Yakov Pappe: Russia needs open economy strategy

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Yakov Pappe - Chief researcher at the Institute for National Economic Forecasts, the Russian Academy of Sciences.

FT: Good afternoon, Mr. Pappe! At the beginning of the year the main topic at Davos World Economic Forum was the fourth industrial revolution. What does this revolution mean? Does it mean that in the medium term traditional industrial model is going to be substituted by 3-D printing, robotics, etc.? It is clear that revolution (to be more precise – evolution) can’t occur immediately and it will not happen tomorrow. Though today a reasonable question arises: how well is the Russian economy ready for such changes? Could it happen so that we will lose our position in the global technological chain? Roughly speaking, could it happen that in twenty years oil would still be needed, but will become less interesting?

YP: Good afternoon! You know, I can remember the forecasts of the seventies and even of the end of the sixties. At that time a lot of competent people said that nuclear power was on the verge of replacing carbonic and hydrocarbon power. The latter was said to be substituted by thermonuclear power and energy abundance was expected. They seriously suggested that plastic and synthetic fibers would substitute metal as structural material. Since then chemical industry has moved far forward and has even made wings for the Dreamliner. However, steel has remained steel and aluminum has remained aluminum. I don’t look too far ahead. However, during the nearest 15-20 years hydrocarbons will retain their position in the economy, though their demand growth will significantly slow down.
In the world economy our country has been specializing in raw materials over the last 40-50 years. Its main export, what is called commodities in the world trade, has been oil, gas, coal, wood, metals and fertilizers. In recent ten years, corn has been added to this list; in some time meat is likely to enter it. It doesn’t excite me (other people as well), but it does not scare me either. No doubt, commodity specialization does not provide high dynamics and does not correspond to our ideas of a developed economy. In the foreseeable perspective it is a large-scale and reliable (in average) source of foreign currency and government budget incomes. One should only use this source properly.

FT: Raw materials are not the only things, which the USSR and Russia have been known for in world markets, are they?

YP:Our hi-tech does not look bad, at least some of its branches. First of all ‒ military weapons and technology. Russia is known to be the second exporter of them, but this market is politically determined and poorly predictable. In addition, there are nuclear and space technologies. We are among the four leaders, and are likely to remain there, though our position is getting weaker and will continue to get weak.

FT: Does it happen due to technologies? Or will other leaders push us out at the expense of intellectual capital?

YP: It depends. For example, in nuclear plant construction our competitors win over us in the service market because they offer the best funding terms and customer friendlier business strategy. As far as the market of space load launches is concerned, the main threat is a technological one because new American companies with principally new launch vehicles are ready to enter it.

FT: Can we get closer to the “fourth” industrial revolution?

