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Archive for April, 2011

“Common Sense” and Russian Communists

Wednesday, April 13th, 2011

I never thought I’d find myself agreeing with the Russian Communist Party but I guess times have changed. On 31 March, the Russian Interfax news agency carried a story about how the Russian Communist Party “believes that the targets set by President Dmitriy Medvedev at a meeting of the commission for the modernization of the economy are correct, but the party regrets that words are still not followed up by actions.”
I think the article makes a lot of sense. What do you think? Here’s what Interfax reported, verbatim:
“The fact that President Dmitriy Medvedev insists on raising these issues (modernization) publicly and they are widely discussed is very good. Better that than nothing. However, society can not be content with a consolation prize. But this is what happens when important issues are not provided with the necessary tools,” first deputy chairman of the Communist Party Central Committee and deputy speaker of the State Duma Ivan Melnikov told Interfax.
He stressed that at the moment not only there is no inflow of investment from domestic and foreign businessmen into Russia’s economy, but Russian capital is fleeing the country increasingly faster.
“According to official figures, the amount of money that left Russia in January alone is already almost half of the amount that was taken out of the country last year,” Melnikov said.
He was confident that, in order to curb this trend, it is necessary “not to preach to oligarchic clans - this is useless, because they are not interested in the prosperity of their country, but to take tough economic measures”.
Similar measures should be taken to improve the fight against corruption, the Communist MP said.
“Yesterday at the commission meeting, they discussed paper-based mechanisms, and the fact that soon one can see in the internet how a complaint against a potentially corrupt official is being considered. But today the fight against corruption concerns only those who have no protection. Until it concerns everyone, there will be no point and the scale of corruption will not diminish,” Melnikov said. He also stressed the unresolved problem with the execution of decisions.
“We all see that the government has financed only 33 per cent of the initiatives put forward by the modernization commission in October last year,” Melnikov said. He added that “if you take everything into account, you will see that all good ideas are getting emasculated”.
Speaking of his personal interest in the meeting of the modernization commission, Melnikov said he had been attracted by the discussion of the problems of primary, secondary and vocational education..
“However, the mechanisms that have been offered to restore the level of education are significantly inferior to the programme which the Communist Party published at its recent plenum. After all, we want to promote education on the basis of inter-related measures, and the president’s advisors are telling him again and again that the problems in one area should be resolved at the expense of another area, and this destroys the latter,” the MP said.
Deputy speaker of the State Duma Aleksandr Babakov (A Just Russia) also spoke about the need to support the measures proposed by the president, RIA Novosti reported on 31 March. In Babakov’s view, the investment climate in Russia, if not worsened, then certainly has not much improved, and it must be changed radically.
“We are talking about changes in how the state controls market relations, and this applies not only to representatives of the state in private companies, but also such initiatives as reducing social taxes and thus reducing the burden on business, which at a certain stage can inhibit progress,” Babakov told RIA Novosti.
He noted that “investment resources”, which can go to various countries, including Russia, are huge. “And this is a matter of not only technologically advanced industries or interesting projects, but also such topics as intellectual property, intellectual property on the market and capitalization of intellectual property,” Babakov said.
“All this can create conditions highly favourable for the arrival of investors, but they must understand that this is not just about protecting their rights and property, but also about removing barriers and opening ways for their investment in the economy,” the MP said.
He said corruption is not a purely Russian phenomenon and many other countries are struggling with it.
“The scale of this phenomenon is minimized depending on our efforts, and if society is mobilized, successes are obvious - the more transparent relations between the state, society, business and individuals are, the more progress can be achieved,” the deputy speaker said.
Fewer state and bureaucratic obstacles for domestic and foreign businesses will mean that the fight against corruption is really under way, Babakov said.
He believes that a turning point in improving the investment climate could come quite soon. At the same time the deputy recalled that Deng Xiaoping started his reforms in China 25 years ago.
“For large-scale reforms, 10-15 years (for a visible effect) is a realistic period of time,” the MP said.
Head of the Federation Council Committee for Financial Markets and Currency Circulation Dmitriy Ananyev also supported Medvedev’s initiatives to improve the investment climate in the country, but believes that ministers and deputy prime ministers should be gradually withdrawn from the boards of directors of state companies.
“The president’s initiative about their withdrawal is 100-per-cent correct, but first professionals with impeccable reputation must be elected to boards of directors and only then officials should gradually be withdrawn,” Ananyev told RIA Novosti.
According to the senator, this scheme will make it possible to avoid the loss of capitalization of companies which is possible after the departure of senior government officials.
Noting that he supported all the initiatives voiced by the president, Ananyev said, however, that legislative changes in the economy in recent years had often been inconsistent. “Sometimes completely opposite decisions are made - first we break things with one hand, and then we begin to mend them,” Ananyev said.
Ananyev said methods to implement the president’s initiatives should be carefully thought through.
Co-chairman of the Right Cause party Georgiy Bovt believes that Medvedev’s speech at the modernization commission’s meeting shows the president’s determination to improve the investment climate in the country and his consistency in this matter, RIA Novosti reported.
“I think the most important thing is that he has shown his commitment to dramatically improve the investment climate in the country. The president shows his consistency in insisting on fulfilling the promises given in 2008 about the presence of state officials on the boards of directors of companies,” told RIA Novosti.
Bovt also thought that the president’s “anticorruption part” was very interesting. According to the co-chairman of the Right Cause, all this “shows the president’s determination to put things in order in these matters”.
“In addition, these measures show that the president knows what he is talking about - he listens to businesses’ complaints and is ready to quickly respond to them,” Bovt said.
Medvedev’s willingness to quickly revise an increase in insurance premium is the most vivid example of this, Bovt said.
“The president has seen that business’s response is generally negative, and he’s ready to take quite extraordinary measures and reduce the premium,” Bovt said.
“Overall, this shows that there is a clear intention. It is obvious that the implementation of these ideas will depend largely on the government’s work,” Bovt said.
Leader of the Yabloko party Sergey Mitrokhin described the president’s proposals as “correct statements” but said that “they must be more precise and be followed up with a clear mechanism for their implementation”.
“There must be deadlines and those responsible for these initiatives. Harmful innovations, which the president himself condemned in his speech, must be assessed, for example, increasing the tax burden on businesses up to 34 per cent. This mistake should be corrected immediately, and measure should be taken against those who made ??it,” he said.
Mitrokhin also put forward his own proposals about boards of directors.
“They are correct, but I would expand them. I would ban not only high-ranking officials representing the government from the boards of directors but all officials. This is fertile ground for corruption and lobbying a company’s interests,” the Yabloko leader said.
Medvedev’s proposals on how to improve the investment climate in the country are very important because they will help increase the potential of Russian business and purge a lot of companies of corruption schemes, member of the Public Chamber and editor-in-chief of the Ekspert magazine Valeriy Fadeyev told RIA Novosti.
“There is some misunderstanding on the issue of investment: usually people talk about attracting foreign investment, as if Russia does not have its own business. Well, Russian business has its hands tied and even feet too. The potential of Russian business is huge, I’m sure, and the challenge is to realize this potential. Therefore, the president’s proposals about state-owned companies, corruption, and reducing the costs of large state-owned companies, especially monopolies, are very important,” Fadeyev told RIA Novosti.
Many large Russian companies are steeped in corruption, he said. “These companies deal mostly with medium-size Russian companies, and they get involved in corrupt schemes and become ineffective and uncompetitive. This is very dangerous,” he added.
Fadeyev also noted that in the context of improving the investment climate in Russia one should not forget about another important issue - house construction. “House construction is still not developing. We need to change things about house construction and house prices. This is something we need to pay attention to. This is an extremely important social issue, because without it it is impossible to talk about the growth of the middle class. If this problem is not resolved within the next 10 years, social tension will increase in the country,” the expert said.

