Russia’s war economy fuels rustbelt revival

Russia does have regions that resemble the “Rust Belt” of the USA, areas that have experienced industrial decline, population loss, and urban decay following a period of heavy industrialization.

The most prominent example is the Ural Industrial Region.

Here’s why the Ural region is considered Russia’s “Rust Belt”:

• Historical Industrial Hub: For over 300 years, the Urals has been a center for mining and heavy industry, particularly metallurgy and manufacturing, fueled by its rich mineral resources. It was significantly developed during the Soviet era as a core of the nation’s industrial and military-industrial complex.
• Post-Soviet Decline: Following the collapse of the USSR in 1991, the transition to a market economy led to a painful period of economic restructuring. Many of the old Soviet-era factories became outdated and uncompetitive.
• Consequences of Decline: This resulted in:
  • Failing industries and abandoned factories.
  • Outdated and dilapidated industrial equipment.
  • Decaying housing and infrastructure.
  • Job losses and high unemployment.
  • Population loss as people migrated for better opportunities.
  • Severe environmental degradation due to decades of industrial activity with less emphasis on environmental protection.

Other regions in Russia have also experienced similar patterns of industrial decline to varying degrees, often in areas that were heavily reliant on a single industry.

However, it’s important to note a few recent developments:

• Wartime Economic Shift: Some reports suggest that Russia’s ongoing war in Ukraine has led to a revival in some of these “rust belt” regions due to increased military production and related industries. State orders are injecting significant funds into these economies, leading to increased employment and wages in specific sectors. However, the long-term sustainability and broader economic implications of this war-driven “revival” are uncertain.
• Uneven Industrial Growth: Recent data indicates that while some sectors, particularly the military-industrial complex, are experiencing growth, other civilian industries in Russia are facing stagnation or decline due to sanctions, reduced demand, and logistical challenges.

In conclusion, while the Ural Industrial Region most closely fits the description of a “rust belt” in Russia due to its history of heavy industrialization followed by significant decline after the Soviet era, other areas have also faced similar challenges. The current economic situation, heavily influenced by the war in Ukraine, is creating new and complex dynamics in these regions.

Is the Ukraine Conflict Revitalising that Area?

Yes, the Ukraine conflict is having a complex and significant impact on the industrial regions of Russia, including the Ural region, and there are indications of a revitalisation in specific sectors.

Here’s a breakdown of how the conflict is influencing these areas:

Positive Impacts and Signs of Revitalisation:

• Increased Military Production: The most significant driver of revitalisation is the dramatic increase in state orders for the military-industrial complex. Regions with existing defense industries, like the Ural, are experiencing a surge in production to meet the demands of the war effort. Factories are reportedly working around the clock, and previously idled facilities are being brought back into operation.
• Job Creation and Higher Wages: The boost in military production has led to increased demand for labor in these regions. With a tight labor market across Russia, defense enterprises are offering higher wages and benefits to attract and retain workers. This is providing employment opportunities for residents and, in some cases, even attracting people back to these industrial centers.
• Filling Civilian Production Gaps: Some “rust belt” factories that didn’t directly receive large defense orders have stepped in to fill gaps left in civilian production due to sanctions and the departure of foreign companies. This import substitution effect is providing a lifeline for some enterprises.
• Government Investment: The Russian government is channeling significant funds into the defense sector and related industries, which indirectly benefits the infrastructure and economies of these regions.
• Increased Demand in Related Sectors: Industries supporting the military effort, such as textiles, food production, and logistics, are also experiencing increased demand and potential growth in these areas.

Evidence and Examples:

• Reports indicate a significant increase in industrial output in many Russian regions, although overall figures might be impacted by declines in other sectors. Some regions, particularly those with strong machine-building assets, have seen substantial growth in their contributions to the state budget.
• The Ural region, with its historical focus on metallurgy and heavy manufacturing, is likely a key beneficiary of this surge in military-related production.
• There are accounts of factory workers in traditionally struggling regions experiencing tripled wages since the start of the full-scale invasion in 2022.
• Unemployment rates in some of these regions have reportedly decreased significantly.
• Anecdotal evidence suggests that shops, restaurants, and gym chains are opening in some of Russia’s industrial heartlands, alongside the increase in military production, indicating a broader economic activity linked to the war effort.

However, it’s crucial to consider the nuances and potential downsides:

• Uneven Growth: The revitalisation is likely concentrated in specific sectors directly related to the war effort. Other civilian industries in these regions might still be struggling due to sanctions, supply chain disruptions, and reduced consumer demand.
• Sustainability: The current economic boost is heavily reliant on the ongoing conflict. The long-term sustainability of this “revival” is questionable. A resolution to the conflict could lead to a sharp decrease in military orders and a return to economic challenges for these regions.
• Inflation: Increased demand and government spending can fuel inflation, potentially eroding the real value of wage increases.
• Human Cost: The economic benefits in these regions are directly linked to a devastating human tragedy and significant geopolitical instability.
• Dependence on War Economy: Russia’s economy is becoming increasingly dependent on military spending, which could have negative long-term consequences for diversification and sustainable development.

In conclusion, the Ukraine conflict appears to be driving a temporary revitalisation in certain industrial regions of Russia, particularly those with a strong military-industrial base like the Ural region. This is evident in increased production, job creation, and potentially higher wages in specific sectors. However, this growth is uneven, likely unsustainable in the long term, and comes at a significant human and economic cost.