YP: In my opinion, there is a worthy place for the Russian IT sector in this presumptive revolution. 3 D printers and robots are half software. A very powerful Soviet school of programming, early and successful shift to market economy and the use of the global cooperation advantages have allowed Russian IT specialists to compete successfully inside the domestic market and become noteworthy in the world market. Their positions are gradually improving. It is clear that we cannot develop our own Microsoft, Google and SAP due to the real size of our economy and its position in the world. Nevertheless, our software companies and the country as a whole may have one of the best positions in the second row.
This scenario is optimistic and realistic at the same time; but to my mind, it is now under serious threat. The threat comes from the course taken by the current authorities: to substitute foreign software for the national one as much as possible. Why is this course a threat? There are two reasons. First, there is a lot of foreign software which needs substitution while the number of specialists in the industry is limited.
A programmer writing a Russian variant of a standard program for a government functionary X (or a government company Y) is physically unable to develop a principally new idea simultaneously with a start-up Z from the Silicon Valley. Second, import substitution is very useful for software companies: with no foreign competition and fixed prices and guaranteed customer it is always possible to convince that to do better here is impossible.
Eventually, the industry, which now is dynamic and well built into the global world, will start to decay slowly and imperceptibly. Some will enjoy the process and those who will not ‒ will emigrate.
Doubtless, supporters of software import substitution may give many, logical at first glance, reasons why it is necessary and useful. If everything took its natural course, we could agree with them in some points. But as it has been imposed from above and especially during the last two years, I can see only one reason ‒ irrational fear of foreign countries which are strange, incomprehensible and a priori dangerous. Such an attitude towards the outer world was widely spread in the USSR and Russian Empire both among the elite and ordinary people. It is a pity, that it is coming back now.
Now about the thing we do not have and will never have. In IT sector it is up-to-date hardware: chips, computers and gadgets. Our capacities are confined either to screwdriver assembly or, on the contrary, to design with outsourcing manufacture. The exception could be specific defense production, which I know nothing about.
Investment machine building has suffered irreplaceable losses as compared to the Soviet period. The USSR together with its satellites in Eastern Europe produced all the range of machinery and equipment necessary for the national economy. We lagged behind though, and the further the more, but everything we had was of our own production. Now Russian industry produces a rather limited assortment of equipment and according to the world standards, it is still second- or even third-class. Even oil extraction industry has to import the most complicated and up-to-date technology.
What shall we do with that? First of all, we have to realize and emotionally accept some evident facts. The fact that Eastern Europe, now Central Europe, drifted away to the West long ago. Another fact is that Russia, according to all scale indexes, is just a half of the USSR. We have to accept the fact that in the current global economy in each branch of investment machine building there is only a very limited number of leading companies, which produce the first-class equipment for the whole world.
All the rest depends on choice of national strategy! A choice is that we choose maximally wide cooperation with the outer world, build into it, have the advantages of this and run the risks. It is not liberals who invented this idea; at the very least, it has been existing since Peter I. Another choice is that we maximally defend our ‘selfness’: ‘special way’, economic sovereignty, priority of domestic market and self-sufficiency in key positions. This position is also quite respectable and deep-rooted in our history. We can remember “Moscow is the third Rome, and there will be no fourth”, “Russia has only two allies ‒ army and fleet”, etc.
Now it seems that the majority of people in our country, both among the elite and the population in general, tend to support the second strategy. Nevertheless, the overwhelming majority of the supporters do not aspire to autarchy; they consider it quite natural to take advantage of international trade and tourism. However, the general feeling is that post-Soviet Russia has opened in front of the outer world too wide (I am afraid, that subconsciously it sounds like ‘opened in front of the outer enemy’). For example, foreign car assembly plants and ‘Renault Nissan Avtovaz’ alliance are considered as a threat to economic safety. In my opinion, such feelings have been growing for eight years at least.

FT: Does the government see it?

YP: Yes, the government, or to be more precise – the authorities in general, and the majority of citizens see it too. In our country the authorities are authoritative and autonomous, but in this case they rely upon public opinion. The authorities, to a large extent, formulate this opinion, and they formulate it on some grounds.
If the situation described above remains for many years, no Fourth industrial revolution will happen in our country. Instead there will be attempts to restore machine building and production of communication means in Soviet time scale; there will be an attempt to confine to IT sector only. There is no need to explain the consequences of the attempts to achieve self-provision of medicines and medical technology. The result is going to be lagging behind not only developed countries, but dropping behind such countries as Brazil, Mexico, and Turkey, who are already catching up. The only thing, which is going to remain, is to feel happy that they depend on the USA and we are quite sovereign.

FT: As for Americans, they are not interested in that, are they?

