In his monograph, Professor Vladimir Andrianov offers a detailed analysis of the essential concept of economic regulation, beginning with its origins in the seventeenth century.
In particular attention is paid to academic work on related areas and theories such as; mercantilism, economic liberalism, Keynesianism, monetarism, socially oriented societies and economies, state dirigisme, institutionalism, sustainable development theory, and regulation theory.
In addition to this the author offers his own academic theory - that of self regulation in which the key element is the concept of the functioning economic system.
Presenting the theory of self regulation, the author takes as his starting point that the basic conditions for a successful functioning market economy are; sustainable equilibrium and dynamism.
This first concept - of overall economic equilibrium as universally applicable in the analysis of economic systems - was put forward by the Swiss economist Valras. For Valras, economic equilibrium did not simply mean an equality of supply and demand, rather, in his conceptualization; it implied an overall economic equilibrium of market symmetry.
The model of overall economic equilibrium reflects the interconnectedness of many different kinds of markets. Where one has a market economy which involves a developed competition - the result is an overall equilibrium among those many markets.
Valras considered these economic connections to be systems of functional interdependencies which in turn allowed him to examine directional causal relationships within them. According to this concept of overall economic equilibrium - economic entities strive to move the economic system towards its optimum condition. That in turn is understood as being associated with sustainability.
If the system achieves sustainable equilibrium, then any external change which breaks that equilibrium initially impacts on the system and the relationships within it, but after a certain period of time has elapsed, it will return to its initial state.
Thus sustainability can be defined as the ability of a system to maintain its parameters and qualitative characteristics amid a changing external environment and subsequent internal transformations. These changes can be either accidental or deliberate.
The sustainability of any system depends on a large group of variable factors. The loss of sustainability can take place as a consequence of the following events:
- Changes in the system of parameters
- A change in the availability of external influencing factors, in particular those of a significance that renders them qualitatively incompatible with the system.
- The breaking of connections within the system when its structure changes - structural instability or non sustainability.
In economic theory stability is considered one possible way of understanding the concept of economic equilibrium. This means that the achieving and maintaining of economic equilibrium is a vital macroeconomic task.
According to the laws of systems analysis the stability of any system is defined by the presence and operational ability within it of self regulation mechanisms.
In economic systems these mechanisms are understood on the macroeconomic level as functioning economic systems and on the microeconomic level as self regulating organizations.
The phrase functioning economic system we use to indicate all the institutes, organizations and mechanisms of self regulation which help support equilibrium - keeping the economic system within its defined macroeconomic parameters.
Functioning economic systems differ from other goal oriented systems, for example: banking, tax, insurance, and finance: in that they represent themselves are self regulating entities. In them, defined indicators of stability provide the impetus to quicken the mobilization of all mechanisms that enable a return to equilibrium after any deviation.
The well known American economist Peter Druker, who is called the "founding father" of modern management theory wrote, as early as 1954m that target indicators in key areas of business are the flight control deck essential for any pilot of business. It is clear that in order for economic policy to be implemented successfully; these indicators allow the state to orient itself correctly on its chosen macroeconomic course.
In our opinion in cases of stable and balanced economic development, this control deck would be the foundation that allows the observing of macroeconomic indicators, which themselves would have clearly defined parameters:
GDP growth rate
state budget deficit
national currency fluctuation
gold reserves size
level of development of competition
degree of income inequality
The state at any one time of any of these indicators, each of which would allow for some variation, can be defined as being: optimal, borderline and critical.
A comparative analysis of the economic development of the majority of industrially developed and newly industrialized countries in the post war period allows the definition of the most optimal state for each of the socio-economic indicators relating to the stability of the economic system. It is important to separate out the following:
annual increase in the price index should not exceed 2-3%
the growth in money supply must equate to production growth but not exceed 3-5% pa
the state debt should not exceed 6% of GDP
the variation in the exchange rate of the national currency should not exceed 1-2%/ month
the amount of gold held in the reserves should not be less than eight per cent of the GDP and should be sufficient to cover outgoings on imported gods for a minimum of three months
the expense of servicing national foreign debt should not exceed 20%of the annual income from exports
to ensure expanded reproduction the level of investment in GDP should be no less than 10%
the proportion of foreign goods in different sectors of the national market should not exceed 30% - 40%
the domination of any market sector by a company should be no higher than 65%
the state bank should not have more than 35% of the whole national banking capital
unemployment levels should not exceed 15-20% of the whole number of the working population
The division in income levels between the top richest 20% and the bottom 20% should not exceed a factor of twelve.
the index of poverty should not exceed 30-40% of the country`s population,
Thus, taking these as the basic indicators, the author is able to define the following basic functioning economic systems:
balancing the state budget
stabilizing the national currency
forming and maintaining gold reserves
encouraging and fostering competition
ensuring capital flow
social support of the population
In functioning economic systems any diversion from the defined parameters prompts the mobilization of all mechanisms which ensure that the lost equilibrium is regained.
