Russian Economic Reform


Are Russians are heading for a strategic trap?

Published on June 11 2011
Posted by: jeff

(Jeff says that this article by Vladimir Terletsky in “RusBusinessNews” is worth reading. It is not produced by Group 1, but is relevant to its work.) The article begins:

Russia is standing on the threshold of adopting a new strategy of national development that is presently being prepared. Some guidelines of the future economic policy were brought to light at the 8th International Research and Practice Conference that took place in Ekaterinburg. Regional experts lambasted the project, stating that society is not ready for social reforms. The “RusBusinessNews” columnist also had the impression that the authors of the strategy were very unhinged from real life in the Russian hinterland.

  Vladimir Mau, Rector of the Academy of National Economy and Civil Service, who together with Yaroslav Kuzminov, Rector of the Higher School of Economics, is responsible for formulation of the strategy, pointed out that the search for the model for Russia’s development is extremely arduous. The team of contributors has more questions than answers so far. The scientists have encountered a more profound challenge as compared to the period of the 1980-90s. Those days, according to V. Mau, it was, at least, approximately clear what should be done. In fact, the only major concern was who was going to take responsibility and to actualize the package of standard measures aimed at alleviation of social problems. Today, researchers find it difficult to choose the economic model that would ensure sustainable growth.

Yaroslav Kuzminov says that strategy developers have to deal with different constraints. The proposals voiced by “left-wing” politicians calling for increased social expenditures can result in a budget collapse, while their reduction encouraged by the “right-wing” can undermine social stability, as most of the Russian citizens are far away from the “middle class” living standards. Nevertheless, the experts offer an alternative, following which part of health care financing will be passed through to the population and fee-based services will become a standard in educational institutions.

According to Ya. Kuzminov, Russia retained the Soviet structure of health care, education and retirement system. With still existing social commitment and increased requirements to the service quality expected by the middle class, which did not exist in the USSR, while accounting for 20% at present, the budget can fail to cope with the government’s commitments and obligations.

The Rector of Higher School of Economics is also discontented with the situation, which encouraged an increase in the number of higher education diploma graduates. Today, 56% of the Russian population in the 30-35-age range has higher education – as compared with as low as 40 % in the USA. Nicely wrapped-up statistics is created primarily due to the students who go through fee-paying education. Education is sometimes provided for a token fee – 25-30 thousand rubles a year. Yaroslav Kuzminov does not believe that such amounts can buy quality education. On the other hand, the fee cannot be increased: many Russians drain themselves dry to get the money for their children’s education. In this context, the experts suggest low-budget institutions should be closed down or converted into colleges.

The participants of the Ekaterinburg economic forum understood the words of Ya. Kuzminov as the government’s attempt to limit access of most Russians to higher education and quality medical services. Alexander Tatarkin, Director of the Institute of Economics at the Ural Department of the Russian Academy of Sciences, did not agree with Ya. Kuzminov. In his opinion, the Russians who live in the hinterland are not ready to pay for education and medical services: The difference between their incomes and those of the Moscow citizens, to say nothing about the US population, is too large. Therefore, the population’s co-financing of the social service sector can be discussed only after living standards are substantially increased in regions.

The scientist does not understand how the priority can be placed on the innovative development of the country when the number of higher learning institutions is going to be reduced. He sees lack of substantiation in the thesis asserting the excessive numbers of students: Japan, for example, adopted the law on universal higher education. Many European countries are getting ready to do the same. The experts try to channel Russian population in the opposite direction. A. Tatarkin is sure that the country runs the risk of falling into another trap, and the population will come back to its primitive level.

Alexander Petrov, Minister of Industry and Science in the Sverdlovsk Region, saw it as odd that the offered option for strategy said nothing about industry. He reckoned that the experts did not realize the situation that was typical of hinterland towns and cities. The industry in small towns has been pulled up by the roots, forcing skilled employees to spend hours to commute to their work places. A. Petrov is sure that all talks about fee-based medical services and education have no sense without the real economy being recovered.

The bankers participating in the discussion of the strategy said that industry is being stifled by financial authorities of the country. After the death of the First Board Chairman Deputy Andrei Kozlov, the Central Bank of Russia ceased any attempt to handle criminal banking structures, confining itself to strict regulations in lending. As a result, money is trapped in lending institutions, without flowing into industry. The bankers say bluntly that if the clot is not removed, nothing is going to change in Russia’s economy.

Alexander Tatarkin doubts that the present-day Russian elite have any intention to change anything. The survey conducted during the Krasnoyarsk forum showed that 70% of its participants – being quite influential in business, government and science – do not understand what the Kremlin authorities want when calling for modernization. Nearly half of the Russian elite have no willingness to participate in it, delaying adoption of the adequate laws.

Vladimir Mau noted that the “pipe economy”, being based on the revenues from oil and gas sales, does not need large numbers of educated people. Individual specialists can be bought from the West. This circumstance is determinant in the behavior of the Russian ruling class: its representatives live in other countries, while having business in Russia; they can afford to have their personal doctors and teachers, and they, actually, have no concern about the situation in the national health care and education – to say nothing about incomes of Russian people. Their logic is clear, but the implementation of their life policy, as it was admitted by V. Mau, leads to degradation of the country.

Eduard Rossel, the former governor of the Sverdlovsk Region, has no illusions about possibility of any change in the “pipe economy” in the near future. In his opinion, today, the country is reaping the fruits of the policy pursued in the 1990s when no decisions were adopted to protect the domestic market. Foreign companies came to dominate the Russian market, and Russians are not able to get through their ranks: International corporations spend vast sums of money on advertising, on financial incentives offered to Russian experts and industry-related specialists, and what is more important – on greasing of government officials’ palms. E. Rossel states that corruption has corroded officials at all levels of authority, and as long as these people stay in office, they will block any program in modernization of economy.

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