The article below, written by Mikhail Khodorkovsky, appeared in The New Times on November 28, 2011:

Election campaigns – be they parliamentary or presidential – this is not at all just a competition of political ambitions, but also an opportunity for a public discussion about what direction the country must be moving in.

Our Russia today produces around 3% of the world’s GDP, while accounting for 2% of the world’s population. In a word, we are just an average country in terms of our level of development. And indeed, this is why we have the standard of living that we do and are able to “boast” about at present. There are three possible paths Russia can take from this not very cheerful position.

Between China and Africa

And so, the first path: be satisfied with the position we are currently in. Grow at the same rate as the world is growing.

It is unlikely that this would suit us, inasmuch as the bulk of the Earth’s population does not live in the West at all, the middle ground – a little place between China, India and Africa, moreover noticeably deteriorated. Given our harsh climatic-and-natural conditions and corruption on a par with Africa’s, we end up having incomparably greater costs for transport and for heating our homes. Russia today is somewhere between 50th and 60th place among the world’s countries in per capita GDP (both at the nominal ruble exchange rate and in terms of purchasing power parity). And if the Russian economy continues to grow at its current rate of 3.5%-4% per year, then it is not very likely that our ranking will ever rise much higher than that: Brazil, Kazakhstan, and Mexico are growing at a faster pace and are already “breathing down our necks”.
Russia needs to grow at an outpacing rate, otherwise the gap in the standard of living and quality of life between us and the developed countries is only going to keep on increasing with each passing year. After all, their growth may be slow, but they are starting from a much higher “baseline” than we are.

Not by oil alone

The second path: achieve a redistribution of global GDP in our favor on the assumption that world prices for raw materials – primarily energy – will continue to rise. Alas, it may be hard to accomplish this.

First, the dynamics of energy input prices are not something we have all that much control over. That is, for Russia, they are an external factor that we are in no position to influence in any substantive manner or qualitatively. To base a country’s (any country’s) long-term economic strategy around factors that fall outside the zone of rational national control is, to put it mildly, not a very farsighted approach.

Second, Russia’s share of the world’s production of energy inputs caps off at 10%, and there is no real prospect for any significant increase in this number. We will need to spend more and more money with each passing year just to maintain our oil and gas production at current levels. But it may turn out that 3-4 years down the road, all those huge investments that had been made in the development of the Shtokman field and in the construction of “Nord stream” and other pipelines may end up requiring a really really long time to pay for themselves, especially if world production of liquefied and shale gas grows at the rates that are currently being forecasted.

Third, if oil prices actually do increase to the level needed to create a noticeable improvement in the state of things in Russia (all the way to $200 per barrel by the year 2015), this will serve as an exceedingly strong incentive towards the implementation of already proven energy conservation and alternative energy programs. Northern Europe’s energy strategy, which aims to eliminate dependence on fossil fuels in the foreseeable near future, – is quite impressive indeed.

Well, and finally, the economic model that works so well for Kuwait or Saudi Arabia – countries whose prosperity and well-being are entirely based on oil and gas – is hardly applicable to Russia: there are just too many of us for everybody to be able to live well merely on account of incomes from the export of raw materials, which, on top of that, are not the cheapest to produce.

An economy of the smart

The third possible way out of the current situation – “industrial breakthrough”, an increase in Russian production. But there is no reason here to get intimidated right away by thinking that our lag in labor productivity compared to the developed countries is all that significant. All this means is that our country has significant potential opportunities.

After all, just about any rational path for Russia’s development could be called “industrial”. To put it in simpler terms, contained within this precise broad concept are two alternatives: traditional industrialization (or “mass production”) and the “knowledge economy” – the industrialization of individual newly created products and technologies.

I am convinced: following the traditional path – of “developing mass production” – would be a huge mistake for Russia. There is no doubt that if we went and invested a significant part of our financial resources and of the country’s potential, we could import a significant quantity of relatively modern manufacturing processes, and even fine tune them to produce the corresponding mass output – cars, clothing, various machine tools and the like. We would be able to provide for our own needs with this output and even offer something for export. However, in taking such a path, we would exhaust the opportunities we have today and would remain pushed back by decades from the advanced countries. Russia can not produce every kind of modern-day goods just to be self-sufficient: although we do have a large domestic market, it is not so large as to ensure sufficient demand for many manufacturing processes. Furthermore, there is, practically, not a single country in the world today that is following this path. This means that it is knowingly imperative to orient ourselves at international economic integration, and, consequently, we have to search for and rely on our own competitive advantages. We do not have the competitive advantages to be able to organize the overwhelming majority of mass production processes. We do not have hundreds of millions of relatively cheap working hands, accustomed to constant monotonous labor (like China does). We do not have (not most of the country, at any rate) the advantages being located on the seacoast.

Our lines of communication are stretched out on land for thousands of kilometers, – and this means, our transport costs are much higher than those of many competitor countries. Our climate forces us to do the greater part of our work indoors, inside heated facilities. And, finally, stationary conveyor belt production is not very much in keeping with Russian cultural traditions. An aptitude for one-time “peak” efforts, for creative conceptualization of technological processes – that is more our style. None of this is much good for a conveyor belt.

Of course, cultural traditions and habits can be broken, and you can change systems of education and upbringing. Do that, and some 30-50 years from now we might end up looking like the Germans or, on the contrary, – like the Chinese. All that is required for this is several decades of totalitarianism, which not only do we not want, but – even more importantly – we would not be able to put up with. And why should we? It is much better to take advantage of the people’s traditionally strong suits – and we’ve got quite a few of these.

The most interesting thing is that these very strong suits are remarkably appropriate for a knowledge economy, for the “assembly-line” development and launch of new technologies, for the manufacture of individual products with a high intellectual component – for everything that requires creative thinking and a desire to go for the new and the unusual, even if it is risky.

It is as if though Russia and our people were specially created for just such a path of development.

But, this path too is not an easy one, and it places the highest demands on the educational system, on the infrastructure, and on institutions of state. Creative, highly educated people – these are the main value in the modern-day world.

The Russian dream

To entice them over to our country with nothing but “remuneration” – is impossible. They can earn pretty decent money just about anywhere, and more money is simply not a serious motivation. The main thing for them is – the opportunity for creative self-realization, something that exists only in an open, democratic society, with quality, properly working state and civic structures. Something America still continues to provide, being to the fullest extent a country with a modern economy oriented at attracting brains from all over the world.

Luckily, there is room for more than one at the top of this “Olympus” of countries. People are just made that way – not everybody wants to live in the USA. And besides, today we can benefit from the American experience and not repeat their mistakes, with all of their overdone political correctness, with their excessively cumbersome legal system and all the other downsides of the “American dream”.

But on the whole, we are a lot like the Americans. We are similar in our ebullient energy, our desire to move ahead, to take risks, and to dream up and invent things. This – is what we are.In the age of the great geographic discoveries, – they went West. We – went East. Both we and they have moved beyond the era of mass industrialization, of building gigantic industrial plants, of manufacturing a countless multitude of identical objects. Some truly useful and necessary, some not all that much. Some good, some merely so-so.

We created this world together. A world of disposable dishware, a world of competitive struggle for minimal costs, a world of cookie-cutter sameness. But now we need to move ahead, in the direction of new knowledge, new technologies, and new kinds of goods. The Americans are already there. But we have fallen behind and have been standing and shuffling our feet at the same fork in the road for 30 years already. Isn’t it time we started moving forward already?