April 3-4 2018
Russian Academy of Sciences (RAS). Key theme: "Russia and the world: image of the future".
Development strategy of modern Russia

Published: February 13th, 2017

A. Knyazeva― Good morning, "Echo"s air continues, and it is me, Anna Knyazeva, with you, and next to me in the Studio, is the co-chair of the Moscow Economic Forum, entrepreneur, politician, head of the Association "Rostselmash" Konstantin Babkin, Hello.

K. Babkin― Good afternoon, Anna.

A. Knyazeva - Well, we will talk about the upcoming, at the end of March, Moscow Economic Forum. It is already a traditional event. So let's remind our audience about the stages of a long way.

K. Babkin― Yes, this is the fifth Moscow Economic Forum already. As usual we present an alternative to the official point of view, and we do it in two ways. Well, first, we are wary of the intentions of the invisible hand of the market, we do not believe in going along with the flow of the market, and that abandoning the regulation of the economy is correct. This is what we differ from the Gaidar Economic Forum. We differ from all of the official economic forums in St. Petersburg, Sochi, Krasnoyarsk. The fact is that we still present the point of view which is independent from the vertical of power. That is, we do not look very much at what the government offers, what it wants, its opinion. We present the point of view of academicians and industry.

A. Knyazeva― Well, look, the Forum, will be held within the walls of the Moscow State University.

K. Babkin― Yes.

A. Knyazeva― that is, you have such a strong, long-term bond and friendship with the University. This is a permanent venue, does this mean that the walls of Moscow state University will still bring a kind of scientific roll of the topics under discussion?

K. Babkin― Well, this is certainly a discussion at a good scientific level, though, because the co-chair of the forum is Ruslan Semenovich Greenberg, one of the most authoritative economists in Russia. There will be academician Nigmatulin, academician Glazyev, academician Nekipelov. Serious scientific power is involved, professors and academics from Russia and from abroad and also industrialists will be invited. But of course it is not only and not so much the scientific debate, this is a debate of practitioners rather that's where we bent. We discuss economic policy in Russia, and events in the world and how they affect the life of the common man from a practical point of view.

A. Knyazeva― You coveted not something small, but the strategy of economic development of Russia again. What a grand problem.

K. Babkin― Yes, really. This year's forum is called "Turn in world history, the new strategy of Russia". Well, really, there are a lot of events in the happening world right now, which is an unexpected turn. And we appreciate it as a historical turn. Previously, the globalization was widely marching on the planet, everybody predicted that corporations would rule the world, and over time the state and its functions would die out. But what happened to England (inaudible), what happened to America, the election of a President with a new perspective, right? What's happening now, well, in many regions in Europe, Asia, the migration crisis, conflicts, it is the turn of history, this is what we are going to discuss. And of course here is the second title, the new strategy of Russia. The idea is that Russia needs a new strategy, it has been discussed in the kitchens, and among business leaders and at the highest political level, and of course we will also discuss it.

A. Knyazeva― But some Russian officials also make interesting statements, in particular, Finance Minister Anton Siluanov recently said that our economy has recovered from the Dutch disease. It is worth to remind that the Dutch disease is a negative effect of the appreciation of the national currency, and a dramatic increase in a particular sector. We are talking of course about the oil needle, and petroleum dependence. You are also a supporter of the care of the commodity economy, but do you agree that we are all cured?

K. Babkin― No, of course we do not agree. I will present my strategy that we developed in the framework of the chamber of Commerce, where we say that we are still sitting on a raw needle. This is absolutely not right, it does not correspond to the historical mission of our country. From economic and many other points of view, everything can be much better in Russia We are not cured, we operate in the old paradigm. No, we speak for an active role of the state for active industrial policies and for creating the conditions for creation in Russia. That means that the recovery will not occur by itself, we need to deliberately put our economy on the way of correction.

