Modernization Drives Russia to Feudalism

14.05.2010 — Analysis

Natalia Zubarevich, Director of the Regional Program of the Independent Institute for Social Policy, is sure that Russia is brooding two deferred crises: in 2010 the principal problems of the nation will be unemployment and intergovernmental fiscal relations. The redundancy "overhang" reaches, according to the expert, about 4 million people. Today they are paid for the downtime and are told that everything will be fine tomorrow. Yet, it is not true, as adoption of advanced technology will result in two or three-fold reduction of personnel. Redundant human resources can be absorbed only by new business, which is extremely difficult to create today due to administrative barriers and lack of investors. 

Meanwhile, the government prefers to support what it sees as essential, rather than what really needs its investment. For example, in Tatarstan the unemployment level is lower than in Russia in average terms; however, the welfare funds allocated to this RF entity exceed 3-4 times the funds given to other troubled regions. The political feasibility underpins financing of Chechnya, Ingushetia and Sochi that will host the 2014 Olympics. The other regions depend on the "manual control", and the bottom line here is that Premier Vladimir Putin diligently travels around cities, towns and regions, qualifying personally those who should be given money and those who will scrape through somehow.

The manual work resulted in the increased transfers from the federal budget to regions, jumping from 17 to 27%. How the Russian budget will be pumped up in 2011 is not clear: eager-beaver regions, such as entities of the Ural Federal District, according to metaphoric comment of N. Zubarevich, are stripped to the "briefs". They were first to hit by the crisis, whereas the center was concerned about rescuing the other two thirds of regions that are just entering the crisis. In 2010, the "tenderlings" of the Federation are going to be continuously horror-stricken: the expenses must be cut, but it is forbidden; utility tariffs must be increased, but it is fraught with protests from citizens, so it is impossible. Eventually, the network of social institutions will have to be shrunk; however, it involves troubles with redundant public-sector employees who are extremely difficult to settle in.

The government efforts to support business were also not rewarded with success. Having analyzed the anti-crisis measures of the government, Yuri Simachyov, Deputy Director of the Interdepartmental Analytical Center, stated that the governmental support did not help to withdraw inefficient companies from the market so that innovative companies could take their place. According to the expert, the growing and actively investing companies were positive in their perception of the reduced tax burden and limited official inspections, lending incentives and equipment renewal as well as the decreased fee for connection to electric mains. At the same time, the quotas for the products supplied under municipal orders as well as price preferences offered by the government helped passive and financially unstable companies to stay afloat. As a result, the crisis failed to produce any cleansing effect on the Russian economy: inefficient companies stayed on the market and promising enterprises did not receive any impetus to further growth. The government support resulted in stabilization of the industry without its modernization.

Yu. Simachyov asserts that federal officials are familiar with the findings of the research performed by the Interdepartmental Analytical Center; however, they are less interested in targeted building of the innovation environment than in planning of expansion of the specific large-scale business: in the latter case they clearly understand who to deal with, how much solutions cost, etc.

Experts are sure that at some point, government authorities will have to establish equal conditions both for companies and for regions. It involves downstream delegation of authorities, resources and responsibility, and, as a result, will cause changes in the Russian political system that had been well-established by the mid-2000s. However, according to Leonid Grigoriev, President of the Fund "Institute for Energy and Finance", it will happen only if the elites agree that they are willing to have modern innovation economy and give up the exciting process of continuous redistribution of grandfather's assets.

Sergei Kadochnikov, Dean of the Economic Department of the Ural State University, points out glaring poverty of Russian regions: in the wealthiest Tyumen Oblast the gross domestic product per capita amounts to 32 thousand dollars, and in the economic region Ile de France - 736 thousand. The expert assumes that backward regions cannot borrow technologies from foreign countries.

Mikhail Maximov, the First Deputy of the Chairperson of the Sverdlovsk Oblast Government, also thinks that Russia is not ready to build innovation economy. The public official thinks that advanced technology must be in mind, but simple issues require priority attention. The Russians tend to get engrossed in the process, without thinking much about the correctly set objectives. For example, today Ural professionals are focused on considering the possibility of construction of a 200 kilometer high-speed railroad between Ekaterinburg and Chelyabinsk, though a modern highway would be cheaper and easier to build. Adoption of technology for construction of high-quality roads is much more important today than launching of the Sapsan train.

Kseniya Yudaeva, Director of the RF Sberbank Center for Macroeconomic Research, explains slips in national reforms by the Russian mentality. She asserts that the Russians, having entered the marathon race, start looking for the finish after they have run 100 meters. When they find out that the distance is much longer, the runners get upset, stop and start thinking whether there are other ways to reach the finish more quickly.

Experts think that the substitution of routine hard work with search for the philosopher's stone can reverse the development of Russia. According to Natalia Ivanova, a Corresponding-Member of the Russian Academy of Sciences, in the capitalist environment any country can compete if it continuously improves its institutions and technology. This work requires immense intellectual efforts; many people see it as tiring, and that is why some countries and regions inevitably drift back to feudalism. Russia is reputed to be a weak component in the capitalist system.

Vladimir Terletsky