Central Problems of Innovation Economics

Transcription

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Central Problems
of Innovation Economics
Research and Applied Journal
Nauka Publishing House
and Management and Marketing Institute of the Russian Presidential
Academy of National Economy and Public Administration
present
monthly research and applied economic journal
A publication covering scientific and applied solutions to the
organizational, economic, management, engineering, legal, financial
and other challenges arising in the course of the innovative
development of Russian businesses.
Research and editorial board:
Сontent
Editor-in-Chief
Vladimir Mikhailovich Yakovlev, Doctor of Economics, Full Professor, Management and Marketing
Institute of the Russian Presidential Academy of National Economy and Public Administration
Deputy Editors-in-Chief
Alexander Sergeyevich Senin, Doctor of Economics, First Deputy Director of the Management
and Marketing Institute of the Russian Presidential Academy of National Economy and Public
Administration
Vasily Nokolayevich Borobov, Doctor of Economics, Full Professor, Management and Marketing
Institute of the Russian Presidential Academy of National Economy and Public Administration
Research Editor
Sergey Nokolayevich Kapustin, Doctor of Economics, Full Professor, Deputy Director of the
Management and Marketing Institute of the Russian Presidential Academy of National Economy and
Public Administration
Vladimir Semenovich Balabanov, Doctor of Economics, Full Professor, Honoured Researcher of the
Russian Federation, President and Rector of the Russian Academy of Entrepreneurship
Gennady Vasilyevich Gorlanov, Doctor of Economics, Full Professor
Yuri Yakovlevich Danilov, Doctor of Economics, Full Professor
Sultan Vladimirovich Zankaziev, PhD in Engineering, Assistant Professor, Subdepartment Chair at
Moscow State Automobile and Road Technical University
Andrei Mikhailovich Ivanov, Doctor of Engineering, Full Professor, Vice-Rector at Moscow State
Automobile and Road Technical University
Vitaly Isaevich Koshkin, Doctor of Economics, Full Professor, Rector of the Higher School of
Privatization and Entrepreneurship
Mikhail Vitalyevich Margelov, PhD in Pedagogy, Chair of the Council of the Federation Committee
for Foreign Affairs
Sergey Andreyevich Ponomarev, PhD in Economics, General Director of the OECD Moscow Office
Oleg Dmitrievich Protsenko, Doctor of Economics, Full Professor, Director of the Management
and Marketing Institute of the Russian Presidential Academy of National Economy and Public
Administration
Viktor Paulevich Suyts, Doctor of Economics, Full Professor, Chair of Subdepartment at the Faculty
of Economics of Lomonosov Moscow State University
Valery Ivanovich Trofimov, PhD in Economics, President of the Invest In Group
Alexander Andreyevich Khandruyev, Doctor of Economics, Full Professor, First Vice-resident of the
Association of Regional Banks of Russia
Elena Yurievna Chicherova, Doctor of Economics, Full Professor, Russian Presidential Academy of
National Economy and Public Administration
Rystem Tursunovich Yuldashev, Doctor of Economics, Full Professor, Head of Risk Management
and Insurance Department, MGIMO University
R
F
Magazine 5. (Berkly)
I. Innovative Development Theory
G.V. Gorlanov, N.G. Dehkhanova. Evolution
of Entrepreneurial Function’s Socialization.
N.L. Pirogov. National idea as a Driver of
Economic Performance.
A.N. Folomyev. Theoretical Aspects of
Innovation-Driven Transformation in Modern
Economic Systems.
V.I. Avdiysky. The Place and Role of Private
Property and Investment Protection Mechanisms
in Modern Russian Economy.
II. Innovative Development
Strategy
V.M. Yakovlev, I.P. Lebedinets. Formation
of a Sociomarket Model of Management of the
Russian Housing and Utilities Complex.
O.D. Protsenko, G.V. Zubakov. Voluntary
Certification of Transportation and Logistic
Services as an Essential Stage in the Development
of Logistics.
III. Innovation Management
V.M. Bezdenezhnykh. Economic SecurityBased Management of Innovation Projects.
N. V. Lyasnikov, M. N. Dudin.
Modernization and Innovation Development as
Boosters of Business Competitiveness.
Editorial Staff
Elena Alexandrovna Bubenok, PhD in Economics, Director of Bryansk Media Holding
Yuri Mikhailovich Kazarinov, PhD in Englineering, Assistant Professor, Management and
Marketing Institute of the Russian Presidential Academy of National Economy and Public
Administration
Olga Viktorovna Rybakova, Doctor of Economics, Full Professor, Russian Presidential Academy of
National Economy and Public Administration
Nikolai Leonidovich Pirogov, Doctor of Economics, Full Professor, Chair of Subdepartment at
Vologda State University
Vladimir Eduardovich Tabachnikov, PhD in Economics, Assistant Professor, General Director of
CJSC Agency for Regional Development
Herbert Nabbefeld, Dipl.-Kfm., Ferdinand Harbiner, Dipl.-Finw., Pf. Hendrik P. Fröber
Pf. Anne Zelbershtoff, Pf. Manfred Kurt.
2
3
IV. Industry Innovations
E. N. Potapova. T.V.Guseva. New
Management Trends in the Cement Industry in
Line with Energy Efficiency and Environmental
Performance Requirements.
A. A. Khandruyev. Russia: Innovative
Solutions in Finance Regulation.
V. Financing Innovation
V.V. Grigoriev. Key Valuation Growth Factors
and KPIs of Russian Innovative Companies.
O.V. Rybakova, A.S. Senin. Effective Cost
Management as an Engine of Growth for the
Russian Economy.
S.V. Seleznev. Development Trends in the
Russian and Foreign Fiscal Policies.
VI. Innovative Technologies and
Technological Innovations
N.V. Svenskaya, B.I. Beletskiy. Silica-Calcium
Phosphate Composites for Osteoplastic Surgery.
S. A. Senin. On the Avenues of Research of
Accident Response Systems.
A. I. Vorobyov, I. S. Mordanov,
M. V. Gavrilyuk. The «intelligent road»
testing complex as experimental grounds for
designing technological solutions in intellectual
transport systems.
Ru
Fin
Evolution of entrepreneurial
function’s socialization
Gennady V. Gorlanov,
Doctor of Economics
Full Professor, Russian Presidential
Academy of National Economy and Public
Administration
Natalya G. Dekhanova
PhD in Sociology, Assistant Professor
Abstract: The article investigates
the dynamics of transformation of
functions of entrepreneurial activity,
the formation of its dominant
component and range of carriers
(operators). It studies the role of the
labor force in the transformation of
human capital in the socialization of
business activity and its social and
economic consequences.
Keywords: entrepreneur,
entrepreneurial functions, human
and intellectual capital, innovative
economy, post-industrial societies,
employment partnership.
T
here has been a notion that an “entrepreneur is a type of a person that due to specific features of their personality is capable
of playing a special role in the economy”
[1]. “Entrepreneurs include both specially
trained professionals (graduates of elite
business schools) and amateurs with no
professional background” [2]. There are
also estimates and conclusions that these
specific personality features are just as rare
as the ability to create poetry, music, etc. To
what extent is this true? And how well does
this notion take into account the phenom-
4
enon’s subjective evolution as impacted by
the progress of productive forces and relations of production? As the saying goes, you
could not step in the same river twice. At
certain stages of the society’s evolution, the
development of personality features alone
clearly becomes insufficient. What becomes
vital is knowledge, skills, experience, i.e. everything covered by the word «expertise».
As an academic category, entrepreneurship is a general term that reflects the most
significant links and relations with the
economic environment that its carrier has
as a key player in a market economy who
due to these specific circumstances plays a
special role of ensuring (enabling) the effective functioning and evolution of the
said system. At the core is the entrepreneur’s rational behavior in the system of
market links and relations. This rational
behavior is always due to objective factors
stemming from the internal and external
environments. This effectively means that
the entrepreneur’s functions can never be
permanent and static. They have historical
causality behind them. As a result, we believe that the concepts of entrepreneurships
[3] that have evolved over more than two
centuries since the emergence of the capitalist
market economy reflect the era and the dominant factor that provides for the effective functioning and evolution of the respective economic
system in the respective period of time.
Russian researchers identify several waves
of interpretation seen in the Western economic studies. For some of the researchers,
the classification is based on chronology, while
for others, the basis is the functional principle.
At the same time, it is vital to remember that
when first emerged, each of the interpretations
of the essence and composition of the entrepreneurial function reflected the respective
stage of evolution in the economy in general
and progress in science and technology in particular, always adjusted for the market (economic) environment. In other words, the way
approaches to defining the essence and composition of entrepreneurship evolved reflects
the overall evolution of a society and economy,
corresponding to the respective stages of economic studies evolution.
The term “entrepreneurship” was introduced
at the early age of capitalism by R. Cantillon,
who used it in the 18th century to describe the
entrepreneurial risk as the basic functional
characteristic of entrepreneurship. According
to Cantillon, an entrepreneur is any individual
who has the ability to foresee and is willing to
assume forward-looking risks and whose actions are characterized both by hope for profit
and readiness to accept losses. It is a person
who is exposed to the risk of unstable incomes,
i.e. a farmer, craftsman, trader, robber, beggar,
etc., but never a worker or a public official with
a guaranteed salary or a landowner benefiting
from a rent income. By purchasing someone
else’s (industrial and consumer) goods at a
known price and by paying a fixed fee to land-
owners, an entrepreneur hopes to sell his or
her goods at a higher price which is not known
to him or her yet due to the uncertainty of the
nature or the market [4]. This idea, which
defines the entrepreneurial function as a burden of risk and uncertainty in the process of
economic evolution, was pursued in the 19th
century by Johann von Thünen, Antoine Louis
Claude Destutt de Tracy, Hans Carl Emil von
Mangoldt, and others. In the 1920s, ahead of a
global financial crisis, the elements of risk and
uncertainty became central in the concept of
entrepreneurship by Frank Night, the founder
of the Chicago school of economics.
At the early stages of capitalist market relations, marked by an overall lack of resources
for economic growth and dominance of individual property, it was only logical that
classic scholars of political economy defined
an entrepreneur first as the owner of capital (Quesnay, Smith, Ricardo). Furthermore,
Turgot and later German historians (Roscher,
Hildebrand) state that while managing their
capital, the owner combines these functions
with their own productive labor. Here the private function of the owner/entrepreneur prevails, providing for extended reproduction of
their movable/immovable property. The latent
social function of meeting effective demand is
secondary.
The processes of capital concentration and
mobilization, especially along with the ability to mobilize financial resources with joint
stock companies, caused scholars to move
away from a capitalist/owner being equaled
to an entrepreneur. In these conditions, an entrepreneur is increasingly less associated with
a capitalist/owner and is viewed rather as the
organizer of the production process with the
full range of the owner’s powers and authori-
5
Evolution of entrepreneurial function’s socialization
ties [5]. This view was shared by Say, Mill, and
Marx. Later the definition of the entrepreneur
as a manager gained ground in the work of
neoclassical economists (Marshall, Walras,
Menger, von Wieser), who believed that the
economic thought evolved concurrently with
changes in the real entrepreneur [6].
The industrial period in the capitalist
economy ahead of the scientific and technological revolution in the middle of the 20th
century required new approaches to defining
the essence and functions of entrepreneurship. In the most concentrated form, these
were reflected in the definition offered by
Schumpeter, who defined entrepreneurship
as innovation, i.e. identified innovation as
entrepreneurship’s dominant specific feature.
According to Schumpeter, entrepreneurial
activity means enacting “new combinations”,
mainly represented by: 1) production of new
types of goods; 2) introduction of new methods of production and commercial use of existing goods; 3) opening of new markets; 4)
use of new sources of raw materials; and 5)
creation of a new industry organization (creating or undermining a monopoly)[7]. Those
carrying out this activity, i.e. entrepreneurs,
were defined by them as “…economic agents
whose function is to enact new combinations
and who are the active elements of the same”
[8]. According to Schumpeter, entrepreneurs
do not represent any specific occupation or
any specific class. It is about the function carried out from time to time by various entities.
In each economic environment, entrepreneurship dies out over time, replaced by routine-provoking actions. It is also important to
remember that the latent social function of
entrepreneurship historically has a tendency
to augment. According to von Mises and von
Hayek, “…the task of the entrepreneur is not
to simply experiment with new technological
methods but study the variety of… potential
methods to select those which are most effective as the cheapest way of providing people
with what they need most at the respective
moment” [9].
In the context of institutional economy
(Coase, North, Williamson), an entrepreneur
is the economic agent that chooses between
contract relations of a free market and setting
up a firm for the purposes of cutting up on
transaction costs. This effectively means that
entrepreneurship becomes a special regulatory mechanism for market institutions which
is different from the pricing mechanism and
state regulation and in a sense is an alternative
to the two.
The modern wave of theory and practice of
the entrepreneurial function is also linked to
the transition to an intra-disciplinary level of
analyzing entrepreneurial problems. In this,
entrepreneurship is viewed as the basis of innovative economy populated by a “collective
entrepreneur”, i.e. owners, entrepreneurs,
managers, and workers. In today’s society,
entrepreneurship is no longer the choice of
loners guided by their own vested interests; it
sets the basis for the need for cooperation, as
active involvement of managers and workers
is essential to innovations, hence the notion of
a “collective innovation”. This function is implemented among many participants of large
business entrepreneurship and is reflected by
“latent technostructure” (Galbraith), i.e. an
informal structure of business relationships
among people who are ready to take the lead,
often assume risks and seize opportunities offered by the idea of an entrepreneurial style
of management (innovation management).
6
Labor of an informal team is a typical modern
form of entrepreneurship that implies new
combinations of factors of production to create new goods. If we view the phenomenon of
innovation as the essence of entrepreneurship,
the first task would be to identify the systemic
aspect of innovation, as the introduction of
a new element to pre-existing ones will create a new economic characteristic. Therefore,
a specific feature of the new entrepreneur is
the ability to see a system when others only
see non-related elements” [10]. Furthermore,
according to Schultz, an entrepreneur is a person capable of handling an imbalanced situation both in economic activity and outside of
it. This ability is a rare resource, and the notion depends on the combination of marginal
benefits and costs associated with acquiring
this type of human capital. By investing in
their human capital and offering this specific
resource in the market, entrepreneurs contribute to the elimination of imbalances in the
world around them [11].
Today, theoretical studies focus not only on
entrepreneurship as a way of doing business
on a standalone basis but also on intracompany entrepreneurship, or intrapartnership. The
term “intrapreneur” was coined by American
economist Gifford Pinchot, who was also the
first to use intrapreneur’s derivative, “intracapital”. Intrapreneurship emerged due to the
fact that a lot of large manufacturing companies switch over to an entrepreneurial form
of business organization. Since entrepreneurship always implies freedom to create, department of integrated manufacturing companies
obtain the right to act on their own, which
requires the availability of intracapital, i.e. the
capital needed to realize the ideas behind intracompany entrepreneurship [12].
Therefore, directly affected by the progress
in science and technology and the increasingly
complex market relations, the entrepreneurial function constantly improves by covering
new aspects (components) implemented by
an ever wider range of economic agents. As a
result, while initially the agent of the entrepreneurial activity was only the capital owner, at
a certain stage of evolution this function is increasingly being transferred first to managers
and then to designers, process engineers and
other white collars before being handed over
to an ever greater share of all hired employees
in post-industrial economies.
This pattern was reflected by the Karl
Marx’s famous notion of capital as property
vs. capital as function, introduced as early
as the middle of the 19th century. In our
opinion, later on this became the basis for a
theory of managerial revolution. The concept
is credited to Adolf Berle [13], an American
sociologist, although the basics of a theory
suggesting an independent role of managers
can be found as early as the beginning of the
20th century in the works of Thorstein Bunde
Veblen, the author of a technocratic theory of
leadership. Berle first introduced (together
with Gardiner Means) his concept in 1932
and later developed it in a number of further
studies [14]. The core idea is the radical redistribution of authority in corporate management, which is being handed over from the
owner to hired managers. A lonely capitalist
becomes a thing of the past, increasingly replaced by shareholders. In this environment,
the authority of managers expands considerably, with their duties now covering the development of the company’s overall strategy and
policies capable of delivering a successful and
profitable business [15]. Later on, Galbraith
7
included it into the “technostructure” before
labeling it “qualified managers”. Berle’s idea
was further developed by his numerous followers. According to them, a manager is not
simply an agent of capital owners but a person
who coordinates the requirements of various
social groups and brings them into boundaries that are “constructive and acceptable for
the society” [16]. Hence, the focus, according
to James Burnham, is that as a result of managerial revolution, capitalism will be eliminated, but it will not be followed by socialism.
Instead it will give rise to a new type of a planbased centralized society that will be neither
capitalistic nor democratic in any common
meaning of the word. The new society will
be ruled by those who effectively control the
means of production: corporate administrators, technical professionals, bureaucrats, and
the military, who Burnham brings together
under the “managers” tag. These people will
eliminate the previously existing class of capitalists, thwarting the working class and organizing society in a way that would enable
them to keep all the power and economic
privileges. The rights of private property will
be cancelled, but public property will be nonexistent as well [17].
In the 1970s, according to Peter Drucker,
the management boom was over. There was
an increased level of mistrust for the official
doctrine of managerial revolution, which
came to be treated as a purely ideological or
philosophical phenomenon [18]. At the same
time, the very idea of radical transition of
power in corporate management from owners
to hired managers seems fairly well-grounded. More than 50 years of business practices
in developed economies clearly prove that
managers and technocrats, whose share in
the total number of people employed in the
production of goods and services is constantly growing, to a large extent act not only as
simple employees but rather as partners of the
employer, and along with their operational
duties, they are increasingly taking over entrepreneurial functions. But this was still not
the limit. The progress in science and technology, especially information revolution, seen in
the middle of the 20th century contributed to
considerable expansion of the range of agents
involved in labor activity, who were now moving from simply operational functions to effectively creative/entrepreneurial functions
within the scope of their position. During all
stages of scientific revolution in the middle
of the 20th century and especially during the
information revolution at the turn of the millennia, the trend towards an ever expanding
range of economic agents with the entrepreneurial function has been gaining ground and
momentum.
In this context, it is important to remember
that labor activity has always had a qualitatively determined social and economic form.
Every stage of evolution in society and economics has its own social and economic form
of realizing people’s ability to work (personal
factor), which in all cases depends on the condition of productive forces and the respective
social relations and institutions. In the capitalist market environment, the ability to work
is consistently realized in the social and economic form of labor force, human capital, and
intellectual capital.
The trend towards the transformation of
labor force as a historically bound social and
economic form of realizing people’s ability to
work has important social and economic implications, i.e. an agent of labor activity takes
8
on previously non-typical creative duties that
affect the performance and evolution of the
economic system at large. In other words,
they effectively take over entrepreneurial
functions. This is only viable in a new information economy of a post-industrial society.
A post-industrial theory was first introduced
by Daniel Bell in his book The Coming of
Post-Industrial Society [19]. In his work,
Bell took a constructive approach to studying major changes that had taken place in the
economies and societies of Western nations,
concluding that there would soon be a transition from an industrial to post-industrial
stage of evolution, with the economy soon to
be dominated not by the manufacturing sector but by the services industry. “Information
costs, just as labor or capital costs in the past,
are becoming the key, also in a purely quantitative aspect” [20]. Innovative strategies are
to a large extent defined not by material factors but rather by achievements of “theoretical
knowledge, the creation of a new intellectual
technology, the growth in the class of knowledge owners” [21]. Vital in this process is information technology, which is increasingly
spread to all aspects of society and economics. In the new economy, “everything a human
produces contains information that evidences
the knowledge and skills of its author” [22].
Furthermore, the transition from a postindustrial to information society in developed
economies involves qualitative changes that
define their respective economies as innovative. In these countries, the share of innovative industries was constantly growing, coming to as much as 45 to 65% at the turn of the
millennia [23]. Reflected in the development
and introduction of new technologies, it is innovations that drove the greater level of mar-
ket competition among businesses, greater efficiency of manufacturing, and improvement
in consumer properties of goods and services.
As shown by the history of economic growth
in developed markets, innovations have contributed to the emergence of production systems and consumer markets [24]. Due to this,
the growing intellectual component in labor
activity becomes an inherent logical platform
for today’s economy and society to function
and evolve.
The transformation of science into the direct productive force and the growing complexity and costs of R&D required active
evolution of agents involved in labor activity, causing the social and economic form of
people’s ability to work to change significantly
because “in the era of progress in science and
technology, when industrial production and
market relations reach a new higher level,
people’s productive forces function and reproduce themselves not as goods but rather as
human capital” [25]. Against this background,
the system of economic relations in general is
in the state of a slow transition from an “economy of goods to an economy of money and
ultimately to an economy of human abilities”
[26]. “The most important step in the economic evolution of our era has been the emergence of a new system of wealth production
based on a person’s intellectual and not physical abilities,” states Alvin Toffler [27]. As a result, the place and role of people in social and
economic evolution was reconsidered. While
in an industrial society a person was only perceived as a cog in the economic machine, in
the emerging post-industrial economy there
is a stark rise in the importance of creative, i.e.
entrepreneurial, abilities required for business
systems to remain competitive.
9
In the new economy, a creative employee
capable of actively impacting the performance of functioning and evolution of the respective economic system is at the forefront.
This means (and this is most important of
all) a qualitative change in the employee’s role
functions in labor activity. Effective evolution
of material production laid a solid ground to
address this challenge, while the level of social services (comprehensive education and
professional training, healthcare, science, culture, arts, physical education and sports) contributes to the overall improvement in agents
involved in labor activity.
Innovations economics has demand for
the new type of employees. Their immanent
features are not only high professionalism relying on strong general and specific training
background but also the ability to take the
lead and responsibility since these employees due to the nature of their technological
functions are involved in the process of developing, taking and overseeing managerial
decisions. Employees are not estranged from
this activity – on the contrary, they become
involved in taking over this activity. Today,
efficiency of production is ultimately linked
to the initiative and creative approach of all
the parties involved, be it workers, engineers,
or managers. As a result, each of the agents
involved in labor activity need to be not only
qualified users of the constantly updated and
improved technical devices and technologies but also take part in their constant improvement, looking for fundamentally new
and more effective solutions in technology,
organization, economy, and social aspects.
Employees who no longer evolve and whose
development has stopped are no longer capable of helping the company to grow, and,
consequently, the company does not need
them.
In other words, the current stage of progress in science and technology has solidified
the overarching role of human factor in production and business. Today, no company can
deliver the quality of goods and services and
survive in an increasingly competitive environment without making effective use of human capital. Complex technical and information technologies require sufficient skills and
knowledge from employees. Furthermore, as
there is a trend towards an intellectual nature
of labor, the problem of university education
for the general public no longer pertains to
consumer preferences but is rather an objective need that defines a person’s ability to
compete in the labor market. The growing
intellectual component in labor activity becomes integral in the functioning and evolution of today’s economy and society. There
is a rapid growth in innovations in the world
at large and in the labor activity in particular,
with intellect becoming a factor of activity.
The spread of computer technologies in
production and the greater complexity of
work equipment has required new types of
employees – those who are educated, responsible, psychologically resilient, and capable of
creative thinking. It is now clear that no high
tech manufacturing process is feasible without
people who enjoy extensive personal development and comfort of living. It is only logical
that Fritz Machlup introduced the notion of
“knowledge worker” to define a new type of
employee focused on self-actualization and
self-expression rather than short-term benefits
[28]. In their job, they above all aim to use their
knowledge and skills, and their professional
performance does not depend on who owns
10
the means and place of their work. For knowledge workers, self-identification is linked to
their position rather than to a specific company
or workplace. Employers are no longer able to
force any tough terms on them: the knowledge
these employees possess gives them the freedom of movement as they are sought after by
many companies and businesses and enjoy a
great level of social mobility.
The category of knowledge workers usually
covers the following: programmers, lawyers,
designers, consultants, experts, analysts, business coaches and people in many other areas
of expertise capable of creating an end product with no physical means of production or
support from the company (emphasis added
by the authors) [29] As a result, the key equipment of today’s company is not machinery or
high tech computers but human capital. The
challenge of driving improved performance
and growth of the economic system cannot
be effectively addressed by employers who
choose to purchase new foreign equipment –
instead, as some of Russian researchers point
out, they have to “upgrade” [30] and improve
their existing employees, taking them to a
new level of development.
Some tend to believe that those are highly
qualified scientists and professionals who take
advantage of their entrepreneurial skills to increase personal wealth.[31]. However, there
are also opposite views regarding their aims,
since many of them define their fundamental
objectives as intellectual growth and development rather than maximization of their capital. According to Ye. Yurtaikin, “many studies
show that the focuses of internal motivation
of knowledge workers are materially different
from those seen in traditional workers. Everything is upside down, as the leading motive is
the willingness to gain new knowledge, new
experience, and new tasks. No longer vital are
the traditional incentives of financial and nonfinancial remuneration, comfortable working
environment or working hours. Development
and “challenge” [32] become the basis of motivation for gold collar workers” [33].
In terms of their entrepreneurial motivation, of special importance is the “need for
achievement”, first described by American
psychological theorist David McClelland,
who defined the need for achievement as the
desire to perform well in a competitive situation where personal efforts can be objectively
measured; it is a personality trait that is characterized by focusing on the formal side of
success, i.e. victory rather than components
of success. A person who aims to satisfy their
needs in the largest extent possible is focused
on the final result (consumption), while a
person who needs achievement is guided by
interim results and aims to 1) contribute to
improvements for others; 2) make sure those
are in line with or above their own criterion
of quality; 3) achieve something unique; 4)
get career promotion. As a result, there are no
limits to their efforts [34].
Furthermore, a strong driver behind the
expanding range of agents implementing entrepreneurial functions today is the rapidly
spreading trend for fundamental changes in
consumer needs. Modern society is marked
by increasingly individualized consumers
preferences as a way of person’s self-expression. As a result of these circumstances, modern manufacturers move away from mass production strategies focused on large quantities
of products and offering lower production
costs. Today we have the market of differentiated consumer needs and a mix of offers. The
11
key factor of economic efficiency in modern
manufacturing is responding to individual
consumer needs rather than cutting costs of
production. This is evidenced by the need to
constantly upgrade product portfolios, along
with the tough competition in respective segments of the global market. A specific reflection of this trend is (can be), among other
things, the current practice of offering and
promoting global FMCG brands, including
clothes, shoes, cosmetics, smallware, electronics, household appliances, etc.
Serving as a concept of a company’s products and services mix, a brand with strong
recognition reflects the image and reputation
of the respective company, product or service
as seen by the company [35]. For consumer
research, a brand as information memorized
by consumers. The aim of brand promotion is
creating a monopoly in the respective market
segment.
The American Marketing Association defines a brand as a “name, term, design, symbol, or any other feature that identifies one
seller’s good or service as distinct from those
of other sellers”.
A vital condition for a brand to successfully exist and function is for it to maintain
a common brand style, i.e. visual and conceptual unity of the company’s image. Brand
style elements are the product’s name, logo,
trademark, service mark, trade name, brand
colors, slogan, style and colors of the company’s uniform, and other intellectual property
items owned by the company. Its characteristics are: guaranteed quality; being universally
known; prestige; overall availability (in terms
of the general ability to purchase it); a lot of
loyal customers; easily recognizable name and
logo; and global spread of the trademark [36].
The result is an increase in the number of activities and economic agents related to aspects
that are critical to the company’s operations.
Due to the above, the success in instilling
and promoting a brand ultimately depends
on the quality (high professionalism) of not
only marketing specialists but all of the company’s employees, from senior executives to
rank-and-file employees directly involved in
making a product or a service. These employees require the highest qualifications to meet
customers’ needs, hence the objective need to
engage the entire headcount in creating and
making new products of high quality and performance as soon as possible to suit the target group of consumers. This means that here
we see an expanded range of agents carrying
out entrepreneurial functions, along with the
need for labor partnership relying on the labor (technology) basis of developing innovations for them to be later manufactured and
sold in the highly specialized niches of the
global market.
Therefore, while previous stages of progress
in science and technology required that most
professionals involved in labor activity had a
clearly regulated range of knowledge necessary and sufficient for them to carry out their
duties in strict accordance with established
rules, today the labor market “no longer values formal education, i.e. awareness, but rather knowledge as the ability to create something new and engage in independent creative
work” [37]. The performance of today’s business is ultimately dependent on the initiative
and creative approach of everyone involved
– researchers, managers, engineers, and
workers. Each of them needs to be not only
a qualified user of the constantly updated and
improved technical devices and technologies
12
but also take part in their constant improvement, looking for fundamentally new and
more effective solutions in technology, organization, economy, and social aspects [38].
These are solutions that are entrepreneurial in
nature and are inherent to the realization of
human capital as such and its progress based
on its enhanced intellectual component.
An agent involved in an activity takes on
part of certain entrepreneurial functions of
private and latent social nature. The private
ones include the profit maximization function and related functions of setting up the
production process, assuming the risks involved, and discharging managerial powers.
The latent social functions include those related to meeting effective demand, ensuring
the creation of a social product, and optimally
combining factors of production, along with
the innovative function.
It is profit maximization (achieved through
sustainable operations and development of a
company and is above all reflected in the said
company’s competitive ability based on innovations in the business process, R&D, and
market demand for the company’s products)
that ultimately is both the functional duty
of managers and the rationale (professional
duty) behind employees working at the company’s R&D departments. The risk of making
decisions related to how a specific economic
system (company) is organized applies to
everyone, i.e. the employer, the manager,
and the designer, because a crisis makes the
owner lose their capital while a manager or
a researchers or a process engineer lose their
image, i.e. the intellectual capital they have accumulated, which results in them losing the
prospects of being sought after as professionals in the market for respective services.
Finally, due to the nature of their functions
(i.e. by definition) a considerable part of all
these white, gold and platinum collar workers have powers of authority. These above all
apply to the right of usage, i.e. the right to use
benefits and goods in their own interests; the
right to manage, i.e. to make decisions on how
a property can be used; and finally, the right to
obtain profit, i.e. the right to own the results of
using goods.
As a result, it is the emergence and consolidation of human capital as a fundamentally
new social and economic form of realizing
people’s ability to work that gives a strong
impetus for the range of agents involved in
entrepreneurial activity to expand. No realization is possible within the boundaries of
“labor force” since the latter does not have all
the prerequisites, lacking the properties that
are vital and sufficient for an agent involved in
labor activity to carry out professional functions that per se contain entrepreneurial basics. These professional properties are typical
of another social and economic form in which
people’s ability to work is realized – human
capital.
Having retrospectively analyzed the evolution of the entrepreneurial function and the
expansion of agents involved in it, we can
make the following general conclusions.
Functions of entrepreneurship are an organic entity (system) of functional components that have emerged across all stages of
evolution in the market economy and society,
with the modern period playing the dominant
role. “It is like in fugue playing, when a new
sound appears, but the previous ones still remain around” (Sombart) [39]. Although this
phrase applies to the structure of the national
economy, we believe it is also fairly applicable
13
as a way to characterize the function of entrepreneurship at each stage of its historic evolution. As a result, it is a system of proportions
that define entrepreneurial activity in given
conditions and at given time. In each of them,
functions typical of entrepreneurship at previous stages of evolution do not cease to exist
or die out or become eliminated. They persist,
but they no longer play a dominant role. The
new dominants are fundamentally new functions that emerge from the respective stage
of the society’s and economy’s evolution. The
resulting new economic agents carrying out
entrepreneurial functions are responsible not
only for the dominant component of them but
for the entire complex range of them. Each of
the agents to a certain extent actually acts as
the owner of property in relation to their authority as the owner resulting from their job
duties, the agent exposed to the risk of the
said economic system’s functioning and evolution, etc. Every agent assumes risk as the
owner of their human and intellectual capital,
and the exposure is the agent’s popularity in
the market. Everyone involved in post-industrial (information) economy, where labor
force has transformed into human capital, is
by definition an innovator in the respective
area of labor activity.
Due to the historical evolution, the range of
agents involved in the entrepreneurial function is expanding constantly, affected by progress in science, technology, and social evolution. Today, the range is expanding as labor
force is being transformed into human capital
and then into intellectual capital. Specific features of entrepreneurship such as risk, implementation of the powers of the owner, innovations, minimization of transaction costs, etc.
become inherent to the professional activity
involving human and intellectual capital. Typical of such activity is the kind of economic
behavior that initiates interest in the final results of doing business both in the short and
long term.
But this transformation is a privilege of
a post-industrial society. It is here that the
problem of effective motivation and the eternal social problem of organic unity of labor
and ownership can be eventually solved: in
a post-industrial society, a majority of economic agents involved in a business project,
i.e. owners/shareholders, gold and white collar workers carry out entrepreneurial functions as part of their job duties and effectively
become partners in their joint business activities. At the same time the private entrepreneurial function of the owner (ensuring
extended reproduction of their movable and
immovable property) gets weaker, while the
latent social innovative function, expressed in
extended reproduction of their ability to work
and self-actualize, is augmented.
14
References
[1]
http://www.libsid.ru/istoriya-zapadnoyekonomicheskoy-misli
[2] http://website-seo.ru/024501011812.html
[3] “Concepts of entrepreneurship are a learning
style and a variety of ideas that became the basis
for entrepreneurship and the entrepreneurial
function, and their changes during the evolution
of the capitalist economic system” See http://www.
topknowledge.ru/
[4]http://www.topknowledge.ru
[5] Some researchers believe that this period
“gave rise to its perception as the organizer of the
production process that does not necessarily had
the property rights”. This is clearly at variance
with the theory of property rights since a manger
by definition carries out, within their job duties,
the following types of powers: the right to own, the
right to use, the right to manage. See http://www.
topknowledge.ru
[6] See http://www.topknowledge.ru
[7] Joseph Schumpeter. The Theory of Economic
Development. Moscow, Progress, 1983. P. 159.
[8] Ib. Pp. 169—170.
[9]
http://www.ug.ru/old/ug_pril/ol/98/35/
t8.htm
[10]http://www.topknowledge.ru
[11]http://www.libsid.ru/istoriya-zapadnoyekonomicheskoy-misli
[12]
http://www.ug.ru/old/ug_pril/ol/98/35/
t8.htm
[13] For details see http://window.edu.ru/
window/library/pdf2txt?p_id=18272&p_page=2
[14] Berle A. A., Means G. The Modern
Corporation and Private Property. N. Y„ 1932;
Berle. A. A. New Directions in the New World,
N. Y., 1940; Berle A. A. The Twentieth Century
Capitalist Revolution. N. Y.1955;Berle A. A.
Power Without Property. N. Y., 1959;Berle A. A.
The American Economic Republic. N. Y. l963.
[15] Literaturnaya Gazeta No. 26 (6178)(200806-25) http://www.lgz.ru/article/4844/
[16] См.: http://window.edu.ru
[17] George Orwell. James Burnham and the
Managerial Revolution. Translated from English
by V. Golyshev. http://orwell.ru/library/reviews/
burnham/russian/r_burnh
[18] http://window.edu.ru/window/library
[19] Bell D. The Coming of Post-Industrial
Society. Basic Books, 2001. [Electronic source]. [2008]. – Access: http://www.questia.com/library.
[20] New post-industrial wave in the West:
anthology / Edited by V. L. Inozemtsev. Moscow,
Academia, 1999. P. 38
[21] Bell D. Notes on the Post-Industrial Sosiety /
The Public Interest. 1967. No. 7. P. 102
[22] V. A. Suprun. Intellectual capital as the key
factor of competitive ability of economies in 21st
century. Moscow, KomKniga, 2006. P. 81.
[23] V. Melyantsev. Information revolution:
phenomenon of the “new economy”. // Global
economics and international relations. 2001. No. 2. P. 7.
15
[24] M. Castells. The information age: economy,
society, and culture. Moscow, Higher School of
Economics, 2000. P. 16.
[25] S. A. Dyatlov. Theory of human capital. St.
