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When will Russia have a country modernization champion?

When will Russia have a country modernization champion?

14.04.2010 — Analysis

Evgheniy Gontmakher, an expert from the Institute of Contemporary Development (INSOR), predicts that in three years time the Russian budget will be unable to pay pensions. The reduction of social spending is capable of destroying the country in a very short time. It may be possible to postpone this dramatic scenario by privatising the raw material assets but the expert only sees sustainable development of Russia as possible in connection with the integrated modernization of the country's political and economic system. The RusBusinessNews observer having listened to the expert, still has not managed to understand, however, what exactly would prompt the authorities and the society to come out of hibernation and start the reforms. 

Evgheniy Gontmakher, the Director on the Social and Economic Problems of Development at INSOR, presented a lecture in Ekaterinburg called "Russia in 21st Century: Image of Desired Tomorrow". The expert stated that the conditions for business in 2009 have deteriorated and the corruption has increased; the amount of bribes, according to some estimates, reached 200 billion dollars which is a sum comparable to the federal budget. The country is wasting the little time that it has for the construction of a modern economy. 

The Government, according to Mr Gontmakher, has unsubstantiated illusions regarding the developments in sectors such as space exploration and pharmaceuticals. Production of new drugs is a process so costly and time consuming that it a priori rules out the appearance of investors wanting to invest into the unpredictable Russia. Nor should we expect breakthroughs in the space programme; commercial satellite launches will soon stop bringing revenues as China will offer these services cheaper.

In ten years time Russia might not even be able to exploit its unique geographic situation; Transsib, which has been seen by some experts as a transport corridor connecting Far East and Europe, is desperately outdated and is not being renovated. At the same time China has announced the construction of tens of thousands kilometres of high speed lines around Russia which can be compared to revival of the ever memorable Silk Road. The Japanese might have competed with the Chinese, for them it is better to transport their cargo via Siberia due to various economic and political reasons, but their suggestion of the construction of a state of the art railway infrastructure in the Far East has been rejected by the Russians. Since JSC Russian Railways prefers to invest in football clubs rather than into railway track we can soon forget the idea of the transport corridor Berlin - Moscow - Ekaterinburg - Novosibirsk.

The situation at raw materials markets is also changing very quickly. The US is more and more self reliant in terms of hydrocarbons having started the development of the shelf. Europe is diversifying its supplies of oil and gas, rapidly cutting down their consumption. The transition to so called "green" economy and mastering technologies for the production of the shale gas in about ten years time will lead to the situation where Europeans become gas exporters.

The federal budget, according to Mr Gontmakher, in about three years time will be short of some significant revenues which will make questionable the possibility of many types of spending, including the donor help to the regions. There even might not be enough revenues to be able to pay pensions. This is the last threshold which the Government would be prepared to surrender which is why it will undertake preventive measures. What they might be we can understand looking at the situation in Ukraine. There the International Monetary Fund, in exchange for financial assistance, suggested increasing the pension age, cancelling pension indexation, and stopping paying pension to those pensioners who are still working.

Russia is at the threshold of the same unpopular decisions. It is true, in contrast to Ukraine Russia has some reserves in the format of the State property. Privatising this might patch the hole in the budget for few years; let us suppose that the money made on sales of the raw materials assets can be put into special accounts in banks and pay out the accrued interest as pensions. This measure is temporary, however; it will only allow the country to hold on until such time when the economy is working again. At the moment nobody would dare say that Russian industry has started climbing up from the bottom. Therefore, in a few years time the question of what to fill the budget coffers with will be posed again. Raising the pension age will not achieve much either: the social and psychological climate in Russia results in the premature death of the elderly and in young people leaving the country. Young specialist leaving the country is a very serious threat to its future. 

The crisis has somewhat unclogged the brains of the elite too: today officials understand that the Russian society will not be the same as it was before 2008. The decline in industry has demonstrated with all possible clarity that the country has to modernise. The modernisation has to be carried out in all sectors together as limiting reforms to economy only will not work at this time. Doing it in a rushed manner would be ill advised as well.

