CC BY
44
УПРАВЛЕНИЕ ЭКОНОМИКОЙ: ПРОБЛЕМЫ И ПЕРСПЕКТИВЫ
УДК 35.08(574) DOI 10.12737/6711
Получено 15.09.2014 Одобрено 17.09.2014 Опубликовано 15.12.2014
Харчилава Х.П.
канд. экон. наук, доцент, ФГОБУ ВПО «Финансовый университет при Правительстве Российской Федерации», г. Москва
e-mail: leorem@yandex.ru
институциональные факторы и их влияние на инвестиционную привлекательность российской экономики
Аннотация
В статье рассматривается институциональная структура национальной экономики, которая состоит из формальных и неформальных институтов, проводится анализ их взаимодействия. Выявлены взаимосвязь и взаимозависимость между формальными и неформальными институтами и их влияния на бизнес среду. Целью данной работы является обоснование необходимости осуществления институциональных изменений в России, которые приведут к формированию благоприятной бизнес-среды для хозяйствующих субъектов и способствованию повышения экономического развития. Основная цель институтов заключатся в снижении операционных издержек, путем установления правил действия для всех игроков. Автор определил институциональные факторы и их влияние на прямые иностранные инвестиции (ПИИ).
Ключевые слова:
формальные институты, неформальные институты, транзакционные издержки, экономическая система, эффективность, прямые иностранные инвестиции.
Kharchilava Kh.P.
PhD of Economic Sciences,
Associate Professor,
FSBEI HPE "Financial University
under the Government
of the Russian Federation", Moscow
e-mail: leorem@yandex.ru
Institutional Factors and Their Impact on Investment Attractiveness of the Russian Economy
Abstract
The paper considers the domestic economy in terms of its institutional structure, which consists of both official and informal institutions, and then analyzes how these institutions interact. Interplay and interdependence between official and informal institutional structures are revealed and how these affect the business environment is shown. The goal of this writing is to rationale the need to undertake institutional reforms in this country, which would help to instill the kind of business environment favorable to economic entities and would also enhance economic development. The major goal of institutions is to reduce operational costs through establishing rules of game for all participants. Further the author reveals institutional factors and how these affect the direct foreign investments (DFI).
Keywords:
official institutions, informal institutions, transactional costs, economic system, effectiveness, direct foreign investments (DFI).
As a field of study, institutionalism originated in the beginning of the twentieth century. The original, «Old» institutionalism was based on the importance of path dependency, the autonomy of institutions, evolutionary economics . Moreover, it considered political and cultural factors of organisation, motivation and interaction and used a holistic approach to economics [1]. According to Gunnarsson, nowadays old institutionalists are considered advocates of mostly empirical and unrealistic research programme, posing no threat to neither classical nor neoclassical schools [2].
On the opposite, much of new institutionalism's legitimacy is rooted in its reliance on neoclassical economic theory, because new institutionalism intents to
relax some of the utility-based neoclassical model's assumptions . The aim of new institutionalism is to combine the institutional analysis within a neoclassical economic framework so that institutional change would be considered as one of the important variables. Douglass North, one of the leading theoretician of the new institutionalism, highlights some questionable assumptions in the rational choice model that because of the incompleteness of information and largely unique situations lead to the development of behaviour patterns [3]. According to North, those patterns of behaviour are embodied in and guided by institutions
By merging institutional analysis and rational based models, new institutionalism justifies the existence and
role of such institutions with economic reasons . The main objective of institutions is seen as reducing transaction costs by setting the rules of action for all players . As for many other collective action theories, private property rights are the most important factor for new institutionalism that affects transaction costs, and establishment and enforcement of these rights are crucial in terms of costs of transaction and for securing long-term investment [4]. The importance of providing the rules for all players and the enforcement of these rules makes the state a crucial actor in the overall model.
