Interview with the vice president and executive secretary of the Russian Union of Industrialists and Entrepreneurs, Igor Yurgens:

Igor Yuryevich, how the existing economic situation is assessed by those who work in the economy - industrialists and entrepreneurs?

The current macroeconomic situation is better than ever before. Industrial growth tops 6 percent. GDP is also growing, probably, it will rise by 4 percent or slightly less. The resource base works, oil prices are high, and, as a result, tax collection is good. The mechanism lives. But the problem is that, with such growth rates, we cannot even catch up with the level of 10-15 years ago. Today's level is almost three times lower than in 1991, before the reforms. As you know, one of the reasons behind the collapse of the USSR was our dissatisfaction with growth rates, living standards and our international standing. But we have not even reached this level! To catch up, to reach a higher level, we need growth rates not of 5 percent but of 10 percent. Today, this is unreal.

Yes, there are resources in our country, there is human potential, there is everything necessary for a more stable economic development. However, nothing will change in 2 seconds and even 2 years. According to different estimates, about $2 trillion in investments is needed to upgrade capital assets. And it would take about 20 years to use the money. In other words, we need about $100bn a year to modernize industrial facilities that have not been upgraded since 1985-86. But in reality, we are investing less. About $40bn is provided by domestic investments, and foreign investors account for about $10bn. And another $50bn is a "hole". Nobody invests in it. Accordingly, some regions and industries are hit by stagnation.

What are the reserves for accelerating growth? Is it only through attracting large foreign investments that a higher level can be reached?

The reserves can be found in three areas. Firstly, in foreign investments. Not in terms of importance, but simply in terms of order. Secondly, in domestic resources of the population, "long money". They can be mobilized through mortgage lending, insurance, and long-term bank deposits. People should use their "rainy day" cash savings, estimated at tens of billions. And thirdly, it is industrial growth. But a question arises here -what industries can become a source of investments. Some say we will give incentives for the development of small and medium-sized businesses, and we will live better. But what can this sector generate? Employment. Buying capacity. Political calmness of many people who will start becoming the middle class. But it is only in the emerging financial and industrial groups that large investments, on the scale of $50bn, can be generated. For all our criticism of the oligarchy way of development, it is only large companies that generate growth, so far. Yes, certain limitations should be imposed on them. The state should cooperate with them, as it happens in many developed countries of the world. Some sort of a social contract should be made with them regarding market behavior, diversification etc. So, massive investments from abroad are unreal so far. Domestic resources of the population are substantial, but people do not trust state institutions, to say nothing about private ones. And the third way is to grow our own national leaders, turn them into transnational leaders and stimulate them through various methods of state regulation.

Do we have what could be called transnational corporations?

Five or six could be named, very few. Many companies are trading with the West, but few of them have subsidiaries and increase their presence abroad: Yukos, LUKoil, Itera: They have signs of transnationality. They should be grown. Certain incentives should be given to them to win markets and diversify their assets. They should be encouraged, but at the same time an agreement should be reached with them on the rules of the game. While negotiating with these companies and stimulating them, it is necessary to promote them on world markets. However, they also should bear their share of responsibility.

What is the role of these companies in the country? Do they contribute to an overall economic growth or impede economic development, make the economy more raw material oriented?

It can be different. LUKoil developed a large program, showing how much subcontractors emerge in Russia as it rises. From drilling machines, which LUKoil orders from Kakha Bendukidze's United Machine-building Plants, to small agricultural farms. And I have no reason to distrust LUKoil's president Vagit Alekperov.

In principle, this is what happens with all companies. The time comes when the law of large numbers make them diversify their assets and business. Even if a person is driven not by patriotism but by net profit considerations. For example, Yukos tries to order equipment in Russia, not only if it is comparable with foreign products but even if it is worse. The company does so to cut production costs, but also to place orders inside the country. Finally, even investing abroad, companies act in line with their production needs. And as soon as our businesses mature and subcontractors appear, this money returns to Russia to work for its economy.

Don't you think that money, orders and investments of large companies are being distributed very non-uniformly across Russia, further increasing inequality of Russian regions?

On the one hand, state regulation should stimulate those who equalize and, on the contrary, block certain opportunities for those who increase the inequality. But you understand, there is no magic wand. The industrially developed northern Italy lives well, and the agricultural southern Italy lives much worse.

