Boris Kagarlitsky: Economic preconditions for peace

First published in Russian at Rabkor. Translation by Dmitry Pozhidaev for LINKS International Journal of Socialist Renewal.

Assessing Russia’s economic situation at the end of 2025, Ekaterina Shulman, who has been designated a “foreign agent,” suggested that the country is running out of money and people. And indeed, by all indications, something is running out. Only it is not money, at least not primarily. The state will never run out of money.

The peculiarity of liberal experts’ thinking is that they reduce everything to money. Yet money is merely an instrument used to redistribute other resources. Of course, if you mindlessly print it, it loses value. We know eras when even gold and silver depreciated. But the fundamental question is which resources are being distributed, and how, through government spending. And those resources are always limited (which is, in general, the essence of economics as the science of working with scarce resources); they really do have a tendency to be exhausted.

People, the personnel reserve for both war and production, are also a resource, and an extremely limited one. The days when, like an eighteenth-century Russian officer, one could proceed from the idea that “women will just give birth to more,” are long gone. But during wartime, no fewer problems arise with other resources: metal, fuel, electricity, railway capacity, equipment that becomes obsolete and wears out, and so on. The outcome of a military campaign depends to a large extent on how all these means are allocated.

The well-known Soviet economist Yu. V. Yaremenko, developing the concept of a multi-level economy, drew attention to the fact that resources also differ in quality. Just as metal can be good or not so good, specialists can be top-class or not very competent. In the Soviet Union, the military-industrial complex, in unlimited volume, absorbed all the best resources. The remaining sectors of the economy had to compensate for lack of quality with quantity. And the lower a branch’s priority, the worse things were.

If we return to the question of labour resources, it turns out that under such an approach, civilian production begins to suffer chronic staff shortages even if, on paper, there seem to be enough people. After all, the best specialists are needed precisely where resources are scarce, and where their intelligence, talent, and experience can fix the situation, figure a way out, invent something new. But in practice it works the other way around. The best technical minds are already concentrated in the defence industry, while the other sectors are kept on starvation rations.

The trouble is that the growing crisis in civilian production begins to affect the economy as a whole, spreading from the bottom up. In the end, workers in the defence industry also need to buy clothes and eggs, take their children to kindergartens and schools, get treated in clinics, and so on. The country’s leadership recognises the problem, but this is where difficulties with money arise. And in Russia’s market-capitalist economy, they turn out to be even greater than in the Soviet Union’s administrative-planned economy.

As already noted, liberal economists, including those working in the government, see any problem as a money problem and solve it accordingly. Under “normal” conditions this more or less works, but not under crisis conditions. Crisis situations differ precisely in that habitual methods not only fail to produce the expected effect, but often make things worse.

The specificity of the current crisis is that the economic authorities, in full accordance with the doctrine of financial management, are concerned not only with covering an objective shortage of resources through injections of additional money (a shortage that will not disappear anyway), but also with maintaining stability: in 2025, financing of priority sectors and projects is combined with strict austerity and an even stricter fiscal policy, in an attempt to restrain price growth and balance the budget. The main result of this approach is a deepening of disproportions in the economy and society.

Modern Monetary Theory (MMT), an alternative to classical liberal economics, is far more indulgent toward printing money and does not see a major catastrophe in an increasing budget deficit, which by the end of 2025 had already exceeded four trillion rubles. But there is an important nuance: MMT theorists propose directing additional money to where there are underutilised resources that can be brought into circulation through public financing. For example, you have a mineral deposit but no investors. Or you have many unemployed people who can be employed in socially useful work.

In our situation, everything is exactly the opposite. The Central Bank and the Ministry of Finance throw money not where there is resource potential, but where there are no available resources left. And increasing funding will not make them appear. Metal will not smelt itself, and soldiers will not grow out of the ground, even if you sow the whole earth with dragon’s teeth, as the heroes of an ancient myth did.

Moreover, there is another limited resource: time. Only God has an infinite supply of it, and even that is conditional on His existence. For mortals, time is not only limited but nonrenewable. In other words, because of earlier mistakes and missed opportunities, it is often impossible to make it up later.

In spring and summer 2024, when it seemed that the domestic economy was coping fairly well both with sanctions and the burden caused by military expenditures, measures could have been taken to ration resources so as to protect the civilian sector from shortages and the financial system from spontaneous price growth. But why bother, if at that moment everything seemed fine anyway. And if, as many expected, a peace agreement had been reached between autumn 2024 and spring 2025, temporary difficulties most likely would not have grown into a full-blown crisis.

But that moment is already past. Resource scarcity has intensified, taking for the authorities the form of a critical shortage of money. Further increases in financing for priority sectors and programs will only lead to further growth of imbalances and the final destabilisation of the monetary system, as well as a worsening social crisis, when entire sectors of the economy and social groups left on starvation rations will be unable to provide even the minimum necessary level of investment for their own reproduction.

The authorities understand this situation perfectly, and therefore the peacefulness of the ruling circles grows strictly in proportion to the deepening crisis. But the problem is not only that the worsening crisis will inevitably require a reverse redistribution of resources toward civilian sectors; it is also that political and ideological questions arise, questions that can be brushed aside only as long as military actions continue. 

Moreover, this reverse redistribution will be associated with making a whole series of difficult decisions. It can be carried out by market or administrative methods, effectively or not, but in any case, it is incompatible with escalating the war effort. And even if everything is done competently, the emergence of numerous difficulties and conflicts along the way is inevitable.

The understanding of this by those in power also contributes to the desire to leave everything as it is for a while, without taking irreversible steps. Only, postponing decisions into an indefinite future not only does not make the choice easier, but aggravates existing problems.

Ultimately, the authorities will have to make precisely political decisions. Here, perhaps, we can put a period.