Towards Self-Sufficiency? Economics as a Dimension of Russian Security and the National Security Strategy of the Russian Federation to 2020

This article was external pageoriginally publishedcall_made by the external pageNATO Defense College (NDC)call_made in July 2016.

Russia’s economic policy debate is increasingly characterized by an emphasis on self-reliance, and its economic policy is becoming subordinated to concerns of a broader national security nature. This is because economic pressure, including “the restrictive economic measures imposed on Russia” by the US and its allies, is understood in Moscow to be one of a number of instruments being used by foreign powers to “contain Russia.” As a result, economic matters have become an important dimension of geopolitical conflict.

This shift in official thinking about the role that the economy plays in international conflict has occurred at a time of economic turbulence for Russia. The decline in oil prices that began in the autumn of 2014 has emphasized the Russian economy’s dependence on hydrocarbon revenues to fuel growth in the wider economy. But this has occurred alongside a slump in investment that stretches back to the end of 2011. Along with limited and decaying infrastructure, a poorly functioning financial system, and a shrinking labour force, it is clear that the Russian leadership is confronted with a wide range of economic weaknesses and challenges.

But these weaknesses should not be confused with fragility. After all, Russia’s retains considerable economic strengths. It is one of the world’s most important producers of natural resources (including coal, gold, diamonds, nickel and timber, as well as oil and gas), and it is a major producer of manufactured goods (the seventh largest in the world in 2014). Russia also has the world’s second most capable defence industry. Public (state) debt is comparatively modest, and the country possesses nearly $400 billion of foreign exchange reserves. And while the rate of growth has slowed in recent years, this comes after a decade and half of rapid income growth for most of the Russian population. These strengths lend a certain resilience to Russia’s economic structure that should not be underestimated.

Efforts to reduce Russia’s vulnerability to external economic pressure are intended to augment these sources of economic strength. Until comparatively recently, official plans for economic securitization in the form of public statements, government documents and decrees were inchoate and lacking in cohesion. There was no clear agreement on desired objectives or on the precise means that might be deployed to achieve those objectives, and a powerful array of constituencies, such as the technocratic elite entrenched in the Central Bank (CBR) and the Ministry of Finance, opposed the reversal of many of the market reforms undertaken since the collapse of the Soviet Union.

However, the publication of the new National Security Strategy in 2015 (NSS 2015) indicates a growing sense of insecurity felt by those in the Kremlin. This suggests that there is a shift in the relative power of those groups in and around the state apparatus that advocate adopting a new ‘securitized’ agenda for economic development. As a result, what was once peripheral is now increasingly mainstream. The implications of this new economic agenda will have profound consequences for Russia’s evolution, its stance on the world stage, and its foreign relationships.

This essay reviews Russian official state strategy documents, particularly the National Security Strategy of the Russian Federation published in 2015 and the Food Doctrine published in 2010, incorporating economic policy developments to show how economic securitization is underway and is gathering momentum. The economic securitization described here refers to an increasingly obvious tendency among Russian policy-makers towards using national security concerns to justify new and qualitatively different approaches to economic policy. For instance, a concern that the country is excessively dependent on a particular good or service, such as food, may result in a policy intervention that provides support to domestic producers (farmers) to reduce this dependency. What is important is that there is a clear link between the securitization of a policy dimension and the subsequent modification of the previous policy course.

The most obvious source of this change in economic policy is the heightened perception of geopolitical conflict by the Russian leadership. If the Kremlin is acutely aware of the many economic, political and military weaknesses and problems in the Russian system, it at the same time sees an increasingly threatening international environment. This view has been exacerbated by the war in Ukraine and what the Russian leadership sees as the threat to Russia posed by the West. Numerous senior figures, including Vladimir Putin, have pointed to both the explicit military threat to Russia in the shape of NATO and particularly US military capabilities, and also a “hybrid” style war against Russia that includes information and economic measures. Senior figures regularly emphasize, indeed, that the West is waging economic war on Russia. Consequently, it is probable that Russian leaders will continue to place greater emphasis on mobilizing the resources available to the state to attempt to ensure that it will prevail in any geopolitical conflict.

