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PROTECTIONISM AND IMPORT SUBSTITUTION AS PART OF THE NATIONAL SOCIOECONOMIC AND SCIENTIFIC-TECHNOLOGICAL DEVELOPMENT POLICY
Luchinkin M.Y.
EMBA, DBA
Deputy Director of ICT Competence Center 33-2, Usacheva st., Moscow, Russia
Abstract
This article describes protectionism policy and import substitution mechanisms for national economic development, support for the development of "emerging" and priority economic sectors, the relationship between protectionism and openness policies, analyzing the state policy of import substitution and the emerging risks associated with its implementation.
Keywords: long-term economic development, world economy, scientific and technological progress, state policy, globalization, protectionism, import substitution, support for the development of "emerging" and priority economic sectors, international competition
Introduction
Economists have been arguing for many decades in the academic community about which economic models allow a country to develop sustainably in the long term, increase a country's wealth and its citizens' prosperity, and which are detrimental to the national economy. Scientific battles about the state's role in national development, national governments' development mechanisms and state regulation efficiency under global economic development, the markets' openness and the cross-border flow of capital, workforce, knowledge and technologies also continue unabated.
Some economists argue, based on empirical research, that development is only possible through international trade, the maximum openness of markets and competition's unlimited power. Others say, also confirming their arguments with research results, that the basis for development is a protectionist policy, an active role in the economic development and national market management. At the same time, international economic history has taught the world some important lessons.
In the first place, completely open or closed economies have failed. But countries that combined models that provided protection for national companies while managing national economic openness have succeeded.
Second, for some countries, globalization and openness have been a source for development and increased state, economic agents and citizens' well-being, but for others they have been the cause of poverty, economic or technological dependence on the former. A country benefits from globalization only by having strong national production.
Third, absolute openness of the domestic market sooner or later leads to technological and product dependence of the country. Countries possessing a technology benefit meaningfully from openness at the other countries' expense, and then, when it is profitable, use their monopolistic rights to these technologies to put economic and political pressure on other countries that have become their "technological colonies".
Fourth, for each country that chooses to take advantages of globalization and openness, or the benefits provided by protectionism and import substitution tools, there is a price, which depends on many internal and external factors and conditions.
Fifth, it is possible to distinguish five basic socioeconomic development strategies based on scientific and technological progress. Countries combine different strategies based on their development stage and "windows of opportunity", with protectionism, openness and export support policies being an integral part [7].
Scientific basis of protectionism and import substitution
Theoretical and practical aspects of the protectionism policy and the application of import substitution mechanisms for national development purposes have received significant attention from many scientists and researchers, including P. Samuelson, F. List, S. Neumann, A.R. Adwale, S. Mukherjee, A. Jaleel, W. Baer, Ko Min Lin, A.H. Amsden, A.R. Adewale, S. Cooke, P. Watson and others.
For example, P. Samuelson pointed out that, on the one hand, protectionism prevents comparative advantage forces from acting as efficiently as possible, and on the other hand, protectionism in one country
prevents comparative advantage forces from acting as efficiently as possible to obtain benefits from another country. At the same time, F. List says that eliminating barriers that helped create and develop national production should only be done when these barriers begin to hinder development, or if an industry has achieved a comparative advantage in contrast to other countries. In his works, List also pointed out the most important sequence of development: national technological and human capital development - national industrialization and formation of a diversified economy based on own and attracted technological capital simultaneously with strong protectionist measures - developing aggregate comparative competitive advantages based on national technological capital, human capital and strong production capabilities - integration into the global economy. Those countries that act in a different sequence, usually subsequently face significant difficulties and barriers to development, and efficiency of government support is greatly reduced.
Development models based on protectionism and import substitution, on the one hand, contradict globalization and growth models based on the international division of labor, and on the other hand, are an integral part of the economic development policy of most developed states and developing countries, which were able to ensure sustainable growth and create new economic growth points in a relatively short time. Researchers note that in globalization and huge international trade volumes, creating one's own large-scale and technologically developed industrial production is possible only through import displacement in the national economy with the latter forcing out technology groups, products and services in the international market [2].
Primarily at the "birth" stages of new industries or developing existing industries, an adaptation phase of their production systems resulting from new technologies, knowledge, production factor combinations, changes in technological and consumer standards, national producers face limited capital and investment opportunities, human resources with appropriate skills and competences, limited demand, technological capital and a high competition level from transnational corporations.
