Press-service  :  References  :  Sponsorship opportunities

Shorthand Report of Academy Members’ A. D. Nekipelov and V. V. Ivanter Press-Conference. RIA Novosti PressCenter July 18, 2004

Moderator. Good afternoon, dear colleagues! We are starting the pressconference. Our today’s meeting will be about the opening of a new educational institution, Lomonosov Moscow State University Moscow School of Economics. Founding this educational institution is an attempt to combine national scientific and educational potentials with the latest international educational technologies. It is also in line with the Russian President’s wishes with regard to improving the educational system in the country he recently announced in his annual Message to the Federal Assembly. The main goal of MSU Moscow School of Economics is to train economists, who have a sound knowledge of Russian economy, skills in dealing with all major sections of and current trends in economics, and who are capable of working effectively in federal and regional governmental bodies, large corporations, research, and higher education under conditions of tough competition. Students of the new institution will get access to studying subjects as Banking and Credits, Economic Security, Risk Management and Insurance, Political Science, Civil Law, History and Sociology.

I apologize for such a long introduction. Our distinguished guests will speak about their “brainchild” in more detail. It is an honor for me to introduce our guests, the main participants of the press-conference: Alexander Dmitrievich Nekipelov, the Moscow School of Economics Director, Vice-President of the Russian Academy of Sciences, Academy Member, and Victor Victorovich Ivanter, Director of RAS Institute of Economic Forecasting, Member of the Russian Academy of Sciences, Professor of Macroeconomic Regulation and Planning Department at the MSU Department of Economics, Head of the Department of National Economy at Moscow Institute of Physics and Technology, State University of Management, Plekhanov Moscow Economic University. Dear Alexander Dmitrievich, the floor is yours.

Nekipelov Alexander Dmitrievich

Good afternoon, dear friends! Thank you for your interest in this event. First of all, I would like to apologize to you as Victor Antonovich Sadovnichii, whose participation in the pressconference has been announced, could not come. He had to leave for Bryansk today. However, he is the main hero of the occasion. It was the idea of Moscow State University Rector to establish Moscow School of Economics.

To easier to understand how we came up with this idea I shall tell you how it all happened. Last February after one of the meetings of RAS Presidium (Victor Antonovich is its member) he stopped by to share his thoughts about a new school and suggested I should head it. For me it was a great surprise. Not that this turn of events was altogether beyond my plans, the chance just did not come to my mind. At first, I must admit, I was skeptical about the idea. But the more I thought about the offer, the more interesting it seemed to be. Finally, in the middle of March the MSU academic council made a decision about setting up the new school.

Recently, much has been said about the importance of integrating research and education. There have been many suggestions of this kind in the Russian Academy of Sciences too. And, frankly speaking, some of them make me anxious. A straight-forward implementation of the idea, that is selection of several top universities in the country and joining several top research institutions may lead us to nothing else but to the implementation of the American model. This would jeopardize Russian education as well as the Russian science.

Victor Antonovich’s idea was based on the desire to show an alternative variant of how academic and educational potentials can be integrated. Moscow School of Economics is an example of this variant. The main instructors of our School are the best researchers of the Russian Academy of Sciences. Moreover, we plan to have the students conduct research in economics institutions of the Russian Academy of Sciences. At the same time, we shall, naturally, rely on the huge potential of Moscow State University; collaborate very actively with leading foreign research and educational organizations and individual scholars. Many researchers have given their consent to lecture in the new School.