Petersburg, St. Petersburg State University of
Economics and Finance, 1996. P. 9. The economic
category of “human capital” began to be actively
pursued starting from the second part of the
20th century by American scholars Theodore
William Schultz and Gary Becker [25], who won
Nobel prizes in economics in 1979 and 1992. The
authors of the theory define human capital as a)
a combination of knowledge, skills and expertise
of a person (as a result of not only innate talents
and abilities but also education and professional
training), along with motivation. Human capital
has the necessary properties of productive
nature and is capable of being accumulated
and reproduced; b) the most important factor of
economic growth that becomes more prominent
with the transition from industrial to postindustrial society. Investments in human capital
can include education, gaining professional
experience, healthcare, geographical mobility, and
search for information. See R. I. Kapelyushnikov.
Gary Becker’s economic approach to human
behavior // USA: Economics, Politics, Ideology,
No. 11, November 1993.
[26] Steiner R. World Economy. L., 1938.
[27] A. Toffler. Powershift: knowledge, wealth,
and violence at the edge of the 21st century.
Moscow, INION, 1991. According to the UN
data based on a study of 192 countries, economic
growth today depends by 16% on the availability
of capital, by 20% on natural resources, and by
64% on human and social potential. See Human
Development Report 1996. New York, Oxford
University Press, 1969.
[28] Machlup F. Knowledge: Us Creation,
Distribution, and Economic Significance.
Princeton (NY), 1984.
[29] http://www.iteam.ru/publications/human/
section_48/article_2283/
[30] See http://www.iteam.ru/publications/
human/section_48/article_2283/
National1 Idea as a Driver of
Economic Performance
[31] http://www.newslab.ru/blog/198383
[32] Challenge is an extreme game that develops
intellect and comprehensive knowledge and offers
a new non-standard viewpoint (note by the
authors)
[33] Ye. Yurtaikin. Knowledge workers: specifics
of development // Human Potential Management,
2005, No. 2.
[34]
http://www.libsid.ru/istoriya-zapadnoyekonomicheskoy-misli
[35] There are also other definitions of this
term: “Brands are images that are stored in
the memory of interested groups and help
identify, differentiate, and define the behavior
of consumers in choosing products and
services”. Franz-Rudolf Esch, Professor, Head of
Marketing, Justus Liebig University of Giessen,
Director of the Institute а Brand Name and
Communication Research (Institut für Markenund Kommunikationsforschung), Germany; “An
identifiable product, service, person or place,
augmented in such a way that the buyer or user
perceives relevant, unique, sustainable added
values which match their needs most closely”. Leslie
De Chernatony, Professor of Brand Marketing
and Director for Research in Brand Marketing в
Birmingham University Business School, author
of a number of books on branding (see http://
ru.wikipedia.org/wiki/Бренд 4 November 2012)
[36] http://ru.wikipedia.org/wiki/Бренд
[37] V. S. Bulanov “Improvement in the level
of education and quality of human resources
as a logical trend in transition to innovation
economics in 21st century” (Http://www.rags.ru/
person/89).
[38]See V. Schetinin. Human and material
capital: common features and differences //
Global economics and international relations,
2003. No. 8.
[39] Cited by: R. Barre. Économie politique: 2
tomes. Tome 1. Translated from French. Moscow,
International Relations, 1995. P. 193.
Nikolay Leonidovich Pirogov
Doctor of Economics, Full Professor,
Research Advisor of “Center” research Institute
Abstract: In his Valdai speech (September
2013) Russian President Vladimir Putin stated that that Russia’s development requires a
national idea based on a national identity.
The article provides an overview of the main
versions of this national idea, proposed by
different authors over the last 10 to 15 years.
The author concludes that real consolidation
of the Russian people can be achieved through
purposeful attainment of the current nationwide social and economic objectives. Abstract: In his Valdai speech (September 2013)
Russian President Vladimir Putin stated that
that Russia’s development requires a national
idea based on a national identity. The article
provides an overview of the main versions
of this national idea, proposed by different
authors over the last 10 to 15 years. The author concludes that real consolidation of the
Russian people can be achieved through purposeful attainment of the current nationwide
social and economic objectives.
T
Putin’s Valdai speech (http://eng.kremlin.ru/
news/6007). Politicians, too, were surprisingly
unanimous in their reception of the speech –
both the pro-government ones (which makes
perfect sense) and the oppositional ones (including the leaders of the so-called ‘systemic opposition’).
This relatively brief speech was, however,
packed with ideas, and therefore, deserves not
a superficial overview but an in-depth analysis. In its content, we could identify three key
points pertinent to Russia’s domestic issues.
1. Explaining the need for a national idea.
“... It is evident that it is impossible to move
forward without spiritual, cultural and national self-determination.” “...economic growth,
prosperity and geopolitical influence are all
derived from societal conditions… They depend on whether the citizens of a given country consider themselves a nation...” I.e., Russia needs a national idea based on a national
identity.
2. Outlining the parameters and characKeywords: national idea, national ideology, teristics of a national idea and proposing
patriotism, national identity, ideological, the ways to develop it. “… a new national idea
national sovereignty, Russian history, liberal does not simply appear, nor does it develop
according to market rules… primitive borideology.
rowing and attempts to civilize Russia from
he absolute majority of people who care about abroad were not accepted by an absolute mathe future of their country welcomed Vladimir jority of our people. This is because the desire
1
Note: in Russian, «natsiya», a cognate of «nation», has been used as its synonym, but historically also means «ethnic
group». Therefore, the words «nation» and its derivatives should always be regarded in light of this double meaning.
16
17
National Idea as a Driver of Economic Performance
for independence and sovereignty in spiritual, ideological and foreign policy spheres
is an integral part of our national character.”
“...identity and a national idea cannot be imposed from above, cannot be established on
an ideological monopoly,” “... all of society
must work together to create common development goals.”
3. Patriotism of citizens and the vision of
national history through its lens. ‘... debates
about identity and about our national future
are impossible unless their participants are
patriotic.” “We must be proud of our history.”
“... Our entire, uncensored history must be
a part of Russian identity.” “It’s time to stop
only taking note of the bad in our history, and
berating ourselves more than even our opponents would do.” Vladimir Putin emphasizes
the role of education for personality formation and patriotic awareness: “the educational
community overall, in the broad sense of the
word, binds the nation together. Supporting
this community is one of the most important
steps on the path toward a strong, flourishing
Russia.” “Russia’s citizens must feel that they
are the responsible owners of their country,
region, hometown, property, belongings and
their lives.” “Local governments and self-regulated citizens’ organizations serve as the best
school for civic consciousness.”
· As justly noted by Gennady Zyuganov, all of these ideas should probably have
been presented not in a discussion club, but
at least in the Federal Assembly. The Valdai
Speech evokes mixed feelings. On the one
hand, it’s satisfaction: it gives you clear and
concise ideological directions, attuned to the
feelings of the general public. On the other
hand, it gives reasons for serious concern
and confusion: the author of the speech was
not an inspirational speaker, but the head of
the state, who has in his hands all the levers
of the government machine. From him, one
expects to hear not just wishes but information – better yet, a progress report on these
lines of work, specifying the means, tools
and efforts used by the government to implement its leader’s ideas.
· It must be noted that attempts to set ideological targets in the post-Soviet era have been
made before. Heated debates around the Russian national idea started in 1996, when the
then president, Boris Yeltsin, tasked his team
with developing an idea that would unite the
nation. Despite a year of work, the idea was
never formulated, even though media debates
on the topic were quite productive. Every
famous political or public figure tried their
hand at sculpting a national idea at least once.
Their grassroots were actively discussing the
issue as well.
· The proposals ranged widely: from the
primitive and insipient “Boris Yeltsin as a
guarantor of our well-being is the national
idea you’ve been looking for so long” (proposed by a certain Ms Konstantinova), to
some serious and elaborate ones. Other proposals from the masses included healthy lifestyle or sports (or even soccer in particular) as
a national idea.
· A famous TV host Andrey Karaulov
called national idea “a shining temple at the
top of the hill”.
· In June 2005, Alexander Solzhenitsyn
said on TV, “I am cautious about the very
term ‘national idea’. For the current poor,
unsettled and robbed state of affairs, I would
propose the national idea stated 250 years ago
by an Elizabethan courtier Pyotr Shuvalov. He
suggested that the Empress take ‘preservation
18
Doctor of Economics, Full Professor, Research Advisor of “Center” research Institute
of the people’ as the key state priority and law.
What a thought!”
· Another proposal was put forward by
Gennady Zyuganov [leader of the Russian
Communist Party] more than a decade ago.
He maintained that Russia has four ideas
which could claim national status. The first
one is statism. Russian people have always
looked to a strong state. The second idea is
ethnic identity. For Russia, where ethnic Russians make up over 80 percent or the population, ethnic identity mostly implies preserving
the uniqueness of the Russian civilization and
reviving the Russian ethnos as the backbone
of the country’s statehood. The third idea appealing to Russians is social justice, and the
fourth one is democracy. “We need to finally
understand that democracy is here to stay.” As
you can see, Gennady Zyuganov gave the matter a lot of thought.
· Gennady Semigin, leader of the Patriot
of Russia party, formulated his version of national idea as “justice and fairness for all and
happiness for everyone”.
· In 2005, Boris Gryzlov, the then speaker
of the Russian State Duma, said, “Russia has a
national idea: it’s being the best in everything
and everywhere.” Dmitry Rogozin, who was
the leader of the Motherland political party
in 2005, suggested that “Our national idea is
making the people the owners of natural resources. It will unite everyone immediately.
Another priority is doing everything possible
to increase the birth rate.”
· The Russian Orthodox Church joined in
the debate too. When asked if Russia needs
a national idea and whether the Orthodox
faith could be one, Archimandrite Tikhon
(Shevkunov) answered, “Lately, a quite scary
term ‘comfort’ has become ubiquitous, more
and more claiming the national idea status.
Historically, comfort cannot be a priority
for the Russians. We are brought up to need
a spiritual goal; we and degrade and perish
without it. Technically, any idea can become
a national one as long as the state embraces it.
For Russia, it has always been important that
this idea incorporate the paramount principle of the power of our country, that it urge
us to search for the Highest Truth, make us
closer to God, and ensure social justice, which
is backed by the already mentioned strong
state.” [1]
· Andrey Nikolayev, Russian Army General
and former director of the Board Guard Service of Russia, who has proved his patriotism
many times, identified the following qualities
of the ‘all-Russian idea’: it must contain answers to the questions of our lives, the main of
them being what government we need, what
state we need, what society and future we are
trying to build, and what social and economic
framework meets the needs and potential of
our society.” Nikolayev reduces his ‘all-Russian idea’ to two main components: government of people, and free labor. [2]
Poet Yevgeni Rein, receiving the State
Award of the Russian Federation in the Kremlin in 2004, said in his thank-you speech that
the Russian national idea is Pushkin.
Igor Chubais’ quest for a national idea basically consists in scoffing at ‘commie ideologies’ and ‘commie ideas’ – furious, and often
ungrounded, criticism of everything ‘red’ [3].
As to the formulation of a Russian idea (according to Chubais, it is ethnically Russian,
not nationally Russian), he treats it as a system
of tsarist Russia values, which he would be
happy to take to the modern Russia, skipping
the 70 communist years in between. With a
19
clear regret, he has to admit that the pre-revolution formula – Orthodox faith, sovereign
and autocratic government, and nationalism
– has had its day. Towards the end of his book,
he attempts to give readers a formula of Russia’s renaissance that is “not quite comprehensive, but really concise”, reducing it to four key
pillars: historicism, development, spirituality,
democracy.
Uvarov’s triad “Orthodox faith, sovereign
and autocratic government, and nationalism”,
which many consider the national idea of the
tsarist Russia, deserves some attention. Its author, president of the Emperor’s Academy of
Sciences count Uvarov formulated it in 1833
in his report to Nicolas I, as a “natural historical law of Russia’s development”. Who could
know about this idea at that time? With literacy rate low, the general public didn’t read
newspapers, and the TV and radio had not
been invented yet, so the idea was, at best, familiar to a couple hundred people. Moreover,
it could not be ‘all-Russian’, since 20% of Russian citizens weren’t Orthodox Christians.
Some think that searching for a national
idea is a flawed and absurd endeavor. This
view is shared, among others, by the famous
writer Boris Vasilyev [4], who maintains that a
national idea cannot be grafted onto the people artificially, and any Asiatic top-down attempt to impose it, given Russia’s proclivity to
despotic rule, will immediately make it a state
idea, after which dissident movements appear,
and we’re back where we started from.
Nikolai Berdyayev, the ХХ-century philosopher, wrote that in a huge country like
Russia, any administration is only possible
through horrendous centralization, where
all personal and public interests are second
to those of the state. Russians are easily or-
ganized, but passive – they are used to being
organized by the government, and they expect
that ‘mother Russia’ will take care of them. [5]
Ten years ago, in 2003, newspapers published an open letter to Vladimir Putin from
representatives of a political party. Part of this
letter, named “A Talk with the President on
the National Idea”, is given below:
Dear Vladimir Vladimirovich! We are writing to you concerning a highly important matter: the goal of Russia today. Nobody knows
where the current elite are leading the country,
but everybody sees what we’ve been reduced to.
Where is our National Dream, which would
inspire the people, give them faith and lift their
spirits, let them exhale with relief, “Thank God,
we’re there”? A goal would be the breath of
Russia’s life today.”
As you can see, the nature of the Russian
people and its government has not changed
much since Berdyaev’s times. Vladimir Putin
is not asked to provide a ‘dream’ to the people because nobody else can do this – in fact,
many famous and respected people in Russia
might actually do it better. But Putin is appealed to as the President, the head of state
holding in his hands practically all the reins
of power, and expected to enforce the desired Idea/Dream, materializing it through
some action plan. And this ‘appeal to the
President’ looks desperate, for this plea is,
essentially, abnormal in nature: the President
is asked to perform his main duty of national
consolidation.
In fact, Vladimir Putin brought up the
topic of national idea several times on his
own initiative, especially in his first years in
power. In his annual address to the Federal
Assembly, he stated the following: the major
national priorities for the period until 2010
20
are doubling the GDP, reducing poverty and
reforming the military. And at a meeting
with students on June5, 2005 he said that
Russia’s national idea was robust economic growth. In another presidential address,
the country’s competitiveness was named its
main national idea.
And what does Dmitry Medvedev – Putin’s second-in-command, who, in Putin’s
own words, shares the same blood and political outlook as the President – have to say
on the topic? During his presidential term,
Medvedev said to the media that “Talks about
a national idea are a waste of time.”
The previously described quest for a Russian national idea has, essentially, been a set
of spontaneous and unsystematic efforts,
while the federal government never seriously
considered this task, simply underestimating its importance until recently – namely,
until Putin’s Valdai speech. Naturally, there
are reasons for this, but they are outside the
scope of this article.
An essential issue within its scope, however, is the terminology of the matter, since it
appears that the authors of national idea proposals have so far had no clear understanding
of its nature, or, more likely, never even took
time to establish their points of reference.
So what is a national idea? While dictionaries somewhat neglect this concept, many
thinkers fill in this gap with their own definitions. For instance, Joseph A. Waks believes that “a national idea reflects the goal
and point of being for an ethnos – a people,
a nation – in its past and future, учетом its
own and other peoples’ previous historical
experience [6].”
I will venture to formulate a couple of my
own ideas on this topic. Whenever ‘national
idea’ is invoked in speech or writing, most of
the times, what is really implied is ‘state idea’.
A national idea is an attribute of an ethnos .
If a state comprises only one ethnic group,
the concepts of ‘national idea’ and ‘state idea’
are identical. If, however, the state has multiple ethnic groups, the idea uniting all of
them within the state borders can only be a
state one.
A state (national) idea is an idea uniting
the ethnic group(s) of the state by formulating
for what reasons, with what aims and values
these communities coexist on the state’s territory and within its state structure, and outlining the direction of these groups’ progressive
development. Another important aspect: this
idea can only move the masses and become a
material force when it’s embraced and accepted by the absolute majority of the population.
There is an erroneous belief that an ethnic group can exist in a state for a long time
without a common (not unifying!) idea, that
the Russians are one of these groups, and the
Russian idea has been sought so long simply
because it doesn’t exist. This is simply impossible in real life, and Russia is no exception to
the rule. The Russian idea of today, promoted by the ruling elite, can be formulated as
“Money and wealth rule the world. Get rich!”
This is a simplified but concise essence of the
liberal ideology, which, for a while after the
1993 events, did unite the Russians, striving
for a better life. This ideology, however, exhausted and discredited itself rather quickly. Therefore, now, the President of Russia is
urging the society to join efforts in the for-
Note: see the meaning of the Russian ‘natsiya’ as ‘ethnic group’ in Footnote 1.
2
21
mulation of the nation’s common goals not
because the country had no such goals in
the first place, but because they proved completely inadequate. Successful development
will require a different ideology.
For the first time, a Russian president said,
“We must be proud of our history, and we
have things to be proud of. Our entire, uncensored history must be a part of Russian identity. Without recognizing this it is impossible
to establish mutual trust and allow society to
move forward.” To an extent, it is a reply to
Georgy Popov, Igor Chubais, Alexander Tsypko, Nikolai Svanidze and other venomous
critics of the 70 Soviet years in the Russian
history. Until recently, they were all convinced
that, by discrediting the Bolsheviks, they were
serving the powers that be. This, apparently,
leaves them in a jam right now.
The society has been resounding with
the idea of making the best out of the Soviet
heritage (also reflected in the Valdai speech
of Vladimir Putin). Incidentally, we should
recall the state idea of the USSR, which was
formulated as a call for action: “Press on to the
Victory of Communism and the Bright Future
of Mankind!” This was the idea for which people worked hard for the public good, went to
war, and often gave their lives to defend their
motherland.
Ill-wishers have always scorned this idea:
nonsense! who would give their life for a slogan? But people did go to battle and suffered
unthinkable deprivations not for a slogan –
they carried on for the sake of its essence:
the ambitious tasks successfully performed
by the people on a statewide scale. The USSR
managed to eliminate illiteracy; provided
full-scale social mobility; industrialization
and collectivization boosted the economy
to the point of surpassing the indicators of
many developed countries. The suburbs
and regions were thriving. Education, science and culture ceased to be privileges of
the chosen few. Slowly but steadily, people’s
prosperity grew. And, most importantly,
people felt they were the owners and rulers
of their country, which is the foundation of
patriotism.
As shown by this Soviet experience, a unifying state idea must be based on successful
performance of pressing state-wide tasks –
otherwise, even if the idea is well-formulated,
the unification effect will not be achieved. An
attempt to move in this direction was made
in 2005, when the Government approved four
priority Federal projects:
1. “Education”,
2. “Healthcare”,
3. “Affordable Housing”,
4. “Agricultural Development”. Dmitry
Medvedev, then First Deputy Prime Minister, was put in charge of the projects. Curious
fact: once he became president, these projects
creepingly ceased to be the government’s priorities.
In the Soviet Union, citizens could feel
their part in the great achievements of their
country: victory in the Great Patriotic War of
1941-1945, space exploration, strengthening
defense systems, tillage of the virgin soils beyond the Urals, the construction of the Baikal-Amur Mainline and major hydropower
plants in Siberia, etc. Patriotism ran high.
In his Valdai speech, Vladimir Putin said
that “debates about identity and about our
national future are impossible unless their
participants are patriotic.” This phrase needs
to be emphasized: the existence of the country itself, even in the short term, is impossi-
22
ble without the citizens’ patriotism. Patriotism is the backbone of a unifying state idea.
Patriotism is the love for your motherland,
and it develops if a person since his early
childhood feels, sees, is sure that the motherland loves him, cares about him, and won’t
fail him in his hour of need, wherever it may
be. It is safe to say that life in today’s Russia
gives people few reasons for patriotism.
During Yeltsin’s presidency, the search for
a Russian national idea was limited to the borders of liberalism. The famous Russian writer Mikhail Veller, who wrote many pages on
the topic of national ideas, sarcastically noted
that theorists “… thought they could change
the country’s reflection in the mirror without
changing its face. In other words, they sought
to change the perception.”[7] Ideologists
have been looking for something by definition unidentifiable, for the main principle of
liberalism is the primacy of a person’s rights
over those of the state, while a unifying state
(national) idea can only exist where the rights
of the state (nation) prevail over the rights of a
person. There is no other way.
Vladimir Putin, having effectively declared
the downfall of the liberal ideology in the
country, found himself faced with the need to
find a different approach to the state (national) idea. The twenty years of post-Soviet experience have shown that a unifying Russian
idea will crystallize not in some cobwebs of
sophisticated definitions, but via a clear path
of consistent solution of the statewide problems well known to the authorities, without
further kicking the can down the road.
These problems are numerous, but some of
them need to be prioritized. Unfair, plunderous privatization; corruption galore; and unsustainable income inequality are all problems
tied in one knot. The society is well aware of
them and discusses them all the time, yet they
only become aggravated as years pass.
A hundred years ago, Nikolai Berdyaev
noted that a delicate sense of justice and
conscience are characteristic for Russians.
The fact that, in the 90s, the country’s national property was grabbed by a small
group of people with no entitlement to it
whatsoever, apart from being close to power, deeply traumatized the Russian psyche.
This was perceived as an ultimate injustice,
triumph of obscenity and impudence. Some
three to five percent of the society, who
got their hands on the best assets, made a
fortune for themselves and their offspring,
while the majority of the population realized that they’d be stuck for the rest of their
life at the very rung of the social ladder
where ‘Putin’s stability’ set in. Social mobility and chances to change things were scarce
for a common person.
So how do things stand right now? We
have 111 dollar billionaires (while in 1999
we had none), and, according to independent
analysis, the ratio of income at the top decile
point compared to the bottom one is 50:1.
Despite some efforts of the government, the
levels of corruption remain high. Corruption-related crime is, basically, a continuation
of privatization processes. Some officials and
businessmen, having appropriated state assets
scot-free in the 90s, continue feeding off the
state budget, and those who failed to get a
piece of the pie during the privatization years
have been making up for the lost time.
A good example of effective anti-corruption measures is Singapore, where the plague
of corruption was eradicated. An illustrative
example given by the country’s government to
23
Russian visitors: your fight against corruption
is successful if the president can put his own
brother in jail for corruption, if necessary.
Russian officials, as we all know, have each
other’s backs – which nullifies the chances of
success for any anti-corruption activities.
From the first days of his presidency, to deter populist left-wingers, Putin declared that
the results of privatization will not be renegotiated. At the same time, several people put
forward weighted and well-thought proposals
on how to resolve the ‘raw nerve of privatization’ issue.
A number of researchers, including members of the Russian Academy of Sciences Lvov,
Petrakov and Glazyev, developed a system of
measures to mitigate the negative effects of
privatization, based on the assumption that,
economically, mass deprivatization (nationalization) is impossible. The assumption is
right, not even because of the civil war threats
from those who grabbed state assets, but because a nationalization would give rise to even
more abuse of power by the state officials than
the previous privatization. To a great extent,
it will be possible due to the virtual absence
of the necessary regulatory framework. However, leaving the situation as it is not an answer either: for moral reasons, but primarily
because the Post-Soviet privatization hampers the economic growth of the country. To
resolve this issue, Petrakov suggested implementing such measures as:
1. Simultaneous inventory of all the assets
in the country and introducing a property tax
based on the minimum efficiency of operation of the privatized property.
2. The economic relationships between the
subsoil owner (the state) and the equipment
owners in the mining industry must be based
on agreements providing for normal profits in
this sector (natural resource rent must be paid
into the state budget).
3. The concept of ‘encumbered property’
must be inscribed into law and used to regulate the relationships between private proprietors and the society, on the premise that
ownership implies responsibilities as well as
rights, and the owners must use their property in not infringing the rights of others [8].
The liberal elite ignored these proposals.
The matters of improvement of the democratic mechanisms and the state structure
in Russia remain urgent and require a separate in-depth study. It is also important that
we embrace the opinion of the late historian Eric Hobsbawm, who said that today’s
complete triumph of capitalism and market
economy is but a brief episode in the history
of humanity [9].
Laying out a strategic plan of Russia’s development involves solving many problems
(part of which were mentioned in this article). There is, however, another problem,
which is hardly discussed, though it is at the
core of the current situation. The problem in
question is the apathy and passiveness of the
Russian society. People got tired of making
ends meets in the 90s, of the endless lies spat
out by the ruling elite, of public opinion manipulations, rigged elections, and the general
loss of perspective.
Kindling the society’s initiative and mobilizing it to resolve the pressing problems is a
task of great difficulty. The great sociologist
Alexander Zinoviev predicted that, after the
collapse of the USSR, Russia would be able to
sort out the subsequent challenges in several
decades at best – but more likely, it would take
the whole XXI century.
24
Having outlined the ideological challenges of Russia’s development, Vladimir Putin
assumed a lot of responsibility. We can only
hope that the implementation of his plans
won’t be postponed indefinitely, and that the
new endeavors won’t dwindle into slogans adages about the power of love.
References
1. Argumenty i Fakty, 2004.
2. General Nikolayev’s Documents (articles),
Moscow: 1999.
25
3. I.B. Chubais. Russia in Search of Itself: Way
Out of the Ideological Crisis. Moscow: 1998.
4. Literaturnaya Gazeta, 1997.
5. N.A. Berdyaev. The Destiny of Russia. Moscow:
1990.
6. J.E. Waks. National Idea in the USA, Russia
and Israel. http://world.lib.ru/w/waks_j_e/nacidea.shtml
7. M.I. Veller. The Great Last Chance. St. Petersburg, 2006.
8. N. Petrakov. Expert, 2006.
9. M. Kantor. Expert, 2012.
Theoretical Aspects of InnovationDriven Transformation in Modern
Economic Systems
A.N. Folomyev,
Doctor of Economics, Full Professor at the
Russian Presidential Academy of National
Economy and Public Administration, Honored
Economist of Russia
I
n 2008 to 2011, a majority of developed
economies addressed implications of
the economic downturn by using an innovative change approach, with a special
focus on upgrading the technological
platform of their economies. In Russia,
the government also decided to adopt an
innovation-based development approach
as a necessary step to be taken . However,
measures being developed and implemented to drive innovative changes in
the national and regional economies have
failed to bring about any considerable
improvements in the key social and economic indicators. These efforts have been
unable to reverse “a number of negative
trends that are important for innovative
development”, steps aimed at radical improvement of innovations focus and efficiency of large corporates have brought
no viable results, and there is still lack of
interaction between science and the business community. Furthermore, the low
demand for innovations in the Russian
economy persists. Indicators of innova-
tions activity by Russian businesses lag
considerably behind those of the world’s
leading nations. In 2011, the share of
companies engaged in technological innovations in the Russian economy stood
at only 8.9% in industrial production,
9.0% in fuel and energy, 11.6% in manufacturing, 11.1% in telecommunications,
and 7.9% in industries of computing and
IT . For comparison, the level of innovations in the economy of many European
nations (Germany, Belgium, Finland,
Sweden, etc.) is several times as high.
Experts, analysts and managers of different levels cite a number of reasons behind the current situation . However, in
our opinion, the key rationale behind the
low effectiveness of the steps being taken is the failure to take into account the
complex systemic nature of the nation’s
economy.
National economy is a large and complex system. A large system is one that
cannot be studied in its entirety using
known scientific methods while main-
A.N. Folomyev
taining a detailed description of all its components. Consequently, the main ways of
studying such systems is through decomposition (structuring and breaking them down
by components to be studied on a standalone
basis) and aggregation (enlargement, unification, and summing to obtain generalized total
data and indicators). Thus, structuring is the
first stage of a complex study of any economic
system.
Due to its complexity, the study of economic
systems involves a variety of models, theories,
and sometimes areas of sciences (cross-disciplinary studies).
Economic systems have several levels of
complexity:
· structural complexity: large number of
various components (subsystems) and elements with a variety of interconnections
implemented through processes, and with a
large number of hierarchy levels;
· functional complexity: complexity of the
system’s functions, variety of conditions, complicated transition from one state to another,
high degree of uncertainty in meeting aims
and objectives, and impact of the external environment on the system and vice versa;
· difficulties in selecting behavior pattern
in multi-alternative conditions, focus of the
economic system, flexibility of its respond to
impact from the external environment;
· complex evolution: focus, consistency and
irreversibility of changes, variety of evolutionary and explosive processes and the system’s
development as a whole;
· managerial complexity: variety of mechanisms, forms and methods to impact the
system and its components, and a variety of
potential effects resulting from managerial
actions.
At the moment, the level of all types of complexity in national economic systems is obviously growing due to: a) stronger globalization processes; b) changes in the volume and
range of the needs of people and society; c)
more complicated interaction between the
system and the environment; d) rapid growth
in data communication; e) larger scale of technological, managerial and financial processes;
f) latest R&D processes; g) enhanced role of
security of individuals and society at large.
The most complex problem is interlinks
within the system, its components and elements. First, interlinks exist among components, among components and elements, and
within separate components of elements. Secondly, if the system’s idea is hierarchy-based,
there is also a hierarchy of interlinks within
the system. Thirdly, the operability of a system is defined as relations between parts and
the whole and subsystems and the system in
which the operability or actions of any part
ensure the operability of the entire system,
and vice versa. With regard to national and
regional economic systems, there are grounds
to state that interlinks between systems and
subsystems are being built on a differentiated multi-level basis, and the priorities are
the objectives of the system, implementation
of its functions, and consistency of goals and
aims of the system and its components. For
example, national economy cannot switch
over to an innovation path if there are no innovation changes to companies, corporations,
See The Strategy for Innovative Development of the Russian Federation Through 2020. P. 2.
Science, technologies and innovations in Russia: statistics digest / Editor in chief: L. E. Mindeli. Moscow, Institute
for the Study of Science of the Russian Academy of Sciences, 2012. P. 62.
See notes to report by E. S. Nabiullina “Priorities of Long-term Economic Development” at the 12th International
Academic Conference on Matters of Economy and Science Evolution, Higher School of Economics, Moscow, April
3, 2012.
26
27
1
2
3
A.N. Folomyev
Theoretical Aspects of Innovation-Driven Transformation
in Modern Economic Systems
clusters, and regions, and vice versa: innovative changes to the latter will be difficult if no
institutional environment is in place across
the entire national economy. That said, the
importance of the whole should by all means
prevail as compared to the importance of interlinked parts.
The essence of an economic system can be
best understood if its functions, aims and objectives, and properties are identified, along
with internal and external factors that cause
the system to emerge, operate, and change.
It is important to understand the economics of these changes to be able to differentiate
between predetermined transformations and
subjective distortions.
The functions of each system and its subsystems are interrelated and autonomous. At
the same time, the functions of the system as
a whole are the priority, while functions of
its subsystems are more varied and specific.
Functions define the structure, the basics of
operations and evolution of systems.
Extensive research into the essence and nature of national economies and their links to
the lives of individuals has identified the following group of functions in national economies.
I. Key functions are related to meeting the
various constantly changing (and sometimes
contradicting) needs of individuals and society. Individual needs are self-actualization,
creativity, need for esteem and prestige, safety
needs, physiological needs, including needs
for food, housing, rest, physical evolution,
clothing, clean air and water, and good environment.
II. Functions of ensuring the production of
various goods (products and services) and
providing conditions for individuals to comfortably live in, differentiated by social groups.
III. Functions of self-preservation and upgrade of the economic system.
If these functions are not properly implemented, the system is invalid and gradually
deteriorates (even until full destruction).
In an economy, disruptions in the system’s
functions are usually linked to three reasons:
imbalances in the links between the environment and the economy, depletion of resources, and disruptions in the flow of products,
energy and data among the system’s components as a result of disruptions in communication channels (bottlenecks, etc.)
Being aware of the economic system’s functions is of fundamental importance to properly identify the aims and objectives of strategic
development because an aim is a specific result (qualitative and quantitative) of function
implementation in a specific period of time.
The aims of the system and its subsystems
may not be fully aligned due to differences
in the interests and needs of groups, social
strata, and society at large. Although strategic aims and objectives of an economic system
and its subsystems are different, they cannot
be at variance with each other. The overall aim
of an economic system needs to be linked to
its functions, otherwise there will be stagnation and crisis.
But it is not only alignment with functions
that acts as a criterion to decide whether the
system’s strategic aims and objectives were
properly chosen. Aims and objectives cannot
be met irrespective of the system’s condition,
initial factors and conditions, and period of
Components are subsystems inside a system.
4
28
time. For the economic system to achieve its
aims, the system needs to be “within the attainable area”. This means that the key parameters of the system and its environment
need to achieve specified levels of quality and
quantity. They are determined and calculated
by analysts, forecasters, politicians, and managers. It requires high professionalism and
extensive expertise in evolution and patterns
of economic systems on the part of everyone
involved in decision making.
The understanding of an economy of any
level as a systemic dynamically changing entity must be the basis for its transition to a
qualitatively new level. This new level does
not simply involve active R&D innovations –
it is about new properties and abilities of the
system to implement certain functions. The
functions include: integrity, internal cohesion; environmental and economic sustainability; innovations; hierarchy; proportionality; ability for self-development; information;
manageability; competitiveness; resource and
energy efficiency. In other words, the new
qualitative level of the economic system can
only be measured by measuring changes in
the properties above, which requires a fundamentally new set of tools and a mechanism for
their measurement.
The new quality of economic systems can be
understood from the theory of their innovative development.
By its structure, this theory is a framework
that is differentiated across a number of areas
while offering holistic knowledge on the effective strategy of any business system’s functioning and transformation provided that in
its transition to each new level this system relies on the multi-industry set of R&D achievements.
The basis for this theory is a set of fairly
strong supported and grounded statements,
assumptions, and notions, which together act
as logical and methodology principles and
rules.
An important initial notion of the innovative development theory is the doctrine of
objective upgrade factors that include both
primary resource factors and secondary
process factors. Secondary factors are the
condition of using the primary ones, and the
quantity and quality of each resource factor is
the essential prerequisite for any process factor to effectively impact any production cycle.
All these factors make up a system and are
therefore interlinked; at the same time, each
factor only has its own specific role and cannot be replaced by other factors. The number of these factors is predetermined by the
nature of social reproduction. The resource
factors are new equipment, systemic technologies, fundamentally upgraded labor resources, organizational and managerial resources,
information, innovative entrepreneurship, intellectual resources, innovative investments.
These are the objective conditions of production that by composition and proportion can
be measured in terms of quality and quantity,
and their impact on production processes can
be forecasted and calculated. The formation
and functioning of this set of factors is the
core component of pre-production phase,
which is essential in today’s production cycle.
The system of factors affecting development
is dynamic, with transformation abilities of
each of the factors constantly changing. This
basic notion is important because it gives an
understanding of the quantity, quality and
composition of resources that is needed to be
introduced to production through the pre-
29
A.N. Folomyev
production phase in order to yield the expected social and economic effects.
As proven by science and further confirmed
by best international and Russian practices,
the key factors for any business system to
grow today are innovative factors, including:
a new type of systemic equipment, new technological networks, new organization of labor
and production, new motivation system, entrepreneurship. Thus, these are the innovative components that combined are capable
of transforming the production industry
while upgrading productive facilities and
encouraging people to make more extensive
use of it.
The priority use of the set of innovative
factors in the economic growth of any business is in essence the transition to a qualitatively new level of evolution that gives it
the most important benefits in a competitive
environment: economic sustainability and
competitiveness.
