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Russian Journal of Economics 1 (2015) 30–54

www.rujec.org

A new growth model for the Russian economy ً

Alexey Kudrin a,b, Evsey Gurvich c,*
a
Gaidar Institute for Economic Policy, Moscow,
Russia b St. Petersburg State University, St.
Petersburg, Russia c Economic Expert Group, Moscow,
Russia

Abstract

The problems underlying the current slowdown of the Russian economy are of a persistent nature
DQG FDQQRW EH UHVROYHG ZLWK VLPSOH PHDVXUHV VXFK DV D VRIWHU PRQHWDU\ RU ¿VFDO SROLF\. 7KH IXQGDPHQ-
tal reason for these problems is the weak market environment dominated by public and quasi-public
companies. A new growth model should be based upon strong incentive for the business, as well as
the JRYHUQPHQW UHJXODWLRQ V\VWHP, WR LPSURYH HI¿FLHQF\. 7KLV DUWLFOH GH¿QHV WKH PDLQ VWHSV WR EH
WDNHQ LQ
building such a model.
‹ 2015 1RQ-SUR¿W SDUWQHUVKLS ³9RSURV\ (NRQRPLNL´. +RVWLQJ E\ (OVHYLHU %.9. $OO ULJKWV UHVHUYHG.

-(/ FODVVL¿FDWLRQ: (6, +11, 21, 24, 34.

Keywords: growth model, oil and gas revenues, soft budget constraints, incentives for growth.

1. Introduction

7KH 5XVVLDQ HFRQRP\ GHPRQVWUDWHG LPSUHVVLYH JURZWK EHWZHHQ WKH WZR ¿QDQFLDO FULVHV
RI 1998 DQG 2009. %HWZHHQ 2000 DQG 2008, WKH *'3 JUHZ E\ 83%, SURGXFWLYLW\
JUHZ E\ 70%, DQG H[SHQVHV IRU DFFXPXODWLQJ ¿[HG FDSLWDO GRXEOHG LQ UHDO WHUPV.
:KHUHDV LQ 1999, SHU FDSLWD *'3 E\ SXUFKDVLQJ SRZHU SDULW\ (333) ZDV $9,300 (RQO\ 25%
DERYH WKH JOREDO DYHUDJH), E\ 2008, WKLV LQGLFDWRU KDG LQFUHDVHG WR $21,600 (78% DERYH
WKH JOREDO DYHUDJH).
Russia’s share in the world economy (at the current exchange rate) grew fourfold over the
VDPH SHULRG, IURP 0.6% WR 2.7%. 7KH ZHOIDUH RI WKH SRSXODWLRQ LQFUHDVHG FRQVLGHUDEO\: UHDO
wages increased by 3.4 times, and real pensions increased by 2.8 times.
This exceptionally successful (at least by formal indicators) period of development in
WKH 5XVVLDQ HFRQRP\ WKDW VWDUWHG DIWHU WKH 1998 FULVLV HQGHG ZLWK WKH QH[W FULVLV.
:KHUHDV LQ WKH SUH-FULVLV SHULRG IURP 2000 WR 2008, DYHUDJH DQQXDO *'3 JURZWK ZDV 6.9%,
DIWHU WKH FULVLV (2009±2013) LW VORZHG GRZQ WR 1.0%. 2I FRXUVH, WKH JURZWK UDWH
GURSSHG DFURVV WKH
globe; however, the slowdown was not as sharp, even in oil producing countries (Table 1).
Russia’s absolute performance dropped, as did its relative position: from the leaders group

ً The updated English version of the article published in Russian in Voprosy Ekonomiki, 2014, No. 12,
pp. 4–36.
* Corresponding author, E-mail address: egurvich@eeg.ru.
3HHU UHYLHZ XQGHU UHVSRQVLELOLW\ RI 9RSURV\ (NRQRPLNL.

doi line
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30í54
Table 1
$YHUDJH DQQXDO SUH-FULVLV DQG SRVW-FULVLV JURZWK UDWHV (%).
Country/group of countries 2000–2008 2009–2013
:RUOG 4.3 3.2
'HYHORSLQJ FRXQWULHV DQG HPHUJLQJ PDUNHWV 6.5 5.3
China 10.4 8.9
Russia 6.9 1.0
India 6.7 7.0
UAE 6.2 2.2
9HQH]XHOD 4.4 1.2
South Africa 4.2 1.9
%UD]LO 3.7 2.7
Source: calculations based on IMF data (IMF, 2014).

(mid-second decile growth rate worldwide), Russia dropped into the outsiders group (top-
eighth decile).
The slowdown was unexpected for the Russian government and for analysts. In 2012, the
RI¿FLDO IRUHFDVW IRU *'3 JURZWK IRU 2013±2015 ZDV 13%. &XUUHQWO\, LW LV ±1%.
2WKHU REMHFWLYH VLJQV RI GHWHULRUDWLRQ LQ 5XVVLD¶V HFRQRPLF RXWORRN FDQ EH REVHUYHG
DV ZHOO. )L[HG FDSLWDO LQYHVWPHQW JURZWK UDWHV GURSSHG GUDPDWLFDOO\ IURP 13% SUH-FULVLV WR
1% SRVW-FULVLV. 7KH QHW SULYDWH FDSLWDO LQÀRZ WKDW H[LVWHG EHIRUH WKH FULVLV KDV EHHQ
UHSODFHG E\ D SHUVLVWHQW FDSLWDO RXWÀRZ ($285 ELOOLRQ OHIW WKH FRXQWU\ EHWZHHQ
2009 DQG 2013).
The government took measures to boost growth, although it has not provided a clear
DQVZHU DV WR WKH UHDVRQV IRU WKH VORZGRZQ. ,Q RXU RSLQLRQ, ZLWKRXW ¿QGLQJ DQ DQVZHU, LW ZLOO
be impossible to overcome the stagnation of the Russian economy that borders on reces-
sion. There is no universal cure, just as there is no panacea for medical diseases. Moreover,
measures that are expedient in some situations may have a negative impact in others. In this
paper, we attempt to identify the reasons for the slowdown of the Russian economy and
ways not only to improve the situation but also to achieve a complete turnaround.

2. Growth of the Russian economy in 2000–2013

:KDW GURYH JURZWK LQ WKH 5XVVLDQ HFRQRP\ EHIRUH WKH FULVLV, DQG ZK\ GLG WKH ROG GULYHUV
ORVH WKHLU HIIHFW DIWHU LW" 7DEOH 2 SUHVHQWV JURZWK UDWHV RI VSHFL¿F FRPSRQHQWV RI *'3
XWLOL]D-
tion. First, it should be noted that the growth rate in both investment and consumer
domestic GHPDQG GXULQJ WKH SUH-FULVLV SHULRG RXWVWULSSHG WKDW RI WKH *'3. 3K\VLFDO
H[SRUWV JHQHUDOO\ JUHZ DW DSSUR[LPDWHO\ WKH VDPH UDWH DV WKH *'3. ,Q WHUPV RI JURZWK
GULYHUV, RXU HFRQRP\
differed dramatically, for example, from China and other fast-growing countries in
Southeast Asia where exports are the main growth driver.

Table 2
$YHUDJH JURZWK UDWHV RI ¿QDO GHPDQG FRPSRQHQWV LQ FRQVWDQW SULFHV (%).
Change over the period Average growth rate
2000–2008 2009–2013 2000–2008 2009–2013
*'3 82.5 5.3 6.9 1.0
'RPHVWLF GHPDQG 134.7 7.8 9.9 1.5
¿QDO FRQVXPSWLRQ 102.6 16.0 8.2 3.0
including households 145.3 20.9 10.5 3.9
gross investment 343.8 –12.6 18.0 –2.7
LQFOXGLQJ ¿[HG FDSLWDO 199.9 5.1 13.0 1.0
exports 93.6 8.0 7.6 1.6
imports 433.4 18.8 20.4 3.5
Source: calculations based on Rosstat data.
 A detailed analysis reveals that for the Russian economy, export revenues were also one
RI WKH JURZWK GULYHUV, DOWKRXJK WKLV UHVXOW ZDV PRUH RI D ÀXNH GXH WR WKH LQFUHDVLQJ SULFHV
RI
oil, gas and other raw materials on the global market, rather than an increase in exports. To
evaluate how much the Russian economy gained from higher hydrocarbon prices, we have
calculated the windfall (or surplus) export revenues resulting from more expensive oil and
gas for each year compared to 1999 (all prices converted into constant dollars).
7KH EDVH \HDU 1999, ZKHQ 8UDOV RLO FRVW $17.2/EEO, LV W\SLFDO RI WKH 1990V. 7KH
DYHUDJH SULFH (LQ 1999 GROODUV) ZDV $19.6/EEO GXULQJ WKDW SHULRG. 'XH WR LQFUHDVHG
K\GURFDUERQ SULFHV, 5XVVLD UHFHLYHG DGGLWLRQDO LQFRPH HTXLYDOHQW WR EHWZHHQ 5%
DQG 15% RI *'3 (9.4% RI *'3 DQQXDOO\, RQ DYHUDJH) IURP 2000 WR 2008. $IWHU WKH
FULVLV, IURP 2010 WR 2013, VXUSOXV UHYHQXHV ÀXFWXDWHG EHWZHHQ 12.5% DQG 14.5% RI
*'3, ZKLOH EHIRUH WKH
crisis they had grown continuously (except 2001 and 2002) at an average annual rate of 4%
RI *'3. )URP 2012 WR 2013, QRPLQDO VXUSOXV UHYHQXHV OHYHOHG RXW DQG JURZWK VWRSSHG
(Fig. 1).
7KH VXUSOXV RLO DQG JDV UHYHQXHV WRWDOHG $2.1 WULOOLRQ (LQ 2013 86 GROODUV) IURP 2000 WR
2013. 7KH QLQH \HDUV EHIRUH WKH FULVLV DFFRXQWHG IRU $0.9 WULOOLRQ, ZKLOH $1.2 WULOOLRQ RFFXUUHG
GXULQJ WKH ¿YH \HDUV DIWHU. 0HDQZKLOH, WKH WRWDO ZLQGIDOOV RYHU WKH HQWLUH SHULRG ZDV 7.5 WLPHV
WKH 1999 *'3 (WKLV FRPSDULVRQ LV MXVW DQ LOOXVWUDWLRQ).
More expensive exports accelerated economic growth mainly due to greater demand in
several channels. As a result of reforms in taxation of oil and gas sectors implemented in
2002, SDUW RI WKH QDWXUDO UHQW DULVLQJ IURP WKLV VHFWRU (70% RQ DYHUDJH) EHJDQ WR EH ZLWK-
drawn in the federal budget (Gurvich, 2010). Combined with hydrocarbon price growth, it
raised oil and gas revenues (understood as withholdings of the natural rent through resource
payments and export duties) to the budget by 40 times from 2000 to 2008, or by eight times
in real terms.1 This helped the government substantially reduce taxes in the non-primary
materi- als sector without harming the federal budget. Its total revenues nearly doubled in
real terms over the period. Following the revenues, all types of government expenditures
also grew. Thus, by 2008, public investments nearly tripled in real terms. The growing
expenditures and wages in the public sector created additional consumer demand, while the
increasing volume of government procurement boosted demand for industrial products.

Fig. 1. Estimated oil and gas windfalls.

Source: authors’ calculations.

1
7R UHFDOFXODWH LQ FRQVWDQW SULFHV, D GRPHVWLF GHPDQG GHÀDWRU KDV EHHQ XVHG EHFDXVH, LQ RXU RSLQLRQ, WKLV LQGLFDWRU
is the most representative of domestic price trends.
Table 3
5HDO ZDJH JURZWK LQGH[ E\ LQGXVWU\ (%, 2000 100%).
Industry 2008/2000 2012/2000
Agriculture 315 386
Mining 205 229
Manufacturing 249 279
Construction 258 265
Transportation and communication 236 263
3XEOLF DGPLQLVWUDWLRQ DQG PLOLWDU\ VHFXULW\ 289 355
Education 335 413
+HDOWKFDUH 359 417
Source: calculations based on Rosstat data.