YP: That’s it! As in old Soviet anecdotes about “Elusive Joe” and “The most independent country Mongolia”. I hope that today people can remember these anecdotes.
However, points of no return on this way have not been passed yet and no irreversible actions have been made. It is possible to go back to the strategy of maximally wide cooperation with the outer world, which, as it seems to me, dominated up to 2007 or at least up to 2004.
It means that Russian economy will never be a highly integrated and coordinated, as in former USSR. It means that everything, which can be exported, should be exported; everything which is needed, should be imported. It means that a real success for Russian companies (at least for the majority of them) – is to integrate into world technology chains, or, as they say now, global value chains. Following this strategy, Russian programmers will be able to write the most sophisticated software for Japanese robots; Russian chemists and metallurgists will be able to produce disposable materials for American or German 3D printers in mass scale. (By the way, I have recently read that UK Rusal is already considering the opportunity of producing relevant aluminum powders).
In this case, it might happen that holidays on tropic islands will be cheaper and more pleasant for Russian people; while Altai as a world mountain skiing resort will outdo the Alps.
In this case Russian machine building will develop in two main niches. The first is the niche where national companies will be highly competitive in outer markets. The second niche is assembly production of world leaders (“daughters” or joint ventures) who work in the inner market. A certain level of localization (sometimes rather high) is sure to take place.
If we choose this strategy, we will also have to pay and pay a lot. First, in global chains the main profit goes to those who invent and form them (most often they are not going to be our companies). However, world economy is non-zero sum game; other players will receive their share. Second, we will have to accept all the rules that have already been formulated in the world economy; we will also have to agree that we almost cannot influence them. In contrast to the USA, China and EU, who can. Third, it is not possible to have fully fledged economic cooperation with other countries and to go beyond the things admissible for them in politics (in both home and foreign policy). We will have to make compromises and concessions. Once again, China and India will not need this but we are in a different weight class.
Before the interview, you asked me to strongly separate economics from politics. Unfortunately, I have not managed to do this. My only excuse could be the following: we are not discussing a routine – lobbyists, KGBists, liberals or democrats, etc., we are discussing a long-term positioning of our country in the world.

FT: Don’t you think that up to 2000 our main idea was focused on raw material cycle and now this cycle has almost ran out? About 10 years ago Exxonmobil and General Electic, which had very many material assets, were the largest companies in regard to capitalization. Now Apple, Google and Microsoft are the largest, but they have practically only non-material assets and no material ones.

YP: First, I’d like to say that I am not an expert in raw material cycle or supercycles, as well as I am not an expert in long waves in general. Second, I’ like to notice that I do not see the situation in the same way as you do. To my mind, in the nineties we had no global ideas in economic policy; we only made attempts, determined by the situation, to overcome production downturn and super high inflation. These attempts had resulted in a success only by the 2000-th year. In my opinion, it is possible to talk about some conscious orientation to raw material boom only concerning the middle of the 2000 years, when a strange idea of ‘a great raw material power’ turned up.
The change of leaders in capitalization ratings, that you talk about, is not the result of raw material perturbations of recent two or three decades; it is the result of longer and larger-scale processes. About 200 years ago, the world was agrarian, 100 years ago it was industrial. Since the middle of the previous century, it has been a service world. For more than 50 years service sphere has been outdoing material production in the volume of added value, number of jobs and in other indexes of economic activity. Not for one decade among the capitalization rating leaders side by side with the industrial giants there have been leading service companies, such as Wal-Mart, ATT, ITT. At the end of the XX-th ‒ beginning of the XXI-st century Apple, Microsoft and Google together with Intel, IBM and Dell created a new technology basis for the service sphere.

FT: Did it appear on the basis of the Internet?

YP: Yes, on the basis of personal computers, the internet and mobile gadgets.

FT: The ‘Yarovaya law’ has been adopted recently. It demands to code data. What does it mean? Does it mean that cellular network operator will go to China to buy a huge amount of equipment and lose their profit? Does it mean that in the situation, when we do not catch up with all science-capacious technologies, we make the engine of their development unstable? Mutilation, isn’t it?

YP: I completely agree with your general assessment of the ‘Yarovaya law’. A classical question from the Russian history ‒ is it stupidity or is it treason ‒ is very appropriate here. There can be different ways to put this law into practice. The first one you have just described. There is the second way and it seems that today the authorities incline to it. It consists of a centralized system of storing all the information collected. Some government structure or government company, that may be connected somehow, will be assigned to develop this system basing on national equipment and national software. For Russian electronic industry it will be a vast state order and they will fight for it. As a result, winners will get a good chance to kill themselves.

