Problems Encountered in Adapting the Industrial Policy to the New Economic Realities

Author Name: Elena V. Volkodavova, Alexander P. Zhabin, Tatyana Goryacheva, Olesya Tomazova
Author Email: vev.sseu@gmail.com

Abstract

The purpose of the study is to analyze industrial policies that have been practiced in various parts of the world over the past several decades, as well as the principles and structural components (e.g. scope, agents, priority-oriented approaches, incentives and outcomes) of a multi-level industrial policy adapted to the new economic realities. The study is focused on the levels at which the industrial policy is shaped and implemented – from an individual manufacturing company level to the national one. The paper proves that it is critical that the national industrial development strategy is based on import substitution (the national industry cannot develop without manufacturing high-tech products with high added value). The authors analyze Russia’s industrial policy regulations and look into the history of creating the legal framework for the national industrial policy. The methods proposed for implementing the industrial policy use a systematic approach, the concept of market agents’ rational behavior and comparative analysis. Along with traditional methods of industrial policy making, structural and foresight methods are discussed. Special attention is given to import substitution, a type of economic strategy and industrial policy which is new to Russia. Import substitution is expected to result in higher competitiveness of Russian manufacturers and their products, which will be achieved by stimulating modernization of manufacturing processes, enhancing productivity and launching new competitive products with relatively high added value. The main conclusion drawn from the study is that the industrial policy should be shaped and implemented on four levels. For the individual company level, this approach suggests using a model that relates resources to outcomes. The article gives a detailed description of this model’s structural elements and their relations. Considering that the management process tends to change, and changes in both international and domestic environment necessitate altering structural components or relations between them, or introducing new components, a list of issues to be discussed is proposed.

Introduction

Over the past years different institutes of economics have been increasingly involved in discussing problems that can be encountered by the Russian federal government while it is trying to make a sensible industrial policy. The reason is that financial stabilization of institutional transformations for different property is seen by the government as the priority task to no avail, whereas other tasks, such as making manufacturing industry more efficient or producing material values, do not get enough attention. The economy model that combines high prices for primary resources with strong government regulation of business activities and GDP (Gross Domestic Product) growth had reached its limits long before the advent of the crisis (the crisis only makes the problem worse). In view of that, the priority in making the national industrial policy is to combine measures to increase international competitiveness with renewal of local industry resources for different regions and providing institutional support to regions that have advantages in the development of priority manufacturing industries.

Manufacturing is, of course, the main sector in which priority areas for Russia’s economy development should be determined. This is why a decision was made to keep studying the industrial policy-making process on all levels – from individual manufacturers to the national scale. These days, however, most industries are experiencing stagnation. The main reasons for that include the absence of a concerted national priority development strategy for cutting-edge technologies (a strategy that is based on the latest developments) and the long-experienced absence of codified industrial policy. At the same time, the latest trends in the economy development show that all industrial policy makers are interested in making and implementing it in the best possible way.

The economic situation may get even worse now that the industrial policy suddenly became dominated by import substitution. The need for import substitution became especially obvious with appearance of new realities in the country’s economic life (events in Ukraine, economic sanctions from a number of countries etc.) There is a danger, however, that the policy of import substitution may boil down to the use of knock down assembly lines also known in Russia as “screwdriver production lines” (Polovinkin & Fomichev, 2014) [1]. What are the distinctive features of the new economic realities? Among the factors that influence those norms are not only economic relations, but also the political situation, new geographical realities, and changes caused by migration processes. Most leading countries of the world have obviously moved onto a new path of growth and development. Apart from a change in the pace of development, moving onto a new path involves launching new products in new geographic areas. Developing countries have also taken a new course in their development which has become faster. Those countries are now bringing cardinal changes in the global economy’s structure. In the past, the economic development of most countries was largely influenced by the American market; these days, though, Asian economies play a much more significant role in determining the world economy development trends.

Conclusion

The national industrial policy combines the country’s industrial development strategy with the mechanism for production development, productivity enhancement, making businesses and products more competitive and supporting employment. In a broader sense, it involves taking measures to promote fair competition, enhance production co-operation and specialization in the regions, and create incentives for performance improvement and introduction of new technologies. In the restricted sense, the industrial policy should support particular sectors of economy, companies and projects. It helps to change the economy structure and make the industry more competitive.

The proposed mechanism for implementing industrial policy makes companies more competitive through mastering the manufacture of high-tech products in line with the state’s industrial development strategy. Manufacturing such products secures the company’s stable position in domestic and international markets and improves its employees’ well-being while the new integration processes are going on.

Import substitution policy, therefore, mainly consists in shaping the structure of Russia’s manufacturing industry in such a way that restrictions on import of goods and technologies are differentiated. That policy stimulates the development of certain manufacturing industries to improve their competitiveness on the domestic market. It is critical for modern Russia that the import share in the domestic product cost is reduced. Reducing this share will help reduce indirect import, import penetration rate and reliance on imported components.

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