The state should adopt some kind of development plans for the Russian Federation as a whole, and linking this to developments in the republics and regions. The problem here is that foreign investment is only worthwhile where there are short term profits to be made and Russia needs a long term strategy of continuous accumulation.
World’s leading experts in economics and world politics gathered in St. Petersburg to find new ways for Russia’s economic development. David Lane, Academician, Academy of Social Sciences; Emeritus Fellow, Emmanuel College, Cambridge, shared his views on these matters with Valdai Discussion Club .
The problem facing Russia has to do with what kinds of institutions are going to channel resources into positive economic and also social development. Just talking generally about the importance of institutions is insufficient. We need also to consider how investment is to be coordinated to promote industrial, commercial, service and social development.
Many countries have adopted different ways of doing this. To date most of the post-socialist countries have failed to create an effective form of capitalism. If you look at economic development in other countries, one finds that there are specific institutions which carry out and coordinate the development process. To ensure development, a country must have a renewed and continuous process of the accumulation of capital, and investment must be directed at effective sectors of the economy. For instance, in Germany, the banks as well as the state, played a very important role in determining the forms of development that took place. In the United Kingdom, in particular, the stock exchange is seen to play this role. In countries in the early stage of the development of capitalism, increasingly the state plays a significant role in setting strategic plans and in channeling and financing development. Also, it provides its own institutions and capital and influences other institutions, such as banks, to fulfill developmental plans.
To deal with peripheral regions that have lost their traditional industries, one needs some kind of regional plan. So my own prognosis is to recognize that market forces will have limited effectiveness under the conditions Russia now faces. If you look at the early development of successful capitalist countries, all had significant state support and they protected their own industries. South Korea, for example, followed this pattern and the recent evolution of China is another good example. The role of state banks and of state control over banks is an important factor here in channeling assets towards long-term, rather than immediately profitable, investment.
So what I would suggest is that the state adopts some kind of development plans for the Russian Federation as a whole, and linking this to developments in the republics and regions. There is a lot of local production that could be encouraged. Industrial development is not going to happen on its own: choosing ‘winners’ is not easy and mistakes will be made. But earlier France did this successfully and China has had a remarkable success with state led development. Moreover, relying on ‘the market’ tends to focus on investment, and many look to foreign investment. The problem here is that foreign investment is only worthwhile where there are short term profits to be made and Russia needs a long term strategy of continuous accumulation.
One has to take into account the social factor and have a definite policy for employment of the population. Curiously, employment and unemployment did not receive very much attention at this conference. The training of labour and the provision of work should have a central role in planning economic development. Otherwise, there will be significant social and political problems: for example, Greece and Spain currently have registered unemployment rates of over 35 per cent and many of the unemployed are university graduates. Even a country like the UK has significant regional unemployment problems following deindustrialization. The lack of well-paying jobs surely has something to do with the large number of young people we see demonstrating in the streets. Mobility of labour is secured in the European Union, but is the way out for countries of high unemployment for young people to emigrate? This seems to be one of the consequences of a low pay economy in Russia. But currently, Russia has one of the largest differentials between the very rich and the poor and the average wage is only around 700 dollars per month. I’d suggest more progressive tax rates. Even the UK Conservative government introduced a 50 per cent income tax rate – Russia is far behind with a flat 13 per cent.
To take labour problems seriously, I’d like to see the setting up of a Ministry or State Committee for the Advancement of Employment and Job Creation. This would give the provision of jobs and well-paying jobs a prominent place in economic policy.
