Prospects of a Mobilization Economy
In the difficult times created by the growth of geopolitical tensions and unprecedented sanctions pressure on Russia, the question of the transition to a mobilization model of the economy is put on the agenda. What is it, and what are its prospects? Doctor of Economic Sciences Igor Nikolaev, Chief Researcher of the Institute of Economics of the Russian Academy of Sciences, shared his vision with Capital Ideas.
Let’s immediately clarify how a mobilization economy differs from a regular one. Mobilization is when everything is under duress, without enthusiasm?
This is the right approach: first we need to define the concept, because there are different points of view on what a mobilization economy is. There is an idea: mobilization is when everything is under duress. In my opinion, it’s not always “under duress”.
For a correct understanding of what a mobilization economy is, it is necessary to proceed from the name itself. Mobilization means that the resources of the economy – monetary, material, labor and others – are mobilized to solve some super-task. How these resources are mobilized – under duress, by persuasion, with money, or some other way – is another matter. The main thing is that resources must be mobilized.
The most striking example of a mobilization economy is, perhaps, a war economy. The other day I took down from the shelf a book by N.A. Voznesensky, “The Military Economy of the USSR during the Patriotic War.” The author was First Deputy Chairman of the Council of Ministers of the USSR from 1941 to 1946, and Chairman of the USSR State Planning Committee from 1942 to 1949. He writes very well about this, drawing attention to the fact that at that time, in order to restructure the national economy of the USSR, the following were carried out: mobilization of the production capacities of socialist industry, workers and engineering and technical personnel; mobilization of the material resources of agriculture and the labor of collective farmers; mobilization and military restructuring of transportation, etc.
That period was the clearest example of a mobilization economy under a socialist economic system. But in the United States in the same period there was also a mobilization economy, but based on market principles of management. Of course, the American economy was not mobilized as much as the Soviet economy at that time, but it was also mobilized – although this was implemented mainly not by command-administrative methods, but by market methods.
Does Russia need a mobilization economy at the current stage? Is there no way without it?
It seems that there is no other way, because everything related to the acute geopolitical crisis around Ukraine is becoming dominant, including economic development.
Which industries will be given priority in mobilization?
Ensuring the functioning of the enterprises of the Russian defense complex will remain a priority, and this is quite obvious.
Mining, and above all the oil and gas sector, are in a difficult position in the current situation. The Russian economy approached the crisis of 2022 with a resource-oriented economy; it has not managed to get off its oil dependence in recent decades. Rosstat estimates the share of the oil and gas sector in Russia’s GDP in the first quarter of 2022 at 21.7%, which is 4.4% more than the same period in 2021. Overall, the share of the oil and gas sector in 2021 GDP was 17.4%, which in turn was higher than the same indicator in 2020. Thus, the share of the oil and gas sector in the country’s GDP in the years before the crisis of 2022 increased quite noticeably.
In the conditions when the painful structural transformation of the Russian economy has just begun in 2022, it is impossible not to pay increased attention to the oil and gas sector. This sector, despite the powerful sanctions constraints it is already facing (and is likely to face even more in the future), will remain among the priorities of the state’s structural policy, if only because it will continue to be extremely important for the country’s budget.
The functioning of an economy of the mobilization type also requires the reliable operation of infrastructure industries: energy, transport. In addition to taking into account the sectoral priorities dictated by the requirement of a mobilization economy, it is necessary to take into address those areas that have already been determined as priorities by the relevant measures to counter sanctions. First of all, the information technology industry should be highlighted.
How will a mobilization economy affect small and medium-sized businesses? Are these compatible concepts?
It is important to note that at the state level there have not yet been statements about an economy of the mobilization type. Apparently, they do not see the need for this, as in fact it is already being formed. But in any case, it is necessary to understand how, in principle, a market economy can be of a mobilization type. The mobilization nature of the economy naturally requires the introduction of command-planning management methods into it. However, this does not fit well with market principles of management. To what extent administrative methods of management can be implemented, but in such a way that the economy remains a market economy, is a question to which no answer has yet been stated.
As for small and medium-sized businesses, their prospects in the conditions of a mobilization economy will largely depend on how the state behaves. If it tries to interact with entrepreneurship primarily on a market basis, then rejection of the mobilization economy will not occur. Simply put, if the state needs something, then it should act through the usual state order, through the provision of more favorable conditions.
Is there a danger that the mobilization economy will turn from a temporary phenomenon into a permanent one – that the state will act as the only employer, as in the days of the USSR?
There is such a threat. If the force majeure period that the economy is experiencing today drags on indefinitely, then it will be difficult to understand what is possible in any other way. They say that you quickly get used to good things. Alas, you can also get used to the bad.
A mobilization economy should be an economy for a concrete period. In the grand scheme, there is nothing particularly good in it, because an economy must be diversified. Its development should be aimed at solving a wide variety of problems. Then there will really be development, movement forward – comprehensive, effective, long-term, with a strong social component. I believe that this is a universal requirement for everything, including the economy.
Won’t the exit from a mobilization economy be painful? Will not the well-known principle come into play: “entry – one ruble, exit – two”?
This will depend on how correct the understanding of the specifics of a mobilization economy will be. But most importantly, this will depend on how widely and deeply command and administrative methods of management are eventually applied. And if things go far, if there is little left of the market economy – then it will hurt. But even if, as I said above, things go far – it is better to have a painful exit from a mobilization economy, than to allow it to take root in an attempt to prolong the existence of such an economy.
