Economic Policy of Russia

The articles Economic Policy of Russia and Macroeconomic Development of Russia thematically overlap. Help me to better differentiate or merge the articles (→  instructions ) . To do this, take part in the relevant redundancy discussion . Please remove this module only after the redundancy has been completely processed and do not forget to include the relevant entry on the redundancy discussion page{{ Done | 1 = ~~~~}}to mark. Karsten11 ( discussion ) 16:49, Jun. 8, 2017 (CEST)

This article deals with the economic policy of Russia as of 2012.

A transformation of the Russian economy in the direction of a liberalization of the markets took place after the financial crisis of August 1998 quickly, radically and chaotically. It included a currency devaluation, price increases, but also a boom in private consumption. In his first term in office until 2004, President Putin pushed ahead with reforms, particularly in tax policy. Comprehensive structural reforms made slow progress in Putin's second term in office from 2004.

The global financial crisis of 2008 marked a sharp turning point, but thanks to proactive intervention by the government and the central bank, the economy recovered rapidly from 2009 to 2012, the second fastest among the economies of the G20 countries. Membership in the World Trade Organization since August 2012 also contributed to this. However, growth slowed again to 0 percent in 2014 and 3.7 percent in 2015. While the freedom to set up and run a business is above average by international standards, the customs barriers are falling and taxes are low, there is a lack of freedom of investment and freedom from corruption. Ownership rights are also often restricted. For the economy of an emerging country or an efficiency-driven economy, Russia has a comparatively low proportion of informal economic activities or institutions, which can often be regarded as preliminary stages or initiators of start-ups. Entrepreneurial, but above all international entrepreneurial activities are underdeveloped.

For some time now, observers have been seeing regressions on Russia's path to a market economy. There is no agreement on the categorical classification of the Russian economic system. After Dmitri Medvedev handed over his presidency to Vladimir Putin again in 2012, with the focus on himself, more and more power in the economic system shifted from free enterprise to the state and its preferred contractors . The Russian economic system is currently characterized by keywords such as “bureaucratic capitalism”, “corporatist market economy” or “state monopoly capitalism”. The main reason for this is that forces are gaining influence in Russian economic policy that advocate increased state intervention in the economy. The development in "strategically important economic sectors", especially in the energy industry, should be largely determined by the state.

Foreign direct investment in Russia has continued to rise despite these pressures on the investment climate. However, they remained low in an international comparison. That slows down the necessary modernization of the economy.

In particular, Russian economic policy is faced with the challenge of placing the production and export structure of the Russian economy on a broader basis. With the rise in energy and raw material prices, the dependence of the Russian economy on the energy and raw materials sector has grown further. If Russia wants to be less dependent on developments on the international raw material markets, sectors outside of the energy and raw materials sector must be more developed and made internationally competitive. This also includes building efficient small and medium-sized companies.

Growth of the GDP of Russia from 1991 to 2014

Overview of regulatory developments

Fewer reforms since 2004

The economic policy reforms during President Putin's first term in office from 2000 to 2004 included the further privatization of state-owned companies, the lowering of tax rates for income and corporate taxation, customs, land law, labor law, pension law, bankruptcy law and the security of Deposits with banks.

However, the often hesitant and inadequate practical implementation of the reform laws that have been passed, an often excessive bureaucracy and deficits in legal certainty remain problematic. In the spring of 2005, Putin himself named bureaucracy and corruption as the main problems of the Russian economy in addition to high inflation and a monopoly of certain sectors before the economic forum in Saint Petersburg.

Comprehensive structural reforms made slow progress in Putin's second term since 2004. In practice, however, the investment climate has deteriorated significantly, particularly with the action against the Yukos group. The auction of the most important Yukos production company, Yuganskneftegas, in mid-December 2004 to a previously completely unknown financing company, which was bought a few days later by the state oil company Rosneft , unsettled Russian and foreign investors. High tax claims against companies continued to have a negative effect, e. B. the mobile phone company Vimpelcom and the Russian-British oil joint venture TNK-BP.

