Expectations of the results

Since May 7, 2012 the President of the Russian Federation Vladimir Putin has been solving systemic problems of Russia’s development, accumulating over two decades, which are quite objectively described in his election papers ¹ . This time, as opposed to 2000 and 2004, during the first day after the Inauguration Vladimir Putin signed 13 executive orders ² , which contained the assignments to the Government of the Russian Federation with the concrete terms for organizing, preparing and approving the measures that are necessary to implement the objectives of Russia’s development until 2018. These assignments covered almost all directions of electoral program by V. Putin, who had received the support of 64% voters.

President’s Executive Order No. 596 on Long-Term State Economic Policy is the most important one among the orders adopted at the beginning of Putin’s Presidency.

According to the text, the Executive Order aims to step up the rate of stable and consistent economic growth, increase people’s real incomes, and make Russia’s economy a technological leader.

The necessity to reach the more significant quantitative and qualitative parameters of our country’s development is recognized by all branches of Russian society, its production structures and social institutions.

Meanwhile, more and more attention is being paid to the notion that new goals will require comprehensive modernization of organizational, managerial and legal mechanisms. This necessity is increased, on the one hand, by the fact, that the conditions, in which Russian economy functions, are becoming more complicated, and the impact of global economic processes on our country is becoming more profound. On the other hand, Russian society faces a negative trend of recent years, when many of the announced goals haven’t been achieved due to a lack of commitment and inconsistency of actions on the part of state authorities. Historic evidence, proving this estimation, is numerous. Here are just some of the examples.

Many of the State and Federal target programmes on promoting production growth and quality of consumer goods, development of industrial and social infrastructure haven’t been implemented.

Thus, according to the State programme of the country’s agricultural development, the overall agricultural production in 2010 should have been increased by 12% as compared to 2007, but it hasn’t (see insert 1) .

The physical volume of investments in the agrarian sector should have been increased 1.4-fold, but actually it turned out to be 30% lower than it had been before the adoption of the programme.

According to the Federal target programme “Housing” in 2011, the affordability of housing (the indicator is determined by the number of annual wages of an average employee, sufficient for purchasing a one-room apartment) had been planned to be reduced to 3 years. The actual value of this indicator equaled 4.7 years ⁵ .

The implementation of several other Federal target programmes is also lagging behind (see insert 2) .

The 2004 RF Government Decree set the goal of reducing the share of population with incomes below the subsistence level to 10% in 2007 already ⁶ .

However, according to Rosstat, in 2011, 18.1 mln people or 12.8% of the country’s population had incomes below the subsistence level ⁷ . According to the calculations of Professor N. Krichevskiy, “the share of the poor in Russia equals 18.8% of the population, or 28.9 million people, nearly one person in five” ⁸ .

Insert 1

The implementation of the State programme for agriculture development and regulation of agricultural products, raw materials and food market in 2008 – 2012

Main target indicators	Was planned to be achieved in 2010 as compared to the basic year of the program	Level achieved in 2010	Deviation
Index of agricultural production output in farms of all types, %	112.3	99.7	-12.6
Index of physical volume of investments in fixed capital in agriculture, %	140.2	68.1	-72
Application of mineral fertilizers, mln. t in active substance	10.9	8.9	-2.0
Labour productivity index in enterprises of all types, %	115.7	104.5	-11.2
Source: National report “On the progress and results of implementing in 2010 the State programme for agriculture development and
regulation of agricultural products, raw materials and food market for 2008 – 2012”.Moscow: Ministry of agriculture of Russia, 2011.

Purchase of the main types of machinery by agricultural organizations in Russia, thsd. pcs.

Types of machinery	1990	2000	2005	2008	2009	2010
Tractors	143.7	1.4	9.3	17.4	18.8	18.0
Lorries	97.6	4.8	4.7	4.8	4.2	5.4
Harvesters: combine harvesters	98.0	5.0	5.5	5.9	7.5	7.6
potato harvesters	14.0	1.5	3.5	3.4	3.2	2.5
forage harvesters	13.6	1.4	1.1	1.9	2.1	1.5
Source: Shutkov A. Deformations in the structure of reproduction: ways of overcoming				. Economics of Russia’s agriculture. 2012. No. 5.

