OREANDA-NEWS. February 17, 2011. “The performance of expert groups must be as open and democratic as possible. Experts should consider all sensible alternatives and proposals. They should not dismiss anything outright without constructive and professional discussion. There should be no room for political motives in the work of expert groups. <…> If the discussion is real, and if the final proposals are subjected to serious debate, there will be more trust in the results of the experts’ work.”

Transcript of the beginning of the meeting:

Vladimir Putin: Ladies and gentlemen. In late December 2010, we met with the leading experts at the Higher School of Economics. Naturally, they were mainly experts from that university. We discussed the most crucial social and economic issues and the priorities for Russia's development strategy in the post-crisis world. It was then that we decided to hold expert meetings like this on a permanent basis. I am glad that this initiative was translated into something practical.

We all know that parliamentary elections will be held later this year and that the presidential elections are scheduled for March of next year. So, we have about a year to go. It is natural for any government to analyse what has been done and how it has been done, what goals have been achieved and what mistakes have been made, and what needs to be done to avoid mistakes and develop efficiently in the future. For all intents and purposes, every government has the responsibility to look ahead.

I would like to thank the Russian Academy of National Economy and the Higher School of Economics for the contributions they've made to the preparation for and implementation of this project.

A total of 21 expert groups have been set up thus far to assess issues ranging from macroeconomics and healthcare to lifting administrative barriers and strengthening Russia's position in global markets. As agreed, these expert communities include representatives of federal and regional authorities, scientific and business circles, the Russian Academy of Sciences, universities, leading business associations, and prominent experts and analysts. I also consider it necessary to involve foreign experts in this work.

It is worth mentioning that the initiative to organise expert discussions of the country's development strategy itself provoked an interested and vigorous reaction. Various scientific, educational, and public organisations have submitted hundreds of proposals for their representatives to be included in these panels. This should serve as an indication that this work is important and that the issues being discussed are topical and indeed crucial for Russia and its national prospects.

I would like once again to commend all those who responded to our initiative to organise an extensive expert discussion of the main areas of our social and economic agenda. What meaningful results do we expect from this expert work? First of all, we expect experts to elaborate specific proposals aimed at addressing the key goals of economic modernisation and improving the social sphere and the system of government, and to formulate initiatives that may become the foundation of drafts, government acts, and federal programmes.

It is extremely important for us to determine our priorities and make effective use of the tools that will guarantee steady and innovative growth and will make Russia more competitive. I'd also like to emphasise that the strategic goals we set for longterm development through 2020 will remain unchanged. These goals are to improve living standards, make the economy innovative, and form effective market and government institutions. Why did we address the period after 2012? We had in mind not only the political calendar but also the premise from which we proceeded in the programme for long term development through 2020 (and it is mentioned there in no uncertain terms) that 2012 marks a new stage in Russia's socio-economic development. We assumed that major drafts should have been adopted by that time and implemented in the law and that certain mechanisms should have been underway. Needless to say, we cannot pretend that nothing has happened in our country or in the rest of the world since we drafted this strategy. A systemic crisis has hit the global economy as well as our own. And we must adjust our plans and programmes accordingly.

We realise that we must improve the mechanisms for reaching these goals with due account of post-crisis realities. We must look for more effective models, more flexible solutions, and increase the efficiency of budget investment and programmes. We will review the course of expert work quarterly at government sessions. The first such discussion is scheduled for late March.

In August 2011, we will review the work at its half-year mark, and in December 2011, the final report on the results of expert performance will be issued.

Today I'd like to ask Mr Kuzminov (Yaroslav Kuzminov, rector of the Higher School of Economics) and Vladimir Mau (rector of the Russian Academy of the National Economy and the Presidential Government Service) to report on the first discussions and the formation of expert groups. Are there any problems in organising cooperation with the authorities and are they in contact with the regions and federal structures?

I'd like them to share their plans and assessments of the heads of a number of working groups. What problems would you like to address at hearings, and what issues do you consider the most topical ones? In addition, I think that during this meeting, we can exchange opinions on the most meaningful issues of social, budgetary, and macroeconomic policy.

In conclusion, I'd like to say a few words about fundamental approaches to organising our joint work. First, the performance of expert groups must be as open and democratic as possible. Experts should consider all sensible alternatives and proposals. They should not dismiss anything outright without constructive and professional discussion. There should be no room for political motives in the work of expert groups. ... If the discussion is real, and if the final proposals are subjected to serious debate, there will be more trust in the results of the experts' work.