The innovative type of development is fundamentally new due to a number of subjective factors. First, as a way of qualitative economic growth and production improvement
it became possible after most resource factors
grew into systemic structures (systems of machines; process chains and macrotechnology
systems; systemic resource of personnel qualifications combining the skills of researcher,
analyst, manager, worker, clerk, etc.). There
is a transition of productive forces to a new
level of progress marked by the active role
played by the interdependencies among all
the elements. Secondly, this type of development is based on considerable growth in the
energy security of people’s lives as compared
to the intensive development type. Thirdly,
there is increased need for radical changes
in targets to focus on the greater, more complex and ever changing needs of individuals,
communities, and population groups. This is
expressed in the increased interdependency
among economic, environmental, social, spiritual and other needs, as well as in individuals’
requirements to the quality of products. I.e.
there needs to be a considerable change in individuals’ interests and, consequently, the motives for their labor. Fourthly, there is a trend
in the group of resource factors for them to be
replaced by factors derived from a new variety
of integrated knowledge from many areas of
science.
The innovative type of development of economic entities has three complex properties
that are typical of it.
1. Innovative aims of activities and innovative
results in each period of development as compared to the previous ones. Sometimes it involves building new niches in product markets
and securing a monopolistic producer’s role in
them, although for a short period of time.
2. Innovative means to achieve innovative
aims, i.e. a constantly upgraded system platform of technologies.
3. Combination of internal and external
conditions that can drive the innovative focus of production on a constant basis. These
conditions include: regulatory basis for the
economic entity to engage in innovations, dynamically upgraded structural and functional
model, well-developed innovation management, constantly improved motivation tool,
availability of the entire set of innovative resource factors, and well-developed ability of
the system to integrate science, education,
production and market.
Typical of the innovative type of development are a number of objective economic
30
trends that are in place today and act as common patterns since they reflect the properties
and sustainable interconnections that arise in
the economic entity’s production process during its transition to innovations.
These emerging trends and properties include:
· enhanced integration of science, education, production, and market. In a market
environment, the integration is disrupted
from time to time while focusing on quantitative and qualitative alignment of all these
areas for greater complexity of economic
entities and greater volume and interaction
of interdependencies among subsystems and
elements. This trend is expressed in building
and strengthening the corporate framework
of the economy and in the emergence of innovative corporations as well as subsystems
such as macrotechnology systems, innovations focused clusters, various inter-industry
and interregional structures focused on R&D,
production and finance, innovations and venture centers, etc.
· greater innovation focus of investments.
Affected by the cycle development, the said innovations focus sees downturns from time to
time but in the long run it is clearly visible in
the practice of transnational corporations and
economies of most post-industrial countries.
This trend is expressed not only in the greater
share of investments in technology and innovations but also in the emergence of types of
investments that are clearly focused on innovative production. In particular, this includes
using venture capital, innovative leasing, and
various types of intellectual property ;
· improved consistent intellectualization
of all types of labor, including physical, scientific, managerial, entrepreneurial, intermediary, etc. This trend is due to specifics of
progress in today’s productive forces and increasingly complex technological platform of
collective labor;
· increased impact of the dominant type
of development of economic systems of different levels. The type of developed of an
economic system, especially on a macro,
regional or corporate level, cannot be different from the one existing in most of its
subsystems, although certain differences are
possible. This means that, for example, a regional economy cannot be focused on innovations if most corporations and businesses
in the region follow either the extensive or
simple intensive development path .
This trend becomes clear in the process of
complication in corporate organization and
functional models as businesses switch over
to an innovative type of development by
building internal clusters of small and middle-sized R&D and innovative entities and
by developing long-term inter-industry and
inter-regional ties with R&D centers
The transition to an innovative type of
development inevitably causes changes in
all components of an economic system and
thus enables an irreversible targeted process
of logical transformation in the economy.
Considerable changes affect the technological
platform, organizational chart, infrastructure,
resource base, mechanism for regulation and
controls, management, motivation system,
types of ownership, and all production processes, which move towards greater integrity,
A. N. Folomyev, V. G. Revazov. Innovative Investment. St Petersburg, Nauka, 2001.
This means intensification of labor not directly related to the use of fundamentally new resource factors.
7
Data by the Ginalmazzoloto institute.
5
6
31
A.N. Folomyev
cohesion, and continuity. Usually there are
fundamental changes in the economic system’s
strategy, priority markets, savings vs. consumption balance, and pre-production vs. production stage balance as the production process
is extended to other stages (distribution and
industrial consumption), which contributes
to a much higher cost of innovative product’s
consumption while maintaining the cost of
production unchanged or even reducing it.
The innovative type of development transforms the variety of tactic and especially strategic aims of an economic system without
fundamentally transforming them. The aims
still include higher profits (income), greater
competitiveness of the economy, its complex
economic security and sustainability, social
well-being, improved quality of life of people,
and a number of others. However, the innovative development type considerably alters the
focuses and means of achieving the objective
aims of the economic system.
This type of development contributes to a
sharp increase in the difference between the
price of input materials (market cost) and the
market price of the resulting product.
For example, 1g of rolled platinum with
99.998% purity and 0.25m (25*25mm) thickness costs approximately USD 80, which is
more than 6 times above the cost of input
platinum; and the cost of 1g of a single-crystal
platinum disc with 99.999% purity is approximately USD 1,300, which is more than 100
times above the cost of input platinum .
Under the innovative type of development,
competitiveness of an economic system transforms from the ability and willingness to produce and sell competitive products in the market into a new complex property that makes
the economy sustainable and contributes to its
improved positions in the economic system of
a higher level. When applied to macroeconomics, this means improved standing in the
global community or in a regional association
such as the EU.
Economic sustainability of an economic
system transforms from the limiting ability
to preserve its key properties and condition
in case of a certain external environment into
a new complex property that characterizes its
ability, willingness and need to strengthen its
positions in higher-level economic systems.
All these give grounds to conclude that an
innovative economy generally grows into an
entity with fundamentally new properties, effects of operations, and social and economic
opportunities for individuals.
Despite the objective predetermined nature
of economic systems’ transition to the innovative type of development, this transition cannot
be spontaneous. To drive this process, management, regulation, and stimulation mechanisms
are important. Special tasks should be addressed
by the government, in each case depending on
the level of economy (company, large corporation, complex of businesses, region, industry,
etc.). Economic theory and practice identify
the following groups of tasks: a) coordination
of activities of all economic agents to create
the national innovation system; b) fostering of
a business climate that would contribute to the
development of R&D and innovations among
Russian producers; c) stimulation of development and commercialization of the results of
R&D and innovations; d) support for the integration of science, education, production and
market; e) providing institutional conditions to
create labor force with qualifications in line with
32
the current global level of productive forces; f)
protection of intellectual property; g) analysis of
global trends, monitoring of the national R&D
and innovations environment, and constant
adjustment of all components in the state policies in R&D and innovations; h) building comprehensive macroeconomic infrastructure to
facilitate the operations of all economic agents
and R&D processes; i) active support for export
sales of domestic high-tech products; j) coordination of innovation development on the level
of regions.
Elements of the innovative development
theory outlined in this article are a brief concept of the theory, offering a general understanding of its key interrelated components.
The theory puts special emphasis on the high
tech sectors and industries as being important for
Russia’s economic development during the transition period. This view is supported by the innovative change experience of a number of nations.
A considerable ever increasing impact of
R&D and innovations factors on the economic
performance of developed countries is not
simply the result of all economic agents, in-
cluding the state, paying more attention to the
transforming capabilities of today’s science or
adopting a greater focus on competitiveness,
economic sustainability, national security, and
the nation’s prominent position in the global
community. It is also the result of a strategic
transition of national economies to the innovative type of development based on establishing
and effectively leveraging high-tech industries.
To a great extent this is due to the increased
market and economy transformation role
played by complex industrial products that
require heavy R&D efforts and the establishment of just as complex inter-industry technological links. This in turn leads to greater
importance of interregional and international
cooperation in R&D and innovations and
contributes to the emergence and improvement of large cross-industry R&D corporate
structures involved in high-tech R&D both
nationally and internationally.
Unbiased analysis of the current state of
Russian economics shows that it continues
evolving, even despite the challenging national environment.
33
The Place and Role of Private
Property and Investment Protection
Mechanisms in Modern Russian
Economy
Vladimir Ivanovich Avdiysky
Head of the Risk Analysis and Economic
Security Department,
Financial University under the Government of
the Russian Federation,
Doctor of Law, Full Professor
Abstract: The article analyses the
reasons and nature of emerging
economic threats at macro and
micro levels in the Russian economy,
emphasizing the issues of forming
an effective system for monitoring
economic dangers and threats;
protecting private property for any
criminal infringements; developing
mitigation and prevention
mechanisms for today’s everchanging risk factors, capable of
impairing the national economic
performance.
L
Keywords: national economic
security, economic risks and threats,
economic threat monitoring;
protective, regulatory and preemptive functions of the economic
threat prevention system.
ooking at the evolution of Russian business over the past few decades, we can
see that the corporate management
mechanisms have become increasingly
complicated. Practice shows that corporate management structures evolve in
line with the country’s economic development, as well as with the evolution of
34
various aspects of its social and regulatory life.
There is no denying that a company’s
performance (regardless of its property
type and capitalization) is largely influenced by a number of factors of uncertainty (both internal and external). These
factors are constantly reflected in a wide
range of dynamically changing threats
and dangers, all of which are capable of
damaging a company’s performance, security, competitiveness, etc.
As preliminary analysis shows, however, apart from the objective and (to some
extent) foreseeable risk factors, the majority of economic threats today emerge
from within a company: in its subdivisions in the course of their operation.
All of these threats are latent, but present
the greatest danger, being the uncontrollable source of embezzlements, corporate
fraud, corruption, etc. The financial losses incurred by the company as a result of
them will negatively impact all business
aspect, including operations, industrial
safety and security, environmental footprint of the business, as well as auxiliary
and support subdivisions’ activities.
Expert review of possible repercussions
of these threats an dangers shows that the
damage done to a company and it economic security is usually not limited only to the
exact amount of money stolen or “kickback”
received. Unscrupulous managers, taking
advantage of the increasingly complex and
branched structure of their company’s economic relations, deals and operations, develop specialized illegal mechanisms allowing
them to conceal the factual damages caused to
the company by carrying the losses forward,
beyond the planning horizon.
Unlike in the Soviet period, when “everything belonged to the people”, in the current
the market economy established by the laws
in force, any commercial structures (economic actors) must operate in the sole interests
of their owners, with the money and assets
contributed into their capital by the founders.
The managers of these economic actors must
do everything to use the property they were
entrusted with in the most efficient way, to
receive profit and increase the capital, protect
the owners’ rights and safeguard the company’s property from any criminal trespass.
In reality, however, a large number of today’s commercial organizations in Russia fail
to provide adequate protection of their owners’ rights (including the rights of investors).
Many commercial organizations are subjected
to corporate raids, fraud or embezzlement
every year. Some companies (usually the
large ones) harbor off-the-books production
operations, corporate corruption, etc. The
aforementioned phenomena not only cause
substantial damage to the owners (shareholders) of the business and its investors, but also
undermine the company’s economic sustainability and competitiveness, deteriorate their
investment case, which eventually erodes the
economic security of the national economy as
a whole. Practice shows that the main cause
of this situation is the fact that currently, due
to imperfect legislation, the available means
of protecting the interests of business owners
and investors are limited to security guard activities. And even those security guards, due
to the nature of their functions, are not interested in protecting the rights of owners and
investors. Nor are they liable for any damages
cause to the said stakeholders through their
neglect.
The economic and legal analysis of typical
fraud schemes shows that they thrive because
companies lack well-defined economic security systems, which should enable timely
identification and elimination of dangers and
threats to the company and its competitiveness, as well as the causes of these threats. An
economic security system must be aimed at
conducting continual highly effective monitoring and prevention of threats and must involve the management at all levels (thus eliminating the gap between the owners’ interests
and the interests of the management).
The existing system of corporate management in some companies, while successfully
supporting the direct functions of their subdivisions (e.g., providing financial sustainability, mitigating liquidity risks, enabling cash
execution of the budget, limiting financial
losses and supporting the company’s market
cap growth), is still clearly not enough to ensure comprehensive economic security. Practice shows that an effective solution to the
economic threats problem would have to be
comprehensive rather than target particular
subdivisions or different stages of business
processes.
35
The Place and Role of Private Property and Investment Protection Mechanisms
in Modern Russian Economy
The main reason for this is that using isolated tools for the analysis and management of
certain economic threats will not help reveal
any correlations (interdependence) between
individual threats, or identify the positive or
negative nature of these correlations. Only a
comprehensive and integrated approach to
threat assessment, embracing all the company’s operations, can provide a realistic and
meaningful consolidated threat map.
Moreover, it will give us an objective picture
of the company’s internal and external environment, which, in its turn, will be the basis of
timely and appropriate operating and strategic management decisions. In short, we could
say that this system provides the management
with concise information on the quality characteristics of the business, while also aiming
to ensure timely identification of dangers and
threats, so that decisions preventing the potential negative scenarios undermining the
company’s economic security, stability and
competitiveness could be made.
To implement the concept below, as a preparatory stage prior to the creation of a system
that would forecast, analyze and prevent economic threats and dangers, a complex study
of the nature and specific features of a company’s business (including its major business
processes) must be conducted. The current
position of the company must be identified,
including the regulatory framework it operates in. Based on the data received and the
company’s strategic objectives of economic
security improvement, a statement of work
must be developed to ensure the construction
of the security system.
This will enable us to answer the questions
critical for all levels of management: What
environment does the company operate in?
What are the external and internal factors affecting its performance? What is the impact
of both positive and negative factors on its
economic security? What indicators must be
managed? etc. A detailed description of the
main stages of development for the economic
threat and danger prevention system must be
reflected already in the the system’s design.
The design of the company’s economic security system must be based on certain principles accounting for the nature of the company’s activities, its core operations, etc. For
example, in the energy sector, as practice has
shown, the threats and dangers not only depend on social and economic conditions and
factors, but spawn new dangers and threats –
a process called self-determination. It has four
main forms.
Form 1: actualized and not prevented dangers and threats generate related dangers and
threats in a snowball progression, wherein
some of the new threats will additionally exacerbate the existing ones.
Form 2: the emergence of related threats
and dangers catalyzes some previously dormant repercussions of the old ones, which
might have unpredictable effects on the energy companies.
Form 3: is actualized through public consciousness, wherein a concept of all-permissiveness and acceptance of crime in the energy market is born, due to the high latency of
crime in the country.
Form 4: is made possible due to terrorism
reaching a whole new level: organized criminal groups take control of energy assets and
use them as an important tool for molding the
socioeconomic atmosphere in the country,
including the crime in the sphere of energy
generation and distribution.
36
The proposed approach enables us to define
the structure of an economic security system
for an energy company through its functions:
protective, regulatory, preemptive (preventive), innovative, and social ones.
Let us consider the said functions in more
detail:
The protective function: the system must account for the internal and external threats to
an energy company’s operations. The performance of this function is closely connected to
the formation and allocation of the company’s
resources. Hence the three groups of security
measures for an energy company’s assets:
· creating a set of socioeconomic, technological and information resources necessary and
sufficient to divert dangers and threats to the
company and ensure its economic security;
· protecting the energy company’s resources
from unfeasible use, damage and other negative effects that may damage its assets;
· protecting energy assets from harmful external criminal (including terrorist) threats.
The regulatory function of the economic
security system involves neutralizing threats
and dangers and ensuring economic security
through regulatory mechanisms of various
economic levels: corporate, market and state
regulation. Each of the regulatory mechanisms has its own functions, objects and actors, methods and tools.
The market self-regulation mechanism is
the basis component for neutralizing economic dangers and threats. An energy company balances its financials through tariffs.
However, history shows that the market has
limited capacity for optimal decision-making
in the conditions of economic uncertainty.
The market mechanism incorporates individual and group interests, while the state, as
the promoter of national economic goals and
objectives, needs to coordinate the interactions of the economic actors to achieve the
balance of their interests at all levels (micromeso- and macroeconomic one). The state
regulation varies from actions supplementing and reinforcing the market mechanism to
certain cases of interference meant to achieve
what the market fails to. Still, in doing so, the
state has a way of swinging the economic and
business risks for the market players back and
forth. And this is where particular groups’ security may clash with the security of the national economy.
The state, while neutralizing threats and
enhancing the overall national economic
security, can limit the rights and freedoms
of certain businesses. In other words, the
state, defending the interests and safety of
some economic actors, may pose a certain
threat for others. In this situation, new institutional risks may emerge due to the state’s
ill-conceived actions, and the misbalanced
economy will start failing.
The preventive function of an energy company’s economic security system is aimed at
anticipating critical situations in economic
processes. This implies the development of
socioeconomic, organizational and technical
measures aimed at extinguishing the emergent threats and dangers and enhancing the
security functions of the business. However,
to develop and implement preventive measures, one needs full, accurate and timely
information on the impending threats and
dangers.
The information function plays a vital role
in information security. The internal and external signals may trigger timely (sometimes,
emergency) measures eliminating economic
37
and social tension. The volume and quality
of the company’s information resources are
especially important here. The right information can help identify major threats to the
vital interests of citizens, the society and the
state with due accuracy, which will allow us to
ensure their security.
In the basis of the information means and
resources facilitating the preventive function
lies a set of criteria and indicators. They are
key to the correct diagnostic of the condition
of an energy company’s assets, and to further
adjustment of this condition through appropriate programs and measures.
The innovative function of the economic
security system implies the search for outof-the-box solutions for preventing any
possible harm to the energy company. This
function hinges on the compensatory potential of the company’s economic security system. This potential comes in two forms: the
internal one, based on the self-mobilization
of the company’s business resources, and the
external one, generated through the state’s
regulatory activities. The main role of this
compensatory potential is preventing damages to the company, mitigating it and providing the compensation of expenses. This
is achieved through a number of methods,
techniques and tools aimed at improving the
energy company’s performance and ensuring
its sustainable business growth.
The social function of the economic security system for an energy company is its
ability to facilitate the mutual realization
of the interests of economic actors and social groups, as well as meeting of the energy
consumers’ needs as fully as possible in the
current risk-rich environment. This function
facilitates the improvement of the quality
38
of life for the local communities and guarantees their social and economic rights and
freedoms. The assets of an energy company
are under a certain set of objective threats
from the social and natural environment at
any given moment. But there are also socioeconomic dangers to be accounted for:
unemployment, income gaps, crime of all
sorts (from property-targeting offenses to
life-threatening ones). Here, the task of the
economic security system is to activate and
develop the mechanisms of liquidation or
mitigation of the said negative factors and
their repercussions in the interests of the energy company’s owners.
The interconnection between the aforementioned functions shapes the socioeconomic
and institutional content of an energy company’s economic security system and defines
the main parameters of its evolution.
Typically, the development and implementation of an economic security system has
three main stages:
Stage 1 – assessment of the current condition of the company’s economic security system; development of the schedule of further
work;
Stage 2 – development (amendment or review) of the regulatory framework regulating
the activities ensuring the economic security
of an energy company.
When applicable, a third stage can be added:
implementation of any necessary changes to
the operations of the company’s security specialists.
During Stage 1, the working group will need
to research and analyze (at least):
· the regulations (descriptions) for the core
business processes of the energy company;
· the existing internal documents regulating
the activities of the company’s security department (if there is one).
The deliverable of Stage 1 is a schedule of
further work specifying particular dates of the
activities.
At Stage 2, the following work is to be done:
· analysis of executive orders regulating the
allocation of powers between the deputies of
the company’s CEO;
· analysis of the regulations on the key structural subdivisions of the company;
· analysis of the regulations (rules, standards) concerning procurement, tender procedures, etc.;
· comparative analysis of the historical performance data;
· preparation of a list of the key dangers and
threats to the economic security of the energy
company’s assets;
· formulation of the aims, objectives and
functions of the company’s economic security
system;
· preparation of proposals on the roles of the
key corporate subdivisions in the economic
security activities at all the stages (prevention,
identification, elimination or mitigation of the
consequences, preemption of threats, etc.);
· development of the structure of the security department and substantiation;
· description of the processes of the economic security system as an ancillary business
process facilitating the core operations;
· development of the security system’s performance KPIs;
· distribution of the functions коtween the
security subdivisions of various levels of the
company (managing company – regional level –
subsidiaries and affiliates – local offices);
At this stage, the results are: security audit
report on the company’s facilities; report on
the main threats and dangers to them; expert
assessment of the performance of the existing security system, the adequacy of its powers and resources; report on the trends in the
security levels of critical facilities and other
structures with regard to internal and external
threats. Based on the audit results, a matrix
of risks and threats for the key elements and
stages of energy production and functional
activities of the company’s commercial and
business activities.
The deliverables of Stage 2:
· a concept of the economic security system,
including:
· organizational structure of the security department;
· accountability (participation) matrices for
the structural subdivisions of the energy company within the framework of the economic
security function;
· systems for the monitoring, analysis, notification and reporting on the functioning of
the economic security system, for all levels,
including subsidiaries and affiliates and local
offices;
· KPIs of the economic security system;
· model regulations on the subdivisions of
the regional economic security services of the
company (managing company, regional level,
subsidiaries and affiliates, local offices);
· a plan for change implementation aimed at
improving the economic security system.
Depending on their priority level and completeness, the appendices to the concept can
be published as separate documents.
The model regulations on the energy company’s security department are to be extended
to a set of documents including:
а) the security department regulations
proper;
39
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b) regulations on the physical safeguarding
and engineering and technical protection of
the company’s facilities (breakdown by elements: offices, production facilities, storage
facilities, commercial facilities, etc.);
c) regulations on the information security of
the energy company;
d) regulations on the access control (between the facilities and within them);
e) appendices to the employee manuals (for
managers, associates and engineering staff),
based on the organizational structure, the
functions of each employee category and their
interactions in business processes;
f) sections on economic security for the internal code of conduct for the company’s key
structures;
g) optimal interaction model of the HR and
security departments for background check
procedures at the hiring stage, and staff loyalty control algorithms, published in the form
of manuals;
h) staffing structure of the security system,
by element, and employee manuals for each
category of employees (head of the security
system, department heads, associates, security guards, control agents, etc.), including:
· structure of activities for providing personal security of guarded officials;
· structure of activities for providing physical security of the company’s facilities;
· structure of activities ensuring engineering
and technical security of the facilities;
· structure of activities for providing information security;
· structure of activities for providing market
intelligence;
· structure of activities for providing the security of the economic security system.
i) preparation and organization of train-
ings for the security personnel on their main
functional activities (according to a separately
developed plan);
j) development and publishing of security
procedures and manuals for the key stages
and elements of business processes, including:
· contingency and emergency action plans
for the staff;
· action scenarios for employees during
audits conducted by regulatory and law-enforcement authorities;
· manuals on safeguarding the company’s
cash and property at its facilities;
· instructions on handling confidential information and documents containing proprietary and insider information;
· internal investigation instructions in case
of damage or loss of the company’s property
or cash;
· manuals on the security personnel hiring,
allocation and training;
· proposals on amending (when applicable)
the company’s charter, collective agreement,
individual employment contracts, and regulations on the structural subdivisions.
As Stage 3 could prove to be complicated
and time-consuming, it should be carried out
according to a separate work schedule. At this
stage, a set of measures facilitating evolutional
changes must be realized, and the work done
at Stage 2 must be elaborated in more detail
and further implemented.
The aforementioned algorithm for designing
an economic security system was formulated
based on the analysis of energy companies’
operation, and has been tested in practice.
At the current stage of the economy’s development, the security function becomes
multifaceted and cannot be limited to physical protection (which we, unfortunately, see
40
in reality). It is common for companies to
neglect information security, trade secret
protection, and fighting industrial espionage.
The very structure of corporate security
systems requires a complex approach as well,
based on the nature and environment of the
company’s operations, to single out certain
aspects of the company’s activities requiring
a security component. These aspects include,
among others, security of facilities, personal
security of the CEO and employees; protection of cash and property from theft and embezzlement; information security and trade
secret protection; fighting corporate fraud,
corruption, and controlling the loyalty of the
employees to the corporate interests; preventing corporate raids, etc.
All the aforesaid shows that, at the current
stage of the country’s development, in view
of the production and commercial relationships between economic actors becoming
increasingly complicated, in view of Russia’s
accession to the WTO and the globalization
processes, to protect the interest of energy
companies’ owners and investor, we need
to develop and implement a single modern
system of economic security based on stateapproved standards.
Therefore, to protect the owners’ (and investors’) interests, while adhering to international security standards, it is advisable to
prioritize a complex of organizational and
practical activities aimed at the development
of a state-wide concept of private property
protection, at improving the appropriate regulatory framework, and establishing a new,
modern innovative profession: economic security specialist.
41
Formation of a Sociomarket Model
of Management of the Russian
Housing and Utilities Complex
Vladimir Mikhailovich Yakovlev,
Doctor of Economics, Full Professor, Head
of the laboratory “Strategic Management of
the National Economic Development” at the
Economy and Public Administration
Igor Petrovich Lebedinets,
Doctor of Economics, Full Professor at the
The article examines topical issues of
the modernization and improvement
of the management mechanisms in
the Russian housing and utilities
complex at the municipal level. The
authors identify the key challenges
and prospects of its development,
proposing an innovative model for
managing the housing and utilities
sector at the municipal level.
Key terms: housing and utilities
complex (HUC), housing and
utilities services (HUS), public
association of HUC asset owners,
managing nonprofit organization,
sociomarket management model,
economic tools for managing the
HUC.
T
he current focus on cultivating a ‘civilized’
market environment in Russia determines
the need for creating highly developed
market mechanisms in all the sectors of the
national economy. However, the process
has been unraveling unevenly in different
sectors and regions, which has been stall-
42
ing the economy’s growth and hampering
any efforts at improving the quality of life
in the country.
These issues have been the most apparent in the Russian housing and utilities
complex (HUC), where the key obstacle to
building market relationships is the social
(and, vicariously, political) significance of
the sector.
Ever since Russia was rerailed onto the
free market track, the inadequacies of
the HUC management system have been
widely criticized by the public and discussed at all the government levels. And
yet to this day, the media keep reporting new lapses in the HUC performance
and management in several regions and
municipalities: central heating, power
or water outages in residential buildings, gas leaks and explosions, and poor
performance of emergency response and
maintenance services. As reasons for
this, the administrations of municipalities and housing complex organizations
keep citing chronic underfinancing, di-
Igor Petrovich Lebedinets
lapidation of their assets, infrastructure and
maintenance machines they inherited from
the USSR economy.
The HUC fixed assets: buildings and constructions; machinery and equipment; materials;
infrastructure: water intake and removal structures, heat, water, gas and power lines; municipal roads, land plots, yards etc. – by some estimates, in different regions account for 30 to 40%
of all the fixed assets of the country’s economic
complex. And their depreciation rate, varying
indifferent regions, starts at 60%, which implies
they have little productivity left in them.
The pressing need to resolve the issues of
the HUC is also to a great extent spurred by
the malfunctions of the new HUC management systems in the market environment. In a
number of regions, the Soviet ‘administrative
and command’ methods are still heavily emphasized. So, despite the considerable federal
and regional budget allocations to the HUC,
the quality of the housing and utility services
leaves much to be desired.
The goal of building market relationships in
the HUC demands full payment of the services
from end-users. On the other hand, the pricing won’t be viable due to the high degree of
monopolization in the HUC subsectors (on the
back of uncurbed tariff increases, these natural
monopolies would thrive even at low payment
collection rates), the financial unviability new
legal forms of private HUC servicing organizations (housing co-operatives, limited liability
companies etc.), and a high level of costs and
above-limit resource losses. All of the above
contributes to keeping the HUC behind other
sectors of the Russian economy.
Given the circumstances, it is plain to see
why the HUC modernization attempts have
been slow in implementation in many regions
of Russia, and the continued depreciation of
the tangible assets impairs their productivity,
which directly impairs the quality and sustainability of the housing and utility services.
The often failing infrastructure requires additional expenditures, in particular for using
the resources of the Ministry for Affairs for
Civil Defense, Emergencies and Elimination
of Consequences of Natural Disasters (which
are already stretched thin).
Many experts share the public view of the
HUC as inadequate to the current needs of the
population. And to think that in the developed
economies the HUC is considered a profitable
sector!
The current priorities in the sphere of the
HUC reform and modernization, as set out by
President Putin, are the following:
· give a clear economic justification for the
HUC tariffs;
· develop an effective market-compatible
model of the HUC management;
· establish public forms of control in the HUC,
involving public organizations and managing
councils for condominiums;
· eliminate economically malignant management mechanisms, including corruption, in this
sector of paramount importance for the Russian
citizens’ quality of life.
The Russian Government has been taking
certain measures to improve the management mechanisms in the HUC under the
emergent market conditions ever since their
inception. However, these measures have not
been comprehensive and failed to resolve the
issues at hand.
A comprehensive approach to the aforementioned problems was developed by a group of
researchers at the Russian Presidential Academy of National Economy and Public Admin-
43
Formation of a Sociomarket Model of Management
of the Russian Housing and Utilities Complex
istration in collaboration with several policymakers and experts from a number of Russian
regions.
As a result, the group formulated the innovative program “System of Corporate Management of the Municipal Housing and Utility
Complexes Aimed at Improving the Quality of
Life of the Local Communities” (“the Program”).
The target level for forming a system of the
HUC corporate management was identified as
municipal, since, under the current Russian regulations, the municipalities are practically fully
responsible for providing the vital services to the
population, the most urgent among which are
the HUC services.
The Program contains a methodology and
an algorithm of economically feasible tariff formation, accounting for all justifiable costs, the
status quo of the HUC capacities, the financial
position of its production organizations, and the
capacity of the population to pay for the HUC
services.
A number of unfeasible (excessive) costs were
also identified and marked for elimination.
These costs currently exist due to the irrational
decentralization of the fixed HUC assets during
the rushed privatization, misallocation of the
users’ payments, or due to the arbitrary actions
of the owners and managers of assets.
The Program is based on the principle of
transitioning from the administrative management style to the economic management
mechanisms conducive to fostering market
relationships in the sector – a task previously
made difficult by the high social significance
of the HUC, often causing complications up
to public protests.
A new management structure is proposed,
based on a proven organizational and economic HUC management model suitable for
the new organizational, regulatory and economic environment:
1. Public organization “Effective Owners of
Municipal Housing and Utility Complexes”,
acting as the source of social procurement of
the HUC services and controlling their provision. The Program provides that practically all
the citizens of a municipal unit participate in
their public organization elected representatives, who will be able to influence the development and modernization of the local HUC.
2. Sole HUC Managing Organization in
the legal form of a noncommercial partnership – the general contractor distributing the
procurement order between the service providers, arranging the financing and control of
the order fulfillment. (Previously, any HUC
service provider was called a managing company, even if they were not capable of these
umbrella functions).
The noncommercial partnership was chosen as a legal form because it can only conduct
commercial activities conducive to its constitutional aims.
The development of market relationships
is carried out with the support of the public
organization, directly at the service providers’
level.
This management system forms an effective
structure of providers, rendering housing and
utility services to the public organization, sole
managing company and the condominium
managing councils, which creates a new system of economic relations within municipalities, where:
· The residents’ payments for the housing
and utility services are to be considered as
targeted investments into social procurement,
considering the concentration and the use of
money for modernization and major repairs.
44
These investment contributions are concentrated on the investment account of the condominium, and their use is strictly targeted.
· Excess costs are eliminated. The decentralization of the housing and utility payment
flows and misallocation of these means to pilot
projects create cost overruns of more than 20%.
· The economic, technical, social and economic tasks of centralized planning of social
procurement order from the municipal unit
are fulfilled; as well as the tasks of uninterrupted supply, attracting investments, development of self-financing, financial support
of the HUC organizations and disadvantaged
population groups.
While fulfilling these tasks, the system also
aims to avoid the mistakes made during the
Russian ‘blitz’ privatization. This process automatically triggered the decentralization of
the HUC fixed assets (boiler plants, heat lines,
water intake facilities, etc.) and cash flows
involved in the creation and provision of the
HUC services, bringing about a hike in the
service providers’ tariffs.
The tariffs were additionally boosted by the
fact that all this was happening in a market
with firmly built-in natural monopolies and a
critical degree of depreciation of the fixed assets (60-80%).
The Program aims to resolve these issues
and reconcile the economic interests of all
the players based on precise calculation of
objective costs, factoring in the need to help
production and service organizations overcome their existing problems using the joint
assets of the public organization and the sole
management company. The effective existing
or newly established organizations will have
incentives to perform well in the new HUC
management system.
The implementation of the system will help
resolve the serious issues of resource saving,
tariff formation, and the overhaul problems:
· resources will be saved through consistent
implementation of new metering systems, using proper technological solutions;
· tariff formation will be done based on auditors’ calculations of real costs of the natural
monopolies and service providers conducted
by the sole managing organization using
through-type technological reporting, monitoring of the systems’ performance, and joint
aggregate accounting;
· the overhaul of the assets is to be funded by
concentrated targeted cash flows formed by
the new system at the municipal level.
These measures are implemented under an
economically and legally feasible condominium management agreement, prepared as part
of the Program and accounting for the new
market reality.
Within the framework of the Program, the
regulations on the implementation of the
“Comprehensive Automated HUC Management System Using the Electronic Social
Card” were drafted. The electronic social
card will be introduced in Russia for the first
time, as part of the HUC corporate management system and overall municipal economy
management systems. As a result, the local
residents will be able to use a convenient payment system, and timely or even advance payment of the housing and utilities bills will be
encouraged through bonuses assigned for it,
which should increase the local communities’
involvement in the HUC processes.
The
socioeconomic
transformations
brought about bу corporate management system facilitate the emergence of a modern stratum of efficient residential property owners,
45
as one of the prerequisites of market relationships formation.
The broad introduction of the Program’s
measures into everyday operations of the municipal HUCs is essential because the privatization of residential property in Russia was
only one of the conditions required for the
said owners’ class to emerge, at the same time
depriving them of their lawful economic leverage in the process of long-term property
management (modernization of the assets,
such as boiler plants, heat lines, water intake
facilities etc.) and their share of profits from
the use of these assets.
The Program also provides for forming innovative resources to be used for extra-budgetary HUC modernization.
The housing and utility payments from the
residents are further augmented by their free
money, since an approved commercial bank
appointed for this purpose, for the first time
since the inception of market relations in
Russia, will focus on funding local measures
aimed at providing the essential housing and
utility services to the population.
The sourcing of large-scale funds from the
residents will be possible because the local
communities should be willing to invest their
free cash in the operations of their local municipal banks supporting the municipal infrastructure for the benefit of the depositors
themselves and of their children and grandchildren in the long term, thus developing
and enhancing the local quality of life.
The branches of commercial banks (mostly
headquartered in Moscow) do not prioritize
the development of the Russian regions and
municipalities where they are located. A local communal bank of a Federal constituent
entity and its municipal branches, on the con-
trary, aim primarily to provide systemic cash
and settlement services to the HUC players,
accumulate and allocate cash flows and discount them in the real economic circulation
(including the cash flows from the counterparties of the other sector of the regional
economy).
The new corporate management system will
also engage the money of the new owners
seeking to benefit from the HUC assets in the
long term. The new owners or long-term lessees of enterprises should be motivated (and
contractually bound) to invest their money in
the repairs, remodeling and modernization of
the building, equipment and infrastructure.
These internal investments will be made
through the consolidated accounting of the
managing company, in the form of individual
loans, personal savings of the managers acquiring the assets in their property, and possibly their families involved in the operations
of the HUC assets.
An additional source of funding could be issuing and effectively floating regional (municipal) securities. The securities may be backed
with the pledge fund “HUC Corporation”
(consisting of tangible and intangible assets
of the HUC companies, accounts payable and
receivable, and other assets of the respective
constituent entity of the Russian Federation
and its municipalities included in the HUC
funds turnover cycle). The purchasing power
of these securities is supported through the
option of availization by large commercial
banks to attract foreign investors interested in
the presence in the region, as well as through
their rational placement (purchase by partners
of HUC companies) and market circulation of
the securities (practice shows that they present
the most interest to local market leaders).
46
The investment resources can be attracted,
since they are secured by the HUC pledge
fund comprised of actual economically evaluated tangible and intangible HUC and municipal assets.