The return to set parameters either takes place voluntarily due to widely recognized behavioral norms, achieved by agreement, or by force. This latter case could be achieved through the implementation of institutional limitation on action, through fear of punishment for deviant actions, through social sanction, or even through state force.
That is why legislative branches of power are included in the organizational structure of functioning economic systems applied here, as are experts, information centers, law enforcement authorities, NGOs and other social organizations.
The resulting activity of functioning economic systems is achieved not only through central management, but through regular interaction between the constituent elements of the centre, both as hierarchy and as a network or nodal principle of management.
The initial functioning economic systems started to appear in the market economy not as a result of the goal oriented activity but as part of the process of instructional evolution.
Functioning economic systems are formed under the influence of the so called "spontaneous order" the understanding of which is an essential part of work by the Austrian economist Friedrich Von Hayek.
The essence of the concept of "spontaneous order" is that they are not consciously formed by any individual; they evolve as the unplanned unconscious result of councilors actions by many different people following their own individual and diverse goals.
Such social institutions are in part natural appearance, and in part human creation. In this sense "spontaneous order" can be understood as resulting from human actions but not from human reason.
Although Functioning Economic Systems were not produced by reality following theoretical developments, their coming into being was, it can be argued, the inevitable result of the whole history of economic analysis which preceded them.
Both the famous American economist Paul Samuelson and the Russian economist Kondriatev predicted the possibility of self regulation mechanisms on the macroeconomic level.
At the basis of Samuelson`s economic world view, lies the definition of circumstances of economic equilibrium which "meant the stability of the economy where the tendency to self regulation played a role in each sector".
Kondriatev suggested that the internal laws of market development recognized that self regulation mechanisms within the market could and should be used by the State in its governing of the national economy.
Following the legal recognition of the existence and nature of functioning economic systems, society is ready and able to use the Functioning Economic Systems as mechanisms for self regulation on the macroeconomic level.
Self regulating systems on the microeconomic level are based on self regulation organizations. By that we mean the union of many entities, whose economic activity takes place in the framework of laws created by them.
More often than not these self regulating organizations take the form of business associations which have fixed membership. Economic entities develop a fixed delineation without any external impetus to do so.
Self regulation assumes the presence of a concrete set of "rules of the game" on the market. By rules we here indicate the definite documents, professional codes of ethics, and so on which detail the penalties to be paid in the event that the rules are broken, and which themselves act as a conflict resolution mechanism among market players.
As the rules of the game are established, so too are the resolutions to conflicts by market players themselves without direct interference from the state.
During the formation of economic policy self regulating organizations should be considered as universal instruments for uniting the interests of all participants in the market with the interests of the state.
The development of self regulation in business is one of the most effective mechanisms which adds to and occasionally takes the place of state intervention in the economy.
The problem of self regulation of b business is closely linked to administrative reforms and the policy of de-regulation the main goal of which is the liquidation of administrative barriers and the creation of stimuli for business initiatives.
The gradual change of the market economy to an open, distinct and self regulating system should be seen as an objective process of global economic development.
The supremacy of the self regulating model of economic development lies in the fact that in such an economy, thanks to the availability of functioning economic systems and self regulating organizations, there is a constant process of monitoring, defined macroeconomic parameters across the trade and financial markets. Where it is necessary, they can be modified.
This leads us to the idea of the optimum relationship between the parameters defined at the begging of this chapter. The balancing of those factors allows the equilibrium of the national market to be ensured, through the balance gained between dynamism and stability.
In modern economic theory and practice the main focus is not the search for universal models of development, rather it is the creation of economic systems able to react flexibly to developing demands of the changing economic environment.
In connection with that, the existence of functioning economic system and self regulating organizations increase the ability to adapt of any economy, and its ability to learn, to innovate, to act to counter risk and its ability to experiment - in particular with modernization.
In a self regulating economic system the governing principles change gradually over time. The hierarchical principle is supplemented by the principle of network or nodal governance. Thus in the longer term it can lead to changes taking place in the system of state government.
In addition, according to systems analysis laws, the appearance within the economy of self regulating mechanisms leads to a process of optimization across the economic system among its institutional and organizational structures.
The analysis of the legitimate form and principles of FES and SRO activity are important contributions to the general theory of stable development worldwide.
In addition the investigation of the legitimacy of the appearance of self regulation mechanisms, the process of institutional evolution, takes as its foundation the modern theory of institutionalism.
