CC BY
0DOI: 10.29141/2658-5081-2024-25-2-1 EDN: LOHIKY JEL classification: O21, O25, F51
Evgeny V. Balatsky Financial University under the Government of the Russian
Federation; Central Economics and Mathematics Institute of RAS, Moscow, Russia
The multilevel management system for Russian economy amid sanctions
Abstract. In the face of large-scale international sanctions imposed by the collective West against Russia, it becomes imperative to reevaluate the conventional framework for guiding the Russian economy amid the emerging challenges and limitations. The article explores a multilevel system for managing Russian economy in the context of the global confrontation. The methodological foundation resides in the selective "incremental changes ideology" emphasising the necessity for disaggregation and decentralisation of economic policies to maximise the timeliness of managerial decisions. This approach contrasts with the holistic "total regulation ideology", which focuses on the national development strategy on planning and reaching aggregate economic indicators. The paper applies the methods of traditional structural cybernetic and graphical modelling of social systems allowing for the specificities of the external environment. The evidence comes from a cluster of the most recent studies approaching the role of the international sanctions phenomenon in building an efficient national economy from different angles. The author presents an original graphical four-circuit concentric model complemented by a functional description of its constituent circuits (the core, priority industries, new production, and supporting industries) and management methods. The article provides examples of the management measures (massive centralised lending for new microchip production, creation of the state corporation Rospharma, etc.) that can be implemented within the four circuits of the model. These measures can be both soft ('weak') and hard ('strong') depending on whether they reject or take on administrative enforcement. It is noteworthy that the selective governance model will gradually evolve into a holistic model over time.
Keywords: mobilisation economy; selective governance model; holistic governance model; international sanctions; antifragility of economy; Russian economy.
Funding: The research was prepared as part of the state assignment of the Government of the Russian Federation to the Financial University for 2024 on the research topic "Ensuring advanced economic growth in Russia through the use of technological scale effect".
For citation: Balatsky E. V. (2024). The multilevel management system for Russian economy amid sanctions. Journal of New Economy, vol. 25, no. 2, pp. 6-26. DOI: 10.29141/2658-5081-2024-25-2-1. EDN: LOHIKY.
Article info: received November 30, 2023; received in revised form January 13, 2024; accepted January 22, 2024
Introduction
Amid international sanctions and the deepening economic isolation, it is becoming increasingly difficult to manage the economy of the country exposed to such external pressure; moreover, the management approach should be fundamentally revised. This is due to absolutely new economic and political restrictions emerging, as well as to the threat of the country's weaknesses being exploited by its geopolitical rivals. The greater the sanctions, the stronger the impulse to overhaul the traditional peacetime governance system. All this predetermines the need for a radical restructuring of the Russian public administration system of the last three decades. In this context, traditional theories of economic growth are receding to the background of managerial interests, thus giving way to novel regulatory mechanisms and imperatives. However, maintaining economic growth, which is a serious challenge in itself, is not an only problem Russia faces today; another one is the simultaneous restoration of technological sovereignty, which was largely lost after the collapse of the USSR. Currently, there are high-tech industries in Russia with production volumes failing to satisfy the internal demand of the economy, these are civil aircraft manufacturing, microelectronics, pharmaceuticals, etc. However, it will be impossible for Russia to develop normally in the long run without these areas meeting the internal demand.
The above makes it imperative to radically reform the current system of government decision-making. Iran [Farazmand, 2019; Vaezi, 2021] and North Korea [Gray, Lee, 2017; Noland, 2019], which have been under international sanctions for decades, were forced to carry out similar transformations of their governance systems. Today's Russia must follow this path.
The purpose of the article is to sketch a model of the Russian economy management system for the period of severe sanctions.
The objectives of the study are the following:
- to substantiate the ideology of the new economic management system;
- to provide its theoretical foundations;
- to develop a hierarchical model for government decision-making.
The novelty of our original approach lies in the way of structuring both the problems facing the country and the system of priorities and measures for managing individual aspects of the national economy. This kind of structuring is grounded on the latest research concerning the issues of national economic and technological security. The originality of the posed research problem is due to the initial requirement to
consider the problem of maintaining economic growth in Russia in the context of a simultaneous restoration of the country's technological sovereignty.
Economic growth management systems amid sanctions: A review of key ideas
There are different options for managing the Russian economy under strict economic sanctions examined in the research literature.
For one, an alternative economic development model called 'accelerated adaptation' is used as one of the forecast scenarios. According to the model, the country should adapt to the new reality in order to avoid prolonged recession. At the same time, this scenario and the basic (inertial) one are identical in terms of the price of oil and the geopolitical situation, while for the former it is of greater importance to shape total value imports which is achieved through establishing logistics and transit processes, a faster search for new partners, and accelerated development of the parallel import mechanism [Sobol, Sharay, 2023]. However, based on this disposition it is impossible to outline even the most general contours of the new economic management system and its differences from the traditional one.
Abdrakhimov and Selezneva [2022] discuss the need to restructure the strategic priorities of Russian enterprises operating under sanctions by focusing on appropriate sanctions compliance. The very idea sounds reasonable, but the authors do not provide any details of it, which casts doubt on the proposal and all relevant measures and actions.
A survey of industrial enterprises conducted by the Bank of Russia in 2022 shows that in the new conditions the investment activity of subjects is constrained not so much by financial restrictions but a high level of uncertainty and risks. This leads us to the following fundamental conclusion: in the current situation, traditional easing of monetary policy may not have a noticeable impact on an increase in investment in the manufacturing industry [Karlova, Morozov, Puzanova, 2023]; therefore, there is a need for finding other instruments of monetary policy. At the same time, the analysis of the data obtained demonstrates that all-industry adaptation to the sanctions imposed is extremely heterogeneous across manufacturing enterprises, and therefore, measures for adapting individual industries to new conditions should be of a selective nature. According to the survey, the most considerable impact of sanctions was recorded for intermediate-demand industries, such as woodworking industry, chemical production, production of rubber and plastic products, pharmaceutical industry [Ibid., p. 5]. The key idea of the proposed approach is the selectivity of economic policy, which will be used further on.
