REPORTS
ANALYTICS
INVESTIGATIONS
  • USD86.55
  • EUR94.38
  • OIL84.85
DONATEРусский
  • 750
OPINION

The man in the camouflage lab coat: Why Andrei Belousov will not revive Russia’s Ministry of Defense

Many have written that the recent appointment of new Russian Minister of Defense Andrei Belousov is a development to be feared — as if a ruthless, powerful deity of military economics and armaments had come to Vladimir Putin's rescue. Economist Valery Kizilov, who has carefully studied the biography and scientific works of the academic turned official, is sure that neither Belousov's career nor his economic views, as set forth in his works, portend success in his new position. Belousov sincerely believes that the state should spur the economy with large-scale investments — and in fact proposes to manage the entire country manually, as if he were running a single factory workshop. This approach will solve neither Russia’s problem of resource scarcity, nor its issues of endemic corruption.

RU

The man from the laboratory: A look at Belousov’s career

Here are the words that journalist and economic analyst Sergei Shelin found to describe Andrei Belousov: “a man of action,” “a strong civil organizer,” “a technocrat,” “absolutely loyal, not corrupt, well-skilled as a manager-director, a strongman not only in terms of conjuncture, but also in terms of basic attitudes.” Historian, sociologist, and publicist Nikolai Mitrokhin, for his part, noted that Belousov has “high authority,” a reputation as a “competent economist,” and called him “a supporter of investment in high-tech and promising production, which for Russia in current conditions means defense industry.” Mitrokhin finds it probable that “the Russian army will increase its efficiency, stop spending money on the luxurious life of the generals, direct it to combat training, reduce bureaucratic procedures, and increase the production of new weapons.”

One can agree that Belousov is not corrupt. There is evidence against him in this regard, but that evidence is comparatively weak. Yes, way back in the year 2000 Russia’s new Defense Minister did hire his younger brother Dmitry to work at the Center for Macroeconomic Analysis and Short-Term Forecasting. And yes, Belousov’s son Pavel heads the company Claire & Clarte («Клэр энд Клартэ»), which, according to its official website, partners only with Russian state entities: the Rostec defense corporation, the Ministry of Industry and Trade, and the Roscosmos space agency. So yes, it may be unseemly that in his new post Belousov the Elder will order armaments from Rostec and the Ministry of Industry and Trade, and they, in turn, will more than likely continue to order engineering consulting and digitalization services from Belousov the Younger. Still, these are trifles, especially when compared to the kind of corruption all too common among high level Russian officials.

To what extent is Belousov a man of action and an effective manager? That’s hard to determine. Belousov was the first deputy head of the Russian Prime Minister from 2020-2024. This is a position that can be abolished and nothing important will change. For example, from 2000 to 2005, there were no first deputy prime ministers in Russia, and it was then that the country's economy grew best.

To what extent is Belousov a man of action and an effective manager? That’s hard to determine

From 2013 to 2020, Belousov served as Putin's economic aide. In this role, he certainly got the chance to develop his talents, but it is not the kind of leadership position in which one is responsible for a lot of people or for a lot of money.

From May 2012 to June 2013, he headed the Ministry of Economic Development. Can this be considered a serious and responsible position? Let’s just say that it is quite possible to do without a specialized ministry in this sphere, and in practice all advanced countries have been doing without one for a long time.

It is better to pay attention to the following. After leading the ministry for a year or so, Belousov was not sent to manage another ministry, region, or corporation. He was instead transferred to serve as an assistant minister for seven years — in areas where the need to manage is minimal. And who headed the Ministry of Economic Development after him? Maybe Belousov left his nominee there, who would continue the course set by the “strong civilian administrator”? No, he was replaced by Alexei Ulyukayev, who later fell victim to intrigue and was jailed for soliciting bribes.

Belousov's deputies in the Ministry of Economic Development were mostly inherited from his predecessors: Herman Gref and Elvira Nabiullina. Oleg Fomichev worked in Gref's department from 2000, became a deputy to Nabiullina in 2010, and then remained in this position until 2018 under Belousov, Ulyukayev, and Oreshkin.

Elvira Nabiullina, the current head of the Russian Central Bank, and Andrei Belousov
Elvira Nabiullina, the current head of the Russian Central Bank, and Andrei Belousov

Alexei Likhachev also became Nabiullina's deputy in 2010 and remained deputy until October 2016, when he moved to Rosatom. Andrei Klepach was deputy minister from 2008 to 2014, meaning he also came to this position before Belousov and stayed there after him. Pavel Korolev can’t be named as one of Belousov's men either: before becoming the latter's deputy, he worked in the government and the Sverdlovsk Region, in the Ministry of Transportation, in the Moscow government, and in the Moscow railroad workers' unions. And he too then remained in office until 2016, never again encountering Belousov on his career path.

