[SOUND] Hi once again. Today, we continue the analysis of the Russian economy in transition and we pass onto the rather long list of challenges to the current economic development in Russia. There will be two lectures dedicated to the topic. With some of the challenges you are more familiar with. Less, but any way we'll try to treat them in non-conventional, non-traditional way. Stimulating thinking, stimulating brain work, and we'll try to outline the most important challenges to the present economic development because otherwise the list is too long and we can't go on through all of the list. So there will be definitely some preference given to my thinking most important challenges and let's go through the list. Starting analysis of challenges of Russian economy in transition, we should not avoid to mention some political challenges to transition, although political issues are not the topic of this lecture, but there's a direct link between some of the most important political changes in Russia and economic development. Then it is worthwhile at least to mention a couple of things about this link. The first challenge I call it transition trap. Russian economy transition trap, you will understand why it is a trap either way of doing things seems to be not the best solution. So what is the transition trap for Russian economy? In fact, we have analyzed the history of Russian economy and transition, and right from the start, we realized that Russia was in a very difficult situation. Without the consolidation of political power, probably the transition was not possible at all. So in order to make it possible, in order to make the transition happen, it was necessary to consolidate political power. But risk consolidation as you know from the history of Russia. Definitely, it led to deviation from one of the major principles of the functioning of the market economy and democratic society. The one which is called the checks and balances. And you are definitely familiar with that. Within the society powers should check and balance themselves and to each and every power there should be an equal power to control another power. And then within this checks and balances there is no monopoly of power and if there is no monopoly of power we know. The ethics of monopoly are on economy functioning, so in a similar way this is a kind of handicap for the development or the society according to the well accepted norms and rules. So, as a result of that shift, In the checks and balances system, major decisions are taken very often by just one person, the president himself. And then they depend to a logic stand on personal perceptions of that person. If those perceptions are right, then we move on in the right direction, which often happens, but if they are wrong then, we make mistakes. Dependence on one man in such an important issue has transitioned into a completely new system, to a system of market economy that's probably not the ideal situation. Probably we could not expected it, another situation because otherwise, as I have told you already, probably the transition would not be possible at all. But anyway, public filter on major economic decisions does not work. And that's a challenge. In a way that's a trap, because we don't know how to solve this issue, solve that problem. Well, we'll have to take it into account, and we have to live with that. For the time being, we have to take on this reality. Another important issue which is worth a mention, that's a link between democracy and economic growth. That's also a very important issue. Is there a direct link between democracy, between how much developed and how much ripe is democracy in a state, and the pace of transition, the pace of economic development. Whether there is a link between those two core issues of any society development. Let's first listen to the wise men, what do they think about the issue? Here I have a quote from Jim O'Neal from Goldman Sachs, and everybody knows him by inventing the acronym BRICS. It used to be BRIC at that time when Jim O'Neal first spoke about Brazil, Russia, India, and China. So quite, Quite a range. So anybody can have trust in a personality which could invent such an acronym and make the preliminary analysis of the future of those countries which occur to be right in many respect. So what this guy thinks about democracy and economic development. So I quote, there is a link. Things Jim O'Neal, democracy is a function of economic development. You can have this quotation from Forbes published back in September of the year 2011. And more than that, there’s a further analysis to the issue. What kind of a link between democracy and economic growth? And then, that's even more surprising, it's more a surprise. At least, when I first read that, I was quite surprised about that kind of analysis. Again, you can have at look at quotation, as Jim thinks reaching GDP of about $30,000 on per capita level will push the country to democracy. So, the assumption is if the wealth where state reaching a certain level of wealth then there are a lot of people who are interested to protect this wealth. And then there is a push, a national push, for the country to become more democratic. Because in a country where a lot of poor people live, probably there's no room, or at least, that's not my thinking. There's no room for establishment of a solid democratic state. So let's, again, let's try to understand whether this kind of thinking is a correct one. Is there, such a direct link? Frankly speaking I doubt it because we know a lot of examples from the history where non-democratic countries had showed quite spectacular pace of economic growth. Even dictators who controlled countries like in Chile or in Portugal. At the time of those known democratic countries, there was a clear fast economic development for the economies they controlled. So probably, There's no such evident link. Or at the time where Germany used to be a quite well-developed industrial country and criteria should be different for the old times, that's for sure. So it didn't prevent from Nazis coming to power, so probably there's something missing in that kind of theory. What I think is right and I want you to share this thinking and to think it over yourself. Probably there is a link. But the link is a bit different. I think that the way the welfare is distributed within the country is very much dependent on the level of democracy, of development of democracy within the state. The more democratic the state is, the more evenly the wealth is distributed within this economy, within this country. Probably, that would be a more correct thinking about a link between democracy and economic development. Well, but certainly there is a certain link so and if there is a link then we have to make our own conclusions to which extent the deficits of democracy within the Russian Federation do influence, do impact the economic development and economic transition within this country. So that's a tough question, that's a tough thinking. I leave this question for you to decide upon. We move on to further challenges. I've just mentioned a couple of them, which seem to me among the most important ones. Having the political and democratic dimension, at least those two issues had to be mentioned. Without mentioning them the analysis would not be complete, certainly in such a special case as Russian economic transition, so we have to take that into account for sure. [MUSIC]
