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A VIEW ON INDUSTRY IN RUSSIA AND THE CIS COUNTRIES

Дата публикации: 16 июня 2016
Публикатор: Александр Павлович Шиманский
Рубрика: RUSSIA (TOPICS)
Источник: (c) http://portalus.ru
Номер публикации: №1466077030 / Жалобы? Ошибка? Выделите проблемный текст и нажмите CTRL+ENTER!


Claude Potelle, economist, international expert, former president of the European Federation for Strategic Planning. This articte is published in abridged version.
The word dead-end is too emphatic to characterise the situation in which the economies of the majority of ex-USSR countries have found themselves. Financial, social, and institutional difficulties exist, whereas the decisive industrial input in the economy that has a remarkable intellectual and technological potential is missing. No branch of the economy is being restored. At the same time, imported goods from all over the world are pouring into the newly independent states (NIS).

The new socio-economic structures have not turned into new notable economic entities yet. And this is what is required for the development of economy and its partaking in the international competitive economy. The author of the article investigates causes for such state of things and offers possible ways to solve the existing problems.

The Perimeter of Absence of Phenomenon and Sociological Causes for This

The difficulties in reforming the economy in all post-Communist states are quite significant. However, the economies of East European countries, former members of the Council for Mutual Economic Assistance, have managed or, depending on the degree of maturity, are trying to recapture lost positions. In countries such as Romania and Bulgaria, to name a few, the basic challenge is to establish new economic structures. But these challenges are caused by the situation, which is incomparable to that in Ukraine or Belarus, since these republics have been part of the Russian Empire during the period of the modern history.

We should start examining causes for the lack of wide industrial initiative in the conditions that dominated in Russia before the 1917 Revolution. Chiefly, the negative influence of these conditions boils down to the lack of European, or democratic, at least for a short period of time, past. Being a European state, Russia had for a long time - until the end of the 19th century - remained, in its essence, a late-feudal state. Incidentally, serfdom was abolished in Russia only in 1861.

East European states belonging to Austrian, Swedish and Polish royal families may be taken for comparison. Despite hardships, these states definitely have better prerequisites for effective reforms and self-organisation than the countries located eastwards. Historically and sociologically, the whole world separates Minsk from Warsaw, and Prague from Kyiv. Due to this reason any attempts to use East European recipes for the resolution of analogous problems in the former Soviet Union should be extremely cautious.

There is no need for a deep analysis to understand that the historical situation in these countries is incomparable to that in the former Soviet Union. There is too little experience that could be used in conditions of a different historical situation.

However, third world countries, formerly European colonies, possess conditions for integration into the world's economy. The political and economic leadership of ex-Soviet republics lacks analogous conditions. Third world countries have established their own coalitions, their own position towards the West, and have found their way for integration into the international community. All this was done on the basis of imported systems of education, as well as national judiciary, administrative and communications systems established in these countries, sometimes, perhaps, more formal than real. Perhaps, it is training of higher institutional, judiciary, and administrative personnel - a new elite that would receive modern age education - that the process of real and deep reform in the former Soviet republics should start with. Everything within the framework of such training - from textbooks to advanced courses programmes - should be thoroughly worked out.

Furthermore, the NIS, except Russia, were historically deprived of such structures, as well as of the right to make decisions on the state level. The absence of administrative and organisational capabilities during the Soviet period1 continues to negatively influence the choice and realisation of policies even where there is nothing to redo.

The heavy burden of the negative influence of these different historically inherited elements weighs upon the process of definition and establishment of new structures and development of initiative.

Structural Shortcomings of the Former Soviet Economy

There exists an opinion that development of enterprises in the former Soviet Union is deterred by their status of state property. According to this logic, it is enough to free them from state control to provide for their future. But such an opinion points to a total ignorance in the area of industrial enterprises in the NIS. By the end of 1950s, the Soviet industry had in fact reached a mature level corresponding to the level of development of Western capitalist industry.2 The difference was that all the resources were directed to the development of heavy industry and weapons production. The Soviet industry was mass, effective and met the requirements of scientific and technical progress. However, the industrial enterprises have suffered serious structural changes ever since.