FT: Why? Because when they receive easy money, they will have no desire to move forward?

YP: Yes. These are going to be no worst companies. According to their level of competence, in principle, they might take part in cooperation chains together with the leading world companies. However, to do this, one should apply effort and take pains to look for the place to build into. Sure, you will feel uncomfortable because, though you are tough, you do not play the central role. Instead of this, they offer a large project which is not too complicated for the specialists and which suggests rather relative production quality control (as in the situation with the mandatory state contract purchase of national software, see above). In addition, you may feel you defend your mother-land from various dangers. Great! The pleasure is all theirs!

FT: Several weeks ago private American intelligence company Stratfor published the investigation that was devoted to human resources of Russia and their flow away from Russia. According to their estimations, as many people left the country during the last two years, as during the period between 2000 and 2013. They are not refugees but specialists ‒ people who can easily integrate into Western economy and create a huge amount of intellectual capital.
YP: I don’t know the latest migration dynamics data. I am not sure that Stratfor can tell exactly how many people have left for good and how many have left for some time. Although one should understand such a simple thing: high professionals always strive for professional heights. If we are an open country, at least minimum open, we cannot get away from brain drain. It is unavoidable that the most qualified, the most interesting and talented people will move to the world centers of corresponding competence. The same situation is with the inner migration when the most qualified and creative Russians move from villages into towns, from towns into cities and from them in to the capital. To fight against it is as useless as to fight against gravity.
The questions are different. The first is the following: world centers of what competence do we have in Russia, and which centers may appear in Russia (unfortunately, even in ballet we are not indisputable leaders now). The second ‒ is our country going to be comfortable for qualified and creative immigrants?
As it is known, policy of the USSR was “to keep and not to let go” based on force methods. For some time it worked successfully for the benefit of the country, but at the same time, it had created that social pressure which eventually exploded the Soviet system from inside. Moreover, one should remember that powerful development of Soviet science, high technologies, education based on “our own strength” took only three decades: from the forties to the sixties. After that period, everything did not slash immediately but went down to stagnation. For example, in the sixties Moscow Institute of Physics and Technology was the university of the world highest level in the field of physical, mathematical and technological education; in the eighties it belonged to a fairly medium level. Bauman University was an institution of a good medium level and some departments were even of a higher level; in the eighties it was at no level.
To stop brain-drain is a dream of conservatives which will never come true. China with it hermetically sealed culture, powerful centripetal stimuli and mechanisms cannot do it and will not be able to do it. However, China as a state and society is good at retaining tight connections with their diasporas and building mutually beneficial relationships. This is one of the mini secrets of Chinese economic wonders. God help us to learn the same.

FT: Are there Russian diasporas in the world? I’ve never heard about them.

YP: We shall not focus on the terms. It seems that there are no Russian China towns (sorry for a poor pun) in the world. The overwhelming majority of post-Soviet emigrants doesn't lose professional, human and cultural connections with the country. They preserve Russian language in the second and partly in the third generation. So, there are people to work with and relationships to set up and restore. Of cause if KGB attitude to emigrant ‒ a betrayer or lone wolf at best ‒ does not come back.
Let’s turn the plot into a different direction; concerning this direction, I feel biased because of the natural reasons. I consider normalization of Russia ‒ Israel relations as a great success of post-Soviet Russian foreign policy. In respect to applied sciences and technology, Israel is at a good European level. There is a fully-fledged diaspora; it is not Russian but Russian-speaking. According to some estimation, about one fourth of the Israel population speaks Russian or at least reads in Russian. Therefore, a priori there is a basis for serious economic, scientific and technological contacts. Unfortunately, their development has been weak so far ‒ either Russian bureaucracy is to be blamed or the Israeli are more interested in cooperation with the Silicon Valley.