Regional development is connected with many factors. For example, Canadians settled in a narrow strip of 100 km wide, along their southern border, nearer to America. There, they produce everything, and do not care about their northern areas. Of course, they help the backward regions with subsidies and transfers, but nothing is happening there from an economic point of view. When we speak about regional development, a lot depends on the state. However, a cautious approach is needed here. If there is no population ready to receive the investments in terms of honest labor, market development and certain traditions, maybe there is no point investing there. Maybe, on the contrary, it is better to concentrate where there is economic life.

In other words, points of growth should be created, and it is necessary to monitor their development carefully. For that purpose, experts and managers are needed. Do we have them? If no, it is better not to spread investments across Russia in a thin layer, but to focus on points of growth.

But does all this require certain changes to the state policy that is being pursued now?

State policy should be constantly modified. There exists a classic model of state industrial policy. It was coined after the war in industrially developed countries with a large state share in the economy. This policy was aimed not only at stimulating the industrial sector but also at stimulating industrial relations, such as relations with trade unions and other social aspects.

Western countries are now shifting from the state industrial policy to the national industrial policy. What is the difference? State industrial policy is the area of state responsibility, through the mechanisms of macroeconomic market regulation. And national industrial policy is an area of joint responsibility of the state, in the field of macroeconomic regulation, and business, regarding its own behavior. This is transparency and business ethics, corporate governance and honest behavior on the market. At the same time, this is also national responsibility, business organization and civil society. And recently, a shift has begun from the national industrial policy, which implies the responsibility of all players, to the national policy of companies' competitiveness. The state reduces its presence, it does not interfere where the market can regulate itself. But where it does not happen, where monopolistic tendencies are strong, interference takes place.

We should evolutionize in the same direction, so that the state and business have their distinct areas of responsibility. We should create civil institutions which will watch both the state and business and sound the alarm when needed. I think this is the concept that would be more appropriate in today's Russia.

But are our society and business ready to move in that direction, do we have objective condition for this shift?

We are maturing quickly, and we follow the best examples. However, it will take us decades to achieve sustainable development. To keep the azimuth angle, there are special crystalline networks. One of them is the World Trade Organization, and, in broader terms, the entire system of international economic relations. If you want to live like they do in the West, you have to comply with rules prescribed by the global economy. It means opening up the market, liberalization, de-bureaucratization, and the lifting of strong state pressure. Prime Minister Mikhail Kasyanov warns that, once we have repaid our debts, the state will reduce the tax burden. It means that more money would be allocated for industrial needs. We are following this path, and it is only our large size that impedes the process. The Czech Republic has already gone to the end of this road. It is a country with quite sustainable growth rates. Even Estonia is moving quickly in this direction. But it is 1-1.5m people. Our size, our multi-cultural and multi-ethnical nature do not allow us to move quicker.

In other words, do we have to join the WTO as soon as possible in order to accelerate economic modernization? But will this acceleration of growth rates not lead to a loss of part of the domestic market for our own companies? Will it not hit whole industries and regions?

I do not believe that our domestic market can die as a result of Russia's entry into the WTO. For example, it makes no difference to the internal market of the town of Blagorodsk in the Nizhny Novgorod region whether Russia enters some organization or not. It lives by its agriculture and its small tannery. And it does not give a damn about world markets. If there is internal demand, they make some boots, if not - they stand idle. But it is all about lyrics, and the reality is as follows. According to our calculations, which we conducted together with the Academy of Sciences, we will win about 1 percent of GDP already in the first year after the entry into the WTO, as a result of bringing import operations in order and raising tariffs. At present we have rather low tariffs on many products.

So, we will win about $6-7bn as a result of putting everything in order. Secondly, exports win. Not gas or oil exports, because energy prices are not subject to WTO regulation. Metallurgical industries, such as steel production, also win. They win because mechanisms appear to regulate anti-dumping investigations. There will be no trade war any longer, but there will be an orderly process.

Yes, we can lose on non-competitive industries. Which car would you buy for the same price - a Volga or a Daewoo? As a consumer? If you are forced to buy Volgas all the time, we respect your constitutional right to live better and use higher quality services.