The HUC corporate management system
proposed for wide implementation in Russia
will boost the performance of the federal-, regional- and municipal-level HUCs.
The HUC will thus gradually transition to
extrabudgetary funding, which will be the
main engine of market development and economic growth in the regions.
This comprehensive approach facilitates economically feasible tariff formation in the HUC,
as well tariff stabilization and lowering. Only
this approach will enable full compensation of
HUC costs with economically feasible tariffs.
Some meaningful and predictable results of
the Program implementation:
 formations of economically feasible HUC
tariffs in municipalities;
 stabilization of HUC tariffs and potential
for tariff privileges for the disadvantages population groups;
 reinforcement of motivation of to provide
quality and timely HUC services by creating a
system of responsible actors: public organization, managing companies and condominium
councils;
 decrease in budget spending through extrabudgetary funding of the HUC;
 increase of tax proceeds to the budgets of
all levels on the back of growing turnover in
the real and banking sectors;
 prevention of mass bankruptcy of the
HUC companies in the toughening competitive enviroment;
 transformation of servicing organizations
and other HUC companies into market-com-
patible business forms (subject to socially and
economically justifies limitations);
 choosing servicing companies through
fair tenders in cooperation with market economy structures (commercial banks, insurance
and investment companies), and companies
of other industries facilitating the work of resource-saving systems, operating control and
instrumental metering, reclamation, inspections and quality control;
 increasing cash flows and concentrating
investments in the HUC at the municipal
level;
 expanding gross regional product and
household incomes;
 supporting household budgets through
effective management of benefits, aid grants
and subsidies; implementing targeted social
aid programs;
 fostering SMEs by forming a functioning
and competitive service market, and creating
more jobs;
 boosting the HUC liquidity levels by injecting new financial assets into it;
 ensuring transparency of the “through” reporting of owners’ equity and the allocation of
the residents’ payments and investments;
 controlling merchandise and cash flows
through local public organizations in the interests of the local community, to prevent
corruption in the HUC and municipal economies;
 developing companies in related sectors
(construction, energy, food) in connection
with the HUC development, based on social
demand;
 fostering market mechanisms in the HUC,
leveraging the potential of profits and assets
capitalization through the formation of local
investment and pledge funds, security issues,
47
and measures aimed at raising the investment
attractiveness of HUC projects; leveraging the
potential of consumer cooperation mechanisms;
 transitioning from the system of grants
and benefits (unlawful and inefficient in the
free market environment) to socially and economically feasible approaches to target subsidizing of disadvantages households;
 minimizing sociopolitical protests of the
population, etc.
The Program of the implementation of the
HUC corporate management system provides
for 12 degrees of economic, legal and social
security to ensure the targeted use of funds
(housing and utility payments and attracted
free cash of the local residents).
The implementation of the Program facilitates one of the national priorities — providing every citizen with opportunities for eco-
nomic and social self-actualization. And this
process must involve every resident, every
household, and every residential building.
The Program has been reviewed by and deposited with the Russian Authors Society. The
State Duma’s Council of Federations assigned
it the status of statewide importance and instructed the Government on its implementation.
It must also be noted that, in order to expedite the attainment of high life quality standards required for Russia’s accession to the
WTO, the housing and utility complexes of
Russian cities and towns will require substantial foreign investment.
To that end, the Program envisions an economic security system, which will fully protect the rights of foreign investors.
48
Voluntary Certification of
Transportation and Logistic Services
as an Essential Stage in the
Development of Logistics
O.D. Protsenko
Director of the Institute of Management and
Marketing at the Russian Presidential Academy
of National Economy and Public Administration,
G.V. Zubakov
PhD in Economics, Full Professor,
Director of the International Logistics Club
T
he debate on the need to certify
transportation and logistics services has
been going on in the Russian industry
for years. Opponents of certification cite
overregulation as the biggest con, conceding
to establish voluntary certification within
non-profit industrial groups. Its proponents,
who are numerous in the transport industry,
maintain that certification will help increase
the efficiency of logistics, especially after the
introduction of e-document workflow.
This last aspect comes to the fore, given
the rigorous competitive pressure that the
Russian logistics professionals have been
feeling from their foreign counterparts.
The globalization trends and Russia’s
accession to the WTO must be taken into
consideration here. With proposals on
the formation of the Eurasian Economic
Union, and the expansion of the EU, new
forms of cooperation, integration and
competition spring to life, both in global
foreign trade and in the trade between
partner states. The transport and logistics
segment has also been seeing an increased
integration of transportation and freight
49
forwarding services and the emergence
of brand new outsourcing schemes and
services, primarily due to the development
of global information and communications
technologies.
New forms of agency and intermediary
services appeared, incorporating the
whole complex of transportation and
freight forwarding functions and
integrating them with highly efficient
processes of comprehensive logistics chain
management for supply and distribution
to optimize the whole supply chain. This
determined the need for new actors on
the market, providing integrated services
through multiple subcontractors to
cover all the needs of their clients. These
integrators became known as ‘logistics
operators’, or ‘logistics providers’.
Researchers
have
developed
a
classification of logistics providers and
their services: 1PL (First Party Logistics)
providers – basic standalone option, when
all the operations are done by the freight
owner; 2PL – companies rendering
transportation and warehousing services;
O.D. Protsenko
G.V. Zubakov
Voluntary Certification of Transportation and Logistic Services as an Essential Stage
in the Development of Logistics
3PL – operators of comprehensive (full-cycle)
logistics services; 4PL providers – systemic
integrators; and 5PL providers – virtual
integrators of logistics services. The new
forms, though clearly encompassing the
already existing transportation and forwarding
functions, are substantially different in the
scope of their operations. The classic definition
of logistics is a science of optimizing flows:
physical goods, financial flow, document flow
and information flow. Therefore, any logistics
operator needs to organize these flows.
Integration of services allows them to cut costs
and efficiently deliver full-cycle services to the
client.
This approach dictates a brand new vision
of competition on the transportation and
logistics market. The comprehensiveness of
logistics companies’ services can be viewed
from another angle: from the standpoint of
efficiency with which the operator managers
its business processes, the completeness of the
information on the status of the flows provided
to the client, and the amounts of the operator’s
gross costs. At the same time, the logistics
industry has developed absolutely new quality
criteria as well.
One of the essential parameters is the
safety and security of transportation. It is,
essentially, a complex organizational and
technological criterion involving a wide array
of operations ensuring the ‘informativeness’ of
all the transportation and logistics elements.
This includes incident prevention measures,
management of risks in their wide definition
and their implications both for the operator’s
and the client’s businesses. The new quality
standards include environmental friendliness
of the business, resource-saving, and
occupational safety.
Some operators provide financial flow
management services in the transportation
and logistics of foreign and mutual trade
(within regional unions), which deserve
special attention. These services are muchin-demand, as shown by over two decades
of efforts to implement systems for online
payment of customs duties, e-warranties,
online insurance, and fruitless attempts to set
up settlement systems in several segments of
transport logistics.
In considering modern technologies used
by logistics operators, we need to note a
very topical issue of organizing effective
paperless interaction between operators
and government authorities supporting and
supervising transportation and logistics
processes. Paperless interaction is important
due to globalization processes. But apart from
that, it’s because the B2B-B2G link of the
supply chain management harbors the biggest
cost-cutting opportunities available. The UN
Center for Trade Facilitation and Electronic
Business (UN/CEFACT) in its Guidelines on
Establishing a Single Window to Enhance the
Efficient Exchange of Information between
Trade and Government, urges organizations to
use standardized approaches to transportation
management and information processing.
Standards imply model formats and protocols
of digital information exchange, supervised
and supported by government agencies, as
well as international and national industry
groups. And the Russian logistics industry has
been lagging behind its foreign counterparts
considerably in this essential segment.
Government agencies basically washed their
hands of any regulatory or financial support
of the business community’s initiatives,
while their own imitative ones have not been
50
successful, due to the obvious differences
between their own objectives and those of
logistics companies. Today, it is plain to see
that, given the declared aims and functions of
all the existing government agencies, none of
them is really interested in effectively routing
logistics flows through national transport
corridors.
The aforementioned problems will only
be exacerbateв by the pending integration
between the mutual trade within the Customs
Union and the future Eurasian Economic
Union. This is probably why the ECE pays
so much attention to the Single Window
principles, regarding them as the ideological
foundation of the future Integrated
Information System for Mutual and Foreign
Trade (IISMFT). The impossibility of
implementing Single Window in the modern
transportation and logistics systems, the
government’s numerous attempts to ‘storm’
this height (the Interdepartmental Integrated
Automated Information System project!) are
direct consequences of the lack of statutory
industry standards on the processing and
transfer of information on logistical processes
in trade. The fact that Russia is missing a stateenforced system of certification for transport
and logistics, as well as freight forwarding
services, has clearly left the Russian transport
industry behind its global counterparts.
Foreign trade freight flows go where logistic
services are more transparent, reliable and of
higher quality. This is exactly why much of sea
cargo passes around Russian sea ports, and
the aggregate cargo turnover of all the Russian
airports is lower than that of one standard
Germen air hub.
Based on the aforesaid, it is clear that pilot
projects on logistics services certification are
essential for companies who would like to
claim the status of logistics operators.
One such pilot project is being developed
for Russia’s undisputed air cargo logistics
leader, Sheremetyevo-Cargo JSC. In its market
segment, this company positions itself as a
4PL provider, handling flights of the Russian
Aeroflot, as well as over 20 foreign airlines.
Absolutely all of its business processes are
organized and controlled using state-of-theart remote information technologies. The
company has implemented its own corporate
standards in line with global practices and the
recommendations issued by the IATA/FIATA,
and the provisions of the Russian legislation.
International Logistics Club also recommends
the Sheremetyevo International Terminal as a
basis for a pilot project.
Therein lays the answer to the question:
why make services a subject of voluntary
certification? Services, and not resources,
or personnel, or documents, or jobs, etc. It
is the description of the services rendered
by an operator, drafted in accordance
with logistics methodology and standards
accounting for correlations between all the
logistics flows, that will allow us to define and
harmonize the standards of financial flows
and technical documentation processing,
standards of information exchange and
operational processes. Certification must not
and will not substitute the existing state and
international industry licenses, certificates
and standards. The presence of a certificate
for servicing mail and cargos at the airport for
domestic and international flights issued by
the Federal Air Transport Agency, or having
a record in the registry of temporary storage
warehouses and customs carriers supported
by the federal Customs Service, only mean
51
Voluntary Certification of Transportation and Logistic Services as an Essential Stage
in the Development of Logistics
that the certification methodology needs to
flexibly integrate both into a single system.
The standards of ground processing for air
cargos inspected by the IATA commissions,
the standards of the FIATA (whose member
is Sheremetyevo-Cargo), as well as hazardous
cargo processing standards, aviation security
standards, ad dozens of other standards need
to be integrated. The information base used
for managing a company’s operations can be of
any kind – most importantly, it must facilitate
seamless development of internal corporate
services, as well as integration into the industry
environment, paperless interaction with the
information systems of other companies, the
airport, freight forwarders and agents, and
various IT systems of state agencies.
It is definitely crucial here to provide
interoperability with the Single Window
system, whose pilot prototype has been
implemented in information exchange services
such as ‘e-freight’, or preliminary information of
customs and border authorities, within a single
air cargo terminal. The International Logistics
Club experts hope that further certification
efforts will Russian logistics companies to
develop and implement new technological
solutions on paperless information exchange
not only with partners within foreign and
mutual trade supply chains, but also with
numerous federal agencies. A similar project
on the certification of transportation and
logistics services has recently been launched in
Ukraine.
Innovation Project Management
Based on Economic Security
Standards
Vyacheslav M. Bezdenezhnykh,
Doctor of Economics, Full Professor Head
of the Risk Analysis and Economic Security
Department of the Financial University under
the Government of the Russian Federation
Summary: Although innovations
management, along with urgent
regulatory and protection measures
aimed at fostering the Russian
economy’s transition to the path of
innovations in a crisis environment,
is a priority on today’s agenda, there
is still no methodology support
in terms of universal standards
in economic security, project and
risk management. The article
looks into ensuring the economic
security of businesses in a recession
environment through innovative risk
management standards.
References
1. O.D. Protsenko, I.O. Protsenko. Logistics and
Supply Chain Management: a Future Vision. –
Delo, 2012.
2. V.V. Scherbakov et al. Introduction to Logistics.
– St. Petersburg: Piter, 2009. – 432 pages.
G
52
Key words: innovation projects,
uncertainty, risk management,
economic security and innovation
management standards.
lobal standards and methodology of economic security, enterprise risk management (ERM) and project (innovation)
management based on risk management
have always been focused on the Western business environment, i.e. conditions
with an established tool to manage demand for innovations that help drive improvement technologies, while threats,
dangers and crisis situations were only
53
handled on the level of separate project
risks. Even today, Western literature still
studies innovation processes on a company level, without taking into account
any cyclicality, an approach that is fundamentally different that of Russian economists. This applies to Western national
and international standards in economic
security, innovations, risk management,
and other management standards. Factoring in the crisis stage or cycle requires
a special approach to developing and
applying standards due to the structural
deterioration in innovations activity, especially immediately before a downturn
(recession) and crisis:
 basic innovations shrink and cease to
exist;
 improvement innovations are increasingly small and less effective;
 there is a large number of pseudoinnovations aimed at partial improvement
and extension of the useful life of a thoroughly outdated system that requires a
radical change.
Economists give mixed assessments of
Russia’s anti-crisis and innovation potential. There is a widespread one-sided
approach used by a number of Western
authors in assessing Russia’s science
Vyacheslav M. Bezdenezhnykh
Innovation Project Management Based
on Economic Security Standards
and technologies. These authors cite the ineffectiveness of the Soviet R&D sector and
describe the implications it had for today’s
developed market. At the same time, it is
common knowledge that, in contrast to nations that lagged behind the West in terms of
development, the USSR was the global leader. In particular, it was a leader in developing
project management approaches. Talking
about project and innovation management,
it is worth mentioning Leonid Kantorovich,
who developed methods of organizing and
planning the production process [1]. In his
works, he was materially ahead of Tjalling
Charles Koopmans [17], who won the Nobel Prize together with Kantorovich in 1975.
Methods based on sequenced graphs, systems
of managing strategic indicators, theory of
inventive problem solving (TRIZ), prototype
of a linear innovation model – all these laid
the basis for an effective system of interaction
among innovations, science, mass production
of new technology, and its prompt practical
use (most effective in the military and defense
sector, where the real demand for innovations was generated by the state). “Socialist
competitions”, cost accounting (reduced and
non-adjusted as it might have been), social
development programs, some of the world’s
best education programs for schools and universities – all these were created in the USSR.
For the economy that existed at the time,
there was a system for the creation and implementation of R&D-based on fundamental science and applied research by industry-related
research institutes and universities, which
was fairly effective. This is supported by major
global projects in the power sector, machine
engineering, chemistry, medicine, and space.
The lack of real technological competition for
better quality was offset (to some extent) by
the administrative norms of the equipment
introduction for virtually all enterprises in the
country.
The early 1990s transition to a new type of
economy destroyed the existing system and
mechanisms but created nothing new, even
though this was not the only transformation
scenario possible. It would be reasonable to
agree with some of the conclusions made in
the report of the Russian Academy of Sciences titled “Transition to Market Relations and
Economic Downturn: Changes without Moving to Market”. The authors point out that the
changes have been numerous, saying that “the
Russian Government has been, and remains,
highly active in reforming the science and
technology sector, and has drafted numerous
concepts, decrees, resolutions and amendments to laws. Furthermore, the Russian Government created venture funds, ‘science cities’,
centers for innovative technologies, science
parks, technology platforms, business incubators, and many other organizational forms
and mechanisms aimed at… commercializing technologies and revitalizing the science
and technology sector.” [2] However, these
measures receive a fairly low (but fair) assessment of their effectiveness: “There are two key
priorities in the actions taken by the Russian
Government,” experts of the Organization for
Economic Cooperation and Development
(OECD) say. “The first is the development of
strategies without respective tactics, i.e. formulating major non-binding general statements on the policies in a specific area. The
second is the development of tactics with no
underlying strategies: generating a large number of micromeasures, which do not add up to
an integral strategy.”
54
The global crisis that broke out in 2008–
2009 further highlighted the weaknesses in
the theory and practice of crisis management
and innovation management, both for specific nations and in the global community in
general. For instance, the Global Risks 2007
Report at the Word Economic Forum in Davos (Switzerland) did not even mention the
upcoming crisis, let alone steps to prevent it.
In August 2007, signs of a debt and liquidity crisis clearly emerged across a number of
US companies, only to be drowned out by
optimistic statements that this local downturn would not affect the European nations or
Russia. As we know, those didn’t prove true.
Moreover, the past crisis of 2008 was a special one. First of all, it was the start of a series of subsequent local crises, in Europe and
the Middle East, economy and politics, etc.,
which caused some scholars to describe it as
ongoing or permanent. Secondly, it confirmed
the imminence of a fundamental crisis caused
by changes in technological mode (Kondratiev wave). It marks a change in technological
eras and gives rise to truly groundbreaking innovations. The industrial civilization is coming to an end, to be replaced by a post-industrial one. All of the above clearly prioritized
secure development as key to the innovative
stage of technological mode changes. Let us
now study these aspects in greater detail.
Despite the different composition behind
various aspects of security, differences in
their scale and nature, one can adopt a unified methodology approach to the problem
by using systems theory , which helps identify common patterns of how dangers emerge
irrespective of their functional composition,
and also identify ways of limiting or eliminating such dangers.
In this article, we are mostly interested in
systems that are capable of self-organization
under extreme conditions to quickly and
properly become adjusted to changes in the
external environment (and to strike a balance
between the system and the environment). In
other words, given the abovementioned notions of security and sustainability of development, we are interested in natural (production
and process-related) indicators that describe
the functioning of an organization as a system
and its ability to maintain its structure for a
relatively long time.
Vital for all types and areas of systems analysis is searching for and identifying the system-critical factor. This key problem defines
both the notion of a system and the entire
strategy of its use in research. According to P.
Anokhin, one of the authors of the theory of
functional systems, the success of a systems
approach for specific sciences will depend on
the success in identifying the system-critical
factor and giving an exhaustive description
of its operational importance for the system
to be created . Only if this condition is met
can the basics of system formation be applied
to all types of phenomena where the process
of ordering and sequencing is taking place.
In our view, this system-critical factor is the
function of ensuring security of the system’s
operations.
The notion of security has two components:
external and internal. Internal security characterizes the system’s integrity and homeo-
1
Ludwig von Bertalanffy, General System Theory – A Critical Review, “General Systems”, vol. VII, 1962, p. 1-20. John
L. Casti. Connectivity, Complexity and Catastrophe in Large-Scale Systems. Moscow, 1982. – P. 71.
55
stasis. In other words, it shows the system’s
ability to sustain its normal functioning for
a long time when impacted from the outside
and inside.
External security is the system’s ability to interact with the environment without disrupting its homeostasis. In this case, the impact on
the environment does not lead to irreversible
changes or damages in the key parameters
that describe the system’s condition deemed
acceptable (risk appetite in risk regulation).
The definition of security contains the
meaning of maintaining the homeostasis of
the external and internal systems, and this
is the system-critical factor . This approach,
studied by the Risk Analysis and Economic
Security Department of the Financial University under the Government of the Russia Federation, was set forth in 2006 as “…
the subject’s condition in terms of survival
and development in a system of internal and
external dangers and threats (also with impact from hardly foreseeable factors) caused
by internal and external inconsistencies” .
Therefore, security is defined as the system’s
ability to operate sustainably, i.e. maintain its
structural stability, but not in terms of process, but in terms of condition as the result
of the system’s behavior. Hence, security is a
feature of a balance based on the interaction
between the system and the environment. It
is important to remember that security as a
state of a complex system can never be viewed
as a static economic phenomenon. Security is
always dynamic; it is directly linked, first of
all, to the aims and objectives of any business
irrespective of the form of ownership, level of
capitalization, and factors of external or internal environments.
Economic security is semantically related
to the notions of threats, dangers, and risks.
The characteristics of dangers and threats are
forecast-type descriptions, while the notion
of a risk as a measure of uncertainty requires
special discussion. The category of risk is
closely related to the notions of security, danger, and threat, but this is a dialectic, rather
than synonymic, relation. We view risks as
one of the basic tools of ensuring economic
security and security in general. In a general situation risks can by classified by scale,
sources, probability of materialization, and
impact on economic agents. In this article,
we are primarily interested in risks on the
level of a business entity that affect innovative entrepreneurial activity, the entity’s economic security, i.e. the economic sustainability of its operations, and its competitiveness.
Risk management is closely linked to management in the area of general and special
(financial and economic) sustainability and
generally to ensuring economic security and
sustainability of a business entity. Therefore
it is part of a general enterprise management
as a more general area of scientific research
and practice .
This approach, based on viewing a company’s economic security as the system-critical
factor for a complex system to operate, provides a single tool to integrate all risks and de-
velop strategies of management to make sure
the company operates sustainably and safely
in line with its overall economic security standard. Previous concepts were based on management that was fragmented and divided by
functions and departments (accounting, lending, internal audit, etc.) The management was
carried out independently by departments in
accordance with their own plans and understanding of the tasks by specific employees.
The last decades of the 20th century saw the
beginning of yet another historic macro cycle,
a transition to a post-industrial society. The
basic distinctive feature of these processes is
that they rely on the fundamental scientific
theory, intellectual information technology,
and a creative (or environmentally friendly
in its broad sense) type of management. The
founder of the theory of post-industrial society Daniel Bell [16] points out that a capitalist
society places private property at the center,
while in a post-industrial society the central
role is played by theoretical knowledge. Today, while ownership remains an important
basic, another one to complement it is the
professionalism in management, which is accessible through education.
Nations that follow the Western path of
industrial evolution usually choose between
two opportunities.
The first one is copying, up to losing the nation’s political and economic independence
altogether. For example, European integration
processes prove both the importance of this
model and the considerable challenges in its
implementation.
The second one is maintaining a balance
between national and borrowed civilizational achievements and securing a leadership
standing by making the maximum use of
Western infrastructural resources while at
the same time stepping up national capabilities. An example is Norway, which due to its
huge hydrocarbon resources was declared an
inferior state in accordance with a resource
curse theory created in 1993 by Richard M.
Auty and later complemented by Jeffrey D.
Sachs and Andrew M. Warner. The theory is
based on the assumption that an abundance
of natural resources causes nations to lag behind in economic development. Given the
global experience, so far economists have no
convincing evidence that countries with rich
natural resources tend to grow at a slower rate
precisely because of the resource curse. When
the discussion only began in the 1990s, Jeffrey
D. Sachs and Andrew M. Warner managed
to demonstrate the negative link between
resources and growth rates [3], but closer research carried out later has not supported it.
The Dutch disease does not affect all nations,
or at least not all of them to the same extent.
In effect, Norway built the right relations (i.e.
those in line with national interests) with
fuel and oil companies, and as a result in the
shortest period of time ever (around 30 years)
became a nation with its own innovation system that is part of a global framework. Mean-
Ludwig von Bertalanffy, General System Theory –A Critical Review, “General Systems”, vol. VII, 1962, p. 1-20. John
L. Casti Connectivity, Complexity and Catastrophe in Large-Scale Systems. Moscow, 1982. – P. 11.
3
V. I. Avdiyskiy, V. M. Bezdenezhnykh. Economic security as the system-critical factor of sustainability in complex
social and economic systems // Business Security, 2013, No. 5.
4
P. A. Gerasimov. Economic security of businesses. Moscow, FA, 2006. 376 pages.
See Thomas L. Barton, William G. Shenkir, Paul L. Walker. Enterprise risk management: pulling it all together.
Moscow, 2003; V. I. Avdiyskiy, Sh. R. Kurmashov Forecasting and analyzing risks in business operations. Moscow,
2003; F. N. Filina Risk management. Moscow, GrossMedia ROSSBUKH, 2008; V. M. Granaturov. Economic risk:
meaning, measures, ways of mitigation. Moscow, 2002; Brown G., D. Chew (ed.). Corporate Risk: Strategies and
Management. L., 1999; S. Davis, C. Meyer. Futures Wealth. Boston, 2000; J. W. De Loach. Enterprise-wide Risk
Management: Strategies for Linking Risk and Opportunity. L., 2000 – etc.
56
57
2
1
while in Russia a lot of economists still believe
that the country is plagued by the resource
curse and all misfortunes are caused by this
stereotype [4] instead of problems with the
competencies of those in charge of national
innovation management. Another example
of building a national model of development
aligned with national interests is China. The
country’s management model was built consistently and gradually, with attention paid to
the national geopolitical, philosophical and
cultural traditions, avoiding shock therapy
and making the best use of other nations’ resources while focusing on the national development priorities [5].
Today, the Russian economy can only wipe
out the lag if radical innovations are introduced, above all in government regulation,
management, and the social sector, helping
the nation turn towards development. This
should combine, on the one hand, the integration of national interests, values, and
achievements into the global context to be
complemented with elements that are pragmatically borrowed from abroad, and on the
other hand, there should be restoration and
active use of achievements and breakthroughs
made inside Russia. Therefore for Russia, the
stage of overcoming crisis implications is the
time to review and upgrade the areas of geopolitics, management, economics, science, education, geography, use of national resources,
and military potential improvement. This in
turn means that this is the time to build and
establish a national innovations system that
would be harmonized with regional, industry
and corporate innovations.
On the corporate level, the problem of economic security of innovative businesses has
two sides to it. The first one, which has been
researched best and enjoys the strongest media coverage, tends to focus on illegal activities, such as unfair competition, industrial
and business espionage, corporate raids, practices of luring away and sometimes eliminating key professionals, etc. The second aspect
is being widely studied in the context of the
state in general and to a much lesser extent on
a company level: it is the condition described
by a framework of indicators and providing
for sustainable operations and development.
If any of these indicators underperforms,
there is a threat to the company’s business as
usual. A methodological objective to ensure
constant monitoring of the level and nature
of the company’s economic security and to
respond to emerging threats is to define a list
of indicators acting as thresholds of economic
security. These indicators, which characterize
the economic state of the company and ensure
its sustainable operations and development,
are essentially the indicators of economic security and are set forth by a draft standard on
economic security developed by scholars of
the Financial University under the Government of the Russian Federation.
The antagonism between the interests of the
state and personal interests aggravated the implications of the 2008 crisis in Russia, driving
the need for urgent regulatory, managerial
and social innovations. On the national level,
there are certain signs that planning tools are
gradually being introduced to the way the national economy is managed. The Strategy for
Economic Security of the Russian Federation
Through 2020, which was approved by President’s Decree No. 537 dated 12 May 2009,
contains fundamentally new provisions requiring that the government introduce a system of strategic planning (probably similar to
58
the five-year indicative planning framework
in China, France, and other nations). A draft
law to introduce such a system was submitted
by the government to the State Duma and is
likely to be passed in late 2013 or early 2014.
Businesses will have to decide how they will
fit into the system of strategic planning in
order to leverage the benefits of defining the
economic security strategy. This resulted in
first draft standards (for example, Russia’s first
draft of State Standards on Economic Security
for Organizations, developed in 2013 as part
of research of the Financial University and cited above) and then national standards, such
as GOST R 51901.4-2005 (Risk Management.
Application Guidelines in Projects), GOST R
MEK 61160-2006 (Risk Management. Formal Design Review), Risk Management Professional Standard (RusRisk) 2012, Eurasian
Standard for Project Management (corporate
version, v. 1.2/090321, EPMC, 2009), and the
world’s first standard on innovation project
management (Eurasian Standard for Project
Management (corporate version), extension
for innovation projects, version 2, EPMC,
InnIT, 2009) and anti-crisis standard (Eurasian Standard for Crisis Project Management
(corporate version), v. 1.2/090321, EPMC,
InnIT, 2009). By creating a national system
of measures and methods to introduce radical managerial innovations while factoring
in changes in cycles and crises of companies,
regions and nations, and adjusting it for the
respective change in technology mode, Russia
can secure a strong standing worldwide. Despite shocks in the innovations implementa-
tion system, achievements made by Russian
science in the past make it possible to create
fundamentally new opportunities.
First of all, they include an interdisciplinary
approach, the use of which helped consolidate
fragmented professional knowledge in innovations and crisis and to integrate it with project management.
Secondly, it is R&D in reflexive governance,
which contribute to a non-standard approach
to problems based on national methodology
and global best practices.
The author of the reflexive governance theory is V. A. Lefebvre [6], a Russian scholar
who is now Professor at the University of California. Works by Lefebvre and his followers
in Russia (http://www.reflexion.ru) helped
better study project management and innovation management in Russia and develop new
approaches to creating radical managerial innovations, with the person factored in.
The author of the reflexive governance theory is V. A. Lefebvre [6], a Russian scholar and
currently Professor at the University of California. Works by Lefebvre and his followers in
Russia (http://www.reflexion.ru) helped study
project management and innovation management in Russia and arrive at new approaches
to building radical managerial innovations
with the individual factored in. The key feature
of any individual is self-reflection and conscience. Apart from the self-reflection ability,
“our specific feature is not so much our outstanding intellect but rather our conscience”,
i.e. we “are capable of using the categories of
“good” and “evil” and under some circum-
6
Report on research on the following subject: “Development of uniform national standards aimed at ensuring
economic security for businesses in the Russian Federation”, research supervisor: Professor, Doctor of Law V. I.
Avdiyskiy. Financial University, 2013. P. 124.
59
stances have the freedom of choice” [7]. In a
sense, the phrase “freedom of choice” used by
Lefebvre correlates to Bernstein’s “freedom
of choice” [8], with the latter referring to the
risk inherent to an individual’s activity and related to the freedom to choose a managerial
decision while realizing the uncertainty of the
world. In this context the reflexive governance
theory uses the methodology of the analysis
theory and risk management and therefore
becomes integrated with it.
In the area of studying crises, their cycles,
types, kinds and properties, Russia is an undoubted leader. It is Russia that gave rise to a
uniform theory of cycles, crises and innovations as the vital component of a post-industrial paradigm of social sciences. The basics of
the theory were set forth by N. D. Kondratiev,
a Russian economist. Cycles and crises in the
evolution of international, local and global
civilizations were studied in the History of
Civilizations monograph [9] by Y. V. Yakovets,
the author of the discovery entitled “Logical
pattern in the interaction of cycles and crises
in society’s evolution”.
By contrast, Western theoretical models
often view the innovations process only on a
corporate level, with no link to the knowledge
on crises, their stages and cycle. Noteworthy
are lifecycle models by Ichak Adizes [18],
crisis management model, structural functional system theory, theory of diffusion of
innovations [10], corporate standards of risk
management such as COSO, FERMA, SoX,
ISO 31000, BASEL I, II and III, etc. However,
on the management level, these norms, standards, methods and guidelines are not integrated with project management in a number
of aspects and therefore represent a narrow
approach. The draft standards on economic
security of organizations, developed at the Financial University , deserve a more detailed
overview since these are pioneer standards for
Russian organizations. According to the document, standards, regulations, and norms of
economic security of organizations focus on
the following key processes:
1. Analysis of security (economic, information, HR, psychological, and physical) of
companies from different industries.
2. Analysis of managerial processes, management risks, and internal controls framework for various companies.
3. Development of a concept and policy of
security (including economic security as the
key component) of companies (engaged in
manufacturing, trade, entertainment and leisure, and finance and lending).
4. Development of an algorithm to create
security concepts (including economic security as the key component) for large holding
companies.
5. Development of an internal controls
framework for large and middle-sized companies.
6. Monitoring of the newly developed risk
management and economic security systems.
7. Implementation of economic security
systems and their upgrade in corporate restructuring, and consulting support in project
implementation.
8. Training in different areas and technologies of security assurance based on standards,
regulations, and other documents (within the
company, using external training providers,
or through specialized corporate seminars).
The Crisis Standard of Project Management
(AKPM-2009), which was developed in Russia [11] and takes into account the crisis cycle
of a company or economy in general, com-
60
plements the above standard on corporate
economic security and contains the definition
of a crisis, its functions, and causes. AKPM’s
objectives can be met with protective and
regulatory measures across three areas: external environment, internal environment, and
management system aligned with a three-dimensional matrix of the FERMA risk management standard. Dual in its nature, a crisis introduce drastic changes to innovation
management. These changes first of all mean
a considerable and heavy cut in financing;
secondly, the changes mean opportunities to
make use of cheaper human resources, assets
that increasingly lose their value, greater loyalty from suppliers, business expansion based
on Internet technologies, etc.
Existing international standards and methodologies on innovations are quite general in
nature, lag behind the modern understanding
and stage of evolution, and are clearly aligned
with the imposed globalization of the US and
European Union [12]. The key international
documents on innovation management are
developed within the scope of international
organizations such as UNIDO (United Nations Industrial Development Organization),
a United Nations agency, and the OECD.
These guidelines and standards reflect the best
systematized and standardized knowledge in
R&D and innovations and provide the necessary minimum of knowledge and general
direction of innovation development in a unipolar world [13]. Furthermore, since innovations are a powerful tool of competition, the
documents offer a catching-up development
strategy for Russia and imply copying the very
platform for innovation development, i.e. regulatory, social and managerial innovations,
which in our view will further enhance Rus-
sia’s catching-up position in technical progress. In these conditions, innovative products
are either immediately taken over by a foreign
owner or are never implemented. At the moment we see gradual understanding of the
need to not simply integrate and learn from
the global community but also foster Russia’s
innovation development based on the specifics of the national model of development.
Analysis of today’s doctrines on innovations
and real challenges is offered in an article by E.
V. Karlinskaya [14]. According to V. S. Palagin
and E. V. Karlinskaya, the most important innovation for today’s Russia is the creation and
establishment of a new type of the national
innovation system that will enable Russia to
reclaim its global leadership and drive strong
growth rates [5].
The development of a harmonized framework of innovation management on the level of a company, industry, region, and nation
at large based on a combination of standards
and methods of innovation management, including those related to economic security on
the risk management platform, is an important task that uses an inter-disciplinary approach. On a company level, a key criterion in
innovation selection is the alignment among
the levels of maturity of the innovation, company, and market in question. Market maturity means not simply the level of technological
solution or its industrial implementation but
also the level of demand that the market has
for an innovative product.
For companies to operate effectively, a
constant flow of innovations is needed to
connect the flows of projects and finances
(innovation pipeline) [15]. Russia’s economic development pattern has evidenced that
building a corporate innovation policy and
61
implementing managerial and social innovations is a necessary basis for businesses to
operate. The innovation pipeline covers four
stages of product (service) promotion 1) stage
of technical (technological) invention, 2) development of a pre-production prototype, 3)
setting up of an innovative mass production
process, 4) building an innovative marketing
system to promote the product in the market
in a fierce competitive environment. The innovation complexity (and need for resources)
grows as the product approaches the consumer. Innovations need to be viewed as a range
of actions and as a condition for a company
to be competitive. Across all the four stages,
the role of managing the innovative process
(and the methods used) is increasingly important provided that economic security is
guaranteed on a company, industry, region,
and economy level.
These issues need to be urgently addressed
in Russia, given the upcoming cyclical developments (the first ones expected in 2015 to
2018). In doing so, special emphasis needs to
be made on developing (according to V. A. Lefebvre) people’s moral constructive creativity
to unlock their social and cultural potential,
resulting in the scientific and technological
potential of businesses and organizations,
which can then be realized based on the modern methods of innovation management researched by this article.
References
1. L. V. Kantorovich. Mathematical Methods of
Production Organization and Planning. Leningrad, Publishing House of Leningrad State University, 1939. 68 pages.
