Leadership in Russia Is Facing the Risk of Stagnation

Russian leadership outside the country is a step higher in quality than inside. In Russia, leadership is facing the risk of stagnation these days, and the profit-driven motivation of senior government officials has become all too obvious.

On October 21-25, 2012 Valdai Club experts will tackle scenarios for Russia’s economic development at the Club’s 9th annual summit. Leading economists and analysts who will participate in expert discussions answered the most vital questions on Russian economy in the global framework in a series of interviews for the Valdai Club website. Special attention was paid to the global and internal risks, leadership, investment issues and Russia’s competitive advantages. 

Valdaiclub.com interview with Alexander Rahr, senior Advisor Russia for Wintershall Holding, сonsultant for the President of the German-Russian Chamber of Foreign Commerce.

Which foreign and domestic risks do you see for today’s Russia?

The number one domestic risk is stagnation, as a result of efforts to maintain the status quo, avoiding a revival of the Soviet past as well as forward-looking modernization. The current approach to keep things the way they are now has lots of sympathizers, but I don’t think this is the right way to go.

The biggest global risk is the inability to control world order during its ongoing transition from a post-bipolar (or, with some reservations, unipolar) arrangement to multi-polarity. No one has a clear idea at this point of just how this new multi-polar world order can be built, with five or even ten major players pursuing their own often conflicting agendas.

Beyond that, Russia faces the same 21st century challenges as other countries. They include the following:

1. Resource shortages, with the available natural resources insufficient to sustain the Earth’s 9 billion population;
2. Uncontrollable immigration. This one is partly generated by the first problem, and Russia will likely find itself among the worst affected. There’s a wave of global south-to-north migration coming, and nothing can be done to stop it;
3. Environmental pollution. This is a problem no one seems willing to face up to and address, which is not surprising, given that pollution is impossible to reduce without dramatically tightening the screws on energy and industrial development programs. Most people are reluctant to go that far.
4. The creation of a multi-polar world as a process involving personalities as well as states;
5. Food safety and security, a problem many countries will face in the years ahead and one that can only be resolved through joint effort.

What is the greater of the two evils for Russia: record-high oil prices or record-low prices?

To Germany, high oil prices are the worse of the two options, of course. As for Russia, it could benefit from either scenario but only if the country’s leadership can take advantage of the opportunities opening up. But for the global economy and to countries relying on imports for their energy needs, increasing oil prices is a far worse scenario, as they will see their industrial and economic development held back as a result.

Budget priorities: saving or investing?

This is a big question facing everyone in the aftermath of the 2008-2009 crisis. Austerity is one way of going about it. Another way, just as appropriate, involves investing in the domestic economy to prevent it from slowing down or stagnating. This is a tricky problem, and the person who offers an optimum solution should be awarded a Nobel Prize for Economics for three consecutive years.

What is more important to Russia: social stability or the development of governing institutions?

This is a typically Russian question. In some other country, it wouldn’t even occur to people to put the question that way because social stability cannot be preserved unless democratic institutions are developing. But in Russia, you still have this standoff between advocates of social stability and a solid state, on the one hand, and on the other, people pushing for greater freedoms, democracy, and stronger institutions, even at the expense of the stability achieved in Russia in the past twelve years.

This question should be answered on a case by case basis, actually. It’s impossible to give a general answer that would do for any country. In the first decade of the 21st century, social stability was more important to Russia than the advancement of democratic institutions, but since the outset of the second decade, there’s been a change in priorities.

Where do you see the Russian economy’s competitive advantages for the next 10-15 years?

The main one is its huge market, which is still growing, in terms of capital and of middle-class consumer potential. Russia’s domestic market is its key asset. Combined, the domestic markets in Russia and Ukraine total more than 200 million potential consumers. This market is keen to trade with both Europe and Asia, and its potential keeps growing. I can see plenty of opportunities in areas where certain economic sectors were destroyed some fifteen years ago and have long been in decline. One other asset that can give Russia a competitive edge is its middle class, a group that will be steadily gaining in strength and confidence in the next fifty years.

How would you assess the quality of Russian leadership inside and outside the country, as well as that of global leadership in general?

Russian leadership outside the country is a step higher in quality than inside. In Russia, leadership is facing the risk of stagnation these days, and the profit-driven motivation of senior government officials has become all too obvious. The trend isn’t that apparent in the international arena, though − largely because Russia uses this platform primarily to uphold its national interests, something it did in earlier periods of its history as well, say in the 18th-19th centuries.

The world is becoming less and less manageable, and politicians of every hue and stature find it increasingly difficult to control global processes and to impose their own agendas. Globally, non-government interests are now playing a greater role, ranging from transnational corporations to international terrorist networks. This is why the world is becoming more difficult to control, and it’s next to impossible to predict future developments.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.