On Russia's Reindustrialization

Guo Xiaoqiong

Abstract: Amid the massive transformation process and the resource curse, also known as the paradox of plenty, Russia has taken on a trend of deindustrialization, which, however, is different from that in the Western countries. In the perspectives of industrialization and reindustrialization, the thesis interprets Russia's industrial development, analyzes the features, reasons and major demonstrations of the deindustrialization unfolding in Russia, elaborates on the characteristics of the country's reindustrialization and related policy measures, and predicts the future development trend.

Keywords: Russia, deindustrialization, reindustrialization, industrialization

1．Analysis of industrialization and related concepts

1.1 Connotation of industrialization

Many an economist have endowed industrialization with different definitions from different perspectives over the past years, but they have managed to develop two common consensuses.

To begin with, industrialization refers to the development of industries (especially the manufacturing industry), and more specifically, an increasing proportion of industrial output and its working force in economic aggregate and meanwhile a reduction in agricultural production value and the farming population. According to the definition of the New Palgrave Dictionary of Economics, industrialization is a process. First, generally speaking, the proportion of the manufacturing sector and the secondary industry in national revenue (or regional revenue) has increased; next, the working forces in these two sectors also take on a trend of growth. At the same time, income per capita for the whole population has also improved. Economists like A. Lewis, H. Chenery, and S. Kuznets hold similar opinions and think industrialization is the continuous rise of the manufacturing sector and the secondary industry.

In parallel, industrialization is not only a revolution in social productivity but also contains adjustments and changes in production organizations and different levels of the national economic structure. Zhang Peigang pointed out that industrialization is the process where a series of fundamental production functions (or combinations of production factors) in the national economy go from low to high. In addition, he proposed that industrialization is not just a revolution of production technologies but also leads to the development of the whole national economy, which will exert huge influence upon the production structures of agriculture and manufacture. The proportion of output value in industries and the secondary industry and their employment proportion will have more edges in the national economy while the position of agriculture will gradually fall. Industrialization can cause changes in the whole economic institution or social system, as well as changes in people's concepts of life and their cultural cultivation. In this sense, it emphasizes that industrialization is a dynamic process, a constant one with stage characteristics ever since a country starts industrialization. In the second place, it underlines industrialization is a processfeaturing economic structural changes, upgraded industrial structure, increasing urbanization, more capital-intensive and technology-intensive investment, and increasingly diversified consumption structure. At last, industrialization does not merely beef up the development of industrial sectors but drives forward the progress of the whole national economy, improves institutions and promotes people's concepts and qualities.

1.2 Major characteristics of post-industrialization

The term “post-industrialization”was popularized by American economist and sociologist Daniel Bellin 1973. According to Bell, if an industrial society takes robotic technology as its foundation, then a post-industrial one is based on information technology; and if capital and labor are the major characteristics of an industrial society, then a post-industrial one feature information and knowledge. According to his prediction, the US would be the first to enter post-industrialization.

In his work The Coming of Post-Industrial Society:A Venture in Social Forecasting,Bell claimed that post-industrial society is a broad concept which encompasses five characteristics.The economy in a post-industrial society transforms from a product-manufacturing economy to a service-oriented one. Professional and technical staff are in the leading position in occupations. Theoretical knowledge increasingly becomes the strategic resource, the axial principle of a society.Technology assessment is feasible; in the initial stage of industrialization, people sought higher production efficiency and often ignored the side effects of technological inventions, resulting in environmentalpollution and other damages for human society. A post-industrial society makes policy decisions through creating new smart technologies.

1.3 Conception of deindustrialization

Deindustrialization was originally a design by the Allies considered imposing on Germany and Japan in the aftermath of World War II to weaken their economic base and reduce their industrial capacity. Public discussion on deindustrialization started in the UK and the US during the late 1970s and early 1980s.

Deindustrialization can be defined in two ways respectively in geography and macroeconomics. From the perspective of geography, deindustrialization mostly refers to industrial transfer – the third countries are engaging in first world manufacturing. It also involves gradient industrial transfer within a country:In metropolises once famous for traditional manufacturing activities, many industrial companies close down and go bankrupt, forcing industries to transfer to areas where production cost is lower. Deindustrialization in this sense can be understood in a way that every product has a life cycle. From the perspective of economics, deindustrialization can be interpreted from a broad sense and a narrow sense. By the latter, deindustrialization refers to the declining process of industries, in particular the manufacturing sector. The employment and production keep falling. In a broad sense, deindustrialization does not confine rigidly to the changes in employment and production but comprehensively reflect the changes in the economic and social structures of developed countries.Mavow Philip holds that deindustrialization is transition from an industrial economy to a service economy. Doussard thinks deindustrialization reflects the adjustment in the capital-labor relationship, indicating a delay in adjusting the structure of the manufacturing sector and the massive growth of the service economy. It also signals the start of a transition to a new unequal and unstable growth pattern. Jefferson and Heathcott say deindustrialization not only refers to changes in the number and quality of the employed but also means fundamental changes in social structures involving industrialization itself. This view that deindustrialization means changes in political, social and economic structures is, in a certain sense, a return to the general theory on economic growth and structural changes proposed by structuralist development economists like Hollis B. Chenery and Simon Smith Kuznets.

