EconomicEconomic ccrisisrisis andand industrial industrial PoliciPoliciEsEs – – PolicyPolicy options options forfor a raeturn return to toGrowth Growth in inrussia russia Economic crisis and industrial PoliciEs – Policy options for a return to Growth in russia Economic crisis and industrial PoliciEs – Policy options for a return to Growth in russia by Rudolfby Rudolf Traub-Merz Traub-Merz (ed.) (ed.) by Rudolf Traub-Merz (ed.) by Rudolf Traub-Merz (ed.) by Rudolf Traub-Merz Economic crisis and industrial PoliciEs – Policy options for a return to Growth in russia by Rudolf Traub-Merz (ed.) РОССПЭН Moscow 2016 УДК 338(470+571)+32 ББК 65.9(2Рос)/66.2 This book has been published with support from the Friedrich-Ebert-Stiftung, office in the Russian Federation Economic Crisis and Industrial Policies – Policy Options for a Return to Growth in Russia / by Rudolf Traub-Merz (ed.). – Moscow : Politicheskaya ehnciklopediya, 2016. – 197 р. : il. ISBN 978-5-8243-2087-9 The collective volume presented here originates from a workshop organized by the Friedrich-Ebert-Stiftung (FES) as part of the 2nd International Political and Economic Congress held in Moscow on 13 May 2015 on the topic »Promoting in- dustrial development in times of economic crisis«. What industrial policy is neces- sary to release Russia’s manufacturing sector from its paralysis and what role might be played in this by the state and classic development concepts, such as import sub- stitution? No uniform concept of crisis analysis is presented here and the contribu- tions are necessarily pluralist with regard to their explanatory approaches and rec- ommendations. Despite the differences of opinion authors agree on one thing: just waiting for another oil boom does not constitute an economic policy. The current state of the Russian enterprise sector exhibits numerous symptoms of resource mis- allocation and no improvement is to be expected without radical structural changes. УДК 338(470+571)+32 ББК 65.9(2Рос)/66.2 ISBN 978-5-8243-2087-9 © Collective volume, 2016 © Design. Editor «Politicheskaya ehnciklopediya», 2016 COntEnts Introduction ............................................................ 4 Sergey Afontsev Industrial Policy and Prospects of Import Substitution in the Russian Economy .............................................................. 10 Sergey Bodrunov Reindustrialisation Based on High-tech Industries......................... 27 Hansjoerg Herr The Role of Monetary Policies to Support Industrial Policy – the Case of Russia....................................................... 38 Rudolf Traub-Merz Import Substitution Policies – Reflections on Strength and Weakness ...... 59 Yuri Polunin and Andrey Yudanov Russia’s High-Growth Companies: Crisis and Growth Patterns ............. 69 Alexandra Vasilieva Trapped in Informality: Small Firms in Russian Capitalism................. 89 Natalia Zubarevich Regional Profile of the Russian Economic Crisis ......................... 111 David M. Kotz Economic Crisis, Reindustrialization, and the Economic Role of the State... 126 Vladislav Inozemtsev Would a New Industrialization in Russia Be in Line with Interests of the Russian Elite? ......................................................... 135 David Lane The Shift of the Russian Economy to National Capitalism ................. 147 Rudolf Traub-Merz The Automotive Sector in Russia – Between Growth and Decline ......... 164 Pedro Rossi and Marco Antonio Rocha Industrialisation and the Growth Model in Brazil: A Historical Overview. 183 About the authors...................................................... 197 3 IntROduCtIOn ussia’s economy is in deep crisis. The combined effects of falling en- Rergy prices, economic sanctions and counter-sanctions, as well as structural weaknesses have driven most economic indicators into the red. Anyone looking for the causes has to dig deep. At the turn of 2012–2013 leading political figures were still claiming that Russian economic growth would, over the long term, continue at a higher rate than the global econ- omy and the country’s international ranking would move upwards. By the end of the year it had fallen to 1.3 per cent and the same voices were complaining about a depletion of economic growth and homemade stag- nation. That was before the energy price collapse and sanctions triggered an economic slump in mid-2014. In fact, Russia’s economy has gone through constant peaks and troughs in the past 25years. First, the transformation crisis from 1990, to which more than half of material production fell prey; spurred by energy prices that seemed to know only upward movement the country witnessed an economic boom from 2000. After the short hiatus of the global financial crisis of 2008–2009, which hit Russia hardest of