Albert Bikbov: “Art — in search of balance: to develop Tatarstan continuing to feed Russia”
The well-known blogger and economist about what opportunities the GRP of Tatarstan will be able to add 5% a year against the background of the all-Russian economic stagnation
Tatarstan President Rustam Minnikhanov has set the task of achieving annual growth of the region's economy “at least 5%" to the government of the republic. According to the results of 2019, the gross regional product (GRP) of Tatarstan grew by just over 1%, as well as the Russian GDP — the national economy is experiencing stagnation. Economist and blogger Albert Bikbov in his author's column for Realnoe Vremya speaks what, in his opinion, caused the three-fold lag of the Russian and Tatarstan economies from the global growth rates, whether Tatarstan as a separate region can accelerate economic growth against the background of slowing national indicators, and if so, how the new team of the ministry of economy could achieve this.
“If we don't catch up, then at least warm up”
The task has been set by Tatarstan President Rustam Minnikhanov for good reason because the global growth rate is now about 3%, and it is clear that our recent GRP rates do not suit us in any way. In 2019, Tatarstan had an economic growth of 1,3%, and the GDP growth in Russia — somewhere around 1,2%. Certainly, the GRP indicator differs from GDP. GRP is the gross regional product within Tatarstan, but it is quite similar to the gross domestic product within the whole of Russia. They take the gross output of goods and services, deduct a variety of taxes (VAT and so on) and intermediate consumption. It's like the net added value. The GRP indicator should also be distinguished from other indicators, for example, the rates of industrial growth, the growth rate of construction, agriculture, and all industry indicators.
The desire to increase the rate of economic growth is mentioned by Russian President Vladimir Putin from time to time. The change of the Russian government, by the way, was caused by a completely unsatisfactory rate of economic growth. It is clear that if our growth rates today are three times lower than the global average, and the situation is not corrected for many years, the gap will only grow exponentially in the coming years! After some time, the accumulated years of lag from the world economy will be absolutely gigantic. Every year we see a growing gap in the growth rates of the Russian (and Tatarstan) economy, even from the world average, not to mention the growth rates of the best countries. This does not suit anyone today. This kind of stagnation can't end well.
Minnikhanov puts such high indicators — 5% annually — because the planned GRP growth of only 2% for 2020 is already insufficient for us. Unfortunately, from the words of the president, we do not know the exact time when the economy of Tatarstan will have to achieve 5% annual growth. Apparently, it is a kind of a task like “if we don't catch up, then at least warm up”. This is the maximum task. Maybe in five years they expect such growth, maybe in ten. The average task, I think, is the following: to achieve growth rates not lower than the world's (3%) in 3-4 years.
Minnikhanov puts such high indicators — 5% annually — because the planned GRP growth of only 2% for 2020 is already insufficient for us
There is no freedom of maneuver, there is only a corridor of possibilities
Rustam Minnikhanov has set the task, but it will be very, very difficult to realise it. Why? We would not have any problems with achieving such ambitious goals if Tatarstan was a relatively isolated state with its own judicial system, economy, and so on. Then we could talk about freedom of maneuver. And the republic has no real freedom of maneuver as such today, there is only a small corridor of opportunities.
We operate within federal laws, federal regulations, and institutions. About 90% is dictated by the federal rules and taxation (which is only getting tougher — the tax burden on donor regions is only growing from year to year). In these conditions, with the corridor too narrow for maneuver, our authorities are trying to do everything possible. They adopt the best practices, for example, organize free economic zones, technoparks, industrial parks, and try to introduce regional incentives for promising investment projects of enterprises. But even this “corridor” is based on all-Russian economic growth!
Unfortunately, the Russian economy has stalled in recent years and is growing very poorly. This affects our national lag in labour productivity, and the sanctions — we are still dealing with the consequences of the crises they have caused.
Our authorities are trying to do everything possible. They adopt the best practices, for example, organize free economic zones, technoparks, industrial parks, and try to introduce regional incentives for promising investment projects of enterprises. But even this “corridor” is based on all-Russian economic growth
They can't act as Stalin acted
How can we accelerate economic growth? The world economy knows two solutions. The first solution we know is an extensive increase in economic growth (by expanding the use of resources, when the country's existing but still unused resources are involved in production).
You can remember how the economy of the Soviet Union worked. Let's take industrialization: they took everything from the villages, threw these resources into the city, bought the latest equipment of American factories, American licenses, built a cloud of their own factories and enterprises, from Dnieper Hydroelectric Station to the tank ones. They created an industry from scratch, causing, among other things, a mass famine in 1932-1933. Yes, there was a large-scale shift of resources as part of the creation of an industrial country from rural Russia. As a result, some incredible growth rates of industrial production were obtained, the same gross national product that was then counted.
In the later days of the “Brezhnev” USSR, the economy tried to spur the planning system, there was Gosplan. If you did not fulfill the plan — the party card on the table. The structure of the economy was based on the opinions of Gosplan specialists, rather than on real market needs. That is why Soviet people wanted foreign jeans, the quality of Soviet goods fell catastrophically.