Gaidar's reforms, Mr Gontmakher claims, had been carried out without "wheels", i.e. without careful preparation and well thought out plan. Mainly negative results ensued - oligarchic power, monopolised economy, poor society. The authorities' attempts to make political freedoms without the economic basis look like achievements have turned into the shoot-out of the Russian Parliament in 1993 and falsified Presidential elections in 1996.

In the beginning of 2000s the authorities had made the reverse mistake: they froze the democratic institutes having thought that the Russians have not grown up enough for them and decided to work with the economy. As a result the political freedoms have gone and they failed to reform the economy having drowned in corruption and omnipotence of federal and regional monopolies. Societies with this kind of structure are very unstable - Russia started shaking as soon as the crisis had struck.

Mr Gontmakher recons that today the country does not have any other way of development than the European way. The supporters of a special Russian way refer to China which is not in any hurry to introduce political pluralism. He does not find the example of the Celestial Empire very representative; this country will have to make a transition to the liberal system of authority after the industrialisation. Competing in the global market in the post-industrial era is only possible through the intellectual potential of elites, the qualitative formation of which is impossible without pluralism in politics and economy.

Opponents of the democratisation of society, according to Mr Gontmakher, perceive the ongoing globalisation too primitively, trying to scare the Russians with the loss of the national identity, the same as opponents of collectivisation once tried to scare peasants with making their wives communal. The need of each people to find a niche in the global labour market is, conversely, forcing countries to find internal reserves, relying on the nation's strengths. Russia's advantages, in his opinion, are in the still strong higher education and intellectual potential of Russian engineers.

However, engineers present at the presentation "Russia in 21st Century: Image of Desired Tomorrow" told the expert that the ideas realised in the country are not the best and projects being funded are not those with the best future. As an example they mentioned the defence and security system in Sochi which, according to them, has been outdated for a long time and can therefore be easily circumvented by terrorists. Engineers have asked the expert to get the information to Dmitry Medvedev that there are people who are virtually paying out their own pocket to develop much more advanced systems.

The expert promised that through some officials he knows he will get the developers' note onto Dmitry Medvedev's table but at the same time he remembered the recent suggestion of Vladislav Surkov, the Deputy Head of the President's Administration, to invite German engineers to Russia so that they make yet another technological revolution in the country. The idea to recreate a German settlement seemed a total drivel to Evgheniy Gontmakher. In his opinion it would only attract losers and opportunists from all over the world. The reality today is that specialists go to the US and Europe where they feel more comfortable. Russia still has a long way to go to become comfortable to live in and for all people to want to come here. Essentially this could be a national idea for the Russians.

Has Russia so far not even embarked on the thorny road of reforms? In normal societies authority is the source for changes for the people, and the civil society is the source of change for authority. In Russia people and authority have adapted to each other on the ground of the unwillingness to let talented people anywhere near the authority controls and to change the corruption system. Accordingly the country is losing advantages in the competition in the global market. Russians who are not impartial have a good cause to ask the question "What can be enough of a stimulus for the people and the authority to start changing?"

Mr Gontmakher, the Director on the Social and Economic Problems of Development at INSOR, thinks that in the country a leader must appear, relying on 1% of passionate supporters and 15% of those not impartial people joining the cause, and start the mechanism of modernisation. Seeing that something began changing in the country a rather significant part of society would follow the passionate supporters. Russia as a result would thus embark on long and difficult road of change. The leader should appear in the country no later than in 2012 when the next political cycle starts. If messiah does not come Russia will miss the opportunity and will conclusively be left at the periphery of global development.

Nobody present at the lecture has argued with the last statement of Evgheniy Gontmakher. What remained unclear was where this leader would come from if Russian elites have no thirst for change and are not about to let anybody into the pyramid of power. The Moscow expert does not believe that the process of renovation can be started from below either.

Vladimir Terletski

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