Vladimir Andrianov: Theory of Self-Regulation of the Market Economy: new conception of sustainable developmentîÁÚÁÄ
Vladimir Andrianov: Theory of Self-Regulation of the Market Economy: new conception of sustainable development
Vladimir Andrianov
Theory of Self-Regulation of the Market Economy: new conception of sustainable development
Moscow - 2008
TABLE OF CONTENTS INTRODUCTION
Chapter 1
BASIC ECONOMY REGULATION CONCEPTIONS
1. Theory of mercantilism
2. Economic liberalism
3. Keynesianism
4. Monetarism
5. Social market economy pattern
6. State dirigisme
7. Institutionalism
8. Theory of sustainable development
9. Theory of regulation
Chapter 2
THEORY OF SELF-REGULATION OF THE MARKET ECONOMY
1. Notion of equilibrium and stability of the economy
2. Definition and parameters of functional economic systems
3. Institutions as the basis for inception and evolution of functional economic systems
4. Organizational framework and performance overview of functional economic systems
Chapter 3
SELF-REGULATION MECHANISMS ON THE LEVEL OF MACROECONOMICS
1. The functional economic system to keep inflation under control
2. The functional economic system to ensure a balanced state budget
3. The functional economic system to ensure stability of the national currency
4. The functional economic system to ensure accumulation and utilization of gold and currency reserves
5. The functional economic system to ensure formation and maintenance of the competitive environment
6. The functional economic system to ensure protection of the domestic market from unfair competition
7. The functional economic system to ensue the inflow and movement of capital
8. The functional economic system to ensure social security of the population
9. The functional economic system to ensure environmental protection
Chapter 4
SELF-REGULATION MECHANISMS ON THE LEVEL OF MICROECONOMICS
1. Definition and basic properties of self-regulating entities
2. Classification of self-regulating entities
3. Notion of co-regulation
4. Incorporation and development of self-regulating entities in Russia
CONCLUSION REFERENCES ABOUT THE AUTHOR
Summary
A detailed overview of principal conceptions of the economic regulation as of the 17th century is provided in the monograph written by V.D. Andrianov, Professor of the Moscow State University.
The author specifically inquires into the ideas of scholars whose views are attributed to schools and theories as mercantilism, economic liberalism, Keynesianism, monetarism, conception of the social market economy, state dirigisme, institutionalism, theory of sustainable development, and theory of regulation.
Alongside with the above conceptions, the author proposes a theory of self-regulation and its constituent theory of functional economic systems as his personal scientific theories.
In the presentation of the new theory, the author assumes that sustainable equilibrium and dynamism are the main factors of successful market economy development.
The conception of general economic equilibrium as the universal facility applicable for the purposes of analysis of an economic system was initially proposed by L. Walras , a Swiss economist.
M. Walras considered equilibrium of the economy not only as the equilibrium of supply and demand; he considered it as the general equilibrium of symmetrical markets.
The pattern of general equilibrium is a reflection of interrelation between commodity markets and production factors markets. This causes a singular equilibrium of multiple markets against the background of the market economy and perfect competition.
M. Walras interpreted economic ties as a system of dependencies, which made it possible for him to take account of both direct and feedback relationships.
In pursuance of the above conception of general economic equilibrium, subjects of the economy strive to assure its optimal state, or equilibrium associated with stability in this context.
If the system is in the state of sustainable equilibrium, in the aftermath of any disturbances, arising from the external environment, the system regains its equilibrium within a certain period of time.
Therefore, stability may be defined as the capability of a system to retain its parameters and qualitative properties against the background of a variable external environment and internal transformations. Any variations can be both accidental and intentional.
The system depends upon varied factors. Any loss of stability may be caused by:
ž any alterations in the system parameters (bifurcations),
ž external impacts (in particular, impacts of excess significance or impacts that are incompatible with the system),
ž disintegration of relations within the system that alter its structure (instability of the structure).
In the theory of economics, stability is considered one of the notions of the economic equilibrium conception, in pursuance of which attainment and maintenance of the economic equilibrium are deemed as the macroeconomic objectives of major importance.
In accordance with the rules of any system analysis, stability of any system is maintained by internal self-regulation mechanisms within the system.