Second, expert work must be as transparent as possible. The working groups should have interactive sites on the Internet, and the mass media should take part in expert seminars.

And, finally, a third request. Experts should use regional venues as actively as possible, go to the regions and conduct round tables there. Many Russian regions have amassed very interesting, meaningful experience in resolving social issues, attracting investment, supporting infrastructure, and so on. It goes without saying that this experience must be taken into account.

You are familiar with the example of Kaluga, for instance. This is a small region without any mineral resources, but it occupies one of the first, if not the first place in Russia in terms of attracting investment. This is an example that may be studied and applied in other regions.

Direct communication with representatives of different social groups and regional leaders in public opinion is also useful and can produce good contacts.

Many thanks for your attention. I'd like Mr Kuzminov to take the floor. Please, go ahead.

Yaroslav Kuzminov: Thank you, Mr Putin. Let me tell you briefly about our organisational efforts. We’ve confirmed the line-up of newly formed expert groups, and most of them have gotten down to work already. But this doesn’t mean that they cannot be changed along the way.

Federal executive bodies contribute proactively.

Next week we’re launching a new website to function as part of RIA Novosti’s network. This website – our most inclusive forum to date, perhaps – will enable us to expand our outreach and scope. Reader feedback and materials from experts on the ground will enhance the arsenal of ideas we have under consideration.

The success of this project will depend on how far we’ll be able to step outside the narrow circle of experts that are currently interacting with executive agencies. Engaging fresh talent from the provinces is the key. I think that this website will enable us to do so within a short period of time. We’re negotiating with international experts already, but, clearly, they don’t work as fast as we would like.

I propose two forms of engagement. One is about drawing on the economic and social success stories of countries comparable to Russia. That kind of work is already being done with experts from the Organisation for Economic Cooperation and Development, leading EU nations, and the World Bank.

The other way of going about it is to engage experts and scholars in an effort to assess the results that we produce later on, by this next spring or summer.

We already have reached tentative agreements with Lord Michael Barber, a major British reformer; Nobel Prize winner Eric Maskin; Manuel Castells, author of the theory of the network society; and several other outstanding economists and economic policy makers.

We arrange meetings between expert panels and government officials. Next week we’re planning to meet with deputy prime ministers to consider issues related to the expert panels’ organisational and information support.

We suggest holding such get-togethers on a regular basis, say, as frequently as every other week.

It’s crucial for expert groups to receive sector-specific statistics from surveying institutions. And we deem it necessary to give relevant instructions to the Russian Statistics Committee.

We shouldn’t underestimate the scale of our ignorance. This concerns issues such as retirees’ expenses and money-saving habits, the situation in the banking sector and in retail trade in the provinces, and so forth.

We’ve only got a very vague idea of how monopolised these services really are in some regions, so we simply project what we already know about larger regions. But we obviously lack sector-specific regional statistics. And I think what we really need is not analyses per se, but analyses corroborated by figures. Work in that direction should become a priority with the Russian Statistics Committee.

Now, ladies and gentlemen, let me briefly outline some of the substantive problems we’ve begun to address. The post-crisis situation in the Russian economy reminds us of the basic economic problem of scarcity and choice. We’re now trying to solve a more conventional economic task than the one we faced during the recent era of budget surplus and high growth rates. It’s the current imbalances in the budget that, above all, we need to redress.

This prompts the state to either resort to borrowing – which I see as an acceptable option that we shouldn’t rule out – or to learn to live within its means to avoid a budget deficit. The latter option offers a choice between minimising investments in further development while delivering on current welfare obligations or reconfiguring the system of welfare benefits to reduce costs.

We should now reassess our social obligations and development targets by keeping in mind the scarcity of our resources. In certain cases, this would make us consider some wholly new institutional scenarios for the development of specific sectors. The reason, in our view, is that it’s awful to spend big money without being certain that our investments are enough to meet the targets that have been set.

Welfare obligations form the bulk of Russia’s spending. In this way, we differ from the other BRIC nations, to which we often compare ourselves. China, India, Brazil, and many smaller countries easily mobilise funds for intellectual and technological modernisation, but they are in no hurry to create a welfare state and choose to leave retirees to their families.