The portion of surplus revenues remaining with producers after taxes was spent to raise
wages throughout the economy, in addition to the oil, gas and metal sectors (Table 3). As
a result, the growth in wages far exceeded productivity growth (measured as output volume
per hour worked).
0RUH H[SHQVLYH H[SRUWV FRQWULEXWHG WR LQFUHDVHG EXVLQHVV SUR¿WV, L.H., WKH PDLQ
VRXUFH RI WKHLU LQYHVWPHQWV. +RZHYHU, WKH SRVLWLYH LQÀXHQFH RI PRUH H[SHQVLYH H[SRUW
SURGXFWV RQ LQYHVWPHQWV ZDV QRW OLPLWHG E\ LQFUHDVHG SUR¿WV. 7KH UDSLG JURZWK LQ
SURGXFWLRQ FUHDWHG
expectations of a future demand for products and thus spurred investment demand
(following WKH ³DFFHOHUDWRU PRGHO´). 7KLV HIIHFW ZDV WKH PRVW VLJQL¿FDQW IRU IRUHLJQ
LQYHVWRUV: WKH *'3 JUHZ E\ 8.5(!) WLPHV LQ GROODU WHUPV RYHU WKH SHULRG IURP 2000 WR 2008
(27% DQQXDO DYHUDJH).
$V D UHVXOW, WKH QHW RXWÀRZ RI SULYDWH FDSLWDO JUDGXDOO\ GLPLQLVKHG DQG EHFDPH D QHW
LQÀRZ VWDUWLQJ LQ 2006. 2Q WKH ZKROH, DFFRUGLQJ WR HVWLPDWHV E\ (. *XUYLFK DQG ,.
3ULOHSVN\ (2013), DQ RLO SULFH LQFUHDVH RI 1% LQ UHDO WHUPV OHG WR DQ LQFUHDVH LQ
GRPHVWLF GHPDQG RI 0.22%.
The surplus oil revenues received by the federal budget between 2000 and 2008 were
SDUWO\ VDYHG WR SUHYHQW WKH HFRQRP\ IURP RYHUKHDWLQJ DQG LQÀDWLQJ, DV ZHOO DV WR HQVXUH
a margin of safety should oil prices fall. The retained surplus revenues were spent to repay
WKH JRYHUQPHQW GHEW (LW ZDV UHGXFHG IURP $161 ELOOLRQ LQ HDUO\ 2000 WR $41 ELOOLRQ LQ ODWH
2008) and to build up public oil and gas funds.
Actually, the government pursued a counter-cyclical policy, dampening the impact of
H[WHUQDO ÀXFWXDWLRQV RQ WKH 5XVVLDQ HFRQRP\. 7KLV SROLF\ LV NQRZQ WR KHOS FRQVLGHUDEO\
reduce the negative impact of macroeconomic volatility on growth (Fatas, Mihov, 2009),
ZKLFK LV HVSHFLDOO\ LPSRUWDQW IRU RLO-SURGXFLQJ FRXQWULHV (.XGULQ, 2006; 2013; 'DYLV HW DO.,
2003). 7KLV ZDV SURYHQ GXULQJ WKH FULVLV, ZKHQ D VLJQL¿FDQW SRUWLRQ RI WKH 5HVHUYH )XQG ZDV
spent to mitigate the consequences of plummeting oil prices. An analysis of the life-cycles
of Russian companies showed: macroeconomic volatility that was higher compared with
FRPSDUDEOH FRXQWULHV KLQGHUHG WKH GLYHUVL¿FDWLRQ RI WKH 5XVVLDQ HFRQRP\, PDNLQJ
VXUYLYDO PRUH GLI¿FXOW IRU \RXQJ FRPSDQLHV (*RQ]DOH] HW DO., 2013).
0HDQZKLOH, VDYLQJ SHWURGROODUV FDQQRW EH GHHPHG D ³GHGXFWLRQ´ IURP WKH SRWHQWLDO JURZWK
in domestic demand. Repaying foreign debt at the expense of oil revenues and establishing
WKH 6WDELOL]DWLRQ )XQG (ODWHU WKH 5HVHUYH )XQG DQG 1DWLRQDO :HOIDUH )XQG) VLJQL¿FDQWO\ UH-
duced macroeconomic risks and ensured higher sovereign and corporate credit ratings and
lower borrowing costs for all classes of Russian borrowers, thereby providing additional
growth incentives.
From 2000 to 2013, savings in the form of early repayment of foreign debt and net
savings (less expenses for creating public corporations, economic support in 2009, etc.) in
oil and gas IXQGV PDGH XS D WRWDO RI $215 ELOOLRQ (LQ 2013 86 GROODUV). 7KXV,
approximately 10% of total
surplus oil and gas revenues from the economy and 15% of surplus oil and gas revenues
from the federal budget were allocated for savings. If these funds had been spent entirely,
general government expenses would have exceeded actual expenses by 3.5%.
 2QH FDQ KDUGO\ DJUHH WKDW LW ZDV WKLV LQVLJQL¿FDQW VXUSOXV WKDW WKH JRYHUQPHQW ODFNHG IRU
diversifying the economy, ensuring innovative growth and achieving a strong competitive
position (especially considering that from 2000 to 2013, government expenditures more
than doubled in real terms). If all of the surplus revenues had been spent, we would have
wit- nessed even poorer performance sooner due to a sharply increased sensitivity in the
Russian HFRQRP\ WR IRUHLJQ PDUNHW ÀXFWXDWLRQV, KLJKHU PDFURHFRQRPLF ULVNV DQG LQWHUHVW
UDWHV.
2WKHU PHFKDQLVPV DOVR FRQWULEXWHG WR DFFHOHUDWHG JURZWK E\ LQFUHDVLQJ WKH DYDLODELOLW\
RI ¿QDQFLDO UHVRXUFHV. )LUVW, ORZ EDVH LQWHUHVW UDWHV LQ WKH 8.6. DQG (8, DV ZHOO DV JURZLQJ
FUHGLW OHYHUDJH, OHG WR JUHDWHU FDSLWDO ÀRZV IURP GHYHORSHG WR GHYHORSLQJ FRXQWULHV
()LJ. 2).
,Q MXVW HLJKW \HDUV (2000±2007), WKH QHW FDSLWDO LQÀRZ WR GHYHORSLQJ FRXQWULHV DQG HPHUJLQJ
markets grew by nearly 20 times!
6HFRQG, WKH IRUHLJQ H[FKDQJH SROLF\ RI WKH %DQN RI 5XVVLD, DJDLQVW WKH EDFNGURS RI
FRQ-
stantly increasing oil prices, led to expectations of a stable nominal ruble rate. As a result,
international borrowings converted into rubles looked extremely attractive. In addition, the
expansion of the domestic market, thanks to production growth and a strengthening ruble,
increased the attractiveness of the Russian economy for foreign investors. As a result, the
PDVVLYH FDSLWDO RXWÀRZ (11% RI *'3 LQ 1999) ZDV UHSODFHG E\ D VLJQL¿FDQW FDSLWDO LQÀRZ
(7% RI *'3 LQ 2007).
2I FRXUVH, RWKHU IDFWRUV DOVR PDGH KHIW\ FRQWULEXWLRQV. 7KXV, LQ 2006, WKH 5XVVLDQ JRYHUQ-
PHQW DQG WKH %DQN RI 5XVVLD OLIWHG QHDUO\ DOO UHVWULFWLRQV RQ FDSLWDO WUDQVDFWLRQV (WKXV ORZHU-
ing visible risks for foreign investors).
A wide margin of macroeconomic safety was also created: the federal budget and current
DFFRXQW H[SHULHQFHG D VWDEOH VXUSOXV; VXEVWDQWLDO LQWHUQDWLRQDO DQG ¿VFDO UHVHUYHV ZHUH DFFX-
mulated; and foreign debt was reduced considerably (although these achievements were
also made possible due to high oil prices).
,Q JHQHUDO, ZKHQ IRUHLJQ FDSLWDO LQÀRZ LQWR 5XVVLD UHDFKHG LWV SHDN LQ 2007, DGGLWLRQDO
LQYHVWPHQW UHVRXUFHV H[FHHGHG $100 ELOOLRQ (FRPSDUHG ZLWK 1999) GXH WR WKLV IDFWRU. $Q
HVWLPDWH E\ WKH (FRQRPLF ([SHUW *URXS (((*) VKRZHG WKDW DQ LQFUHDVH RI $1/EEO LQ RLO
SULFHV OHG WR DQ LQFUHDVH LQ FDSLWDO LQÀRZ LQWR WKH FRXQWU\ RI $1 ELOOLRQ.
6XFK D GUDPDWLF WXUQDURXQG LQ SULYDWH FDSLWDO ÀRZV VSXUUHG DQ H[SORVLYH JURZWK LQ
lending. Fig. 3 shows a growth in accumulated loans issued to legal entities and individuals
RI 11.3 WLPHV LQ UHDO WHUPV IURP 2000 WR 2008 (RU IURP 10% WR 41% RI *'3). $QRWKHU
UHDVRQ IRU WKLV JURZWK LV WKDW VRPH DUHDV RI WKH ¿QDQFLDO VHFWRU KDG EHHQ GHYHORSHG
DOPRVW IURP
scratch. Thus, the real amount of loans to individuals grew by 46 times during the pre-crisis
SHULRG (DQ DQQXDO DYHUDJH RI 53%!).
)LJ. 4 VKRZV WKH PRYHPHQW RI DGGLWLRQDO UHVRXUFHV WKDW ÀRZHG LQWR WKH 5XVVLDQ HFRQRP\
via the two channels described. Although their nature and conditions of receipt differ sub-

Fig. 2. 1HW FDSLWDO LQÀRZ WR GHYHORSLQJ FRXQWULHV DQG HPHUJLQJ PDUNHWV (86' ELOOLRQ).
Source: IMF, 2014.
 Fig. 3. $PRXQW RI ORDQV LVVXHG (%, -DQXDU\ 1, 2000 100%).
Source: DXWKRUV¶ FDOFXODWLRQV EDVHG RQ WKH %DQN RI 5XVVLD GDWD.

Fig. 4. $GGLWLRQDO UHVRXUFHV LQ WKH 5XVVLDQ HFRQRP\ (2013 86' ELOOLRQ).

Source: authors’ calculations.

stantially, from the viewpoint of current growth factors, they can be added subject to certain
FRQGLWLRQV. $IWHU UHDFKLQJ LWV SHDN (RYHU $300 ELOOLRQ) LQ 2007, WKLV LQGLFDWRU GHFOLQHG
VRPH- ZKDW DQG OHYHOHG RXW DW DSSUR[LPDWHO\ $250 ELOOLRQ D \HDU.
$QRWKHU PHFKDQLVP RI HFRQRPLF LQÀXHQFH IURP RLO SULFHV VKRXOG EH DGGHG, QDPHO\,
WKH LQÀXHQFH RQ LQYHVWRU H[SHFWDWLRQV. 7KLV FKDQQHO LV GLVFXVVHG PRUH UDUHO\, SUREDEO\
EHFDXVH LW LV PRUH GLI¿FXOW WR PHDVXUH GLUHFWO\. 2QH RI WKH TXDQWLWDWLYH DVVHVVPHQW
PHWKRGV RI WKH H[SHFWDWLRQ HIIHFW LV, LQ RXU RSLQLRQ, WKH DQDO\VLV RI WKH *'3 H[SHQGLWXUH
HOHPHQW ³FKDQJHV
LQ LQYHQWRULHV´.2 This indicator helps assess producer expectations regarding future demand
for their products.
%HIRUH WKH FULVLV, DYHUDJH JURZWK UDWHV LQ JURVV LQYHVWPHQW VXUSDVVHG JURZWK LQ ¿[HG
LQ- YHVWPHQW E\ ¿YH SHUFHQWDJH SRLQWV, ZKLOH DIWHU WKH FULVLV WKH VDPH LQGLFDWRU ZDV QHDUO\
IRXU
percentage points lower. This means inventories initially grew much faster than production
RQ DYHUDJH DQG ODWHU JUHZ PXFK VORZHU. 'XULQJ WKH SUH-FULVLV SHULRG, WKLV FRPSRQHQW RI ¿QDO
GHPDQG LQFUHDVHG WKH DYHUDJH *'3 JURZWK UDWH E\ 1.1 SHUFHQWDJH SRLQWV DQG ORZHUHG LW E\
0.8 percentage points after the crisis. In other words, the economy slowed down by nearly

2
7KH GLIIHUHQFH EHWZHHQ JURVV DFFXPXODWLRQ DQG ¿[HG FDSLWDO DFFXPXODWLRQ.
two percentage points during the transition from optimistic expectations, when producers
increased their inventories, to pessimistic expectations, when inventories were reduced.
7KH VLJQL¿FDQFH RI LQYHQWRULHV PDQLIHVWHG LWVHOI GXULQJ WKH 2009 FULVLV, ZKHQ D UHFRUG 7.8%
decline in production was almost entirely caused by their reduction (otherwise, the slowdown
ZRXOG KDYH EHHQ RQO\ 0.5%).
A number of studies present quantitative assessments of how oil prices affect growth
indica- tors for the Russian economy. The results are relatively close among most of them:
the elasticity RI SK\VLFDO *'3 YROXPH E\ RLO SULFHV ZDV 0.15 (.XERQLZD, 2012), 0.2
(5DXWDYD, 2013) DQG 0.24±0.25 (,WR, 2008; .RUKRQHQ DQG /HG\DHYD, 2010). $FFRUGLQJ WR
DQ HVWLPDWH E\ 3. 6XQL, WKH LQFUHDVH LQ RLO SULFHV IURP 2001 WR 2006 LQFUHDVHG WKH DQQXDO
*'3 JURZWK UDWH E\ DSSUR[L-
mately 2.5 percentage points, which corresponds to an elasticity ratio of 0.2 (Suni, 2007).
%\ DSSO\LQJ WKH DERYH HVWLPDWHV WR SUH-FULVLV RLO SULFH JURZWK GDWD, ZH FDQ SODFH WKH
FRUUHVSRQGLQJ LQFUHPHQW WR 5XVVLD¶V *'3 JURZWK DW 3.0±3.5% SHU \HDU. 7KXV, RXW RI WKH
6.9% DYHUDJH JURZWK UDWH GXULQJ WKLV SHULRG, URXJKO\ KDOI ZDV FDXVHG E\ IDYRUDEOH
(DQG FRQWLQXRXVO\ LPSURYLQJ) H[WHUQDO FRQGLWLRQV. ³,QWULQVLF´ JURZWK DFFRXQWV IRU WKH
UHPDLQLQJ 3.5±4.0% FRPSDUHG ZLWK WKH 4.3% JURZWK UDWH RI WKH JOREDO HFRQRP\.
&DOFXODWLRQV E\ ((*
provide a somewhat lower assessment of the oil market’s contribution to growth (approxi-
PDWHO\ 2% SHU \HDU), EXW WKH\ KLJKO\ YDOXH LWV FRQWULEXWLRQ WR ZDJH JURZWK: WKH
K\SRWKHWLFDO WRWDO LQFUHDVH LQ UHDO ZDJHV, NHHSLQJ RLO SULFHV FRQVWDQW DQG FDSLWDO LQÀRZ
VWDEOH IURP 2000 WR 2008, ZDV RQO\ 50%, L.H., ¿YH WLPHV ORZHU WKDQ WKH DFWXDO
LQFUHDVH (244%).
The connection between surplus oil and gas revenues and economic growth is shown in Fig.
5.
,W EHFDPH HVSHFLDOO\ FORVH LQ 2009. +RZHYHU, EHIRUH WKH FULVLV, WKH FRUUHODWLRQ EHWZHHQ VXUSOXV
UHYHQXH JURZWK DQG WKH *'3 JURZWK UDWH ZDV 0.57 ²IURP 2009 WR 2013 LW MXPSHG WR
0.93(!).
Thus, the main growth driver in the Russian economy before the crisis was the massive
LQÀRZ RI H[WHUQDO UHVRXUFHV LQWR WKH FRXQWU\. 7KLV DOORZV XV WR FRQYHQWLRQDOO\ FKDUDFWHUL]H
the economic mechanism functioning at that time as an “imported growth model.” 2I
FRXUVH, not all of the production growth was determined by external resources. It was
partly caused by dynamic growth in the overall global economy (and a respective expansion
of foreign demand on the Russian production). For the most part, however, it was likely due
to market IRUFHV DIWHU WKH WUDQVLWLRQ SHULRG DQG DIWHU WKH ¿QDQFLDO FULVLV RI 1998
HQGHG.
+RZHYHU, DIWHU WKH 2009 FULVLV, RWKHU IDFWRUV DFWXDOO\ FHDVHG WR KDYH DQ HIIHFW, SRVVLEO\
because of new and unfavorable conditions, including uncertainty in the macroeconomic
environment, exchange rate volatility in particular (Rautava, 2013) and inconsistency in
 Fig. 5. *'3 JURZWK UDWH DQG VXUSOXV RLO DQG JDV UHYHQXHV (%).
Sources: Rosstat; authors’ calculations.
government actions in a number of issues (with the most vivid example being the numerous
XQSUHGLFWDEOH FKDQJHV LQ GHFLVLRQV RYHU WKH IXQGHG SHQVLRQ V\VWHP). 7KH :RUOG %DQN
DUJXHV WKDW WKLV OHG WR D ³FULVLV RI FRQ¿GHQFH´ RQ WKH SDUW RI LQYHVWRUV (:RUOG %DQN,
2014E). ,Q WKH
end, growth became almost entirely determined by changes in oil and gas revenues.

