Russian economy perspectives. Conversation with Sergei Guriev.
Time’s always in short supply. In the past, when books were scarce, it was easier to choose a good book. Not having it on the counter had been a sure sign of quality reading. Then the era of information overload came. You can read any book, listen to it being read, watch a movie based on it. And so we began to rely more on what we know about the author or friends’ recommendations. One of the most frequent cries for help on Facebook is “please, recommend me a good book!”. Webinars have become a kind of "live book", where the author introduces us to their area of expertise and tells us what they find important.
We decided to break away from the tradition and offer a new format - a virtual conversation, where webinar guests become co-authors, formulating their own agenda. As our speaker, we invited Sergei Guriev, Russian economist and Professor of Economics at the Sciences Po (School of Political Science in Paris).
Having accumulated a few dozen questions to begin with, we organized them in topical blocks and emailed the list to Sergei Guriev in France in order for him to be able to organize his speech accordingly. As a result of this approach, participants had the opportunity to hear more than just his own musings from the guest speaker, but his most relevant and interesting comments on current issues of their choice. The range of topics was diverse: from the prospects of hydrogen energy to the future of crypt currencies and economic policy issues of Russia’s closest partners and neighbors: China, Poland and Belarus.
Considering that answers of the famous economist may be interesting to many, we publish his most interesting and unexpected statements.
Talking about perspective areas of the world economy in the next 10 years, Sergei Guriev predicts that the crisis will fasten the transition to the green economy, the role of entertainment and tourism industry will be increasing, and the world in general will become more robotic, more digital, more globalized. "And Russia has great development potential in these areas," the speaker emphasized a few times. In addition, the country has a huge potential in agriculture, as well as, with some caveats, in the development of the transport sector. Russia will remain a country of raw natural resources, but at the same time, it can create a large innovative sector.
Now already, the world is rapidly replacing fossil fuels with renewable energy sources. Russia, with its natural resources, can contribute to the construction of renewable energy. However, "so far we see that Russian authorities do not understand this process very well and, unfortunately, are not enthusiastic about switching to renewable energy," Sergei Guriev comments.
No doubt, Russia should become a major shareholder in the digital business as well, as it has significant human capital with good education in mathematics and computer sciences. However, the speaker does not believe that accelerated development of the Russian economy through the introduction of digital technologies is currently possible. "At the present stage of Russia's development this is a hopeless path," Sergei Guriev doubts. According to him, Russia needs a decentralized management system that encourages investment in human capital and innovation, competition, and a political system without interest in monopoly:
"The main question is: can Russia move to a development model based on human capital? I believe that the future of Russia is in development of education and, especially, of high quality education. And this is the main challenge for Russia: will Russia be able to become a knowledge-based economy?”.
The expert assesses the Russian government's plan for economic recovery as unsatisfactory: "I believe that the Russian authorities have been to slow with the support of business and people during the quarantine and are still not ready to spend enough money on support of economic recovery". At the same time, the intention to achieve growth of 2.5% by the end of 2021 seems quite realistic to him. What is not to be expected is acceleration of growth after the economic recovery from the crisis sooner than in 2-3 years. "In general, it should be assumed that by the end of 2021 Russia's GDP will be lower than at the end of 2019. It is likely that to reach pre-crisis levels only in 2022-2023", - concludes the economist.
Due to the fact that, according to the speaker's forecasts, the president will not go for deregulation, privatization, cancellation of counter-sanctions to restore relations with neighbors, which would have led to the lifting of sanctions, there is a risk that the Russian economy will continue to lose and miss out on the opportunities for growth and keep stagnating.
Sergey Guriev considers the monetary policy of the Russian Central Bank to be entirely rational. The last couple of years there has been a steady decline in inflation and the inflation target, announced by the Central Bank, has been achieved. There is no risk of inflation. Forecast on the ruble rate until the end of the year is - neither great growth nor a big fall is to be expected. According to the economist, the Russian economy is protected from short-term impacts of oil prices. In the long term, oil prices will go down. Hence, it is necessary to think about other sources of growth.
Sergei Guriev has excluded the possibility of fatal negative events for Russia in the next 5-10 years: "We can remain relatively optimistic because Russia today has no enemies who would like to conquer it. Russia, like all other countries, is naturally an enemy of international terrorism. But in terms of a real armed conflict or civil war in general, the risks are not very high. These risks are mainly related to political change.”