In the 1960s, the West opened its borders, geographically broadened the markets (the Common Market, GATT, etc.) along with the moves towards concentration of industry to affect enterprises, increase influence of market forces, as well as financial and trade consolidation.3 Adversely, at that time the Soviet leadership intensified geographical and branch division of industry, monopolised commercial management both on internal and external markets, and preserved its right to make decisions in the area of development and investments, defining their volume, type and direction. As a result, enterprises were gradually losing the functions that provided Western enterprises with success in the market economy.

At Western enterprises, functions of managers and administrators were gradually transformed. It was strategic planning that became prioritised for the managers, rather than control over industrial processes. In the meantime, managers of Soviet plants were not permitted to display initiative. They were deprived of information on their competitors and clients. In other words, they were controlled from the centre as industrial units, not enterprises. The central leadership developed production all over the territory of the country according to the principle of vertical integration, applying the same principle to develop the social sector. In addition, geographical and organisational sparseness among factories of the same branch persisted.

Currently, the most vivid conclusion from this is that all enterprises, even the biggest ones, are in most cases just simple industrial facilities. If we consider those rare management functions, which they can provide, we will see that their vertical integration is so strong that they do not have market potential from the viewpoint of the attractiveness of their products, as well as from the point of view of the ability to sell them. Macro- economically, on the organisational level the Communist system could not (or was not willing to) create the effectiveness that it had sometimes reached on the technical level. After the central chain of command was destroyed, the old Soviet industrial enterprises started to look like mosaic pieces.

In the future they will either disappear or be absorbed by bigger consortiums. Unfortunately, this applies to practically the whole industrial-production structure.

Industrial enterprises in the former Soviet Union have never participated in any entrepreneurial process whatsoever. Furthermore, they are poorly adapted for correction of internal structural imbalance, and, most importantly, reestablishment of ties, external restructuring and coordination of investments, i.e. the tasks that have not been fulfilled since the 1960s.

According to most cautious estimations, industrial enterprises of the former Soviet economy - even those with scientific and technical conditions complying with international standards - will not be able to enter the world's system in the near 20-30 years due to their internal and external organisational structures. From the standpoint of comparative industrial analysis, products of these enterprises have no supply-driven demand. Market demand and sales capabilities are not taken into account while developing new products. In addition, they are not capable of concentrating financial resources for their development. Overcoming these shortcomings is the main condition for a successful transition from the work within the framework of the Soviet state-run economy to satisfaction of various demands resulting from the market situation. Further, almost every enterprise does not fit in the international standards as far as their size regarding the market. On top of that, all these enterprises are responsible for the social sphere on the local and regional level.

If we assess the impact of sociological, historical, and institutional factors against the background of objective conditions, in which the entities of the former Soviet centralised economy carry out their activities, it is easy to see the difficulties which they will have to face in the future. In the long-run, it is difficult to make plans concerning the source of the main economic forces that will raise all the structures of industrial production to the required level.

As far as short-term plans are concerned, the inability of industrial enterprises to reorganise themselves, to perceive existing market demands, and to make use of new opening markets makes it possible to talk about direct influence of these shortcomings on the process of privatisation, on the access to world markets, and on the compliance with international financial obligations.

The Process of Privatisation

Small privatisation plays an increasingly more po-sitive role in the countries of the Commonwealth of Independent States (CIS), appreciably influencing microeconomic activity. The economic situation becomes more complex when reaching the level of more complicated economic entities.