National economic agents (companies, households, the state) credit the other world through product, equipment and service imports, national capital outflows from the country, foreign currency, foreign government securities and foreign company security purchases. In this regard, an import substitution policy becomes a mechanism for forming additional resources and sources for national companies by reducing lending to foreign producers through displacing imported products and services in the national market, as well as by reducing national consumers' propensity to import. At the same time, in the author's opinion, regulatory mechanisms that lead to a decrease in the propensity to import and the opening of demand in the domestic market for national producers are a higher priority than a direct and complete ban on imports, unless such a ban is a necessary measure caused by economic and political factors related to national security.
R. Barre expresses an important idea that exports, like investments, lead to the growth of profits, while imports do not create new income in the importing country, and consuming a certain imported product can be carried out at a certain income and consumption level only by reducing national consumption [9]. Neoclassical economic model followers express several arguments against an import substitution model's application. On the one hand, these arguments are important for assessing the risks associated with import substitution, and on the other hand, they are important aspects for applying a mixed policy, which provides for the use of protectionist tools at the initial stages and free trade and globalization mechanisms at later stages.
For example, S. Haggard says that openness does not prevent countries from industrialization, but allows them to develop through technological adaptation and obtaining new knowledge. Neoclassics note that in the transition to a development model based on import substitution produced equipment and consumer products often do not meet international quality standards and are inferior to used technologies in terms of efficiency. This position is certainly not unreasonable. However, lower product quality and their lower technological efficiency in comparison with imported products almost always occurs at the early development stages. However, at subsequent stages, due to the use of more modern national and foreign technologies, establishing interaction with consumers, improving production processes, developing the R&D system, product quality and their compliance level with buyers' needs increases over time, and labor productivity in the respective industries recovers and grows.
It is possible to state that a development model based on protectionism and import substitution and the export-oriented development models complement each other. The relationship between import substitution policy and exports can be explained through intersec-tional demand theory, developed in 1961 by the Swedish economist S. Linder, according to which the necessary condition for exporting products and services is a high domestic demand for these products and services. In turn, A. Jaleel in his study expressed the position that a country cannot export what it does not produce, export capacity growth is greater if domestic production capacity and penetration of national products in the domestic market are greater, indicating that there is a positive relationship between manufacturing production per capita and their export share in total manufacturing production [2].
Thus, in fact, import substitution policy in essence acts as the accelerator for exports' further development. The policy of protectionism and import substitution is not an alternative for export-oriented strategy. At the first stage it is necessary to ensure goods' production and consumption in the domestic market in order to develop them to a competitive level corresponding to the level of applied technologies and global quality standards, and then actively begin to promote them in foreign markets. Both policies involve the implementation of existing opportunities for the regional economy through the domestic market (import-substitution policy) and foreign markets (export-oriented policy).
An important aspect for the domestic market is whether the regional economy in a certain time period, considering the rate of S&T progress and diffusion dynamics of technologies and produced on their basis sets of products and services, can produce products or create intangible assets and provide the same or higher quality services at the same or lower price, or offer principally new products based on more advanced technologies to consumers than foreign companies do [11].
An import substitution policy is also aimed at reducing the risks for a country associated with national economy technological dependence on foreign knowledge and technology, reducing possible political influence from the countries that are technological leaders in the national economic system and national development institutions.
So, it is possible to give an import substitution policy the following definition. Import substitution policy is a policy and mechanism set implemented simultaneously and on a par with other development models, scientific-technological and innovative development mechanisms, which is aimed at: (1) national economic development and ensuring economic, commodity and technological state security, providing for a gradual transition from simple products to science-intensive and high-tech products in order to further export them to global markets; (2) economic diversification through national production capacity development in "emerging" and priority industries with scientific, technological, human and (or) production potential; (3) support for developing "emerging" and priority industries with significant potential in the domestic and foreign markets and creating new economic growth points on their basis.
An import substitution policy provides opportunities for development in case of its successful implementation, effective coordination and interrelation with other economic development mechanisms and state support. The import substitution strategy can give impetus for rapid "emerging" and priority industry development, accelerate productivity growth in these and related sectors, and launch economic development mechanism based on market and technological specialization, while ensuring the country a leading position in the global market.
At the same time, given the limited resources, the import substitution policy should not and cannot be implemented in all sectors simultaneously, which is fraught with resource dispersion and the inability to accumulate sufficient investment capital in different sectors for development and technological modernization, problems in the process administration, too much pressure on the state budget (direct costs to support industries and related industries, expenditure on research and development, shortfall in income associated with tax incentives).