2．Research on Russia's industrialization stage

Given the aforementioned description of industrialization and deindustrialization, it is fair to say thatRussia has started the industrialization process in as early as the Soviet Union era but has yet to usher in the post-industrial stage. But what is the exact level of its industrialization? To answer this question, we need to make an analysis using what Chenery and Syrquincall the standard model of industrial structures, plus per capita income, the structures of the three industries, and the level ofurbanization.

Chenery, World Bank's vice president for development policy, and Moshe Syrquin, Mexican economics educator, rolled out the renowned standard model of industrial structures through statistical analysis of many countries. They consider that with economic development, the changes in a product's structure will take on enormous consistency, which can generally be divided into three stages: primary production, industrialization and post-industrialization. The industrialization stage can further be divided into early, middle and late phases. The standard of such division is mainly based on per capita income: Calculated by purchasing power parity (PPP) in 1964, per capita income stands between $100 and $200 during the primary production stage, between $200 and $400 during the early industrialization stage, between $400 and $800 during the middle industrialization stage, between $800 and $1,500 during the late industrialization stage, and above $1,500 in the post-industrialization era. Chenery's calculation method concludesa conversion factor through calculation of the US' real GDP and GDP deflator, then calculates people's base salary in 1964 into that of 2010 with this factor, and judges which industrialization phase Russia with per capita income in 2010 is in. According to the World Bank's data, Russia's GDP in real terms in 2010 stood at $909.266 billion (calculated in 2005 price), and its PPP in 2010 was $1.642134 trillion. In 2010, Russia has a population of 142.8 million, so its per capita GDP was $11,494. Judged by per capita income, Russia is currently in the late industrialization stage.

However, it's not a comprehensive view based only on per capita income. There are four more indicators: the production value structures of the three industries, the proportion of manufacturing value added in gross value added;the percentage of population in urban areas, and the percentage of the employed in the primaryindustry. Measured by the standard of industrial structures, the output of Russia's three industries accounted for 4.3 percent, 34.9 percent and 60.8 percent respectively in 2014 – which shows the country is in the late industrialization stage. In 2014, Russia's industrial value added made up 45 percent of the totalvalue added of goods, which means it's in the middle stage of industrialization. Looking at the percentage of population inhabiting urban areas, 74 percent of the Russian people live in cities in 2013, indicating the country is in the late stage of industrialization. And measured by the percentage of the employed in the primaryindustry, Russia has an agricultural population of 6.7 percent, within the scope of the late stage of industrialization.

In conclusion, Russia is in the late stage of industrialization, measured by its people's base salary, its industrial structure, the percentage of urban population, and the employment structure. But it's still in the middle phase if looking at its industrial value added. Therefore, it is about in the middle and late industrialization stage but has yet to enter the post-industrialization era.

3．Characteristics, incentives and manifestations of deindustrialization in Russia

3.1 Characteristics of deindustrialization in Russia

As stated above, deindustrialization includes both the transfer of industries including manufacturing among different regions and a multitude of changes in the economic structure, the growth mode and the social structure. Among these elements, changes in the economic structure refers to the transition from a manufacturing-dominated industrial economy to a service economy or the transition from the primary industry dominated by manufacturing to the tertiary sector. Regarding production factors, the industrialization process is the transition from labor to capital while deindustrialization is the transition from capital to labor.

Generally speaking, deindustrialization in the developed world is the transition from an industrial economy dominated by manufacturing to a service economy. Its external incentives mainly derive from economic globalization and international trade. The significance of international lies in that all countries in the world can make use of their comparative advantages to organize production activities and maximizing the benefits through trade. Developed countries have an edge in technology, capital and skilled labor force, so they mainly export technology or capital-intensive products while import low-tech, primary and labor-intensive products. Therefore, an increasing demand for hi-tech products and skilled workers willspurmore output and employment in the tertiary industry, and consequently both the output and the shares ofthe low-tech and labor-intensive manufacturing industry will decline. With the development of economic globalization, developing countries have more advantages in their cheap labor force and resources to take over the low-end manufacturing market. With the transfer of the low-end manufacturing industry, developed countries accelerate their deindustrialization process.

