In the next decade or so, the history of economic policy will be enriched by a new, never imagined, experiment: how to accomplish technologically regressive import substitution? This is the problem that Russia will have to face and that is entirely new. To explain why it is new, consider first what is import substitution. It was originally, at the time of Alexander Hamilton and Friedrich List, a policy whose objective was the technological catch-up of less developed countries through the use of high tariff barriers to enable local production of things that were previously imported. The policy was imitated by many other countries, including the Imperial Japan after the Meiji Restoration and Czarist Russia under the Prime Minister Sergei Witte. Soviet industrial policies in the 1930s and even after World War II were also in the same mold. And, finally, domestic policies in Brazil and Turkey in the 1960-80s defined the meaning of import substitution for several generations of economists.
For highly skilled workers working in jobs requiring a lower level of skills, there is labor migration from Eastern Europe, HK, etc. where postgraduates are working in factories, entry-level service, or menial jobs, due to the same mismatch between their skill level and available employment. The wage differential more than compensate the loss of status, tho.
There are also intentional communities (Kibbutz, back-to-the-land) where middle class residents pick up farming or artisanal work as a cultural and social statement.
What is apparently novel about this experiment is that the effects of microeconomic downward mobility will appear on a macroeconomic scale as a regression in the value chain. But still, similar regressions at a lower base also occurred whenever external trade failed, such as the collapse of Western Roman Empire. Both of those are adaptational responses to unfavorable economic conditions, and the economic transition from Late Antiquity to the Early Middle Ages succeeded with the economic reorientation to localized feudal economics.
Moreover, this may also provide a good study to compare with possible applications of degrowth theories, and to debate whether there will be an intentional reduction of economic complexity in Russia.
p.s. It is also very unlikely for the Russian market to be reintegrated into the global one precisely due to the reemergence of economic nationalism and concurrently alternative forms of economic development that will render global economic integration less rewarding, e.g. 4IR, Green transition, degrowth, etc. The Russian economy will be among those developing regions which are left behind on the coming economic consolidation, something that may be partially mitigated by increasing integration with the Chinese technological complex.
Not sure I see the distinction between earlier import-substitution efforts, which had the *objective* of modernization, with Russia's deindustrialization, which will have the *effect* of substituting less efficient local production for imports. When Hamilton wrote his Report on Manufactures, US manufacturing was technologically backward compared with British -- that's precisely why industrial policy was needed!
Among other things, "low end" manufacturing is already owned by China, worldwide.
The economics and mechanics of mercantilism are thoroughly proven - nor is Russia either a 1st world economy having to figure out how to onshore or a 3rd world economy figuring out how modern machinery and industrial economics works.
The author also clearly has no clue whatsoever on what Russia's consumer economy looks like. The reality is that there are (now) all manner of Russian manufacturers and producers, up and down the spectrum, due to the multi-year sanctions already in place. What is happening is that foreign brands, that used to dominate due to Russian domestic consumer preference, are both losing cachet (in all cases) and accessibility (in some cases).
If the author spent more time, he would understand the interesting possibilities being introduced: what can Russia do with its enormous energy, food and metal resources which would be impossible for anyone else to replicate? Saudi Arabia but with arable land and water? The American MidWest but with titanium, palladium, steel, aluminum and energy?
I'm not saying this is guaranteed to happen, but I am saying that the author has clearly not spent any time learning and pondering the details of this situation.
Wow. I mean, I don't know why you are writing on this while the Russian invasion is killing thousands of Ukrainians, but my idea is that I could use an old laptop, an old car (VW bug?) and old t.v.'s and so forth. I would like to do that. I don't think much of the new technology at all. I always wonder what is with people? -why they need like 500 gigabytes, when a laptop from the late 1990s that I used seemed to work just fine with less than 1 gigabyte. I also miss the old movies with their garish color effects, and so forth and so on. Sorry, if that is not what you meant but at least you gave me the words: "technologically regressive (import) substitution." ~thanks, Bruno
The question is that what is better Dutch disease or externally imposed 'exogenous import substitution"? Russia is not implementing (and not promoting) IS policy at all. She is not raising tariffs and non-tariff barriers. Russia is not creating distortion in the market. The simple truth is that the things, which were available before, are now omitted from the market. Enormous resources devoted to the energy sector now will be diverted to other sectors with higher economic benefits.
Isn't it more likely that Russia will become a resource source for china and import high tech Chinese goods? No matter what Russia thinks it wants to be, that seems almost inevitable
This import substitution industrialization (ISI) strategy is likely to be weakened not only by the Russian reliance on exporting natural resources but also by the high commitment to military activities and technologies. The countries that used successfully import substitution industrialization as an intermediate stage in their development were generally not rich in natural resources, or not relying heavily on them, and managed to shift away from import substitution industrialization towards Export oriented industrialization at a given stage. This will be impossible for Russia if it will keep relying on its older, and now outdated, technologies.
