CC BY
4DOI: 10.29141/2658-5081-2022-23-1-1 JEL classification: L16, L52, 033
Oleg S. Sukharev Institute of Economics of RAS, Moscow, Russia
Industrial growth and technological prospects
Abstract. For Russia, technological prospects of industrial growth come from Industry 4.0. The possibilities for their realisation depend on the combination of labour and fixed capital. The study focuses on identifying the conditions for the growth of capital in the industry, which creates it for both industrial and non-industrial sectors, as an important process that symbolises technological renewal. In addition to the introduction of digital technologies, a very wide range of production technologies need to be replaced. Methodologically, the research relies on the theory of industrial growth; employs methods of comparative, taxonomic analysis, elements of econometric modeling and formalisation of the relationship between the parameters under consideration using the classical production function. Their application demonstrates that the effect of Bazarov's curve manifests itself also when addressing the problem of technological modernisation of industry, and has a regular character. A fundamental limitation to positive technological prospects and industrial growth is the presence of a vicious circle of development specific for the Russian industry, when the undercapitalization of the industry arises not only due to the consumption of the generated incomes, the dynamics of which has long been rather low, but also due to their distraction to other directions. The theoretical result of the study is obtaining the exact condition for the growth of industrial capital as the criterion of industrialisation. It allows establishing the area of industrialisation based on the growth of capital in non-industrial sectors exceeding the growth of labour in industry. The paper justifies the typologies of development models of industry as an economic system within the coordinates "capital - labour" and specifies modes of managing this development depending on the growth rates of labour and capital.
Keywords: industry; production growth; industrial capital; technological development; Industry 4.0; industrialisation; industrial development; control modes.
Acknowledgements: The paper is prepared within the state assignment for the Center for Socioeconomic Development Institutions (Institute of Economics of RAS) on the topic "Formation of the scientific technological contour and the institutional model of accelerating the economic growth in the Russian Federation". For citation: Sukharev O. S. (2022). Industrial growth and technological perspective. Journal of New Economy, vol. 23, no. 1, pp. 6-23. DOI: 10.29141/2658-5081-2022-23-1-1 Received June 30, 2021
Introduction
In the 20th century, the issue of economic growth took a central place in both economics and the study of world dynamics [Anchishkin, 2003; Forrester, 2003; Help-man, 2011] and kept this position for two decades of the 21st century [Sukharev, Strizhakova, 2015; Glazyev, 2017; Stiglitz, 2020]. However, the drivers of growth have changed over time [Ivanov, Malinetsky, 2016]. At the beginning, industrialisation and organisational changes were the main topic when considering economic dynamics and stimulating the growth of a new quality [Bogdanov, 2003; Erlich, 2010; Bazarov, 2014], including cyclical fluctuations [Kondratieff, 1993; Tugan-Baranovsky, 1997]. Later, since the middle of the 20th century, more attention has been paid to the study of individual factors and conditions of economic growth - sources and constraints [Helpman, 2011]. A strong emphasis is put on the analysis of macroeconomic growth policy, but aspects of organisational, institutional and technological changes are often considered outside of the growth strategy, especially when used together.
Thus, ideas about new industrialisation, which a great number of Russian works1 are devoted to [Tatarkin, 2015; Tatarkin, Sukharev, Strizhakova, 2017; Sukharev, 2020], are usually poorly associated with current macroeconomic growth policy measures. The functioning of technostructures [Galbraith, 2004], their current state and evolution [Galbraith, 2009], overcoming deindustrialisation and deploying technological changes within the framework of Industry 4.0 doctrine, which is not always reasonably reduced to the introduction of digital technologies [Sukharev, 2020], are insufficiently covered in studies of economic growth, and also do not provide a complete understanding of the production growth itself. Sometimes it seems that the strategically planned changes and the policy of growth are developed independently of each other.
We should highlight that changes in a particular economic sector are not usually assessed in terms of how the sector itself will grow. Long-term assessments of the consequences of the planned changes are complicated for many reasons. A few decades ago the production growth was considered as an essential condition for economic growth, then the structural changes that took place in the economic system have reduced such an influence of industry and transformed the factors and the sectoral basis of growth in many developed countries. It does not mean that industry has stopped influencing economic growth. This influence has changed its content and this circumstance requires a theoretical explanation and further analysis with applied conclusions on the organsation and development of industrial production.