All this means that when Belousov was Minister of Economic Development, he had no team of his own. He ran the department with the help of people he did not really know before and whose fate he did not go on to influence after his departure.

When Belousov was Minister of Economic Development, he had no team of his own

Let's look even deeper into the past. From 2008 to 2012, the current Minister of Defense headed the Russian government’s Department of Economics and Finance of the Russian government. The head of the government at that time was Prime Minister Vladimir Putin, and so Belousov's position implied proximity to the dictator's body. Putin probably liked the interaction with this apparatchik, which is why he moved him to a ministerial position when he returned to the presidency.

From 2006 to 2008, Belousov was Deputy Minister of Economic Development, first under Gref, who invited him to take the position, and then under Nabiullina. One can assume that Gref appreciated Belousov's scholarship, and Nabiullina, herself an academic, got rid of him (although moving to the position of director of a department in the government is considered a normal promotion for a deputy minister). During his first stint at the Ministry of Economic Development, Belousov is best remembered for drafting the anti-market law “On Trade,” which introduced many burdensome regulations for retail chains with no real benefit for any other entities.

Sberbank CEO and ex-Minister of Economic Development Herman Gref (left) and Andrei Belousov (right)
Sberbank CEO and ex-Minister of Economic Development Herman Gref (left) and Andrei Belousov (right)

Until 2006, the activities of Putin's current favorite were entirely centered on academia. Starting from the year 2000, Belousov headed the Center for Macroeconomic Analysis and Short-Term Forecasting. This center was created on the basis of the laboratory for the analysis and forecasting of macroeconomic processes at the Institute of Economics and Forecasting of Scientific and Technological Progress («Институт экономики и прогнозирования научно-технического прогресса», ИЭПНТП) of the Soviet Academy of Sciences, which Belousov had headed from 1991. In other words, he spent fifteen years as the head of an economic laboratory.

But there was nothing in this career that came close to decision-making in the “real” sector of the economy. Belousov worked neither in Soviet nor in commercial enterprises. He was a theorist and a bureaucrat all his life. And as a civil servant, he was always drawn to the sorts of positions — assistant, referee, deputy, advisor — that did not require him to exert control over people and budgets. He stayed far away from both the business world and the peculiar world of the Russian military.

There was nothing close to decision-making in Belousov's career; he was always far removed from both business and the military

At the same time, the theories to which Belousov adheres encourage him to look down on entrepreneurs as people concerned only with private and short-term interests. Belousov instead chooses to view economic phenomena holistically and strategically.

The holistic theorist of reproduction: Insights from Belousov’s academic work

Andrei Belousov's doctoral dissertation, which he defended in 2006, has almost the same title as his key monograph: “Evolution of the system of reproduction of the Russian economy: from crisis to development” (Moscow, 2006). Here are the main ideas of this work.

All economic theories are reduced to two approaches. “The first approach is based on merism — the notion that the whole is determined by the properties of its parts” (p. 10). The economy is viewed as a set of households and firms operating in an institutional environment. Belousov refers to the “Robinsonade of the nineteenth-century,” marginalism, the teachings of Alfred Marshall, the Austrian school, and institutionalism (p. 48) to this group of theories.

Belousov's key monograph: “Evolution of the system of reproduction of the Russian economy: from crisis to development”
Belousov's key monograph: “Evolution of the system of reproduction of the Russian economy: from crisis to development”

“The second approach relies on holism, according to which development is guided by an immaterial 'wholeness factor,' and this whole is primary, not reducible to its elementary parts” (p. 10). The theories of Adam Smith, David Ricardo, Karl Marx, John Stuart Mill and Leon Walras are included here “to varying degrees” (p. 48), but “the foundations of the modern theory of reproduction were laid in Keynesian ideas” (p. 14).

The classification is a bit odd, if only because Leon Walras is one of the three main founders of marginalism. But it is followed by an even stranger jumble of formulations. Within the framework of the holistic approach, “one of the key problems becomes the problem of reproduction.” Reproduction of what? The economy:

“Reproduction of the economy is a continuous, constantly renewable process of its functioning and development, during which the economy adapts to changes in external and internal conditions while preserving its structural organization.”

