The 4th Gaidar Forum – International Conference "Russia and the World: Challenges of Integration"

Prime Minister Dmitry Medvedev attends Gaidar Forum-2013 – International Conference "Russia and the World: Challenges of Integration". "Government to work towards steady economic growth of over 5%".

Speech by Dmitry Medvedev at the forum:

Good afternoon, colleagues, ladies and gentlemen. I would like to thank you for inviting me to speak at the Gaidar Forum.

Life changes fast. Currently, all of us, Russians of course, take for granted the possibility to build our lives as we see fit and to do it according to our own interests. We can do business, travel abroad for business, relax and, finally, own private property. All this seemed an illusion and an unrealisable dream just over 20 years ago. Incidentally, this was our life when I first visited this building and the complex of the Academy of National Economy for the first time. But the dream came true, and this was largely made possible by Yegor Gaidar’s team. Long ago, his team was not afraid to deviate from the path, which seemed forever shaped by the history of our country, despite an extremely difficult situation. Yes, of course, this was a very difficult path and a very difficult time, but we realise that such transformations are never easy for any country.

Quite possibly, this is particularly evident today when, as many analysts believe, the global economy is experiencing a systemic crisis. This is proved by the all-encompassing nature of this crisis, the duration of this crisis, as well as by intertwined financial and political upheavals. It appears that this crisis will never end. As soon as we breathe a sigh of relief, the crisis starts unfolding again. The situation resembles major 20th century crises like the crises of the 1930s and the 1970s. I would like to recall that the last large-scale crisis of the 1970s gave birth to  a new technological and economic model, as well as the political and economic liberalisation and the appearance of the two main reserve currencies. Accelerated globalisation, a key factor of the modern world’s development, was the most important consequence of this crisis.

Obviously, inter-dependent economic processes in various countries serve to aggravate, rather than mitigate, various manifestations of the crisis. We felt the crunch in 2008 when the current crisis began. Of course, new opportunities, new changes, technological shifts, a new model of economic growth, new geo-economic and geopolitical balances and a new realignment of global currencies lie ahead. In effect, a new model of economic regulation is currently being formed. It appears that this will be a supra-national model. Leading countries will have to make unconventional and responsible decisions in the next few years. Those, who find these solutions will be able to make a powerful leap forward.

Russia presides over the G20 this year. We see our role in offering a policy to consolidate economic growth to our partners. Most importantly, we must restore confidence on global markets and develop new international financial centres. We must eliminate barriers hampering direct investment and global value-creation chains. We must ensure more transparent and more effective financial regulation, as well as that in other spheres, including energy, which is important for Russia. I am confident that we will be able to turn to normal sustained development in this manner, that is, by removing barriers and by strengthening international coordination.

The Government’s main short-term goal is to ensure a conversion to sustained economic growth. At any rate, this economic growth should be at least 5%. We must strive to accomplish this objective and to ensure a sustained increase in national standards of living on this basis. As before, our country needs to ensure the qualitative renewal and comprehensive modernisation of various areas. My colleagues and I have repeatedly noted that we need production and technological modernisation, which will make it possible to create millions of high-skill jobs. We need economic diversification, and we need to reduce our dependence on fuel and energy price fluctuation. Of course, we need social modernisation, which would help turn the middle class into the dominant class. We have to create a more effective and equitable healthcare system, a more effective and equitable pension system and to make all social institutions more effective and equitable. And, finally, we must continue our political modernisation and drastically expand the range of political and economic freedoms. In the past few years, we have begun active efforts in these areas, and this policy will remain unchanged.

The Government has to focus its efforts on solving the entire range of issues. The first task is to provide macroeconomic stability, which implies a tough, long-term and predictable budget policy, a decline in inflation, and greater efficiency of Government spending. The second goal is accelerated infrastructure development in key sectors and removing restrictions that hinder business activities. The third task is to improve the labour market and to provide conditions for citizens’ geographical and professional mobility. The fourth is to improve the business climate, provide access to credit resources, and boost private long-term investment resources. The fifth goal is to utilise competitive advantages in human capital and to create conditions for the dynamic development of the country’s education and health sectors. The sixth task is to ensure a balanced regional development, to improve inter-budgetary relations, and encourage competition among regions for labour force and investment resources. Finally, the seventh is to boost the Russian economy’s international positions, to adapt to WTO conditions, increase the level of Russian companies’ integration into the international chain of added value formation, and improve our exports structure. And, certainly, it is necessary to retain a leading role in the integration processes in the CIS. At the same time, we need to speed up integration as regards our relations in APEC and the European Union, and our activities on joining the Organisation for Economic Cooperation and Development.

