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What Russia can and cannot perform instead of oil

Что Россия может и не может производить вместо нефти

The idea is wonderful in the jump zone, where we are going to create new technology, very popular in the government and the expert community. But statistics say that such leaps expensive and have low chances of success. The economy naturally develops around existing technologies, gradually mastering of neighboring space

After the fall in world oil prices, the diversification of the Russian economy from the theme of idle speculation has turned to the urgent question: what in General we can produce besides oil? Clearly, the primary sector now pressed down world prices, but with light industry, machine building, agriculture or, with permission, a nanotechnology industry? Now, after two depreciation limits their global competitiveness?

Practical discussion traditionally revolves around money: does the Central Bank to lower the rate, to whom and how much to give from the reserves, to reduce or to increase taxes. But it seems that this time the economy deeply mired and just succumb to the gas, push harder will not help. Alternative and witty take on the problems of economic development offers a theory of economic complexity, Ricardo Hausmann of Harvard and Cesar Hidalgo of MIT.

Economic Scrabble

In the theory of economic complexity Economics is such a global game of Scrabble, where technology – letters, and goods of the word. The more letters, the more words allows you to reach each new letter. If you are poor, backward country, even mastering the latest technology will reveal relatively little manufacturing capability. In developed economies, the new technology has a multiplier effect in many related industries.

For the evaluation of economic complexity uses international trade statistics (data on it is most transparent, and the classification is universal). Accounted for those products in which a country has a sustainable competitive advantage, i.e. exports more than the average economy of similar size. The index of difficulty of Economics (ECI) reflects how complicated the set produced by the country’s products.

It would seem that all the Laggards have an opportunity to unabashedly borrow from technology and enjoy the benefits of catch-up development. But something, apparently, interferes with this process. In the middle of the last century Michael polani introduced the concept of implicit, personal knowledge. Any technology consists of explicit, documented knowledge (instructions, recipes, rules) and tacit (experience technologist, the intuition of the chef, professional ethics) that can be transmitted only through direct training of the disciple by the master. You cannot learn to ride a bike just by reading the manual. This skill is acquired reliably for several workshops in the presence of an experienced mentor. The principle was universal.

Data analysis over the past half century helped to create a map of global technological space, which shows the technological relatedness of different products.

Что Россия может и не может производить вместо нефти

Each colored dot is an industry involved in world trade. From right to left and from the periphery to the center of the complexity of products increases gradually. There are several large clusters of light industry (green), engineering (blue), electronics (turquoise), chemicals and pharmaceuticals (purple), agriculture (yellow). The distance between points reflects the ease of development of one technology by another.

The economy naturally develops around existing technologies, gradually mastering of neighboring space. Jumps at distant points is too risky and rarely succeed. For the development of new technologies necessary contact with the expert and accumulation in the presence of sufficient personal experience. Therefore, in the scope of Economics the basic tools of technology are foreign direct investment, attracting skilled professionals in the Diaspora training in foreign enterprises.

Что Россия может и не может производить вместо нефти Germany (ECI = 1,92)so, for example, look at the technology space developed economy of Germany (ECI = 1,92, second in the world in terms of complexity) and relies on light industry, the economy of Cambodia (ECI = -0,65).

Что Россия может и не может производить вместо нефти Cambodia (ECI = -0,65)There is a strong correlation between GDP per capita and index of economic complexity. The more complex the economy, the country is richer. Focus on simple technologies can not achieve a sustainable high level of prosperity. The only exceptions are oil-producing countries in the period of high oil prices.

Moreover, the position in the technological space determines the range of technologies to which the economy can reach, and thus determines the growth potential of the economy. Strong position in the center of the cluster key allows you to quickly learn adjacent technologies. Presence exclusively in peripheral technological areas impedes economic development.

One thing we certainly can’t

So it looks pretty dull today, the Russian economy in the global division of labour:
Russia (ECI = 0,05)

Что Россия может и не может производить вместо нефти Russia (ECI = 0,05)

Large spots are oil and gas. Scattered around the perimeter of the single point – coal, metals, agriculture, weapons. The aviation industry, shipbuilding, nanotechnologies and other ambitious projects of recent years is impossible to distinguish with the naked eye. Our capabilities are spread over the periphery of an area, the competitive position of the Central nodes are missing. The situation of the Russian economy in the technology space puts us at 98th place out of 121 mid-term prospects for economic growth, with a forecast of less than 2% per year, below the world average. And this is based on data from 2014, that is without taking into account the decline in oil prices and sanctions.