3. Potential and prospects for the existing growth model

To evaluate the potential of the current economic growth model, two questions need to
be answered. First, are there any drivers for its development, suggesting a reduction in
resource dependence? Second, is there any hope that certain conditions will be created in
the near IXWXUH WR PDNH WKH LPSRUWHG JURZWK PRGHO ZRUN DJDLQ" 7R DQVZHU WKH ¿UVW
TXHVWLRQ, ZH ZLOO
conduct an additional analysis of government and corporate behavior on the one hand, and
of the results achieved on the other.
$V WKH IRUHLJQ LQÀRZ RI UHYHQXHV DQG FDSLWDO EHFDPH WKH PDLQ GULYHU RI HFRQRPLF JURZWK,
economic policy gradually focused on the allocation of these resources. In the early 2000s,
UHIRUPV ZHUH SULPDULO\ GLUHFWHG DW VROYLQJ EDVLF LQVWLWXWLRQDO LVVXHV (WKH QHZ %XGJHW &RGH,
Tax Code, Labor Code, and Land Code were enacted and reforms were carried out in the
electricity sector) and creating favorable business conditions (a red tape cutting program
was implemented, and the tax burden was decreased on the non-primary materials sector).
Starting mid-2000s the prevailing trend was increasing government involvement in the
economy, and WKH PDLQ DGPLQLVWUDWLYH WRRO ZDV WKH DOORFDWLRQ RI ¿QDQFLDO UHVRXUFHV. $W
WKDW VWDJH, JURZWK
was supported mainly by creating public corporations and various development institutions.
7KDW SHULRG VDZ WKH ELUWK RI WKH ,QYHVWPHQW )XQG IRU 3XEOLF-3ULYDWH )LQDQFLQJ RI 0DMRU
%XVLQHVV 3URMHFWV, WKH $JHQF\ IRU +RPH 0RUWJDJH /HQGLQJ, DQG 5XVVLDQ 9HQWXUH
&RPSDQ\ DV D FRPSRQHQW RI WKH QDWLRQDO LQQRYDWLRQ V\VWHP. $GGLWLRQDOO\, WKH 5XVVLDQ
'HYHORSPHQW
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corporations were established, some of which included companies that had previously oper-
ated (quite successfully in some cases) based on market principles. Moreover, the United
Aircraft Construction Company and the United Shipbuilding Company were consolidated.
2WKHU GHFLVLRQV ZHUH PDGH DW WKH VDPH WLPH, H.J., WR GHOLPLW WKH DXWKRULWLHV RI
GLIIHUHQW EXGJHW OHYHOV RU EHQH¿W PRQHWL]DWLRQ, EXW WKH\ QR ORQJHU GH¿QHG WKH PDLQ
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government’s policy.
To illustrate the change in this economic policy vector, we can compare two pension re-
forms carried out in the 2000s.
The 2002 reform involved breakthrough institutional changes. A funded pillar of the
pen- sion system was created. The insurance pillar of retirement pensions was based on the
inter- QDWLRQDOO\ DFNQRZOHGJHG 1'& SULQFLSOH WKDW DOORZHG WKH SHQVLRQ VL]H WR EH
DVVRFLDWHG ZLWK
the total pension contribution by an employee throughout one’s entire career. The reform FDUULHG RXW
LQ 2010 DOPRVW FRPSOHWHO\ FDPH GRZQ WR LQFUHDVLQJ WKH VL]H RI SHQVLRQV: EDVH SHQVLRQV
ZHUH DGMXVWHG E\ 30%, DQG SHQVLRQ HQWLWOHPHQWV IRU HPSOR\PHQW GXULQJ WKH 6RYLHW HUD
(XQWLO 1991) ZHUH LQFUHDVHG. 1R DFWXDO DWWHPSW ZDV PDGH WR LPSURYH WKH HI¿FLHQF\ RI WKH
pension system or create appropriate incentives.
7KH LQWHQWLRQ WR VXSSRUW EXVLQHVV RSHUDWLRQV ZDV SUDFWLFDOO\ OLPLWHG WR DOORFDWLQJ ¿QDQFLDO
resources in a certain form. Tax exemptions became very common. In 2012, their total value
ZDV HTXLYDOHQW WR 2.9% RI WKH *'3.3 7KLV ¿JXUH, UHÀHFWLQJ GLUHFW EHQH¿WV, VKRXOG EH VXSSOH-
mented with many implied subsidies. Thus, decreased export duties on petroleum products
EDVLFDOO\ PHDQ D GHFUHDVHG WD[ EXUGHQ RQ RLO SURFHVVLQJ. +RZHYHU, PRUH RIWHQ WKDQ QRW, VXFK
a policy has led to the opposite result, allowing subsidy recipients to successfully survive
ZLWKRXW PRGHUQL]DWLRQ (*XUYLFK, 2010). $V D UHVXOW, D ODJ LQ 5XVVLDQ RLO SURFHVVLQJ KDG EXLOW
 3
Main lines of Russian Federation tax policy for 2015 and for the planning period of 2016 and 2017. http://www.
PLQ¿Q.UX/FRPPRQ/XSORDG/OLEUDU\/2014/07/PDLQ/01%3B2015-2017.SGI.
up for a long time: according to the Institute of Energy Strategy, the average oil processing
GHSWK ZDV 73% IURP 2007 WR 2010, FRPSDUHG ZLWK 92% LQ 23(& FRXQWULHV.
The rapid expansion of domestic demand affected corporate strategies. They became
RULHQWHG PDLQO\ DURXQG LQFUHDVLQJ SURGXFWLRQ, ZKLOH HI¿FLHQF\ LPSURYHPHQWV ZHUH UHJDUGHG
as a secondary objective. Table 4 demonstrates: in terms of the share of businesses that
believe the expansion of production capacity is a result of innovative activity, Russia is
com- parable to other transition economies. At the same time, the share of companies that
consider GHFUHDVHG ODERU FRVWV WR EH DQ LPSRUWDQW UHVXOW ZDV LQVLJQL¿FDQW. ,W LV DOVR ZRUWK
PHQWLRQLQJ WKDW LQ IRUHLJQ FRXQWULHV, WKH ¿QDQFLDO FULVLV IRUFHG FRPSDQLHV WR ERRVW WKHLU
FRVW UHGXFWLRQ
activities, whereas Russian companies made almost no changes to their strategies. There
are practically no signs of restored interest by producers in innovations. The proportion of
FRPSDQLHV WKDW LPSOHPHQWHG WHFKQRORJ\ LQQRYDWLRQV LQ SURGXFWLRQ ZDV 10.6% LQ 2000, 9.6%
LQ 2008, DQG 9.9% LQ 2012 (+6(, 2014).
/HW XV QRZ DWWHPSW WR JHQHUDOO\ HVWLPDWH WKH HI¿FLHQF\ RI WKH SUH-FULVLV JURZWK PRGHO.
Its obvious weakness is that production depends heavily on external factors: a renewed in-
ÀRZ RI ¿QDQFLDO UHVRXUFHV ERRVWV JURZWK, ZKLOH D FRUUHVSRQGLQJ UHGXFWLRQ OHDGV WR GHFOLQH
(as in 2009).
+RZHYHU, ZKDW ZDV WKH HI¿FLHQF\ LQ DSSO\LQJ WKH KXJH DGGLWLRQDO ¿QDQFLDO UHVRXUFHV
5XVVLD UHFHLYHG GXULQJ WKH 2000V" 'LG WKH\ KHOS QRW RQO\ UDLVH OLYLQJ VWDQGDUGV DQG H[SDQG
production, but also create a sturdy foundation for further economic growth, i.e., improve its
competitiveness?
As one of the criteria for answering these questions, we can use the trend of Russia’s share
in the global non-primary materials markets (Table 5). Calculations show that our country’s
VKDUH RI WKH KLJK-WHFK PDUNHW LQFUHDVHG LQVLJQL¿FDQWO\ IURP 2002 WR 2008 (UHPDLQLQJ YHU\
ORZ). 5XVVLD¶V SRVLWLRQ RQ QRQ-IXHO PDUNHWV LV VOLJKWO\ ¿UPHU QRZ GXH WR KLJKHU SULFHV IRU
PHWDOV, ZKLFK DUH RXU VHFRQG-ODUJHVW H[SRUW LWHP, EXW ZDV OHIW DOPRVW XQFKDQJHG IRU
³PDFKLQHU\ DQG HTXLSPHQW.´ 7KXV, D VKDUS LQFUHDVH LQ WKH 5XVVLDQ HFRQRP\¶V JOREDO VKDUH ZDV
QRW EDVHG RQ D VLJQL¿FDQW LPSURYHPHQW LQ FRPSHWLWLYHQHVV. +RZHYHU, LW VKRXOG EH QRWHG
WKDW RXU FRXQWU\¶V
share of global markets has not diminished, despite much higher dollar wages.
Let us take a more detailed look at the trend in production of tradable products. Fig. 6
shows that the overall production growth was mainly attributable to the non-tradable sec-

Table 4
6KDUH RI FRPSDQLHV HVWLPDWLQJ FHUWDLQ UHVXOWV RI LQQRYDWLYH DFWLYLW\ DV SULPDU\ (%).
Year Russia %XOJDULD 3RODQG &]HFK 5HSXEOLF
Enhanced production capacity
2008 21.1 21.7 25.7 26.1
2012 24.1 27.1 31.8 24.2
Labor cost reduction
2008 4.5 15.9 13.8 18.2
2012 5.5 25.9 21.8 25.0
Source: +6(, 2014.

Table 5
6KDUH RI 5XVVLDQ SURGXFWLRQ LQ JOREDO PDUNHWV (%).
%UDQFK 2001 2008 2013
Non-fuel 0.88 1.21 1.02
Machinery and equipment 0.28 0.30 0.33
For reference: Russia’s share of the global economy 0.94 2.67 2.81
Source: authors’ calculation based on data from the Russian Federal Customs Service and the International Trade
Center.
 Fig. 6. ,QGH[ RI SK\VLFDO SURGXFWLRQ YROXPH E\ VHFWRU (%, 2002 100%).
Source: authors’ calculations based on Rosstat data.

WRU. 7KH DYHUDJH JURZWK UDWH LQ RXWSXW IURP WUDGDEOH LQGXVWULHV ZDV 4.2% IURP 2003
WR 20084 (VRPHZKDW VORZHU WKDQ 4.8% IRU WKH RYHUDOO JOREDO HFRQRP\), ZKLOH WKH QRQ-
WUDGDEOH VHFWRU JUHZ YHU\ TXLFNO\, DW 9.6% SHU \HDU. )LQDQFH (3.5-IROG JURZWK),
FRQVWUXFWLRQ DQG FRPPHUFH (93% DQG 91% JURZWK, UHVSHFWLYHO\) ZHUH WKH UHFRUG EUHDNHUV
KHUH. 7KH IDVWHU H[SDQVLRQ RI SURGXFWLRQ LQ QRQ-WUDGDEOH VHFWRUV UHÀHFWHG WKH G\QDPLF
JURZWK RI GRPHVWLF GHPDQG. +RZHYHU, LQ DUHDV LQYROYLQJ FRPSHWLWLRQ IURP IRUHLJQ
SURGXFHUV, ZH ODJJHG EH-
hind the global economy. It is worth noting that investments were also allocated mainly for
industries oriented toward non-tradable products and services or for the primary materials
sector (Table 6).
7KH VXUSDVVLQJ JURZWK RI WKH QRQ-WUDGDEOH VHFWRU LV D VLJQ RI WKH ³'XWFK GLVHDVH.´
+RZHYHU, D QXPEHU RI VWXGLHV UHYHDOHG RQO\ SDUWLDO V\PSWRPV LQ WKH 5XVVLDQ HFRQRP\, ZLWK
QR HYLGHQW PDQLIHVWDWLRQ RI WKH GLVHDVH (H.J., 2RPHV DQG .DOFKHYD, 2007; 'REU\QVND\D
and Turkisch, 2010). Thus, rising oil prices had a positive effect on production output in
PDQXIDFWXULQJ LQGXVWULHV, L.H., WKH PDLQ V\PSWRP RI WKH 'XWFK GLVHDVH ZDV QRW LQ SODFH
(Kuboniwa, 2012).
At the same time, we may presume that Russia failed to avoid the more general effect of
WKH ³UHVRXUFH FXUVH,´ ZKLFK SUHGLFWV D QHJDWLYH LQÀXHQFH RI UHVRXUFH DEXQGDQFH RQ ORQJ-
term economic growth due to the deterioration of government institutions. Thus, resource
dependence and the lengthy experience of living under socialism hindered the creation of
market institutions in transition economies and negatively affected economic growth indica-
WRUV (%HFN DQG /DHYHQ, 2006). $QRWKHU VWXG\ SURYHV WKDW WKH JUHDWHU WKH SURSRUWLRQ RI H[WUDF-

Table 6
6WUXFWXUH RI ¿[HG FDSLWDO LQYHVWPHQWV E\ W\SH RI HFRQRPLF DFWLYLW\ (%).
Industry 1999 2008 2012
Mining 14.5 13.4 14.3
Manufacturing 18.1 14.8 13.2
Transportation and communication 18.6 23.0 27.5
Real estate transactions 16.6 18.4 15.4
2WKHU 32.2 30.4 29.6
Source: calculations based on Rosstat data.

