Named five factors of primitivization of the Russian economy

Now we can not even talk about simplification, but about the primitivization of the economy. Don’t like the term? Okay, let there be a “simplification”. But the point is, after all, not in terminology, but in essence: the Russian economy is clearly becoming simpler, it is not becoming more complex in terms of technological characteristics, the range of products produced, and even in terms of their quality.

The clearest example is what is happening in the Russian automotive industry. Remember how in the spring of this year Togliatti Automobile Plant announced that it was switching to the production of products without airbags, anti-lock braking systems (ABS) and vehicle directional stability systems (EPS)? After some time, however, a message appeared that the problem with the configuration of domestic cars with airbags seemed to be solved. However, the figures that were voiced at a recent meeting on the problems of the automotive industry in the Federation Council indicate that Russian cars produced for a long time may remain equipment of not even yesterday, but the day before yesterday. Judge for yourself: the development of the Russian automatic transmission (automatic transmission) may take 4-5 years (and 30 billion rubles). Even the development of not an automatic, but a manual transmission will require 10 billion rubles, the development of an all-wheel drive – 20 billion rubles. And it also turns out that today at AvtoVAZ, from 100 to 300 components are at risk.

Automobiles are, of course, a good example of how the Russian economy is being simplified, but it is by no means the only one. Other industries are also undergoing similar processes. Why is this happening? There are several reasons.

First, sectoral sanctions deprive Russia of advanced (and not even advanced, but simply modern) technologies. We have been talking for decades about getting off the oil needle, implying that in return we need to create a high-tech economy. They didn’t get down. Not created. That is why technological sanctions are so sensitive. Let’s also take into account the fact that technologically advanced enterprises in Russia are large companies, against which sanctions are mainly imposed. This affects their work, it affects the technological level of production.

The departure of foreign business from Russia also has a negative impact on the prospects for the country’s technological development. Foreigners, many of which are truly global companies, came to the Russian market with their advanced technologies, developed their business, improving technological processes in our open spaces. The transfer of foreign technologies to Russia relied on the foreign business that was present in the country. Now these processes, obviously, are largely hampered.

Secondly, the primitivization of the economy is due to the breakage of transport and logistics chains. It turned out that this problem most painfully affects the production of high-tech products. And it is clear why: it is precisely such industries that have a lot of components, complex logistics.

Thirdly, the primitivization of production is a natural consequence of the business behavior of companies in the current crisis. A crisis is financial problems that you can try to solve, including by reducing costs, by reducing production costs. We reduce costs simply: they do not invest in the development of a new, advanced one. Even the packaging of products is simplified so that there is nowhere else to go.

Fourth, the simplification of the economy is a consequence of the decrease in the level of competition in it. First of all, the state itself makes decisions that limit competition. This is done, of course, with the best of intentions – for a more successful opposition to sanctions. However, such decisions must be commensurate with the possible negative consequences of their adoption. For example, a Decree of the Government of the Russian Federation on March 10, 2022 established that until December 31 of this year, customers have “an additional right to purchase goods, works, services (hereinafter referred to as procurement) to meet federal needs, the needs of a constituent entity of the Russian Federation, municipal needs from the only supplier (contractor, performer)”, determined, respectively, by an act of the Government of the Russian Federation and a local authority.

It was also decided by another decree of the Government of the Russian Federation (dated March 6, 2022) that if unfriendly countries have imposed sanctions or restrictions against the customer, then he has the right not to place information about the winner in the Unified Information System during the procurement. This also applies to credit institutions if sanctions and restrictive measures are applicable to persons who control this credit institution. That is, sub-sanctioned structures are actually officially exempted from competition within the country. A number of other decisions were adopted, which, if evaluated from the point of view of their impact on the level of development of competition, have a negative effect.

Significant risks to competition in Russia have also arisen recently due to the mass exodus and suspension of foreign companies in Russia. These companies, as a rule, were leaders in their industries, product and commodity niches. When a leader leaves, you can, of course, expect that competition among the remaining companies will increase. However, what is happening today with the exodus of foreign business from Russia is still not such a case.

Thus, at present in our country there are risks of a serious decrease in the level of competition in the economy. And with a low level of development of competition, the need to improve something in the economy, to achieve a higher technical level of manufactured products, to think about the need to improve its consumer qualities disappears. What for? And so they will buy, because there is no other. It is clear what the economy will be like in this case – simple!

Fifth, the Russians themselves rate the quality of Russian goods higher than imported ones. This is surprising, but if you believe the results of the corresponding sociological survey by VTsIOM conducted in May 2022, then this is true. To the question: “What do you think, the quality of which products is higher: domestic or imported?” 56% of respondents answered that they were more likely domestic, 22% more likely imported, 22% found it difficult to answer. But if ours is better, better quality, then here it is the main consumer characteristic – that the goods be of domestic production. If so, then why care about some consumer characteristics of products? Our? Be satisfied. And we’re happy, well, most of us anyway. When there is such an attitude on the part of consumers, it lowers the bar for product requirements. This is also why this bar is not at a sufficiently high level today.

So, the economy is simplified, primitivized. This is scary? Well, in general, no. It functions even under the conditions of sanctions… Although how to look at it. The problem is that other economies are moving forward at the same time. They naturally become more complex, diversify, add value, and therefore become more profitable. It is their future. Can we embark on this path of economic development? I hope so. However, for now, we should accept it as a fact: in order to simply survive, the Russian economy is being simplified.