Because modern conflict is multidimensional in nature, this mobilization of resources to meet its challenges needs to be considered in broader terms than simply the military. Indeed, the Russian leadership view economic instruments to be central to the country’s ability to survive and flourish in a challenging geopolitical environment, and the use of instruments of economic statecraft by both the West and Russia during the conflict in Ukraine illustrate the importance of the economic dimension of geopolitical conflict.

As illustrated below, the scope and impact of a securitized approach to economic policy has evolved considerably in recent years. Five years ago, a relatively small number of dimensions of economic policy were influenced by security concerns. And in those areas where policy-making was influenced by security concerns, the impact was often rather limited. More recently, however, the scope of policy dimensions has widened and the impact of policy interventions has risen.

Thinking in terms of securitization allows an analysis of the changing nature and extent of debate, even disagreement in policy-making, the obstacles to the implementation of the agenda, and, ultimately, the identity and relative political power of countervailing forces in Russia’s political economy. As such, it moves beyond simplistic suggestions that Russia is remilitarizing, or the binary position that if Russia is not making steady and even progress towards a market economy then it is regressing to an authoritarian form of state capitalism at best, and a centrally planned economy at worst. Instead, the focus is on the nature of the qualitatively new system of political economy that is under construction in Russia today.

It is worth briefly sketching out what securitization means. It is a two-stage process. The first – the ‘securitizing move’ – occurs when policy makers deploy the rhetoric of national security to move away from the ‘normal’ politics of a policy area. The second stage – the evolution of policy – occurs after this rhetoric has been accepted as legitimate by specific key audiences, such as the government, a specific ministry, or other constituency such as a political party or industrial lobby. But successful securitization does not imply that proponents of securitization discourse will always be successful in advancing their policy agenda; rather, it means that attempts at invoking national security concerns to shape public policy may succeed more frequently.

Securitization is also not necessarily synonymous with militarization, even if it is plausible that both may simultaneously occur. Successful securitization is likely to result in a broader array of policy areas being defined as issues connected to national security, often beyond those related to military affairs. Thus, ostensibly ‘technical’ issues such as the size of a country’s foreign exchange reserves, the nature of its trade relations with a particular country or set of countries, or the scale of import dependency in certain sectors of the economy, all have the potential to become matters that are important to national security.

Nor, at least in principle, is securitization synonymous with a planned economy, centralization, state ownership or the rejection of foreign capital. Efforts to ensure greater domestic production of specific products in Russia on the grounds that this will enhance national security could in theory occur through ‘localization’ in which foreign organizations play a vital role and where competition between firms – Russian and foreign – is intense, and in which decisions on resource allocation are decentralized. The securitization of the Russian economy does not suggest some form of “return to Soviet practices,” rather it is an attempt to deal with the challenges of this century.

The result, therefore, is a more nuanced picture of the economic situation in Russia and the policy priorities of the Russian leadership, one that permits a focus on which sectors are, or are becoming, securitized, and which are not. For example, a move towards reducing import dependency in oil extraction equipment or pharmaceutical products may see policy-makers adopt measures outside the norms of economic policy ‘as usual’ in discrete pockets of the economy. But this leaves many other sectors of the economy relatively untouched by securitization. The implicit emphasis on identifying instances of ‘sectoral securitization’ thus tells us more about what is changing in Russia’s political economy, but also what remains the same, such as relative economic freedom in other areas of the economy unaffected by the securitization discourse.

Evidence of economic securitization in official thinking

The importance of a strong, technologically advanced and resilient economy is stressed repeatedly in the NSS 2015. The document states that economic growth is essential for the realization of socio-economic objectives. To be sure, this is not new: previous national security strategies all stressed the importance of economic growth in shaping Russia’s national security.

