Dynamics of Regional Inequality in the Russian Federation

Growing spatial differentiation is a major feature of competitive capitalism: rich metropolitan areas which maintain finance, research, and headquarter the service industries and government grow at the expense of agricultural, rural and traditional ‘rust-belt’ industrial localities. The empirical part of the paper shows that, with marketisation, these developments have occurred with increasing intensity in the Russian Federation; areas with material and human assets grow, whereas poor areas become even more deprived. The solution proposed by politicians predicated on orthodox economics is that the capitalist system has its own self-adjusting laws of reciprocal causality. Movements in one direction precipitate counter-forces which correct movements away from equilibrium. The paper demonstrates, on the contrary, that foreign direct investment goes to the more developed areas, that outmigration and unemployment are not reversed: a form of circular and cumulative causality characterises capitalist markets. Changes in one direction lead to processes which amplify such trends: rich and poor areas develop at an exponential rate and the differences between them increase. In the conclusion it is argued that market mechanisms are unable to reverse these developments. Only comprehensive state regulation can lead to greater equality between regions.