There has been much talk lately in Russia about its future global leadership. How realistic are these popular projections? An answer to the question can be found in an unbiased in-depth analysis of quantitative and qualitative characteristics of Russia’s economic development against major countries. Such an analysis is also essential for formulating the main strategies required to attain leading world positions.

COMPARATIVE ANALYSIS

What is the global ranking of Russia’s total production volume? In most cases, this index is underrated since analysts estimate Russia’s Gross Domestic Product (GDP) in U.S. dollars at the official exchange rate. However, this is wrong because estimates must be based on the purchasing power parity (PPP) of the ruble and the dollar, as is done by professionals, above all in international economic organizations. Russia’s GDP in 2006, if based on PPP, would be not U.S. $600-800 billion (if it is estimated on the basis of the official exchange rate) but U.S. $1.5 trillion.

Since 1968, the United Nations has been implementing the International Comparison Project (ICP), which is designed to compare the purchasing power of national currencies, as well as the GDP per capita across countries. The Soviet Union for years declined to take part in this program, not recognizing “bourgeois parameters” of the GDP and the GNP. Thus, it conducted its own overestimated international estimations of its national income and other indices in U.S. dollars. It was only in 1990 that the Soviet Union took part in the ICP, just one year before the breakup of the U.S.S.R.

The Russian Federation was admitted into the ICP in 1993, and subsequently became a permanent participant in the program, providing all the necessary basic data. In particular, for calculating PPP for 1999 within the framework of the Eurostat-OECD program, Russia provided data on prices for almost 3,000 goods and services, thus forming a “basket” for comparing, in dollars, its GDP with that in other countries. Similar calculations were made for 1996, 1999 and 2002, involving an increasing volume of data on prices for comparable goods and services included in the GDP.

Table 1 below cites the results of international comparisons of the GDP of Russia and major countries for 2003.

Source: World Economy and International Relations, 7/2005, pp. 85-89 – Russ. Ed.

These calculations show that Russia’s GDP in 2003 exceeded $1.3 billion and that it ranked 10th in the world, lagging behind the U.S. and Western Europe by about 8 times, China by 5 times, Japan by almost 3 times, India by 2.3 times, France, Great Britain and Italy by 1.2 times, and Brazil by 4 percent.

In the same year, in terms of GDP per capita, Russia lagged behind the U.S. by 4 times, Western Europe by 3 times, Japan and Canada by 3.1 to 3.3 times, Germany by 3 times, and Great Britain, France and Italy by less than 3 times. At the same time, Russia was ahead of Mexico by 18 percent, Brazil by 22 percent, China by 1.8 times, and India by 3.2 times.

In terms of GDP, Russia is closely behind Brazil, and in the next few years Russia may overtake Brazil in this category. More importantly, Russia’s GDP has approached that of France, Britain and Italy, lagging just 20 percent behind. In the meantime, Russia’s Asian neighbor, China, enjoys much stronger positions in the world. China’s GDP is already more than 60 percent of the U.S. GDP, while Japan’s GDP is only about 50 percent of China’s.

Source: World Economy: Global Tendencies For a Hundred Years. Moscow, 2003, pp. 545, 546, 549, 550. – Russ. Ed.

Now let’s analyze data on industrial production. As Russia’s State Statistics Committee (Goskomstat) does not make public international comparisons on industrial production in dollars, the figures given in Table 2 are cited from PPP surveys carried out by B.M. Bolotin of the IMEMO on the basis of international statistics and international economic literature.

These figures show that Russia’s place in the world in terms of industrial production volume is much higher than in terms of its GDP. In industrial production, Russia ranks 6th in the world with slightly over 20 percent of the U.S. figure, whereas in Europe Russia is 2nd after Germany and ahead of France, Britain and Italy. This is due to Russia’s mighty extraction industry and military-industrial complex. Russia’s industrial production is almost twice as large as that of Canada.

The next table gives figures on international comparisons of labor productivity and Russia’s place in the world economy in this aspect. The figures were provided by the IMEMO.

Source: World Economy: Global Tendencies For a Hundred Years. Moscow, 2003, pp. 539, 540. – Russ. Ed.

