President Medvedev’s final address to the State Council

Russian President Medvedev made the final address of his presidency to the State Council on Wednesday. Held in the historic St George Hall in the Kremlin Grand Palace, participants in the meeting included members of the Government, regional leaders, the higher courts’ presidents, the leadership of the Presidential Executive Office, the speakers of both houses of Parliament, public figures and business leaders.

President Medvedev, Saint George Hall of the Kremlin Grand Palace.

PRESIDENT OF RUSSIA DMITRY MEDVEDEV: Good afternoon, colleagues, friends,

In two weeks I will complete my term as President of the Russian Federation. I summed up the preliminary results of our joint efforts in the Presidential Address to the Federal Assembly in December, where I also outlined my vision of our national priorities for the near future. Today I would like to explore them in a little more detail. I will emphasize straight away that the preparation of specific plans for the future Government’s work is a task for the new authorities. These plans must be submitted to the State Duma as part of the procedure for appointing a new Prime Minister. However, I believe that as the incumbent President, I must express my position on the ideology of Russia’s development.

Several years ago I voiced one simple and seemingly obvious idea: freedom is better than no freedom. These words were later repeated by many different people, sometimes with hope, sometimes with reproach, as a demand or a reminder of a promise. After all, there is nothing more natural than the desire for freedom.

Many people perceived these words as my political creed, and that is absolutely correct. I followed this ideal as closely as I could. I will repeat what I said in May 2008, as I assumed the office of President of the Russian Federation: I believe that my most important task is to promote civil and economic freedoms. More freedom for everyone: this has always been and will remain my goal.

I’m surprised to hear idle speculations on the subject of whether the Russian people need freedom at all, or whether they are ready for freedom. Some say that perhaps we have a special national character and we value order, stability and predictability above freedom. Certainly, national identity always affects all public institutions, and that is also true of our country. But it is absolutely unjust and simply humiliating to consider Russia a nation incapable of being free, a nation that does not deserve freedom. On the contrary, the thought of slavery, the subordination of one’s will to that of another is unbearable for our nation. The unshakable spirit of national freedom and courage to protect our own independence is at the root of the most heroic pages of our history and our greatest achievements, all the glorious military victories, Russian intelligence and the Russian character, which united dozens of different peoples into a single nation.

Thus, everybody needs freedom – that is a given. At the same time, any juxtaposition of freedom and order, freedom and prosperity, or freedom and justice is absolutely wrong. I think that we can judge the degree of freedom in society by the opportunities each individual has to do what he or she wants within the bounds of the law and with respect for the freedom of others.

I would like to quote the words addressed to future Emperor Alexander II by his tutor, Vasily Zhukovsky, and which I consider to be absolutely right. He said: “You must love freedom… Freedom and order are the same thing.”

It is clear that chaos, violence and poverty make people unfree, demean them and threaten their very lives. Man strives for prosperity because, apart from a high standard of living, it gives him freedom. It gives him the opportunity to choose where to live and work, to stay healthy, to feel secure and to help others. People strive for justice so that they can defend their freedom and remain independent from unforeseen circumstances and arbitrary decisions of those who are stronger. Conversely, poverty, underdevelopment, corruption and low life expectancy are the main enemies of our freedom.

Therefore, I consider it a great achievement that we have protected the Russian people from the first wave of the crisis and prevented widespread poverty. We are continuing to create the conditions for improving the lives of tens of millions of families during this difficult period of the global recession. Our economy has been growing at a good pace, and this is the main resource that will help us achieve our social objectives.

I would like to remind you that this year we have the lowest inflation rate in modern Russian history: 4% in the past 12 months. Just think about it: this is a very good figure. Last year inflation exceeded 6%, and our goal is a steady decline in inflation from one year to the next. The unemployment rate in the first quarter of this year is about 6.5%, which is what it was four years ago, before the start of the global economic crisis. We have also fully restored the pre-crisis level of production of goods and services, while the average growth rate of the Russian economy has stabilized at around 4%. This is a very decent rate among major economies.

The official poverty rate in the last two years has been the lowest in the history of modern Russia. But let’s be frank – that’s what we have gathered here for – first, the number of families living below the poverty line is still too high. Second, there are regions where poverty levels are much higher than the national average. And third, the people who fall into this category of low-income families are generally those who deserve it the least: families with children. Often their poverty is exacerbated with the birth of each subsequent child. According to experts, the risk of poverty in an intact family with two children is about 50%, whereas in a family with three or more children it is about 70%. Of course, this situation is absolutely unacceptable and we must reverse it. The solution to all three problems must become one of top priorities for the future Government.

