Vladimir Mau: the Main KPI for the government must be the willingness of investors to risk money

Vladimir Mau: the Main KPI for the government must be the willingness of investors to risk money


Moscow. March 2. Vladimir Mau is included in the Presidium of the economic Council under the President and as an expert involved in the preparation of all key documents of the government. In an interview with the rector of the Russian presidential Academy of national economy and public administration, spoke about what, in his opinion, should be the Strategy-2030, what needs to be done and which decisions, on the contrary, to avoid, to not only pull the economy out of recession, but to return it to sustainable growth.

– The anti-recessionary program of the government looks like a rather piecemeal set of measures at some point directions. That’s right, in your opinion, or the anti-recessionary program should be more systematic document?

At the end of last year I believed that we need to abandon the anti-crisis program and return to normal economic policy. However, there is a view that in the presence of anti-crisis program is more convenient to monitor the implementation of measures. That is, it is a management tool that is designed for a shorter term and administratively more convenient than “the Basic directions of activity of the government.”

The issue of anti-crisis program, in my opinion, is not a problem save the economy, and the problem of solving certain management problems. Therefore I would not strongly dramatize the issue – what is in the anti-crisis program and what it is not. A key challenge facing the country is not how to stop the decline, and how to start the growth. Moreover, the growth in the next couple of years, and sustainable over the medium term, a pace that exceeds the world average and provides structural modernization. This is a much more difficult task than to stop the decline. Although this new understanding of the problem. Until recently it was dominated by the idea that if the recession is overcome, then growth begins – and the way it has been for the past two hundred years. Now the experience of Japan has opened up a whole new reality. We know from the experience of Japan that the economy of even a developed country may stagnate for a quarter century – not to fall, namely to stagnate, while continuing to ensure efficiency and high level of welfare. No wonder now the problem of secular stagnation (secular stagnation) became one of the most popular among economists of developed countries. And one is on base (and other demographic) characteristics is a developed country. The risk of stagnation, in my understanding, is much more serious than the problem of current anti-crisis measures.

Of course, there is a current and acute problem. First of all, it is the compensation for losses in welfare. There is a point of support single-industry towns. Anti-crisis measures – in essence, first of all, should dampen social problems. And measures of economic policy is, first and foremost, the measures that form the basis for sustainable economic growth in the medium term. In my understanding, the normal economic growth rate for Russia is higher than in Germany and lower than in China. And the main set of measures that is worthy of discussion is, of course, the agenda of enhancing economic growth potential.
Our main structural problem, if you speak the language of economic theory and economic policy, in that we have over approximately the past 7-10 years potential growth in Russia. This growth, which can provide the economy for a given volume of labour and capital, purified from the opportunistic component. Raising potential growth is associated primarily with the development of human capital and transport infrastructure. That is what improves performance.

– Understanding that we are faced with structural problems, was in 2013, and even before that – before there was the Ukrainian factor, the sanctions, before the fall in oil prices.

– Potential growth have decreased since 2007-2008. Potential the rate can fall while the economy may accelerate. In this sense, it is typical that recovery growth after the 1998 crisis was exhausted by 2008, when we have reached the end of the 1980s emphasize that it was largely the growth of the recovery. Later in 2009, economy fell, then rose again to the level of 2008 and began to brake sharply. This is another indirect evidence that the previous models of growth have been exhausted. The economy is slowing down on the 2008 level, at the level of the maximum utilization of resources, facilities, and labor previous decades.

– Even strong devaluation of the ruble does not produce the effect which was after 1998.

Even before this crisis it was clear that the repetition effects of the devaluation of 1998, because there is no spare capacity, no free labor force and growing global demand, which was then. In other words, for import substitution needs investment now. And they, unlike a demand, does not arise automatically.

– We run into structural problems. Whether our response to these challenges, the government modernization agenda?

Elements of the modernization agenda, there is in “the Basic directions of activity of the government”, in the version that was approved last year. The elements it has in the foundations of the unified state monetary-credit policy of the Central Bank. But in General, I think it should be laid down in the Strategy 2030. The next strategic document should carry this agenda.

– We have an existing Strategy 2020.

– Strategy 2020 cannot be “operative document” because it has not been argued and should not say. Written on the instructions of Vladimir Putin, it was an expert paper outlining options for actions in the economy within the budget and social opportunities. In fact, almost all of the elements of the Strategy-2020 may well be in the new concept of growth. Much of this was carried out in macroeconomic terms. Although the light of experience and much to rethink. In the current environment, of course, should look different fiscal rule, otherwise came the development of the pension reform, the problems of health.

But I would not look back, because the objective of the Strategy-2020 was in the other. Before us the task was to prepare an expert paper, from which the government could draw upon possible actions. Strategy 2020 was not supposed to be a government document, this was its basic feature. In relation to the Strategy-2030 we are talking about the government programme of achieving sustainable economic growth.

