Russia Experiences Reverse Industrialization as Economy Deteriorates

Executive Summary:

• The Russian economy appears to be experiencing “reverse industrialization,” shifting from the development of high-technology industries to labor-intensive sectors. This trend is negatively impacting Russia’s industrial output and economic development.
•  Russia’s industrial growth is uneven, with the military-industrial complex showing the most growth while civilian sectors stagnate. Russia’s ongoing full-scale invasion of Ukraine is draining the workforce, particularly as conscription is expanded.
• There are more job vacancies than skilled employees in Russia due to the surplus of graduates in subjects such as humanities and social sciences and the shortage of technical and specialist graduates.
• Kremlin reforms that attempt to align the education system with labor market demands are raising concerns from students and families about fairness and quality of training. These changes are reshaping Russia’s economic and social landscape in ways that may be difficult to reverse.

On February 6, Russian President Vladimir Putin stated that it is necessary to limit student enrollment in unproductive specialties. At a meeting of the Council for Science and Education, Putin argued that the recruitment for specialties that do not fulfill demands in the economy and the labor market must be reduced. Preventing non-specialist educational institutions from teaching specialist courses is also important, according to Putin, in order to avoid low training standards (Kremlin.ru, February 6). This development is the result of “reverse industrialization” (обратная индустриализация, obratnaya industrializatsiya), a trend that has been unfolding in Russia for a few years now. Reverse industrialization refers to economic development that departs from the production of high-technology and reverts instead to the growth of labor-intensive sectors (RIA Novosti, April 21, 2022). This phenomenon is associated with a reduction in the share of high-tech industries and an increase in employment in sectors that demand low-skilled manual labor. According to analysts from the Bank of Russia, after an initial downturn in production and gross value added, a “reverse industrialization” phase may follow, characterized by the development of less advanced technologies and partial import substitution. Such products’ technical and economic efficiency, however, may be inferior to that of modern counterparts (RIA Novosti, April 21, 2022).

Industrial Production

Russia’s industrial production was uneven throughout the course of 2024. According to the Centre for Macroeconomic Analysis and Short-Term Forecasting (CMACF), after growth in production in the first quarter of 2024 and a sharp surge in May, a negative trend emerged in the second half of the year. Production volume fell by 1.5 percent in June as compared with the previous month, and in July it declined further by 0.8 percent (Forecast.ru, October 10, 2024, February 6).

The primary contribution to Russia’s growth in production comes from the military-industrial complex, while civilian sectors are showing signs of stagnation (see EDM, July 10, 25, 2024). Oil refining, metallurgy, and the production of manufactured goods is growing in spurts rather than as a sustained trend (see EDM, April 29, 2024). In December 2024, industrial output showed significant growth, primarily driven by the military-industrial complex and the pharmaceutical sector, whereas other sectors developed more slowly (Forecast.ru, February 6).

Russia’s industrial sector faces numerous challenges in the year ahead. The main challenges include limited growth rates outside the military industrial complex, a decline in domestic consumer demand, problems with the import of equipment and technologies, and a shortage of skilled personnel, which constrains future expansion of production. One key factor limiting the growth of industrial production is the acute shortage of qualified workers and technical specialists (see EDM, June 27, 2024). According to CMACF, in 2024, 40 percent of enterprises identified a personnel shortage as the primary problem in the industry (Forecast.ru, October 10, 2024, February 6).

The Russian labor market is not in a position conducive to growing productivity. It is experiencing historically low unemployment at 2.5 percent. The tightness ratio (the number of unemployed individuals per job vacancy) of the labor market has fallen to about 0.2 or 0.3 as of June 2024, meaning that there are fewer than one applicant for every vacancy. The most acute shortage of personnel is observed in the industrial manufacturing, construction, transport, and IT sectors (Forecast.ru, October 10, 2024; see EDM, February 27).

Education Fairness vs Needs of the Economy

Meanwhile, a structural imbalance persists between graduates of educational institutions and the needs of the economy. There is a shortage of workers with technical education (engineers, welders, computer numerical control (CNC) operators, technologists) and an oversupply of humanities specialists, including economists, lawyers, managers, and other professionals (Forecast.ru, October 10, 2024, February 6). The Russian industrial sector faces a double challenge consisting of a shortage of skilled personnel—which in turn constrains the expansion of production—and an imbalance in the labor market that exacerbates said problem.

The fall in unemployment correlates with recruitment into the Russian Armed Forces on a contract basis (see EDM, April 29, June 27, September 9, 2024). By the end of 2024, approximately 450,000 people had signed a contract with the Ministry of Defense, and another 40,000 had joined volunteer formations (RBC, January 24). This means that Russia’s full-scale invasion of Ukraine may be having a directly negative effect on unemployment rates in Russia.

