Vladimir Kvint: Russia Looks to 2020

Vladimir KvintAfter the disintegration of the Soviet Union and its disappearance from the political map of the world, the Russian central planning system was abolished. It was an inevitable and positive result of 70 years of brutal dictatorship. However, the complete destruction of a planning system was one of many mistakes made during the transition from a centralized system to a free market economy. Until 2008, the Russian government did not have a long-term plan or vision. Learning from the Soviet experience, other countries like France, Italy and Germany have used planning systems in their national policies with varying levels of success. Planning systems have also been developed in several emerging market countries. At the beginning of the 1990s, when I worked at Arthur Andersen, I participated in the analysis of Malaysia’s 2020 strategic plan. Seventeen years later, a program with the same horizon is being developed in Russia. Here is my take on it.

The fact that Russian leaders have returned to the development of a national strategy is a positive step. Ministries and departments of the Russian government have outlined strategic perspectives on their respective industries 12 years into the future. The Ministry of Economic Development compiled all of these perspectives into a 165-page document, the title of which translates roughly to “Concept 2020.”

This document has several serious flaws which substantially diminish its value. First of all, it does not include any evaluation of resources, which is a required element of any strategy and long-term program. As a result, the Concept is more of a declaration of intent, filled with good slogans, but lacking a foundation in terms of natural, energy, and labor resources, capital and technology. It is reminiscent of Nikita Khrushchev’s program, which declared that by 1980, the Soviet Union would surpass the United States and the economic base of Communism would be established, which was of course just propaganda.

The second major flaw of the Concept is a poor methodology. In this document, forecasts, analyses, goals, objectives, and priorities are all presented without order and correlation to one another. Different parts of the Concept contradict each other. This is especially visible in the section that deals with regions. It fails to take into account the major disparities between disparate sub-national units and to address how national and industrial priorities will be implemented in the 86 republics/regions of Russia, which have major disparities in economic development. It is important to point out that the overwhelming majority of Russian regions are bankrupt or survive only on subsidies from the federal government.

The third major weakness of the Concept 2020 is a very typical problem of economic documents—economic determinism. The Concept does not include any objectives related to social cohesiveness of Russian society or the promotion of tolerance. This is especially shortsighted, due to the fact that Russian society is experiencing a rise in nationalism, and ethnic and religious conflict. The continuation of this trend will substantially decrease the attractiveness of Russia for foreign investors. It will also likely be another source of the unfeasibility of the Concept. Obviously, sociologists, demographers, political science and lawyers did not participate in the development of this Concept, which was a mistake.

The projected growth rate of the Russian economy is not even consistent throughout the document. Forecasts of the growth rate of the productivity of labor presented in the Concept range from 2.4 to 5 percent by 2020. However, in different parts of the document, this growth rate is only 6.7 to 7.3 percent annually. Simple calculations show that with this annual growth rate, it is impossible to reach the projected indicators by 2020. At the same time, in another section of the Concept, a 10 percent decrease in population is anticipated. So these numbers not only contradict each other, but illustrate how unrealistic the vision of this document is.

The same can be said for environmental protection. The statistics in this section of the concept require an annual replacement of old equipment by approximately 40 percent. This is impossible to do in Russia, where pollution is one of the major problems not only for the environment but for the quality of life of the population. This is already leading to major nation-wide health problems.

The Concept speaks extensively about changing the economic development of Russia from natural resources oriented economic growth to high tech and innovation led development. In order to make this a reality, the Russian government has to at least triple or quadruple investment in science and education this year alone. Students that begin their academic activity in these fields in 2008, will graduate by the 2014, at which point they will need at least three years of work experience in high tech and innovative companies. By the monumental year 2017—100 years after Lenin’s socialist revolution—there will only be three years left to complete a technological revolution. However, the Concept gives little to no attention to governmental investment in science and education and none to the Russian Academy of Science or fundamental science in general.

The most declarative part of the document is the section devoted to demographic policy. In this portion of the Concept, increases in life expectancy and the population growth rate are projected, despite the general trend of population decline that has occurred over the last 17 years. Currently life expectancy in Russia is 14.4 years less than in the United States. According to this indicator, Russia is ranked 133rd in the world. The majority of men do not even reach the “pension age.” How this reversal will be achieved is totally unclear.

Some of the statistics presented are laughable. For example, the Concept projects consumer prices in 2015 to increase by only 4.5 percent, and by only 3 percent in the year 2020. In 2007, the Russian government was unable to anticipate 2008 consumer prices and it claims to be able to do so over a span of more than a decade!

On several occasions, the concept uses the wrong indicators. For example, in terms of extraction of oil per capita, it cites Russia as being ahead of the US by a factor of 3. The number is correct, but the indicator in general is misleading. The United States has a very different strategy. Unlike the Russian oil-export based economy, much of US domestic oil reserves are preserved for environmental and strategic purposes. So far, any attempt by the presidential administration to expand drilling domestically has been rejected by the US Congress. At the same time, the Concept totally ignores the production of bio-ethanol in Russia, the substantial increase of which is a global trend.

In some cases, such as in its technological projections, the forecasts and statistics of the concept are too conservative. For example, by 2020, the Concept predicts that Russia will account for 10 percent of the global high tech market in only 4 to 6 industries. At the same time, forecasts related to production of civilian aircrafts are too rosy. By the year 2020, it anticipates that Russia will account for 15 percent of the global market, which is absolutely unrealistic. The same goes for the ship building industry, which is projected to increase by a factor of 4 by 2020. Furthermore, the section of the concept related to cooperation with the United States totally ignores collaboration in science and technology, which could benefit both countries, but especially Russia.

Finally, it appears as if the Concept was developed in a vacuum, without anticipating developments abroad. According to this Concept, Russia will surge ahead of the rest of the world, while all other countries of the global marketplace stagnate at their present levels of development.

Despite the fact that the Concept 2020 focuses extensively on the image of Russia abroad, its authors failed to realize how poorly such an unrealistic document would be received by the international community. In the end, this concept is basically a detailed list of good intentions, without references to available resources and a serious strategic analysis of their feasibility. The people who developed this concept were not appropriately qualified for a task of such national strategic importance.

 

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Dr. Vladimir Kvint is the president of the International Academy of Emerging Markets and author, most recently, of The Global Emerging Market: Strategic Management and Economics.

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