OECD: Two Reports on the Problems of the Russian Economy

On December 12th 2011, a new ‘Economic Survey of the Russian Federation’ and a ‘Review of Labour Market and Social Policies in the Russian Federation’ prepared by the Organization for Economic Co-operation and Development were presented at the Higher School of Economics.

A delegation from the Organization for Economic Co-operation and Development (OECD) headed by its Secretary General Angel Gurria visited the HSE shortly after an official meeting at the RF Ministry of Economic Development and Trade. According to Angel Gurria, the publication of these reports is an important stage in the process of Russia’s accession to the OECD, since the evaluations in these papers are aimed at comparing Russia’s economic situation with OECD standards and suggesting some measures to bridge the gaps.

Evgeniy Yasin, Academic Supervisor of the HSE, said that the previous reserve for Russian economic growth has been exhausted, it is no longer possible to heat it up with high oil prices, and the Russian government will have to find new sources of growth. ‘There are two key scenarios’, Evgeniy Yasin believes, ‘The first one is inertial: it assumes some feasible modernization on the basis of state initiatives and money – and this scenario is not very positive in terms of the results that can be achieved. Another scenario is based on serious institutional change, including reduction in the state regulation of economics and the political system’.

Ideas on deregulation, reduction in the state presence in trade markets and creation of a favourable business climate were also included in the OECD reports. The economic survey presented by Jeff Barnard and Tatiana Lysenko notes that among the ‘relatively strong’ elements of the socio-economic situation in Russia are both a low public debt and unemployment rate, and among the weaknesses are an extremely low life expectancy and manifold environmental problems.

Evgeniy Yasin and Angel Gurria

A solid macroeconomic policy can be listed among the achievements of the Russian government. The budget situation in Russia looks better than that in OECD countries, thanks to use of oil profits in the stabilization fund alongside taxation reform and budgetary procedures reform. In general, the budgetary procedures in Russia comply with OECD standards. However, the budget situation without the extra from oil and gas is far from optimistic: the deficit here has been growing since 2006, which is a sign of the necessity to set ‘stricter frames for budget expenditures’.

The largest gap between Russia and the OECD is related to the business climate. Entrepreneurs in Russia face too many limitations and too much corruption, which results in low investment, weak innovative activity, a low level of economic diversification and the underdevelopment of medium-sized and small entrepreneurship. The measures suggested by the OECD include the acceleration of privatization and the ending of the financing of those companies which are close to the authorities. But these economic measures will be more effective if they are supported by political transparency, the presence of independent media and the activity of NGOs, the OECD report insists.

One of the most painful issues for Russian consumers and the economy as a whole is energy consumption. The high energy consumption of Russian industries and infrastructure limits the competitive ability of the national economy. OECD experts suggest optimizing energy expenditure and stimulating the implementation of energy-saving technologies through a highly unpopular measure: an increase in domestic energy prices. As expected, this suggestion did not gain much support from the Russian participants of the presentation.

The OECD Review of labour market and social policies in the Russian Federation was presented by Willem Adema. He noticed that in comparison with OECD countries, the crisis has had only a limited influence on the unemployment rate in Russia: this is mainly due to the specific mechanisms of the Russian labour market in adapting to economic shocks. At the same time, there are some alarming trends in the labour market: the growth of employment is being maintained by the creation of unskilled jobs, casual employment is growing, and regional differentiation in terms of the level of earnings remains high.

The comparative indicator of poverty by income in 2008 in Russia was 18% compared to the OECD average of 11%. And this group includes more children, young people and active able-bodied members of the population than pensioners. Therefore, the OECD believes it is necessary to retarget some social expenditure from pensioners to able-bodied citizens and children. In this way, social support can be focused on the stimulation of employment and the creation of an environment where ‘parents can more effectively combine work with family life’.

The birth rate, which remains lower than the OECD average, has slightly increased over recent years, which can be related to the payments of the ‘mother’s capital’, but the experts warn that the effect of such programmes is short-term. A paradoxical situation has emerged from the changing age structure of the population. Both OECD countries and Russia face the problem of an ageing population, but while in the OECD it is due to an increase in life expectancy, in Russia it is because of the low birth rate. And the low average life expectancy in Russia prevents a more dramatic ageing of the population. These processes work to exacerbate the crisis in the pension system where the deficit continues to grow. The OECD suggests making the retirement age the same for both men and women in Russia.

Rostislav Kapelyushnikov, Deputy Director of the HSE Center for Labour Market Studies, commented on the report and said that it ‘quite adequately and correctly reflects the two key specifics of the Russian labour market which often remain outside the attention of foreign researchers’. He meant, firstly, the fact that the labour market in Russia adapts to crises not by means of reducing employment and a growth in unemployment, but through cutting salaries and working hours. And secondly, stakeholders in the Russian labour market often avoid or ignore labour law regulations.

After the end of the presentation, Angel Gurria, head of the OECD, gave a small press conference at the HSE. In particular, he commented on the current crisis of the Eurozone and urged the European governments to develop budgetary discipline and encouraged the European Central Bank to be more active. According to Angel Gurria, Russia should be interested in Eurozone’s recovery after the crisis, since instability in Europe ‘would negatively affect the Russian economic situation’. And in response to a question about the elections which took place in Russia on December 4th, Angel Gurria said that ‘the OECD will work with any government which has been formed as a result of the election’.

Presentation for the ‘Economic Survey of the Russian Federation’

Presentation for the ‘Review of Labour Market and Social Policies in the Russian Federation’
 
Oleg Seregin, HSE News Service
Photos by Maxim Blinov