According to Hira and Hira, new institutionalism adds some valuable components to the rational choice model but leaves the foundations intact. Path dependency and value of stable rules, brought by new institu-tionalism, might help explain some short-term irrational choices are being made. Institutions are defined by North as «the humanly devised constrains that structure political, economic and social interactions. They consist of both informal constrains (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights)». Scott argued that institutions are based on three fundamental «pillars»: cognitive, normative and regulative [5]. These pillars represent structures and activities that guide social behaviour, making it stable and meaningful . The cognitive pillar refers to taken-for-granted beliefs and values that are imposed on, or internalized by, social actors [6]. The second, normative pillar determines legitimate means to pursue one's objectives or goals . Finally, the third, regulative pillar defines state-sanctioned formal rules, systems and enforcement mechanisms According to Scott, these three pillars provide bases of legitimacy which are related but distinguishable
Using such definitions as a base, Ingram and Silver-man proposed taxonomy of four different types of institutions: public-centralised, private-centralised, public-decentralised and private-decentralised [7]. Public-centralised institutions are related to state laws, private-centralised refer to organisational rules, public-decentralised institutions amount to culture and private-decentralised institutions focus on societal norms Focusing on institutional architecture, Portes and Smith argue that institutions represent a symbolic blueprint for organisations — the authors define institutions as a set of rules, formal or informal, that govern the relationships between role occupants in organisations and other major areas of social life [8]. Therefore, it could be concluded that efficient and trustworthy institutional interface is the systemic skeleton of national stability and sustainable socioeconomic development Appropriate institutions ensure a low risk and low transaction cost
business environment, which in turn impacts on the value creation process and business competitiveness .
The literature on institutions has grown in recent years and can be classified into three major categories . The first group of authors focuses on the institutional change, answering question like why institutions come into existence and why do they develop in specific ways . The second major group of authors explores the variations in institutional quality between different countries trying to identify the factors that contribute to these differences . Law tradition or legal origins of a country is considered one of important determinants . Studies by Chong and Zanfolin (2000) show that common law system demonstrates positive relationship with institutional quality while countries with French civil law tradition display negative relationship [9]. Trade openness is another determinant of country's institutional quality and after openness in trade is taken into account, concentration of trade in natural resources (which is typical for Russian economy) is associated with poor institutional quality
Finally, the third major category of research on institutions, as well as this work, examines the relationship between economic performance of countries and institutional quality, focusing on the impact of institutional environment on economic growth and investment flows Market access, availability of natural resources or resources of knowledge-intensive assets are not the only location needs a firm addresses . Institutional quality is a part of the location advantages of a county, institutional framework is a significant factor influencing existing ownership advantages [10]. According to Dunning's works, a developed institutional framework enables investors to participate in value-adding activities, increasing country's the dynamic comparative advantages .
Institutional factors and their impact on
Foreign Direct Investment (FDI)
Institutional factors are divided into two broad categories — formal and informal institutions . Formal institutions include laws, regulations, and rules, which are underpinned by regulatory pillar They establish the basis for production, exchange and distribution and include property rights, competition policy, contract law and contract enforcement [11]. Rodrik considers property rights and contract enforcement as «market creating» institutions, vital for any exchange to occur. The author classifies formal institutions as underlying and specific institutions . Underlying institutions such as constitution and rule of law contribute to political stability, prevent corruption and protect private property, while more specific institutions include legislation, regulations
and organizations that create and enforce them, for instance, government agencies and legal system [12] .
According to Meyer and Peng, strong formal institutions influence transaction costs and therefore have an impact on FDI activity [13]. Developed institutions reduce production and distribution costs, therefore increasing profits and making the county more attractive in terms of investment They argue that the relationship between formal institutions and FDI is largely determined in the context of entry mode decisions by foreign entrants . Depending on institutional environment in the host county, organizations might choose different internationalization decision Poor institutional quality in many developing counties affects FDI inflows, creating obstacles for private investment . However, countries with weak institutions might still attract FDI if they provide other location advantages, for instance, natural resources or large markets Both that factors are presented in Russian Federation, partly explaining it attractiveness for foreign investors
Informal institutions present norms, cultures, and ethics, which are supported by the normative and cognitive pillars This study largely relies on Helmke and Levitsy typology of informal institutions, a precise and analytically useful definition given by the author enables to distinguish informal institutions from other informal phenomena [14]. According to Helmke and Levitsy, informal institutions are defined as socially shared rules that are created, communicated and enforced outside official channels Informal institutions emerge due to a variety of factors such as the aftermath of particular historical experience that creates certain socially shared expectations
