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THE CAUCASUS & GLOBALIZATION
GEO-ECONOMICS
Shahbaz MURADOV
D.Sc. (Econ.), professor, Corresponding Member of the National Academy of Sciences of Azerbaijan (NAS), sector head at the Institute of Economics, NAS
(Baku, Azerbaijan).
Gulshen YUZBASHIEVA
D.Sc. (Econ.), principal researcher, Institute of Economics, NAS (Baku, Azerbaijan).
INDUSTRIAL RESTRUCTURING AS AN INSTRUMENT FOR ENHANCING NATIONAL COMPETITIVENESS
“Nations that attach great value and importance to their future are never carefree or unconcerned but work hard every minute, every second... Every nation has its future, and the positive or negative face of this future depends on the nation itself. We should prepare the ground for the next generation enabling it to live calmly and confidently and to find a powerful tool for further progress and evolution.”1
Abstract
This article considers matters of fostering national economic competitiveness in the context of industrial restructuring. The authors show the dependence of
dynamic and sustainable economic and social development on the frequency and depth of structural transformations in the economy.
1 U. Gadzhibekov, Izbrannye proizvedenia, Elm, Baku, 1985, pp. 10, 11, 12.
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I n t r o d u c t i o n
The main cause of failures in the efforts to achieve competitiveness is inadequate attention to the problems of restructuring and lack of a comprehensive approach to these problems. Meanwhile, restructuring of enterprises and production facilities is a key avenue of approach to fostering competitiveness and enhancing economic efficiency on this basis. Hence the current importance of this problem.
Industrial Restructuring as a Major Factor in Ensuring Sustainable Economic Development
Global modeling helps not only to identify arising global problems in good time and to find ways of resolving them, but also to chart the paths leading to a prosperous future. The prospects of economic development and the main lines of industrial policy stand out ever more clearly against the background of the characteristics and trends reflecting the essence and direction of transition-period transformations. With the transition to a market economy, some proven interaction mechanisms have broken down and objective prerequisites have appeared for the creation of a new institutional environment ensuring both socioeconomic transformations in the country and the normal functioning of business entities, as well as their relations with the state. During the reform period, serious structural changes have taken place in the economy. But for the most part these changes have been spontaneous. In our opinion, structural changes should be carried out under a long-term industrial development program based on an integrated conceptual approach. Such a program can ensure stability, efficiency and sustainability; at the very least, it will reduce risks.
In formulating industrial policy, one must realize that it is not simply a program setting the development priorities, but an integrated system of legislative, administrative, financial and economic measures and actions designed to control the dynamics of the industrial complex and material production as a whole in order to ensure sustainable socioeconomic development and the country’s national security. On the one hand, a comprehensive concept of state industrial policy provides for current modernization of the economy, for the solution of its urgent problems and promotion of economic growth, and on the other, it is aimed at ensuring the long-term competitiveness of domestic production and employment of the economically active population as the basis for the country’s sustainable economic development. Samuel Huntington rightly notes: “We need explicit or implicit models so as to be able to: order and generalize about reality; understand causal relationships among phenomena; anticipate and . predict future developments; distinguish what is important from what is unimportant; show us what paths we should take to achieve our goals.”2 That is why it is important not only to project the main lines of industrial policy (as is mostly done today), but also to propose mechanisms for management decision making in order to put them into practice.
It is known that the industrial complex plays a key role in the economy of any country. Social stability and economic progress are directly dependent on the state of the various industries. Today there are positive trends in the development of the Azerbaijan economy in general and industry in particular. Industrial production and investment activity are on the rise, and the competitiveness of some sectors of manufacturing is increasing, although its structure is in need of serious changes.
