The Role of Russia’s Regions in the War Economy
Russia’s defence companies have become critical to the country’s wartime economy. Despite Russia’s partial decentralisation, this means tight control from Moscow through a combination of financial incentives and coercion.
After the start of the war against Ukraine, Russia’s government delegated certain responsibilities to the country’s regional governors. Beyond the political sphere, where Moscow maintained strict control over the regions, the Kremlin began to undertake some decentralisation. At the same time, the strategic priority of integrating the war into the national economy and the task of maintaining uninterrupted supplies of arms to the front lines led to the rise of a group of defence-oriented regions. The war put these regions in an exceptional position and ensured their strong economic growth.
Yet, Moscow retains overall control of the defence sector in these regions, which are fully subordinate to the centre. Thus, partial decentralisation has been combined with increased selective centralisation with respect to these defence-oriented regions.
Militarisation of the national economy
Russia’s full-scale war against Ukraine has now lasted for more than two and a half years. What started as a temporarily limited ‘special military operation’ has become a critically important factor in Russia’s political, economic, and social life. President Vladimir Putin declared that a key task in the war was to integrate Russia’s defence-industrial complex into the national economy. According to Kremlin spokesman Dmitry Peskov, the defence ministry should be ‘open for innovations, for the introduction of all advanced ideas, [and] for the creation of conditions for economic competitiveness’. Putin emphasised that ‘every rouble in the economy of the armed forces should work efficiently, and all allocated funds should fit into the economy’. Meanwhile, Deputy Head of the Russian Presidential Administration Maxim Oreshkin said there could be ‘no successful economy without a successful army’.
Restoring Russia’s military-industrial complex has required huge state expenditure. On November 20, 2024, the State Duma passed the law ‘On the Federal Budget’ for 2025. The new budget allocates 8% of GDP to defense and national security - a record high in the history of modern Russia, equal to more than 40% of all budget expenditures. In a significant shift, defence spending has exceeded social spending; previously, the latter was a top priority because it allowed the regime to maintain its legitimacy among large social groups. Production of military equipment drives industrial expansion, and industries directly related to the war, such as transport, computers, and electronics, have seen spectacular growth.
The rise of defence-oriented regions
The militarisation of the Russian economy has visible territorial effects, as the defence industry tends towards territorial concentration, following patterns inherited from the Soviet period. Today’s defence-oriented regions are old industrial heartlands where the defence industry has played a significant role in regional economies.
The war and the resulting need for Russia to find substitutes for its foreign imports because of sanctions put these regions in an exceptional position and ensured their vigorous economic growth. This growth began in autumn 2022 and became more noticeable in 2023. The areas in question include several regions in the Central, Volga, and Ural Federal Districts.
It is practically impossible to estimate precisely the defence industry’s contribution to the growth in manufacturing, because along with military products, defence firms also produce civilian goods. However, it is the defence industry that provides the main impetus for the growth in demand for metal products, computers, electronics, optics, and vehicles – all sectors that have witnessed a considerable expansion in recent years.
Governing the defence-oriented regions
The general trend in relations between the centre and the regions after the beginning of the war was to delegate new areas of responsibility to the regional governors and make them personally responsible for maintaining political and social stability in their regions. The aim of this partial decentralisation was to shield Putin from responsibility for policy failures and thus maintain his popularity. However, the situation with regard to the defence-oriented regions was more complicated. From the start of the war, Moscow managed defence firms according to a special scheme.
The Kremlin’s priority of forcing defence companies not only to continue uninterrupted production but also to constantly increase their output required the creation of special conditions for the employees of these firms. Those employed at Russian defence companies in autumn 2022 received double pay and were exempted from the country’s partial mobilisation. In addition, military-industrial employers have been trying to lure new employees with mortgage compensation, holidays on the Black Sea, and even payments towards the costs of mental health care. Some firms initiated a Bring a Friend campaign, with a promise of 10,000 roubles ($100) for each new employee brought into the company.
At the same time, special employment conditions meant special control from Moscow. To encourage the directors of defence companies to work harder and be more disciplined, the Russian leadership did not hesitate to use direct threats borrowed from the Stalin era. In March 2023, at a meeting of the Military-Industrial Commission, Deputy Chairman of the Security Council Dmitry Medvedev read out a telegram issued by Stalin in 1941: ‘Now I ask and hope that you will fulfil your duty to the Motherland. In a few days you will be violators of your duty to the Motherland, I will start to smash you as criminals who neglect the honour and interests of your Motherland. It cannot be tolerated that our troops suffer at the front from the lack of tanks, while you in the distant rear are lazing and idling.’ Medvedev asked those at the meeting to memorise the Soviet leader’s words.
Medvedev constantly undertakes inspection visits to monitor the work of defence companies in the regions. For example, in March 2024, he held another meeting of the Military-Industrial Commission to review the production of highly sought-after weapons as part of his visit to a gunpowder plant in the Tambov region. In June 2024, Minister of Industry and Trade Anton Alikhanov said that the work of defence companies across Russia must follow the principles of strict project management and that there would be sanctions – up to and including a change of ownership – for those who violated the rules.
These examples show how Russia’s partial decentralisation, which was brought on by the war, is being combined with increased selective centralisation for certain regions that are critical in the Kremlin’s wartime calculations.
Irina Busygina is a political scientist and, since August 2024, a researcher at ZOiS, where she works on the project 'The Implications of War for Russia’s Center-Regional Relations and Territorial Stability'.