Experts from HSE University believe that under sanctions it is more appropriate to combine adaptation objectives with development objectives while reasonably shifting
the emphasis to development; it is precisely this management ideology that can help the Russian economy to become stable and more efficient [Akindinova et al., 2023]. To implement this management approach, the authors propose to differentiate the priorities of industrial policy for six categories of industries. At the same time, the work suggests 'individualising the portfolios of private investors'; using syndicated financing tools with an average loan term of 10-15 years; accelerated launch of projects for the development of road and other civil infrastructure, expansion of construction (especially, housing); restoring the infrastructure and economy of new regions; and accelerating the production growth in sectors where sanctions force active import substitution (e.g., production of components for the automotive industry) [Ibid.]. In this case, the point is an implicit combination of the problems of maintaining growth and restoring technological sovereignty, which is a strategically sound approach. However, despite the legitimate imperatives of the position presented, they are difficult to formalise into the final configuration of the management system.
There are also simpler recommendations for restructuring the management system. For example, Molchanov [2017] argues that it is necessary to improve the stability of the Russian financial system based on the needs of an innovation-oriented market economy and the creation of a new technological mode. More specific and detailed proposals were made regarding the administrative regulation of prices for vital goods under sanctions pressure [Balatsky, Ekimova, Yurevich, 2022].
Some researchers claim that import substitution policy in many cases exerts an adaptive positive impact on companies, but does not ensure an increase in their returns and profitability. According to Aturin [2019], 'targeted' mechanisms in the form of differentiated sectoral regulatory measures may become the most effective tool in countering sanctions. This idea of differentiated impacts fits well with the multistructure of the Russian economy, which implies the co-existence of various subordination schemes of production factors in different regions. "In the Stavropol region and Ingushetia, the dominant factor is capital; in the Rostov region, it is land; in the Krasnodar and Stavropol regions, it is labour. Hence, each constituent territory of the Russian Federation has its own investment specificity, which is proposed to account for in management policies" [Eremenko, Efremov, Ivanov, 2022, p. 98]. The next step in this direction is the idea that Russia's economic achievements are associated with positive results obtained primarily within the country but not beyond its borders. Therefore, strategic decisions should be based not on the 'spirit of globalism, but increased economic cooperation between Russian regions [Krutikov, Yakunina, 2022]. The correctness of these principles is difficult to dispute, but there is still an unanswered question of how to integrate them into the existing management system.
A number of researchers put forward general proposals concerning the transformation of the catch-up development strategy under sanctions. The starting point for
such proposals is that Western civilization is now experiencing a deep crisis due to the exhausted potential of the economic and political competition, while countries relying on cooperation mechanisms in the economic and political spheres demonstrate impressive successes in all social areas. In this regard, the mobilisation and liberalisation strategies, which suggest exercising stricter or easier state control respectively, are substituted for the thesis about the third - more preferable - strategy, namely positive (not directed against third parties) cooperation ensuring at the first stage the formation of catch-up development institutions and the reduction of inequality with a subsequent increase in the role of market interactions [Polterovich, 2023]. As a result, Russia should find itself among coordinated market economies with a developed corporate social responsibility and consensus democracy [Ibid.]. Despite all its attractiveness, this version of the strategy seems to be hard to implement in the context of the emerging uncompromising confrontation between Russia and the collective West.
Nevertheless, the very attempt to find a third approach to economic management in the current conditions is justified and fruitful. This is due to the fact that Russia is no longer following the path of stationary growth, but at the same time it is not building a classical mobilisation economy. Firstly, despite the current geopolitical situation, the country is not at war, but is conducting a special military operation, which a priori rejects the narrow interpretation of the concept "mobilisation economy" and its use in regulatory strategies [Harris, 1951; Bersenev, 2016]. Secondly, Russia is still not building a mobilisation economy as such. Moreover, the government has repeatedly denied the necessity for doing so; in fact, the country did not really switch to a military mobilisation regime. This results in the fact that the historical experience of economic mobilisation is not suitable for solving the assigned tasks. For example, it would be theoretically possible to learn from the experience of the USA and the United Kingdom during the First and Second World Wars, partly of the Russian Empire during the Crimean War of 1853-1856, and of the Russo-Japanese War of 1904-1905, but this option turns out to be neutralised by a categorical refusal of Russian authorities to build a full-fledged mobilisation economy. In addition, both positive and negative experiences of various countries in these historical periods are not suitable for today's Russia due to drastic changes over this course of time. The incomparability of national economies' involvement in international cooperation and the complexity of modern production make it difficult to draw historical analogies.
If adhering to a broad interpretation of the mobilisation economy as "an anti-crisis economy associated with emergency circumstances" [Goncharova, Bakanova, 2009, p. 9], the international sanctions imposed on Russia can be classified as an 'emergency circumstance' causing mobilisation tendencies that to a certain extent can be traced in the Russian economy. It would be correct to say that the country's regime displays
some elements of a mobilisation economy, or a partially mobilisation regime, and its main tool in the present conditions is import substitution with all that it implies.
There are active debates in the literature surrounding the appropriateness of one or another approach to achieving technological sovereignty. According to the total regulation ideology, in today's context it is necessary to plan and achieve certain scale-based and aggregate indicators, for example, the proportion of research and development expenditures in GDP of at least 2 % [Lenchuk, 2022; Ivanov, 2023]. Such goals should be formalised as relevant high-level regulatory documents, that is national development strategies.
According to the incremental changes ideology, it is necessary to disaggregate and decentralise scientific-technical, industrial and innovation policies in order to guarantee maximum efficiency in establishing problem areas of the Russian economy, identify and support promising industries, and conduct constant monitoring of the results obtained [Yurevich, 2023a]. In our study, we adhere to the incremental changes ideology as a more auspicious and practical management paradigm. Furthermore, many government decisions indicate that this is the path along which the transformation of the previous public administration system is performed. The general system of managing the economy under sanctions will be revealed within the framework of this exact concept.