The most important condition is to formulate the import substitution policy while considering risks and technological threats to the country, assess the technological and resource capabilities of the government and private business, analyzing all the comparative competitive advantages, the existing development level of pro-
duction infrastructure, evaluating domestic and potential foreign markets, identifying key barriers and mechanisms to overcome them, etc.
In general, an import substitution policy can be aimed at developing industries that have technological potential, significant domestic market and export potential, whose goods are already produced by national manufacturers. An import substitution policy may be aimed at a product group that is not produced by national manufacturers, but there is technological capital (or it can be formed in the short term), with a large enough domestic market and dynamically developing foreign markets.
Protectionism and import substitution for national development
Protectionism and import substitution mechanisms have been applied by a significant number of countries, including economically and technologically developed countries, for example, Brazil, Argentina, Mexico, South Korea, China, Malaysia, Germany, the Netherlands, France, Switzerland and even the USA.
Import substitution policy is inextricably linked to protectionist measures for national companies in the domestic market, but it must be recognized that export capacity development and export support are also inextricably linked to national companies' protectionism, but in foreign markets. Using protectionism and import substitution mechanisms, developed countries adapted the models and economic development tools used, and through the national market they ensured the development of their own technological advantages, competencies in national companies, forming a powerful industrial base, cultivating large national companies, and then through free trade and an openness policy, "generous financial assistance" to other countries they created their national transnational corporations.
Developed countries, which are fierce supporters of the free trade and globalization model, see protectionism and import substitution as an important element of their economic development and an advantage. J. Ahmad notes that import substitution is used by countries with a high level of industrial development as an additional tool to support economic growth [1]. In turn, H-J Chang points out that almost all rich countries today used tariff protectionist tools and subsidies for national industries at their initial development stages. It is especially interesting that such countries as the US and the UK, which have proposed and advocated for open markets and free trade models, most actively use various mechanisms to protect their national producers [4].
Moreover, these countries, using their technological and economic superiority, through establishing international development institutions and international legislation on trade, initially laid the mechanisms and conditions for limiting protectionist instruments and import substitution models for individual national economies.
For example, the US Office of Technological Development report dedicated to the US Congress' 100th meeting [6] noted that the US government through large-scale international negotiations should form a new organizational and legal system of international relations, providing trade barrier removal, obstacles for
foreign direct investment and for cross-border technological exchange. These conditions were formulated as mechanisms to circumvent trade and investment barriers set up by foreign countries to protect domestic markets, to gain future economic benefits for the U.S. or to influence other countries through limiting access to more advanced technologies or limiting uses of already transferred technologies, as well as to distort the then existing financial and trade flows.
The author considers it important to cite several statements belonging to the U.S. leadership that, in their essence, reflect the true economic policy objectives pursued at the international and national levels. A. Lincoln has been attributed with the following words: "I do not know much about tariffs. All I know is that when I buy a coat from England, I get a coat and England gets money. When I buy an American coat, I get a coat, and America gets money" [8]. One report to the U.S. President pointed out that "protectionism in international trade ... even if it is costly to the American economy in the short term, can nevertheless be justified if its strategic goal is to raise protectionist policy costs for foreign countries. Thus, a potential role should be played by carefully considered measures ... aimed at
International trade-to-GDP ratios for the world
persuading other governments to limit their activities aimed at disrupting trade relations" [8]. P. Bairoch in his article "Economics and world History: Myths and Paradoxes" pointed out that the U.S. government has always engaged in protectionism as the most important element of its economic development strategy. As early in the 19th century Ulysses Grant said that "Within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free-trade principles". [3]
Using the approaches outlined by P. Samuelson, who considers openness as a ratio of international trade to GDP [8], it is possible to observe multidirectional dynamics regarding both the openness level of the world economy and individual economies in the period from 1980 to 2018. In general, data analysis shows that for all countries that are part of an existing "System-World" core, economic openness is slightly higher than the global average, and significantly lower than developing or small countries. This actually means that the countries that speak loudest about globalization and openness are actively engaged in protectionism and the protection of their national companies. At the same time, it is the U.S. that is one of the most closed economies among countries with a high income per capita.
Table 1.
and individual countries between 1980 and 2018.