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and improving competitive ability. Report by
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stitute for National Economic Forecasts (lead
institution), Central Economic and Mathematical Institute, Institute of World Economy and
International Relations, Institute of Economics,
Institute of USA and Canada, Institute of Europe, Institute of Market Problems, Institute for
International Economic and Political Studies,
Institute of State and Law, Centre for Foreign
Economic Research, Council for the Study of
Productive Forces of the Ministry of Economic Development and Trade and RAS, Institute
of Economics and Organization of Industrial Production of the Siberian Branch of RAS,
Institute of the Far East, Centre for Research
and Statistics in Science of the Ministry of Education and Science and the RAS, Institute for
Economic Problems of the Kola Science Center
of the RAS, Institute for Mining of the Urals
Branch of the RAS. Program coordinators: V. V.
Ivanter, A. D. Nekipelov, Moscow, 2006.
3. J. Sachs and A. Warner. Fundamental Sources
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http://top.rbc.ru/economics/14/09/2009/329332.
shtml, September 14, 2009.
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and project management in China: ideas, solutions and lessons for Russia. Moscow, 2009. 39
pages.
6. Algebra of Conscience. Dordrecht: Reidel,
1982. Translation, Мoscow, 2003. 426 pages.
(ISBN 5-89353-094-1).
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(see “Elements of logic of reflexion games”, Chapter
III, Section “Reflexive governance of the opponent
whose doctrine is based on the game theory”).
8. P. Bernstein. Against the Gods: the Remarkable
Story of Risk. / Translated from English, Moscow,
Olimp-Business, 2000. 400 pages.
9. Y. V. Yakovets. History of Civilization: Textbook
for Students of Humanities, 2nd edition, revised and
extended. Moscow, VLADOS, 1997. 352 pages.
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Rancer, & Womack, 1997.
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AKPM_090321_01.pdf.
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Invest www.alt-invest.ru, project management
programs. www.ProjectManagement.ru, Spider
Technologies Group, developer of the Spider program. www.spiderproject.ru
14. E. V. Karlinskaya. Today’s Innovation Challenges and Russian Doctrinal Documents on Innovations: Theory, Practice, and Analysis of Feasibility in Crisis. A report at the Constitution and
Doctrines of Russia Today, March 17, 2009, p.
733-742. Moscow, Scientific Expert, 2009 http://
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www.rpm-consult.ru/pdf/article25.pdf
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ety. Moscow, Academia, 2004.
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Sustainability in Complex Social and Economic
Systems // Business Security, 2013, No. 5.
22. M. Granaturov. Economic Risk: Meaning, Measures, Ways of Mitigation. Textbook. Moscow, 2002.
Modernization and Innovation
Development as Boosters of
Business Competitiveness
The «intelligent road» testing complex as experimental grounds for
designing technological solutions in intellectual transport systems
Nikolai Vasilyevich Lyasnikov,
Doctor of Economics, Full Professor, Head of the
Business Management Chair of the Russian Academy
of Entrepreneurship
Mikhail Nikolaevich Dudin,
Full Professor of the Business Management Chair of
the Russian Academy of Entrepreneurship
Abstract: This article focuses on some
of the problems of modernization
of production and the generation of
innovations in the economic structure
of industry and particularly in construction. However, it should be noted
that the solution to these problems is
a complex task requiring a variety of
long-term efforts of the society, based
on raising awareness and self-actualization of the younger generation
as the basis for innovation policy to
modernize the Russian economy.
E
Key words: innovation, crisis management programs, research and
industrial policy, restructuring of
management, entrepreneurial activity,
development of innovative transformations, barriers of enterprise development, business environment.
conomic system transformation, changing
competitive environment, and economic
reforms carried out in Russia over the last
decade have been complicating the task
of forming and implementing the mechanisms of structural, investment, financial
and innovation policies at all the management levels of the main element of the
64
national economy – its entrepreneurial
structures. The instability of many Russian
businesses compells them to intensively
search for some measures that would mobilize their internal reserves, and to develop
new approaches to business management
that would reflect the current dynamic of
the social and economic environment.
Numerous as the positions on where to
start and what to continue on this new loop
of market economy development in Russia
are, the main thing is that Russian businesses require a new system for effective
management of their strategic stability and
competitiveness.
Russia becoming an open economy,
relatively free access to our market for
foreign competitors, global economic
changes and crisis all call for a scientific
analysis of the issues of strategic development, raising the national economic
competitiveness, and improving reproduction management methods at the
macro and micro levels.
The current state of the national economy
is characterized by a sharp increase in international competition, complication of its
nature and expansion of its scope. Modern
Nikolai Vasilyevich Lyasnikov
Mikhail Nikolaevich Dudin
competition involves not only particular goods
or manufacturers, but also technologies, management methods, consumer standards, and national economic potentials. Over the last decade, this
trend was powerfully spurred by the globalization
processes.
Undoubtedly, Russia is rich in resources and
is one of the largest economies worldwide (6th
by PPP-based GDP and 11th by nominal GDP).
Yet its competitiveness rating is rather low. In
the Global Competitiveness Report 2009-2010,
published by the World Economic Forum
(WEF), Russian is ranked 63rd, close to countries like Montenegro and Romania. Why is it is,
and why does the Russian social and economic
system have such a low competitiveness?
According to the WEF experts, Russian has
sufficient macroeconomic potential to ensure
sustainable development and wide and large
consumer market, along with functioning
healthcare and primary and secondary education systems. These are Russia’s strengths. As to
its weaknesses, the experts cite a standard set:
administrative barriers to competition in mineral extraction and processing segments; inadequate or lacking financing of SMEs; corruption;
and tax regulation issues. On the one hand,
these problems exist in other economies as well.
On the other hand, surprisingly, the WEF
experts did not include on the issues list low
modernization and innovation development,
which definitely impair the country’s real competitiveness on the global market, and hinders
economic growth and both macro and micro
levels, despite the country’s considerable development potential.
The roots of this situation lie not in the financial or tax regulation (speaking of which: in the
US and Europe, the tax burden of businesses is
often higher than in Russia). Nor are they entire-
ly political (even though it is a convenient way to
explain many issues of the domestic economy). In
our opinion, the roots lie in the ‘Soviet legacy’ and
the abrupt, ‘shock’ transition to market economy
that happened in the 1990s. Many researchers
and experts agree with this. In particular, the Director of the Institute of Economic Forecasting of
the Russian Academy of Science V. Ivanter states
directly that currently “… we have to amend the
imbalances of the Soviet period and the systemic
mistakes made in the 1990s.”
The Soviet economy’s emphasis on the military industrial sector and the lack of stimulus to
produce quality and competitive goods among
the civilian sector manufacturers, ultimately
depriving them of any stimuli for innovation,
caused a set of interrelated issues, which, triggered new structural shocks and systemic problems when the country suddenly plunged into
market economy.
These structural shocks and systemic problems are still undermining the competitiveness
of the national economy competitiveness overall
and individual businesses, especially in the industrial sector.
Another, probably even more important, factor hindering modernization is the mentality of
the Russian industry’s managers.
A survey of the industry’s top management
conducted by the authors revealed that the
greatest impediments to business activities are
considered insufficient attention to management system and underuse of managerial potential. Therefore, boosting the competitiveness
of the Russian industry will hinge upon a whole
number of factors, including the development of
management systems fitting the stage of a company’s development, to maximize competitiveness potential. A company’s competitive potential is made up of several constituent potentials,
65
Figu
equip
‹‹Intel
comp
Modernization and Innovation Development
as Boosters of Business Competitiveness
which need to be assessed and leveraged to the
maximum to boost the overall indicator.
Other things to consider are the relatively low
qualification level of industry specialists, insufficient funding, rigorous foreign competition, inadequate equipment and technologies. Growing
competition between companies forces them to
consider and use their own potentials for developing effective growth strategies.
These factors to a large extent explain the
Russian businesses’ performance. In particular,
the economy has an unjustifiably large number
of companies closing every year – over 20%
of the total number of businesses registered.
Loss-making companies abound practically in
all the economic sectors: on average, 40 %, with
25% in the red even in successfully growing industries. The depreciation of fixed assets is high:
over 45% in all the sectors of the national economy and over 50% – in industrial construction,
which impairs the quality and competitiveness
of the products that are supposed to drive the
national economy. The aforesaid explains the
low competitiveness of Russian products, their
manufacturers, and the country as a whole.
Production modernization and innovations
generation as the basis of ensuring (maintaining
and increasing) competitiveness and strategic
stability have not yet been embraced by Russian
business leaders.
Declared intentions of managers too often
remain empty words, mostly due to the lack of
knowledge required to modernize equipment
and technologies, and generate and replicate
innovations. It is important to realize that the
transformation of technological potential and
labor management in a company takes considerable investments, primarily intellectual
ones, since our national economy is currently
not knowledge-intensive, and most businesses
Nikolai Vasilyevich Lyasnikov
Mikhail Nikolaevich Dudin
lack intellectual capital for an innovative breakthrough. Thus, modernization remains but a
meta idea.
The innovativeness of using effective management to develop competitiveness increasing
measures is proved by the fact that currently,
business leaders pay little attention to matters
of strategic innovative development. Our analysis of sources and practices shows that, despite
the importance of science-based management
of innovative economic processes, its nature,
scope and methodology of formation have so
far stayed underresearched.
Therefore, economic modernization is impossible without the modernization of the society.
Imbalances and structural shocks of the society’s
development, which persisted when the country
transitioned to a market economy, prevent Russia’s social and economic system from gaining
robust growth rates. This is due to the fact that
Russia lacks some of the prerequisites of this
growth (resources, capital, technical progress,
investments).
Undoubtedly, Russia is rich in natural resources, yet most of them are hardly reproducible, and
robust economic growth requires intensive use of
resources n production. Herein lays the controversy: intensification of resource use (increasing
the quality of use without increasing the quantity)
is only possible with a modern material and technical base. Many companies have enormous fixed
assets depreciation rates, as we have seen, and the
obsolescence rates are much higher. These capacities will not yield a competitive product or allow
decreasing resource consumption.
As a result, a sharp decrease in natural resources outstrips their economic consumption,
which impairs the strategic sustainability of the
industry: uncompetitive products are ousted by
the competitive ones (mostly foreign).
66
As we have seen, it happens, among other reasons, because Russian industry businesses don’t
have enough effective human resources, which
prevents them from generating innovations,
which are supposed to drive modernization and
robust economic growth, at bot micro and macro levels.
This also limits technological progress: not
just in economy, but also in the social sphere.
Technological progress (the process stimulating
transitions from one economic model to another through the modernization of the social and
economic system) has four main traits:
1. Universal character and comprehensive
coverage of all social activities;
2. acceleration of R&D activities – decreasing
invention-to-market time;
3. growth of science-intensive production, in
particular, through qualitative development of
human resources;
4. enhancement of military security through
improved weapons, equipage, etc.
In is clear that Russia’s social and economic
system has been a leader only by the fourth criterion, but even then a sharp efficiency drop has
been noticeable lately.
The other three aspects require systemic
changes, primarily to embrace the need for
modernization at both macro and micro levels.
At the micro level, technological progress as
a booster of competitiveness and strategic sustainability of businesses is the basis of robust
economic growth.
The lack or inadequateness of resources and
limited technological progress at the macro level decrease the investment attractiveness of the
Russian economy and its businesses, preventing
the country from suing its own capital effectively for technological growth. Here we see another
controversy: there are investment resources both
domestically and abroad, but investors prefer to
bring their money to processing, industrial and
financial sectors. The share of investment capital
in modernization processes, development and
commercialization of innovations is still minimal. This is a macroeconomic aspect.
In other sectors of the economy, the modernization picture is just as bleak. While resource
extracting and processing industries are attractive for investment and are able to generate and
implement innovations with the resources they
attract, both for internal consumption and for
commercialization, machinery and industrial
production present little investment interest,
and are, therefore, forced to grow off their own
capital. This is not always possible, because it
can usually help achieve quantitative and not
qualitative growth, i.e. the operating costs imminently grow, while the opportunities to invest
into the intensification of development keep
shrinking.
Therefore, we have the need for debt financing, but this debt is primarily used for replenishing fixed and working capital for current
activities. Another conundrum arises, when
companies are forced to optimize their expenses
to decrease the leverage and boost profits, which
are to be reinvested in growth and innovations.
On the other hand, all too often, the costs are cut
from the R&D and personnel items.
Therefore, at the macroeconomic level we
have a vicious circle blocking robust economic
growth, without which further modernization
and transitioning to a knowledge-based economy are impossible. We believe that the basis
of modernization and innovation processes
regulation, boosting Russia’s sovereign competitiveness and the competitiveness and strategic
stability of its businesses at the macroeconomic
level must be an active anti-cyclical policy.
67
Figu
equip
‹‹Intel
comp
Modernization and Innovation Development
as Boosters of Business Competitiveness
Forecasting and anticipating market activity
fluctuations is a more important task in the long
term than any emergency responses to the crisis. We are talking sustainable growth, in which
the state emphasizes breakthrough technologies,
modernization and innovations.
Boosting the economic growth at the micro
level can be attained through state incentives
to the institutional, organizational and fiscal
aspects of fair competition; public creativity
and economic activity; popularization of engineering, vocational and higher education; and
boosting investment in innovation and modernization, supported by state guarantees.
At the micro level, we need a new conceptual management paradigm. Previously, it was all
about ‘production for the sake of production’,
but now it has to be ‘production for the sake of
development’.
Boosting the competitiveness of Russian industrial enterprises requires adequate management
methodologies ensuring the unity of management
cycles and their compatibility at all stages of a company’s, industry’s and the state’s life cycle, i.e. at all
the statewide system of economic regulation.
We understand development as proactive forward movement, allowing, with the help of modernized technological processes, to manufacture
hi-tech and competitive products, thus ensuring
the strategic sustainability of the Russian industrial
enterprises in the short-, medium- and long term.
Therefore, modernization and innovation
activities, as boosters of competitiveness and
strategic stability of industrial enterprises at
the microeconomic level must be not one-dimensional acts but continual processes aimed
at increasing the sovereign rating and competitiveness of the country, ensuring its robust
economic growth.
68
New Management Trends in the
Cement Industry in Line with Energy
Efficiency and Environmental
Performance Requirements
E.N. Potapova
T.V. Guseva
References
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Innovation Management: a Textbook. Moscow:
Nauka i Obrazovanie, 2008. 235 pages.
3. L. Gokhberg. Russia’s National innovation System in the ‘New Economy’/ L. Gokhberg . // Issues
of Economics, 2003, No 3. Pp.26-44.
4. M.N. Dudin, N.V. Lyasnikov. Strategic Stability
of Businesses and Russia’s Innovative Development. Monograph. Moscow: IMSGS, 2011.
5. V.V. Ivanter. The Need for Modernization and
the Rate of Economic Growth. // Presentation at
the St. Petersburg Research Forum ‘Science and
Society. Economy and Sociology in the XXI century’. 18-22 October 2010. – Russia: St. Petersburg.
6. N.I. Komkov, N.P. Ivaschenko. ИInsitutional
Issues of Innovative Development. http://www.
ecfor.ru/pdf.php?id=2009/5/02
7. V.V. Ivanter, N.I. Komkov. Prospects and Prerequisites of the Innovative and Technological
Development of the Russian Economy. // Issues of
Forecasting. Moscow: 2007, No.3, pp. 3-20.
Abstract: the article looks at the
prospects of development and
implementation of national
standards of resource- and energyefficient production of construction
materials. To illustrate the standard
development process, the authors
chose the cement industry. They
point out the value of European
experience and best available
techniques for the development of
national standards.
T
Key words: national standard, resource
efficiency, energy efficiency, best
available techniques, cement industry.
he analysis of energy consumption in Russia against global trends reveals the fact that
the country is lagging behind the rest of the
world in energy efficiency [1,2]. Its energy
intensity is 1.5-3 times higher than that of
developed countries (see Fig.). Cement
production is one of the most promising
industries for every economy. 2012 saw an
all-time high of cement consumption and
production in Russia: 65.2 tons [3]. At the
same time, cement production is one of the
three most material- and energy-intense industries. By 2020, the demand for cement
is expected to grow substantially (to 89-98
69
million tons) on the back of the modernization of the domestic transport system,
as well as the implementation of the federal housing construction program and the
preparation to the 2014 Winter Olympics
and the 2018 FIFA World Cup. The manufacturer’s expenses will continue to grow as
well, due to the increasing cost of energy
carriers and transportation, as well as the
high cost of capital.
The competition in this attractive industry
has become more robust, as all the Customs
Union countries started creating modern,
high-performance production facilities,
Russia joined the WTO in 2012, and the
share of cement import in the overall consumption increased significantly. In an increasingly competitive environment, the cement producers have been pushed to review
their long- and short-term development
plans. Transitioning to energy-saving technologies and modernizing the existing production facilities have been on their agenda.
To boost their competitiveness, the cement
players need to achieve a certain high level
of production effectiveness and ensure
smart use of their resource bases – which
is only possible through mastering various
management systems (quality, safety, environmental, and energy management).
Figu
equip
‹‹Intel
comp
in
str
E.N. Potapova
T.V. Guseva
New Management Trends in the Cement Industry in Line with Energy Efficiency
and Environmental Performance Requirements
Energy intensity, tons of fuel equivalent / $1,000
Figure 1. Energy intensity of production
0,3
0,25
0,2
0,15
0,285
0,255 0,265
0,255
0,23
0,175
0,17
0,13
0,12
0,1
0,125 0,125
0,075
0,05
0
d A ry en
d ia ny ria ia ne ia
da
na lan US unga wed Polan Ind rma Aust oruss krai Russ
Ca Fin
l
U
S
H
Ge
Be
The technology of cement production allows
assessing the quality of the product no sooner
than 28 days after the product is made. Therefore,
any cement producer needs to prioritize ensuring
sustainable quality, meeting the consumers’ expectations and compliance with statutory energy
efficiency requirement. These objectives are realized through Deming cycle-based management
systems (regular cycle of Plan, Do, Check and
Act). Quality management systems have been
probably the most popular ones [4]. Lately, environmental management has been gaining popularity as well [5].
For drafting technical regulations for the production of construction materials pursuant to
Federal Law dated 27 December 2003 “On Technical Regulations”, limiting pollutant emission
during cement production is crucial. The experi-
ence of leading EU countries could be helpful in
assessing pollution damage, setting meaningful
emission limits and developing methods of emission reduction.
Over the last two decades, the EU members
have paid a lot of attention to energy and environmental efficiency, prioritizing energy efficiency improvement for to three interrelated reasons:
 Global climate change: fossil fuels burnt for
energy are the main man-made source of greenhouse gases;
 Continuous large-scale consumption of nonrenewable fossil fuels and the need to ensure sustainability;
 Security of energy supply: the EU imports
over 50% of the energy it consumes, and over the
next 20 to 30 years this indicator is expected to
top 70%.
70
Meanwhile, the first two reasons apply to Russia as well.
The EU’s experience in increasing industrial
energy and environmental efficiency is summarized in a number of guides and reference
materials. Among other widely used sources on
the topic are the materials published by the International Energy Agency, the US Energy Information Administration and Environmental Protection Agency.
The cornerstone of environment protection in
the EU is the European Council Directive 96/61/
EC of 24 September 1996 concerning Integrated
Pollution Prevention and Control (IPPC)[6]. The
IPPC Directive sets out the general requirements
applied to industrial and agricultural companies
presenting a high potential risk to the environment. The operations of these companies are
contingent upon them accepting all liability for
any pollution and mitigating the risk of environmental damage.
One of the IPPC Directive’s key principles is
licensing of these companies’ operations based
on their use of best available techniques (BAT).
The BAT concept is the environmental component in this case, since a technique is considered
“best” only if it allows the producer to protect the
environment better than its counterparts. The
IPPC Directive gives a definition to this effect. A
technique is “available” if it has been developed
on a scale which allows implementation in the
relevant industrial sector, under economically
and technically viable conditions, and has a good
record of implementation in real-life companies.
The term “techniques” includes both the technology used and the way in which the installation is designed, built, maintained, operated and
decommissioned. The Europeans were the pioneers of the integrated environment protection
through IPPC Directive. A technique can only be
considered as “best” if it involves a combination
of emissions, discharges, disposals and environmental effects mitigating the risks for the environment to the greatest extent possible.
Through using IPPC/BAT, companies are able
to lower their production costs, depollution expenditures, and accompanying man-hours; mitigate the damage to the environment, local fauna,
and real property; minimize reclamation costs,
risk of administrative and criminal liability, environmental permit fees and insurance fees; and
prevent procedural errors and down time of their
facilities.
The IPPC Directive contains a list of the major
air pollutants to be considered for limitation.
For the cement industry, these include: nitrogen
oxide (NOx) and other nitrogen compounds; sulfur dioxide (SO2) and other sulfur compounds;
dust; basic organic chemicals, including volatile
organic compounds; PCDDs and PCDFs; metals
and metal compounds; hydrogen fluoride (HF);
hydrogen chloride (HCl); and carbon monoxide
(CO). Carbon dioxide (СО2) is not on the list,
although it is copiously formed during cement
production.
The table below (Table 1.) shows the atmospheric emissions from rotary kilns in Russia
and the EU.
The next step made by the IPPC Directive
was using comprehensive environmental solutions – documents warranting environmentally safe emissions within the limits in line with
appropriate BATs.
The Directive has been continually evolving. In
2008, it was codified (2008/1/EU of 15.01.2008).
2010 saw the adoption of Directive 2010/75/EU
on industrial emissions (integrated pollution
prevention and control), which incorporated,
apart from the IPPC Directive, six other ones on
industrial pollution. Decision of 26 March 2013
71
E.N. Potapova
T.V. Guseva
Pollutants
Pollution rate, mg/cu m
EU
Russia
10 – 20
100 – 500
NOx
< 200 – 800
200 – 1400
SO2
< 50 – < 400
20 – 1800
Dust
Metals (Hg, Tl, As, Se etc.)
< 0.05 – < 0.5
-
HCl
< 10
-
HF
<1
-
Basic organic chemicals
PCDDs and PCDFs
50
-
< 0.05 – 0.1 ng/cu m
-
Table 1. Emissions from rotary kilns into the atmosphere.
establishing the best available techniques (BAT)
conclusions under Directive 2010/75/EU of the
European Parliament and of the Council on industrial emissions for the production of cement,
lime and magnesium oxide was enacted.
Energy management systems have been used
an effective tool of energy efficiency in the world’s
leading countries. In 2011, and international energy management standard, based on the already
existing European national standards, was published [7]. Russian specialists have been showing
interest to energy management as well [8], which
allows us to hope that in the near future Russian
companies, having improved their quality and
environmental management systems for several
years, will proceed to develop energy management systems, in order to boost their competitiveness in markets with increasingly expensive
energy carriers, and to mitigate their environmental footprint.
Since every aforementioned management system involves certification (i.e., demonstration of
compliance to established rules), the criteria of
assessing energy and environmental effective-
ness and efficiency of cement production are very
important. Therefore, a rationale for technological regulations in this industry needs to be prepared, so that companies and experts could build
on some formalized criteria to objectively assess
compliance. Existing national BAT standards
could form the basis for this rationale.
It must be noted that even companies of similar scale within one industry are not guaranteed
to have a uniform best technology or set of solutions (technical, technological and managerial).
BATs are, essentially, summaries of many years of
expertise and results of theoretical, technological
and production research. To give market layers
access to this knowledge base, a special reference
document has to be created. To collect the necessary data and facilitate information exchange,
the EU authorities established the European Integrated Pollution Prevention and Control (IPPC)
Bureau (EIPPCB) in Seville, whose main deliverables are BAT reference documents [9].
The recent experience of international project
implementation in Russia shows that these reference documents are quite helpful for Russian
72
experts. They have already been used in assessments of environmental impacts to substantiate
the environmental management KPIs, and for
benchmarking studies in several industries.
The role of national standards has been increasing, as they can be used as evidence for environmental impact assessment and environmental
audit of new industrial projects. The standards
also provide a basis for benchmarking, help
identify industry leaders and collect information
based on which the long-awaited Russian BAT
reference materials could be compiled.
Over the last few years, several BAT standards
have been developed in Russia for the construction materials production. These standards
formed the basis for the certification system developed by the National Association of Builders
(NOSTROY), thus becoming the cornerstone
of an integrated system for reporting lifecycles
of the raw materials, supplies and items used in
construction to voluntary certification systems
[10]. This approach should help increase energy
and environmental efficiency in the construction and related industries (including cement
production). The standards were based on a
respective BAT reference document, as well as
on the industrial instructions summarizing the
industry’s energy efficiency practices. A lot of attention is paid to the discussion of approaches to
standardization and certification of energy and
environmental efficiency practices, based on
product life cycle. International standards were
also taken into account for the development of
the domestic ones. In 2010, a preliminary version of the national standard GOST R 541942010 “Resources Saving. Production of Cement.
Best Available Techniques for Improving Energy
Efficiency” was officially published. The standard was based on the reference document on
BATs in cement production and reflects some
aspects of projects implemented in Russia. As it
was already mentioned, the standard describes
universal technical and technological solutions.
Its main drawback, though, is that its energy
and environmental efficiency indicators, having been borrowed from the reference document, reflect the BAT level existing in Europe,
not in Russia. The reason for this is that Russian
cement producers are still rather closed to the
idea of participating in benchmarking studies.
(Which is, eventually, not too wise, given that
in the short-term a new law on technological
norms is to be adopted.) The risk in establishing
efficiency requirements lies in blindly copying
European reference documents and/or national
standards. Implementing BATs necessarily involves revising environmental standards, emission payments, environmental audit procedures,
and economic incentives for companies adopting new norms. Therefore, the preliminary standard needs to be revised to include the best-inRussia energy efficiency indicators and practices
in cement production.
The second drawback of the preliminary standard is its failure to include energy management
systems. Which is quite understandable, seeing
as ISO 50001:2011 had not been published at the
time of its development, and the reference document’s list of BATs includes only environmental
management systems. Therefore, energy management systems are to be included into the new
draft standard. Among other advantages, it will
give energy management certification authorities
a source of objective reference data on energy efficiency.
To conclude, we need to note that the role of
modern management systems in the evolution
of quality, energy efficiency anв environmental
effectiveness of the Russian economy is quite important. That being said, businesses often under-
73
estimate the importance of management tools,
getting certified only to satisfy the requirements
of their foreign partners or international banks.
Creating and enriching a national standard base,
including BAT standards, for the cement industry
and involving the country’s leading cement producers in the development of these standards will
reinforce Russian manufacturers’ positions on the
global market, and help boost the energy and environmental efficiency of the national economy.
Ultimately, all of this will facilitate the attainment
of our national economic goals.
References
1. O.V. Mazurova. How New Technologies
Decrease Industrial Energy Intensity [text] /
O.V. Mazurova. // Engineering in Russia and
Abroad: Proceedings of an international Scientific
Conference. (Moscow, May 2011). – Moscow: Your
Partner in Typography. – 2011. – Pages 58–65.
2. In-Depth Energy Efficiency Review of Belarus.
// Belgium, Brussels. / Energy Charter Secretariat.
– 2013 – 148 pages [pdf].
3. V.I. Potapov, O.N. Yashina, D.O. Borodyonok.
Cement Indutstries of the Customs Union
Members. // Alitinform. – 2013 – No. 3 (30). –
Pages 14–31.
Russia: Innovative Solutions in
Finance Regulation
4. O. Vishnyakov, V. Krokhin, M. Molodov.
Quality Assurance Systems: Concepts, Challenges,
Solutions. – [online] − http://quality.eup.ru/
MATERIALY7/smk-base.htm
5. S.V. Makarov. Environmental Management:
Untapped Potential. – [online] − http://
www.14000.ru/articles/unused/
6. Council Directive 96/61/EC of 24 September
1996 concerning integrated pollution prevention
and control. 31996L0061 // http://eur-lex.europa.
eu/LexUriServ/LexUriServ.go?uri=CELEX:3199
6L0061:EN:HTML
7. ISO 50001:2011 Energy management systems
− Requirements with guidance for use.
8. D.O. Skobelev, T.V. Guseva, Y.P. Molchanova, Y.M.
Averochkin. Energy and Environmental Efficiency of
Construction Materials Production, and Standards of
Best Available Techniques. – Kompetentnost, 2011. –
No. 9–10 (90–91). Pages 32–41.
9. Integrated Pollution Prevention and Control
(IPPC). Reference Document on Best Available
Techniques in the Cement, Lime and Magnesium
Oxide Manufacturing Industry. – Seville:
Institute for Prospective Technological Studies,
European IPPC Bureau, 2009. – [online] http://
eippcb.jrc.es/reference/,
http://14000.ru/brefs/
BREF_Cement.pdf
10. L.V. Primak. Building by ‘Green Standards’ –
Now in Russia. // National Projects. – No. 12 (55).
– 2010 – pages 40–42.
Alexander Andreyevich
Khandruyev,
1st Vice President of the Association of
Regional Banks of Russia
Abstract: The article analyses the
global policies of cross-sectoral
oversight in the financial sectors of
different economies, identifying the
specific features of the oversight and
regulatory functions for financial
markets. In the context of the Bank of
Russia’s formation as a sole financial
regulator on the Russian market, its
new powers, new goals and objectives
are considered (including the existing
goal of qualitative improvement of
financial oversight and regulation).
S
74
Key words: sole financial regulator,
Federal Financial Markets Service,
cross-sectoral oversight and regulation
in the financial sector, prudential
oversight.
eptember 1, 2013 was the birth date of
Russia’s integrated financial regulator.
On this date, Federal Law No. 251-FZ
dated 23.07.2013 “On Amendments
to Certain Legislative Acts of the Russian Federation in Connection with the
Transfer to the Central Bank of the Russian Federation the Authority to Regulate, Control and Supervise the Financial
75
Markets” came into force. The Federal
Financial Markets Service (FFMS) was
transformed into an internal structure
within the Bank of Russia, which was
vested with all (with a small exception)
powers to regulate and survey the financial market.
Peculiar as the conditions of its formation may look, the Russian model
of integrated financial regulator is no
exception to the general trends of this
institute. In various modifications, central bank-based cross-sectoral models of
financial oversight and regulation have
been implemented in over 20 countries
of the world, including both small and
larger states, with developing or mature
economies.
1. Global practice of cross-sectoral oversight and regulation in the financial sector: breaking the stereotypes
Today, a rich global practice of
cross-sectoral oversight and regulation
models in the financial sector has been
accumulated, even though at first many
experts considered them as an ‘exception
to the general rules’. Apart from small
offshore jurisdictions, the first larger
Russia: Innovative Solutions in Finance Regulation
pioneer in this was the Saudi Arabia, where
banking and insurance oversight have been
joined within the domain of the central bank
since 1966 (the Monetary Agency). Singapore
went even further: in 1977, its Monetary Authority, in addition to the banking sector prudential regulation functions, was vested with
insurance market oversight powers, and starting 1984 it received a similar mandate for the
securities market.
Shortly after that, a number of smaller European states followed suit on the experiment:
Norway (1986), Iceland and Denmark (1988),
and the Sweden (1991), where the respective
agencies gained the status of legal entities separate from the central banks. These countries
largely switched to the cross-sectoral model in
order to optimize the costs of financial regulation and oversight functions. Back then, it
seemed that these experiments with the form
of regulators would remain the lot of smaller
countries, but very soon life proved otherwise.
It became increasingly clear that the liberalization of capital flows, financial innovation development, and lowering barriers to
universal banking would continue to blur
the borders between the traditional financial
services (banking, insurance and investment
operations). Controlling the risks related to
the activities of financial conglomerates and
systemically important banks now required
coordination of regulators’ activities. It was
the need for consolidated oversight that largely pushed big countries with mature financial
sector towards choosing the integrated regulator model. The wave of exchange and financial crises in 1995–1999 ultimately triggered
their decisions.
Among the larger countries, the first ones
to adopt the sole financial regulator mod-
el were Japan (1998), Great Britain (2000)
and Germany (2002). After them, began the
triumphant progress of the cross-sectoral financial oversight model, which turned from
an exotic whim into a new ‘article of faith’.
Despite the difficulties of transitioning to
this model (which implied deep reforms
of the oversights organizational structures
and the relevant legislation), countries, one
by one, opted for integrated oversight and
regulation in the financial sector. Whereas
in 1994 integrated financial regulators existed only in five countries (of the 98-country
sample), during the period of 1999–2010
годов, the number of states that transitioned
to some kind of a cross-sectoral model
grew from 13 to 54. (See M. Melecky and A.
Podpiera, Institutional Structures of Financial Sector Supervision, Their Drivers and
Emerging Benchmark Models, MPRA, Paper
No. 37059, March 2012, p. 27–29). Counting
Belgium (since 2011), Russia (since 2013)
and a number of other economies, about 60
countries have chosen this form of financial
oversight as of today.
The most serious arguments in favor of
transitioning to the integrated oversight
model and increased coordination of regulators through macroprudential policies were
supplied by the global financial downturn,
whose main lesson was: it was the systemic
risks that triggered the staggering shocks to
the global economy and trade. To a large extent, it was precisely the incoordination between the market watchdogs that prevented
them from timely and adequately assessing
the potential of those systemiс risks and taking prompt measures for their mitigation.
The role that the banks played at the onset of
the global financial crisis made the regulators
76
Alexander Andreyevich Khandruyev
reevaluate their role in the oversight process.
Starting from the 1990s, central banks have
been somewhat constrained in their oversight powers, due to the then-popular belief that these authorities create conflict of
functions for central banks, preventing them
from focusing on their primary goal of inflation control.
It should, however, be noted that, historically, there has never been a banking regulator
completely independent from the country’s
central bank. Any substantial banking sector
issues have always made always made central
banks the last resort lender, but in terms of
organizational decision-making procedures,
any newly created integrated regulator was
always separated from its central bank. The
only exceptions to this rule at some point
were (2003) and the Netherlands (2005),
whose cross-sectoral models actually were
central bank-based. Still, the global financial
crisis, which required enormous funds to be
injected into the banking systems to support
liquidity, called for new approaches to the role
and place of central banks in financial oversight systems.
As a result, these approaches have been
turned around almost 180 degrees, practically changing the institutional paradigm of
financial regulation. The new regulatory standard is now the central bank performing the
functions of an integrated financial regulator.
There is a range of arguments supporting this
position. In particular, experts suggest that
the centralization of responsibilities within a
central bank eliminates the potential issues
of inter-agency coordination, wasted time,
and mandate dilution (between the oversight
authority and the last resort lender), which is
critical in the times of financial shocks. It has
been noted that the most effective oversight
of market players is provided by the organization that grants them financial support in
emergencies, i.e., the lender of last resort. The
proponents of this approach further point
out that the majority of the world’s central
banks have already created internal subdivisions for financial sustainability monitoring,
and in some countries integrated oversight
functions have actually been realized based
on these subdivisions. Following the example
of the Netherlands, Italy, France, Belgium,
Germany, Portugal, Spain and a number of
other countries have taken steps to delegate
prudential regulation and oversight to their
cross-sectoral models.
The debate on the feasibility of this approach
still continues, although it is universally admitted that a great share of the negative financial repercussions of the sole regulator model
implementation have been due to either underestimated role of the central bank or its incorrect positioning in the structure of newly
created agencies. A classic example of this is
Great Britain.
The Labourists’ ascent to power in 1997 was
marked by a number of economic reforms,
one of the most radical and odious of which
was the establishment of an integrated financial regulator as an independent and self-financed authority, replacing the 11 separate
structures that had existed before. Following
the then-popular paradigm, the Labourists
susbtantially reduced the oversight powers of
the Bank of England. The relevant Act law was
passed in 2000, providing for the completion
of the transitional period by 2005, whereafter
the newly-created Financial Services Authority would gain exclusive financial regulation
powers.
77
Figure 1. New integrated financial regulator in Great Britain: the structure
However, the miscoordination in the work
of the Treasury, the FSA and the Bank of
England lead to organizational muddle and
missed deadlines. The Bank of England even
started secretly forming its own oversight
unit, which exacerbated the inter-agency
tensions. At the onset of the global financial
crisis, when the government had to accept liabilities for over £1.4 trln to mitigate the damage to the banking sector alone, it was forced
to partially restore the oversight and financial
stabilization powers of the Bank of England.