To configure the economic management model most conveniently, we will use the diagram in Figure 1. It is based on the fact that the national economy is inherently extremely heterogeneous in terms of the significance of its individual segments and elements. Some of them are of purely strategic importance, others are primarily tactical, and still others are accompanying, thus supporting the overall functioning of the social system.
Circuits (segments) of the economy
General architecture of the economy management model
Management levels
Level 1 (survival) Level 2 (strategic)
Level 3 (innovative) Level 4 (tactical)
Fig. 1. Circuits (segments) of the economy and management levels
This logic assumes that the economy includes four circuits (segments) with individual functions. In particular, the core of the economy is of independent importance; it encompasses industries that enable the population to survive and function in the long term. According to recent studies, these include the following four industries: the extended agricultural sector (including forestry and fisheries), the mining industry, machine tool industry, and pharmaceuticals [Balatsky, Ekimova, 2023a]. If the core's industries are too small-scale, the country's population risks, under unfavourable circumstances, losing the very opportunity to live and work. That is why these industries form the core of the economy, which provides the initial working conditions for all other links: people must be well-fed (food), healthy (medicines), have jobs (equipment), raw materials for life and work (natural resources, including hydrocarbons). In the absence of a normally functioning core, further economic growth under sanctions appears to be impossible. Therefore, the core of the economy should be highly prioritised and occupy the highest level of the management system. Figure 1 schematically shows not only the circuits of the economy, but their troubled segments (shaded areas), which are underdeveloped by modern international standards and do not meet the requirements for the country's survival (in terms of sufficient domestic production volumes and product quality). It is these industries that should be the focal point of the management system at the appropriate levels, as shown by the arrows in Figure 1. The balanced segments need no regulator intervention and are managed according to general rules. This demonstrates the selective nature of the proposed anti-crisis economic management system.
Strategically important productions underlying the country's technological sovereignty are nested at the second level. These are microelectronics and semiconductors, civil aircraft manufacturing, and machine tool building. Similar to the previous level, it is necessary here to pinpoint the areas of concerns which should be the primary focus of managerial decision-making. Since these industries in Russia lag behind international leaders technologically and do not meet the country's internal demand, they need a strong impetus to reach the required qualitative and quantitative level in a short time. To do so, it is necessary to find innovative solutions to attract massive investments in the conditions of severed ties with the global capital market. These problems should be the focus of the second level of the management system.
At the third level, the economy is to be naturally renewed allowing for the latest technological advances. To that end, it is necessary to start production of scarce goods, which, until recently, had been replenished either through imports or products manufactured within the country by foreign companies and their branches. In addition, in the context of global geopolitical confrontation, there is an intensifying
need to put technological innovations into mass production as quickly as possible. It is hardly possible to know in advance what segments of the economy fall within these measures; what is meant here is the rapid response of the R&D sector to emerging needs followed by transferring new technologies to specialised production enterprises. The specified objectives can be attained through specific management tools devised and implemented at this level of economy management.
The task resolved at the fourth level is increasing production of a comprehensive range of goods. To do so, the bottlenecks in the current production chains are identified and eliminated. Here, we are talking about imported equipment, raw materials and supplies required for production in Russia. Hence, there is a need to seek ways to circumvent sanctions and find new trading partners, as well as to train staff in the specialties demanded by strategically important industries for further manufacturing of highly important products.
The aforementioned hierarchy of management links and their objectives is of great practical significance, since it allows authorities to concentrate on a specific problem that has to be rectified first. Another reason for structuring management problems under sanctions is that each level requires its own innovative and, at times, unconventional approaches, which can only be efficiently implemented if properly localised within the management system. This requires a clear-cut distinction between mass (traditional) and unique (unorthodox) methods and models of management; otherwise, there is a risk of non-standard management methods unlawfully spreading to an excessively wide range of enterprises with all the negative effects it implies. Equally serious problems can arise when attempting to apply traditional management methods to an abnormal situation in special sectors of the economy.
To avoid misunderstandings, we further explain some provisions of the structural model presented in Figure 1. First, the challenging segments imply that the volume of their products and services is insufficient for the national economy to function normally amid severe sanctions. Second, management initiatives regarding the troubled segments involve enhancing the domestic supply of their products and services considering a complete or partial refusal of imports, organising parallel imports, etc. Third, the challenging segments permeate the entire economy, including production and services, e.g., ensuring financial transactions and trade supplies are as important as food and pharmaceutical industries. Fourth, no centralised intervention is required in relatively prosperous segments of the economy (infrastructure construction, housing loans, etc.) that can independently exist in market conditions if making appropriate adjustments to their functioning. This is the point of the developed system - saving administrative resources due to the refusal of total intervention in the economy.
Gradation of levels, objectives and tools for managing the economy
The model features different management levels due to the specificity of the objectives being attained and the management tools used. The set of these instruments is not constant or ultimate. On the contrary, it can be adjusted while some methods are successfully implemented and the need for others is emerging; moreover, with the discovery of novel problematic archetypes new tools can be added. Table below specifies the general model for associating levels, objectives and methods of management.
Interrelation of management levels, strategic objectives and emergency measures
Level Objective Emergency measures
1 Biosurvival of the population and preserving the country's economic activity 1. Introducing the national economy antifragility monitoring system and identifying weak links. 2. Centralised control over the sectors within the national economy's core. 3. Planning production volumes of the core's sectors and ensuring massive investments in the designated industries. 4. Setting up new public corporations
2 Ensuring technological sovereignty in key production areas 1. Introducing the system of medium-term planning for strategically important industries. 2. Following the strategy of selective monetary expansion in relation to strategically important industries. 3. Introducing the "people's capitalism model" to attract additional investment in priority industries and establishing a system of public control for them. 4. Attracting particular investors from friendly countries to stimulate the development of priority industries
3 Modernisation of the economy, ensuring its compliance with international standards, founding new industries 1. Organising the most promising research and its centralised financing. 2. Facilitating a smooth transfer of new R&Ds and technologies into production. 3. Establishing new industries to manufacture innovative and scarce products with subsequent expansion of their range and production volume
4 Fueling economic expansion, developing the existing industries and supporting activities 1. Organising alternative supply chains for strategically important imports. 2. Founding new industries in 'young' markets. 3. Organising vocational trainings in new and high-priority specialties to staff strategically important industries
Table was compiled using the experience of the Centre for Macroeconomic Research of the Financial University under the Government of the Russian Federation. This experience is rather limited, and therefore, the list of managerial tools cannot be
considered exhaustive, nor can the corresponding bibliography. At the same time, it sets a convenient analytical template which can be applied to explore nearly any problem arising under extreme sanctions.
