Replacing Defense Minister: Why is Putin using Russia's wartime economic elites?

This is the first time in 12 years that Russia has changed its defense minister. Although many thought Shoigu might be transferred, no one seemed to predict that the "successor" would be Belousov. Putin believes that Russia now needs the war to continue, and that it also needs someone to organize the war supplies and, at the same time, use the war supplies to stimulate the transformation of the Russian economy, three experts interviewed by a leading Chinese newspaper argue

Even as Russia's war of invasion of Ukraine continues, Russian President Vladimir Putin unexpectedly replaced the Russian Defense Minister, implementing further high-level personnel adjustments.

"Former Defense Minister Sergei Shoigu was transferred to the post of Secretary of the Security Council of the Russian Federation", and "Economist Belousov became Defense Minister of Russia".

This news grabbed the headlines of many foreign media.

How should these adjustments which, for many experts, represent a surprise be interpreted?

Why did Putin entrust the position of Defense Minister to an economist?

How important is Shoigu's new position? Promotion or marginalization? What kind of employment logic does Putin reflect in this adjustment?

What impact will it have on the situation between Russia and Ukraine?

On these issues, the Chinese online website Observer invited Xu Po Ling, director of the Russian Economy Room at the Institute of Russian Studies on Eastern Europe and Central Asia of the Chinese Academy of Social Sciences, Zhang Xin, deputy director of the Center for Russian Studies at East China Normal University, and Zheng Runyu, a scholar at the Center for Russian Studies at East China Normal University.

"Putin used the entire wartime economic elite to the best of his ability." said Xu Po Ling, director of the Russian Economic Bureau of the Institute of Russian, Eastern European and Central Asian Studies at the Chinese Academy of Social Sciences.

Russia's new Defense Minister, 65-year-old Beloussov, is a "civilian" with no military background.

His career isstrictly related to economics, as he has served as head of the Russian government's Department of Finance and Economy, as Minister of Economic Development, and as Deputy Prime Minister, making him one of Putin's most influential economic advisers.

"Belousov's appointment clearly reflects President Putin's judgment on the most important political and economic issues in Russia right now, and on the nature of the war in Ukraine, that is, all for the front line, all for victory." Zhang Xin - deputy director from the Russian Studies Center of East China Normal University - said that Putin has directly linked the final victory in the war with the production capacity and efficiency of the military industry, and will continue to pursue Russia's war economic status focused on military production as the top priority of Russia's entire political and economic life.

Russian presidential press secretary Peskov said Russia's current situation closely resembles that of the Soviet Union in the mid-1980s. At that time, spending on the military and law enforcement sectors accounted for 7.4 percent of gross domestic product (GDP).

Beloussov is a well-known cyber economist. "He is familiar with the national economy and macro-management ideas of the Soviet period, and could apply them more to the wartime state of the economy, wartime economic organization and management centered on large military industry, and even partially to the military system." Zhang Xin added.

He believes that in the new Russian government the status and role of big military industry have been further elevated and will not only oversee Russia's war economy, but also combine more closely the traditional economy and the war against Ukraine.

"In addition to Beloussov, there are several new members who have joined the Cabinet or whose positions have been reshuffled, whose professional experience or family background is related to industrial and military production, and this part of the personnel transfer is in line with the idea of appointing Beloussov as Defense Minister," Zhang Xin added.

According to the list of the new Russian government, Denis Manturov is the first deputy prime minister, Alexander Novak is the deputy prime minister in charge of the fuel-energy complex and the economic sector, and Beloussov is the minister of defense.

According to Xu Po Ling, these appointments will enable Russia to lead the development of the manufacturing industry, from major industrial policy projects to the most comprehensive personnel layout, forming a closed loop. "Putin has utilized all these wartime economic elites, who can be said to make the best use of their talents."

Belousov as defense chief "without compromising frontline advantages and with better organization of military production"

After Russia invaded Ukraine in February 2022, Shoigu and Gerasimov, the Russian Chief of the General Staff, were tasked by one to coordinate and the other to fight the war.

"It is the Russian Chief of Staff who commands the frontline fight, while the function of the Russian Defense Ministry is to organize training, equipment, reserves, technology and so on." Xu Po Ling argued that Putin's appointment of Shoigu as secretary of the Russian Federal Security Council, which allows the Chief of Staff of the Russian Armed Forces, Gerasimov, to continue to dominate frontline tactics and assets, does not affect the current dominance of the Russian frontline.

He argued that after more than two years of Russia's special military operations, the biggest problem is not front-line tactics, but the supply of weapons to the front line. The supply of troops is a very important condition for the Russian front line to be able to resist, fight and have a chance to counterattack.

"The fact that Russia has been able to sustain itself and do better and better on the battlefield actually has a lot to do with the Russian economy of the past two years, and the executor of Russia's economic setup is Belousov."

Russian GDP growth of 3.6 percent year-on-year in 2023 is higher than the average growth of the global economy. A few days ago, the Russian Ministry of Economic Development raised the Russian GDP growth forecast for 2024 from the original 2.3 percent to 2.8 percent, while the International Monetary Fund raised the Russian GDP growth forecast for 2024 from 2.6 percent to 3.2 percent.

Xu Po Ling said that Beloussov, during his tenure as Russia's first deputy prime minister, has had experience in implementing major projects, promoting production in the military and defense industrial complex, and restoring Russia's manufacturing sector, and has made an outstanding contribution over the past two years. These achievements favor his position as Russia's defense minister to better organize defense and military production.

"Beloussov's appointment, is a clear reflection of President Putin's judgment on the most important political and economic issues in Russia right now, such as the nature of the war against the United States, that is, all for the sake of victory, all for the sake of victory." Zhang Xin said that Putin has directly linked the final victory in the war with the production capacity and efficiency of the military industry, and will continue to pursue Russia's war economic status focused on military production as the top priority of Russia's entire political and economic life.

