Economics Panel: Russia in the world

Contrasting views about the direction of the Russian economy and its future relations with trading partners emerged at the EBRD Business Forum on Monday 21 May in an Economics Panel discussion entitled “Russia in the world”.

Russia’s rapid growth owes much to oil and gas exports and in recent years the Russian state has played an increasingly important part in this sector. Although panellists agreed on the need for the economy to diversify and involve more private capital, they were at odds over the extent to which this is happening in reality.

“The oil revenue that we receive has already spilled over to other sectors,” said Arkady Dvorkovich, Head of Russia’s Presidential Experts Directorate. “We are open to capital flows, to economic integration. We are taking advantage of opportunities for domestic growth and investing abroad.”

Mr Dvorkovich recognised that the role of the state in the Russian economy was “huge”, but added: “Russia is going through a difficult and long transition from one society to another, one economy to another. It’s hard to expect quick results … (but) it is a country that can grow based on private initiative.”

Sergei Guriev, head of the New Economic School in Moscow, agreed that sectors beyond oil and gas had enjoyed growth in Russia in parallel with the energy boom. In particular, he highlighted progress in manufacturing and services, which has been facilitated by developments in the financial sector. “Enterprises no longer see credit as a constraint and it’s less of a constraint for households,” he said. “This explains why growth remains high even though oil output and prices are not growing. This would not have been predicted 10 years ago.”

Economist and keen Russia watcher Lord Robert Skidelsky, however, expressed scepticism about the Russian government’s commitment to reducing the country’s dependence on hydrocarbons and rolling back state involvement. “Natural resource economies give elites too many incentives for short-term enrichment and power play,” he said. “The last thing Russia’s rulers want is well-specified property rights.”

Lord Skidelsky warned that the “oil curse” increased Russia’s exposure to trade shocks, harmed non-energy exports and reduced political leaders’ accountability to citizens. “The clock is ticking away on Russia’s oil bonanza,” he said. “Russia desperately needs a new start, a new generation of public-spirited leaders who don’t regard the patrimony as a source of plunder.”

Lord Skidelsky also said there had been a lack of public investment in strengthening law and order, the health system and education. Mr Guriev shared his concerns about underinvestment in the last two areas: “The Russian government is doing a lot, but there is much more to be done. This is an urgent issue to be considered.”

Debate about Russia’s trade relations centred on its bid to join the World Trade Organisation and its commercial ties with the European Union, which, as Mr Dvorkovich acknowledged, have experienced “frictions” in recent months.

Richard Baldwin, a professor at the Graduate Institute of International Studies in Geneva, said the WTO would benefit from Russian membership. “There will be massive changes to the world trading system in the coming decades. The EU and the US are no longer the only powers in world trade,” he said, noting the rising influence of China, India and Brazil. “Russia is missing from this list of emerging markets.”

Turning to Europe, Klaus Regling, the European Commission’s Director General for Economic and Financial Affairs, emphasised the already robust nature of trade ties between the EU and Russia and expressed a desire to see them strengthened. “Russia and the EU cooperate in many ways, some of which are unknown to the public,” he told the panel. “The EU is deeply interested in promoting prosperity in our largest neighbour. Our interests are complementary.”

Questions from the floor saw the debate shift back to Russia’s so-called “oil curse”. Mr Guriev noted that media freedom tended to decline when countries with lower levels of constitutional development discovered large oil reserves. “Media freedom has declined in Russia in recent years,” he added. “Media freedom helps to reduce corruption. Hopefully media freedom will go up.”

Finally, in response to a question about environmental protection, Mr Dvorkovich pledged tough action on the part of the Russian government. “We take this very seriously and we believe we have to put substantial administrative resources into solving the problem, around the world,” he said. “It’s not purely a Russian problem.”