It is difficult to agree emotionally with the analysts and publicists who point out positive aspects of the on-going global economic crisis, yet there is undoubtedly one positive factor in it. The crisis has not only caused people to mobilize material and intellectual resources, but has forced one to consider how the economy may change in general and what has to be adjusted to secure its further development.

It is quite possible that anti-crisis measures, as hostages of inertia thinking, are far off the mark, and other solutions will be needed based on another paradigm for analyzing the economic matter. Regardless of speculations about the causes of the crisis, we all understand that the post-crisis economy will be different. What kind of economy will it be?

The very real possibility of a dangerous divergence between reality and expectations requires active efforts to develop the future economic model not only on the part of academic scientists, but also by those who are deeply involved in the economy and influence the functioning of the economy to a certain extent, i.e. business people. It is due to this involvement that the impact of the crisis becomes much more painful, while the need for its positive comprehension is felt more acutely. I will venture to suggest that the suddenness of the crisis was the price for our unwillingness to see and objectively assess quantitative changes that were building up, shifts in the economic setup, and fundamental changes in the qualitative characteristics of the entire socio-political system.

NEW PARADIGM NEEDED

This is not the first time humanity is facing such a systemic challenge that emerged as a result of evolution and the incorporation of forced or desired innovations into economic activities. A popular journal recently counted a dozen and a half “famous” crises, beginning with the construction of the Panama Canal. But if we analyze global crises, we would see that the transformation from a natural economy to a market economy was as dramatic and “unexpected,” although the situation was not viewed as a catastrophe due to the scale of the world economy. Nevertheless, crises are caused, as a rule, by a mismatch between established ideas and actual economic relations.

The present crisis also suggests a transfer to an entirely new paradigm of the idea of economic processes, which, in turn, automatically requires fundamentally new mechanisms for their regulation. The main feature of such a paradigm could be linked with the concept of global internationalization – that is, a merger between globalization as a general trend for active expansion of economic systems beyond national economies, and internationalization as a process of including agents of economic activity in transnational co-operation. Before our eyes this process, which is mainly effected through mergers and takeovers, has acquired a huge dimension. Over the past decade such transactions have made up at least 40 percent per year on the average.

The globalization of the modern economy did not begin recently and its structure is rather complex. Its core is the mega-economy that began to take shape in the last quarter of the 20th century. The interrelation between national economies has become so strong that they all act as a single whole – albeit internally differentiated – constantly changing and ridden with conflicts. The prerequisite to this was the emergence of new information technologies, a considerable increase in the volumes of cross-border movement of capital, technologies, knowledge and people, as well as a large-scale expansion of commodity and financial markets.

THEORY AND MODELS

There is no need to build new models to justify in theory the global internationalization of the economy. Rather, we should look at the existing and well-known models, for example, the “Kondratiev waves” model which proved the regularity of economic crises. Yet this obvious conclusion is followed by a more significant premise: in order to predict the behavior of an economic system, it must be considered as a global hypersystem. Mathematicians proposed much later the so-called fractal theory, which enables a formal analysis of such systems.

The current article does not consider the extent to which this theory might be applied to economic analysis, but it is important to underline that the approach to the economy as an ordered set of economic agents and institutions that provide for their functioning is a special case. The fractal hypothesis assumes that an economy has different levels, and that despite changes, the value of its heterogeneity remains constant during an extended period of time.

Arguably, the faster internationalization processes run, the faster the emerging turbulence subsides. Crises therefore do not just determine the accruing contradictions in the internationalization of economic agents; they act as moderators in their settlement.

From this point of view, the current crisis will contribute to the establishment of such fractals of the modern economy as regional common markets: in Europe, the United States and the Middle East. Aside from the free movement of goods, they will guarantee the free movement of the workforce, funds, common rules for buying/renting real estate and purchasing stocks, as well as equal terms for using the benefits of insurance, education, healthcare and employment.

It follows from this theory that fractals create additional incentives and opportunities to internationalize not only economic, but also managerial activity. Recent proposals to set up supranational bodies to regulate the market, even if they materialize in different forms, are unlikely to yield the desired effect. We should rather rely on integration ties between regional regulators of socio-economic relations: only the emerging trend towards deepening and expanding these ties can help avoid a scenario of global development where conflicts between and inside countries prevail and where protectionism governs economic policy. As a result, sovereign defaults would no longer appear as something extraordinary.

