Letter From the Editors

Does war help the economy? In the short term, it sure seems like it. Taking a page from Keynesian economics, government spending (including military contracts) creates jobs, stimulates production and puts money into circulation. But there is a catch: military equipment is ultimately consumed or destroyed, rather than generating revenue. The result is increased spending without a corresponding productive return, and mounting pressure on public finances.

The Russian government’s draft budget for 2027 illustrates the problem. Even after cutting spending by 2 trillion rubles, the projected deficit stands at 5.5 trillion. The authorities are also planning tax increases and an unprecedented rise in utility tariffs – especially for electricity, as energy companies pass on to consumers the costs of protecting infrastructure against Ukrainian drone attacks and repairing damaged facilities.

Maksim Blant predicts that higher taxes could push more businesses into bankruptcy. Small and medium-sized businesses (SMBs) are already feeling the strain. A Skolkovo Center for Leadership Development report, aptly titled “Living Without a Clear Future,” describes their predicament as a “polycrisis”: falling demand, rising interest rates, shrinking profit margins and management difficulties, compounded by drone-related fuel shortages and warehouse fires disrupting supply chains.

Still another “polycrisis” factor is a delay in payments for state contracts, which in effect flips the economic picture upside down. As Ellina Nikolayeva of Opora Rossii explains, SMBs are effectively financing larger corporations and key economic sectors when the state doesn’t hold up its end of a procurement contract.

Larger companies face a different kind of uncertainty. The placement of Nestlé and Auchan under temporary administration (read: possible confiscation) underscores how precarious property rights have become. As Charles Hecker observes in The Moscow Times: “For anyone who might have momentarily forgotten, business and geopolitics are inseparable in Russia. . . . There are no rules in autocracies; there is only the will of the autocrat. The sanctity of private property***does not exist in today’s Russia.”

Washington may well be playing into these greedy impulses: Kirill Dmitriyev and Maksim Reshetnikov have been discussing economic opportunities with Steve Witkoff, Jared Kushner and others, including during recent visits to the US. But, as Hecker argues, the idea that good business can deliver better politics has never worked in Russia.

The new State Duma offers another glimpse of the country’s changing political landscape. United Russia secured 349 seats, expanding its constitutional majority. Granted, the Communists and Noviye Lyudi also made modest gains. The RFCP was also the only parliamentary party to publicly challenge results in some regions, pointing to substantial discrepancies between conventional polling stations and remote electronic voting.

Whether they got there by hook or by crook, 50 veterans of the SMO are joining the next Duma. Analysts disagree about their future influence, but Konstantin Kalachov sees their election as part of a broader effort to establish them as a new political elite: “[T]he number of veterans elected must have impressed the big boss.” He predicts they will soon be declared a kind of “new nobility.”

Of course, the war has not conferred such glamour on everybody. In an interview with Sergei Yerzhenkov, a young Ukrainian man from Odessa described fleeing conscription through the forests to Transnistria and Moldova. He said corruption had destroyed his willingness to fight: “I don’t want to die so someone else can steal.”

Meanwhile, Vladimir Putin used his Valdai appearance to accuse Ukraine of escalating attacks on Russian economic infrastructure. With almost Trump-like nonchalance, he warned: “We will react symmetrically – maybe in the Baltic, the Atlantic Ocean, maybe in the Pacific or somewhere in the Indian [Ocean]. I don’t know.” So, instead of asking “Does war help the economy?” – we might ask: Is the economy helping the war? And how long can it keep up the effort?