Table 3 shows that Russia lags behind the U.S. in labor productivity by almost 5 times, Canada by 4 times, Japan by 3.7 times, and Western Europe by 3.5 times, while it is 100 percent ahead of China, and almost 3 times ahead of India. At the same time, Russia is 36 percent behind Mexico and 14 percent behind Brazil.

Russia’s per capita income in 2003 stood at 4,690 dollars, that is, 95 percent of the world’s average; 17.9 percent of per capita income in the U.S.; 28.8 percent of per capita income in Germany; 29.7 percent of the figure in Japan; and 211.7 percent of per capita income in China.

This was a statistical, purely quantitative characteristic of Russia’s place in the global economy in the late 20th-early 21st centuries, which does not include analysis of qualitative aspects of the Russian economy and society.

A COUNTRY OF UNFINISHED REFORMS

Shortly after the financial default of August 1998 and a sharp devaluation of the ruble, Russia saw growth in production. Undoubtedly, production growth is important, but exactly what products have begun to be produced in larger quantities? Are these modern and competitive products, meeting stringent requirements of the global market?

Unfortunately, Russia’s economic growth is purely quantitative and is due to the output of traditional, noncompetitive products. Russia manufactures few modern high-quality, civilian (that is, non-military) goods that are competitive. Moreover, unlike the new industrial countries and large developing countries, such as Brazil, India and particularly China, Russia has not yet grabbed reliable niches on the world market of finished industrial and agricultural products.

Unfortunately, Russia also remains a country of unfinished reforms. Most of Russia’s setbacks in economic reforms stem from weak governance institutions and a lack of political will for forming a truly effective market economy and democracy. An inefficient level of professionalism and decision-making, together with an atmosphere of indolence, are commonplace factors in the present governance system. Oftentimes these factors are aggravated by the outright sabotage of the fulfillment of decisions at various levels of state power, and the merger of the latter with the financial and private business circles. These factors have a very negative impact on the development of the Russian economy.

Mention should also be made of the vague public mindset in Russia, which is often described in the West as “Russian mental disability.” The latter stems from the incomplete departure of Russian society from the Soviet form of ideologized thinking, which prevented the Russian people from drawing a line under the Communist past by means of a public opinion tribunal over Bolsheviks’ crimes, or repentance for the lawlessness and violence committed throughout the Soviet period of Russian history.

Russia, which has not yet resolutely embarked on the path of market reforms and stable democratization, is already apprehensive about “orange” and other revolutions, not to mention the “pernicious” influence of the West, and often takes the path of isolationism while rejecting globalization and Europeanization. The outstanding German politician Otto Lambsdorff gave a characteristic assessment of Russia in this respect: “I was under the impression that contemporary Russia remains undecided about its goals. I think Russian society itself has not yet decided what it wants and which path it must follow. Thus, coexisting in Russia today are the most progressive, as well as the most reactionary tendencies, comprised of a market economy and a state economy, freedom and authoritarianism, progress and reaction. Using outdated terms, I could say that a ’unity of opposites’ now reigns in Russia. There is nothing surprising about this. Russia has witnessed not only 70 years of Communist dictatorship, but also 700 years of authoritarian rule. Naturally, society is unable to exit this phase of protracted infancy overnight and become a democratic civil society. Germans know this very well. We had to learn democracy in the course of a long, painful and horrible process.” This is quite an explicit characteristic of Russia.

The above reasons suggest that Russia and its economy still have many difficulties in store for them, especially those that may be caused by an aggravation of social discontent and territorial problems. Yet Russia has everything it needs not only for economic growth but also for economic and social prosperity. This includes, above all, huge manpower pools; technological, production and natural resources; enterprising and educated people of the new generation; and a large research and technical potential, which comprises scientists, numerous research institutes and design bureaus, the huge military-industrial complex, etc. One can add to this list financial resources and the political will for Russia’s revival, which has emerged in the country under President Putin.

But today, in order to avoid a historical impasse and secure a worthy place in the world, Russia must create conditions for consolidating the market economy, while securing legal and social support by the federal bodies, which are in the process of being renovated and strengthened. Russia must work out a long-term strategy for the development of its social and economic realms, while consolidating its internal unity in every way possible in order to prevent any element of separatism and disintegration. Furthermore, it must work to develop the economy of Siberia and the Russian Far East.