According to Petty-Clark's law, the basic law of the evolution of industrial structures is that with economic development and per capita income increase, the proportion of national income from and the labor force engaged in the primary industry will fall, while this proportion in the secondary industry will graduallyincrease. With further economic development, the proportion of revenue from and labor in the tertiary industry will see a rise. Hence the deindustrialization process where the developed world transfers from a manufacturing-dominated industrial economy to a service economy can be viewed as an upgrading process of industrial structures. However, in recent years more and more scholars have started to note the negative influence of deindustrialization. Du Yongkang thinks that deindustrialization exerts negative influence on developed countries in two aspects. One is loss of labor productivity. The flow of labor from themanufacturing sector of high labor productivity to the service industry featuring low labor productivity will lead to loss of efficiency, which is unconducive to the economic growth and welfare increase. The other negative impact is less capital investment. In general, the capital-to-labor ratio of the service industry is relatively low. The flow of labor from manufacturing sectors to the service industry will reduce the capital investment in the whole economy, consequently stifling the economic growth. The economic development history of developed countries shows that the transition process from manufacturing to the tertiary industry constitutes another qualitative change in human society which requires a long time.In this process, if a solid industrial foundation supporting the development of the service industry fails to take shape, then deindustrialization will wield adverse impact on economy and reindustrialization will be needed to rejuvenate the manufacturing industry.

Although most studies on deindustrialization by the theoretical circle focus on developed countries, deindustrialization does not only occur in the developed world but also in some developing countries. In studying the case of Colombia, Kassem called the phenomenon “premature deindustrialization.” Compared with deindustrialization in developed countries, premature deindustrialization has two different characteristics: It occurs in some countries where per capita income is lower; and most of these countries have not completed industrialization and neither do they realize modernization. So premature deindustrialization is actually a kind of stagnation and even reversal in the normal industrialization process.

In the case of Russia, it carried out the radical transformation from a planned economy to a market one after the collapse of the Soviet Union. With the economic downturn came the dramatic decline in per capita income, which fit the first characteristic of premature deindustrialization. In the second place, Russia is still in the industrialization stage, as stated above, which fit the second feature of premature deindustrialization. Nonetheless, it is worth noticing that Russia's deindustrialization is somewhat different from the premature deindustrialization in developing countries, as it underwent the transformation from a planned economy to a market-oriented one. During the institutional transition process, its industrial base was damaged, reversing its industrial development. Its industrialization process thereafter is more of reconstruction.

In conclusion, Russia's deindustrialization is not the transition from a manufacturing-dominated economy to a service one but means stagnation and retroversion in its normal industrialization process. So its deindustrialization boasts differentfeatures from that unfolding in both developed and developing countries. The causes for its deindustrialization can mainly be attributed to the Russia's radical transformation ways and the influence of the resource curse on its industrialization.

3.2 Incentives for deindustrialization in Russia: Radical transformation ways and the resource curse

3.2.1 Radical transformation ways

From the perspective of institutional economics, economic transformation is conducive to the adjustment and upgrading of industrial structures because it is usually accompanied by institutional changes. Institution affects economic performance through determining trading and production costs, so high-quality economic institutions help improve economic development speed. However, Russia's economic transformation does not appear with the“institutional changes” according to the theories of institutional economics but takes on“institutional mutations.”

Given Russia's radical transformation approach, it failed to take into account the order of institutional arrangements, resulting in vicious hyperinflation caused by financial deficit and capital flight. The price signals of the market economy get distorted, precipitating speculation and various other short-term behaviors and leading to declining industrial output. In addition, amid the radical transformation process, massive stock privatization has triggered divided shares of industrial enterprises, making the operation and decision-making power difficult to unify. Thus industrial production falls. On the other hand, as Russia's industries are mostly capital-intensive, money privatization has caused too much money to be used to purchase corporate shares, therefore weakening actual investment. Given inflation, local currency depreciation has bogged down the investment ability and consequently industrial production.

3.2.2 Resource curse

The resource curse refers to the paradox that countries which boast an abundance of natural resources and whose economy is dominated by resource products tend to have less economic growth and worse development outcomes than countries with fewer natural resources. Though countries with abundant natural resources may have economic growth in a short term because of a rise in resource prices but will ultimately plunge in stagnation. Therefore, having rich natural resources will instead become the winner's curse.

