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Russia breaks away from the ultraliberalism
The second stage of the Russian recovery has started
By
Evgueni Primakov
The
Russian former Prime Minister, Evgueni Primakov, indicates that
Russia got into the second stage of its recovery during 2006.
Having attempted to take back the control of natural resources
and to restore the military power, Vladimir V. Poutin broke away
from the ultraliberal theories. Henceforth, the state interfere
again in the economy to organize the territory development, the
Federation’s Asian part included. Receipts resulting from
the hydrocarbons’ export are injected in the internal economy
to fight poverty, without refueling inflation fears. However,
this policy has to face new dangers: The rising chauvinism inside,
and the United States’ military adventurism outside.
2006: Achievements and disproportions
At
our traditional meeting a year ago my presentation was entitled
“Will 2006 Be Crucial for Russia?” In my opinion,
in many respects it was. What do I mean by “crucial”?
I mean that certain principal trends are now being replaced by
their opposites. It was not necessary for them to obtain a clear-cut
full-fledged status, to say nothing of climaxing in their development.
If we were to proceed from such understanding of that - and I
do proceed from that - many stereotypes that had been persistently
imposed on our society from the 1990s on disappeared last year.
Which ones do I mean?
First,
after we spent a lot of time in a tug-of-war we have finally,
and hopefully, discarded for good the premise that even at the
dawn of establishing of market relations in Russia, and prior
to the creation of a well-developed market we could do without
a resolute and efficient interference by the state in the course
of economic life in this country. Dogmatic liberals argue that
the state should limit its activities in this area to nothing
but micro regulation as there is no need whatever for the sate
to invest in the manufacturing sector. An example of this is the
resistance mounted by the Finance Ministry against setting up
the investment fund, or in other words against channelling budget
allocations to the targe projects the nation needs so badly. But
for the perseverance of the Ministry of Trade and Economic Development
that steadily fought its opponents, the Fund would have never
been established. By the way, the “disengagement“
in 2006 of the “tandem” of these two ministries that
had previously stood for the idea of a total ousting of the state
out of economic matters proved to be meaningful evidence that
a break-up of this premise took place in this country. Second,
last year we all heard President Putin say that - given high global
prices - the natural resources sector should be a vehicle of economic
development and a means of raising living standards of Russia’s
population. Is it not an evidence of a dramatic change of the
trend so zealously supported by those who used to state that not
a single kopeck of the Stabilisation Fund money should be spent
at home for fear that it might allegedly provoke soaring inflation?
Inflation was caused by a number of reasons rather than just one
and it never went downhill while the Stabilisation Fund remained
untouchable. The line on an unrestrained strengthening of the
rouble-to-dollar exchange rate is also a result of the fight against
inflation, which does much harm to the competitiveness of Russian
manufacturers.
The
creation of stocks of non-renewable resources is a necessary step
as is evidenced by the world’s experience. But how should
we spend unplanned revenues we are earning owing to high world
prices for the goods we export? Recently I read professor Aleksei
Kudrin’s article in the journal “Issues of Economics”,
where he presents an interesting table showing target projects
financed by the funds that accumulate non-renewable resources
in Kuwait, Alaska, Chile, Norway and Venezuela. It is clear from
that table that in all these countries without exception the money
they accumulate become a source of funding national economies
in one way or another. The example of Alaska is very characteristic.
Two funds are set up in Alalska, a permanent fund and a reserve
fund. About half of the revenues of the permanent fund is paid
to the population as their dividends, and the remainder is reinvested.
The reserve fund is used to credit the budget. A variable cap
is fixed for the use of the fund’s money that can be reviewed
by law-makers. Why is Alaska’s example so important? Because
that state also faces demographic and development problems. The
Norwegian state oil fund is another characteristic example which
supporters of immunity of stocks of non-renewable resources are
so fond of referring to. However, to quote the table the money
of the Norwegian fund “can be used only for transfers to
the budget of the central government”. The inclusion of
this table cannot be evaluated as other than the author’s
objectivity as a researcher.
