The key importance of infrastructure development corridors and nuclear science for the future of Russia

Prepared text of remarks presented at the Moscow Economic Forum (March 25-26, 2015)

Approaching the present situation of Russia from the standpoint of physical economy, I think the following points are most essential:

1. In order to devise an effective program for overcoming the crisis, the correct procedure is: first to determine a medium- and long-term trajectory of development which is feasible in physical terms – i.e. on the basis of the real economic potential of the country, including its physical resources, workforce and potential for scientific and technological progress. Then, in a second step, we must design suitable financial mechanisms and policies that are necessary to realize the chosen trajectory.

2. Real economic development requires a “motor” – a selection of priority areas for investment which greatly increase the real, physical productivity of the economy as a whole. The principles of physical economy as well as historical experience show: that the single most powerful “motor” effect is large-scale investments in basic physical infrastructure – energy, transport and communication – combined with the development and application of the most advanced technologies. In this way infrastructural investment generates a large demand for products from high-technology industrial sectors, stimulates research and development. At the same time, highly-competitive products can be generated for export. In the coming period there will be a big increase in infrastructure investments throughout the world, providing a huge market for Russian exports in the relevant areas. In this way, the combination of high-technology and infrastructure investment generates a large multiplier effect for the entire economy.

3. This strategy is especially important for Russia, with its natural conditions, unique strategic location in Eurasia, and large need for modernization and expansion of basic infrastructure, which will have very large economic benefits.

4. A key principle of physical economy is the concept of power density and the close relationship between real economic development and increase in the power density of basic technologies (such as energy generation, energy storage and the application of energy) and of economic activity generally.

5. An extremely important consequence of the principle of power density, applied to economic activity, is the special role of infrastructure corridors as locomotives of real economic growth.  Concentrating the development of urban centers and high-technology production centers into the regions along a major transport artery, and building up modern infrastructure in those regions, results in a far greater increase in overall economic productivity, than if the same investment were spread out uniformly over a large territory. Perhaps the best example of a highly-developed infrastructure corridor is the Tokyo-Fukuoda corridor in Japan (the Tokaido Megalopolis). This corridor of 1200 kilometers’ length, is home to a population of 83 million, corresponding to nearly 60% of the population of Russia. Thanks to the high density of population and productive economic activity, combined with a dense modern infrastructure, the Tokyo-Fukuoka corridor has an extremely high productivity. Among other things, the density of economic activity leads to a high efficiency in the use of infrastructure.  At the same time, the economic powerhouse effect is enhanced upgrading that infrastructure on the basis of the most advanced technologies. A striking example is Japan’s long-term pioneering role in high-speed rail transport, which has recently achieved a new landmark with the test runs of a new type of magnetic-levitation train reaching speeds of 600 kilometers per hour.  

6. To obtain the largest economic benefits for Russia, the bulk of infrastructure investment should be concentrated into a network of “infrastructure corridors”, where we can achieve a densification of population and economic activity along the corridors together with an improvement in the economic geography of Russia and a highly effective strategic and economic linking of Russia together with Europe, Southern and Eastern Asia. This is the essential content of the “Razvitie” project which is discussed at this conference.  I would only emphasize the importance of developing a network of corridors extending to the entire territory of Russia in addition to the main Trans-Eurasian corridors.

7. Absolutely decisive for the economic future of Russia, in my view, is the development of new technologies based on the physics of the atomic nucleus, including new forms of nuclear energy. This is an area where Russian should be the world leader. We are today still in the “stone age” of nuclear energy. Just now large investments are being made, particular in China, in developing new types of fission reactors which can greatly decrease the cost of energy generation and open up new domains of application. But China has not developed the powerful culture of scientific creativity which has existed in Russia.

8. It would be economic suicide for Russia to maintain the present, totally inadequate funding of the Russian Academy of Sciences. The capabilities associated with the Russian Academy of Sciences lie at the heart of Russia’s long-term economic potential; they must not only be maintained, but greatly expanded in parallel with the reconstruction and upgrading of Russia’s high-technology industrial base.

9. Beyond this I am convinced that we are on the edge of revolutionary developments which will totally transform the role of nuclear technologies in the world economy, greatly expanding the scope of applications of nuclear energy. One example is the large accumulation of experimental evidence, from laboratories around the world, for the existence of a new type of nuclear reactions, occurring in solids at room temperature, without significant ionizing radiation. This is a very surprising and unexpected discovery, for which there is still no adequate theory. There are a number of indications pointing to a major scientific and technological revolution occurring at the intersection of nuclear physics and nanotechnology.

10. Nuclear technology, and the development of electric propulsion for automobiles and aircraft is decisive for the project of eliminating the dependence of the world economy on fossil fuels, which is a source of massive inefficiency and stagnation. I propose that Russia should become a leader in this field, as part of a policy for eliminating its dependence on export of oil and raw materials.

11.  Now briefly concerning the problem of financing. Evidently, the large-scale infrastructure development and science-intensive projects will require huge investments, including state investments and state-supported loans which will operate as a locomotive. The most essential instruments are productive credit generation by a state-controlled central bank and the directed use of newly-generated credit through suitable methods of guidance of the loan policies of the banks. Historical experience shows that it is possible, using these tools, to mobilize a large percentage of the total productive resources of nation, and to rapidly expand those resources without creating high inflation and without incurring large amounts of government debt. Such a mobilization must be carefully organized, with a coordinated expansion of the various sectors of production, in order to avoid large inflationary discrepancies between supply and demand, and to avoid bubbles of various sorts. This requires at least a rough approximation to the methods of physical economy.

Among the best models is to study is the Japan’s use of the so-called “credit window” system to finance its spectacular “economic miracle” in the period from the end of WWII into the 1970s. Another very relevant example is role of policy banks, particularly the China Development Bank. We have at this conference Prof. Richard Werner, who is an expert on the Japanese case.

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12. Needless to say, the financing of a real economic recovery and development in Russia will be impossible without a radical change in the policies of the Russian central bank.