The model presented in Table is not functionally rigid, i.e., it does not specify what exact body is attached to each management level. On the contrary, what is meant here is the extent to which the objectives being solved are common and prioritised, while the subjects and tools of management can be quite diverse. In this sense, we can say that the developed model belongs to the category offunctionally soft ones.
As noted above, the softness and flexibility of the proposed multilevel economic management model is due to the incremental changes ideology as opposed to total regulation ideology. The model (see Figure 1) is based on the incremental changes ideology and gives a clear preference to it. This fact does not imply that strategic management as such is denied; rather, it focuses on the model's specific form, which is predetermined by the very regime of international economic sanctions.
Regulatory measures and tools can be divided into several groups. For instance, Iran's [Khudokormov, 2023] and North Korea's [Yurevich, 2023b] methods widely replicated to combat sanctions can yield good results. However, these methods do not solve the strategic issues of maintaining economic growth; they only serve as a primary impulse to prevent it from 'choking' at an early stage due to the lack of vital parallel imports and exports. Such measures are categorised as situational approaches to maintaining growth, are auxiliary and fall within the competence of the fourth level of the management system.
In addition, there are strong and weak management measures. For example, among the weak measures of the mobilisation regime is the model of people's capitalism (MPC), which implies the allocation of shares to employees of strategically important enterprises [Balatsky, Ekimova, 2023]. This is a variation of the more general concept of private entrepreneurship that is aimed at assisting Russian industries in attracting additional investments from internal sources, namely accumulated savings of the population. It does not involve any administrative enforcement and concentrates on unlocking the natural reserves of the economy. Among strong measures is credit expansion into new strategically important industries, i.e., microelectronics, aircraft manufacturing, etc. [Balatsky, Ekimova, 2023b]. This measure presupposes a high level of decision-making, coordination of decisions, as well as careful administrative control over the implementation of the goals set. However, both measures considered are at the second level of the management system and designed to attain the strategic objective of ensuring the country's technological sovereignty.
Another example of strong measures is the launch of a new public pharmaceutical corporation [Gusev, Yurevich, 2023], which would become the regulatory integrator of the industry. This measure involves huge administrative transformations, which
allows it to be classified as strong. At the same time its implementation is at the first level of the management system, since we are talking about processes immediately related to the survival of the country's population.
All of the above explains the abandonment of the total regulation ideology, which can also be called holistic, in favour of the incremental changes ideology, also called selective. A systemic (holistic) restructuring of the economy, including reconfiguration of all its links, is a very time-consuming process, but time is a scarce resource for Russia today, which makes this approach unproductive. It is more expedient to ensure the quickest possible reformatting of only some, specially selected, links of the economy, which will maintain the economic stability in the short term and provide the basis for future growth and development. A reformation strategy, wrongly selected, can produce the most disastrous results at this stage.
Multilevel economic management system: New imperatives
The softness of the model presented in Table results in its abstractness; therefore, in order to better understand the proposed system, let us consider the specific examples of new management imperatives that can be successfully implemented within its framework. This will reveal all the positions of the second and third columns of Table.
As noted earlier, the main focus should be on the industries responsible for the biosurvival functions of the economy. This fact is reflected in the concept of antifra-gility of the national economy developed by Balatsky and Ekimova [2023a], which allowed constructing an index of the same name. Over the last 20 years, the index for Russia has tended to grow, which indicates that the Russian economy is evolving to become more self-sufficient in satisfying its basic needs. It is worthwhile reminding that the concept of 'antifragility' was introduced by Nassim Taleb to describe such a property of social systems as the ability not only to restore their functionality due to some exogenous stressor involved, but also to improve it [Taleb, 2014]. This idea had been previously and appropriately manifested in the health concept by academician Nikolay Amosov. He believed that medical tests results falling within the reference values (blood sugar level, normal red blood cells range, etc.) show that a person is not ill, but he/she is not necessarily healthy, since violation of 'normal' living conditions can break all test values. In other words, the fitness of the human body, which underlies the stability of medical test results, is of independent importance. For example, in case of a disease and the resulting fever, an untrained heart may not cope with the increased load, which can lead to death. Thus, one should proceed with the category of 'amount of health', which can be interpreted as an aggregate of the 'reserve capacities' of the main functional systems of the body [Amosov, 1978, p. 63]. "Health is the 'reserve capacity' of cells, organs, the whole organism" [Ibid., p. 67]. It is this understanding (the ability to withstand stress caused by deteriorating conditions due to, for
example, the introduction of economic sanctions) that is embedded in the antifragil-ity index of the national economy in the study by Balatsky and Ekimova [2023a]. The index calculated in their work demonstrated that two out of the four sectors of the Russian economy's core, namely machine tool industry and pharmaceuticals, find themselves in an extremely unfavourable position.
Based on 2020 data, the share of the machine tool industry in Russia's total volume of value added in 2020 was nearly 2.5 times lower than in Brazil, which occupied the lowest position in a sample of eight countries, and 6.0 times lower than in Germany, the leader with the maximum value. Hence, in the medium term (3-4 years), Russia should more than double the share of machine tool building (2.0-2.5 times) in order to catch up with at least the outsider in the sample, and in the long term (10 years), increase it 5-6 times, to get closer to the leader. The share of pharmaceuticals in 2020 was 1.5 times lower than in Brazil (an outsider in the sample) and 12.0 times lower than in Switzerland (the leader in the sample). Accordingly, Russia should increase the share of the pharmaceutical industry 1.5-1.7 times within 3-4 years, and 10-12 times within 10 years [Ibid., p. 44].
