I honestly do not believe today’s talk about modernization. Or more exactly, I believe only the part where leaders say modernization is necessary. But once the discussion turns to what practical steps must be taken, I don’t believe it anymore. This is not because proposals to privatize major companies and eliminate state-owned corporations wouldn’t work. Those are very sensible measures. The reason is simply that true modernization never succeeds without a corresponding major change in political leadership.
One area that is crying out to be modernized is the economy, which is too reliant on oil.
In the fourth chapter of the Transition Report 2009, issued by the European Bank of Reconstruction and Development, which details diversification efforts by governments of countries with transitional economies, a comparison is made between Russian exports during two different five-month periods — from December 2004 to April 2005, and from December 2008 to April 2009. During the first period, the price of oil averaged $42 per barrel, and in the second, $43 per barrel. In the 2004-05 fiscal year, oil and gas accounted for 43.5 percent of all Russian exports, and goods with a high value-added margin represented 5.9 percent. Four years later, in the 2008-09 fiscal year, oil and gas sales accounted for 44 percent of all exports, and goods with a high value-added margin — that is, the very sector that should increase in order to diversify the economy — remained almost the same at 6.2 percent. In short, nothing changed. (Yet even that lack of improvement looks like a success compared to Azerbaijan and Kazakhstan, two countries with transitional economies and significant oil exports that suffered significant declines in diversification over the last five years.) The structure of Russia’s gross domestic product also fails to reveal any signs of diversification.
So what does that give us? Diversification — one of the main requirements for modernization — remains unchanged, and there are no new ways of solving that task that are immediately evident. The government remains essentially unchanged as well. In such a situation, Russians might heed the wisdom of the old saying, “It is easier to have new children than to clean the old dirty ones.”
Konstantin Sonin, a visiting professor at the Kellogg School of Management at Northwestern University, is a professor at the New Economic School in Moscow and a columnist for Vedomosti.
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