The world had not had such a set of economic troubles similar to that we dealt with in 2008. The collapse of the US mortgage market last summer caused the economic decline and downfall of the mortgage pyramid of the Wall Street. The global rise in price of credits, engendered by financial crisis, and the oil prices going up boost the inflation. The gap between the world demand and supply of the food led not only its price going up but also to revolts of the hungry in the poor countries. The tangle of the crisis occurrences is getting so large-scaled that even the smartest experts cannot predict exactly the future of the world economy. And it’s in such distempered times that Russia is hurried to enter the WTO.      

Doubled traction

The global troubles only have indirect affect on Russia’s economy. They don’t decelerate the rate of the economic growth and are only one of the reasons for going up inflation. Incidentally, it does not seem to be a good idea to call Russia to be “an island of stability in the sea of the financial crisis” only because of her stable high rates of development. However, it’s the Russian market that helps the world economic development providing it with “double traction”. It absorbs the growing flows of the foreign goods, services and capitals and supplies the outer world with greatly-demanded energy carriers.      

However, whatever paradoxical might it look, neither economic growth nor extending participation in the international exchange can prove the readiness by Russia to become a member at the WTO club. If we join WTO now, it will take us long to become one of the leading post-industrial states, and we shall stay the raw-materials-supplying province of the world economy.     

It’s Russian current state-oligarchic capitalism that placed Russia in her profitable but not promising place. Its flourishing is based on a bunch of industries – oil, gas, steel, aluminum, non-ferrous metals. With today’s world conjuncture it’s those materials that secure the high rate of profit. The monopolies and oligopolies of the industries above not only have become the world leaders, but they are extending their oversea operations buying up the foreign assets. This global expansion requires to be strengthened in the world economy through joining WTO by Russia.   

The Dutch Disease

The matter is that economic growth itself is not an indication of economic well-being. High return out of export of the raw materials often reduces competitiveness of the ready products and causes the rise of exchange rate of the national currency, and boosts the inflation. All those are symptoms of a condition known by economists as “Dutch disease”.   

The collapse of diversified soviet economy led to dependence by Russia on import of practically all kinds of goods (with the exception of raw materials, fuel and arms). Whatever it was – home appliances or cars, information or biotechnologies, meat or dairy products – Russian manufacturers are not able to satisfy the demand by the home market. Today the imports cover about a half of the consumer’s demand, while general dependency on import is over 20% (the US has the figure twice as small).   

In case of our joining WTO the import dependence would increase as thousands Russian enterprises are not ready yet to compete with foreign companies on equal grounds and they would have to curtail production. It’s not the WTO rules that are the reason for inequality: after hard talks the government managed to arrange acceptable conditions for our business. And the procedure of joining provides for transitive period of limited access of the foreign production to our home market, which in theory is to allow the home business to adjust to the new situation.  

In other words, the threat of participation in WTO comes out not from necessity to observe the norms of the international trade in the home market. The lack of basic conditions for raising competitiveness of the domestic business is even bigger threat for Russia’s economy out of openness to the world market. Poor competitiveness of the home economy and low effectiveness of working of political, administrative and legal institutions are chief limiting factors for market development of Russia.   

Limiting factors in action

Corruption has become a national disaster in Russia in recent years. According to evaluation reported by Deputy Prosecutor General Alexander Buksman, the profits out of corruption came up to $240 billions. This amount is almost twice as big as that of all the profits of the consolidated budget of the Russian Federation in 2007. And bribes are nothing but toll paid by the businessmen extra all the taxes, and they anyway have to compensate it at their customers’ expense. In other words, it’s initially that corruption makes Russian business uncompetitive compared to foreign enterprises that do not pay such a toll.  

Unlike other countries, inflation in Russia is engendered not with monetary, but pricing reasonsw. It’s fed not by the price rise for imported food items, but rather with sanctioned by the state raising the monopolist prices for energy carriers, transport and municipal services. As long as such policy of encouraging non-transparent pricing goes on, the domestic business would not be able to count on reduction of production expenses. 

Productivity of labor. Being equal in this respect to a Chinese worker, a Russian one has wages twice as big. However, this does not discourage foreign capital from making investments into Russian-based production, as equipping the labor with modern technologies makes productivity significantly higher. According to the poll by the European Business Association in Russia the productivity of labor at the Russian-based branches of the western companies increased from 25.5% in 2001 to 73.9% in 2007, calculating it from the average level in the EU countries.     

To increase productivity, it is necessary to accelerate re-equipment of the means-production-making branches. But the trouble of the Russian economy is that created in the USSR material base for renewal of the main capital of the processing branches is out of action. Renewing the production facilities would take at least five years even with active participation by the state. 

Preferential treatment

It is expected that in a few weeks the government will publish the long-ago-promised program of social-economic development of Russia up to 2020. It’s no use trying to guess how the issues related to joining WTO would be reflected there. But there is a hope that the program will include the main principle of this many-sided trade organization – that’s the most favored treatment. Our business needs this principle to be applied practically inside the country even more than outside.  

To give an idea of what we can have in case of hastily done joining WTO I shall adduce an easy example. This year our country will become the first in terms of car sales and after two-three years also in terms of car production. In the meanwhile, the first in the country multilane highway Moscow-St Petersburg will be put in operation not earlier than after three years. So it’s not enough just buying a car to have an opportunity to enjoy it. It’s necessary to have an opportunity to drive it on quality and safe roads. Otherwise, it will have to be repaired constantly due to our bumpy roads.   

Russia has not yet built the highway leading to effective membership in WTO. So there is a sense at least to start this construction before joining. Ukraine has ventured to enter WTO in the state the country is now. Maybe, it would be sensible to see first what is going to come out of it?  

About author

20 years ago Felix Goriunov was the first soviet journalist accredited at the Conference of the trade ministers from the countries-members of the General Agreement on tariffs and trade, which was re-named into World Trade Organization in 1995.