Modernization? Empower Kids to Think Small (Business) and Big Things Will Happen

Tuesday, April 5th, 2011

My editor’s letter in the March issue of Oil&Gas Eurasia looked at an important aspect of the Kremlin’s drive to create a modern Russia: redrafting of safety regulations so as to make the oil and gas processing industry efficient at home and competitive abroad, without compromising safety.

Russian President Dmitry Medvedev ordered the reform a year ago and in April, draft legislation is expected to emerge from a Duma committee and go to both houses of parliament, the government and industry for final discussion.

Oil&Gas Eurasia was asked by Gazpromneft to carry articles detailing this process and, of course, we are very happy to do so.

But with all the talk of modernization, innovation, business creation, you name it, there is a human factor that is simply being ignored: how to change Russian attitudes towards small business.

I’m convinced, Russians simply don’t believe in it. There is a prevailing belief among most people - and I’ve lived in Russian long enough to have heard this hundreds of times - that business in general is crooked. And small business especially because - as far to many people seem to believe - you can’t succeed unless you are ripping someone off.

But how do you keep a country in a constant state of modernization – once the initial modernization takes place. And while it might not be a macro-economic concern of the Russian government right now – at some point in the future this will become an important question.

Innovation is being addressed in large government projects like Skolkovo which are drawing world attention. But in all this “bigness” there is something that is not being addressed. Let me explain by one simple example:

I was a moderator recently at a conference in Moscow to mark the signing of an agreement for Moscow to host the World Petroleum Congress in 2014. The conference was attended by a large number of students from Gubkin Oil&Gas University and several speakers – some from industry, some Gubkin professors - kept asking, “what the Russian government is going to do about innovation!” In other words, “who is going to save us?” Sorry, but it brought to my mind the satirical American comic strip from the 1960s, Pogo. As the central character, Pogo, grappled with life’s concerned, the answer he got was usually: “We have met the enemy and he is us.”

The government and big international industry can cooperate on things like Skolkovo. But, true innovation by its nature depends on the freedom of the individual to think and act creatively. I believe I reminded my Russian readers back in July that Hewlett-Packard, one of the international companies interested in Skolkovo, was started by one man who labored on his invention alone in his garage. The garage, in fact, is a tourist attraction in Silicon Valley these days.

What I’m talking about isn’t about American mentality or Russian mentality or German mentality or Chinese mentality, although we all do have our own national character. What I’m talking about is human nature. True, some governments are more involved in supporting innovation in the private sector but that is another topic for another time.

The government’s job is to give that individual a structure that keeps him safe while he pursues his entrepreneurial dreams.  That’s why, I’m sure, President Medvedev – a lawyer – speaks from the heart when he often talks about how important rule of law is in creating the right environment for innovation to flourish. I’m not talking about the lawlessness of 1990s Russia.

I’m talking about freedom to start a business, grow a business and not have to worry about someone bigger who envies you and is well connected, closing you down or pushing you out in a hostile take-over.

So back to that conference I mentioned earlier; I decided to conduct an experiment. During the question and answer period, I asked the audience a question: “I see a lot of young people in the audience,” I said. “Raise your hand if in 15 or 20 years from now you can visualize yourself owning your own business. Maybe a small engineering company, maybe a small oilfield services company or high tech equipment producer or anything else for that matter; just a small business and you own it.”

Out of more than 100 students, only three raised their hands. Think about that. Or better yet, post a comment. - Pat Davis Szymczak