The transmission mechanism of the resource curse can be explained as this: the development of the natural resource industry has a crowding-out effect upon the manufacturing sector. Therefore, it is fair to say that the resource curse hinders the industrialization process to some degree. Natural resource export brings a huge amount of exchange revenue, increasing domestic purchasing power and raising the prices of non-traded goods and production elements. Meanwhile, as the prices of manufactured products are up to the international market, an increase in manufacturing cost will reduce the country's competitiveness on the international market. Furthermore, domestic production factors, like labor, human capital and finance will also swarm into the expanding natural resource sector from the manufacturing industry, ultimately giving rise to the shrinking of the manufacturing industry and impeding the industrialization process.

What's more terrible is that under a fixed or a floating exchange rate regime, the resource curse will have an impact on industrialization. Under a fixed exchange rate system, non-traded industry will suffer inflation pressure with increasing domestic demand. But the prices of manufactured goods are decided by the international market. With an increase in salary and consumer prices, investment gradually flows to resource sectors, giving rise to the production cost of domestic manufacturing industry. The products will lose the price advantage on the international market and the manufacturing industry will wither. This phenomenon is called the Dutch disease, which describes the paradoxical situation where seemingly good news, such as the discovery of large oil reserves, turns out to have a negative impact on a country's broader economy. Under a floating exchange rate, market expectation has an amplification effect and therefore resource exporters will be subjected to more negative influence. Here the UK provides a pertinent example. In the mid-1970s, the Bretton Woods system collapsed and the world's major currencies started to implement floating rate regimes. The UK discovered and explored the North Sea Oil Field at a time when the oil prices were surging. Many expected the country would make a profit. Nonetheless, before the British had time to bring in the money, currency speculators suddenly pushed up the pound rate. The UK lost its price advantage and consequently its manufacturing sector were struck hard. From the mid-1970s to the early 1980s, the shares of the North Sea Oil Field in the UK's GDP climbed from zero to five percentage points but manufacturing fell down from 30 to 24 percentage points. In addition, under the condition of a floating exchange regime and free capital flow, an abundance of natural resources not only chokes the industrialization process but also intensifies the instability of a country's macroeconomy. Those economies that heavily rely on resource export will usually be affected by fluctuations in commodity prices.

The resource curse is another incentive for deindustrialization in Russia, that is,the manufacturing industry suffers backward development due to the crowdingout effect. In 2005, the fixed investment in mineral resource exploitation stood at 501.9 billion rubles, lower than the 593.9 rubles in the processing industry (see table 2). In 2013, this figure rose by 298 percent to 1.9974 trillion rubles while that forthe processing industry increased by 214 percent to 1,8652 trillion rubles, lower than the input in the mineral resource industry in both growth speed and volume. If we remove raw materials in the processing industry, the fixed investment in manufacturing in 2005 was 276.8 billion rubles, 55 percent of that for the mineral resource sector. In 2013, the fixed input in manufacturing climbed to 842.2 billion rubles, only 42 percent of the investment in mineral resource exploration that year. That is to say, the growth rate of the fixed investment in mineral resource exploration is higher than that in the processing industry and much higher than the manufacturing sector, which means the development of the natural resource industry has a crowding-out effect upon the manufacturing industry. Deindustrialization has taken on an intense trend.

3.3 Manifestations of deindustrialization in Russia

Deindustrialization, by definition, refers to a decline in employment and production of the manufacturing industry, both absolutely and relatively. According to the statistics of Russia's industrial development, its manufacturing output value has experienced a process of absolute decline to relative decline and the employed population in this industry has fallen continuously.

3.3.1 Decline in manufacturing employment

Russia has seen both an absolute and a relative fall in its manufacturing and processing industries, that is to say, the employed number in these sectors and the whole economy has continuously dropped. From 1990 to 2013, the employed population in manufacturing went down from 22.8 million to 13.076 million; the manufacturing employment in the whole economy decreased from 30.3 percent to 19.3 percent (see table 3). Correspondingly, the population working in the service industry and its proportion have kept increasing. It is worth noting that the labor force in the Russian economy flows from manufacturing to service on the prerequisite of falling manufacturing production or slow growth of the manufacturing industry. Though the service industry takes on a growth trend, it cannot meet the employment demand, that is, Russia has yet to realize full employment. Therefore, Russia's deindustrialization is kind of an imbalance which stifles potential economic growth and full employment.

3.3.2 Relative decline of manufacturing output value

In the primary stage of transformation, the absolute decline in the manufacturing output is accompanied by the drop in the proportion of the manufacturing industry in the whole economy. Since 1994, withincreasing output of the secondary industry, Russia's deindustrialization is largely demonstrated by decliningmanufacturing shares.

