personally proposed alfalfa exports to China, a move approved by President Xi. Following this, the Russian government allocated substantial infrastructure funds to alfalfa research institutes and provided industry-specific funding to forage exporters and associations through a joint mechanism akin to China’s National Development and Reform Commission (NDRC). By October, Russian officials actively promoted alfalfa exports to China and Saudi Arabia, reflecting the nation’s privately-run, government-assisted industrial development model. This abundance of forage has also helped stabilize meat and milk prices during wartime.
Significant transformations are underway in Russia’s approach to rebuilding material production capacity. Ideologically, there is a growing trend that embraces elements from Imperial Russia, the Soviet Union, and the Federation periods. While perspectives on the Soviet era vary, many Russians nostalgically appreciate its robust production capacity. This ideological blend—combining Soviet material strength, Imperial nationalism and religion, and the federal period’s market economy—has become central to Russia’s current political economy. The symbolic hoisting of the flags of all three eras at some enterprises underscores this integration.
Economically, Russia has adopted a strong mercantilist stance emphasizing import substitution and export growth. Conversations with Russian scholars and businessmen reveal a clear preference for exporting manufactured goods over raw materials. They resist Chinese asset-light models, instead demanding technology transfers and localized assembly plants. A prime example is the Russian auto industry’s successful lobbying for high scrap taxes on foreign cars, effectively forcing foreign manufacturers to establish local production—Russia’s version of market for technology.
In foreign trade, Russia has developed a distinctive national system. While some Chinese enterprises view Russia as isolated and dependent on Chinese products, Russia maintains a well-established procurement network, rooted in families with generations of expertise in foreign trade. These procurement specialists avoid intermediaries, seeking direct suppliers even in remote Chinese counties. Their purchasing process is meticulous: they solicit and compare quotations extensively, identify cost baselines, and then initiate price negotiations, showcasing a disciplined and strategic approach to foreign procurement.
These developments underscore Russia’s strategic efforts to reshape its economic framework, fostering self-reliance while leveraging foreign partnerships on its own terms. This transformation poses both challenges and opportunities for international stakeholders, particularly Chinese enterprises navigating Russia’s evolving trade landscape.
Russia’s national trade system has proven so effective that many Chinese sales managers report minimal profit opportunities in the Russian market. Persistent inquiries by Russian buyers, combined with intense competition among Chinese companies, have led to steep price cuts. For instance, the prices of some mechanical and electrical products have halved in the past six months, leaving little to no profit margin. Beyond pricing pressure, the Russian system also compels Chinese enterprises to transfer technology and establish local production. However, many Chinese companies fail to recognize Russia’s cohesive national trade system, underestimating its negotiating power and inadvertently eroding their profits.
The current political and economic transition in Russia presents a mix of advantages and challenges. On the positive side, Russia benefits from a relatively insular Russian-speaking market, where local internet companies thrive. This environment fosters innovation, as demonstrated by the success of platforms like OZON, which has embraced global trends such as the Double 11 shopping festival. Moreover, the last generation of Soviet-trained industrial workers and scientists, supported by government grants, has facilitated the revival of industries and research systems.
However, there are significant obstacles. High domestic interest rates—spurred by wartime conditions—have made credit nearly inaccessible for private enterprises, particularly those outside the military-industrial complex. The benchmark rate of nearly 20% stifles technological upgrades and capacity expansion. Compounding this, a cadre rejuvenation policy has elevated younger, inexperienced officials, many of whom struggle to effectively promote industrial development or manage foreign investment. Their impatience and lack of expertise undermine progress at the local level.
Further issues stem from Russia’s incomplete reconciliation of industrial autonomy with openness to external markets. Some business elites exploit policies to entrench monopolies and exclude foreign competition, hindering industrial renewal. Meanwhile, reduced research funding exacerbates challenges; many scientists now rely on tradition and personal dedication rather than institutional support. Budget cuts to science and technology for 2025 intensify this crisis, leaving Russia’s innovation landscape vulnerable.
Despite these hurdles, mercantilism is expected to dominate Russia’s economic strategy for the foreseeable future. This approach, driven by interest groups supporting domestic industries, will likely increase trade protectionism and foster the renaissance of Russian industries. European and American sanctions have further marginalized pro-Western forces in Russia, solidifying the influence of indigenous industrialists.
In conclusion, wartime Russia, characterized by an active government, rebuilding of material production capacity, and a mercantilist ideology, is a challenging trading partner. However, its reindustrialization positions it as a significant player in global economic and political affairs. By leveraging its evolving industrial base, Russia is poised to contribute to technological diffusion and adapt to the ongoing technological revolution, ensuring its relevance on the world stage.
Source: CEPR, Rosstat, foreignpolicy
