Summary:Is Russia finally rising after the painful failures of the 1990s? How fast and, more importantly, how sustainable will the rise be?
This was the central issue of the Russia Rising panel featuring several distinguished experts on Russian business, economy and politics. The participants included William Browder,Lois Dubin, Michael Intriligator and Deborah A. Palmieri.
The participants were unified in their positive assessment of the recent trends in Russian politics and economics. They were also unanimous in ascribing a large share of Russian success to Vladimir Putin′s leadership and policies. However, the panel′s presentations and subsequent discussion also underscored that sustainability of Russian development will ultimately be determined by the Russian leader′s capacity to overcome several acute institutional problems jeopardizing Russia′s successful transition to market economy.
What are the positive trends in Russian development? As Intriligator noted, due to a combination of Putin′s capable administration, the effects of domestic currency devaluation and high international oil prices, Russian GDP registered impressive gains in 1999-2001, growing at 9% in 2000. This is an impressive departure from the record of the rest of the 1990s, when Russian GDP fell by half.
Browder emphasized the positive aspects of new Russian leadership clamping down on oligarchs and paying more attention to the protection of the rights of minority shareholders. He used the example of law prohibiting dilutive share issuance — a widespread practice in Russian business until recently — to illustrate the commitment of the Russian government towards a larger degree of transparency of the domestic market.
Dubin provided concrete examples demonstrating the revival of domestic industries in the wake of 1998 financial crisis. Palmieri emphasized Putin′s commitment to integration into the world economy and the stabilizing effect his leadership brought to society. She also praised the new tax code, executed in accord with the highest international standards.
Yet, the amount of unresolved issues in Russian transition is formidable. As Intriligator pointed out, economic growth is tapering off. Russia′s budgetary surplus remains completely dependent on fluctuations in world economic prices. Russia remains near the bottom of the capital access index due to the opacity of its economy and underdevelopment of market institutions. Moscow and several other cities remain the oases of prosperity while a huge number of regions and a significant share of the population live beneath the officially defined poverty line.
Browder drew attention to the absence of the normal legal system. Dubin lamented the absence of a mechanism for dispute resolution, and the non-enforceability of property rights, making investments in the country′s economy too risky. Palmieri addressed historical and cultural factors acting as obstacles to Russia′s successful transition to a market economy.
Intriligator nicely summarized the main themes of the conference when he pointed out that the formula for success of the Russian economy consisted of three major ingredients: developed market institutions, economic competition and the proper role of the Russian government. Putin′s recent reforms are changing the role of the Russian government, which is a shift in the right direction. However, little has been done so far to achieve breakthrough in the other two spheres. Russian leaders, Russian businesses and society at large are at the beginning of the long road to sustainable growth.