Another source of informal institutions is believed to be the incompetence of formal institutions, when informal institutions address norms or procedures that are not adequately supported by formal rules Informal rules might be created to pursue unpopular of illegal activities Informal institutions often operate through organisations, transmitting and enforcing informal rules by personal networks
First of all, informal institutions are not synonymous with weak institutions . Second, informal institutions are not synonymous with culture Third, informal institutions are not synonymous with any other informal behaviour irregularity And finally, informal institutions are different from informal organisations — they represent the underlying rules of the game and not the players Breaking both formal and informal rules results is some sanctions However, formal institutions are rules enforced through official channels, while informal institutions are generated and enforced outside those chan-
nels [11]. Williamson observes that most existing studies on informal institutions threat them as exogenous forces, the ones that change the benefits of using alternative formal structures and therefore those studies are abstracted from the ones exploring formal institutions [15]. Some studies suggest that the lack of formal institutions implies the development of informal ones, and the two are viewed as functional substitutes . However, Stiglitz argues that institutional failures reduce the absorptive capacity for investment and technology of many developing countries, emphasising that that not just formal, but informal institutions as well should be strengthen [16]. By reducing or increasing these costs, informal institutions might facilitate of hinder economic activities and therefore economic development of a country
Seyoum emphasizes that two commonly used informal institutional factors — trust and reputation — might be used to establish the relationship between informal institutions and inward FDI [11]. High trust serves as basis for requisite private/corporate infrastructure that guides critical business decisions When business information is compromised by fraud or deceit, critical dependences are managed by ties of trust and reputation to maintain enduring relationships . Overall, trust facilitates economic activity by promoting impersonal market exchanges, decreasing the need for any enforcement and therefore increasing the gains of specialisation .
List observes that the behaviour in the market consistent with market preferences could be explained by reputational concerns . Reputation is considered an intangible asset and a critical source of competitive advantage, therefore, business partners abide their commitments because they are unwilling to harm their reputation and by that jeopardise future potential business interactions Strong corporate boards might be one of the ways to enhance company's reputation.
Both formal and informal institutions form the institutional environment that organisations and individuals operate in, but the contents of these rules might differ significantly Formal rules serve as a benchmark, establishing a minimum degree of conduct expected from any player While those rules are based on ethical standards, not all ethical standards could be legislated Informal institutions might demand more the businesses than formal institutions, but the cost of reliance on such institutions is lower than on formal ones . American merchants, for instance, prefer to resolve their disputes without appealing to an expensive legal system However, heavy reliance on informal institution might cause problems for foreign entrants, unfamiliar with local traditions . For instance, Kerr describes the business environment in the Middle East as the one based on
reputation and trust, but foreign companies face many challenges in navigating complex political systems, patronage network and unclear legal environments, undermining the attractiveness of the region in terms of investments [17].
It can be states that while informal institutions based of trust and reputation improve information inflows and enhance market-based activity, it's the combination of both formal and informal institutions that create the overall institutional environment that might support economic growth and attract FDI or that can obstacles for foreign entrants Therefore, institutional quality has a positive contribution to the foreign direct investment inflows to Russian Federation
Russian Federation: institutional upheaval in
a transition economy
First of all, the terms emerging economies and transition economies need to be specified in order to get a clear understanding of the difference . Emerging economies are defined as low-income, rapid-growth countries using economic liberalisation as their primary engine of growth Transition economies, on the other hand, are a component of emerging economies, which consists formerly socialist countries in East Asia, Central and Eastern Europe, and the newly independent states of the former Soviet Union . Russian Federation is both defined as emerging and transition economy
Compared with industry-specific changes in the West, institutional transitions in emerging economies are described by Newman as qualitatively different [18]. Countries like South Korea and Thailand were forced by external (international) demands to implement major policy reforms, while other countries (for instance, Chile, India) were pushed form the inside; while some countries (China, Vietnam) chose a way of step-by-step reforming through gradualist policies, countries like Russia and Poland experienced «shock therapies» .
The fall of communism resulted in a phenomenon known as institutional upheaval Newman defines institutional upheaval as rapid and pervasive change in the norms and values that underlie and legitimate economic activity, which results in fundamental change in a society's political system, its legal and regulatory frameworks, its economic system, and its financial infrastructure [18]. Roth and Kostova characterise institutional upheaval as a wholesale change of major aspects of an institutional environment and governance systems, accompanied by extreme uncertainty and ambiguity [19].