all the G20 countries with a fall of almost 8 per cent of GDP, the boom years seemed to stage a comeback. Renewed growth proved short-lived, however. Although en- ergy prices reached a high level once again (above USD 100 a barrel of crude oil) they stayed put and for several years showed no inclination to go higher. And without the constant supply of ever higher economic rents – »donated purchasing power« from abroad – the Russian economy lost its dynamism. If one takes a bird’s eye view of these different stages a dramatic scene emerges. The Russian economy needed 16 years (until 2006) before re- turning to its 1990 level of GDP. In 2013 – that is, at the outset of the current crisis – the economy had grown by only 25 per cent. At every comparable point in time the centrally planned economy of the Soviet Union had performed better than the »market economy-oriented« Russia could manage. Average annual growth of less than 0.5 per cent since 1990 must be considered a major performance failure overall. Russia today has to overcome not only a temporary slump and resume growth, but to refashion its economic development. A lot has gone awry. 4 The transformation into a market economy did not bring into being any internationally competitive sectors that could survive or even expand in global markets. Abundant oil revenues gave rise to demand-led growth, which inevitably collapsed when rent incomes declined and subsidies had to be cut. The fact that resource extraction–oriented economies enter into unsustainable development dynamics is wellknown. The fiscal manage- ment of the boom and bust cycle is one side of the problem. When oil and gas prices shoot up, coffers should be replenished to avoid overheating; when they languish, revenue losses should be compensated from savings. Politically, counter-cyclical stabiliser programmes are difficult to imple- ment as large segments of the population may expect income compensa- tion during crisis years and their »fair share«when prices go up. Of all the states whose economies are based on major resource extraction, only Norway – on the basis of a »national consensus« including employers and trade unions – appears to have settled on a formula that has been able to neutralise the negative repercussions for the economy of enormous price fluctuations. In the longer term, the fiscal side of the boom-and-bust cycle may be seen as the more tractable part of the mess created by resource extrac- tion. When currency appreciation sets in and the Dutch disease starts to work, the crowding out of domestic material production by imports drives economic development into a dead-end. It is not during crisis times but boom periods that resource extraction-oriented states lose their economic development profile. The fact that economic development dynamics may be strangled by high oil and gas prices should have been in the memory of Russia’s economic-policy planners. Already in the 1970s, while still the Soviet Union, the country was confronted by massive inflows of energy rents, which afforded it a kind of time-out from the exertions of industrialisa- tion. The Soviet Union was able to use the purchasing power gifted to the oil-producing nations after 1972 to raise living standards and – for the time being – skip structural reforms. While the economy stagnat- ed the country fell further behind the West technologically in many sectors. It’s true that the effects of Dutch disease were cushioned by Russian economic policy after 2000. The state protected parts of the enterprise sector with capital injections – sometimes by renationalisation – pub- lic contracts and special conditions in accessing foreign capital markets. And the government, in the person of the finance minister, wielded the weapon of fiscal policy, albeit without much conviction. The newly estab- lished Sovereign Fund siphoned off some of the purchasing power aris- 5 ing from the raw materials sector, but the central bank did not neutralise the price upsurge by means of nominal devaluation and the investment rate remained low. Monetary policy boosted subsidies for large compa- nies. Given the disparities between domestic and international infla- tion and interest rates, which for years stood at 10 per cent or higher, as well as (relatively) stable currency exchange rates, foreign borrowing turned into a hunt for interest-rate yield. While the state paid off its for- eign debt almost entirely the corporate sector’s debt liabilities reached 650 billion USD by 2014. Foreign direct investment turned out to be- largely repatriated flight capital, which was used not so much to invest in the modernisation of production as to finance mergers and acqui- sitions. As a result Russia’s corporate sector underwent a process of concen- tration, small