I should also mention that I was pleasantly surprised that not a single scholar declined the offer. Among those who were the first to agree were Michael Intriligator (USA), a well-known American economist, James Galbraith, Texas University Professor, the son of the famous economist John K. Galbraith. By the way, James K. Galbraith heads “Economists Allied for Arms Reduction”, a very influential organization in the United States, more than half of the American Nobel Prize winners in the field of Economics are among its members. Grzegorz Kolodko, Professor from Poland, gave his consent to read a course at our School. He is not only a famous researcher, but also a double Vice-President and Finance Minister of the Polish Republic. Jaque Sapir (France), a well-known scholar and recognized authority in economic theory and transition economy theory. Pekka Sutela (Finland), a Finnish researcher, who heads one of the Central Bank institutions, is one of leading experts on Russia in Finland, will read a course in our School. We are conducting preliminary negotiations about establishing institutionalized relations. For example, James K. Galbraith proposed to develop ties with a Texas University college. Jaque Sapir proposed to collaborate with the School of Social Sciences in France. We also plan to conduct negotiations with the London School of Economics. The list is open. I would like to emphasize that now we are speaking about prospects and preliminary plans. At this moment, we are preparing for admissions. This year we shall matriculate one group of not more than 25 students. The bet will be placed on a truly elite education. I stress that in this case we are speaking about the quality of education and not on the origins of the student. The School is interested in having most talented people from various strata of society join it. Creating a gigantic educational establishment is not our goal. I know it may sound a little cynical, but we strive for the individual production’ of specialists. The School administration will make every effort to have a faculty of ’stars’ comprised of both Russian and foreign instructors. In the future, in five or six years, when the School starts training Bachelors and Masters, we plan to increase the number of students to four hundred. And now we, as all MSU departments begin to accept applications starting from Monday, July 21. The application process will last until July 4-5, when the School as well as other MSU departments hold entrance examinations that will last until about 20 July. The MSE applicants have to take a written examination in general economic theory and successfully stand an interview. At the interview main attention will be given to testing the applicants’ knowledge of mathematics and their level of English. The knowledge of English is especially important. The thing is that, as I said, part of the lectures and courses will be read by foreign scientists in English. Therefore, it is essential that students understand and speak English.

I may repeat that a sound background in mathematics is required. Modern economics is inconceivable without a good grasp of mathematics. Well-known experts will be reading serious advanced courses that have an important mathematical component. I will list some of the courses. Victor Meerovich Polterovich will lecture on modern mathematical methods in economics. Michael Intriligator (USA), whom I already mentioned, will read a course on optimization problems in economics. There will be a good course in econometrics read by Professor S. A. Ayvazyan, a serious expert in this field. Professor M. N. Uzyakov will lecture on economic forecasting. There will be an interesting course in mathematical statistics. As you can see, mathematics is truly indispensable. On the whole, I would like to say, and it is also reflected in my message to the visitors of the new School website, that it will not be easy but interesting to study in our School. There is no doubt that those who manage to enter and will study in our School, will have very good prospects for the future.

Moderator.

Thank you, Alexander Dmitrievich. From what you have said, we got the impression that it is going to be a truly elite, in the best sense of this word, educational institution, something like a Russian Harvard. And, by the way, dear colleagues, pay attention: the website of Moscow School of Economics has been created and you can see it on our panel. Victor Victorovich Ivanter, the floor is yours.

Ivanter Victor Victorovich

I would like to add. I think we are founding not a Russian Harvard nut an economic institution similar to the Institute of Physics and Technology. If you are familiar with how experts in the fields of rocket and missile engineering and nuclear technologies were trained, that is experts who secured a real breakthrough for the country, then you know tha 90% of them graduated from the Institute of Physics and Technology. It was unique. It was truly single-piece training based on the principle of very rigid and impartial selection. Pulling strings to enter the Institute was meaningless for one would not graduate anyway. Studying there was also unique. The students studied, in the traditional sense of the word, for two years, after which they started working in research centers in accordance with the following scheme: in the third year one day of internship in research, in the fourth year two days, in the fifth three days, and, finally, in the sixth year five days a week. I head a chair in the Institute of Physics and Technology and would like to say that we still train excellent mathematicians and physicists according to this scheme. I am certain that if we start preparing experts on a individual basis, we have a really good chance to be successful. I shall try to explain why we decided to prepare such experts at all. Recently, our officials got a considerable increase in pay. Some people may think the salary of civil servants has been raised to demotivate them from taking bribes. But you should agree that not only the poor take bribes. The pay was increased so that there is an opportunity to hire high-qualified people. However, we have to have them in order to hire them. It seems to me we shall manage to come up with a certain number of people who will be competitive in real life and capable of working in administration, management, research, education, and business.

Moderator.

Thank you, Victor Victorovich. I agree with you that our Institute of Physics and Technology is better than Harvard.

Ivanter Victor Victorovich

Especially considering that we provide experts for all institutions, Harvard as well.

Moderator.

