The nationalisation of Russia's foreign trade is needed

The sanctions war against Russia, organised by the collective West, is becoming increasingly acute. It would be wrong to say that it is "like an elephant's head" (there are such frivolous, hateful statements). No, losses are inevitable. And one needs to be prepared for them psychologically.

In mid-March, the Centre for Macroeconomic Analysis and Short-term Forecasting published a report entitled “Some parameters of the medium-term forecast: adaptation to the conditions of sanctions” (the head of the department of analysis and forecasting of macroeconomic processes at the Centre is Dmitry Belousov).

The report notes that the decline in the Russian economy may last for three years - until 2024. According to the Centre’s estimate, in 2022, the decline in Russia's GDP may amount to 6.3-6.6%, in 2023 – 2-2.3%, in 2024 – 0.3-0.5%. It is clear that the estimates contained in the report are rather conditional.

Real events in the sphere of the sanctions war will certainly make their own adjustments to these figures. But the report is intended, first of all, to show the main cause-and-effect relationships in the Russian economy generated by the war, as well as to identify the most bottlenecks in it and in the state management of the economy.

The main messages for such a not very optimistic forecast are, firstly, a complete loss of business understanding of the development prospects; secondly, restrictions on financing in the context of the Central Bank's "expensive money" policy; and thirdly, serious disruptions in foreign trade-both in exports and imports.

After reading the report, some conclusions and practical recommendations that would allow minimising the damage from the current sanctions and moving to a different economic model that would be less vulnerable to any subsequent sanctions are directly suggested.

The key words of such recommendations are: "mobilisation economy", "import substitution", "industrialisation 2.0", "directive planning", "nationalisation", "currency restrictions", "price controls", etc. The very words that sounded almost like curses in the era of the flourishing ideology of "liberal market economy". All of this was strictly forbidden by the unwritten rules of the Washington Consensus.

Now I would like to focus on such a problem as the already beginning disruptions in the sphere of foreign trade, which may be even more sensitive in the near future. They are sensitive both for citizens - from the point of view of their access to consumer goods, for businesses - from the point of view of logistics (imported components and foreign sales markets), for the state - from the point of view of replenishing and spending foreign exchange reserves, etc.

So far, the main concern is expressed by the average person who is worried about the disappearance of imported cars, household appliances, fashionable clothes and comfortable shoes, and a bunch of other things that have become familiar household items.

Such a person still doesn't really understand that their income for buying consumer goods can also sink a lot. One way or another, the well-being of almost every Russian depends on the foreign currency earnings received as a result of exporting oil, natural gas, and other natural resources. But the flow of such foreign exchange earnings may begin to dry up…

Business representatives, especially large ones, expect interruptions in the supply of investment goods related to high technologies, microelectronics, software, spare parts for Boeing and Airbus aircraft, etc. Those businesses that are more export-oriented are worried about the possible closure of supplies to Western markets of natural gas, oil, petroleum products, metals, grain, fertilisers and much more.

State authorities, who are used to the continuous growth of international reserves, do not really understand how Russia can manage without reserves worth more than $300 billion, which were frozen overnight. And most importantly, how to continue to accumulate reserves if such a freeze is repeated at any time?

The current sanctions war has revealed what I warned about in 2014, when the first sanctions against Russia began (in connection with the entry of Crimea into Russia): Russia has become too dependent on the global market. Thus, it has become very vulnerable to commodity market conditions and economic sanctions.

In 2014, in connection with the first sanctions in Russia, a number of programs were launched to reduce the country's dependence on foreign markets. And here are the results. In 2013, the share of exports in Russia's GDP equal to 25.85%, and in 2020 - 25.52%. The share of imports in GDP in 2013 amounted to 20.44% of GDP; in 2020 - 20.56%.

As we can see, Russia's dependence on the external market has not decreased over the seven-year period. By the way, for comparison, I will cite data for the United States. In 2019 (latest data), the share of exports in GDP was 14.6%; the share of imports was 17.7%. Russia's dependence on foreign markets is higher than that of the United States.

A special feature of Russia's foreign trade is the chronic excess of exports over imports, which is called a surplus. So, in 2020, the excess of exports over imports was 1.26 times; in 2021 – 1.63 times. In absolute terms, the surplus is measured in tens or even hundreds of billions of dollars each year.

In 2020, the commodity trade surplus was $93.7 billion; in 2021, it was $189.8 billion. This surplus is then converted into exports of private capital and the accumulation of international reserves. Both those foreign assets that are formed as a result of the export of private capital and international currency reserves are under the sword of Damocles of various Western sanctions.

In the end, a model of Russia's participation in international trade exchange has been created that cannot be called mutually beneficial cooperation, it is a real robbery. Today, this has already become obvious. And on the agenda is the task of radical reform of foreign trade (and indeed of all foreign economic activity). Of the Russian Federation.

The essence of this reform can be expressed simply: nationalisation of foreign trade, both export and import. For people of the Soviet era, the term is more understandable – "state monopoly of foreign trade” (GMVT). The state should not just put export and import flows under its control, but become the sole participant in foreign trade operations.

Even in the 19th century, humanity did not know what GMVT was. Yes, for centuries, the state intervened in the sphere of foreign trade, which was conducted by private companies. This interference was expressed in the fact that the state imposed customs duties. Both for fiscal purposes (replenishment of the treasury) and to protect the domestic market from competition from foreign companies and goods.

But the GMVT is more than protectionism, it is the replacement of private companies operating in the field of foreign trade by state organisations. Private capital interacting with foreign countries is a potential threat to national security.