We believe that functional economic systems shall act as mechanisms of self-regulation on the level of macroeconomics, whereas self-regulating entities shall act as mechanisms of self-regulation on the level of microeconomics.
We believe that functional economic systems represent a combination of institutions and organization that get organized into mechanisms of self-regulation to ensure the equilibrium in accordance with the preset macroeconomic parameters and indicators.
Functional economic systems differ from purpose-oriented systems such as banking, taxation, insurance, and social security, because they are self-regulated systems, and any deviation from their present stability parameters immediately activates numerous mechanisms that restore the equilibrium on the level of macroeconomics.
Peter Drucker, a famous US economist, the founding father of contemporary theory of management, wrote back in 1954: "Targets in key businesses are the control panel that a pilot of a business enterprise needs".
Evidently, the government also needs this "control panel" that would set the appropriate objectives in terms of its social and economic development.
In our opinion, the so-called "control panel" of stable and balanced economic development could be composed of the following macroeconomic indicators to be maintained within particular preset parameters:
ž GDP growth rate;
ž inflation rate;
ž state budget deficit;
ž state debt;
ž domestic currency rate fluctuation margins;
ž gold and currency reserves;
ž development of the competitive environment;
ž unemployment;
ž poverty;
ž extent of inequality in distribution of cash proceeds;
ž Ecological stability, etc.
The values of indicators, most of which are expressed in figures may be distributed among three categories: optimal, marginal and critical values.
Our comparative analysis of the economic development of major industrialized and newly industrialized states as of the end of WWII serves to identify the optimal values for the principal socioeconomic indicators that ensure economic stability.
The following indicators must be specified in this respect:
ž price index shall not accrue in excess of 2 to 3% per year;
ž money supply growth shall correlate with production growth (though it shall not exceed 3 to 5% per year);
ž the state budget deficit shall not exceed 3 to 5% of the GDP;
ž the state debt shall not exceed 60% of the GDP;
ž domestic currency rate fluctuations shall not exceed 1 to 2% per month;
ž the amount of gold and currency reserves shall be sufficient to cover 90 days" commodity importation expenditures, and it shall reach, at least, 8% of the GDP;
ž servicing of foreign debts shall not exceed 20 % of gross annual exportation proceeds;
ž accumulation of the GDP shall be, at least, 10 %; to maintain extended reproduction;
ž the share of foreign products in certain sectors of the domestic market shall not exceed 30 to 40 %;
ž the share of companies dominating certain commodity markets shall not exceed 65%;
ž per item share of the capital of the major domestic bank within the aggregate bank capital shall not exceed 35%;
ž the critical unemployment shall not exceed 15 to 20 % of able-bodied citizens;
ž cash income of 20% of the wealthiest citizens shall not exceed that of the 20% of the poorest citizens by over 12 times;
ž the poverty index shall not exceed 30 to 40% of the population.
Therefore, the author specifies the following functional economic systems by reference to the aforementioned indicators:
ž the functional economic system to keep inflation under control;
ž the functional economic system to ensure a balanced state budget;
ž the functional economic system to ensure stability of the national currency;
ž the functional economic system to ensure accumulation and utilization of gold and currency reserves;
ž the functional economic system to ensure formation and maintenance of the competitive environment;
ž the functional economic system to ensure protection of the domestic market from unfair competition;
ž the functional economic system to ensue the inflow and movement of the capital;
ž the functional economic system to ensure social security of the population;
ž the functional economic system to ensure environmental protection, etc.
Any deviation from the preset stability parameters immediately activates numerous mechanisms that restore the equilibrium.
The restoration of the present parameters shall either be performed voluntarily through the generally accepted norms of behaviour and any agreements made, or through enforcement, including internal limitation of activities through the fear of punishment for the violation of certain norms, through public sanctions or state coercion.
Therefore, the organizational framework of functional economic systems has organizations, including legislative and executive authorities, research centers, expert panels and information distribution facilities, law enforcement bodies, nongovernmental public organizations and associations, etc.
Successful performance of functional economic systems is attained through their centralized control and through regular relationships between their constituents, as well as through the application of both hierarchical and networks management principles.