Absolutely true.

Nekipelov Alexander Dmitrievich

Now we should not scare away people. Otherwise, we shall not matriculate 25 students.

Moderator.

It depends on how expensive education will be. If there are no objections, let us go over to questions and answers. Please, dear colleagues, your questions are welcome.

Moscow Life Daily

I have a question for Alexander Dmitrievich. Would you tell us if you are going to accept any foreign students this year? And please a few words about the admission conditions, studying, maybe even tuition fees?

Nekipelov Alexander Dmitrievich

If we have applicants with Bachelor or Master degrees received in the republics of the former Soviet Union, we shall, naturally, accept the applications and will consider the applicants as potential students. We have no quotas. Students from other countries are likewise most welcome. As to conditions, in spite of the fact that MSE is part of MSU, it does not rely on budget financial support. Therefore, students will have to pay tuition fees, which are approximately equal to those in the MSU Economic Department, around 4,800 conditional unitsper year. We understand that not everyone can afford to pay, the School administration conducted negotiations on extending credits to students who passed the interview, on favorable terms. Besides, we hope that in some cases organizations interested in high-quality specialists will pay for the students.

RIA Novosti

Is there anything like that in this country or is it going to be the first try?

Nekipelov Alexander Dmitrievich

This question can be answered differently depending on what is implied . From the organizational standpoint there is High School of Business within the framework of MSU. Its managerial and economic model fully coincides with what we are doing now. From the point of view of content the Moscow School of Economics’ most distinguishing feature is its faculty: leading professors are from the Russian Academy of Sciences. In addition, internships and research will be done in academic institutions of economic profile.

Russia Daily

So, as far as I can gather, any student will be able to cover the cost of his education by working in research institutions? Or will he have in addition to pay for working there?

Nekipelov Alexander Dmitrievich

Students will not get paid for working in research institutions because they will be working not for the institution but for themselves. Yes, they really pay for their work in the institutions but these expenses are already included in the fees. The School will pay the academic institutions for working with our students. I think it is fair.

PRIME-TASS

Is there a major difference between MSE MSU and the Higher School of Economics? And another question: are you going to assist your graduates in finding jobs or do you hope that the brand of the best university in Russia will speak for itself?

Nekipelov Alexander Dmitrievich

Yes, our School will be different from the Higher School of Economics, no doubt about that. The primary difference is that we are not going to create a gigantic educational institution. Higher School of Economics is a university. We, on the contrary, are guided by the well-known motto: ‘Small is beautiful’. I think as far as economic ideology is concerned our school will also be different. I will explain it. It is only natural that we would like to teach our students the mainstream, i.e. the most developed and popular concepts of economic theory. But we shall also teach them many things that are beyond the mainstream by finding famous foreign professors. MSE instructors see their goal in instilling their students into an adequate view of what the Russian economy is, what it has in common with the world economy, and what its specificity is. The School will not advocate or promote a single trend in economics. Conversely, we would like to have our students question everything and develop a critical approach. As far as your second question about employment is concerned. The School will not make any commitments in this regard, at least for the time being. But I am sure our students will be in great demand. I hope some organizations will send their promising employees to our School. I should tell you, among other things, we hope that our best graduates will continue their education to receive a PhD degree relying on the School’s financial support. Let us see what will come in ten years.

Moderator.

By the way, does the program take five years to complete?

Nekipelov Alexander Dmitrievich

No, this is a Master program. It is designed for two years. I would like to draw your attention to the fact that only those who have a Bachelor degree or a traditional specialist diploma may be accepted into the program.

Ivanter Victor Victorovich

I would like to speak about one of the features of studying in MSE. Everybody here probably studied at universities and might remember the system of sharing information. Universities have chairs headed by outstanding researchers, professors, and even Academy Members (if you are lucky). Then, as a rule, there are two professors who read the courses of the given chair, and the student deals mostly with assistants and a large number of the instructors. We would like our students, who are not simple students but future holders of Master degree, to have direct contact with a first-rate researcher. There can be no substitute for such a researcher. He does not speak about what has been published. He speaks about what he thinks. If we succeed in implementing this educational scheme, we will get experts, who possess knowledge that cannot be found in any book or the Internet. You can see that it is a unique education. There is Moscow State University, which trains not bad specialists. Alexander Dmitriyevich Nekipelov, a MSU Economic Department graduate, is an example.. But we shall train specialists of a completely different kind. We shall provide them with direct contact between an acting researcher and a future Master.

