Проф. Иван Ангелов
член-кор. на БАН
Russia on the political and economic map of the World – Today and tomorrow: My view
The last two decades have proven that the unipolar world is not an appropriate environment for global political, economic and social development. The future belongs to the multipolar world. On the top of this world will be several most advanced, strongest and most respected countries. Russia must be among them. The greatness of a state is determined not only and not even mainly by its territory, population, strong economy, military potential. In our time not every large and strong state is a great state. She may think she is great, but what matters is what mankind thinks of her. What matters is her political and moral respect all over the world; its readiness to combine its own interests with the interests of other states and respect them; its capacity to foresee the challenges in front of the world, and be ready to join other states, and even lead the world in facing them; its capacity and vision to identify strategic goals and priorities before mankind and be prepared to participate and even lead the global efforts in achieving them. The greatness in our time has got also new dimensions, namely the role of the states in fighting terrorism, hr role for protection of global peace and avoiding at any price new world war, which will inevitably transform into a nuclear war between USA and Russia, and destruction of the modern global civilization. At present Russia possesses some of these capacities, but must work hard to acquire all of them. The advancement of Russia as grate global power is a duty of the Russian government not only for the Russian people, but also a huge responsibility for the global democratic community.
As an economist, I will focus in the following observations mainly on economic and socioeconomic aspects. I believe that to be among the most respected grate states Russia must embark immediately on the design and implementation of a major economic, scientific and technology maneuver over the next 20-25-30 years, aiming at complex structural and technological modernization of the economy, fast development of import substitution for vital strategic goods, drastic upgrading of productivity and competitiveness. Such intentions are known to exist in Russian society for years, however the scales of the programmes are modest, and the implementation is too slow. Only after having achieved this fundamental goal, along with others, Russia would become one of the global political, economic, social and military giants, whom everybody would respect, and will comply with. Any further delay in implementing this fundamental objective will be unacceptable. If this is not done or if postponed again, Russia runs the risk of paying extremely high historic price with unforeseeable consequences. This may even determine the fate of Russia in strategic perspective. The politicians of America are perfectly aware of this, and are trying their utmost to hinder and harm Russia by engaging her in war with neighbors against her will and strategic interests.
Unfortunately not all above mentioned prerequisites for a great state are available now in Russia. Particularly the economic ones. In 2013 the Russian GDP was $2.1 trill, while the USA’s was $16.8 trill. Russia produces only around 3.0 per cent of the global GDP. The living standard of the Russian people is still low. Russia must exert huge efforts in the area of economic development to narrow down dramatically the socio-economic gap with the USA over the next 20-25 years. To narrow down does not necessarily mean leveling with America. To do so Russia must adopt the strategy of accelerated catching up economic and social development. Expressed in terms of output growth this would necessitate an average annual steady GDP growth of 8-9 per cent for the following 10 years, and 6-7 per cent for the next 10-15 years, as well as to protect environment and respect international commitments on the Paris (2015) Conference on global climate. The average annual growth rates of Russia over the last 20 years were much lower than the needed. They were close to economic stagnation. The recommended growth rates for the future might be considered utopia by traditionalists, but they are absolutely indispensible for Russia. Moreover this has been done recently by some countries, such as China, and others.
To be a strong economy Russia must develop complex and harmonious economic structure with advanced industry, modern agriculture and sophisticated infrastructure. Russia must design modern industrial policy and embark on massive reindustrialization. The high tech branches must become the core of the Russian economy, unlike the present predominantly energy and raw materials oriented economy, appraised through its output and exports. In the ranking of the last Global Competitiveness Report of the World Economic Forum Russia occupies 45th place. Russia must upgrade dramatically the competitiveness of its economy, and achieve ranking among the first 10-15 economies in 20-25 years.
To achieve this Russia must never return to a centrally planned command economy model. Equally, she must not go to the other extreme – relying as much as it does now to the discredited neoliberal economy model of the Geydar type. This type of market fundamentalism policy is the main reason to blame for the stagnation of the Russian economy during the last 20-25 years, unlike the Chinese one. There is no room for hesitation here. The facts shout for themselves. Some 30 years ago Russia and China used to have almost even starting positions for economic and social development. Where China is now and where is Russia? The crisis situation in the Russian economy today is due more to the still dominant neoliberal concept of macroeconomic management, than to foreign sanctions. The economy is run by Geidar’s heirs in his absence. It is a high time for President Putin to change the economic model, before it is too late. The best prerequisites for speedy socioeconomic development are provided by the regulated market economy model. This type of economic policy rests on the consolidating principle: “both market and Government”, unlike the neoliberal policy which sticks to the confrontation principle “either market or Government”. In the framework of the future regulated market economy the Government and the Market will be complementing each other, as it is more or less the case in many of the advanced market economies at present. The Government has a very important role to play – both as a regulator as well as an operator of economic activity. The state should retain the property and the responsibility for running the most important strategic key industrial and other activities. Particularly under the present tense international political environment. The concept of Milton Friedman for eviction of the state from the economy had proven devastating. The destructive events in the economies of Russia and of Eastern Europe, my own country Bulgaria included, over the last 26 years are the most convincing illustration of economic decay. This could be learned from my article in the Russian magazine “Мир перемен”, № 4, 2015.
