James Kenneth Galbraith's Take on the Russian Economy at War

As readers of this blog may remember I have for many years been attentive to the work of the economist James Kenneth Galbraith, who a decade ago just so happened to join Emmanuel Todd in a Harper's magazine round table regarding Germany's "conquest" of Europe. As it happened this would seem to not have been Todd's last contact with Galbraith's ideas. As one (rather sneering) reviewer of Todd's latest book observes, a paper by Professor Galbraith has been an important touchstone for his thinking about the Russian economy's potentialities within the current conflict.

The April 2023 paper in question, provocatively titled "The Gift of Sanctions", compares Russian Establishment-produced analyses of Western sanctions against Russia with American Establishment analyses of the same subject and finds that, while they argue from the same facts they draw very different conclusions. The American analysts he discussed were consistently insistent that the sanctions would devastate the Russian economy, while the Russian analysts, while recognizing in the sanctions a significant problem, saw at least the possibility of Russia adapting to cope with the situation--and possibly even make gains as a result. As Galbraith explains the matter those Western sanctions could be looked at as imposing on Russia some of the conditions that those calling for vigorous Russian redindustrialization on the basis of a robust industrial policy had called for--like quotas or tariff walls, eliminating competing sources of supply. Coming within the wartime situation they also make politically palatable the establishment of the rest of the conditions--war making politically possible forms of economic intervention that had been fiercely opposed in peacetime by groups too powerful for the Russian government to ignore (the oligarchs, to name the most obvious), with the dislocations involved in the process inhibiting even beyond such groups (a measure of pain for the Russian public in the short-term, and maybe not so short-term, unavoidable as imports are cut off, and local industry takes time to fill the gap).

Considering the possible outcome of such a reindustrialization effort Galbraith seems relatively optimistic that it would work--more than I would have expected recalling his rather orthodox aversion to government "picking winners" back in his 1989 book Balancing Acts. But then it has been a rather eventful three decades since, after which Galbraith seems less willing to concede so much to what his father called the "conventional wisdom," and anyway Russia seems to him to have many a point in its favor as it makes the attempt. Among these is Russia's size and level of development, which mean that sanctions would have a very different effect on it than they did in a Cuba or Iraq (utterly devastated by them), or even 1980s-era South Africa and 1990s-era Yugoslavia--the more in as Russia is so rich in essential resources extending beyond its obvious physical wealth to a wealth of "scientific and engineering talent." Still another is the way foreign firms became deeply established within Russia for decades, such that even in exiting Russia they leave behind their trained personnel, their organization, their plant (the car makers Nissan and Renault each selling their operations to Russia for a mere euro and ruble, respectively), as well as developed "indigenous competencies"--so that "scientific and engineering talent" by no means has to start from scratch as they seek to fill in the gaps opened up by those firms' exit and the sanctions. The result is that the war, in the absence of a completely devastating outcome for Russia (Galbraith, unlikely many, is not unmindful of the risk of nuclear war that hangs over the entire crisis), could set the country well on its way to the achievement of a modern manufacturing base that has so long eluded it.

Does the case hold up? Considering Galbraith's vision of Russian reindustrialization one should note that the sanctions acting like tariff walls not only keep foreign competitors that would price budding Russian manufacturers out of the market out, but also prevent Russian products from getting out. It is an "import substitution"-type industrialization that Galbraith writes of here, an approach to the matter that even those economists bucking a neoliberal orthodoxy tend to take a dim view, emphasizing that East Asian countries like South Korea that industrialized successfully did so on an "export-led" rather than import substitution basis, which they identify with the less happy results of such efforts in post-war, pre-neoliberal Latin America.

There is, too, the difficulty posed by the fact that in contrast with a country establishing tariff walls in normal peacetime conditions this is, again, a situation of NATO-Russia proxy war, which not only entails that much more difficulty in trading with the rest of the world, but the prioritization of the armed forces' needs, a factor that has, of course, undermined Russian development in the past. Of course, it is only fair to acknowledge that countries have also been known to make exactly this kind of progress under wartime conditions--because, just as in the case Galbraith discusses here, war allows government to make investments and engage in interventions that would be politically impossible for them in peacetime, especially when those governments' demand for weapons and other supplies permits business to go "all-out" in trying to meet them. Indeed, looking back to the World War Two era it is worth noting that the U.S. made extraordinary progress during the conflict, massively enlarging and modernizing its manufacturing base, while Germany and Japan laid key foundations of their post-war prosperity, not least by beginning their assimilation of the "Fordist" mass-production technique the U.S. had pioneered. However, one may doubt the validity of any analogy between those countries and the Russia of today--as the U.S. was already the country out on the "production frontier" and a late entry into the war rather less subject to disruption than the other participants due to the immunity of its territory to attack and Allied control of the oceans and so much of the world's resources; while Germany and Japan each had the mastery of much of a conquered continent, which they exploited ruthlessly for the sake of resourcing their wars, and the associated industrial efforts. Neither the American situation, nor the German and Japanese one, bears much resemblance to Russia's, which does not have any obvious compensating factors on its side. One may also add that the 2020s are not the 1940s, with a case existing that technological capacity has become much less transferable than before--Andrea and Mauro Gilli pointing out that in an age of simpler, less scientifically intensive, less specialized, production methods it was much easier to catch up. Simply put, in the early twentieth century if you could build a sewing machine or a bicycle you could develop a car industry; and if you could build a car you could build a fighter plane, because in each case the skills were usefully transferable from one area of industrial production to another. It does not go that way today at the high end of the technological spectrum, complicating any import substitution scheme in many a key area, in many ways--for instance, the way that military-industrial successes may be less and less transferable to civilian production to any useful end; with all that implies for such an industrialization process.

The result is that there seem to me considerable grounds for at least a greater measure of skepticism about the prospects of such an initiative than Galbraith displays here--much as he makes a thought-provoking case worthwhile as an alternative to the views too much taken for granted.