But in previous iterations this integration of the economy into thinking about national security was rather simple: economic growth was considered desirable, but the means to achieve this growth were not discussed in any significant detail. What has changed is that the 2015 strategy now states that Russia’s ability to enjoy the fruits of economic development is threatened by a range of factors, including ‘economic measures employed by foreign powers.’ Indeed, the threat posed by instruments of economic statecraft deployed by other powers is highlighted several times. This has resulted in references to ‘economic security’ (ekonomicheskaya bezopasnost’) moving beyond a simple awareness of the importance of economic growth to national power. Instead, as stated after a meeting by the Interdepartmental Commission of the Security Council, there now is a clear need to protect Russia’s ‘economy from the political and economic decisions of other states that aim to prevent the effective dynamic development of the Russian economy.’ As a result, economic policies that might maintain Russia’s sovereignty (suverennost’) and independence (nezavisimost’) are an important instrument in enhancing Russia’s room for manoeuvre as a foreign policy actor.

This important change in official thinking has led to a shift in economic policy. Three main areas of official thinking shaped by a securitized approach to economic policy will be addressed in turn. First is financial security, which has notably risen in importance in official debates since 2009, when official thinking was shaped by Russia’s poor performance during the financial crisis of 2008-9. Second is the importance of self-sufficiency in the production of agricultural goods, again an objective that grew in importance from 2009 onwards. Third is import substitution across a range of industrial sectors. While mainly an aspiration of a minority before 2014, this objective has gained much more traction since the outbreak of war in Ukraine and the subsequent imposition of sanctions by Western countries that denied Russia access to high-technology products that are essential to Russia’s future economic development.

Financial security

The Russian financial sector is one of the “commanding heights” of the economy, with a large proportion of the country’s assets and deposits in the hands of state-controlled or state-influenced entities. This makes the financial sector a crucial component of Russia’s national system of political economy, which explains why heightened security concerns are leading policy makers to develop new measures intended to insulate Russia from possible external threats by enhancing state control of the financial sector.

This rising awareness of the threat posed by vulnerabilities connected to the financial sector is explicitly articulated in the NSS 2015. One of the main threats to economic growth identified is the ‘vulnerability of the national financial system to actions of non-residents.’ This was not identified in the previous version of the document. Economic sanctions, including those targeting the financial sector, are also cited as a threat to economic development. To deal with these threats, the strategy introduces two tasks connected to the financial system that were also absent from previous security strategies. First, measures to enhance “the security of the financial system to ensure its stable functioning and development” are called for. Second, the document stresses the need to ‘strengthen [the] financial system’ and to secure Russian financial ‘sovereignty.’

This shift in official thinking has been accompanied by concrete policy measures to reduce what the Russian leadership perceives to be Russia’s vulnerability in the financial sector. These measures include the construction of a new national electronic payment system by the CBR that replicates the existing SWIFT payments system, the creation of domestic credit ratings agencies that are intended to supplant Western companies that were previously dominant in providing credit rating assessments in Russia, and the development of a new domestic payment card system that can perform the functions previously performed by Visa and MasterCard. All these measures emerged in response to the Western financial sanctions imposed in the aftermath of Russia’s annexation of Crimea. The prospect of Russia being excluded from the SWIFT payments system in any future escalation of the Western sanctions regime led Andrey Kostin, the Chief Executive of VTB, the country’s second largest bank, to declare that such a measure was so serious as to be tantamount to a ‘declaration of war.’

These measures may not be taken seriously by those outside Russia, and may not prove to be economically efficient (i.e. they may raise costs for economic activity in Russia rather than reduce them). For instance, the new payment system, now available for use by companies, was reported to be cheaper than SWIFT, but less efficient. The new Mir payment card, on the other hand, was reported to cost banks 50% more than international cards. Visa and MasterCard continue to dominate the Russian market but have been obliged to shift to using the CBR’s settlement system, raising their costs of doing business in Russia. The purpose of these measures, however, is not to enhance economic efficiency, but to make the Russian financial system more durable and less vulnerable to pressure from foreign powers. Clearly, the authorities have identified a threat, and measures to deal with that threat have been put in place. Should international tensions rise further, it is reasonable to expect that further similar measures may be developed.