Killing Gosplan, giving birth to “state capitalism”
The turbulence caused by the perestroika and transformation of the 1990s, when the Soviet system was actually broken, could not pass without a trace for the Russian economy. Our economy collapsed as a result. Then they tried to restore it. They tried to build a market economy in Russia. Oh, it seems to have been built, but even today it would still be worth talking about with caution. Because we now have up to 70% of the economy accounted for by the state, the same state corporations.
Russian authorities are trying to imitate the South Korean way of development: in the framework of building a model of what is known as the corporate state, General Park Chung-hee who came as a result of the military coup used the state to revive the industrial sector of the economy
In fact, we killed the Soviet monster, “Soviet state capitalism”, only for it to return again in years, only under the name of “Russian state capitalism”. Under it, the lion's share of economic decisions is made not by the market itself and business directly, but at the level of state corporations (that is, by the same state).
Russian authorities are trying to imitate the South Korean way of development: in the framework of building a model of what is known as the corporate state, General Park Chung-hee who came as a result of the military coup used the state to revive the industrial sector of the economy. But this was already done badly because the market always knows better than the state what to produce and when. And then we “ran into” sanctions.
A bias from industrialization towards digital economy
The second way that the world economy offers today to accelerate growth is to build what is known as “modern economic growth” (MEG). What is MEG? This is a very complex and multi-layered concept, and ready-made recipes are not offered within this theory. Even Nobel laureates in Economics say that to date, no single perfect recipe has been developed: do so and so to accelerate economic growth dramatically.
Each country has its own peculiarities of economic development. But modern economic growth is still for everyone, firstly, characterized by an increase in the volume and share of services in the gross product, and, second, a shift away from industrial industry towards the digital economy, the market for digital services.
Look at the United States, and you will see that all the former industrial giants — General Motors, Ford, and United States Steel Corporation — that were the pride of America in the twentieth century are now practically dead. They have been replaced by the giants of the digital economy, far ahead of the old industrial mastodons in their capitalization — Google, Apple, Facebook. The structure of the stock index and the stock market has changed dramatically as a result.
All former industrial giants that were the pride of America in the twentieth century are now practically dead. They have been replaced by the giants of the digital economy, far ahead of the old industrial mastodons in their capitalization
We sit on gold, but we are as poor as church mice
Tatarstan got into quite an interesting mess. The republic has an archaic economic structure, which was formed largely due to the availability of natural resources, primarily oil. Suffice it to say that in our gross regional product, the share of mineral extraction is twice the share of mineral extraction in Russia as a whole!
We have oil, it feeds us today, but the economy will not grow at the expense of oil. We will not open new deposits in the republic like Romashkinskoye, which we are currently sucking almost dry. We will not have any super-progressive technologies, even at the level of obtaining high-grade oil products.
Everything that we are doing today in oil refining and petrochemistry is largely a repetition of technologies from 30-50 years ago. And competition in the oil refining market is growing strongly all over the world, both in the Persian Gulf countries and in India, where there are absolutely incredible levels of oil refining. Competition is also growing in Russia.
In other words, our oil and petrochemistry can support and stabilize the Tatarstan economy now, but we will not be able to grow at their expense in the future, in my opinion. There are sometimes proposals that the petrodollars and oil reserves received by Tatarstan at the expense of oil and petrochemicals should be invested in the construction and development of the digital economy in the region. It's a great idea, of course. But I have already said that the problem with Tatarstan as a donor region is that it can only operate within a narrow space for maneuver.
We, the republic and our oil companies, suffer from sending a lot of money in the form of taxes to Moscow. Such a disparity: two-thirds of the collected taxes are sent to the federal budget, and one-third of the taxes remain in the republican budget. Our tax system is designed in such a way that virtually all the cream from the good oil situation, from oil super-profits, is removed by Moscow and distributed to the federal funds — the Reserve Fund, the National Welfare Fund, and some other — not to mention the federal budget.
In other words, our oil and petrochemistry can support and stabilize the Tatarstan economy now, but we will not be able to grow at their expense in the future, in my opinion.
We sit on gold, but we are as poor as church mice. Our region gets very little back. Now the federal authorities would like to somehow restore justice, under the banner of national projects, by boosting the investment cycle at the expense of benefits given to the regions. But most likely, nothing will come of it. This is a purely mechanical view of the economy, very similar to the old Soviet state planning approach. Let's say some economist in the federal ministry is sitting and writing: “Let's first allocate money for national projects, so much — for roads, so much — for healthcare. I will determine myself where and how much to allocate.” It turns out that again everything is decided not by the market, but by the state!
Everything that Minnikhanov does meets the theory of modern economic growth
Opinions are regularly heard in the media that the Central Bank could accelerate economic growth within the framework of its monetary policy by increasing the real money supply in the economy and controlling the key rate. In my opinion, only profane people can offer this today. Money is printed not only by Central Bank, all commercial banks together print money. Under the scheme: a loan is issued to banks — money is printed. The share of the issue that only the Central Bank of the Russian Federation accounts for today is at most about 10%.
