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By Vladimir Putin
We are living through a period of serious changes in the world economy. Never before has technology advanced so quickly. What we see today would have seemed like science fiction only fifteen years ago.
In such circumstances it is important to ensure the stable development of our economy, to give our citizens maximum protection from the impact of global crises, and at the same time to renew all aspects of our economy. For Russia, it would be inadmissible to not have an economy that can guarantee stability, sovereignty and a decent standard of living.
We need an economy with competitive industries and infrastructure, a developed service sector, and effective agricultural system; in short an economy that harnesses modern technology.
Fostering competition in our economy is key to securing demand for innovation. Only competition can encourage private business to seek enhanced technologies and to innovate.
To restore our technological leadership we must choose our priorities carefully. We should look at sectors like pharmaceuticals, high-tech chemicals, composites and non-metal materials, the aviation industry, information and communication technologies and nanotechnologies.
The experiences of countries such as South Korea and China that have successfully modernised their economies show that a push from the state is necessary. We are also counting on the active participation of Russian capital in the privatisation and further development of high-tech assets. At the same time it is necessary to find buyers in global investment circles who are ready not only to invest in an individual scientific production facility, but to bring in their connections and experience on the international markets.
What is important is to get the market leaders in global technology to move from the initial stage where Russia is perceived as a promising market, to the second stage where they start investing in local production facilities, and to the third stage where new processes and products would be designed in Russia.
To encourage this we need to expand the domestic market, making it more attractive for direct investments. In recent years, we have moved from declarations of intent to real integration by creating the Customs Union with Belarus and Kazakhstan, the single economic space and the free trade zone with CIS countries. Russia has been consistently working towards establishing a single market together with its neighbours.
We must improve Russia's business climate and the country's attractiveness for long-term investments. Both remain unsatisfactory. In the past few years, on the initiative of President Medvedev, we launched a series of reforms aimed at improving the business climate. However, until now, no significant change has occurred.
Speaking plainly, we still have system-wide corruption. The cost of doing business varies depending on your "proximity" to specific individuals within the government machinery. In these conditions entrepreneurs quite rationally tend to find backers and strike deals with them rather then observe the law. Then, having made their deals, such businesses try to suppress competition.
Clearing the way for businesses prepared to win a competitive battle on a level playing field is our fundamental system-wide goal. And this cannot be attained through economic policy alone. We must transform the state itself, its executive and judiciary branches. We must dismantle the accusation-driven collection of law-enforcement, investigative and judiciary agencies and eliminate from our legislation all vestiges of the Soviet legal system.
Economic cases must be transferred from trial courts of general jurisdiction to arbitration courts. Together with the expert community, judges and entrepreneurs we should publicly discuss and introduce before the end of this year all the necessary initiatives to achieve this.
When it comes to economic policy, it must be adjusted in the coming years to reduce the level of government regulation, by replacing regulations with market-based mechanisms, and administrative control with liability insurance. The global crisis lent more credibility to the proponents of state-led management of the economy. But we understand that, as opposed to many other countries, the share of the state in the Russian economy and the degree of government regulation remains rather high.
We have plans to privatise a number of key assets. I should emphasise that such privatisation is structural, rather than fiscal in nature. In other words, we are selling not only to obtain additional budget revenue but, above all, to boost the competitiveness of our economy and clear the way for the private initiative. And we will obviously not ignore the market environment and sell cheap. That would be stupid. Not a single owner would do that.
We should also reduce the participation of state-owned companies and banks, as well as that of natural monopolies, including Gazprom, in the capital of other economic players, and spin off their non-core businesses, including media holdings.
Maintaining and improving macroeconomic stability is a prerequisite for all these developments. It is probably one of our greatest achievements in recent years. We have come to value macroeconomic stability and use tools for maintaining it even amid extremely adverse conditions.
And we must eschew protectionist measures. We will soon join the World Trade Organisation. Excessive protectionism always leads to stagnation, poor quality, and high prices.
We have the key drivers for success in place. Russia now has a rapidly growing middle class prepared to invest in better medical services, better housing and higher retirement benefits. The task of the government is to make sure their money doesn’t go up in flames.
The modernised economy should grant everybody the possibility of self-fulfilment, be it an entrepreneur, a public official, an engineer or a skilled worker.
The author is prime minister of Russia.
This is an abridged version of an article published on Vedomosti, the Russian business daily, in which the FT is a shareholder.
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