Country name 1980 1990 2000 2010 2015 2018
USA 0,20 0,20 0,25 0,28 0,28 0,27
China 0,23 0,35 0,45 0,55 0,42 0,40
Japan 0,29 0,21 0,21 0,31 0,37 0,38
Germany 0,48 0,51 0,65 0,83 0,88 0,89
India 0,16 0,16 0,28 0,48 0,45 0,45
Republic of Korea 0,74 0,55 0,71 0,98 0,85 0,84
Russian Federation 0,34 0,45 0,68 0,51 0,59 0,51
Singapore 4,29 3,73 3,45 3,58 3,14 3,17
Netherlands 0,96 0,99 1,34 1,55 1,95 2,02
The world 0,44 0,38 0,48 0,58 0,57 0,59
Source: compiled by the author based on World Bank and WTO data
The effectiveness of an import substitution policy for different countries was not the same. For some countries, such as Argentina, import substitution mechanisms may be recognized as not entirely successful, which was largely due to the one-sided economic growth tools and state support mechanisms used, which actually led to a high closure of certain economic sectors and a decrease in economic competitiveness as a whole. Using a rather traditional mechanism to support national companies (state subsidies, restrictions on imports of foreign products), Argentina at the same time restricted foreign capital flow. With a small domestic market for import substitution consumption, this led to an inability to reproduce sufficient resources to develop its own technological and human capital, investment in R&D and investment in fixed capital, while limiting foreign technology transfer into the country's economy. In addition, the revenues from exports were directed
mainly to state reserves and were not invested in scientific and technological development and high-tech industry building. However, Latin American countries were able to get a positive effect from the import substitution policy, but in the short term.
At the same time, Asian countries' experience is much more successful due to the initial application not only of protectionism mechanisms and restrictions related to foreign product and service imports, but also mechanisms aimed at accelerating scientific and technological progress, developing human capital, supporting national companies in priority economic sectors and stimulating national exports of goods and services (an "export-oriented import-substitution" strategy). For example, the Indian experiment from 1950 to 1965 showed that import substitution under the first Indian industrial development plan ensured 33% industrial production growth (for manufacturing equipment and
components), under the second plan - 13% (for such industries as paper production, printing, petroleum products and electrical equipment production) and under the third plan - 25% (for manufacturing equipment) [5].
In general, according to the UN [12], increasing national production share in total product output and satisfying consumer demand in the domestic market through import substitution explains 50% of national economic industrialization growth.
State policy of protectionism and import substitution
According to the author, there is an important difference between the state protectionist policy to support national companies and import substitution policy. Under increasing competition between countries in the context of S&T progress and globalization, transnational corporate activities, resource constraints for the national economic agents' development, the policy aimed at protecting and supporting national companies in domestic and foreign markets, primarily in the "emerging" and priority industries, should be implemented on an ongoing basis. Otherwise, national companies' competitive opportunities will decrease, which will result not only in reducing national income, but possibly in technological and commodity dependence of the country.
As protectionism policies and support for national companies in "emerging" and priority industries, government actions encompass in their totality various objectives, including: (1) S&T development and technological capital accumulation, forming favorable conditions for S&T activities; (2) human capital development, human capacity development; (3) support for national production capacity development; (4) stimulating consumption and developing aggregate demand for products and services produced (provided) by
national economic agents; (5) supporting commercialization processes for new technologies and innovation; (6) developing international trade, supporting national exports, and increasing national companies' competitiveness in global markets.
In some cases, mechanisms aimed at national companies' protectionism and their state support are applied whether or not import substitution policy is implemented, while in other cases, mechanisms of protection and supporting national companies and import substitution tools are applied at the same time. Moreover, their simultaneous application is a prerequisite for import substitution policy efficiency. At the same time, import substitution mechanisms are reasonable to apply in a limited time period when certain conditions or the need to solve specific problems arise.
Import substitution policy should consider the economic cycle phases, trajectory stages of innovation and industrial development in the relevant economic sectors, consider the level of technological penetration in the world, as well as emerging opportunities for development on an imitation basis of technology and innovation.
International experience shows that import substitution policy can be implemented in stages, but at each stage no more than 5-10 economic sectors can be prioritized. In general, for import substitution policy the planning period should be from 15 to 25 years. This planning period is chosen based on the need to cover the time period for the technological trajectory and for the part of the product development trajectory, the impossibility of the rapid concentration and forming the necessary resources, the long-term transition of national development institutions, human capital development and production organization and, as a consequence, the impossibility of achieving fast and significant results in the short term.
