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June 1, 2020 Special Dispatch No. 8772

Visions Of The Post-Coronavirus World: Alexei Kudrin Sounds A Discordant Note – Russia Will Have To Decentralize Decision Making And Institute Checks And Balances

June 1, 2020
Russia | Special Dispatch No. 8772

Alexei Kudrin, the head of Russia's Accounts Chamber, is Putin's chief in-house liberal, and due to his loyalty, his independent views are tolerated and sometimes solicited. As a member of the political establishment Kudrin has to pull his punches but in an article for Kommersant titled "We Need to Treat the Disease, and not Just the Symptoms", he pushes back against the argument that the coronavirus model justifies a centralized authoritarian regime. Kudrin claims that the crisis and the steep decline in oil prices point in the opposite direction and Russia will be forced to liberalize.

Kudrin is not an independent columnist or an opposition activist, so he crafts his arguments carefully and with subtlety. Instead of flat out saying that Russia was unprepared and mishandled the coronavirus crisis he speaks of heroic doctors who battled the coronavirus with their bare hands, and calls for remedying that situation. Calls for innovation are cheap and plentiful but Kudrin slips in that Russia in order to innovate will require " a different institutional and regulatory environment" and greater decentralization. Russia needs public administration adequate for meeting contemporary challenges i.e. it does not have such an administration now. Kudrin even gently skewers Putin's pet national projects. These projects and the national goals they represent are all laudable of course, but some will have to be stretched out, suspended or even replaced. Most importantly, no project is important for its own sake, but must be judged by its ability to improve the living standards of Russia's citizens.

Kudrin's article follows below:[1]


Alexey Kudrin (Source: Rbc.ru)

"The crisis that broke out in 2020, connected with the COVID-19 pandemic, has already provoked two types of reactions from states, societies, and experts. The first type of reaction is the anti-crisis one, it consists of government and business measures designed to mitigate its [the crisis'] impact. The second type of reaction is visionary one. Currently the finest experts are discussing how the 'world will never be the same as before'. In my opinion, there is currently an acute problem in the absence of practical 'links' between these two types of reactions, the anti-crisis and the strategic policies. If we focus purely on tactics, then we can deal with the symptoms, but we won’t be able to cure the pre-existing diseases of our economy.

"Since the strategic guidelines should be given priority when determining measures of medium- and long-term policy, I would like to formulate sets of questions, answers to which will largely form a strategy [that should be implemented] after the acute phase of the crisis.

"The first set of questions is devoted to the development of international economic and political relations. How will globalization change? Will national regulation be reinforced to the detriment of multilateral and supranational regulation - or will globalization and multilateral cooperation gain strength again after the crisis? Will the logic of confrontation, in the form of trade or resource wars, continue to grow - or will the mutual benefits of cooperation become paramount even if participants in the understandings will lose out in some areas?

"Another important question is what will be the norm for the involvement of states, especially of superpowers, in processes that occur outside their borders? To what extent will spending on these external issues be supported domestically? Will traditional security issues become a key agenda item to the detriment of economic development? Will states increase military spending or will they devote more resources to economic development, realizing that recession is the main threat to state security?

"The second set of questions is devoted to T-junctions in the field of economic policy. Will nationalization become an important element of anti-crisis and post-crisis state policies or will it affect only a few sectors [of the economy] for a short time? How will the private sector develop after the crisis (especially small businesses)? According to the monitoring data of business ombudsman Boris Titov from May 19, only 13% of small and medium-sized enterprises are certain that they will survive the crisis. In recent years, discussions about supporting private initiative have turned into a quasi-ritual: a genuine turnabout in support measures for private enterprises (despite frequent statements from the state authorities) has not occurred. But now there is an urgent need to do so without delay, and not only within the framework of the anti-crisis policy. Within the next three or four years, we must show real results in this direction."

We Need More Freedom

"First of all, we need to significantly reduce [state] regulation [of the economy]; we need more freedom.

"How will the structure of the economy and the sectors most affected [by crisis] change? In order to maintain its influence, the only way out for Russia, given its demography and territory, lies in a manifold increase of productivity and the accelerated introduction of technological, digital, and managerial innovations.

"And the introduction of innovations demands a different institutional and regulatory environment.

"What will be the new consensus on health issues? Will citizens and governments be ready to spend much more on health care, to restructure policy in this area and a way of life? Nowadays the underfunding of this sphere is becoming obvious. The heroism of doctors and other industry workers in the fight against a pandemic is undoubted, but sometimes they had to fight with their 'bare hands' without equipment, drugs, or modern technology! What we need is a radically different approach, a leap in the direction of another [healthcare] model that ensures the citizens' health and longevity.

