On the Stages of Social and Economic Development
In its evolution towards the existing political and economic system, Russia has solved the tasks set by the two stages of profound social and economic transformations.
The first stage, which embraced the 1990s, was aimed at the dismantling of the old socialist system which had suffered the economic, political and values failure. By the end of 1991, Russia turned out to be a nation lacking institutes which could provide stable functioning of all spheres of its political, economic, social and cultural life. The economic institutes were destroyed, which was reflected in large-scale market misbalances (economic recession, empty stores, imminent threat of hunger and cold). But still more dangerous was the fact that the actual, and later formal, dissolution of the USSR brought about the crash of the state power institutes. Going on with this situation threatened the very existence of Russia as a sovereign state. Therefore the first and foremost objective was to restore the elementary institutes without which no nation can function. Those were the state power institutes and elementary economic mechanisms including the basic one, the property relations.
That stage went through a series of crises that were painfully endured by the whole society but it enabled to form the basic institutes of the market economy and democracy, to ensure the recovery of both macroeconomic and political stability.
By the end of the 1990s the following tasks were solved: the main political institutes had been created, with its key elements being the adoption of the RF Constitution and the structuring of the relations within the federation; the macroeconomic stabilization had been achieved, which provided the nation with a relatively stable currency and the balanced budget; mass privatization had been completed, creating the basis for the economy?s transition towards market. Creation and development of the private property institute was a key factor laying the foundation of the subsequent rapid economic growth.
The second stage generally refers to the 1999-2004 period. It was the time when the economy was recovering and growing, hence the Government was able to start solving strategic tasks. Redoubling the efforts to provide macro economical and political stability, the RF President and Government focused on establishing the economic institutes characteristic of the modern market and democratic society, while being oriented more precisely on the peculiarities of Russia. The Civil, Tax, Budget, Labour and Land Codes were adopted or finalized, the work on the new pension and bankruptcy legislation was completed, efforts were taken to de-bureaucratize (deregulate) the economy, to improve the relations among budgets of different levels (the federal budget, regions and local self-government), to adopt the currency legislation, to reform the natural monopolies, etc. An important factor of ensuring the financial stability was adoption of the law regulating creation and functioning of the Stabilization Fund.
At the same time, due to certain reasons, a number of important aspects of economic and social reforms did not exhibit any progress. During all the stages, the formation of the market-oriented legislation was marred by imperfect application because of the absence of an efficient system of state regulation.
Analyzing the course of reforms, we can see a serious backing in the form of the legal basis which has established the new principles of functioning of the respective economic spheres. However, efforts in creating the required legal basis were combined with the inefficient law enforcement practice in the spheres undergoing reforms. As a result, reforms often would not go beyond developing and adopting federal laws and government decrees. Their implementation is not the subject of analysis and control on the part of the government.
Therefore, it is not the strategic development of the nation that needs revision but rather the reform implementation format which must envisage clear statement of the tasks to be solved in the course of implementation and establish levels of responsibility for their completion. Such format stipulates that each specific institutional reform shall be formulated as a range of actions having clearly defined deadlines for preparation and adoption of legal acts to support the federal laws and RF government decrees, and in some cases, having even measurable targets to be achieved by ministries and agencies in the spheres undergoing reforms. That is to say, the development and implementation of the institutional reforms needs a full-fledged project approach.
On Medium-Term Program
Let me briefly mention the background of this program. In July, basing on the law On State Forecasting and on Programs for Social and Economic Development of the Russian Federation, the Government made a decision to develop a medium-term program. In November, the draft program was reviewed at the Task Force meeting chaired by M.Ye.Fradkov. On 22 December, the Draft Program was approved as a whole and adopted in general at the Government meeting. Currently, the Program is being amended and, according to the Government resolution, the final version of the document will be submitted by the Ministry of Economic Development and Commerce by 1 July, taking into account the provisions of the President?s Message to the Federal Assembly of the Russian Federation.
So, some words about the document itself.
The general Government activities vector drawn in the program refers to the reduction of the government interference in competitive business processes, to the formation of efficient market institutes and to the creation of a strict enforcement system.
Those, however, are the aspects directly related to business. At present, other problems come to the fore as well, which must be solved immediately as they constitute the spheres that will determine Russia's competitiveness in the long run. First of all, I mean the quality of the public administration in the widest sense and the industries related to human competitiveness, improvement of the human capital.
As regard the specific features of the program, they include the following.
