ECONOMY
Amid the Ukraine War, Russia Increasingly Moving Toward a Mobilization Economy
July 15, 2025
- Andrei YakovlevAssociate at the Harvard University Davis Center
Economist Andrei Yakovlev argues that after three years of war, the Kremlin faces mounting economic challenges and internal incongruities, which necessitate a shift toward a purer political and economic order with clearly defined ideological underpinnings.
The original text in Russian was published in Re:Russia. A fragment is being republished here with their permission.
The full-scale war against Ukraine that began in February 2022 was needed neither by Russian business nor Russian bureaucratic elites. The Kremlin made this decision against the interests of not only run-of-the-mill companies, but also the largest corporations, including state-owned giants.
At the same time, both within the business community and within the government’s economic bloc, common were very negative assessments of the possible consequences of the war and broad international sanctions.
Dwindling resources
As early as summer 2022, the mood of business had begun to change. The unintended effects of sanctions, along with previously accumulated reserves and growth in oil prices and thus export revenues, allowed the Kremlin to avoid a significant contraction of the economy and then, by ramping up fiscal spending, to stimulate economic growth, also supported by import substitution, which opened up opportunities for Russian firms.
A significant factor was the government’s ability to leverage the experience of crisis management during the pandemic and deploy support measures that had been developed during the pandemic together with business.
This created the conditions for only a slight decrease in GDP in 2022, and economic growth, according to Rosstat, came in at about 4% in annual terms in 2023-24.
At the same time, signals of growing strain in the economy began to flash as early as 2023. The deluge of money injected into the economy stimulated not only demand but also inflation, to counteract which the Central Bank steadily hiked its key rate from 7.5% in July 2023 to 21.0% in autumn 2024.
Yet the most important indicator of growing problems was the 2025 budget, which entailed a further rise in military spending to RUB 13.5 trillion, along with cuts to social spending, even in nominal terms.
These structural changes suggest the Kremlin no longer has enough resources to finance the war, cover social obligations and support the economy simultaneously.
The liquid part of the National Wealth Fund has shrunk from RUB 11 trillion at end-2021 (at an exchange rate of about RUB 75 per dollar) to less than RUB 3 trillion (about RUB 80 per dollar) on June 1, 2025.
The full-scale war against Ukraine that began in February 2022 was needed neither by Russian business nor Russian bureaucratic elites. The Kremlin made this decision against the interests of not only run-of-the-mill companies, but also the largest corporations, including state-owned giants.
At the same time, both within the business community and within the government’s economic bloc, common were very negative assessments of the possible consequences of the war and broad international sanctions.
Dwindling resources
As early as summer 2022, the mood of business had begun to change. The unintended effects of sanctions, along with previously accumulated reserves and growth in oil prices and thus export revenues, allowed the Kremlin to avoid a significant contraction of the economy and then, by ramping up fiscal spending, to stimulate economic growth, also supported by import substitution, which opened up opportunities for Russian firms.
A significant factor was the government’s ability to leverage the experience of crisis management during the pandemic and deploy support measures that had been developed during the pandemic together with business.
This created the conditions for only a slight decrease in GDP in 2022, and economic growth, according to Rosstat, came in at about 4% in annual terms in 2023-24.
At the same time, signals of growing strain in the economy began to flash as early as 2023. The deluge of money injected into the economy stimulated not only demand but also inflation, to counteract which the Central Bank steadily hiked its key rate from 7.5% in July 2023 to 21.0% in autumn 2024.
Yet the most important indicator of growing problems was the 2025 budget, which entailed a further rise in military spending to RUB 13.5 trillion, along with cuts to social spending, even in nominal terms.
These structural changes suggest the Kremlin no longer has enough resources to finance the war, cover social obligations and support the economy simultaneously.
The liquid part of the National Wealth Fund has shrunk from RUB 11 trillion at end-2021 (at an exchange rate of about RUB 75 per dollar) to less than RUB 3 trillion (about RUB 80 per dollar) on June 1, 2025.
“Though personal income tax and profit tax rates have already been upped starting in January, the government is contemplating another tax hike.”
Domodedovo Airport. In June, the Moscow Region Arbitration Court, in a case brought by the Prosecutor General’s Office, ruled to nationalize DME Holding, which controls the airport. Source: Wiki Commons
With sources of rent drying up, the redistribution of property – which, started in 2023, involves assets being nationalized and then transferred to businesspeople with links to the Kremlin – gains added importance.
Another factor driving darkening business sentiment is the realization that Russia is falling further behind in adopting technology. Hopes for investment and technology transfer from China have proven unfounded, while Russia has become very dependent on China in terms of trade.
Russian business is staring down an outlook of long-term economic stagnation, combined with a new wave of property redistribution and higher taxes.
