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THE CONCEPT OF NATIONAL SYSTEM OF ECONOMY AND ITS RELEVANCE FOR MODERN RUSSIA
Truel Jean-Louis
Associate Professor Université Paris-Est Créteil, Vice-president Cercle Kondratieff Paris, France. E-mail: jltruel@cario.fr
Аннотация. Статья посвящена важному и актуальному для Российской Федерации вопросу. Таким вопросом выступает использование политэкономического понятия национальной системы экономики в практике макроэкономической политики. Автор показывает, как модифицируется указанное понятие со времен Фридриха Листа по настоящее время в соответствии с объективными изменениями самой экономики. Автор обращает внимание на практику структурной политики США во второй половине 20-го века. Главное внимание автор уделяет проблеме оптимизации такой политики в РФ в целях модернизации её экономики.
Ключевые слова: политэкономическое понятие национальной системы экономики; межотраслевые взаимосвязи внутри национальной системы экономики; соотношение финансового и реального секторов экономики; структурная политика; модернизация; экономика
Код УДК: 330.1
Annotation. This article is devoted to important and actual question for the Russian Federation. Such question is using of politeconomical concept National System of Economy in macroeconomic politics. The author shows that this consept changed since F. List' time to present time, because economy changed according to objective laws. The author pays attention to practice of structural policy of the USA in the second half of the 20th century. The author pays the main attention to a problem of optimization of such policy in the Russian Federation for modernization of its economy.
Keywords: politeconomical concept national system of economy; intersectoral interrelations in national economy; ratio of financial and real sectors of economy; structural policy; modernization; economy
The concept of National System of Economy has been developed by Friedrich List in the 19th century as a pillar of political economy. Superseded by macro-economic theories it has known a revival in the late 20th century and beginning of 21st century with some relevance as a policy tool for many countries, including Russia.
RISE, FALL AND REVIVAL OF FRIEDRICH LIST
Contrary to a common view, List's theory was less about protectionism than about interactions between the various sectors of the economy: «The whole social state of a nation will be chiefly determined by the principle of the variety of occupations and the co-operation of its productive powers» [2]. In the context of the 19th century, «the most important co-operation of productive powers in material production is that of agriculture and manufacturing». This implied that policies should push for the development of a
national system of economy that would keep balance between the various activities. The most notorious example was the promotion of infant industries through temporary protectionism in order to allow them to become competitive in the context of overall development of the economy.
This subtle argument was dropped during the second half of the 19th century, with the rise of «permanent protectionism» in Europe and in the US. Yet List's thought had an inspirational role for the implementation of several national economic policies, such as those of Sergei Witte, in Russia at the end of the 19th century.
Permanent and undiscriminating protectionism showed its negative effects during the Great Depression. After that, the infant industry argument was abandoned in developed countries together with any idea of protectionism1. This meant a shift towards a macro-economic theory of specialization through the development of free trade.
One of the main effects of this shift of focus is that the nationality of companies and the coherence of the national economies were not deemed important in economic theory.
An extreme illustration is the theoretical bases that underlie the conception of GATT, and afterwards of WTO. They appear to be «country neutral»: the coherence of economic relations within a country is less important that the overall efficiency of the allocation of factors [3].
The current globalisation process and the ongoing crisis entice us to review our paradigms and to come back to the fundamental issues of political economy. That's why the concept of National System of Economy has been revived under a modernized form since the last quarter of the 20th century.
A MODERN APPROACH OF THE NATIONAL SYSTEM OF ECONOMY
Most of the modern approaches focus on the concept of «productive system», defined as the combination of the various industries within a given economy, with special attention paid to links between these industries and to the implicit hierarchies they imply.
The notion of hierarchical links is not new. It was popular in 1960's under the name of «Industrializing industries» [4]. It was developed under a more sophisticated form by the French school of economics under the name of «filières».
Under this form, the concept of «filière» tried to show how industries, and especially manufacturing industries, are linked not only by input/output relations but also by technological relations. A similar concept, focusing on the combinations of technologies as well as on the conditions in which they are produced, is that of «technical system».
Another variant, that gives a greater role to the various components of innovation, is the concept of National System of Innovation, that has been developed in the 80's and 90's by B.A. Lundvall and C. Freeman [7; 8]. This concept highlights the role of interactions between agents: «The quality of relationships between agents and organizations is crucial for the performance of the system. It is not efficient to enhance effort or performance of the single elements if the interaction does not work well» [9].
A common point in the modern approaches is that they stress the importance of non-material factors.
First of all the financial dimension has taken a much more significant part. Capital cannot anymore be considered as a versatile input, as in the classical model; it is an integral part of the national system of economy. This is due to the complex mechanisms involved between the generation of saving and its availability to the economy (investment) and to the pivotal role played by the financial industry in this process. We will show below what kinds of asymmetries are generated by this mechanism.
Many other non-material factors are involved in keeping the coherence and the control over the national
1 Although it was still popular in countries that were rebuilding their economy, such as post-war Japan.
economics systems:
1) Intellectual property. In an environment where physical Research and Development is more and more outsourced offshore, the control of intellectual property through patents is becoming crucial. It is no coincidence that intellectual property issues a source of strong conflict between the US, European countries and other members within the WTO.
2) Standartisation of production methods. It allows the «slicing up of the production chain», which facilitates the delocalization of part the production as well as intra-firm/inter-countries trade. Therefore the definition and control of these standards - sometime called «knowledge management» plays a key role in keeping the control of the whole production process. The same is true for management and accounting standards.
3) Control of brands and distribution networks. This now extends to the control of the structure of information and of data on consumers and individuals though internet and mobile communications.
