Trajectories of Economic Transformations. Lessons from 2004 for 2024 and Beyond. Valery Kushlin

industries, the outflow of capital from the country many times higher than foreign investment, the degradation and squandering of scientific potential, the brain drain and, in general, the best genetic fund abroad, a sharp weakening of control over the environment for the sake of current economic interests, etc.

      As a justification for the absence of any active innovation and industrial policy with the start of economic transformations, interested politicians and experts usually refer to the lack of investment resources. But this reason is secondary. The main thing lies in the unsatisfactory structure of motivations at enterprises, in the orientation of the behavior of management in economic structures and employees of the relevant state bodies. Table 4.4 shows that there was a serious decrease in 1990—1993 in the share and volume of depreciation deductions, which, as is known, is the most important source of investment in fixed assets. The table also shows how little economic influence the item of labor costs has on the interests of entrepreneurs and workers in the real sector. If the share of labor costs in total costs is 11—13%, and 2/3 of the total costs are material factors, then the creative components of motivations, which are concentrated in the labor potential of enterprises, objectively cannot be properly developed.

      The situation in many branches of industry, which in Soviet times reached indicators comparable to the best world ones in terms of technological level and scientific intensity, is very sad. Here is just one of the testimonies (published in 2002) concerning the domestic aviation industry. “Russian aviation has been in a severe crisis for more than a decade. To understand the depth of this crisis, suffice it to say that until 1991 we produced more than 80 long-haul aircraft per year, and in the last five to seven years – two or three, production has decreased by thirty to forty times. And if in 1990 the USSR controlled more than 25% of the civil aviation equipment market, i.e. every fourth aircraft in the world was produced in our country, then since the mid-1990s our share is practically zero. For many years now, the world’s largest aircraft manufacturers have not only not taken us into account, but simply not mentioned us in their marketing studies.”36

      The Russian market economy, which did not yet have training in complex market bindings, easily succumbed to new attractive trends in the global financial and economic space, including those related to the separation of financial turnover into an independent business sector, isolated from the real economy, where the dynamism and profitability of operations seemed to be the highest. Under the influence of this circumstance, the formation and development of banks, one of the decisive components of a normal market economy, in Russia, the path of participation in speculative operations rather than the provision of investment and other services to the real sector has taken the path of participation in speculative operations. Most of them limited themselves to performing the functions of financial offices. Overall, the Russian financial system (as well as the finances of many other countries) has become subordinate to the external monetary and financial system based on the US dollar. In the domestic circulation of several countries, the dollar has not just captured individual bridgeheads, but has gained strategic dominance. In Russia, on the eve of 1998, the dollar supply accounted for about 68% of the national monetary base37.

      In his introduction to the publication of an expert report on the problems of building the institutional foundations of the market economy, the President of the World Bank, James D. Wolfensohn, has shown that countries with market transformation programs need to be creative, namely to “choose only those institutions that work and reject those that do not.” Countries, he continues, “must have the resolve to do so to abandon unsuccessful experiments in a timely manner.”38

      As already noted, one of the main reasons for the insufficient effectiveness of market reforms is the poor understanding by most of the people of the ultimate goals of the reforms, and this stems from the lack of a publicly presented and consistent strategy for the country’s socio-economic development in the long term. During the reform period, the Russian government did not make the necessary efforts to create and maintain a feedback mechanism between the announced programs, their effectiveness in implementation and the perception of transformations by the people. At the same time, it is only with such feedback that it is possible to adjust the content of policies and reforms in a timely and accurate manner, while maintaining the interest of the entire society in them.

      Although this principle of regulating influences on social processes has long been known from the theory of governance, in the Russian political elite such productions began to appear too late, and even then, mainly on the part of the opposition. For example, in January 2003, a group of State Duma deputies addressed the President of Russia with the following statement: “In our opinion, the main drawback of all legislative activity is that that bills are proposed for consideration by the State Duma, which, in the opinion of the government, build only a scheme of market relations, but there are no bills aimed at the active participation of the entire population of the country in these relations.”39

      Analyzing Reform to Influence Future Policies

      The above set of assessments of the period of economic transformations in Russia after 1991 to the present day, in which critical motives predominate, should not be perceived by the reader as a denial of the very need for serious economic and political transformations in the country using all the advantages and opportunities of market relations and the entrepreneurial factor. By focusing on mistakes and miscalculations, we only overcome their silence (often unselfish) and would like to to promote the establishment of the practice of managing reforms according to their socio-economic results, extending to society (people) as a whole.

      The management of reforms and transformations according to the criterion of achieved socio-economic results should help to overcome the influence of ideological extremes on economic policy. The deification of the ideals of Western-style market liberalism with boundless self-flagellation of the Russian past, and pride in the spirit of belief in one’s own uniqueness or in the immensity of Russia’s resources can also be dangerous.

      We need to accustom ourselves to listening to such assessments, even if not very pleasant, but close to the truth, such as the one that Eric Brunat, European Executive Director of the Russian-European Center for Economic Policy, and Vice President of the University of Savoie (France), made in 2002. “Despite its potential, Russia,” he argues, “is still a country with low labor productivity and high transaction costs.”40 These are indeed fundamental problems for the transformation of the Russian economy, and it is impossible to solve them without addressing the study of all human experience and trends in the world economy.

      It is impossible not to agree with the following statement of Academician Oleg T. Bogomolov: “The economy cannot be healthy and efficient if consumer prices, the cost of purchasing housing is steadily approaching and even compared with the level of Western countries, and wages, due to the standards set by the state and the monopoly position of employers, sometimes lag behind by dozens of times. As in the former Soviet Union, the wages of most workers in Russia remain unacceptably low, not only in comparison with other countries with a comparable level of development, but also in relation to the achieved labor productivity. In terms of labor productivity, Russia lags the United States by the factor of 5—6, and in terms of average wages by the factor of 15—20.”41

      After more than a decade of reformist actions in Russian government circles, the initial neglect of the range of problems related to the impact of transformations on the rate and quality of economic growth has been overcome, thanks God. In his address to the Russian parliament on May 16, 2003, President Putin put forward the task of doubling

36

Ekspert. 2002. No. 16. P. 28.

37

Abdulgamidov N., Gubanov S. Double Standards of Unipolar Globalization // Ekonomist. 2002. No. 12. P. 22.

38

World Development Report 2002. Building Institutions for Markets. Moscow: Ves Mir Publ., 2002. P. IV.

39

The People Will Be Saved by Deeds, Not Wishes. Open Letter of the State Duma Deputies to President Putin // Sovetskaya Rossiya. 2003. 25 January.

40

Ekspert. 2002. No. 16. P. 52.

41

Bogomolov O. What voters hope for // Rossiyskaya Federatsia segodnya. 2004. No. 7. P. 3.