Production of main types of agricultural products in all categories of farms in Russia

Type of agricultural products	1990	2000	2005	2009	2010	2011
						abs.	in % to 1990
Grain in weight after processing, mln. t	116.7	59.4	62.7	75.9	61	93.9	80.0
Flax fibre, thsd. t	71.0	51.0	52.8	52.2	35.2	43	60.5
Meat in live weight, mln. t	15.6	7.0	7.7	9.9	10.5	10.8	69.2
Eggs, bln. pcs.	47.5	34.1	37.1	39.4	40.6	41.0	86.3
Wool, thsd. t	226.7	40.3	49.0	54.7	52.5	53.0	23.3
Gross agricultural production in
comparable prices, %	100.0	60.7	68.0	80.9	71.8	87.7	х

Source: Shutkov A. Deformations in the structure of reproduction: ways of overcoming. Economics of Russia’s agriculture. 2012. No. 5.

Insert 2

The degree of implementation of some Federal programmes in Russia

Name of the programme and its most important targets Was planned to be achieved in 2010 as compared to the basic year of a programme Level achieved in 2010 Degree of implementation (in %) Programme “Modernization of Russian transport system (2002 – 2010)”: – introduction of new railway lines, thsd. km 1.7 0.59 34.7 – introduction of additional main railway lines, thsd. km – construction, reconstruction and modernization of Federal and regional 2.7 0.943 34.9 roads, thsd. km – number of long-range and regional aircraft and helicopters, manufactured 49.8 23.8 47.8 in Russia and supplied to airline companies, pcs. 563 270 48.0 Federal target programme “Social development of the village up to 2013”: – establishment of pre-school educational institutions, thsd. places 11.9 3.53 29.4 – establishment of general educational institutions, thsd. places – establishment of outpatient and polyclinic institutions, thsd. visits 186.41 76.48 41.0 per shift 16.55 10.56 63.8 – putting local water supply systems into operation, thsd. km 34.49 11.84 34.3 Federal target program “Healthy generation” for 2007 – 2010: – infant mortality, per 1000 born alive 8.8 7.5 85 – maternal mortality per 100 thsd. – mortality of children aged from 0 to 4 years (inclusively) per 1000 20.5 16.5 78 newborns of the corresponding year of birth 10.9 9.8 90 Sources: Main results of implementing the Federal target program “Modernization of Russian transport system (2002 – 2010)”. Available at: ; Target indicators and brief reports on implementing the Federal target program “Social development of the village up to 2013”. Available at: View/2007/151/; National report of the Ministry of health and social development of the Russian Federation dated November 17, 2011 “On the status of children in the Russian Federation” (2008 – 2009); Demographic Yearbook of Russia. 2009, 2010. Moscow: Rosstat, 2009, 2010; Healthcare in Russia. 2011. Moscow: Rosstat, 2011.

In addition, it should be taken into account, that the subsistence level and the corresponding consumer basket are significantly reduced ⁹ .

The ratio of per capita average income to the subsistence level is the most important indicator of population welfare level. Table 1 shows that this ratio in the RF increased by 29% in 2003 – 2007 and the situation worsened considerably in 2008 – 2011.

Statistics data on a number of RF subjects, bordering on the Vologda Oblast, confirm, that living standards increase rates among the majority of population have reduced significantly over the last 4 years; as for the Vologda Oblast, the ratio of per capita average income to the subsistence level in 2011 has decreased to 88% of that of 2008.

As many experts point out, in order to implement the tasks set in the Decree “On the long-term state economic policy”, a new subsistence level should be approved from 2013, which will be actually close to the value, stimulating extended reproduction of the population, so as at the next stage (2014 – 2015) it would be possible to move on to the regulations of the minimum consumer budget.