2 S.P. Huntington, The Clash of Civilizations and the Remaking of World Order, Touchstone Books, New York, 1998, p. 30.
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An analysis of structural changes in industry shows that its various sectors have adapted to market conditions of economic activity with different intensity. The greatest adaptive capacity in terms of demand for their products has been demonstrated by the fuel and energy complex (FEC), metallurgy and the food industry (share of total industrial output: in 1990, FEC 16.1%, metallurgy 3.9%, chemical and petrochemical industry 6.5%, engineering and metalworking 18.1%, light industry 19.8%, and food industry 27.1%; in 1995, FEC 65.4%, metallurgy 1.1%, chemical and petrochemical industry 5.4%, engineering and metalworking 3.6%, light industry 9.5%, and food industry 10.0%; in 2007, FEC 90.9%, metallurgy 1.9%, chemical and petrochemical industry 1.2%, engineering and metalworking 1.3%, light industry 0.4%, and food industry 2.5%).3 The products of these sectors are in greater demand in the domestic and foreign markets than those of other sectors, and their share of total industrial output has increased accordingly. Engineering and light industry enterprises have proved to be least adapted to market reforms.
The restructuring of an industrial enterprise is taken to mean the optimization of its structure in order to increase the efficiency and stability of its financial and economic activities. Restructuring means that the closure and liquidation of old and inefficient production facilities which do not meet the requirements of the market economy go hand in hand with the development of modern competitive lines of production and industrial activities, whose growth rate should exceed the dimensions of this decline. Basically, the restructuring of an industrial enterprise should help to achieve the following goals: to set up new production facilities using modern forms and methods of labor organization and management; to increase the importance and attractiveness of investment projects; to carry out radical technical modernization of production serving to strengthen the industrial base on progressive principles; to ensure the output of competitive products; and to rationalize business relations with suppliers and consumers of products.
There are two ways to change the situation in industry: first, restructuring of enterprises followed by their privatization; and second, privatization with the participation of large Western investors as guarantors of subsequent restructuring. For Azerbaijan, the more acceptable way was to restructure existing enterprises and make each sector and industry as a whole profitable and stable, i.e., it was important for the government to adopt restructuring programs with simultaneous consolidation and privatization. However, the authorities chose the second option. It was also possible to use the following restructuring methods: changes in the product mix; sale or lease of surplus assets to small and medium enterprises; cost-cutting measures; reorientation of enterprise activities toward market demand; shedding of social facilities, etc. All of this could have helped to renew growth in various industries, including manufacturing. That is why it was important to implement restructuring programs so as to enhance efficiency and maximize the value of companies in order to achieve the strategic goal of sustainable growth, because increasing competition from foreign companies has clearly revealed the weak points of our industry.
It was important to rely on the practical experience of restructuring, both positive and negative, and to promote industrial restructuring as an instrument for increasing general economic efficiency, productivity and competitiveness. For example, when Poland was faced with the need to restructure metallurgy, the open-hearth process was totally eliminated and large expenditures were made to reduce the harmful effect of plants on the environment. Measures were also taken to liquidate the debts owed by plants and to change their structure. Firms ensuring supplies of products to the markets of rolled metal, building bar, rails, etc., were created for each kind of product. The industry’s key enterprises became its consolidating centers, grouping together producers because it was necessary to set up product management structures. There appeared a kind of holding company with the management characteristics of a concern where enterprises maintained their legal status but where key development, supply and marketing decisions were taken at the level of the holding company. State budget
See: Azerbaijan Industry. Statistical Handbook, State Statistical Committee of Azerbaijan, 2008, p. 396 (in Azeri).
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funds were only used to restructure employment as part of the “metallurgical social package.” The government reserved the right to provide guarantees for essential investments in this sector to be financed by commercial banks and private investors.
Today the Japanese government is also trying to make the necessary structural changes in the economy. Restructuring is underway in the country’s automotive, electronic, metallurgical and chemical companies. Nippon Steel, Japan’s largest steel producer, has been successfully restructured. This company has spun off its semiconductor business, which was a non-core activity for it, and has reduced its payroll costs by 38% while retaining its personnel. By now it has already become one of the country’s five efficiently operating steelmakers. On the whole, most companies try to maintain their core staff at the expense of more vulnerable categories of workers and employees while taking certain measures to retrain more unemployed people, increase the role of employment agencies, and provide more targeted social protection for temporary and part-time workers.