4
Comparable sets of indicators have only been calculated by Rosstat since 2002.
tion industries in the economy of Russia’s regions, the lower the quality of the administration
('H 5RVD DQG ,RRWW, 2012).
:H FDQ QRZ VXPPDUL]H WKH UHVXOWV. 7KH KXJH VXUSOXV UHYHQXHV WKH FRXQWU\ UHFHLYHG GXH
to favorable conditions in the primary materials markets considerably accelerated produc-
tion growth, ensured a record-breaking increase in household income (together with wages
in all branches, including the public sectors, pensions, etc.), and enhanced macroeconomic
sta- bility. At the same time, one cannot say that the substantial resources allocated for
economic PRGHUQL]DWLRQ (LQ WKH IRUP RI JRYHUQPHQW LQYHVWPHQWV, H[SHQVHV IRU FUHDWLQJ
GHYHORSPHQ-
tal institutions, various subsidies, etc.) yielded any tangible results, as Russia’s international
FRPSHWLWLYHQHVV KDV QRW LPSURYHG. 7KLV SXWV LQ TXHVWLRQ WKH DELOLW\ RI WKH ³UHVRXUFH-EDVHG
approach” to create conditions for long-term economic growth.
7KH SHULRG IURP 2009 WR 2013 FRQ¿UPV WKLV FRQFOXVLRQ. ,Q 2011, RLO SULFHV LQFUHDVHG,
DJDLQ EUHDNLQJ KLVWRULF UHFRUGV, DQG VWD\HG DW WKDW OHYHO. &DSLWDO ÀRZV LQWR GHYHORSLQJ FRXQW-
ULHV DQG HPHUJLQJ PDUNHWV ÀXFWXDWHG DURXQG D ¿JXUH EHORZ WKH UHFRUG OHYHO RI 2007, EXW
higher than all previous years. Thus, conditions had not deteriorated for the Russian econo-
P\. 1HYHUWKHOHVV, HYHQ WKHLU VWDELOL]DWLRQ ZDV HQRXJK IRU WKH FDSLWDO LQÀRZ WR EH
UHSODFHG E\ D VWDEOH FDSLWDO RXWÀRZ, IRU WKH JURZWK LQ ¿[HG FDSLWDO LQYHVWPHQWV WR JUDGXDOO\
GHFOLQH DQG VWRS DOWRJHWKHU LQ 2013, DQG IRU *'3 JURZWK WR VORZ GRZQ WR 1.3%, D 15-\HDU
ORZ (H[FOXGLQJ
the 2009 crisis).
1RZ WR WKH VHFRQG TXHVWLRQ: LV WKHUH DQ\ KRSH IRU D UHWXUQ RI WKH H[WHUQDO ¿QDQFLDO
resources that will restart the old growth model? To answer this question, we need to look
at the functional external and internal conditions of the Russian economy in the near future.
Oil prices. After reaching a historic high in 2011, the price of oil has been continuously
declining. Most forecasts assume that oil prices will continue falling on the global market
LQ WKH QHDU IXWXUH. 7KXV, WKH ,0) SUHGLFWV LQ LWV 2FWREHU 2014 IRUHFDVW WKDW GXULQJ WKH
QH[W VL[ \HDUV, RLO SULFHV ZLOO GURS PRUH WKDQ 20% LQ FRQVWDQW GROODUV (,0), 2014) ()LJ. 7).
(YHQ
more pessimistic is the forecast by the International Energy Agency (IEA, 2014), which pre-
GLFWV WKH RLO SULFH ZLOO IDOO EHORZ $80/EEO LQ FRQVWDQW GROODUV E\ 2019. 7KLV GRZQZDUG WUHQG
is caused by enhanced production of shale oil in the U.S. and a high probability that Iran,
Libya and Iraq will reappear in the market along with a simultaneous decline in demand in
GHYHORSLQJ, DV ZHOO DV GHYHORSHG, FRXQWULHV. 7KH GLYH LQ RLO TXRWHV LQ 2FWREHU-1RYHPEHU
2014 proves that hydrocarbon prices may begin to fall faster.
An econometric analysis leads to the conclusion that the long-term trend for oil prices is
GHVFULEHG DV D VORZO\ JURZLQJ WUHQG RQ ZKLFK PDVVLYH F\FOLF ÀXFWXDWLRQV DUH VXSHULPSRVHG
(-DFNV, 2013; 6KD¿HH DQG 7RSDO, 2010). $V VHHQ LQ )LJ. 7, WKH GXUDWLRQ RI WKHVH
ÀXFWXDWLRQV

Fig. 7. 5HSRUWHG DQG SURMHFWHG RLO SULFHV (2013 86'/EEO).

Note: $UDELDQ /LJKW SULFHV DUH VSHFL¿HG IRU 1965±1983, %UHQW IRU 1984±2013, DQG HVWLPDWHV EDVHG RQ WKH ,0)
SULFH
trend forecast (published in 2014) for future years.
Source: DXWKRUV¶ FDOFXODWLRQV EDVHG RQ %3 (%3, 2014) DQG ,0) GDWD (,0), 2014).
Source: Rosstat.
Fig. 8. 7KH VKDUH RI ZDJHV DQG JURVV SUR¿W LQ *'3 (%).

(period between two peaks) was approximately 30 years in past few decades. These conclu-
sions and the cited forecasts suggest that we have passed another price peak and are now in
a declining phase. Judging by past experience, this phase may last approximately 15 years.
Oil production volumes. As predicted by the Russian government, oil prices will remain
at the same level5 over the next 15 years. As part of its sanctions, the U.S. imposed
restrictions on supplying Russia with equipment for recovering tight oil. Combined with
decreasing hydrocarbon prices across the globe, this will damage the prospects for oil
production and ZLOO SUREDEO\ OHDG WR LWV VLJQL¿FDQW GHFOLQH.
&DSLWDO ÀRZV. )LJ. 2 VKRZV WKDW IURP 2009 WR 2013, FDSLWDO ÀRZV LQWR GHYHORSLQJ
FRXQ- WULHV DQG HPHUJLQJ PDUNHWV ÀXFWXDWHG E\ DSSUR[LPDWHO\ $400 ELOOLRQ. +RZHYHU, DV WKH
8.6. LV
winding up the quantitative easing program and interest rates are gradually rising in leading
FRXQWULHV, FDSLWDO ZLOO JR WKHUH. 7KLV LV SDUWLDOO\ UHÀHFWHG LQ IRUHFDVWV E\ WKH :RUOG %DQN
WKDW SUHGLFWHG D UHGXFWLRQ RI QHW FDSLWDO LQÀRZ LQWR HPHUJLQJ PDUNHWV (:RUOG %DQN,
2014D).
Demographic forecast. According to Rosstat, the working age population will decline
continuously throughout the coming years.6 In the medium forecast, this group will shrink
by 7% ZLWKLQ 15 \HDUV. *LYHQ WKLV, WKH JRYHUQPHQW H[SHFWV DQ 8% UHGXFWLRQ LQ WKH
ZRUNIRUFH E\
2030. This trend may impose a heavy limitation on growth for the Russian economy.
Wage growth. The Russian economy has experienced a number of detrimental adjust-
ments in primary income distribution over the past few years. From 2006 to 2013, the labor
SD\PHQW VKDUH LQFUHDVHG E\ 8.0 SHUFHQWDJH SRLQWV, ZKLOH WKH VKDUH RI JURVV SUR¿W IHOO E\
7.3 percentage points (Fig. 8). This means that each year the aggregate supply curve has
been shifting to the left, the investment attractiveness of the Russian economy has been
falling, and corporate investment resources have been reduced, which is especially
important in the HYHQW RI OLPLWHG DFFHVV WR ¿QDQFLDO UHVRXUFHV.
Natural monopoly tariffs. From 2008 to 2013, domestic gas prices for industrial consumers
JUHZ E\ 2.6 WLPHV, L.H., WKH JURZWK H[FHHGHG WKH FRQVXPHU SULFH LQGH[ E\ DOPRVW 250%.
&RQVLGHULQJ WKDW JDV DFFRXQWV IRU QHDUO\ 70% RI WKH IXHO XVHG IRU HOHFWULFLW\
JHQHUDWLRQ,
this means higher prices for heat and electricity. Railway freight tariffs also grew slightly more
WKDQ FRQVXPHU SULFHV. +DYLQJ IUR]HQ WKH WDULIIV RI QDWXUDO PRQRSROLHV LQ 2014, WKH JRYHUQ-
ment intends to gradually increase them beginning next year. Combined with faster wage
growth, this makes supporting the competitiveness of Russian producers quite problematic.

5
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 Lending. Lending growth limits are nearly exhausted in certain domains (primarily UHWDLO). ,Q WKH
FRPLQJ \HDUV, WKH 5XVVLDQ HFRQRP\ ZLOO KDUGO\ ¿QG LWVHOI LQ DQ LGHDO VLWXDWLRQ ZLWK DQ
³LPSRUWHG JURZWK PRGHO.´ 2Q WKH FRQWUDU\, WKH HFRQRP\ ZLOO KDYH WR IDFH D GLI¿FXOW
environment that is far from favorable. The new issues arising in connection with develop-
ments in Crimea, East Ukraine and the ensuing sanctions will become another formidable
IDFWRU IXUWKHU DJJUDYDWLQJ WKH VLWXDWLRQ. 7KH\ ZLOO OLPLW FDSLWDO LQÀRZ LQWR 5XVVLD DQG
VORZ
down the overall investment trends, which will slow advanced technology imports and eco-
nomic growth.
'HFOLQLQJ RLO SULFHV DQG WKH FDSLWDO RXWÀRZ VLJQLI\ WKDW 5XVVLD KDV HQWHUHG D ORQJ
SHULRG RI UHGXFWLRQ LQ WKH LQÀRZ RI H[WHUQDO UHVRXUFHV. 8QGHU WKHVH FRQGLWLRQV, DOO RI WKH
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nisms that had contributed to the economy’s growth will slow it down instead. Considering
WKDW WKH VWDELOL]DWLRQ RI RLO SULFHV KDV OHG WR VWDJQDWLRQ, WKHLU GHFUHDVH (LI WKH ROG JURZWK
PRGHO
is left in place) may result in a protracted recession.
7KH REMHFWLYH IDFWRUV QDPHG DERYH DUH VXSSOHPHQWHG E\ D VLJQL¿FDQW GHWHULRUDWLRQ LQ
expectations by economic agents, which is hampering production enhancement and, conse-
quently, investment expansion. In turn, reduced economic activity is detrimental to expecta-
WLRQV. ,Q WKH HQG, WKH H[SHFWDWLRQV EHFRPH ³VHOI-IXO¿OOLQJ,´ ZKLFK PD\ H[SODLQ WKH FDSLWDO
RXWÀRZ LQ WKH SRVW-FULVLV SHULRG: FDSLWDO VLPSO\ EHFRPHV XQQHFHVVDU\ XQGHU XQFHUWDLQW\
LQ
the country’s development.
7KH SRWHQWLDO RI WKH FXUUHQW JURZWK PRGHO IRU WKH 5XVVLDQ HFRQRP\ LV UHÀHFWHG LQ ORQJ-
WHUP JURZWK IRUHFDVWV. $FFRUGLQJ WR 2(&' HVWLPDWHV, DYHUDJH JURZWK UDWHV LQ WKH 5XVVLDQ
HFRQRP\ ZLOO EH 2.8% XQWLO 2030 DQG ZLOO IDOO WR 1.2% EHWZHHQ 2030 DQG 2060
(2(&', 2014). $FFRUGLQJ WR FDOFXODWLRQV E\ *XUYLFK DQG 3ULOHSVN\ (2013), ORQJ-WHUP
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trends in the Russian economy and the oil price trend, both of the above growth estimates
VKRXOG EH UHGXFHG VLJQL¿FDQWO\. $FFRUGLQJ WR WKH 2FWREHU 2014 ,0) IRUHFDVW, WKH DYHUDJH
JURZWK UDWH RI WKH 5XVVLDQ HFRQRP\ RYHU WKH QH[W VL[ \HDUV ZLOO EH 1.3% (,0), 2014). ,Q
DQ\ HYHQW, 5XVVLDQ HFRQRPLF G\QDPLFV ZLOO ODJ QRWLFHDEO\ EHKLQG WKH JOREDO HFRQRP\
(2(&' SUHGLFWV 3.7% DQG 2.3% JURZWK JOREDOO\ LQ WKH ¿UVW DQG VHFRQG SHULRG, UHVSHFWLYHO\),
ZKLOH
Russia’s share of the global economy will rapidly fall.
The scenario of a low growth rate and cheaper hydrocarbons is creating serious problems
IRU WKH 5XVVLDQ HFRQRP\. )LUVW, LW ZLOO OHDG WR VWDJQDWLRQ ² LI QRW D GHFOLQH ² LQ UHDO
KRXVH- KROG LQFRPH. 6HFRQG, GLI¿FXOWLHV ZLOO DULVH LQ WKH SXEOLF VHFWRU. 0DQ\ SURJUDPV ZHUH
DGRSWHG EDVHG RQ IDVW *'3 JURZWK, DQG WKH PDMRULW\ RI RXWOD\V DUH QRW DXWRPDWLFDOO\
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economy faces a downturn. Countries that found themselves in this type of situation during
the crisis (e.g., Greece) faced the problem where costs cannot be cut in proportion to falling
UHYHQXHV, ZKLOH ERUURZLQJ EHFRPHV LPSRVVLEOH EHFDXVH RI WKH JURZLQJ GH¿FLW. $V D UHVXOW,
all those countries had to go through an economically and socially painful period when the
government’s obligations were dramatically reduced. The situation became even more dif-
¿FXOW GXH WR WKH KDVWH ZLWK ZKLFK WKH FKDQJH RFFXUUHG.
An analysis demonstrated that the problems in the Russian economy are of a persistent
and long-term nature. ,I RLO SULFHV GR QRW JURZ UDSLGO\ DJDLQ (DQG WKLV VFHQDULR VHHPV QHDUO\
impossible), the existing model will not be able to ensure economic growth. Nothing
promises that the economy will be able to overcome stagnation without a new growth
model.
7KH JRYHUQPHQW UHDOL]HV WKH JUDYLW\ RI WKH VLWXDWLRQ. 7KH ³0DLQ /LQHV RI 5XVVLDQ
*RYHUQPHQW $FWLYLW\ WKURXJK 2018´7 VSHFL¿HV WKDW ZLWKRXW DQ DFWLYH HFRQRPLF SROLF\, HFR-
QRPLF JURZWK ZLOO VORZ GRZQ WR 2±3% SHU \HDU, ZKLFK ZLOO QRW DOORZ WKH FRXQWU\¶V HFRQRPLF
and social development to be in balance. Thus, building a new growth model for the
Russian economy that is capable of functioning even against deteriorating external
conditions becomes an absolute imperative.
7
http://government.ru/info/761/.
4. The outline of the new economic growth model

