Russian Prime Minister Mikhail Fradkov (center) attends the session of Russian government.
Photo: ITAR-TASS
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Ministry of Economic Development and Trade Makes Headway
// German Gref no longer minds government’s direct interference into economy
The Ministry of Economic Development and Trade is ready to pass over to active industrial policy for stimulating economic growth. It is proved by the Ministry’s report on measures to boost the industrial growth, of which Kommersant obtained a copy. The most drastic measures include the creation of a committee on developing the branches of economy, direct subsidy of high-tech product export, creation of earmarked programs. The report is to regulate and arrange the principles of state interference into economy to overcome Russia’s dependency on oil export. The report is expected to become the basis for discussion in Russian White House in September 2006.
The report, prepared by the Ministry of Economic Development and Trade according to the Government’s order in August, was made ready in an exceptionally short time—one week only. Neither the Ministry, nor the Government give comments on the document. However, it must have been already discussed during the session with Mikhail Fradkov on Monday. Apparently, it will be put on the agenda of the session of governmental council on competitiveness and business on September 6. The report defines and arranges the principles of state interference for raising the competitiveness of high-tech companies and for creating research and development institutions.
The main problem to be solved by the measures offered in the report is the unstable dynamics of industrial growth and the symptoms of depression in the machine-building sector. The input of this sector into the industrial growth in the second half of 2005 made up 54 percent, while in the first half of 2006 it fell to 3.4 percent. The Ministry believes this drop cannot be explained by the strengthening of ruble only. Besides, the authors of the report suggest strengthening ruble only in full accordance with the growth of labor productivity. They state that “the structural barriers of growth” cannot be overcome by means of measures of macroeconomic influence. Hence the necessity of aimed influence of the government on developing certain sectors.
The Ministry suggests creating a governmental committee on developing the sectors of economy, which would compile, discuss, and ratify system plans for developing certain sectors. Most methods offered for influencing the sectors are not new. They include creating a state corporation of development (similar to such in South-Eastern Asia, for instance in Singapore) and the following capitalization of this corporation, active amortization policy in the sectors, creating the legal basis for private-state partnership. However, there are new methods as well. It is offered to decrease down to zero the VAT rate for high-tech products; here aviation and space machines, and sea vessels are mentioned. It is also planned to work out the mechanisms, including the legal ones, for direct subsidizing of high-tech export by the state.
Finally, the Ministry suggests reviving the idea of departmental earmarked programs which will be controlled directly by ministries, unlike federal programs carried out by all ministries together. Another important “structural barrier of growth” is corruption, according to the report. It is for the first time that anti-corruption activity in governmental programs is regarded as a factor of industrial growth. However, the Ministry does not have specific new anti-corruption initiatives, except for the “anti-corruption expertise” mentioned in the report.
On the whole, the document is practically devoid of usual bureaucratic rhetoric of Russian governmental style. The report reviews the industrial growth stimulation experience of Great Britain and Australia, discusses the state interference experience in different sectors of Poland’s industry (KUKE agency), in Israel (Yozma fund), in the U.S. (from US Eximbank to SBIC funds and DAPRA and NASA agencies), in Finland (state agencies), and the mechanisms to support innovations in Chile (fund of Chile, FONTEC technology transfer fund), Brazil (BNDES) and Mexico (Avanti program). The Ministry also discusses the experience of Guatemala.
However, the report completely ignores the experience of Norway—the country to which allude the supporters of alternative ideas for improving Russian disbalances, the Ministry of Finance among these supporters. To a certain extent, the report can be regarded as the opposition to Alexey Kudrin’s idea of “non-oil budget”. Finance Minister, in fact, suggests radically changing the macroeconomic policy, while the report of the Ministry of Economic Development and Trade is based on keeping the line of the government unchanged.
The ideas expressed in the report are not fundamentally new for Russia’s economy, except for export subsidizing and creating the committee for developing the sectors of economy (similar committees in Great Britain and Australia have similar powers, but different functions; there is almost the same committee in Iran and in Malaysia), these measures have already been mentioned in the government’s documents. The fundamental premises of the report’s authors concerning Russian innovations and R&D are questionable. The report implies that Russian applied science is competitive enough, or can become such in a very short time, after small and punctual investments. Accordingly, the Ministry says practically nothing of the possibility of technology and know-how import—although it is usually the central element in international practice of industrial politics. Meanwhile, even in raw material sectors, neither considerable growth of labor productivity, nor the development of entire sectors is possible without technology transfer. The example is the project for developing Stokmanovskoe deposit by Gazprom, which is impossible without buying the technologies for extraction and liquefaction of gas from a western partner.
Moreover, the innovation report of the Ministry has many ideas contradicting to the requirement to limit state expenses, which Finance Minister demands. It includes departmental earmarked programs, crediting purchases of other states, further entry of Russia into leasing business, export grants for small- and medium-scale business. References to Britain’s experience are not very appropriate. Mikhail Fradkov’s cabinet will not be the Tory cabinet of 1979. It works in fundamentally different political conditions. The plan to regulate and arrange state interference into economy, based on sector influence, reflects the general line of the government on rejecting the role of the state as “judge above the fight”. The Ministry is now firmly and consistently considering the government as a “playing coach” in business. This is why the report shall receive complete understanding in the White House.
Dmitry Butrin
All the Article in Russian as of Sep. 01, 2006
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