The analysis and evaluations of the process of mass privatisation in Russia show that privatised or non- privatised enterprises do not carry out reorganisation - despite their production-technological and financial backwardness. At these facilities, decisions are taken in the interests of personnel, rather than the production process that can generate a profit.4

Having discussed the experience of privatisation in all CIS countries where the process of privatisation in general is developing even at a lower pace than in Russia, we can conclude that there are even deeper causes that hinder not only the process of privatisation, but also anticipated result. It takes quite a lot of time, to say the least, to make a considerable effect on industrial structures.

The elimination of these defects is undoubtedly the key issue in the logic of establishment of centres for management assistance and raising the level of professional skills.5 However, there are concerns that, due to their model and stereotyped approach, the centres will try to cope with too many tasks simultaneously instead of directing their efforts towards the main structural problems.

Due to the well-known sociological and industrial causes, there emerges a so-called "concrete" approach of looking for a foreign partner to join. Attempts by enterprises to "sell themselves" are doomed because of absence of managerial maturation in defining goals, and proposals are usually expected to be presented by foreign partners during negotiations.

Detailed studies of the problems of industry 6 proved that due to arbitrary distribution of industry in conditions of the old centralised system, there exists a necessity to incorporate industrial capital in groups so as to create maximally interconnected associations both for their own benefit and attraction of potential partners' interest.

Certain danger lies in the fact that old structures will remain still non-competitive. Hence, we have to mention pre-privatisation approach, i.e. local training of managers. This will allow for a better strategy of reforms that can be realised in cooperation with interested partners.

Additionally, the development of manufacturing culture at enterprises, contacts with foreign experts and potential partners may lead to changes in mentality of industrialists and managers. Currently, non-privatised enterprises are directing their main efforts towards creation of internal resources, looking for foreign partners, and reorganising their industrial structures with the help of foreign consultants and members of national professional associations.7

It is well-known that preparing privatisation processes in principle excludes participation of foreigners in it due to either high costs or political reasons. Naturally, it is preferable to change the settled stereotypes to a certain degree.

Speedy large-scale privatisation is no longer the only way to resolve problems of industry in the former Soviet republics (it is hardly known whether such privatisation was the only way out or not). However, a clear alternative policy does not exist. Presumably, the maximum political support that complies with political and social requirements is directed at the training of personnel for the market economy. In this case, if we look at the establishment and modernisation of national industrial structures, the general picture remains vague.

Representatives of the executive branch whose responsibility is to manage some enterprises can choose from various approaches towards such management: from "hands-off" policy to detailed instructions for all occasions. If direct temporary interference in the management, like, for instance, attempts by the Belarusian government to support barter trade with Russia, is excluded, we can state that the executive power would not like to interfere in the work of enterprises, and would prefer to receive positive monthly financial reports instead.

All in all, such approach indicates the absence of strategy with the governments of the former Soviet republics. It is not clear how these governments will reflect the strategy of development of big industrial enterprises within the framework of their economic policy, and how they will explain the financial support they continue to provide for these enterprises.

Benefits From International Trade

Due to the absence of competent economic entities within the CIS countries, benefiting from international trade remains practically an unknown terrain. It is impossible to understand how the existing industrial enterprises will be able to level up the national trade balance while lacking structural commercial functions and, most importantly, goods and services adapted to markets.

This situation remains troublesome because of the two reasons. On the one hand, enterprises are often incapable of getting profit from the opening markets. Due to the absence of competent commercial structures, attempts to compete result in high prices, which does not contribute to increase in profits. Furthermore, this leads to countermeasures by nations-importers. On the other hand, with inadequate readiness of competing structures for work in the internal market, produ-cers encountered a diverse range of proposals from foreign competitors. This ordinarily ends up in the growth of import, and, consequently, negative trade balance and the balance of payments, whereas the national currency is devaluating. The government reaction in this regard can be inadequate. It may come out with attacks on free international trade instead of supporting national enterprises.

Today, except for the energy branch, where the main acting economic entities are known, there exist no competent actors of the foreign trade, capable of consolidating their efforts for the work on foreign markets as it is done by Japanese or Korean industrial groups.