Let us consider possible ways to restore the growth of the Russian economy based on the
³JURZWK GLDJQRVWLFV´ SULQFLSOH GHYHORSHG E\ '. 5RGULN DQG XVHG LQ D QXPEHU RI
FRXQWULHV (5RGULN, 2010). +H SURSRVHG DQ DOJRULWKP LQ ZKLFK WKH ¿UVW VWHS LV WR LGHQWLI\
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to growth and then select measures to be implemented in the existing political environment
using existing administrative resources, etc., that are capable of removing or at least soften-
ing the most basic restrictions.
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HLWKHU WKH HFRQRP\ KDV LQVXI¿FLHQW DFFHVV WR ¿QDQFLDO UHVRXUFHV, RU HFRQRPLF DFWLYLW\ LQ WKH
FRXQWU\ GRHV QRW SURYLGH VXI¿FLHQW SUR¿WDELOLW\ (WDNLQJ LQWR DFFRXQW GLUHFW DQG LQGLUHFW FRVWV
and risks). This selection practically determines all of the options for restoring economic
JURZWK. ,I ZH GHHP WKH PDLQ FDXVH WR EH LQVXI¿FLHQW ¿QDQFLDO UHVRXUFHV, WKHQ
HFRQRPLF SROLF\ VKRXOG RIIHU DGGLWLRQDO VRXUFHV RI ¿QDQFLDO UHVRXUFHV RU ZD\V WR PDNH XS
IRU WKHLU GH¿FLW (H.J., E\ WHPSRUDULO\ FRPSHQVDWLQJ WKH LQVXI¿FLHQW SULYDWH FDSLWDO ZLWK
JRYHUQPHQW LQYHVWPHQWV). 7KLV DSSURDFK FDQ EH FDOOHG ³UHVRXUFH-EDVHG.´ ,Q IDFW, LW IROORZV
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resources.
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hypothesis is not supported by objective economic data. In fact, the savings rate within the
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DQG KDV FRQWLQXRXVO\ H[FHHGHG WKH LQYHVWPHQW UDWH (24% RI *'3 RQ DYHUDJH). $
VLJQL¿FDQW SRUWLRQ RI SULYDWH QDWLRQDO VDYLQJV LV LQYHVWHG DEURDG (GHVSLWH WKH ORZ, DOPRVW ]
HUR, LQWHUHVW UDWHV LQ GHYHORSHG FRXQWULHV). 2YHU WKH SDVW WKUHH \HDUV, DYHUDJH QHW SULYDWH
FDSLWDO RXWÀRZ KDV EHHQ 3.3% RI *'3 SHU \HDU, ZKLOH 5XVVLDQ JURVV FDSLWDO RXWÀRZ
KDYH EHHQ 7.5% RI
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ZHUH IXOO\ XWLOL]HG, 5XVVLD ZRXOG ¿QG LWVHOI EDFN DPRQJ WKH ZRUOG¶V JURZWK
OHDGHUV.
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reasons for Russia’s poor investment attractiveness, one of the most common is the low
quality of the institutional environment (weak property rights protection, imperfect court
V\VWHP, KLJK DGPLQLVWUDWLYH EDUULHUV, FRUUXSWLRQ). :KLOH ZH GR UHFRJQL]H WKH LPSRUWDQFH RI
these factors, in our opinion, the main problem of the Russian economy is even deeper and
is rooted in weak market mechanisms. A mature market system consists of agents
(companies, banks, employees) having strong incentives and competing according to
established rules. Unfortunately, none of these conditions actually occur in the Russian
economy.
7KH EDQNLQJ DQG QRQ-¿QDQFLDO VHFWRUV DUH ERWK GRPLQDWHG E\ SXEOLF, TXDVL-SXEOLF (SXEOLF
corporations), or mixed (partially state-owned) companies. As a rule, these companies are
guided by a substantially distorted motivation, that is, they are less interested in earning D
SUR¿W, DQG WKHLU FRPPHUFLDO DFWLYLW\ LV RIWHQ FRPELQHG ZLWK WKH DFWXDO IXQFWLRQ RI D
³JRYHUQ- PHQW DJHQW.´ 7KH\ DUH OHVV OLDEOH IRU WKHLU SHUIRUPDQFH UHVXOWV, DV ORVVHV FDQ
EH FRYHUHG E\
the state (we have observed increasingly more examples of this lately).
$ VXUYH\ RI 79,000 FRPSDQLHV FRQGXFWHG E\ WKH :RUOG %DQN EHWZHHQ 2003 DQG 2008 FRQ-
¿UPHG WKDW VWDWH-RZQHG DQG PXQLFLSDO HQWLWLHV GHPRQVWUDWH PXFK SRRUHU SHUIRUPDQFH WKDQ
SULYDWH HQWLWLHV (%RJHWLF DQG 2OXVL, 2013).
Quasi-public companies may demonstrate even less market-focused behavior than fully
VWDWH-RZQHG HQWHUSULVHV (9DKDEL, 2012). 2QH FDQ DVVXPH WKDW WKLV LV DOVR WUXH LQ 5XVVLD,
ZKHUH
public corporations are non-commercial, even from a legal standpoint. Moreover, as many
studies suggest (e.g., Sharafutdinova and Kisunko, 2014), close informal ties between the
state and business are characteristic of this country, which both directly and indirectly puts
FRPSDQLHV DI¿OLDWHG ZLWK WKH VWDWH LQ D SULYLOHJHG SRVLWLRQ. 2I FRXUVH, WKHUH DUH H[FHSWLRQV
to this general tendency. Thus, some researchers have found that Russian state-owned banks
DUH PRUH HI¿FLHQW WKDQ SULYDWH RQHV (.DUDV HW DO., 2008), DOWKRXJK WKH UHDVRQV EHKLQG WKLV
DUH SHUKDSV WKH LQGLUHFW DGYDQWDJHV RI DI¿OLDWLRQ ZLWK WKH VWDWH, ZKLFK JXDUDQWHHV WKH KLJK
reliability of those banks in the eyes of their customers.
The role of market forces (or their absence) can be illustrated by the example of the Soviet
HFRQRP\. $ QXPEHU RI VWXGLHV KDYH VKRZQ WKDW LWV H[WUHPHO\ ORZ HI¿FLHQF\ ZDV
SULPDULO\ FDXVHG E\ WKH ZHDN LQFHQWLYH V\VWHP W\SLFDO RI D QDWLRQDOL]HG HFRQRP\ (VHH
(DVWHUO\ DQG
)LVFKHU, 1994; %UL[LRYi DQG %XOtĜ, 2002). 0RUHRYHU, DFFRUGLQJ WR WKH HVWLPDWHV LQ WKH ¿UVW
paper, the Soviet economy demonstrated the poorest dynamics of factor productivity in the
world from 1960 to 1989.
The objective to enhance market mechanisms goes far beyond improving the invest-
ment climate. For example, the underdeveloped market environment leads to an inaccurate
HYDOXDWLRQ RI EXVLQHVV SHUIRUPDQFH, GRHV QRW HQFRXUDJH WKH EHVW SURGXFHUV RU ¿OWHU RXW WKH
worst ones, and does not encourage businesses to search for new, improved strategies. As
a result, economic resources are not allocated to the best-performing industries, demand for
innovations is non-existent, and the need to support domestic producers increases the
burden on the budget, thus making the economy lag further behind in its development.
The most important sign of a non-market environment is a greatly diminished dependence
RI FRPSDQLHV RQ WKHLU HFRQRPLF UHVXOWV. -. .RUQDL FRLQHG WKH WHUP ³VRIW EXGJHW
FRQVWUDLQWV´ (6%&V) WR GHQRWH VXFK D VLWXDWLRQ, VKRZLQJ WKDW 6%&V DUH DQ LQHYLWDEOH
IHDWXUH RI DQ HFRQ-
omy managed by the state, resulting in an excessive, unproductive use of all resources
(.RUQDL, 1990). 7KH IDFWRUV OHDGLQJ WR 6%&V LV WKH ZLOOLQJQHVV RI WKH VWDWH WR SXW XS ZLWK
WKH LQHI¿FLHQW SHUIRUPDQFH RI ³RZQ´ FRPSDQLHV, FRPSHQVDWLQJ WKHP ZLWK ¿QDQFLDO VXSSRUW
(WKURXJK GLUHFW VXEVLGLHV, WD[ EHQH¿WV, SUHIHUHQWLDO ORDQV, HWF.), FRPIRUWDEOH UHJXODWLRQ RI
SULFHV DQG WDULIIV, SUHIHUHQFH LQ SODFLQJ JRYHUQPHQW RUGHUV, DQG GHSRVLWV, HWF. ,W LV WKH
6%& PHFKDQLVP (¿UVW RI DOO, WKH RSSRUWXQLW\ WR REWDLQ ORDQV DW QRQ-PDUNHW WHUPV) WKDW
UHGXFHV WKH LQFHQWLYH IRU VWDWH-RZQHG FRPSDQLHV WR LPSURYH WKHLU SHUIRUPDQFH (%DUWHO DQG
+DUULVRQ,
1999). The weak link in such a system is state-owned monopolies, which have no competi-
WLRQ DQG RSHUDWH XQGHU 6%&V.
The distorted motivation of public and quasi-public companies not only determines their
own actions but also affects all market players. Suppliers of the state or state-owned compa-
nies lose incentives to cut costs because they can include them in their prices comparatively
HDVLO\ (GXH WR JRYHUQPHQW LQHI¿FLHQF\ LQ SXEOLF SURFXUHPHQW, UHJXODWLRQ RI QDWXUDO
PRQRSR-
ly prices, etc.). Consequently, producers of similar products feel no pressure either, which is
translated all the way down the supply chain. As a result, this phenomenon is common
across the economy, and the competitive performance of producers deteriorates.
The standard tools of economic policy may not work in a non-market environment.
For example, strong competition is one of the main incentives for companies to improve
SHUIRUPDQFH (2VSLQD DQG 6FKLIIEDXHU, 2010). +RZHYHU, VXFK D UHVXOW LV RQO\ REVHUYHG
ZLWK UHODWLYHO\ ³DGYDQFHG´ 5XVVLDQ FRPSDQLHV; ³ODJJLQJ´ FRPSDQLHV PD\ H[SHULHQFH
VORZ GH- YHORSPHQW LQ D FRPSHWLWLYH HQYLURQPHQW ($JKLRQ DQG %HVVRQRYD, 2006).
$FFRUGLQJ WR
<. %HVVRQRYD, WKH SRVLWLYH LPSDFW RI FRPSHWLWLRQ RQ SURGXFWLRQ SHUIRUPDQFH LV EHLQJ KHOG
back in the Russian economy by the co-existence of companies with high and low produc-
WLYLW\ GXH WR LQVWLWXWLRQDO H[LW EDUULHUV IRU WKH OHDVW HI¿FLHQW FRPSDQLHV (%HVVRQRYD, 2010).
Thus, increasing productivity requires not only lowering the market entry barriers that hin-
GHU FRPSHWLWLRQ EXW DOVR IDFLOLWDWLQJ WKH PRYHPHQW RI SURGXFWLYH IDFWRUV IURP OHVV HI¿FLHQW
EUDQFKHV WR PRUH HI¿FLHQW RQHV, L.H., LQ HIIHFW DFWLYDWLQJ WKH ³FUHDWLYH GHVWUXFWLRQ´ SURFHVV
(by Schumpeter).
In other words, creating the necessary motivation requires a dramatic increase in posi-
WLYH LQFHQWLYHV DQG JUHDWHU UHVSRQVLELOLW\ DPRQJ DOO ¿QDQFLDO DQG QRQ-¿QDQFLDO FRPSDQLHV
in the market for their operational results. This requires improving the market environment:
weak property protection, low competition, excessive government regulation, as well as soft
EXGJHW FRQVWUDLQWV DOO LQFUHDVH WKH FKDQFHV WKDW HI¿FLHQW FRPSDQLHV ZLOO OHDYH WKH PDUNHW
DQG LQHI¿FLHQW RQHV ZLOO VXUYLYH (+DOOZDUG-'ULHPHLHU, 2009).
Another very important consequence of high risks for all players in the Russian economy
LV WKH VKLIW WRZDUG VROXWLRQV ZLWK VKRUW UHWXUQV. :LWK UHJDUG WR KRXVHKROGV, WKLV VLWXDWLRQ LV
LOOXVWUDWHG E\ D VWXG\ SXEOLVKHG LQ 2010 (:DQJ HW DO., 2010).
The test respondents in 45 countries (including developed and developing countries, as well
DV HPHUJLQJ PDUNHWV) ZHUH DVNHG WR FKRRVH EHWZHHQ UHFHLYLQJ $3,400 LQ WKH FXUUHQW PRQWK
RU $3,800 LQ WKH QH[W PRQWK. 7KH UHVXOWV VKRZHG WKDW LQ 5XVVLD, RQO\ 39% RI
UHVSRQGHQWV SUHIHUUHG WR ZDLW D PRQWK DQG UHFHLYH $400 PRUH. 5XVVLD FDPH LQ WKH ODVW
GHFLOH LQ WHUPV RI ³SDWLHQFH,´ ZLWK RQO\ IRXU FRXQWULHV EHLQJ OHVV SDWLHQW DQG 40 EHLQJ PRUH
SDWLHQW. 7KH ODWWHU LQFOXGHG FRXQWULHV FRPSDUDEOH WR 5XVVLD, VXFK DV 0H[LFR (58% RI
³SDWLHQW´ UHVSRQGHQWV),
$UJHQWLQD DQG 7XUNH\ (63% HDFK), DQG WKH &]HFK 5HSXEOLF (80%).
)RU D EXVLQHVV, WKH VLJQ RI D ³VKRUW KRUL]RQ´ LV WKH DERYH-PHQWLRQHG SUHIHUHQFH JLYHQ E\
business strategies to the objective of increasing output over cutting costs. Satisfying
existing demand by simply increasing output produces an immediate effect, while the
effects from PRGHUQL]LQJ SURGXFWLRQ WDNH PXFK PRUH WLPH. 7KH VKLIW RI WKH JRYHUQPHQW¶V
SUHIHUHQFHV
toward current objectives has been especially visible in the pension policy lately, with
grow- ing allocations for current pension payments and reducing allocations for future
pensions.
+RZHYHU, WKH IRFXV RQ LPPHGLDWH UHVXOWV LV EHFRPLQJ HYHU PRUH QRWLFHDEOH LQ RWKHU LQGXVW-
ries as well. This must be caused, on the one hand, by the continuing critical dependence of
WKH 5XVVLDQ HFRQRP\ RQ XQSUHGLFWDEOH ÀXFWXDWLRQV LQ LQWHUQDWLRQDO PDUNHWV DQG, RQ WKH RWKHU
KDQG, E\ IUHTXHQW FKDQJHV LQ IRUPDO DQG LQIRUPDO ³UXOHV RI WKH JDPH,´ ZKLFK DFFHOHUDWH DV
excessive government regulation grows.
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QRW XVXDOO\ REVHUYHG ULJKW DZD\. ,W LV WKLV ³VKRUW-VLJKWHGQHVV´ UDWKHU WKDQ HUURUV LQ
PRQHWDU\ SROLF\ WKDW OLPLWV WKH DYDLODELOLW\ RI ³ORQJ´ PRQH\ LQ WKH HFRQRP\ DQG,
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VLJQL¿FDQW FRQVH- TXHQFH RI WKLV FRQWUDFWLQJ SODQQLQJ KRUL]RQ LV WKDW LW OHDGV WKH JRYHUQPHQW
DQG EXVLQHVVHV WR WXUQ DZD\ IURP GHYHORSPHQW VWUDWHJLHV WR ³¿[LQJ SUR¿W´ VWUDWHJLHV ² WKLV SROLF\
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the disrupted balance between long-term and short-term goals.
The various measures recently announced, developed or implemented by the government
FDQ EH GLYLGHG LQWR WKUHH JURXSV. 7KH ¿UVW JURXS FRQVLVWV RI WKH ZLGHO\ GLVFXVVHG
PHDVXUHV IRU ¿VFDO DQG/RU PRQHWDU\ VWLPXODWLRQ RI WKH HFRQRP\ (VXFK DV UHGXFLQJ WKH
%DQN RI 5XVVLD
base rate). The second comprises measures to increase budget expenditures (this implies the
weakening of the budget rule) or to provide additional funding for investment projects at
the H[SHQVH RI WKH 1DWLRQDO :HOIDUH )XQG RU WKH %DQN RI 5XVVLD (SURYLGLQJ UH¿QDQFLQJ IRU
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issued for investment projects), etc. Finally, the third group includes measures to improve the
HFRQRPLF HQYLURQPHQW (LQFOXGLQJ WKH EXVLQHVV HQYLURQPHQW). :H ZLOO WU\ WR HYDOXDWH ZKHWKHU
the measures proposed help make the Russian economy more market-focused and reduce
the risks impeding its growth.
Stimulus measures DUH D VWDQGDUG WRRO RI FRXQWHU-F\FOLFDO SROLF\ DQG DUH MXVWL¿HG LQ D VKRUW
UHFHVVLRQ (DV LQ 1998 RU 2008±2009). +RZHYHU, LI ZH KDYH HQWHUHG D SURWUDFWHG ERXW RI ORZ
oil prices, then the ensuing massive decline in domestic demand cannot be mended with
PRQHWDU\ RU EXGJHWDU\ LQFHQWLYHV. 7KXV, LQ 2FWREHU DQG 1RYHPEHU RI 2014, XQGHU IDOOLQJ RLO
SULFHV, HYHQ LQFUHDVLQJ WKH %DQN RI 5XVVLD EDVH UDWH GLG QRW VXFFHHG LQ VWRSSLQJ WKH
WUDQVIX- VLRQ RI PRQH\ LQWR WKH IRUHLJQ H[FKDQJH PDUNHW. 7KH QHW FDSLWDO RXWÀRZ ZDV
HVWLPDWHG DW $28 ELOOLRQ LQ 2FWREHU, ZKLFK LV JUHDWHU WKDQ WKH WRWDO RXWÀRZ SUHGLFWHG E\
WKH 5) &HQWUDO %DQN
for 2014. The process could only be slowed after providing liquidity to the banks. It is clear
WKDW D VRIWHU PRQHWDU\ SROLF\ ZRXOG KDYH RQO\ OHG WR IXUWKHU FDSLWDO RXWÀRZ LQVWHDG RI JURZWK LQ
GRPHVWLF GHPDQG. :H EHOLHYH WKDW D SURSRVDO WR XVH LQFHQWLYHV LV DQ H[DPSOH RI VWDQGDUG
recommendations that will not work in the current non-standard situation.
 In the second group, the measures that involve increasing budget expenditures and
funding additional large-scale projects are aimed at replacing external resources with other
sources, and they mainly suggest giving away these resources to public companies. This
means that attempts are being made to preserve the old model instead of creating a new
one. Moreover, heavy constraints arise when implementing these types of measures. First,
their funding sources are QRZ UHSUHVHQWHG E\ WKH VDYLQJV DFFXPXODWHG LQ WKH 1DWLRQDO
:HOIDUH )XQG GXULQJ WKH SHULRG RI
stable improvement in the oil markets. In other words, the sources are the quite limited
remains
RI H[WHUQDO VXUSOXV UHYHQXHV. 7KHUHIRUH, WKLV FDQ RQO\ UHVXOW LQ D VKRUW-WHUP UHYLWDOL]DWLRQ RI
production until the reserves are exhausted. Second, as demonstrated by the analysis of
interna-
WLRQDO H[SHULHQFH, LPSOHPHQWLQJ LQIUDVWUXFWXUH SURMHFWV SRVLWLYHO\ LQÀXHQFHV HFRQRPLF JURZWK
primarily while such projects are underway. Afterward, one cannot expect any noticeable accel-
HUDWLRQ LQ JURZWK (:DUQHU, 2014). 7KLUG, SXEOLF LQYHVWPHQWV RQO\ DFFHOHUDWH JURZWK XQGHU
VWULFW SXEOLF FRQWURO RI WKHLU HI¿FLHQF\ (ZH ZLOO KDYH WR LQYHVW JUHDW HIIRUW LQ WKLV DUHD), ZKLOH
ORZ- TXDOLW\ DQG H[FHVVLYH SULFHV RIIVHW WKHLU SRVLWLYH HIIHFWV (0RUR]XPL DQG 9HLJD, 2014).
'XULQJ WKH ¿QDO 10-15 \HDUV RI WKH 8665, QRWZLWKVWDQGLQJ WKH YHU\ KLJK DFFXPXODWLRQ UDWH
(27±30%
*'3) DQG WKH LPSOHPHQWDWLRQ RI PHJD-SURMHFWV (H.J., WKH %DLNDO-$PXU 5DLOZD\), WKH
JURZWK UDWH RI WKH 5XVVLDQ HFRQRP\ FRQVLVWHQWO\ VORZHG GRZQ (3RQRPDUHQNR,
2002).
2Q WKH ZKROH, RQH PD\ FRPH WR WKH FRQFOXVLRQ WKDW PDMRU SURMHFWV PD\ H[WHQG WKH OLIH
RI WKH ³UHVRXUFH-EDVHG´ PRGHO. +RZHYHU, WDNLQJ LQWR DFFRXQW WKDW UHIRUPV DUH, DV D UXOH,
FDUULHG
out when acutely needed, the actual result of the second group of measures would be to
delay the creation of a new growth model, i.e., the loss of precious time.
An example of measures to improve the investment climate and business environment
LV WKH ³URDG PDSV´ LQFOXGHG LQ WKH 1DWLRQDO (QWUHSUHQHXULDO ,QLWLDWLYH (1(,) LQYROYLQJ
WKH UHPRYDO RI NH\ OLPLWDWLRQV RQ EXVLQHVV DFWLYLWLHV. 2QH RI WKHP LQYROYHV UHGXFLQJ WKH
QXPEHU
of administrative procedures necessary to obtain a construction permit from 51 in 2012 to
11 in 2018 and their duration from 423 days to 56 days. Successful implementation of these
PHDVXUHV PD\ PDNH WKH 5XVVLDQ HFRQRP\ VXEVWDQWLDOO\ PRUH DWWUDFWLYH WR LQYHVWRUV. +RZ-
HYHU, VROYLQJ WKHVH WDVNV LV YHU\ GLI¿FXOW EHFDXVH WKH UHVXOWV ZLOO EH GHWHUPLQHG QRW RQO\ E\
changes in the regulatory framework but also by the practical actions of authorities at all lev-
HOV DFURVV WKH FRXQWU\. 7KHUHIRUH, D PRGHUQL]HG UHJXODWRU\ IUDPHZRUN PXVW EH DFFRPSDQLHG
E\ VWURQJ LPSURYHPHQWV LQ WKH SXEOLF DGPLQLVWUDWLRQ V\VWHP. 2WKHUZLVH, WKHVH UHIRUPV PD\
VKDUH WKH VDPH IDWH DV WKH XSGDWHG &XVWRPV &RGH DGRSWHG LQ 2003. 'XULQJ LWV GHYHORSPHQW,
as with the road maps today, ambitious quantitative goals were set for facilitating customs
clearance for imports and exports. Nevertheless, Russia ranked 155th out of 178 countries
by WKLV LQGLFDWRU LQ WKH :RUOG %DQN¶V 2008 'RLQJ %XVLQHVV UDWLQJ (:RUOG %DQN, 2007).
7R VXPPDUL]H, ZH FDQ VD\ WKDW WKH PHDVXUHV GLVFXVVHG RU LPSOHPHQWHG WRGD\ DUH
QRW
consistent with the scale of the problems facing the Russian economy. A new growth model
should be based upon strong incentives for companies, as well as the public administration
V\VWHP, WR LPSURYH HI¿FLHQF\. 7KH DFWLYLW\ RI WKH ODWWHU PXVW EH RULHQWHG DV PXFK DV
SRVVLEOH WRZDUG FUHDWLQJ IDYRUDEOH FRQGLWLRQV IRU HFRQRPLF JURZWK DQG PLQLPL]LQJ DOO
W\SHV RI HFR-
nomic and institutional risks.
The complexity of the basic conditions in which this objective is to be achieved can be
illustrated with a number of examples.

