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Nezavisimaya Gazeta, October 2, 2003

Russia's Biggest Problem is the State
Doubling GDP is not ambitious enough

By Anna Skornyakova

The Russian state is the main obstacle to economic growth and the creation of a favourable
Andrei Illarionov (left) and Grigory Yavlinsky (right) agreed that the authorities should not prosecute business.
Photo by Mikhail Zimmering, Nezavisimaya Gazeta
investment climate in Russia. As long as law enforcement agencies are virtually uncontrolled and can blackmail businessmen and participate in the redistribution of property, any qualitative improvement in the situation is out of question, something noted by virtually all the politicians and political scientists at the meeting of the Open Forum Club devoted to the prospects of Russia's economy and the problems of relations between the authorities and business.

According to the YABLOKO leader Grigory Yavlinsky, these problems are attributable to the "replacement of public institutions by bureaucratic corporations" that discuss economic strategies in the absence of a public discussion. Competition is also being replaced by corruption, and "contacts with shareholders are replaced by contacts with the police."

State officials and bureaucrats cannot foresee all the implications of their decision-making. Politics Foundation President Vyacheslav Nikonov says that half the civil servants in Russia have held their current positions in the administration since the Brezhnev era. "Natural processes will resolve the problem within a decade," Nikonov said. "We rely on them to do more than we can rely on administrative reforms."

Outlining the barriers preventing economic growth and investment appeal, Nikonov mentioned the lack of any clear development strategy and insufficiently ambitious objectives.

"Some people believe that the proclaimed doubling of GDP is something fantastic," Nikonov said. "When this has been achieved, however, we will only have caught up with Taiwan in terms of GDP, and the truly advanced countries will remain far ahead of us. The sheer size of the national economy necessitates more ambitious goals."

Presidential Adviser Andrei Illarionov agreed with Nikonov that doubling GDP is a fairly simple task. "Over the last 50 years 70 countries out of the 140 countries on which information is available doubled their GDP in a decade," Illarionov said. The adviser does not object to GDP growth through development of the raw materials sector, which has seen considerably higher growth rates than in the processing industry.

Obviously the idea of natural rent that has been discussed intensively by the upper echelons of the state authorities is related to this fact. However, Illarionov said that "it does not matter in terms of ideology whether we take out $2 billion or $25 billion. If we re-distribute these revenues between everyone, we will end up with Socialism, and develop some sectors at the expense of others." Yavlinsky agreed: "The rent is an abstract category. In reality we are speaking here about taxes for the raw-material sector, which exist anyway. They can be raised, but the problem is whether companies would want to work in such conditions." According to Yavlinsky, there is no point in resolving the problems in some sectors, by putting tax pressure on other people.

"Now we face the problem of the quality of economic growth, noted Yavlinsky. - Now we are experiencing the growth without development, that is unproportional and inadequate with no impact on either social or economic issues." According to Yavlinsky, growth in the raw material sector should provide an impetus for the development of other industries. Russia, however, lacks the necessary institutions - the financial markets and banking system are underdeveloped. "I don't know how much money we require in terms of foreign investments: we do have internal recourses and reserves, but investments do not grow," noted Yavlinsky. He thinks that the development of the national economy is also impeded by the lack of any independent judiciary, independent legislative authority, fair elections, civil control over the secret services, and the absence of separation between the authorities and business.

"What are we thinking about if it takes a court in Moscow only 90 seconds to examine the lawfulness of searches in the offices of a company?" asked Yavlinsky.

Speaking about the failure of the state to ensure equal rules for everyone, the participants of the forum kept returning to the anti-YUKOS campaign launched by the law enforcement agencies.

"Transparency is the major problem of the company," said Alexander Konovalov, President of the Institute of Strategic Evaluations and Analysis. "YUKOS began publishing its financial report in line with international standards, and these standards are the last thing Russian bureaucracy needs."

According to Yavlinsky, institutions should be established that are independent of the state authorities and the gap between legislation and reality should be bridged, to make it possible to change the quality of economic growth in the country. "The country as a whole and the world know what political party has the president's sympathies, noted Yavlinsky, - However, the law does not permit him to say it openly."

According to Yavlinsky, laws should reflect reality rather than what we think desirable. In addition, we need "a complete legislative legitimization of developments in the 1990s," noted Yavlinsky referring to the idea of revising the privatization results. Society can only accept such legimatisation if it is part of a package with "powerful social laws", such as the Single Social Allowance law, which would make it possible to liquidate poverty in the country. "Finally, something should be done about the state monopolies," added Yavlinsky. "Current developments are simply scandalous. The state monopolies are in the pocket of the authorities and consequently resent so much their reorganisation."


See also:

Russian Economy

YABLOKO Against Corruption


Nezavisimaya Gazeta, October 2, 2003

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