A. Knyazeva― How?

K. Babkin― Yes, thank you. But this is...

A. Knyazeva― Name the main points of your program.

K. Babkin― We come up, yes, to the strategy which is sure to be represented at the forum. This is not the only version of the strategy, there will be Boris Titov, Sergey Yurievich Glazyev, they have their own views on strategy. We invite Kudrin, though I am not sure that he will come. Well, that means that all the options will be discussed. So here is my strategy – the strategy of the chamber of Commerce, it is able to lead Russia to the way of dynamic development, which will last 30 years before we'll hit some objective obstacles. And this economic growth will remain in double digits, it is 15% per year. Well, three and a half of my pillars of this strategy is the need to change foreign trade policy. Not the WTO, not global chains, not the interests of global corporations but the interests of the Russian manufacturer. You need to protect him, and make him trade tools competition, equal with his foreign competitor. The second point is the change in tax policy, we have too high taxes, we are too crushed by them, and the government raises taxes thinking that the higher the taxes, the more money there will be. We offer to lower taxes, and to have benefited those who invest in development, and those who consume Russian goods. The third point is of course the correction policy of the Central Bank, the fact is that Russia`s money are expensive, it's a huge problem, which disrupts our competitiveness. In Russia money must be cheap. That is, to reduce the key rate - it`s a necessary condition.

A. Knyazeva - And to print more.

K. Babkin - And to print more. And to do so the issued money would be directed to the real sector of the economy. For this there are the remaining two pillars, and another half of a pillar. Here is a half because this pillar is hidden among the taxes and foreign trade policy. This is the so-called reverse tax maneuver. Now the state holds direct tax reform, raising taxes on fuel production in Russia, and gradually decreasing export duties on oil and gas. We offer to act opposite to nullify taxes on fuel production in Russia, severance tax, excise duties and increase export duties on oil and gas. To stimulate processing of petroleum products here, there will be incentives for reducing energy costs in Russia. Gasoline for example will drop by 40 percent, which has a positive impact on transport cost, the consumption levels of all goods in Russia. It also will stimulate not only the processing of oil itself, but the entire economic activity. Well, these three with a half pillars can revive the entire economic life, this revival of economic life will entail the normalization of life of the society in many other aspects.

A. Knyazeva - What you said is quite difficult and it is indeed economically global issues and problems. At the same time, your forum is open, you emphasize that, this is not a commercial story, and you call almost everyone to be a witness of heated debates on the forum. By the way, last year I was shocked, I have never seen such really hot lively conversation, and such openness of people, including people from the audience in any other place. Some replica were filed, people came up to the microphone and participated in the discussion too. Aren't the topics you cover not too difficult? Will you be understood?

K. Babkin― Firstly, the interest in our forum shows that people needs it, and people understand these topics. Economic policy is a topic that is interesting to most people. The forum itself, the main event, the plenary event is held in the hall where there are 600 seats, but 3.5 thousand people comes to the forum.

A. Knyazeva― wow!

K. Babkin― So, of course we put the screens in the hall of the Shuvalov housing of MSU, so that people could observe what is happening in the hall. Well, of course you can follow the progress of the forum in the Internet and there will be live webcast of all events. If you want to listen to the speech live, of course, come to the forum, registration is on, visit the website of the Moscow Economic forum, register, come, everybody are welcome.

A. Knyazeva― When we talk about reducing dependence on oil addiction, and that there is an alternative economic sphere that can shoot. What primarily do you mean?

K. Babkin― We do not offer to separate drivers of the economy. I believe that all facilities, which currently are remained in Russia, in the conditions of super expensive loans, expensive resources, high taxes, lack of support at internal and external markets. If anyone else produces goods here and these goods are bought by someone, so this production has proven a very high competitiveness in Russia. If we correct the existing distortions, with credit, with resources, with taxes, this production will receive a huge opportunity for development. These leaders, these employees will breathe freely. They will be able to do the same products much cheaper, so they can make much more money, they will be able to invest much more money and time in improving their skills, and training new personnel. That is why, we offer support to those who are divas, across the whole spectrum. They include agriculture, industry: heavy and light. It is not the whole range of goods, which are bought from us. Because many sectors are already given to importers, we lost a competence. Therefore, the revival of industries, we propose to postpone to the second stage, and the first step is to support everyone who wants to live.

A. Knyazeva― Last year, Oksana Dmitriyeva presented very interesting ideographs on the forum. It was such a beautiful illustration of what is happening in the economy, and what could be if we had taken any measures of support, some stimulating history, was carried out. Do you have any specific ideas such as step-by-step things that can be done and what results can be obtained in your program, in your strategy?

