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Books by Grigory Yavlinsky
Economics and Politics in Russia
The Center for Economic and Political Research (EPIcenter)
Nizhni Novgorod-Moscow, 1992

3.2. Prognosis and Strategy

Basic Scenarios

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The decisions and steps taken by the oblast leadership may be categorized as follows:

- operative measures, oriented toward the temporary elimination of negative consequences of macro-economic processes on the regional level;

- tactical measures, envisaging the permanent "immunization" of the oblast's economy against the influence of existing negative factors;

- strategic measures, which will lay the foundation for the oblast's long-term, reliable, crisis-free socio-economic development, even within an unstable general economic environment.

The present state of affairs is so new and changes so quickly that the regional authorities (as in all other regions) has focussed on operative measures, acting like a "fire brigade". It will develop a strategic concept based on a forecast of overall developments in the country. If no steps are undertaken and political will is not exercised, general forecasts are extremely alarming: runaway inflation, a production slump, high unemployment, de- industrialization, a sharp deterioration in the operation of transport systems, and the appearance of large numbers of refugees.

The development of the oblast as a socio-economic system at any point in time may be characterized by a certain functional condition. Four such basic states may be distinguished: crisis, unstable, stable, and dynamic. Each of these states may be described by a system of indicators for processes, which have definite "turning points", denoting the system's transition from one state to the next. The following were chosen as indices: rates of growth (or decline) in production, unemployment level (or its growth rates), inflation rates, and the ratio between the growth rates in the population's incomes and the consumer price index (i.e. real incomes).

An analysis of these indices reveals that the economy of the Nizhni Novgorod oblast is in in the midst of a transition from a stable to an unstable state. The production decline continues, unemployment and inflation are rising steadily, and the price growth rate for consumer goods and services is outstripping population's incomes by one and a half times. Such a course of events must be contrasted by an effective strategy which anticipates a response to changes in the situation: to take preventative measures upon the appearance of trends indicating its aggravation, while at the same time laying the foundation for developments of the situation in a positive direction.

On the basis of the oblast's initial economic condition and its trends, and the absence of significant external disturbances (a coup d'etat, popular uprising, civil war, etc.), a positive strategy of the oblast administration would have the following positive consequences (in chronological order):

1. Stabilization (after the aggravation of the crisis, when the system switches to an unstable state): principal emphasis on a social net, the maintenance of at least a production minimum, the fragmentation of enterprises into smaller units, the liquidation of defence output, maximum (forced) conservation of energy resources, and development of agriculture and the handicraft industry. Unemployment,

buttressed by a social net. Reliance on local resources and potential. Barter economy. Consensus politics. The creation of a favourable entrepreneurial climate. The establishment of an effective system for ecological monitoring and the gathering of information on the environment. The development of bilateral ties with other regions of Russia and CIS countries.

2. Stimulation (a strategy to return the system to a stable state): orientation of industry toward domestic markets, without major capital investments in modernization; gradual restructuring (including the conversion of defense enterprises) and the creation of a production base to serve the agro-industrial complex; attraction of internal investments (from regions of Russia and the CIS); stabilization of unemployment; the gradual creation of an attractive investment climate, revival of commerce, attainment of a reliable reputation, reduction in crime levels, and the conversion of Nizhni Novgorod into a recognised commercial centre. A "Free Trade Zone" (with unrestricted entrepreneurship). A regulated market economy. The formation of elements of a civil society. Elaboration and the implementation of regional and intra-regional ecological programmes. Promotion of the oblast as a "nucleus for crystallization" of the Volga regions.

3. Forced Development: rapid restructuring on the basis of a large-scale attraction of Russian and foreign investments, to be guaranteed by the local administration; the creation of an exclusively favourable investment climate and a special foreign economic policy; the development of new technologies; the output of products competitive on the external market; the creation of an international standard of infrastructure. Progressive improvement of the ecological environment. A market economy. A civil society. Nizhni Novgorod's achievement of the reputation of national cultural centre.

The stabilization policy at regional level is based on the creation of a reliable economic base built on the observance of the following principles:

1. Competition between forms of ownership in the same spheres of activity; primarily in agriculture, commerce, and construction.

2. Reliable provision of resources to production, as far as possible, with emphasis on local resources (agriculture, timber, recreational resources, local construction materials, capital assets, qualified labour resources, etc.).

3. Varied activity based on the optimal utilization of resources (closed technological cycles and emission-free production), their combination into finished products, and the advantages of the region's location as a transport hub.

4. Dynamic nature of the economic base, and "speedy reaction" to external changes, largely through the efforts of small business.

5. Competitive products and services. 6. Observance of ecological requirements.

7. Management on the oblast level by creating a single economic coordination agency, and stripping individual economic entities of their "ex-territorial" tax status.

In addition, one should be prepared for an unexpected "state of emergency" (transition from an unstable to a crisis state), when the activity of the oblast authorities would bear an economic and political nature, insofar as such a transition is always accompanied by an explosion in criminal and other illegal activity. The following "turning points" could trigger such a situation: - disruptions in the population's food supply, especially in the cities; - unexpected sharp (and multiple) price hikes for staple foods (bread and milk); - a rapid rise in unemployment rates owing to the bankruptcy of enterprises, or lack of demand, a dearth of raw materials, fuel or electricity;

- breakdown of cities' "life support" systems (transportation, water supply, heating, sewers); - major catastrophes at environmentally hazardous industrial sites.

A critical turning point can be prevented by regional and municipal authorities by continual monitoring of the oblast, cities and regions; collaborating with enterprises; and constant dialogue with social organisations. The measures to be taken must include major purchases of stabilisation articles (grain and fuel), price restrictions for "crucial" products, the timely preparation of compensatory jobs, constant control over the working status of enterprises and city life support systems, and special steps for crime prevention. Surveillance over the "critical nature" of the situation should be maintained for the oblast as a whole and for each of its cities and regions, in a bid to prevent the emergence of "crisis zones" within the oblast.


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