This, essentially, was a step on the way to reform the existing integrated financial regulator. As a result, the FSA eventually ceased to
exist, and the roles changed: the Bank of England took the lead. In 2012, a new Financial
Services Act was adopted, amending the Bank
of England Act 1998, the Financial Services
and Markets Act 2000, the Banking Act 2009,
and several other legislative acts. The changes
concerning the reformed oversight authority
and its rebalanced powers came into effect on
1 April 2013.
The new model was radically different from
the old one, in that it implemented the ‘Twin
Peaks’ approach in its classic form, and made
the Bank of England the coordinating and
leading organ of the cross-sectoral regulator.
The powers of one of its governing bodies,
the Financial Policy Committee (chaired by
the Governor of the Bank of England) include macroprudential oversight and regulation, as well as supervision of the infrastruc-
78
tural institutions of the financial market
infrastructure.
The status of the Prudential Regulation
Authority is somewhat ambiguous: on the
one hand, it is defined as “part of the Bank
of England”, on the other hand, it is considered as its subsidiary. But whatever it is, its
activities are fully controlled by the Bank
of England. The Authority is charged with
regulatory and oversight tasks with regard
to banks, building societies, credit unions,
insurers and major investment firms. In total, the PRA regulates around 1,400 financial groups, including almost 900 deposit
holders (240 banks, 600 credit unions, and
50 building societies), as well as about 500
insurance players.
The Financial Conduct Authority is an entity legally separate from the Bank of England,
exercising prudential oversight of 23,000 financial organizations falling outside the mandate of the Prudential Regulation Authority,
as well as monitoring the integrity of all the
players on the financial market.
To prevent conflict of interest and overlap of
functions, the two authorities sign a Memorandum of Understanding, while a system of
interrelated ensures their mutual coordination and their coordination with the Financial
Policy Committee.
One of the main lessons that financial oversight and regulation system reforms have
taught us so far is that the creation of denunciation of the integrated financial regulator
model is a means, not the end, and will not
guarantee financial stability ipso facto. A lot
depends on the quality of decision-making
and the degree of coordination between oversight authorities (and within them). If this
condition is complied with, then updating the
existing model without demolishing it could
be the best solution.
This idea is confirmed by the example of
the United States, which gave up the idea of
forming an integrated financial regulator at
the microprudential level, yet implemented
it (though in a peculiar form) at the macroprudential one. There were numerous reasons
for this decision, the main of them being the
specificity of the country’s political culture
rejecting the idea of concentrating too many
powers within a single institute or agency.
In June 2009, President Obama presented
his Plan for Financial Markets Reform, whose
main provisions were reflected in the DoddFrank Act, passed in 2010. The new system of
oversight and regulation in the US financial
sector was a logical successor of the old one,
but enriched with new elements to the point
of being safely called a new model. Its main
features were as follows:
Firstly, to coordinate the activities of the
regulators, the inter-agency Financial Stability Oversight Council was created, led by the
Finance Minister and consisting of ten members with the right to vote and five non-voting
ones. The Council comprises the leaders of all
the financial sector watchdogs. The Council
works to timely identify systemic risks and
promptly react to them, maintaining national
financial stability. To a certain extent, this
gives us grounds to say that the USA has implemented a ‘soft’ type of integrated financial
regulator at the macroprudential level.
Secondly, at the microprudential level, the
country retains a system of multiple regulators, wherein the powers have been redistributed, and one of the regulators (the Office of
Thrift Supervision) was eliminated by transferring its functions to the other ones. In par-
79
ticular, under the Dodd-Frank Act, the Fed
was given special powers to supervise systemically important financial organizations. The
FRS’ Board of Governors was given the right
to limit these players’ activities whenever it
presented serious threats to the stability of the
national finance system.
Thirdly, the oversight of financial service
consumers’ rights, previously handled by
seven agencies, was concentrated within the
mandate of a single one, the Consumer Financial Protection Bureau, created in 2011
pursuant to the Dodd-Frank Act. The Bureau is charged with the tasks of monitoring
compliance with the consumer rights legislation, providing consumers complete updated
information on the conditions of rendering
various financial services, preventing possible
abuse of clients by financial companies, and
handling consumer complaints.
Thus, all countries have been making their
contribution to the global ‘bank of knowledge’ concerning regulator models implementation, updating and enriching it. In
global practice, there is no single cross-sectoral model, neither in terms of embracing
both regulation and oversight, nor in terms
of the organizational structure of the model.
The very term ‘integrated financial regulator’
is used quite broadly: it includes not only
sole regulators charged with all regulatory
and oversight tasks in the financial system,
but also agencies with oversight powers in
multiple segments of the financial sector. Ultimately, every country creates its own regulator model based on the specific features of
its institutional and regulatory environment,
regulatory culture formation, and business
environment. The ‘copy and paste’ method
does not work here.
2. Integrated regulator in the Russian financial sector: legislative and organizational solutions
The analysis of global practices shows that,
in every case, the choice of oversight and regulation models for the financial sector is determined by a number of factors, which in their
variety define the unique national character of
the regulator. New challenges and changes on
the financial market stimulate efforts aimed
at optimizing oversight procedures, driven by
political, economic and administrative forces.
It is the balance of these interests that largely
draws the institutional framework of the future solutions. This is true for every country,
and Russia is no exception.
As the reader will know, the Russian integrated financial regulator model goes back
about 15 years. Having learned some lessons
of the exchange and financial crisis in 1998,
the country developed the first draft of the
finance oversight and regulation reform. In
the following years, various options of the
integrated financial regulator were discusses,
and in 2011 the first practical steps were made
towards partial centralization of oversight
powers (when Rossstrakhnadzor, the Russian
insurance sector watchdog) was merged with
the FFMS.
However, the most crucial decision on the
future reforms was taken after two Government sessions in late August 2012, at which
the FFMS administration raised the topic of
giving the FFMS legislative powers, increasing its staff to 400 employees and providing
it additional funding. As a result of further
negotiations, an extended session of the
Government in January 2013 resolved to
create an integrated financial regulator on
the basis of the Bank of Russia, setting a very
80
strict timeline for the project, including its
legislative aspect. As early as March 2013, the
Ministry of Finance prepared and published
on its website a draft Law on the integrated
financial regulator, which called for amending 47 Federal Laws and Codes. The Law was
passed by the State Duma incredibly fast (on
5 July 2013), and the Federation Council approved it on 10 July.
26 July 2013, the President signed the Law,
under which the Bank of Russia would get
the FFMS’ powers of regulation, control and
oversight on financial markets, including the
spheres of insurance, microfinance, credit
cooperation, rating agencies, and pension
savings investment. The Central Bank and the
Government would share insurance oversight
powers. Starting 1 September 2013, the FFMS
ceased to be an independent legal entity, and
by 2015 its functions were to be fully transferred to the newly established integrated financial regulator, i.e. the Bank of Russia.
The term of the Chair of the Bank of Russia
and the members of the Board would be extended from four to five years, and the number of the Board members would be increased
from 13 to 15. Before 1 November 2013, the
Board was to be reappointed according to
the new procedures. The Bank would form
a permanent Financial Oversight Committee, which would exercise the Bank’s powers
over the financial markets. The Bank of Russia would also be vested with the authority
to protect the rights and lawful interests of
shareholders and the insured pensioners in
compulsory pension insurance plans, and of
participants in private pension funds. The
document came into force starting 1 September 2013, with the exception of its provisions
for which another date was specified.
It is clear that large-scale changes in financial oversight and regulation can only show
some positive effects if the transitional period
issues are resolved successfully. Global practice shows that the most difficult challenges
to the model occur at the initial stages of its
functioning, when well-weighed regulatory
and organizational decisions need to be made
promptly.
As it was already noted, Federal Law No.
251-FZ “On Amendments to Certain Legislative Acts of the Russian Federation in Connection with the Transfer to the Central Bank
of Russia the Powers of the Financial Market
Regulation, Control and Oversight” was adopted very quickly. The legal services of the
Ministry of Finance, the Bank of Russia, the
State Duma and the Federation Council made
an enormous effort to amend 47 Federal Laws
and Codes.
That being said, it should be admitted that
the work done was mostly technical, and
it generated a lot of discrepancies which
couldn’t fail to impair the quality of the Law.
Even now, it is obvious that the Law will be
amended as necessary, which will also entail
amending the Bank of Russia’s legislative acts.
This foreseeable volatility of the regulatory
framework could aggravate the conflict of interest existing within the Bank and increase
the regulatory burden on the financial market
players.
Conceptually, a number of the Law’s provisions give reasons for concern, since they
harbor potential threats to the new regulator’s
activities. In our opinion, there are three main
challenges.
First of all, the system of the Bank’s goals as
defined by the law is contradictory and uses
the fuzzy terminology formed in the period
81
of inter-agency conflicts. Experts note, however, that a systemic approach to formulating
the goals for an integrated financial regulator must be based on the equal treatment
of all types of financial organizations (both
bank and non-bank ones), as well as on understanding that their relations are in direct
correlation with the market relations between
them and their clients.
It must be noted that Article 341 of the Federal law “On the Bank of Russia” contains a
germ of a conflict of goals within Russia’s
monetary policy . The goals of maintaining
rouble stability and facilitating balanced and
sustainable economic growth, indeed, contradict each other, since simultaneous attempts
at their implementations could lead to stagflation. This trap is much easier to fall into than
to get out of. The two goals are actually nonconflicting only in a situation of minimum
GDP growth and price growth levels, but to
achieve this Russia will need to decrease its
inflation considerably.
Secondly, the list of non-bank financial institutions (NBFOs) subject to oversight by
the integrated financial regulator is debatable.
Article 761 of the Law ‘On the Bank of Russia’ names as NBFOs 17 types of organizations
rendering various services. Experts note that
NBFOs are defined in the Article through
simple enumeration of these types rather than
through any qualifying criteria.
NBFOs do not include leasing and factoring
companies, debt collection agencies, pawn
brokers, and a number of other entities. This
is probably due to the legislator’s intent to exclude these organizations from the sphere of
control and oversight of the Bank of Russia,
but also due to the lack of general statutory
definitions for these entities. Their omission,
however, can lead to negative consequences: a
number of them could migrate into the ‘grey’
economy, while also enjoying the benefits of
regulatory arbitration.
It is not quite clear why rating agencies
were launched into the oversight orbit of the
integrated financial regulator, when their
activities and ratings must be completely independent. Global practice shows that once
rating agencies become somebody’s pets,
they lose their reputation. The same is true
for credit bureaus. The Bank of Russia has
already assumed the functions of a central
registry of credit histories, and this should
be enough. Including credit bureaus into
the integrated financial regulator structure
could, under certain circumstances, lead to
concealing information on credit portfolios’
quality, to avoid the effect of self-fulfilling
prophecy.
Even a brief look at the Law shows that it
is largely a mechanic compilation of a large
number of other statutory acts. In the Law,
the integrated financial regulator (Bank of
Russia) looks like a conglomerate rather
than a single entity, which means there is
a lot more work to be done to improve the
statutory basis for the work of the integrated
financial regulator.
Establishing this type of regulator requires
great reforms to the organizational structure
and staffing, as well as the material, technical
and information resources of the whole oversight function of the Bank of Russia. On 28
Article 341: “The main goal of the Bank of Russia’s monetary policy is the protection of the rouble rate and facilitation
of its stability through maintaining price stability, which, among other aims, pursues the aim of facilitating Russia’s
balanced and sustainable economic growth.”
1
82
February 2013, the Russian Government approved a Roadmap reflecting the main conditions under which the FFMS will be integrated into the Bank of Russia, and containing a
detailed schedule of events in eight avenues of
integration work.
The Roadmap implementation is made
difficult by the issue of a sharp and largescale increase in the administrative load of
the Bank, since it will not be relieved of its
current banking oversight and regulation
duties. And now, in addition to the large
number of already existing credit institutions
(951 as at 1 August 2013), it will have to handle many other financial players. The FFMS
has regulatory and oversight authority over
more than 8,000 financial organizations, not
counting depositaries, brokers, dealers, and
other professional security market players.
Moreover, the FFMS registers security issues
and controls information disclosure of over
200,000 entities.
The Bank of Russia, already in the transitional period, will have to resolve the organizational and technical issues spawned by the
integration of the FFMS, while also forming a
brand new regulatory environment in the financial sector. In doing so, the Bank will face
new challenged that require out-of-the-box
solutions.
The first challenge, which will be hard to
resolve in a way that would satisfy everyone:
accounting for the specific features of oversight functions in the various segments of the
financial sector.
Oversight in banking and in insurance,
professional stock exchange players regulation, oversight of microfinance organizations, and supervision of credit consumer
cooperatives – all of these functions are ei-
ther different in nature, or overlapping but
still substantially differentiated oversight
practices.
Creating a financial oversight committee
within the Bank of Russia will alleviate only
part of the problems related to the existence of
two qualitatively different oversight practices:
the banking one and the insurance one. But
what to do with microfinance organizations
that can attract private sector funds without limit and, therefore, essentially perform
banking operations? How do we handle credit consumer cooperatives, the oversight and
regulation of which cannot mechanically cut
to the standards of prudential norms and requirements?
When all financial organizations (except
credit institutions) were within the mandate
of the FFMS, the Bank of Russia didn’t have
to answer these questions. Back in the day,
the Bank successfully dodged the responsibilities of control and oversight of microfinance agents, eventually these functions were
pawned off to the FFMS, which, to be frank,
had neither staff nor material or technical resources to develop the norms and standards
for microfinance regulation, or analyze any
reports on their activities. With only 1,300
employees, the FFMS had to handle the exponential (after the adoption of the 2009–2010
laws) growth in the number of credit consumer cooperatives and microfinance organizations in particular.
And now the issue has boomeranged back
to the Bank of Russia: it has to decide on the
scope and stringency of the new prudential
requirements to be imposed onto microfinance organizations, in addition to the already existing economic norms. There is no
clean-cut solution here.
83
On the one hand, in the public opinion, the
creditors and members of all financial organizations subject to the oversight get equal
protection, to a great extent similar to the one
provided by the central bank as the banking
regulator. Now, the wronged participants,
members of insolvent microfinance organizations and other agents can complain directly
to the Bank of Russia, which will be a reason
to extend the banking prudential oversight
requirements on all financial organizations
attracting private funds as deposits or shares.
On the other hand, it would be a step towards
the technical winding-up of micro financing
in its legitimate form, and its transfer from
under the mandate of the integrated financial
regulator into the ‘grey’ zone of the economy.
The second challenge: how will the issue
of conflict of interests within the integrated
financial regulator be resolved?
Therefore, there is a danger that the risk of
unification in the regulation and oversight of
banks and other professional players on the
financial market might lead to over-regulation and excessive oversight for other market
players. Naturally, the Bank of Russia will try to
distribute the regulatory and oversight burden
based on the nature of the entity’s activities and
the risks of the financial market participants.
Yet even with this good intent, in practice, a rationed approach to different financial organizations is impossible to implement, since their
conflicts of interest are objective due to the rigorous competition existing between them.
Within the integrated financial regulator,
these conflicts will be reflected in the disproportionate extent and scope of regulatory requirements, depending on the current changes in the International and Russian oversight
standards, the current financial market envi-
ronment, and, to a large extent, depending on
the ‘weight’ of the heads of the Bank of Russia’s subdivisions.
But conflict of interests is not limited to the
banking and financial oversight committees
only. We should bear in mind that the Bank of
Russia, having received the regulative powers
over practically the whole domestic financial
sector, remains a shareholder (in Sberbank,
the Moscow Exchange Group, and the Central Securities Depository), and a professional
participant of the securities market.
Thus, the Bank of Russia is now the sole and
almost uncontrolled rule-setting financial
market regulator, as well as the enforcer of
the rules it sets, and simultaneously the largest player, the largest insider and the biggest
owner on this market. And this Gordian knot
cannot be cut with a single blow, rather, it will
have to be untangled for a long time, using,
among other means, political decisions. And
given this, we can say that the conflict of interest here will persist for an indefinite period of
time, fuelling more debates and speculations.
Third challenge: to what extent can oversight powers be delegated to self-regulated
organizations?
The question has been debated on and off
for about a decade now, but recently the discussion has moved onto the practical plane.
The tasks of the Bank of Russia, as an integrated financial regulator, require the development of self-regulated organizations (SROs)
in the financial sector, or else organizational
anarchy might ensue.
Aware of this danger, on 11 March 2013,
the Bank of Russia submitted to the Ministry
of Finance the Bill “On the Activities of SelfRegulated Organizations on Financial Markets’, setting out certain requirements to SROs
84
and defining their powers of regulation and
oversight over financial institutions. The stage
of the Bill’s progress remains unknown as of
now, but its adoption by the State Duma will
define the avenues of development of SROs
in the financial sector, and the scope of their
powers and functions. The solutions here are
not too easy to find.
In global practice, SROs are created by
professional financial market players in the
micro financing and financial infrastructure
segments. However, in the banking segment,
establishing SROs is strictly blocked by the
watchdogs, which allow only certain elements
of self-governance.
Russia is no exception here: the Bank of
Russia has been successfully resisting the
pressure of SRO proponents in banking, while
the FFMS has been gradually expanding the
boundaries for delegating the oversight powers to them. However, back then, the SROs
were numerous separate entities with complicated interrelations, while now all the SROs
are considered as ‘bulk’.
Under a two-body scenario, it was feasible
that microfinance organizations performing
basic banking functions would be enabled to
create SROs, while credit institutions would
not be allowed to do so. The rationale was
simple: no mandate overlap. Under the integrated financial regulator scenario, this is
impossible: we would need to either limit the
activities of the SROs in microfinancing, or
expand self-governance in the banking sector.
Another important aspect of SROs’ development is the improvement of regulatory culture,
both within the SROs and between them and
the regulator. To prevent organizational chaos,
the Bank of Russia needs to take swift measures
to delegate part of its powers to the SROs in
certain financial service segments. And it’s important that the regulatory culture should not
lag behind in this process, but rather lead the
way. Otherwise, we risk ending up in a ‘Medieval’ society, with SROs turned into ‘feudal dominions’ with their own internal rules, and the
watchdog following the principle ‘the vassal of
my vassal is not my vassal’.
Therefore, there is a danger that the risk of
unification in the regulation and oversight of
banks and other professional players on the
financial market might lead to over-regulation and excessive oversight for other market
players. Many market players are not ready
for these toughened regulatory and oversight
requirements, and the field should not be leveled for them in this respect. Their activities
involve receipt and revocation of licenses, certain requirements to the management and the
employees, inspections and sanctions, SRO
membership requirements, prudential norms
and requirements to their reporting documents, and many other aspects of their work.
But apart from the current task of FFMS
merger, the Bank of Russia is facing new
threats and challenges, which extend into the
long term outside of the transition period
scope. And the main threat we see here is that
the Bank’s new powers may eventually further
undermine its independence.
There are more than enough reasons to suspect that. The functions of an integrated financial regulator increase the degree of the Bank’s
integration into the executive branch of state
government. On the one hand, the Bank will
get the right of proposing bills to the Government and the President on all matters of financial sector development. On the other hand,
it can no longer limit its exposure to state authorities to interactions with the State Duma
85
Figure 2. Bank of Russia’s refinancing of domestic financial institutions (debt
outstanding), billion roubles.
and the Federation Council, since it will have
to present and defend a good share of its bills
to various executive agencies. And right now,
it is hard to say how extensive this exposure
will be. Ridiculous as it may sound, the Bank of
Russia has already been notified that it should
“implement special oversight procedures for
insurance organizations, with a view of, among
other objectives, controlling their compliance
with automotive technical inspection rules’.
But much more importantly, the Bank’s expanding powers imply additional responsibilities
and liability, which will not escape the attention
of lobbyists at all levels. The aforementioned Article 341 added to the Federal law ‘On the Central Bank of the Russian Federation (the Bank of
Russia)’ has opened unprecedented pressuring
opportunities for them. Not only does this article undermine the independence of the Bank of
Russia, but it is also in direct conflict with its objectives set out by the Constitution of the Russian
Federation, because it will make the monetary
policy in Russia more adaptive rather than active
in terms of inflation-fighting, and there are all the
reasons to think that the current, conventional
concept of inflation targeting will be revised.
Under the current circumstances, the Bank of
Russia will have a hard time resisting the urges to
‘pump up’ the economy with more money. Price
stabilization requires collegiate decision-making, which is why in July 2013 the National
Council for Financial Stability was established as
a permanent consultative body. The functions of
the Council, chaired by the Minister of Finance,
include the coordination of state institutions’ efforts aimed at analyzing financial stability issues,
identifying systemic risks and developing measures of their mitigation. To a certain extent, this
body can be called a collegiate guarantor of the
Bank of Russia’s independence.
And the last but not least essential question
that presents itself is: will the Bank of Russia,
as an integrated financial regulator, be able to
withstand group interest lobbying, or will it
become their vehicle?
For the Russian financial sector, this question
is very topical for a number of reasons. Firstly,
banks and other financial institutions with state
86
participation have been taking up an increasing
share in it based on the majority of industry indicators. With their governmental support, they
present a certain moral hazard to the industry
and the society as a whole. Secondly, the banking sector assets held by consolidated groups
and holding companies constitute a great share
of Russia’s financial market. As at the beginning
of July 2013, Russia had 129 banking groups
and 31 holdings. According to contemporary
estimates, they control over 90% of all the credit
organizations’ assets. Global practice shows that
these structures are the most common source of
systemic risks. Thirdly, there is the danger of large
banking sector players making the integrated financial regulator (Bank of Russia) a ‘hostage’ in
liquidity provision operations and, ultimately, in
any monetary policy implementation measures.
The graph above clearly shows that, starting
around late 2011, the monetary policy of the
Bank of Russia has been relaxing. Its refinancing
operations have considerably grown, reaching
the 2009 level. Only the Bank of Russia’s credit portfolio profile has changed: in 2009, it was
dominated by unsecured loans with maximum
rates, whereas now it is dominated by REPO operations and asset-backed or guaranteed loans,
with rates under the official refinancing rate by
1.5 to 2 pp. Given the inflation rate differences, the real rates of the Bank of Russia are very
close to the ones of the ECB and the Fed. And
if we also factor in the risk premium, they will
be comparable to the rates of the Bank of Japan.
In view of the aforesaid, it would be interesting to know what group of banks has been the
first in line to the ‘discount window’ of the Bank
of Russia. This, however, is more of a rhetorical
question. The dynamic and nature of the Bank of
Russia’s dealings with credit organizations strong-
ly suggest that for banks with state participation
the Bank of Russia has been increasingly not the
‘last resort’ lender but the ‘first resort’ one. But this
means that the emission mechanism can potentially exacerbate the risk of abuse, deepening the
‘too big to fail’ problem, hush-hushed by the Russian authorities (which, in its turn, suffocates any
competition in the banking system).
Yet one of the main reasons for creating the
central bank-based integrated financial regulator in Russia in the first place was the need
for improving the quality of financial oversight
and regulation, mainly through an effective
risk-oriented financial supervision system that
would embrace the oversight of financial and
banking groups. Solving this problem will substantially expand the regulator’s potential for
identifying and analyzing systemic risks in the
Russian banking system.
The aforementioned real-life threats and
challenges are not the only issues facing the
countries pursuing structural reforms of their
financial market oversight and regulation systems. The initial stage of an integrated financial
regulator formation poses the most difficult
problems: during this phase, in addition to
the resolving the current issues of oversight
and regulation, a structural reform needs to be
conducted, regulatory culture needs to be improved, and qualitatively new decision-making
standards need to be developed. And Russia
is no exception to this general rule. However,
the high professional qualities of the Bank of
Russia team, its expertise in banking oversight
and regulation (including in times of financial
shocks) will ensure that Russia’s integrated financial regulator find adequate solutions to
any threats and challenges. 87
Major value drivers of innovative
companies in Russia and their key
performance indicators
Vladimir V. Grigoriev
Vladimir V. Grigoriev,
Doctor of Economics
Full Professor, Financial University under the
Government of the Russian Federation
Summary. The article studies the nature
and meaning of a new line of research –
value-based management, which aims
to increase the company’s value.
In contrast to financial management,
which is mainly focused on day-to-day
management, value-based management has strategic growth at its core.
The article outlines the conditions for,
and key drivers behind, value growth
for innovative companies, offers their
classification based on the impact
source, and contains key performance
indicators for value drivers in the
innovations sector. The article also
contains a number of recommendations aimed at fostering innovation
development in Russia.
Key words: value-based management,
value drivers for innovative companies, performance indicators, strategic
management, innovation development recommendations.
T
Value-based management overview
he center of attention today is economic
growth, which is driven by greater added
value. It is economic growth that contributes to improved quality of life. The value
of a company is an indicator that among
88
other things relies on long-term prospects
of the business. Therefore, value as a financial indicator is the key measure to evaluate
corporate efficiency.
Value growth is to a large extent driven by
the company’s innovation potential, represented by the share of innovative products
in its portfolio.
An increasingly popular line of research
within financial management is valuebased management that studies the value
of businesses. The interest for this approach
is due to the fact that value-based management offers a stronger focus on the company’s strategic development as compared
to standard financial management. A business may have solid current financials as
determined by simple financial analysis but
strategic financial analysis might suggest it
will go bankrupt in the near future.
Value-based management aims to increase
the value of a company by effectively managing value drivers. Importantly, value can
only increase when return on invested capital
(ROIC) is above the cost of capital. ROIC is
calculated as net profit and long-term debt
(for Russia, short-term debt is used instead)
divided by annual average assets:
ROIC = (Net profit) + (Short-term
debt) / (Average assets for the year) *100%
Fig. 1. Chart outlining the key factors that
impact a company’s value
Weighted average cost of capital (WACC),
which measures the cost of acquiring capital for
the company, is calculated as a sum of weighted
average cost of equity (E) and weighted average
cost of debt (D):
WACC = E * Eweight + D * Dweight,
where Eweight and Dweight are the weights of
the company’s equity and debt, respectively.
1) In accordance with international financial
terms, invested capital consists of equity (net profit) and long-term loans. However, due to a combination of factors, most of Russian businesses do
not have long-term loans on their balance sheets
and replace them with short-term loans instead.
Given this, we believe that invested capital in the
Russian economy (where no long-term loans are
in place) should be treated as a sum of net profit
and short-term loans.
Ongoing analysis of these two financial parameters shows whether a company’s value
rises or declines. The key objective of value-based management is to ensure constant
growth in the company’s value. This can be
achieved through effective management of
value drivers and key corporate financials:
ROIC and WACC, making sure that ROIC
and value are always maximized while WACC
is kept down. Figure 1 shows a chart supporting this argument.
All the three financial indicators (value, return on invested capital, and weighted average cost of capital) are affected by a variety of
factors, often conflicting ones. For instance,
an increase in long-term loans reduces the
company’s value but improves ROIC. So value
drivers should be managed in a way to keep
them on optimal levels. Value-based management that relies on the company’s market
value (market cost of equity) is an effective
modern way to manage businesses, including
those in the innovations sector.
Below we attempt to give an overview of factors that contribute to higher value of innovative
companies.
Value drivers for innovative companies
A company’s value is affected by numerous
factors: political, economic, social, demographic, geographic, psychological, etc. They
are usually divided into two groups: internal
and external to the company in question (that
said, any classification based on any criteria is
only notional). For the purposes of this article,
we will be looking into internal factors that affect the value of an innovative company.
By source of impact, internal value factors/
drivers can be broken down into three groups:
1. resource factors: mainly characterize the
efficiency of resource usage by the company, including labor and material resources
89
Major value drivers of innovative companies
in Russia and their key performance indicators
Fig. 2. Hierarchy of internal factors that
affect a company’s value
2. specific factors typical of the business type
(innovation factors for innovative companies)
3. value factors: those that directly affect the
company’s value (although the previous two
groups also have a considerable impact on the
level of business value).
Figure 2 shows the hierarchy of these factors.
At the bottom are those that define the efficiency
of usage of the company’s key resources. At the
top are value factors that define the company’s
efficiency in general.
While resource factors have been fairly well
researched in Russia (following decades of targeted studies), both specific and value factors are
still poorly explored. These are going to be our
focus in this article.
For our purposes, an innovation is a new method of financing, a new method of running a business, new equipment, and new technologies.
A study of innovative factors behind business
value should take into account that the composition and impact structure of these factors will
ultimately depend on the nature of the respective high tech company.
Researchers identify three types of high tech
businesses:
• research and project institutes. They are
engaged in creating new ideas and innovative
products in close link with fundamental and
applied sciences. Key value drivers for this
group of companies are the creativity of personnel, tools of corporate individualization
(brand name, trademark, location, i.e. in the
US the Silicon Valley is a quality mark for an
innovative product), and availability of high
tech equipment and software needed.
• manufacturers that use innovation documents created by research and project institutes to manufacture innovative products.
Key value drivers for them are highly skilled
personnel, high tech equipment, tools of
corporate individualization, and an effective
marketing strategy.
• infrastructure companies that make use of
innovative products of manufacturers as the
core of their business to bring these products
to end consumers (mobile network operators, online stores, services and engineering
companies that work with clients). Key value
drivers are tools of corporate individualization for both infrastructure companies and
manufacturers whose products they market,
qualified personnel to offer respective services, licenses and permits needed to operate
(i.e. licenses for allocation of frequencies for
mobile network operators; operation permit
for high danger sites of the nuclear sector for
services and construction companies), and
an effective and professional information
and client base.
The business and growth of a hypothetic
innovative company engaged in developing
90
Fig. 3 Key value drivers of innovative
companies
Fig. 4 Factors of innovation potential
and innovative development
documents for innovative products and in
making and selling innovative products will
be logically affected both by resource factors,
which define the competitive ability of any
company, and by specific factors based on this
company’s innovation potential.
We also identify a group of financial factors
that are essential for any company (see Figure 3).
Important factors in the group of factors
related to innovation potential and innovative development and the scientific and experimental capabilities, along with the level
of information and software support for the
process of creating, manufacturing and developing an innovative product (see Figure
4). At the same time the company needs to
constantly monitor the efficiency of impact
from these factors, including the efficiency of
separate innovative products and the efficiency of all innovative activities, represented by
the number of innovative products patented
in Russia and abroad and by the number of
innovative products introduced into mass
production, along with net cash flow from innovative projects.
Based on a modified production function, the
group of resource factors that impact the value
of an innovative company is the key factors of
production building its value:
Vt=∫(Ht, Ft, Mt), where
Vt – innovative company value at t moment
of time;
Ht – number of employees involved in creative activities at t moment of time;
Ft – cost of innovative equipment used for the
production of innovative products at t moment
of time;
Mt – materials used for the production of innovative products at t moment of time.
The aim is to maximize the innovative company’s value (Vt) while maintaining the optimal
mix of headcount (Ht), fixed assets (Ft), and materials (Mt).
Hence, the optimal levels of the key factors of production will help maximize company value.
91
The group of resource factors is closely related to factors of managerial and administrative potential, which define the efficiency
of its resources; marketing factors as the basis
of success in innovative product sales; and
Fig. 5. Resource factors that define
innovative company value growth
investment factors, which are the key sources
needed to create, produce and sell innovative
products (see Figure 5).
However, it is important to remember that “a
sharp appreciation in the stock of a number of
high tech companies, including Dell, Oracle,
Cisco and others, was driven not by the increase
in equity but by companies’ improved intellectual potential”.
To identify financial factors capable of driving
their value, innovative companies should use
value-based management to study financial as-
pects of creating and selling innovative products
by the company.
The process of creating an innovative product begins with R&D activities, which are
completed with a report containing product
description, its functioning, and other parameters. Then the description is used by designers to develop detailed working documents to
become the basis of innovative product prototypes. The third stage sees the beginning of
mass production of the product. At the fourth
stage, the product is being marketed and sold,
with customers offered the full range of related services. Therefore, the full range of innovative product creation and sales includes
four key stages:
1. R&D at the research center
2. creation of product prototypes at the design
department
3. mass production at the production department
4. product sales by the sales department
Each stage of innovative product creation and
sales requires financing. In line with that, innovative companies have a financial center (see
Figure 6).
In a market economy, it is advisable that
structural departments shown in Figure 6
have the status of standalone business units
with financial sustainability. This contributes
to better profitability figures for the innovative company in general. Below we will look at
the operations of these business units related
to their value formation, and we will study the
R&D Center first.
Its core activity is to develop R&D documents for innovative products and later sell
them to the design center using a transfer
pricing basis. R&D can be financed from several sources:
92
Fig. 6. Innovative company
organizational chart
• initial capital and capital accumulated as a
result of the R&D Center’s operations (subject
to consent from the company’s CEO, the Center
has the right to sell its developments to external
customers);
• debt owed to the Financial Center;
• external loans (approved by the company’s
CEO);
• other sources (government orders, project
grants, private customers, sponsors, etc.)
Like any other business unit, the R&D Center
has the necessary personnel, property (real estate, computers, equipment, materials, etc.) and
cash needed for it to operate.
Apart from its core R&D activities, the
R&D Center also uses its own cash to operate in the market to purchase the equipment,
ingredients and other materials needed for
research purposes. After developing innovative product documents, the R&D Center
patents and sells them to the Design Center on a transfer pricing basis. The transfer
price is based on market data and econom-
ic relations within the innovative company.
Proceeds from the sale (along with borrowed
funding) are used by the R&D Center to
pay salaries to the R&D personnel, procure
equipment, ingredients and other materials
from the company’s Sales Department (or
from external suppliers in the market), and
generate profit.
The cash flow to equity of the R&D Center is part of the company’s total cash flow.
Thus, the R&D Center is a standalone
business unit within the innovative company, and its fundamental value is at all times
measurable to assess its share and contribution to the total fundamental value of the
innovative company. This makes it possible
to identify and analyze risks inherent in the
R&D Center’s activities and to manage the
Center’s value.
A special area of focus is the amount and
cost of debt raised from the Financial Center (or from an external lender) and, consequently, the time required to create an R&D
product. These factors define the repayment
period and, most importantly, the cost of borrowed funding (as mentioned above, the key
condition for the value of a company or any
of its business units to grow is to keep ROIC
above WACC).
Another important aspect is the payroll
analysis, since employee pay makes up a majority of financial costs at the R&D Center.
The key activity of the Design Center, another business unit within the innovative
company, is to use R&D documents to complete design drawings that will later be used
by the Production Center to launch mass production of the new innovative product.
The financial side of the Design Center’s
operations is essentially the same as at the
93
R&D Center. Consequently, value management professionals need to be paying close
attention to the cost, amount and timeframes
of the Design Center’s debt financing, payroll,
and transfer prices that are used in the sales
of ready-to-use design documents to the Production Department or external customers
(subject to consent from the company’s CEO).
The Production Center of the innovative
company is the largest and the most complex
one to manage. It purchases equipment, ingredients and other materials it needs from
the Sales Department, engages in mass production of the innovative product, and sells
it to the Sales Department on a transfer pricing basis or to external customers (subject to
consent from the company’s CEO).
At this business unit, value creation depends on:
• price of equipment, ingredients and other
materials sources;
• sales price of the final innovative product;
• production cycle duration;
• cost of debt financing of the production
process;
• efficiency of usage of fixed assets, materials
resources, and personnel.
Based on the net cash flow and discount
rate (which depends on production risks), the
Production Center’s fundamental value and
debt are calculated as component of the total
value of the innovative company.
The innovative company’s key communications tool is the Sales Department, including
transportation operations. The Sales Department is responsible for the reliability and
quality of supplies of equipment, ingredients
and other materials to all business units, and
is also engaged in sales, warehousing, transportation, and marketing for the respective
innovative products.
The Sales Department’s financing sources include:
• own cash generated by its operations;
• debt owed to the Financial Center.