The capability of a country to meet international financial obligations stems directly from the conditions for effective participation in the foreign trade (and, indiectly, from good quality of production-industrial structures). This is closely connected with the establishment of institutions that stimulate the economy. The lag in establishment of industrial and institutional structures does not at all promote effective participation in the foreign trade.

With the absence of an elaborated and adapted to the new realities legal system, laws that are not observed, lack of representatives of free professions, and no market regulating institutions, both state and private enterprises have lost themselves in the endless current of goals arising from the numerous difficulties of everyday life. In this situation economic entities, except for some groups that rely upon natural resources or receive financial support from the government, can not clearly foresee their future and define their long-term goals.

State Owned Enterprises?

The question of the so-called state enterprises was the most debatable one among those discussed by representatives of international institutions. The discussion of this issue is, of course, connected with the notions of free economy, private sector, lack of competitive environment.

As a result of reforms of the Soviet system, storehouses turned out to be full of produced goods. According to the rules of market economy, this inevitably ends up with someone paying for that. It should be noted that nobody has ever spoken about solutions to this problem, except for rare statements by the political opposition.

At state enterprises of the former Soviet Union the situation is totally different. These never were enterprises. They were just parts of the industrial process, which logic was unfamiliar to them. Their situation got worse after the dissolution of the state that had created, managed and controlled them. More precisely, local administration, which had never managed them, assumed responsibility for them only because these enterprises were located on its territory.

The notion of responsibility is very important, for this is a unique case in the history of economy: local go- vernments that were absolutely incompetent in technical, industrial (let alone administrative) issues, had to provide hundreds of thousands people with salaries when their factories had just lost their main client - the state. No civilised Western nation could withstand such an avalanche of problems.

However, agencies to control this situation were gradually established, in particular, the ministries of industry, light industry, and others according to the principle of the well-known terminology of the old system. Ties were established between enterprises that did not know each other either due to the classified character of production or because they had been managed from Moscow. It should be stressed that the new Russian authorities themselves were not in a better situation, for the enterprises located on the territory of the Russian Federation, same as others within the Soviet system, had been controlled from the centre.

Do we still deal with "state" enterprises, or is it a different case that has neither theoretical description nor historical precedent?

Refusing to competently interfere into the matters of enterprises presently is very similar of not helping endangered industry. Some social and political experts are starting to voice apprehensions relating to social and human consequences of such state of things in the industry.

Establishment of the Industrial Groups

The current national authorities are possibly not quite competent in the issues of world competitive industry. They themselves do not conceal this.

Creation of financial-industrial groups is one of the envisaged ways out of the crisis. Financial-industrial groups have been discussed in the CIS since 1995. The concept of financial-industrial groups has been worked out with no involvement of Western experts. This concept presupposes establishment of organisational structures whose aim is to promote political interests related to reestablishment of economic ties between former Soviet republics.

Among secondary goals of the concept of financial-industrial groups is search for temporary measures to solve the problems industrial enterprises were facing after the central structures of the Soviet Union had disappeared, namely, getting access to raw materials and components, funding of their purchases, and overcoming tax barriers.

Many of these questions can be resolved in a different way, for instance, by means of development of banking system. Their resolution will play an important role of the indicator in this process. The effectiveness of financial-industrial groups should be based on the horizontal principle of their functioning, and aimed at the satisfaction of market demands in various products. It should not be based upon the vertical principle, which was traditional Soviet management method.

These groups should comply with the same legislation both in the course of their establishment and while market so that they could avoid discrepancies with market laws and not to decrease their capabilities for cooperation with foreign companies.

Finally, participation of banks in financial-industrial groups should not be considered as a simplification of access to finances, for it may cause long-term damage.

