Staunton, Sept. 27 – Five factors are combining to make the Russian economy more primitive, Igor Nikolayev says, a trend that by itself might not be disastrous were it not for the fact that the economies of other countries are rapidly diversifying and becoming more complex, thus leaving Russia’s ever further behind.
The senior scholar at the Moscow Institute of Economics lists the five as follows: First of all, “sectoral sanctions are depriving Russia of advanced and even not so advanced but contemporary technologies,” thus forcing Russian firms to rely on old fashioned ones because the domestic economy cannot produce substitutes (mk.ru/economics/2022/09/25/nazvany-pyat-faktorov-primitivizacii-rossiyskoy-ekonomiki.html).
Second, the primitivization of the Russian economy has been intensified by the inability of Russian firms to handle the complex logistics the most advanced technologies require. When components need to be assembled from multiple sources, the absence of world class logistical arrangements forces firms to rely on what they can produce rather than what they need.
Third, according to Nikolayev, “the primitivization of production is the natural result of business behavior of companies under today’s crisis conditions.” Firms try to maintain what they have rather than develop, and what they have is increasingly behind what other countries are able to produce.
Fourth, “the simplification of the economy is the result of the reduction in the level of competition in it.” If firms aren’t at risk of losing sales to others, they are less inclined to try to produce new things or introduce more efficient forms of production. As Moscow has worked to reduce competition, it has simultaneously promoted primitivization.
fifth, the economist says, Russians aren’t putting the pressure on Russian
firms they might because “the Russians themselves rate the quality of Russian
goods as higher than imported ones” and thus are not inclined to demand that domestic
firms struggle to be better than they currently are.
If the economies in other countries were doing the same, that would not be a problem, Nikolayev continues. But they aren’t. Instead, “in an entirely natural way, they are becoming more complicated, more diversified, seeking additional ways to add value, and consequently becoming more profitable.” That in turn allows for more investment and economic growth.
Russia must ultimately follow their lead, Nikolayev says; or it will risk falling ever further behind.