How does this work? Where am I getting the initial funding? Who am I? Who authorised this? What is this madness?

In the second campaign, the backstory is that you're basically supposed to be an eastern european country that was colonized by a western power that built some infrastructure to aid in resource extraction, except you revolted against them, gained autonomy, and established a socialist state of sorts, with your objective being to attain autarky and modernize the scattered villages throughout the country.

So there at least, I'd guess the $2,000,000 balance is from seizing the US-backed dictator's wealth, and the 10,000,000 rubles you start with were either the result of selling captured western equipment to the Soviets or a sort of hands-off foreign aid grant from alternate timeline more-liberal-brained Khrushchev.

Well, the workers aren't going to go wageless/salariless regardless of whether or not they are working on the project, and I don't think that there even were contract workers in the USSR.

This made me think of two things, one related to the game and one not. The first is that nothing domestically involves currency that you deal with, all the money is foreign currency used for trade; that means that your internal economy is running purely off some kind of labor voucher system and abstracting away both the wages workers earn and what they spend on goods and services as an overall balanced and isolated system.

The second is that AFAIK starting under Khrushchev (IIRC) there was a tacit acceptance of a so-called "second economy" in the USSR, which involved comparatively small scale private exchange for crops grown in personal plots, craft goods, and contract services like repairwork that existed outside the centrally planned institutions.

Tangentially, that's making me think about the centralized state-run farm equipment depots in the game, and how one of Khrushchev's more notably hair-brained and disastrous reforms was privatizing that sort of thing so that farmers had to own and maintain their own tractors, which made maintaining them way more expensive and reduced overall agricultural efficiency since "idk lmao everyone do it for themselves" is much worse than having centralized depots staffed by mechanics whose whole thing is maintaining them and who have all the tools and materials on hand to do so in one place. Also that contemporaneous to that in China, farm machinery was rare and the rural communes weren't really communes yet, so the farmers who'd managed to get access to tractors and the like quickly turned around and became private contractors who'd go and use the tractors on other farmers' fields for compensation and within just a couple of years of that being the status quo it was already creating a problematic wealth inequality between farmers in general and the sort of contractor tractor-kulaks that had to be addressed by the state.

Which has the silly implication that there are no other cities under your state, or your state has no industry for producing construction materials and educating construction workers domestically outside of this specific city.

You do spend a lot less money if you do have other cities under your state, but that's usually not the case if you start a new game on a random map though. You can set up a custom map with a starting city tho (it's sometimes hard to get to a stage where sewage works on an edit-map since you can't test the sewage system as you go along)