Numerous scientific studies ¹⁰ prove that our country possesses substantial reserves for increasing its consolidated budget. The use of these reserves will facilitate the transition to the minimum consumer budget taking into account modern approaches in developed countries. Prevention of capital outflow is one of the efficient ways of the country’s revenues increase.

Table 1. The ratio of per capita average income to the cost of subsistence level

Territory Coefficients Growth rates in 2007 in % to 2003 Coefficients Growth rates in 2011 in % to 2008 2003 2007 2008 2011 Russian Federation 2.4 3.1 129 3.3 3.1 94 Leningrad Oblast 1.4 2.9 207 2.8 2.9 104 Novgorod Oblast 1.7 2.8 165 2.4 2.8 117 Yaroslavl Oblast 2.2 2.7 123 2.7 2.7 100 Arkhangelsk Oblast 2.0 2.7 135 2.7 2.7 100 Kirov Oblast 1.6 2.5 156 2.4 2.5 104 Tver Oblast 1.5 2.5 167 2.5 2.5 100 Kostroma Oblast 1.6 2.4 150 2.3 2.4 104 Republic of Karelia 2.1 2.4 114 2.3 2.4 104 Vologda Oblast 2.2 2.3 105 2.6 2.3 88 Sources: Integrated Inter Agency Information Statistical System. Available at: htpp://; Federal State Statistics Service. Available at: htpp:// Figures for regions are given since 2003, as most regions didn’t fix their subsistence levels in 2000 – 2002.

After the abolition of the restrictions on international capital movement in 2006 ¹¹ the losses of the country’s economy have increased. Using the official balance of payments statistics data of the Bank of Russia, Doctor of Economics, MGIMO Professor V.Yu. Katasonov calculated that net capital outflow from Russia for 2006 – 2011equaled 577.3 billion dollars (tab. 2) .

According to Mr. Katasonov, it is transnational banks and corporations that play the most important role in this process and gain most of the profit in this connection; and Russian oligarchs and corrupt officials act as their accomplices and abettors.

ISEDT RAS studies carried out in 2011 – 2012 provide substantial analysis of mechanisms used for achieving the goals of private corporations’ owners against the national and regional interests on the example of the Russian largest ferrous metallurgical corporations (OJSC Severstal, OJSC Magnitogorsk Iron and Steel Works and OJSC Novolipetsk Steel) ¹² .

In the second half of 2008, the volumes of production and realization of products dropped, revenues reduced sharply as well as the number of industrial personnel; however, these enterprises increased administrative expenses, effected payments of substantial benefits to the corporate governance staff, and the fortunes of companies’ CEOs were growing steadily (tab. 3).

In order to overcome the increasing social stratification among Russian population, the time is ripe for introducing a progressive income tax scale for individuals.

The adoption in 2001 of a flat rate of personal income tax was motivated by the necessity of incomes legalization and increase of tax revenues in the budget.

However, over the past 10 years, the share of personal income tax revenues in RF GDP hasn’t exceeded 4%, while it equals 8 – 10% in the U.S. and Western Europe. Moreover, the use of the flat scale has led to excessive inequality. Today, 1% of the rich in Russia account for about 40% of national income (compare: in the USA – 8%). Nevertheless, oligarchs’ incomes are taxed at the rate of 13%, like those of all the rest of the citizens.

According to the data of Rosgosstrakh Center for strategic research, 330 thousand Russian families had an annual income exceeding 30 million rublesin 2008 ¹³ .

If these incomes were taxed at the rate of at least 40 – 45% (the maximum rate in England is 40%, in Sweden – 57%, in China – 45%, in Japan – 50%, in Denmark – 59%), the Russian

Table 2. Net capital outflow from the Russian Federation in 2006 – 2011, bln. dollars

Years	Capital inflow	Capital outflow	Net
2006	62.8	-163.5	-100.7
2007	207.9	-375.4	-167.5
2008	100.2	-204.2	-104.0
2009	6.4	-43.1	-36.7
2010	44.4	-115.6	-71.2
2011	86.5	-183.8	-97.3
Total in 2006 – 2011	508.2	-1085.6	-577.4
Source: Каtаsоnоv V.Yu. Russia on the eve of the accession to the WTO. Soviet Russia. Insert “Evidence”. May 24, 2012. No. 3.