I
think that 2007 will not see the triumph of the stance of those
who state that money accumulated in the Stabilisation Fund may
not be spent even for the creation of Russia’s transport
infrastructure, where 50,000 settlements and villages have no
connection to main motorways, or to cover that part of the budget,
which decreases due to lower taxes in the science-intensive manufacturing
sector, the processing industries and small business. We have
also passed the point of no-return in that the number of those
who realise that reduction of the tax burden in these segments
would promote the necessary change of the structure of Russia’s
economy thus stimulating its further growth and in the long run
increasing budget revenues, is growing.
Third,
in 2006 there was a resolute turn to the socially oriented economy.
I mean the four national projects proposed by President Putin
– in the areas of public health, education, housing construction
and the development of agriculture. The resolve with which this
initiative was proposed is stressed and accounted for by the fact
that right from the start of economic reforms in Russia dogmatic
liberals harped on the idea that the state should take care of
only the disabled and incapable people, while the rest should
solve their social problems on their own. In essence they denied
state investments in the human being.
Fourth,
the fight against corruption began in 2006.I cannot say that it
has overcome its “random attack” character. But even
the facts of several high-ranking corrupt officials having been
fired and criminal proceedings against the middle-layer apparatchiks
started, instil hope. This hope is invigorated by Vladimir Putin’s
words that the perfect union between state officials at all levels
and business has become the most dangerous evil. If resolute action
follows this statement corruption in Russia would be deprived
of its breeding grounds.
Next,
about Russia’s economic development in 2006. For a number
of years we have seen this country’s annual economic growth
of almost 7% of the GDP, a much higher rate than the world’s
average. What is the most significant about that is that this
growth has taken place for quite an extended period in the absence
of serious falls. For the first time in years inflation in 2006
was lower than 10%. Gold and hard currency reserves showed a record
growth, and the living standards of the population have also risen.
I think that all these positive results are to a large degree
linked to the fact that what is taking place is a drastic change
of the trends that began to take shape in the 1990s. At the same
time, would it be right to think that we have already reached
a point at which the role of the state in the economy is levelled
down? It would not; we cannot assess the situation like that.
Alongside certain achievements a number of disproportions became
evident in 2006 in the economy that require taking serious measures
with an eye at overcoming them. I will dwell on some of them.
First.
In the conditions of positive economic dynamics there was no sign
of overcoming the demographic crisis. In Russia it has two dimensions.
On the one hand it is the decrease of the entire population and
on the other – quite a rapid outflow of workforce from Russia’s
economically most important regions. I have in mind Siberia, the
Transbaikalia and the Far East. In 1991 about 22 million people
lived on the territory that is nowadays called the Siberian Federal
District. At present they number 19 million. According to the
projections of the States Statistics Committee, by the end of
2025 there will be a little more than 17.5 million residents in
this area. In other words, compared to 1991 the size of the population
will have decreased by 20%. The Siberian Federal District occupies
one-third of the entire Russia’s territory, but the trouble
is not that this area is underpopulated. The pattern of the spread
of the population is very unequal. As Anatoli Kvashnin, Presidential
representative in this district said speaking at a session of
“Mercury Club”:” Put a pair of compasses on
the map with the centre in Novosibirsk and draw a circle of 600
kilometres in diameter. 12 million out of 19 million Siberians
will be the residents of that circle.”
An
even worse demographic situation is taking shape in the Far East,
where the number of population in the last 15 years decreased
by more than 16%. To solve the demographic problem, which is a
top priority issue for the nation, a systemic complex plan of
the development of these regions should be proposed. Someone may
object saying that a big number of such projects have already
been adopted. My answer is none was of a comprehensive, multilateral
and systemic in character. Of course, it was also due to the fact
that there is no adequate means of monitoring and control of the
implementation of even these segmental projects that could help
solve the problem vitally important for Russia, the economic and
political problem directly influencing this country’s security.
Shortly before the end of 2006 President Putin spoke about that
at the Security Council. Orders and assignments have been given.
Let us see how they are going to be implemented in 2007.
The
second disproportion. The development of our economy in 2006 led
to a rather high dynamics of consumption. This is very good. But
the growth of consumption is taking place against the background
of low competitiveness of the products of the Russian industry
that was characteristic for a number of years. Such imbalance
stimulates further growth of import, whose rate is significantly
higher than growth rates of Russian industries. The share of wholesale
and retail trade in the GDP amounted to more than 35% last year.
