Saturday, November 28, 2009

Dmitry Medvedev's Building Project

The article discusses attempts by the Russian government to modernize the economy. The Russian president expressed recently his concern with strong dependence on natural resources, corruption, and rent-seeking. Now, he is planning on putting resources into various nanotechnology projects.

Even though the idea seems to be right, it is highly unlikely that Russia is going to reach desirable results any time soon. The author believes that unless the political system is reformed, there simply won't be incentives for the government to modernize the economy because it would definitely cut into politicians own profits.

I believe that the situation as we observe it now is not only the result of corrupt actions of the government, but also the result of incompetent transition to a market economy. The infamous "shock therapy" and rapid privatization created the severest inequality in the country, which resulted into concentration of monopoly power, corruption, and more importantly into the draining of human capital. Consequently, the level of innovation in Russia is very low, and the government does not provide any incentives for companies to innovate.

Unfortunately, I don't think that there is a quick remedy that would improve the situation somehow. The country needs reforms both in political and economic systems that if done right require a great amount of time. Still, I agree with the author that the political and, to say more precisely, judicial system should be reformed first to provide basis of institutions on which a market economy could be built.

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