11 On introduction of amendments into the Federal law “On currency regulation and currency control: Federal law No. 131-FL dated 26 June, 2006.

12 See: Ilyin V.A. The influence of the metallurgical corporation owners’ interests on the national and regional development. Economic and social changes: facts, trends, forecast. 2011. No.3 (15). P. 14-38; Povarova A.I. The influence of the metallurgical corporation owners’ interests on the financial performance of the head enterprise (the case of OJSC Severstal). Economic and social changes: facts, trends, forecast. 2011. No. 5 (17). P. 36-51; Ilyin V.A., Povarova A.I., Sychov M.F. The influence of the metallurgical corporation owners’ interests on the socio-economic development: preprint. Vologda: ISEDT RAS, 2012.

13 More than 300 thousand Russian families have an annual income exceeding $ 1 million. business news. Available at:

budget would annually receive additional 3 – 4.5 trillion rubles. (14 – 20% of the additional revenues of the RF consolidated budget and up to 40% of additional revenues of sub-Federal budgets).

Vladimir Putin, speaking at the Conference of the Russian Union of Industrialists and Entrepreneurs in February, 2012 noted that “the existing attitude toward entrepreneurship and private property has to do with what was going on in Russia in the 1990s, when business back then amounted to nothing more than slicing up the state-owned pie. What we absolutely have to do is ensure public legitimacy and public trust in business, otherwise we will not be able to develop a modern market economy and create a healthy civil society”. Vladimir Putin called on expert community to discuss the ways of closing unfair privatization issues and proposed to use a tax maneuver to achieve that task. The essence of this maneuver is that the Government is not going to increase the tax burden on non-com-modity sectors of the economy, but it should use the reserves for expanding tax revenues available, first of all, in the taxation of prestigious consumption. Besides, Vladimir Putin emphasized that “key steps should be taken this year so that next year owners of expensive houses and cars pay more tax”14.

However, there are no assignments on these tasks in the execute orders issued on May 7, 2012. And the country is unlikely to develop sustainably without any visible decisions on social justice as the most important problem in Russia today.

The President has promptly made a number of organizational decisions over the first months of his work:

• •    the Council for Economic Modernization and Innovative Development under the President of the Russian Federation has been established in order to ensure the cooperation between the federal and regional authorities, local self-government authorities, non-governmental organizations, scientific institutions, etc.

• •    The Russian Federation Presidential Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security has been established, and the chairman of Rosneft Igor Sechin has been confirmed as its Executive Secretary. The Commission’s decisions adopted within its competence are obliga-

  Table 3. Dynamics of performance indices of Russian metallurgical corporations in 2008 – 2010

Index	Severstal			Magnitogorsk Iron and Steel Works			Novolipetsk Steel
	2008	2009	2010	2008	2009	2010	2008	2009	2010
Average headcount of staff, thsd. pers.	29.5	24.3	22.9	24.1	22.3	21.5	34.2	31.7	30.1
Average wages of employees, thsd. rub. per month	27.9	29.8	33.7	27.8	27.9	34.5	26.0	26.7	30.1
The number of corporate management staff*, pers.	10	10	10	31	20	25	18	18	17
Remuneration** per one manager, mln. rub. per month	10.7	5.8	5.6	2.0	2.1	1.2	0.9	1.1	1.4
Net profit, (loss), bln. rub.	38.6	1.4	(39.6)	10.1	27.4	24.4	71.7	24.0	32.4
CIO wealth , bln. rub.	126.3	299.4	563.9	73.5	296.4	341.4	152.8	477.8	731.5
To 2008, times***		2.4	4.5		4.0	4.6		3.1	4.8
* Corporate Management bodies are as follows: Severstal – Board of Directors; Magnitogorsk Iron and Steel Works – Board of Directors, Collegial Executive body – Management Board, the Sole Executive body – Management Company, Novolipetsk Steel – Board of Directors and Management Board. ** All types of remuneration are included: salary, bonuses, refund of charges, dividends, etc. (excluding payments to the key owners of plants, including dividends). *** According to The Forbes.