These estimates demonstrate the scale of structural manoeuvres necessary for Russia and to carry out calculations for strategic planning of these challenging sectors of the economy (measures no. 1-3 of the first management level in Table).
However, in addition to the poor quantitative indicators of these industries, there is also a problem with their quality. For example, a thorough analysis of the development of the domestic pharmaceutical market in Russia indicates that its 54.3 % share belongs to foreign companies operating in the territory of the country; another 43.3 % share is controlled by the private shadow sector, which extremely lacks transparency and is mainly represented by branches and direct partners of the foreign companies; only the remaining 2.4 % lie in the hands of Russian state-owned enterprises [Gu-sev, Yurevich, 2023, p. 150]. Thus, the country's vital industry is extremely vulnerable. At the same time, there is still no regulator in the pharmaceutical industry; therefore, it is proposed to urgently create a public pharmaceutical corporation of the RosP-harm group, which could perform the functions of both a coordinator and a producer within the industry. Given the positive experience of Russian public corporations, we can assume that such a consolidation of industry actors will be a breakthrough in managing the strategically important market [Ibid., p. 153]. Thus, there is a need to apply an urgent and extraordinary regulatory measure of strategic importance (measure no. 4 of the first management level in Table). Taken together, measures no. 1-4 of the first level are sufficient to deal with the main block of objectives in solving quantitative and qualitative problems in vital sectors of the Russian economy.
For greater clarity, the concept of antifragility, as the central link of our management concept, can be illustrated in Figure 2 showing a model of the national economy.
Its foundation is the core of the national economy, and above it is a superstructure comprised of various industries, including the financial sector and the entertainment industry. If the core of the economy (the base of the figure) gets too small and weak, and the superstructure (the rest of the figure) turns out to be hypertrophied and skewed in any direction (schematically, this means the risk of the figure overturning), then the entire construct becomes unstable and needs to be revised. At that, the correction should start from the core of the economy and primarily affect those elements, which, if underdeveloped, make the entire system vulnerable.
At the second management level, meticulous attention is paid to microelectronics fabrication, civil aircraft construction, and the above-discussed machine tool industry. The main problem for these industries is their poor development, which can only be overcome through massive investment on the basis of government targeted projects. According to a number of research studies, one of the quickest ways to stimulate investments in new high-tech industries, which take about two years to be constructed and launched, are targeted loans from the Bank of Russia; model calculations confirm that massive lending, necessary for a macroeconomic breakthrough in production, will not bring about uncontrolled inflation and loss of financial stability [Balatsky, Ekimova, 2023b]. Consequently, organisation of new production and the opening of credit lines with the participation of the Bank of Russia should be the primary focus of the management system at the second level (measures no. 1-2 of the second management level in Table). Additionally, a high interindustry multiplier observed
in these sectors (for microelectronics, it is about 6 [Ibid., p. 23]) makes it possible to design related industries.
Another source of investments is the MPC suggesting that employees of strategically important enterprises can hold a certain block of shares thus acquiring a stake at these enterprises. Having performed a model analysis of this system of relations, we issued a number of recommendations as to how to implement it correctly in modern conditions [Balatsky, Ekimova, 2023]. For example, for MPC-based enterprises, dividend payment to the owners of 'people's shares' held by the enterprise's employees should be mandatory from the very beginning. In this case, the principle of the maximum size of the 'effective block of shares' should be observed, which prevents the employee from turning into an oligarch and requires that all owners have blocks of shares not exceeding this value. These provisions should be supplemented by the requirement for priority participation in the enterprise's share capital of residents of the region where it is located, as well as the principle of succession in relation to minority owners implying that, when an employee leaves the enterprise and when the resident moves to another region (changes registration), they must sell their shares to the enterprise. To attract maximum attention of the regional authorities to strategically important enterprises, it is reasonable to introduce the practice of their mandatory participation in the share capital of these enterprises. If these approaches are used along with the mechanism for careful selection of foreign investors from friendly countries to participate in the financing of promising Russian enterprises, then we can talk about new management imperatives and second-level mechanisms (measures no. 3-4 of the second management level in Table).
At the third level of the management system, it is necessary to create new approaches to selecting the most promising innovations of practical use, which immediately go into pilot and then into mass production. Apparently, these mechanisms can already be effectively introduced into the defence complex, but their replication to the key segments of the civilian sector will become the basis for the formation of the third level of the management system (measures no. 1-3 of the third management level in Table). When introducing the named measures, it is quite appropriate to rely on the international experience in fighting against sanctions. For example, North Korea, when struggling for technological sovereignty, used the practice of economic development zones (analogous to special economic zones), the residents of which received various benefits and preferences. In particular, investment companies were eligible to pay income tax at a rate of 14 % compared to 25 % in other regions of the country, while for the priority industries (infrastructure construction, high-tech and export-oriented production) the rate was 10% [Yurevich, 2023b]. In order to accelerate technological progress, the DPRK authorised extensive funding for the R&D sector: from 2012 to 2017, budget expenditures in this sector increased on average by
7.4 % [Ibid., 2023b]. Based on the fact that business consolidation generates additional resources for R&D and stimulates the demand for research results, the North Korean government initiated the development of horizontally integrated corporations, which implies uniting food producers, fish processing plants, clothing manufacturers, etc. under the single brand [Ibid., 2023b]. Currently, it is possible to extrapolate these management methods to the situation in Russia with fairly high efficiency.
At the fourth level of the management system, foreign experience in import substitution and the formation of parallel import channels should be used as actively as possible. As a reminder, in the late 1990s North Korea started organising the software industry and a little later set a course for informatisation of all sectors of the economy by 2000; since 2013, the country has been massively introducing production systems with numerical control originated in Russia [Kim, 2022]. Thus, North Korea has laid the foundations of many new sectors of the economy (measure no. 2 of the fourth management level in Table). Iran did something of the kind when it entered the 'young' market of unmanned aerial vehicles at relatively low costs and thereby became one of the world leaders in this industry. At the same time, by entering the global market and exporting its products, Iran made significant progress in developing such a traditional sector as the automotive industry [Khudokormov, 2023].