In Azerbaijan, the fuel and energy complex should become the main customer for products and services, because today it is important to integrate complementary production chains in the FEC, oil engineering and metallurgy (oil engineering and metallurgy consume fuel and energy, while the FEC consumes the products of engineering and metallurgy). Multi-industry corporations can determine many structural changes in industry and in the economy as a whole. This will help to revive engineering, promote rational development of metallurgy and maximum utilization of production capacity, and reduce purchases of expensive imported equipment and technologies, thereby leading to cuts in domestic energy consumption and an increase in fuel and energy exports by FEC enterprises.
In this process, it is important to take a clear stand on how to address the question of increasing demand for domestic engineering products: protection of domestic manufacturers or measures to stimulate them. In our opinion, the latter is more sensible, because the production of oil and gas equipment is a purely economic task ensuring a guaranteed return on investment in the manufacture of competitive equipment for the oil and gas industry. Among other things, it is necessary to streamline the existing organizational structures by eliminating all intermediate and duplicating administrative bodies and to bring them into conformity with market requirements.
Azerbaijan is also in need of restructuring in ferrous metallurgy and in the chemical and petrochemical industry. It is important to create a chain of technologically related enterprises: production-raw materials-intermediate products-finished products. The chemical and petrochemical industry, among others, is an attractive sector for private capital. Its products may be of interest to oil and gas producers, because they will no longer confine themselves to exports or primary processing of energy resources, but will branch out into areas of production which use associated or natural gas as feedstock.
Successful restructuring calls for a flexible combined approach. The main thing for domestic industries is to resolve the following problems: to overcome the pressure of foreign competitors and expand their own production, to develop science, remove social obstacles, strengthen industrial engineering and the natural resource base, and create related lines of production. As V.M. Masakov rightly notes, it is necessary to “minimize the possible negative consequences of structural change, and this implies the need to determine the extent of the planned transformations, because otherwise the positive effects of restructuring may prove to be significantly smaller than expected in view of the low efficiency of investment activity during the transition to a new production structure.”4 That is why it makes sense to strengthen intra-industry unity, to revive each particular industry as an integrated harmonious entity capable of self-development based on its own and world experience.
Consequently, restructuring should go hand in hand with efforts to foster an open competitive environment and conditions for promoting investments conducive to the rapid creation of new enter-
[ V.M. Masakov, Otraslevaia struktura i dinamika, Nauka Publishers, Novosibirsk, 1982, 258 pp.
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prises in all sectors. Restructuring at the enterprise level should be seen as a multidimensional process: for a correct analysis of concrete restructuring problems, the most convenient and effective practical approach is to build a decision tree as an analytical tool. All of this, in our opinion, will serve to increase competitiveness and reduce risks. According to Samuel Huntington, in order to minimize their losses nations should wield skillfully their economic resources, bolster their unity and coordinate their policies, and also promote and exploit differences among other nations.5
Competitiveness and Industrial Restructuring
An interconnection between national economic competitiveness and industrial restructuring is absolutely necessary for transition countries, including Azerbaijan. The main cause of existing shortcomings in the matter of achieving competitiveness in transition economies is insufficient attention to the restructuring of industries and comprehensive reorganization of existing enterprises. This is because problems of competitiveness and restructuring are not treated as part of an integrated whole, but are addressed locally, in isolation from each other, which entails negative consequences. In this connection, the main way to build competitiveness is to restructure enterprises and lines of production so as to increase their efficiency, productivity and competitiveness, a process resulting in significant sectoral structural changes.
The achievement of national economic competitiveness is characterized by the frequency and depth of structural transformations and adaptation to changing internal and external conditions. Each sector has its own specific structure (fundamental economic and technical characteristics) serving as a source of increase in competitiveness. The evolution of each sector is of strategic importance, because it entails changes in the sources of competitiveness. The main ways to enhance competitiveness are as follows: reorganization of production (by dividing or merging enterprises, eliminating inefficient units, etc.), replacement of obsolete and physically worn out fixed assets, technical innovation, manufacture of new products, etc.
At the present stage of socioeconomic development, qualitative changes in the sectoral structure are a key component of economic strategy. In other words, structural adjustment is development in accordance with the needs of technological and social progress, changes in the sectoral composition of industry helping to achieve sustainable economic growth geared to human needs. Its current importance is due to the fact that in the conditions of largely intensive reproduction the problem of production efficiency and, consequently, the problem of improving the structure of industry come into sharper focus. In fact, structural improvement provides the key to such major components of economic strategy as accumulation, consumption, economic growth rates, intensification and efficiency.