The share of industrial product in the GDP decreased. No one is
willing to disregard issues of development of trade and services,
which was the sin of the economy in the Soviet period, or erect
a barrier for imports. This should not be done. But the issues
of domestic industries’ competitiveness become more and
more acute. And this can be achieved only by switching our industries
onto the innovation tracks. This cannot be done without a strong
state involvement.
In
the last several years a real breakthrough took place in Russia.
Budget-supported investment and venture funds were established
here along with special economic zones, there are plans to set
up the State Corporation of Development that will be responsible
for financing long-term investment projects including export-oriented
ones. At the same time there are facts, which we should not close
our eyes on – of insignificant scale of use of new tools
of investment activities. For example, four technical and technological
innovative zones are now being established in Russia. Compare
this with 57 such zones in China. Incidentally, the innovative
way of development is becoming more and more acute and urgent
for Russia also in connection with its complicated demographic
situation. It leads to a decrease of supply of workforce, which
can only be overcome by raising intensity of labour and its productivity,
and that is impossible without technological progress. The third
disproportion is due to the fact that with a certain reduction
of the number of people living beyond the poverty line, the gap
between the 10% of the earners of the biggest revenues and the
10% of the lowest-paid people remains intact or even increases.
According to the State Statistics Committee, the volume of earnings
of the well-to-do is growing while the volume of revenues of the
lowest-paid people remains the same. So it is exactly the rich
who benefit the most from the economic growth. This is a trend
that causes concern. It is far from being a factor of bringing
about social stability in Russia.
At
the same time we should pay attention to another aspect of the
problem, which I would call an aggravating factor. It is known
that poverty in the developed countries is mainly localized among
the unemployed, migrants and families with many children. In Russia
35% of people living under or close to the poverty line are families
of working people with one child or two children. The bulk of
the poor in Russia are contract employees or old-age pensioners.
Suffice it to say that the pay of two thirds of agricultural workers
and more than half of the people in the sphere of culture and
the arts is lower than the minimum subsistence level. On top of
other things the cheap workforce accounts for the lack of interest
in the technical and technological progress.
Another
major disproportion is the fact that along with the development
of federalism we actually preserve the financial system of a unitary
state. If several years ago this could have been vindicated by
the intention to save the country’s territorial integrity,
using financial flows from the centre to the regions as a means
of strengthening the single state, following the building of a
political vertical structure by way of appointing governors, such
an explanation is meaningless. All the more so that in all federative
states political centralization is strengthened owing to the growth
of economic independence of the federation subjects. What should
we say about the growth of economic independence of our regions
if most of them transfer to the centre the bigger share of taxes
they collect, being totally dependent on the transfers and subventions
from the federal centre. Such a practice is often accounted for
by the need to level out this country’s social and economic
situation. Indeed, this has to be done but not using the methods
that are unacceptable to either the recipient, or the donor subjects.
Well,
speaking about disproportions, unfortunately, we have a lot of
them. They include:
the slowdown of the growth rates of export of oil and other natural
resources is not compensated for by the growth of export of products
with a big share of added value;
- given the need to ensure high and sustainable economic growth
there is no system of long-term crediting at a reasonable interest
rate; # the growth of foreign investments is limited a comparatively
narrow area of extraction of natural resources;
- as one of the world’s biggest energy producers, in terms
of efficiency of the use of energy, Russia is lagging behind other
countries sometimes by factor of 100%;
- no mechanism is in place to ensure efficient protection against
monopolistic pricing policies;
- a high level of the intellectual potential is incompatible with
its extremely low productivity amounting to 0.5% of the research-intensive
products and state-of-the-art technologies on the global markets;
finally, serious disadvantages of the decision-making mechanism
are evident; the government knows well in advance that all the
bills it tables at the State Duma would be automatically supported
by parliamentary majority. The most striking example is the Preferences
Monetisation Law whose drastic weaknesses negatively affected
the beneficiaries also in 2006 especially in the process of provision
of pharmaceuticals to social security beneficiaries.
