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January 2007

Avdasheva, Svetlana
IS OPTIMAL INDUSTRIAL POLICY POSSIBLE FOR RUSSIA:
Implications from value chain concept
Electronic Publications of
PanEuropean Institute, 1/2007

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A summary

The goal of the report was to analyze to what extent policy recommendations worked out on the basis of value chain concept (VCC) may be a successful competitor both to paternalist model of industrial policy and liberal “no industrial policy” option. To achieve this goal the explanatory power of VCC to assess the determinants low competitiveness of Russian manufacturing enterprises and the effectiveness of policy measures already implemented. The possibility of VCC to serve as a base of a completely new design of industrial policy was also under consideration.

The results of our analysis are mixed. On the one hand, VCC is perfect in explaining the (non) competitiveness in a number of manufacturing industries especially those are included in the buyerdriven value chains. In this paper we tried to explain why weaknesses of Russian manufacturing industries were not get out during last fifteen years.

VCC approach is also very fruitful to assess the measures of industrial policy implemented in the industries under analysis (furniture, agriculture, and printing). The effectiveness of economic policy in these industries is quite different. In the furniture industry the policy measures implemented look satisfactory in the VCC concept.

Actions in the Russian printing industries can be justified, at least part of them. On the contrary, agriculture is the industry where implemented supplyoriented measures are extremely ineffective. Gains resulted from the state support are almost completely expropriated by the actors on the subsequent stages of technological chain and in some cases – even by the very institutions created in order to provide support.

Meanwhile even in the cases when support is consistent with the criteria of good industrial policy in the framework of VCC, the results of the measures implementets are modest. It is difficult to say to what extent this is due to the fact that demandoriented are inconsistent and combined with supplyoriented support, and to what extent due to the constraints to the effectiveness of demandoriented measures in the Russian industries.

There is a little doubt however that the limitations of the effectiveness of industrial policy based on VCC, are important in the Russian industries. There are very few objects to implement clusteroriented policy due to the fewness of regional industrial clusters. Orientation of the market participants on the shortterm gains doesn’t allow to prevent the expropriation of rent by the participant in the chain with the higher bargaining power. High level of vertical integration and diversification of Russian producers prevent them from using the comparative advantages due to core competence on the level of firm and restrict the effectiveness of demandoriented policy measures. In the context of unaccomplished reform of technical regulation it is difficult to choose the type of certification economic policy should support.

Imperfectness of the contractual and property rights protection decrease the effectiveness of captive, modular and relational types of value chain governance those could be the most available option for Russian producers to upgrade in the global value chains.

Analyzing the constraints of the industrial policy efficient in the framework of VCC we found that the interrelation between industrial policy and liberal “no industrial policy” option is nontrivial. Implementation of the key liberal recommendations such as property and contractual rights protection, creation the incentives for the efficient use of resources on the level of firms, is at the same prerequisite to apply policy measures developed in the framework of VCC. Efficient industrial policy derived from the VCC cannot substitute but complement liberal economic policy, the latter is the condition sine qua non for the effectiveness of the former.

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