Modern industry having a lot of production activities, industries, performs the most important function in the economy, it creates production means for all existing
1 It is not listed here, since this is a very significant number of sources that are summarized in other works by the author and many other Russian researchers.
and changing economic activities. Under the influence of unique technologies, new sectors of production and types of servicing labour emerge. If we imagine an economy consisting of four large economic sectors - industry, agriculture, services (whole set) and the raw material complex, the industry, in accordance with demand, solves the problem of supplying the three given sectors with fixed capital (equipment, machines, tools, other types of devices). It also maintains the renewal of its fixed capital and, in addition to the production means, it produces consumer goods that is a large group of general-purpose goods in various consumer areas. The created fixed capital make it possible to satisfy the demand for these goods, and often, by generating technological changes, it is the industry as a system that programs the demand for certain types of consumer goods, since the consumer cannot even imagine the emergence of such a product until it is created and produced using new technologies. This effect is the reason for the destruction of the 'consumer independence' principle [Galbraith, 2009], increasing rather than reducing the influence of industry on economic development.
Despite the fact that the contribution of industry to the growth rate of the economy has decreased over time due to a decline of its share in GDP and the speed of development, the overall economic impact can hardly be considered weakening, especially in the generation of technological changes and moreover, since a highly developed economy is always characterised by high-tech industry, a large amount of R&D and the introduction of new knowledge in production.
In the 20th century, during the period of industrialisation the production of underdeveloped countries was weak and unable to overcome the 'vicious circles of development' [Nurkse, 1952, 1961]. In this regard, emerging industrialisation strategies, although belatedly, tried to catch up with the developmental gap. The low level of production, coupled with the technological backwardness of agriculture, led to low per capita incomes, which did not allow capital to be concentrated in the form of savings in the banking sector or invested in the development of industry. The lack of savings limited the process of capital accumulation and its distribution in the economy. It fixed the impossibility of increasing productivity, which, in its turn, did not allow to raise income, resulting in low purchasing power of the population and low demand for industrial goods. A 'vicious circle' of industrial degradation arose, which is reduced to a lack of capital and investment in the production development.
Long before Nerkse, the same circumstance was noted by Tugan-Baranovsky in Russia at the beginning of the 20th century, supposing that it was precisely the lack of capital that did not allow the industry to develop and that it could be eliminated by attracting foreign investment (cf.: [Tugan-Baranovsky, 1997]). Nowadays, this assumption looks very naive, since it does not take into account institutional constraints, as well as the fact that it is unlikely that foreign investment can be increased with a low
amount of domestic investment due to the information model of communication between investors who are guided by each other's behaviour.
We argue that in modern Russia, a large-scale discussion regarding the new industrialisation does not cover the points associated with the formation of 'vicious circles of development'. In particular, they are the chronically low dynamics of real incomes of the population, institutional barriers to the formation of industry and its markets within the country1, low productivity and the amount of investment in industry, providing funds not only for other activities, but also for the industry itself. While this 'vicious circle' may not be as prominent in Russia as it was in the post-World War II underdeveloped countries, its attributes are clearly visible in the contemporary Russian economy and industry.
In addition to the classic 'vicious circle' described above, which reduces the potential for the development of production, a 'vicious circle' of structural backwardness can operate, which eliminates the 'big push' strategies and the systematic growth in positive results. The presence of disproportions between industry and other sectors of the economy in terms of profitability and personnel, with a rising interest rate, generates a 'locking effect' of development, since the difference in profitability acts as a rule regulating investments and other resources not in favour of industry. As a result, a low level of investment leads to low manufacturability and productivity, which greatly depend on the state of the fixed capital rather than on labour. The poor competitiveness of the industry results in a contraction of the domestic market, a significant amount of imports and the consolidation of the inefficient structure of these sectors. Under these conditions, the organisation of industrial growth and the quality of capital are becoming the most important areas of technological renewal and overcoming industrial backwardness.