The most important thing is to start establishing a new updated model of economic reforms. The main elements of this model are: all possible encouragement of investment; modernization of production; consolidation of market institutions; a large-scale innovation policy; social orientation of production; the strengthening of the country’s territorial integrity and interregional economic ties; the final overcoming of residual, decaying Bolshevism and nationalism; and further integration of the Russian economy into globalization processes, with an emphasis made on high-tech products.

The state must promote in every way the systemic transformation of its economic system. This should be done through the government’s direct investment in research and development, together with various economic regulatory measures, including tax breaks, subsidies, and depreciation and industrial policies.

Building such an economy requires the extensive use of modern economic knowledge, together with the serious development of economic science in the country.

CATCH UP OR OVERTAKE?

In the period until 2015 Russia can improve its GDP and industrial production both quantitatively and qualitatively. The average annual growth rate of the GDP during this period can reach 5 percent, while industrial production will increase at a rate of 4 percent. A slower growth of industrial production is characteristic of countries that are at the postindustrial stage of their development, and there are grounds to believe that the Russian economy has already begun moving toward the postindustrial stage.

Apart from growth in capital investment, which now is faster than growth in the GDP, other factors must start working in the future, such as the acceleration of technological progress, large-scale business initiative, and accelerated export of finished goods, primarily machine-building products. The Russian government, in its economic development program for the period until 2008, has set a target of achieving an almost 6-percent average annual growth rate of the GDP.

Naturally, my forecast, which is based on a high growth rate of Russia’s GDP, proceeds from the assumption that in the period until 2015 Russia will avoid economic disasters, like the August 1998 financial default, and will continue market economic reforms and the modernization of its economy and production. Otherwise, economic growth rates will inevitably decrease, and any discussion about Russia’s place in the global economy will acquire an entirely different meaning.

The economy develops according to its own laws, and political games or opposition cannot abolish them. At the same time, the state can speed up or slow down economic growth or production decline.

There are two possible variants of a federal economic policy for the period until 2015: (a) partial return to authoritative methods of direct state influence on economic development through market mechanisms, economic levers and incentives on the basis of the already created elements of the market infrastructure; and (b) a more resolute and authoritative continuation of the already begun market reforms (while recognizing and correcting mistakes made), adjusting market policy, and developing further the cooperation with advanced Western countries, making the emphasis on values of a rule-by-law state and civil society.

In my opinion, the second variant is more preferable. However, it requires introducing a modern legislative basis and fitting economic growth into the framework of a rule-of-law state and civil society. It is important to clip wings of those bureaucrats that interfere in the natural process of competitive economic activity from purely selfish motives, and to carry out a long-awaited administrative reform with a view to making the whole of society healthier. Equally important is to remain within the framework of democracy and normal interaction between market and democratic institutions, and to base the country’s economic development on competitiveness and the large-scale introduction of innovations.

To prognosticate economic growth rates in countries and regions of the West in order to determine Russia’s place in the future global economy, one should analyze their growth rates for long periods of time in the past and during the 1990s.

In the United States, long-term or “historical” average annual growth rates of the GDP stand at about 2.7 percent. However, in the second half of the 1990s, the U.S. economy showed a higher growth rate – about 4 percent a year on average, although the period between 2001 and 2003 saw a marked decline in the rate. One may assume that in the period until 2015 the average annual growth rate of the U.S. GDP will be not less than 2.8 percent. Since the growth rate of American industry usually accounts for slightly more than 70 percent of the GDP growth rate, it is realistic to estimate the average annual growth rate for U.S. industry at 2 percent.

In Germany, former long-term average annual growth rates of the GDP were traditionally higher than in the U.S. However, in the 1970s, Germany began to lag behind the U.S. in economic growth rates. The lag increased most notably in the 1990s, as the German economy, hit by various internal factors, had become one of the most ailing economies among the EU member countries. In the period until 2015, the average annual growth rate of the German GDP is estimated to be 2.6 percent, while industrial production is put at 1.8 percent.