Figure 1. Development model based on import substitution policy application Source: Developed by the author
Import substitution policy can also be aimed at those products, whose production is not efficient in economic terms in a certain time period, but imports and high foreign technology penetration pose a strategic threat to the economic and technological national security. According to the author, import substitution mechanism application is reasonable in conditions, if import share of any product group or import share in strategically important economic sectors in domestic consumption exceeds 40-50%, depending on the economic sector. During import substitution policy implementation there can be a sectoral approach (vertical import substitution for certain economic sectors), a technological approach (import substitution policy is built through identifying a set of critical and promising basic and sub-technologies for priority and related industries), as well as a mixed approach.
Specific features of the state import substitution policy
Implementing an import substitution policy and, even more so, obtaining a positive effect is a complex process and requires from national governments significant efforts in governance, regulatory influence on markets, transforming state development institutions and their highest coordination in a dialogue with the private economic sector. The "rationality" principle must be applied. On the one hand, there should certainly be a "strong hand" of the state, which is able to launch the "import substitution locomotive", technological modernization processes and rapid developing national production capabilities for priority industries, and on the other hand, it is important to ensure a balance between the closed and openness level of these industries.
When implementing import substitution policy, it is important "to separate the benefits of the isolated development path and the costs associated with protectionism" [10]. That is, on the one hand, it is necessary to clearly understand what benefits will be derived in the long term, and what costs will have to be incurred for this purpose. At the same time, the assessment should be carried out for priority industries, for which import substitution tools will be introduced, for related economic sectors and the economy as a whole. That is, it is advisable to use assessment methods of broad impact and comparing the total benefits and total costs. However, it is important to understand that it is often impossible to identify all the benefits and estimate all the potential costs.
In simple words, the national government, when deciding to implement import substitution policy, should not fall into the "import substitution trap," having the desire to build its own fully independent industrial industries. The wrong and hasty choosing of industry and technology priorities can divert significant resources, leading to an even greater technological lag in other industries in the absence of a substitutive positive effect.
The policy implemented by the state must ensure a balance between the application, including non-competitive mechanisms, of financial and non-financial government support tools that ensure national company development and their product and service penetration
into the domestic market, and the conditions for foreign companies to do business in the national market. Achieving this balance is important based on the need to stimulate foreign direct investment in the country and to assess the opportunities that foreign companies can provide for national economic development (investment, new highly productive and highly profitable jobs, technology transfer, re-export of goods, increased national companies' participation in global value chains).
Government policy in the import substitution sphere with simultaneous implementation of development support mechanisms should, on the one hand, provide a price advantage in the domestic market for national goods and services in relation to imported goods and services, and, on the other hand, ensure that national producers in "emerging" and priority industries have high profitability.
As national goods and services penetrate the domestic market, obtain scale effects and develop national technological capital, the state should gradually reduce government support and restrictive barriers for foreign companies in order to support national companies' development through competitive mechanisms while ensuring appropriate control over the propensity to import goods and services and control exports and imports of intellectual property.
In addition, when a certain penetration level of products produced by national companies in the domestic market is reached, the state should gradually move to an export-oriented policy, support in developing scientific and technological potential through converging national and foreign technologies and knowledge, and human capital development. At the same time, it remains important to ensure high profitability in the relevant national industries, which will ensure an investment inflow in the next round.
When implementing import substitution policy, the state should pay attention to the forming following conditions:
1. The aggregate level of restrictions related to imports should ensure a significant price advantage for national goods and services in the domestic market, taking into account the national companies' aggregate costs, given that there is no scale effect and application of less efficient technologies at the first stage, and also considering foreign producers' opportunities under restrictions imposed by the state to maintain their return rate on the national market, equal to or above the average global values for the same product categories and services and opportunities for foreign parent companies to subsidize potential losses in order to maintain their positions in important regional markets;
2. Restrictions should not lead to the cessation of similar foreign good or service imports, but should reduce the propensity to import;
3. Potentially high prices for nationally produced goods and services should be compensated for by government support mechanisms for national manufacturers to ensure, on the one hand, a lower price level compared to foreign analogues under restrictions, and on the other hand, a high profit margin for national manu-
6. Import substitution policy in some industries should be accompanied by the technological modernization of processes in other industries, which are key consumers of import-substituting technologies, capital goods, intermediate and end products. That is, the chain "development of import-substituted production - consumption of import-substituting goods" should be built while ensuring significant growth in domestic demand;
7. National development institutions should be fully restructured to support import substitution processes in priority industries and support national companies in these industries, and the national innovation system and scientific and educational environment should provide technologies, knowledge and human capital in accordance with the needs and "just-in-time".
