Business Ombudsman Boris Titov and his associates agreed on a revised concept for the “Economics of Growth” program; Titov will take its ideas to the Kremlin on May 25. During the preparation process, they were criticized by the Ministry of Finance and the Central Bank

Business Ombudsman Boris Titov (Photo: Lyubov Mishina for RBC)

Business Ombudsman Boris Titov and his associates from the Stolypin Club expect that their “Economics of Growth” program will make it possible within a decade to make Russia a world leader in a number of economic indicators. This follows from the targets presented on Thursday in the revised version of the program. For example, by 2025, Russia should enter the top 30 countries according to the UN Human Development Index (currently in 57th place), halve the gap between rich and poor, and increase the share of the “knowledge economy” in GDP to 30%. The ambitions of the program’s authors are such that some targets place Russia by 2025 above countries such as the USA, Germany or New Zealand.

Titov and his associates (among them are Deputy Chairman of Vnesheconombank Andrei Klepach, Co-Chairman of Business Russia Anton Danilov-Danilyan, Head of the Department of International Relations at IMEMO RAS Yakov Mirkin and Executive Director of Arbat Capital Investment Company Alexey Golubovich) on Thursday presented the concept of a medium-term program for the development of the Russian economy , the development of which was first announced in October 2015 at a meeting of the Stolypin Club. At the beginning of 2016, Prime Minister Dmitry Medvedev became interested in the program, which caused a stir primarily because of the proposal to radically change the monetary policy in the country, and ordered the creation of an interdepartmental working group to finalize the concept. In March-April, the group held a series of meetings, the result of which was a revised program concept. With her, Boris Titov will go to President Vladimir Putin: on May 25, the Ombudsman will make a report at a meeting of the revived Economic Council under the President.

The central element of the program should be the transition of the government and the Bank of Russia from “restrictive” to “stimulating” monetary and industrial policy - “a policy that ensures an advanced supply of affordable, low-rate credit, primarily long-term, for production growth and for investment development,” says in the text of the concept agreed upon by the interdepartmental working group (available from RBC). The authors of the program call for the implementation of “the Russian version of a moderately soft monetary policy (quantitative easing policy) aimed at refinancing the Central Bank of loans from commercial banks and development institutions.” In addition, the authors propose the emergence of small businesses “from the shadows,” “technological renewal,” “new industrialization,” tax reform that stimulates economic growth, weakening control and supervision, and other recipes for accelerated development.

Another controversial element of the program, which is associated with the ideas of presidential adviser Sergei Glazyev, is the proposal to introduce “selective” currency restrictions - “separate elements of “soft” currency regulation.”

Catch up and overtake

Titov and his colleagues believe that the implementation of the “Economics of Growth” program will make it possible within ten years to increase the share of investment in GDP to 30% (from the current 18%). By comparison, in China, which has relied on investment growth in recent years, the share of fixed investment in GDP hovers around 45%, according to the World Bank. The developers of the concept want to increase the share of small and medium-sized business jobs to 60% of all employment in the country - a figure comparable to the United States, where small businesses account for 55% of all jobs (according to the US Small Business Administration). The indicator of corporate lending by the banking sector is planned to be increased to 150% of GDP (currently less than 50%), and the interest rate on commercial loans is to be ensured at a level not exceeding 3–5%. Inflation, accordingly , will not exceed 3%.

The incomes of the richest 10% of Russians are now 13 times higher than those of the poorest, and Growth Economics aims to reduce the gap to seven times. In this case, Russia will be ahead of countries such as France (income gap - 7.4, according to the OECD), Australia (8.8) and the UK (10.5), and will approach exemplary countries in terms of wealth equality in Norway and Sweden , Germany.

The growth economy targets are unrealistic, says NES finance professor Oleg Shibanov. For example, to significantly increase the share of investment in GDP, it will be necessary to “strongly stimulate savings within the country - for example, by abolishing the pension system.” It is practically impossible to reduce the state’s share in the economy by half in ten years, and stable 2–3% inflation is “unrealistic for a developing economy.”

New controversies

The ideas of the program related to increasing the money supply (provided that the new money emission will not be directed to government spending, but will be used in a targeted manner to stimulate investment, the authors emphasize) have already been sharply criticized by some experts. Now, in the process of preparing the revised concept, relevant officials also had to respond to the proposals of the “Economics of Growth”. As follows from the protocol of disagreements to the concept (available from RBC), in particular, the Ministry of Finance and the Bank of Russia presented their “dissenting opinions”. Thus, the Ministry of Finance outlined seven comments, including those related to the fundamental provisions of economic theory. “The banking system always finds money for a loan, since a loan gives rise to a deposit, that is, within the economy as a whole, lending is self-financing by creating a deposit base corresponding to the size of the loan. Thus, highly profitable projects in the economy find financing on their own,” the Ministry of Finance argues with the authors of the program, who believe that a lack of lending from the Central Bank can lead to a lack of liquidity among banks and there will be a shortage of loans for the real sector. Both the Ministry of Finance and the authors of “Economics of Growth” agree that it is necessary to reduce the dependence of the ruble exchange rate on oil prices, but the Ministry of Finance says that this requires a budget rule that allows saving foreign exchange earnings from oil exports, and experts of the Stolypin Club call for directing part of such excess income not into foreign budget savings, but into investments in the Russian economy.

The Central Bank in its comments indicates that “stimulating” monetary policy in itself does not solve structural and institutional problems, that increasing the availability of loans can only occur in conditions of price stability, and it is impossible to interfere with the ruble exchange rate. To which the authors of the program respond with uncompromising criticism of the Central Bank: “The practice of 1995–2016 has shown that the Bank of Russia, assigning an exclusive and primary role to achieving “price stability”, essentially reducing its policy to precisely this goal, failed to cope with its task. At the same time, for more than 20 years, the economy has been operating in an unbalanced and deformed financial system with volatility, one of the highest in the world, which does not stimulate, but suppresses growth and modernization.”

Fundamentally, these are different approaches, Shibanov comments, the Ministry of Finance adheres to “fairly mainstream research, a scientific approach.” It’s the same with the Central Bank: it reminds that in the long term and even the medium term it cannot influence the rate of GDP growth, and in response, the authors from the Stolypin Club say that “let’s expand the money supply anyway.” Of course, economic growth is associated with growth in the money supply, but correlation does not mean a cause-and-effect relationship, explains Sergei Romanchuk, head of foreign exchange and money market operations at Metallinvestbank. “In the cases that we are considering, in fact, the relationship is the opposite: the economy has a demand for money, and because of this, the money supply is growing,” he previously told RBC.

With the participation of Yana Milyukova

The business ombudsman will show the Kremlin a program for making Russia a world leader