Technological lag threatens Russia's security, warns Kremlin adviser Kudrin

Technological lag threatens Russia's security, warns Kremlin adviser Kudrin
Former finance minister Alexei Kudrin.
By bne IntelliNews January 16, 2017

Economic stagnation can erode Russia’s security if the country does not bring in new technology and overhaul administrative and judicial systems, leading Kremlin adviser and ex-finance minister Alexei Kudrin warns in a study requested by the Kremlin.

“We will struggle with diminishing defence potential and threats to national sovereignty if we don’t become a technological power,” Kudrin said on January 13, nine months after he and his Center for Strategic Research (CSR) were tasked with formulating a broad strategy for economic reform that could be implemented after President Vladimir Putin’s anticipated re-election in 2018.

“Even military experts say that technological challenges facing Russia are bigger than geopolitical and military ones,” Kudrin said while presenting a Russian-language version of the findings at the recent Gaidar Forum in Moscow, describing Russia’s technological lag as the most serious challenge it will face in the next 10 to 15 years.

“Our entire foreign policy should be subordinated to the task of technological development,” said the liberal economist, who served as finance minister from 2000-2011 and still has close ties with Putin.

Russia’s legal system must also be reformed to improve protection of property rights and to make court decisions more transparent, he said. The state’s role in the economy should also be reduced, and the grip of monopolies also broken. Other proposals included making the labour market more flexible and granting more power to the regions.

“We are currently at a historically low pace of economic growth, even lower than during the period of stagnation in the Soviet era,” Kudrin noted, predicting that without reform, Russia’s average growth would remain below 2.4% even by 2021. T he growth can exceed 3% by 2019 and 4% by 2022 if systemic reforms are carried out, he added. However, the CSR found that less than a third of the reform measures laid out in the government’s 2020 strategy have been implemented.

Meanwhile, a senior official in the presidential administration dismissed the idea that it could be up to Kudrin to propose a new economic model. “That amounts to setting the goals, and that is the president’s prerogative,” he told the Financial Times. “Mr Kudrin may be ambitious, but even he knows that there are Rubicons not to be crossed.”

Kremlin officials told the paper that Putin was expected to cherry-pick from Mr Kudrin’s proposals and plans to be presented in parallel by Prime Minister Dmitry Medvedev’s cabinet, as well as from ideas being dawn up by the Izborsky Club, a conservative group of rivals to Kudrin.

“Right now, Mr Putin is at the stage of gathering information, and after his re-election he will use what he deems best,” one Kremlin official said. “Reforms always hurt. So for him it is important to identify the minimum amount of reform necessary, the minimum amount of pain.”

Addressing the Gaidar Forum, an annual gathering of business people and economists, Medvedev also identified “increasing technological backwardness” as the most serious problem facing the Russian economy.

Competition was increasing as the global economy becomes more integrated, said Medvedev, who criticised the “sharp politicisation of international economic relations” and the “use-of-force approach [and] sanctions that always run counter to economic considerations”.

The World Bank also used the Moscow event to urge Russia to diversify its economy, improve its investment climate, and make major infrastructure investments to become competitive in the global economy.

In a report presented at the forum, the World Bank said Russia needs major investment in transport, energy, public-utility, and social infrastructure, warning that that “infrastructure investment needs are staggering ... estimated to be about $1 trillion [75%] of Russia’s 2015 GDP”.

Russia’s economy will grow 1-2% per year over the next few years, below the projected global average of 2.7%, the bank estimates.