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

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)

4
X- and Y-matrices
redistribution economy
X
Y
federative-subsidiary political order
ideology of subsidiarity
unitary-centralized political order
communitarian ideology
market economy
5
Combinations of X- and Y-matrices

• Russia, China, the USA and
• most Asian and European
• Latin America countries countries

6
X- and Y-institutions in economy and their
functions
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.

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

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.

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.

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

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.

13
Picture of the institutional dynamics
t
2007
1998 (default)
Y Market institutions
X Redistribution institutions
1985
0
1
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.

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.

16
Equilibrium of supply and demand for branches
with increasing marginal returns
17
Equilibrium of supply and demand for branches
with diminishing marginal returns
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.

19

• Thank you for your attention.
• www.kirdina.ru
• kirdina_at_inecon.ru