First. Apart from the institutional reforms, this is the first program that formulates specific mechanisms of the economic development, including individual sector development strategies as well as the measures aimed at:
development of small business;
innovation system;
infrastructure and housing sector.
Second. The program is aimed at specific targets and includes indicators which would characterize how close these are achieved. In our view, it is the fundamental point not only allowing to estimate the public authorities efficiency but putting our plans on a new level of execution.
Third. The measures included in the program will enable to create conditions for drastic reduction, to single-digit figures, of the poverty levels.
Fourth. Implementation of the present program will expand the ranks of the middle class and improve their opportunities.
Fifth. The incomes of the budget sphere employees will approach those of the people employed in the market sector.
The main goal of the program is to form conditions for improving the nation's wellbeing and reduce poverty on the basis of a dynamic and steady economic growth.
By our estimates, the implementation of the actions envisaged in the program will create the necessary prerequisites for the formation of a broad middle class in Russia by 2015. Its share in the population may rise to approximately 50-60% from the current 20%.
The share of the poor in our country will shrink from 18% to 10% in 2010 and to 5% in 2015. We forecast a significant convergence between the living standards of the urban and rural population, with reduction of the poverty rates in the countryside.
Real earnings and labor productivity throughout the economy will grow 2.2 times by 2015.
Implementation of the Government's medium-term program will lay the foundation for achieving the average per capita GDP (by PPP) equal to the upper limit of the range characteristic of the moderately developed European countries (about $18,000 per capita).
Key Sections of the Program
To provide global competitiveness, we must, first of all, promote progressive structural shifts in the Russian economy. Hence, the program pays special attention to the reform of the sectors related to the human potential development, primarily, education and health care. This is the obvious pressing demand of the post-industrial era.
The competitive edge of a modern highly developed nation, the "prime mover" of its economic growth, is connected with the human being and the factors which directly affect human vital activity. Those include the condition of the spheres of education and health care. Those are the key sectors for providing a high and steady economic growth over the medium- and long-range horizons
In the education system it is necessary to introduce a new organizational and economic mechanisms that would enhance efficient use of the available resources and promote raising additional funds. The quality of education can only be improved on the basis of renovation of its structure, contents and teaching technologies, raising its innovation potential.
As for the health care reform, it is suggested to clearly define the state guarantees of providing free medical care, to create conditions for easy access to effective medication, to raise the efficiency of the compulsory health care insurance and promote the development of voluntary insurance.
The program also includes several new blocks which are most important from the point of view of the country's social and economic progress.
In particular, for the first time ever, the program contains the section devoted to reduction of the poverty rate. It is worthwhile noting that the measures to overcome poverty are also contained in sections on education, health care, housing availability, regional policy.
The said section focuses on the measures to reform the welfare system. Specifically, it deals with the necessity to reorient the welfare agencies towards work with poorer people. It is envisaged to improve the efficiency of programs for providing aid to the poor on the basis of their maximum adaptation to local conditions. Approaches to reduction of poverty rate will be differentiated according to territories:
· for moderately developed regions: programs for social integration of able-bodied poor people;
· for depressive regions: retraining and qualification upgrading, promotion of small business and other measures enhancing economic activity of able-bodied poor people.
Another new section of the program deals with the development of the civil society. Being of key significance for the development of the democratic system, the institutes of civil society have fundamental importance for the formation of market institutes which would win the citizens-confidence. Nowadays, a whole range of the state regulation spheres lack institutes ensuring effective representation of public interests. .
The block devoted to improving the efficiency of the public administration is rather specific about the system of measures aimed at improving the state authorities? efficiency and creating the system of public administration corresponding to the needs of the society. The following key measures may be noted:
further steps in abolishing redundant functions of the state authorities;
regulation of control and surveillance functions and reforming the control and surveillance bodies;
establishment of standards (compulsory requirements) for the quality, terms and procedure of providing public services;
introduction of administrative regulations, i.e. compulsory requirements for the procedures and administration processes ensuring execution of the public authorities-powers;
legislative regulation of the procedure of disclosing and closing information on the activities of the public authorities;
The section on the private-public partnership outlines the spheres of interaction between the state and business. More active utilization of the mechanisms of the private-public partnership will be stimulated by the development of legislation on concession, expanding the practice of granting budget guarantees on non-commercial risks, which should provide the inflow of private capital to the development of the social and production infrastructure, construction and maintenance of roads, electrical grids, ports, pipelines, utilities.