RIA Novosti

Does the MSU Economic Department train Bachelors or Masters now?

Nekipelov Alexander Dmitrievich

The situation in higher education varies even within the MSU. The MSU Economic Department trains both Bachelors and Masters. Moscow School of Economics, nevertheless, has its specific niche. We do not compete with the Economic Department directly. More than 300 courses are taught in the Economic Department. Speaking figuratively, the Economic Department is a symphony and our school a chamber orchestra.

Moderator.

Alexander Dmitriyevich, could you specify on what basis you are going to invite foreign professors? They will probably ask for honoraria, or will it be something different?

Nekipelov Alexander Dmitrievich

It goes without saying that foreign professors will have their travels, hotel accomodation reimbursed and get honoraria. I should say that none of the professors, who I spoke with, specified a honorarium as a prerequisite for his consent to reading his course, even though a honorarium is assumed. The interest on the part of economists is really keen. This, of course, is related to the general interest of foreign researchers for our country, firstly, and, secondly, to their interest for the activity of Moscow State University. The MSU brand creates truly amazing conditions for implementing the project of the Moscow School of Economics. So, if in these start-up conditions something goes wrong, it will be totally my fault. Moscow State University did all it could.

Moderator.

In my opinion, everything is clear about Moscow School of Economics. At least, everything has been clarified. Dear colleagues, let me wish our guests success and long-year activity in the field of education. Now I would like to conclude our meeting. Many thanks to all of you.

GDP Alone Will Not Make You Happy Authorities Need To Adjust Either Goals or Means

“Rodnaya Gazeta”, #25 (60), July 2-8, 2004: www.rodgaz.ru
A. D. Nekipelov, MSE MSU Director, Academy Member

There is an understanding that successes of the last five years are not a reason for self-complacency, but a precondition for serious thoughts about Russia’s future. The long-term problems we are facing are too global: demographic situation, poverty, drastic income differentiation, unemployment, obvious degradation in the fields of health care, education, culture, etc. There are no simple solutions to these problems. Strategic choice becomes especially important in these situations.

The political moment is very favorable for determining the long-term path of the country’s development. The President has entered his second term of office and is simply bound to ‘make history’, which means that it is the right time for serious discussions of relevant problems.

One cannot but acknowledge that the authorities started formulating aims of strategic character recently. Goals were set: to double the gross domestic product in ten years, start curbing poverty, introduce radical changes in education and health care. A policy for creating an innovative system and modernizing the economy was introduced. A ‘breakthrough strategy’ was proclaimed.

We do not always realize that the very attention to what the future image of Russia’s economy should be signifies a serious turn in the economic ideology of the authorities. Those who are convinced that the market will find the best way itself should not be concerned about these problems. The strategic choice is not a set of separate goals. One of infinite paths to the future with public preferences and available resources in mind is, actually, what we have to deal with. It is truly self-evident that the economic policy pursued should correspond to the selected development path. Otherwise, it will be not a development path, but mere proclamations.

On Goals and Means

As far as I am concerned, on the whole, the proclaimed goals to harmonize social relations and modernize the economy make me optimistic.

I have an extremely cautious (I would even say alert) attitude towards the aim of doubling GDP, and my attitude, I believe, is theoretically grounded.

If the gross domestic product were a perfect indicator of public welfare, the target of maximizing its growth rate would cause no objections. In this case, the only subject to discuss would be actual numbers. However, the thing is that GDP is a very rough approximation of ‘public happiness’. On the one hand, it does not take into account a major part of economic activity results, such as household labor, environmental consequences, etc. On the other, this monetary indicator is absolutely indifferent to its ‘physical content’. Completely different production structures, income allocation models, countries’ economic positions in the world economy may correlate with the same GDP volume. In the same way as everyone of us is by far not indifferent to what goods your income will transfer into, so society cannot be indifferent to GDP structure and allocation.

