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CIAO DATE: 4/00
International Affairs:
A Russian Journal
Perspectives of Development of Russian Industry
By A. Kokoshin
The world economy is undergoing today some most important structural changes, and those things which are referred to as the "global economy" are being formalized:
At this point, the role of Russia in all these processes is unfortunately, extremely insignificant. Russia today is faced with a real threat to be pushed to the backstage of the world's social economic development for decades. And we should bear in mind that the country possesses an enormous potential for growth not only owing to its vast natural resources, oil and gas, but also owing to its very high level of education, science, and culture, and all those things which shape today a very tangible economic category — the human capital.
Taking into account the world tendencies of structural transformations, the geopolitical, national, and historic peculiarities of Russia and its resources and spiritual potential, the main goal of our social economic development should be the consecutive movement towards the Russian variant of the new informational society with the multisectoral market economy.
The strategy of Russia's development should have a long-term character and should be based on agreement in the pohtical and intellectual ehte and the business circles. Being oriented in the future towards the construction a modem market economy in line with the conditions of global competition, it should correspond to the national customs and traditions of Russia. We in the Otechestvo (Fatherland) believe that in 20-25 years Russia will be able to achieve the level of the most developed countries in a series of main indicators of economic, social, and technical development.
In the nearest decade, it is necessary to overcome the profound economic and social deformations; to stop the disintegration of the scientific and technical, industrial, labor, and spiritual potential; and to prevent Russia's sliding down to the category of underdeveloped countries supplying only raw materials, power, and cheap labor to modem industrial countries. It will require a lot of effort to ensure the rehabilitation of the country's economy, the training of qualified personnel, the activation of scientific developments, the levation of the environmental safety, and the strengthening of the countryıs defense capability not by going back to the mechanism of directive economy, but by means of deepening the market reforms, the development of competitive relations, and the creation of adequate forms of state regulation. Tlie peculiarities of the upcoming decade predetermined the specifics of the strategic goals, among which the most substantial ones are the following:
The strategic goals of the development of the society and the state, as well as of the national economy, can be reached only with rather high GDP growth rates, including the growth rates of the industrial and agricultural production.
We do not need "simply high growth rates", for we do not need "production for the sake of production." The growth rates should be the result of the achievement of specific and important for country's population landmarks of well-being and the successful solution of really important issues of the structural and technological modernization of the country.
Russia's positive future should be based only on the advancing development of the country's industry, which determines, on the one hand, the level of the investment activity and of the production's technological renewal and, on the other hand, the population's dynamics in the field of consumption and its structure. Only the home industry and construction can ensure a substantial elevation of the quality of life and create the conditions for changing the living conditions in a positive way, by means of a massive construction of affordable housing; further, but more effective, automobilization; and an advancing development of the transport infrastructure
That is why it is necessary to stimulate the economic growth of the Russian industry. In the current situation, the most energetic efforts of the state should be aimed at pulling the real sector out of depression and stopping the destruction of the infrrastructure, the ageing of technological capacities, and the wasting of the priceless "human capital" accumulated throughout decades. Without the economic growth in the real sector, there is no hope to ensure a decent life for people, there are no prospects for Russia's development. Currently, there is an opportunity to exit the crisis in a "break-through" manner, to restore the production cooperation, to ensure the high rates of the economic growth successful solution of really important issues of the structural and technological modernization of the country.
The economic growth in the nearest years can be based on a series of positive prerequisites, which were shaped in Russia's economy during the recent years.
The first prerequisite would be the unused production capacities. This is the so-called "natural" capital, i.e. buildings, facilities, machinery, and mechanisms which were put into reserve in the conditions of the economic crisis, hi case the payable demand dynamics require a fall load of this capacities, then their effective engagement in the economic turnover could become an important resource for the economic growth, and, to a certain extent, it would be a "free" resource.
The second important prerequisite for the economic growth is the availability of a substantial "human capital" in Russia. The high level of education among the population and the high level of science and culture distmguish in a decisive manner our great power from the developing countries. Today, it is extremely important to create such conditions which would allow qualified workers and engineers to return to the real sector of economy.
At the same time, the potential of the preserved resources are not eternal. Any procrastination in the development and implementation of an adequate socio-economic pohcy will inevitably deduct from the capacity to ensure a positive economic development at low cost guaranteed by these resources. It is necessary to implement, as a minimum, five packages of measures which would ensure the economic growth. Each of these individual five packages are more or less known to a certain extent. However, we beheve that only taken together as a product of the synergy of actions, they will be able to provide the necessary impetus.
Among these five packages are the following:
First — it is necessary to simplify the tax system and reduce to a certain extent the level of taxation. This measure will allow not only to stimulate the growth, but also will lead to the drawing of a considerable portion of the country's economy out of the "shadow," thus, the expanding the taxable base. No reduction of the in-flows to the budget and funds should occur, since the reduction of the norm of taxation will be fullycompensated by the growth of the taxable base.
Russia cannot be oriented in the level of tax exemptions towards the industrial countries where the share of the GDP reallocated through the budgets of all levels and extrabudgetary funds comprises up to 50%. The optimal figure for Russia would be 35%. Under more rigid tax conditions, the private capital could not be effectively used in Russia's economy.
It is necessary to continue to reduce the profits tax, and, moreover, it is necessary to allow the enterprises to deduct from the profits all the documentary supported expenses related to the production and marketing of their products, including advertising.
