Russian modernisation: between chance and necessity

Modernisation is a task, not a problem. Russians must first want a modern country if it is to ever emerge. Alexander Auzan, one of Russia's foremost experts on modernisation, outlines the difficulties going forward.

 

 

You ask me if there is a chance that Russia can modernise. Let’s first look at where this question about chance has come from. It all started in 2007, when we – a bunch of economists in the Sigma group – tried to weigh up the chances of modernisation in Russia compared with other options, such as mobilisation, inertia or the moneyed interests option… At that point we thought the likelihood that Russia would modernise was around 10%. One year later we went back and reassessed the chances based on the changed political situation. By then the modernisation option became much more competitive, with an almost 20% chance. However, by autumn of 2008, following the war with Georgia and after the global crisis had intensified and peaked, our views as to the likelihood of modernisation were divided. My view was that it had declined significantly and that modernisation would not happen while the crisis lasted. 

Alexander Auzan: "Sometimes I wonder why I’m so keen on modernisation. There is one simple reason: I do not want to see my grandsons end up working abroad". Photo: Polit.ru

As of now, early 2011, the chances of modernisation in Russia continue to be rather slim. The events of late 2010 – for example, the verdict in the Khodorkovsky trial, the events on Triumfalnaya Square on 31 December and in Manezh Square on 11 December – have not improved the picture. I will come back to these events but nevertheless I don’t believe they have made irrelevant the issue of how likely modernisation is. The point I want to make is this: we know that dozens of countries have tried to modernise their economy but only about five or six have succeeded, which means that the chance of any country succeeding is just that – a chance – and that there are no absolutes here. On the other hand, since modernisation is much less an economic than a social and cultural process, albeit one with an economic dimension, it largely depends on whether the people want it and expect it.

The task of modernisation

Modernisation is a task, not a problem. Moreover, it does not depend solely on money (although it does depend on money more than anything else). You’ve got money? OK, go out and buy technology. You haven’t got enough managers? Go out and hire them. It might seem that if you have money you can modernise. Yet the global experience shows this is not the case, and there are no one-size-fits-all solutions. Even if you accumulate enough money for a certain solution, you will have to seek a unique solution in each instance. It will be a national formula combining universal approaches to modernisation with specific features, which for me, as an economist, relate to informal institutions. Others might prefer to talk of national specificity or culture, or use some other terms, such as Bourdieu’s cultural capital.

"We have tons of gifted young people and for some reason more and more keep being born. Something is out of kilter here, in this soil. So what are we going to do with them? For this economy is totally incapable of absorbing these people"

Alexander Auzan

In terms of whether modernisation is considered likely or not, the picture keeps changing.  However, in Russia’s current situation the key question is: is it wanted or not?  Lots of people in this country say: listen, don’t rock the boat, don’t touch anything, we all remember how exhausting the 1990 reforms were. We can still feel the pain of the 2005 attempts at reform. We’ve only just started to live a normal life… Pensions have doubled. And now you come along and want to modernise! You know what the score is: you’ll see some “modernisation experiments” in how to siphon funds from the state budget (this has, in fact, started to happen already); and if someone tries to tackle the problem seriously, you'll see them end up in penal colonies since there’s no other way of dealing with them.  So maybe it isn’t really worth it?

Yet I’m sure it is.

Sometimes I wonder why I’m so keen on modernisation. I guess there are three interconnected reasons. Each year, as I start teaching the final year of the M.A. course at the Moscow State University Department of Economics, I carry out an informal survey. In particular, I ask the students where they see themselves three to four years from now. In September 2010 roughly half the students said they envisaged themselves working abroad: not just anywhere but quite specifically in Germany, Britain, Ireland, or Argentina.  That is why, when I hear people say: “let’s improve the quality of our education” I think - OK, we’ll improve the quality of education and then not half, but perhaps even more of my students will leave the country. But maybe it will be for the best? They will leave the country, we’ll figure out something here and they all start flocking back… But organising this kind of global circulation is highly complex.