14 The speech of Vladimir Putin at the ХIX Conference of the Russian Union of Industrialists and Entrepreneurs. Official site of V. Putin. Available at: tory for federal and regional executive authorities and local self-government authorities.

• •    The construction management of facilities for 2014 Winter Olympics in Sochi has been strengthened. At the meeting on preparations for the Olympic Games (May 11, 2012) Vladimir Putin stressed that as the Deputy Prime Minister in the Government and responsible for overseeing this work, D.N. Kozak had the right to express the Government’s point of view.

• •    Special attention is paid to strengthening the country’s military-industrial complex. The membership of the Military-Industrial Commission of the Russian Federation has been renewed. The Deputy Prime Minister D.O. Rogozin has been confirmed as the chairman of the Commission.

• •    In spite of 2011 staff re-attestation in the Ministry of Internal Affairs, Vladimir Putin has made significant changes in the personnel of the central apparatus of the Ministry.

• •    The Federal Law on Amendments to the Russian Federation Code of Administrative Offences and the Federal Law No. 65-FL On Assemblies, Rallies, Demonstrations, Processions and Picketing as of June 8, 2012 have been approved. They are aimed at introducing greater administrative liability for violation of legislation on rallies.

• •    The Investigative Committee of the Russian Federation has made the organizers responsible for the riots in Moscow on May 6.

• •    The President of the Russian Federation has represented a sufficiently clear Russia’s position on acute international issues at the 2012 G-20 Mexico Summit on June 18 – 19.

It appears that these actions are right.

In conclusion, I would like to pay attention to the fact that there are fundamental questions of development strategy of country’s economy which, according to the opinion of reputable experts, should be submitted for President’s consideration in the near future. These issues are expounded most clearly in the article by the RAS Academician S.Yu. Glazyev

“Why is Putin?” ^{15 9}: “The above-mentioned positive changes in government policy are still very unstable. In order to ensure a strong upward flow of socio-economic development, the Government has to re-learn the tools of the appropriate policy that had been lost over two decades of the Washington Consensus”.

The first of them is an independent monetary policy based on the needs of economic growth. Binding ruble emission to the increase in foreign exchange reserves has deprived the state of the ability to manage the economic development. Emitting rubles just for the euro and dollar-buying, the Bank of Russia automatically sends the economy into the mainstream of external demand service and dooms it to be a resource colony and a financial donor of the neighboring countries.

The second tool is a currency exchange regulation, protecting the financial system of the country from the destructive attacks of currency speculators and allowing them to increase internal sources of credit. Its removal made it possible for oligarchs to export capital illegally and keep back their incomes from taxation abroad. The third tool is an income levelling tax policy. Having rejected the progressive scale of income tax, inheritance taxes and gift taxes, the Government followed the oligarchs and corrupt officials’ lead and exempted them from the tax burden of over-income legalization including illegal profits.

Vladimir Putin will have to master these well-known policy tools of the modern state. Otherwise, he will not be able to solve his own program objectives of economic modernization and transfer it to an innovative path of development; he won’t be able to provide business with long-term loans, ensure the growth in labor productivity, support economic and creative activity of the population, reduce a poverty rate and social inequality, as well as he will not be able to improve the competitiveness of the national economy”.

As in the previous issues, we publish the results of the recent public opinion monitoring of the state of the Russian society*.

The following tables show the dynamics of some parameters of social well-being and sociopolitical sentiments in the Vologda Oblast for the period from April 2011 to April 2012.

Estimation of power activity (How do you assess the current activity of..?)

