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Crisis Has a Big Cleaning Impact, but This Cleaning Hasn’t Happened

Yaroslav Kuzminov, Rector of the HSE, spoke about the new wave of the crisis, Russia’s readiness for it, and the system of public pharisaism among the powerful.

The most fundamental problem today is that the 2008-2009 crisis has not resolved any of the structural contradictions within developed economies. These economies have not closed down their inefficient industries. The crisis has had a big cleaning impact, but this portion of the cleaning hasn’t happened either in the West or in Russia.

In my view, the probability of a negative resolution of the current situation has somewhat decreased over the last few months, as a result of actions undertaken by EU governments. Nevertheless, it still exists.

Today there is growing uncertainty due to the existence of many inefficient companies. Banks have lots of inefficient assets. The second layer of problems is just beneath the first. There are countries, and societies in developed countries, which do not live within their means. People do not earn as much as they spend.

In Russia the government hasn’t learnt anything, nor have those in the Western countries. No restructuring has been put into place. In addition to that, the situation with regard to competitiveness is very bad here. Weak industries are not being closed down; bad and excessive staff are not being dismissed.

Historically, our unemployment rate has not been high enough to make people value their jobs. And the measures which in 2008-2009 suppressed the crisis, at the same time prevented the economy from unloading inefficient productions, and inefficient employees from improving their qualifications.

The crisis has not eliminated inefficiency. At the same time, I can say that the Russian economy is ready for a crisis, just like it was 4 years ago. We have now worked out the crisis suppression mechanism in practice. I believe that the new wave of the crisis will have less impact on our economy, and this is primarily because we shall not allow a period of uncertainty for financial institutions and banks. They shall automatically get support from the state and will not transmit negative signals that would push them further, deeper into the economic crisis. And we are ready to work out a supporting mechanism on demand, for example, for cars or housing. The coming crisis will not be a catastrophe for us. But, unfortunately, the set of anti-crisis measures which has been developed by the government has no relation to economic restructuring: it rather slows it down.

Some academic teams have calculated the results of Russia’s accession to the WTO for almost every Russian region. Their conclusion was the following: for 60% of our industries, and for 60% of our regions, accession to the WTO will be clearly positive. It is necessary to develop measures for adapting the industries and regions which will lose, however. In the first place is agriculture. During the negotiations with the WTO we protected the agricultural sector, and we also protected the cluster of the new assembly industries. We will have quite a long period when we shall keep high import tariffs for the goods which are produced in Russia with the use of high technology, and these industries will have time for adaptation in order to become internationally competitive. Accession to the WTO will have serious consequences for each of us in some sectors to which we pay less attention. I am referring to paid medical services, where we are falling behind in terms of quality and education, and even more importantly to teaching competitive technologies.

Our system of professional education has fallen behind so much that it needs to be reformed. If  the market is now open to companies using Western approaches, they will be able in two months to teach you the techniques  which will allow you to earn 50 000 – 70 000 roubles monthly, and they shall be successful. We have 10 – 15 strong banks, which will not go bankrupt as they are not fraudulent, but our insurance system is very weak. Sometimes a car insurance policy turns out to be a procedure where the company issuing it is just cheating you. Many travel companies are not competitive, either in terms of service or in economic sustainability.

There is one seriously and potentially positive side to the free trade regime: this is an opportunity for our medium-sized businesses to enter Western markets. It is not a secret that we are, to say the least, not very welcome there. And for an honest Russian entrepreneur it is very difficult to start a business, for example, in Germany or France. Therefore, why do we need Western banks here? These banks will not support our Russian businesses in foreign countries.

There are different methods of national market protection. In the 1990s we had a romantic period when it seemed that we had overthrown communism and everyone would love us. But today they take our money but do not let us earn any. As an example, when Sberbank could not buy Opel, that proves that they will not let us enter the zone of technology innovation. This is a reaction that protects friends from foes.

We need to use mechanisms which will become available through the WTO, including antidumping and antimonopoly investigations.

We shall have to work on ourselves too: the international image is that the Russian government and businesses are spotted with corruption. We are used to the fact that publicly, officials receive low salaries. Each and everyone understand that the vast majority of these people get something else. It turns out that we agree with the international opinion as a fact that we are robbed.

The system of public pharisaism, which emerged during the Yeltsin period when state officials earned pennies, has an extremely negative influence on society.

There is the example of Lee Kuan Yew, Prime Minister of Singapore, who set the salaries for ministers higher that for top managers of large corporations, and introduced the death penalty for corruption. Now everything is all right there. If we believe that high officials should earn low salaries as compared with business managers, then we should agree that such positions should recruit only rich people, as it was in Ancient Greece. But this way we limit the range of normal officials from the very beginning.

Or let’s decide that an official should get a salary on the same level as that of a large corporation manager, and s/he should have a big golden parachute when retired. In tsarist Russia a minister had the rank of privy councilor, and when he retired, he received a higher rank – actual privy councilor, which means he earned more than when he was in service. Yet, if a minister had been caught stealing, he lost everything. We do not now have this ascending type of career. We believe that for a small pension an official would stick to the public interest. S/He will not, though, if s/he is not a devotee. Look at the humiliating public attitude toward officials: that they are all corrupt. This insults honest people who live on this salary, and so they leave this sphere.

This public opinion should be changed through state policy reforms.

Officials should declare all their revenues, and special commissions should have a right to check them as well as their relatives. But they should also get a considerable remuneration which should grow with their career.

An official’s high salary should include a correction that takes account of the fact that their position is better protected than that of a business person. Of course, they should get 1.5-2 times less than a business person.

In Russia I do not see envy or hatred of the rich: I believe this has gone. We are used to rich capitalists, and we shall get used to the fact that officials can get high official salaries.

Source: http://www.dp.ru/a/2012/07/02/JAroslav_Kuzminov_Otbra/

See also:

Impact of Economic Crisis on Russian Subsidiaries of Western Multinationals

Despite the economic crisis, Western multinational corporations have been expanding their manufacturing facilities in Russia. Last year, foreign companies launched 63 new subsidiaries in Russia (twice as many as in 2013), and closed no more than ten. This year, they expect to put into operation a few dozen new subsidiaries, according to HSE researchers' study 'Russian Manufacturing Subsidiaries of Western Multinational Corporations: Preliminary Results and Future Prospects.'