The speed, as it is common to say now, matters, but, first, we need to determine the direction in which to move. In other words, the task of maximizing the rate of GDP growth needs to be formulated with limitations, which would ensure the country’s progress along the selected path. Otherwise, the country may rapidly get to a place we would not like to be in and remain there for long. For example, to get bogged down among economies with an exaggerated fuel and raw specialization and an allocation of public wealth, horrible for any civilized country.

The discrepancy between proclaimed strategic goals and the economic policy that has been pursued up to now is particularly concerning. The only visible progress can probably be seen in Russia’s integration into the global economy. Somewhat odd statements that Russia is almost turning into a world leader in liberalization seem to be thereforesubstituted by the understanding of the game interaction of countries and total irrelevance of the ‘front running’ strategy. It should be assessed as positive that the country took a defensive stance on protecting its national interests at the negotiations on Russia’s entry into the WTO.

Unfortunately, there are still a large number of ‘birthmarks’ of primitive, I would even say, childish liberalism in approaching most important economic problems.

It is still unclear how the problem of Russian economic modernization is meant to be solved. By the way, it has recently been labeled by the less demanding term ‘industrial differentiation’. There is an impression that the bet is placed entirely on modernizing market institutions and the effect of market mechanism. However, it is the same as believing in miracles. Russia’s high-technology sector for the most part is “groggy” and non-competitive not only as regards foreign companies but also other sectors of Russia’s economy, let alone the fuel and raw sector.

The hasty liberalization of the currency regime, which does not correspond to the degree of the country’s financial system maturity and the problems it faces, can be explained by nothing else but the obsessive idea of abstract liberalism and lobbyist efforts of the certain Russian business circles. Today, we already start to face unfavorable consequences: the currency debt of the private sector has skyrocketed due to mass influx of cheap foreign credits. Consequently, so did the general debt of the country, which entailed the necessity to introduce protective measures on the agenda.

The introduction of ta flat income tax rate in addition to lacking regular property taxes became a measure unprecedented for civilized countries. By making references to the increase in tax revenues the inventors of this extravagant undertakingstill try to convince everybody it has been the right decision to make. However, not everything is clear even from this highly pragmatic standpoint. The thing is that initially growth of income tax revenues roughly corresponded to GDP growth rate, which means there was no actual improvement in tax collection as compared with the former progressive system. Although it is true that the income tax share in GDP increased. However, it does not prove yet that the new system ‘advantages’ came into play, as at that time the situation with non-payments and wage arrears was improving dramatically, which was a powerful factor for growth of tax revenues. At any rate, ‘envelope payments’ have by no means become rare.

The absence of the regular system of property taxes may have grave consequences. It has to do not only with losses that the federal budget incurs in this connection. Today, we often see that the substantial portion of new apartments is purchased in big cities not for residence but to profitably invest money. We e see a financial bubble becoming bigger, which burst, as world experience shows, will lead not only to the loss of investors’ funds, but may also cause heavy damage to the country’s economic development in general.

By the way, now that the legal conditions for the free purchase and sale of land have been created, it is imperative to most rapidly align it with taxation so as to prevent that this resource (particularly in big cities) becomes a speculative asset which bears a big potential of financial instability.

It may be true that ‘market romanticism’ is the most visible in the social sector reforms, that is, as known from theory, where the greatest market failures occur.

It is no secret that the state-run spheres of health care, education, and culture are in crisis, which, for these systems, is not internal but external and introduced in the sense that, in essence, it stems exclusively from multiple reduction of state funding.

In health care it has been suggested that end-result should be used instead of budget funding. Work of genius! As if noone has understood before that it is better to pay for real work done and not for the time spent at work. But the trouble is that the concept of ‘final result’ cannot always be defined in precise quantitative terms.

So, in health care do you want to pay for a patient who has actually been cured?. It is possible, but mind that today as A. A. Baranov, Russian Medical Academy Member, points out, the most profitable patient for a hospital is a person with a cranial injury in intensive therapy who dies on the seventh day. Or maybe you would like the money to follow patients, meaning that people will decide for themselves where medical treatment is best? In this case you should be prepared to see lines of people with their relatives and friends in ordinary clinics, eager to be examined by specialists. In case of a good financial incentives, patient may become a new profession in the country.

