VICTOR BIRYUKOV and the Editorial Board of the magazine “Our Power: Deeds and Persons” held the 3rd Roundtable in the series ”Diversification of Russia’s economy” at the Moscow House of Economist on April 13, 2010.


The keynote address was delivered by YEVGENY GONTMAKHER, board member of the Institute of Contemporary Development and deputy director of the Institute of World Economy and International Relations of the Russian Academy of Sciences. In addition to expert participants the meeting was attended by representatives of mass media, the Russian Plekhanov Academy of Economics and the State University - Higher School of Economics. The complete record of the discussion was published on VICTOR BIRYUKOV’s website. 
In the keynote address titled “Diversification from the standpoint of the labor market” YEVGENY GONTMAKHER (PhD, Economics) highlighted some key negative aspects of employment in this country: 
– it is unknown what exactly do those 26 million people from the 75 million of the economically active population: they are “invisible” since “the situation with statistics is a complete disaster”; 
– the sectoral structure of employment is deformed by hypertrophied defense and heavy industries inherited from Soviet times; 
– population mobility is low due to the underdevelopment of massive housing construction, the embryonic rental market and the absence of a national job databank;
– the rise in unemployment benefits became “a strong disincentive to look for job opportunities,” because in some regions this money is quite enough to make a living;
– the country lacks systems of continuous and extended education while job retraining centers are often a sham. The movement towards universal higher education makes no sense because of extremely low educational standards. 
Among the most promising sectors Prof. GONTMAKHER named “agro-industrial production predominantly of the suburban type,” recreation and tourism. 
Full Member of the Russian Academy of Sciences, Director of the Institute of Market Problems, NIKOLAI PETRAKOV (PhD, Economics) focused on the housing problem that prevents free migration of labor force within the country. Construction cost of Moscow flats is only one third of their market price. These unjustified high prices place the mortgage mechanism into a deadlock situation even irrespective of interest rate. As a result, housing has become a means of idle cash investment. New houses are massively empty performing an absolutely unnatural function. 
Member of the State Duma Committee for Economic Policy and Entrepreneurship VALERY ZUBOV (PhD, Economics) argued with the keynote speaker about the relatively good prospects of farming (“a Russian will never leave (the city) for countryside”) and tourism (“for that… we must change our attitude to toilets”). The main obstacle on the way to labor market diversification is that from 83 Russian regions only 12 are economically self-sufficient while others are depressive. ZUBOV noted that extractive industries also need diversification: “If labor productivity in Gazprom is ten times lower than in Statoil, the former organization needs some changes in order to boost its efficiency.” In the manufacturing industries, great efforts are effectively taken to preserve the backwardness of the national motor industry. For example, 70 percent of participants in old-for-new car programs prefer to take Lada 2105 or Lada 2107, the long-obsolete models produced by AvtoVAZ. 
GENNADY GORBUNOV, chairman of the Federation Council Committee on agriculture, food policy and fishery, reminded that Russia’s own food supplies do not exceed 50 or 60 percent of the total consumption and called for a comprehensive support to rural population. Moreover, since globally the number of starving people approaches 1.5 billion, Russia meeting its own food demand could start exporting food, foreign experts say. However, the financing of the federal target program “Social development of the countryside up to 2012” was reduced from 19 billion rubles in 2008 to 8 billion rubles in 2009 and 2010. GORBUNOV also criticized television for the glorification of gangsters and policemen and the total neglect of such professions as turners, carpenters, mechanics, or dairymaids: “We must promote people’s positive attitude to labor.” 
VICTOR BIRYUKOV, member of the Central Council of the Russian Agrarian Movement and deputy of the State Assembly of the Republic of Mordovia, noted that the modern agro-industrial complex is a highly productive sector and the eventually freed labor force needs new jobs: “When we came with new technologies [to reconstruct worn out and outdated enterprises] we increased labor productivity ten-fold. Simultaneously, we cut personnel also ten-fold and freed people for new work.” BIRYUKOV drew attention of the participants to the fact that “unlike the majority of other countries we have a unique competitive advantage – a lot of fertile lands, which remain completely unused.” Hence, Russia has a chance to occupy the niche of food supplies to a considerable part of humanity. BIRYUKOV also shared the experience of advanced agro-industrial enterprises in personnel training: “When we come to a certain region we conclude agreements with local vocational schools and colleges and they start training people for us.” 
YURI KRUPNOV, chairman of the Development Movement and chairman of the supervisory board of the Institute for demography, migration and regional development, acknowledged that the Russian society as a matter of fact creates nothing new and actually uses the groundwork laid in Soviet times exploiting it to the maximum possible extent. It is possible to exist this way for another five or even fifty years, but in any case it is a road to nowhere: “no economy and no technology could possibly solve problems of social development if we do not make social policy our top priority.” Today in Russia we have “a profoundly peripheral and parasitical capitalism:” “science and power, society and business, all find themselves in a very difficult situation, in a serious deadlock.” According to KRUPNOV, the main problem is that we still lack a theory of social development of this country, which meanwhile continues to deteriorate. Thus, “late in the Soviet period, the USSR had 20 times more people working in the machine-tool industry, i.e. manufacturing means of production, than Russia today.” 