Russia must develop an open economy. She should be an active participant in global trade, exporting much more high value added manufactured products, than it does now. It should be an integral part of the global economy, trading with broad range of products, and producing herself the key strategic products she needs, so as not to be subjected to foreign pressures and extortions, as it is being done now with exports and pricing of oil, gas and raw materials. Russia should not apply economic sanctions to other countries, nor should she tolerate sanctions by others against herself. Economic sanctions for political reasons are inadmissible for the global economy in 21st Century.
Key preconditions for successful development of the Russian economy are the close relations with the European economy, based on mutual complementarities and interdependence: the high technologies of Europe and the abundant energy and raw materials of Russia. If the leaders of the two sides develop their future political and economic relations, based on these mutual complementarities in 25-30 years they would make the strongest flourishing global economic entity with the highest living standards. This is what the conservative leaders of America are afraid of the most, and they will do their utmost to prevent it. On the opposite – the Russian and the European leaders should do their best to make it.
The Russian economy should develop maintaining balanced close relations both to the East with the countries of the Eurasian union and the Shanghai organization, and to the West with the EU countries. Balanced close relations with the East and the West, based on mutual interests, are needed by Russia for political, economic, social and security reasons.
The future Russian economy should rely on multiple forms of ownership – private, public, municipal and cooperative. The low must apply equally to all of them and they should compete on the market under the economic sun, as well as under strict competition rules and public control. The key factor for socioeconomic progress is the loyal competition, and not the form of ownership, be it public or private.
The neoliberal economic model overemphasizes on financial stability, such as balanced budget, low public debt, low inflation. Financial stability is, of course, important, but social stability (low unemployment, dissent pay, moderate income diversity, protecting environment) is equally important. Successful economic development necessitates both financial and social stability. Neglect of social stability undermines financial stability and vice versa. Neglect of one of them destroys both, and produces disastrous implications on economic development.
Under market conditions moderate income diversity is healthy as it promotes entrepreneurship, innovation and hard work. The regimentation in the recent past suppressed incentives for innovation and hard work in the Soviet Union, and other European countries. This generated multiple negative implications, and is one of the many reasons for the collapse of the Soviet type socialism. On the other hand extreme inequalities lead to income polarization and social tensions, as it happens now in Russia, and other emerging market economies in Europe and elsewhere. This is counterproductive to socioeconomic development. Economic history teaches that countries with moderate income diversities enjoy more social, political and economic stability and develop faster, than countries with wide spread income polarization. Russia must learn this lesson as soon as possible. Otherwise she will face constant internal social and political instabilities and economic stagnation. Russian leaders must draw proper conclusions from the alarming fact, that Russia produced nearly as many billionaires within two decades, as did America for 10-15 decades. For Russia this is not something to be proud of!
Russia must abandon the restrictive policy of the neoliberal school as an anti-crisis instrument, and adopt a more flexible fiscal policy of Keynesian type, promoting economic growth. The present hard budget constraints and high interest rates are not the proper economic instruments for solving ongoing problems in the Russian economy. The sources for such growth oriented policy could be found trough increasing budget revenues, and not from cuts in spending, as it is being done at present. Russia must rely now on more appropriate income policy, active target lending at low (3-5%) rates, abandon low flat taxes and introduce moderate progressive taxation system, particularly for income and corporate taxes. The highest rates for income tax should not exceed 35-40 per cent, and for corporate tax – 30-35 per cent. Even after such changes Russian tax rates will be lower than West European and American taxes. More progressive taxation is also needed for large immobile properties and heritage. Public revenues and expenditures in the federal budget should be increased from the present extremely low suppressive 20 per cent of GDP (which does not exist in any European economy) to 28-30 percent in the following years and 48-50 per cent some 10 years from now.
Russia should benefit from foreign direct investments (FDI), but must be careful in every specific case and should not exaggerate their importance for the economy. They could be attractive for Russia not much as a source of finance, as Russia has other sources from exports, but rather as a source of high technologies and managerial experience. Within this context Russia must abandon its present policy of complete liberalization of capital outflows, and introduce some regulations and restrictions, used by many market economy countries. Some Russian sources indicate that over the last two decades more than $1,5 trill. quitted Russia, and are been used by Russian oligarchs abroad for outrages extravagant purposes. This money could have been used in more rational ways at home for the benefit of the Russian economy and Russian people. One should also bear in mind that this extravagant behavior of Russian oligarchs abroad discredits Russia in the eyes of millions of Europeans, as a modern orderly and fair country.