At the same time, the state should apply development mechanisms and restrictive mechanisms for foreign and national companies, which should be interconnected with each other, with clear goals and time limits.
Table 2.
Mechanisms for development and restrictive mechanisms in the state policy of import substitution
Foreign companies National companies
Restrictive mechanisms • Policies involving a "tariff wall" and a reduction in the pricing power of competition; • Anti-monopoly policy - removing barriers that prevent national products and services from accessing the domestic market, destroying oligopolies; • Fiscal policy (various tax benefits for national and foreign companies); • Patent policy and technology import control system; • Restrictions through changes in technological and consumer standards, and in system of mandatory licensing and certification. • Restrictions on certain technology sales to foreign companies; • Restrictions on selling companies (controlling interest) - for companies receiving state support; • Requirements on reinvested earnings in capital and R&D within a certain timeframe, if the companies receive government support, including through public procurement; • Additional government requirements for development or customization solutions for other market segments (depending on the industries), considering technological development priorities; • Introduction of control over technology, high-tech capital goods, software imports by national companies ("ban/restrictions policy", if there are national equivalents); • Requirements for intellectual property; • Restrictions through changes in technological and consumer standards and in system of mandatory licensing and certification.
Mechanisms for development • Creating a special favourable environment for doing business for foreign companies, considering the requirement to protect national manufacturers in certain segments of the domestic market, aimed at: o Encouraging direct and venture foreign investment; o Stimulating technology transfer with their possible processing and convergence with the national technologies; o Stimulating the creation in the country the modern high-tech equipment production and technology-intensive end goods with a high-level of national materials, technologies, intermediate goods, software for the further re-export of manufactured products and equipment. • Various tax benefits (fixed assets, R&D, payments to the State budget and social funds, etc.); • Activity subsidies, grants (R&D, developing new goods, equipment, materials, software etc.); • Target grants and subsidies for technologies and R&D development (refinement); • Providing national companies with access to foreign technologies and national technological capital; • Stimulating technological innovation in industry; • Direct state investments; • Access to loan capital (special regime, soft loans for a long term); • Stimulating demand, including through state regulation tools, public procurement, changes in depreciation policy, development of new consumption and quality standards.
Source: compiled by the author
facturers sufficient for investment in accelerated development to bring national and imported goods closer in technology, quality, cost and price levels, etc;
4. The introduced restrictions should be applied simultaneously while creating such conditions for business activity under which it will be profitable for foreign companies to transfer technologies, intellectual property to the country which implements the import substitution policy, to create on its territory in partnership with national companies their production, R&D centers and to place headquarters of the companies;
5. Implemented measures should be focused primarily on restrictions on finished products with a high value added. Since software accounts for up to 80% of the high-tech products value today and is a key factor in ensuring technological independence, the state should form a legislative framework based on the need to use national IT solutions in industry;
Risks and errors in the implementation of the state import substitution policy
State policy orientation exclusively on replacing foreign technologies and products in the domestic market, as well as orientation only on own technologies, lack of interrelation between import substitution mechanisms and other economic and scientific-technological development tools carries significant risks for a developing country's national economy, including:
• Potential "technological degradation" of economic sectors;
• Retaliatory measures by other states to restrict access of goods, services and technologies, which are already competitive in the world market, to their domestic markets, which will lead to a reduction in exports and a decline in production;
• Uncontrolled growth of commodity prices, caused, on the one hand, by lower competition and, on the other hand, by high production costs at the initial development stage (total costs are always higher than the foreign competitors with modern technologies and an efficient production base, in their absence of economies of scale and due to the insufficient innovation level in the technologies used);
• Lower good quality, which will not provide value added for the consumer and, as a consequence, will lead to a further refusal to purchase domestic goods after restrictive measures have been lifted;
• Foreign investment outflow, which will not only affect the overall investment climate in the country, but also lead to restrictions on national producer access to modern advanced technologies. In turn, limited access to foreign technology will lead to a reduction in the possibility of using imitation foreign technology and innovation mechanisms, which will adversely affect state technological development and economic growth rates in the future. However, this risk is significant on condition of significant accumulated foreign investments in the economy, foreign companies' investments in the national industry in the relevant economic sectors;
• Diversion of significant state resources. If the economy is stagnating or shrinking, if revenues for the country's budget are falling, due to a drop in export, there are risks that other areas of state support for development will be underfunded. In this case, it is possible to talk about an ill-considered choice of priorities when deciding on the implementation of import substitution policy.