4.1. Public administration

 1. The greater the number of employees in the public administration sector in Russian
UHJLRQV, WKH SRRUHU WKHLU HFRQRPLF SHUIRUPDQFH (/LEPDQ, 2012). :H EHOLHYH VXFK D
SDUDGR[L- cal connection is caused by growth in the regulatory burden as bureaucracy
grows.
2. An analysis of factors determining the probability that a governor was reappointed
in a region between 2005 and 2010 showed no dependence on the economic results of that
region (Reisinger and Moraski, 2013). At the same time, A. Yakovlev (2015) notes that
in China, the promotion of regional administrators is determined primarily by the results
achieved in the territories under their administration, which probably made the outstanding
performance of the country possible.
3.$FFRUGLQJ WR 5) 3UHVLGHQWLDO 'HFUHH 1R. 1199, GDWHG $XJXVW 21, 2012, WKH XQHPSOR\-
PHQW UDWH VHUYHV DV RQH RI WKH FULWHULD WR HYDOXDWH WKH HI¿FLHQF\ RI H[HFXWLYH DXWKRULWLHV.
Theoretically, unemployment can be reduced by creating favorable business development
FRQGLWLRQV. +RZHYHU, D VLPSOHU PHWKRG LV RIWHQ XVHG, L.H., LQIRUPDO OLPLWDWLRQV DUH
LPSRVHG RQ HPSOR\HH GLVPLVVDO. $V D UHVXOW, PDQ\ PRGHUQL]DWLRQ SURMHFWV EHFRPH
XQSUR¿WDEOH RU DUH made impossible.
4. 2QH RI WKH YLWDO LQFHQWLYHV IRU UHJLRQDO DQG PXQLFLSDO DXWKRULWLHV WR FUHDWH IDYRUDEOH
business conditions is the interest in expanding the tax base to increase their own budget
UHYHQXHV. +RZHYHU, WKLV LQFHQWLYH FHDVHV WR KDYH DQ HIIHFW LI WUDQVIHUV IURP WKH FHQWHU DUH
UH- duced when tax collection increases. An econometric analysis of the distribution of
transfers between municipalities does not allow the hypothesis about such compensation to
be rejected (Alexeev and Kurlyandskaya, 2003). To solve this problem, an effective
mechanism of dis- tributing federal transfers between regions was developed for the
objective calculation of WUDQVIHUV WR OHYHO RXW ¿VFDO FDSDFLW\. +RZHYHU, LWV VSHFL¿F ZHLJKW KDV
EHHQ GHFUHDVLQJ ODWHO\ FRPSDUHG ZLWK RWKHU ³LQIRUPDO´ PHFKDQLVPV WKDW PD\ UHGXFH
LQFHQWLYHV IRU WKH UHJLRQV.