At the same time, the WTO framework has all the tools to temporary protect this or that economic sector, even for long terms. Car makers have developed their strategy. May God help them implement it, of course. Accordingly, to implement the strategy for the development of the car industry for the next 6-7 years, we close the market of comparable models for foreigners. We give an "umbrella" to our car makers in the form of 25-30 percent customs duties, to allow this sector to modernize over the next 6-7 years.

The WTO system has certain and clear mechanisms. For example, the next day we will say that we have to stimulate IT, communications or mobile telesystems. Everything will be public, clear and open, and not a result of somebody's lobbying for their interests. And there will be clear timeframes, within which you either did your work, produced high quality and competitive goods, or you failed. It means that other producers have come, and we have to divert our national forces to another sector, where we are more competitive. Specialization must come. If our Volgas are really bad, and they will not become better in the next 6-7 years, why should we torment ourselves with them for the rest of our lives?

We have a quite normal insurance or banking sector, but if we open it to the external market, it will not survive, because our Western rivals have a hundred times more resources…

This issue is simple, it can be settled through talks. There are 5-7 sectors that are sensitive. And everybody understands that. The highest political circles are informed about these sectors, they make decisions and say to their partners: "Guys, keep away from here, or come on, but on such and such terms."

It is exactly this kind of clash that is taking place now over the insurance sector. Our Western partners say: "You must open to us life insurance, car insurance, obligatory insurance, give us the opportunity to buy Russian companies without restrictions and insure them as we see fit." And we answer: "It is impossible to do that, as yet. Life insurance is underdeveloped. This is a long-term investment resource. Many billions can be mobilized here and invested in our economy. And you are going to take it away from us, to put it roughly." This is a negotiating process. Our partners will understand the presence of such 5-7 sectors if they want to see Russia in the WTO.

Will they agree to concessions on these sectors?

If they do not agree, there can be other solutions. For example, such opinions were voiced in the business community: if insurance blocks our way to the WTO, let us surrender it. Let it be what it will be. There is a compromising position: let us concede a little and find consensus, preserving our national insurance. It is an important tool, part of national security. Finally, there is a third position: not a step back, we will not enter the WTO unless we get what we want.

I do not share the extremism of either side. Not to join the WTO means to freeze our modernization for many years. We will not overpower our own bureaucracy by ourselves. And I would not just surrender the sectors, because they are always useful in our economy. That is why I think we will find a compromise. Insurance, banking business, agriculture, telecommunications, car making, aviation and space industries, and the pharmaceutical industry - these 7 sectors, called "sensitive", are controlled by the Russian President. And he, a thoughtful person, will not allow to merge them.

What you are talking about, this is in the first place beneficial for our big business, in general. Is it not embarrassing for you when the Russian Union of Industrialists and Entrepreneurs is accused of courting oligarchs?

At present, we have about 300,000 members, individual entrepreneurs and industrialists, and oligarchs cannot push this or that decision, themselves or through the president. They gathered in the Union not to push for something for themselves, but for the class of industrialists as a whole.

The era when one could push for something for himself is over. Vladimir Putin gave a clear signal that he is going to create a civil society and modernize the economy. And economy modernization implies a large program. This concept of the program - of national industrial policy, and not of state policy - implies the responsibility of business. And it is for this purpose that oligarchs gathered here - in order to develop the responsibility of business for the fates of, speaking emphatically, the country, the industry, etc.

So far, it is too early to say that we are an ideal, good organization, representing the interests of the entire Russian industry before the President, the Federation Council and the government. But we are moving in this direction. What helps us is that, fortunately for us and unfortunately for the society, the minds who are developing the modernization and working on new laws, ideas of the country's renewal, they have poured from state organizations into large monopolies. Oligarchs themselves are active and well-educated people. They became oligarchs as a result of the battle of species. Those who make up the nucleus of the Union are, by all standards, very intelligent people, energetic and with a very high IQ. These people account for more than 60 percent of the GDP. Now they are ready to consolidate, after common interests have appeared.

Yes, there are serious conflicts among oligarchs on the markets. Oligarchs are involved in a fierce struggle, there are many examples of that. But when they come to the Union, they think how to create an economy like Swedish, German, and American, and about what we need for that and how to achieve that. By remaining "lone wolves", we cannot create an economy that would be beneficial for everybody. There is no altruism here, but there is a pragmatic interest: to develop a common position and present it. That is why, the fact that oligarchs are uniting in the Union of Industrialists and Entrepreneurs is a sign that our business is maturing.