A great deal has been done in recent years to prevent poverty among older people. Today, in all regions of the country, they receive an income that is above the subsistence minimum, and the average income of pensioners is over 40% of the average wage in most parts of the country. Let us admit openly that just a few years ago we could only have dreamed about this. Yet by today’s standards, it still isn’t enough; people always look to the future and very few look back at the past.

Franklin D. Roosevelt said once that “the test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” In the coming months we must determine our policies on some crucial issues, such as how our pension system should develop; what role will state pensions play in the future, whether it will be a form of welfare benefits or insurance against loss of income; what financial instruments should be available to all working-age individuals to help them with long-term savings; how to encourage employers to develop voluntary pension insurance schemes for their employees; and finally, how to create the conditions for active longevity? All these are difficult questions, and we must work together to provide answers to them following a broad public and professional debate.

We have found the resources recently to begin to significantly increase the incomes of those professionals on whom our lives and our future depend the most: doctors and teachers. If they are poor, then society is also doomed to poverty. It is difficult to demand professionalism and efficiency from the people whose opportunities are limited by humiliating poverty. Overall, the average incomes of doctors and teachers have reached the average for the economy. That is a good result but we must go further, and I have no doubt that this will be done.

We are faced with another, more serious challenge: how to simultaneously tackle poverty and create opportunities to improve the quality of life for the people who already have average-level incomes? We have no right to forget about them either. Those who are already investing their money in the education of their children, in improving their own skills, spending it to obtain better health services, to address their housing issues and build their own businesses, such investment in the quality of life should become cheaper and more accessible. I am talking about expanding opportunities for continuing education, radically increasing the effectiveness of voluntary health and pension insurance, making mortgage cheaper and developing mass-market rental housing, so that at least a third of our citizens have the opportunity to acquire housing using their own savings and taking out mortgage loans, as well as benefiting from state support.

Finally, we are talking about the availability of resources to start one’s own business, the elimination of excessive costs associated with business activities, and we all know that the situation in this area is far from perfect.

Saint George Hall in the Moscow Kremlin.

Colleagues,

These challenges will be addressed by the modernization of Russia’s economy, its technological upgrade and taking education and science, industry and agriculture to the most advanced level. This is the only chance to improve productivity, and hence the incomes of individuals, companies and the state, to give us all the opportunity to freely develop and fully realize our potential.

Figures show that our efforts to modernize Russia’s economy are bearing their first fruit. Investment in fixed assets has almost recovered from the economic crisis and has been growing in recent months at the rate of over 10% annually. Our core sectors are posting the highest production growth rates (not less than 7% per year), including agriculture – which I will speak about separately – which revealed its potential during the drought in 2009 and in the subsequent period.

Innovation-based and intelligent economy is built by smart, creative and critical-minded people. It is built by free people and it makes people free. That is why we started to promote the work of scientists, engineers and entrepreneurs seeking to develop and implement new technology. Today we have a programme to support young scientists and postgraduate students, and to attract leading international experts to Russian universities. We have created a mechanism for co-financing the creation of laboratories by businesses and universities – the objective we have been working hard to reach over the past years.

Finally, the Skolkovo Innovation Centre project has been making rapid progress. Over 400 Russian companies are registered as its residents. Even if only 10% of them succeed – succeed in innovation – this will give Russia a chance to become one of the global technology leaders again. All of these programmes should be continued and should remain among the top priorities of the state and the Government.

We certainly don’t have a shortage of ideas or intellectual potential, and many of our innovation projects are very successful. In order to achieve an economic breakthrough, our priority should be to create a favourable business climate and competitive environment. Yes, we are working on it, but so far we have had little success. At the basis we must have transparent, clear and fair rules that will replace the micromanagement methods of public administration.

Modern economic policy should create the conditions for economic freedom and development of entrepreneurial initiative. The new Government should proceed from that. Any proposal, any draft regulation must be regarded from this angle.

This will certainly require a change in the attitude of the state and society towards business. Let us admit frankly that it still remains mixed. I would like to name five principles that I believe the state should be guided by in making economic decisions.

First; Business activity and talent for business should be considered a vital social value and nothing else.

Second; State intervention in the economy should be reduced to the absolute minimum necessary and be totally transparent.

Third. The position of law enforcement officers must be impartial with regard to organizations with any form of ownership. They should all be protected equally. The practice of using administrative and security resources to gain an upper hand in business competition should remain in the past forever.