More state in strategically important sectors

The Russian leadership agrees that in "strategically important sectors", especially in the energy and armaments sectors, foreign companies may at best acquire minority stakes. The British BP's 50% stake in the oil company TNK-BP appears to remain an exception. Instead, the state's ability to influence the energy industry has been increased by increasing the state's share in the leading natural gas company Gazprom to a good 50%.

The determination of the Russian government to secure a leading role for Russian companies in the energy sector was demonstrated in 2006 by the Sakhalin 2 project . So far, it was the only oil and gas development project in which only foreign companies were involved. By the end of 2006, the Russian government and Gazprom succeeded in negotiations to sell a majority of the shares in this project to Gazprom. Investigations and sanctions by the Russian environmental authority due to damage to the environment also put pressure on those involved in the Sakhalin project.

According to the OECD, the definition of strategically important sectors has become very "elastic" and is being extended to other areas. In response to this criticism, Russian government representatives said that when companies were taken over, for example the vehicle manufacturer AvtoVAZ by the state arms exporter Rosoboronexport , the state would act primarily as a "crisis manager".

"New industrial policy" with "national champions"

At the Economic Forum in Saint Petersburg in mid-June 2006, Dmitri Medvedev , who has been considered a possible successor to President Putin since his appointment as first deputy prime minister, spoke out in favor of a state industrial policy aimed at developing “national champions” in important sectors. This should make the Russian economy more competitive internationally.

International economic organizations, such as the World Bank and the OECD, have  criticized this economic policy strategy, which has been pursued in a similar way by some Asian countries ( Japan ) - see: MITI , South Korea , People's Republic of China .

The World Bank believes that the development of the Russian economy must be achieved through the most unhindered international competition, opportunities for international cooperation between companies and international technology transfer. Russia's “new industrial policy”, on the other hand, tries to correct market forces through state intervention. Supporting individual industries and companies leads to market distortions and promotes corruption . The government wrongly assumes that the state can, so to speak, prescribe innovation from above. With the targeted support of existing large companies, the government runs the risk of ultimately pursuing a policy to maintain outdated structures. The new industrial policy was also accompanied by a centralization of power in Moscow. But Russia is much too big and too diverse to be effectively managed from Moscow alone. Regional and local level initiatives would be hindered.

The OECD describes Gazprom's policy of expansion as particularly worrying. Instead of concentrating on its core business, Gazprom expanded its business activities to include the media sector, banking and insurance, and the construction sector. According to the OECD, the Russian state should see itself as the “regulator” of the economy, not as its owner. However, the share of private companies in overall economic production fell in 2005 from around 70 to around 65 percent. State-controlled companies accounted for around 38 percent of the value of companies listed on the stock exchange in 2005, compared to only 22 percent in 2004.

But this policy could well be successful, regardless of criticism from the World Bank and the OECD, after all, Japan and South Korea (and increasingly also China) have managed to build very modern and competitive industries over the past sixty years. Japan was so successful that the US, the East Asian country "curb" had (see MITI - M inistery of I nternational T rade and I ndustry).

Economic reform areas in detail

Growth and structural policy: diversification is still in its infancy

From 2000 to 2007, total economic output in Russia grew by around 70 percent in real terms. While the average wage in 2000 was 80 dollars, in 2007 it reached around 500 dollars.

The growth was, however, particularly borne by the energy and raw materials sector and boosted by rising prices. Broad diversification of production and exports did not succeed. Insufficient investment also remained a fundamental weakness. Public infrastructure and corporate assets were often out of date by 2010.

The share of small and medium-sized enterprises in overall economic production also remained low - with the exception of the shadow economy in the typical garage companies , in which, according to estimates, up to over a third of the workforce were employed in 2016.

Tax policy: lowering important tax rates

Tax policy has gained widespread international recognition: the comprehensive reform of the tax system that was initiated in 2000 brought about a simplification of the tax system and a significant reduction in the most important tax rates:

• The corporate income tax rate has been reduced to between 20% and 24%.
• The income tax rate is now 13% regardless of the level of income.
• The wealth tax rate reaches a maximum of 2.2%.
• The VAT rate was reduced from 20% to 18% in early 2004.
• The maximum tax rate of the “uniform social tax”, which is to be raised by employers alone to finance the social security systems, was reduced from 35.6% to 26% at the beginning of 2005.

