India’s path to prosperity: Book talk with Raghuram Rajan on ‘Breaking the Mold’


India’s path to prosperity: Book talk with Raghuram Rajan on ‘Breaking the Mold’


The Siberian Curse: Does Russia’s Geography Doom its Chances for Market Reform?

Siberia, like “the cold,” has for centuries been synonymous with the very image of Russia. From the tsars, who first planted the seeds of cities in Siberia, to the Soviet central planners, who moved masses of people and industry into its vast and remote regions, the exploration and development of Siberia have shaped Russia’s sense of national identity. Siberia’s “untamed frontier” has long promised wealth and opportunity for the rest of Russia.

Seventy years of Soviet rule, however, transformed that promise into something more akin to a curse.

Even though central planning has been abolished, its legacy remains—an almost unimaginably poor distribution of labor and capital that can neither be easily maintained nor adapted to the market. Today, thanks to Soviet economic policies, Russia has a severely distorted economic geography. In particular, a huge portion of modern Russia—cities, factories, and people—lost in the distance and cold of Siberia. Until Russia’s leaders come to terms with Siberia’s misdevelopment—and overdevelopment—during the 20th century, their efforts to build a competitive market economy and a normal democratic society are likely to fail.

The Bolshevik Legacy

Over the course of five centuries the tsars made Russia the world’s largest country. They created a state defined by its physical geography, with a national identity rooted in territorial expansion, culminating in the conquest of Siberia. But it was the Soviets who shaped modern Russia’s economic geography. Where the tsars had placed forts, villages, and towns in Siberia, Soviet rulers deployed millions of labor camp inmates to build giant power stations, factories, mines, and railways, as well as cities. The tsars bequeathed to the Bolsheviks a huge swathe of the world’s coldest territory, but the Bolsheviks chose to defy the forces of both nature and the market in developing it.

Thanks to Soviet industrialization and mass settlement of Siberia, much of Russia’s population today is scattered over a vast land mass in large but isolated cities and towns. Inadequate road, rail, air, and other communication links hobble efforts to connect those population centers, promote interregional trade, and develop markets. About one in ten Russians live and work in almost impossibly cold Siberian cities, places where average January temperatures range from -15 to -45 degrees Celsius (+5 to -49 degrees Fahrenheit). Because of their location, these cities still depend heavily, as they did in the Soviet era, on central government subsidies for fuel, food, and transportation. Costs of living are as much as four times higher than elsewhere in the Russian Federation, while costs of industrial production are sometimes higher still.

Siberia and the GULAG

At the end of the tsarist period, the interior of Siberia was barely charted, let alone settled. The large-scale settlement and urbanization of Siberia were not possible under the tsars. The costs of peopling, exploiting, and maintaining such a vast, cold area were simply too onerous for their market-oriented economy. Only the Soviet Union—a totalitarian state with coercion at its core, with its highly centralized control of production and redistribution of resources, and with absolutely no sense of cost—could conquer Siberia.

Like the tsars, the Soviet state used Siberia both as resource frontier and as penal colony. But the Soviets developed the tsars’ Siberian penal system to levels previously unimagined. Under Josef Stalin, the government launched the labor camp system in 1929 for the explicit purpose of colonizing and exploiting the natural resources of the nation’s most remote regions. By 1934, half a million Soviet citizens—everyone who had received a prison sentence of three years or longer—were in the GULAG (an acronym based on the name of the department within the Soviet police ministry that ran the camp system). Stalin’s great purges of the late 1930s brought the total camp population to more than 2 million.

The GULAG and its virtually inexhaustible pool of slave labor became fundamental tools in the industrialization of Siberia. GULAG inmates—some 18 million–20 million of them over slightly more than two decades—facilitated the exploitation of timber and mineral resources in unpeopled remote areas. They also laid railroads, constructed roads and dams, dug canals, developed oil fields, and built factories and farms, all under monstrously inhuman conditions.

World War II gave further impetus to Siberian development when key factories were moved from European Russia eastward into the Ural Mountains and beyond, to put them out of the reach of invading German forces. Siberia received 322 relocated plants. Postwar economic development plans encompassing both these and yet-to-be-built industrial facilities demanded even more forced labor. Continuously, from mid-1949 until Stalin’s death in 1953, the forced labor camps contained around 2.5 million inmates, half of whom had committed crimes no more serious than theft. During those peak years in the late 1940s and early 1950s, the GULAG accounted for an estimated 15–18 percent of all Russian industrial output and industrial employment.

