Modernization of the Russian Economy: Fossil Fuels, Diversification and the Shackles of International Political Economy

This chapter elaborates on the choices made for modernizing the Russian economy under Vladimir Putin’s reign, from his inauguration in 2000. We propose that from the start, modernizing the economy was a major goal for his government. The initial choice was to pursue wide-ranging interests of the state and society by means of developing the fossil fuel sector. However, the government has simultaneously sought to diversify the economy by supporting non-fossil fuel sectors. Diverting from the existing resource curse discussion, we show how energy resources are both the blessing and the curse of Russian development. They have been the main source of Russian economic growth, but at the same time the key branch for rent-seeking. In existing literature, Russian economic policy is seen as either neo-liberal or state-run. Our empirical analysis shows that it is both. Currently Russian think tanks are hankering for a mixed economy and developmental state, whereas the actual economic policy still has strong elements of neo-liberalism. The Russian elements of the mixed economy are driven by East Asian examples, and Russia’s commodity-based economic structure is generally compatible with developmental industrial policies. However, bureaucratic power in Russia is not centralized in the developmental state fashion.