The growing lure of a mobilization economy
After three years of a bloody war that has consumed enormous resources and amid growing economic challenges and internal incongruities, the Kremlin is faced with the need to transform the hybrid model of the last decades into a purer political and economic order with clearly defined ideological underpinnings.
Yet this aspiration is not based on any consensus among the elites – on the contrary, it is intensifying conflicts among the main elite groups.
Another factor driving darkening business sentiment is the realization that Russia is falling further behind in adopting technology. Hopes for investment and technology transfer from China have proven unfounded, while Russia has become very dependent on China in terms of trade.
Russian business is staring down an outlook of long-term economic stagnation, combined with a new wave of property redistribution and higher taxes.
The growing lure of a mobilization economy
After three years of a bloody war that has consumed enormous resources and amid growing economic challenges and internal incongruities, the Kremlin is faced with the need to transform the hybrid model of the last decades into a purer political and economic order with clearly defined ideological underpinnings.
Yet this aspiration is not based on any consensus among the elites – on the contrary, it is intensifying conflicts among the main elite groups.
“Compared to the situation in the 2000s, there has been a significant loss of support for a liberal market economy.”
In the current circumstances, most private-sector actors, as well as top bureaucrats and regional authorities, would prefer the “developmental state” model. The problem is their influence on decision-making has been very limited since the mid-2010s and has further eroded during the war years.
The Kremlin’s decisions are influenced to an even greater extent than before by the preferences of the siloviki. For these groups, alongside the “mafia state” model, a “mobilization economy” is also attractive. Moreover, the latter now appears the preference of some broader social groups, like the hundreds of thousands of kontraktniki and their families, whose incomes have quadrupled or quintupled during the war and whose opportunities for social climbing have multiplied. Other supporters of a mobilization economy include workers in the defense industry and businesspeople who make money by supplying the front line and occupied areas.
A mobilization economy had received little meaningful support before the invasion of Ukraine. Though it had been articulated to some extent in reports by the ultraconservative Izborsk Club since 2013, the business and bureaucratic elite regarded such thinking as fringe.
The first attempt to give these ideas a “scientific basis” and sufficient credibility was the book Growth Crystal, published in 2021 (its main author is Alexander Galushka, who in 2013-18 served as minister for development of the Russian Far East and before that as head of the Business Russia trade group).
The book argues that the most successful period in the economic history of the USSR was 1929-53, when industrialization was carried out, an industrial base was created that enabled the victory in the war over Nazi Germany, and a technological breakthrough was achieved that made it possible to build nuclear weapons and launch the first artificial Earth satellite.
A similar line of thinking can be seen, for example, in the concept of “patriotic socialism,” articulated in June 2024 by Alexei Chekunkov, the current Far East development minister, and also citing the “great construction of communism” of the 1930s-1950s as a model.
“Having gone through the sins of rapid capital accumulation in the 1990s, Russian entrepreneurship remains, in the perception of the majority of society, immoral and parasitic,” Chekunkov writes. His solution: “business in the Western understanding” should be replaced by a “union of [civil] servants and creators, paid for by a bolder use of government debt.”
The Kremlin’s decisions are influenced to an even greater extent than before by the preferences of the siloviki. For these groups, alongside the “mafia state” model, a “mobilization economy” is also attractive. Moreover, the latter now appears the preference of some broader social groups, like the hundreds of thousands of kontraktniki and their families, whose incomes have quadrupled or quintupled during the war and whose opportunities for social climbing have multiplied. Other supporters of a mobilization economy include workers in the defense industry and businesspeople who make money by supplying the front line and occupied areas.
A mobilization economy had received little meaningful support before the invasion of Ukraine. Though it had been articulated to some extent in reports by the ultraconservative Izborsk Club since 2013, the business and bureaucratic elite regarded such thinking as fringe.
The first attempt to give these ideas a “scientific basis” and sufficient credibility was the book Growth Crystal, published in 2021 (its main author is Alexander Galushka, who in 2013-18 served as minister for development of the Russian Far East and before that as head of the Business Russia trade group).
The book argues that the most successful period in the economic history of the USSR was 1929-53, when industrialization was carried out, an industrial base was created that enabled the victory in the war over Nazi Germany, and a technological breakthrough was achieved that made it possible to build nuclear weapons and launch the first artificial Earth satellite.
A similar line of thinking can be seen, for example, in the concept of “patriotic socialism,” articulated in June 2024 by Alexei Chekunkov, the current Far East development minister, and also citing the “great construction of communism” of the 1930s-1950s as a model.