According to the economist, the COVID pandemic is going to bring key changes in the healthcare system. Both governments and private businesses will invest more in new technologies: digital healthcare, telemedicine. However, in general, we understand that healthcare is becoming one of the most promising businesses. Another business that will be developing at a faster pace is the digital business itself, in which all governments will invest. One more trend intensified by the pandemic is remote work. Many companies will leave a number of divisions working remotely. The direct consequence is that we as the society will need transportation less often. Which means we'll be actually moving towards deurbanization. This will cause serious changes in the real estate market and construction in general. It will open up significant opportunities. "Maybe in two years we'll be under quarantine again. - muses Sergei Guriev. - And those who will have an opportunity to work remotely will be in a more advantageous position. That is why now we need to invest in EdTech, RegTech, HRTech technologies and the like. And that is why digital companies will have a lot of work in the near future".
As for crypto currencies such as Bitcoins, according to Sergei Guriev, they have no future. However, "digital currencies of central banks" and "synthetic digital currencies of central banks" have significant prospects. Competition between fintechs and traditional banks has already intensified, and ordinary banks will have very difficult time in the future. But lending and savings operations will still remain within the purview of large and respectable institutions.
Answering the question of whether Russia could become more akin to developed countries, given our historical baggage and cultural code, Sergei Guriev did not reject this possibility, bringing North and South Korea as an example. Countries have the same cultural code, but today South Korea is ten times richer than its northern neighbor is. According to the economist, it will take a couple of decades of dedicated work for Russia to become a developed country.
Another topic of discussion was the actual factors of the main national idea. "I believe that the main national idea is life for the citizens worth living. We need to make people proud of their country," Sergei Guriev said. In his opinion, the national idea needs to be expressed in caring for people, in realizing the opportunity for each person to get a good education and self-realization: "Russia is not a great country because nobody wants to move to Russia. Something is missing in Russia. And I think that there is a lack of understanding that Russia offers opportunites for self-realization. <...> There are, of course, certain features of Russian self-perception that need to be removed: the imperial legacy, commitment to centralizing power and to the dictatorial model of governance.” Justice, mercy and the value of education - these three components of the Russian identity contain the potential for Russia's development. "These values, in my opinion, are absolutely compatible with what the Russian economy needs in order to reduce its gap with developed countries", - the speaker stressed.
For Sergei Guriev the question of migration of specialists from the country or, on the contrary, their return to the country turned out to be tough: "I see nothing shameful either to stay or to leave. I think that every person chooses it for himself". However, we can see with the examples of Georgia, Armenia and many other countries that people, who left their countries during difficult times, have now come back and play a very important role in the development of their countries.
During the webinar Sergey Guriev also mentioned the operation of railway transport in Russia: the company RZD in Russia does not run a good competitive transport company, which affects the quality of the transport sector of the country.
As for China's development, the most likely outcome of the extension of Xi Jinping's term in power will be a slowdown of the country's economic growth, and, according to the economist's predictions, "is likely to trigger political changes that may be quite turbulent, even dangerous for the China’s neighbors”. China has now become a country that is similar in income level to Russia. And the next stage of economic growth is not industrial, but a post-industrial one. This is a serious challenge for China, because the country needs innovation, competition, research and development and investments in human capital. The problem is that so far no country has managed to do this without moving away from non-democratic institutions.
Being guest of the Stockholm School of Economics, Sergei Guriev, of course, could not escape mentioning Sweden and other North European countries. Northern Europe is proud of what it has achieved, more so in when it comes to fighting inequality. The Nordic model is a model that combines a competitive market, integration into the global economy, and innovation. At the same time, these countries provide social guarantees through high progressive taxes.
The Swedish model, according to the expert, is preferable to most in terms of social and political sustainability. Today Sweden is a model of democracy, the rule of rights and freedoms of the individual. In its history, Sweden has come a difficult way from an absolute monarchy to a parliamentary democracy that has consolidated power in the hands of citizens. It is the democratic structure of the state, the strict separation and succession of power that underpins the dignified standard of living with which Sweden is associated around the world. "We can also put Canada, Australia and New Zealand in the same category. These are also countries that have both social guarantees and competitive market economies. And in this sense, it is from these countries that we must take heed of," Sergei Guriev concludes.
About the speaker:
Sergei Guriev joined Sciences Po (France) as a tenured professor of economics in 2013 after running the New Economic School in Moscow between 2004 and 2013. In 2016-19, he worked as the Chief Economist of the European Bank for Reconstruction and Development (EBRD).
In 2006, he was selected a Young Global Leader by the World Economic Forum (Davos). In 2009-11, he was included in the top 100 of the President of Russia’s Cadre Reserve. In 2009 and 2010 he was awarded the “Independent Director of the Year" Prize by National Association of Independent Directors (Moscow, Russia). In 2010, he was also elected the Best Independent Director according to the Association of Managers of Russia and the Russian Institute of Directors.