In Russia, a welfare state exists already, so we cannot possibly follow BRIC’s example on social policies, and we will not do so, no matter who runs this country and how.

Having said that, our welfare state shouldn’t be built on the archaic Soviet model. The modernisation of the welfare state in Russia is a task of primary importance, we believe. And the success of modernisation efforts in all other areas will depend on how effectively we manage to improve our social services. Choosing development models is a social problem rather than a technological one.

Social policies should be regarded from the point of view of primary as well as secondary economic effects, but not just in terms of jobs created or supported by our investments and current welfare payments.

This applies to public education, healthcare, and pensions. We should learn to identify and compare secondary economic effects: for example, those derivative of welfare spending (how retirees could benefit from increased pensions), or healthcare reform (how will the purchase of high-tech facilities affect technology chains on the labour market), or the increased salaries of teaching staffs. This would boost growth in certain segments of consumer demand, and it is something to be taken into account when planning welfare spending.

Second. We must adopt a much tougher approach to the efficiency of budget expenditures. When talking about the funding of social commitments, we are used to repeating that we must finance citizens rather than institutions and social services rather than outpatient clinics or colleges. Any institution is merely the instrument rather than the goal of social policy. It is comprised primarily of government agents in order to render social services to the majority of citizens. It cannot be regarded as a target of social support like the unemployed or old-age pensioners. Thank God, we have overcome the situation of the 1990s, when salaries performed exactly this social function. We have long decided to transition to standard funding, but the departments responsible for developing different industries are very slow in implementing this decision and constantly look back at its social consequences. It is important to consider these social consequences, but we should not forget about their broader social effect and the quality of social services that we are now rendering in all public sectors.

The next point is effective contracting with public sector employees. They should earn enough at their job without having to look for additional sources of revenue. Searching for additional jobs can only damage their primary responsibilities. There are no miracles. We must restore professional morality so that quality work and the conscientious performance of duties are supported not only by the external control of bosses or consumers but also by the internal monitoring of colleagues. Effective contracting implies not only government commitments but also obligations inherent to the restoration of the professional community.

One more issue is investment projects. We must prevent the implementation of projects based on technology that is a generation behind modern standards. Recently, the government has adopted a programme for energy efficiency. But losses of energy occur in practically every technical sector. We could establish a system of technological auditing of investment projects, at least those that enjoy government support, through a fund with the involvement of international experts. The public character of the fund’s expert supervision would prevent leading international companies from pushing their technology (on our domestic market), while supporting domestic producers, whom we could offer purchase quotas or price preferences.

The third and last topic I wanted to mention is the modernisation of the system of government purchases. The current system is mostly based on price competition and simple commodities, the quality of which can be inspected during the purchase process.

The lack of critical assessment in dealing with sophisticated goods and services leads to inefficiency, big expenses, and budget losses that we would like to avoid.

We can enumerate a whole number of other issues that we may discuss and debate, and for which we can  offer new solutions. We think that each expert group must primarily review economic and social policies with an eye to limited resources. And I think that public discussion of these economic and social policies and their social and economic consequences may lead to serious consolidation of our society – to a change in public debate from what the government can do to what society is ready to accept. Thank you.

Vladimir Putin: Many thanks, Mr Kuzminov. I’ve made some notes and we will certainly discuss them in a narrow circle of the government. I want to assure you that we will also review and outline other ideas that will be discussed today and then make adequate decisions as to their execution. Needless to say, we’ll help you work without any administrative obstacles. This applies also to statistics and instructions to Rosstat (the Federal Service of State Statistics) for receiving the necessary information from the regions. But, of course, the more important thing is the substantive portion of the work as it applies to top technical auditing, the modernisation of the government purchasing system, and the approach to the funding of social services. We have discussed these issues vigorously and not without emotion ourselves.

The efficiency of social spending is always an issue at the level of an art. You have just mentioned the BRIC countries. You said that they do not rush to build social states. We have completely different points of departure. In this country, where the government has been responsible for everything under conditions of planned economy and state paternalism, our citizens expect action from the government. Nothing like (our history) took place in other BRIC countries. These are developing countries. I don’t want to make any public comments on the matter, but you understand that they never had any commitments to their populations – never. That is why they can afford to resolve some issues at the expense of their citizens.