Iran's quite successful manoeuvres in foreign trade should not be left unmen-tioned [Haidar, 2017]. In particular, the country demonstrated an amazing ability to find trading partners among the countries markedly influenced by the United States, namely China, the UAE, Iraq, Oman, Turkey, and Panama. At the same time, Iran also operates in the territory of the named friendly states. Thus, according to available estimates, there are about 80 thousand Iranian companies operating in the UAE with total investments of 200-300 billion US dollars.
Another Iran's creative approach to circumvent Western sanctions is its practice of manipulating the automatic ship identification system by changing oil tankers' names and owners, which is possible due to cooperation with Panama [Caracciolo, 2021]. According to some estimates, 39 % of ships registered in Panama were involved in Iranian oil trade under the flags of different countries. This allows Iran to have its own fleet, which is almost impossible to track [Khudokormov, 2023].
Iran is no less inventive in the financial sector [Dizaji, 2021; Teichmann, Falker, 2021; Yalqnkaya, Tuglu, 2021]. For example, the country's Central Bank promotes the creation of various companies abroad that disguise transactions carried out through them, and uses the proceeds received from selling various goods and services (mainly oil) to purchase currency or necessary technologies. These measures are accompanied by cryptocurrency transactions that largely neutralise international economic sanctions. Interestingly enough, after the SWIFT ban, Iran began to more actively use
gold in payments: for example, it sold raw materials to Turkey for the Turkish lira and then exchanged it for gold in local banks. Such an impressive set of measures successfully resolves the problem of parallel imports (measure no. 1 of the fourth management level in Table).
From the perspective of staff training, a reference example is North Korea, which, when experiencing a shortage of computer infrastructure, focused on training programmers. Today, North Korean programmers regularly take high places in international competitions in computer animation and the development of open-source computer operating systems, and high qualifications of North Korean hackers have allowed the country to become a leader in global cybercrime and receive a significant additional source of income at the expense of its political opponents [Mah, 2020]. This practice refers to measure no. 3 of the fourth management level in Table.
It is worth noting that the widespread use of international experience in circumventing sanctions suggests studying and applying effective approaches in certain vulnerable areas of the Russian national economy. In this case, it makes no odds what countries act as role models; even if there are no similarities between Russia's economy and that of the country used as a positive example, the very methods of neutralising sanctions are mostly universal and can be easily adjusted to the Russian reality. Of course, this does not preclude the possibility of massive adaptation and creative modification of borrowed approaches.
Thus, the management model in Figure 1, supplemented by measures and tools from Table, is confirmed through specific examples, many of which have been tested over time and can be relatively easily incorporated into Russian government regulation practice.
Relevance and demand for a new management system
A logical question may arise about the relevance and demand for the proposed selective system for managing Russia's economic growth under sanctions. If the system is already being at least partially and spontaneously introduced, then the very question of its implementation does not make sense. At the moment, it can be argued that the Russian economic management system has so far been virtually unaffected by the process of progressive restructuring. To illustrate this point, let us provide a number of examples demonstrating the scale of the problem. Even more examples can be given, if needed, but the cases below are quite sufficient to understand the logic of the planned management measures.
The first example is about the insufficient development of the pharmaceutical industry in Russia. An analysis of the industry's shortcomings proves their alarming scale. However, the industry management system has not yet responded to the emerging challenges. Today, the system of state regulation of the industry is still dominated
by an inertial-reactive anti-crisis model with very superficial measures. With respect to pharmaceuticals, the Ministry of Industry and Trade of Russia (Minpromtorg) functions as a creator of a certain business climate, but not as an active producer and coordinator of the outcome. This is partly due to the fact that back in the USSR there was the special Ministry of Medical Industry; however, in the current configuration of the Minpromtorg's public administration system, there is only one department overseeing pharmaceutical production. For its part, the Ministry of Health of the Russian Federation partially acts as ordering customer in relation to certain drug categories and exercises control over the circulation of medicines based on the system for monitoring their movement, while it is in no way responsible for their production. The state corporations Rostec and Rosatom, despite having medicines production capacities, cannot serve as an effective coordinator of the pharmaceutical industry due to their specific nature [Gusev, Yurevich, 2023]. Thus, the country faces the problem to urgently forge a completely new link in the national economy management system.
There are other problems in the industry aggravating the abovementioned situation. Currently, the fundamental problems of pharmaceuticals have already been identified in terms of both import substitution, which underlies the catching-up scenario for the industry, and original medicines design, which is the basis of the outstripping scenario. For example, the state goal-setting for Russian pharmaceutical production has revealed interdepartmental inconsistency in the lists of essential drugs. A selective analysis of the Minpromtorg's import substitution plan, being implemented since 2015, showed that there is a persisting dependence on foreign active pharmaceutical substances and there are only few domestic manufacturers for a wide range of medicines [Gusev, Yurevich, 2023]. These facts indicate that the current configuration of Russian pharmaceutical production does not correspond to the objective of achieving drug independence. Thus, the industry faces the need to establish a system for monitoring and analysing production indicators, sales volumes, and clinical characteristics of drugs manufactured in comparison with foreign analogues, as well as a system for identifying original drugs and its inclusion in the industry management circuit. These objectives cannot be solved within the framework of a general macroeconomic policy and require emergency management measures in a mobilisation mode.