The foregoing allows us to formulate the purpose of the study which is to identify the conditions for the growth of industrial capital as the content of industrialisation, taking into account the landmarks of Industry 4.0, which form the objectives of Russia's technological development; identification of development models and industrial management regimes.
The research method is modeling the growth of industrial production based on the production function and the taxonomy of models and control modes of production growth. Models of industrial development are distinguished by the ratio of relevant factors of industrial development - labour and capital, control modes - by their growth. In addition, priority directions of technological development, constraints and opportunities of modern industrialisation are analysed.
1 Including the lack of detailed plans to restore the lost industrial activities and develop the reduced ones.
Within the framework of the Industry 4.0 doctrine, we can see the directions of the technological transformation of the Russian industry, therefore, two objectives are to be accomplished in order to achieve the purpose:
1) performing a general brief overview of technological changes within the framework of Industry 4.0 doctrine and bringing out the specific aspects of modern industrialisation based on this doctrine;
2) providing a theoretical analysis of industrial growth based on changes in fixed capital, taking into account the reproduction of capital for other types of activities, it is also done by industry.
Consistent progress in settling these problems will make it possible to distinguish models for the development of modern industry and the corresponding control modes.
Technological horizons of Industry 4.0 and 'vicious circle of development'
The dynamics of fixed capital is, undoubtedly, associated with the technological renewal of production and constitutes the core of this process. For this reason, by identifying the properties of capital accumulation in industry and the reproduction of capital for other sectors, it is possible to describe the process of technological change, as well as growth opportunities, the rate of which, according to Bazarov's 'damping curve', may slow down as the available factors of production are exhausted in case of update difficulties (Figure 1) [Bazarov, 2014].
Exhaustion of factors
Fig. 1. Decrease in the industrial growth as the production factors are exhausted
Figure 1 shows the effect of Bazarov associated with the exhaustion of industrialisation factors, which first slows down the growth rate of industry and the economy in general, and then leads to its decline. Curve (1) corresponds to the situation of using completely new equipment, which has a margin of safety; curve (2) is a situation without large-scale technological re-equipment of production. Naturally, the graph does not indicate that curve (1) requires the factors of a completely different quality than they are for curve (2), which affects the shape of the lines and how much curve (1) exceeds curve (2) and at what point they intersect. At the same time, this idea thoroughly described the slowdown in the rate of industrialisation in the USSR in the late
iL
1 - use of new equipment
2 - lack of technological re-equipment
1930s, the rate of economic growth before the outbreak of World War II, and in the late 1980s. Nowadays, it is very useful in modeling growth, especially considering the objectives of technological modernisation based on the Industry 4.0 doctrine.
Models of technological, used in the framework of growth theories growth [Freeman, 1974, 1987; Dosi, 1984; Nelson, Winter, 2000; Helpman, 2011], suggest the inclusion of the effect of capital aging over time, which affects technical innovation and determines the differences in interacting technology generations. This effect is very complex and unpredictable, since the new technology demonstrates a high uncertainty of interaction with previous generations of technology. Moreover, the efficiency of its use varies non-linearly and can quickly decrease with the appearance of new samples. This circumstance also affects the assessment of investments in new equipment, but the criteria for making decisions on new models often do not take into account the indicated uncertainty in the interaction of generations of equipment. Therefore, investment decisions are subject not to technical parameters, but to purely financial criteria.
Technological development trends are outlined within the framework of the implemented Industry 4.0 doctrine [Vaidyaa, Ambadb, Bhosle, 2018], which has overtaken the most economically advanced countries. The set of planned technological changes in the economy and industry is referred to as the fourth industrial revolution1 [Philbeck, Davis, 2019], although it is much larger than the Industry 4.0 doctrine that emerged in Germany in 2011-2015 and reduced the situation exclusively to the introduction of digital technologies into production2 [Lu, 2017; Franka, Dalenogareb, Ayala, 2019]. Thus, the fourth industrial revolution includes Industry 4.0 doctrine as a significant component, showing the importance of links between organisational, digital and other industrial, environmental and social technologies.