I remember well the discussion of a package of demographic measures to support the birth rate. Many experts and colleagues told me not to adopt them. I asked them why. They replied: “The expenses are large and long term; they will continue mounting without any effect.” When I asked them about that negligible effect, they replied: “Look at what is happening in Europe. State support for some aspects of demographic policy is even higher there, but the effect is zero.” We are not entirely a BRIC country.  Although formally we are in BRIC, we are different from Brazil or China. We have different starting positions. But we do not have a European economy or a European social sphere, and a lot of people have a different mentality. I insisted on taking a decision on maternity benefits at the time. Look at what effective results they are producing now…” 

Other measures of demographic support are also bearing fruit. For instance, we had a discussion recently during which I said: “We will not be thrifty at a pregnant women’s expense.” So we passed an amendment to the law on maternity capital.

They also belong to social benefits but they are part of our key concern, to preserve the nation, of which Solzhenitsyn spoke – I have mentioned him already. That is the main thing demography is about, and we should not skimp on it. I certainly agree when you say that welfare expenses should be effective, and warn against extravagance. But then, we are here – and we will meet again and again – to set the standards for efficient spending.

Mr Mau has the floor.

Vladimir Mau: Ladies and gentlemen, I have two missions here – that of a rector in charge of organising expert panels and as an ordinary expert. So I dare say a few words about organisation work, about this panel, and some problems with our social and economic development which we have not pinpointed yet.

I would like to begin by thanking you, Mr Putin, and your colleagues in the government for giving us the opportunity to arrange this work. It is certainly a huge challenge for the specialists. I think some unique experts have gathered here, those who are engaged in applied research and fundamental research at once, or again, combine fundamental research with consultations on practical issues. I think it makes them peerless specialists.

We have made up our teams with four types of experts each. This is the nucleus. We are grateful to those who sent us lists of people willing to participate in the discussion, these are regional experts. We have started the discussion and will prepare the basic foundation.  Many proposals have come from regional specialists. The Russian Academy of Economics and Public Administration presently has a vast network of affiliates – 65, based mostly in the regions. As we mentioned, we not only have our discussions on the Internet but also meet at academy branches and establish discussion areas for Moscow  where  Moscow and regional economists can meet to discuss the various aspects of the programme we are talking about now.

Mr Putin, even this audience represents not only the two universities you mentioned. There are among us the rectors of five leading government and private universities, independent experts, and representatives of the Academy of Sciences and public organisations.

We are working on the initial data, which will appear on the Internet and also have broader publicity. Our work will proceed from this. There will be no opinions imposed on others but rather an intellectual organisational basis for discussion.

I would like to thank our colleagues from the government – we have been actively and closely cooperating with the ministers, department heads and deputy prime ministers. Many members of the government are former experts. This makes a difference – we can find a common language and share a similar view towards this task.

Now, I’d like to describe our job. It is only now getting started, so whatever I say concerns only my own idea of these problems. True, it might give food to discussion but, anyway, I will voice my personal opinions and bear the responsibility for what I say.

I would like to touch on two problems – one of promoting economic growth and the other of the welfare state – without repeating what Mr Kuzminov said. Considering a new model of progress is one of our goals. It is our main goal, I think. This is an ambitious theme, but not unprecedented.

As you know, the latest economic downturn was preceded by two great depressions of the 20th century – in the 1930s and in the 70s. The world emerged from each with a new concept for growth models, Keynesian after the 1930s and liberal after the 1970s. Now, we are to arrive at a new model, which cannot be reduced to a choice between liberal and Keynesian economics. The latest global crisis demands new solutions, which we will seek. It is a formidable intellectual challenge because we should consider more than just what we know; we should reshuffle our hand as in a card game.

All mature economies – not developing ones, I stress, not the BRIC countries, Russia being the only exception – are searching for a new growth model that would initiate a growth mechanism while taking into account the errors of the stormy and contradictory pre-crisis development and using the lessons of the crisis. A term has been coined in the United States for such a model, “the new normal.”

The new normal supposes an approach in economic and social policies that would make Russia competitive and such an increase in economic growth that would reduce our lagging behind the economic giants. Our yardstick should not simply be figures but rather a growth rate that exceeds the global average and the average of the developed countries.

During the past ten years, we have tried to solve the problem (under the huge intellectual impact of the 1998 downturn, I think) in two ways, principally, something that worked throughout almost the entire decade – a devalued rouble (it was kept down to encourage Russian manufacturers) and an increase in budget revenues, which first of all means the increase of government economic demand. Russia could afford it as oil prices were steadily climbing.