The Sales Department provides equipment,
ingredients and other materials to the Company’s business units based on their orders using
transfer prices approved by the management.
The Sales Department purchases equipment, ingredients and other materials for business units
at market prices. Funding from the Financial
Center is raised when necessary at pre-agreed
cost and other terms and conditions.
Along with profit of other business units, the
profit generated by the Sales Department is used
for tax payment purposes.
The Sales Department’s cash flow comes
not only from its core (trade) operations but
also from investments, i.e. investments in
warehouses and car fleet. While responsible
for providing the necessary resources for the
company’s business units, the Sales Department also has the right to work for external
customers.
The Financial Center provides debt financing
to all of the company’s business units. Its key
functions include:
1. raising funds from external resources at
minimal costs and from internal resources at
optimal costs;
2. ensuring optimal cost and availability of
cash for all business units;
3. investing idle cash in high-yield liquid assets
in the external financial market.
The cost of funding provided to business
units is calculated based on the cost of external funding and the profitability of the respective business units. The same parameters apply
when the Financial Center defines other lending conditions, i.e. debt volume, repayment
94
period, and restructuring conditions. Overall,
the Financial Center operates in many was as
a bank, raising the cheapest possible cash and
providing it to business units at pre-agreed cost
that is optimal for them. Apart from lending to
business units, the Financial Center also borrows their idle cash.
The Financial Sector has a dedicated project team responsible for determining transfer prices for all products that are handled
within the innovative company. The transfer pricing process can have a considerable
impact on all business units, driving their
optimal/maximum efficiency and therefore
defining the company value. The same project team is responsible for financial controls
and financial dispute resolution within the
company.
As seen from the above, the key objective of
the Financial Center is to ensure undisrupted funding to all business units with a view
to effectively managing the value of the entire
company.
The Financial Center’s revenues mainly
come from:
1. interest payments and penalties under lending agreements with business units;
2. payments from investing the company’s idle
cash;
3. amortization payments on fixed assets managed by the Financial Center;
4. interest rate differential on provided and
raised funding.
The Financial Center’s key expenses are:
1. interest payments under borrowing
agreements with business units (usually below rates under lending agreements with
business units);
2. interest payments on external loan agreements;
Fig. 7. Financial drivers of innovative
company growth
3. payroll, property maintenance, utilities and
transport support expenses;
4. other expenses;
5. taxes (if revenues exceed expenses, the Financial Center posts a profit).
In our opinion, the group of financial factors that affect the value of an investment
95
Number of patented innovative products (on an annual basis)
Experimental capabilities
Material resources
Psychological environment
Number of innovative products introduced into mass production (on
an annual basis)
Information support ratio (number of disruptions divided by total
number of requests for information)
Software ratio
Innovative product change rate (innovations during the year divided
by total number of innovative products)
Average salary
Availability of flexible hours
Improvement in innovative product margins
Margins of innovative products
Financial resources
Financing availability ratio (financing required divided by total funds
available)
Yield on capital investments (sales divided by annual average fixed
assets)
Extensive information support
Software
Technical potential
HR potential
Resource factors Materials potential
Managerial potential
Marketing potential
Investment potential
Added value drivers
Financial factors
Profit growth
Indicators of value drivers of innovative companies
Innovative product improvement
Efficiency
improvement factors
Value drivers of innovative companies
Factors of
innovation
potential and
innovative
development
Scientific capabilities
Labor productivity (sales divided by headcount)
Consumption of materials (cost of material resources divided by sales
of innovative products)
Profit
Innovative product sales
Financing from internal and external sources
Profit
Improved return on assets
Return on assets (profit divided by assets)
Asset liquidity growth
Current ratio (current assets divided by current liabilities)
Labor productivity improvement
Labor productivity
ROIC growth
WACC reduction
Debt/equity optimization
ROIC
WACC
Optimal debt/equity level
Capital turnover (sales divided by total currency of the balance
sheet)
Payables turnover ratio (sales divided by annual average accounts
payable)
Working capital (equity minus non-current assets)
Capital turnover growth
Payables turnover growth
Working capital growth
Notes: 1. All indicators are calculated for different periods of time (year, quarter, month)
2.
One and the same indicators can be calculated in volume and value terms
3.
Indicators are calculated for the entire company and its separate business units
96
Innovative company value
Key value drivers of innovative companies and related KPIs
company can be divided into two subgroups
(see Figure 7): company efficiency drivers
and added value drivers. These subgroups
are shown in Figure 7 . Efficiency drivers
include higher rate of return, higher return on assets, improved asset liquidity, and
improved labor productivity. The second
subgroup includes ROIC growth, WACC
reduction, optimal debt/equity level, capital
turnover improvement, payables turnover
improvement, and working capital improvement. These are the factors that drive
the company’s added value.
Key performance indicators for innovative
company value drivers
Factors that define the value of an innovative company can be represented by a variety
of indicators, i.e. the important factor of scientific capability can be characterized by:
1. number of R&D employees
2. skills of R&D employees
3. number of patented innovative products,
and other indicators.
Therefore, when choosing key indicators
representing a factor, we opted for those that
have the strongest impact on the innovative
company value.
Out of the three indicators above, we chose
the third one – number of patented products,
as it characterizes the final result of R&D activities, and its strong performance points at
the potential to improve the company value.
Table 1 contains factors that affect the value
of an innovative company, and the key indicators to measure them. By constantly monitoring and effectively managing them, innovative
companies can ensure a sustainable growth in
value, which in turn contributes to the business’s improved competitiveness and investment appeal.
Therefore, the management framework at
innovative companies aims to improve their
efficiency through managerial decisions based
on company value growth.
Conclusion
Over the recent years, Russia’s innovative
development strategy has become the basis of
its sustainable growth. However, having announced its focus on innovations, the government has so far been lacked the actual steps
and measures to deliver on its commitment
(Skolkovo, and the costs incurred to create it,
can by now means successfully address all the
challenges of the nation’s innovative development).
Russian businesses are meanwhile just
as unwilling to make use of new technologies or launch innovative startups, citing
considerable costs, high risks and smaller
returns, especially at the first stage. A preferable and more profitable option for the
business community is the traditional areas
of natural resources, trade, construction,
communication, and assembly of imported
cars, computers and other devices, i.e. areas that enjoy sustainable market demand.
As for demand for innovative products, it
is currently non-existent in Russia. Even in
the unlikely case of a miracle (i.e. total depletion of oil and gas), there will be no innovations breakthrough, as it requires a solid basis that takes decades to be built. First,
it requires young scientists and engineers
with a creative approach; secondly, there
needs to be demand for innovative products; thirdly, the nation needs innovations
infrastructure (children’s creativity centers
to instill creative abilities from young age;
corporate R&D centers, research institutes
within large corporations; venture compa-
97
nies; information infrastructure) in place.
None of this is feasible without powerful
financial support from the state.
All state-owned companies should plan for
an ever increasing share of innovative products in government orders, establishing sales
channels across Russia and abroad. It is important that the entire innovative infrastructure be financed mainly from state and private
investments instead of seeing investments
flow out of Russia (some of the incentives
could be tax amnesty, zero tax rate on all revenues from innovative product sales, and other
preferences).
References
Effective Cost Management as an
Engine of Growth for the Russian
Economy
1. N. N. Karpova, E. V. Ignatov. Specific Features of
Intangible Assets in Various Types of High-Tech Companies. Valuation, No. 9. Edited by M. A. Fedotova,
T. V. Tazikhina. Moscow, Financial University, 2009.
2. I. A. Yegerev. Value of Business: Art of Management. Moscow, Delo, 2003.
3. F. Janszen. The Age of Innovation. Translated
from English. Moscow, Infra-M, 2002.
4. Herwig R. Friedag, Walter Schmidt. Balanced
Scorecard. Moscow, Finance and Statistics, 2007.
5. Ciaran Walsh. Key Management Ratios: How
to Analyze, Compare and Control the Figures
That Drive Company Value. Translated from
English, 2nd edition, Moscow, Delo, 2001.
O.V. Rybakova,
A.S. Senin,
Doctor of Economics,
Abstract: The article analyzes the
problems caused by the high-cost
nature of the modern Russian
economy, which were considered
at the 27th Session of the Foreign
Investment Advisory Council in
Russia. The author considers ways
of forming a cost management
mechanism for an innovationbased model of economic growth.
The cost lowering strategy adopted
by the government must become
the key internal driver of growth
acceleration for the Russian
economy, curbing inflation, ensuring
the country’s global competitiveness,
and stimulating long-term foreign
investment.
ing the formation of high-tech and sciencebased sectors in all industries; implement
resource-saving technologies; manufacture
more competitive and science-intensive
products; and, ultimately, achieve qualitative growth. These were the topics raised at
the 27th Meeting of the Foreign Investment
Advisory Council (FIAC) in Russia . In particular, the participants discussed short-term
measures for attracting investment into the
real sector of the Russian economy and infrastructural development.
The meeting noted that cost-cutting is the
primary concern in a free market environment, because any increase in the tariffs of
natural monopolies catalyzes uncontrollable snowball-like growth of consumer
goods’ prices. As a result, the already high
Key words: acceleration of
costs of the Russian manufacturers’ and
economic growth, cost-cutting,
commercial companies’ production and
competitiveness, economic
distribution operations, only augmented
globalization, resource-saving, cost
from year to year, are not only the cause of
management mechanism.
low competitiveness of domestic goods, but
he growth of the Russian economy is to a also the reason of high inflation and, as a
large extent dependent upon the global con- consequence, dwindling flow of foreign intext. The country needs to continue facilitat- vestment.
T
1
98
27th Session of the FIAC in Russia. 21 October 2013.
99
O.V. Rybakova,
A.S. Senin
Effective Cost Management as an Engine of Growth
for the Russian Economy
The problem of decreasing growth rates of the
Russian economy in general and its industrial
sector in particular, as well as the issue of diminishing consumer demand, are not new. Yet it is
the first time that the both of them are considered in the context of cost optimization. At the
abovementioned Meeting, Russian Prime Minister Dmitry Medvedev said, “I would like to set a
number of priorities. First of all, we will definitely
direct our efforts towards lowering economic
costs. As our past experience shows, this is a difficult task, yet we (i.e., the Government) have
resolved to freeze natural monopolies’ tariffs for
a year, after which, in 2015 and 2016, the tariffs’
growth will be limited to the rate of inflation.”
Medvedev stressed that growth is important not
only in its quantitative, but also in qualitative aspects: the structure of the economy and the ability to support modernization.
It must be noted that the subject of resource
saving has been discussed at high-profile forums before that. For instance, the strategic issue of low energy efficiency was considered as
a priority for the FIAC back in 2010. However,
no meaningful decisions had been taken before,
and no deadlines or responsible persons had
been appointed, because during the previous few
years the considerably robust post-crisis growth
boosted domestic consumer demand and foreign trade turnover, and at that point the national
economy was driven by an entirely different set
of factors. Currently, though, all of these factors
are stagnating, therefore it is advisable to develop
a resource0saving mechanism, using the existing
methodologies or devising new ones.
Though Russia has taken a number of steps to
strengthen its monetary and budget policies re-
cently, the major risks to foreign investment influx prevail, due to the insufficient diversification
of the national economy and its high share of
energy export (two-thirds of the total goods export). This situation is damaging to the industry,
which grew its output only by a mere 0.1% over
the first nine months of this year, while its investment decreased 1.4% YOY over the same period.
The lasting uncontrollable growth of costs,
caused by the increase of the prices of material
resources (including energy), labor and transaction costs, and the climbing interest rates, is further exacerbated by the lack of investment into
the innovations that could boost the economy.
Therefore, the vicious circle goes on: the current
industrial stagnation is conducive to the growth
of costs (of which up to 70% are material and 14
to 18% labor), while depreciation and amortization costs vary from 3 to 7% .
This directly impairs the competitiveness of the
Russian economy, which after the breakthrough
2009 year, when it ranked 51st in the Global
Competitiveness Report, has been losing its position annually, sliding to the 67th rating line in
2013 .
Russia’s economic growth is to a large extent
dependent upon the global environment. A single global economic network has been forming,
powered by the transnationalization of financial
markets, transportation and telecommunications development, growth of IT, increasing consumer influence on the legislative process, decreasing trade barriers, accelerating innovations,
and booming industrial production in countries
with low material and labor costs. Yet the leading
drivers of globalization are the expanding international trade and capital flows.
http://premier.gov.ru/news/7646
http://www.economy.gov.ru/minec/activity/sections/investmentPolicy/doc091225_1221
Foreign competition’s advent to domestic
markets spurred quality standards and businesses’ adaptability. Globalizing economy calls
for continuous innovation and improvement of
customer experience, cost-cutting and shorter
development cycles for revenue leader products.
However, the downside of globalization is the
destabilization it brings into national economies,
which calls even more urgently for the use of international best management practices (including cost management), to save resources and
boost industrial potential.
Competitive pressure changes technologies,
needs and capacities, financial and investment
strategies of states and corporations. Their priority is maintaining the achieved level of business
efficiency and market share through the optimization and decrease of costs related to production, distribution and transactions. Corporation’s
financial strategies must be based on this priority. Materials and labor resources are limited, and
humans must use them more rationally. Costs
must be managed through a set of measures,
economic calculations and rationales devised by
professionals. Having a clear picture of a company’s historical cost dynamic, one can quite accurately plan their future income and operating
results. Rational cost management additionally
benefits businesses by relieving their tax burden.
Today, practically all prerequisites for boosting Russia’s industrial growth are in place: the
institutional environment for industries and
corporations has been created; intensive growth
of domestic financial market and related industries is being supported; transport lines are being
modernized; and information technologies have
been brought up to the global standards. Strange
http://www.gks.ru/
http://gtmarket.ru/news/2012/09/05/4949
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4
3
5
100
as it may sound, cost-cutting curbs inflation,
regulates capital influx, speeds up investment,
and facilitates the integration of the Russian
economy into the global economic system. In
these circumstances, cost optimization becomes
the key objective both for the state and for industrial corporations. And cost optimization is not
limited to saving natural or labor resources. Cost
management improves corporations’ efficiency
and their financial sustainability (through reinvestment of growing profits).
International experience shows that the economic growth of corporations occurs primarily on the back of their qualitative development
(i.e., optimization of resource use). Resources
being limited, the goals of corporations combine both business growth (through innovations,
among other means) and qualitative development (which is only possible through effective
cost management). And this combination is of
strategic importance for the Russian economy as
a whole.
Western economies develop their industries
mostly by using intensive production factors, the
most crucial of which is cost-cutting. In developed countries’ industries, material costs are 2 to
3 times lower than in Russia, while their employees’ remuneration and depreciation and amortization are much higher than in Russia. This is
exactly how Western corporations achieve high
financial efficiency and investment attractiveness.
The Russian Government adopted the policy of
cost-cutting, starting with its resolution on freezing the natural monopolies’ tariffs for a year and
further limiting their increase to the inflation rate
level. Corporations could support this decision
by using various management tools to optimize
101
O.V. Rybakova,
A.S. Senin
Effective Cost Management as an Engine of Growth
for the Russian Economy
costs at all the stages of their business cycle, from
production to innovation implementation.
When considering cost management from
this perspective, it is advisable to note that the
dynamically developing financial studies formulated quite a consistent system in the three main
aspects of financial management: investment, asset financing, and asset management. Financial
management, however, can be used in managing
both financial processes and resources (decisionmaking in the spheres of attracting and investing
financial resources, regulating accounts receivable and payable, managing the structure and
allocation of capital) and in the area of comprehensive corporate cost management, providing
net income and funds growth, which makes for a
better investment story. The first branch of financial management involves the management of
medium- and long-term financial projects, and
is essentially the financial management of capital. Economic globalization urged the emergence
of the second branch: financial management of
costs, which involves creating a cost-reducing
mechanism promoting the financial stability of the organization and mitigating inflation
countrywide. Today’s financial management is
charged with an increasing amount of tasks related to maintaining corporate efficiency.
It is the financial management of costs as a
particular management type that can redirect
companies’ policies form quantitative to qualitative growth. Peter F. Drucker points out the
historical and strategic importance of this task:
“…one has to manage, above all, for steady,
systematic, purposeful cost reduction and for
steady improvement in quality and service,
that is, for strengthening the copany’s position
within the industry, rather than for growth in
volume…”
The implementation of the adopted strategies
of fostering free market economy in Russia over
the last 25 years has brought the country to a
certain level of development, largely adequate to
the status of a XXI century global leader. Statistics
prove it: Russia is the 8th in the global GDP rating
. Many factors added up to this, including the active use of new management tools, aligning technological processes and resource flows, reducing
losses, and allowing corporations to successfully
position their added value on the market.
The relatively short period during which the
finance management studies were developed
brought about a transformation in the public
view of management and its role in boosting
countries’ economic growth, as well as of the
view of regulatory institutions. After the general
management principles were established, corporate financial management was singled out as its
subarea regulating the flow of funds and companies’ financial interactions. Later, investment
management issues were aggregated into the
subtopic of investment management. Competitive effectiveness studies crystallized into strategic management. And the topics of improving
competitiveness through loss mitigation gave
rise to the area of risk management, etc.
Currently, the financial management field is
completing its subdivision into two subsystems:
management of long-term financial investments
and regulation of internal production to optimize costs and mitigate losses. Here, the sphere
of financial management of costs is a tool for
managing the internal administrative, operating
and financial relationships within a company’s
Peter F. Drucker. Management Challenges for the 21st Century. Elsevier. 2007. P.51.
http://gtmarket.ru
6
7
102
subdivision, including the mechanisms for effectiveness improvement through intensified and
economical use of natural, material, labor, innovation, information and other resources.
Cost management is organically integrated
into the financial relationships of a corporation
and is based on the principles described below.
They help eliminate many systemic issues, because effective industry ensures the country’s
economic growth and lays the long-term foundation of its competitiveness. The principle of
self-sustainability implies that a company is able
to form its current and fixed capital from its own
proceeds (net income and amortization and depreciation). The principle of joint resource and
process flows involves planning optimal operating, production and financial processes based on
adequate resource use and the priority of strategic goals over short-term tasks. The principle
of institutionalization of business relations
means that businesses build their connections
based on the applicable law, without unconventional cash flows, and on mutually beneficial
terms, regulating their business relationships
and liability for losses. The principle of qualitative development and strengthening positions
on the financial and trade markets naturally
complements the strategies of economic use
of material resources, environment protection,
and quality improvement. It requires the use of
expertise, methodologies, tools and culture of
product creation, purchase and storage, as well
as the use of innovative technologies optimizing
the consumption of limited resources. The principle of standardization of internal financial
relationships implies a delimitation of functions
between corporate subdivisions, with degrees of
their intersubordination, as well as their responsibility for revenue/profit maximization or for
cost cutting. The principle of integrated man-
agement system implies that the impact of all
the company’s processes on its cash flows, costs
and results should be identified.
The financial management of costs is the basic element for an innovative model of corporate growth, ensuring that the change of technologies are sufficiently funded and providing
a differentiated technological quasi-rent (which
boosts revenues considerably through more efficient production and lower costs). The concept
of innovative growth implies using a cost optimization mechanism, permanent use of best
practices conducive to the planned or projected
results, and achieving efficiency with minimum
resource consumption. Cost management helps
simultaneously resolve essential issues and facilitates financial sustainability by using cost-reduction mechanisms.
In conclusion, it must be said that accelerated
economic development can be driven by various
different factors: from facilitation of access to foreign markets and export support, to broader access to the energy infrastructure, improved customs administration and improved tax law, and,
finally, effective logistics. But the positive impact
of these factors may be limited by the external
economic conditions. Only the Government’s
and businesses’ joint efforts to reduce costs and
improve labor efficiency can be the essential
internal drivers of a country’s economy, which
can curb inflation, support a socially responsible
economy, and attract foreign investments.
103
References
1. Proceedings of the 27th Session of the Foreign
Investment Advisory Council in Russia.
2. Proceedings of the 24th Session of the Foreign
Investment Advisory Council in Russia.
3. Peter F. Drucker. Management Challenges for
the 21st Century. Elsevier. 2007.
Development Trends in the Russian
and Foreign Fiscal Policies
S.V. Seleznev
PhD in Economics,
Class 2 Advisor of the State Civil Service
Abstract: The article deals with
the general trends of the current
fiscal policy in the OECD countries
and in Russia. Governments’ fiscal
policies form the basis for their
respective taxation systems. In
the current conditions of slowing
economic growth, these policies have
been aimed at supporting the real
sector, reinvigoration of investment
processes, and maintaining
macroeconomic stability. In every
economy, the optimization of
taxation is essential for achieving a
balance between the fiscal interests
of the individuals, companies and
public authorities.
Key words: fiscal policy, taxation
mechanism, tax burden, real sector
support, corporate income tax rates,
economic growth.
E
ffective work of real sector companies,
along with coordinated efforts of the goals,
aims and actions of the public administrations and company managements, are the
key to the development and sustainability of the Russian economy. They facilitate
continuous growth of business activity,
performance and attractiveness; boost revenues and value of property. Tax proceeds
104
increase considerably, even if the tax burden does not change.
Simultaneously, as an inevitable result of
effective business activities, the revenues of
the country’s budget grow as well, which
enables the state to perform its social and
economic tasks, implement the government’s programs, and perform other functions of the national and local governments.
Even a slightest disturbance of the macroeconomic stability slows down business
activity, weighs down on margins, and decreases fiscal proceeds (and budget resources overall). In this situation, the fiscal policy
of the state needs to be reviewed. The new
fiscal strategy is implemented based on an
optimal set of modifications to the tax burden of the real sector, allowing the country
to maintain the existing potential of corporations and the existing proportions between the direct and indirect taxes in line
with the specific features of the socioeconomic system and its stage of development.
The taxation mechanism is based on the
state’s fiscal policy, or its course of actions
regarding taxes, which is reflected in the
types of taxes used, their rates, taxpayer
groups, tax benefits, etc.
Every year, proposals on the changes in
the national taxation system for the next
three years are submitted to the Russian
S.V. Seleznev
PhD in Economics, Class 2 Advisor of the State Civil Service
Government, which facilitates stability and
clarity of the country’s financial and business
environment. The practice of submitting the
said proposals has existed for several years.
The proposals are reflected in a document on
which draft amendments to the tax legislation
are prepared by the federal executive authorities. For the next three-year period, this document was prepared by the Ministry of Finance
under the name of “Main Objectives of the
Fiscal Policy of the Russian Federation for
2014 and the Planning Period of 2015–2016 .”
The document states that the tax priority
of the Russian Government for the stated periods are creating an effective and stable tax
system to ensure the stability of the state budget. The objectives of the fiscal policy are the
following: supporting investment, developing
human capital, and increasing business activity. An important challenge facing the Government is maintaining the competitiveness
of the Russian tax system vs. the fiscal systems
of the other global players striving to attract
investment, while also maximizing the convenience of tax procedures for conscientious
taxpayers.
That being said, the general fiscal trends of
many developed countries remain unchanged,
and any new measures are largely aimed at budget consolidation. Despite the slow recovery of
the global economy, the West has been aggressively stimulating investment and decreasing
unemployment through new tax measures.
Since 2007, the rates of taxes on consumption
and on high individual income in the OECD
countries have been growing, while their corporate income tax rates have mostly been decreasing (see Table 1).
Number of member states changing tax
rates in 2007–2013
Increase
No
change
Decrease
Standard
VAT rate
18
15
1
Maximum
rate of
individual
income
tax
18
9
7
Base rate of
corporate
income
tax
6
9
19
Change
in VAT
rates, %
2
Table 1. Changes in the tax rates of the
OECD countries, 2007 to 2013
On average, the OECD member states raised
the VAT rates by 2% to 18.9%. Note that in
the Russian Federation the VAT scheme of
18.0/10.0% has remained unchanged for the last
decade (since 2004).
The income tax policies in the OECD countries are aimed at boosting budget revenues,
hence the increase of individual income tax
rates in many countries, mostly for high-income
population (in Canada, Slovakia, USA, France,
and Czech Republic). Israel introduced progressive income taxation.
In the recent years, the OECD members’ fiscal policies have involved increasing income
tax base, which has been reflected in several
restrictions: limitation of expensing credit in-
Approved by the Russian Government on 30 May 2013.
1
105
Development Trends in the Russian and Foreign
Fiscal Policies
No.
Country
Russia Federation
Great Britain
Germany
Greece
Denmark
Israel
Spain
Italy
Canada
Korea
Poland
Portugal
Slovakia
Slovenia
USA
Turkey
Finland
France
Czech Republic
Chile
Switzerland
Sweden
Estonia
Japan
Corporate income tax
Change in rate vs. 2007, p.p. Standard rate in 2013, %
-4.0
20.0
-7.0
23.0
-8.7
30.2
-5.0
20.0
25.0
-5
25.0
-2.5
30.0
-5.5
27.5
-7.8
26.1
-3.3
24.2
19.0
5.0
31.5
4.0
23.0
-6.0
17.0
-0.2
39.1
20.0
-1.5
24.5
34.4
-5.0
19.0
3.0
20.0
-0.1
21.2
-6.0
22.0
-1.0
21.0
-2.5
37.0
Table 2. Income Tax Rates in Russian and the OECD Countries
terests; bans on carrying forwards losses. Still,
the common practice of decreasing corporate
income tax, started at the onset of the recession,
continues. The appeal а the investment component of the corporate income tax is leveraged for
this, and some countries allow accelerated depreciation and amortization, and create special
conditions for recognizing R&D expenses. Over
the past six years, over half of the 34 OECD
counties (19, or 56%) lowered their standard
corporate income tax rates, and only six members (18%) chose to increase them. As a result,
the arithmetical mean of corporate income tax
rate across the OECD decreased from 27% in
2007 to 25.3% in 2013.
The decision on lowering the corporate income tax in Russia from 24 to 20% was made in
Q4 2008, and it still remains in force. To a certain extent, it has been conducive to the growth
of economic activity and mitigation of the country’s social and financial problems, because certain taxpayer categories have been eligible for
decreasing coefficients in the calculation of their
tax.
106
S.V. Seleznev
Pursuant to the real sector support measures
already taken by the Government (financing
target programs, support of small businesses),
certain initiatives aimed at taxation system
improvement have also been planned. In particular, starting 2013, new rules of tax reporting
of expenses. In particular, starting 2013, new
rules for reporting expenses for mobilization
activities which are considered non-operating,
not connected to either production or sales
(вincluding expenses for maintaining the capacities and facilities required for fulfilling mobilization plans). Any expenses related to purchasing, creating, reconstructing, modernizing
or re-equipping depreciated property classified
as mobilization capacities, are reflected in the
process of corporate income tax base formation
through the depreciation calculation mechanism. Simultaneously, an increasing coefficient
was introduced for the basic depreciation norm
for facilities used in aggressive environments
and/or conditions of intensive shift utilization.
An important role in the creation of an investment-friendly tax environment belongs to
the indicator reflecting the tax burden of businesses. Any proposed changes to tax burden
and its effect on further economic development
of the country are usually planned at the stage
when fiscal policy priorities are being proposed,
considered and approved. Today, it is the tax
competition between different countries that
dictates them fiscal policies aimed at maximizing both foreign and domestic investment, because these increase the competitiveness the
countries’ economies, while also maintaining
the aggregate tax burden level and expenses on
tax management within the global averages.
It must, however, be noted that this universally
important indicator, calculated using a methodology approved by the Russian Ministry of Fi-
nance, does not always accurately reflect the tax
burden born by the corporations as a result of a
certain fiscal policy, because tax burden is calculated as the amount of taxes paid (according to
tax reports) divided by revenue. Not all taxes adequately reflect the direct business expenses of
organizations. In particular, individual income
tax (paid by the employees of an organization),
as well as indirect taxes and levies, have more to
do with the general well-being of the country
than with its businesses. Therefore, researchers
offer different approaches to tax burden assessment.
However, if we set aside such tax burden calculation methods as differentiation between an
absolute tax burden (taxes due to be paid less individual income tax amounts) and relative one
(tax amounts divided by added value), or calculating tax burden as taxes paid divided by the
amount of the respective source of funds, then,
assessing tax payments in their dynamic, we can
identify the effect of tax stimulation measures
on the acceleration of the post-crisis economic
growth of the country. Tax burden is essentially,
the amount of a company’s money taken out of
the current funds and directed towards paying
taxes to the budgets and extrabudgetary funds
of all levels.
The tax burden of a country’s businesses is a
good indicator of the efficiency of its fiscal policy. To compare the tax burden in Russia and foreign countries, let us consider Table 3. Even after
the numerous changes recently made to its tax
legislation, Russia remains a country with a considerable tax burden for businesses. In fact, it is
higher in Russia than in such highly developed
countries as the USA, Germany, Great Britain,
or Canada.
Countries employ different fiscal policies at various stages of the macroeconomic cycle: during
107
S.V. Seleznev
Development Trends in the Russian and Foreign
Fiscal Policies
Country
Corporate tax burden, aggregate, %
Chile
4.00
Ireland
4.10
Denmark
5.00
Switzerland
5.14
Iceland
5.22
Israel
5.54
New Zealand
5.60
Korea
6.45
Poland
6.49
Slovenia
6.56
Netherlands
6.65
Australia
6.75
Great Britain
6.87
Turkey
7.05
Canada
7.11
Luxembourg
7.32
Norway
7.50
Mexico
7.67
Slovakia
7.88
Hungary
8.25
Czech Republic
8.52
Finland
8.57
Germany
8.85
USA
8.92
Estonia
9.18
Russia
9.45
Portugal
9.52
Austria
9.52
Japan
9.70
Sweden
9.88
Italy
10.05
Spain
10.14
Belgium
10.54
France
12.65
Share of income tax, %
4.00
2.27
5.00
4.00
3.70
4.57
5.60
4.32
3.17
3.36
4.45
5.68
4.61
3.24
4.91
5.13
4.86
5.28
2.84
2.76
2.69
4.02
4.82
7.14
2.88
2.64
4.82
3.49
6.72
3.61
3.78
4.23
4.87
3.86
Insurance con- Country’s rating
tributions, %
by tax burden
0.00
1
1.82
2
0.00
3
1.15
4
1.52
5
0.97
6
0.00
7
2.13
8
3.32
9
3.21
10
2.20
11
1.06
12
2.25
13
3.81
14
2.20
15
2.19
16
2.63
17
2.39
18
5.03
19
5.49
20
5.82
21
4.55
22
4.03
23
1.78
24
6.30
25
6.81
26
4.70
27
6.03
28
2.98
29
6.27
30
6.27
31
5.91
32
5.67
33
8.79
34
the growth period, state tax rates and tax sums
are generally increased, while during the recession and recovery phases, when the structure
of economic drivers materially differs from the
pre-crisis ones, the amounts of taxes collected are
considerably smaller. This helps maintain optimal
rates of economic growth during the recovery.
The current global depression and production
shrinkage are easily explainable, since market
economy self-regulates through economic cycles. The IMF forecast for 2013 predicts a slowdown in growth for the developed countries
and revises the projected global GDP growth
from 3.1% to 2.9%. The European Bank for Reconstruction and Development estimates that
the global growth will drop to 1.8%.
Meanwhile, the optimistic outlook for Russia’s
2013 GDP is +1.8%, and up to +3% in 2014.
In view of the aforesaid, Russian Government’s
further fiscal policy is focused on bringing down
interest rates, reducing the taxes and introducing
tax incentives for investment in basic innovations, capable of produce meaningful changes to
the country’s potential. The tax incentives, involving several amendments to the tax legislation,
will create favorable environment for investment
in certain regions and support investment in the
human capital of the country. The new tax policy
targets corporate structures directly to eliminate
inefficient labor costs and align the statutory financial and tax accounting procedures.
In improving its fiscal policy, Russia seeks to
retain the existing tax benefits and preferences
to innovative organizations, to support the financial market, provide adequate taxation of financial instruments, and support investors and
professional stock market players by creating an
international financial center. These measures
are dictated by the need of integrating Russia into
the global economy, and mitigating the effect of
the external challenges posed by the innovationbased development of the global economy. The
said steps will facilitate the technological innovation-based structural diversification of the
national economy, which is impossible without
forming a modern, business-friendly institutional and fiscal environment.
Table 3. Tax Burden in the OECD Countries as at 2011.2
Garantf1://70292510.0/
http://www.itar-tass.com/c1/919429.html
2
3
108
109
References
1. Budget Address of the President of the Russian
Federation Vladimir Putin, dated 13 June 2013
“On the Budget Policy in 2014–2016”.
2. Strategy of Innovative Development of the Russian Federation for the Period until 2020. Approved by Decree No. 2227-r of the Government
of the Russian Federation, dated 8 December
2011.
3. Forecast of the Russian Federation’s Social and
Economic Development for 2014 and the Planning Period of 2015–2016.
4. Main Objectives of the Fiscal Policy of the Russian Federation for 2014 and the Planning Period
of 2015–2016.
Silicate-Calcium-Phosphate
Biocomposite Materials
for Osteoplastic Surgery
N.V. Sventskaya,
PhD in Engineering, Assistant at the Department of
Chemical Technology of Composite and Bonding
Materials of D. Mendeleev University of Chemical
Technology of Russia
B.I. Beletskiy,
PhD in Engineering, Assistant Professor at the
Department of Chemical Technology of Glass and
Alloys of D. Mendeleev University of Chemical
Technology of Russia
This paper describes implantation
materials for osteoplastic surgery.
Influence of silicon (Si) on bone and
cartilaginous tissues formation and
development is discussed.Implantation
materials presented in this article are
based on silicate bioglass and calciumphosphate filling materials developed
by the laboratory of biomaterials.
M
Key words:implantation materials for
osteoplasty, bioglass, calcium phosphates, porosity, mechanical strength.
etal prostheses, materials based on metal
alloys, polymers, calcium phosphate ceramics, glass ceramics and bone transplants are currently widely used in treatment and replacement of bone defects.
Most of applied bone implantation materials are related to bioresistive or bioactive
materials which have sufficient strength
and are characterised by high stability in
the internal environment. Materials of this
type stay in the body for a long time and
play the role of carcass or passive matrix
110
during the bone tissue formation process.
Review of patents, scientific, technical and
medical literature has revealed a ‘regeneration’ trend in the medical materials technology, the basis of which is development
and production of implantation materials
actively affecting bone cells, stimulating
bone tissue regeneration and fully resorbing in the course of time.
The researchers are focused mainly on
development of bioactive glass, cements
and ceramics within calcium phosphate
system. The interest to this system can be
explained by the fact that it provides the
opportunity to create materials with various proportions of Ca/P atoms, including
those similar to bone mineral matrix or
compounds involved in bone tissue metabolism, such as calcium hydroxyapatite
(HA), carbonate apatite (CHA), tricalcium
phosphate (TCP) dicalcium phosphate
dehydrate (DCPD), calcium poly- and
pyrophosphate (CPP). These minerals possess bioactivity and biocompatibility; all of
them (except for HA) are resorbable and
N.V. Sventskaya,
B.I. Beletskiy
can participate in mineralization of newly forming bone collagen matrix (osteoid).
Another direction of research is development
of materials in silicate-calcium-phosphate system. Professor E. Carlisle [1, 2] concluded in her
works that silicon is vitally important for normal growth and development of skeletal tissues;
if silicon nutrition is insufficient, deformation
is observed in cannon bones, thigh bones and
zygomatic bones, and the content of collagen
and non-collagen proteins is observed to reduce
in cartilaginous tissues. It has been found that
the content of silicon increases along with the
increased content of calcium at the initial stages
of osteoid mineralization. At later stages, when
hydroxyapatite crystals are formed, the content
of silicon considerably reduces and amounts to
less than 0.01% in ‘mature’ bone tissue.
Experiments in vitro with osteoblasts isolate
[3] showed that proliferative activity of osteoblasts and their differentiation, as well as synthesis of collagen fibres are increased by adding
liquid forms of silicon (Bioglass and pseudowollastonite ionic dissolution products) into the cell
culture.