THE GEOPOLITICAL DIMENSION OF THE CRISIS

The first effect of the global internationalization theory, which suggests what a post-crisis economy might look like, is its geopolitical dimension. The geopolitical factor has always played a fundamental role in strategic plans for developing socio-political systems. But in the new conditions that are emerging as a result of the implementation of anti-crisis measures, the national borders of economies will lose their significance, as the world market is becoming universal.

It would be trivial just to say, for example, that the BRIC countries (Brazil, Russia, India and China) will move, in the foreseeable future, from a group of developing states to developed ones. But this fact will change considerably the geopolitical picture of the world. In a certain sense, the positive side of the crisis is that the intrigue regarding further development is gone.

Perhaps it is a coincidence, but Paul Krugman received the Nobel Prize in Economics in 2008 for his work explaining the specialization of various countries in international trade amid conditions of partial competition. Modern technologies (computers + Internet + mobile communications + information systems) have completely changed the general picture of economic exchange, by joining space and time at every point in the world market. Plainly speaking, transactions, as a realization of economic interests, are no longer associated with a particular place of the production of goods or services, while sellers (although certainly not all of them) have become vendors peddling not so much a product, as a brand to help consumers zero in on certain products so that they do not get lost in the variety of alternative products.

Competitiveness is becoming the only reason for the right to be present on the market. Even before the crisis, it had become apparent that the points of growth of competitiveness could be found in technological clusters. They are through technologies: thanks to their universality, they have a high multiplying effect that influences the entire production process – from design and development to production and sale to consumers. By assigning the leading role in economic development to technologies, the new U.S. administration even plans to establish the post of director for technologies.

A characteristic feature of technological clusters is that the technologies they are based upon are applied in various fields, thus enhancing the level of national competitiveness. It is no wonder the economy has begun to be viewed abroad through the prism of clusters, rather than through traditional groups of companies, industries or sectors. Clusters fit better into the very nature of competition and the sources of attaining competitive advantages. The majority of cluster participants are not direct rivals because they service different industries. State and private investments, aimed at improving the functioning of a cluster, benefit a variety of businesses. Incidentally, it is the clusters that have been the least affected by the crisis – the crisis has paved the way for them to win the market as such, regardless of regional or national borders.

Therefore, although “decoupling” the global economy from the U.S. economic cycle has not taken place yet, global internationalization is leading national economies along this path strictly and steadily, just as any objective law would. The crisis has only sped up this process. A practical conclusion from this seemingly theoretical premise is that the BRIC countries – and Southeast Asia in general – will cease to be just a location for mass production, but will become equal and, most importantly, equal-ranking participants in production, innovative development and the sale of competitive products.

The East-West confrontation will lose its economic significance – albeit not as fast as one would wish – while geopolitical motives in addressing the development problems of national economies will give way to signals from macro-regional common markets that secure coordinated development. The world is likely to realize that GDP growth is not as important to the state as its balanced position on the world market. So, apocalyptical forecasts (like a possible collapse of U.S., European, Russian, etc. economies) simply stem from traditional thinking.

Internationalization is based on the mobility of capital, technologies and labor. From this point of view, the Russian economy lags far behind developed countries, as it is very passive in conducting its own policy of internationalization. This is explained by a weak financial base and a low level of innovation in production (machine-building companies have been producing 70 percent of their products without the benefit of innovations for 15 consecutive years). At the same time, there are apprehensions about and obstacles to Russian companies in other countries.

Unlike many countries whose participation in internationalization is associated with their producers entering world markets, Russia opened its market in the course of this process. That has played an adverse role to date – since we have our own market, there is no need to seek a world niche, which weakens competition and contributes to a sort of “colonialism.” This is perhaps why the present crisis has hit Russia particularly hard.

At the same time, the participation of the Russian economy in internationalization is inevitable. Two Eurasian transport corridors – Transsib and North-South, as well as Pan-European transport corridors II and IX – run through Russia. There is also a ramified network of existing pipelines and pipelines under construction. Russia’s participation in resolving European energy problems plays a role, as well. The strategy to develop power generation within the next decade, approved by the Russian government, envisions a considerable increase in electricity generation based on modern technologies and boosting electricity exports. Simultaneously, the program envisions sweeping measures to launch energy conservation technologies; the energy intensiveness of production in Russia is three times higher than in developed countries. This opens a niche for a mutually advantageous “barter” – energy in exchange for energy conservation technologies.

THE GOVERNMENT AND BUSINESS AMID THE CRISIS

It may seem tempting to try to overcome the crisis by defying or even resisting the emerged trends. But this tactic is doomed to failure. It would be much more productive to use it for a major revision of one’s approach to the analysis of socio-economic processes.