Why do we need these extremely unspecific words — “functioning,” “development,” “adaptation,” “change of conditions,” “organization”? Belousov doesn't explain this, but immediately adds more of the same:

“The main attributive properties of reproduction should include: goal-orientation, continuity of development, adaptability, efficiency, dynamic equilibrium.”

And these terms are clarified with the help of others, all of them equally vague and abstract:

“Impact on the structures of economic order,” “institutional mechanism of communication,” translation of goals “into the daily practice of micro-objects,” “reproduction of material and cultural resources created in the course of economic processes,” “distribution of the social product,” “institutions regulating the behavior of economic agents,” “conditions of functioning,” “change in the morphology of economic structures,” “internal transformation and completion of the economic system…”

It goes on:

“Maintaining balance in each node of the economic system,” “redistribution of resources between functions and structures of the economy,” “static correspondence between functions and their resource supply” — and much more (p. 12).

All this is only good for torturing students. Imagine an examiner asking: “What attribute of reproduction is associated with the redistribution of resources among the functions and structures of the economy?” Unless you know it by heart, you will never guess that the answer is “adaptability.” And all this because the attempt to define the whole without paying attention to the parts completely removes us from economic reality, from people who pursue personal goals, search for means, work, exchange, consume, and accumulate savings. The subjective evaluations of these people, as they interact, create what we can see as reproduction, structures, systems, balances, functions, institutions, and so on. But if we take these concepts as primary, initial, they remain insubstantial and only suitable for manipulation.

Belousov's economic reasoning is one of those humanitarian texts in which conclusions do not emerge from a chain of logical deductions, clearly separated from a limited set of initial data, but are intuitively grasped by the author and placed in the reader's head with the help of a clever selection of examples situated in a suitable frame and evoking the necessary associations. Of course, the author's goal isn’t to pile clever words on top of each other. The main thing here is to suggest to the audience that the economy should be managed using roughly the same methods that have been studied and developed for decades by economists like Belousov.

In Belousov's economic reasoning, conclusions do not arise from a chain of logical inferences — they are grasped intuitively

And here we learn that the possibility of the industrial system’s “linear development” is limited, as it is subject to contradictions. An alternative arises: either a systemic crisis with spontaneous self-destruction, or modernization with a qualitative leap to a new model of reproduction and a new space for sustainable development (p. 29).

Systemic crisis, if it occurs, consists of five phases (p. 30).

  • The system keeps itself alive by eating up resources or by increased pressure on “basic elements” (such as energy or agriculture). According to Belousov, this was the situation in the Soviet economy from the mid-1970s through 1987.
  • Open failures occur, production falls, inflation rises, and “the links between the structures of the industrial system weaken, resulting in the loss of its controllability.” This was the situation in the USSR from 1988 to 1991.
  • The system dramatically changes its essence (its “semantic code,” as Belousov puts it) and disintegrates into links that interact with each other and with the outside world in a new way, with some of the links turning out to be low-priority (peripheral) and their resources being eaten up. The leading links automatically assume part of the former system-wide functions (maintenance of living standards, social stability, and security). This is a transformational recession, which was observed in Russia in 1992-1994.
  • The depletion of the reserves of the peripheral links again aggravates the contradictions, which this time are eliminated by the reduction of the system-wide functions, from which the social sphere and public finances suffer even more. In Russia, this phase began in 1995 and ended with the 1998 default.
  • Depending on the efficiency and balance of the new system, it will either stabilize or move to a new round of disintegration (in Belousov's words, “the process of systemic crisis is moving to a new lower level,” where enterprises and regions are already dealing with it). According to Belousov, a fairly successful “internally oriented model of reproduction” worked in Russia in 1999-2001. But the transition to this model from the fifth phase of the systemic crisis is described very sparingly and without explanation: “In such a situation, the stabilization and then revival of the economic situation, which began in October 1998 and lasted until mid-1999, looks like a true 'Russian miracle'” (p. 114).

If a systemic crisis is avoided, modernization begins. And modernization, depending on the «elements prioritized by final demand,” falls into four types or models:

  • Consumer-oriented, with reliance on saturation of primary needs;
  • Consumer-oriented, with reliance on capital goods;
  • Export-oriented;
  • Investment-oriented, including import substitution.

Belousov believes that China and India are modernizing according to the first model. He finds the second model operating in the United States from the 1930s and in post-war Germany until the late 1960s. As examples of the third model, Belousov mentions South Korea, Taiwan, Hong Kong, Singapore, and the ASEAN countries. The fourth was realized by the USSR in the 1930s, Japan in the 1960s and 1970s, and to a large extent France in the 1960s (p. 49).

