Philosophy of growth

pic by BLOOMBERG

HOW do some nations start growing economically, at amazing speed, surprising everyone around and, most of all, themselves?

And why do they suddenly stop growing, resisting all attempts to reawaken them?

Russia is currently trying to contribute to the endless and enchanting discussion on that subject.

Our gross national product (GNP) will grow by approximately 1% in 2019, and the 1.3% still predicted by Russia’s optimistic Finance Minister Anton Siluanov seems to make no big difference.

The thing is, the government wanted the economy to surge ahead drastically in 2019, and projected it to be about 3% by 2021.

A few people believe it will happen soon. It looks like Russia is at a crossroads in its philosophy of growth.

Two rival camps are fighting each other inside the government.

One camp says that it’s the governmental strategy that drives GNP up and up, while the other camp thinks that no strategy might work if business is constrained by literally millions of rules and regulations.

A year ago, the nation suffered the raise in VAT to 20% from the previous 18%. The big idea was to collect money from the public and businesses, so that several big “national projects” could be launched to the economy a boost.

I have first-hand knowledge about at least one of such projects, which is the just-completed North-South superhighway leading from the current national capital Moscow to St Petersburg (that was the capital from early 18th to early 20th century).

The old highway, passing right through cities and villages, took the whole day of gruesome driving.

Now, in theory, you may cover these 669km in five hours or so, listen to an opera in the “northern capital” and even get back before dawn on the same night.

But, even without the opera, the weekly journey to my country home near Moscow would take up to three hours on a bad night. Now, it’s 60 minutes exactly.

Theoretically, such a project has to work miracles on everyone living in these two biggest cities of the nation, and on everyone else along the route. But why are so many people sceptical about its impact?

The national projects are only the foundation for the future building of the economy, said Vladimir Nazarov, head of the governmental Financial Research Institute.

These projects, he added, will be relevant only if the business climate changes drastically.

Here we have to remember that ever since 2013, Russia has been living in preparation for economic war with its former predominant partner, the Western nations. That war, in fact, has become real in 2014, with plenty of economic sanctions imposed on us for this or that reason or no reason at all.

So it was a matter of survival at first, and survival meant strong governmental strategy, accumulation of funds included.

But making the government stronger also means creating all-powerful ministries and commissions.

And what do the ministries and commissions love to do, among many other things? They love to regulate. They regulate businesses and even private lives.

Around the years 2018-2019, the nation has discovered that it has not only withstood the economic pressure, but it has also reset the model of economy and developed itself the whole new industries in the process.

It’s agriculture and food industry, it’s aircraft construction and… the list is very long. And Russia has also got itself stronger economic partnerships, mostly in Asia. So, the big idea was that it’s time for a powerful surge ahead. But the surge is very slow in the making.

Deregulate, ban the bans and abolish endless rules, says one faction in and out of the government.

There are 220 offices enforcing federal control of all kinds, said Russia’s Prime Minister Dmitry Medvedev. And there are about two million laws and rules to be followed, he added. That, mind you, was only the federal control, while the local authorities are always eager to follow the centre.

In real life, the way to enforce all that is to send a commission to this or that business, or residential block, or even a theatre. That commission is always bad news, since a bureaucrat earns his/her pay by finding more and more violations of rules and bans.

What happened when it became known that the government is contemplating cutting the long lists of rules and limit the commission’s activities — and then stopped in its tracks for some mysterious reasons? You guessed right: The number of rules observance raids grew up by 30% in 2019.

I won’t be surprised if Russia will add up to global wisdom by repeating the American experience of the recent years. Namely, showing that the moment you really start killing most bans and regulations, the GNP starts skyrocketing.


Dmitry Kosyrev is an author of 8 novels and a book of short stories as well as a columnist for 2 Moscow publications. Orientalist by education (Moscow University), he has a special love for Malaysia.