Vertical power structure	Approval in % to the total number of respondents								Dynamics indices, Apr. 2012 to 8 months 2008		Dynamics indices, Apr. 2012 to Feb. 2012
	8 mnth. 2008	Apr. 2011	June 2011	Aug. 2011	Oct. 2011	Dec. 2011	Feb. 2012	Apr. 2012
The President of the RF	75.0	61.9	62.7	62.1	56.6	51.7	47.3	50.3	0.67			1.06
The Chairman of the Government of the RF	76.4	64.3	60.3	60.4	59.1	52.9	52.6	51.7	0.68		0.98
The Governor of the Vologda Oblast	57.8	46.1	46.7	49.5	47.7	41.9	37.7	37.7	0.65			1.00

Vertical power structure	Disapproval in % to the total number of respondents								Dynamics indices, Apr. 2012 to 8 months 2008	Dynamics indices, Apr. 2012 to Feb. 2012
	8 mnth. 2008	Apr. 2011	June 2011	Aug. 2011	Oct. 2011	Dec. 2011	Feb. 2012	Apr. 2012
The President of the RF	9.3	23.5	22.1	19.7	29.0	35.7	35.7	33.3	3.58	0.93
The Chairman of the Government of the RF	10.4	22.3	24.3	21.4	24.7	32.7	32.0	33.1	3.18	■	1.03
The Governor of the Vologda Oblast	19.9	31.1	29.5	24.4	32.1	36.1	33.8	32.6	1.64	0.96

What party expresses your interests?

Party	8 mnth. 2008	Apr. 2011	June 2011	Aug. 2011	Oct. 2011	Dec. 2011	Feb. 2012	Apr. 2012	Dynamics indices, Apr. 2012 to 8 months 2008	Dynamics indices, Apr. 2012 to Feb. 2012
United Russia	40.5	35.9	34.0	33.7	29.8	26.1	26.0	28.3	0.70	1.09
KPRF	6.8	9.7	8.2	10.0	12.1	13.4	10.1	11.4	1.68	1.13
LDPR	7.7	7.5	6.9	7.5	9.1	9.2	9.1	9.5	1.23	1.04
A Just Russia	5.0	3.2	5.7	2.7	5.6	13.9	10.2	8.2	1.64	0.80
Other	1.4	1.7	1.1	2.4	3.1	4.6	3.1	3.2	2.29	1.03
No party	20.1	28.8	30.4	28.9	28.1	23.9	25.7	28.6	1.42	1.11
It’s difficult to answer	13.7	13.1	13.7	14.8	12.2	9.0	15.8	10.8	0.79	0.68 1

Estimation of social condition

In % to the total number of respondents								Dynamics indices, Apr. 2012 to 8 months 2008	Dynamics indices, Apr. 2012 to Feb. 2012
8 mnth 2008	Apr. 2011	June 2011	Aug.2011	Oct. 2011	Dec. 2011	Feb. 2012	Apr. 2012
What would you say about your mood in the last days?
Usual condition, good mood
70.2	64.0	64.5	66.7	64.7	64.2	62.9	63.4	0.90	1.01
Feeling stress, anger, fear, depression
22.1	28.1	29.4	24.1	29.4	30.2	33.5	30.2	1.37	0.90
What statement, in your opinion, suits the current occasion best of all?
Everything is not so bad; it’s difficult to live, but it’s possible to stand it
81.0	76.1	78.0	73.2	73.9	78.6	74.9	76.5	0.94	1.02
It’s impossible to bear such plight
10.9	16.1	15.9	11.3	15.8	14.1	18.1	16.8	1.54	0.93
Consumer Sentiment Index
107.5	90.1	86.1	92.9	88.5	85.6	89.8	90.1	0.84	1.00
What category do you belong to?
The share of people who consider themselves to be poor and beggars
39.8	46.8	43.9	40.8	44.6	41.9	43.2	43.6	1.10	1.01
The share of people who consider themselves to have average income
50.7	42.4	46.1	46.2	41.8	42.2	44.9	46.5	0.92	1.04