I will elaborate on certain points. As you know, the three-year budget has been approved. To retain macroeconomic stability, a new budget rule has been introduced. I have to admit this was not easy, and the Government had to stand its ground in professional debates. As a result, the adopted social commitments and long-term investment programmes do not depend on the current oil prices. 

The work is being completed on the development of state programmes, which will allow for concentrating resources on priority areas of the national advancement. Redundant investment barriers are being steadily removed and state governance institutions work with greater efficiency. This process is not proceeding as quickly as we would like, but I am glad that for the past few months these efforts have gained a new and stable dynamics. For the first time in eight years, Russia has moved up in international ratings, including the World Bank’s rating.

The progress is evident, though as I said, is as yet insufficient. The main thing is that things moved off the ground and much work lies ahead. Open work and an ongoing daily dialogue with civil society and experts are one of the principles of the Government that I’m honored to head.

I would like to mention in particular the necessity to develop private initiative. We have to reduce the share of state participation in the structure of the national economy. I have repeatedly mentioned that state corporations have completed their role in consolidating disparate assets, and in the future their fate should follow certain rules.  

Now, we have to focus on stimulating private enterprises – small, medium and large businesses – and on removing obstacles along the way. Creating a favourable business climate is the common task for both federal bodies and regions, municipalities.

In the past few months, the Government has adopted regulatory documents which set these tasks as key indicators of the governance efficiency. In this regard, much depends on regional governors and administrators. There are many examples of territories that have similar conditions but totally different work results. Such examples are known to everyone. Some regions can be neighbours geographically but boast performance results that are poles apart. This means that end result depends on people and decisions they make.

Also, we should boost competition among regions for investors. The election of regional governors is a step in this direction. Regional authorities should have greater opportunities to influence living standards in their regions.    

Consistent privatisation is fundamentally important for the development of a competitive environment. We are interested in strategic investors. Assets must be sold under favourable market conditions, but if we wait forever, we will never sell anything. We must take a decision considering how ready enterprises slated for privatisation are to work under new conditions.

But most importantly we have a clear understanding that privatisation will boost the competitiveness of Russian business. Equally important is the competitiveness of our people.  

We have adopted new state programmes for the development of education and healthcare – these are big, very important programmes, unlike anything we’ve had before. Their targets are well known. The programmes are ambitious, but achieving these goals is the only right way forward and it’s a chance to improve living standards in Russia. We have to acknowledge that the level of medicine as well as the quality of education in Russia is lower than in many other countries despite the competitive capacities our country historically has had. That is why education, healthcare, and medical technologies are among the main priorities for modernisation.

Colleagues, everybody knows that a closed economy is a sure path to stagnation. In 2008, since the very beginning of the economic downturn, the Russian President and the Government spoke out against the voices in the world calling for the closing of domestic markets and greater government regulation. I remember how leaders of many countries said during the G20 meetings that they would be closing their economies, which, of course, did not happen. We are convinced that competition is the main driver of renewal and the most effective remedy from stagnation both in times of economic prosperity and in times of global crisis. It is already clear that the economic models being formed will be supranational in nature.

A global character, dynamic information and financial flows, global companies, and global institutions are our reality today, which we cannot ignore. Russia plays a leading role at all the main international venues. In 2012 Russia presided over APEC, this year the G20, in 2014 the G8, and in 2015 BRICS. Again, modern economic growth can’t be achieved in a single country in isolation – even a country with a vast domestic market like Russian has. It is one of the largest in the world, ranked ninth on the Global Economic Forum list of the largest domestic markets. 

Regarding integration, there are several priorities as well. First, each sphere of integration –   integration with Europe, within the Customs Union, the Common Economic Space, and in Asia – has its own specifics. Integration within the Customs Union and the Eurasian economic space opens new markets for Russian companies and fosters a competitive environment. Greater cooperation with the European Union, WTO membership, joining the Organisation for Economic Co-operation and Development (OECD) meets the goals of modernising legislation, technologies, institutions, and infrastructure. And finally, our cooperation in the Asian-Pacific region is important for speeding up the development of Eastern Siberia and Russia’s Far East – areas that cannot focus entirely on the Russian domestic market given their geographical location. In this sense, the question of choosing between east or west, north or south is unrealistic and politically motivated. We need to abandon this kind of approach. This is important both for ourselves and for our neighbours. We need to harmonize our respective efforts in all areas and build modern integration models. This would be the best response to global challenges.

Secondly, I would like to emphasise that the Customs Union as well as the Common Economic Space are open to other countries. This is an open integration project, mainly for the EurAsEC and CIS members. Of course, potential partners should not only share our principles but should be ready to implement these principles, and not just talk, that is to sign all the documents involved, and not just some of them. This is what integration is all about. Our current integration project of three countries has had tangible success. Frankly, I am very pleased to know this because there were vary diverse forecasts. As it is, the participating countries are showing good macroeconomic results and high mutual trade growth rates. The general investment climate is gradually improving as well as a result of more comfortable conditions for doing business, especially for small and mid-sized companies, and more jobs are being created. Generally, a common economic space means granting partners national treatment. The Customs Union and Common Economic Space will give investors the right to choose where it is easiest to do business, and where there are fewer administrative barriers.