For highly skilled workers working in jobs requiring a lower level of skills, there is labor migration from Eastern Europe, HK, etc. where postgraduates are working in factories, entry-level service, or menial jobs, due to the same mismatch between their skill level and available employment. The wage differential more than compensate the loss of status, tho.
There are also intentional communities (Kibbutz, back-to-the-land) where middle class residents pick up farming or artisanal work as a cultural and social statement.
What is apparently novel about this experiment is that the effects of microeconomic downward mobility will appear on a macroeconomic scale as a regression in the value chain. But still, similar regressions at a lower base also occurred whenever external trade failed, such as the collapse of Western Roman Empire. Both of those are adaptational responses to unfavorable economic conditions, and the economic transition from Late Antiquity to the Early Middle Ages succeeded with the economic reorientation to localized feudal economics.
Moreover, this may also provide a good study to compare with possible applications of degrowth theories, and to debate whether there will be an intentional reduction of economic complexity in Russia.
p.s. It is also very unlikely for the Russian market to be reintegrated into the global one precisely due to the reemergence of economic nationalism and concurrently alternative forms of economic development that will render global economic integration less rewarding, e.g. 4IR, Green transition, degrowth, etc. The Russian economy will be among those developing regions which are left behind on the coming economic consolidation, something that may be partially mitigated by increasing integration with the Chinese technological complex.
Not sure I see the distinction between earlier import-substitution efforts, which had the *objective* of modernization, with Russia's deindustrialization, which will have the *effect* of substituting less efficient local production for imports. When Hamilton wrote his Report on Manufactures, US manufacturing was technologically backward compared with British -- that's precisely why industrial policy was needed!
A steam punk economy.
This a poorly conceived and executed article.
Among other things, "low end" manufacturing is already owned by China, worldwide.
The economics and mechanics of mercantilism are thoroughly proven - nor is Russia either a 1st world economy having to figure out how to onshore or a 3rd world economy figuring out how modern machinery and industrial economics works.
The author also clearly has no clue whatsoever on what Russia's consumer economy looks like. The reality is that there are (now) all manner of Russian manufacturers and producers, up and down the spectrum, due to the multi-year sanctions already in place. What is happening is that foreign brands, that used to dominate due to Russian domestic consumer preference, are both losing cachet (in all cases) and accessibility (in some cases).
If the author spent more time, he would understand the interesting possibilities being introduced: what can Russia do with its enormous energy, food and metal resources which would be impossible for anyone else to replicate? Saudi Arabia but with arable land and water? The American MidWest but with titanium, palladium, steel, aluminum and energy?
I'm not saying this is guaranteed to happen, but I am saying that the author has clearly not spent any time learning and pondering the details of this situation.
Wow. I mean, I don't know why you are writing on this while the Russian invasion is killing thousands of Ukrainians, but my idea is that I could use an old laptop, an old car (VW bug?) and old t.v.'s and so forth. I would like to do that. I don't think much of the new technology at all. I always wonder what is with people? -why they need like 500 gigabytes, when a laptop from the late 1990s that I used seemed to work just fine with less than 1 gigabyte. I also miss the old movies with their garish color effects, and so forth and so on. Sorry, if that is not what you meant but at least you gave me the words: "technologically regressive (import) substitution." ~thanks, Bruno
The question is that what is better Dutch disease or externally imposed 'exogenous import substitution"? Russia is not implementing (and not promoting) IS policy at all. She is not raising tariffs and non-tariff barriers. Russia is not creating distortion in the market. The simple truth is that the things, which were available before, are now omitted from the market. Enormous resources devoted to the energy sector now will be diverted to other sectors with higher economic benefits.
Isn't it more likely that Russia will become a resource source for china and import high tech Chinese goods? No matter what Russia thinks it wants to be, that seems almost inevitable
This import substitution industrialization (ISI) strategy is likely to be weakened not only by the Russian reliance on exporting natural resources but also by the high commitment to military activities and technologies. The countries that used successfully import substitution industrialization as an intermediate stage in their development were generally not rich in natural resources, or not relying heavily on them, and managed to shift away from import substitution industrialization towards Export oriented industrialization at a given stage. This will be impossible for Russia if it will keep relying on its older, and now outdated, technologies.
Very, very interesting article and perspective / forecast / prediction / prophecy. :)
I love your articles since they have a perfect blend of economy with a pinch of philosophy.
What about if Russia allies with China or other country to get updated modern technology from them?
Pozdrav,
Dom
Gary Dyall
I find your articles very interesting and informative and I always enjoy reading them.