OECD Suggests Recipe for Russian Economic Growth
According to the Organisation for Economic Cooperation and Development (OECD), sustainable growth of the Russian economy would be hardly possible without structural reforms. The “Russian Federation 2013” survey prepared by the OECD experts was presented on 17 January, 2014 at the NRU HSE during the seminar hosted by the OECD-HSE Partnership Centre.
The OECD recipes for boosting the country’s economy include implementing institutional reforms, improving business climate, and investing in infrastructure and human capital.
“I’m grateful to the Higher School of Economics for its contribution to preparing the survey, and for providing the experts who shared their knowledge in various areas, and statistical data”, said Andreas Wörgötter, Head of Country Studies Division of the OECD Economics Department, during his presentation of the survey.
The presentation was made jointly by the OECD, the Russian Ministry for Economic Development, and the NRU HSE, with information and coordination support by the ISSEK’s OECD-HSE Partnership Centre.
In the current 9th Economic Survey for Russia, in addition to traditional aspects such as macroeconomic situation, efficiency of the investment policy and public administration, the OECD also analysed transport policy and development of transport infrastructure; estimated efficiency of investments into human capital, innovation and S&T potential; and further development of employment policy, the pension system, and quality of life.
The OECD experts place particular accent on structural barriers hindering further development, and on reforms which could remove these barriers. «This is the main conclusion for Russia», stressed during his presentation at the HSE Andrei Klepach, Deputy Minister for Economic Development. «Without structural reforms we won’t be able to overcome the gap between us and many OECD member countries».
Joining the developed countries club is one of the major objectives Russia is facing, and it’s a radically novel one, never encountered by the country before, noted in his address Evgeny Yasin, Academic Supervisor of the HSE. According to him, the Russian authorities are now mapping the course which would largely determine if the economy succeeds in adopting a sustainable development trajectory.
Finding new growth drivers is particularly important now, when, according to Oleg Zamulin, Dean of the HSE’s Faculty of Economics, the potential for «recovery» economic growth based on the available technologies and facilities is exhausted. «Now we’ve reached the point where instead of economic recovery we move on to full-fledged economic development”, noted he expert. “And it turns out we don’t have the resources».
Noting the slowing growth of the Russian economy, the authors of the survey at the same time indicate decent values of major macroeconomic indicators. The budget is quite balanced, the employment level and the capacity utilisation factor in the economy are close to the peak pre-crisis values. Unemployment is about to reach the record low. The banking sector is also stable, and its capitalisation is «adequate». The budget rule limiting the use of oil revenues introduced in December, 2012 «contributed to a more sound fiscal policy».
The State Slows Down Economic Development
The main challenge for the Russian economy remains its orientation towards raw materials, and as a consequence, dependence on global raw materials process. Plus, the Russian economy remains one of the most energy intensive in the world. If the country would use energy as efficiently as the OECD member states do, it could save up to 30% of the energy it consumes, and at the same time significantly reduce early mortality rate due to the poor quality of air — which, as the survey mentions, is one of the highest in the world.
Excessive government interference in the economy is also a major “braking factor”, according to the OECD experts. State-owned banks dominate the financial sector (e.g. Sberbank holds almost half of all private accounts in the country, and about a third of bank assets). Only a quarter of the employed population work at small and medium enterprises (while the average figure for the OECD member countries is 50%) — which according to the authors of the survey also is evidence of large state-owned companies’ domination.
Only one in every 50 Russians potentially see themselves as entrepreneurs, while in Europe every fourth person is thinking about starting their own business.
Administrative pressure and corruption significantly slow down development of small and medium business. A study by the Institute of Contemporary Development calls corruption the second biggest Russian problem (after housing and communal services; the third worst one is bad roads).
Finally, a high level of regional disparity contributes to overall inequality on the national scale.
A Recipe for Economic Growth
The OECD experts recommend to Russian authorities to keep working in three areas: strengthen the foundation of macroeconomic stability; create a transparent, favourable and predictable business environment; and improve HR and innovation policy.
«If we could move on in all these areas with equal success, I think we would be able to achieve sustainable economic growth in the medium term already», noted in her address Natalia Akindinova, Director of the HSE’s Centre of Development Institute. According to the expert, so far success was achieved mainly in terms of macroeconomic stability. Meanwhile investments in infrastructure remain an issue. «Dealing with it requires a major restructuring of government expenditures, and we don’t see it happening yet», noted Ms Akindinova.
To create transparent and predictable business environment, the authors of the survey suggest to press on with the anticorruption campaign. And particularly to increase transparency and accountability in the public sector. Also the OECD recommends to strengthen independence of courts of law, and further reduce administrative barriers.
A section of the survey is devoted to the labour market and human capital. Low unemployment is accompanied by high labour turnover: about 30% of the workers have changed jobs since 2000. High turnover, informal employment and low wages reduce motivation to invest in human capital. To improve the situation, the continuous learning system needs to be developed; other relevant steps include fostering harmonious labour relations, promoting the practice of collective employment contracts, cooperation between educational institutions, businesses, and trade unions, and increasing overall expenditures on education.
At the same time investments should be made not just in human resources but also in road building, believe the OECD experts. Transport problems in Russian cities became a major obstacle to economic development. In terms of traffic speed at peak hours Moscow is far behind other world capitals; traffic jams is a problem in every large city, affecting private individuals and the whole economy. Poorly developed transport infrastructure negatively affects investments and labour mobility.
Generally, increasing productivity and energy efficiency should become major drivers of the Russian economy’s further growth. This implies continuing to support innovation activities and implementation of new technologies on a major scale; completing the reform of the R&D sector, including increasing the share of projects funded through tenders, and improving organisation of work at state-owned industrial research organisations.
Leonid Gokhberg, First Vice-Rector of the HSE and Director of the ISSEK, among other things noted that during the previous year important changes were made in the S&T and innovation policy, specifically regarding national programmes, development institutes, technology platforms, development of new tools to support the «innovation lift», institutional structure of the R&D sector and its funding mechanism.
Artem Shadrin, Head of the Ministry of Economic Development’s Innovation-Based Development Department, added to the above steps promoting technological cooperation through development of innovation clusters, and expressed his confidence that Russia would continue its active participation in the OECD’s innovation policy benchmarking.
By Vlad Grinkevich
Photographs by Nikita Benzoruk