4.2. Business

1.Russia is ranked 120th out of 144 countries surveyed in terms of protection of

property ULJKWV (:(), 2014). ,W LV FOHDU WKDW WKH VLPSOLFLW\ RI WDNLQJ RYHU DQRWKHU SHUVRQ¶V
SURSHUW\ reduces the incentives for investment, as successful growth increases the chance of
losing the EXVLQHVV RU HQWDLOV WKH QHHG WR ³SD\ RII.´
2. In terms of the regulatory burden on businesses, Russia was ranked 111th out of 144
(:(), 2014).
3. $ MRLQW LQYHVWLJDWLRQ E\ WKH :RUOG %DQN DQG +LJKHU 6FKRRO RI (FRQRPLFV VKRZV
WKDW LQ each industry within the Russian economy, the labor performance gap between the top
quin- tile of companies and the bottom quintile is a factor of between 10 and 20 (Golikova et
al., 2007). &RPSDQLHV-RXWVLGHUV DFFRXQW IRU DQ LQVLJQL¿FDQW SRUWLRQ RI WKH RXWSXW EXW D
VXEVWDQ- WLDO VKDUH RI PDWHULDO UHVRXUFHV DQG HPSOR\HUV. 7KLV FRQ¿UPV WKH SUHYDOHQFH RI
VRIW EXGJHW FRQVWUDLQWV LQ WKH 5XVVLDQ HFRQRP\. 7KH XWLOL]DWLRQ RI D ODUJH QXPEHU RI WRROV
WKDW KHOS DOO FRPSDQLHV VXUYLYH PD\ EH ¿JXUDWLYHO\ FDOOHG ³LQGXVWULDO
SDWHUQDOLVP.´
4. In terms of innovative activity, Russia lags behind not only the most developed
countries but all of the emerging markets (Table 7).8 This points to very weak incentives for
Russian companies to improve their business performance.

Table 7
Indicators of innovative activity, 2012.
Country 6SHFL¿F ZHLJKW RI FRPSDQLHV SXUVXLQJ
Total level of
technological innovations
innovative activity
Russia 9.1 10.3
%UD]LO 41.2 76.0
3RODQG 16.2 28.1
Turkey 35.2 51.4
South Africa 65.4 73.9
Source: +6(, 2014.

8
Russia has worse indicators of innovative activity, not only compared with countries from Table 7, but with
all of the nearly 50 developed countries and emerging markets for which assessments are contained in the above-
mentioned source.
 The fundamental nature of the tasks that need to be resolved to build a new economic
JURZWK PRGHO (JURZWK LQFHQWLYH PRGHO ² *,0) UHTXLUHV QRW MXVW LQGLYLGXDO LQFHQWLYH PHD-
sures but profound changes in economic policy and the public administration system,
imple- PHQWLQJ VWURQJ LQFHQWLYHV WR LQFUHDVH HI¿FLHQF\. ,W LV LPSRVVLEOH LQ D VLQJOH DUWLFOH WR
SURYLGH GHWDLOHG SURSRVDOV RQ DOO RI WKH LVVXHV WKDW DULVH DORQJ WKH ZD\. :H FDQ RQO\
RXWOLQH WKH
general directions. The following key tasks must be resolved to build a GIM.
,W VKRXOG EH QRWHG WKDW IRU HDFK GLUHFWLRQ, VSHFL¿F SURSRVDOV KDYH EHHQ GHYHORSHG WKDW, LI
implemented, could bring about dramatic progress. 9 Moreover, serious measures have been
GH¿QHG IRU PDQ\ NH\ LVVXHV WKDW, LQ D QXPEHU RI FDVHV, VKRXOG KDYH EHHQ XQGHUWDNHQ
RQH- and-a-half to two years ago.10 +RZHYHU, WKH DQDO\VLV VKRZV WKDW WKHVH VWHSV HLWKHU KDYH
QRW
been taken or have been implemented only as a formality. New measures are hardly needed
ULJKW QRZ. ,W LV PRUH LPSRUWDQW WR XQGHUVWDQG ZK\ SUHYLRXV UHIRUPV DUH QRW EHLQJ UHDOL]HG
DQG
what measures need to be taken for them to start functioning. Table 8 lists the most
important tasks to be resolved to build a growth incentive model and the measures already
proposed (right-hand column).
2I FRXUVH, WKH PHDVXUHV OLVWHG LQ WKH ULJKW-KDQG FROXPQ RI 7DEOH 8 VKRXOG QRW EH FRQ-
sidered adequate to achieve the goals; they only provide a direction for economic policy to
IROORZ. ,W VKRXOG EH QRWHG WKDW PRVW WDVNV KDYH EHHQ UHFRJQL]HG DV SULRULWLHV, DQG DSSURDFKHV
have been outlined. Unfortunately, most of these measures are not being implemented, un-
OLNH WKRVH LQYROYLQJ DGGLWLRQDO JRYHUQPHQW H[SHQGLWXUHV DQG LQYHVWPHQWV. +RZHYHU, ZLWKRXW
improving the quality of public administration, the implementation of state-funded projects
will at best yield limited effects in terms of scale and duration.
As an example, we can cite the law enforcement reform concept developed by the Institute
for the Rule of Law (2013) for the Civil Initiatives Committee.
A diagnostic analysis conducted by the Institute revealed the following systematic reasons
behind the persistently declining quality of law enforcement:
x H[FHVVLYH FHQWUDOL]DWLRQ RI ODZ HQIRUFHPHQW DJHQFLHV;
x prevailing vertical hierarchical coordination;
x multiple parallel governance verticals;
x WKH SHUVLVWLQJ ³WLFN-VKHHW´ HYDOXDWLRQ V\VWHP FDXVHG E\ FHQWUDOL]HG JRYHUQDQFH;
x a lack of external supervision and communication with local communities and civil
authorities.
The law enforcement agency reform concept includes three main directions:
a) streamlining law enforcement agency management;
E) HOLPLQDWLQJ QRQ-FRUH IXQFWLRQV, WKXV UHGXFLQJ VWDI¿QJ;
c) reforming the system for evaluating and supervising law enforcement agencies.
As a key step in this reform, a three-level police force is proposed at the federal, regional
and municipal levels, with distinct authorities, duties and accountabilities at each level. In
JHQHUDO, WKH FRQFHSW SURSRVHV D V\VWHP RI LQWHUUHODWHG PHDVXUHV WR IRFXV RI¿FHUV RQ
VROYLQJ LGHQWL¿HG LVVXHV ZKLOH SUHVHUYLQJ DOO QHFHVVDU\ ODZ HQIRUFHPHQW IXQFWLRQV DQG
SHUIRUPDQFH.
An example of a task requiring a set of complementary measures is changing the stable
WHQGHQF\ WR UHGXFLQJ JURVV SUR¿W DV D VKDUH RI *'3. 7KLV LV DQ HVSHFLDOO\ FKDOOHQJLQJ WDVN
considering the workforce reduction, which places additional pressure on labor compensa-
tion. First, excessive employment must be eliminated wherever it is present; second, if pos-
sible, the labor supply must be increased; and third, wages should not be allowed to grow
faster than labor productivity. An analysis shows where there are reserves for resolving
these

9
3URSRVDOV E\ .XGULQ (2012) DQG *XUYLFK (2013), DV ZHOO DV 0DX DQG .X]PLQRY (2013), ZHUH XVHG LQ
GHYHORSLQJ
the measures below.
 10
5) 3UHVLGHQWLDO 'HFUHH 1R. 596 ³2Q /RQJ-7HUP *RYHUQPHQW (FRQRPLF 3ROLF\,´ GDWHG 0D\ 7, 2012;
5) 3UHVLGHQWLDO 'HFUHH 1R. 601 ³2Q 0DLQ /LQHV RI 0RGHUQL]LQJ WKH 3XEOLF $GPLQLVWUDWLRQ 6\VWHP,´ GDWHG 0D\
7, 2012.
Table 8
Tasks and measures required to build a growth incentive model.
Task
'UDPDWLFDOO\ UHGXFH
the non-market sector,
including public and quasi-
public companies that are
mainly guided by non-
market incentives
Motivate the executives
of agencies and regions to
support economic growth
Create feedback in the
evaluation of regional and
local authorities
Redistribute a portion
of the authorities and
budget resources to the
regions, enhance local
administrations
Eliminate the disincentive
of inter-budget transfer
distribution mechanisms
Enhance property
protection
Reduce administrative
control over business
activities
(YDOXDWH WKH HI¿FLHQF\ RI
development institutions
and reform them if
necessary
Measures required
1.%HIRUH 'HFHPEHU 1, 2012, HQVXUH GHYHORSPHQW DQG LPSOHPHQWDWLRQ RI QRQ-
core asset divestment plans by companies in which the Russian Federation has
DW OHDVW D 50% VWDNH (5) 3UHVLGHQWLDO 'HFUHH 1R. 596).
2.%HIRUH 0DUFK 1, 2013, DQDO\]H WKH HI¿FLHQF\ RI FRPSDQLHV ³FRQVROLGDWHG
´ E\ WKH JRYHUQPHQW (5) 3UHVLGHQWLDO 'HFUHH 1R. 596).
3. ,PSOHPHQW D SULYDWL]DWLRQ SURJUDP (EXGJHW UHYHQXHV FRQWHPSODWHG E\ WKH
)HGHUDO %XGJHW /DZ ZHUH 58% 728 ELOOLRQ LQ 2012-2013; DFWXDO UHYHQXHV
ZHUH 58% 86 ELOOLRQ).
4. %HIRUH 2016, FRPSOHWH WKH H[LW RI WKH VWDWH IURP FRPSDQLHV LQ WKH QRQ-
SULPDU\ PDWHULDOV VHFWRU WKDW DUH QRW DI¿OLDWHG ZLWK QDWXUDO PRQRSROLHV RU
WKH GHIHQVH FRPSOH[ (5) 3UHVLGHQWLDO 'HFUHH 1R. 596).
5.Restrict the acquisition of shares and stakes in business entities by compa-
QLHV LQ ZKLFK WKH VWDWH KDV D PDMRU VWDNH (5) 3UHVLGHQWLDO 'HFUHH 1R. 596).
6. Reduce political or non-commercial instructions from the government to
public companies.
%HIRUH 6HSWHPEHU 1, 2012, VXEPLW DQ 5) 3UHVLGHQWLDO 'HFUHH GUDIW RQ LPSOH-
PHQWLQJ D V\VWHP WR HYDOXDWH WKH HI¿FLHQF\ RI H[HFXWLYHV DW IHGHUDO
H[HFXWLYH
authorities (FEAs) and the subjects of the Russian Federation based on quali-
WDWLYH DQG TXDQWLWDWLYH LQGLFDWRUV RI WKH LQYHVWPHQW FOLPDWH (5) 3UHVLGHQWLDO
'HFUHH 1R. 596).
1.%HIRUH 6HSWHPEHU 1, 2012, PRYH D ELOO LQ WKH 6WDWH 'XPD RQ H[WHQGLQJ
WKH OLVW RI HOHFWHG PXQLFLSDO SRVLWLRQV (5) 3UHVLGHQWLDO 'HFUHH 1R.
601).
2.%HIRUH -DQXDU\ 1, 2013, DPHQG 5XVVLDQ ODZ WR LQFRUSRUDWH FULWHULD DQG SUR-
cedures (including via telecommunication networks and information technolo-
JLHV) IRU WKH SRSXODWLRQ WR HYDOXDWH WKH HI¿FLHQF\ RI H[HFXWLYHV IRU
UHJLRQDO
)($V, WKHLU RUJDQL]DWLRQDO XQLWV, DQG ORFDO DXWKRULWLHV (5) 3UHVLGHQWLDO 'HFUHH
No. 601).
6XEVWDQWLDOO\ UHGXFH IHGHUDO LQÀXHQFH RQ WKH DFWLYLWLHV RI VXEQDWLRQDO DXWKRULWLHV:
x LQFUHDVH ¿QDQFLDO DXWRQRP\ DW HDFK OHYHO RI DXWKRULW\;
x restore conditions for local administration;
x augment the role of competition as an economic growth incentive.
(0DX DQG .X]PLQRY, 2013. &K. 23)
1. ,QFUHDVH WKH VKDUH RI REMHFWLYHO\ FDOFXODWHG VXEVLGLHV WR OHYHO RII ¿VFDO FDSDFLW\.
2. Gradually switch to objective methods of transfer distribution to munici-
palities.
1.%HIRUH 2FWREHU 1, 2012, VXEPLW SURSRVDOV WR LPSOHPHQW WKH SULQFLSOH RI LQ-
GHSHQGHQFH DQG REMHFWLYLW\ LQ FRXUW GHFLVLRQV (5) 3UHVLGHQWLDO 2UGHU 1R. 596).
2. %HIRUH 'HFHPEHU 1, 2012, DPHQG 5XVVLDQ )HGHUDWLRQ ODZ WR UXOH RXW
the possibility of resolving business disputes through criminal prosecution
(5) 3UHVLGHQWLDO 2UGHU 1R. 596).
1.%HIRUH -DQXDU\ 1, 2013, UHSODFH H[FHVVLYH DQG/RU LQHI¿FLHQW
DGPLQLVWUDWLYH mechanisms of government supervision in certain industries
with alterna- WLYH PDUNHW PHFKDQLVPV, LQFOXGLQJ OLDELOLW\ LQVXUDQFH (5)
3UHVLGHQWLDO 2UGHU No. 601).
2. Introduce the presumption of innocence principle for businesses; switch
from supervision on the part of executive authorities to damage reimburse-
PHQW VROXWLRQV ZLWKLQ FLYLO ODZ (0DX DQG .X]PLQRY, 2013. &K. 18).
Their activities have been broken into many scattered projects lately, in some
FDVHV QRW GLUHFWO\ UHODWHG WR LQQRYDWLRQV (3UHVLGHQWLDO $GGUHVV WR WKH )HGHUDO
Assembly, 2013).
(FRQWLQXHG RQ QH[W SDJH)
Table 8 (continued)
Task Measures required
Enhance competition in
domestic markets 1. Increase the actual weight of the Federal Anti-monopoly Service, focusing
it on eliminating market-entry barriers and countering the monopolistic
activities of large companies.
2. Continue reforming natural monopolies.
'LVPDQWOH WKH H[LVWLQJ
V\VWHP RI ³VRIW EXGJHW 'LVFRQWLQXH JRYHUQPHQW VXSSRUW IRU LQHI¿FLHQW FRPSDQLHV, HOLPLQDWH
EDUULHUV
FRQVWUDLQWV´ (³LQGXVWULDO
for insolvent companies to exit the market.
SDWHUQDOLVP´)

Abandon paternalistic
social policies
In particular, improve the targeting of social aid, which should be provided
8WLOL]H VWDWH HFRQRPLF based
reserve funds RQ WKH SRSXODWLRQ¶V QHHGV (%XGJHWDU\ 3UHVLGHQWLDO $GGUHVV IRU 2014±2016◆).