Russia is a unique case in the BRICS . Even China, still ruled by a Chinese Communist Party, has had a much stronger commercial and entrepreneurial tradition The
mid-1980s marked the beginning of Russia's abrupt departure from seven decades of communism and centrally planned economy to a more market-oriented system [20]. The absence of social memory of market-based templates results in a greater need to destroy the communist-era templates in an effort to move to the new ones, or, of put in other way, in a greater need for dein-stitutionalisation . While the initial conditions for Russian Federation could be similar to many former Soviet Union countries, the shock therapy and privatisation process undertaken by the country and the cultural and ethical legacy of the communist era have resulted in formal institutional void, generally filled by culturally based institutions. According to Puffer and McCarthy, while privatisation process in the early 1990s was supposed to introduce new formal institutions by legitimating private property, it became the key factor in creating the weak legitimacy of the formal institutions and the attendant uncertainty for managers [20]. A mass voucher privatisation process originally intended to distribute enterprise shares to employees, managers and the general public, wiped out the vital formal institution of property rights and resulted in the rise of oligarchs Russian citizens came to distrust the privatisation process, continued to resent its outcomes, and came to despise the oligarchs, further undermining the credibility of the government and other formal institutions that supported the oligarchs Puffer and McCarthy conclude that the privatisation process has been the source of many of Russia's enduring economic and governance problems, resulting in weak legitimacy of formal institutions and low level of generalized trust [20]. The failure to properly introduce property rights — the "market creating" formal institution — resulted in formal institutional void Using institutional theory as a basis, Roth & Kos-tova come up with two mechanisms that help understand organisation' responses to the upheaval — institutional imperfection and institutional baggage [19]. According to the authors, institutional imperfection is the gap between existing and the desired institutional arrangements and governance systems With the development of the society this gap would reduce Institutional baggage is determined be the strength, ingrainment, and pervasiveness of the institutional arrangements that existed prior to the radical change . Zucker observes that «every institutionalised system tends to carry "baggage" of related structures and activities that become institutionalised over time...» [21]. Transition economies are a good example of fundamental changes that happen instantly, overnight. Peng writes that in the early 1990s «with a stroke of a pen» central planning was abolished, markets liberalised and private ownership legalised [22]. North states
that while formal rules may change overnight because of political and judicial decisions, informal constrains, which are embodied in customs, traditions and codes of conduct, are much more resistant to such changes [3]. Oliver observes that because of such resistance, even of the organisation members recognise the need for change, they may be immobilised by the previously institutional arrangements [23]
To deal with the institutional upheaval, Roth & Kostova consider two types of behaviour organisations use — informal substitutes and deinstitutionalisation . Authors suggest that these organisational responses result from the embeddednes of the firm in one of the institutional systems (conditions) — past and current — and the ownership structure (ownership type) [19]. Informal substitutes are initiatives taken by a firm to reduce or circumvent the obstacles arising from the underdeveloped formal institutional environment . Khanna and Paleru determine such an environments as «institutional voids», when the managers and firms are forced to perform themselves the basic functions [24]. Deinstitutionalisation generally refers to «the erosion or discontinuity of an institutionalised organisational practice». Roth and Ko-stova use this term to define activities undertaken by an organisation to facilitate the transition from the old institutional model to the new one, in case of transition economies this is a change from previous governance systems to a market-based model [19]. To effect dein-stitutionalisation firms might accept the new market-based practices Deinstitutionalisation efforts will include activities that might facilitate the process of transition by learning from international experience, for instance, by inviting equity ownership by foreign enterprises, engaging in outside alliances, and participating in foreign markets through activities such as exporting
Low generalised trust that results in low trust in outsiders and the need to establish relationships networks make it difficult for foreign companies to operate in Russia Peng describes foreign companies' strategic choices when operating in a transition economy during the two stage of transition as weather (1) to adapt to local conditions be playing the network game or (2) to maintain their familiar mode of operations by leveraging their global competitive resources [22]. Which set of strategic choices will be chosen depends on the institutional pressures foreign entrants face . If foreign entrants choose accept the rules of institutional environment based on networks, they will be forced to jeopardise market-based practises so needed in a transition econ-
omy, therefore adding little or nothing to the process of deinstitutionalisation . However, given the foreign firms' strong cognitive beliefs and values centred on market competition, the improved regulatory environment in emerging economies, which includes improved institutional quality, would probably generate regulative pressure for the entrants to compete capabilities, therefore further improving the competitiveness of the host economy and strengthening economic growth. North concludes that rule-based impersonal exchanges, based on formal institutions, are seen as crucial for modern economy growth [3]. Improving institutional quality may help address the number of problems that Russia faces due to the underdevelopment and incompletely enforces legal system, denial of minority shareholders rights and others Moreover, while in other countries the state is responsible for enforcing formal institutions, Russia's formal institutions include the state itself, which has exerted a strong influence over business, creating hostile environment for managers To survive in such conditions, Russian managers have to rely on their personal networks based on personal relationships, goal setting by negotiation and coordination by mutual adjustment .