Administrative reform: No success in fighting corruption

The aim of the administrative reform introduced in 2004 is to reduce the bureaucracy burden on citizens and businesses. Important parts concern the procedures for the approval of entrepreneurial activity, the approval of products and the award of public contracts. The public administration should provide services - according to clear rules, against clearly defined fees and within clearly formulated deadlines, said Andrej Scharonow, Deputy Minister for Economic Development and Trade at the beginning of 2005. However, the realization of these goals is met with considerable resistance. There are still major “mental problems”, said the Deputy Minister.

Reform of natural monopolies

Another difficult area is the reform of so-called natural monopolies (electricity, gas, railways).

Progress has been made in liberalizing the electricity sector and reforming the railways with greater involvement of private operators in rail transport. The partially privatized electricity monopoly is to be split up into a national network operator and regional production and distribution companies.

“In the gas sector, on the other hand, we have still not managed to formulate the basic principles of an intended reform,” said Vice-Minister Sharonov at the beginning of 2005. After all, the previously very low domestic energy prices are gradually being raised. It is hoped that an increase in gas tariffs will result in a more economical use of natural gas.

Banking reform: Deposit Protection Act

The banking system plays a key role in diversifying the Russian economy. In the necessary increase in the investment rate, it can play a central role through improved lending. So far, it has done its job of collecting savings and investing but not enough. Only around 5% of investments in Russia are financed through bank loans. The planned establishment of a state development bank , which, following the example of the German Reconstruction Loan Corporation (KfW), will primarily provide loans for small and medium-sized enterprises, is intended to improve this situation.

The size structure of the Russian banking system does not provide favorable conditions for effective competition. Large state banks ( Sberbank ) dominate. They alone account for a third of the total assets of all banks. Opposite them are a large number of small banks.

In addition, the access of foreign banks to the Russian market is limited. You are allowed to acquire stakes in Russian banks, but you cannot maintain your own branches in Russia.

In July 2004 there was another banking crisis. The trigger was the closure of an institute due to money laundering allegations and reports of payment difficulties at two smaller banks. An injection of liquidity by the central bank and the passage of a deposit guarantee law that secured savings of up to 100,000 rubles finally defused the crisis. The Deposit Protection Act improves the conditions for increasing competition for deposits between banks.

Opinions on Russian economic policy

David Lane, Senior Research Associate at the University of Cambridge, is one of the few observers who highlight positive aspects of economic policy developments in Russia. He believes that "a greater degree of regulation (as in recent French history) could lead to a restructuring that is more effectively organized". He mentions the most important advantage of “organized market capitalism” in Russia “that the country may be better able to deal with competition on a global scale”.

Lane describes the previous economic development under Yeltsin and Putin as a transition from a “policy of the minimal state” to a “corporatist economy” under state leadership. He sees the following development steps:

• The economic policy model aimed at by the radical Russian reformers of the early 1990s followed the so-called Washington Consensus . Essential elements of this economic model are the introduction of free markets (for goods, assets and labor), the opening up of the economy to foreign competitors, the introduction of flexible exchange rates and an orientation of economic policy towards ensuring monetary stability. State activity should be limited to establishing the legal framework.

• The “minimum state policy” under Yeltsin meant that the federal government was unable to collect taxes and ensure legal security. Corruption in connection with the privatization process exacerbated this situation. Under Yeltsin, a "form of political capitalism developed in which the state was taken over by economic interests and used to secure profits."

• Putin reversed many aspects of this policy. The model that is developing under Putin in Russia is a state-led corporatist economy . In order to gain political control, he has strengthened the state apparatus and controls the oligarchs .

The Russian state’s increased interventions in the economy are largely criticized internationally.

Hermann Clement, Deputy Director of the Eastern European Institute in Munich until August 2005, fears that the tendency to form large industrial agglomerates, which is evident in the government's concept, may indeed promote development in the short term, but in the long term it will lead to losses in growth and efficiency as well as higher prices.