Self-sufficiency of production: agriculture

The Russian leadership also considers the agricultural sector to be essential to Russia’s economic security. The desire for self-sufficiency in agriculture is longstanding, with food security identified as a key component of national security since 2009. This was followed by the formulation of the Food Security Doctrine in 2010, which laid out a series of steps – including increased investment, widened access to finance, and other forms of financial and institutional support – that were intended to reduce the share of imports in Russian food consumption.

The desire for food security in Russian strategic thinking has grown, and the NSS 2015 stressed both the need for ‘independence in food production’ and the necessity of ‘improving the effectiveness of state support’ to achieve this objective. The use of a food embargo on Western countries in response to the imposition of sanctions in July 2014 has focused popular attention on the importance of self-sufficiency in food production.

But it is worth examining what official statements mean when they refer to food security because there is an important distinction between Western and Russian understandings of what food security means. In many Western countries, food security broadly refers to security of access for the population. This is usually, although not exclusively, related to whether the population has sufficient income to purchase food products. In Russia, however, the emphasis is less on whether individual consumers have access to food, and more on how the collective, national interest is served by the country producing a wide range of foodstuffs. The Russian definition therefore envisages food security primarily as a national security issue rather than one to do with economic welfare (although consumer welfare is listed among the secondary objectives of the doctrine). The link between food security and national security is explicitly stated in the National Security Strategy 2009 (NSS 2009), where it is asserted that dependence on foreign food should be reduced and domestic production increased so that economic independence can be promoted.

The ultimate objective of the Food Doctrine is defined as ‘sustainable development of domestic food production and raw materials[,] sufficient to ensure [the] food independence (nezavisimost’) of the country.’ The fact that independence is mentioned further supports the view that for the Russian authorities access to food is a potential arena of contest between states. The degree of desired food independence is, however, not absolute: the success indicators listed in the Food Doctrine imply that differing degrees of import dependence are acceptable, with, for example, domestic production of grain envisaged to be at least 95% of total consumption, while domestically-produced fish products are expected to account for at least 80% of total consumption.

It is for this reason that Russia’s use of the food embargo weapon in 2014 was quite predictable. Prior to 2014, a series of policy measures had been undertaken to enhance Russia’s food security along the lines articulated in the Food Doctrine. Counter sanctions have therefore served as a useful instrument in supporting domestic producers’ efforts to achieve these objectives. Indeed, Vladimir Putin has described this as a ‘window of opportunity’ that should be seized by Russian producers.

In addition to this support, the NSS 2015 contains a significantly more elaborate description of the objectives associated with food security, going further not just than the NSS 2009, which contained only vaguely defined objectives, but also beyond the 2010 Food Doctrine. For instance, it is stated that food security can be achieved by ‘accelerating the modernization’ of the agro-industrial and fishery complexes, and by further developing the ‘infrastructure of the domestic market.’ Indeed, the development of the wider supporting infrastructure for agriculture is further emphasized when the document states the importance of ‘training scientists and highly qualified professionals in the field of agriculture.’ This reveals an evolution in official thinking on the issue of food security, with greater attention now being paid to improving the wider socio-economic environment in which agriculture takes place.

The additional attention devoted to food security in the NSS 2015 suggests that the issue is becoming ever more important component of wider national security. Given that the agricultural industry accounts for some 5% of value-added in Russia (compared with an EU average of around 2%), this represents an important element in the increasing securitization of economic policy.

Self-sufficiency of production: industry

As with agricultural products, a desire to reduce imports of technology-intensive products has been evident in Russian official documents for some time. The NSS 2009 bemoaned the existence of a ‘raw materials export model of economic development’ and ‘the worsening of the condition of the industrial … base.’ It also stated the desirability of ‘developing high-technology economic sectors.’ However, the emphasis in 2009 was on the need to build new sectors, rather than reduce the role of imports. Import substitution (importozameshcheniye) is only mentioned twice in the entire document, and even then referring to food security on one of those occasions. The reluctance to engage in wide-ranging import substitution was articulated by Vladimir Putin who, then in his role as Prime Minister, stated in May 2009 that ‘if we talk about the economy in general, it makes no sense to opt for import substitution if you can buy [imports] cheap.’

