Putin’s choice of autarky is between Stalin and Hitler

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Two months after Vladimir Putin ordered an invasion of Ukraine, it is clear that there will be no quick return to any kind of normalcy for Russia, especially economically. With no negotiated end to the war in sight, Russia is prepared to live for a long time under harsh Western sanctions and therefore forced autarky.

Putin’s line, echoed by other Russian government figures, is that Russia is too big to be isolated and the West is not big enough to be isolated. While this is true to the extent possible, isolation is a straw man. The goal of the post-invasion sanctions is much more practical – to undermine Putin’s ability to fight the current war and likely future wars. Sanctions are designed to weaken, not isolate, and while Russia can draw on its own past experience as well as that of modern sanctioned nations like Iran, it finds itself in uncharted territory: the obstacles it faces. faces are higher than those that Joseph Stalin and the ayatollahs had to skip.

Fascist states in 20th-century Europe saw economic self-sufficiency as a political goal—one that helped bring about World War II. Adolf Hitler, as Tiago Saraiva and M. Norton Wise wrote in a 2010 study of fascism and autarky, “explored the question of whether autarky in raw materials and food could be achieved by Germany, even assuming a strict National Socialist leadership of the state. He concluded that for food, the answer was a “definite no”. The only viable remedy lay in the expansion of the Lebensraum to the East.

Stalin’s Soviet Union, by contrast, did not pursue self-sufficiency by choice, as Michael Dohan, an American scholar specializing in Soviet economics, pointed out in 1976. Stalin’s Import Substitution Campaign followed the collapse of Soviet foreign trade in 1932, caused in part by protectionist tendencies in the Western world hit by the Great Depression and in part by Stalin’s brutal collectivization policies which caused a famine and thus undermined exports Soviet agriculture and energy. doan wrote:

Faced with declining export volumes and having exhausted all lines of credit, the USSR virtually ceased placing orders for machinery from Germany between September 1931 and mid-1932. To compensate for the sudden reduction in the supply of imports, an intensive domestic campaign, replete with factory meetings, newspaper advertising and “anti-import committees”, was undertaken in late 1931 to find ways to eliminate or reduce imports of raw materials and machinery. Domestic versions of imported machines were rushed into production, products and projects were redesigned to eliminate imports, and in many cases imports were simply phased out.

The consequences of this policy were so far-reaching that I grabbed my tail in the 1970s and 1980s: the Soviet Union tried not to import anything it couldn’t reinvent or rip off, and that meant a general scarcity – and a kind of cult – of imported goods. In the absence of competition, Soviet-made products tended to crumble in the hands, and Soviet food did not tend to melt in the mouth. Journalist Julia Ioffe recently told an unforgettable Soviet joke about it on Bill Maher’s show.

So far, Putin’s vision of the immediate future appears to resemble a Stalinist-style forced autarky drive – with some 21st-century twists.

Unlike the Soviet Union of the 1930s, Russia is not exposed to the risk of default. It still has a lot of money coming from energy exports: if they continue unabated, the country should make $321 billion from them this year, an increase of more than a third from 2021. This windfall has allowed the government to relax the exchange controls imposed to prevent an all-out panic at the start of the invasion, and the ruble’s exchange rate stabilized. Russia could pay for all the imports it needs, but it’s hard to find foreign companies willing to sell it the parts and materials it doesn’t produce. A rise in energy revenues coupled with the halt in Western imports produced a record current account surplus.

According to a recent report by the Higher School of Economics, the share of foreign value added in Russian electronics consumption is approaching 70%. It is above 50% for drugs, electrical and automotive equipment and nearly 50% for industrial equipment; in the late 1920s, only about a quarter of industrial machinery was imported, according to Dohan. About half of foreign value added comes from the European Union, the United States and Canada, which imposed the toughest sanctions on Russia.

Central Bank Governor Elvira Nabiullina made it clear in a recent speech to parliament that she expects the whole structure of the Russian economy – the relative strength of industries, the labor market, demand of consumers – is undergoing a radical change. A move towards greater self-sufficiency is the only way forward under current policies.

