RIA Novosti
July 6, 2007
Experts promise Russia an economic miracle
MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - The Russian economy has been growing steadily in the 21st century. Yet experts have warned of an impending crisis, or at least stagnation. Even the pro-Kremlin United Russia party has made such forecasts.
However, the latest calculations by professional economists from government and research agencies have refuted these gloomy forecasts.
According to the Ministry of Economic Development and Trade, Russia's GDP can continue to grow at a high pace, by 6.5%-7% annually until 2020.
Economists from the Russian Academy of Sciences who were critical of the government's economic policy have published an even more optimistic report about Russia's future. They predict an annual growth of 8% until 2030.
The Institute of Economic Forecasting of the Russian Academy of Sciences has provided solid facts to back their optimism, saying that Russia's GDP has been growing faster than predicted in the last few years.
What are the reasons behind this growth? Why is the Russian economy developing faster than predicted? The answer is simple: experts have been relying on obsolete development models for their forecasts, whereas the world has changed beyond their wildest dreams.
Viktor Ivanter, director of the Institute of Economic Forecasting, said there are three main reasons for the rapid growth of Russia's GDP.
First, Russia has overcome the negative consequences of the severance of economic relations with former Soviet republics in 1992 following the collapse of the Soviet Union. It has turned from an administrative and territorial part of the U.S.S.R. into an independent country with a comprehensive economy that is integrated into the global economy.
Second, the transition period has ended, and Russia now has an efficient market economy.
And third, the transition to market relations has triggered adjustment mechanisms, which are helping the Russian economy overcome many problems and obstacles.
It is thanks to these mechanisms that the myth of an imminent economic crisis has been dispelled. A relevant example is the electoral platform of United Russia, which in 2003 scared the people with warnings of a forthcoming technological, food and financial collapse. It turned out to be wrong.
Andrei Illarionov, a prominent liberal economist and former economic adviser to President Vladimir Putin, recently said that an economic miracle was impossible in Russia. He said the country was incapable of catching up with the industrialized countries, and its achievements were due solely to high oil prices.
But the myth of oil prices as the only foundation for Russia's economic growth is no longer valid. When oil prices seemingly reached their ceiling and stagnation set in on the oil market, Russia's mechanical engineering and manufacturing unexpectedly surged ahead, surprising the majority of experts.
There are quite a few problems that complicate Russia's economy, as well as many obstacles hindering its advance to new summits. The economists at the Academy of Sciences say the country still does not have an effective mechanism for the movement of capital, which is vital for financing manufacturing.
Most rich Russians transfer their money abroad, later to be reinvested in Russia when and if necessary. According to the Academy's experts, the government should rectify this problem by investing surplus funds through the Russian Development Bank and other specialized financial institutions.
Low wages and skills are another reason for the inefficient operation of the manufacturing sector, and they also hinder innovation, a topic which has been widely discussed recently by the government.
"The modern economy has put new demands on the workforce," Ivanter said. "Innovation will remain nothing but fine talk unless the government begins to pay high salaries to qualified workers."
Apart from the growth of investment, the economy also needs a growth of consumption. Experts believe that wages in the knowledge-based economic sectors should be at least doubled in the next two or three years.
"We must go over from the minimum wage to the standard wage, adjusted not to the subsistence level, but to social standards," they say in their report.
One more major obstacle to Russia's economic growth is its technological lag provoked by the stagnation of the scientific sector in the 1990s. This sector can be revitalized with government support, thus propelling the national economy towards an investment-fuelled annual average growth of 8%.
The authors of the report write that their conclusions differ from those of the Economics Ministry's only "in their degree of optimism."
The ministry projected 7% annual growth and proposed three development scenarios: one with sluggish growth and two positive scenarios, a commodities-based and an innovation-fuelled. It is not clear which of the latter two the ministry prefers, although the innovation-fuelled scenario appears to be the better choice.
The experts showed in their report how investment can be channeled into innovation.
The Academy of Sciences and the Economics Ministry do not want Russia to develop according to the sluggish scenario. "Nobody wants to be poor any longer," Ivanter said.