Although Belousov expresses his preferences in his academic works in a very reserved and cautious manner, one can sense that this fourth model is the one to which he is most sympathetic. In this model, investment, most likely artificially subsidized or directly directed by the state, becomes a priority element of final demand.

Dying in the name of metal?

Belousov writes about the dangers of this path with astonishing frankness. For example: “This model is capital-intensive, investment is, in a sense, an end in itself” (p. 35). This version of modernization “is characterized by high metal and energy intensity of the national economy” (p. 36). The growing investment sector cannot finance itself; it must obtain financing from somewhere else, and it should not rely on foreign investors or revenues from commodity exports, because these sources are unreliable. The only reliable source of capital demands that the population tightens its collective belt, which “creates difficulties in mobilizing social support and worsens the social background of modernization” (p. 36). Aside from that, one has to choose between developing one's own investment industries (machine tools, materials industry, construction, or R&D), which requires the “gigantic mobilization of resources” — or importing all these goods, which will lead to inconsistencies and inefficiency.

In short, the intention is to waste gigantic amounts of metal, energy, and other resources with predictably low efficiency, and to force people to sacrifice for investment projects that are an end in themselves rather than a means to an end. This remark about the end in itself is apparently a caveat. It seems that this is where Belousov expressed his deep convictions, and the talk about the need to avoid a systemic crisis and raise the economy serves to embellish the concept for the manipulated audience. Elsewhere in the monograph, the author writes that if “long-term capital-intensive decisions” are taken, they “will lead to an increase in the investment and budgetary burden on the economy without immediate returns... The effect may be obtained beyond the medium term (mainly at the beginning of the next decade)” (p. 255). (с. 255). These words, written in 2006, echo a famous quote by Winston Churchill, who in 1940 said he had nothing to offer the nation but “blood, toil, tears, and sweat.”

Belousov's words about the need to boost the economy serve to embellish the concept for a manipulated audience

The question is: how is this different from what was described above as the first phase of a systemic crisis? How does this differ from the severely stagnant Soviet economy of the 1970s and 1980s, where millions of megawatts, man-hours, and tons of steel were wasted on projects chosen “from above” while the people tightened their belts to get them done?

Belousov writes about the second half of the 1970s as if he were describing the Stalin era — or the late Putin era: “The degradation of consumer industries was predetermined by the system of distribution of quality resources dictated by the arms race” (p. 53). Why is the 1970s, when Soviet citizens suffered from scarce consumption for the sake of great construction projects, a bad thing, and the 1930s, when they literally starved and toiled for gulag rations for the sake of even greater construction projects, a good thing?

Belousov has the answer. The Soviet system of the 1970s wasn’t centralized enough, as it lacked verticality and unity:

“Traits of degradation and crisis of the state in terms of its system-forming role in society began to emerge in the 1970s, as Soviet ideology eroded, the [Communist Party] weakened, and departmentalization intensified” (p. 61).
“The economy began to be dominated by closed departmental economic structures with narrow corporate interests, their own resource and production potential. The national economy began to segment quickly into departmental enclaves, and the development of each such enclave became autonomous. At the same time, the planning system, originally oriented at the development and implementation of national economic priorities, turned into a tool for balancing departmental structures” (p. 63).

This is not the good old Stalinist model, where the leader calls on key factories every day, demands control numbers (in physical terms!), and put bosses up against the wall if they fail to meet the plan.

Lunatics and pragmatists

This description of the late Soviet system is consistent with the theory of the administrative market, which was developed back in the early 1980s by the Russian economists Vitaly Naishul and Viacheslav Shironin, as well as by sociologist Simon Kordonsky. One such description can be found in Naishul's vivid paper, “The Highest and Last Stage of Socialism.”

In contrast to the Stalinist economy, in which the planning process was predominantly “from the top down,” planning in the new system is carried out through a coordinating and interactive process with a repeated cycle: “from the bottom up” and “from the top down.” Throughout the economy, there is freedom to formally comply with all orders and improve synthetic production indicators, and in fact to inflict stab wounds on the national economy by refusing to produce the goods the country needs. Orders issued by the most authoritative bodies, when they move “downwards,”, lose their directive force and, although they are formally fulfilled, they are not fulfilled in essence.

The existence of these asymmetrical vertical relations leads to the emergence on the bureaucratic market of saleable values of the hierarchical society. Sectoral bodies trade mainly in production and resource allocation plans, normative bodies deal in methods of accounting of economic activity, and control bodies are responsible for issuing administrative instructions. Thus, the bureaucratic market realizes a social order wherein everything is bought and sold — even that which is not subject to purchase in a normal market system.