The lack of skilled professionals in Russia’s workforce also correlates to challenges in Russia’s education system. The issue of Russian students’ progression from years 9 to 10, lower secondary education to upper secondary education (typically ages 16–18), has become particularly acute. Parents across the country complain that due to the introduction of new standards and intensified competitive selection, many children are forced to leave school and attend colleges (institutions that focus on vocational and technical education), which often entails additional financial costs (Izvestiya, August 15, 2024). According to Russian news outlet RBC, in Chelyabinsk oblast, refusals to enroll pupils in year 10 have become commonplace; this is likely representative of the state of other regions as well (RBC, August 26, 2024). In some cases, experts note that even when free spots are available, schools actively turn down pupils by offering them alternative options to study in colleges. This creates additional pressure on family budgets and raises concerns regarding equal access to free secondary education (Mel.fm, August 1, 2024). Posts in the Telegram channel “Parents of Moscow,” demonstrate how parents are forced to approach education departments or even lodge complaints with the prosecutor’s office to secure their children’s right to free secondary education when admittance to year 10 is denied (Mel.fm, August 1, 2024; Telegram/@roditelimoskvynews, accessed February 28).

The reforms also affect higher education. Changes to the status of the Basic State Exam (OGE, Основной государственный экзамен; ocnovnoi gosudarstvennyy ekzamen)—which is to be transformed from a graduation exam into an entrance test administered alongside the Unified State Exam (EGE, Единый государственный экзамен; yedinyy gosudarstvenyy ekzamen)—have raised concerns about the potential transfer of negative examination procedures into secondary schools. Experts note that whereas attendance in university was once considered an end in itself, the question remains of whether all students should advance to year 10 if their exam results do not guarantee future professional suitability, especially as the selection system becomes increasingly stringent. Statistics indicate a decline in the proportion of pupils advancing to year 10—from approximately 67 percent in 2000 to 48 percent in 2022—and further reductions are predicted, which does not correlate with the needs of the labor market, at least with regard to science, technology, engineering, and mathematics-related degrees (Vogazeta, April 22, 2019; Kommersant, May 15; Silkbox, May 21; Mel.fm, August 2, 2024).

Reforms in the education sector reflect the Russian state’s desire to meet the demands of the modern economy. Namely, this means reducing the number of specialists with outdated skills and steering young people toward more in-demand professions. Extreme measures in education raise questions about the balance between protecting students’ rights and fulfilling state obligations. These measures demonstrate how difficult it is to implement profound reforms in a system where economic realities and educational principles are in constant conflict (RBC, August 26, 2024, February 7).

The educational changes in Russia are not merely an attempt to modernize the system but constitute a complete strategic restructuring in which the state aims to align educational standards with the market’s needs. In practice, however, numerous problems arise, including difficulties with enrollment in year 10 and severe sanctions imposed on graduates who refuse to work in hazardous regions, such as Mariupol in occupied Ukraine (The Insider, February 7). These developments underscore that reforms are inevitably accompanied by conflicts of interest, with some parties insisting on strict measures while others demanding the protection of citizens’ rights and safety (RBC, August 26, 2024; The Insider, February 7).

Enforcing Student Success

Data from Russian news outlet RIA Novosti indicate that the percentage of pupils successfully passing the OGE has increased significantly in recent years (RIA Novosti, February 4). On the one hand, this rise may reflect an improvement in the quality of student preparation. On the other hand, it raises questions regarding the exam’s difficulty level. A high pass rate may suggest that the current testing system is not always capable of adequately assessing a pupil’s knowledge, which could negatively impact the training of future specialists (RIA Novosti, February 4).

Materials from Russian outlet Interfax provide further details of the new control mechanisms that have been introduced as part of the reform of the OGE procedures (Interfax, February 6). These measures entail stricter supervision over the process of checking exam results, as well as increasing the accountability of examiners for the accuracy and objectivity of their assessments. The changes are aimed at eliminating possible errors in the calculation of scores, which should enhance the reliability and fairness of the final results (Interfax, February 6).

An explanatory note published on the Public Committee for Family Protection (OUZS) Educational Department’s website provides an explanation of the procedure for conducting final state examinations and the processes for admitting pupils to educational institutions. The document contains recommendations on recording exam results and the methods for calculating scores, which helps schools adhere to uniform assessment standards and allocate places in year 10 fairly (Ouzs.ru, January 22). These clarifications are especially pertinent in light of the current reforms, as they provide a legal basis for the transition to the new assessment system.

The changes in the OGE system and the procedures for admission to year 10 are part of a large-scale strategy to modernize Russia’s educational system. While the reforms aim to increase the objectivity and quality of assessing pupils’ knowledge, they also give rise to new challenges, such as the tightening of competitive criteria and the risk of restricting access to free education. All of these measures reflect the state’s attempt to synchronize educational standards with the needs of the modern economy. The reform process, however, is fueling debates among educators, parents, and experts, highlighting the difficulty of balancing an efficient educational system and protecting citizens’ rights.

Conclusion

As the Kremlin attempts to resolve conscription and recruiting problems for the military in its full-scale invasion of Ukraine by expanding eligibility for service, this comes at the cost of further draining Russia’s workforce (see EDM, November 19, 2024). At the same time, efforts to increase the number of specialized professionals by reforming the education system are presenting their own adverse effects on perceived fairness toward students. The ongoing reverse industrialization that is exacerbated by these changes is altering Russian society and the economy in such a way that may prove irreversible.