In 1990, prior to the Soviet Union dissolution, manufacturing production value amounts to 66.5 percent in the secondary industry. This proportion fell to 42.7 percent in 1995. In 2000, manufacturing in Russia's industrial structure managed to maintain above 40 percent (see table 4). After 2004, international energy prices soared and imposed a crowding-out effect upon the manufacturing industry under the resource curse mechanism. Labor force, human capital, finance and other production elements gradually flowed to natural resource departments, leading to the expansion of energy and raw material industry. When the international economic crisis broke out in 2008, energy prices slumped and the export revenue of Russia also decreased. As the fixed investmentdropped by a large margin, the manufacturing production value descended even faster than the natural resource sector. In 2009, its proportion in the secondary industry was only 34 percent. With economic recovery in 2010 and 2011, the fixed investment in manufacturing started growing and its proportionin the secondary industry slightly picked up with the support of the government's anti-crisis policy. In 2013, Russia's economic growth obviously slowed down. In 2014, given Western sanctions and slumps in international oil prices, its economy only managed to grow by 0.6 percent. The manufacturing industry was strapped for capital, with its proportion in the secondary industry down to 32.8 percent. Though the Russian government has been committed to its economic modernization drive and stipulated many guidelines, blueprints and measures to foster the development of the manufacturing sector, statistics show that its industrial focus has turned to energy and raw material-related sectors.

4．Characteristics of Russia's reindustrialization

Reindustrialization is a “return” strategy or policy formulatedby industrialized countries for the deindustrialization phenomenon. Since the breakout of the international financial crisis in 2008, the world's major developed countries have reflected on the development of their manufacturing industry. But for Russia, its reindustrialization strategy is different from that of developed countries, as with its deindustrialization process.

4.1 Russia's reindustrialization is different from reindustrialization in the traditional sense.

Industrialization, in the traditional sense, is the transition from an agricultural society to an industrial one. If judged by this definition, Russia completed this transformation in as early as the Soviet Union era. Reindustrialization generally refers to the reform and rejuvenation of traditionalindustrial bases. However, with the arrival of the era of the Internet and knowledge economy, microelectronic technology and information technology enjoy fast development. Information and knowledge have become important resources and wealth and have been quickly applied in traditional industries, leading to the fundamental changes in the global economic growth mode. Industrialization and informatization have become interwoven. Therefore, Russia's reindustrialization is different from the reindustrialization in the traditional sense. Against the backdrop of economic globalization and the fifth technological revolution led by information technology, a series of features encompassing globalization, informatization, networking, virtualization, integration and greening have exerted crucial influence upon Russia's reindustrialization and alsomade higher requirements.

4.2 Russia's reindustrialization is different from reindustrialization in developed countries.

Over the past decades, the world's major developed countrieshavesuccessively entered post-industrial society, with the proportion of the manufacturing industry in their national economy gradually going down. They havetaken on a deindustrialization trend. In addition, with the rise of emerging economies, the advantages of developed nations in many traditional industries have graduallyfaded. The reason why Germany was less shocked by the international financial crisis and quickly recovered from it could mainly be attributed to its powerful manufacturing industry. As the developed world has been struggling to recover from the depression, they have adjusted their positions, reflected on the relationship between industrial development and economic growth against a globalized background, proposed the strategy of reindustrialization, underlined the need to return to real economy, recognized the value of manufacturing, reinforced the position of the secondary industry and consolidated their competitive edge.

The start, content, and goal of Russia's reindustrialization are different from the reindustrialization of the developed world.

In the beginning, developed countries have completed the transformation from an industrial economy to a service-oriented economy and entered postindustrial society where the declining proportion of manufacturing in national economy is based on this industry's continuous rise. The developed world rolled out the reindustrialization policy to address overexpansion of the financial market and real economy vacuum brought about by speedyfinancial innovation. In comparison, Russia's starting point was much lower. It is still in the middle and later stage of industrialization and has yet to usher in post-industrial society. Given the deformed development of its industrial structure, the position of the manufacturing industry has fallen in its national economy. Therefore, Russia's reindustrialization is a strategy aimed to bring industrial development back to the track of industrialization amid a reverse industrialization trend and a worsened industrial structure.

It involves two aspects. One is the modernization reform of traditional industrial sectors. Russia's traditional industries, like oil and gas, logging and other resource sectors, still use backward technologies and facilities and need complete modernization changes. The other is consolidating and strengthening the technological advantages of aerospace, atomic energy, military, natometer, biological and genetic engineering to increase the competitiveness of their products on the international market. In contrast, reindustrialization unfurling in the US and European countriesfocuses on advanced manufacturing sectors featuring green and highly efficient development, aiming at controlling the strategic high ground of the international division of labor. These developed nations transfer their business focus from the product-manufacturing link to both ends of the smiling curve. They are committed to research and development as well as brand marketing, developing hi-tech manufacturing industries with high value-added, phasing out low-tech, energy-consuming, and environmentpolluting traditional industries, so as to form an international industrialized labor division system dominated by their advanced manufacturing. Within this system, developed countries guide and meet market demands around the world, master the core technologies of the manufacturing industry, control the technological standards, product specifications and business processes in the world's manufacturing field, control and manage processing and manufacturing links, and gain profits far more than that from production of material products.