The three previous industrial revolutions were in the field of technological development, but each of them had its own specific features. In particular, during the period of the first industrial revolution [Crafts, 2005], marked by advanced agricultural technologies and the use of steam power, the rate of industrialisation significantly outran the rate of economic growth. This discrepancy in the growth rates of the economy and industry, which was probably a reflection of the existing technological structure and the creation of many industrial sectors from scratch. The second industrial revolution [Jevons, 1931] ensured the emergence of new industries, the introduction
1 In 2016, this term was introduced by Klaus Schwab, who published a book called The Fourth Industrial Revolution, the main idea of which was that industry, acting as a generator of basic technologies, creates the conditions for large-scale technological modernisation of modern life.
2 Within the framework of this doctrine, the following technologies and processes are considered: the Internet of Yhings and cloud models; cyber-physical systems; information and communication technologies; enterprise architecture; integration, etc.
of new technologies, including methods of organising production, and the third one [Rifkin, 2011] was characterised by major organisational changes in industry, moving away from hierarchical organisation in favour of horizontal structures, the spread of ecological and network information technologies1.
Currently, industrialisation is reduced to the frontal spread of digital and communication technologies, but considering the 'computer paradox, this may not give a significant and rapid increase in production productivity [Sukharev, 2021]. Moreover, in accordance with the 'damping curve' effect (Figure 1), the unguaranteed dynamics of capital renewal during the introduction of digital technologies may affect the economic growth rate, causing its low values. The rate of renewal of the fixed capital of industry and the economy and the rate of introduction of digital technologies, being different, can lead to a slowdown in industrial development, including technological renewal, i.e. cause the opposite effect. Such an impact may be less important if other factors for the renewal of production technologies are activated due to the efforts of the adopted economic policy.
According to the above, we can distinguish a certain set of studies on Industry 4.0 and the introduction of digital and other network technologies. These studies place a special emphasis on the readiness of production to bring in these technologies [Castelo-Branco, Cruz-Jesus, Oliveira, 2019; Machado et al., 2019] depending on the development of information infrastructure and other conditions [Kuo, Shyu, Ding, 2019; Silva et al., 2019], and thereby state that the success of the introduction of digital technologies largely depends on the original conditions and the readiness of industries and agents for such activities. The issue of the impact of implemented digital technologies on the production development is considered separately [Li, Dai, Cui, 2020; Horvat, Kroll, Jäger, 2019]. Moreover, some differences in influence are found, depending on many factors and production circumstances.
We can conclude that there are very substantial constraints for the introduction of digital technologies in production determined by the state of production technologies and infrastructure, as well as the level of personnel training. Moreover, these conditions set the scale for the introduction of digital technologies. However, there is one more aspect relating to the state of fixed capital, i.e. the quality of equipment, tooling base, molds, which form the basis for production automation. The dynamics of the introduction of new technologies will correspond to the dynamics of the renewal of capital with the compensation of its expenditures. In this regard, the presence of 'vicious circles of development' leads to a very significant constraint for technological innovation. Therefore, the measures of the adopted economic policy, including
1 It is significant and noteworthy that this exact interpretation of the third industrial revolution by Jeremy Rifkin that was accepted by the United Nations and recognised in China.
its industrial component, can influence the process of technological transformation, creating new opportunities within its framework.
If the technological level of production is low, as well as the output, the income generated might be mainly used for consumption, thereby blocking the accumulation of capital. The lack of proper capitalisation of production turns into the fact that its efficiency does not grow, and the production itself does not develop or increase. Accordingly, its level remains low and the chain remains negative. Therefore, it is necessary to build up fixed capital as the most essential condition for modern industrialisation. However, the above classical notion of a 'vicious circle of development' does not take into account the fact that capital cannot be increased not because of the lack of savings (low value), but because of the weakness of the financial system, which does not direct savings to the necessary creation of capital. Financial institutions can launch savings into a speculative turnover, thereby exposing capital to speculative waste or taking it abroad, impoverishing the industry and preserving its backwardness, including in technology.
The above arguments also modify the famous thesis of Prebisch, according to which technological progress increases wages in the industry of developed countries and does not allow them to grow in developing countries [Prebisch, 1950; Prebisch, 1992]. At the same time, the level of prices from the introduction of new technology does not decrease in developed countries, but decreases in underdeveloped ones. Such a process leads to non-equivalent exchange, linking the technical development of backward countries to the advanced ones'. Moreover, they cannot cover expensive imports of technologies and equipment with cheap exports. To overcome this ratio, not just import substitution and protectionism are needed, but technical progress, which ensures wage increases in technologically backward countries, as well as preventing a decrease in prices for industrial products.
