It is Enough to Compare Plans of Russia and China to Understand Russia’s Authorities

If the current leaders want Russia to regain its status, they should consider using economic planning. In recent years, economic development plans have been replaced with all kinds of programs and strategies. The Chinese leadership does not make longer-term plans, because they believe that this undermines performance discipline and responsibility.

Why is it so difficult for the Russian economy to rid itself of its dependence on oil? Why is Russia’s growth slowing down and its infrastructure falling apart? There are many explanations, from an insufficiently rapid growth in raw material prices and adverse weather conditions to the negative legacy of the 1990s and global intrigues. But I believe that there is one more explanation, which has been in need of open discussion for a long time – the glaring incompetence of the ruling elite.

Vladimir Putin has on more than one occasion described the dissolution of the Soviet Union as a geopolitical catastrophe, stressing that criticism of the stagnation during Brezhnev’s rule is mostly undeserved. He may have a point, especially if we consider the Soviet-era practice of planned economic development.

Although planned development led to shortages in nearly all areas, it is clear today, 20 years after the collapse of the Soviet Union, that careful formulation of development goals and tasks turned Russia from a country ravaged by civil war in the early 20th century into a great power. If the current leaders want Russia to regain this status, they should consider using economic planning.

In recent years, economic development plans have been replaced with all kinds of programs and strategies. The first such document, Strategy 2020, outlined the development guidelines. Since not everyone has read that long document, I suggest that we discuss some of the guidelines contained in this article.

Take Chapter 15, “Overcoming Territorial Fragmentation,” which is actually on transportation. It states that investment in the transport infrastructure should be increased to 4%-4.5% of GDP by 2020 and 8.4 trillion rubles (over $267 billion) is to be allocated for road construction in 2011-2020. The chapter details the taxes that need to be raised to collect the necessary funds, but it does not say anything about what is actually going to be built.

And this is the only chapter that can be described as more or less practical, because there are no chapters that cover a range of industries. There are chapters on banking reforms, budgetary policy, pensions, schools and healthcare, but no chapters on industrial development or agriculture. Strategy 2020 is only focused on the first basic element of modern Russian forecasting: costs. And these are outlined in concrete figures. But the expected results are either not mentioned, or are only reflected in percentage terms or proportions, or as positions in country rankings - but not in specific terms.

If there is a federal strategy, there should also be strategies for each constituent part of the country. There are such documents for 8 federal districts and 83 regions, and they are more “creative” than the federal strategy, because they offer several development scenarios.

There are three development scenarios – inertial, basic and optimal/innovative – for each federal district and region. They are based on purely financial indicators such as GDP growth rate, per capita GDP and the average wage. The three scenarios differ from each other dramatically. For example, per capita GDP in the North Caucasus Federal District is expected to grow by 54,000 rubles from 79,000 rubles ($2,514) to 133,000 rubles ($4,232) under the inertial development scenario, and by 140,000 rubles to 219,000 rubles ($6,968) under the innovative scenario. Our scientists cannot provide a more precise forecast.

The figures for the Kaliningrad Region are even more striking: its per capita GDP is expected to grow by 233,000 rubles from 241,000 rubles ($7,668) to 474,000 rubles ($15,081) under the pessimistic scenario or by 659,000 rubles to 900,000 rubles ($28,635) under the ambitious scenario.

In short, the difference between the pessimistic and the optimistic scenarios is two-fold on average, which means that one of them is bound to be implemented, even if we do absolutely nothing. Not to mention the other, simpler methods, such as the devaluation of the ruble, to increase people’s incomes by a factor of three or four within the space of 10 years. Interestingly, none of the federal districts is expecting a slower rate of development than the national average, not even under the pessimistic scenarios. According to the forecasts, the proportion of each region in the national economy should grow. How high? Perhaps, as high as 146%....

As they say, there’s no need to consult a fortune-teller. The experts at the Russian Economic Development Ministry and the Regional Development Ministry must be wizards of the highest order. The development plans which they and their colleagues in the regions have drafted can be considered fulfilled under any conditions. But when those in charge start boasting about their achievements people may find it hard to notice any great improvement, because the money will pass them by, as often happens in Russia. But the reports will be definitely the best they can be.

The idea of development scenarios is nothing new; political analysts often use them. The Russian and foreign experts at the Valdai Club have even drafted a record number of scenarios , not two or three but four, just to make sure that at least one of them hits the mark. But the authorities are not your ordinary external observer and their use of this method is hardly commendable.

What goes on in more successful neighboring countries? The first country that comes to mind is China, where the Communist Party recently held its 18th convention. China is working energetically to implement its 12th five-year plan, which was adopted in 2010. The Chinese leadership does not make longer-term plans, because they believe that this undermines performance discipline and responsibility. Whereas Russia has adopted an agricultural development program until 2035, China, whose history as a state began more than two thousand years ago, takes a more cautious attitude to time.

What does the Chinese development plan say?

To begin with, it does not provide any figures for investment, per capita income or any other financial indicators. The Chinese rulers do not daydream about the banking system or the development of a global financial center. These are goals for business rather than government. Instead, the government aims to increase life expectancy to 74.5 years, to create 70 million jobs, to involve an additional 100 million people in the pension system and to build 36 million flats for social rent. The Chinese authorities intend to reduce the energy intensity of GDP by 16% and to increase the proportion of renewable energy by 3.1 percentage points to 11.4%. They plan to build hydroelectric power plants with 120 GW of installed capacity, wind farms with a total capacity of 70 GW and solar panels with a capacity of 5 GW. Other goals are to build 23,000 kilometers of oil and gas pipelines (mostly between China and the former Soviet Central Asian republics), 19,000 high-speed roads and over 7,000 km of high-speed rail lines. China plans to build 440 loading and unloading piers for vessels with a deadweight of 10,000 tons and more, renovate 19 and build 9 international airports and create 42 transportation hubs across the country, to be connected to the airports by road and rail links.

There is no need to consult the fortune tellers here either. There is no doubt that the Chinese will achieve all of these goals.

In my opinion, Russia’s history over the past 12 years has shown that it is no longer expedient to draft development plans based on financial indicators. The current system of “strategies” is only designed to feign activity.

Lots of money has been invested in the planned high-speed road between Moscow and St. Petersburg, but the road has not been built. Despite huge investments in rearmament, fewer new weapons are being purchased for the army than in the late 1990s. The investment program of rail monopoly Russian Railways has been growing, but fewer rail lines are being built than during the reign of Emperor Alexander II in the late 19th century.

If we want the Russian economy to develop, we must first reduce the planning period from 15-20 to 3-5 years; second, we need to stop drafting development scenarios and variants; and third, we have to measure development by physical data and results rather than by cost and investment targets.

This will help us to see why Russia is fast falling behind other countries and that its current leadership is not up to the development tasks at hand.

This article was originally published in Russian in Moskovsky Komsomolets

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.