“Having gone through the sins of rapid capital accumulation in the 1990s, Russian entrepreneurship remains, in the perception of the majority of society, immoral and parasitic,” Chekunkov writes. His solution: “business in the Western understanding” should be replaced by a “union of [civil] servants and creators, paid for by a bolder use of government debt.”
Katerina Tikhonova, Putin's daughter and head of the Innopraktika educational project, virtually attended the St Petersburg International Economic Forum in June 2024. Source: Yahoo
Note that Chekunkov does not belong to the “Soviet generation.” He was born in 1980, started his career in business and later worked at the Russian Direct Investment Fund with Kirill Dmitriev. It is not so important whether these functionaries believe what they say or are simply following the intellectual trends to benefit their careers – their speeches outline a new vector for transforming the economy and society, and such views are in vogue among the “children” of the current Kremlin elite.
Opposition to a mobilization model
A mobilization economy involves a sharp and extraordinary expansion of state power in the economic sphere, typically during wartime. As a full-fledged model of social development, it was implemented in Stalin’s USSR, the justification being the need to prepare for war in the face of “capitalist encirclement.”
Since the mid-20th century, many countries have tried, to varying degrees, to replicate this experience. Persistent efforts were made by China under Mao Zedong and North Korea for almost 80 years. Tellingly, North Korea has emerged as the Kremlin’s closest ally in the last three years, supplying weapons and sending soldiers to fight Ukraine.
Yet despite a certain similarity in the behavior of Vladimir Putin and Kim Jong-un as leaders of personalistic dictatorships, Russia is vastly more developed than North Korea, and Russia’s political experience over the last 30 years – importantly the structure of its elites – is radically different.
As shown in classic works on authoritarian regimes, the main risks for an autocracy are a popular uprising, a palace coup and a military defeat (see, for instance, Gordon Tullock).
Opposition to a mobilization model
A mobilization economy involves a sharp and extraordinary expansion of state power in the economic sphere, typically during wartime. As a full-fledged model of social development, it was implemented in Stalin’s USSR, the justification being the need to prepare for war in the face of “capitalist encirclement.”
Since the mid-20th century, many countries have tried, to varying degrees, to replicate this experience. Persistent efforts were made by China under Mao Zedong and North Korea for almost 80 years. Tellingly, North Korea has emerged as the Kremlin’s closest ally in the last three years, supplying weapons and sending soldiers to fight Ukraine.
Yet despite a certain similarity in the behavior of Vladimir Putin and Kim Jong-un as leaders of personalistic dictatorships, Russia is vastly more developed than North Korea, and Russia’s political experience over the last 30 years – importantly the structure of its elites – is radically different.
As shown in classic works on authoritarian regimes, the main risks for an autocracy are a popular uprising, a palace coup and a military defeat (see, for instance, Gordon Tullock).
Duma Budget Committee Chair Andrei Makarov voiced critical comments at the 2025 St Petersburg International Economic Forum. He lamented that in the last 25 years the country had failed to create decent conditions for business and that it remains to be seen how that can be done. Source: YouTube
The latter is not relevant in the case of Russia, as it has nuclear weapons, meaning no external actor will try to “take the Kremlin.” Comparative data on authoritarian regimes shows that elite coups are much more dangerous than popular uprisings, especially in the context of a hardened police regime that is capable of harshly suppressing protests (see, for instance, Erica Frantz and Natasha Ezrow).
Thus, the business and bureaucratic elite that formed in the 1990s and 2000s as part of the hybrid model poses a serious threat to the regime today, as it has certain resources and could well exist without Putin.
Thus, the business and bureaucratic elite that formed in the 1990s and 2000s as part of the hybrid model poses a serious threat to the regime today, as it has certain resources and could well exist without Putin.
“This is why the Kremlin will seek to replace this elite with others whose future is entirely tied to the regime’s survival.”
If Putin accomplishes this in the next three or four years, the regime will likely manage to achieve a new, stable sociopolitical equilibrium. North Korea has been in such an equilibrium for decades, which has helped the regime to weather severe socioeconomic turmoil in the 1990s, when hundreds of thousands of people died due to famine.
Risks of transition to a mobilization economy
It hardly needs to be explained what threats to security in Europe and the world would come with a personalistic dictatorship of the North Korean type on the scale of Russia, with its military potential. There should be no illusions that in the event of compromises from the West, Putin could easily stop the war he has started. Over the past three years, groups of beneficiaries have coalesced in Russia, and it is these groups that now make up the main social base of the regime.
Can the Kremlin stop a military-industrial complex that has increased its output several times over? Where will it put the hundreds of thousands of men who have acquired combat experience and are accustomed to earning three or four times what they can make outside of the army? Similarities with Germany post 1938 come to mind – when the Hitler regime could not stop.
