The Outlook for Russia’s Regional Economies

|Russia

The differences in regional economic development levels in Russia are continuing to grow. In the first place, policies were adopted in the former-Soviet Union to suppress economic differences between regions. Of the population of the former-Soviet Union three quarters was concentrated in the European part of the country, which made up only a quarter of the total land area, and the European part had far more advanced infrastructure compared to other regions. That said, development incentives were given in the Soviet Union to develop its outlying regions; for example, double (or more) wages in the major cities in the regions near the Arctic. After the collapse of the communist regime, however, such policies came to exist in name only. The outlying regions stagnated through wages getting paid late and a lack of infrastructure, while people, goods and wealth further amassed in places such as Moscow.

It was predicted that from the outset of the introduction of a market economy, economic activity would become concentrated in the capital, Moscow, and its environs. The area of major cities with Moscow at the center, with its large population, made the differences between the regions all the wider as a result of its high income. That is, the “distribution of the market” appears more polarized than the “distribution of people”. The population of Moscow is only around 7% of the total population, yet at the same time the size of the retail market in Moscow is nearly 25% of that nationally. This is similar to the case of the Tokyo region in Japan, too, having just 10% of the total population but over 30% of the total retail market for the country—in Russia also this is the reason for the further economic consolidation of Moscow and its environs, being favored with the presence of government organs, corporate central management functions and a fully-developed infrastructure.

Outside of the capital region too, powerful growth is being seen in regions producing oil, natural gas and rare nonferrous metals, in step with the rises in the international prices of those natural resources—including in the Yamalo-Nenets Autonomous Okrug which produces over 80% of Russia’s natural gas, and in the Khanty-Mansi Autonomous Okrug which produces more than 50% of Russia’s oil.

On the other hand, in complete contrast to the prosperity of the Moscow-peripheral and the resource-producing regions, the stagnation in the Siberian and Far Eastern regions not producing resources has assumed a serious look, and after the collapse of the Soviet Union a massive exodus of people has occurred. In some of these regions, together with a death rate higher than the birth rate from 1992 on, the population has shrunk to less than half that at the time of the former-Soviet Union’s collapse. In regions such as these it can be said that, in addition to their economic stagnation, the viability of society itself has reached crisis point.

It is thought that for the former-Soviet Union—confronted by its neighbor the US on the other side of the Arctic region—there was a military and political rationale of carrying out development and establishing military outposts, to the extent of giving economic incentives to the Far East and the Far North. After economic liberalization, however, this situation completely changed. Government subsidies were greatly reduced, and the development incentive of the preferential provision of consumer goods was also cut. In the area of production too, the demand disappeared, through a rise in rail prices, for goods from the Far East, which had hitherto been supplied to the European part of the country. The occurrence of the population exodus from such regions could itself be said to be a natural consequence of the crumbling of the Soviet-era development policies.

Even if there was a purposeful rationale to the former-Soviet Union’s development policies of that time, whether it is justifiable today is another matter. As the author stated in his ERINA opinion paper of September 2006, the large populations which were settled in the frigid regions of the Far East and Siberia can only be considered as fettering Russia’s economic development. In order to raise the efficiency of the national economy as a whole, it has been deemed necessary to plan a major change in direction, and under a World Bank initiative, projects such as the “Northern Restructuring Program”—which has been put in place with the hope of encouraging an outward movement of population from the northern regions—expressly takes aim at this. Will limited human and material resources concentrated in already existing centers, and the very “shrinking” that Fiona Hill and Clifford Gaddy argued for in the Far East and Siberia, provide any chance of achieving the desired outcome for Russia as a whole in the future?

[Translated by ERINA]