BRICS Business Magazine English Issue #1(25) 2020

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For a long time, Russia was a country of extensive development. The almost endless space fed us and forgave us our many mistakes, but it also weaned many off from systematic improvements in productivity, thrift and even environmental friendliness. At a time when the whole world is transitioning to a new technological paradigm, yesterday's competitive advantage can turn into a stone around our neck. The mentality of the entire country cannot change overnight, of course, but those eternally restless people who want to invent, fix or improve something, which we call entrepreneurs, can achieve it. However, they will not be able to do it all by themselves.

Our problems are not only in the lack of efficiency and openness to new ideas. A significant share of the Russian economy is concentrated in large companies, and they, in turn, are concentrated predominantly in the capital. As a result, Moscow and the region devour the lion's share of all investments in the country, and the enormous expanse of Russia is gravitating towards this central point. And this current state of affairs is, in fact, a long-term trend that cements the existing inequality between regions. Another way to look at the situation is through demography. The majority of regions and republics of the Russian Federation suffer from a population outflow. In addition to Moscow and St. Petersburg, only Novosibirsk has managed to establish growth through educational migration, and the distribution of young people is in many ways a measurement of success.

The asymmetry in the development of the regions is terrible not by the discrepancy of the gap between the champions and the outsiders, which are supported by the budget, it is terrible for those in the middle. These are the regions in which nothing happens. They have no obvious direction to set course, they have no competitive advantages in the form of minerals or megacities. They require institutional progress and political support, and they need incentives to develop their large cities. Ideally, they need targeted assistance. In order to overcome these and other barriers ('Moscow syndrome', demographic decline, falling income of the population, federal aid that does not lead to growth, and the sustainability of the current status quo), the system must become more involved. There must be more joined-up thinking and action.

One possible way out, which implies moving rapidly towards a new technological paradigm and the active involvement of business, is to create multiple points of growth. We have only one Skolkovo, but a country as large as Russia needs dozens, if not hundreds of clusters of this kind (not only in Moscow and St. Petersburg). A high concentration of talented people supported by investment always improves the situation in a region. By and large, finding and connecting talents through the creation of such projects is a systemically important area that deserves the attention and investment from both large companies and the government.

 

Authors & Experts

Branko Milanovic
Branko Milanovic

Visiting presidential professor at City University of New York Graduate Center; former lead economist in the World Bank’s research department

Vladimir Korovkin
Vladimir Korovkin

Head of the Digital Technologies at the SKOLKOVO Institute for Emerging Market Studies

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