The idea is wonderful in the jump zone, where we are going to create new technology, very popular in the government and the expert community. However, the statistics said that these roads and have a low chance of success. We often do not give rest to the achievements of the USSR – we could also build an atomic bomb and the first to launch a human into space. So, it is not necessary to learn how to make refrigerators and sewing shirts, to begin to be able to produce new technologies. But, first, breaches of the USSR required the resources of the whole country, including the labour of the Gulag, the limitation of the consumption of the population and underdevelopment of other sectors of the economy. Secondly, the USSR actively borrowed technology in the West. So, nuclear project was largely an intelligence operation, which can be considered a form of technological openness.

An attempt to simultaneously develop the aircraft industry, shipbuilding, transport engineering and even electronics are also not particularly promising. The current technological position of Russia is too weak, the economy’s resources – labor and capital – are limited, and the idea is to rely on the domestic market and the state can not lead to competitive industries.

The protection of domestic markets can help domestic businesses to achieve economies of scale, but if there is no purpose of the transition to export and open competition, the import substitution not only contributes to growth, but slows down further development of the economy. The result was the industry that exist only on artificial respiration: producing several trams per quarter or more aircraft a year and require ongoing financial support and protection from competition. These enterprises do not develop our economy and squander its limited resources.

We can

So what can Russia produce? We are likely no exception. The most viable is organic development of existing competitive positions and movement from them into the depths of the technological space, in related, technologically related industry. The best potential for development of extractive industries, chemistry, agriculture, production of building materials, transport and agricultural engineering. But to realize this potential it is necessary to eliminate a number of barriers to organic business development.

A good example would be the Renaissance of the oil industry in the US. Production in the main oil regions of the United States is already more than a hundred years – long cream removed. The main difference between US from other oil producing countries is minimal regulation of subsoil use and the competitive structure of the industry, where hundreds of small and medium companies compete with the leaders, continuously testing new technological ideas. To this is added an efficient financial market and investment protection. As a result, the flow of innovation in 10 years transformed the industry and allowed us to double production.

Even in the face of low oil prices, Russia could have achieved the flow of investment and technological growth, and if subsoil has deregulated and opened oil and gas industry to private investment.

The ability to produce more oil, building materials and fertilizer looks so magical, like the transformation of our fishing economy in the post-industrial or new growth of oil prices. But it is an opportunity to move gradually toward a more vibrant and sophisticated economy, with a sober calculation of self-reliance, not a miracle or luck.

Что Россия может и не может производить вместо нефти Poland (ECI = 0,93)Here are the economies of our neighbours, Poland and Turkey, who do not make a dizzying jumps and did not create state corporations:

Что Россия может и не может производить вместо нефти Turkey (ECI = 0,42)the Last 20 years, both countries have gradually mastered more and more complex products, moving from agriculture (yellow) and light industrial (green) to the mechanical (blue) and electronics (turquoise). Consistently developed Korea, Mexico, Malaysia and even China.

What to do

Economic science comes to the same conclusions as that of Leo Tolstoy with his resemble each other happy families. Economic diagnoses can be very diverse, but the list of conditions for successful development are quite universal. Theory of economic complexity only a new thrust.

1. Economic openness. The way in a highly developed economy is through participation in the international division of labour and intensive contacts with the world. Today, Russia is becoming increasingly isolated, which poses a threat of chronic inferiority. Openness implies a change in the world model with self-centered (the world revolves around us) more realistically, in which Russia is still a small and peripheral part of the global economy, where the centers are the U.S., China and the EU.

It is necessary to Orient the economy to foreign markets, supporting real exports. Clearance of export operations, VAT returns, obtaining non-discriminatory access to infrastructure / logistics are still the prerogative of major commodity players, sources collection administrative rent. Providing equal opportunity of exporting for small and medium-sized enterprises, can achieve the most rapid positive results.

2. For the development of any industry the necessary competitive environment of domestic markets, where participants simultaneously compete and cooperate. In Russia for the last 10 years the level of competition in many industries decreased, and the entry barriers for new players grow.

3. Protection of investors ‘ rights, an effective judicial system. Weak protection of rights reduces the incentives for entrepreneurship and investment, the main engines of economic development.

4. Two years ago, macroeconomic stability was considered to be one of the main achievements of the Russian government. Today fluctuations, introduction or termination of sanctions is virtually impossible to predict. Investment in export production in such circumstances turn into a game in the casino.

Today Russia has no funds for mega-projects and state corporations, there is no unused capacity and available labor resources for extensive capacity of production. A return to sustainable growth is only possible through economic openness, structural reforms and creating conditions for the organic development of the business.

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