Changing one’s views of the role and place of the government in the economy appears to be crucial. The concepts of the state as a “night watchman,” a source of “general welfare,” etc. are fading into history; they are being replaced by such notions as “state-partner,” meaning business partner in the first place.

Admittedly, the history of relations between the government and business is not simple, especially in Russia. There was a period when the Russian government considered free enterprise as a criminal activity. Later, the government shared its property with everyone who was ready to start a business, thus becoming the main source of establishing business. Russian business covered an entire era within a mere decade. We can still recall the caricatures of “new Russians,” financial pyramids, bankrupt banks and the notorious 1998 government default. The state, with respect to business, played different roles during this period – from benefactor to sinister malefactor.

We are now on the verge of changes, and not just in Russia. Look, for example, at the close-knit bloc forged between U.S. business and the government in fighting terrorism or overcoming the current recession. Not surprisingly, in calculating various indicators that characterize a country’s economy, for example, the competitiveness indicator – which the IMD business school in Lausanne, Switzerland, publishes every year – spending on the conduct of business and the effectiveness of government are taken equally into account. For Russia, the first indicator by far exceeds the second – for now at least.

If we turn to theory, we will find a large variety of models there as well, which determine the position of business in the economic system. Many concepts have been proposed since the time of Adam Smith, who was the first to challenge the infinite wisdom of statesmen in managing available resources. The classic liberal doctrine assigns to the state the role of a “night watchman”: it sets rules of conduct for the market and monitors strict compliance with them. Of course, the rules are set not at the wish or whim of the authorities. They are adapted to market behavior, i.e. to how transactions are conducted, how incomes are distributed, how much money is invested in production, how much is consumed, etc.

But even in a well-established pure market economy, the state and business regularly revise their mutual relationships. The scales, on which contributions to the economy by state management and entrepreneurial diligence are weighed, periodically tilt towards one side or the other. The Soviet economy, where the role of the state was made absolute, showed convincingly that such a path has no future.

Yet the crisis has again made many people speak of increased government interference in the economy, of building of the so-called power vertical, and of the equidistance of businesses from the government decision-making center. The enthusiasm these slogans evoke in officials – who have always wielded tremendous power in Russia – is understandable. But it is unclear on what premise the new model of relations between the state and the business community will be built. The crisis has actually reconciled the advocates of state-controlled economy with liberals, because both have realized that the opposition between the state and businesses has long become obsolete and should give way to partnership.

However strange it might seem, it is easier to put such an approach into practice in the Russian economy, which is still routinely referred to as transitional. Despite considerable efforts to liberalize the economic system and laws regulating relations between the authorities and economic agents, the nation still pins great hopes on the government as almost the only institution that can ensure that public interests are duly observed. These ideas should not be fought against, no matter how illusory they may seem, but guided into a productive vein. The conditions are quite suitable for this now.

The strategic goal is to build a dynamically developing and socially-oriented economy that fits well into the international division of the production, capital and labor markets. The main objective is stable development. This would consolidate the transfer from the mobilization economy of “besieged fortress” to the economy of partnership and co-operation, and underscore the requirement for the inclusion of Russia into the global economic system.

Contrary to widespread belief, the state and business now have an increasing number of common, mutual interests. For example, both business and the state seek consolidation as a major management task since it is easier to manage a large economic entity. Accomplishing this task is crucial for further development.

One should make a reservation here: the path of co-operation between business and the state is not straightforward. The main difficulty is launching institutional mechanisms for the participation of the dependent party (business) in establishing the rules for their conduct. There might be a temptation to expand the boundaries of one’s discretion, ease the burden of one’s participation in resolving issues that have little to do with business interests, evade sanctions for violations, etc. The crisis may play the role of a catalyst here.

The crisis was mainly caused by the problem of regulating the global and national markets. That is why no restructuring – not even on a global scale – of capital, investments, loans, funds, rights, demands, obligations, collateral, debts, assets, shareholders’ stakes, transactions, etc. will yield a long-term effect in full measure, if no fundamental changes are made to the approaches and mechanisms of state interference in the economy. Only the restructuring of institutions, especially development institutions, can pull the economy out of the crisis.

The state is a regulator in the traditional paradigm. But even in this role it does not prescribe the rules of behavior to market participants, but increasingly often sets the so-called behavioral conditions.

In the new paradigm, the state is an active participant in market relations, and an economic agent. It is the implementation of this pattern that resulted – accidentally or intentionally – in the establishment of state corporations. The special position of these organizations is proven by the high degree of independence of their activities, which are beyond state management or control. But in any case, state corporations have become subjects of market relations, having brought the state and business considerably closer to each other.