In contrast, the NSS 2015 explicitly states the objective of undertaking import substitution across a range of technology-intensive product areas to help boost Russia’s ‘technological security.’ Dependency on foreign technology is highlighted as one of the key threats to economic growth (and thus national security). As a result, the document states that a key objective is ‘the implementation of a rational import substitution [programme], [and the] reduction [of] the critical dependence on foreign technology and industrial production.’ Several priority areas are identified, including military production, pharmaceutical products, agro-industrial production, and production in the energy industry.

This evolution in official thinking has been accompanied by the initiation of a large-scale import substitution programme. In April 2015, Denis Manturov, the Minister for Industry and Trade, presented a plan for import substitution that envisioned the implementation of 2,059 projects across 19 branches of the economy between 2016 and 2020. The total cost was estimated to reach over RUB 1.5 trillion. To support the import substitution programme, the government has assigned significant financial and institutional resources that demonstrate a firm commitment to the goal of reducing Russia’s dependency on imports in key sectors of the economy.

Financial support for import substitution is provided in the form of tax breaks, state-subsidized cheap credit via Vneshekonombank (VEB) and the establishment of a fund for the development of industry (the Fond Razvitiya Promyshlennosti, or FRP). The FRP reportedly allocated RUB 20 billion (c. $250 million) to 59 import-substitution projects in 2015, although their total value was cited as RUB 162 billion (c. $2 billion). The terms of the FRP loans are favourable to borrowers and are significantly lower than the double-digit rate of inflation in the year they were offered. Additional funding is also available from the Ministry for Economic Development and the CBR.

The import substitution programme is supervised by a Government Commission on Import Substitution. Chaired by Prime Minister Dmitri Medvedev, the commission is responsible for the identification of strategic objectives, the regulation of state procurement of equipment, and the procurement of large private companies receiving state support, with a view to restricting their use of imported machinery to items for which no locally-made (i.e. produced in Russia or the Eurasian Economic Union) analogue is available.

Overall, the import substitution campaign represents a core component of a wider state-directed effort to enhance Russia’s sovereignty and economic security. This point was reiterated recently by Medvedev, when he stated that import substitution is ‘our strategic priority for the coming years.’ As support for the programme grows, influential lobbies – both inside and outside government structures – are calling for further state support. The Minister for Economic Development, Alexey Ulyukaev, requested that state financial support to industry be increased to a level 2.5 times its current volume. The government is also expanding the range of items that will be prohibited from being purchased as part of state procurement.

One of the key sectors identified to be in need of state support to accelerate import substitution is the oil and gas extraction equipment industry, where a number of strategically important items are currently denied to Russia through the Western sanctions regime. Because of the vital role that high-technology oil extraction equipment is projected to play in the development of Russia’s “frontier” oil deposits, import substitution in this sector is considered to be perhaps the most strategically important area.

The allocation of significant institutional and financial resources towards the development of a more competitive oil equipment industry represents a deviation from the previous trajectory of economic policy. A good illustration of this change in policy course is that very little mention was made of the need for high-end domestic equipment industry in the Russian Energy Strategy to 2030, published in 2009. However, the current draft Energy Strategy to 2035 contains a section that articulates the urgent need to develop greater domestic capabilities.

The sectoral import substitution plan agreed by the Ministry for Industry and Trade in March 2015 defines a number of ambitious objectives for reducing the share of imported equipment in the total equipment used in different areas of the energy industry. At a recent meeting of the Presidential Council for Economic Modernization and Innovation-Based Development of Russia, Medvedev declared that these areas of industry were ‘high-end’ (i.e. high-technology), but were ‘highly politicized’, as shown by the Western imposition of sanctions in precisely these areas.