FT: Let’s go back from the “Jewish question” to economics, namely to our human resources. Everything looks sad …

YP: Not everything is sad. To my mind, the situation is even better than in most other countries where brain drain occurs. The Russian system of education, despite all losses and reforms, is still able to produce specialists of fairly high quality and in the quantity which is sufficient for the development of our economy. It can self-reproduce, at least partially.

FT: How long can this “still” go on?

YP: I don’t know because due to my age, I do not foresee further than 10-15 years ahead. Although, there are some promising tendencies. First, due to modern technologies you do not have to leave the country to receive a degree from Harvard, Yale, Cambridge, etc. For example, some years ago one of my young colleagues, sitting in this room, received certificates of the United States Securities and Exchange Commission (SEC certificates), which give the right to work at American Stock Exchange. It should be noted that he paid for the exams only. Second, Russian universities have a real opportunity to recruit professors in the world market. In High School of Economics, where I teach, people, who graduated no worst universities in the world and who have experience working in no worst countries, have been giving a substantial part of courses for several years.

FT: High School of Economics is not Massachusetts Institute of Technology. In the nearest 50 or 100 years universities like MIT, I mean universities built after its pattern, will produce the main added value.

YP: It is very likely.

FT: Can we create such universities on the basis of MSU, Moscow Institute of Physics and Technology, Moscow
Engineering Physics Institute, Bauman University?

YP: I cannot comment on separate universities because I am not a specialist in this field. I can make two remarks. The first one is not of general character but of particular one. In the second half of the 2000 years, when Skolkovo project was under development, it was supposed that SkolTech ‒ the University of Technology, which was being created on the basis of a profound cooperation with MIT, would become its core. SkolTech appeared though the role of Americans in it seems to be evidently lower than it was planned. Perhaps it is not too late. The second remark is of general character. It is not possible to copy Harvard or MIT. They attract the world best students, professors and researchers because they are located in the most technologically and economically developed country. Nevertheless, Russian scientific and technological potential allows us to hope that either their branches could be built here or some of our universities or their departments would affiliate with them.
It is possible if we, as a country and nation, choose the strategy of maximum cooperation with the outer world (openness strategy in brief) that we talked about above. If we agree that Russian economy, science, system of education is only a part of global system ‒ dependent and not a big one, though organic and full fledged; as the economies of other leading countries in the world with the exception of the USA and China. Nothing will work if our thinking and behaving continue to base on the assumption: “we are big, we are rich and tough ‒ we do not need anyone ‒ they themselves will rush to us”. Nothing will work if we base on another assumption, which is popular now: “we are rich but weak ‒ all of them want to seize and rob us ‒ we have to defend at all the fronts”. In this case the special way of Russia is autarchy, nationalization in economics and life based on technologies of the sixties – seventies of the last century.

FT: We have our intellectual capital as a prerequisite for opening. If we open, we can receive much more. Having opened, we may seem to take a step back, but if we do it sensibly, Russia may take the best and jump over …

YP: I agree with everything except for jumping over. Just because in the seventies ‒ eighties it seemed that Japan was on the verge of jumping over everyone.

FT: And jumped into zombie-country …

YP: Still you should not talk like that about the country with the highest quality of life and standards of living.