It is envisaged to expand the scope of programs aimed at improving the competitiveness of domestic enterprises, namely to stimulate export of finished goods, develop venture funding, promote technology commercialization, raise the level of industrial design. The success of such programs will be ensured due to introduction of the norm of compulsory inclusion of industry business associations in solving the problems of their preparation, co-funding and evaluation.
Another section is devoted to the development of small business. Currently the proportion of small business in the GDP is nearly half that of the GDP of the developed economies. The main measures in this sphere must be focused on the support of small entrepreneurship start-ups, on the formation of favorable lending conditions for small business, promoting internal demand for the products of small businesses, providing them with easier access to commercial property.
In the sphere of foreign economic relations, the main policy target is creation of proper conditions for Russian enterprises to be involved in international production processes. This will be provided due to lifting barriers in foreign economic relations of Russian companies, encouraging export and investment activities, system-defined participation in developing the rules of the international trade.
This will create the prerequisites for industry diversification and expanding the ways the Russian business will participate in the international labor division and cooperation, for stimulating direct foreign investments, for increasing the range of trade partners.
Important innovations relate to the regional policy. It is necessary to refuse from mechanical leveling of the territories? social and economical development and to pass over to stimulating the utilization of the economic growth internal resources. Measures must be taken to monitor the fundamental limitations and realization of reforms, to promote dissemination of best practice in the reform implementation. Inter-budget transfers must be redirected for stimulating transformation on the sub-federal level, requirements to the administration quality must be raised, formation and development of regional economic clusters must be promoted.
Entrepreneurial activity in "non-raw material" industries must be encouraged by the development of financial markets, of the banking and insurance sectors, by the development of the land and property markets, by changes in the nature management mechanisms, by the labor market development.
Implementation of a range of institutional changes supported by the government's actions within the framework of individual infrastructure and high-technology industries will positively affect the economic structure and the rate of economic growth even in the medium-term outlook.
An important innovation of the presented program is the section devoted to the elimination of structural limitations of economic growth with the help of the so-called development strategies.
Prospects of Economic Growth
The existing economic structure and economic institute system would not allow the economy to achieve the growth rates above 5-6% per year.
The share of industries that are capable of growth rates higher than 7% (food, chemistry, timber, construction materials, part of machine-building and high-technology, as well as construction and communication) account to less than one-third of the industrial manufacturing.
The industries dominating the manufacturing sector (fuel and energy complex, metallurgy, agri-business) will not able to grow at the rates above 5%.
Until the proportion of the former industries becomes dominating, the total economic growth rates will not exceed 7%. According to estimates and forecasts, the required structural changes in the manufacturing cannot occur before 2011.
In order to form such a model it is necessary to work out a long-term policy for enhancing competitiveness and effectiveness, which will embrace:
· strategic approach to the development of a number of key sectors;
· using dotted tax and customs-related measures for regulating the development of certain business spheres (improvement of the depreciation policy, oil production and research and development taxation);
· regional development policy based on the creation of the territory production clusters;
· formation of a new advanced institutional environment in such controversial sectors as forestry (adoption of the forestry code), navy and fishery..
The Government medium-term program is oriented on an innovation development scenario that is characterized by active economy diversification and structural shifts in favor of processing industries, science intensive services and knowledge economy. This scenario stipulates a dramatic rise in the efficiency of state administration institutes and rapid creation of new "development institutes". The share of the government investments is increasing to at least 5% of the GDP, which is comparable with the figures in the countries solving the tasks of the economy modernization.
The innovation scenario is based on the following three development strategy groups:
1. Development strategies of the traditional economy sectors or strategies of improving the competitiveness of the sectors which constitute the basis of economic growth and life supporting infrastructure. This is a kind of "safety cushion". Its contribution to the GDP growth will be 1.1 to 1.3% per year. This includes:
the oil and gas complex development strategy;
the RF transport development strategy till 2010;
the agribusiness and fishery strategy.
2. Development strategies of innovation sectors, or the New Economy Development Strategies, are the strategies which will determine transition from the raw material-oriented to the innovation-oriented approach and formation of new movers of the economic growth.
the RF strategy in the sphere of science and innovation development;
the strategy of development and use of ICT in the Russian Federation;
the strategy of the aircraft industry development;
the strategy of the aerospace industry development;
the strategy of the defense industry development for the period till 2015.
3. Strategy of the human capital development:
strategy of the housing market formation, development of residential construction and utilities in the Russian Federation for the period 2005 - 2010;
strategy of the education system improvement;
strategy of the health care and social and labor sphere referring to health care..