Siberia after Stalin

The GULAG was largely dismantled after Stalin’s death, but it had already laid the basis for what was to become a massive project of Siberian development under his successors. Many motives converged in the postwar development of Siberia. Communist economic planners sought to extract Siberia’s oil, gas, diamonds, gold, and other rich mineral deposits to make the Soviet Union self-sufficient in strategic resources. Military planners, who during the war had already begun to reconceptualize Siberia as a strategic redoubt—a defensible core deep in the interior—wanted to ensure that the entire region would be settled and secured. Soviet politicians tasked with engineering and mobilizing society in the 1960s–80s stressed the ideology of “conquering new lands”—now to be interpreted as campaigns to overcome nature and the wilderness through industrialization—to increase the strength of the Soviet state.

Planned “Cities”

Cities were an important feature of the plans for a Siberian industrial utopia. Cities were developed in Siberia in tandem with industries to provide a fixed reserve of labor for factories, mines, and oil and gas fields. In many respects, however, the cities were not really cities. Rather than being genuine social and economic entities, they were physical collection points, repositories, and supply centers—utilitarian in the extreme. They were built to suit the needs of industry and the state, rather than the needs of people. Indeed, primary responsibility for planning and constructing city infrastructure fell to the Soviet economic ministry in charge of the enterprise the city was designed to serve. Few responsibilities were assigned to the municipal governments.

Still the cities grew, in both number and size. By the 1970s the Soviet Union had urbanized its coldest regions to an extent far beyond that of any other country in the world. (See box on page 25.) At precisely the time when people in North America and western Europe were moving to warmer regions of their countries, the Soviets were moving in the opposite direction.

Boom…and Bust

In the 1970s and early 1980s, Siberia and the Russian Far East dominated Soviet regional development programs. Western Siberia, rich not only in oil but also in natural gas, was on its way to becoming the largest energy-producing region in the USSR, and grand long-term industrial projects were being planned for the whole of Siberia. Western analysts were astounded by the magnitude of the projects and by the scale of investment necessary to carry them out.

But the Soviet economic slowdown of the late 1970s would put an end to such ambitions. By the 1980s the massive investments in Siberia and the Far East were offering extremely low returns. Many huge construction projects were left incomplete or postponed indefinitely. At first, the troubles were blamed on disproportional and incoherent planning, ineffective management, and poor coordination. But by the reformist era of the late 1980s under Mikhail Gorbachev, the problem was seen to be Siberia itself as well as the efforts to develop it. Criticism of the giant outlays in Siberia became commonplace. Regional analysts and planners in Siberia mounted a fierce rearguard action. They tried to justify continued high investment by pointing to the value of the commodities produced in Siberia on world markets and the state’s dependence on Siberian natural resources and energy supplies. Still, by 1989 the industrialization of Siberia was beginning to seem a monumental mistake. The Siberian enterprise was, in any case, brought to a screeching halt by the collapse of the Soviet Union in 1991 and the beginning of Russia’s macroeconomic reforms in the 1990s.

Shrinking Russia

For more than 50 years, Soviet planners built Siberian towns, industrial enterprises, and power stations—although often not roads—where they should never have been built. Huge cities and industrial enterprises, widely spread and for the most part isolated, now dot the vast region. Not a single Siberian city can be considered economically self-sufficient. And pumping large subsidies into Siberia deprives the rest of Russia of the chance for economic growth.

To become competitive economically and to achieve sustainable growth, Russia must modernize and connect its physically vast but misdeveloped economy. But real change and modernization cannot be pursued within the framework of Russia’s current economic geography. Refurbishing and upgrading the existing systems of road, rail, and air transportation, for example, or adding new infrastructure and new means of communications would simply improve the connections between towns, cities, and enterprises that should never have been where they are. It would make places more livable where, from an economic point of view, most people should not live to begin with.

Rather than try to “fix” its misdeveloped economy through further investment in Siberia, what Russia needs to do is the opposite. It needs to focus its attention on redeveloping the regions that are potentially most productive, those in the western part of the country. A large part of Siberia’s current population needs to move to those areas, which are both warmer and closer to the markets of Europe. In effect, this is a policy to “shrink” Russia—but one that does so by concentrating its economic geography, rather than by divesting territory.

A New Approach to People

Not only does such a strategy of shrinkage run counter to Russia’s imperial and Soviet history of territorial expansion, it also would require abandoning the centuries-old policy of constraining and directing the movement of the Russian people. To shrink Russia’s economic geography in a sensible way, the government must set as one of its highest priorities facilitating the free movement of people within the Russian Federation. Even today, although the legal right to move is enshrined in the constitution, Russians are still not free to relocate wherever they would like to live and work. Residence restrictions in cities like Moscow, together with resource constraints, poorly developed job and housing markets, and the absence of social safety nets, obstruct personal mobility. The government needs to remove such overt and hidden barriers so that people can move where they want.