– What structural measures have to be in the Strategy-2030?

– There should be a set of measures affecting the investment climate, stimulating private investors to invest their money. The growth rate in itself cannot be a KPI, the growth rate is the end result of many factors. The main indicator is the willingness of private investors to risk their money to invest in the Russian economy.

What does it include? Undoubtedly, the deflation. In this sense, the 4% inflation as a goal of the Central Bank is not just quantitative, it is qualitative indicator. We didn’t have over the past 30 years. If you are able to provide the level of inflation – this means the availability of credit, rates, ceteris paribus, on the level of 6-7%. This creates fundamentally new conditions for the investment process. If oil prices will not fall further or rise, it is a solvable problem at any level. What is important is that energy prices did not grow much and did not fall. Because in the first case we have the effect of “Dutch disease”, the second “effect” (the devaluation to inflation – if).

Fiscal policy. Necessary budgetary maneuver, that is, the increased budget spending on productive sectors at the expense of the unproductive. Refer to productive and transport infrastructure, investments in human capital, science, that is what promotes economic growth potential, the higher we said. The necessary rationalization of the budgetary network.

Structural policies associated with the promotion of non-oil exports. Activities that facilitate cross-border movement of goods and capital, not only export, but in General cross-border movement. In the modern world, largely in order to produce non-commodity exports, you have to have some imported goods. It is necessary to reduce both administrative and economic barriers from the point of view and exports and imports.

– What else should be taken into account in the Strategy-2030?

– Important solution to the problems associated with globalization. Now globalization is clearly becoming a regional hue. New powerful free trade area, WTO-plus, all that facilitates the inclusion of Economics in the chain of value added.

Need understanding of import substitution as stimulating non-oil exports. The state can support the industry if they prove its export potential. The only and main criterion of the state support of any enterprises should be the ability to implement export programs. Whether to support the “AVTOVAZ”? If AVTOVAZ will show that in two years, it exports a third of its cars – Yes. But if he explains that he will sell all the machines on the domestic market, because the exchange rate will be prohibitive for the import of cars. You cannot impose domestic consumer goods more expensive and (or) low quality just because it is produced within the country.

– And in the area of competition policy?

– For the foreseeable stage, the main task of antitrust authorities is to remove barriers related to administrative and infrastructural restrictions of competition and not the dominance of individual private producers in local markets. That is, the FAS need not fight with the bakery, which was due to its effective local monopoly, and to deal with those cases where a bakery has become a local monopolist, because the nephew of the mayor is the owner of this bakery or because she agreed with energy drinks.

A separate issue is the safety of the property, and everything to do with the law enforcement system. It’s not technically economic, but absolutely dominant in the economic sphere factors.

– You talked about the change in the budget rule, what should it be?

– As the experience of the last 30 years, you will likely need a fiscal rule of the Norwegian type. That is, it should withdraw from the economy, almost all rental income. The comparison of the USSR, Venezuela, Russia and Norway in the past 30 years shows that the Norwegian fiscal rule is most effective from the point of view of long-term interests of economic growth.

There is another option – the direction of oil revenues to Finance non-renewable expenditures (e.g. investment). For this reason, it’s hard to determine the cut-off price market revenues and to balance the current budget (the budget of the revolving commitments) on the level of income that is highly protected from changes in external factors. In the case of additional rental income should be directed to the formation of the development budget, i.e. to Finance the costs with a finite time horizon. This model will allow to invest more actively in the development during favorable market conditions and will not create the temptation to “fill in” problems of money upon the occurrence of the crisis

– What social policies need to change?

– From the point of view of social policy requires an emphasis on targeting. And targeting in a broad sense: targeting not only benefit children, targeting including as a critical measure of the formation of modern pension system. Because raising the retirement age has to be understood not as a fiscal measure, but primarily as a measure to prevent a sharp fall in wealth at retirement, as a measure of the concentration of money from those they are most needed. It is clear that money will be more needed as the retirement age, which is why raising the retirement age would have an important social effect (from the point of view of concentration of money from those they need more), and macroeconomic. Because the concentration of money among poorer segments of the population stimulates in the current macroeconomic situation domestic demand is much more than external. If you just distribute social assistance between the rich and the poor, it is clear that secured it still goes mostly on imported goods. That is, the targeting has not only the effect of social justice, but also a certain macroeconomic effect.

What about education and health?

– This is a separate issue from the point of view of quality of national services. Improving the efficiency of sectors of human capital is a key factor in the formation of conditions for long-term economic growth. Each of these items requires a separate discussion, debate. There are different points of view on what should be a post-industrial education and health. In the industrial phase of education, health is very concentrated in time industry. Say, one learns to 17 or 21 and further works. A person is sick or getting old. And all the other work that he studied, when he’s supposed to learn and work to give him the opportunity to hurt when he hurts.

