I would like to take advantage of the SPIEF venue to tell you not only about the goals and tasks that we in Russia have set for ourselves but also about our views on the state of the global economic system. For us this is not an abstract conversation, nor an academic discussion. Russia’s development, simply by virtue of its size, history, culture, the human potential and economic opportunities cannot take place outside the global context, without the correlation of the domestic, national and global agendas.
So, what is the state of affairs today or at least how do we in Russia see it? Technically, global economic growth has been positive in the recent period. In 2011–2017, the global economy grew by an annual average of 2.8 percent. In recent years, the relevant figure was a bit over three percent. However, we believe, and countries’ leaders and all of us must frankly admit that regrettably, despite this growth, the existing model of economic relations is still in crisis and this crisis is of a comprehensive nature. Problems in this respect have been piling up throughout the past few decades. They are more serious and larger than it seemed before.
The architecture of the global economy has changed dramatically since the Cold War as new markets were becoming part of the globalisation process. The dominant model of development based on the Western “liberal” tradition, let us call it Euro-Atlantic for the sake of argument, began to claim not just a global, but also a universal role.
International trade was the main driver behind the current globalisation model. From 1991 to 2007, it grew more than twice as fast as global GDP. This can be accounted for by the newly opened markets of the former Soviet Union and Eastern Europe, and goods pouring into these markets. However, this period turned out to be relatively short-lived by historical standards.
The global crisis of 2008–2009 ensued. It not only exacerbated and revealed imbalances and disproportions, but also showed that global growth mechanisms were beginning to fail. Of course, the international community learned its lesson. However, truth be told, there was not enough will or, perhaps, courage, to sort things out and draw the corresponding conclusions. A simplified approach prevailed whereby the global development model was allegedly quite good and, essentially, nothing needed to be changed since it was enough to eliminate the symptoms and coordinate some rules and institutions in the global economy and finance, and then everything would turn out just fine. There were many hopes and positive expectations back then, but they quickly vanished. Quantitative easing and other measures failed to resolve the problems and only pushed them into the future. I am aware that quantitative easing was discussed at this and other forums. We at the Government and the Presidential Executive Office never stop discussing and debating these matters.
I will now cite data from the World Bank and the IMF. Before the crisis of 2008–2009, the global trade in goods and services to global GDP ratio was constantly growing, but then the trend reversed. It is a fact, there is no such growth anymore. The global trade to global GDP ratio of 2008 has never been recovered. In fact, global trade ceased to be the unconditional driver behind the global economy. The new engine represented by state-of-the-art technology is still being fine-tuned and not operating at full capacity. Moreover, the global economy has entered a period of trade wars and mounting direct or covert protectionism.
What are the sources of the crisis in international economic relations? What undermines trust between the world economic players? I think the main reason is that the model of globalisation offered in the late 20th century is increasingly at odds with the rapidly emerging new economic reality.
In the past three decades, the share of advanced countries in the global GDP in purchasing power parity decreased from 58 to 40 percent. In the G7 it dropped from 46 to 30 percent, whereas the weight of the countries with developing markets is growing. Such rapid development of new economies that, apart from their interests, have their own development platforms and views on globalisation and regional integration processes does not correlate well with the ideas that seemed immutable relatively recently.
The previous patterns essentially put the Western countries into an exclusive position and we should be straight about this. These patterns gave them an advantage and an enormous rent, thereby predetermining their leadership. Other countries simply had to follow in their wake. Of course, much happened and is still happening to the accompaniment of talk about equality. I will speak about this as well. And when this comfortable, familiar system began to grow rickety and competition grew, ambitions and a striving to preserve one’s domination at all costs surged. Under the circumstances, the states that previously preached the principles of free trade and honest and open competition began to talk in terms of trade wars and sanctions, and resorted to undisguised economic raids with arms twisting, intimidation and the removal of rivals by so-called non-market methods.
Look, there are many examples of this. I will only mention those that concern us directly and that are common knowledge. Take, for example, the construction of the Nord Stream 2 gas pipeline. I saw in the hall our partners who work with it professionally, not only Russians but also our friends from Europe. This project is designed to enhance energy security in Europe and create new jobs. It fully meets the national interests of all participants, both European and Russian. If it did not meet these interests, we would have never seen our European partners in it. Who could force them into this project? They came because they were interested in it.
But this does not match the logic and interests of those who became used to exclusiveness and anything-goes behavior in the framework of the existing universalist model. They are used to letting others pay their bills; therefore, endless attempts to torpedo this project are made. It is alarming that this destructive practice has not only affected traditional energy, raw materials and commodity markets but it has also leaked into new industries that are now taking shape. Take the situation with Huawei. Attempts are being made not just to challenge it on the global market but to actually restrict it in an off-handed manner. Some circles already call this “the first technological war” to break out in the digital era.