Still, just because some elites want to reproduce the mobilization model in a new form (in public discourse, of course, comparisons are made with the Soviet economy, not the North Korean one), this is no guarantee that the transition will be simple and painless for the Kremlin.
In particular, it entails a fundamentally different level of state intervention in the personal lives of Russians and restrictions on their personal freedoms. In addition, elements of economic coercion, given labor shortages and the clampdown on labor migration, will apparently be required.
It took almost 20 years for the Kremlin to gut political freedoms in Russia (from the “Yukos affair” in 2003 to the “amendments” to the Constitution in 2020). This took place against the backdrop of a favorable economic situation: household incomes grew rapidly in the 2000s and the improvement in living standards was maintained in the 2010s.
In the near future, however, the Kremlin will have nothing to offer Russians except higher prices, higher taxes and restrictions on personal consumption in the context of increasing government interference in their personal lives.
Risks of transition to a mobilization economy
It hardly needs to be explained what threats to security in Europe and the world would come with a personalistic dictatorship of the North Korean type on the scale of Russia, with its military potential. There should be no illusions that in the event of compromises from the West, Putin could easily stop the war he has started. Over the past three years, groups of beneficiaries have coalesced in Russia, and it is these groups that now make up the main social base of the regime.
Can the Kremlin stop a military-industrial complex that has increased its output several times over? Where will it put the hundreds of thousands of men who have acquired combat experience and are accustomed to earning three or four times what they can make outside of the army? Similarities with Germany post 1938 come to mind – when the Hitler regime could not stop.
Still, just because some elites want to reproduce the mobilization model in a new form (in public discourse, of course, comparisons are made with the Soviet economy, not the North Korean one), this is no guarantee that the transition will be simple and painless for the Kremlin.
In particular, it entails a fundamentally different level of state intervention in the personal lives of Russians and restrictions on their personal freedoms. In addition, elements of economic coercion, given labor shortages and the clampdown on labor migration, will apparently be required.
It took almost 20 years for the Kremlin to gut political freedoms in Russia (from the “Yukos affair” in 2003 to the “amendments” to the Constitution in 2020). This took place against the backdrop of a favorable economic situation: household incomes grew rapidly in the 2000s and the improvement in living standards was maintained in the 2010s.
In the near future, however, the Kremlin will have nothing to offer Russians except higher prices, higher taxes and restrictions on personal consumption in the context of increasing government interference in their personal lives.
“The biggest loser will be the current business and bureaucratic elites.”
Unlike ordinary Russians, these elites have something to lose. They are the ones who are to be physically replaced by the “new elite.”
Opposition from these elite groups, combined with the regime’s dearth of financial resources, could derail the “mobilization” scenario. Were that not to lead to regime change (for which there are no key conditions yet), Russia would very likely spiral toward a situation like Venezuela under Maduro.
This scenario, at first glance, seems less dangerous than the “big North Korea” one, but the country’s being enveloped in chaos, with its huge stockpiles of nuclear weapons, could lead to catastrophe.
Are there other scenarios?
For Putin, the war has become a means of propping up his own legitimacy, and he has no rational incentive to end it. Moreover, the last three years have shown that the economic model and bureaucratic system built in Russia over the previous 20 years have proven quite resilient to external pressure. This means the war can be ended only by regime change through collective action on the part of actors who do not need it, who are inside Russia and who do not identify themselves with the regime.
That said, neither the opposition nor the West has formulated a vision for postwar Russia that is realistic in the international context and acceptable to the majority of Russians. Such a vision would create a new impetus, in the form of a positive alternative, for the sake of which reasonable people in the Russian elite and in Russian society who do not support the war might take serious personal risks in a confrontation with the regime.
Opposition from these elite groups, combined with the regime’s dearth of financial resources, could derail the “mobilization” scenario. Were that not to lead to regime change (for which there are no key conditions yet), Russia would very likely spiral toward a situation like Venezuela under Maduro.
This scenario, at first glance, seems less dangerous than the “big North Korea” one, but the country’s being enveloped in chaos, with its huge stockpiles of nuclear weapons, could lead to catastrophe.
Are there other scenarios?
For Putin, the war has become a means of propping up his own legitimacy, and he has no rational incentive to end it. Moreover, the last three years have shown that the economic model and bureaucratic system built in Russia over the previous 20 years have proven quite resilient to external pressure. This means the war can be ended only by regime change through collective action on the part of actors who do not need it, who are inside Russia and who do not identify themselves with the regime.
That said, neither the opposition nor the West has formulated a vision for postwar Russia that is realistic in the international context and acceptable to the majority of Russians. Such a vision would create a new impetus, in the form of a positive alternative, for the sake of which reasonable people in the Russian elite and in Russian society who do not support the war might take serious personal risks in a confrontation with the regime.
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