Thus, in addition to import substitution, an export strategy and the priority development of education and science with demographic control are needed so that population growth does not hold back wage growth. However, such solutions will require investment, which meets the classic definition of a 'vicious circle of development'. To reveal its fundamental content, it is necessary to study the reasons for the non-increase of wages in the course of technical development, to assess the scale of technical innovations that can change the situation and ensure the growth of industry (industrialisation of underdeveloped countries) on a new technological basis.
Obviously, there are some essential questions from a strategic point of view: what level of the technological upgrade is required? when is it possible to achieve it? what basis and resources should be used? can technological industrialisation provide a different model of development? Creating an industry practically from scratch or deploying a significant number of high-tech sectors (these are close objectives) is
different from technological re-equipment of the existing backward industry along with the restoration of the necessary, but missing or lost knowledge-intensive sectors, which is particularly important for the Russian economy.
For each specific case, according to the conditions of the country under consideration, its own model of industrialisation is characteristic, leading to a certain composition of technologies that differs by country. Industrialisation may also be unsuccessful, as in the 1960s in many developing countries, which, due to urbanisation and the diversion of resources from agriculture, could not overcome the Prebisch effect1, so the combination of import substitution and export strategies did not give the expected result. Of course, multi-vector development is possible today, especially for a country rich in resources, capable of having highly diversified exports and deploying industries that counteract imports in the domestic market.
The information and digital sectors are very convenient areas for the diversion of capital, and we can assume that they are able to dampen the renewal of the fixed capital of industry, eliminating further potential for technological modernisation. In addition, the costs of maintaining information and communication systems are quite substantial, including the required and constantly trained workforce serving these technologies and areas of activity. In other words, instead of a lack of capital due to insufficient savings (a factor that may be present due to the low dynamics of real incomes in Russia), the presence of modern sectors in the field of information and communications plays a speculative role in the distribution of capital, weakening its ability to replace production technologies. Along with this, there is also a multiplier effect, when digital and information technologies require the modernisation of instruments and equipment, but it can be offset by consumer effects associated with the importance of the IT sector.
Summarising the above, we note that the central task is to determine the growth of industry in the coordinates of classical factors - labour and capital, as well as to identify the control modes for this growth, depending on how industry provides capital not only for itself, but also for other sectors of the economy, which depends on their demand for it and development dynamics.
Further, we will consider this aspect in more detail, applying elements of modeling based on the production function. The theoretical analysis makes it possible to draw up a number of matrices in the coordinates "capital - labour", "capital and labour
1 It also corresponds the argument of Mihail Manoilescu, who discovered the following effect during industrialisation: young industries showed an average wage higher than in agriculture, which, with close labour productivity in sectors, undermined competition with imports in the domestic market, devaluing the tasks of industrialisation. There was a need to protect the domestic market [Sukharev, Strizhakova, 2015]. Our works demonstrate that for the Russian economy and modern technological industrialisation, one should not adhere to the link between wages and productivity, predetermining the increase in wages only by increasing productivity. The reason is that productivity depends on the state of fixed assets and their renewal (investment). In addition, the low cost of labour makes it difficult to apply knowledge in production and reflects the simplification of the production process [Sukharev, 2018].
growth", "capital growth rate of non-industrial sectors and labour growth rate in industry", as well as "industrial growth rate - capital expenditures (equipment modernisation)". Based on these ratios, it is possible not only to identify the state of the industry (its development model), but also to characterise the main control modes.
Industrial growth: development models and control modes
Industry can show at least two types of growth.
First, it is the growth of the volume of own production (Yu), which consists of the means of production (Ys) created by the sectors of industry for themselves (K1) and other types of economic activity1 (K0) and consumer goods (Yp), t. e. Yu = Ys +Yp = = Ki + Ko + Yp.
