Evgeniy Nadorshin: "It is important to reduce an informal role of the state in the Russian economy"

Today, Russian Prime Minister Dmitry Medvedev told about the need to reduce the excessive presence of the state in the economy at the Cabinet of Ministers’ meeting on the budget issues. PF Capital’s chief economist Evgeniy Nadorshin in an interview to Vestnik Kavkaza  told about how this can be done and what role is played by the state in the Russian economy today.

- In your estimation, is it really necessary to reduce a presence of the state in the economy, and how is redundancy expressed?

-A presence of the state in the economy is excessive, and it is primarily expressed not in the formal terms of the budget, the budget must be added a role played by the state-owned companies today - the state corporations and joint stock companies in various sectors of our economy. An informal role of the economic decisions that are made by the government officials on different levels is also worth mentioning, even if these decisions are not in their competence. This should be stopped. I emphasize that this is not just a question of a size of the governmental spending, but an approach to the management of the economy and a presence of the governmental businesses, particularly in those sectors, where the state has no need to do business.

- What are the positive and negative effects of the state presence in the economy?

- In my understanding,  the state presence in the economy of Russia is so great for the moment,  that I even find it difficult to name the positive effect: a scale of this presence has already crossed the border, where it could be positive. If we talk about an informal level, which is not estimated in money directly, about an impact on decision-making, than it hasn’t bring anything good for the economy over the years. An active participation of the state in the economic processes can bring a greater stability, including in terms of employment and preservation of jobs, as well as a greater interest of business to focus not only on profit, but also on the national and public interests (eg, to produce more in-demand products of a better quality for the local market,  pay more attention to the environment). But it is important to understand that the Russian state now, unfortunately, is quiet ignoring the interests of the Russian society - and this is also a big problem.

- In what ways is it possible to reduce the presence of the state in the Russian economy, and which of them can be implemented in Russia?

- Here we need to speak not about what is possible or impossible - almost everything can be implemented - but about what they want and don’t want to do. In fact, when there is an issue of a desire, it is impossible to implement something without a desire. Alas, there is no desire to reduce the state's role in the economy yet, despite all the declarations. This is evident, for example, in relation to employment: although formally it is not forbidden to dismiss workers, who are not necessary in business, informally, there is a substantial opposition on all levels of governance. This in turn leads to the fact that aside from being in recession for the second year in a row, productivity is reducing in the economy as it happened in 2009.

There was no such a situation in the US, Poland, for example, and many other countries during the acute phase of the crisis. But it is characteristic for those states, where labor legislation complicates greatly a dismissal of employees. As a result, while an output falls, a company can do nothing with the staff: neither effectively use,  nor release people to find another job. And it turns out that people just get money  instead of making them, occupying useless working places. Although our labor legislation is not strict, an informal influence of the state led to the fact that a number of people receiving, but not earning money has increased  in Russia over the past two years. For no reason at all, we lose the development opportunities, attractiveness for investments and competitiveness, as far as the state selects ineffectiveness to address the crisis. This, in my view, is a completely wrong and unreasonable approach in terms of the economy. This alone requires reducing of the state presence in the economy.

- In your estimation, what is the most effective proportion of the state presence in the Russian economy?

- A proportion, which is not holding back the economic development, reduces uncertainty, provides a balance of public interests on the short-term and long-term horizons. This proportion varies, depending on the country and culture: in South Korea it is significantly higher due to the informal influence than in the European countries, where the formal indicators of the state's share may appear higher than in South Korea. In general, in the countries with the Asian approach, the state influence in the economy, taking into account the informal sector, may be higher than in the countries, where the formal share is higher. However, if this does not constrain the development and is beneficial for the society, it should be considered normal. For example, the Anglo-Saxon economic model, as in the US, UK and Australia, permits an extremely low share of the state in the economy and allow them to work effectively.

An informal share of the state presence in our economy is higher than in the Asian region. This, apparently, as we like to say, a special Russian way, but in what direction does it go? Let me remind you that a significant part of our problems started not after the introduction of the sanctions in 2014 and not due to the foreign policy turbulence, but in 2012-2013, when a barrel of oil cost about $ 110 - and these problems were related to an excessive presence of the state in the economy. Unfortunately, at present, the proportion of the state involvement in the economic processes in Russia is too high, primarily due to the informal part, which is difficult to reject. First of all, it is necessary to give up an excessive manual control and stop being occupied with the things that are outside the state’s competence. For now, none is ready to do so, none is ready even to listen to. Moreover, this must be done not only by the state, but by the private business as well.