Foreign investment in Russia fell a whopping 13% last year and is now half what it was four years ago. Vladislav Inozemtsev, professor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor-in-chief of Svobodnaya Mysl, writing in the Moscow Times, explains why:
President Dmitry Medvedev publicly acknowledged last week what everyone has known for two decades: The investment climate in Russia is bad. While the measures Medvedev proposed to improve the investment climate are generally sound, there are several reasons why they won’t work.
In 2010, fixed capital investment in Russia totaled 8.35 trillion rubles in constant 2008 prices ($310 billion), the same as it was in 2007. In China, however, investment in 2010 was 14.4 trillion yuan ($2.16 trillion). One of the main reasons China’s investment level is so high is its high domestic savings. But the higher the level of savings, the lower the level of consumption.
Vladislav Inozemtsev, a professor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor-in-chief of Svobodnaya Mysl. writing in the Moscow Times:
Amid all of the talk of modernization, the Russian economy is gradually changing, but it is doing so despite government modernization policies and programs, not because of them.
In recent years, PSA Peugeot-Citroen, Mitsubishi Motors and Volkswagen have opened factories in the Kaluga region, Siemens opened a transformer plant near Voronezh, and Western investors have launched a range of businesses manufacturing construction materials and food products.
Vladislav Inozemtsev, a professor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor-in-chief of Svobodnaya Mysl, writing in the Moscow Times:
The entire discussion of how to modernize Russia has developed in a rather strange manner. In most countries that have undergone modernization, the process involved accelerating industrial development, increasing the level of integration into the global economy, exploiting competitive advantages and enacting political reforms as a prerequisite to economic growth.
Everything is just the opposite in Russia today. Rather than strengthening the country’s highly uncompetitive industrial sector, the authorities have focused on creating an innovative “smart economy” from the top down. Moreover, instead of developing sectors with products that enjoy broad market demand, Russia’s leaders are fixated on reorganizing the space and nuclear industries, two fields that in all other countries depend on government support for their existence. And even when it could significantly reduce expenses for domestic firms by regulating the price of the raw materials and energy that Russia has in great abundance — thereby giving the country a competitive edge analogous to China’s cheap labor — the government instead raises those prices to world levels.
This is how the authorities turn Russian modernization plans into another illusion. Plans to develop nanotechnology under the aegis of Anatoly Chubais and Rusnano or to build an “Innovation City” according to Kremlin deputy chief of staff Vladislav Surkov’s vision are both classic examples of siphoning away huge sums from the federal budget with little or no results to show for it.
Russian Schools get an “F”
One of the least well-reported and most under-appreciated facts about Russia is the dismal quality of its education system. Even in Soviet times, huge swaths of analysis and critical thought were bludgeoned into dust, so that Russians had no real understanding of foreign culture or history, or indeed even their own. Only in a tiny band of scientific education did the Soviet system hold its own, and under the continued rule of the KGB even that has utterly collapsed. Indeed, how can people like Vladimir Putin, educated by the miserably failed Soviet system, hope to reform that system? They can’t. It’s impossible. In fact, even those with good intentions often go astray. Today, Russians are among the most barbarically ignorant and backwards of any people in the industrialized world.
Writing in Vedemosti and republished in the Moscow Times, Vladislav Inozemtsev, director of the Centre for Post-Industrial Research and the publisher and editor-in-chief of Svobodnaya Mysl magazine, exposes the horrific failure of neo-Soviet education.