Director of the Institute of Social and Economic Studies of Population of the Russian Academy of Sciences, Prof. ALEXEY SHEVYAKOV (PhD, Economics) called a mistake to narrow the gap between world and domestic prices of fuel. In his opinion, in this case Russia’s natural competitive advantage of possessing huge mineral wealth will be neutralized by its natural competitive disadvantage, the fact that almost half of its territory lies in the permafrost zone. In our climate conditions, to sell fuel produced in this country for world prices means to rule out comfortable housing and competitive industry. Moreover, agriculture in this country develops mostly in the areas of risk farming. Our entire policy is based on false myths and paradigms. The main myth is that an economic growth could solve all problems. It is a completely erroneous assumption provided the distribution system remains unchanged. Actually, our income tax scale is not flat. It is regressive. In reality, the biggest incomes are taxable not at 13%, but rather at 9%, 6% and even lower, whereas the payroll tax rate reaches 40% (income tax plus uniform social tax). Corruption also helps to ransack the country’s wealth: what is the use of modernization for business when a competitive advantage could be gained through a bribe?
Director of the Shirshov Institute of Oceanology, Full Member of the Russian Academy of Sciences, ROBERT NIGMATULIN (PhD, Physics and Mathematics) also insisted on a reform of the distribution system in this country because in reality the main items of expenditure (massive housing construction, health care, agro-industrial complex, defense and education) are heavily inadequate: “If the United States and the whole Europe have the same consolidated budget of 30 percent of GDP, they would degrade in the same way.” It is necessary to introduce progressive taxation requiring higher earners to pay income tax at the rate of 50 percent as they do it abroad. And if the richest citizens try to hide their incomes from taxation, the state will have to bring them to order. Corruption is another vice that has spread not only to officials but also to educational establishments, hospitals and even to academic circles. The state is so corrupted that it will never cope with corruption. The only effective means to fight corruption today could be “civil society, howsoever trivial it might appear.” 
Professor of the Bauman State Moscow Technical University VICTOR ILYIN (PhD, Philosophy) concluded that “in terms of economics the problem of diversification cannot be solved.” Criticizing members of the Federation Council who attended the meeting for inadequate countering monopolistic trends in economy he referred to the law “On the basis of state regulation of trade activities in the Russian Federation.” The law that entered into force on February 1, 2010 introduced new restrictions on the conduct of trade activities by businesses limiting their maximum market share to 25%-30%. ILYIN called to create a new legal framework that would allow businesses “to prove their superiority in fair struggle without making conflicts and without monopolistic practices.” Sectorally, emphasis should be placed on light and food industries. He noted that with the current disproportionately high prices of fuel the agro-industrial complex is “doomed to deteriorate.”
Aide to the president of the Gorbachev Foundation BORIS SLAVIN (PhD, Philosophy) has focused on the problem of poverty. Five years ago the then president, Vladimir Putin, promised to make fighting poverty a priority. It is now out of the limelight, but the social polarization of the society deepened especially during the global crisis: “It is impossible to build a normal society when there is a 17-fold difference in incomes between Russia's 10 percent of richest and poorest people.” Though we still lack a harmonious theory of Russia’s social development, we must concentrate efforts on the problem of poverty and social polarization. It is the main problem of our country and we must try “to solve it all together.” Sorting out and solving this problem, Russia will be able to solve its other problems. 
Summing up the results of the discussion, Prof. GONTMAKHER said the main problem for Russia is the crisis of the state “spreading to all spheres.” Even during the years of oil prosperity and even according to official statistics data, social differentiation continued to grow because the state failed to carry out its critical function of income redistribution.

Roundtable on April 13, 2010

The event was traditionally hosted by ALEXANDER NOVIKOV, member of the board of the Free Economic Society of Russia and editor-in-chief of magazine “Our Power: Deeds and Persons.” 
The 1st Roundtable in the series “Diversification of Russia’s Economy” was held on December 9, 2009. The keynote address was delivered by Academician Victor IVANTER, director of the Institute of National Economic Forecasts at the Russian Academy of Sciences (see the complete record).
The 2nd Roundtable in the series “Diversification of Russia’s Economy” was held on February 10, 2010. The keynote address was delivered by Ruslan GRINBERG, corresponding member of the Russian Academy of Sciences and director of the Institute of Economics of the Russian Academy of Sciences (see the complete record).