He put numbers on how he intends to do this: by reducing energy waste by a factor of 4; reducing the time to file a tax return by a factor of 3 by cutting the amount of reporting necessary; making transport faster by a factor of 7; and reducing the time it takes to acquire an asset by a factor of 5.
Putin also pledged to continue the anti-corruption campaign launched by current President Dmitry Medvedev.
The prime minister started with an analysis of the situation in the global economy. He stated that the major reason for the current crisis was huge imbalances at the state and corporate level, which caused incredible debt accumulation. Russia is in better shape, as its debt/GDP ratio remains extremely low. The country last year demonstrated the most dynamic development among G-8 countries, with growth of 4.3%, record low inflation of 6.1% (still rather high compared with developed countries) and a budget surplus of 0.8% of GDP. Russia is the fifth-largest economy in the world and has the third-highest gross international reserves. The demographic situation is also improving, and life expectancy is on the rise.
However, the Kremlin realizes the challenges that the country may face in the future; it is not only the debt problem in the developed world. Nobody can rule out a technological revolution, which would reduce the demand for traditional fuels. The economy's dependence on the oil market should be reduced, and the economy itself should shift from natural rent reallocation to modernized growth based on technological improvements.
Russia has a unique natural resource base and human capital, but these are not being used properly. As result, although Russia's GDP is comparable to Germany's, the former's labor productivity is a third of the latter's.
The prime minister formulated six necessary changes in Russian legislation. First, an institution of commissioners to defend the rights of businessmen will be established in the near future. The commissioners will have the power to halt implementation of current legislation if it hurts the investment climate and provides grounds for corruption. They will guarantee the protection of business interests at the institutional level. Second, legal procedures for examining deals between businesses and the state will be simplified. The state will bear the responsibility in case of incorrect claims and can be forced to compensate for a business' financial losses that are incurred as a result of such an examination. Third, the possibility to classify a business' activity as criminal will be substantially limited. Fourth, control of business activity will be eased. This implies a reduction in various checks and approvals that make the life of small businessmen unbearable and force them to pay bribes. Fifth, businesses will be able to initiate mutual claims against the state. And finally, legislation will be harmonized with the best practice in developed countries.
This program should be welcomed. The scale of reforms is comparable with the so-called "Gref program", which was successfully implemented during Putin's first presidential term and which created a basis for economic development (though not ideal, it was a breakthrough after the chaos of the 1990s). Very symbolically, Sberbank CEO Herman Gref moderated the panel at which Putin presented his program. However, the implementation of this program implies a de-concentration of
power (i.e. a completely different strategy from what the Kremlin has been doing over the past decade). Only time will tell whether the political elite is able to take such a radical turn.
Paul Krugman (Professor of Economics and International Affairs at Princeton University) continued the discussion about economic policy. In his view, budget expenditures should not be cut. Over recent years, debt growth was accelerating due mainly to corporate borrowing. Now corporates are paying off debt and reducing costs. This has already negatively affected economic activity. Cuts to budget expenditures would have multiplied this problem. Mr Krugman also stressed that 10 years ago, he was strictly against increasing the budget deficit. He does not believe that the current situation can be classified as a crisis of overproduction. Anytime people want to buy more, the crisis is a result of collapsing debt and demand.
Prof. Raghuram Rajan, the University of Chicago, focused on inequality as a major reason for populist decisions in economic policy that led to the current crisis. In his view, inequality increased in industrialized countries for several reasons. Technological changes increased the importance of education, especially in technological spheres. As a result, people with poor education did not have a chance to earn good salaries and became poor from a financial standpoint. Second, deregulation increased competition and, as result, inequality. Globalization also contributed to heightened competition and inequality.
There are some arguments against this position. Competition can be seen as the reason for inequality, but it is also a driver of economic growth. Economic growth that is based on competition does not guarantee equity in revenues, but average incomes will most likely increase in this case. Russia is a good example of this process. In 1990, personal incomes were much more "equal" than in 2011, but they consumed much less.
Michael Milken, the former junk bond king, discussed the importance of human capital for economic growth, providing very impressive statistics. In 1960, Singapore and Jamaica had the same GDP per capita ($2,500). However, Singapore invested a lot more in human capital (e.g. education and health), while Jamaica concentrated on developing tourism infrastructure. In 2011, GDP per capita in Singapore reached $50,700, while that in Jamaica was only $5,400. Russia could be an incredibly rich country if it properly uses the human capital that it already has. The proper policies can reduce the emigration of talented people to Europe, the US and Israel. If Russia succeeds, it could become a new world leader.
