Viewing Russia’s economic problems as the sole result of the full-scale invasion of Ukraine would be a mistake. In fact, the war grew out of an economic system that had been built long before the first shots were fired. 

Russia will not return to normal automatically in the event of a ceasefire or peace treaty. This may sound pessimistic. But acknowledging it is a necessary step in the conversation about what needs to be done to secure Russia’s future.

Russia chose guns over butter long before 2022. At the foundation of this model was an enormous concentration of power and resources among big business, regional elites and Kremlin bureaucrats, all of which hand the Kremlin the right to make key political decisions in exchange for guarantees of their own incomes and status.Thus, society became organized among lines of patronage: each group had its own niche, its own rules of the game, its own revenue. And each had its own dependence on the center that distributed this rent.

The technocrats who managed the economic bloc sincerely considered themselves pragmatists. Under the slogans of macroeconomic stability and fiscal responsibility, they accumulated reserves, restrained inflation and maintained low public debt. Much of what they did was reasonable — if one evaluates their work exclusively by financial indicators.

But there was a blind spot that financial indicators do not capture: the stability of public finances was ensured at the cost of systematically underfunding people and territories.

Underinvestment in hospitals, schools, roads and utility systems in most regions is not accidental oversights. Depressed regions, deprived of economic prospects, became the reservoir from which the Kremlin draws its contract soldiers, leaving the children of the ruling class unscathed. This is a war of wealth at the expense of poverty, and the economic model was built precisely this way, deliberately preserving inequality of opportunity between the center and the periphery.

For many Kremlin technocrats, the war became a personal tragedy. But in choosing stability at any cost and delegating political decisions, they created a system in which war became economically possible. Years of fiscal consolidation formed a strategic reserve that made it possible to wage war without immediate financial collapse.

Putin Is Battling Inflation – But Sacrificing Russia’s Economy

The war accelerated and laid bare........

© The Moscow Times