Anders Aslund kicked off the panel. He was extremely optimistic on Russia in 2012 (not his usual view), saying that things have never been so good here: the economy is strong, inflation is low, and growth is high. Russia has human capital, and fighting corruption is on the agenda. The country will join the WTO in 2012 and start the process of joining the OECD. Mr Aslund welcomed political instability, which meant more democracy.

Sergei Guriev mentioned that prior to political events, Russia was falling into a political-economic trap, as there was no political demand for reform. He said that political demand was important for structural reform to be launched. The political demands of the middle class occurred unexpectedly and could stimulate demand for reform. However, the changes are likely to take place as an evolution, not a revolution.

Erik Berglof highlighted Russia’s lagging position in entrepreneurship, saying that only 6% of the population tries to start their own business, versus the average of 16% in Europe. Russians also fail more often when trying to start a business. The key problem is the business climate, with a high level of corruption. One of the biggest problems is connecting to the electricity grid. There is also a lack of practical skills, and an evident lack of training.

David Tarr said that Russia received really good terms for its WTO transition period. Its average tariff will be 7.5%, versus 5.9% for other countries when they entered. Russia got a good deal for the banking and automotive sectors, which will be protected until 2018. He estimates that WTO accession for Russia will result in 3.3% GDP growth in the near term (three to four years) and 11% overall in the next 10 years. Tariff reduction will lower import costs and create better margins. Domestic sectors could suffer, but these negatives will be offset by the positives of a weaker ruble, as greater imports will pressure the exchange rate. The main economic effect is through cost benefits and increased consumption thanks to higher disposable income on the back of lower costs. The insurance sector could open up to international competition, but this could be positive, as demand for skilled domestic actuaries could improve salaries in the sector and drive up consumption.

Paul Collier noted that rising incomes impact stability of the autocracy. Democratization starts with elections, but it is not the conducting of elections that is important. Elections are easy to hold, but the quality of elections depends on the institutions. A properly conducted process has a positive effect on democracy. Problems and exceptions to these rules occur with states that are natural resource producers, as the taxation of citizens in these countries is low. People not burdened with taxes do not take politics seriously. So taxes are an important democratic instrument. Democracy could be popular because it promotes growth and the rule of law. For natural resource states, transparency in how it handles resource revenues is important. It is also valuable to join an energy charter.

In answer to the moderator’s question about what events will take place, the panelists noted the following:

– Aslund: implementation of checks and balances; improvement of corporate governance; privatization; and lower influence of state companies.

– Guriev: reform in Gazprom; less corruption in the procurement system; joining the OECD and taking on its anti-bribery standards; and formation of a new government.

– Berglof: checks and balances; WTO; stimulation of the regions to improve the business environment; the middle class’ loss of confidence in the system.

– Tarr: diversification and development of SMEs; success with fighting corruption.

– Collier: diversification (he pointed to Australia and Botswana as examples of natural resource countries that have managed to diversify).