Undoing neoliberalism in Russia

When Russia under Gorbachev and then Yeltsin decided to "modernize" their economy, the guys who rushed in to "help" were the neoliberals.  Not surprisingly, their prescriptions mostly centered around massive de-industrialization.  That was the prescription for places like USA and UK, after all, so why not Russia where their industrial infrastructure was in an even more sorry state?  It was difficult to find any Russian industry with a world-class output, went the reasoning, so why not just shut it down and live off the income of the petroleum extraction business?

When the economic sanctions that followed Russia's annexation of Crimea in the spring of 2014 began to bite, Russia discovered that they were importing a lot of goods they had once made for themselves.  So the decision was made to start reversing the process of deindustrialization through import substitution.  This was the primary strategy of economic development in the years after WW II for much of the world.  Japan was the most successful at their planned strategy of import substitution but it worked almost everywhere it was rigorously tried.  The economic "liberals" hated it then and they most certainly hated it in 2014.

So Russia is in the very early stages of their new import substitution strategy and not surprisingly, it has produced mixed results.  Re-industrialization is almost infinitely more difficult than de-industrialization so these things take time.  Worse, Russia has a severe neoliberal hangover from the days when such was the only acceptable worldview.  The most obvious example is the crazy lady running the central bank who believes that usury is the cure for inflation—even inflation caused by externally imposed sanctions.  So the prime rate is still at 11%—a rate mathematically guaranteed to severely hamper or destroy any industrial activity.  That any import substitution is happening at all is mostly a testament to the courage and tenacity of the Russian people.

The neoliberals from places like The Economist have already deemed Russia's strategy for import substitution an utter failure.  No great shock here because such people think that Russia is literally defying the laws of their god.  On the other hand, Hellevig below thinks the project is working out well.
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