Lilija Shevtsova , an employee of the Moscow office of the US foundation Carnegie Endowment for International Peace , a Washington think tank , expresses sharper criticism. She brings negative points of the Russian economic model, which she describes as " bureaucratic capitalism ", to the fore. In spite of his constitutionally strong position, President Putin cannot rule autocratically . On the contrary, he is becoming more and more dependent on the groups that carry him. On the one hand, these are the "apparatchiks" in the state bureaucracy, the military and the domestic security services, and on the other hand the executives of large companies and "liberal technocrats". This “bureaucratic community” has managed to “sell its interests as those of the Russian state”. A "bureaucratic company" has been created to serve private interests.

Bureaucratic capitalism shows no interest in diversifying the economy. In Russia, whose exports consist of around 60% energy sources and - including other raw materials - around 80% raw materials, the typical characteristics of a " petroleum state " emerged:

• State power and the economy merge with widespread corruption.
• Large monopolies prevail in the economy.
• A social class is formed that lives primarily from the high profits from the raw materials industry; at the same time, there is a deep wealth gap between the rich and the poor.
• Due to the high dependency on the raw material economy, the economy is endangered by external shocks, for example a sudden drop in raw material prices, and the " Dutch disease ".

Roland Götz, Russia expert at the Berlin Foundation for Science and Politics, also believes that a symbiosis of private capital and state authorities has formed. Both sides would benefit from it, for example because senior members of the presidential administration held management positions in companies. He deduces from this that the oil industry, which was largely privatized under President Boris Yeltsin , will probably not be nationalized . There, private Russian and foreign capital is likely to outweigh state-owned companies in the future.

One of the most radical critics of Russian economic policy is Andrei Illarionov , who was President Putin's economic adviser until the end of 2005. He says: “We have broken out of the centralized planned economy and have not arrived at the free market , but with state monopoly capitalism .” He also sees Russia as a “petro-state” and speaks of a “Venezuelanization” of the Russian economy.

The thesis of the “petro-state Russia” must be viewed in a differentiated manner. Russia differs from "petro states " like many OPEC states in important points:

• In Russia there is not just a single, mostly state-owned energy company, but several, in particular Gazprom and Rosneft . They not only represent different interests, as was shown by their conflict over the takeover of Yukos . They are at least partially in competition with one another on the markets. Gazprom is no longer limiting its activities to the natural gas sector, but is developing into a vertically integrated energy company that has already taken over significant stakes in the oil and electricity sector.

• Most of the companies in the oil sector are still privately owned, even if the production share of the majority state-owned companies increased to around a third after the takeover of the private oil companies Yuganskneftegaz by Rosneft and Sibneft by Gazprom in 2005. In July 2006, the oil company Rosneft, which was previously fully owned by the state, will also transfer a minority stake to private investors. The state's share in the leading natural gas company Gazprom is just over 50%.

• Gazprom and Rosneft are also increasingly active around the world, including through investments in foreign companies.

Russia is still interested in working with foreign companies. It is also still possible to take over minority stakes. In mid-April 2006, for example, Gazprom and the BASF subsidiary Wintershall agreed on a stake of almost 25% in the Yushno Russkoje natural gas field in western Siberia. In mid-July 2006, Gazprom agreed to invest E.ON Ruhrgas in this field with 25% minus a share of the voting rights.

The government is trying to regain lost confidence and counteract the deterioration in the investment climate caused by the break-up of the Yukos group. Putin's promise to shorten the limitation period for prosecuting legal violations in the privatization of companies from 10 to 3 years has been implemented. A law on “special economic zones” creates particularly favorable conditions for investors.

Lilia Shevtsova, however, warns foreign investors against illusions regarding legal security in Russia: “If it is in the interests of the ruling class that an investor loses his shares in Russia, he will lose them - like ExxonMobil in Sakhalin . Should it become necessary for the domestic political game of forces to brand an investor as an enemy, no friendship, however high, will prevent it. "

Tomasz Konicz summarizes in the left-wing daily newspaper “ Junge Welt ” that Russian economic policy has clearly taken a “course of capitalist modernization”. The moments outweigh Keynesian policy against neoliberal policies :

"Lately the Kremlin has been orienting itself more towards the founding father of active demand-oriented economic policy than towards Friedrich August von Hayek (...)." Monetarism , valued by neoliberals , is being rejected in favor of an expansive, growth-oriented monetary policy , which also brings with it a double-digit inflation rate. The huge wage increases for state employees and pensioners are a classic feature of demand-oriented economic policy (...).