In France, the long-term (“historical”) growth rate of the GDP was lower than in Germany and the U.S. In the last few years, however, France has made some gains on the U.S. At the same time, in the period until 2015, the average growth rates of the French GDP and industry will hardly exceed 2.5 and 1.2 percent, respectively.

Very unusual and interesting things have been happening to the economic growth rate in Britain. For decades, the British economy developed much slower than other major capitalist economies. Europe even coined the term ’English disease.’ However, the liberal reforms launched by Margaret Thatcher boosted the country’s economic growth, and in the 1980s the average annual growth rate of the British GDP (2.7 percent) was higher than in the U.S., Germany and France. In the last few years, the economic growth rate in the UK has slowed down and remains lower than in the U.S. Yet it has been higher than in Germany, France, Italy and Japan. The Western press has even begun to seriously discuss the possibility of Britain overtaking France in GDP volume in the foreseeable future. However, in the period until 2015, the average annual growth rate of Britain’s GDP is estimated at only 2.4 percent, and that of industrial production at 1.1 percent, that is, not higher than in France.

Forecasts for major West European countries make it possible to give approximate estimates of possible growth rates for the GDP and industrial production in the whole of Western Europe. The average annual growth rate of the West European GDP in the period until 2015 may be about 2.5 percent, and that of industrial production, 1.7 percent.

The West European economy in the period until 2015 may grow somewhat slower than the American economy. The economic positions of Western Europe, after their relative consolidation in the last two to three decades, have begun to weaken as compared with U.S. positions. Today, there are no grounds to think that this tendency will change by 2015. The U.S. has lower taxes, savings and unemployment rates than in Western Europe, as well as a higher competitive potential. The U.S. has stronger positions in high-tech production, innovation and in the overall infrastructure of technological progress, which will largely determine the economic growth and economic face of every developed country in the beginning of the 21st century. Traditionally, the U.S. has superiority over Western Europe in terms of the scope and risk-taking behavior in the realm of business activity.

The above data make it possible to estimate approximate ratios of growth in GDP and industrial production for 2015 (Table 4).

These estimates show that by the year 2015 Russia will not have achieved its own GDP ratio against the U.S. (which it had in 1913); yet it will approach closely Germany and overtake France and Britain. Russia’s lag behind the U.S. continues to be significant and will remain so for a long time. As regards industrial production ratios between Russia and major countries of the West in 2015, they will be better for Russia than in 1913. 

Russia’s share in the world’s GDP in 2000 was only 2.1 percent (compared to 6.2 percent in 1913 in Russia’s contemporary borders). The ratio between the GDP of Russia and the whole of Western Europe in 2003 stood at 12.5 percent (in 1913, the figure stood at 18 percent). In 2015, Russia’s share in the world’s GDP will be about 3 percent, while the ratio between the GDP of Russia and Western Europe will be about 17 percent. Russia’s share in the world’s GDP in 2015 will be at least half of the figure registered in 1913. Russia’s contribution to global industrial production will be less, too. According to IMEMO estimates, Russia’s share in global industrial production in 1913, in its contemporary borders, stood at 8.9 percent; in 2000 it was 4.4 percent. In 2015, this figure will hardly exceed 5 percent, which is much less than in 1913. Over the last few centuries, Russia has never had such a low ratio between its GDP and the GDP of major European countries, not to mention in comparison with global GDP.

So, by the year 2015, Russia’s share in the global economy will not be higher than it was more than 100 years ago; nor will its major macroeconomic indices improve in comparison with the U.S. This will be the price for 100 years of disturbances, revolutions and utopian illusions about building a “paradise” first in one country, then in a bloc of countries, and finally in the whole world. This led Russia down a path that diverted from democracy, the market economy, and a global civilization.

Nevertheless, in the long term, Russia will inevitably be a strong state economically and will rank first in Europe and 5th or 6th in the world in terms of GDP. But the situation is different from the political, social or civilizational points of view: unless Russia has an intelligible and specific strategy for its development, unless it makes a final choice in favor of globalization and Europeanization, and unless it adopts a guiding national idea for itself within the frameworks of modern civilizational norms and priorities, anything can happen to this country.