In addition to the institutional architecture that has been built to help support import substitution in Russia, the government has allocated considerable financial resources to support the development of the energy extraction equipment industry in Russia. Funds have been allocated to support the development of 12 priority technologies in the oil and gas equipment industry. Direct funding of projects is to be supplemented by access to subsidized loans from the FRP. By the end of 2015, the government had received over 250 applications for loans to fund projects in the oil and gas equipment industry. Collectively, these projects were estimated to be worth around RUB 15 billion (c. $200 million). Coordination of industry requirements for oil extraction equipment is now managed by an automated system that monitors supply of and demand for such technologies. These measures are intended to help Russia reduce the share of imports of products used in the oil (and gas) industry to just 3%.

Conclusions

Official thinking about economic policy in Russia is evolving significantly and is becoming increasingly shaped by national security concerns. These concerns are part of a wider effort to mobilize the state’s resources in response to what Moscow sees as an increasingly unstable and threatening international environment. While some of these tendencies were previously evident, the trend has visibly accelerated during the last five years. Reducing Russia’s dependence on imported products and services is now considered a key component of Russia’s national security.

The first step for securitization has already taken place across a number of policy areas. This range of policy areas has grown in recent years, culminating in the publication of NSS 2015 which explicitly highlights the importance of a variety of different elements of economic activity to Russia’s national security. Moreover, a decision to develop a new overarching economic security strategy was taken in July 2015. This may develop the tendencies evident in the NSS 2015 even further, with the Scientific Council of the Security Council announcing after a meeting in December 2015 that the strategy should ‘ensure national sovereignty in the economic sphere.’ In any case, the fact that this discourse is now accepted by an increasing share of the Russian policy elite, population and industrial lobbies suggests that the second stage, the more practical policy side of securitization is taking place, and a range of measures are already visible. A clearer understanding of both this rhetoric and also the policy measures is essential to understanding the evolution of Russian economic and security policy over the next five years.

Whether Russian intentions are matched by genuine accomplishments is an open question. To be sure, there are significant hurdles. At a time when public resources are increasingly scarce, it is not at all clear that the state will commit the financial resources required to achieve all the objectives that securing the economy will entail. Moreover, the evident breadth of ambition contains its own problems: how to ensure that the state’s limited administrative capacity is not spread so thinly that none of the state’s objectives is met? As ever with Russia, developments in global energy markets will also be important. Should the price of oil rise again, which will most likely push up the value of the rouble, the state’s commitment to import substitution will be severely tested. Finally, any easing of the Western sanctions regime might also weaken the state’s resolve to focus on enhancing economic security.

Notwithstanding these concerns, it is also true that the geopolitical situation, as perceived from Moscow, continues to look threatening. For as long as international tensions remain high, it is conceivable that the securitization of public policy in Russia – in the political, economic, cultural and information spheres – will receive sufficient political support to cause substantial changes in the fabric of the Russian system of political economy. As Russia’s continued prioritization of defence spending amidst a serious economic slowdown shows, concerns over national security will often trump concerns over economic efficiency. Observers in Europe and North America, where consumer sovereignty is considered to be more important, often find this difficult to understand.

Even if Russian attempts to enhance its economic security are only partially successful, several consequences are likely. First, by reducing Russia’s vulnerability to external economic pressure, the scope for Russia’s adversaries to employ instruments of economic statecraft (such as sanctions) will be reduced. Because many in Russia view modern conflict in multidimensional terms, this can only make Russia a more capable geopolitical force in the future. Second, economic securitization is likely to reduce the influence of those forces in Russia that support greater integration with Western political and economic structures. Third, as a more securitized economy is built, an increasingly influential economic elite tied to financial, agricultural and industrial security may emerge. It should be expected that such a group would have a stake in preserving and augmenting the existing political order in Russia. In this respect, economic securitization may not only enhance Russia’s geopolitical power, but it may also serve as an instrument for the revitalization of the wider Russian social order.

About the Author

Dr. Richard Connolly is director of the Centre for Russian, European and Eurasian Studies (CREES) at the University of Birmingham, associate fellow of the Russia and Eurasia programme at Chatham House, and visiting professor of public policy at the Academy for the National Economy in Moscow.