The development of the world economy requires faster growth of energy production and favorable terms of trade in energy markets that would rule out sharp price fluctuations, while the globalization process calls ever more insistently for the creation of new forms of regulating the development of the global energy system. Politically speaking, the globalization of energy markets and energy supplies has important consequences, because individual countries can no longer formulate their policy in this area in isolation from each other. As we know, Azerbaijan’s huge energy reserves are among the main assets underpinning its further economic growth and development. Oil and natural gas exports remain the major source of the country’s foreign exchange earnings. It should be noted in this context that the energy sector includes not only the FEC industries, i.e., industries responsible for
See: S.P. Huntington, op. cit., p. 206.
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the supply of energy (production, processing and conversion of energy, including its transportation and storage), but the entire cycle of operations involving energy: from geological exploration to final energy consumption in various branches of the economy. Thus, it is not only fuel and energy industries proper (including traditional natural resource industries) that can be drawn into potential cooperation through existing mechanisms. The important thing is to observe the principle of balancing the interests of energy producers and consumers: if investors gain access to resources in the territory of energy-producing states, the latter should gain access to export markets, technologies and know-how for efficient use of energy. This results in a balance of interests between the parties, between potential investor countries and energy-exporting countries, which is realized on a most favored nation basis in mutual economic relations. It can be said that incipient integration processes are beginning to spill over into other areas of activity through related industries. Naturally, some may argue that increasing investments in energy production instead of manufacturing will further increase the country’s dependence on oil and gas price movements, perpetuate its single-commodity export orientation, lead to lopsided development of industry, etc. But all of this is true only if no measures are taken to change the situation in the economy.
The Azerbaijan authorities are pursuing a policy designed to reduce the country’s oil dependence. Oil and gas revenues are mostly used by the state to develop the country’s regions, create new jobs and carry out structural changes in the economy (development of agriculture, the chemical industry, transport and telecommunications, tourism and other sectors of the non-oil economy). Azerbaijan President Ilham Aliev believes that in order to ensure all-round economic development, diversify income sources and insure the country against dependence on oil it is necessary “to create a strong industrial potential aiming at a diversified industry; .. .it is important to continue developing the nonoil sector in order to reduce the oil dependence of the national economy.”6
Consistent implementation ofjust such a policy has provided the basis for major socioeconomic successes and steadily high rates of economic growth coupled with the state’s growing role in the national economy. In the first quarter of 2008, the country’s GDP increased by 13.8% (AZN 8.209 billion), industrial production by 12.9% (AZN 7.051 billion), and fixed capital investment by 21.4% (AZN 1.409 billion). In 2007, GDP grew by 25% (to AZN 25.2 billion), and GDP per capita by 23.6% (to AZN 2,981 or $3,474).7 Under normal conditions, investments in the fuel and energy complex, including natural resource projects, stimulate additional activity in the country, generating multiple indirect effects outside the extractive industry in addition to tax revenues from this sector going into the budgets of all levels. During the entire project implementation period under production sharing agreements (contracts have been signed on PSA terms), the immediate spillover effects from production investment in a project (production of goods and services for the project by domestic industries) may be twice as large as the direct effect (budget revenues from oil). In other words, the demand for goods and services to be generated by the oil and gas sector in other sectors of the economy significantly exceeds the state’s direct (oil) budget revenues from the project.
Most of these revenues are automatically redistributed through the oil and gas complex in favor of competitive manufacturing and service industries, and these, for their part, can be a source of additional employment and production for related sectors and industries producing consumer goods for people who have obtained paid jobs. It should be noted that investments in PSA projects yield a quicker return in manufacturing and service industries than in the oil sector proper.
The circular flow of funds generates additional effective demand for goods and services required by the project; this demand is met by the domestic market, creating new enterprises, lines of production and jobs. Suppliers of goods and services for the needs of concrete investment projects, for their part, place orders with producers and subcontractors. This leads to an increase in production
Vyshka (Baku), 18 January, 2008.