Much of the originality of the FES is drawn from the fact that there are hardly any economic theories, especially those which are essentially very different from each other, which were not part of the formation of the FES in some form or another.
In connection with this it would be fruitful to consider the theory of self regulations a new systems paradigm. Given that this theory cannot be applied in isolation, rather it is used to understand the interdependence of different spheres of social and academic disciplines.
One of the most important concepts of economic theory, and a vital instrument for the creation of self regulating mechanisms is the states economic policy.
Using the theory of self regulation as a basis, it is possible to develop the most important areas of national economic policy - including; structural policy, budget and taxation policy, currency, credit, social and ecological policy. The main principle of economic policy must be the fundamental macroeconomic indicators, and the creation of a functioning economic system, which is able to regulate its existence within those defined parameters.
The main problem in the construction of functioning economic systems is the definition of optimal macroeconomic parameters and the creation of mechanisms for their constant monitoring - such as systems of communication and correction which enable the economic system to achieve and maintain equilibrium.
At present it is difficult to see Russia as an economic system which functions as a whole. That is why it is quite difficult to predict the possible future survival chance of the current self regulation mechanisms in the Russian economy.
The economic reforms of the 90s which were not fully thought through lead to Russia`s macroeconomic disfunctionality - a state of ultimate imbalance - and one where the basic institutional elements of the economic system were ineffectual, while new ones had yet to be constructed.
As a consequence in part to this, new institutions started to develop within Russia`s real economy. These were new organizations, discrete entities where self regulating mechanisms were formed on the macro and micro economic levels.
The following institutions and entities are among the important constituent elements of self regulation in Russia;
the Russian federation central bank
the federal antimonopoly service
the federal service for the financial markets
the Russian Federation Government committee for protective measures in foreign trade and customs tariff policy
consumer protection rights societies
the Moscow interbanking currency exchange
the Russian trading system
the national association of participants in the financial markets
the national financial market association
the national deposit centre
and various producers associations
However, before the creation of a market, a self regulating economy equipped with a developed network of FES and SROs, Russia needs to undergo a significant process of change - namely the creation and development of institutional bases, institutional evolution, and changes in the very socioeconomic fabric of society.
In particular there should be discussion of the socio-cultural environment in society, its own form of institutions, which take as a given the creation of a legislative state and the consequent attitude to law within society, which is a prerequisite for the appearance and development of networks of functioning self economic systems and self regulation organizations.
It should be stressed that the two tier model of self regulation of the market economy is universal enough and can be applied on a national level as well as regionally or globally.
The practical realization of the current model at the current time can be found, first off all in countries of the European Union where most degrees of development of the market institutions and integrated processes.
The theory of self regulation can be applied at the corporate level to create sustainable business and optimal governance systems.
A particular feature of this book is its logical structure; in addition to that it is written in a particularly accessible style, to encourage the widest possible readership. The historical digressions of the author are particularly interesting.
In 2007 a monograph by Professor Andiranov won an international award "The N.D. Kondratyeff Medal" for contributions it offered to international economic understanding; recognition considered by leading economists as almost on the level of the Nobel Prize. Within Russia, the book won a prize for being the best book publication of the year.
FUNDAMENTAL CONCEPTS OF ECONOMIC REGULATION
1. MERCANITILIST THEORY
2. ECONOMIC LIBERALISATION
5. THE SOCIAL MARKET ECONOMIC MODEL
6. STATE DIRIGISM
8. SUSTAINABLE DEVELOPMENT THEORY
9. REGULATION THEORY
THE THEORY OF SELF REGULATION OF THE MARKET ECONOMY
1. UNDERSTANDING THE EQUILIBRIUM AND STABILITY OF ECONOMIC MODELS
2. THE DEFINITION AND PARAMETERS OF FUNCTIONING ECONOMIC SYSTEMS (FES)
3. THE INSTITUTIONAL FOUNDATION OF THE ORGINS AND EVOLUTION OF FUNCTIONING ECONOMIC SYSTEMS
4. THE ORGANISATIONAL PRINCIPLES AND CHARACTERISTIC ACTIVITIES OF FUNCTIONING ECONOMIC SYSTEMS
SELF REGULATION MECHANISMS ON THE MACROECONMIC LEVEL
1. FUNCTIONING ECONOMIC SYSTEM REGULATING INFLATION
2. FUNCTIONING ECONOMIC SYSTEM BALANCING THE STATE BUDGET
3. FUNCTIONING ECONOMIC SYSTEM STABILISING THE NATIONAL CURRENCY
4. FUNCTIONING ECONOMIC SYSTEM THE FORMING AND USEING OF GOLD RESERVES
5. FUNCTIONING ECONOMIC SYSTEM FORMING THE BASIS FOR COMPETITION
6. FUNCTIONING ECONOMIC SYSTEM PROTECTING THE INTERNAL MARKET
7. FUNCTIONING ECONOMIC SYSTEM REGULATING CAPITAL FLOW
8. FUNCTIONING ECONOMIC SYSTEM SOCIAL PROTECTIONS FOR THE POPOULATION
9. FUNCTIONING ECONOMIC SYSTEM ENVIRONMENTAL PROTECTIONS
MECHANISMS FOR SELF REGULATION ON THE MICROECONOMIC LEVEL
1. THE DEFINITION AND FUNDAMENTAL CHARACTERS OF SELF REGULATING ORGANISATIONS
2. THE CLASSIFICATION OF SELF REGULATING ORGANISATIONS
3. THE DEFINITION CO-REGULATION
4. THE FORMATION AND DEVELOPMENT OF SELF REGULATING ORGANISATIONS IN RUSSIA
ABOUT THE AUTHOR
Vladimir Andrianov is the Director of Strategic Planning Department, State Corporation "Bank for Development and Foreign Economic Affairs (VNESHECONOMDANK)". Former Senior Advisor to the President of Russian Federation D.A.Medvedev.