FT: Jumped into a happy zombie-country …

YP: Russia is hardly able to jump over, although it is able to become a small but respectful part of the global world. Sure, such a perspective does not correspond very much to our deeply rooted notion of our country; the notion of something huge, self-sufficient and separate. However, notions are notions, but you cannot get away from a new reality. You know, I often begin my lectures for the third ‒ fourth year students with a request: “Take out your I-phones and write down a list of ten countries with the largest population in a decreasing order”. The first three ‒ China, India, the USA ‒ are well known, Brazil goes the fifth and this is quite normal. Then appear Indonesia (4-th position), Pakistan, Nigeria, Bangladesh, and only after them ‒ Russia. Then I add that only in Russia and China population stabilized while in other countries it is growing. Then I tell them that Brazil has already outdone GGP in Russia; it produces more cars and civil aircrafts. Then I tell them that Pakistan has independently created nuclear weapon and Nigeria, despite permanent slowly evolving civil war, in the twenty first century shows dynamic economic growth. Standard students’ reaction is surprise and discomfort. No one has ever showed them a picture of the modern world in figures and facts; it is not that they are not interested in finding out these facts themselves ‒ they are not used to doing it. By the way, they are students of the Department of Economics of HSE and the Department of Management and Applied Mathematics of MIPT.
In my opinion, the understanding of the place and role of our country in the world, which is cultivated now, has been adequate throughout its multi-century history only twice: in the first half of the XIX century (from the victory over Napoleon and until the Crimea War) and in the second half of the XX century (during the period from 1945 up to the end of the seventies). Now time is different and the world is different too. Russia is an ordinary country among large developing countries (see the list above plus Turkey, Iran, Vietnam; in future some other countries may be added). Neither more nor less. In this line we may fight for the supremacy and we have good chances. If, I am repeating it another time, we choose the strategy of economic openness and really want to become a part of the global world. With all the bad and good consequences.

FT: What can be bad consequences of ‘being a part of the world’?

YP: We have already talked about that. In academic and abstract terms, we will have to accept economic and political framework, which has been already shaped and is going to be shaped in the global world for the second echelon countries. Journalists and propagandists tend to talk about limited sovereignty, that certainly sounds horrific though is abstract as well.
Now I’ll try to be concrete. First, a lot of our plants will turn out to be non-competitive: some of them will have to leave market, others are going to be a bargain for foreigners. The owners and management of the plants are sure to complain loudly, but fortunately, we have been used to ‘losers’ weep’ over the quarter of the century. Second, many superiors will feel uncomfortable because it may seem to them that they are not superiors at all. They will have to listen to the questions, give explanations and catch signals not only from the system they were built in. Signals not from your country, but from abroad; not from the hierarchies, but from networks and (Good gracious!) from their public opinion. Moreover, it will happen at all levels ‒ from the head of the Ministry department and vice-governors up to political authorities. Third, many ordinary citizens of the country are likely to feel resentment in case they are constantly told that decisions are taken for them and not here but somewhere there.

FT: May we say that the reason why we are in a foul mood is completely different? May we say that Russia is missing the train of technological development? The train has already left, a pump trolley is leaving and we do not attempt to jump and get on it?

YP: If you are right, then in Russia there are no serious obstacles to realization of the economic openness strategy. And we will cope with all its by-products.

FT: We have to choose the right variant of opening. In Economics Theory there is comparative costs principle. It is about 200 years old and goes back to David Ricardo. In a simplified way, it says: a country should produce what it can produce well. There is an alternative principle: a country should produce what has prospects. For example, we were the first to launch a satellite; it might seem, that Americans should have looked at that and said: “OK, they are the first”. However, Americans pulled together and said: “We are making Moon Program and it does not matter how many billions we will spend on it. It has prospects”.

YP: American Moon Program is a very interesting and ambiguous case. On the one hand, it is one of the few successful examples of ‘jumping over’. In that period of time the USA, an undisputable economic leader, managed to design and successfully implement such a leap. On the other hand, what are the real results if you look at the through the prism of several decades? Pilot orbit cosmonautics (Soviet and then Russian way) has been successfully developing and involving more and more new countries. Pilot Moon cosmonautics remained in the seventies – eighties of the last century. It turned out to be a pure American undertaking (one may put it bluntly ‒ a monument to American ambitions). Certainly, we may talk about the spin-off into other branches and sectors, though it has never been calculated correctly.

