Commentary by Igor Yurgens, Chairman of the Board of the Institute of Contemporary Development, in Rossiyskaya Gazeta

The President made clear what he means by Russia’s modernization

My impressions from the address are very positive. It was a profound, well thought-through address aimed at explaining the meaning of modernization as we are all asking ourselves this question and each sees it differently.

Whenever modernization is mentioned, people start talking about technological issues. This time, the president said that modernization is in our minds. It is a new type of mindset, a smart economy, smart solutions, smart positioning inside and outside the country. In other words, modernization is not about changing bulbs. It is a big and important message.

And it cannot be implemented without further democratic progress and a competitive political system, without free elections. The president gave the relevant instructions and singled out five areas where he expects breakthrough results: from pharmaceuticals to space. As far as I know, the president paid visits to these industries' leading institutions to make sure that they really are competitive and have a future. And now he has given each of them trial tasks. So now we already have a plan.

The other task is to retune the tax system so that it promotes modernization. It does not mean it needs a total overhaul. But the five key industries need a special approach. If we treat them like any other, business will have no incentive to invest in them. For instance, starting from next year the single social tax will give way to insurance premiums. Businesses will be at least eight percent worse off. But let us not forget that in the abovementioned industries labor costs are the highest. Intellectual input accounts for 80 percent of the cost. If payroll taxes go up sharply, entrepreneurs will start relocating their engineers, programmers, developers to other countries. I think the president had in mind the single social tax when he said that the discussion was not over yet. The new norms, I think, must be applied discriminately. Otherwise nothing will come of it, everyone will still be investing in oil, gas, coal, metals.

And the passage about Russian business still preferring to trade in other countries' products is justified. We have turned into a service economy. The share of industrial production in GDP has fallen to about 13 percent. Retail, services and so on make up the bulk of GDP. And take a look at our typical food basket, equipment and the rest. How much is Russian-made? Very little. To turn the tables we need to embark on restructuring our production base.

As for competition on the world market, it is a very complex issue. It involves the investment climate, incentives for Russian entrepreneurs, their protection from foreign competition. There are many nuances there and it deserves a separate discussion.

I would like it to continue on some other issues as well. I mean our political and electoral systems, the fight against corruption. We brand it the worst of evils but fail to move against it. There are four key factors that help countries around the world fight corruption. First, a political system based on real competition. In our country, and it no secret, the ruling party is an overwhelming force bearing down on everyone. At the moment there is no fair competition.

The second factor is complete media freedom. The media is solely capable of revealing the facts and getting results after the parties provide them with relevant information. This also needs a serious correction. The third factor is a well-developed civil society which is a powerful referee in the fight against corrupt officials. And finally, zero tolerance, which, as the president said, we need to develop. We have to advance these four areas with the same vigor as the five industries singled out for modernization. And have a clear detailed plan of action.