There exist a lot of schemes for the establishment of financial-industrial groups. All these schemes may be considered to be stages on the way to the concept's long-term development. Depending upon the degree of competence and success on the markets, they will be able to attract capital either in the form of foreign investments or local loans. This, in turn, will lead to their rather quick privatisation, at least partial. Various privatisation funds could assume an active role in rendering assistance and exercising control.

Role of International Technical Assistance

Obviously international community has its role in such projects as establishment of financial-industrial groups. Initially, foreign representatives can participate as consultants in developing and establishing financial-industrial groups. Later, they can act as foreign partners.

With due regard to all components of contemporary international technical assistance, additional means to help the CIS countries should be attracted. As a matter of fact, these countries face the hardest task of overcoming transitional period on the way towards the market economy and world integration.

On the first stage, we can speak about the methods for establishing and managing mixed groups on the international scale. If there are no ready-made schemes in this area, seminars or free educational activity in these countries may be supplemented by assistance in the strategic analysis of activities, de-finition of competitive situation, providing access to international high level manager training programmes, and conceptual exchange with representatives of international industry in structures to be developed in the future. The role of international consultants will be, in particular, to help these groups avoid the aforementioned reefs.

On the second stage, the West can offer quite a lot, especially in the area of receiving positive social results from industrial restructuring. The competitive effectiveness of economic structures in the West was made possible due to the development of industrial associations with definition of the role of personnel in industry, and reduction of jobs (in particular, in metallurgy). This led to the development of policy for soothing negative social consequences of restructuring.

There is one more fundamental long-term area of cooperation. Secondary, higher, and generalcivie education remain an obligatory indirect condition for any reform. In this area the West can render assistance with regard to the European experience. Searching for training programmes for managers at technical and business schools that traditionally train national economic and political elite can become a task of particular importance.

If this approach is treated not as a change of position, but rather as a logical follow-up to the previous efforts, it can be assumed that this sort of international technical assistance will be able to change some yet dead-end directions on the way towards concrete and mutually beneficial cooperation.

1. Martiez-Vaskez, McLoore, and Vollas, Decentralisation of Socialist States, Regional and Departmental Branches of the World Bank, Washington, D. C., 1995.

2. See V. Rostov, Stadii economicheskogo rosta.

3. See Alexis Jacqueman, Enterprise And Its Market Power, Luvin, Library University, 1967; Silven Wickham, Concentrations and Dimensions, Paris, Frammarion, 1965.

4. See Simon Commander, Kimiao Fan and Mark E. Sбhaffer, "How Russian companies create salaries, and make decisions on employment and welfare, and Russian industrial companies", in Industrial Restructuring and Economic Policy in Russia, The World Bank Institute for Economic Development, Washington, 1996. It should be noted that this research points out significant difference between East European states and Russia, which is also addressed in this article. See also Roman Friedman, Cheril V. Grey and Andzej Rapaszinski, "Stabilisation through Reorganisation?"in Russia, Corporate Management in Central Europe and in Russia. Vol. 2, Central University, Budapest, 1996. We can turn to the system approach spelled out in the remarkable work by Pierre Gislin, Privatisations. Strategic, Legal and Institutional Challenge, De Boek- Vesmael, Brussels, 1995.

5. Interesting experience of such work was accumulated in Georgia and Moldavia within the framework of cooperation of the World Bank and the TACIS programmes.

6. Reports by the UNIDO missions in Belarus (1995) and Ukraine (1996), Belarus: towards Industrial Recovery, Unpublished report for the Belarusian government, Vienna, March 1996; Ukraine: Political Framework for Industrial Restructuring, Unpublished report for the Belarusian government, Vienna, 1997.

7. We can mention methodological assistance rendered by the Belarusian Scientific-Technical Association, whose members are leaders of approximately two hundred national industrial enterprises. Additionally, we can point out an important initiative of the Ministry of Economy of Georgia within the framework of the IDF grant aimed at restructuring of high-tech institutes jointly with industrial production.

Опубликовано 16 июня 2016 года




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