The report “The Economics of Growth” presented by the Stolypin Club offers urgent measures to get the economy out of the crisis by expanding the money supply and unprecedented benefits for entrepreneurs
First of all, many noticed that the report of the Stolypin Club was prepared by a group of authors whose economic views usually did not converge or were opposed (academician Sergey Glazyev, business ombudsman Boris Titov, deputy head of VEB Andrei Klepach, professor Yakov Mirkin and others). The main ideas of the report are not new, but their unexpected combination looks like an explosive recipe for economic recovery, the opposite of the current sluggish economic policy of the government. Among the key proposals that caused the greatest skepticism are the annual issue of money in the amount of 1,5 trillion rubles, the distribution to industrial companies of loans for 4 – 5% per annum, systemic ruble depreciation, and the creation of a single crisis management center for the economy with direct subordination to the president. What is behind these initiatives and, most importantly, to what extent all this is feasible, Boris Titov, a member of the Stolypin Club, authorized by the President of the Russian Federation to protect the rights of entrepreneurs, told Expert.
Boris Titov is sure that there will be no "fat years" when oil was expensive, and urgent measures are necessary for the re-industrialization of the country
- Boris Yuryevich, you are proposing to change the paradigm of the government’s financial unit and make a hundred and eighty-degree turn - from curbing inflation to stimulating GDP, which, in your opinion, can then grow to 10 percent per year. They have been arguing about this for a long time, but where does the confidence come from that the government will suddenly do?
- Yes, we argued a lot about this before, but there was no need to change something radically, since these were obese times of high oil prices, and they are unlikely to ever return. Taking into account the multiplier effect within the country, the contribution of raw material exports to the budget was up to 80 percent, and suddenly it was cut off twice. This gave rise to acute underfunding of the economy, moreover, the government chose a course to reduce lending to the real sector. Purposely drain the money supply will continue to be detrimental to the economy. Therefore, if today the government is not yet ready for drastic changes, apparently expecting that everything will be formed by itself, then the situation will soon reach an extreme. And it will be necessary to adopt systemic changes in the economy in order to learn how to earn not on raw materials, but in actual production, without fear of inevitable risks. And then we will move from talking about import substitution to real expansion of our production, from direct sale of raw materials to deepening its redistribution within the country, which means there will be an environment for the development of innovations and, as a result, more reliable sources for the budget.
- That is, when it comes to the handle and the authorities rush to look for the right tools, will they find them in the report “Growth Economics”?
- He will find them in the expert community, because our main task now is to organize a kind of public brainstorming. And when, in fact, the situation reaches a dead end (and this already manifests itself in places), the expert community will be able to propose solutions that have already been worked out. Let it be a variety of solutions, up to the elements of a planned economy in some industries (although I think this tool, if needed for a while, cannot work for a long time). By the way, therefore people of the most different economic views are ready to subscribe to our report. And liberal economists, and the so-called state dirigiste.
- Therefore, among the authors was Sergei Glazyev - as a step towards the symbiosis of ideas?
- Partly yes. By the way, with academician Sergei Glazyev we agreed on a compromise solution to include partly the idea of additional emission. We believe that new money should be directed only to the creation of new industries and the expansion of existing ones. He offered to supply the defense industry, the municipal sector and others.
- That's just about the most controversial situation: you propose to print a half trillion rubles a year and thus double the money supply in the economy. But there is a fear that this will blow up inflation, even if only money is let into the production private sector. What can convince to go for it?
- The same need for cardinal changes. The problem is in the same habit that has been formed since the beginning of 2000, when all the key reforms were carried out, the economy started working, took off - and then it was enough just to restrain turbulence by tightening monetary policy. For a long time this was justified, but again, mainly because high raw material incomes were saved. The United States, for example, also tightly targeted inflation and tightened the belts of the real sector. But during the crisis of 2008 – 2009, they abandoned this policy and switched to quantitative easing at the expense of the printing press. To start the blood supply to the economy, they were issuing money, and it came to life. The European Central Bank has also resisted for a long time the change of the inflation targeting paradigm, but now, as a result, it releases monthly on the production stimulation by 60 billions of euro. We are objected that in the West it is possible, because there is low inflation, and we have high, therefore, they say, quantitative easing in Russian will not work. But if you look at what monetary inflation is now composed of, which should depend on the ratio of supply and demand in its pure form, then it becomes clear that when implementing our complex of proposals, it may turn out to be negative. The fact is that now it is high mainly due to exchange rate differences, while the demand that allegedly warms up inflation has decreased in many industries. We, in fact, import inflation together with the more expensive currency products. The second generator of current inflation is the rising costs of producers along with tariffs. Therefore, in such a situation, there is absolutely no point in restraining something by further draining the money supply.
- That is, do you think it is possible to make printed money turn into goods faster than prices rise on the market?