It must be admitted that this new kind of enterprise has caused apprehensions that the state may take over private corporations, not through nationalization, but through state corporatism. To overcome or prevent this threat, business can adopt the tactic of incorporating assets, or some of them, in a state corporation, on the condition that state investments are swapped for profit-sharing. In this form, it would not be direct budget funding of the private sector, but private-state partnership, a mechanism which has become very popular in recent years.

INDUSTRIAL POLICY AND CRISIS

The crisis does not only change our ideas of a mega-economy, but also requires that we revise the principles of the functioning of economic mechanisms at macro- and micro levels. Due to its global nature, the crisis is changing the main guidelines for the use and development of the research, technological and industrial potential of a country, which is usually called “industrial policy.” In a post-crisis Russia, this would be noted for a sharp contrast between the quantity of industrial companies and the quality of their contribution to the national economy.

Since the general objective of Russia’s economic policy in the short-term is to help its producers join the world economy, the industrial policy must remove the contradiction between production and consumption: goods must be produced not because Russia has many production capacities, but because there are many people wishing to buy these goods.

Of course, products produced by some Russian enterprises not only rival their competitors, but also excel them, although a product per se is not yet a commodity in demand. The market environment is a competition not only between the consumer qualities of this or that product, but also between expenses included in the production cost, labor costs, the level of innovation and many other things. The state industrial policy creates the groundwork – first of all in legislation – to enhance the comparable level of Russia’s commodity production.

The national economic policy specifies the common guidelines for a country’s socio-economic development in organizational, legal, and production mechanisms for the operation of economic agents. Taking into account the tasks the Russian economy is facing in the short-term and the condition of its industrial potential, the industrial policy could develop along the concept of crystallization of variously-scaled production systems.

Admittedly, for a transitional economy, as the Russian economy has been called in the past decade, many solutions that seem well-known elsewhere have to be rediscovered. It is much easier to design economic policy from scratch than modify an established system of social relations.

But when entering a new era it would be hypocritical to discard everything accomplished by previous generations, thinking of this heritage as a burden that prevents us from attaining new heights. Clearly no politician aspiring to be a national leader would risk taking such a haughty stance with respect to the past.

We lean on everything accomplished by citizens of the vast country in order to use it for further development – not contrary to, but in accordance with the general laws of economic growth and together with competitors/partners.

It is another matter that each national economy is described by too many parameters to fit them into a single algorithm for all. The selection of such an algorithm is up to the national industrial policy which stems from the general national economic policy.

Shaping this policy is the state’s prerogative. The crisis, as it was earlier said, has changed the position of the state with respect to business, making them partners. Now these partner relations should be extended to the process of drawing up an industrial development policy. As business has a better knowledge of and sensitivity to the essence of the market economy, it should play the leading role in this process, since there is a real danger that officials will set their own priorities and select mechanisms for their implementation in such a way that the end result will be quite different from what they expected.

So the crucial thing is to decide which objectives should be set before the industrial complex, how the system of priorities should be set, how they should be implemented, what mechanisms must be used, and, lastly, how to distribute the roles between economic agents in this process. Such issues must be settled jointly by business and the state.

THE FINANCIAL MARKET, BANKS AND INSTRUMENTS IN LIGHT OF CRISIS

One of the main instruments of globalization is the advanced growth of the world financial market. This has made it possible to speak of a financial globalization and its leading role in all global processes. Its influence on the manufacturing sector of the economy has been mostly felt in the rapid internationalization of financial instruments, which has generated the term “turbo-capitalism.”

Conceivably, the world banking system has become the main victim of the crisis. Gone are global investment banks – a whole institution that has been part of economic development in the past decades. The 1929 economic disaster in the U.S. economy is called the Great Depression – a dramatic description, yet it is no more than a depression, whereas today the crisis has been pulling the whole world system into the “shrinking” vortex of recession.

The avalanche of publications in the scientific and business press has described in detail practically all aspects of the forced restructuring of the banking system, intended to enable financial institutions to not only survive, but also acquire new qualities to meet the requirements of the modern global market. From this point of view, we have to remember that banks are a special mechanism that effects direct relations in the entire chain of economic relations – which means they cannot but be involved in the internationalization of economic processes that determine the development of any socio-political system.

Bank internationalization in post-crisis conditions is likely to increase dramatically. Its major feature is determined by the fact that raising financial resources and concentrating them in one or another area will largely depend on cooperative ties in the international division of labor forces.