Finally, doctors are concerned about the ‘piece-work ideology’, which hinders preventive treatment measures, whose final positive effect for people’s health is hard to overestimate. However, these concerns are left unattended…

Educational reforms also cause also much perplexity. They have been initiated under the pretext of providing social justice and cracking down on private tutors’ service market (bravo!). However, it is bursting at the seams. The volume of state funding become undefined as it is unknown who among secondary school graduates, eligible for access to state funds, will use them. The ‘money following the students’ principle means that the structure of the state education sector is made dependent not on state interests, but on the opinions of service consumers, who do not bear any responsibility for their choice because the money they have is not theirs. When admitting students, universities should focus on the state unified exam scores and not on the applicant’s abilities in the selected field. It is unclear how to balance the number of secondary school graduates with the highest (or identically high) scores in this unified exam who wish to get matriculate by prestigious universities, on the one hand, and the number of places for first-year students in these universities, on the other hand. The possibility of additional selection needs to be accepted, which, strictly speaking, depreciates the whole system. At the same time, final exams in secondary school (same as university entrance exams) are turning into a ‘crossword competition’, as Academy Member V. V. Ivanter put it. Meanwhile private tutoring becomes a field of drilling for the pupils to fill in check marks in examination questionnaires. Finally, the fact that a prospective student is followed by financial support will force universities to maximally increase the number of admitted students, which is unlikely to prove positive for the quality of higher education.

Breakthrough Economy

The main conclusion to be drawn from the above is that economic policy cannot depend but on public goals. Economic theory can help us understand the implications that may arise under certain conditions, but it cannot evaluate what specifically corresponds to the interests of society and what does not.

With this in mind I shall provide some suggestions to how I see the general outlines and some specific details of the breakthrough strategy.

On Fundamental Science

Russia belongs to the few world countries that conduct researches within almost the whole range of fundamental sciences. It is an expensive luxury which can be justified only if the country sets major goals for itself. However, if the country’s ambitions are limited to catching up with Portugal, it is certainly not worth spending much money on fundamental research. The most awkward option is a strong ambition to be in the lead in science, but have no desire to fund it in the amount to secure a normal reproduction of the scientific potential. In this case, money is virtually thrown down the drain.

On Education

The character of education, primarily higher education, should be directly dependent on the selected development model. Training top-class theoretical physicists is a fad, to put it mildly, for a country that is going to play the role of a fuel and raw appendage. The current situation is also awkward when most university graduates either work in th country not in their field or abroad. Major changes are needed here, indeed but they should be not of thet kind mentioned above. One option is to openly introduce tuition fees in state educational institutions and, at the same time, start a system of long-term student loans with a kind of state financial participation in paying off the loans (Professor A. Y. Rubinstein’s option). Another option is the extension of conditional educational credits for all students of state universities automatically cancelled according to a schedule within 15 years after graduation, for example, on condition that the students are engaged in their fields of specialization in Russia.

On Industrial Policy

Under current conditions modernization of Russia’s industrial potential is impossible without pursuing a thought-out industrial policy. The negative attitude towards it can be formally explained by the following divergent arguments: financing industrial policy will upset the macroeconomic balance; isolation from the favorable impact of market forces will cause corresponding industries to hopelessly lag behind the world level; funds assigned for industrial policy ‘are bound to be stolen’; the risk of making a mistake in defining priorities is high and the economy can be directed in the dead-end. What really lies beneath this attitude is lacking ideological susceptibilityto an active role played by the state in the economic process.

Industrial policy consists not so much in assigning funds for certain industries, but in creating favorable, if you wish, ‘greenhouse’ conditions for a certain period. Destabilization of the macroeconomic situation is by no means real in this case. Neither is it possible to embezzle. The technical pursuit of this policy by gradually removing preferences and increasing foreign market influence on national industries rules out the danger of its breaking modern world requirements. Of course, there is a risk associated with selecting priorities. First, however, all economic activity is more or less uncertain. Second, the choice should be made while considering the potential of a number of the country’s priority directions for concentrated efforts which promising character is already obvious. Third, it is important to realize that without a conscious policy focused on adjusting the effect of market forces the problem of modernizing the economy and bringing Russia closer to countries which blaze the trails of human civilization development cannot be solved.