1. %HJLQQLQJ LQ 2013, LQWURGXFH PDQGDWRU\ WHFKQRORJ\ DQG SULFH DXGLWV IRU

DOO ODUJH-VFDOH LQYHVWPHQW SURMHFWV ZLWK SXEOLF LQYROYHPHQW (5) 3UHVLGHQWLDO
'HFUHH 1R. 596).
2.%HIRUH -XQH 1, 2012, SUHSDUH D UHSRUW RQ WKH LPSOHPHQWDWLRQ RI PHDVXUHV IRU
Enhance competition the mandatory public review of procurement orders for state and municipal needs
in the government IRU DPRXQWV H[FHHGLQJ 58% 1 ELOOLRQ (5) 3UHVLGHQWLDO 'HFUHH 1R. 596).
procurement sector
%HIRUH 'HFHPEHU 1, 2012, FUHDWH PHFKDQLVPV WR DWWUDFW IRUHLJQ RUJDQL]DWLRQV
Implement further reforms possessing advanced technology to participate in road construction tenders
in public sectors (5) 3UHVLGHQWLDO 'HFUHH 1R. 596).

Increase the overall Education, healthcare, law enforcement, and other reforms.
effectiveness of public
expenditures
$PRQJ WKH PDLQ UHVHUYHV IRU RSWLPL]LQJ IHGHUDO EXGJHW H[SHQGLWXUHV, WKH
IROORZLQJ ZHUH QRWHG LQ WKH 3UHVLGHQWLDO %XGJHWDU\ $GGUHVV IRU 2014±2016a:
x ensuring long-term balance in the pension system with a gradual reduction
RI VXEVLGLHV IURP WKH IHGHUDO EXGJHW WR WKH 3HQVLRQ )XQG RI WKH 5XVVLDQ
Federation;
x streamlining government procurement;
x streamlining federal institutions and the number of public-sector
employees. These changes should be implemented following careful
preparation as part of WKH UHIRUPV WR LPSURYH SXEOLF VHFWRU
HI¿FLHQF\.
a
%XGJHWDU\ 3UHVLGHQWLDO $GGUHVV RQ %XGJHW 3ROLF\ LQ 2014-2016. KWWS://ZZZ.NUHPOLQ.UX/DFWV/18332.

issues: a) the number of employees in the public sector is clearly excessive (Russia sur-
passes developed countries and emerging markets in the number of public employees per
1,000 population); b) in recent years, wages have been rapidly increasing in a number of
publicly funded industries, which later spread to the entire economy; and c) Russia has
nearly the youngest retirement age among comparable countries. In view of the above, the
following measures may be proposed:
x abandon wage increases in the public sector, which are unrelated to growth in its perfor-
mance;
x streamline the number of public sector employees;
x VZLWFK IURP ¿JKWLQJ XQHPSOR\PHQW (WKH LPSDFW RI ZKLFK ZLOO KDUGO\ EH VLJQL¿FDQW) WR
¿JKWLQJ IRU FRPSHWLWLYHQHVV;
x increase mobility and expand workforce re-training;
x improve regulatory mechanisms for immigration to attract employees needed by the labor
market;
x gradually increase the retirement age.
,W LV QHFHVVDU\ WR UHVWRUH LQYHVWRU FRQ¿GHQFH LQ WKH PDFURHFRQRPLF VWDELOLW\ RI WKH 5XVVLDQ
HFRQRP\ DV ZHOO DV LQ WKH LQVWLWXWLRQDO FKDQJH SROLF\. %RWK LQYROYH VROYLQJ ORQJ-WHUP SHQ-
VLRQ V\VWHP LVVXHV. 7KHLU DFXWHQHVV LV GHWHUPLQHG, ¿UVW, E\ WKH IDFW WKDW WKH ORQJ-GLVFXVVHG
changes in the pension system to become effective in 2015 do not solve the aging population
SUREOHP, DQG VHFRQG, E\ WKH IDFW WKDW WKH IXQGHG V\VWHP KDV EHHQ IUR]HQ IRU WZR \HDUV, IXUWKHU
aggravating the long-term imbalance. Investors understand clearly that without robust mea-
sures to eliminate these problems, pension-related issues will have to be solved by raising
taxes, which would further reduce incentives to invest in the Russian economy. Many spe-
FL¿F DSSURDFKHV WR FRQGXFWLQJ HIIHFWLYH SHQVLRQ UHIRUP KDYH EHHQ SURSRVHG (VHH 0DX DQG
.X]PLQRY, 2013; .XGULQ DQG *XUYLFK, 2012; *XUYLFK, 2011).
%XLOGLQJ XS FRQ¿GHQFH LQ WKH JRYHUQPHQW¶V DFWLRQV ZLOO H[WHQG WKH GHFLVLRQ PDNLQJ KRUL-
]RQ IRU EXVLQHVVHV DQG KRXVHKROGV. +RZHYHU, WKH DXWKRULWLHV ZLOO QHHG WR DYRLG LQFRQVLVWHQW
actions when measures are canceled or revised shortly after they are announced.
,W LV HVSHFLDOO\ LPSRUWDQW WR UHVWRUH LQYHVWRU FRQ¿GHQFH LQ WKH SURVSHFWV IRU LPSURYLQJ WKH
business environment in Russia. As a general principle, a long-term moratorium on deterio-
rating the business environment may be introduced. In the event of urgent necessity,
changes could be adopted that would have indirect negative consequences on the business
environ- PHQW, DOWKRXJK WKLV VKRXOG EH RIIVHW E\ RWKHU PHDVXUHV WKDW HQVXUH VLJQL¿FDQW
EHQH¿WV IRU
businesses.
It is important to support previously formed trends, particularly the borrowing of ad-
YDQFHG WHFKQRORJ\. 7KLV DSSURDFK KDV EHHQ UHFRJQL]HG DV WKH PRVW HIIHFWLYH IRU LQFUHDVLQJ
productivity in the countries at the same stage of development as Russia. It should be un-
derstood that no country is capable of creating all technical innovations from scratch. Thus,
the total research and development expenditures in the 10 leading countries exceed Russia’s
expenditures by more than 30 times (calculated based on purchasing power parity).
As noted above, to build a new growth model, we need to substantially alter the course of
DFWLRQ IRU H[HFXWLYH DXWKRULWLHV DQG EXVLQHVVHV. +RZHYHU, DW WKH LQLWLDO VWDJH, WKH PDLQ UROH
will be played by the authorities, who will be required to:
x create a new system of incentives as part of the public administration system;
x begin forming a real market environment for businesses;
x showcase by personal example the approaches that may be used to reduce costs and in-
FUHDVH RSHUDWLRQDO HI¿FLHQF\.
The resolution of tasks from Table 8 will enable a large step toward building a new
growth model that is independent of foreign resources. Stronger incentives create demand
among FRPSDQLHV IRU LQQRYDWLRQV (ZKLFK PD\ SDUWLDOO\ EH VDWLV¿HG DW WKH H[SHQVH RI
LPSRUWLQJ PRGHUQ HTXLSPHQW DQG SDUWLDOO\ E\ GRPHVWLF 5&' HIIRUWV). ,QFUHDVLQJ WKH
HI¿FLHQF\ RI SXE- OLF H[SHQGLWXUH ZLOO SURYLGH DQ RSSRUWXQLW\ WR IXO¿OO WKH JRYHUQPHQW¶V
REOLJDWLRQV ZLWKRXW LQFUHDVLQJ WKH WD[ EXUGHQ. $W WKH VDPH WLPH, UHGXFLQJ SURGXFWLRQ FRVWV
ZLOO LQFUHDVH SUR¿WV DV
well as labor compensation by raising demand and creating opportunities for further techno-
ORJLFDO PRGHUQL]DWLRQ. 7KH SRWHQWLDO WR DFFHOHUDWH 5XVVLD¶V HFRQRPLF JURZWK ZLOO EH YHU\
high if this plan is implemented.
'LUHFW ORVVHV FDXVHG E\ DQ LQHI¿FLHQW DQWL-PRQRSRO\ SROLF\ DUH DW OHDVW 2.5% RI *'3
(5$1(3$, 2012). 6LJQL¿FDQW JDLQV DUH FRQQHFWHG ZLWK WKH UHGLVWULEXWLRQ RI UHVRXUFHV
WR PRUH HI¿FLHQW SURGXFHUV E\ UHPRYLQJ VRIW EXGJHW FRQVWUDLQWV. 6WUHDPOLQLQJ UHVRXUFH
GLV- WULEXWLRQ PD\ KDYH LQFUHDVHG &KLQD¶V WRWDO IDFWRU SURGXFWLYLW\ E\ 30%±50% DQG
,QGLD¶V E\ 40%±60% (+VLHK DQG .OHQRZ, 2009). :H EHOLHYH SRWHQWLDO JDLQV ZRXOG EH DW
OHDVW HTXDO IRU
5XVVLD. 7KH SRWHQWLDO IRU DGGLWLRQDO JURZWK RI WKH 5XVVLDQ *'3 IURP VXFFHVVIXOO\ LPSOH-
menting structural reforms (regulation of commodity markets, the labor market, labor taxes
DQG WKH SHQVLRQ V\VWHP) LV HVWLPDWHG DW 6% RYHU ¿YH \HDUV DQG 13% RYHU 10 \HDUV (%RXLV DQG
'XYDO, 2011). 7KH HFRQRPLF SRWHQWLDO IRU WKH IHGHUDO EXGJHW LV LPPHQVH. )RU H[DPSOH,
WKH YDOXDWLRQ RI ORVVHV LQ SXEOLF SURFXUHPHQW UHDFKHV 58% 1 WULOOLRQ SHU \HDU.
0HDQZKLOH, D VLJ- QL¿FDQW HIIHFW PD\ RQO\ EH DFKLHYHG IURP WKH UREXVW LPSOHPHQWDWLRQ RI D
ODUJH-VFDOH SURJUDP
of coordinated and complementary reforms rather than separate measures. In particular, it
is impossible to achieve positive effects from reforms without adequate property protection
(Christiansen et al., 2009). The worst course of action is to discontinue all production support
while maintaining excessive government regulation and other pressure on businesses.
The proposed approach to building a new growth model is far from easy, requires strong
SROLWLFDO ZLOO, DQG LQYROYHV XQSRSXODU UHIRUPV. 1HYHUWKHOHVV, ZH DUH FRQ¿GHQW WKDW WKHUH DUH
no viable alternatives to this course.

5. Conclusion

6XPPDUL]LQJ WKH UHVXOWV.

1. Russia has shaped an economic growth model based on transforming oil and gas sur-
SOXV UHYHQXHV (ZKLFK H[FHHGHG 58% 2 WULOOLRQ IURP 2000 WR 2013) LQWR GRPHVWLF
GHPDQG. The model enabled rapid production growth, a record increase in wages across all
industries DQG VRFLDO WUDQVIHUV, DQG LQFUHDVLQJ PDFURHFRQRPLF VWDELOLW\. +RZHYHU, EXVLQHVV
VWUDWHJLHV WXUQHG RXW WR EH IRFXVHG RQ H[SDQGLQJ SURGXFWLRQ, ZKLOH LPSURYLQJ HI¿FLHQF\
IDLOHG WR EH- come a priority.
2.In the near future, we can hardly hope for a return of the ideal conditions under which
the imported growth model was shaped. Consequently, there is little chance for the Russian
economy to stop stagnating without creating a new growth model.
3.The problems of the Russian economy are of a persistent nature and cannot be
resolved ZLWK LQGLYLGXDO PHDVXUHV, VXFK DV VRIWHU PRQHWDU\ RU ¿VFDO SROLFLHV. 7KH UHDVRQV
IRU WKHVH problems are the weaknesses in the market environment caused by the
domination of public and quasi-public companies with distorted incentives (compared with
the usual market logic) DQG ³LQIRUPDO´ UHODWLRQV ZLWK WKH VWDWH.
4.The measures discussed or implemented today are not consistent with the scale of
prob- lems facing the Russian economy. For the most part, they suggest somehow
expanding do- mestic demand, which will allow the effects of the old growth model to be
extended only for a short period of time but will not help create a new growth model.
5.A new growth model should be based upon strong incentives for both the business and
JRYHUQPHQW UHJXODWLRQ V\VWHPV WR LPSURYH HI¿FLHQF\. 7KH JRYHUQPHQW¶V UHJXODWRU\ EXUGHQ
must be radically reduced, and property rights must be protected. It is essential to ensure
strict and equal market accountability for the performance results of all companies, regard-
OHVV RI WKHLU DI¿OLDWLRQ, DEDQGRQLQJ WKH LQGXVWULDO SDWHUQDOLVP SULQFLSOH.
6.A number of the steps required to build a new growth model are mentioned in presi-
dential decrees and other regulatory documents. Unfortunately, most of them are not being
followed or are only partially followed, unlike the frequently passed resolutions on
allocating funds for governmental projects.
7.The potential to accelerate growth in the Russian economy will be very high if the plan
DERYH LV LPSOHPHQWHG. +RZHYHU, LW ZLOO UHTXLUH D ZKROH VHW RI UREXVW UHIRUPV, UDWKHU
WKDQ separate, scattered measures.

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