While many Russians will welcome the opportunity to move, for others the downsizing of Siberia will be painful. Many people who would like to move are too poor to do so, and the worse the economic situation becomes in the region, the less they are able to move. The Russian Federation is not rich enough to finance a mass relocation, and today few places in Russia can offer new jobs. To the extent that it can, however, the government should help move people, especially younger and more productive people, out of Siberia to European Russia. It should offer housing relocation packages or lump-sum payments or bonuses to help them move. It could, for instance, finance migration through a special fund generated by revenues from Siberian national resource wealth.

The biggest challenge will be dealing with the many residents of Siberia who are too old or too unskilled to find jobs elsewhere. Their assets in the region are worthless and cannot be sold to finance their relocation. For these people, the Russian central and regional governments will have to continue fuel, food, and other subsidies in the coming decades to make life bearable. But the subsidies must be transparent so that the population elsewhere in Russia, as well as in Siberia, knows who is paying for what and why.

Realistic Strategies for Siberian Development

British geographer Michael Bradshaw has recommended that Russia adopt a “cleaner, leaner approach” to the development of Siberia and the Far East—shifting from labor-intensive methods to labor-saving technologies and industries that can easily shed labor or employ temporary workers. This is exactly the right approach, even if it means renewed emphasis on the region’s extractive and energy industries. They are the only sectors that can rely on (and pay the high wages to attract) outside workers on short-term tours of duty.

Canada offers an appropriate model. Canada’s North is a resource base, but the bulk of the nation’s people are located along the U.S. border, close to markets and in the warmest areas of the country. According to the 2002 Canadian Census, Canada’s northern territories have less than 1 percent of the nation’s total population. Canada’s mining industry—and northern industry in general—relies on seasonal labor, with the labor pool shrinking during the coldest winter months and increasing again in summer.

Were Russia to adopt a similar approach, most of its population would live closer to the markets of Europe, also in the warmer areas of the country. Siberian cities would be much smaller than at present. In very remote areas where key natural resources are located, settlements would be outposts (not towns and cities), with small permanent populations and a heavy dependency on seasonal workers for the bulk of production in the summer months.

New Conceptions of Security

Finally, Russia will have to rethink security issues as it contemplates the prospect of “empty lands” in Siberia and the Russian Far East. Despite popular Russian fears, most serious analysts do not foresee a mass influx of migrants from China across Russia’s borders. Still, given that Russia borders countries that may not always remain friendly, its security concerns do need to be addressed. Enhanced technical systems—for instance, the creation of sensors, new rapid reaction forces, and high-tech weapons—could replace the deployment and support of large conventional land and sea forces on Far East borders. More important in the long term would be cooperative solutions such as an international treaty with neighbors like China and the United States to guarantee Russia’s territorial integrity and its continued sovereignty over Siberia and the Far East.

Moving Ahead

Market mechanisms alone will not solve the problems that stem from Russia’s distorted economic geography. To reconcentrate its population in the west and correct the misallocations in its economy, Russia will need active, even bold, state policies. Even so, those policies will have to be modest in their expectations. The Stalinist process that put people in Siberia in the first place cannot be reversed wholesale. People will not move en masse, and the goal is not, in any case, to “empty out” this resource-rich region, but to help it move closer to the kinds of economic activity, and thus the population, that might have been expected under market conditions.

One big obstacle to effecting change will be the governors, oligarchs, and others based in Siberia who have vested interests in continued regional subsidies and redevelopment programs. President Putin and other national leaders will have to place themselves above such regional interests. They should send out clear signals that the future of Russia (and, consequently, also of Siberia) depends on a strong, integrated, and connected Russia, which will not be achieved if the government continually pumps resources—not least, human resources—out of more productive areas and into Siberia.

Russia needs to achieve, as best it can, a match between its most productive (or potentially most productive) regions and its most productive capital, including people. That involves putting Siberia in its proper context—which means, in at least one respect, reviving the ancient myth of Siberia’s promise. The wealth of Siberia is not Siberia’s. It is Russia’s. It so happens that much of Russia’s wealth—and the bulk of its natural resources—are located in Siberia. But Siberia cannot claim these as its own, as much as the oligarchs and local government officials there may want to.

Russian leaders do not face a choice of developing Siberia or rejecting it and casting it off. As they make it possible for most of Siberia’s people to move elsewhere, they can develop the region’s resources realistically—reducing its dependency on huge fixed pools of labor and shifting to more technologically intensive methods of extraction and temporary work schemes.

Today, Siberia’s resources are being developed at far too high a price. Enterprises outside the energy sector cannot generate sufficient revenues to pay high wages to attract new labor or to keep the existing labor force. Instead, administrative, nonmarket mechanisms keep people in place—heavily subsidized to the detriment of Russia as a whole. Siberia’s resources can contribute to Russia’s future prosperity, and the regional economy can one day be viable, but not if the Russian government persists in trying to maintain the cities and industries that communist planners left for it out in the cold.