On Financial Resources

First and foremost, the goal ofl 1% annual reduction of expanded government expenditures to GDP needs to be abandoned. The type of problems we are facing due to worn-out basic infrastructure, polluted environment, drastic differentiation in regional economic development, social problems can reasonably entail the estimate of this index at a level of about 40%. This, by the way, corresponds to the level typical for the most successful post-socialist countries.

There is no need to increase the tax burden on industrial production. It is enough to ensure that rent is collected promptly and the revenues from government assets received. Today, this need is no longer questionable (thank you, Academy Member D. S. Lvov!). There is even an understanding of how important differentiation in rent payments is depending on the quality of natural resources. The only thing to be realized is that rent has nothing to do with taxes. It is a payment to the owner (whether it is the state or an individual) for the access to a limited resource. Rent is not only a budget revenue source but also a tool that ensures rational use of resources. If rent is not collected, the flow of funds in the economy is distorted so that their excessive amounts are directed into the extractive industries.

Finally, Russia has a unique opportunity to use its ‘excessive’ currency reserves for modernization now. As many experts believe, the amount of the currency reserves exceeding the need for providing stability on the currency market makes approximately $30 to 50 billion. At any rate, it is a very large amount. In these conditions the Central Bank could set up a subsidiary development bank and deposit ‘excessive’ currency reserves. The goal of this financial institution would be to ensure, on market basis, long-term crediting of imports of goods whicht would help modernize Russia’s economy (primarily machines, equipment, and technologies not produced in the country). Essentially, it would be possible to develop also crediting schemes of import (on the account of future budget revenues) needed to accelerate the implementation of major projects of federal and regional government bodies, for example in the fields of infrastructure modernization, procurement of the army , etc.

The suggested mechanism would help address a whole range of tasks. First, the process of modernization would receive a serious additional impetus, and investment activity would increase. Second, a large segment of long-term credits would emerge. Third, the overall level of interest rates would decrease as a result of a significant growth in the supply of loan funds. Fourth, if massive currency influx into the country persists, the planned trend in currency exchange rate changes, to resist inflation pressure would be easier. It would be caused by the fact that the Russian rubles emitted by the Central Bank in exchange for foreign currency would be covered by goods in the form of imported products in the framework of the suggested scheme. What essentially would happen from the macroeconomic standpoint boils down to the following: the provision of access to cheap credits for importing investment goods would give rise to the increase of demand for foreign currency, and, in consequence, striking a balance on the currency market with a higher US dollar exchange rate.

On Privatization

Now that the market system in the country has been formed in general, and the budget is characterized by a stable surplus, there is no need in a planned sale of federal assets. It would be more reasonable to set up a state investment holding company (or several companies) that would manage these assets in accordance with market conditions. It would be helpful not only to put an end to recurrent scandals that accompany privatization auctions, but also to create conditions for effective use of state funds by isolating government officials from this process. The executive branch would, in its turn, gain a stable revenue influx from public property.

On Small Business

As the whole preceding narration dealt with ‘large-scale’ problems one could get the impression that the breakthrough strategy may neglect the opportunities provided by small and medium business. This understanding, however, would be largely erroneous. Industrial policy is not a policy for industrial giants. If we do not succeed in creating most favorable conditions for entrepreneurial initiative at the ’grassroots level’ (the point of view ardently supported by Academy Member N.P. Shmelev), there will be no breakthrough into the future.

These are laconic and, in a way, fragmentary ideas about an eventual strategy of an economic breakthrough. The main conclusion is, however, clear: the country needs to formulate its own long-term interests on an ideology-free pragmatic basis and develop the type of economic policy corresponding to these interests. Meanwhile we are in a situation when the authorities need to adjust either goals or means to achieve them.

Main  :  About the School  :  Advantages  :  Professors  :  Subjects  :  Matriculation  :  Еmployer's page

1, Building 61, Leninskie Gory, M.V. Lomonosov MSU, Moscow, Russia, 119991
Phone: +7 (495) 510 52 67, 510 52 68. Fax: +7 (495) 510 52 69. E-mail: mail@mse-msu.ru

Copyright © 2004 Moscow School of Economics MSU M.V.Lomonosov

Design by TMU Consulting