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First Deputy Prime Minister Igor Shuvalov said the unthinkable when told the Financial Times two weeks ago, "The longer we have low commodity prices, the sooner we will have a new model of our economy. ... It's better if we have two, three, five years as a difficult period."
For the country's conservative political and business elites, any talk at this high level of shifting Russia's economic priorities away from natural resources sounds radical. But thinking that goes against the grain is what the country needs to create a sustainable economy. It needs to take decisive action to address the country's most persistent economic problems, such as modernizing its chronically underperforming industry sectors.
The Russian government has been highly critical of the U.S. auto giant General Motors bailout and underscored that the GAZ and AvtoVAZ bailouts would not result in factory closings or unemployed autoworkers. Yes, the Russian government's intervention will relieve the short-term pain of the economic crisis, but it avoids the hard decisions on how to deal with already unprofitable companies that are a drain on the state budget.
To save GM, the U.S. government calculated that it would take billions of taxpayer dollars to give the company enough time to cut costs and to develop a new strategy to regain a competitive position in a global marketplace that demands greener products. When it became clear that GM's leadership was unable to provide an acceptable plan, the U.S. government agreed to provide limited additional taxpayer funds but demanded CEO Rick Wagoner and several board directors to be immediately replaced. The government called for a restructuring plan that will cause some plants to be closed, some workers to be discharged and the United Auto Workers Union to accept major reductions in health coverage for retired workers.
Why shouldn't the government use its position as a shareholder and as the banker of last resort to make leadership changes at GAZ, AvtoVAZ and other underperforming companies and make similar restructuring demands? It should recruit first-class management teams from the ranks of experienced Russian and international senior executives with backgrounds in turning around troubled companies. It should also provide generous financial incentives to restructure operations and to make companies profitable.
The economic crisis has demonstrated the dire consequences of Russia's past short-term thinking and has created a unique opportunity for taking bold steps to strengthen the country's economic infrastructure for long-term prosperous future.
Tom Thomson is partner at RST International.
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