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The economy needs restructuring. But how?

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MOSCOW. (Gleb Fetisov) – There have been no deliberate attempts to develop high-tech industries in Russia. This is not surprising, since an economic model that depends on natural resources is all too comfortable.

Russia’s hydrocarbon exports increased from $28 billion in 1998 to $191 billion in 2006, that is, by 583%. Over that same period, the share of commodity exports in the country’s GDP rose from 10% to almost 20%.

Why is this situation of dependence harmful for Russia?

First, by relying on global energy prices, the system is inherently unstable and vulnerable to regular financial and even social and political crises. Indeed, the key reason behind the recent inflow of oil money was not increased production — this was only modest — but a boom in global prices. Put simply, Russia’s revenues will plummet if prices begin to fall.

Second, mineral resources become depleted over time, while prospecting for new deposits requires greater investment.

Third, commodity dependence is fraught with what some call “Dutch disease,” or the excessive concentration of labor and resources in one sector at the expense of others. In Russia, for example, the growth of manufacturing has been 3% slower than the GDP.

Fourth, technology slowdown is common in a commodity-dependent economy, while technological progress is a key source of economic growth.

If nothing is done, Russia’s role will eventually boil down to supplying the West and China with raw materials. But can anything be changed now?

The government is searching for ways of replacing the commodity-based model with a new, diversified one; and included this in its medium-term program and the draft concept for Russia’s long-term social and economic development until 2020.

This may have some effect, but what the country really needs is a joint effort from government and business in sectors where this country already has competitive advantages, like high-tech. Such re-orientation will naturally be a long, difficult and costly process. Of course, this might explain why so few policymakers are prepared to support it.

Dr. Gleb Fetisov, economist, member of the Russian Parliament’s upper house

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

Source: Rossiiskaya Gazeta

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