Requirements to materials for osteoplastic
surgery are as follows:
· bioactivity, biocompatibility, bioinertness;
· strength of 20-100 MPa corresponding to
bone tissue strength;
· effective porosity 15-60% depending on the
type of bone tissue being reconstituted (cortical
or spongy tissue);
· pore size: small pores (10-50 µm) are essential for adsorption of biological molecules from
blood plasma and intercellular medium and
growth factors, while large pores (50-500 µm)
are required for osteogenic cells fixation, proliferation and differentiation, and for bone matrix
formation in the material pores;
· рН of aqueous extract 7.0-7.6, similar to pH
of bone tissue;
· radioopacity;
· sterilizability (by dry heat, γ-radiation) without changing material composition and structure; and
· ease of manufacture and mechanical processability.
Significant part of materials for osteoplasty,
over 95%, is currently supplied by the USA and
the EU countries. These materials are mainly
represented by microporous calcium phosphate
block ceramics, HA or β-TCP granulated powders, or bone hetero and allotransplants. In Russia, small limited batches of bone transplants
are manufactured by Intermedapatite, Polystom companies, N. Priorov Central Research
Institute of Traumatology and Orthopaedics
and some other enterprises. Investigations on
development and introduction of advanced materials are carried out by A. Baykov Institute of
Metallurgy within the Russian Academy of Science, M. Lomonosov Moscow State University,
Tomsk Polytechnic Institute and D. Mendeleev
University of Chemical Technology.
D. Mendeleev University of Chemical Technology has developed a number of porous implantation materials based on silicate glass and
bioactive fillers such as calcium hydroxyapatite
and β-tricalcium phosphate: BAC-1000, BAC1000М, ORION-MB, BAC-RD, as well as powders with various grain sizes; also, standard sets
of implants for maxillofacial area reconstruction
and neurosurgery have been developed.
Bioactive silicate apatite composite with the
bulk density of 1,000 g/cm3 (BAC-1000), with
cellular and channelled pore structure consists
of neutral medical glass NS-2A and calcium
hydroxyapatite filler. This type of glass is able to
bind with bone tissues due to silica gel forma-
111
N.V. Sventskaya,
B.I. Beletskiy
Silicate-Calcium-Phosphate Biocomposite Materials
Parameter
Value
HA content, % wt
40-60
Bulk density, kg/m3
1,000
Pore size, µm
50-500
Total porosity, %
60
Water adsorption, %
40
Bending strength, MPa
up to 20
Compression strength, MPa
up to 80
Table 1. Specifications of BAC-1000
Biocomposite [4]
tion of implant surface, resulting from alkaline
components dissolution in physiological medium; moreover, it is able to stay in the implantation zone for a long time due to its low inherent resorbability. Open pore structure of these
biocomposite materials with the size of pores
within the range of 50-500 µm allows bone
cells penetration through the pore network and
provides implant anchoring within the implant
bed volume. Porous glass matrix of the material
provides biological availability and resorbability
of hydroxyapatite. Colonization of open cellular
channelled pore structure by bone cells increases strength properties of implants 2 or 3 times.
Specifications of BAC-1000 biocomposite are
presented in Table 1.
The results of histologic sections of BAC-1000
implanted samples allowed identification of
osteogenesis progress in the implant structure.
Regeneration process develops in the implants
from the first days of installation and starts from
filling the entire volume of pores with tissue
fluid and development of vascularized granulation tissue from the periphery towards the
centre; starting from day 7, granulation tissue
starts to be colonized. Then granulation tissue
gets replaced with coarse fibrous tissue where
new bones trabeculas start forming on day 21.
During month 2, presence of mature fibrous
connective and bone tissues is observed in the
samples. During months 3 or 4, the connective
tissue containing collagen and blood vessels
forms carcass in the material porous structure.
During months 5 and 6, the connective tissue
and new bone trabeculas continue developing.
By the end of the year, mature spongy bone
forms in the implant pores [4, 5].
BAC-1000 biocomposite has been used for
manufacturing NIS-R sets of implants to replace bone defects and deformations of facial
skeleton (Figure 1).NIS-R sets of implants have
been included in the Register of State Standards
of Russia under No. 200/017852 and approved
for batch manufacturing and medical application in special clinics (Registration Certificate
No. 98/218/433). NIS-R set is manufactured in
accordance with the requirements of Process
Regulations TR-020664-1.1-92 and Technical
Specifications TU 9437-001-02066492-98; it
is covered by RF Patent No. 2074672. The set
is certified with Certificate of Conformity No.
ROSS ru. IMO2.АО71903434657.
Since 1998, implants from BAC-1000 have
been used in more than 2,000 surgical operations on skull, facial skeleton and spine at medical centres and military hospitals of the Moscow
Region. Experience of clinical application of
implants based on BAC-1000 proved their efficiency in maxillofacial surgery, neurosurgery,
military field surgery, and dental surgery for
treating firearm wounds and comminuted osteal wounds. In 2003, we developed a technical
project and organized a laboratory for advanced
technologies implementation in civilian industry products in the premises of the Federal State
Unitary Enterprise Central Research Institute of
112
Figure 1. NIS-R set of implants for
maxillofacial skeleton defects reconstruction
Automation and Hydraulics where production
of implants based on BAC-1000 biocomposite
material and its modifications has been established.
NIS-R sets based on BAC-1000 biocomposite
have been tested and endorsed in the following
medical establishment of Moscow [4, 6]:
1. M. Vladimirsky Moscow Regional Scientific
and Research Clinical Institute;
2. N. Burdenko Central Military Clinical Hospital;
3. Hospital of the Ministry of Internal Affairs;
4. N. Burdenko Institute of Neurosurgery;
5. Russian Medical Academy of Post-Graduate Education;
6. Central Scientific and Research Institute of
Dentistry and Maxillofacial Surgery;
7. S. Sechenov Moscow Medical Academy;
and others.
BAC-1000 material and its equivalents are
unique since they can be used for manufacturing large-sized products (up to 150 cm3) with
uniform pore structure, so one-piece, long-length
items of compound shapes can be manufactured
from these materials using prototyping devices.
At present, we have practised technologies of
producing BAC-1000 biocomposite equivalents
with controlled phase composition and porosity. In order to increase bioactivity of the material which was assessed by calcium phosphates
release in the amount of 2-4 mg/day, and to
stimulate osteogenesis process, we have modified BAC-1000 biocomposite by replacing part
of HA with β-TCP phase that has higher biological response in the internal environment [7,
8]. When implanted, this kind of material is able
to gradually resorb, releasing calcium and phosphate ions into the physiological medium; these
ions play an active role in the mineralization of
forming bone tissue within a greater time range
similar to osteogenesis periods.
For this purpose, samples were treated with
orthophosphoric acid solutions at concentrations of 0.05 and 0.1 n., thus transforming part
of HA into β-TCP, after which thermochemical
reaction was performed at temperatures Т =
850-950 °С and holding time of 30-120 minutes:
3Са10(РО4)6(ОН)2 +
2Н3РО4 10Са3(РО4)2 + 6 Н2О
This method can be used for production of
polymineral biocomposite BAC-1000M material composed of glass-hydroxyapatite-tricalcium phosphate system. Formation of tricalcium
phosphate in this reaction depends on the mode
of thermochemical treatment and, generally, the
outcome of β-TCP is 12-25% [9].
Structure of natural bone tissue is not homogenous and is represented by compact
(solid) and spongy (highly porous) bone. For
neurosurgical operations on spine reconstruction, it is reasonable to use materials with gradient porosity where dense structure grades
to highly porous structure from periphery towards central layers. D.L. Mastryukova [10, 11]
has worked out a technology to produce biocomposite ORION-MB materials which are a
modification of BAC-1000 with gradient pore
113
N.V. Sventskaya,
B.I. Beletskiy
Implant
Water
Adsorption,
%
Cortical Layer
Spongy Layer (G1)
Properties
Spongy Layer (G2)
Filler
Fraction
Matrix:
Filler
Proportion
Filler
Fraction
Matrix :
Filler
Proportion
Filler
Fraction
Matrix :
Filler
Proportion
Composition, % wt
Bulk density, g/cm3
E1
35
50-200
60:40
200-600
60:40
-
-
E2
35
200-600
60:40
200-600
70:30
-
-
E3
36
10-50
70:30
200-600
60:40
200-600
70:30
C1
35
200-600
60:40
200-600
70:30
-
-
C2
32
10-50
70:30
200-600
70:30
-
-
Table 2. Multilayer Biocomposite Materials and Their Specifications [12]
structure differentiated by size and oriented by
pore distribution types. The material is based
on a model of cross-sectional fragment of L5
vertebra with porosity distribution grading
from solid cortical layer to spongy layer; the
size of pores varies within the range from 50
to 500 µm.
Multilayer biocomposites were obtained by
combining layers with different grain-size distribution using various methods of filling. As
a result, samples of different types were produced (Table 2). Microstructure of a two-layer
sample is shown in Figure 2.
Figure 2. Sectional electronmicroscopic analysis of two-layer sample
with gradient pore structure
Where E is elliptical implants and C is cylindrical implants for spine.
All samples of BAC-1000, BAC-1000M, ORION-MB composites and hydrated silicate matrix were studied by Medicine and Biotechnologies company in terms of possibility to replant
medical immunobiological agent of allofibroblasts (AFB) Human Diploid Cell Cultures for
Substitutive Therapy. The studies’ results showed
that allofibroblasts fix to the samples with high
open porosity and permeability; the main requirement for that process was constant acidity
of culture medium. Hydrated silicate matrix was
found to be best substrate for AFB development.
AFB fixation to its surface was active; proliferation and differentiation of cells was observed.
Silicate glass matrix maintained constant level
of pH = 7.4 which is favourable for this type of
cells. Samples of BAC-1000 and BAC-1000M
proved to be less appropriate for AFB culture
fixation and development since the extract for
these preparations has higher alkalinity, 7.8 and
7.6, respectively [13].
A promising area is development and study of
bioactive silicate glass resorbing in the body environment [14, 15]. Such compositions can significantly induce regeneration of damaged bone
tissues acting at the cell level, and can be fully
114
Pore size, µm
Porosity
(differentiated), %
Total
Open
Sealed
Saturation rate, mm/min
Compression strength, МPa
Bending strength, МPa
Values
ORION-MB
30-80
20-50
1-2,5
0,5-1
10-200
100-500
40-60
60-80
30-40
30-70
10-20
10-30
10-80
10-40
30-50
25-40
30-70
Filler only, 70-90
Glass matrix
Filler
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Cortical layer
Spongy layer
Water adsorption, %
Resorption in HCl within 10 days, %
BAC-RD
50-75
25-50
1,50-1,80
1,20-1,50
50-200, micro-inhomogeneities
30-40
45-55
20-40
30-50
5-12
3-13
10-20
10-100
20-40
10-20
2-6
1-2
20-50
Composition, 15-30
Table 3. Comparative Specifications of ORION-MB and BAC-RD Products [17]
substituted by natural bone tissue as implant degrades. This fundamentally discriminates them
from BAC-1000 material where sodium aluminium silicate matrix shows high chemical stability.
Biodegradable glass is marked by high hydrophilic properties and is able to resorb in the internal
environment due to formation of highly hydrated
colloid silica gels which are excreted from the
body without accumulating silicon component.
BAC-RD is a silicate-calcium phosphate composite intended for treating bone injuries and
reconstructing the lost fragments of bone tissue
by stimulating genuine osteogenic cells and activating their secretory capacity.
BAC-RD consists of resorbable glass matrix
(glass system Na2O-CaO-SiO2-P2O5, BioС)
and resorbable filler—calcium-deficient hydroxyapatite (Са/Р proportion is 1.5-1.65, СаdHA). Pore structure of the material is represented by a network of interconnected pores, with
the percentage of open pores varying within the
range of 20-50%. Pores are featured by size bimodal distribution: large pores 40-120 µm and
small pores 2-10 µm (Figure 3). The material
saturation rate is 10-100 mm/min. Compression
strength of BAC-RD varies within the range of
10-40 МPa. Composite resorption varies within
5-25% in 10 days [16]. Comparative specifications of ORION-MB and BAC-RD products are
shown in Table 3.
Biological activity of composite is determined
by presence of glass matrix: water solutions pro-
115
N.V. Sventskaya,
B.I. Beletskiy
logy. Currently, the materials we have developed
have no equivalents in Russia and are highly
competitive with foreign implantation materials, such as Interpore (USA), Bio-Оss (Switzerland), Algipure (USA), Cerasorb (Germany),
Bioapatite (France), Ostrix NR (USA), in terms
of chemical and biological properties.
References
Figure 3. Photomicrograph of pore structure of BAC-RD composite
vide formation of flexible silica gels on the composite surface. These silica gels participate in fixation of almost all types of biological molecules,
proteins and cells (due to formation of multiple hydrogen and Van der Waals bonds, and
copying the replicas of contacting molecules).
Products of glass matrix resorption perform
genetic control of osteogenic cells behaviour,
i.e. enhance their viability and generation of
collagen in cells culture. Presence of resorbable
filler, calcium-deficient hydroxyapatite in the
material provides higher content of calcium
and phosphorus ions in the implantation area,
which participate in osteoid (collagen matrix)
mineralization.
The technology capabilities allow adding
any calcium phosphate fillers in the material (from calcium-excessive hydroxyapatite
Ca12(PO4)6(OH)2 to calcium-deficient hydroxyapatite Ca9(PO4)6(OH)2, β-tricalcium
phosphate, α-tricalcium phosphate), microporous zeolite, which makes it possible to control
the porosity, strength and resorbability of product within a wide range [16, 17].
The technology of composite production allows obtaining materials with pre-set parameters of pore structure:
· for compact bone defects reconstruction—
materials with the percentage of open pores 4045%, large pores size 40-80 µm, small pores size
2-10 µm, compression strength 25-30 МPa;
· for trabecular bone defects reconstruction—
materials with the percentage of open pores 5055%, large pores size 60-120 µm, small pores
size 2-10 µm, compression strength 10-15 МPa;
· creating materials with gradient porosity,
with small pores (40-80 µm) at the external layer
grading to larger pores (60-120 µm) towards the
internal layer;
· creating complex-shaped items.
During animal biological studies of BAC-RD
biocomposite, the material proved to possess
osteoinductive properties and to lack expressed
inflammatory response in surrounding tissues.
Thus, we have developed technologies of producing bone implantation materials with pre-set
chemical and phase composition, gradient pore
structure, with the possibility of targeted control
of physico-mechanical, chemical and biological
properties of the material; with osteoinductive
properties and the ability to bond with bone
tissue. All these advantages give the evidence
of high biological potential of silicate-calcium
phosphate biocomposite materials for implanto-
116
1. E. Carlisle. Si: A Possible Factor in Bone Calcification. // Science. 1970. Vol. 167. P. 279-280.
2. E. Carlisle. Si: An Essential Element for the
Chick. // Science 1972. Vol. 178. P. 619-621.
3. P. Valerio, M. Pereira, A. Goes, M. Leite. The
Effect of Ionic Products from Bioactive Glass Dissolution on Osteoblast Proliferation and Collagen Production // Biomaterials. 2004. Vol. 25. P.
2941-2948.
4. E.B. Vlasova. Osteoconductive Apatite-Silicate
Biocomposite Materials for Osteoplastic Surgery.
Author’s abstract of thesis for candidate of technical sciences. М.: D.I. Mendeleyev Russian University of Chemical Technology, 1998. P 18.
5. B.I. Beletskiy, V.I. Shoumsky, A.A. Nikitin, E.B.
Vlasova. Biocomposite Calcium Phosphate Materials in Osteoplastic Surgery // Glass and Ceramics. 2000. No. 9. P. 35-37.
6. B.I. Beletskiy, D.L. Mastryukova, E.B. Vlasova.
Development of Implantation Material with Gradient Pore Structure for Neurosurgery. // Glass
and Ceramics. 2003. No. 9. P. 18-20.
7. A.Y. Malysheva, B.I. Beletsky, E.B. Vlasova.
Structure and Properties of Composite Materials for Medical Purposes // Glass and Ceramics.
2001. No. 1. P. 16-19.
8. A.Y. Malysheva. Control of Biological Compatibility of Implantation Materials Containing
Apatite // Inorganic Materials. 2001. Vol. 37. No.
2. P. 233-237.
117
9. N.V. Sventskaya, B.I. Beletsky. Synthesis and
Investigation of Biocomposite Materials for Osteoplasty // Progress in Chemistry and Chemical Technology: SBNT. М.: Russian University
of Chemical Technology, 2003. Vol. 17. No. 15. P.
86-91.
10. Patent No. 2007119647/15 dated 28 May
2007. Composition, Bioactive Microporous Material Imitating Natural Bone Structures, and
Method of Its Production.
11. A.V. Kedrov, L.A. Ramirez, B.I. Beletsky, D.L.
Mastryukova et al. Intraosteal Osteoconductive
Implants for Frontal Stabilization of Damaged
Cervical Spine. // Spinal Surgery. 2007. No. 2. P.
18-22.
12. D.L. Mastryukova. Biocomposite Materials
with Differentiated Pore Structure. Author’s abstract of thesis for candidate of technical sciences.
М.: D.I. Mendeleyev Russian University of Chemical Technology, 2007. P 23.
13. D.L. Mastryukova, B.I. Beletsky, O.V. Polukhina. Glass Ceramics with Controlled Pore Structure for Medicine. // Glass and Ceramics. 2007
No. 4. P. 23-26.
14. B.I. Beletskiy, N.V. Sventskaya. Silica-Containing Glass and Implantation Materials Based
on Calcium Phosphates // Engineering and Technology of Silicates. 2008 No. 3. P. 27-32.
15. B.I. Beletskiy, N.V. Sventskaya. Silicon in Living Organisms and New-Generation Biocomposite Materials // Glass and Ceramics 2009. No. 3.
P. 26-31.
16. Patent No. 2010153460 dated 28 December
2010. Bioactive Microporous Material for Osteosurgery, and Method of its Production.
17. N.V. Sventskaya. Silicophosphate Biocomposite Materials with Controlled Pore Structure for
Osteoplastic Surgery. Author’s abstract of thesis
for candidate of technical sciences. М.: D.I. Mendeleyev Russian University of Chemical Technology, 2011. P 18.
On the Avenues of Research of
Accident Response Systems
Sergey Alexandrovich Senin
leading expert of the Strategic Research
Department at Glonass/GNSS Forum
Association
The author of the articles shows
that, in order to mitigate the
accidents occurring on Russian
roads, a whole complex of measures
needs to be taken, including those
involving several areas of hi-tech
(e.g., information technologies,
communications and telematics).
I
Keywords: information,
communication and telematic
technologies, development of
response systems, road traffic
accidents.
n order to mitigate the severity of the road
traffic accidents (“accidents”) in Russia, a
whole complex of measures needs to be
taken, including those involving several
areas of hi-tech (e.g., information technologies, communications and telematics). The
implementation of all the said technologies
in a set including car navigation systems
and sensors, telematics, and an accident response system connecting the car with the
road and emergency services, has led to the
creation of intellectual transport systems
(ITS). Introducing ITSs in megacities and
regions of dense traffic resolves many traffic
control issues, including the creation of accident response systems.
The Russian government realized that
mitigation of accident gravity and consequences hinges not only on organiza-
118
tional measures taken by the Ministry of
Internal Affairs but also on authorizing a
newly created Russian ITS (RITS) to receive information on accidents, and it real
time process and relay it to specialized
agencies, which was reflected in the Federal Target Program “Road Traffic Safety
in 2006-2012”, enacted by the Russian
Government Regulation No. 100 dated 20
February 2006 [1].
The Program lists the functions of the
RITS, which, like its counterparts in developed economies, is created to enhance traffic effectiveness, ensure prompt response to
accidents, and inform competent services
of any emergencies fully and accurately. The
Program outlines two interrelated avenues
of development for the RITS: the technological direction, which involves creating
the equipment complexes to instrumentalize the RITZ operations; and the methodological one, involving the development of
the strategy of RITZ operation for effective
traffic management and control (linear, operator, and situational) (which is one of the
RITS’ primary objectives).
Since the two avenues are systemically interrelated, a number of solutions need to be
developed (including the mechanisms of
their instrumental, algorithmic, software and
organizational alignment within the RITS).
These tasks are now being tackled as part of
the formation of scientific approaches to the
design of ITS concepts in Russia [2].
leading expert of the Strategic Research Department at Glonass/GNSS Forum Association
The technological avenue of the Russian ITS
development is based on a combination of the
global satellite positioning system (GLONASS)
with on-board equipment (standard and optional telematics from transport and for road
infrastructure). Still, telematics not backed by
effective emergency response systems will not
perform the main function of the ITS in an
emergency situation: prompt and effective help
to the accident victims. That is why the methodological facet of RITS functioning, with its
algorithms of transfer/processing and receipt of
accident information, based on effective procedures, and the software implementing them, is
no less important than the instrumental one.
By 2013, a local ITS is to be launched in
Moscow. Even as I write, the video and photo
cameras monitoring the road conditions and
registering any offenses are being installed. Numerous sensors adapting traffic lights to traffic
density and information boards are being put
in place. 20 to 25% of the Moscow streets are
fully equipped. The information boards on the
Third Transport Ring already show the traffic
speed at certain road stretches. This year, five
thousand information signs will put placed at
pedestrian crossings; the number of solar-powered LED traffic lights will be increased.
Various elements of ITS have been used for a
number of operations in traffic management and
safety with varying degrees of success. The following list of projects, supervised by ERTICO, gives
some insight into the types of tasks ITS have been
performing in the EU:
 AIDE (Adaptive Integrated Driver-Vehicle Interface) – on-board telematics providing assistance
to the driver in complex driving environments;
 GST (Global System for Telematics) – a system
of telematic services enabling collection, transmission and processing of information to be used by
drivers and vehicle occupants, as well as for emergency and rescue services;
ADAS (Advanced Driver Assistance Systems) –
a system preventing accidents by transmitting information on potential dangers en route to cars’
on-board telematic systems;
 MADAS (MAPS&ADAS) – a system of
digital maps improving traffic safety;
 CVIS (Cooperative vehicle-infrastructure
systems) – a system facilitating the interaction
between on-board and road telematics;
 EuroRoadS – a project for creating a database on the European road insfrastructure;
 Road Traffic Information Group – providing information support to road users;
 TMC Forum (Traffic Message Channel) –
informing road users of real-time road conditions on a dedicated radio channel.
The analysis of even some of these systems,
both completed and currently implemented,
reveals a lack of an overarching all-European
ITS concept into which they should be integrated. One reason for that could the difficulty
of harmonizing ITS regulations and standards
Europe-wide. This assumption is indirectly
confirmed by the success of the ERTICO-proposed initiative to equip vehicles Europe-wide
with on-board telematics enabling to locate the
vehicle in case of an accident and call rescue
services to the scene. As a result, the e-call program was developed and introduced in practically every EU country [3].
The experience of ITS implementation in foreign countries will likely be used by Russian developers creating on-board telematic solutions.
The analysis of several works, summarized in
Table 1, shows that, currently, Russian researchers analyzing the methodological aspect of ITS
development do not have a shared vision of the
place of ITS in the national transport system,
particularly in the area of traffic safety.
Based on the aforesaid, we can say that the
methodological line of ITS implementation for
traffic safety in Russia has only begun to develop.
119
-
leading expert of the Strategic Research Department at Glonass/GNSS Forum Association
On the Avenues of Research of Accident Response Systems
Table 1. Analysis of works on the
methodological aspect of ITS development.
Source
Summary
Vukan R. Vuchik. Transporta- A systematic overview of municipal
tion for Livable Cities. [4]
transport types and their characteristics; analysis of car overdependency;
the author makes a point that most
livable cities worldwide use intermodal transportation.
G. Galaburda, V.A. Persianov, The book given a brief overview of
the Russian transport system, listing
A.A. Timoshin et al. Single
technical and economic features and
Transport System: 2nd Edition, Revised. [5]
performance indicators for various
types of transport, and analyzing
the connections between them. The
author also reviews the needs of a
modern national road and transport
management system.
E. Gorev. Transport Systems The manual gives basic information on transport systems theory,
101: a Manual. [6]
describing the main types of transport
systems, their structures, operation
and interconnection.
An ITS is considered as logistic infraV.A. Medvedev. Development of the Information and structure created to provide routing,
Logistic Infrastructure of a
monitoring, operation and control of
Regional Transport Complex. passenger and cargo transportation.
[9]
N. Pugachev. Traffic Manage- The book discusses the basic prinment and Safety: a Manual.
ciples of traffic management, methods
[7]
of its research and performance
assessment; analyzes typical causes of
accidents, providing their classification and reporting system; lists the
main characteristics of vehicle and
pedestrian flows.
Towards Zero: Ambitious
This collection of analytical articles
Road Safety Targets and the
published by the OECD deals with
Safe System Approach. Inter- road traffic safety, considering
national Transport Forum,
programs and measures at the organizational or national level.
OECD Publishing [8]
120
Points of interest
The author presents ITS as a comprehensive solution of transportation
problems. The designers of European
and American ITS have already adjusted
their solutions in line with many of the
recommendations given in the book.
The work looks at the areas of rational
use of several means of city and suburban
transportation, analyzing the specific
features of transportation services of
cities, towns and villages.
The PRT – Personal Rapid Transit (PAT
– Personal Automated Transport) system
is described in-depth.
An ITS is regarded first and foremost as
the key to solving the logistic challenges
of a region, and only secondly as a traffic
safety tool.
Briefly outlines European ITS (CEPRA,
DGPS, BALANCE, COMFORT,
LLAMD and others), focusing on public
transport management systems.
The authors note that the European eCall
system enables emergency response
services to receive additional information
on the degree of bodily harm and the
type of injuries sustained. The projected
percentage of decreased mortality in road
traffic accidents as a result of the system’s
complete implementation is estimated
at 5-10%.
Compared to its European peers, Russia, however,
has the advantage of already having its own global
positioning system in place, GLONASS (Global
Navigation Satellite System), while its European
counterpart, Galileo, won’t be launched until 2015.
The improvement of GLONASS’ performance being one of the national safety and security priorities, this system could be a powerful catalyst to the
development of ITS in Russia, which would lead
to improved traffic safety, and the overhaul of the
domestic car and insurance markets.
References
1. Federal Target Program “Improvement of Road
Traffic Safety in 2006-2012”, enacted by Regulation
of the Government of the Russian Federation No. 100
dated 20 February 2006. – Accessible at: http://www.
fcp-pbdd.ru/about_program/ (retrieved on 5 October
2012)
2. S.V. Zhankaziev. Scientific Approaches to the
Formation of Intellectual Transport Systems’
Concepts in Russia. // Vestnik GLONASS – 2012 –
No. 1 [4] – Pp. 29-34.
3. М2М Technologies for Emergency Services. –
Accessible
at:
http://www.kommersant.ru/
doc/1586068/print (retrieved on 3 October 2012).
4. Vukan R. Vuchik. Transportation for Livable Cities.
Center for Urban Policy Research; New Brunswick,
NJ: 1999, 352 pages.
5. V.G. Galaburda, V.A. Persianov, A.A. Timoshin et
al. Single Transport System: 2nd Edition, Revised. —
Moscow: Transport, 2001. — 303 pages.
6. A.E. Gorev. Transport Systems 101: a Manual.
Saint-Petersburg State University of Architecture
and Civil Engineering. – St. Petersburg, 2010. – 214
pages.
7. I.N. Pugachev. Traffic Management and Safety:
a Manual. – Khabarovsk: Publishing House of the
Khabarovsk State Technical University, 2004 –232
pages.
8. Towards Zero: Ambitious Road Safety Targets and
the Safe System Approach, International Transport
Forum, OECD Publishing, 2010 –295 pages.
9. V.A. Medvedev. Development of the Information
and Logistic Infrastructure of a Regional Transport
Complex: Abstract of PhD Dissertation: 08.00.05. –
St. Petersburg, NWTU. 2008 – 16 pages.
Transport/vehicle telematics is a system for
monitoring moving objects, using satellite
navigation technologies, mobile and/or radio
equipment and technologies, computers and
digital maps. Satellite tracking of vehicles is
used for performing logistic tasks, to manage
transportation processes, for the purposes of
automated management of vehicle fleet.
Telematic systems track and analyze temporal
and special coordinates of vehicles. It can be done
online (through real-time remote transfer of the
coordinate data) or offline (when the data are read
once the vehicle arrives at a control station).
Vehicles are equipped with mobile modules
consisting of the following units: satellite signal
receiver, data storage unit, and data transfer
module. The software of the mobile module
takes the coordinate data from the receiver, stores
them, and transmits through the transfer module
whenever it is possible.
The transfer module can transfer data through
wireless networks of mobile providers. The received
data are analyzed and presented as text or maps to
a traffic controller.
In the offline mode, there is no remote data
transfer, which allows the use of cheaper mobile
modules and eliminates the need for mobile
providers’ services.
The mobile module can be built based on
NAVSTAR GPS or GLONASS satellite receivers.
GLONASS navigation has been actively promoted
and lobbied lately in Russia, along with the design
and production of appropriate client equipment.
121
The ‹‹intelligent road›› testing
complex as experimental grounds
for designing technological solutions
in intellectual transport systems
Andrey Igorevich Vorobyov
Ivan Sergeyevich Mordanov, Maxim Viktorovich Gavrilyuk
Andrey Igorevich Vorobyov,
PhD in Engineering, Assistant Professor, Moscow
State Automobile and Road Technical University,
Subdepartment of Traffic Management and
Safety,
Ivan Sergeyevich Mordanov,
PhD Student, Moscow State Automobile and
Road Technical University, Subdepartment of
Traffic Management and Safety,
Maxim Viktorovich Gavrilyuk,
Engineer, Moscow State Automobile and Road
Technical University, Subdepartment of Traffic
Management and Safety.
Abstract: The paper contains a
description of the «Intelligent Road»
testing complex and the potential of its
use for assessing the feasibility of local
projects involving the development of
intelligent transport systems.
Key words: intelligent transport
system, components of the intelligent
transport system, testing complex.
A
Introduction
comprehensive analysis of the performance and effectiveness of the intellectual
transport systems (ITS) introduced for
federal motorways will require a series
of preliminary tests on a real stretch of
a road, using sample ITS components.
Installing sample ITS equipment on real
roads and streets is too expensive (and
sometimes, impossible, due to the possi-
122
bility of a local transport collapse in case
the untested system fails). The tests, therefore, are best conducted on dedicated testing grounds.
For this purpose, Moscow State Automobile and Road Technical University
(MADI) designated a part of its testing
grounds for a testing complex called “Intelligent Road”.
1 Functions of the complex
The “Intelligent Road” testing complex was created to research and perfect
modern methods of effective traffic flow
management, traffic safety, road capacity
enhancement, and accident prevention.
A pilot road segment, equipped with
an intellectual transport system, was
created on the testing grounds of MADI
(Figure 1).
Figure 1 – Pilot road segment on the MADI testing grounds.
An area control center for the road ITS
(RITS CC) was created on the testing grounds.
The RITS CC provides real-time operation,
collection and aggregation of the data from
all the ITS subsystems of the road segmentб
as well as processing and analysis of the data,
and formulation of solutions based on the
traffic management scenarios database.
Currently, the RITS CC created at the testing complex, apart from collecting data from
all the required ITS subsystems and elements,
enables the management of the manual and
automated information processes, the switching of road lights, and the monitoring of the
license place recognition.
Creating an area center at the testing complex will allow us to analyze all the center’s
operating algorithms and improve the technological aspects of the system’s implementation on a real road, thus enhancing the performance of the ITS.
2 History of the testing complex
While the concept of the complex emerged
in 2010, its implementation took almost a
year. This required a detailed design of the
future road segment, a development plan for
the next few years, a list of organizations willing to cooperate on the project, and a plan for
using the testing road segment for the various
123
purposes of the university (e.g., for professional training).
In May 2011, pursuant to an order issued
by the university’s rector V.M. Prihodko and
as part of the program for systemic development of the MADI infrastructure with a
view of forming an innovative environment
in the Russian road and vehicle complex
within the system “University-Technology
Park-Innovative Small Businesses-Transport Industry”, a road lot on the MADI testing grounds was formally allocated for the
creation of the “Intelligent Road” testing
complex. At the same time, the procurement of the necessary equipment and road
infrastructure elements began.
By late 2011, the road segment was equipped
with two U-shaped, L-shaped and bracket
stands. A dynamic information board (DIB),
a video surveillance system, a meteorological monitoring system and the road lights
were installed. Separate premises were designated for the data processing center (DPC),
where an operator would be able to process
real-time data received from the equipment
installed, and manage the equipment. Within
this scheme, the DPC partially performed the
functions of the RITS CC.
Due to the equipment installation and testing performed in November 2011, the road
segment of the testing complex was closed for
general vehicle traffic. The same year, a joint
presentation of a scaled model of the ITS to
the Ministry of Industry and Trade, which
marked the official opening of the complex.
Starting early 2012, various ITS subsystems
have been installed on the road segment. For
instance, over the two years the testing road
segment has been equipped with a system
of license plate recognition, a subsystem of
dynamic and static weight control, and a
cutting-edge dynamic information board.
For access to other sites of the MADI testing
grounds, a detour road with a parking lot was
constructed.
The testing complex is currently used for
professional training purposes and for testing the equipment of partner organizations,
in particular, for testing the performance of
equipment is Russia-specific conditions.
3 Structure of the testing complex
The “Intelligent Road” complex comprises
a road segment with equipment and a DPC
storing and processing the data and managing
the ITS subsystems.
The DPC consists of a server for data collection and processing, and several automated
workstations for the operators, who manage
the equipment and ITS subsystems.
The ITS subsystems available at the testing
complex include (Figure 2):
1) license plate number recognition subsystem;
2) traffic flow parameters monitoring subsystem;
3) subsystem informing the road users
through information displayed on dynamic information boards;
4) traffic lights subsystem;
5) meteorological monitoring subsystem;
6) tolling subsystem for trucks;
7) weight and dimensional control subsystem.
The information subsystem informs the
drivers of the traffic conditions expected
ahead, in accordance with the traffic management scenario applied, including the
information on the traffic situation, weather conditions, parking availability, detour
124
Figure 2 – Diagram of equipment locations at the ‹‹Intelligent Road›› testing complex
routes, and other information improving
traffic flow.
The road users are informed of the current
traffic conditions through dynamic information boards displaying text and graphics.
The meteorological monitoring subsystem
consists of a number of sensors, measuring
both environmental and road parameters
(some built into the road surface).
The automated road meteorological station
measures and transmits road surface parame-
ters to the meteodata processing center, which
allows forecasting ice conditions during the
winter season.
The weight control subsystem is a measuring complex comprising static and dynamic
scales. The dynamic scales can weigh vehicles in motion, which substantially expedites
the weighing process. In the weight of a vehicle exceeds the limit, the driver goes to a
weight control station for additional check
on static scales.
125
Conclusion
The installation of the aforementioned systems is only the first stage required to create
a full-fledged testing complex, and currently,
an algorithm for the interaction of their interaction is being developed.
The next few years will see the implementation of the plan for the development of
the “Intelligent Road” complex, which involves creating a comprehensive system of
indirect traffic flow management system
and an automated traffic management system using all the ITS subsystems installed.
In particular, the joint use of the infor-
mation subsystem and the meteorological
monitoring one will allow displaying any
messages warning the drivers of the current weather conditions on the information
board. Thus, by timely informing the road
users, it will be possible to decrease the
number of weather-related traffic congestions and accidents.
Within the next few years, the approved development plan of the “Intelligent Road” will
facilitate the creation of a unique testing complex where comprehensive experiment cycles
can be conducted to assess the effectiveness of
various local ITS projects.
126
127

Central Problems of Innovation Economics

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