6 i
7 See: Ekho (Baku), 19 April, 2008.
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in other sectors, driven by expenditures under oil and gas projects. People involved in this process use their wages to buy goods and services in the consumer sector, thereby stimulating the development of the consumer goods industry. Since corporate and household income is subject to tax, public revenues grow as well. The state, for its part, spends its additional financial resources in the domestic economy. With each cycle, this circular flow of income makes an additional contribution to the overall economic and social effect of the economy as a whole.
Consequently, total income from projects is mostly associated not with the oil industry, but with engineering, industries producing goods and services for the oil industry, and the regions. That is why investment projects in the oil sector should be seen not only from the perspective of their budget efficiency (direct tax effects), but primarily (considering the total effects from their implementation) as development projects. This points to the existence of objective prerequisites for the “key role” of oil and gas investments in building countries with developed manufacturing, services, etc., and not only primary industries. FEC investments produce their main effects (tax and investment) outside the energy sector.
The Role of the State in Restructuring
In the last 10-15 years, Azerbaijan, which took the path of transition to a market economy, has made significant progress in macroeconomic stabilization, liberalization of prices, domestic markets and foreign trade, privatization and institutional reforms. It is becoming an active business partner in other countries in the region and is working to expand the interregional economic and political dialogue. And this, for its part, reveals the need to adapt to the new realities, which reflect globalization and competition processes. The current experience of developed countries shows that certain problems may arise in the efforts to achieve competitiveness and that these problems can be resolved by government intervention.
The existing sectoral structure of the Azerbaijan economy testifies to the low development level of its competitive capacity and thus calls for an appropriate structural adjustment policy. As Michael Porter rightly notes, one should start from the principle of a strategy designed to enhance competitiveness in particular industries with due regard for the overall national economic development strategy.8 Today there are two main strategies for enhancing competitiveness in this area: based on industrial policy (implying wide use of the state’s regulatory functions, including direct intervention in the competitive process through the award of government contracts) and based on competition policy.
In a transition economy, there should be some kind of alternative option for industrial restructuring, an option that would combine the advantages of both concepts adapted to the conditions of the transition period and would require the pursuit of an active structural and industrial policy by the state. The need for such a policy is due to the following circumstances:
■ inadequate economic incentives for existing business entities to address the tasks of technological and structural modernization of production, creation and development of new commodity markets in view of the gap between the export-oriented natural resource sector and the manufacturing sector of the national economy (primarily engineering);
■ the weakness or absence in the national economy of business entities capable of addressing on the required scale the tasks of structural diversification of national industrial production.
: See: M. Porter, Mezhdunarodnaia konkurentsia, Mezhdunarodnye otnoshenia, Moscow, p. 14.
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In these conditions, there are two possible scenarios for resolving this problem: growth without development with the prospect of further loss of national competitiveness and growth with development ensuring the transition to a qualitatively new state. That is why it is important to place emphasis on the following:
■ on achieving the set goal by realizing the potentials of innovation, investment and the tourism industry through gradual, consistent and sustained efforts (which is particularly important for Azerbaijan);
■ on reaching agreement between three forces: the state (government), the economy (business) and society for achieving social, economic, environmental and institutional goals;
■ on strategic objectives.
This is a difficult matter and will take a long time. The establishment of fully developed market relations is only possible with an active policy of state intervention in the transformation process. Competitiveness can only be fostered with effective use of external development resources (through wider international trade, investment and technological transfers, gains from trade and movement of production factors, creation of competitive domestic markets, a stable macroeconomy, a competent monetary and fiscal policy, investment in human capital, and efforts to meet basic needs and provide social benefits). The use of foreign trade as a key factor in building and enhancing competitiveness should be clearly regulated by the state through a balanced foreign economic policy, because international trade is conducive to a flow of profits to the developed countries. It would make sense to foster competitiveness based on modern models for creating and developing competitive advantages and maximizing the use of domestic resources in order to minimize the economy’s financial and technological dependence on the developed countries. Hence the even greater importance of the state in the
Figure 1
Adaptive Model for Building National Economic Competitiveness in Transition Economies
State Regulation of Economic Activity
Concept of Factors of
controlled openness of national economic
the national economic system: competitiveness:
— establishment of foreign trade priorities; — demand and competition in the domestic market;
— formulation of a foreign economic strategy;
— development of restrictions on foreign economic activity — factor parameters;
and their coordination with international organizations and — domestic producers'
agreements; competitive strategies
— creation of a free economy and a proper competitive envi- and management system;
ronment in the domestic market; — stable economic
— measures for economic regulation of national economic environment.
competitiveness (taxes, customs tariffs, foreign exchange controls); — administrative regulation methods.