Second, the expansion of the industry itself and its sectors, including the creation of completely new sectors, which is characterised by an increase in production capacities (the fixed capital of the industry Ku = K1 + Kn, where Ku is the entire fixed capital of the industry, including the value of the initial capital Kn, and the created current capital K1, taking into account disposal) and the level of its manufacturabil-ity. Let us denote the growth rates: gYu = (1/Yu) (dYu/dt); gKu = (1/Ku) (dKJdt); gLu = (1/Lu) (dLu/dt); gKl = (1/Ki )(dKi/dt); gKo = (1/Ko) (dKo/dt).
The classical production function, describing the growth of industry as an industry consisting of many industrial sectors, can be written in the standard way: Yu = A Ka L¡b, where A is the coefficient, Ku is the fixed capital of the industry, Lu is the value of the labour resource of the industry, a, b are substitution rates for the main factors of production (capital and labour).
Having a model for the volume of industrial production, differentiating with respect to time, we obtain formula (1) for the industrial growth rate (gYu):
gYu = a gKu + b gLu. (1)
The first term of formula (1) means the contribution of capital; the second is the contribution of labour to the growth rate of industry. Obviously, for the growth of industrial production, it is necessary that the growth rate of capital outrun the growth rate of labour with the opposite sign, weighted by the ratio of substitution rates (b/a).
The volume of industrial production, as shown above, consists of the following components: Yu = K1 + K0 + Yp. We may assume that the creation of consumer goods depends on the amount of current capital that industry creates for itself. We introduce the following model Yp = HK¡ and write the equation for the total volume of industrial production: Yu = K1 + K0 + hK1. If we assume dYu/dt > 0, we get:
1 If we consider the four main sectors that create the country's GDP - industry, agriculture, services and the raw material complex, then other types of activity are understood to be those covered by the last three sectors, i.e. non-industrial activities.
dK1>_dK,
dt dt
1 + hcK
c-l
(2)
From formula (2) it follows that for the growth of industrial production, the change in the created capital for the industry itself must exceed the weighted change in the created capital for non-industrial activities with a negative value.
When setting the problem of finding the optimal volume of industrial production dYu/dt = 0. By separating the variables and integrating the expression, we can obtain the ratio between the amount of capital K1 and K0, i.e. between the capital created for industry and for non-industrial purposes, corresponding to the optimal (largest or smallest) value of industrial production.
We can simplify the task of studying the growth of industry in terms of its capital structure, assuming that the total volume of production Yu = A K1 LUb, i. e. we will assume that the production function can be written from the current created capital for the industry itself. Then, for the growth rate, expression (1) will be: gYu = a gK1 + b gLu.
Introducing the notation s1 = K1/Yu, s0 = K0/Yu - the norms of created capital in industry and non-industrial activities in the total volume of industrial production, we differentiate the expression with respect to time Yu = K1 + K0 + Yp and wite as: gYu = s1 gK1 + s0 gK0 + (1 - u) c gK1, where u = Ys/Yu is an indicator of industrialisation, since it means all the capital created by industry in the volume of industrial production.
Further, having carried out the transformations, equating the expressions for the growth rate gYu, presented above, we get:
_ _ s0gKo - bgLu
iJKí--7Z T-. (3)
a -sx- (1 - u)c
Expression (3) reflects the growth rate of capital created by industry for its own needs. The growth of this capital gK1 > 0 will mean the expansion of industrial development opportunities and the technological renewal of production.
Based on this, we get inequality (4):
sq9k0 ~ bgLu
a-s.-il-^c ■ (4)
Condition (4) is satisfied, which means the growth of the industry's capital, if the growth rate of capital for non-industrial sectors created by industry exceeds the b/s0 growth rate of labour in industry. In this case, the denominator of the fraction of expression (4) must be greater than zero, i.e. a - s1 - (1 - u) c > 0. Whence c > 0, u > 1 + s1/c - a/c. If c < 0 the inequality sign for u is reversed.
Inequality (4) is satisfied when both the numerator and denominator are less than zero. In this case, the accumulation of industrial capital will occur if the growth rate of capital created for non-industrial sectors is less than the growth rate of labour in
industry. In addition, it is fair when, u < 1+ si/c - a/c, when, c > 0, and the opposite inequality sign for u, when, c > 0.
