New Balance of Redistribution and Market Institutions in Modern Russian Economy

1. New Balance of Redistribution and Market Institutions in Modern Russian Economy Svetlana Kirdina Russian Academy of Sciences, Institute of Economics

2. Main parts of presentation • Methodology • Results • Explanations 2007 Havaii International Conference on Social Sciences

3. Institutional matrices theory • Economy, politics and ideology in the society are strongly interrelated • Economic, political and ideological institutions comprise the “institutional matrix” of the society • Two types of institutional matrices can be singled out: an X-matrix and an Y-matrix (in details see Kirdina S. in Proceedings of Hawaii International Conference on Social Sciences, 2003 or www.kirdina.ru) 2007 Havaii International Conference on Social Sciences

4. X- and Y-matrices redistribution economy X Y federative-subsidiary political order ideology of subsidiarity unitary-centralizedpolitical order communitarianideology market economy 2007 Havaii International Conference on Social Sciences

5. Y Y X X Combinations of X- and Y-matrices Russia, China, the USA and most Asian and European Latin America countries countries 2007 Havaii International Conference on Social Sciences

6. X- and Y-institutions in economyand their functions 2007 Havaii International Conference on Social Sciences

7. Causes of economic reforms • By the middle 1980s on the eve of perestroika (in terminology of the Soviet Union) or transition economy (in terms of world social sciences) Russia had the unbalanced institutional economic structure. • Only redistribution X-institutions predominated. Necessary market Y-institutions were undeveloped and performed as latent, shadow or illegal forms. • Such disbalance resulted in the non-efficiency of the social system and the deep decrease of its economic and social parameters. 2007 Havaii International Conference on Social Sciences

8. The first phase of institutional reforms-1 In the middle of 1980s new political leadership began to develop the market Y-institutions on the legislative basis: • the privatization of the majority of the state enterprises put into practice to create the private property; • the decentralization in the economic governance system was realized to develop the exchange transactions instead of redistribution. The state planning system (“Gosplan”) was eliminated. The price management was stopped; 2007 Havaii International Conference on Social Sciences

9. The first phase of institutional reforms-2 • new laws about the creation and liquidation of business in all branches of economy were passed to promote the competition; • the contract labor institution substitutes for the employed labor because the state system of manpower training and distribution was liquidated. The relationships between employees and employers became the subject of the contract. The state salary management was canceled; • gaining profit (Y-efficiency) becomes the main criteria for new enterprises and their owners acting in open and competitive market environment. 2007 Havaii International Conference on Social Sciences

10. The result of first phase of reforms • The attempt to replace the redistribution institutions by the market ones was not very successful • It was neither growth of the total efficiency in economy nor expected efficiency increase of the new companies • In 1998 after the default the state economic policy was turned to the search for the optimal and balanced combination of related market and redistribution economic institutions. 2007 Havaii International Conference on Social Sciences

11. The second phase of institutional reforms - 1 • Since late 1990s – early 2000s new political leaders paid more attention to the modernization of redistribution X-institutions rather than to the implementation of market Y-institution as it was before: • the supreme conditional property - the creation of the large-scale joint-stock companies and holding structures under the management (or with control share in capital) of federal or regional governments; • the redistribution - new National Projects and State Corporations under the federal governance and supported by the federal budget. The centralized structure of them on the new level puts the redistribution scheme into life; 2007 Havaii International Conference on Social Sciences

12. The second phase of institutional reforms - 2 • the cooperation - state bodies involve different business structures into the decision-making process of the development of the country (investment participation including) and encourage the establishment of different forms of cooperation with business structures; • the employed labor institution - the organization of the industry specialists education system on the basis of private-and-state partnership with the state in leading position and the growth of non-monetary social factors of labor reward; • cost reduction (X-efficiency) - price and tariffs regulation both on federal and regional levels. The main objective of the corresponding commissions is not the revenue of the companies but the decrease of general resources use as well as national product expenditure. 2007 Havaii International Conference on Social Sciences

13. Picture of the institutional dynamics t 2007 1998 (default) Y Market institutions X Redistribution institutions 1985 0 1 2007 Havaii International Conference on Social Sciences

14. Actual result of Russian reforms • The new balance of redistribution and market institutions is being created in Russia in favor of the former. • It goes along with the recent growth of economic and social development indexes in Russia. In 2006 Russia occupied the 10-th(compare to the 18-th in 2005) place on the GDP index in the world. 2007 Havaii International Conference on Social Sciences

15. Why the redistribution model dominates? • The prevailing of redistribution institutions in Russian economy is not the result of the malicious intent of some political forces or the consequence of traditional and undeveloped Russian society. • Marshall’ marginal approach explains the objective and pragmatic reasons for the redistribution model dominating. 2007 Havaii International Conference on Social Sciences

16. P S E Pe D Q O Qe Equilibrium of supply and demand for branches with increasing marginal returns 2007 Havaii International Conference on Social Sciences

17. P G P1 S E Pe D C Q O Q1 Qe Equilibrium of supply and demand for branches with diminishing marginal returns 2007 Havaii International Conference on Social Sciences

18. The conclusion • In Russia the share of branches with diminishing marginal returns such as transportation, energetic complex, housing and social spheres is more than a half (57 per cent of fixed assets in 2006). • According to the marginal costs theory here the redistribution institutional structure is more preferable than the market one. • New balance of redistribution and market institutions in modern Russian economy confirms it. 2007 Havaii International Conference on Social Sciences

19. Thank you for your attention. www.kirdina.ru kirdina@inecon.ru 2007 Havaii International Conference on Social Sciences