Factors determining Russia’s long-term growth rate
In the decade of the 2010s, the pace of economic growth in Russia slowed down to an annual rate of below 2% and most forecasts suggest that this is will be the new “normal” for the Russian economy at least in the medium-term. While politically and socially disappointing, such a growth slowdown is unavoidable due to adverse demographic trends. A combination of a shrinking working-age population and population aging must lead to a lower growth pace as compared to the period when the working-age population was still increasing and the effects of population aging were limited (the decade of the 2000s). Compensatory measures such as a gradual increase in the retirement age and an open labor migration policy, although economically positive, can only partly mitigate the negative effects of a shrinking domestic labor force. In this respect, Russia does not differ from other European countries and some Asian countries. However, demography and shrinking labor supply cannot fully explain low potential growth. Stagnation in total factor productivity is another reason. It results from a poor business and investment climate, difficulty in diversifying away from the dominant role of the hydrocarbon sector, and deteriorating political and economic relations with the US and EU which limit trade, investment and innovation opportunities. To increase its potential growth, Russia needs comprehensive economic and institutional reforms that, in turn, will be conditioned by political reforms and by improved economic and political relationships with the US, the EU and Russia’s neighbors.
We expect economic growth to remain strong in Poland and Latvia in 2016. Despite this robust growth, the new Polish government is likely to soften monetary and fiscal policies to further stimulate the economy, in our view. In 2015, the Latvian economy demonstrated strong resilience to external shocks.
Institutional balance in Europe, issues of governance
There is a sharp contradiction between public policies to support SMEs and features of Russian national SMEs. Using western experience in Russia, doing some bright projects to stimulate small businesses was important twenty years ago. Quantitative and qualitative parameters of SMEs in Russia lag behind most countries, largely due to the structure of its economy with the traditional dominance of large enterprises
and the prevailing business climate. Small and medium-sized business in Russia is not innovative, does not perform antitrust function and does not create many
jobs. Small and medium-sized business generates a positive competitive environment. But the importance of SMEs in Russia should not be exaggerated. The scale of subcontracting and franchising with independent small businesses in our country is extremely small. It happened so that the Russian economic policy and the leading part of the national political establishment were in a subordinate position in relation to the interests of a narrow circle of large businesses, mainly engaged in production and export of the most important natural resources. Manufacturing, infrastructural and other facilities of big business, its supply and marketing relations and, most importantly, its long-term economic interests focus on large enterprises and, with few exceptions, show no interest for the SMEs sector. The situation is exacerbated by the fact that the Russian system of economic institutions encourages big business mostly. It also proves an essential specific situation of small and medium-sized businesses in Russia. The development of Russian small and medium-sized business entirely depends on the state of the economy and the business climate in the country. The business climate in Russia does not correspond to the needs of small and medium-sized businesses. Measures to improve the business climate can potentially help Russian small and medium-sized businesses much more than the existing costly system meant to support them. It is obvious that the whole Russian system for SMEs support, fold increase in the federal budget to support Russian SMEs occurred in the recent years, is unable to compensate for a generally unfavorable business environment in Russia. It is necessary to improve the quality of investment, business climate and institutions in Russia. The real growth of the Russian SMEs can be expected only with the modernization, new industrialization of the Russian economy and business climate improvements.
We address the external effects on public sector efficiency measures acquired using Data Envelopment Analysis. We use the health care system in Russian regions in 2011 to evaluate modern approaches to accounting for external effects. We propose a promising method of correcting DEA efficiency measures. Despite the multiple advantages DEA offers, the usage of this approach carries with it a number of methodological difficulties. Accounting for multiple factors of efficiency calls for more complex methods, among which the most promising are DMU clustering and calculating local production possibility frontiers. Using regression models for estimate correction requires further study due to possible systematic errors during estimation. A mixture of data correction and DMU clustering together with multi-stage DEA seems most promising at the moment. Analyzing several stages of transforming society’s resources into social welfare will allow for picking out the weak points in a state agency’s work.