"How will conceptual approaches to education change? Are we ready to increase investment in this area (in particular, by developing opportunities for free education)? What will be the approaches to quality of education in an era of broad digital opportunities for getting an education? How will such flexibility universities, colleges, schools? This is clearly not just a 'transition to online' that should happen to a reasonable degree and in the necessary proportion is also a focus on the development of 'soft skills'. This [means] a restructuring of the entire process of training and education [following] the logic of the lifelong education and constant retraining model."

Russia Must Perform A U-Turn From The Oil Economy

"I must mention the key question for our country: what will be the role of oil after the pandemic?

"Even before the crisis, the role of hydrocarbons in the world was under review, due including to the climate change effect and the planet's future and now this issue is becoming still more relevant. Alternative energy is becoming more accessible. Oil production in Russia will not drop, but we will no longer have as high an [economic] rent, as was the case of the last 20 years. This is a major challenge for the entire economic policy, including fiscal policy, if the non-oil and gas sector not going to develop more actively. [Economic] 'rent' will now be provided by new technological and innovative solutions…but only if we lead the pack. The critical moment has come for a U-turn from the oil economy to the knowledge and technology economy.

"In addition to the fact that the virus is less frightening to digital technologies, they also ensure revolutionary solutions. I’m talking about changing the face of entire sectors. Our regulation [policies] and public administration are lagging behind and cannot face these challenges. We have talked about this for a long time. Demand for a new quality of state regulation is extremely high now. After the arrival of a new government in January, it was obvious that this problem was recognized, and a new drive was outlined for changes in this direction (for example digitalization of public administration, emphasis on priority issues). I hope this vector will become even more prominent [in the government’s work] due to the crisis."

The Coronavirus Crisis Showed The Need For Greater Decentralization

"The third set of questions is related to the development of regions and cities. Will the federal center attempt draw off resources for itself [from the regions] claiming that it has better information resources distribution capabilities, or will the center agree 'it’s more visible on the ground [to see] what needs to be done' meaning the resources should stay in their place?

The fight against the virus, that demonstrated hundreds of local solutions in the fight against the global challenge made it obvious that all regions had their special circumstances and that federalization, a greater variability of legislation and regulation are obviously indispensable.

Today, out of 3% of the GDP in federal budget transfers to the regions, only about 0.7% of GDP are [in the form of] unconditional equalization grants, which entities are free to use based on their understanding of the situation. [Economic] development is impossible without expanding the independence of the regions and their resource base, coupled with a significant increase in unconditional transfers from the center.  A separate important issue is a strategy for the development of agglomerations and metropolises, that must ensure the health of their residents without losing the agglomeration effect, which associated with a high population density and contacts between people."

Russia Needs A New Development Model

"Finally, the fourth set of questions is related to the development of society. Can the state deal with the tempting possibility to monopolize the collection and use of information about its citizens? Could this lead to restrictions of freedoms in certain cases? And, most importantly, will we be able to move on to institutional regulation, which includes “checks and balances”, or will we continue to rely on the usual mechanisms of the administrative vertical [of power]? Low economic growth rates and stagnation of household income over the past decade give an obvious answer to this junction: without a new development model, based not only on hierarchical tools, but also on modern institutions, we will be unable to cope.

"What actions would be logical in this situation? There is no doubt that we need various anti-crisis measures and a national plan for economic recovery, but these actions must be synchronized with a strategic course roadmap. There are only four years left until 2024 [the end of Putin's presidential term], during this time we must to overcome the consequences of the crisis (which might take us at least another year and a half).

"It would be advisable in this situation to concentrate on a limited number of national goals

I emphasize that all the national goals announced today are correct, but we need to focus on the most important ones and achieve precise results on them. For example, the pandemic has demonstrated to all of us, that there are four unconditional strategic objectives:

1. We want to be healthy and live long;

2. We don’t want to be poor and want our incomes to grow;

3. We need a growing innovative including a digital economy;

4. We need public administration and institutions adequate to the challenges of the times.

"The other goals, of course, are important, but derived from the above. Accordingly, the tools for their achievement of these goals, should be devised. National projects should be linked to national goals; measures under national projects should directly influence the achievement of national goals, which is not happening today.

"A smaller number of priorities will make it possible to focus depleting state resources on their achievement. At the same time, the rest of the tasks should be synchronized with the current context and should accordingly be extended or sidelined to 2026, 2028 or even to 2030. Part of the initiatives that are already being implemented, if they fit into the new logic (with appropriate changes and additions) may continue. Some should be suspended and postponed, in some cases – [they must be] replaced with other solutions that look more effective today. This is a normal practice of flexible public administration, focused on the main result – the citizens’ wellbeing.

"In March 2018, I talked about the window of opportunities for structural reforms and about the fact, that it will be open for only two years. But the virus brought new challenges and pushed for a solution to all those issues that had been postponed for a long time."

 

[1] Kommersant.ru, May 25, 2020.

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