In the modern world education and health care become continuous processes. Man is always learning and always treated. And in this situation it is clear that the underlying model is based on the fact that the healthy pay for the sick, and pays for the one who learns – not working. With the growth of the welfare role of private money in these sectors will increase. Not because the society is poor. People will pay more for education and health, not because the state has no money. They spend more when they have more opportunities. The cost of clothing and food does not grow in proportion to revenue growth, while expenditures on their own health and wellbeing can grow indefinitely. Based on this principle, should transform the system of human capital.

– You are talking about import substitution as on the promotion of non-oil exports. This task seems to be long enough, but still about import substitution, they speak more literally: how about the displacement of imported goods and the saturation of the domestic market due to devaluation and government stimulus, and exports – this is how it goes.

– Actually there is no problem “not only to saturate the market, but more and more on exports to sell”. There is a problem to sell. And no matter where. No matter in domestic market or outward. The export criterion is only important now because of the devaluation. If in the devaluation you are not able to produce for export, you cannot produce at all. I embraced export simply because the devaluation makes this particularly favourable conditions.

– There are several large, capital-intensive projects with a long horizon, in the state in which the SWF invests money along with the Russian and foreign private investors – ZapSib-2, Yamal LNG. It can be regarded as a kind of countercyclical measure in the current economic situation? Or those money would be better spent on some current needs?

– Does it make sense in the fall, in a cycle of decline in state investment? Yeah, it does, if you have the money. The investment issue is a question of long-term growth. We can talk about the countercyclical nature of Agency, and how they are significant from the point of view of long-term growth – time will tell. Perhaps they will have more strategic importance than counter-cyclical measures.

– There are several ways to solve budget problems: to increase borrowing, reduce spending, to privatize. Which is better?

– There are two ways – inflation and higher taxes. I think that a realistic combination of all five elements. But in my understanding, the worst is inflation. Although technically this is the easiest way. How is it different from the sequestration? Sequestration still, the tool selective and often reflect the lobbying opportunities of the individual sectors. While inflation was about equally effective at all. That is, it seems to be politically acceptable. But, in my opinion, this method is extremely dangerous: inflation is very difficult to control, you can fall into the trap of inflation spiral for the next 15 years.

Taxes, maybe some can be raised, particularly working capital. So we spend the sequestration and privatization announced, and borrowing are going to increase. I would not say that you need to choose one of five ways. Likely all five. Interesting, of course, in what combinations and proportions. It is important not to get involved in any of the options. If, for example, strongly increase hoteistitania is good from the point of view of public investment, but bad for private.

– Privatization of the past few years, standing still at a fork: on the one hand, it is necessary to reduce the share of the state in the economy and to increase its efficiency, on the other – do not want to sell in a bad market situation with low prices. Now really is the moment to make any definite choice?

– Now this one more reason. Of course, privatization is politically very, very difficult, unpleasant, because whatever price you are not privatized, always can come checking and ask why they privatised more expensive. Would have waited another year it would be more expensive, privatized two years ago – would be more expensive. That is, in a situation of endless lines of price risk that you have to explain why the price was this and not that is always there.

At privatisation there are three objectives: political – survival of government, fiscal – budget, and economic – the formation of an efficient owner. The privatization of the 90-ies is clearly political, the other she could not be. To say that you don’t need collateral auctions, because is too cheap to give out property, it is meaningless, because if did not win the 1996 elections, and the “deal” would have nothing. Yes, two years is worth more, but because then sold cheap, wouldn’t sell then – after two years it wouldn’t be worth anything at all. If now in the budget there is no money, we need a fiscal effect, but at the same time possible to try to attract strategic investors is reasonable. Economic reason to privatize more now than in high conditions.

– Judging by what you say about inflation, in disputes about whether it is necessary to stimulate monetary measures of economic growth or to focus on the control of inflation, you are on the side of the CB.

– At us it is accepted to criticize the monetarists. But scold them just the ones who are essentially monetarist and is – those who believe that all our problems from the wrong monetary policy of the Central Bank. I am not a monetarist and believe that all problems – from monetary policy.

In my understanding, calls run economic growth rates are low when inflation is high – it’s politicking or frivolity, because the bet can’t be below expected inflation. If you play these games, there is a high probability of getting into an inflationary spiral, as was the case in many Latin American countries. This is the standard logic of populism: you cut rates, handing out money to companies, they produce uncompetitive products, etc. grow On poor loans that you are issued at low interest rates. This policy sometimes produces results, but at very favorable external conditions and a very favourable political situation. In the context of the current external shocks to experiment with inflation and with the populism is very dangerous.