Russia’s bureaucratic market has formed a certain type of manager — not a “party soldier,” as in Stalin's time, but a “party trader,” for whom “nothing is sacred” when it comes to government activity. The fate of a Siberian river can be exchanged for a dissertation, while a supply contract for pipes can be approved in exchange for a Moscow residence permit.

Russia’s bureaucratic market has formed a certain type of manager — not a “party soldier,” but a “party trader”

In Belousov’s telling, the theory of the administrative market also highlighted the objective reasons for the USSR's shift from the purely planned Stalinist model to a system of bureaucratic trade driven by technological and demographic shifts. Technological advancements significantly expanded the range of products, making it impossible to control all critical indicators from a single center. At the same time, demographic changes led to labor shortages.

In the 1950s, the country saw the development of fundamentally new industries, such as electronics and polymer chemistry. Due to the Cold War, these new industries could no longer be fully acquired from the West; they had to be stolen piece by piece, which prevented a comprehensive approach to new industrial construction. However, the main challenges were not due to NATO bans but to the fragmented nature of the new technologies. These industries produced a vast and constantly updated range of products, typically in small and medium series, significantly increasing management tasks. Traditional top-down planning became untenable. The authority to issue orders remained at the “top,” but it was information-blind, while the “bottom” knew the needs but lacked the power to fulfill them

Stalin's economy in its time found ways to ensure a huge influx of labor into priority industries:

  • Limit rural consumption to starvation levels and reduce agricultural production accordingly;
  • Partially mechanize agriculture;
  • Reducing agricultural production and mechanizing labor to free up vast numbers of workers.

In the 1950s, the growing urban production resources created a considerable demand for labor, which gradually began to eat away at its previous surplus. Labor shortages had already appeared in certain mass skill groups.

Today the shortage of labor in the “priority areas” is as sharp as in the Brezhnev years. And the products made by advanced industries are broader in number and are changing even faster. If Belousov had really attempted to run the country as a single workshop, it would have resulted in an obvious failure.

But it is hardly worth waiting for such attempts now. Putin realizes that his subjects among the masses are wholly unwilling to sacrifice their everyday comforts for the sake of their bosses' insane military plans. That’s why Putin removed Belousov from the economy and transferred him to the Defense Ministry, claiming that Russia’s military spending is high and needs to be “controlled” and “optimized.” Following Belousov’s departure from his previous sphere, familiar faces will still be in charge of the economy: Mikhail Mishustin, Elvira Nabiullina, Anton Siluanov, Sergei Chemezov, Denis Manturov, Nikolai Patrushev's son, Alexander Novak, Herman Gref, Alexei Miller, Igor Sechin, Maxim Reshetnikov, and Maxim Oreshkin among them. Among them there are technocratic economists like Belousov, but economists a bit more inclined to market solutions and not so confident in their ability to plan everything from the top. And of course, there are also corrupt officials and occupiers of sinecure posts, faceless functionaries and executors of other people's wills, sybarites from the hereditary nomenklatura, and hybrids embodying elements of all of the above. Perhaps the one trait they all truly share is that none of them are capable of “raising Russia to its feet.”

Сorrupt officials, faceless functionaries, sybarites from the nomenklatura, and hybrids of all of the above are in charge of Russia’s economy

Belousov, who can't do it either (but at least wants to), has been sent to drain the ocean of theft. However, it is unlikely he will remain the head of the Ministry of Defense any longer than he stayed in his primary field of economics.

It is intriguing to imagine a respected Russian economist confronting some of Putin’s closest associates — let’s imagine the crony in question is former KGB agent Sergei Chemezov, who served with Putin in Dresden before being appointed head of the Rostec defense con in 2007. Running his finger over a long list, the economist might threateningly ask how many microchips or polymers have been shipped to the front lines today. Then he would call his deputy (whom he had never worked with before) to verify if the Ministry of Defense, which the economist now heads, had actually received the goods. Next, the economist would contact the unit commanders (who hate and despise him) to confirm how much of what was ordered had been delivered. Finally, he would read news reports, trying to determine who deceived him and what action to take.

The worst affected by the inevitable failure to come will be those who genuinely hope that Belousov, or someone like him, will improve the situation for Russia or its army. They should have realized the reality a long time ago — bright shining futures are a mirage today, just as they were in Belousov’s beloved Soviet times.

Subscribe to our weekly digest

К сожалению, браузер, которым вы пользуйтесь, устарел и не позволяет корректно отображать сайт. Пожалуйста, установите любой из современных браузеров, например:

Google Chrome Firefox Safari