The stabilization fund and the reluctance to invest in government could be seen as elements of classic, counter-cyclical investment policy: According to Keynes, the government has to hold back on spending during an upswing, but invest more during a depression . With the global economic downturn now imminent, Russia would have a "war chest" with the stabilization fund, which could be used to mitigate the consequences of falling prices on the commodity markets and possible recession .

Moments of neoliberal politics can also be found, such as the special economic zones and the low tax rates (...).

Crucial to the success of this strategy will be Russia's efforts to diversify its economic base and thus reduce its dependence on the raw materials sector, as well as attempts to catch up with the technological deficit in many sectors through imported modernization.

Hannes Adomeit , employee of the Science and Politics Foundation in Berlin, sees no success in these efforts in an analysis of the Russian great power ambitions: “The fundamental structural weaknesses of the Russian economy have by no means been eliminated. There can be no talk of an improved international competitiveness of industry, especially high technology. Growth and supposed political stability continue to depend on high oil prices . (…) Overall (…) Putin's goal of rapid modernization of Russia with the help of far-reaching reforms and Western know-how as well as extensive investments has not been achieved. "

See also

• Macroeconomic Development of Russia
• Energy industry of Russia
• Russian-Ukrainian gas dispute

literature

• Roland Götz: Russia's Oil and Europe . (PDF; 574 kB) Friedrich Ebert Foundation , International Policy Analysis, July 2006, 16 pp.
• David Lane: What kind of economy does Russia have? In: Analyzes of Russia by the Research Center for Eastern Europe at the University of Bremen, No. 107/2006, July 7, 2006
• Russia's renaissance , u. a. with contributions by Hannes Adomeit, Lilia Schewzowa, Roland Götz. In: Internationale Politik , Issue 7/2006; German Society for Foreign Policy
• Lilia Schewzowa: Putin's fainting In: Rheinischer Merkur , July 6, 2006
• Interview with Andrei Illarionov, who resigned at the end of 2005 after 5 years as an economic policy advisor to President Putin . In: Die Welt , November 18, 2005
• Hermann Clement: Economic boom instead of crisis. Russia's upswing under the microscope . In: Osteuropa , Issue 5/2006, pp. 19–38 (until August 2005 Deputy Director of the Eastern Europe Institute Munich)
• Ognian Hishow: From the Soviet to the World Economy: Russia's Transformation Process and Its Perspectives . Nomos, Baden-Baden 2004, ISBN 3-8329-0905-2
• Hermann Clement: Economic growth in Russia and the Ukraine . Working Paper No. 250. Osteuropa-Institut Munich, January 2004, ISBN 3-921396-90-5 , 143 pp.

English

• OECD: Economic survey of the Russian Federation 2006. November 27, 2006
• Rüdiger Ahrend, William Tompson: Fifteen years of economic reform in Russia: What has been achieved? What remains to be done? OECD Economics Department Working Papers No. 430, May 13, 2005

Web links

General

• Russian foreign trade
• Federal Agency for Civic Education
• Country information Russia, foreign trade portal Bavaria

Latest comments, analyzes and reports

• No alternative to Russia . Interview with Roland Götz, Science and Politics Foundation. In: Manager Magazin , January 11, 2007
• Peter Finn (Kremlin Inc.): Widening Control Over Industry . In: Washington Post , November 19, 2006

Individual evidence

1. ^ Igor Laine, Olli Kuivalainen: The Internationalization of New Russian Ventures: The Institutional Frontier. In: Kevin Ibeh, Paz Estrella Tolentino, Odile EM Janne, Xiaming Liu: Growth Frontiers in International Business. Springer Verlag 2017.
2. ↑ Putin% 20will% 20es% 20 ostentatious% 20and% 20pragmatic Putin wants it ostentatious and pragmatic , NZZ, May 8, 2018.
3. ↑ Russia's GDP growth from 1991 to 2014, data from worldbank.org
4. ^ Report for Selected Countries and Subjects. Retrieved December 25, 2018 . 
5. ↑ Russia's job market is hot , NZZ, July 4, 2008
6. ↑ Russia's shadow economy is booming , dw, November 27, 2016