State doctrine of the development of Competitive
domestic production clusters
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recovery period, which requires more purposeful control of processes underway in the country in order to achieve the desired goals (see Fig. 1).
Innovative Orientation of the Restructuring Process
The structural adjustment of economic sectors requires great material and intellectual inputs in view of the growing stratification of sectors and science and a disruption of the balance of interests. As for the process of fostering national economic competitiveness, a special place in this process belongs to technological changes at micro level, because competitiveness is a result of the operation of a whole set of factors constituting the competitive mechanism as expressed through the demand for and the economic efficiency of a product or any economic actor (enterprise, sector or economic system) producing goods and services. The determining factor in the restructuring process is its orientation towards the development of high technology capacity. This is a condition for steady growth in the output of competitive products and a prerequisite for effective entry into foreign markets in the future. The prospects for economic development are associated, in the first place, with the problem of creating a sectoral structure that would meet the current requirements of economic growth based on innovative renewal of production, an increase in its efficiency and competitiveness. This innovative renewal should begin in priority areas whose positions are still sufficiently strong.
It is known that under low rates of economic growth the scientific and technical potential is accumulated faster than it is spent. In Azerbaijan today this potential is spent faster than it is accumulated. To ensure rapid economic growth, it is necessary to use various available opportunities (including the advantages of international division of labor) resulting from the favorable climate for the development of manufacturing (see Table 1).
As the table shows, the mining industry, in contrast to manufacturing, is marked by high competitiveness and a low innovation level. Its products cannot be included among innovative products, but this industry is in need of innovative products, including new technologies and equipment. Manufacturing enterprises, for their part, are more innovative, but lack consistency in investment.
Based on the above, it is important to make effective use of R&D funds so as to obtain additional benefits already in the medium-term perspective. For example, R&D expenditures in industry as a whole amounted to 1.1% in 2002 and 7.7% in 2007; in mining, the respective figures were 5.5% and 3.7%, and in manufacturing, 0.9% and 7.7%. Expenditures for the purchase of machinery and equipment were as follows: 93.3% and 80.6% in industry, 94.5% and 69.6% in mining, and 98.2% and 80.8% in manufacturing. Expenditures for the purchase of new technologies and software: 5.1% and 0.6% in industry, 94.5% and 69.6% in mining, and 0.4% and 0.4% in manufacturing.
An assessment of the situation suggests the conclusion that in order to increase labor productivity growth rates it is not enough to have new equipment: another important point is to organize the reproduction process in accordance with the new opportunities provided by more advanced information technologies. In manufacturing, the efficiency of spending on innovation so far remains low. Most technological innovations are designed to replace equipment and improve workplaces. The proportion of enterprises engaged in research and development or acquiring new technologies is extremely small.
As we see, the share of expenditures for the purchase of new technologies and software is very low. That is why it is necessary to analyze and anticipate the market prospects of technological development and the appearance of innovative products and new generations of technology, machinery and equipment, and to use the results of this analysis to formulate the industrial, scientific and technological policy of government and business (for strategic development and validation of long-term investment projects). This can help to determine the prospects for innovative development and to identify
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Table 1
Innovation Levels by Sector
2002 2007
% level % level
Industry 100 100
Mining 5.0 low 0.3 low
Manufacturing, of which: 95.0 high 99.7 high
Production of food, beverages and tobacco 80.6 high 22.7 high
Textile and clothing industry — — 0.7 low
Production of rubber and plastic products — — 2.4 medium
Production of oil products — — 11.6 medium
Chemical industry 0.9 low 61.5 high
Production of machinery and equipment 1.0 low 1.1 low
Production of electronic, optical and electrical equipment 17.6 medium 0.02 low
Electricity production — — 0.06 low
S o u r c e: The table was compiled by the authors based on data from the statistical handbook Azerbaijan Industry, Baku, 2008, p. 436.
technological breakthroughs capable of having the most positive impact on the economy. A special place in developing scientific, technological and innovation strategy belongs to the new practice of setting the priorities for scientific and technological development with the help of Foresight (futures studies).