- If they are properly placed. It is necessary that they go to specific investment projects of new industries with high added value (of course, not to expand the extraction of raw materials). Then the ratio of assets will grow in proportion to the money supply, which eliminates inflation by itself. We offer three areas of application for such investments. The first is the refinancing of commercial banks for loans at a rate of four to five percent for specific private sector investment projects. We already have a law to establish project financing societies that will issue bonds for business plans, and the Central Bank will accept these bonds as collateral for refinancing loans with equity money. In this case, the money will not go to the currency market1, it will be difficult to withdraw them abroad, since project financing societies require special control, including that from banks. The second area for investment is housing. By making low mortgage rates and giving cheap loans to builders, we can significantly fuel the economy, as experience in many countries shows. The third direction is syndicated (with the participation of several banks or guarantors) loans to small enterprises. I emphasize: this is about stimulating only the private sector of the economy. The saturation of production with cheap money will provide another additional, but important effect: taking the business out of the shadows. In the new funded projects, everything should be transparent, and so many entrepreneurs want to work, who cannot withstand the general fiscal and credit burden.
- In the first five years of reforms, you propose to restrain the strengthening of the ruble, keeping its rate at least ten percent below the level of the currencies of trading partner countries. How does the balance of interests of importers, exporters, and also domestic producers, which are mostly dependent on imports, be calculated here?
“There’s nothing revolutionary here.” Holding the ruble rate at ten percent below the weighted average exchange rate of trading partners, we just get about 65 rubles per dollar. But at the same time we will receive a competitive advantage, which guarantees the return on investment of new projects and will gradually help to reduce the import dependence of other industries. We are objected that the massive expansion of enterprises will cause a shortage and a rise in prices for the means of production, materials, raw materials used and so on. At first, yes, but affordable financing will soon help to close this deficit due to the entry of new players into the super profitable types of business, while undervaluing the ruble exchange rate will just allow competing with importers.
In general, this point has caused, perhaps, the most heated debates among entrepreneurs, especially among large importing companies. But we must understand that everyone should participate in the restructuring of the economic model. And we decided that at the first stage of the reform, when imports are not so important, it is better to have low costs in the domestic market.
- Among the tools for undervaluing the ruble exchange rate, you call the payment of taxes by exporters in foreign currency and the limitation of banks' participation in currency speculation on the exchange. But the Central Bank can now do it, but it does not, because for banks it is a kind of airbag?
- I don’t think that large state banks should give such a pillow, but they don’t need to restrict small ones, they already have small volumes of trading on exchanges. Although indeed, such tools really exist now, but for some reason they are not used. For some reason, letting the ruble go free, stopping foreign exchange interventions, the Central Bank did not use the balances available to it. In the end, bubbles are obtained when speculators take money at five percent in the West, receive fifteen percent in a day on the Russian stock exchange — and so every day without any restrictions.
- We have already used the limitation on the growth of tariffs of natural monopolies as an anti-crisis measure, but you and your colleagues see it possible to tie them to the actual increase in producer prices over five years. Also an element of a planned economy ...
- Why not, but again for a short time. Today, we have an average of fourteen percent profitability of commodity enterprises, and four percent in the economy as a whole. This difference is a good start for growth. Another thing is that, along with this, it is necessary to stimulate the supply to the domestic market for processing, and not for export, what we are doing now by a tax maneuver, reducing the export duty. Therefore, we generally propose to refuse to refund VAT to primary exporters of raw materials.
- As for tax initiatives, everything is recognizable: the return of the unified social tax with a concession for small businesses, the progressive scale of PIT ... But isn't the general concept of shifting the tax burden from the producer to the consumer fraught with social discontent?
- There will also be no dissatisfaction here, since by that time new productions will start working at the expense of the initial shock tax measures - this is a tax concession (on VAT, tax on profits, property and land) in the amount of a quarter of the cost of the purchased equipment, as well as its accelerated depreciation . At this stage, you can enter a regressive scale of social tax depending on labor productivity. The logic is that at high-performance enterprises the earnings are higher, and the employee himself can decide whether to spend his money now or put it into a pension fund or additional medical insurance. And then, at the next stage, when the economy as a whole warms up, one can already lower the basic UST rates by canceling the funded part of the pension, but only if there are tax incentives for private pension savings. At the second stage, it is necessary to actively apply and differentiate the VAT by types and groups of goods depending on their social, regional and sectoral significance. Then you can begin to structure taxes on production in the direction of consumption, as in all developed countries.
- That is, to take more where they spend wasted, and less where they invest in business. But what about the proposal to levy a coefficient to offshore accounts that manufacturers are now using to invest in their own production?
- With a comprehensive implementation of the economic growth program, production workers will have fewer reasons to hide money in offshores. This will only be necessary for those who are hiding even from benign taxes. Thus, if a company has an offshore owner, then it pays a tax on property, land and profits here with a coefficient. Then it will be difficult to evade taxes. For example, in Spain, if the property is owned by a local company, the tax is lower than a percentage, and if it is offshore, then it is already much more.
- Let's go back to the procedural questions: how will you promote all this? How to make this tectonic shift primarily in the minds of the government?
- Or maybe it is not necessary there are shifts already. We believe that in order to implement urgent systemic measures to improve the economy, it is necessary to create a Development Management Center, which will report directly to the president. By analogy with the anti-crisis commission under Igor Shuvalov, in a crisis year of 2009, this structure will be able to make all operational decisions on the implementation of strategic initiatives. But first, the basic positions of the report should be discussed with a wide range of experts, calculated (by the way, positions on taxes, money supply are already calculated) from different positions and in terms of effect for key industries and related industries. In a word, it is necessary to form an intelligible program that can already be proposed for approval by the president. And then the government will no longer have to fear to take decisive steps, but only execute the relevant presidential decree in close cooperation with the new structure of economic management.