Interview of A.V.Sharonov, deputy Minister for Economic Development and Trade of the Russian Federation, by the magazine Expert: First You Pledge, Then You Hedge, 24 October 2005. 

2005-10-25

Source: Expert RA

First You Pledge, Then You Hedge

Bio- and nanotechnology, space, infrastructure development, IT: these are the top priorities of Russia's future industrial policy. Its implementation, however, requires a steady hand on the tiller, according to Andrei Sharonov, first deputy minister for economic development and trade of the RF

Andrei Vinkov, Dmitry Grishankov

Expert, N 40, 24.10.2005, p.64-66

The Expert magazine and the Expert RA rating agency continue the discussion about the industrial policy and boosting economic growth in Russia (see the interview of Victor Khristenko, head of the Industry and Energy Ministry, "I Do Not Deal in Doomsday Scenarios" in N 34 and that of Boris Titov, chairman of Business Russia, "The Left-Wing Illness" in N 35). Both the official and the businessman criticize the Russian government. The former in particular makes no bones about it and points the finger at the centre of responsibility. There, see? The Economic Development and Trade Ministry: the mastermind behind the economic reforms. That's the one to hold to account for the stagnation of the economic growth in this country. Well, this being the case, it might be a good idea to get it straight from the horse's mouth. Expert's questions are fielded by Andrei Sharonov, first deputy minister for economic development and trade.

MEDT made a pledge

Does this country have a state-sponsored industrial policy? And if there is, how effective is it, if at all?

I don't know why, but it is the custom in this country to take industrial policy to mean the state starting to invest, and engage in commercial activities, in a certain sector it chooses to pick. I don't like this way of thinking.

Another extreme, which goes as far as to reject out of hand the concept of "industrial policy", representing a geeky-liberal outlook, would have the state take no responsibility at all for assigning sectoral priorities. Because the state will always perform worse that private capital. It alleges that in selecting this or that development scenario, private capital is more circumspect: after all, it is its own money that is at stake whereas the state's involvement in a sector is often riddled with corruption. Like the state would opt for this or that set of priorities under somebody's influence, as a result of somebody's lobbying. In my heart, I agree with their arguments. But for all that, I believe that civil servants do have to get involved with such things as identifying the priorities for the country's development and drumming up support for them. De facto we have already got involved with that.

Here, for instance, I have recently chanced to see a survey of one of the regions. It turned out that the bulk of the budget funds was earmarked there for development of agriculture, which contributes a negative added value to the gross regional product, with peanuts allocated for research and innovation. And this despite the fact that the latter account for seven per cent of the GRP growth. In other words, the region does have an industrial policy of sorts, though an inadequate one.

Your last example seems to prove that this country does not in fact have a development system or priorities. Why do you find it so difficult to write it up as a kind of straightforward programme?

There must certainly be a single policy document, a medium-term programme, to put forward in a nutshell the government's mission, aims and functions. We do use the medium-term programme to identify, more or less, certain priorities that this country must have. These are very much in the public eye. This is, for example, biotechnology. This is nanotechnology. Information technology. Space. Infrastructure development.

So certain priorities do seem to have been identified, but on the other hand, they have not had been supported with specific measures.

So what's this catch-22? Maybe it would be a good idea to take half of your ministry and task them with identifying and eliminating the bottlenecks or what have you?

In point of fact, our ministry is not self-sufficient. It is after all a part of the government. There are also sectoral ministries; it is those that are supposed to work under the programme approved. Incidentally, it is those again that are supposed to draw up and adjust the so-called sectoral strategies.

Nevertheless, as I have already mentioned, our draft medium-term programme does identify priorities for the country's economic development. But I can't say that it has affected the budget structure in any way. As soon as we start discussing the budget, it's the same old story again: there must be something for everybody. How can you not give to the farmers - you must. How can you not give for this - you've got to. And at the end of the day, our strategic priorities are again left by the wayside. This is the question of a steady hand on the political tiller: Once you pledge, don't hedge.

The Government is not in a position to set in motion the flywheel of the budgetary process all by itself?

The Government drafts the budget estimates and submits them to the Duma. Those do undergo certain amendments in the Duma, naturally enough, but only minor ones. So the problem, in my opinion, does lie within the government. It begins with the fact that the government has been active for a year and a half already following the presidential election, but it has not yet adopted its programme. In other words, it has failed to publicly provide an answer to the question: What is its raison d'tre? In Russia the government now has a finger in every pie.

How to come through on your pledge

But besides the budget, there are after all other sources for financing the priority sectors. The stabilization fund, for example...

The stabilization fund is also a part of the budget. It is not the stabilization fund's function to finance internal investment programmes. By way of compromise in the direction you refer to, we can set aside a portion that may be spent on priority projects (investment fund).

Do you think it's right that the money of Russia's stabilization fund is put in treasury papers of other states?

