Strategic Management of Russian Economic Development in Turbulent Times

February 25, 2016
The unveiling of the report Strategic Management of Russian Economic Development in Turbulent Times was the first public event hosted by the think tank created under the auspices of the World Public Forum “Dialogue of Civilizations”.

Presented on 25 February, the report Strategic Management of Russian Economic Development in Turbulent Times was prepared for the World Public Forum “Dialogue of Civilizations” (WPF “DoC”) by members of the Centre for Economic Policy Research, professors and tutors at the Macroeconomic Regulation and Strategic Management department of Lomonosov Moscow State University (MSU) and invited experts.

Click here to read the Report and Report's Abstracts (in Russian)

Head of the Department for Macroeconomic Policy and Strategic Development at the MSU Economics Faculty Andrey Klepach acted as academic supervisor.

The “Dialogue of Civilizations”’ Founding President Vladimir Yakunin stressed that while the think tank is due to open later this year, research is already underway.

The think tank’s remit will cover some of the world’s most pressing and complex issues, ranging from preventing and resolving conflict to sustainable development and the economy. Its high standards will be upheld by attracting some of the most respected members of the international academic community.

“The World Public Forum “Dialogue of Civilizations” has already built up a portfolio of 14 years of work and has developed an established methodology, which we refer to as the ‘dialogue approach’. The forum’s goal has always been open and free discussion of the most important issues we face today. These include political, economic, and social elements of international affairs. We anticipate that today’s report – which in fact precedes the think tank’s formal registration – will become the first in a series of research projects that will be carried out by the think tank, involving some of the most respected experts,” Vladimir Yakunin said. He also noted that Russia will as a leading global power be a focal point for the center, and that events within Russia will be covered by the think tank’s research.

This report focuses on the possible trajectories for Russia’s economic development amid today’s global climate of instability. An analysis of the processes underway in the global economy, structural changes, instability on international resource and capital markets was carried out in parallel with an analysis of issues involved in strategic management of development.

One of its main goals was to shed light on Russia’s role in the world economy, the potential for Russia to emerge as a leading global economic power, and what achieving this goal means for Russia itself – chiefly – in terms of development management systems. This research is particularly valuable as it combines both theoretical (academic) and practical, applied components.

The report analyzes the current state of the Russian economy in the context of the instability that we see in the international economy following the global economic crisis of 2007-2009. Today’s position is characterized by heightened instability and uncertainty, and by greater volatility (turbulent processes) in a variety of sectors.

The Russian economy had not recovered fully from the global economic crisis of 2007-2009 when it once again found itself facing serious external challenges. Falling oil prices and anti-Russian sanctions created a qualitatively new environment that required fundamentally new approaches in order to ensure its macroeconomic stability, boost its flagging economic growth, and improve its position in the world economy.

The key challenge is perhaps that, since 2010, the Russian economy has been lagging behind global economic growth rates, and consequently its contributions to global GDP and world trade have fallen. Due to its somewhat modest scale in global terms (3.1% of global GDP by purchasing power parity in 2015), and relative openness (liberal approach to trade, movement of goods and capital), the Russian economy is particularly sensitive to fluctuations on the global goods and financial markets.

The global economy has traditionally been viewed as including both developing and developed economies. It is now entering a new phase, characterized by lower growth rates and higher risks than was the case in the 1990s and the first decade of the 21st Century. The differences in economic growth rates seen among groups of developed countries, and also between developed and leading developing economies, are also significantly greater. Any crisis faced by developed economies always has an impact on developing economies, while crises in developing economies have only a partial impact on the leading economic systems.

The report’s authors have been able to conclude that today’s global economy has a three-tiered structure, with the middle layer comprising new players from leading economies that have become economic powerhouses in the developing world. This structure can be outlined as follows: developed economies – developing economy centres – developing economy periphery. Alongside the BRICS countries, which are undeniably centers in the developing world, we can note Iran, Mexico, Indonesia and Argentina. Focusing exclusively on countries’ contribution to GDP, we could also include Mexico, Saudi Arabia, Turkey, Argentina, Nigeria, Indonesia and Egypt. 

Russia is also considered a center of power due to its role on the global oil and gas market, the arms market, and influence over the post-Soviet and Eurasian space.

Despite the development of some poly-centricity in the global economic system, only a handful of countries, including Russia, are able to operate an independent policy. We also witness concerted attempts to influence their development, suppress their economic sovereignty – including through sanctions. Despite the rapid growth seen in developing economies in the 2000s, recent turbulence on the global financial and resource markets demonstrated how vulnerable they are.

In this context, Russia’s call for international collaboration at expert level to develop an algorithm for the free movement to a diverse financial and economic model for the global economy seems particularly relevant, and should be actively articulated.

The report’s authors conclude that the new challenges and existing structural and institutional issues require a fundamentally new approach to economic policy in Russia. In this era of change it is vital to stick to the approaches developed – making it possible to be proactive in engaging with the situation. Therefore, setting in place working systems for strategic planning has become the key priority. The adoption of Federal Law On Strategic Planning in the Russian Federation (dated 28.06.2014 No. 172-FZ, hereafter ‘the law on strategic planning’), gave legal backing to this need to create a comprehensive strategic planning system in Russia.

At the same time, the report’s authors also note that the strategic planning system developed in Russia should encompass more than is covered by the law on strategic planning alone. For example, it is vital that this also includes aligning strategy and program activity at companies with state involvement with the Government’s own strategic plans and programs. Experience already built up in developing and implementing strategic programs and anti-crisis plans over recent years must be incorporated into the creation of a strategic development strategy for Russia that is attuned to both current and future challenges.

First, individual decisions regarding particular companies do not always deliver the best solution for the economy as a whole.

Second, a super-profit focused economy, in which the financial approach dominates rather than the philosophy of development and entrepreneurship, functions as a major obstacle to development, and both provokes and exacerbates crises.

Third, instead of a comprehensive territorial development policy that would boost the economy in Russia’s rural areas, and the priority development of innovation clusters, regional policy has focused on pinpoint support for border areas and other parts of Russia that have particular geopolitical significance (Kaliningrad, Sochi, North Caucasus, Far East). It is impossible to achieve balanced development across Russia’s territory and ensure Russia’s economic and social cohesiveness without first resolving the issue of boosting the economy in Russia’s rural areas.

Fourth, it is vital that the government retain its medium and long term planning capacity, programs and purchases, despite the uncertainty surrounding the budget.

The report’s authors think that the Russian economy has the potential for a significant increase in development rate, and that it could become a world leader in terms of growth. However, this requires significant institutional and structural changes. Key areas for transformation include developing a flexible system of public-private strategic governance, aligned with the effective, competitive environment in which the private sector operates.

During a crisis, confronted by geopolitical challenges, it may indeed be necessary to temporarily limit freedoms regarding capital movement, and strictly focus the operation of wholly or majority state owned corporations, companies, and banks on state plans and programs.

There is also a need for strategic changes to the analysis and evaluation timeline in decision-making and economic policy implementation.

The crisis unveiled the problems that had arisen in governance at state and (perhaps largely) corporate levels (including in the financial sector). The creation of a new model of governance and a new management elite is imperative to the Russian economy’s future sustainable dynamic development. This process is so far only in its infancy.

To conclude, the report’s authors stress that today’s agenda remains focused on not only increasing growth rates and adapting to new geopolitical challenges, but also to implement a managerial revolution, moving to a fundamentally new culture of management in both public and private sectors.