Beloussov is a well-known cyber economist. "He is familiar with the national economy and macro-management ideas of the Soviet period, and could apply them more to the wartime state of the economy, wartime economic organization and management centered on the large military industry, and even partially to the military system." Zhang Xin added.

"In addition to Beloussov, there are several new members who have joined the cabinet or whose positions have been changed, whose professional experience or family background is related to industrial and military production, and this part of the personnel transfer is in line with the idea of appointing Beloussov as defense minister."

In response to the decision to replace the Defense Minister, Peskov also explained a few days ago that Beloussov has been quite successful in leading the development of the economy. The Russian Defense Ministry should be absolutely open to innovation, the introduction of cutting-edge ideas and the creation of favorable conditions for economic competitiveness.

According to Xu Po Ling, Peskov's statement has two meanings: firstly, Russia needs to invest more in technological sovereignty and innovation in military production and introduce competition; secondly, Russian military production now is not based on a planned economy, but is carried out on the basis of the market mechanism, and orders are competed through the market mechanism, and whoever has the best and advanced weapons and battlefield combat effectiveness will be used.

Zheng Runyu, a scholar from the Russian Studies Center of East China Normal University, recalled that one of the focal points of Russian attention is the post-conflict reconstruction and economic recovery of the Donbass region, which Russia will not be able to fully digest unless it is maintained well enough to achieve lasting stability.

"At the moment, the economic situation in the Udon region is still relatively problematic, if this problem is not solved, Russia's military successes will also fall apart. So at this point, it is important to choose a defense minister who better understands both the military and economic sectors to preserve the achievements of the entire special military operation, and Belowsov has experience in this field."

Shoigu marginalized?

According to Putin's latest appointment, former Defense Minister Shoigu has become secretary of the Security Council of the Russian Federation, removing Patrushev from his post.

Peskov said that Shoigu will continue to work in areas familiar to him, taking over as head of the Military-Technical Cooperation Agency of Russia, and will also serve as vice-chairman of the Russian Military-Industrial Committee.

As is well known, Shoigu is Putin's "close comrade-in-arms" and one of his most trusted men; on Putin's birthday, Shoigu is almost always at his side.

This time, Shoigu has been transferred to what position? What is the main responsibility? Is it a promotion or a "promotion and demotion"? In this regard, experts have different opinions.

Zheng Runyu argues that the move is marginalizing Shoigu and slowly diluting his power in the Defense Ministry. Xu Po Ling, on the other hand, argues that the Secretary of the Russian Security Council is more important than the Defense Minister and that Shoigu has moved even closer to the center of decision-making.

"The Russian Security Council is the central decision-making body for the country's military security, with Vladimir Putin as chairman, Dmitry Medvedev as vice-chairman, and the secretary as policy implementer." Xu Po Ling analyzed that this position is not virtual, especially the early stages of military operations, this war to fight or not to fight, how to fight, when to fight, are involved in Patrushev's decision, and now Shaoigu has replaced Patrushev's position. "During his term as Defense Minister, Shoigu was implementing the decisions of the National Security Council, and now in his position he can participate in the decision-making process."

Zhang Xin also stressed that the Russian Security Council is a very important body, especially at a time when Russia's internal and external security situation is very serious. The Security Council, with the president at the center, is largely in a higher position than the government, overseeing all aspects of the country as a whole.

"However, the specific functions, political status and authority of the Russian Security Council secretary are not particularly well defined, and much depends on the president's further determination of his functions and authority after Shoigu takes office," Zhang Xin added.

Previously, there was a lot of speculation that Shoigu might "resign" from the post of Minister of Defense, especially since the Russian Frontline Combat Forces, Wagner Group and others have criticized the Russian Ministry of Defense for corruption. Not long ago, Shoigu's first deputy, Timur Ivanov, was arrested on charges of accepting large bribes, which is even more evocative.

Zhang Xin believes that Ivanov's incident has a lot to do with the adjustment of Shoigu's position. To some extent, he reflects the supply and demand aspects of military production in Russia under war conditions, that is, "demand" at the military level. There is more friction in the "supply" of the system, he specified.

“Judging by the appointments of the new Russian government, the status of the 'providers' figures and factions has been improved. On the one hand, this adjustment is to hope that they will provide better services, and on the other hand it is to hope that they can partially lead or transform other conditions, departments and systems in political and economic life, including the “necessary” part of the military-industrial system.”

From Xu Po Ling's perspective, Shoigu's transfer had nothing to do with Ivanov's corruption incident, but was related to his inability to organize supplies to the front lines. He said: "Previously, Ivanov was the main target of the attack of Prigozhin, the leader of the Russian Wagner group. The conflict between the latter and Shoigu was caused by Ivanov. Prigozhin attacked Shoigu. The reason is that Shoigu He appointed his friends responsible for logistical supplies, but the supplies did not meet the needs of the front line, causing much suffering to Prigozhin's troops."

In any case, Putin's intervention in the new mandate will not have a fundamental impact on the situation on the Russian-Ukrainian battlefield. Instead he seeks to create new advantages through staffing.

“First, Russia is trying to use military industry orders to promote economic transformation and truly realize industrialization; second, Russia will increase front-line supplies and gain more benefits; finally, Russia will not rush to end this conflict and will control it to a certain point "We will control the percentage of military spending in GDP in 2025 to about 5%," Xu Po Ling said. In this way, Russia will be able to interact with economic prosperity in wartime and on the front lines.

Putin believes that Russia now needs the war to continue, and that it also needs someone to organize the war supplies and, at the same time, use the war supplies to stimulate the transformation of the Russian economy.