4) Institutions. At a national level, institutions guarantee the quality of relations between agents and organisations mentioned by B-A. Lundvall.
As a whole, the productive systems of the 21st century are a combination of material, immaterial, technical and financial links that are increasingly complex and pervasive. Most of all these links are characterized by the emergence of new hierarchies and new asymmetries [11].
THE CHALLENGES FOR ECONOMIC POLICIES
The control or restoration of the coherence of the national productive system requires much more than macro-economic policies or more or less protectionist measures. In fact, efficient policies are based on a mix of measures aimed at boosting the balanced development of the industries that are strategic at a certain period of time.
THE CASE OF THE US: STATE INTERVENTIONISM AND CONTROL OF THE FINANCIAL
SECTOR
The US industrial policy in the second half of the 20th century has been a good example of permanent adaptation to keep the national productive system coherent and competitive. It included actions at a multiplicity of levels:
1) Public research programmes and procurement policy. This is notorious in high tech where US Department of Defense contracts played a crucial role in accelerating the early growth of Silicon Valley and of most electronic and IT industry. This policy also extended to the whole economy with the public procurement programmes for small and medium companies coordinated by the Small Business Administration [12].
2) Favorable measures to provide financing to companies at all stages of development. This includes measures to encourage private investment but also a full range of publicly guaranteed low interest loans, especially for small and mid-size business. For instance, the Small Business Investment Company (SBIC) program in the United States led to the formation of the infrastructure for much of the modern venture capital industry [13].
3) Control of standards in such diverse areas as production methods, international accounting, intellectual property.
4) Control of higher education and research. The US educative system is no more efficient than that of most developed countries. Yet the country compensates this relative weakness at secondary level by attracting graduate students and academics from other countries and by the setting international educational standards.
5) Soft protectionism. The US judicial system is especially efficient to help protecting national interest.
One of the most fundamental factors structuring the US national system of economy is the domination of its financial sector that is largely put to the service of the development of the real economy2. The main mechanism is the ability of the US financial sector to recycle the trade surpluses of other countries through the purchase of US Treasury Bonds and corporate bonds: foreign ownership represented nearly 60% of the US Treasury bond market at the end of 2013, against only 25% in 1995. At the same time foreign investors represented only 15% of the equity market [14]. The US funds widely dominate their national equity market as well as the international ones [15].
To make it short, foreign funds are attracted to purchase Treasury Bonds and corporate bonds to finance the US twin deficits while US public and private money go to investment in the productive system [16].
These elements have combined to allow the US economy to keep it global leadership in all areas that have successively been the cornerstone of the productive system in the past 50 years.
THE CASE OF RUSSIA: HOW THE CONCEPT COULD APPLY
Russia is a very specific case when it comes to the analysis of its national economic system. The weaknesses of the «material» aspects are obvious. Not only is the economy dependent on energy and raw materials but many manufacturing industries are obsolete or not existing. The inability of the Russian companies to expend their share on their domestic market during the 2008-2009 depreciation of the rouble is a perfect illustration of this situation [17].
Russia is also lagging behind in some of the crucial immaterial components (finance, entrepreneurial atmosphere). One illustration is the status of innovation, where we see the sharp contrast between the high scientific potential and the limited development of innovative industries in competing on open markets.
Compared to the OECD average, Russia has a higher rate of tertiary education graduates, with a headcount of R and D personnel close to the average. Yet expenditure in R and D is significantly below average and the number of international patents is extremely low (tab. 1).
Table 1
Key Indicators
Indicators Russia OECD average
Adults with tertiary educational level, % 53 38
R&D personnel per thousand employees 6,4 7,5
Public R&D expenditure as % of GDP 0,46 0,71
Private R&D expenditure as % of GDP 0,70 1,27
Number of international patents per billion USD of GDP 0,02 0,8
Source: OECD
2 Although it was still popular in countries that were rebuilding their economy, Журнал «Теоретическая экономика» №6, 2014
such as post-war Japan.
www.theoreticaleconomy.info
This means that the Russian system of innovation is not efficient, in other words that it is «strong at its input and relatively weak at the output» [18].
At the same time, Russia masters some of the elements that would allow the country to regain partial control of its productive system. To give two examples in highly crucial areas:
1) It has financial reserves that could be redirected in the development of the «real» economy. Getting full advantage of the potential is not obvious, and the transformation process of financial surplus is far from being an easy task. The banking system lacks experience and efficiency, and the public Funds -National Welfare Fund and Reserve Fund - have legal constraints that oblige them to invest much of their assets in foreign state bonds3. Therefore the heated debate about the use of the National Wealth Fund for the development of the economy is a fundamental one.
2) Russia has the potential to develop a competitive industry in high tech sectors as IT and internet. Indeed it is one of the very few countries that have been able to avoid the domination of US companies in the area of internet. Yet, being at a competitive edge in a few industries is not sufficient if they are disconnected from the rest of the economy [19].
The key issue for Russia is to think the national economic system, and within it the innovation system as a whole. The immaterial components have to be integrated with the real sector. This implies that policies that would only deal with «reindustrialisation» would not take into account the major reorganisation of the value chain that occurred these recent years. On the other hand «modernisation» policies centred only on the innovative, export oriented sector would leave if groundless.
Since List's times, the dominant industries have changed, interactions between industries have changed and non-material factors have taken a leading role. Yet, the need to have a «systemic» approach to political economy remains, in Russia as in other countries.
SOURCE
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3 Incidentally since much of this money is invested in US treasury bonds, this shows the efficiency of the US mechanism of recycling foreign trade surpluses.
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