Developed countries implement reindustrialization in a bid to maintain and reshape their competitive edge on the international market and seize the opportunities to develop new industries. Therefore, the reindustrialization policy of developed Western countries concentrates more on technological application and the development of new industries. Since the eruption of the international financial crisis, major developed nations have engaged themselves in the vehement competition for the future dominant industries. Through various strategic measures, they have been promoting the development of new industries like energy conservation, environmental protection, informationtechnology, and biology, and trying to stimulate real economic growth through the development of new industries to foster new dominating industries.For them, the substance of reindustrialization is industrial upgrading - thedevelopment of high-end industries that can support future economic growth. Compared with developed countries, Russia's machinery equipment still heavily depends on import, so its reindustrialization goal is to meet the domestic need for machinery equipment first and then to ramp up the competitiveness of its products on the international market.

4.3 Russia's reindustrialization is different from the endogenous reindustrialization model in the US and the UK.

Russia's reindustrialization features state steering and government intervention. The UK, as the cradle of the industrial revolution, boasted spontaneity in its long industrialization process. The US' industrialization was similar to that of the UK, where the market economy developed to a certain degree to beef up the industrialization process. This endogenous model was established on the privatization. Primitive accumulation of capital, the formation of the labor market, and the opening of the world market have created conditions for industrialization. Technological innovation has hoisted the labor productivity of the secondary industry higher than that of agriculture. The stockholding system has precipitated mass production. Market played a decisive role in the industrialization process of the UK and the US while the government exerts regulation mainly via fiscal and monetary policies and in a few cases it participated directly in resource allocation. Its major task during the industrialization process was to create favorable conditions to ensure the market could give full play to its role.

The industrialization process during the Joseph Stalin time was completely dominated by the state. Bysqueezing agriculture, compressing consumption, expanding accumulation and other special means, the government accumulated fund for developing heavy industries. In addition, in order to better allocate and direct the use of labor, material and financial resources and ensure the speedy development of the heavy industry, it established and consolidated a highly centralized economic system, implemented mandatory planned economy, and took administrative means as a major way to promote the country's industrialization and advance the economy. This model was made feasible by the country's abundant resources and extensive growth potential.

Since the Soviet Union collapsed, Russia launched the transformation from the planned economy to the market economy. But the newly established market mechanism was not complete, setting obstacles for the capital accumulation needed by industrialization. Therefore, the industrialization endeavor could only rely on the government's interference. During the process, the Russian government formulated strategic plans, programs of implementation and provided financial support for the development of pillar industries.

Moreover, different from the endogenous model and the long time of the industrialization process in the US and the UK, both the Soviet Union's industrialization and Russia's reindustrialization underlined advancement, which means that to accelerate the industrializationprocess, even a regular development model needs powerful intervention from the government.

5．Policy measures of Russia's reindustrialization

The major task of Russia's reindustrialization is to change the imbalance of the internal industrial structure and the backward development of its machine manufacturing sector. To this end, the Russian government formulated a host of strategic plans and policy measures. In the concept of long-term social and economic development until 2020 endorsed by the government on November 7, 2008, and the strategy for the innovation development of the Russian Federation until 2020 approved on December 8, 2011, there are expressions on industrial development. But they are both macro plans for Russia's economic development and fail to outline detailed plans and designs for industrial sectors.

In November 2013, the Russian government approved astate programcalled“Developing Industry and Increasing Competitiveness, ” aimed at stimulating the industrial development potential and promoting the competitiveness of industrial enterprises in both domestic and overseas markets. Stipulated by the then Russian prime minister under Document No. ВП-П13-8165 in November 2010, the program points out that the development experience in the early 21st century shows that Russia should make state industrial policies to form a systematic industrial development strategy and corresponding measures. In Russia, it is difficult to complete large infrastructure, investment and innovation tasks and improve their competitiveness without the participation of the government. A systematic and long-term policy formulated by thegovernment to address industrial development, this state program is an important reference document to study Russia's reindustrialization policy.

The de facto period of the program is from 2012 to 2020 and divided into two phases: 2012 to 2015 and 2015 to 2020. (The implementation period of the seventh subprogram is different from others. Its first phase is from 2012 to 2016 and second from 2017 to 2020.)