The second reason is quite similar to the first one. Put simply, I do not want to see my grandsons end up working abroad. I certainly don’t want this. And where is the problem? We have tons of gifted young people and for some reason more and more keep being born. Something is out of kilter here, in this soil. So what are we going to do with them? For this economy is totally incapable of absorbing these people.

And the final argument: we have to look for a way to start developing.  What happened in Manezh Square was a wake-up call. It was the crew in the hold knocking to let us know that something is wrong with the ship.

Expectations

Now to expectations. You see, these days the active part of the population, the active groups, think along the following lines: surely you can’t modernise in Russia’s current conditions? Just look at business, they say: not only is it being stifled but it’s being stifled in a particularly sophisticated way. Legislation has been amended in a way that blatantly undermines legal conditions for the functioning of businesses. Just as we are emerging from the crisis, social deductions are going up, etc.  Then there are the court cases. Not just the one against Khodorkovsky — there are many other examples of ordered justice. But my point is that modernisation is never driven by good life, but by bad life. And all these events provide an additional impulse. By the way, I can imagine that something extraordinary could start happening now. Not just in terms of delegitimising business, but also something like a dislocation to Kazakhstan. Things could get quite amusing. We have a Customs Union, and we might find ourselves looking for our taxes in the budget of our ally, the Republic of Kazakhstan. A consistently bad situation constantly produces provocative impulses. Does that mean we have to modernise? Yes. Does it mean modernisation will succeed? No.

Forced labour in Stalinist Russia. Auzan: "There are two approaches to modernisation. The first is that the government needs to take certain steps and the people will have to put up with it. The other is that the citizens are the subjects of modernisation and the government just plays an instrumental role"

The President has instigated a modernisation committee, but I don’t see any demand for what it is doing. 38 projects have suddenly been imposed in five different areas; of which Skolkovo is the perhaps the best example. I keep telling the people involved in this project that if you keep putting so much energy into pushing projects nobody needs and nobody in this country understands, you will either destroy the projects or the country. The sociologist Simon Kordonsky talked about this in a recent article, arguing that the only way out of the impasse would be to set up sharashkas [special camps for scholars and scientists in the Gulag]. Kordonsky suggests that Skolkovo will have to be fenced off and Khodorkovsky sent there to finish his sentence as the main manager.

Who needs modernisation?

Let’s now look at specific social groups. The middle classes would, you would think, be expected to be interested in modernisation, as they are supposed to need courts, good schools, and so on. Somehow, however, it doesn’t seem to be happening. Maybe the elites will be interested? Well, I can make a guess as to what the elites really need modernisation for.  The elites – whatever countries they are in – are not particularly interested in institutions. After all, they can send their children to be educated in England, they can use Swiss banks, they can get technical know-how in Germany, play the financial markets in the US. They can go to the global supermarket and make use of the best institutions available there. There’s just one thing you can’t get in the global supermarket – you can’t buy legitimacy. It’s a commodity that is not for sale. Wouldn’t it be great – to download the resources here (the main thing is to get the securities), and then buy everything else on the best institutional terms of other countries. But what next? This is precisely the problem poor old Yuri Mikhailovich Luzhkov now has. You might think he has the money so everything should be hunky-dory… But he has no legitimacy. People say to him: “And where does the money come from, Mr. Mayor?” That’s what people are saying all over Europe and then the conversation gets rather awkward.

However, this is also an issue for those who have stayed in the country. How do they enter into transnational operations?  They can use discounts but the response might be: “Oh yes, we have checked you out, you do seem to own these assets but you will forgive us, we will take them at 60% of their value because they raise too many questions.”  The Olson and McGuire model gives a brilliant description of two such attempts some twenty years before Russian privatisation. It describes what happens if in the process of transformation individuals close to the rulers get hold of all the assets:  once they have grabbed them they start wondering where they can get more. They either have to start playing by different rules that will enable them to exploit the existing assets or start a very expensive war with each other. There is a third option, though: new “hungry” groups start coming to power. Then the whole show starts again. Such hungry groups emerged in Russia in 2003 and 2005, and the cycle of redistribution restarted.

