The government continues to trudge along the path of manual selection, regulation and support of national champions, once again discrediting the concept of import substitution

When economists talk about import substitution, the first association is always the economic policy that was implemented in the mid-20th century by developing countries. The objectives of such policies were to protect (with quotas and tariffs) domestic producers from competition from imports. The goal of import substitution was ideally to increase the productivity of domestic industries to a competitive level on the scale of the world economy. After that, they no longer needed protection in the form of quotas and tariffs. A striking example of how such a policy worked is the development of steel production and automobile manufacturing in South Korea . However, in other cases, import substitution often degenerated into support by corrupt governments for highly unprofitable enterprises and industries that would never have become competitive on an international scale.

According to which of these scenarios is import substitution developing in our country? The website of the Ministry of Economic Development (MED) informs that our country has already developed a whole system of interrelated goals, tasks and measures to achieve a reduction in the economy's dependence on imports. The latest World Bank report on the state of the Russian economy shows that this system is not working well yet.

Let's take agriculture, for example. Due to the introduced counter-sanctions, this sector of the economy found itself in fabulous conditions: huge sales markets were suddenly freed up. Domestic producers, it would seem, responded convincingly - production volume increased by 3.1% in 2015. Impressive? Not quite. According to the World Bank, over the same period, investment in fixed capital in agriculture fell by 10.9%! In other words, the agricultural sector in our country is not going to expand beyond the vacuum that has formed, is not becoming more competitive, and will not enter new sales markets in the future. There are no incentives due to the underdevelopment of the legal and economic infrastructure, general uncertainty in the economy, etc.

The situation is even worse in industry as a whole. In 2015, both production and investment volumes fell, with the exception of only a few industries. And such negative investment dynamics began to emerge in the second half of 2012.

In order to restore investment activity, the Ministry of Economic Development proposes to continue state support for “system-forming and effective investment projects” in the coming years. This suggests that the government is still trudging along the path of manual selection, regulation and support of national “champions”, once again discrediting the concept of import substitution. If the Ministry of Economic Development really thought about the prerequisites for a “Russian economic miracle”, then, like the South Korean government in its time , it would engage in investments in economic infrastructure, promotion of education, science and technology, as well as general deregulation of the private sector. After that, the market itself will select effective projects.

The author is the Dean of the Faculty of Economics at the European University in St. Petersburg

Import substitution Russian style