13.06.23 Review

Geography of the ‘Special Military’ Economy: Natalya Zubarevich discusses how war and sanctions have changed the Russian economy

An article by economic geographer Natalya Zubarevich, published by Re: Russia, provides what appears to be the most vivid and concise depiction to date of how the Russian economy is changing as a result of the war and its associated sanctions. A look at the dynamics of the country’s economic performance across different regions offers a multidimensional perspective that reveals what might have been otherwise overlooked in analyses of different industrial sectors. The decent average figures hide a diverse range of dynamics, but the localisation of anomalous growth and decline allows us to see beyond the otherwise optimistic data for the economy as a whole and grasp the wider process of structural transformation associated with the war and sanctions.

Thus, for example, a general view of the construction industry reveals little about its nature and driving factors. However, as Natalya Zubarevich writes in her article, 'Special Military Economic Geography: Changes in the Russian Economy by Region,' when construction growth figures are localised by region, many pieces of the puzzle begin to fall into place. While the country's average construction growth in the first months of this year reached 7%, it soared to 36% in the Southern Federal District, and 60-64% in Crimea and Rostov Oblast. Anomalous growth in construction and investments is observed in regions bordering the occupation and conflict zones. It does not matter what is being built there—anti-tank ditches, fortified areas, or housing to replace bombarded structures. This growth is the result of state investments associated with the needs of war. Another area of abnormally intensive construction has been observed in regions along the Trans-Siberian Railway, which is indicative of the expansion of the so-called Eastern Polygon of this rail line.

Similarly, unprecedented growth rates in the manufacturing industry, at levels unseen during the post-Soviet period, have been witnessed in regions where the military-industrial complex (MIC) plays a significant role in the local economy. Meanwhile, the once prosperous automotive and timber processing industries are now experiencing a prolonged and abnormal decline.

The record-low unemployment rate, in which the authorities are evidently taking pride, is the result of several factors: a demographic gap; widespread mobilisation (the main burden of which has fallen on the provinces); emigration of a portion of the middle class from megacities; and increased demand for labour in war-related industries. As a consequence, we are dealing with an artificially reduced labour force alongside artificially created labour demand, leading to wage competition—a rise in wages that outstrips labour productivity and is not supported by an increase in consumer goods.

The effect of expanding state demand related to the needs of the war and social transfers has led to a situation where real incomes are growing in peripheral areas while shrinking or stagnating in megacities and technologically advanced production zones. This is also the primary vector of the economy’s structural transformation — an effect of simplification or 'primitivisation' processes.