It would appear that rapid digital transformation and technologies that are quickly changing industries, markets and professions, are designed to expand the horizons for anyone who is willing and open to change. Unfortunately, here too barriers are being built and direct bans on high-tech asset purchases are being imposed. It has come to the point where even the number of foreign students for certain specialties is limited. Frankly, I find it hard to wrap my mind around this fact. Nevertheless, this is all happening in reality. Surprising, but true.
Monopoly is invariably about concentrating revenue in the hands of a few at the expense of everyone else. In this sense, attempts to monopolise an innovation-driven technology wave and to limit access to its fruits take the problems of global inequality between countries and regions and within states to a whole new level. This, as we all know, is the main source of instability. It is not just about the level of income or financial inequality, but fundamental differences in opportunities for people.
In essence, an attempt is being made to build two worlds, the gap between which is constantly widening. In this situation, certain people have access to the most advanced systems of education and healthcare and modern technology, while others have few prospects or even chances to break out of poverty, with some people balancing on the verge of survival.
Today, more than 800 million people around the world do not have basic access to drinking water, and about 11 percent of the world's population is undernourished. A system based on ever-increasing injustice will never be stable or balanced.
Exacerbating environmental and climatic challenges that represent a direct threat to the socioeconomic well-being of all humankind are making the crisis even worse. Climate and the environment have become an objective factor in global development and a problem fraught with large-scale shocks, including another uncontrolled surge in migration, more instability and undermined security in key regions of the planet. At the same time, there is a high risk that instead of joint efforts to address environmental and climate issues, we will run into attempts to use this issue for unfair competition.
Today we are facing two extremes, two possible scenarios for further development. The first is the degeneration of the universalist globalisation model and its turning into a parody, a caricature of itself, where common international rules are replaced with the laws, administrative and judicial mechanisms of one country or a group of influential states. I state with regret that this is what the US is doing today when it extends its jurisdiction to the entire world. Incidentally, I spoke about this 12 years ago. Such a model not only contradicts the logic of normal interstate communication and the shaping realities of a complicated multipolar world but, most importantly, it does not meet the goals of the future.
The second scenario is a fragmentation of the global economic space by a policy of completely unlimited economic egoism and a forced breakdown. But this is the road to endless conflict, trade wars and maybe not just trade wars. Figuratively, this is the road to the ultimate fight of all against all.
So what is the solution? I am referring to a real solution rather than utopian or ephemeral one. Obviously, new agreements will be needed for drafting a more stable and fair development model. These agreements should not only be written clearly but should also be observed by all participants. However, I am convinced that talk about an economic world order like this will remain wishful thinking unless we return to the centre of the discussion, that is, notions like sovereignty, the unconditional right of every country to its own development road and, let me add, responsibility for universal sustainable development, not just for one’s own development.
What should be the subject of discussion in terms of regulating such agreements and such a common legal environment? Certainly not the imposition of a single and the only correct canon for all countries, but above all, the harmonisation of national economic interests, principles of teamwork, competition and cooperation between countries with their own individual development models, peculiarities and interests. The drafting of such principles should be carried out with maximum openness and in the most democratic manner.
It is on this foundation that the system of world trade should be adapted to current realities and the efficiency of the World Trade Organisation enhanced. Other international institutions should be filled with new meaning and content rather than broken. It is necessary to sincerely consider, rather than just talk about the requirements and interests of the developing nations, including those that are upgrading their industry, agriculture and social services. This is what equal conditions for development is all about.
Incidentally, we suggest considering the creation of an open, accessible data bank with the best practices and development projects. Russia is ready to publish its successful case studies in the social, demographic and economic areas on an information platform, and invites other countries and international organisations to join this initiative.
With regard to finance, the main global institutions were created as part of the Bretton Woods system 75 years ago. The Jamaican currency system that replaced it in the 1970s confirmed the preference of the US dollar but, in fact, failed to resolve the key problems, primarily, the balance of currency relations and trade exchanges. New economic centres have appeared since then, the role of regional currencies has increased, and the balance of forces and interests has changed. Clearly, in the wake of these profound changes, international financial organisations need to adapt and reconsider the role of the dollar, which, as a global reserve currency, has now become an instrument of pressure exerted by the issuing country on the rest of the world.
Incidentally, I believe the US financial authorities and political centres are making a big mistake as they are undermining their own competitive edge that appeared after the creation of the Bretton Woods system. Confidence in the dollar is simply plummeting.
The technological development agenda must unite countries and people, not divide them. For this, we need fair parameters for interaction in key areas such as high-tech services, education, technology transfer, innovative digital economy branches and the global information space. Yes, building such a harmonious system is certainly challenging, but this is the best recipe for restoring mutual trust, as we have no alternative.