The absolute majority of entrepreneurs, directors want to honestly pay taxes and do not want to live with the sword of Damocles in the form of administrative and criminal prosecutions suspended over their heads for failure to pay taxes. Under the current tax system, it would be very difficult to do that because of its fiscally repressive nature.
Second — it necessary to increase the consumer demaud by means of: (a) increasing the incomes of the population, mostly salaries; (b) the increase of pensions; and (c) the development of consumer crediting, especially mortgage crediting of massive affordable housing construction.
Figures testily to the fact that at the present moment there are possibilities to increase the salaries which would not have any negative inflationary consequence's, but would stimulate the end demand. The incomes of the economy under the current prices were increased during the past year by more than 2.8 times. Salaries were increased during the same period only by 1.5 times. We believe that the increase in the salaries for budgetary worker (physicians, teachers) should be incorporated ah'eady in the budget for 2000. It is necessary to increase the pensions.
The increase of salaries at enterprises should be ensured through the reduction of the amount of allocations to all the extra-budgetary funds to the level of 25% from the taxable base. This is the level which would allow the entrepreneurs and heads of enterprises, according to the conducted surveys, to raise the "official salaries."
According to our calculations, under this scenario the total amount of allocations, including the allocations to the pension fund, would augment considerably, since the real salary fund would go out the "shadow" and, thus, the basis for all these allocations would be expanded. We are not speaking of a general increase of incomes. If we simply increase the incomes, then tomorrow we will get nothing but an increased inflation. We are suggesting to apply a channel-based approach to the increase of incomes, and if we manage to find the channels of income increase in those directions where we have sufficient commodity supply, we will win. And it is for these very reasons that the system of consumer crediting exists.
Third — the customs and tariff pohcy stimulating the import of machinery and equipment, spare parts, materials for the establishment of production inside the country, the creation of jobs, the protection of the home producer in the production of the end product on the internal market and the stimulation of his penetration to the external markets. It is necessary to achieve an active usage of the customs instruments
not only for the fiscal purposes, which is happening at this point, but also for the protectionist and regulatory purposes, which, undoubtedly, will be favorable for Russia's economy and will encourage the industrial and agricultural growth.
Fourth — the state should encourage the banks to provide "cheap credits" to enterprises for the replenishment of current assets and investments. Credits today are expensive because they are burdened by high risks. In order to reduce the price of credits, the authorities of all levels should take a portion of the credit risks, and,besides that, it would be possible to reduce for these purposes the level of commercial banks' compulsory earmarking and to reduce the profits tax on the amount of funds placed in the real sector of the economy. In order to ensure investments, it is necessary to use the temporarily unused financial resources of the Bank of Russia.
Fifthly — the solution of key issues in the field of non-payments in Russia's economy. Since the state turned out to be the main source of non-payments, for it does not effectuate settlements with many suppliers of goods and services, especially in the sphere of state defense order, it is necessary to ensure the adoption of special normative acts. Such acts would determine for the period of 6-7 years the procedures for the repayment of such debts, thus, increasing the definiteness and predictability of the enterprises' financial standing necessary for them, for their part, their creditors, and state fiscal bodies. It is necessary to have a strategy of the state regulation of the real sector of economy. For these purposes, it is necessary to do the following:
to stimulate the creation of powerful Russian corporations which would be oriented towards the new state-of-the-art technologies, which would be paying due attention to the innovative activities, and which would be capable of competing with large foreign companies; to restore the banking sector of the economy and to re-orient the commercial banks towards the crediting of the real sector of economy;
to conduct an active policy of foreign investment attraction by applying a special regime of tax and customs benefits for the estabhshment of production enterprises creating in Russia new jobs;
to ensure the transparency of development and adoption of economic decisions, as well as of the allocation of state orders and credits and their clear-cut procedural finalization;
to pay special attention to the oil and gas industry and to estabhsh a flexible tax regulation in this sphere, especially, applicably to the geological exploration; and to support the development and the implementation of major national programs in such spheres as: aviation, missile and space equipment, electronics, nuclear physics and nuclear safety, informatics, new materials and technologies, transport engineering, and many others.
The task for the nearest future would be to help all the real sector enterprises capable of producing products of effective demand to conduct the adaptation to the market requirements by the joint efforts of the state and the home entrepreneurs.
Our strategic goal is the dynamic and sustainable economic growth on the basis of the expansion of the internal market and augmentation of the aggregate effective demand, as well as a considerable elevation of the effectiveness of governance on all the levels of economy.
The main problems of the fuel and energy complex, as well as of other brandies of the real sector of Russia's economy, are the financial destabilization caused by the enourmous increase of non-payments for fuel and energy on the part of consumers; the acute deficiency of investments and the wrapping up of the innovative activities; the sharp reduction of the volumes of geological exploration works, the deterioration of the state of the raw materials base of the energy resources, the high energy-output ratio of the Russian products; and the high depreciation of the assets of the fuel and energy complex.
In order to draw the energy sector out of the crisis, it is necessary to immediately adjust the whole economic policy of the state, for the fuel and energy complex being only a segment of the real sector of economy, although the most important one, functions in such an economic environment in which all other branches of the national economy operate. In order to ensure a reliable power supply to the country, it is necessary to ensure the effective functioning of the whole economy and of all the consumers of fuel and energy, the development of energy-efficient processes, and the adoption of effective measures for the environmental protection.