GMVT became a new word in economic theory and practice at the beginning of the 20th century. For the first time GMVT was introduced in our country a few months after the revolution of 1917 - by decree of the Council of People's Commissars of the RSFSR "On the nationalisation of foreign trade” dated April 22, 1918.

According to the decree, the Council of Foreign Trade was established, which included representatives of the People's Commissariats of military, marine, agriculture, food, railways, foreign affairs and finance; representatives of the central regulatory and management bodies of individual industries.

Later it was transformed into the People's Commissariat of Foreign Trade, which began to establish enterprises for the import and export of essential products. In December 1922, when the Soviet Union was created, the People's Commissariat of Foreign Trade of the RSFSR was transformed into the People's Commissariat of Foreign Trade of the USSR.

The state became a single and unique participant in trade and economic relations, acting as an intermediary and "buffer" between enterprises within the country and foreign companies. The GMVT served as a powerful barrier to economic sanctions and pressure from the West at that time.

At the Genoa International Economic Conference, which was held exactly 100 years ago (April-May 1922), Great Britain, France, Italy and other European countries persistently sought the abolition of the GMVT from Soviet Russia, but were decisively refused.

The firm position of the USSR in the international arena led to the beginning of a "streak of recognition" by capitalist countries of the state monopoly of foreign trade. The trade agreement with Italy of February 7, 1924, recognised for the first time the monopoly of foreign trade and established in full the rights of the trade mission as part of the authorised representation of the USSR in Italy.

N. Bukharin, G. Sokolnikov, N. Pyatakov, E. Preobrazhensky and others were also opponents of the GMVT within the Soviet Union; later L. Trotsky joined them. But their resistance was finally overcome. Industrialisation in the USSR in the 1930s was unthinkable without GMVT.

In organisational terms, the state system of foreign trade of the USSR after 1930 began to consist of the following main elements: 1) People's Commissariat (Ministry) of Foreign Trade of the USSR; 2) trade missions of the USSR abroad; 3) All-Union export-import associations; 4) the Main Customs Administration (transferred to the system of the Ministry of Internal Affairs of the USSR in accordance with the Customs Code of 1964).

With minor changes, this system lasted for almost half a century - until the end of the 1980s. The collapse of the GMVT began with the resolution of the Central Committee of the CPSU and the Council of Ministers of the USSR "On measures to improve the management of foreign economic relations" (August 19, 1986). Since January 1, 1987, it has granted the right to enter foreign markets for both export and import to 20 ministries and 70 large enterprises. The dismantling of the GMVT dramatically accelerated the economic degradation of the USSR and its collapse.

The goal of the current foreign trade reform is to ensure the reform of the entire Russian economy, moving it from the rails of "market liberalism" to the rails of mobilisation. The Russian economy must undergo re-industrialisation, or "industrialisation 2.0".

It is obvious that the new industrialisation should be carried out under strict state management on the basis of directive planning for the development of all branches and industries. "Industrialisation 2.0" (like the Soviet Union's industrialisation in the 1930s) is unthinkable without relying on foreign trade.

Import is necessary to supply the domestic economy with investment goods (machinery and equipment), the production of which in our country was destroyed as a result of "market reforms". Exports are necessary in order to earn the currency needed to purchase imported machinery and equipment.

In the sphere of foreign trade, there should be the same strict state management and directive planning as in the entire economy. Exports of goods should be planned in such a way that they do not create a shortage in the domestic market. The currency received from exports should be concentrated in the hands of the state (state currency monopoly). Purchases of imported goods should be linked to plans for investment, modernisation and development of all sectors and industries of the domestic economy.

Paradoxically, the goal of nationalising foreign trade is to reduce the role of foreign trade in the Russian economy to a minimum. Ideally, the economy should become self-sufficient and, thus, invulnerable to any sanctions and market fluctuations in foreign markets.

This is clearly seen in the example of the industrialisation that was carried out in the USSR in the 1930s: a crisis raged throughout the capitalist world, which then turned into prolonged stagnation, and the Soviet Union showed the highest economic dynamics (industrial production growth of up to 10% per year!). And all this is due to the fact that between the "sea" of the world economy and the "lake" of the domestic economy, gateways were established in the form of a state monopoly of foreign trade and a state currency monopoly.

Special “vessels" - state organisations specially authorised to conduct export and import operations - plied between the "sea" and the "lake". They were called "all-union foreign trade associations” (having the status of joint-stock companies with 100% state participation in the capital). In the 1980s, the number of such organisations reached fifty. To name just a few.

In the field of trade in machinery, equipment, and vehicles: "Tekhnoeksport", "Mashinoeksport", "Mashinoimport", "Stankoimport", "Tekhnopromimport", "Avtoeksport", "Sudoimport", "Aviaeksport", "Traktoreksport" and a number of others.

In the field of trade in industrial raw materials: “Promsyrieimport”, “Raznoimport”, “Soyuzpromeksport”, “Eksportles” and others. In the field of food trade: "Eksportkhleb", "Plodintorg", "Plodoimport", etc.

Three associations specialised in providing transport services: “Sofrakht”, “Soyuzvneshtrans” and “Avtovneshtrans”. There were also some specific associations that were associated with the trade in cultural objects "Mezhdunarodnaya kniga", "Soveksportfilm".

You can learn more about GMVT from my books: "Stalin's Economy” (Moscow: Institute of Russian Civilisation, 2014); "Russia and the West in the 20th century. A history of economic confrontation and coexistence” (Moscow: Institute of Russian Civilisation, 2015); "Economic War against Russia and Stalinist industrialisation” (Moscow: Algorithm, 2014); "Sanctions. Economics for Russians” (Moscow: Algorithm, 2015); "The Genoa Conference in the Context of World and Russian History” (Moscow: Kislorod, 2015).