What to do with the unequal development of the Russian regions

What does it mean? In respect of the regions must also act in market discipline, and “outsiders” can extend the coverage of regions and carry out more in-depth analytical work. Their activities will be even more useful if linked with complementary reforms implemented at the initiative of the Federal and regional authorities.

Myth # 1: from the point of view of territorial differences in Russia can be compared with Australia and Canada.

In fact, the differences between regions due to the unique nature of the economic geography of Russia, which cannot be compared even to the States which, at first glance a lot like her, such as Australia and Canada. There is also a huge area, and the population density is even lower, but the majority of that population lives near the border or on the coast. And the Russians are in the depths of the country. Moreover, for Australia and Canada the characteristic concentration of population in large cities: almost 75% live in the three largest urban centres. And in Moscow, St. Petersburg and Nizhny Novgorod is home to only one-eighth of the total population of the Russian Federation.

The population of Russia is declining, workers are aging, the country needs to adapt to economic shocks, one after another. The result of the spatial pattern of development here is opposite to that observed in other major countries. These differences can be explained by the legacy of the Soviet planned economy (think of the problems facing industrial towns of the previous era), diversity of natural conditions (Russia occupies 42% of earth’s land area, but accounts for only 1.9% of the world population) and severe climate, which hampered transport.

What does it mean? The unique nature of economic geography requires unique solutions.

Myth №2: Moscow and Saint-Petersburg “too high”.

In fact, these cities are not large enough. Moscow and St. Petersburg is the only Russian cities with a population exceeding 1.5 million people. In Japan, where the population is less than in Russia, these five cities in Brazil (with a population 50% more Russian) – eight. Moreover, the Russian city of the second level is also “small.” In cities ranked 3rd to 10th place by number of inhabitants, account for only 6.6% of the population, it is much less than in Brazil, Japan and Poland, where the town of the same “rank” accounts for 8-11% of the population of the respective countries.

What does it mean? Russia will need to balance its system of cities, moving away from models with two super-cities and towns of the second level – too small to influence regional development.

Myth # 3: Russian regions are diverging more and more on indicators of income and poverty.

In fact, there is a convergence of regions. In 1998 the regions were much less uniform in such indicators as GDP per capita but, by 2008, the process of divergence stopped, and indicators of continued income convergence. Also in most of the regions, 2005-2015 significantly reduced inequality in consumption. Encouraged by the fact that poor regions grew faster than the rich. However, the rate of convergence slowed down: the increase in total mobility in Russia decreased from 3% per year in the early 1990s to 1.2% by 2008. Due to the slowdown of economic growth, the volume of transfers from the Federal budget (which served as an important alignment tool) fell sharply: from 2013 to 2016, this decline was 22% in real terms.

What does it mean? You must restart the mechanisms of convergence regions associated with integration of markets, labor and capital, population growth working age (especially in the less prosperous regions) and transfers from the Federal budget.

Myth # 4: most of the poor population of Russia lives in poor regions.

In fact, most of the poor live in the richest regions. Indeed, the proportion of the poor in less prosperous regions such as Tuva and the Republic of Kalmykia, a very high (nearly 35%), but due to the small total population of these regions account for only 0.6% of the total number of poor in Russia. In absolute terms the poor in more wealthy, more populous regions, although the proportion of poor in the population there is below: for Moscow and St. Petersburg together accounting for almost 10% of the poor of the country. A similar pattern is observed in other large countries such as Brazil and China.

What does it mean? No need to try to balance the growth in all Russian regions. Probably need to make the richer regions “worked” for the poor.

Myth # 5: higher potential among regions only Moscow and Saint Petersburg.

In fact, we have developed a new index of economic potential for the 56 regions in the European part of the Russian Federation and identified three corridors in the West of Russia, which include regions with high potential, not limited to only Moscow and St. Petersburg.

The first corridor, which includes the regions with medium-high and high potential starts from Moscow and covers Yaroslavl, Kaluga, Ryazan and Lipetsk region, for the benefit of which is its proximity to major centers of population and high rates of urbanization.

The second corridor stretches from the Rostov region in the South to the Tatarstan Republic in the North and includes the Volgograd, Samara, Ulyanovsk region and the Republic of Chuvashia. These regions are characterized by a high population density, are located in major cities, the population has high educational level, formed the industrial base.

The third corridor is located in the southern Urals in Sverdlovsk and Chelyabinsk regions – regions with a high degree of urbanization, which traditionally served as the main industrial center of Russia.

Among the regions with the highest potential was Murmansk – unexpected result! His strengths – access to external markets due to the presence of sea ports and in the volume of freight transit, as well as a high level of education of the population and degree of urbanization, which is typical for sparsely populated Northern territories.

What does it mean? Regional development is not necessarily provided only by the availability of rich natural resources.

Myth # 6: isolation of some regions due to poor infrastructure (transport) connectivity.

In fact, the connectivity (or access to markets, both external and internal) is very important for all Russian regions, but “isolated” regions (far from markets in the European part of Russia) do not “cut”. Take a look at Zabaykalsky Krai: it is located very far from Moscow and St. Petersburg, but he has a good relatively good transport links to regional trading partners, including China.

What does it mean? In the far East it is necessary to think about other aspects of connectivity. The last mile problem has a chronic nature, and its solution can help digital and other modern technologies.

Myth # 7: reducing disparities between regions is a challenge that must be addressed by either Federal or regional authorities.

In fact, not at all! Responsible both levels of government. Federal agencies should provide greater stability of regional budgets and to delegate more powers. In addition, it is necessary that the regulations were not contrary to local conditions in order to avoid adverse effects: the tougher sanitary standards in 2014 led to mass slaughter of livestock and increased costs, causing thousands of small-scale agricultural producers in many regions were on the verge of bankruptcy.

The Federal program can be furnished in a awkward bureaucratic procedures: the airport special economic zone in the Ulyanovsk region was created three years ago, however, there is still almost no residents. While the industrial Park “Zavolzhye”, which is managed by the regional structures were able to attract six major foreign investors. Different results that show these two zones can be explained by provisions of Federal law. In turn, regions should strive for greater self-sufficiency.

Their authorities could impose the maximum rate of income tax (17%) and to speed up the transition from book to market value as the basis for calculating tax on property of enterprises. At the same time in 50 Russian regions there are certain tax benefits to investors, which could trigger a “race to the bottom.” With this in mind, it would be possible to refrain from providing such benefits.

What does it mean? Everything is so clear!

Myth # 8: third party observers is not so important.

In fact, rating agencies and international organizations already conducting independent monitoring, assessment and comparative analysis of regions. While the scope and degree of understanding of regions is limited: the rating Agency Fitch in 2017 was presented to only 45 subjects of the Federation, and the rating from Standard & Poor’s – a total of nine. With this in mind, the Agency for strategic initiatives (ASI) could play a more significant role: the ratings help to identify problems and to improve the investment climate in the region. According to ASI, improvement of the investment rating of the region by 1.3 points leads to an increase in private investment per capita by 1%.

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