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Is Russia diversifying its economy or once more strenghtening its already strong sectors?

by Michele Tempera

Abstract

From the Soviet period the Russian Federation inherited a rigid industrial structure on which it has built its present-day productive system with substantial continuity. The strict configuration of the Soviet planned economy has left Russia with few big industrial complexes which were for the most part less efficient and productive than the western European ones. The main and driving economic sectors were at the time, and remain today: energy, weapons manufacturing and steel and aluminium production. The peculiar soviet economic policies prevented any significant diversification until the early nineties, when a general economic collapse and the loss of the satellite states economies support led to an arrest in any possible productive development.
The far-reaching privatization wave that occurred after the fall of communism has partly reshaped these traditional economic divisions, leaving a good slice of the biggest factories in the hands of the public sector through its state-owned or state controlled enterprises and the holding companies. This change happened, especially under the Eltsin government tenure, without any effect on the whole productive structure except for the ownership of some of the more profitable state enterprises.
The internal political and financial scenery emerged in this way and and brought Russia to the new millennium with a roughly tripartite economic structure. The first segment is composed by a number of small enterprises and activities which suffered huge technological backwardness and isolation from the rest of the country’s economy. The second segment is made up of an extended public sector which stretches to cover the majority of strategic financial and productive enterprises once owned by the soviet regime.
The control over these strategic economic strong points is exerted through public holding companies or by the federal government directly. The third economic part, which came to light at the beginning of the new millennium, is constituted by the state enterprises or some of their branches that the so called “oligarchs” were able to gather at the time of the vast, non-transparent and suspect post-soviet privatizations. This situation led to an almost motionless economic structure, where a small number of primary sectors have been advantaged at the expenses of dynamic, widespread and balanced economic development. At the same time the majority of Russian human and monetary resources have been devoted to those sectors, leaving only a minor role to all other activities.
From Putin’s rise to power in 1999 onwards, this unbalanced trend has been going on without any interruption and is still evident today. Nevertheless the last eleven years have seen the rising need to cope with the lack of economic alternatives outside of the above mentioned pillars, that historically have been the backbone of Russia’s productive system. The necessity to enlarge the economic options has been felt by Moscow as a priority on paper, but it hasn’t been already addressed successfully.
The difficulties faced by Moscow in diversifying the national economy are damaging the wellness of the country, exposing it to the shifts of raw materials prices. Are the authorities working to solve this structural problems or are they worsening the overall condition of the economy?

 
Original title: Is Russia diversifying its economy or once more strenghtening its already strong sectors?

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