Valdai Experts Lament Poor Institutions in Russia

Lack of efficient institutions and the political will to reform them were the buzzwords among the strategists and experts in economics and public policy at the Valdai Club’s 9th annual conference on Russia’s trajectory.

The Valdai Club, which is co-sponsored by RIA Novosti and the Russian Council on Foreign and Defense Policy, brings together highly regarded Russia specialists from across the globe for annual, themed discussions – and this year the focus is on Russia’s economic direction. Traditionally the Valdai Club presents its findings to the president following off-the-record discussions and meetings with senior officials in Russia.

St. Petersburg Governor Georgy Poltavchenko met with club members Monday evening, answering their questions about the city’s development, business climate and political reforms, such as the return of directly elected governors and loosening the requirements political parties need to meet to participate in elections.

“Almost all the participants are worried about the slow speed of change in Russia over the last couple of months,” said Piotr Dutkiewicz, professor of political science at Carleton University in Canada and Valdai Club board member. “From all sides, there is a sense of uneasiness about Russia being in slow motion.”

This year, several dozen professors, retired diplomats and writers structured their debate around a paper by Russian Higher School of Economics economist Leonid Grigoryev, which outlines four possible scenarios for the country’s economic development through 2030.

Under the “Sanguine” scenario, with its high oil price and successful reforms, Russia would outpace global economic growth. However, if there is a low oil price and no reforms are implemented, the economy would all but grind to a halt – this is aptly named the “Melancholy” scenario.

If reforms happen, but oil prices fail to rise, (the “Phlegmatic” scenario) the economy will experience more growth than it would if oil prices remain high but there is no institutional reform (the “Choleric” scenario.) Russia today does not just export natural resources, but also capital and people, which are crucial for the country’s own development, the report said.

Timothy Colton, chair of Harvard University’s Department of Government said, on the sidelines of the conference, that after the political turbulence that was reflected in last year’s dramatic Valdai Club discussions in Kaluga, the political “stability” associated with Vladimir Putin’s return to the presidency makes the economy a suitable choice of subject for discussion.

Deputy Minister of Economic Development Andrei Klepach was grimly outspoken on the first day of the conference. Reiterating the main points of his presentation, he said that Russia today faces a crucial choice. “Slowing growth is now a trend,” he said. GDP growth now is at 2.8 percent compared to over 4 percent last year, he said. The projection for 2012 is 3.5 percent.

“In order to solve these internal problems, the Russian economy needs to outpace global economic growth,” Klepach said. “To do that, Russia needs serious new decisions and new projects for the economy.”

Timing plays a crucial role, he added, because there is the danger that many central issues have been put on the back burner. “We have institutions, we have strategy on paper,” Klepach said. “The key is to have the political will and a sequence of real steps.”

This action, Klepach believes, should include a “budget maneuver” in favor of education, health and science, rather than just increasing defense spending. But it also needs to involve major new projects in infrastructure, in addition to the 2014 Winter Olympics in Sochi and the APEC Summit in Vladivostok, which are favored by the Putin’s government.

Former deputy head of Russia’s Central Bank and current director of macroeconomic research at the Higher School of Economics, Sergei Aleksashenko went even further.

“Either we reform these institutions and then the country gets a chance, or the problem remains unsolved, and we are stuck in a swamp,” he said.

Aleksashenko was very impressed by the presentation by the new presidential ombudsman for business Boris Titov. He said that given the current state of affairs in terms of taxes, corruption and forced takeovers, medium-sized businesses in Russia, which contribute most to innovation and development, are simply unprofitable.

“On all these points – taxes, corruption and forced takeovers of businesses – you need to find protection through the courts,” Aleksashenko said. “But if you know about the Pussy Riot process, you won’t want to go to court, because there will be a prosecutor or policeman on the other side and you will be defenseless.” The economic effect of this has not been fully appreciated by political scientists, he believes.

Sergei Karaganov, president of the Council on Foreign and Defense Policy and who acted as moderator on the Valdai Club panels, speaking on the sidelines of the conference, agreed that the courts and justice system were pinpointed in the discussions as the chief obstacles to economic development.

“The main obstacle to modernization that has been raised in discussions is the lack of will among the Russian ruling class, and this question is essentially political,” Karaganov said.

He also noted that past years’ dividing lines, between those in the Valdai Club who backed a Western trajectory for Russia’s development, and those who placed more emphasis on the Eastern economic orientation have now been blurred.

“The opponents of Russia’s economic march to Asia have somewhat retreated and are saying at least that the Eurasian Union needs further development, which is a positive intermediate step,” Karaganov said.

The “Russian” versus “foreign” split, has completely vanished, he added. “The Valdai Club has become an enlightening body for everyone – no longer for “Russians” and “foreigners,” but a place where everyone is learning from everyone.”

One heated discussion on Tuesday morning, however, featured a prominent retired German politician who defended Western policy over Syria and the greater Middle East against a makeshift coalition of Indian, Russian, and Turkish speakers.

Many participants later said, on the sidelines, that this new atmosphere of trust among club members offers them the opportunity to state their position in terms that are much more free and frank than at other, similar, international events.

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