Fourth. Regulation should be competitive at the international level.

Finally, fifth. All parties involved must participate in setting up the rules of the game.

In this context, I would like to emphasize that no reasonable person would deny the need for state regulation in the areas where the market cannot guarantee the security and protection of life and health. But the biggest challenge for businesses and investors is the unpredictable interference of some officials in economic activity and the illegal actions of law enforcement officers, who, as we know, all too often forget that their duty is to protect the rights of citizens, including entrepreneurs.

Based on our understanding of these issues, it is necessary to work in three main directions.

First, it is essential to continue reducing state intervention in the economy. A list of state-controlled companies will be published in a few months, to be followed by a public debate on whether the largest of them should remain under the Government’s control. With regard to all assets for which such feasibility is not proven, the Government should adopt and implement a road map of their privatization in the medium term.

At the same time, state companies will have to stop the takeover of private businesses and to sell off their non-core assets. The feasibility of state investment in the production of any type of goods or services should be publicly justified and discussed. Wherever such investment can be carried out by the private sector, appropriate conditions must be set up. As usual, this will be more effective and simply cheaper.

The same principle should be applied to the functions of state agencies in regulating economic activity. In many cases, I believe it would be appropriate to transfer these functions to the regional or municipal authorities. We have already started this process and it must be taken further, in line with the President’s decisions and the Government’s proposals, and with the consent of the regional authorities of the Russian Federation.

At the same time the process of expanding the regions’ and local authorities’ resource base must be launched. In particular, it would be right to transfer to these levels of government the revenues from the proposed increase in excise taxes on alcohol and tobacco products, while all the subsidies and subventions from the federal budget to the regions should be used without excessive regulation from the federal authorities. Over the past few years we have expanded the resources available to the regions and municipalities to dispose of independently by about a trillion rubles (this figure has been discussed).

I am confident that these and other measures will give an impetus to the development of many regions, which is vitally important. Vasily Klyuchevsky once wrote a brief statement that remains relevant today: “In Russia, the centre is in the provinces.”

Unfortunately, the current difference in the quality of life between different Russian regions is enormous. If the quality of life in the leading regions is comparable to most developed countries, the regions-outsiders are not too different from underdeveloped countries. This is not normal. The living conditions and opportunities for citizens of a single country cannot and must not differ so much. The leading regions should be encouraged, while the rest need help catching up.

The second direction is to increase the predictability and transparency of government regulation, control and oversight. This is especially true of macroeconomic regulation. Frankly, today we have no need to raise taxes. Other methods and resources can be used to implement all our programmes, and primarily they are related to increasing the efficiency of budgetary expenditure.

In addition, to ensure the predictability of economic policies and improve fiscal discipline it is necessary to put in place a clear fiscal rule that specifies the maximum amount of state deficit and debt, as well as the procedure for the formation and use of the Reserve Fund and the National Welfare Fund. Such a rule will come into force early next year.

I support the idea of launching the road maps this year that are being drawn up as part of the national business initiative. Such joint initiatives of the state and business associations should cover customs administration, construction market regulations, connection to the infrastructure and a number of other very important areas, including the issue of minimizing the number of mandatory reports. What is the point in creating these tons of paper, if they are just gathering dust on the shelves in tax inspections, as we all know? It’s a waste of time and money, and time and money can be used in a much better way.

Moscow Kremlin, St George Hall.

Finally, we must change law-enforcement practices with regard to businesses. It is essential that all the rules laid down by law are followed in the process of improving criminal legislation. In particular, it is necessary to reduce the time of outstanding convictions on a number of economic offenses, continue to mitigate detention terms for the duration of the investigation, and expand the practice of replacing prison sentences by alternative punishments. I also support the idea of introducing the institution of a special prosecutor or ombudsman who will protect the rights of businessmen.

The third direction is the implementation of plans to create millions of new, highly productive jobs. Many of these plans have already been formulated, while others are just being discussed. I believe that we should fully realize everything that was declared in the previous years. This applies to the development strategy of the space industry, shipbuilding, creating a modern automotive industry, the pharmaceuticals industry, fully realizing the potential of agriculture, as well as the use of our competitive advantages in information technology, logistics and natural resources processing.

I emphasize that the implementation of these plans can only be based on the creation of truly competitive markets. The state must set an example for the introduction of modern competitive principles by launching as quickly as possible a new federal contract system that should also cover the procurement by state-controlled companies. The most important indicator here is the proportion of small and medium-sized companies in the contracts. The future Government should set preferential terms for them.

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