A Change of Gestalt for the Russian Economy: How to See Trees Behind the Forest, and Regions Behind the Centre
Valdai Discussion Club Conference Hall, Bolshaya Tatarskaya 42, Moscow, Russia
List of speakers

“Russia is not a country. It is a federation that consists of more than 80 regions. We cannot consider it kind of unity, since these regions are very different ” – this provocative point marked the Valdai Club discussion on January 28, dedicated to regional imbalances in the Russian economy. Apurva Sanghi, the leading economist of the World Bank in Russia, who put forward this idea, spoke about the uneven development of various Russian regions. These include rich and poor ones, poorly and densely populated. At the same time, he said that conclusions about the potential of a particular region are often incorrect. Why?

“If you look, for example, at Moscow, St. Petersburg and Tatarstan, the poverty level there is 10%, and in the Komi Republic it is 35%,” Sanghi said. He is the main author of the recent World Bank report on the economy of Russia. To determine and measure the Russian regional heterogeneity, a group of the World Bank experts created an index that includes the following indicators: infant mortality, education, and poverty levels. This data not only makes it possible to assess the imbalances between the regions and identify those that have the greatest potential for the investors, but can also become the basis for the policy of the federal centre, helping make right decisions in domestic policy.

According to Sanghi, researchers invalidated five popular myths about the Russian regions in the course of their work.

The first one concerns the comparison of Russia with Canada and Australia by the criterion of vast territory and low population density. This comparison is incorrect because in Russia, in contrast to these two countries, the majority of the population lives not on the coastline, but closer to the centre, and two thirds of Russians live in five big cities. It is believed that Russia can adapt any existing solutions, but this country is unique: its landmass covers 11% of the entire Earth surface, while the population is only 1.8% of that of the Earth. Some regions are warm, others are extremely cold, some are very poor, while others succeed. “All these factors make Russia a special country,” the speaker said, “it moves along a clear path, and its decisions must be unique.”

Despite the strong urbanization, it is still not big enough and does not reach other countries’ levels: Moscow and St. Petersburg are the only Russian cities with a population of over 1.8 million, while there are five such cities in Japan and eight in Brazil. Therefore, Russia should rebuild its urban system and not “throw out of the pack” sparsely populated cities that do not have time to adapt to the current situation. The idea that Russia is a purely urban country is the second myth, Sanghi said.

The third and fourth myths concern the diversity of the Russian regions and the paradoxical dynamics of their development. It is believed that the inequality between them is growing, the rich regions continue to grow rich, and the poor – to grow poor. However, everything is exactly the opposite: the poor regions are growing faster than the rich ones, and they all move more quickly in the mainstream of convergence than divergence, that is, the distance between them is reduced. In addition, contrary to common sense, poor people in Russia mainly live in the rich regions, including Moscow and St. Petersburg. Therefore, according to the expert, it is necessary that the rich regions work for the good of the poor.

The same opinion reflects the fifth myth, which means a wrong assessment of the economic potential of those and others. Therefore, some seemingly “dead-end” cities like Murmansk will succeed, for example, at the expense of ports and foreign markets, and cities like Krasnodar, living at the expense of agriculture, have no potential. Yaroslav Lissovolik, Programme director of the Valdai Discussion Club and moderator of the discussion, objected regarding the fact that “favouritism” in relation to specific regions can only exacerbate the existing imbalances. The World Bank expert clarified that in order to prevent this, a stable infrastructure would be needed that would allow the regions to support each other and provide free movement of people and resources.

The point of debunking all of these myths is not so much theoretical as it is practical. Sanghi pointed to a number of vectors along which the policy of the federal government can move for a more balanced regional development. According to him, the regions should ensure greater fiscal stability, get more authority to take into account their own characteristics and interests. Finally, the centre should define more clearly its policy with respect to the regions and invest in them more reasonably – that is, spend money not just to support them, but to create internal prerequisites for development. At the same time, as the speaker stressed, “the responsibility lies not only on the federal centre, but also on the regions themselves. They must compete for investors, for the quality of life, and not for benefits, use federal programs to create an efficient economy and tighten their market discipline. ”

Prosperity of the Russian regions and high living standards for people living far from the centre are only possible if the domestic policy of the country, like a Gestalt-picture, switches from a figure – major cities and global projects – to the background. Sanghi, however, presented another metaphor: “I work in Russia and, according to a Russian saying, sometimes we don’t see the forest behind the trees. But here everything is the opposite: we don’t see the trees behind the forest”. Yaroslav Lissovolik, in turn, noted that since Russia consists of regions, there is nothing more relevant for its economy.