The Heat Is Rising as Russia's Economy Falters

The Heat Is Rising as Russia's Economy Falters
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The worsening state of the Russian economy is under increasing scrutiny, as are divinations of its meaning for the Russian regime. Most prognostications stop short of issuing a verdict on the future of the Russian state should its economy plunge even further. Despite a state of affairs that would alarm a truly Western-style economy, the Russian economy continues to function, and even shows short spikes of growth in the face of the broad sanctions imposed on Russia. While arguments in favor of Russian stability in the face of continued economic instability are probably correct, many analysts in the former Soviet Union are nonetheless ringing alarm bells as the Russian economic outlook continues to darken, without any significant rebound or restructuring of an economy whose health depends on the price of oil. Ukrainian daily Obozrevatel.ua published an analysis that concentrates on Russian so-called mono-cities. These are single-industry towns with one dominant employer, usually an industrial plant or a factory that depended on state orders in Soviet days and continues to depend on Moscow today.

"What is particularly frightening," reads the analysis, "and may cause a collapse in such company towns, is a difficult post-Soviet legacy, where, after 30 years from the beginning of perestroika under (former President Mikhail) Gorbachev, nothing was done. Such towns will simply stop functioning, as happened in Pikalevo in the Leningrad region in 2008. Back then, Putin put out the fires singlehandedly, having arrived there by helicopter, calling on (industrialist and state enterprise manager) Oleg Deripaska, forcing him to sign a document on the resumption of production at known loss-making enterprises." Similar situations, and the plight of towns such as Tver, where Carriage Works industries stopped all production for two months in 2015 and the Kremlin had to buy off protest leaders, are also noted in the analysis.

A key point:

"In such single-industry towns, unlike in Europe and the United States, Russian labor mobility tends to be zero. People cannot change their place of residence, and people will start losing their jobs because their companies will stop paying and go bankrupt.

"People will not have the means for existence, which may lead to chaos in the regions, and may perhaps result in secession of regions and acts of separatism."

The analysis points out that this can happen in regions that are "difficult to suspect of disloyalty to Moscow, such as Bashkortostan, a rich region with the Bashneft oil company; or Tatarstan, a wealthy region home to the Tatneft oil company.

"Such regions may determine that with potential chaos across Russia, why should they pay into the federal budget, that ‘black hole,' with the money going to Crimea, Donbass, or for the maintenance of Chechnya and (its President) Ramzan Kadyrov."

This line of thinking is often cited as the reason that the Soviet Union broke apart. Many in the Russian government, including then-Russian President Boris Yeltsin, thought back in the pivotal years of 1990-1991 that the Russian Soviet Republic was feeding other regions of the Soviet Union that could not sustain themselves economically. Yeltsin's push to get Russia out of the Soviet Union was partially motivated by such economic indicators, among other complex factors.

"Once such acts of separatism start," continues the Obozrevatel.ua analysis, "Putin will send his security forces to restore order. Previously, no one knew that the National Guard would be created, and it was thought earlier that Putin would likely send FSB troops, army, and airborne units in such a scenario, and there would be bloodshed. But now it is clear why he is creating the National Guard with a purported strength of 400,000 troops. ... All this can lead to civil war."

Naive forecasts by the IMF on the health of the Russian economy, the analysis maintains, failed to take into account what might happen if some 250 out of the 320 Russian single-industry towns see economic activity grind to a halt.


Dire predictions are not just limited to Russia -- across the United States, many small and even mid-sized cities and towns have been hit hard by the plunging fortunes of coal-producing plants, causing widespread unemployment and carrying significant social implications, such as departure of younger generations. In the 1970s and 1980s, the American Rust Belt suffered through a massive economic realignment, when numerous steel mills and industrial plants were shuttered, leaving workers and their families to fend for themselves. Though such economic changes did not produce violent social upheavals, Russia stands to learn from the American experience of managing major economic changes that affect the treasury, the workforce, and state stability.

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