By Matt Underwood Russia’s industrial titans furlough workers as its war economy stalls, a trend now becoming increasingly visible as the war in Ukraine grinds on. What was initially touted as a display of economic strength is slowly revealing its cracks. While some might dismiss this as mere economic fluctuations, the situation points to a deeper issue: a war economy struggling to sustain itself. Cemros spokesman Sergei Koshkin’s statement calling these furloughs a “necessary anti-crisis measure” is interesting. Though it would seem he might soon be joining the ranks of Russia’s elite, it’s hard to imagine a crisis not be a crisis. Russia’s reliance on a war economy, where the government heavily dictates production and spending, has its limits. The initial surge in demand for military equipment, fueled by government spending, creates an illusion of prosperity. But this model is inherently unsustainable, especially when coupled with crippling sanctions and a shrinking labor pool.
A war economy doesn’t collapse immediately. It can endure for a time, fueled by dwindling reserves, debt, and the ability to make concessions with the rest of the world. Russia’s war economy is now facing a serious strain. As the war persists, the government’s ability to finance its vast military machine diminishes. A crucial point here is that a war economy thrives on constant consumption of resources: missiles, bullets, tanks, and the energy to make them, all must be replaced. This is an endless cycle of spending, not investment. The data that comes out, showing shrinking exports, worker furloughs, and reduced industrial output, all point to a growing deficit. These are signs that the war economy is struggling to keep up.
Consider the plight of Russia’s industrial titans, who are now forced to furlough workers. This isn’t just a temporary blip, it is a sign that the companies are starting to see less demand for their goods. This is further complicated by a shrinking labor pool, thanks to the mobilization efforts. This is a vicious cycle; as companies cannot get resources, and their workers get laid off, workers burn through their savings, which leads to instability. Eventually all but the most important economic vehicles in the country go belly up. The government has neither the money, nor the resources to prop them up to keep their people happy. Companies operating at the core of the economy fail to supply demand for companies at the cutting edge of it, and in turn even the most profitable companies start to lose money. And all those companies are owned by oligarchs, who won’t be happy.
Russia has faced economic turmoil before. The collapse of the Soviet Union is a recent reminder of how quickly a seemingly stable superpower can crumble. The situation in Ukraine is not a simple case of economic loss; the war has exposed significant flaws in the Russian system. The reliance on a war economy is like a house of cards built on shifting sands. The government can’t pay for everything, and companies pivot to handling government contracts. Companies fail, and the oligarchs will not be happy. The war has become a catalyst for potential systemic change. The key question is, when will it all unravel?
Russia’s economic future is uncertain. It depends on many factors, including the willingness of countries like China and Iran to provide financial support. If those ties loosen, or if the Russian people’s patience runs out, the collapse could come sooner. It is worth considering how the loss of access to markets has a substantial impact on Russia’s timber, a sector that has been hit hard by sanctions. Furthermore, there is the issue of deferred maintenance. In the long term, the combination of these factors could have a disastrous effect on Russia’s economy. The issue is less about a sudden and dramatic collapse, more a slow decline towards a generational disaster.
Moreover, it is critical to realize that economic data is not the only factor. When Russia eventually implodes, it is not simply that the money has run out, but that the social fabric of Russia could fracture into many pieces. The challenges are numerous; China is eyeing territory to the east. Japan wants to reclaim its islands, Chechnya wants independence, and so on. If that happens, what would follow is a situation that could take a very long time to stabilize, if it ever does. In the current circumstances, the collapse of Russia could lead to the fragmentation of the country, and the consequences could be severe.