Excluding monetary mechanisms to accelerate economic growth, it is also not necessary to become fixated on monetary policy, and suggest that the federal authorities, for example, only changing the tax system. The tax mechanism is only one of the components of the theory of modern economic growth. Its main components are the development of economic institutions, the environment for investment, and an increase in the quality of life and social infrastructure. This is what, by the way, Rustam Minnikhanov and his team have been working hard on in recent years. The team of Minnikhanov is working very hard on digitalization of the economy, that is, on the development of another important component of the theory of modern economic growth.
In principle, everything that Minnikhanov and his subordinates do meets the theory of modern economic growth, and not the theories of our old-fashioned economists.
In principle, everything that Minnikhanov and his subordinates do meets the theory of modern economic growth, and not the theories of our old-fashioned economists
But the president has to act within strict limits. If only two-thirds of our oil moeny, for example, remained in the republic, the local authorities would be able to carry out a large-scale transformation of our economy into the state of the economy of modern economic growth. Roughly speaking, if we exaggerate, we would build not one but ten Innopolises. There would be larger investments in technology parks, it would be possible to help businesses with investments with tax incentives at the level of Tatarstan. Today, for example, the regional budget is almost unable to provide any major tax benefits for businesses in this sense (for the same acceleration of the investment cycle), and its hands are tied, so to speak. Untie these hands, and we will have not a corridor for opportunities but a whole football field for maneuver!
How to both feed Russia and to develop Tatarstan
At the same time, the proposal to change the tax system in favour, first of all, of the donor regions, causes fair criticism. If every region of the Russian Federation had oil — it would be a different matter. But in Russia, not every region is lucky with minerals, as Tatarstan is lucky, for example. It follows that the art of regional politics is to find a balance, as Rustam Minnikhanov does: floating between Scylla and Charybdis. How to develop Tatarstan continuing to feed Russia.
The team of Minnikhanov finds ways to get additional federal money (in which, let me remind you, the oil taxes given by Kazan to Moscow also “sit”). Tatarstan today is one of the leaders in working with national projects. The republican authorities endlessly come up with reasons for “dragging” federal money to the republic, no matter whether it is the Universiade, the World Cup, or other events of a smaller scale — so that money eventually comes to the region, including money from both the feds and investors, which then go to create additional jobs, replenish the turnover of local manufacturers, and so on.
The donor regions have to bend over backwards, they can't just not care dime like the authorities of some donor regions. Look at the Khanty-Mansiysk Okrug. Oil production there is huge, but the local authorities just don't care about their region, people are fleeing from there. As for Minnikhanov, he travels a lot to different countries, meets with different people, so that Tatarstan gets the next good, or even the best, management and economic practices.
Modern economic growth is based not on the sale of energy resources, but on the sale of services, on the digitalization of the economy, and on social programmes, which, by the way, can also be a good resource for accelerating economic growth
As a result, Kazan, for example, has become a centre of labour migration from neighbouring regions. The authorities of the republic, realizing that you can't go far on oil alone, are creating an institutional environment within the region, increasing its attractiveness, at least so that the best people come here, settle down, and the young people stay. Modern economic growth is based not on the sale of energy resources, but on the sale of services, on the digitalization of the economy, and on social programmes, which, by the way, can also be a good resource for accelerating economic growth Because if there is no growth in the population's income in the region, then there is no market for local producers.
You can reach 5% growth “if you are lucky”, but you will have to work a lot
Based on all of the above, it is possible, summarizing, to come to certain conclusions. First, yes, in 2020 Tatarstan will achieve 2% economic growth.
Second, the new minister of economy of Tatarstan, Midhat Shagiakhmetov, will have to do a lot of hard work. At the time, the ministry of economy developed a programme of socio-economic development, and its writing was supervised by Shagiakhmetov. The programme of his team, in fact, was based mostly on what I am talking about, and what the theory of modern economic growth says — the creation of an institutional environment, in the first place. That is, there was already everything what the Strategy 2030 is based on.
As a result, the path for the Tatarstan authorities is clear: to implement both the previous programme and the Strategy 2030 programme — to invest in human capital, develop the service sector, and digitalize the economy. Fortunately, all these things have already been written by our authorities and experts, and they are written correctly. Now there's a little left to do: to realise what is written on paper in practice. If the programmes are implemented in the next few years, then in 5 years the economy of Tatarstan, according to my calculations, will be able to reach a stable growth rate comparable to the global rate of 3%.
As a result, the path for the Tatarstan authorities is clear: to implement both the previous programme and the Strategy 2030 programme — to invest in human capital, develop the service sector, and digitalize the economy
If we are also lucky, and a lot of investors will come to our region and start opening very large production facilities, not necessarily in petrochemistry — for example, a regional digital giant like Wildberries will be created (an international online store of clothing, shoes, and electronics launched by a Russian woman, Tatyana Bakalchuk, is worth more than $1 billion today), Yandex, and so on, then we will achieve five percent economic growth. But, again, only if, of course, the federal authorities, for their part, do not tighten their tax laws or any of their regulations in the coming years.