We need to join our efforts, being fully cognizant of the scale of the new era’s global challenges and our responsibility for the future. To do so, we need to use the potential of the UN, which is a unique organisation in terms of representation. We should strengthen its economic institutions and use new associations like the Group of 20 more effectively. Pending the creation of a set of rules like this, we need to act in accordance with the current situation and actual problems and have a realistic understanding of what is happening in the world.
As a first step, we propose, speaking diplomatically, to conduct a kind of demilitarisation of the key areas of the global economy and trade, namely, to make the distribution of essential items such as medicines and medical equipment immune to trade and sanctions wars. Thank you very much for your understanding. That also includes utilities and energy, which help reduce the impact on the environment and climate. This, as you understand, concerns areas that are crucial for the life and health of millions, one might even say, billions of people, our entire planet.
The current global trends show that a country’s role, its sovereignty and place in the modern system of reference are determined by several key factors. They are undoubtedly the ability to ensure the safety of its citizens, to preserve its national identity and also to contribute to the progress of world culture. And there are at least three more factors that, in our opinion, are of key significance. Let me expand on that.
The first factor is a person’s wellbeing and prosperity, opportunities to discover their talents.The second factor is the society’s and state’s receptiveness to sweeping technological change. The third factor is freedom of entrepreneurial initiative. Let me start with the first item.
Russia’s GDP per capita at purchasing power parity is about $30,000. South and Eastern European countries are at the same level today. Our priority for the coming years is not only to become one of the world’s top five economies. It is ultimately not a goal in itself but a vehicle; we have to reach and stay at the average European level in all major parameters reflecting the quality of life and people’s wellbeing. Given this, we have identified national goals on the growth of the economy and people’s incomes, decreasing poverty, increasing life expectancy, improving education and healthcare, and preserving the environment. The national projects we are implementing are designed to address these tasks.
The second field is accelerated technological development. It offers truly colossal opportunities. Our priority is to be among the front-runners, those who use these technologies and convert them into a real breakthrough. Thus, according to experts, the introduction of artificial intelligence will add 1.2 percent annual growth to the global GDP. It is twice as much as the impact from the global IT growth in the early 21st century. The world market of goods with AI will increase almost 17-fold by 2024 to total around half a trillion dollars.
Just like other leading nations, Russia has drafted a national strategy for developing AI technologies. It was designed by the Government along with domestic hi-tech companies. An executive order launching this strategy will be signed shortly. A detailed, step-by-step road map is incorporated in the Digital Economy national programme.
Russia has capable research potential, and a good starting point for designing the most advanced technological solutions. And this refers not only to AI, but also to other groups of the so called end-to-end technologies. In this connection, I propose to our state companies and the leading Russian private companies to partner with the state in promoting end-to-end research and technologies. These include, as I said, artificial intelligence and other digital technologies. These are, of course, new materials, genome technologies for medicine, agriculture and industry, as well as portable sources of energy, technologies for energy transfer and storage.
The practical results of such a partnership should be the production and promotion of successful breakthrough products and services both in the domestic and foreign markets. This is an opportunity for the state to build its powerful sovereign potential, and for companies – a chance to enter a new technological era. We discussed all these issues at a special meeting in Moscow just a week ago. Following the meeting, respective agreements will be signed shortly with Sberbank, Rostec, Rosatom, Russian Railways and Rostelecom. A package of corresponding documents has already been prepared. I ask our leading fuel and energy companies – Gazprom, Rosneft, Rosseti, Transneft – to join this work, this large-scale project. I give the Government a directive to manage this effort.
How will the state and large companies cooperate? Under the partnership agreement, the companies invest in research and development, they invest in competence centres, start-up support, training personnel in research, management and engineering and in attracting foreign specialists. The state, in turn, will provide financial and tax incentives, generate demand for domestic hi-tech products, including through government procurement, that is, it will guarantee a market. We will keep working on this. Our Chinese friends may also buy a bit more of our new products.
We need to fine-tune the system of technical standards, and even introduce a sort of experimental legal framework. An adequate and flexible legal environment is a key issue for new industries, and establishing it around the world brings new problems; there are many sensitive issues both for state security and for the interests of society and its people. But in order to achieve results, it is critically important to speed up the decision-making process, so I ask our colleagues from the Government, experts, and the business community to offer an effective mechanism for this.
New industries will require specialists with new skills. We are moving quickly to upgrade programmes and education content for this. As you may know, in August, Kazan will host the WorldSkills Championships, during which, at Russia’s initiative, the first ever competition in the competences of the future will take place, including machine learning and big data, composite materials technology and quantum technologies. I wish every success to our team and the participants in the competition.
I would like to mention that we have created a new platform, Russia – An Ocean of Opportunity, to encourage personal and professional growth. It holds competitions, in which schoolchildren, young people and people of different ages from Russia and abroad can take part. A human resources project like this is unprecedented in scale. It drew over 1.6 million people in 2018 and 2019 alone. We are committed to promoting this system, to making it more effective and transparent, because the more daring and talented people engage in business, science and public and social administration, the greater success we will achieve in handling development issues and the more globally competitive our country will be.
