Gosplan 2.0: Is Russia Taking Another Step Toward a Planned Economy?

On July 15, speaking during a session of the Russian State Duma, Deputy Prime Minister Denis Manturov elaborated on the need to take a turn “from absolutist market-type industrial policy toward a policy aimed at securing [Russia`s] industrial sovereignty.” In his speech, Manturov said that industries such as electronics, machine tool and chemistry “should be paid special attention” by Moscow (Rbc.ru, July 15). Later, the Russian Ministry of Industry and Trade (Minpromtorg) announced its intent to introduce elements of “planned organization” (i.e., planned economy) to the following key industries (The Moscow Times, August 19):

• Production of Flying Jets (Aviaprom): This sector of Russia`s economy has been hit extremely hard by Western economic sanctions. Overall, the Russian government has set an ambitious goal to reach an output level of 100 jets per year (reportedly achieved only during the late Soviet era). As an intermediary goal, Russia plans to finalize the process of certifying its domestically produced (with minimal number of foreign parts) Irkut MC-21 and Sukhoi Superjet 100 by the end of 2023 (info, June 5).
• Shipbuilding Industry: As a result of Western sanctions and a fear of secondary sanctions, Russian shipbuilding companies have lost contracts with Norwegian, German, and South Korean producers of liquefied natural gas (LNG) carriers (See EDM June 1, June 6).
• Pharmaceuticals Industry: Given the lack of foreign equipment and essential components, this sector has been experiencing visible difficulties. According to a survey carried out by the Russian Central Bank in July 2022, at least 40 percent of Russian companies working in pharmaceuticals were unable to find a replacement to (previously) imported supplies. Interestingly, existing challenges were also tacitly admitted by Russian Prime Minister Mikhail Mishustin, who—though praising Moscow’s handling of the pandemic—admitted that “Russia`s success [in producing the COVID-19 vaccine] is partially based on imported components” (ru, July 4).
• Production of High-Tech Special Equipment: According to statements made before Russia’s most recent aggression against Ukraine, this area “is almost fully done with participation of the Americans and could become inaccessible” (ru, January 26).

According to an article published by authoritative Russian business portal RBC, Russia plans to build its new import-substitution strategy (with elements of planned economy) around so-called “pulling” (vytiagivajushije) projects—also referred to as “beacon-projects,” which are strategic initiatives that are given top priority—that will be supplemented by investment and interregional agreements.

RBC claims the import-substitution business model could be organized in the following way: The state will conduct extensive consultations with large businesses and consumers to understand the quantities they will require for raw materials, particles and details (imported from abroad) that are indispensable for production. Then, companies and entities capable of producing these materials will be located. Finally, once successfully located, added privileges and perks for companies involved in the initiative will be indicated and clearly defined. According to an unnamed source interviewed by RBC, the new economic model will not result in the emergence of a “full-fledged Gosplan,” since that would be counterproductive and extremely harmful to the Russian national economy (Rbc.ru, August 19).

Yet, supplementary evidence suggests that, in pursuit of this model, Russia might emphasize the creation of clusters—to some extent, attempting to emulate the best practices of foreign counterparts—hoping to somehow match these with elements of a planned economy. Notably, this was highlighted by Russian President Vladimir Putin during the 25^th St. Petersburg International Economic Forum (June 15–18, 2022) when he stated that he had ordered the Russian government to conduct extensive research and finalize main conditions related to aspects of cluster functioning, such as financing, taxation, support at the early-production stage (lower than 7 percent credit rate and complete lack of administrative checks), facilitated administrative procedures and the creation of mechanisms guaranteeing demand for the final product (TASS, June 17).

The upcoming reforms have found mostly positive—yet still somewhat cautious—reactions from Russian economists and business experts. As noted by Georgy Ostapkovych, director of the Centre for Business Tendencies Studies at HSE University, under normal circumstances, it is not advisable for government to interfere in the private sector, since this twists the balance between supply and demand. Even in the current force majeure circumstances, the Russian government should not control prices and switch to a Gosplan-style economy. If it does choose to intervene, it should do so in a “gentle and very brief” manner (Banki.ru, August 19).

From his side, however, Alexey Fedorov (analyst at TeleTrade) considers these steps to be completely appropriate and apropos. He argues that major reforms and restructuring of the Russian economy—especially due to Western economic sanctions—cannot be done without major interference of the government. Yet, the expert has argued previously that, in many ways, the disappointing experience of import-substitution could result in some skepticism regarding the potential success of these initiatives. Even so, Fedorov concluded that, unlike before (2014–2021), when economic sanctions did not have such a severe impact, now, everything is quite simple: Russia has no room for error. Either machinery, ships and pharmaceuticals are domestically produced, or the country will face a severe shortage in strategically vital products (Ridus.ru, August 19).

Finally, given Russia’s gruesome experience with planned economies and the country’s rapid slide into the abyss of totalitarianism, this experiment is likely to be controversial to say the least. To be sure, the aforementioned priority areas will receive increased scrutiny and enjoy priority—akin to the Soviet military-industrial complex—which will occur at the expense of other, primarily civilian, sectors of the Russian economy.

Most surprising though is the reaction of ordinary Russians, many of whom perfectly remember the abysmal living standards under the previous Gosplan: In August 2021, when the first ideas on planned economy started to gain momentum, more than 62 percent of respondents to a national survey considered planned economy to be more effective than the market model, which represented the highest rate since 1992 (Dialectic.club, December 29, 2021). Meanwhile, according to the Russian Public Opinion Research Center, for the past 22 years, the number of Russians who consider Western values to be “detrimental for Russia” has grown 2.5 times (26 percent) (Rbc.ru, August 23).