Therefore, trust and credibility are important components of Russian business culture . Most of the culturally based behaviours in Russia are addressed through social networks or «sviazi» (connections), including the favours called as blat (from German das Blatt — a piece of paper) — a practice imbedded in traditional Russian culture for centuries. While Puffer & McCarthy see the use of blat and networks as one of the reasons for the rampant corruption that plagues Russian business [20]. Explains that in Russian business environment the availability of personalised informal relationships with highranking officials and an organisational ability to build networks has a positive impact on business performance «Administrative resource» (a new name for sviazi) has become more than a special relation with powerful officials; it is a safeguard against selective law-enforcement, a source of business immunity — and, therefore, a possible source of competitive advantage.
All that resulted in a unique case of state-managed, network capitalism While competiveness of such form of capitalism is still questionable, it is clear that personal relations and informal institutions based on trust play a much more role in attracting FDI than formal institutions Thus informal institutions have a greater influence on inward FDI flow in Russian Federation than formal institutions
References
1. Hira, Anil, & Hira, Ron. (2000). The New Institutionalism. American Journal of Economics and Sociology, 59(2), 267—282.
2. Gunnarsson, Christer. (1991). What is new and what is institutional in the new institutional economics? An essay on old and new institutionalism and the role of the state in developing countries. Scandinavian Economic History Review, 39(1), 43—67.
3. North, Douglass C. (1991). Institutions STÖR. The Journal of Economic Perspectives 5(1), 97—112.
4. De Soto, Hernando. (1990). The other path: The invisible revolution in the third world.
5. Scott, W.R. (1995). Institutions and Organizations: SAGE Publications.
6. DiMaggio, Paul J, & Powell, Walter W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American sociological review, 147—160.
7. Ingram, Paul L, & Siverman, Brian S. (2002). The new institutionalism in strategic management.
8. Portes, Alejandro, & Smith, Lori D. (2010). Institutions and national development in Latin America: a comparative study. Socio-Economic Review, 8(4), 585—621.
9. Chong, Alberto, & Zanforlin, Luisa. (2000). Law tradition and institutional quality: some empirical evidencef. Journal of International Development, 12(8), 1057-1068.
10. Dunning, John H. (1998). Location and the multinational enterprise: a neglected factor? Journal of international business studies, 45-66.
11. Seyoum, Belay. (2009). Formal institutions and foreign direct investment. Thunderbird International Business Review, 51(2), 165-181.
12. Rodrik, Dani. (2003). In search of prosperity: Analytic narratives on economic growth.
13. Meyer, Klaus E, & Peng, Mike W. (2005). Probing theoretically into Central and Eastern Europe: Transactions, resources, and institutions. Journal of international business studies, 36(6), 600-621.
14. Helmke, Gretchen, & Levitsky, Steven. (2006). Informal institutions and democracy: Lessons from Latin America.
15. Williamson, Oliver E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative science quarterly, 269-296.
16. Stiglitz, Joseph E. (2000). Formal and informal institutions. Social capital: A multifacetedperspective, 59-70.
17. Kerr, S. (2010). Riches Collide With Risks.
18. Newman, Karen L. (2000). Organizational transformation during institutional upheaval. Academy of Management Review, 602-619.
19. Roth, Kendall, & Kostova, Tatiana. (2003). Organizational coping with institutional upheaval in transition economies. Journal of World Business, 38(4), 314-330.
20. Puffer, Sheila M, & McCarthy, Daniel J. (2011). Two Decades of Russian Business and Management Research: An Institutional Theory Perspective. The Academy of Management Perspectives, 25(2), 21-36.
21. Zucker, Lynne G. (1991). Postscript: Microfoundations of institutional thought. The new institutionalism in organizational analysis, 103-106.
22. Peng, Mike W. (2003). Institutional transitions and strategic choices. The Academy of Management Review, 275-296.
23. Oliver, Christine. (1992). The antecedents of deinstitutionalization. Organization studies, 13(4), 563-588.
24. Khanna, Tarun, & Palepu, Krishna. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41-48.