Things are different now, I think. Colleagues, I find it extremely important to say this. This is what we are discussing and writing about.

Unlike conditions five or ten years ago, increasing government demand now promotes imports more than domestic industries unless we decide to go back to a stormy devaluation, which nobody wants. The reason is that, as practice has shown, low-price goods are manufactured in the poorer countries. In this sense, commodities for low-income consumers come from China and India and occasionally from Uzbekistan. Russia manufactures few such goods. This might be a disputable point, but I think this is a truth of recent years.

This is what makes it necessary, in particular, to see Russia’s place in global competition. Since domestic competition is, in fact, global competition as well.  Russia is a non-protectionist country. And this marks out Russia from the rest of the BRIC countries. It is also necessary to change the bearings of our budgetary policy – shifting it, I should say, from the promotion of demand to the promotion of supply. This implies another economic model, one that allows a floating currency rate, which would help to drastically reduce inflation and so cut interest rates and thereby ease credit. As a result, domestic loans would be more appealing than foreign ones.

As you know, foreign loans still remain the principal source of economic financing. They are growing again, and will promote financial market development. I think it is time now to discuss this critical turn. The results of the depression make us pay greater attention to the economy of supply than the economy of demand. Clearly, supply-oriented economic policy demands a balanced budget on which to base an enduring macroeconomic stability. This would force revenue from the current economic situation to play a greater role in budget formation.

There is another problem of the new model. That is the other block of questions which Mr Kuzminov touched upon and I also want to mention. They concern the welfare state and its new concept. I agree with everything said before, but I would also like to highlight the main thing in interpreting social sectors and a welfare state.

Mr Putin, you were quite right to say that Russia differs greatly from China in terms of the economic structure and per capita gross domestic product. In this sense, we cannot accelerate economic growth by cutting budget expenditures because public welfare depends too much on the budget. Many citizens would not survive if not for government support. The state’s responsibility to them is too great. In some countries, two thirds of the population live in rural areas and do not need pensions or welfare grants. Russia is not such a country.

It is critical to see that it is not enough to make welfare expenses work with greater efficiency. The problems of healthcare, pensions and partly education are not so much fiscal as structural. We need a thorough reform of those sectors to make our money work.

This is not so much a matter of the nation affording to provide a life of dignity for retirees and quality healthcare. I daresay, funding will never be sufficient if we cling to the present approach, and everyone will remain dissatisfied. What we need is a thoroughly new pattern, and it is exceptionally hard to create.

More than that, when it comes to pensions, we need not mere discussion on the retirement age but a thorough reconsideration of the entire approach because the present pattern of redistributing budget money from employees to the unemployed was invented at the end of the 19th century. Mr Putin, here is an example. When pensions were introduced in Germany and Britain, the retirement age was set at 70 while life expectancy was 45 to 50. The pattern works when life expectancy is that much below the pension age. It concerns solely a minority of urban employees – which means that we really should reconsider the fundamentals of the system instead of reducing the problem to a discussion of the retirement age - 60, 62 or 57…

Vladimir Putin: What do they have in France now? 67, right?

Vladimir Mau: 64, if I am not mistaken.

Vladimir Putin: But it will gradually increase to 67.

Vladimir Mau: But even this is not a lasting solution for the problem in a country where retirees make not 15% of townspeople but an overwhelming majority of the population, and where life expectancy greatly exceeds the retirement age, as is the case in this country. The situation in healthcare is the same – everyone goes to the doctor now. Fifty years ago you went to the doctor only when you were really ill. Now, everyone wants medical treatment.

Vladimir Putin: Fifty years ago many people simply didn’t know they had health problems…

Vladimir Mau: Right, there were undetected diseases…

Vladimir Putin: This is a matter of preventative health screening.

Vladimir Mau: I would like to say in conclusion that it is so hard to solve those problems because no one of the advanced nations has a satisfactory strategy.

Take macroeconomic stabilisation in the 1990s. It was very hard and painful, but it could be understood. All nations tackled it in a similar way. Some coped, others did not.

Now, there are no effective healthcare systems for affluent nations. There are very simple patterns for African countries and for China but not for a mature economy. This is a formidable intellectual challenge, and the nation that finds a solution first will have great advantages. We will try to be such a nation. Thank you.

Vladimir Putin: Thank you.