Over the next 5-10 years Russia should be very cautious in applying freely floating exchange rate for the ruble. Such foreign exchange policy could afford only countries with strong diversified economies. Russia does not have such an economy now and is not expected to have it in the near future. Its exports rely heavily on oil (more than 50% now and close to 70% up to middle of 2014), and raw materials. Russia is highly vulnerable on the level and fluctuations of oil prices, which are easily manipulated by well known interests, as it happened at the end of 2014 and during 2015. There is very high correlation between movements of oil prices and ruble exchange rates. The alarming developments during 2014-2016 are still fresh, and ongoing. Depreciation of the ruble facilitates exports, but makes imports more expensive and more difficult. One should not neglect the strong negative domestic repercussions of the level and the fluctuations of ruble exchange rate on the Russian economy, (including inflation) and on the life of millions of Russian people. The appropriate exchange rate policy for Russia at present is managed floating, combined with some regulations of capital outflows, as stated above.
History teaches that relations of America and some European countries towards Russia are not among the friendliest for centuries. Not to speak of the years from 1918 to1991, and the present ones. Very instrumental in this respect is the recent article of the Russian foreign minister Sergei Lavrov “The historic perspective of the foreign policy of Russia” in Global Affairs. This calls on Russia to pay special care for its defense and foreign policy, as she rightly does at present, to cool any foreign appetites. The projections of the American “private” agency Stratford for the disintegration of Russia within 10-15 years are to be born in mind. The movement of the NATO frontiers to the very Russian boarders since 1992, the armed coup in Ukraine in February 2014, the aggressive anti Russian media campaign, the economic sanctions, etc. deserve special care. The strong defense however calls for strong economy. As stated above the American GDP in 2013 was eight times higher than the Russian one. If the GDP of the other NATO countries were added the gap is even larger. It is also known that Russian people were always ready to sacrifice from their quality of life in the name of the strong defense and strong country. That is true, but everything has got limits. As stated above, the solution is in accelerated catching up economic development, and more care for the standard of living of the Russian people. This however can’t be done, relying on present neoliberal economic policies. This is an additional argument for speedy rejection of this wrong policy.
Russia is a state with enormous territory (17,1 million square kilometers), and a population of 146 million people. This means only 8,5 persons per square kilometer. The demographic problem is one of the key issues for Russia, waiting solutions through higher natality, lower mortality and lower emigration, particularly of scientists and highly skilled personnel. This is a very complex problem, calling for urgent complex measures. Russia should set up a target for the future: the normal Russian family to have 2-3 children by 2030-2040 through higher birth rates. The huge territory calls for much larger population. Too low density of population, particularly east of the Ural Mountain, may generate problems for Russia in the future, including aggressive foreign aspirations.
The strong is always respected, while the weak is neglected. This wisdom applies both to personal and international relations. We know from history that western politicians treat eastern Orthodoxy and particularly Russians with feeling of superiority and moralization. They consider the Russians and the Orthodox religion people as second quality human beings. They often apply double standards towards Russia on this hidden ground. Not to go too far back, remember the western assessments on the contribution of the Soviet Union and the western powers in the victory over Hitler’s Germany, minimizing the overwhelming decisive contribution of the Soviet Union and exaggerating their own. Most of their presidents did not even attend the celebrations of the seventy years anniversary of the victory in Moscow on 9 May 2015. Remember the more recent western assessments of the behavior of the Russian and Ukrainian authorities, which is again far away from the truth. The same is on the developments in Syria. Remember the reactions of the western politicians and the western media on recent casualties from terrorism. There was much more media coverage and expression of grief on the casualties in France, Britain and Spain, than to the larger number of casualties in Russia: the murdered hundreds of children a few years ago in the school in Northern Caucasus, the hundreds killed in the concert hall in Moscow, or 224 casualties from the downed Russian civil aviation plane over Sinai in 2015. The victims from France and Britain for them are more valuable and deserve more honor than the Russian victims. This is an expression of contempt towards Russia and the Russian people. Although this is not an issue of life or death, but it is an additional argument for Russia, along with those listed above, to become stronger and stronger in order to be respected more and more.
The following 5-10 years will be very difficult for Russia. As stated earlier, America and its allies sharpened their unfriendly policy towards Russia in recent years. NATO moved to the very frontiers of Russia, and dangerously close to Moscow, and imposed new arms race on her, which Russia didn’t wont, and will be hard to bear. The arrogance goes as far as the aggressor to blame Russia on aggression for taking defensive measures on its own borders. The West found that under president Putin Russia is reborn quickly from the chaos and decay under president Eltsin. Russia needs badly at least 20-30 years more to modernize her economy, and army, to upgrade the living standards of her people, and to become an equal partner on the global political scene. America is making its utmost to prevent this happen by imposing tense paramilitary environment upon Russia. This calls on Russia to carry extremely careful policy “on the edge of the razor” in international relations. Traditional economic models, even the recommended by myself regulated market economy model, will be difficult to apply under these paramilitary conditions. This requires extreme care in the design and implementation of both domestic and external policies over the next 10 years, and may be even longer.
Sofia, 10 March 2016