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#14 - JRL 7171
The Newsletter About Reforming Economies
The World Bank
January/February/March 2003
Conference on Russia 2015: New Sources for Growth
By Natalya Volchkova
Natalya Volchkova is a researcher at CEFIR.
Information about the conference program, papers, and presentations are available at http://www.cefir.org

The second annual conference on Russia 2015: New sources for Growth was recently held. Jointly organized by CEFIR, the New Economic School, and Club 2015 (a group of leading Russian managers and entrepreneurs), and sponsored by the Center for International Private Enterprise and the Open Society Institute, it focused on the criteria for sustainable development in Russia.

Andrei Illarionov, economic advisor to President Putin, delivered the keynote address. Illarionov talked about Russias growth experience in the 20th century and its relative position in worldwide growth. He estimates that cutting government spending from 36 to 30 percent of GDP would allow Russia to double its rate of economic growth from 8 to 10 percent by 2015.

The first panel was devoted to firm-level policies that can be implemented to achieve the goal of sustainable long-term growth. Luigi Zingales of the University of Chicago presented the results of an empirical study of the private benefits of control in an international perspective and stressed their role in the development of the financial system. In countries where the private benefits of control are larger, capital markets are less developed, ownership is more concentrated, and privatizations through public offerings are less likely to take place. Zingales stressed the role of institutions in curbing these private benefits: a high degree of statutory protection of minority shareholders, of law enforcement, of diffusion of the press, and of product market competition are associated with lower levels of private benefits of control.

Erik Berglf of SITE and the World Bank discussed the similarities and differences in the evolution of corporate governance systems in transition countries. He defined the main issues of corporate governance problems in Russia as including enforcement of the law and avoiding its capture, fraud prevention, and resolution of conflicts between controlling owners and minority shareholders. Berglf concluded that given the weak state of legal institutions in Russia, regulators should consider concentrated ownership as a second best, while the role of minority shareholders should not be undermined for liquidity purposes. The main objectives of regulators should be better enforcement and increased transparency.

Irina Shchepina of Voronezh State University presented the results of a survey of firms in the Voronezh region that looked at issues pertaining to industrial enterprise modernization. The main finding was that despite a decade of market-oriented reforms, most industrial enterprises in the region still pursue a "survival" policy and have not adopted new managerial techniques.

Finally, a representative of Club 2015, Ilya Slutskii of the Media Arts Group, argued that the firms marketing policy is one of the indicators of the development of corporate governance mechanisms, because it helps to transform market signals into internal corporate processes.

The second panel dealt with the governments decentralization policy as a potential source of economic growth. Oleg Zamulin of CEFIR and the New Economic School presented the results of a CEFIR and World Bank project on monitoring administrative barriers to small business development in Russia (see the first SITE article in this issue).

Ekaterina Zhuravskaya of CEFIR argued that political centralization in developing and transition countries is required for successful economic decentralization, because it ensures that the right incentive mechanisms are developed along with decentralization. As far as the political incentives in Russian regions are concerned, Zhuravskaya concluded that the evolution of political cycles in Russia in recent years could be interpreted as indicating improved political incentives in the regions. She also suggested that the only way for economic decentralization to succeed in Russia is through the development of democracy and of a strong party system as a substitute for political centralization.

Peter Shchedrovitskiy of the Center for Strategic Research of the Privolzhskii Federal District presented his views on the decentralization process and the main problems that federal, regional, and local authorities would face. Some of the problems discussed were the dynamic nature of authority allocation and joint responsibility at different levels of power for failure to comply with the authorities. He believes that special attention should be given to synchronization and coordination of reforms initiated at different levels.

Victor Popov of the New Economic School analyzed the determinants of financial flows between the federal government and regional authorities in Russia. He found that intergovernmental transfers correspond quite closely to the ideal pattern determined by the equalization of regions abilities to provide public goods. However, empirical evidence also shows that the more votes that were cast for pro-central government parties in parliamentary elections and for Yeltsin in the 1996 presidential elections and the lower the tensions with Moscow after the elections, the more favorable was the fiscal balance between regional and federal budgets.

The last panel dealt with institutional reforms. Two leading members of Club 2015 presented their views on the current state of and prospects for institutional reforms and discussed several possible scenarios for Russias development. Dmitrii Novikov of Consultant Plus described the development of the market for legal information in Russia over the last decade. He discussed the steps the industry undertook to make the dissemination of legal information a transparent, competitive, and highly successful sector built from scratch in 10 years.

Finally, Vladimir Preobrazhensky of Wimm Bill Dann presented the findings of the Clubs Scenarios for Russia II Project. He discussed feasible development paths for Russias economy and society and the main challenges that the country should face to be able to stay on a sustained growth path.

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