Absolutely.

Why not use the money at the same interest to finance some sustainable projects in Russia?

We will make all the other money in this country worthless right away. This is inflation money. What is money? This is a kind of assets to support turnover of other assets. As a result of a jump in the oil prices, we have suddenly had a surge in our cash flow. But there has been no increase in the products and services available in this country. The money supports the same quantity of assets. What does it mean? This means that now you can buy less assets using a unit of money. Inflation. And we don't want it.

Let's go back to your idea about it being after all possible to spend a part of the state's funds on certain projects. What can we talk about here?

I'll start with what cannot be financed using the state investment fund. We cannot and should not finance high-performance business projects. Let business interests take care of them.

We shouldn't finance loss-making projects either, such as building hospitals, schools, etc. Their financing must provided using budgetary allocations.

The projects that may qualify for the investment fund money must be expensive, heavy and unwieldy for private business. These must be projects that can be implemented using, among other thing, partnership arrangements between private business and the state. This can be, for example, a seaport approach channel, moorage wall, a runway, or something else that can provide an incentive for a large number of private investments. In other words, those that can produce a synergetic effect.

The draft statute on the investment fund is now in the government waiting for approval.

Sluggish management of the Russia corporation

Have you been taking heat from sectoral players lobbying for the fund money?

Yes, certainly.

And has it been backed with real projects?

So far we haven't seen any real projects. It is true, though, that there is as yet no investment fund statute in place. That is why no properly finalized projects have surfaced yet.

And how must they be finalized?

There must be secured an expert appraisal of the business project, to be produced by a solid financial establishment, with risk assessment. There must be an opinion of the sectoral authority.

How long do you think it'll take to write up the procedure properly?

I've no idea.

And how much money, man power, resources or what not do you need to put such statutes in place faster?

I've no idea. The thing is that here it is the human factor that is of pivotal importance: how much support can be marshalled to push such laws through. Generally speaking, they can be put in place quickly enough. Take, for example, our administrative reform effort: we have set ourselves the task, to be completed by the end of the following year, to take three of the procedures most sought-after by citizens and business, go over them with a fine-tooth comb, write them up in a regulation and make sure they start delivering.

We have, after all, succeeded in putting in place, for example, a procedure to register legal entities. It may not be all it's cracked up to be, but it's panned out all right. There has now been a drastic reduction in the number of complaints regarding this type of activity. There is a five-day deadline in place; there is a one-stop principle - it all works as advertised. In some towns the situation is a little worse; in others, better, but it does deliver.

We want to achieve the same performance by the end of 2006 as regards issue of passports. The procedure will be as follows. There will be an exhaustive list of six documents that a citizen will have to hand over to the policeman manning the desk. There will be an exact date set for the passport to become available for pick-up at the same desk. There will be deadlines, and sanctions for failure to meet them. We plan to set up similar procedures for registration of motor vehicles and property titles.

But these are procedures of rather social character. I can right away name a procedure that puts a brake on the development of half the economy - land allocation. And if we put in place regulations for this process, the price for real estate will drop by a factor of one and a half or two, and it will be possible to kick-start the construction sector in the country...

I agree. Land allocation is a gigantic cash cow for the regional authorities. To get rid of it, you need a steady hand on the political tiller, you need an independent court of law, you need clear-cut regulations. Because as yet there's nowhere you can take your case against the mayor. Because even if the courts were independent, this would be of little use. After all, if the procedure as it set down is vague, it will be impossible to prove in a court of law that your rights have been infringed. And so far there is no provision to specify that the deadline for granting such and such permit is one week, for instance. And you can be thrown out on your ear time and time again, but it will be next to impossible to prove it in a court of law, even it is the most honest and unbiased court.

Introduction of such procedures must be guided with a steady hand on the tiller in the government, the ministry and the country alike, because they are very painful, involve ?turf wars?, a loss of sources of revenue, etc. Unfortunately, we do not have a consensus on such procedures within the government.

There's no strike force?

I don't like the term "strike force" whatever it applies to. You do not actually need a strike force, you just have to stick to the procedure. Your brief, for example, is to go here and here; and mine is to go there and there; we may hate each other's guts and would rather be seen dead than working in harness together, but we have to follow the guidelines and competently, in good faith perform our functions.

So what do you think is the cause of our government's underperformance?

In my opinion, it is the lack of a programme of action. Any decent public corporation, however small, which is worth its salt, always declares to its shareholders its mission, its values, and the rules of corporate governance. We, too, have a corporation numbering one hundred and forty-two million people, who pay their taxes and must know about the mission of their corporation, its objectives, tasks, values, the cost of the activities of its management and the latter's performance.

The government is for all intents and purposes the very same managerial cadres who are hired by the president representing the shareholders/electorate, to put in place the very same programmes that the government has been unable to say the final word on for a year and a half now, how it will go about implementing those programmes.