EconoMatters, Global HotSpots

Is Economic Autarky Russia’s Only Option?

Even Chinese entities, if they themselves plan to do business or raise money in the United States, will avoid doing business with Russian entities.

Credit: yui Shutterstock.com

Takeaways


  • What the current sanctions on Russia show is that it now finds itself at the same crossroads as in the early 1920s. Its access to Western markets, technology and capital is all but cut off.
  • Even Chinese entities, if they themselves plan to do business or raise money in the US, will avoid doing business with Russian entities.
  • Russian industry will have to depend on only domestic resources. Compared to the resources that are available globally, Russia’s are small and inadequate. Autarky thus seems preordained.
  • For all his presumed coolness and calm power calculations, Putin has steered Russia into a comprehensive strategic defeat.

What the current sanctions that have been imposed on Russia, and those that may yet come (for example, on Gazprom), show is that the country now finds itself at the same crossroads as in the early 1920s. Its access to Western markets, technology and capital is all but cut off.

It is true that, in today’s world, there are alternative sources beyond the West to tap into markets, technology and capital, including in China. But the breadth of the sanctions is such that even Chinese entities, if they themselves plan to do business or raise money in the United States, will avoid doing business with Russian entities.

Back to the 1920s?

As a result, Russian industry will be left to grow, if it can, by having to depend on only domestic resources. Compared to the resources that are available globally, Russia’s are small and inadequate. Autarky thus seems preordained.

The question is whether this economic path will also entail, as it did in the 1920s, a return to dictatorial domestic politics. This is quite possible because autarkic developments are hard to implement if there is no corresponding political pressure.

Political pressure is also needed to keep those in check who are affected by sanctions and who need access to global markets. They will attempt to reverse the policies that have led to the sanctions.

Such attempts make them become direct political foes of the current government. The logic of political repression thus becomes inescapable.

Russia is stuck

It is quite unlikely to believe that the current impasse in which Russia finds itself can be overcome through different policies. That could have been achieved several years ago, but is no longer an option.

The reason for this assessment is simple. The causes listed in the imposition of sanctions are manifold. They cover the whole range of Russian policy approaches, from the annexation of Crimea to fake news.

They are so comprehensive that no new post-Putin government of any conceivable kind can accept reversing course on them all in order to shed the sanctions. The required fundamental change of behavior can be accepted only by a totally defeated country.

In addition, U.S. sanctions are notoriously difficult to overturn. U.S. sanctions restricting exports to the Soviet Union and its European allies started in 1948 and they were practically never discontinued.

Consider, for example, that the Jackson-Vanik amendment, which linked trade to the freedom of Jewish emigration, was on the books from 1974 until 2012. It was ultimately only repealed to be replaced by another set of sanctions contained in the Magnitsky Act.

The U.S. sanctions against Iran have been in place for almost 40 years. The sanctions on Cuba have lasted for more than half a century so far.

Shut out then – and now?

With regard to the latest, by far most serious round of U.S. sanctions against Russia, it is also important to have the proper historic economic perspective.

It is often wrongly asserted that the USSR actively chose a policy of economic autarky back in the 1920s. That is not the case. Russia spent the entire 1920s in pursuit of foreign capital which it wanted to use to rebuild its destroyed industry and, optimistically, catch up with the West.

But that capital was never forthcoming. Western powers refused to recognize the legitimacy of the Soviet government. And since the Soviets had repudiated the debt accumulated by Tsarist Russia, their access to capital markets was shut.

This created the situation in which Soviet development had to be conducted entirely based on domestic accumulation and technology. That is how comprehensive planning of the economy — and the extraction of the surplus from the only segment of the population that could generate it, the Soviet peasantry – turned into national economic strategy.

Soviet industrialization thus took place on the “blood and toil” of Soviet (which essentially meant Ukrainian) peasantry. Beginning with the First Five-Year plan in 1928, this policy was conducted by Stalin with characteristic brutality.

Putin’s record

For all his presumed coolness and calm power calculations, Putin has steered Russia, through a series of tactical(!) successes, but has led it into a comprehensive strategic defeat. What’s worse, neither he nor the governments that will eventually succeed him, are likely able to extricate the country from that predicament.

In contrast to the 1920s, there is al no ideology, short of extreme nationalism, on which an autarkic system can be built today. The Bolsheviks of the 1920s had an ideology which led them ultimately to accept autarky and to work within its constraints.

Such an ideology does not exist in today’s capitalist Russia. Yet, the industrialization debate of the 1920s may again become indispensable literature for economic policy-making.

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About Branko Milanovic

Branko Milanovic is the Presidential Professor at the City University of New York's Graduate Center, and Senior Scholar at Luxembourg Income Survey.

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