Another example is the inertia of the Russian lending system, which over the past 5 years has not produced any fundamental structural changes to support priority production. The dynamics of lending to Russia's priority industries for 2018-2023 showed that the sectoral shares of issued loans fluctuated without a clear general line; no noticeable concentration on priority areas was observed. Calculations demonstrate that the construction and launch of one modern microelectronics manufacturing enterprise need 4-5 times the annual loan for the entire electronics production industry [Balatsky, Ekimova, 2023b]. Thus, the Russian banking sector is capable of
maintaining the current operating activities of the existing factories and companies, but is fundamentally unable to make breakthrough investments in new high-tech industries. A similar situation is typical of the Industrial Development Fund (IDF), which focuses on stimulating direct investment in the processing industry by providing loans to industrial companies to deeply modernise the existing production facilities and create new ones. However, according to estimates, the scale of project loans provided by the IDF does not absolutely resolve the problem of a radical update of the Russian economy's technological parks [Balatsky, Ekimova, 2023b]. Hence, the country's monetary policy should be fundamentally revised in terms of industries needing rapid and radical investments.
The above allows us to comprehend the relevance and demand for a new economic growth management system with mobilisation elements.
Conclusion
Due to severe economic sanctions imposed by the collective West, Russia has faced the need to fundamentally modify its entire economic management system. The source of the Russian economy's problems is the neocolonial development model the country was following for 30 years after the collapse of the USSR. It is virtually impossible to quickly and systemically eliminate the accumulated challenges and contradictions, and, therefore, one should rely not on the holistic total regulation ideology, but on the selective incremental changes ideology. According to the latter, the entire economic management system should be disaggregated into four levels; at each level, it is necessary to specify the objectives to accomplish in the first place and regulatory tools to use for this.
The selective ideology involves quickly 'closing loopholes' in the current management system, but, apparently, there is no other option. The justification for this line of the authorities' behaviour is the lack of time for a more thorough and systemic transformation of economic institutions. At the same time, 'closing loopholes' should not be spontaneous, but be based on verified economic priorities and accurate identification of the emerging problems. It is the problem that the proposed multilevel economic management system is designed to solve.
The realism of the developed management model is partly confirmed by the fact that the Russian government follows it a priori, pursuing a policy of targeted solutions to the most problematic issues of economic development. In prospect, this line of the authorities' behaviour should become more systemic, large-scale and effective. In the long run, a gradual problem-solving will revive the Russian economy and encourage a smooth transition to the holistic total regulation ideology, but it may take up to 5-6 years.
The productivity of the implementation of a multilevel economic management system will depend on the specificity of the goals set at all the levels of the economy and on the control system's effectiveness. This involves restructuring the nature of the management process towards enhancing the personal responsibility and competence of decision-makers. It would not be an exaggeration to say that everything will depend on this. Otherwise, modification of the management system and modernisation of the economy will proceed slowly, which is tantamount to a strategic defeat in the current global management war of the West against Russia.
References
Abdrakhimov V. Z., Selezneva A. V. (2022). Economics and enterprise management in Russia, taking into account sanctions. VestnikPrikamskogosotsialnogo instituía = Bulletin of Prikamsky Social Institute, no. 1 (91), pp. 107-114. (In Russ.)
Akindinova N. V. (ed.), Avdeeva D. A., Bessonov V. A., Grishunin S. V., Mironov V. V., Naumtseva E. I., ... Yakobson L. I. (2023). The Russian economy under sanctions: From adaptation to sustainable growth. A report at the 24th Yasinsk (April) Int. Sci. Conf. on Problems of Economic and Social Development. Moscow: Higher School of Economics. 63 p.
Amosov N. M. (1978). Thoughts about health. Moscow: Molodaya gvardiya Publ. 191 p. (In Russ.)
Aturin V. V. (2019). The anti-Russian economic sanctions and problems of import substitution in the conditions of the modern international competition. Vestnik Evraziyskoy nauki = The Eurasian Scientific Journal, vol. 11, no. 2, pp. 1-9. (In Russ.)
Balatsky E. V., Ekimova N. A. (2023). Opportunities and limitations of the "people's capitalism model". Mir novoy ekonomiki = The world of new economy, vol. 17, no. 3, pp. 40-54. https://doi.org/10.26794/2220-6469-2023-17-3-40-54. (In Russ.)
Balatsky E. V., Ekimova N. A. (2023a). Antifragility of the national economy: A heuristic assessment. Journal of New Economy, vol. 24, no. 2, pp. 28-49. https://doi.org/10.29141/2658-5081-2023-24-2-2.
Balatsky E. V., Ekimova N. A. (2023b). Monetary policy on launching new production facilities in Russia: Opportunities in the semiconductor market. Upravlenets = The Manager, vol. 14, no. 5, pp. 16-28. https://doi.org/10.29141/2218-5003-2023-14-5-2.
Balatsky E. V., Ekimova N. A., Yurevich M. A. (2022). Price regulation under sanctions: International experience. Journal of Economic Regulation, vol. 13, no. 3, pp. 53-64. https:// doi.org/10.17835/2078-5429.2022.13.3.053-064. (In Russ.)
Bersenev V. L. (2016). Mobilisation model of the economy: experience of historiographic analysis. Proc. of 6th Annual Conf. of Science and Technology History Dept. "History of science and technology in the modern system of knowledge" (pp. 16-20). Ekaterinburg: Ural Federal University. (In Russ.)
Caracciolo I. (2021). Enforcing sanctions on Iran At Sea: Tensions over the interpretation and application of the law of the sea. In: Black-Branch J. L., Fleck D. (eds.) Nuclear non-proliferation in international law - Volume VI: Nuclear disarmament and security at risk-legal
challenges in a shifting nuclear world (pp. 479-500). The Hague: TMC Asser Press. https:// doi.org/10.1007/978-94-6265-463-1_18.
Dizaji S. F. (2021). The impact of sanctions on the banking system: new evidence from Iran. In: Bergeijk P. A. G., van Research handbook on economic sanctions (pp. 330-350). Edward Elgar Publishing. https://doi.org/10.4337/9781839102721.00027.
Eremenko K. P., Efremov V. V., Ivanov V. E. (2022). Anti-crisis management of a multi-layered economy under sanctions based on the concept of dominant factors of production. Gosudarstvennoe i munitsipalnoe upravlenie. Uchenye zapiski = State and Municipal Management. Scholar Notes, no. 3, pp. 98-105. https://doi.org/10.22394/2079-1690-2022-1-3-98-105. (In Russ.)