Only a successful solution to this difficult task will help secure and expand the position of the national bank segment on the domestic market, and also provide for an active expansion of domestic producers beyond their country. Banks will actually acquire not only financial, but also production functions, because they will become an instrument for re-orienting production towards the manufacture of competitive goods. This, in turn, will require the development of innovation projects, the launch and speedy transfers of high performance equipment, high technology, and stringent standards.

Banks will thus turn into infrastructure (investment-financial) clusters, differentiated by industries: investment-industrial, agrarian, service, trade, etc. The general bank architecture will acquire a network-like character. The value of a network product is not so much in its physical or functional qualities, as in consumers’ attitudes towards it. It is the consumers who assign internal value to such a product, which is reflected in its market value. Thanks to the use of modern information technologies, the entire economy is gradually becoming a network product.

The establishment of such clusters will be accompanied by a considerable enlargement of banks through takeovers and mergers, and also due to natural growth. The number of captive accounting centers – which at present act in the guise of banks – will decrease in reverse proportion to the number of large transnational agents operating on the market. At the same time, the emergence of financial-investment clusters will resolve the old problem of orientation towards universal or specialized services in banking, by combining both, because such a division within a cluster makes little sense. Perhaps the existence of the trend in fighting the crisis explains why it is equally significant for the Russian banking system, which is universally acknowledged to still be poorly developed, and for the largest Western banks with a long and positive credit history.

The bank’s leading role as infrastructure clusters in the global economy is to optimize the distribution of risks in implementing investment projects aimed at developing any socio-economic system and all its sub-systems. Strategic management, to be implemented within the framework of such industrial-financial clusters, will provide for market segmentation, rather than just diversification of production.

In raising development resources, IPOs will be replaced by private equity funds (PEF), as more transparent and controllable forms that combine design and investment approaches. The establishment of transnational PEFs will help unify world financial markets more effectively, which is regarded as a way to overcome the crisis.

The structure of the financial market will become polycentric: an increasing number of national currencies will be part of transactions as long as trade increases, so financial centers will lose their special – and privileged – significance. Investment will become instable to such an extent that the volume of investment in the economy will lose its index value, and the global openness of the market will become a major indicator of development.

However strange this might seem, this change will reduce the chances for blowing financial bubbles, which emerge in individual markets, that – for the time being – are viewed as isolated from the world market. The number and scope of projects will increase at an exponential rate, above all due to the innovation factor. The industrial development of nanotechnology alone, for example, will require tremendous funds. It is enough to calculate how much investment was needed to develop mobile communications – the best known example of the use of nanotechnology.

THE RESOURCE ECONOMY AS A RESOURCE CIRCULATION ECONOMY

In talking about the consequences of the crisis, it should be noted that the crisis has stripped the economy of illusions, reminding it of its original purpose – the circulation of material resources. The hypertrophied development of the financial sector made it seem as a self-sufficient institution of economic development. The crisis has dispelled this delusion and reminded everyone that material resources are a fundamental factor of the stable functioning and development of any economy. For Russia, this realization is particularly important because its economy continues to develop extensively, despite repeated statements from the government that the Russian economy will stop being pegged to natural resources.

Meanwhile, economic foresight suggests that extensive economic development eventually leads to a blind alley. An exponential increase in expenses for the mining and transportation of raw materials forces one to seek new ways to optimize the resource economy. There is only one way out – to launch innovation mechanisms to seek and apply new technologies, including high technologies, for processing raw materials, and to apply new approaches to the use of resources that would ensure an exponential increase in the depth and completeness of processing. Finally, it is necessary to replace personnel with trained and re-trained workers, engineers and managers, ready for and capable of working in the new conditions.

The innovative ideology must bring about radical changes in established conservative thinking and help conserve resources by using them completely and recycling waste. Suffice it to cite one example: the so-called “tailing dumps” of mining companies contain more raw materials than they produce.

The heavy dependence of the Russian economy on the production of raw materials means not just that the budget is totally dependent on global oil and gas prices, but there is also a disregard for opportunities offered by the circulation of raw materials, from their production to use by consumers, and by the recovery of the raw-materials base. The industrial policy is therefore mostly focused on energy resources. Meanwhile, each barrel of refined oil boosts its added value two-fold or more.

The Dutch disease has an inhibiting effect on the Russian economy also because of the weakness of the resource circulation system. Moreover, Russian legislation makes no mention of such a system at all, although it mentions the circulation of pharmaceuticals, for example. At the same time, the National Security Strategy, approved by Russia’s Security Council, has described the rational use of natural resources and the environment as a top priority of the domestic economic policy.