Certainly, judging by the model for the production volume of consumer goods by industry, the value of c must be greater than zero (c > 0). Although theoretically we cannot exclude outcomes when the created capital for industry hinders the creation of consumer goods. Therefore, all theoretically possible options are considered here.
Consequently, the obtained condition for the growth of industrial capital depends on the accuracy of compliance with the introduced models, as well as on the initial level of industrialisation of the economy and industry, characterised by the parameter u, which, by definition u = Ys/Yu < 1.
Of course, the growth of industrial production depends both on this value and on the initial fixed capital, its quality and condition (depreciation level - physical and moral). In this regard, the presented model is rather simplified, but it makes it possible to identify the essence of the problem of industrial growth and technological renewal.
The performed analysis makes it possible to arrange the result in the form of diagrams (Figures 2-4). Figure 2 reflects the area of industrialisation OAB, when the growth of industrial capital is observed and the growth of non-industrial capital overtakes the growth of labour in industry. The area BCDO is the lack of industrial capital growth (deindustrialisation).
Thus, from the standpoint of the study, the idea of industrialisation and deindustri-alisation is clarified in terms of the dynamics of the created industrial capital.
If the angle in Figure 2 turns out to be less than 450, OB will be below the OC. Therefore, the area of industrialisation will be larger.
Thus, having the ratio between the growth rates of capital for non-industrial sectors and labour in industry, we can state the condition for the growth of capital for industrial production. The creation of such capital is the core of the industrialisation
Areas of industrialisation B C
O
Fig. 2. Areas of industrial capital growth
policy and the meaning of technological renewal. This capital is heterogeneous: it includes various equipment (generations of equipment), technologies, including digital ones, and other production technologies. In this regard, the structural analysis of this capital, as well as the distribution of resources (investments) for its creation, is the main content of modern industrial policy, which is guided by the principles of Industry 4.0.
Figure 3a presents the models of industrial development in the coordinates "capital - labour", Figure 3b shows control modes in the coordinates of labour and capital growth.
Ku A kjku
k A
capital intensive extensive capital renewal factor expansion
compressed (economised) labour intensive -w. restrained development by factors renewal of labour
K A LJLU
a) 6)
Fig. 3. Models of industrial development in the coordinates "capital - labour" (a), management modes in the coordinates "growth of labour and capital" (b)
Figure 4 shows the models of industrial development in terms of its growth rate and the amount of capital expenditures (for the replacement of funds, the introduction of new equipment and technologies).
The predominance of capital means a capital-intensive model of development, of labour signifies a labour-intensive model and the corresponding technologies - labour and capital saving, respectively. If there is not much capital and labour, this is a model of compressed industrial development or a deindustrialised economy where industry is not of great importance. With a very significant amount of capital and labour, on the contrary, an industrial model can be detected, but for modern economies, it may be a wasteful or extensive model of industrial development. In this case, growth occurs due to an increasing volume of factors involved, which ensures a high amount of capital and labour used (Figure 3a).
In the coordinates of the growth of industrial development factors (Figure 3b), the main control modes or implementation of development strategies are found. In particular, the rapid accumulation of capital with a restrained increase in labour reflects the mode of capital renewal, and with a significant increase in labour - 'factorial expansion' in industry. With a restrained increase in capital and a considerable increase
in labour, there is an active 'renewal of labour' in industry, and with a low increase in labour - 'restrained development by factors'. Industry does not actively increase either capital or labour. Moreover, these modes of functioning are associated with the implementation of development goals and strategies. Therefore, in contrast to the established models given by the structural 'capital - labour', each mode is about efforts, i.e. actions associated with the accumulation of capital or labour, or the absence of such.
We point out that there is no coincidence of the squares in Figures 3 a and 3b, there both may or may not be a correspondence. Thus, the capital-intensive model of industrial development is due to the fact that the amount of fixed capital is very high, and this situation may no longer be accompanied by a capital renewal strategy (Figure 3a), which has led the system to this state, but it may still be present. It means the amount of capital is high and there is still a high amount of capital gains. Thus, the matching of squares is not mandatory, but it can take place. It depends on what control is implemented, what is its main goal and how it is expressed in terms of capital and labour growth as basic factors of production. Of course, each of the control modes (strategies - see Figure 3b) is able to lead the industry to one or another model of its development (see Figure 3 a).