Before that he had worked as Senior Advisor to The Prime-Minister of the Russian Federation M.E.Fradkov and M.M.Kasyanov.
Vladimir Andrianov was born on 31 may 1952. In 1977 he graduated from Moscow State University, Institute of Asian and African Countries (magna cum laude). Fluently speaks English Malaysian and Indonesian Languages.
For many years he was on the staff in Government Administration of the of the Russian Federation; in National Market Research Institute (VNIKI), Ministry of Foreign Economic Relations; in Institute of Foreign Economic Relations, Ministry of Economics; in Institute for Far Eastern Studies, Russian Academy of Science and in Moscow State University.
Vladimir Andrianov is Doctor of Sciences (Dr. Sc.), Professor of International Economics in Moscow State University.
Vladimir Andrianov is Full Member of International Academy of Sciences on Nature and Society (IASNS), Sciences and Business Academy (ESBA), International Academy of Management (IAM), International Higher Education Academy of Sciences (IHTAS), International Eurasian Academy of Sciences (IEAS) and International Informatization Academy (IIA), (in Consultative Status Category I, with the Economic and Social Council of the United Nations).
Member of Academic Council in National Market Research Institute (VNIKI), Institute for Far Eastern Studies, Russian Academy of Sciences.
Member of Expert Councils: Council for foreign and defense policy; Russian Agency of International Information (RIA NOVOSTY); Council of the State Duma of the Russian Federation for macroeconomic problems of Russias economic development.
Several times he took part in preparation and in work of "World Economic Forum" as an expert on problems of global economy.
Andrianov is a member of LEAD International (Leadership for Development and Environment), European Association for Comparative Economic Studies (EASES) University of Trento, Italy, N.D. Kondratyeff European Forum, France, Paris.
He is also a member of Union of Journalist of Russian Federation. Member of Editorial Board: Journals "Business and Banks", "Microeconomics", "Banks Row", "Economic encyclopedia of the Russian Federation Regions".
Andrianov has written and published 16 books, 21 books chapters and more than 300 articles, booklets, special reports. Some of them are translated into English, Portuguese, German, Chinese, Korean, Japanese languages and published abroad.
His papers are devoted to different problems: Global Economics; International Trade; Strategic Planning; International Financial Markets; International Marketing; Sustainable Development; Global Environmental Problems; Russia Economy; Russia in Global Economy; Newly Industrialising Economics.
Andrianov is the author of his own theories of Sustainable Development - "Self-Regulation in market economy" and theory of "Functional Economic Systems (FES)". He worked out social - economic balanced scorecard for Sustainable Development.
Honoured Economist of the Russian Federation. National Prize for Economist "The N.D. Kondratyeff Medal" for the Contribution in Development of Social Sciences.
National Prize "The best books and Publishing Houses in 2007 year", nomination "Economy", for the book "Theory of Self-regulation of Market Economy: New Concept of Sustainable Development". National Prize for Journalists "Russian Economic Recovery".
Married, son Vladimir (28 June 1992).
Hobby - sport (jogging, tennis, skates, skis, fitness), poesy, philosophy.
Краткое изложение на английском языке положений монографии Владимира Андрианова "Эволюция основных концепций регулирования экономики: от теории меркантилизма до теории саморегуляции. Экономика. М.: 2008 г.
5 декабря 2008 г.