Foresight is a system of methods for an expert assessment of strategic lines of socioeconomic and innovative development, for identifying technological breakthroughs that could have an impact on the economy and society in the medium and long term. It helps to evaluate the possible prospects of innovative development associated with scientific and technological progress, to explore the technological horizons that can be reached with certain amounts of investment and with the organization of systemic work, and to assess the possible effects for the economy and society. The choice of a development strategy using Foresight is made based on a series of broad expert consultations, which makes it possible to foresee the most unexpected turn of events and the potential “pitfalls.”9
In Azerbaijan, Foresight could provide the basis for industrial policy, helping to understand the main global technological trends and to propose measures for strengthening the country’s competitive position. Its use could create conditions for resolving the key task of structural and investment policy: restoring production in engineering and metalworking, in the chemical and petrochemical,
9 N. Sheliubskaia, “Forsait—novyi mekhanizm opredelenia prioritetov gosudarstvennoi nauchno-tekhnicheskoi politiki,” Problemy teorii i praktiki upravlenia, No. 2, 2004; A.V. Sokolov, “Forsait: vzgliad v budushcheie, Forsait, No. 1, 2007.
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light and food industries (where output has fallen to an intolerably low level), but this time with a new, consumer-oriented structure. Only a strong state which relies on sectoral priorities can ensure real economic development and growth in domestic production, supporting domestic producers through customs, tax, monetary and financial policy. In this process, we should draw on the experience gained in using Foresight.
Once the prospects for the country’s development are determined in accordance with the set concrete goals, it will be possible to project the measures to be taken in priority sectors to revive industrial production and set the stage for real economic growth, because today we are still unable to make full use of our advantages. The list of priorities should include areas of development that have retained their potential competitive advantages, i.e., those which meet the needs of the present generation without depriving future generations of the opportunity to satisfy their needs as well. That is why it is advisable to create conditions for growth of the national economy and for enhancing its competitiveness in promising areas of economic, scientific and technological development helping to adapt to the new realities reflecting the processes of internationalization, globalization and competition. It is safe to say that “globalization is a new stage of international competition which consummates the process of transnationalization of the world economy.”10 With this in mind, we should take account of the economic realities and rely on economic structures, learning to work in two dimensions at once—in the system of the global world economy and in the system of the fragmented world of politics—and to manage our resources. The transition to a new development model implies the need not only to address the problems that arise in current economic activity, but also to find new and more effective ways to resolve economic and social problems, devise more appropriate indicators of social and economic development, and create a new system for controlling these processes based on the integration of the problems being addressed.
C o n c l u s i o n
At the present stage in the development of the national economy, the adaptation of industries to market conditions of economic activity proceeds with different intensity and depending on the demand for their products. But the long-term prospects of industrial development focus attention on the problem of creating a sectoral structure that would meet the current needs of economic growth based on innovative renewal of production, on its growing efficiency and competitiveness, as characterized by the frequency and depth of structural transformations and adaptation to changing internal and internal conditions. Hence the importance of a strategic evolution of industries, because it will inevitably entail a change in the sources of competitiveness, increasing the overall need for restructuring.
In this context, it should be taken into account that restructuring is a complex, multidimensional process which creates conditions for a steady increase in the output of competitive products and effective entry into foreign markets. That is why we should learn to work in two dimensions at once—in the system of the global world economy and in the system of the fragmented world of politics—and to manage our resources.
10 Sh.M. Muradov, A.K. Gezalova, R.D. Efendiev, Globalizatsia, demograficheskoie razvitie i trudovaia aktivnost naselenia v Azerbaidzhane. Monograph, Elm, Baku, 2007, pp. 43.