The program defines different priorities in accordance with different market types. For theemerging market (which currently does not exist or only exists in small scale but from a long-term perspective belongs to new industries in the future like new material sector), the priorities for development are: composite material, rare metal and rare earth metal. For industrial sectors within the traditional consumption area, the priorities are: the auto industry, the light industryand ethnic handicraft. For traditional investment goods-manufacturing industries, the priorities are: metallurgy, heavy machinery manufacturing, transportation means manufacturing, motor manufacturing, lathe making, forest industry, farm machinery, food industry, machinery for specified production departments, chemical complex. In technical standards, the priorities are:building Russia's own standardization system according to the WTO agreement in technical barriers to trade; formulating and implementing a uniform crossborder standard in the post-Soviet Union space (including the Customs Union and the Commonwealth of Independent States); unifying state standards with international criteria; stimulating standards in innovation fields andpriority development areas; attracting business groups to participate in formulating state criteria; improving the technical requirements of state criteria.

The goal of the program is to establish a competitive, stable and balanced industry in Russia, develop advanced industrial techniques and crafts, ensure effectiveindustrial development of industries on this basis, form a new market of innovative products, and ensure the national defense capacity. The program sets different tasks according to different priority development areas. It aims to complete two major tasks in building new industries and the new market. One is to build up leading innovation infrastructure in new industries and the other is to remove trade barriers to create equal conditions for products to enter the market. For industrial sectors engaged in boosting domestic consumption, they are expected to complete such tasks as stimulating extrabudgetary investment, gradually reducing direct state funding, and adopting measures to stimulate consumption. For industrial sectors producing investment goods, they need to fulfill the tasks of upgrading technologies of relevant departments, stimulating the research anddevelopment of new technologies and materials, ensuring Russian firms can take part in both domestic and international competition on an equal footing, encouraging the export of high value-added goods, cultivating competition mechanisms, reducing the state's capital shares in companies, and coordinating the technological development plans of industrial sectors with the need for energy consumer products. For the industrial complex engaged in developing national defense, the tasks include: establishing an effective technological regulation system, improving the state standardization system to link it to the international criteria, putting in place a uniform unit of measurement, not allowing Russia to lag behind the universally recognized level, and safeguarding Russia's sovereignty in the area of measurement.

The program has 17 subprograms. The first 16 targetspecific industrial areas and formulated corresponding policy measures for relevant industries and fields. The last one is stipulated to ensure the program to be implemented smoothly. The subprograms are: the auto industry; farm machinery, food and deep processing;machine building for professionalproduction sectors; the light industry and ethnic handicrafts; national defense; transportation tools manufacturing; lathe making; heavy machine manufacturing; power engineering and mechanical engineering; metallurgy; the forest industry; technical standards; the chemical industry; composite material production; rare metal and rare earth industry;improving the welfare system for coal workers; ensuring the implementation of the program.

To ensure the implantation of the program, it also stipulates a spectrum of preferential measures. For example, the state and government organizations will provide subsidies in various forms to key enterprises to pay for their loans of investment programs and innovation projects; limit the import of machinery equipment with tariff or non-tariff measures and encourage more export;formulate long-term parameters of national orders for domestic technical equipment; crack down on copyright infringement and protect the legal rights and interests of domestic high value-added products; expanding the partnership between state-run and private-owned enterprises; offer tax preference for relevant departments, and etc.. In addition, to ensure the successful implementation of the program, the Kremlin has taken out 240.8 billion rubles from its federal budget to fund 11 subprograms of the total 17.

6．Future trend of Russia's reindustrialization

6.1 Choice of development path

In the future, Russia will have to choose a development path. One choice is the“path of energy” which continues the current mode of using energy to drive economic growth, consolidates Russia's position and role in the international energy architecture, and turns the country into a super energy power. If Russia adopts this choice, it will confront a spectrum of issues. To start with, its economic growth will be highly fragile and reliant on energy. Russia mainly exports energy products, the pricing power of which is in the hands of the international market. Therefore, Russia's economic growth willdepend more on export and its income from export is up to international energy prices and the country's position in the global energy pattern. On one hand, once international energy prices plummet, the Russian economy would fall into crisis and its social and welfare reform would be difficult to sustain. When international oil prices took a nosedive in 2008 and 2014 respectively, the Russian economy suffered a heavy blow, which fully demonstrated the vulnerability of an exportoriented economy. On the other hand, after the international financial crisis and the US' shale gas revolution, the internationalenergy pattern has taken on profound changes. Russia's position has been severely weakened, which will affect its energy export in the future. Second, its economic development will be unsustainable. Natural resources are non-renewable. In addition, though Russia can keep fast economic growth with the support of resource export, such development has failed to promote Russia's international competitiveness but turned it into a raw material vassal in the world economy. In dealing with the international financial crisis and climate change, many countries have started to turn their carbon-based economic development mode into a green development mode underlining the development of a low-carbon economy. Sustainable economic growth has become the mainstream of future development. This phenomenon will trigger huge changes in international energy supply and demand. Carbon emission reduction anddiversified energy structures will lower oil and gas prices and pose threat to the sustainability of Russia's economic development. Third, the wealth gap among differentindustries and different regions in the country will further expand and consequently trigger more social conundrums. The oil and gas industry and other industries will see more imbalance, so will do oil-producing regions like Ural, Siberia, the Far East, and other regions. Obviously, with the changes in the international energy architecture and the relationship between energy demand and supply, the“path of energy” will ultimately be a dead end amid the low-carbon and green economic trend. For Russia, it is urgent to adjust its industrial structure, seek new economic increasing points, and change its traditional development mode.

