Demand for industrial policy in Russia and key interest groups

priority industries

Society and the state in Russia have traditionally shown high demand for an industrial policy. Despite the widespread view among Russian experts on the negative consequences of the state intervening in regulation in this field, a large number of practical questions call for coordinated and centralized measures, the adoption of which lies solely within the remit of state authorities. Such measures include: defining priorities when making decisions to reduce (raise) the tax burden or change customs duties; agreeing on conditions for joining a foreign economic system (WTO, Customs Union) and terms for transitional periods and compensation for national producers; offering selective support to certain sectors in times of crisis; selecting preferential investment areas when the state has enough resources and expands its role as an investor (directly or through a development institution).

Domestic industrial policy is expected to overcome various economic problems and guarantee long-term growth through diversification of the economy, import substitution, increasing the volume of exports with a high level of processing, developing research and the use of Russian developments, and creating new economic sectors based on cutting-edge technologies. Besides these economic ob jectives, the fundamental aim of Russia’s industrial policy was and continues to be providing social stability, and supporting employment in certain regions, singleindustry cities and big businesses.

Political stability remains an important factor and can be guaranteed by redistributing revenue among the powerful elites. The possibility of changing the status quo by invoking long-term and politically advantageous objectives and seeking support and preferences for certain sectors make industrial policy attractive to members of various interest groups.

In the period 2000–2003, the discussion of industrial policy was outwardly inspired by the problem of changing the structure of the Russian economy. However discussions in this regard were generally initiated by large businesses made up of the most powerful, consolidated industries (metallurgy, energy, railways, and extractive industry) and took place between the stakeholders themselves. Contradictions surrounding questions such as tariffs for services provided by natural monopolies, the conditions and expediency of joining the WTO, and the exchange rate policy of the Central Bank were all, among others, extremely delicate matters.

While in the early 2000s business was the main counterpart of the state, later in that decade state interest groups and competition between these groups shaped the developmental trajectory and configuration of industrial policy (Table 3). We have identified four of these interest groups: budgetary, structural, sectoral and science and technology. The specific nature — and advantage — of the proposed classification is linked to the stability of these groups and the fact that they all have a positive agenda. The position and influence of each of these groups is highly dependent on current budget restrictions, the level of social support from the population and the lessons learnt by the authorities from crises.

It seems unlikely that the various interest groups can be unified on rational terms when it comes to elaborating an industrial policy. Three of the four groups — structural, sectoral and science and technology — have a positive attitude to industrial policy, but differ significantly in their views on the principles guiding its implementation.

There is still competition in Russia between the vertical and horizontal (technology industrial) models for the implementation of industrial policy (Table 4). The state (mostly represented by sectoral interest group members) gravitates towards a traditional (vertical) industrial policy. This orientation is determined by the following factors:

the existence of instruments to exert a direct influence on public sector companies and the opportunity to make resolute decisions (especially with poorly developed education mechanisms);

direct mutual obligations between the state and big business with the possibility of enforcement amid insufficient trust between the parties;

the simplicity with which the consequences of decisions are modelled and assessed, the high speed with which the effects take hold.

ш.4 Characteristics of traditional (vertical) and new (horizontal) industrial policy

Traditional i vertical 1 policy                          Mew i horizontal science and technology polity

Sectoral priorities                                             Technology priorities

Existing sectors and industries                              New industries, creative sector of the economy

Production                                             Services and production

Import substitution                                     Exports and new demand

Big and mega business                                   Mcwh created small and medium sized business

Public sector, state development institutions                  Private sector, foreign investors

Integrated structures, holding companies                    Science and technology networks, clusters, sub-contractor chains

Current interest groups                                    Search for new stakeholders

Redistribution of revenue                                  Future changes in the distribution of revenue

Investment, public initiative                                  Innovations, private initiative

Sectoral development strategies, special purpose budget Plurality of instruments, quasi budgetary nature, regulation on programmes, regulation on sectoral levels                   company levels

Resolute decisions                                       Dectuon making rules

Saurer compiled by the authors

Opportunities to elaborate a long-term industrial policy are the most radically restricted in times of crisis, while demand for an industrial policy only grows in a complex economic situation. However, as such demand is determined by the protection of existing production and employment levels it acquires a predominantly sectoral and situational nature. In periods of economic turbulence, demand for budget balancing and stability grows, the positions of the ‘budgetary’ interest group grow stronger, while the financial opportunities to implement an industrial policy shrink drastically. The convergence of sectoral and stabilization agendas in industrial policy make it necessary to resort to using a riskier set of tools (riskier in terms of the long-term consequences), tools that involve protective, quota-based and preferential measures. As a result, there is a general shift towards a vertical, sectoral policy with a focus on non-financial, restrictive mechanisms, and formal and non-formal state regulation of the conduct of the biggest companies.

The specific nature of relations between the state and business and mechanisms to assert and coordinate various interests have a considerable impact on the interaction between interest groups when formulating and implementing industrial policy. In the last five years, we have seen increased access to decisionmaking centres, the institutionalization of new channels for collaboration, and the increasing influence of science and technology interest group. At the same time, the newly emerging technology industrial policy still has some ‘vertical’ traits, including:

an orientation towards the interests of large stakeholders, albeit with an in• crease in their numbers because of the scientific, educational and technological spheres;

the low level of competition among public institutions with a tendency to• wards monopolizing views on possible approaches and assessments;

under valuation of demonstrable effects and transmission mechanisms of • best practices, reliance on (quasi-) public resources;

lack of transparency surrounding decision-making processes and results ap• praisal processes despite relative openness towards proposals.

The lack of development of ‘horizontal’ expert instruments, the shortage of objective comparisons of proposals put forward by various interest groups, and the lack of fair distribution of responsibilities between stakeholders is giving rise to an inconsistent and one-sided industrial policy.

"Экономика и социум" №5(24) 2016