Farazmand A. (2019). Bureaucracy and revolution: The case of Iran. In: Handbook of comparative and development public administration (pp. 1077-1092). New York: Routledge.
Goncharova G. A., Bakanova S. A. (eds.). (2009). Mobilisation model of the economy: The historical experience of Russia in the 20th century. Chelyabinsk: OOO Entsiklopediya Publ. 571 p. (In Russ.)
Gray K., Lee J. W. (2017). Following in China's footsteps? The political economy of North Korean reform. The Pacific Review, vol. 30, no. 1, pp. 51-73. https://doi.org/10.1080/095127 48.2015.1100666.
Gusev A. B., Yurevich M. A. (2023). Catching-up and outstripping development of the Russian pharmaceutical industry. Economic and Social Changes: Facts, Trends, Forecast, vol. 16, no. 6, pp. 55-73. https://doi.org/10.15838/esc.2023.6.90.3.
Gusev A. B., Yurevich M. A. (2023). The sovereignty of Russia in the area of pharmaceuticals: Challenges and opportunities. Terra Economicus, vol. 21, no. 3, pp. 17-31. https://doi. org/10.18522/2073-6606-2023-21-3-17-31. (In Russ.)
Haidar J. I. (2017). Sanctions and export deflection: Evidence from Iran. Economic Policy, vol. 32, no. 90, pp. 319-355.
Harris S. E. (1951). Inflation and anti-inflationary policies of American states. New York: Pan American Union. 143 p.
Ivanov V. V. (2023). Reforms of science: A new vector. Ekonomika nauki = Economics of Science, vol. 9, no. 1, pp. 8-20. https://doi.org/10.22394/2410-132X-2023-9-1-8-20. (In Russ.)
Karlova N., Morozov A., Puzanova E. (2023). Import restrictions constrain exports: Results of a survey of enterprises. A brief. Moscow: The Bank of Russia. 34 p. (In Russ.)
Khudokormov G. A. (2023). Technological development by sub-sanction pressure: The case of Iran. Theoretical and Applied Economics, no. 3, pp. 41-53. https://doi. org/10.25136/2409-8647.2023.3.43862. (In Russ.)
Kim M. H. (2022). North Korea's cyber capabilities and their implications for international security. Sustainability, vol. 14, no. 3, 1744. https://doi.org/10.3390/su14031744.
Krutikov V. K., Yakunina M. V. (2022). Instruments of state support for the regional economy under sanctions. Kaluga: Eydos Publ. 378 p. (In Russ.)
Lenchuk E. B. (2022). Science and technology development as a strategic national priority of Russia. Ekonomicheskoe vozrozhdenie Rossii = Economic Revival of Russia, no. 1 (71), pp. 58-65. https://doi.org/10.37930/1990-9780-2022-1-71-58-65.
Mah J. S. (2020). North Korea science and technology policy and the development of technology-intensive industries. Perspectives on Global Development and Technology, vol. 19, no. 4, pp. 503-524. https://doi.org/10.1163/15691497-12341567.
Molchanov I. N. (2017). Economic sanctions and Russia's financial system. Finan-sy: teoriya i praktika = Finance: Theory and Practice, vol. 21, no. 5, pp. 50-61. https://doi. org/10.26794/2587-5671-2017-21-5-50-61. (In Russ.)
Noland M. (2019). North Korea: Sanctions, engagement and strategic reorientation. Asian Economic Policy Review, vol. 14, no. 2, pp. 189-209.
Polterovich V. M. (2023). Catching-up development under sanctions: The strategy of positive collaboration. Terra Economicus, vol. 21, no. 3, pp. 6-16. https://doi.org/10.18522/2073-6606-2023-21-3-6-16. (In Russ.)
Sobol T. S., Sharay A. I. (2023). The current state of the Russian economy under the conditions of sanctions and prospects for its development. Vestnik Moskovskogo universiteta imeni S. Yu. Vitte. Seriya 1. Ekonomika i upravlenie = Bulletin of Moscow Witte University. Series 1: Economics and Management, no. 1 (44), pp. 7-15. https://doi.org/10.21777/2587-554X-2023-1-7-15. (In Russ.)
Taleb N. N. (2014). Antifragile: Things that gain from disorder. Moscow: KoLibri Publ., Azbuka-Attikus Publ. 768 p. (In Russ.)
Teichmann F. M. J., Falker M. C. (2021). Circumvention of financial sanctions via Dubai's trade and commerce: the case of Iran. International Journal of Trade and Global Markets, vol. 14, no. 6, pp. 644-659.
Vaezi R. (2021). Criticism of public and development administrations in Iran. Governance and Development Journal, vol. 1, no. 1, pp. 31-43. https://doi.org/10.22111/JI-PAA.2018.82910. (In Persian)
Yalçinkaya A., Tuglu D. (2021). Economy policy of Iran against financial sanctions. Strategic Public Management Journal, vol. 7, no. 14, pp. 1-12. https://doi.org/10.25069/spmj.927779.
Yurevich M. A. (2023a). Technological sovereignty of Russia: Concept, measurement, and possibility of achievement. Voprosy teoreticheskoy ekonomiki = Issues of Economic Theory, no. 4, pp. 7-21. https://doi.org/10.52342/2587-7666VTE_2023_4_7_21. (In Russ.)
Yurevich M. A. (2023b). Scientific and technological development in the Juche model of socialism. Journal of Economic Regulation, vol. 14, no. 3, pp. 6-15. https://doi. org/10.17835/2078-5429.2023.14.3.006-015. (In Russ.)
Information about the author Evgeny V. Balatsky, Dr. Sc. (Econ.), Prof., Director of the Center for Macroeconomic Research. Financial University under the Government of the Russian Federation, Moscow, Russia; Chief Researcher. Central Economics and Mathematics Institute of RAS, Moscow, Russia. E-mail: evbalatsky@inbox.ru
© Balatsky E. V., 2024