K. Babkin― Our document is called "Principles of economic strategy." I will give an example of the industry of agricultural machinery where I work. The state has applied some measures of support for 3 years. The subsidy for farmers for the purchase of machinery, preferential loans, support (inaudible), a little support export, for example, subsidizes exhibitions. That is, the attitude of the state to our industry slightly warmed and our industry is growing at a rate of 30% per year for the third year. In the coming year, we are preparing to increase production by 30% per year too. That is, we doubled the volume of production of agricultural machinery. 3 years ago, the products of Russian brands occupied 24% of the market of our country, now 60%. And exports are increased, wages are risen by tens of percent, teams of workers are growing. This is because we have achieved more attention to the machinery from the government. Now, holding the forum, we have greater attention to the entire production of Russia. Such a growth rate, let's not scare 30%, let's have 15% rise, which will last for many years, I am sure that we will be able to ensure that to the entire production of Russia, and then life in our country will change and of course in the best way.

A. Knyazeva― Among the latest trends that you partially mentioned is such a close look at America, in connection with the election of a new President Donald Trump. But he like you is a supporter of healthy protectionism. So, I would like you to comment on to what we have in common, and what are the possible levers to use in order that our products could actively go out to foreign markets and could be competitive?

K. Babkin― Trump is not the Russian President he protects his economy, we have to protect our one. But America, although not an authority for us in one way or another, but we are all closely watching what is happening in this country. And Trump in his inaugural speech mentioned that factories, manufacturers are experiencing difficulties 4 times. And his mission is to revive these factories to bring jobs to America. This is what we have been saying for at least five forums already, the fifth forum will harp on the fact that the actual production is the key to development... To get the country out of the crisis. We are not as big trading partners with America, but maybe that's why we are not so much going to compete with America. We are fighting for our jobs, it's not drag and drop jobs between America and Russia this is taking back jobs to America and to Russia from other countries. We have to watch what Trump does and to see what he will turn out. But I'm not sure. Because in America, there are strong global corporations and to return jobs to America is not so necessary. They are computer software corporations which have huge production in China, India, and other countries. They do not particularly require Trump's protectionist policies, so Trump has a serious position in America. Russia has no such strong global corporations, and our society may get serious dividends if we pursue protectionist policies. And we will succeed.

A. Knyazeva – As for China. Yes, we know that there are jobs there which are really cheap enough, and many corporations moved part of the production a long time ago. And what of the Chinese experience of market opening and conquest of markets? What can Russia, in your opinion, learn?

K. Babkin― We will have speakers from different countries, that is Romano Prodi from Italy, the Prime Minister of Italy in the recent past, and the Secretary of the League of the North Matteo Salvini, this is a separatist direction in politics. And another important speaker, we are waiting for is Mr. Wang Wen, a personal advisor of Xi Jinping, the President of China. He strongly advocates, I think he will be an important speaker for us. I don't know what he will say of course, but the example of China shows, that to create conditions for the real sector, in order to make it profitable to invest in this country in China, Yes? It led China to become the world power right before our eyes. And China continues to grow in the global crisis, with a rate of 6% per year. Our strategy contains the same recipes: protectionism, cheap money, the amount of money in China for 30 years, this growth has increased 100 times. They’ve simulated 100 times more money than they had. And of course, low taxes, half in generally. The tax burden is lower than in Russia. China, of course, is at the stage when protectionism is not particularly needed, they are Herald of the free trade. Because they need the foreign markets, they are not afraid to open its market because they are already strong producers, they need foreign markets, let's say globalization open up their markets. Of course, we should not listen to them here, we need to look at what they actually do. And they do it in the beginning of their industrialization and that is stated in our strategy that Trump is going to do.

A. Knyazeva― There is a lot of talk about inflation in recent times, and about the plans to bring it to 4%, the CBR repeatedly stated. And as far as I know, you think that high inflation is not just bad for the country and the economy, that's why.

K. Babkin― Well, this is a bit wrong. I believe that to fight with inflation is useless. Especially with those methods that the government is struggling with inflation. And how it fights?