Originally, functional economic systems emerged in the market economy in the course of evolution of certain institutions rather than as a result of target-oriented human efforts.
Functional economic systems were shaped under the impact of the so-called "spontaneous order" - the fundamental concept of the social philosophy developed by an Austrian scholar Friedrich von Hayek.
The essence of the "spontaneous order" prevents it from being the outcome of anyone"s invention or implementation of anyone"s concept. It is produced in the course of evolutionary development as an unintentional and instinctive outcome of willful efforts exerted by the great number of people that pursue their personal objectives.
These social institutions occupy an interim position between the realm of natural subjects existing independently from the humankind, and the realm of artificial subjects originating from human willpower and intelligence.
In this respect, "spontaneous order" may be considered as the product of human activities rather than the product of human reason.
Although formalization of functional economic systems was no product of human reason, the whole history of human reason in terms of the economics serves as the principal assumption of their inception and development within the living tissue of the market economy.
Paul Samuelson, a US economist, and N. Kondratiev, an outstanding Russian economist, both had an ingenious anticipation of potential inception of self-regulation mechanisms on the level of macroeconomics.
The views of Paul Samuelson are based upon identification of factors of economic equilibrium which "means such a stable condition of the economy that ensures the tendency for self-regulation of any deviations".
N.D. Kondratiev believed that internal market development patterns are cognizable, and that the mechanism of self-regulation incorporated into market relationships can and must be utilized as a constituent of the national economy control by the state.
Therefore, on the next stage, having cognized patterns of inception and operation of functional economic systems, the society can deliberately build and utilize functional economic systems as mechanisms of self-regulation on the level of macroeconomics.
On the level of microeconomics, the system of self-regulation is based upon self-regulating entities.
A self-regulating entity is a combination of multiple subjects of the economy that operates in accordance with the rules preset by these entities.
Most frequently, these self-regulating entities represent business associations that have a preset number of members. These entities impose limitations on themselves without any enforcement from the outside.
Self-regulation includes prescription of particular formalized "rules of the game" to be complied with by the market players.
The above formalized rules are the rules specified in particular documents (professional ethics codes, etc.), and they impose sanctions for their violation, as well as procedures of dispute settlement between market players which, to some extent, limit the freedom of business agents.
Both prescription of the "rules of the game" and dispute settlement are performed by market players without any direct interference by the state.
In the course of the economic policy development, self-regulating entities shall be considered a universal tool that ensures conciliation of the interests of all market players with interests of the state.
Development of self-regulation is an efficient mechanism that complements, and in some cases, substitutes the interference into the economy performed by the state.
The problem of self-regulation is close to the administrative reform and the policy of deregulation whose principal objectives include removal of any administrative barriers and introduction of stimuli boosting the entrepreneurial initiative.
Gradual conversion of the market economy into an open, self-developing and self-regulating system should be considered as the objective process of the global economy development.
Operation of functional economic systems and self-regulating entities within the economy ensures continuous control over preset macroeconomic parameters and over the state of particular commodity and financial markets, thus, ensuring superiority of our pattern of self-regulating development of the economy.
The aforementioned processes cause the optimal balance between the economic growth, the inflation rate, investments made and GDP accumulated, as well as the state budget income and expenditure, unemployment and social security, commodities and services supply and demand, and environmental protection.
This is how domestic market stability and equilibrium are ensured, causing dynamism and stability of the economic system as a whole.
Development of the economy which can flexibly respond to the latest challenges rather than any search for universal development patterns turn out to be the top priority of the present-day concepts and practice of the economics.
In this respect, functional economic systems and self-regulating entities improve the adaptive efficiency of the economy, its capability to instruct itself, to encourage innovations, and to undergo varied experiments, including restructuring and improvement.
Management principles undergo gradual changes in the self-regulating economy. The hierarchical principle is supplemented by the network principle, which may, in the long term, cause a rearrangement of the current management structure.
Besides, pursuant to system analysis patterns, inception of mechanisms of self-regulation within the economy causes its optimization, both in terms of the economy as a whole, and in terms of its institutions and organizational framework.
Research of patterns of inception and principles of operation of functional economic systems and self-regulating entities is an important contribution into the general theory of stable development of the global economy.