If we go back to Russia, I personally do not believe that it is possible today to specify what can have prospects for us in the next 15-20 years (not for the global economy as a whole ‒ these are two different things). Economists cannot do it. That is why, as a professional, I am for Ricardo’s strategy: sell everything you can, and buy everything you need. You should not have any complexes about the fact that concerning foreign trade structure we are the second-rate economy. We should understand that the second echelon is by far not the last.
I do believe in a different thing. I believe that there are lots of people in Russia who want to be in science and deal with technology and do technological business in their own country. These people have the opportunity to receive adequate education both here in our country and abroad. Each of them will choose what can have prospects for him or her. As a result, they will form a development vector, which will have prospects for the country. By the way, it is quite evident for me that concerning intellectual capital and variety of competences, Russia is a confident leader among all developing countries, if we do not take into account China and India.
Then I should mention that we are at the world level or at the level of ‘a stretched hand’ as far as fuel and energy sector, metallurgy, multi-ton chemistry, corn production, nuclear industry and cosmonautics are concerned. They are a good start package to meet ‘the fourth industrial revolution’. This revolution cannot substitute their products for anything. It will strongly transform traditional manufacturing industry, which we have to build anew in any case.
The problem of position a country occupies in the world economy is actual and sensitive not only for Russia. I often recollect what I heard some years ago at the seminar of a quite competent Japanese professor. He said: “Japan has hopelessly lost world markets of mass electronics. China and south-east Asian countries will always make it cheaper and of due quality. We, Japanese will never be able to catch up with Germany in the field of complex industrial equipment. We do not have such traditions of designing large systems and we will not have them in the near future. Toyota will never make such a brand as Mercedes. But I have no complexes about this. Because the most sophisticated and important nodes and parts, the highest quality materials in Chinese home appliances and in German equipment have been and will be Japanese. We are the strongest in this field; this is the result of our unique multi-century craft traditions”. He also added that Japanese producers had good chances to become world leaders in home robots production (housekeepers, nurses, companions) who will be human friendly. This market has very good prospects due to population aging; Japan in this market can rely upon its unique traditions of arranging everyday life.
FT: Figuratively speaking, 15-20 years ago a mobile phone cost 100 dollars. Materials and components cost was about 70% and the software cost was about 30%. Now software and R&D amount to 70%. If this tendency continues, I don’t know about Japan, but we will be in an unpleasant situation.
YP: I’d like to repeat that Russian software industry does show good dynamics and has fairly good prospect. If you do not tempt Russian companies into import substitution and do not force them to emigrate (it is not difficult for them) using taxes, confidentiality and public prosecutor checks.

FT: Don’t you think that the idea of western sanctions introduced in 2014 after the events in Crimea and Ukraine is to send us from the second echelon to the fifth? In this case we will have to sell our raw materials even cheaper. First of all, economic sanctions have hit our banking sector. Aside from financial problems, western partners keep away from working with Russia or are reluctant to do it.

YP: I categorically disagree. Introduction of sanctions was an automatic reaction of the West to the actions, which they considered as a violation of the established rules (who established, when and for whom ‒ is a different question). It is even possible to say that it was a reflex action of the system, which decided that it had been assaulted. As for the concrete choice of sanctions, The USA and EU chose that one which would be sensitive for Russia but would do no serious harm to them. You should not look for some deep plot and treacherous schemes here.
Russian contra- sanctions were quite symmetrical ‒ automatic and emotional. Do you remember how China behaved in 1989, when after student-led demonstrations had been shot down at Tiananmen Square, the West introduced economic sanctions against it? China maximally eased the way into their economy for foreigners. As the experience has showed, it was reaction based on wisdom and strength.

FT: So, American politicians announced: “We do not want to have any business with you!” and China responded: “Welcome, American business!”. And “welcome’ outweighed.

YP: It is so. Unfortunately, again, we failed to do without politics, but I hope you will forgive me.

FT: Thank you very much. It was very interesting.

FT - Finansovaya Tehnika - https://www.facebook.com/fintechnic.org
august 2016