Based on international and Russian experience it seems possible to identify a number of problems and errors that are confronted by national governments when implementing import substitution policy:
• Inconsistency between the desired goals and the state's vision and the resources and opportunities available in the national economy. The limited capital and investment resources, the state system's inability to ensure resource concentration from all sources for priority sector development, technological and human capital development;
• The lack of measurable indicators for import substitution goals, interrelated and decomposed in the system of socio-economic, scientific and technological
development, innovation and sectoral development indicators;
• Too short a planning period for the import substitution processes. The lack of stability in the declared public policy;
• A one-sided state policy, providing for the national industry development only on an import substitution model, "without the aim" of further exports at subsequent stages;
• Lack of technological and market specialization in implementing import substitution policy - import substitution policy is implemented for all economic sectors simultaneously, which leads to falling into the "import substitution trap", there is no balance between the opportunities offered by globalization, and the desire to have a fully independent regional value-added chain;
• Limited human capital and the lack of interconnection of the import substitution policy with human capital development mechanisms for priority sectors;
• A weak domestic market, which does not allow national companies to obtain economies of scale and experience, and consequently significant revenues, which will not allow national companies to develop quickly and will significantly increase state expenditures;
• Orientation only on own technologies without transfer of foreign technologies and knowledge with the purpose of their further convergence with the national technological capital;
• The state simultaneously while implementing tools to support national producers does not pursue an aggressive policy to stimulate demand and ensure increased national expenditure for national goods and services in the domestic market, including through market price management for foreign and national goods and services, state regulation of industries that are consumers of import-substituted technologies and products, through changes in national standards;
• Orientation only on national product quality standards and technological standards. Lack of orientation to international quality standards and technological production and consumption standards will lead to the quality and the manufacturability of the products always being lower than their foreign counterparts, which, in turn, can later become a serious barrier to exports;
• The government uses a limited combination of restriction mechanisms and development mechanisms, the system does not provide for changes in the applied combinations in case of their insufficient efficiency (the effect of "lagging regulatory impacts"). The lack of interaction between import substitution mechanisms and other tools and mechanisms of economic and S&T development. The government does not assess the aggregate benefits and aggregate costs when choosing limiting tools and mechanisms of state regulation;
• The government does not ensure high profitability for national and foreign companies (for foreign companies that make decisions about real investments in the country, technology transfer "in exchange for
high profitability" and joint ventures with national companies);
• The public policy leads to the exiting of foreign companies from the market, which entails a decrease of the national product quality in the absence of competition and market aspiration at the import substitution stage to form monopolies or oligopolies, reducing foreign technology inflow into the national economy, technological stagnation or even the degradation of national production and technological system and increasing technological gap in comparison with foreign producers;
• The state does not seek to create transnational high-tech and innovative corporations and increase the number of small and medium innovative and high-tech companies;
• Elements of the national innovation system and scientific-educational system do not support the chosen technological and market specialization within the import substitution processes, do not ensure continuous production of new technologies and knowledge, their transfer to the business sector for commercialization. The educational system is still aimed at training and forming skills in the use of foreign products and solutions. That is, the import substitution effect and government support for the development of certain sectors will not be supported by the "demand of the future";
• Lack of inter-industry integration, support for the developing related industries.
Conclusion
The study has shown that, on the one hand, import substitution policy entails many risks and problems, but on the other hand - with a pragmatic approach, its combination with support mechanisms for national producers, tools and other socio-economic and S&T national development models, import substitution policy can provide the country with more significant aggregate benefits than total costs.
The study showed that development models with import substitution and protectionism are integral elements of all basic strategies for long-term socio-economic development. Recent years, in which the U.S. launched a technology war against China and Russia, have shown how important and relevant the implementation of mechanisms related to protectionism and import substitution is. Such tools from the U.S. are not yet used against other Asian and European countries. However, it is worth thinking about what may happen when the economic policies and political interests of these countries in the context of the transition to a new systemic capital accumulation cycle will be contrary to the US interests?
In the near future the author plans to consider Russia's experience in the information and communication technology import substitution in the in the context of globalization and the fifth technological wave.
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