The third factor in the country’s competitiveness, which was mentioned earlier, is a favourable business environment. We are working on this consistently and will continue to work on it. Today, if we look at a number of services for businesses and the quality of the most in-demand administrative procedures, we are similar to, and in some cases even outperform, countries with strong and deep-rooted traditions of entrepreneurship.
Healthy competition between regions to attract entrepreneurs, investment and projects has been gaining momentum. The efficiency of management teams has increased a lot. A serious incentive for this change was the development of the National Investment Climate Rankings for the constituent regions of the Russian Federation. In keeping with an established tradition at the St Petersburg International Economic Forum, I would like to announce and congratulate the winners of the 2019 National Rankings. They are Moscow, Tatarstan, Tyumen and Kaluga regions and St Petersburg.I also applaud them.
As for the pace at which the investment climate is improving, the leaders are Yakutia, Primorye Territory, Samara Region, Crimea and North Ossetia, Perm Territory, Nizhny Novgorod Region, Udmurtia and Ivanovo and Novgorod regions. I would like to take this opportunity to ask the heads of the regions and the presidential envoys to these federal districts to step up their work to attract private capital to the national programmes and our other development projects, including through the Russian Direct Investment Fund and other modern and effective mechanisms.
As I mentioned, there are some positive changes in the business climate, notably, administrative procedures, but there are still urgent problems that worry business. First, we still have to deal with the archaic nature and obvious excesses of the oversight bodies, as well as the unjustified and sometimes simply illegal interference of law enforcement in the business environment, in the operation of companies.
This year we launched a deep and comprehensive reform of monitoring and oversight. It is the largest reform in the post-Soviet era. Starting January 1, 2021 the entire old, largely obsolete legal framework will cease to operate. It will be replaced by a clear-cut system of requirements: any duplication of government body authority should be eliminated, grounds for random inspections or audits restricted and a risk-based approach established.
The information service that is to be launched this year will make it possible to objectively compare information from oversight bodies on the one hand and entrepreneurs on the other. Any incongruities must result in a timely response.
As regards the relationship between business and law enforcement, the logic of our actions includes the further liberalisation of legislation, the strengthening of the guarantees and rights of ownership, the removal of even formal opportunities for abusing the law to exert pressure on business, and the constant cleansing of authority agencies and the judicial system of unscrupulous personnel. More transparency in the business environment is a major condition for the effectiveness of this work. This is also very important, colleagues. This year there will be a digital platform, a kind of a digital ombudsman that entrepreneurs will be able to use to report any illegal actions by representatives of law-enforcement agencies. I think such openness can become a guarantee of trust between the public, business and the state.
Overall, we must ensure the transformation of the government management system based on digital technology as soon as possible. The goal is to comprehensively upgrade the effectiveness of the performance of all government bodies, reduce the speed and improve the quality of decision-making. I would like to ask the Government to present a specific plan of action in this regard in cooperation with the regional governors. We have spoken about this many times.
Russia has repeatedly carried out large-scale projects of spatial development in its history. They have become symbols of deep and dynamic change in the country, in its forward progress. Such comprehensive projects are being implemented now in the South of Russia, the Far East and in the Arctic. Today we must think about the upsurge of the vast territories of central and eastern Siberia. We must draft, accurately calculate and coordinate a development plan. This macro region contains very rich natural resources, about a quarter of all forest reserves, over half of the coal reserves, substantial deposits of copper and nickel, and tremendous energy reserves, many of which have already been developed.
In addition, there are unique opportunities for agricultural development. There are over 300 sunny days in the Minusinsk Hollow area. This makes it possible to establish a new powerful agro-industrial complex there as well. Russian and foreign experts believe that up to several trillion rubles of investment can be attracted to this macro region, up to 3 trillion, provided, of course, that the government also invests in the development of infrastructure, the social sphere and housing. The development of areas in central and eastern Siberia, not as a raw materials base, but as a scientific and industrial centre should turn this region into a link between the European part of Russia and the Far East, between the markets of China, the Asia Pacific Region and Europe, including Eastern Europe, and attract a fresh, well-trained workforce.
I would like to ask the Government to draft the necessary programmes in cooperation with the expert community and the Russian Academy of Sciences and to report back to me in autumn.
Today in Russia, we have embarked on implementing truly strategic long-term programmes, many of which are global in nature, without exaggeration. The speed and scale of today’s changes in the world are unprecedented in history, and in the coming era, it is important for us to hear each other and pool our efforts for resolving common goals.
Russia is ready for these challenges and changes. We invite all of you to take part in this large-scale and equitable cooperation.
By Vladimir Putin
President of Russia.