This would also imply a competition of state regulation systems – which can benefit business. Honestly, we are still working hard to put up strong competition, but these changes are creating a very positive atmosphere. Although the Russian bureaucracy might not find change to be very comfortable, on the whole, the changes are positive.

My third point about integration is as follows: joining the OECD (Organisation for Economic Co-operation and Development) remains our strategic priority after joining the WTO. We have a roadmap that we adopted in 2007 as well as a clear understanding of our goals and benefits. Joining this organisation would be an important signal for investors that Russia’s level of institutional development has risen.

And finally I would like to say a few words about another aspect of integration, that of creating  favourable conditions for involving Russian companies in international value-added product chains. This implies technology and expertise transfer, as well as the transfer of managerial principles. However, this approach requires a different perception of economic-policy, customs-regime issues, tariff-regulation and tax-administration issues, infrastructure development and other processes. We must transcend the boundaries of the departmental approach, which has evolved in Russia, and which is being advertised here quite often. We need to focus on companies, which are becoming part of international chains. And this will probably yield even more impressive results than all-out support for some sectors.

Colleagues, friends, we are now witnessing impressive technological, social, intellectual and, of course, world-outlook changes in the global economy. This is a serious challenge. On the one hand, every government must now maintain social and political stability. We must realise this, and everyone must realise this. We must curb unemployment. By the way, we have managed to address this issue rather effectively. On the other hand, it is our duty to encourage economic modernisation and structural reforms. Believe me it is not easy to combine these approaches, especially at a practical-policy level. Much depends here on the government’s ability to clearly perceive contemporary challenges and to respond to these challenges. In the long run, much depends on the efficiency of economic and political institutions, on their flexibility and, at the state time, on their stability.

We know little about eventual post-crisis combinations. They are discussing the future stances of individual countries and particular regions using all sorts of terms, including the Group of Two (G2 or Chimerica), which denotes an informal relationship between China and the United States. This term was coined by Harvard University Professor Niall Ferguson. Other combinations are also possible. At any rate, it would be preferable for us to create a concept of economic and humanitarian space between the Atlantic and Pacific Oceans. I consider this concept to be quite pertinent. I also believe that the positive prospects of the BRICS alliance are quite obvious. But we are not closed to any processes. It is important that Russia can become a key link in the global integration processes, and that it can implement its well-known geo-political advantages. And, of course, it can obtain sizeable dividends for the sake of its own development. Mao Zedong once said: “When you feel the wind coming, instead of building a shelter, build a windmill.” I believe that we should think about other aspects in the next few years. In this connection, I would like to quote Yegor Gaidar: “There can be no standard economic policy. This calls for innovative solutions. Russia’s positions in the run-up to the next global crisis and its long-term development prospects depend on the extent to which Russia manages to make headway in this direction during the coming decade.” This is a very relevant statement. I wish everyone good luck. 

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Dmitry Medvedev’s concluding remarks:

I believe that this was quite interesting for everyone. I will only say a few words. I would like to thank all of our colleagues who are present on the stage for their detailed speeches, in which they have assessed current developments and the influence of global processes on the world economy and on the Russian economy. I can only say that, after listening to the distinguished Mr Robert Mundell, who received the 1999 Nobel Prize in Economics, I realised that the situation was really complicated, but that we were doing everything right. And it is very important that leading specialists who come to Russia give their assessment of the situation in our country in the context of global economic processes. I would like to thank Mr Niall Ferguson, a Harvard University Professor, for his very subtle assessment of the current situation and for his tip, which I will now use when they tell me once again that Russia has no full-fledged rule-of-law state. I will tell them that we have a rule of lawyers in full volume, and that we consider this to be our achievement.

And, finally, I would like to say that we are extremely interested in all those interesting remarks that were voiced in the speeches of other colleagues, including Mr Otaviano Canuto, Vice President of the World Bank, and Mr Esko Aho, Executive Vice President of NOKIA, as regards the investment economy and specific measures that were implemented in Finland in 1991-1994. In reality, we consider all these comments to be very interesting. And, quite possibly, these remarks can be applied to the current situation, especially with due consideration for specific technological modernisation tasks facing our country. I am confident that together we will be able to cope with all those problems that are now confronting the global world, and that Russia will certainly not remain on the sidelines of these transformations. We will implement everything that I have mentioned. We will try to act efficiently and consistently. But, of course, we will do this in line with the global market situation. I would like to cordially thank everyone for attending this panel.