Clever Russian Industrialization


August 11th, 2015

PolitRussia – translated by Jafe Arnoldski

Once again coming into fashion are the traditional hysterics and
public hand-wringing on the theme that “Russia doesn’t produce anything, but
just pumps gas,” with the inevitable addition of the iron forecast that “everything
is bad, and will only get worse.” Apparently expecting that industrialization
can be carried out in a maximum of 12 or 18 months, some citizens are actively
interested by the topic “Where is import substitution?!!” Other citizens are
actively dissatisfied with the fact that Russia has not yet learned to produce
iPhones, which to many seem to measure technological progress.

First one needs to look at the recipe for turning into an
“international factory” in the concrete example of  China. For this, several components are
needed: the cheapest labor possible, a maximum preferential treatment for
foreign investors, and total disregard for environmental standards and the
safety of labor. As an illustration, we can recall the suicide of Chinese
workers at the FOXCONN factory, the very company that produces i’Phones:

27 сентября 2012-го – Обратная сторона айфона: самоубийства, избиения рабочих и
бунты на фабриках

20 мая 2013-го – Новые самоубийства на заводе Foxconn 

The photos of rivers and lakes full with chemicals, stories about
the “cancer villages”, and the official recognition by China’s
leadership that the environment has become an issue of national importance, the
curious can easily find yourself can easily be found independently by curious

Besides this, China has an enormous advantage: an enormous
internal market which can be developed, the expense of which can already be
ensured by the returns of industrial development.

When liberals in the like of Gref and Kudrin remorse that in
Russia the growth of wages for the last 15 years has greatly outstripped the
growth of the productivity of labor, in fact they are saying that what is very
bad is that Russia did not follow the Chinese path. Our liberals (and some
statists) are pleased to freeze wages at the average level of the year 2000, or
at around the level of 80 dollars, so that this, unquestionably would ensure
the transformation of Russia into the “assembly plant of Europe.” 

Only by this
would those who whine on the internet about our lack of industrial growth be
happy. Putin understands what the liberals and some statists don’t understand
when they regret that “labor costs increased four fold in 15 years.” After the
horror of the 90’s and the deficit at the end of the 80’s, an attempt to put
the entire country in 10 years on “Chinese rations” would end in demographic
catastrophe and, it’s possible, rebellion. 

The president has purposefully
pursued a policy which for 15 years has enabled Russians to get more and spend
more. The president has repeatedly said that we can no longer pay for accomplished
successes in economics and geopolitics at the cost of human destinies. As
practice shows, only in the case of absolute necessity will be taken which
would create discomfort among the population. Unfortunately, few appreciate

Roughly speaking, the position of the president has always been
that it is impossible to use the population as coal which can be thrown into
the furnace of industrial growth. Emphasis was made on the development of areas
in which it’s possible to get breakthrough technologies and high profitability.
Industry as a whole has grown in the past 15 years:

Furthermore, Russia is now the world leader in the field of
armaments, nuclear energy, and space exploration. Winning the bid to construct
nuclear power plants in EU countries (Finland, Hungary) has already become a
routine for Rosatom, and the leader of NASA recently lamented the fact that
“the greatest nation on earth” (of course he means the USA) is compelled to use
Russian engines.

The enhanced development of industry, like the enhanced
development of agriculture, in the first stage creates serious inconveniences.
In the beginning, Russian counterparts for everything, from automobiles to
apples, were not as attractive and significantly more expensive because their producers
did not subsidize countries with more serious financial opportunities or
countries with have an available dollar printer. Recall the protests, meetings,
and almost riots which took place during the introduction of protective duties
on foreign cars. Who then was interested in the future of the Russian auto
industry? To this time, it is still possible to meet citizens who became
staunch “white-banner wearers” because “damned Putin” took away their ability
to buy used foreign cars for 500 euros. 

Now extrapolate this to the whole
economy and imagine what it would be like if the same approaches would be
applied to all sectors. Now we have considerably more resources, but citizens
(in their majority) have
adequately perceived that the overlap of imports is not a machination of evil
authorities, but a necessary feature of supporting domestic producers, and this
dramatically changes the possibilities for import substitution. In the
conditions of the activation of geopolitical confrontation, the opportunity has
appeared to even break the resistance of some industrialists, literally forcing
them to sacrifice short-term economic efficiency in the name of long-term

In a recent interview, Minister of Industry Denis Manturov found
a poetic description of the situation:

“…those sectors of our economy which consume industrial
products have turned towards our industry and have begun to formulate orders.
This is an obvious plus. From the point of view of obtaining missing
technologies and competition, this is a definite challenge to our engineers and
our scientists who will have to cope with this. As a result, in a number of
areas we’ll receive samples of products which we never had before in the
country, but will now have.”

Judging by the statements of the minister, the process of import
substitution in Russia is based on the use of this part of international
experience which does not involve the mass creation of work places with a
salary the size of three cups of rice a day. Manturov describes a scheme that
is widely used in China, Brazil, and India with the addition of strong
protectionist features. To some extent even the experience of the pre-war USSR
is used. The essence of the scheme is this: the areas where we don’t have the
relevant technologies and skills will attract foreign investors. Russian and
foreign investors in Russian industry will be guaranteed sales by the bill of
the state and orders from the state companies, but in exchange, the investor
must ensure the transfer of key technologies and these processes which create
the main part of the added value. The Russian auto industry is already going in
this way and the results are very good. According to the minister:

“Now, 90% of sales on the domestic market are domestic
automobiles produced in Russia. We understood that we are not creating
discomfort for anybody and there is no discrimination. If any commercial
company wants to buy a certain car which is not produced in Russia, please pay
a fee and buy. But a state company or any government agency must rely
specifically on those cars which are produced in Russia today.”

Now it’s time to extend the same experience to the rest of
industrial spheres. Among the “engines of development” will be traditionally
held the defense companies belonging to the state corporation Rostekh for whom
the development of civil lines of business remains a priority. Here there is
nothing to be ashamed of and no need to have any sort of complex on this
occasion. The internet is the brainchild of the US defense industry and there
is no reason to believe that the Russian defense industry is incapable of
coming up with something equally impressive. It is indicative that even the
guru of liberals, the founder of the Higher School of Economics, Yaroslav
Kuzminov, admits that the defense industry is vital to our economic growth:

“It is often said, come on let’s halve the weapons program. Now
it is already impossible to do this, because the money of an entire generation
will be thrown out. It is extremely important not only for our independence,
but for the preservation of Russia in the high-tech sector. Now especially
these productions form the updated technological potential of our economy. They
form a new engineer, a new appliance, and a new skilled worker.” 

The depreciation of the ruble, despite it’s total discomfort,
works as a productive duty for imports and as a major incentive for Russian
exports to compensate for the shallow death of our own market.

Those who panic and freak out will undoubtedly point out that in
2015 industrial production fell. This is true. But from this it is not
necessary to make far-reaching conclusion. For example, the industrial output
in Germany, seasonally adjusted in June, unexpectedly fell 1.4% compared with
May according to the date of the Ministry of Economic and Technology of
Germany, but this is no reason to bury German industry. Russian industry
requires some time to adapt to new conditions, time is needed for the
government program to stimulate industry to work in full force, and time is
needed for positive trends to be reflected in statistics. The construction of a
new plant or the development of new technology happens slowly than the
appearance of food stalls. When we look back five or seven years, we think of
current times as difficult ones, but a period of import substitution and the
accelerated development of the country’s own industry is needed. We will get
everything we need.

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