A. Knyazeva- In particular with the high rate.

K. Babkin― Well, the high rate raises the cost of production in Russia, causes an increase in the price of goods, that is, causing another round of inflation. What else is the government fighting for? Taxes increases. Also, this is the increase in prices, the rising cost of commodities, and this is the depreciation of money. The government is conducting a tax maneuver. It increases the excise taxes on mineral extraction, that is, our energy resources get more and more expensive. Again, the increase in the cost of goods, reducing the real purchasing power of the population, then it is the inflation. We can fight inflation with such methods infinitely. Our strategy is not to fight inflation, but to do everything that would be profitable to invest in production, this is the core. We need as much money as needed to nourish a growing economy with the necessary amount of money. China has increased the volume of its economy in recent 30 years for 50 times, and increased the volume of its money 100 times. China regularly spent large-scale emission, and inflation never rose above 4% over the past 30 years. And inflation of 4%, 2%, 3% is generally not a problem, this is a normal level of inflation, it needs to be. The lack of inflation is a huge problem for the economy. For example, in Europe, there is deflation, which causes a lot of problems, and deflation is struggled with. Therefore, inflation is an effect which it is needed to work with. Which should be considered, but fighting it is useless.

A. Knyazeva― But should we work with the ruble rate? Here again, there’s a talk that it may be anti-Russian sanctions will be lifted, and in this case, the Agency "Blumberg" interviewed experts, they predict that the ruble will depreciate by 5 or even 10%. What is your opinion, should we be afraid of this? Is a weak ruble good or bad for us?

K. Babkin― Gradually falling ruble is good for production, it just increases the competitiveness of our products and creates conditions for development. The fact that the ruble fell 3 years ago, right? This led to a revival in agriculture, we have record harvests. The level of inflation is not important to the average person and he is interested in real purchasing power. If the products on the shelves become cheaper with the rate of 4% per year, and salary increases with the rate of 10, 15, 20% per year, such inflation will not create problems for our customers.

A. Knyazeva - Well, you talk about some kind of utopian figures, and even about the growth of wages.

K. Babkin― In agricultural engineering those are the real numbers, they are not utopian, you can check them. But this is my point of view on inflation, on the exchange rate, of course there will be people with other opinions. The forum is an open platform, that`s why the forum is interesting. So, come.

A. Knyazeva – Does the new economic development strategy, which you offer together with the chamber of Commerce and industry of Russia, provide any social guidelines? Here is some information of the international monetary Fund, however for the 15th year. GDP per capita of Russia in the world list is negligible, we are at the 66th place. Mexico is behind us, and Kazakhstan, Panama and Lebanon are ahead of us.

K. Babkin― Well, we are sending social messages. Producing small GDP per capita is the main problem. And the solution of social problems we see in the increase of labor productivity in the revival of our economy. Of course, you can write the May, the December decrees, promise to raise pensions, but if the economy does not work if the country is not invested, and if it is not profitable to work, it will be impossible to ensure the old people, to cure patients, to provide jobs for talented young people. That`s why the locomotive of our strategy is a development of the production. And the development of production creates the request for education, it normalizes the moral situation in the society, increases the income for the budget, so we can do more to support our elderly. That is, we have an economic strategy, there's little attention we pay to just some social things. But a developed economy and knowledge-intensive, requiring high qualification, it creates conditions for the solution of social problems.

A. Knyazeva― And are there any youth panel?

K. Babkin― We will have 35 round tables, conferences in the framework of the forum. Of course, the topic of youth will sound anyway. While we are still forming the program of events, and I promise that we will have many surprises.

A. Knyazeva― From what you're saying is that basically that's the idea of such a reorganization of the world and humanity, they lie on the surface. Why does no one use this, if everything is so obvious?

K. Babkin― I take that as a compliment, the fact that you called our ideas simple and obvious. Because it is possible to continue this sentence and say that everything genius is simple. It's really simple and effective in my opinion. Why don't we use this? Well, society has a certain inertia. Even in order to explain simple things, you need these things to be repeated many times and discuss them from different sides. There will be different views, for this is our forum. We can turn the ship of Russia, if millions of people want it. So, dear millions, follow us, connect us, there will be discussions, your opinion is very important to us.

A. Knyazeva― By the way, today is Konstantin's birthday, and on this holiday dreams come true, my congratulations.

K. Babkin― Thank you.

A. Knyazeva― In our air was the co-chair of the Moscow Economic Forum, entrepreneur, politician, head of the Association "Rostselmash" Konstantin Babkin. I have to remind that the Moscow Economic Forum will be held on March 30 and 31 at the MSU, Shuvalov housing. This is an open forum, not commercial, and registration has already started on the website www.me-forum.ru.

Source: ECHO of Moscow