The predicament of Putin’s Russia, however, is worse than that of Stalin’s Soviet Union before World War II in several other important respects. Machines from the 1920s and 1930s were easier to replicate than today’s electronics, as even China, which doesn’t face particularly crippling sanctions, has discovered in recent years. In the 1990s and 2000s, Russia became so integrated into global value chains that even the complex products it proudly manufactures at home cannot function without foreign-made parts: Sukhoi Superjet airliners, for example, use engines produced jointly by a Franco-Russian joint venture. which can no longer operate under sanctions.

Import substitution worked well in the food industry after the 1988 debt crisis, when imports became too expensive for most Russians, and then again in 2014, when the Russian government banned many European foods in retaliation for EU sanctions. It is much harder to replace the Western industrial products that have defined Russia’s relative prosperity under Putin. The exodus of almost all Western domestic brands leaves a void. Despite all the rhetoric about import substitution, the Russian Ministry of Industry and Trade recently issued a directive allowing Russian companies to import a long list of goods without the knowledge or permission of their producers. These include Teslas, iPhones, Xboxes, Siemens washing machines, Michelin tires; all of these products could be quickly replaced by products made in China or even, in the case of washing machines and tires, by Russian products – but the ministry suspects that consumers may not be entirely satisfied with the substitutes.

There have even been reports that Russians may be allowed to use pirated software under a “forced license” mechanism. Give me autarky, but not yet: everything Russia has achieved in technology has been built on Western software, which is no longer available through official channels.

It’s not that Putin’s regime cares much about the comfort of Russians – it just hasn’t reached the point where it can ignore ordinary Russians to the same degree as Stalin’s regime. Patriotism is all well and good, but Putin continues to implore the government and the central bank to control inflation. Bloomberg consensus forecasts for the Russian economy promise a 10% contraction in GDP this year, a bigger drop than the 3.1% contraction in Iran’s non-oil economy in 2012, when the country was hit by major penalties. This makes rising unemployment inevitable, although Iran’s experience shows that labor resources will eventually be reallocated. And, given the relative failure of the initial assault on Ukraine, Putin can only harbor doubts about the effectiveness of his internal repressive machinery. Even if he drinks copious amounts of his own Kool-Aid, as his public statements suggest, he can only wonder how much hardship the Russians will suffer for his imperialist designs.

Alexander Prokhanov, a die-hard nationalist author who sang the praises of the Russian invasions from Afghanistan in 1979, wrote recently that the Russian people would adapt to any kind of economic calamity:

They will leave the cities for fields and forests… They will pick mushrooms, berries, nuts – in times of great misfortune the Russian people are ready to turn into a nation of chipmunks, a nation of hamsters hoarding all kinds of roots and tubers for the winter.

He’s not entirely wrong: the older generation at least still has their Soviet survival skills, their tolerance for long queues and shortages, their black market savvy, their not quite hamster mentality. unlearned, if not the actual ability to live on nuts and berries. The full force of propaganda and repression could be used to induce the transfer of these skills to the younger generation. This, however, may require crossing an important line in national discourse – the line between blaming Russia’s economic woes on a hostile West, as communist ideologues have done, and pushing autarky as a path to greatness. , like Hitler and Mussolini. It seems like a fine distinction after Russia’s war crimes in Ukraine, but it’s not trivial: once Russians feel the full onslaught of economic pain, they’ll have to explain to themselves what they’re paying for and whether the price is worth it. Nothing less than a complete and national descent into fascism can then sustain the regime.

More from Bloomberg Opinion:

Yes, the Russians know what their military is doing in Ukraine: Leonid Bershidsky

How is Russia’s fortress economy really doing? : Clara Ferreira Marques

The German president embodies the past sins of his Russian policy: Andreas Kluth

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Leonid Bershidsky is a member of the Berlin-based Bloomberg News Automation team. He was previously Bloomberg Opinion’s Europe columnist. He recently wrote a Russian translation of “1984” by George Orwell.

More stories like this are available at bloomberg.com/opinion

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