The other choice is the “path of innovation” on which Russia will be committee to economicstructural reform. Through promoting the proportion of hi-tech industries and the knowledge economy, rejuvenating the manufacturing sector, increasing the international competitiveness of manufactured products and gradually achieving economic and export diversification, Russia eyes to strengthen its comprehensive nationalpower. There is no doubt that this path is the right direction for Russia's future development.

6.2 Breakthrough in reform

In 2012, Vladimir Putin published seven programmatic articles on his governing concept when campaigning for Russian president. In “On our economic task” he said Russia's future innovation-oriented economic development path should not simply invest more in education, scientific research and hi-tech industries but involve the energy sector in the reform. Giving up energy development to turn to hi-tech industries is not feasible in Russia. In Putin's view, traditional industries like energy are exactly the breakthrough that can push the reform forward, increase the export value-added of the energy industry and transform from the single economy to modern energy economy, while at the same time the country should maintain itstraditional advantages in pharmacy, chemical engineering, composite material, aerospace, information and communication technology, nanotechnology and the nuclear industry. According to him, this is the first step to embark on the path of innovation. As mentioned inthe concept of long-term social and economic development until 2020, consolidating and strengthening Russia's global competitive edge in traditional areas is one of the key direction to transform to an innovation-oriented economy. From Putin's dissertations and opinions, it is obvious that he prefers a more pragmatic and stable development path for Russia, that is, seeking a breakthrough in economic structures on the prerequisite of steady growth.

6.3 Future development trend

For Russia, reindustrialization and structural reform is a long-term and arduous task and will face a slew of grave challenges.

The first challenge is the impact of energy prices. When international energy prices go up, Russia can easily gain profits and the pressure and motivation for reform is not strong. When energy prices fall, Russia's fiscal revenue decreases and the fund for reform is not sufficient. The government struggles to cope with the crisis, making reform hard to go one. This is also why Russia's reform has failed to make progress over the years.

The second is the plight of international division of labor. The international labor division system dominated by advanced manufacturing has taken shape. Developed countries possess the most cutting-edge technologies, and control the technical standards, product specifications and operation flow of the world's manufacturing industry. In comparison, though emerging markets and developing countries can improve the level of their manufacturing industry by taking over the industries transferred from the developed world, they can hardly escape the fate of lingering at the low end of the value chain because of technological limitation and non-disclosure of technologies and patents by developed countries. Against this backdrop, it remains to be seen whether Russia, a country endowed with an abundance of natural resources, will be able to get out of the plight of being a global raw material base and find a compromise approach considering both short-term political and economic interests and long-term economic development.Russia has recognized that improving self-innovation, rejuvenating the manufacturing industry and beefing up the structural reform is the fundamental way to break the existing international labor division system, it is difficult to realize this objective.

Another challenge lies in the restriction of the institutional environment. The establishment of the market economy has laid the institutional foundation for adjustment in industrial structures. Deepeningeconomic reform is the precondition for structural adjustments. Nonetheless, the Kremlin has intensified intervention in the country's economy since Putin assumed office and in particular during his second term. Consequently, the role of the market economy in structural adjustment will be impaired. Plus, monopoly in various manifestations will hinder production factors from achieving optimal combination in fierce competition, making it difficult to optimize industrial structures. The reason why it took developed countries a prolonged period to achieve industrialization is that institutional development and technological innovation were interwoven during this process. Surging innovations and the development of advanced manufacturing must be established on the foundation of improved national power. Technical level, operation model and management means all need a long time of cultivation and market competition. Therefore, a set of institutional factors including the legal system, the competition mechanism, protection of intellectual property rights, innovation encouragement, and expansion of industrialization channels will become constraints on Russia's road to reindustrialization. Breaking the constraints will be another vehement game with those with vested interests.