Russia Is Turning Into A Country Of Bureaucrats And Shopkeepers

08.02.2010 — Analysis

In Ekaterinburg, experts discussed prospects for the development of the Russian economy. They arrived at a paradoxical conclusion that during the crisis countries which do not normally boast with innovations proved to be the most sustainable. China, while industrialising rapidly, is gradually taking more and more control over the International Monetary Fund. Therefore, the researches assume, the future belongs to those economies which turn scientific ideas into a ready product most efficiently.

Russians do not want to produce hi-tech products. According to the data provided by Anatoly Filippenkov, the President of the Union of Small and Medium Size Business of the Sverdlovsk Oblast, no more than 15% of companies actually manufacture something, and only 4% are involved in innovations. Aleksandr Beletskiy, the Deputy Urals RF Presidential Envoy noted the rapid growth of the government official classes. In USSR with the population of 250 million there were 400 thousand officials, whilst in Russia with the population of 130 million there are 1.5 million of them. To these we should add 14% of people capable of work who are employed by private security companies.

The state turns Russians into security guards, forcefully eradicating natural entrepreneurial spirit entirely. Rustem Nureyev, a Professor at the High School of Economics, claims that transaction costs when running a business in the country are too high, the taxation system is not exactly most liberal, and the useless legislation in place breeds expropriation of property.

The rating compiled by the experts showed that Russia is in last but one place in the world in terms of getting licenses and permits - it takes two years to complete 54 procedures for Russian entrepreneurs. The procedure for registering property rights are extremely complicated which is why a significant part of it remains in the shadow, making it harder for businessmen to get credits. In terms of availability of borrowed resources Russia takes 109th place. It is true, the problems with loans can be avoided, if we agree to play with bankers "closed hand", according to the experts money can be obtained even by an insolvent company, for a sizeable backhander, that is a bribe paid to bankers.

The end result of such primitive economics of Russian citizens is the rapid simplification of the economy of the country as well. The export of machine building sector products is falling and export of mineral resources is on the increase. According to the data provided by Mr Nureyev in 1995 raw materials accounted for 42% of exports while in 2009 this figure amounted to 73%. Exports of machines have halved in this time. In 2012 almost every for out of five cars will be imported. The technological retardation gap is increasing as well, for instance, while growing more potatoes than anywhere else in the world Russia takes 163rd position out of 170 in terms of the labour productivity in this sphere.

Russia's situation is bad because the country will be able to sustain itself through the oil for the next 30 years at the most. There is enough gas for about 60 years as a half of the explored reserves of hydrocarbons are located on the territory of the Barents Sea where so far nobody has a technology to install drilling platforms. The experts have serious doubts that the country is capable of making a technological leap in this time: according to the data published in 2000 60% of industrial equipment was older than 16 years (out of these 40% was older than 20 years). There was no such statistic published since, probably because the figures are even worse. It is interesting that in the sixties of the last century when USSR was actively exploring the space 70% of equipment was under 10 (out of which 40% - under 5) years of age.

It is no less interesting that there are still people in Russia trying to produce something in the machine building sector. Moreover, entrepreneurs year in year out are bombarding the government with suggestions to establish the infrastructure for innovations. According to Aleksandr Balandin, the Director General of Pumori-SIZ Ltd, companies involved in high technologies should be given a special legal status so as to attract investors because innovation environment will not develop without investment. Preferential treatment is needed on behalf of the state too, such as tax breaks, direct subsidies, investments into new innovation facilities.

Authorities, however, are in the circular defence: technoparks are being developed for the last 10 years and there is still no law regulating their activities. We should not even mention investment policies of the state, according to Mr Filippenkov if a small business gets money from the Bortink Fund this turns out into the trebling of tax payments three years later. At the same time officials directly link the support to the payment of taxes, no tax paid - no concessions. It is obvious that the establishment of new production facilities in these conditions is hardly possible.

Neither has the Russian state managed to reduce business transaction costs. There is a lot of talk about this, but nothing ever changes. In the meantime Georgia in a very short time has simplified procedures for property registration and getting permits to run a business. Now this former soviet republic has one of the lowest transaction costs taking second or third place in the world.

Russia has it as a matter of principle not to follow the Georgian way. The extremely protracted story with the evaluation of intangible assets leaves this as the only explanation. At the time of the denationalization of factories and plants in the nineties the intellectual property was not taken into account as there was no habit in Russia of having to pay for brains. While saying that it is very difficult to assess the price of intangible assets a very sleek scheme has been established for appropriating someone else's ideas gratis. The industry today, during the crisis, is still not prepared to pay for innovative developments. Which, in turn, means that research institutes, instead of building links with factories, establish their own production facilities trying to get at least some income from their designs.

Vladimir Makarov, the Vice-Principal of the Urals Mining University, says that the disagreements between industry and science occur around intellectual property. As long as it is not valued properly it will not be taken into the economic turnover without which modernization will remain a mere empty noise. Russia has been talking about it for twenty years but failed to move any further than just stating this fact.

Aleksandr Tatarkin, the Director of the Institute of Economics of the UB of RAS, points out in this connection that it would be impossible to conduct modernization without affecting anybody's interests. The lack of will to modernize industry by force, it looks like, speaks volumes of the fact that the Russian elite is quite content with the current economic relations. The status quo, according to the expert, provokes the social instability in the society.

Vladimir Terletski