In general, the industrial development model is presented in Figure 4. The main criterion for their selection is the rate of industrial growth, depending on the capital expenditures made for the replacement and commissioning of new equipment.
labour-intensive growth capital-intensive growth
lack of capital, 'vicious circle of development' overaccumulation, displacement of labour
Fig. 4. Industrial development models in the coordinates "growth (gY) - capital costs (Ku)"
At low capital costs, there is a model of labour-intensive growth (if the rate is high), since the capital is updated very little and the technological level remains unchanged or even can be reduced. If the growth rate is low with a few capital expenditures, there is likely to be a capital shortage or 'vicious circle of development' model in the classic or modernised version, with adjustments for the aspects outlined above. This model of industrial growth is characterised by a low rate, labour does not change or is reduced, but, as a rule, it is de-skilled. If, with high capital expenditures, the growth rate of industry remains very low (Figure 4), an "overaccumulation" model appears,
the main feature of which is the displacement of labour and the high costs of adaptation to new capital, which do not allow an increase in the growth rate. If the growth rate becomes high with significant capital expenditures, there is a "capital-intensive" growth model. The replacement of equipment is subjected to the goals of the development of modern industry, providing an increase in the growth rate and its high value, which, in accordance with the pattern indicated in Figure 1, will decrease as the operation of this equipment and the saturation of these factors of the functioning industry. Over time, the situation may shift to the model of "overaccumulation" or "displacement of labour".
Undoubtedly, the selected development models and control modes are a kind of starting point in the analysis of possible industrial development scenarios based on technological renewal and guidelines of the Industry 4.0 doctrine. In reality, the set of options and models of functioning can be much more significant, given the heterogeneity of the industry structure as a system consisting of many sectors of various technical and technological levels. In addition, there are different institutional conditions, there are combinations of individual factors that are relevant within the framework of the existing initial model and recommended control modes, which are mainly determined by the development objectives of industrial facilities. Moreover, even the ownership structure will be of some importance in this case.
Conclusion
Summing up the results of the theoretical study, the most valuable conclusions relate to the following.
First, the technological renewal of the industry, which is formed by Industry 4.0 for the future, will require considerable capital expenditures distributed not only to the introduction of digital technologies, but to the transformation of the internal structure of production, including technology, infrastructure, and management. For this reason, in order to make decisions in this area, it is necessary both to substantiate the allocated resources and to assess the effects of their allocation between recipient and industrial sectors. Typically, such an objective is not included in policy documents related to the implementation of Industry 4.0. China can be an exception [Li, 2018; Kamble, Gunasekaranm, Gawankar, 2018], although these sources do not provide accurate information about solving a similar problem.
Second, in the course of the analysis, we found out a condition for the growth of industrial capital produced by it for the own development, depending on the dynamics of capital created for non-industrial sectors and the growth of labour in the industry itself. Based on this condition and applying it in the "capital - labour" coordinates, models of industrial development and control modes are distinguished according to
the criterion of labour and capital increment in industry as the basic factors of its development. The formed development model usually acts as a result of the applied strategy - a control mode. The obtained and described control modes make it possible to assess not only the trajectory of the evolution of the industry, but also the general causes for the two most influential factors - labour and capital.
The search for the connection between labour and types of capital, including the generations of technology, which embody the high heterogeneity of industrial capital, is a prospective objective for further research. The value and use of the performed analysis and the specified prospects lie in the fact that the proposed projects like Industry 4.0 require careful study not only of the consequences, but also of the true content associated with changes in labour, capital structure, as well as its reaction to such changes. The possibility of capital accumulation with overcoming the 'vicious circle of development' of the Russian economy is the main target of the efforts of both theoretical economists and government authorities responsible for instituting economic and industrial policy.
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Information about the author
Oleg S. Sukharev, Dr. Sc. (Econ.), Prof., Chief Researcher of the Institute of Economics of RAS, 32 Nakhimovsky Ave., Moscow, 117248, Russia Phone: +7 (499) 724-15-41, e-mail: ieras@inecon.ru
© Sukharev O. S. , 2022