Besides, research of patterns of inception of self-regulation mechanisms as the process of evolution of institutions serves as the basis for a new school in the present-day theory of institutionalism.
The unique character of our functional economic systems theory is proven by the fact that no other theory of economics, including those theories that oppose one another, would fall out of the process of evolutionary formation of functional economic systems in terms of their application and formalization.
In this respect, we believe it expedient to consider the theory of self-regulation as a new paradigm of systemic research. Our theory researches interrelation between various realms of society and such science disciplines as economics, politics, sociology, culture, environmental protection, ideology, etc., therefore, it cannot be reduced to a minor discipline.
The economic policy pursued by the state is one of the most important notions of the economics and an instrument required to build mechanisms of self-regulation.
The most important trends of the economic policy, including the structural policy, the budget and taxation policy, the monetary policy, the social policy, the foreign economic policy, the environmental protection policy, etc. may originate from our theory of self-regulation.
The setting of principal macroeconomic indicators and formation of functional economic systems, that ensure their maintenance within the preset parameters, shall be the main principle of the economic policy.
The principal problem associated with the formation of functional economic systems consists in identification of optimal economic parameters and arrangement of their continuous monitoring, feedback, and adjustment to ensure the equilibrium of the economy.
Presently, Russia can hardly be considered a fully formed integral economy; therefore, the possibility of formation of efficient self-regulation mechanisms, as well as their potential development within the Russian economy, are hard to project in Russia.
Unreasonable economic reforms implemented in Russia in early 90s, caused a macroeconomic malfunction - an unbalanced condition that prevented basic institutional constituents of the economy from acting efficiently against the background of unavailability of any new constituents within the Russian economy.
Later, in the course of true economic reforms implemented in Russia, new institutions and new entities emerged, particular constituents of self-regulation mechanisms were formed both on the level of macroeconomics and on the level of microeconomics.
Formation of the following regulatory and supervisory authorities, research centers, expert panels, information distribution entities and self-regulating organizations as important constituents of self-regulation are of particular importance:
ž Central Bank of the Russian Federation,
ž Federal Antimonopoly Service (formerly known as State Committee in charge of anti-monopoly policy and support of entrepreneurship),
ž Federal Service in charge of financial markets (formerly known as Federal Commission in charge of the securities market),
ž Commission of the RF Government in charge of protection of foreign trade operations and customs tariffs,
ž Association for protection of consumers" rights,
ž Moscow Interbank Currency Exchange (MMVB),
ž Russian Trading System (RTS),
ž National Association of Securities Market Players (NAUFOR),
ž National Securities Association (NFA),
ž National Depository Center (NDTs),
ž Associations of producers of commodities, etc.
However, Russia has to get through long-term processes of formation and development of institutional bases, evolution of its institutions and alteration of social and cultural environment before the self-regulating market economy, equipped with a wide network of functional economic systems and self-regulating entities, is in place.
In this respect, social and cultural environment is of particular importance. This environment includes formation of the law-governed state and alteration of the attitude towards laws within our society, which is a substantial driver of formation and development of a network of functional economic systems and self-regulating entities.
The double-leveled pattern of the self-regulating market economy is sufficiently universal to be implemented in one country, in integrated regions, and worldwide.
Presently, our pattern may be implemented, primarily, in the EU countries, whose market institutions and integration processes are developed to the utmost extent.
Our theory of self-regulation may be implemented within corporate entities to ensure stable business processes and optimization of management.
This book is structured in accordance with logical laws; its style makes its ideas easy to perceive. Of particular interest does the author provide the historic inserts. Therefore, apart from its being a must for professionals, this monograph may be of interest to any reader.
In 2007, the monograph written by Professor V.D. Andrianov was selected prizewinner of the V- th Contest named N.D. Kodratiev for its contribution into development of social sciences. Leading economists consider that works, that are awarded this prize, stand next to Nobel Prize winners in terms of their intellectual significance.
The monograph written by Professor V.D. Andrianov was selected prize winner in the Economics section of the Best Books and Publishers of the Year Contest held by the Russian State Library (known as the Library named after V.I. Lenin).