Making
an attempt to analyze the domestic political situation in 2006
I’d say it became evident that one of the phenomena causing
grave concerns was the fact that nationalists moved by xenophobia
began to raise their heads. One of the main features of a Russian
citizen should be patriotism. This is love of Motherland and its
people. However, the nationalists are characterised by the desire
to ride the high horse before others, emphasising the superiority
of the people they belong to over others. Some people regard internationalism
that opposes that trend as a Communist definition, which in the
conditions of the development of market economy should allegedly
be replaced by nationalism. Such a theory is absolutely wrong
and harmful. Its harm can aggravate if, undoubtedly guided by
common sense, such theoreticians come up with ambiguous terminology,
for example the assertion that what inherent to Russia is “sovereign
democracy.”
Russia
certainly has been a sovereign state with a long and rich history.
Naturally, both Russian state institutions and mentality of the
majority of the population retain their originality. Russia is
moving along the road to the human values shared by all of mankind,
including democracy, choosing its own direction with regard to
its traditions, history, the multinational character of the state
and its geography. As other nations Russia would not accept groundless
abstract sermons from abroad, and more than that, imposition on
it of different types of building of society and forms of governance.
However, it is expedient to prevent those who are making attempts
both at home and abroad to separate Russia from the objective
processes underway in the world, including globalisation, trans-nationalisation
of economic activities and the rapprochement of civilisations,
from using the things that are embraced by the notion of state
sovereignty. To defend Russia’s interests and the interests
of its entire population is necessary. But this should be done
without humiliating, harmful and dangerous matching ourselves
to other nations and countries.
And
next – about the international context, Russia is developing
in. After the end of the Cold War the world departed from the
bipolar system, beginning to create a multi-polar world order.
China and India with their enormous human potential are rapidly
developing. By their aggregate GDP in 2006 these two countries
outdid the United States. Taking into account that the economic
growth in China and India is two and a half times higher than
that of the United States, it becomes evident that the contribution
of these two countries to the growth of the world’s economy
is the biggest in the world. The share of the European Union in
the global GDP was also bigger than that of the United States.
Brazil and Argentina are also turning into post-industrial nations.
The integration process in the Latin America is also a promise
of good things coming their way. It is hard to imagine that a
dynamically developing Russia would not become an independent
centre in such a multi-polar world. However, there are subjective
obstacles to the making of a multi-polar world order. These include
U.S. foreign policies. In the present conditions that country
is the world’s most developed economy, the strongest nation
militarily and the most advanced in the area of R&D. With
regard to the above, those who are making attempts to preserve
the U.S. hegemonistic positions also during the period of establishing
a multi-polar world order have become ever more influential under
the current US administration. This reflects negatively on the
process of neutralisation of the threats mankind has been facing
ever since the end of the Cold War. I will identify three such
threats. The first is the creeping proliferation of nuclear arms
and other weapons of mass destruction beyond the boundaries set
by the five official members of the Nuclear Club, who have mastered
the art of self-restraint when it comes to the use of such weapons.
The second one is international terrorism that is now wearing
the disguise of Islamism, even though it has nothing in common
with Islam as a religion. The third threat is the spreading of
regional conflicts. Their danger is further aggravated due to
a possibility of all the three threats interlocking. In the days
of the Cold War stability on the world arena was maintained by
the mutual containment of two superpowers, each being the leader
of one of the two opposing ideological camps. In other words,
it was based on the confrontation with clearly defined boundaries.
At present prevention of new threats is possible only by pooling
the targeted efforts of all basic centres of the multi-polar world
in the making. But to make this truth that can hardly be doubted,
a reality is not so easy. The military operation in Iraq indicated
that the United States has arrogated the right of monopoly in
identifying the country that threatens international security
and making unilateral decisions on the use of force against it.
Simultaneously it declared its resolve to export democracy into
the country of its choice, if its customs and conduct do not satisfy
the United States.
Nowadays
the collapse of such policies can be ascertained, and many US
representatives have done so. Quite recently even President Bush
admitted for the first time that the United States did not win
a victory in Iraq. No doubt about that, as after the U.S. operation
chaos reigns in this Arab country. A religious civil war has begun.
The danger of Iraq’s falling apart is getting ever-clearer
outlines, and it is now Al Qaeda’s main stronghold.
The
collapse of the U.S. policies pursued in Iraq delivered a fatal
blow on the American doctrine of unilateralism. This was also
indicated by the results of the latest Congress elections, when
the Republicans lost their majority in its both houses. But the
mortal blow does not signify the end of this doctrine, all the
more so regarding an all-out campaign to prolong its existence.
