10.02.2007
Russia Against the Background of Major Economies
№1 2007 January/March



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.