"Everyone is playing for short-term gain. As we know from game theory, if you play for short-term gain, co-operation makes no sense. ...  this short-termism is like a clot getting in the way of our bloodstream"

Alexander Auzan

Now, to come back to the question – if everything is supposed to be like this, why can’t everyone see it? Why are all these groups not rushing in left, right and centre shouting: “We demand immediate modernisation, the fairest possible trial…” and so on.  What we have here is the phenomenon of the short-term perspective in a country with eroded institutions, without firm rules and values. As our nation is not fully formed, it lacks a “catechism of values” that people can follow. They are often left without a point of reference. As a result, everyone is playing for short-term gain. As we know from game theory, if you play for short-term gain, cooperation makes no sense and you have to time things really well. To use more grown-up language, for short-term gain you have to siphon off money from the budget before the budget becomes substantial. But in a longer-term game, say with a three-year span, the issue changes: it makes sense to siphon off a little from here but not from there. In a ten-year span it turns out it’s not good to siphon off anything at all, one has to find other ways. That, in short is why short-termism is like a clot blocking our bloodstream and preventing recognition of all these interests.

What would be the potential consequences for Russia if modernisation were to be rejected, which is quite possible? I foresee two main consequences. I don’t believe a disaster will happen. But gifted people will leave the country in much higher numbers and the country will be flooded with all things Chinese. And I'm not just talking about goods.

“Doubling Russia’s GDP”: approaches to modernization

Let’s move on to the subject of how we approach modernisation. The executive secretary of the Modernisation Commission Arkady Dvorkovich, a close aide to Medvedev, has said there are two views among Commission members. The first holds that the government needs to take certain steps and the people will have to put up with it somehow. The other view holds that it is the citizens who are the subjects of modernisation and the government just plays the role of an instrument of modernisation. I am inclined toward the latter view. I just don’t agree that modernisation in Russia has only ever been achieved by force. We did have an emperor, one whose face nobody recognises in portraits, who was much more successful a moderniser than Peter the Great. He was Alexander II. And his modernisation was carried out in a different way. His legal traditions and the zemskie [pre-revolutionary districts] traditions are still with us. The zemskie hospitals are still around. 

"When people say: “can you double GDP in ten years?”, such as Putin wanted ten years ago, the answer is yes, you can double it. You can even quintuple in two years. But it would be impossible to live here. Russia needs steady results"

Alexander Auzan

Can we influence the likelihood of modernisation? Yes. How? By the way in which individual subjects assess this likelihood.  For example, there is such a thing as self-fulfilling prophecy. And that is why I can tell you what the focus of my work currently is. I work to increase the likelihood of the modernisation scenario, which right now is clearly not the dominant one. In my view, the likelihood at the moment is below 25%. But that certainly does not mean that the price of crude oil and privatisation are the only things that will affect this likelihood. No. Because a vast number of things are linked to behavioural models, cultural constants, as well as established as well as non-established relationships.

How can you tell if modernisation has taken place or not? You can tell by a steady dynamic of GDP growth. Why does nobody claim that modernisation has taken place in Japan and not in South Korea? Because both countries follow a trajectory – according to Madison’s statistical tables it’s the same trajectory as the one Western Europe and North America are on – and they are following it steadily. But the difficulty is that you can only usually see that is the case ten years on. Only then can you be sure that it’s real. Similarly, when people say: “can you double GDP in ten years?”, such as Putin wanted ten years ago, the answer is yes, you can double it. You can even quintuple it over the next two years if you want, but you won't be able to live here. Russia needs steady results. That is why for a long time people claimed that Japan was the only country that succeeded. It’s only now that we are saying: yes, South Korea has done it, Singapore has done it, Taiwan has done it. They all succeeded because they developed steady trends.

This article is an abridged version of a public lecture available in the Russian on our partner website polit.ru

About the author

Alexander Auzan is a Russian economist. He holds the chair for Applied Institutional Economics at Moscow State University