The much-touted “new U.S. strategy” in Iraq is another
evidence of that. In essence, it boils down to the decision made
by President Bush in disregard of the will of the Congress and
the predominant public opinion, to route an additional contingent
of 22,000 U.S. troops to Iraq. A decision of mediocrity devoid
of any prospects, which is allegedly expected to facilitate the
U.S. withdrawal from the Iraqi deadlock, as if just increasing
the number of U.S. troops in that country by one-sixth it could
all be so easily done. The decision was cynically ignoring the
fact that more U.S. troops were killed in Iraq than there were
New Yorkers murdered in the September 11, 2001 terrorist attack,
to say nothing of the Iraqi death toll of dozens and dozens of
thousands.
It
is a fact that more and more people in the United States begin
to see the wrong done by unilateral decisions of the use of force.
But this does not yet signify the preparedness of the U.S. administration
to take universal multilateral action against new threats to the
world’s security and stability. It is characteristic that
the stake is made on NATO’s enlargement rather than on the
consolidation and modernisation of the United Nations as the universally
recognised international mechanism.
Set
up in the years of the Cold War as a regional organisation NATO
is nowadays spreading its military influence over different regions.
This organisation has enacted its military force in Afghanistan,
and nobody knows what is in store. A plan of the military intervention
in Iran and Syria if not by the United States then by NATO, currently
discussed in the media, cannot fail to cause concern. Naturally,
it is a long way from the discussion of an idea to its implementation,
and many NATO members would hardly be willing to get over it.
But is the fact that the new NATO entrants and the countries that
are dying to join the bloc are ready to pay exorbitant prices
to earn American benevolence, not alerting?
Having
captured more and more countries the North Atlantic Treaty Organisation
has approached our borders, and this cannot fail to make us uneasy.
All the more so that NATO extension is accompanied by the anti-Russian
rhetoric, as well as the aggressive policies pursued by the U.S.
in the former Soviet republics. Moscow cannot fail to regard all
this as activities bred by the displeasure of certain circles
in the West by the fact that restoring its enormous prospective
potential, Russia is regaining its status of a superpower.
I
would say that under the circumstances this country is pursuing
the optimal foreign policies. With a need to strengthen its strategic
and tactical military potential Russia uses every opportunity
to demonstrate its desire to become one of the principal forces,
capable of stabilising the international situation. The year that
passed confirmed successes of Russia’s foreign policies,
including establishment of close and - at times - strategic relations
with many Asian countries, especially China and India, its ever-strong
striving to have close ties with European countries and mutually
beneficial partner relations with the United States. The main
thing is President Putin’s taking up the course that combines
firm advocacy of Russia’s national interests and the desire
to avoid confrontation with other countries.
As
I imagine, western politicians should re-consider Russia’s
role and place in the present-day world, those of the real Russia,
whose domestic situation they allegedly view as a threat to its
neighbours, not the fictitious Russia that allegedly pursues imperialistic
policies, using the flows of energy resources to other countries,
but the real Russia that is not going to move in the freeway of
somebody else’s policies, but Russia that makes efforts
to fight international terrorism and the creeping of weapons of
mass destruction, Russia that does not accept the division of
the world based on the civilisation-related and religious principles,
but strives to rely on its unique potential to put an end to the
most dangerous conflict in the Middle East. Russia that pursues
its policies, cooling hotheads who fail to learn their lessons
in Iraq but are all but ready to repeat pernicious combat techniques
against unwanted regimes.
The
conclusion that can be drawn is that on the whole 2006 was a successful
year for Russia. Positive processes in the economy and policies
were predominant, but the unsolved problems and certain disproportions
obtained sharper outlines. They should be directly in the focus
of attention in 2007, especially in view of the aggravating pre-election
situation.
Evgueni Primakov is
a former Head of KGB, successively Minister of Foreign Affairs
and later Prime Minister under president Boris Yeltsin, Evgueni
Primakov is the author of The world after September 11th and the
invasion of Irak. Petroleumworld not necessarily share these views.
Editor's Note: This article was originally published by Voltaire
net, February 12, 2007. Petroleumworld reprint this article in
the interest of our readers.
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News 03/25/07
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