The Russian government’s shift from a three-year to a one-year budget indicates that the planning horizon of the Russian government has been narrowing even further, making the success of any long-term strategy even more doubtful.
“Our past is grand, our present is difficult and our future is unclear.” Photo: RIA Novosti
Last week the Russian government endorsed the draft version of a one-year federal budget for 2016. That’s a significant step, because ever since 2008 - the previous time period when the Kremlin had to deal with a serious economic crisis – the Russian government had been creating a three-year budget.
So, such a shift from longer-term planning to shorter-term planning indicates that the Russian authorities are becoming less confident in their capability to tackle the nation’s increasing economic challenges in a time of increasing uncertainty, volatile oil prices and geopolitical instability.
At the same time, such a move seems to contradict the Kremlin’s effort to switch to strategic thinking, taking into account its recent attempts to outline Strategy 2030 at the Sochi Investment Forum that took place in early October.
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Alexander Auzan, dean and professor at Lomonosov Moscow State University's Faculty of Economics, is concerned with such a decision. He argues that the major reason for shying away from three-year planning, or what he refers to as “narrowing the planning horizon,” is the lack of financial resources for the federal budget. Yet he decisively doesn’t agree with such a stance and sees it as a “categorically wrong measure.”
“Withdrawal from three-year planning horizon, based on difficulties in this planning, is absolutely the wrong move, because this very decision led, for example, to another freezing of pension savings,” he told Russia Direct during the Oct. 9 conference at Lomonosov Moscow State University's Faculty of Economics. “In my view, any narrowing of the planning horizon is very bad. Understandably, it stems from the lack of resources, but it should not be the justification of such a move.”
Shlomo Weber, the professor of Southern Methodist University in Dallas, the rector of the New Economic School in Moscow and the manager of a research laboratory at Moscow State University's Faculty of Economics, is also skeptical about the Kremlin’s decision to switch to a one-year budget. He argues that “it is better and easier to do three-year budgeting” despite the current pressing challenges.
“It is necessary to understand what needs to be done tomorrow,” he told Russia Direct.
According to him, understanding history and mistakes of the past is what can help to understand the future and overcome the path-dependence problem, the vicious circle of repeating the past mistakes. And this is impossible without investing in education and human capital.
“If we want to think in the long-term, it is necessary to invest in education today, not the day after tomorrow,”he said at a meeting with journalists. “Without resolving this problem, it is impossible to move forward.”
Likewise, Auzan argues that Russia won’t be able to shoulder effectively the burden of the current crisis if its authorities are not mindful about the direction, where they are moving.
“Our past is grand, our present is difficult and our future is unclear,” Auzan told journalists during the Oct. 9 conference at Lomonosov Moscow State University's Faculty of Economics. “The challenge we are trying to resolve is called the path-dependence problem: how to overcome the trap of repeating unsuccessful reforms and situations, which we have been in several times; how to change the trajectory.”
In Russia, there are interesting discussions and research about a new strategy — the strategy, most likely, until 2035. This strategy will differ from the previous ones. As Auzan, who also contributes to creating the new strategy, explained, this time the Russian government will try to determine where the country is heading.
“Unlike in previous strategies, we don’t think that people care only about pure economy,” he said. “We believe that there is culture as well as demographic changes, increasing technologies. And all this should be taken into account. Thus, it requires interdisciplinary research.”
That’s the reason why Auzan finds it important to involve in the discussion those who deal with society and culture, not just pure economics. Former Minister of Culture in the Moscow government Sergei Kapkov, who now heads the Center for Research of Economy of Culture at Moscow State University's Faculty of Economics, is among those who are helping to broaden the discussion and offer different approaches.
“It is already senseless to talk about the current problem, it is necessary to discuss the model of the future, the very point B, from which we will be heading to during the upcoming five or 10, and them 15 years,” he told journalists at the conference.
If the country’s decision makers who possess all necessary information don’t have a clear model of the future, “the population — major consumers and cultural producers, the majority of citizens of the country — doesn’t have clear understanding of future, at least, for 10 upcoming years as well,” Kapkov added. “They believe in strong ruling authorities, but they are not aware where each of them and their families will be in 10 years. And this is the problem.”
However, coming up with long-term strategies in the times of increasing instability — what some describe as “black swans,” or highly unpredictable events — is becoming even more difficult. When asked about this challenge, Auzan said that the origins of this unpredictability stem from the narrow planning horizon, from the lack of long-term thinking.
“The root of the problem is the length of the [planning] horizon,” he told Russia Direct.
If decision makers have the short planning horizon, if there are no intersection points about the future between elites and ordinary people, the planning horizon is squeezed and any decision about the future turns out to be immediate, he concluded.
“That’s why we need to make a shift,” he said. “We need to make our remote goals and dreams, which we [the authorities and the population] agree on, meet with our current interests, which are different, through sophisticated institutes, tools and incentives, which will draw current and remote goals closer together.”
According to him, the need to come up with new approaches to a strategy may stem from any challenge: from a catastrophe, a crash, a military defeat, or an economic crisis.
“Strategy is nothing more than that trajectory, which you try to go through, if you understand where you are heading,” he told in a response to the question from Russia Direct, pointing out that Russians are reluctant to make a choice between several options, when it is necessary to make a sacrifice.
“If we start dreaming concurrently about becoming a great power, about spatial development, about the growth of the gas and oil sector, about human capital and won’t make a choice, all our dreams will collapse, because there is only one budget and gross domestic product (GDP) is small,” he said.
At the same time, he admits that the difficult situation makes the Kremlin look for a solution. This challenge is seen as a stimulus to outline the model of the future, which spurs the aspiration of the Russian government to find a sort of a guiding light in the form of Strategy 2035.