Anti-Crisis Industrial Policy Of The Russian Regions During The Covid-19 Pandemic

Abstract

This paper is aimed to systematize, classify and analyze the anti-crisis industrial policy measures taken by the regional governments of the subjects of the Russian Federation during the COVID-19 pandemic in 2020. Classification is carried out according to the following criteria: aim, scale, duration and proactivity/reactivity specific measures. Based on the results of the work, 91 measures from 32 subjects of the Russian Federation were analyzed. The research sample includes 4 subjects from each of the 8 federal districts of Russia. The total predominance of reactive measures (82) over proactive measures (9) was revealed. Only 6 measures in 32 regions were long-term, most (52) medium-term, as well as 33 short-term. Due to the research results 14 measures were focused on maintaining demand, 77 – on maintaining employment. At the same time, the majority of measures aimed to maintain demand were minor-scale (11 out of 14) and short-term (12 out of 14). The article explains the popularity of certain measures. Thus, as the most popular measures of anti-crisis industrial policy can be called tax benefits and exemptions for tenants of regional and municipal property. A number of conclusions were drawn regarding the political aspect of budget federalism in Russia (the special role of inter-budget transfers in regional industrial policy is noted), as well as the need to actualize the issue of the planning time-frame of regional governments of the subjects of the Russian Federation, to study the correlation of effectiveness and proactivity/reactivity of anti-crisis industrial policy measures.

Keywords: Crisis management, COVID-19, industrial policy, political management

Introduction

This article is a continuation of the series of researches about the anti-crisis industrial policy of various actors of state power during the COVID-19 pandemic. The previous article focused on the relevant global practices examining the experience of several market economy states (Koshkin, 2021). In this paper the authors intend to concentrate on practices that were used in the Russian Federation by regional governments. Before proceeding to the analysis of measures designed by the federal government (presumably, the subject of the next article in the series), it seems reasonable to pay attention to anti-crisis industrial policy at the regional level. The Russian Federation consists of 85 subjects, which form 8 federal districts: Central, Northwestern, Southern, Volga (Privolzhsky), Ural, Siberian, Far Eastern, North Caucasian. This paper analyzes 32 subjects of the Russian Federation, involving four subjects from each of the federal districts. During the research a special attention was paid to the federal cities: Moscow, Saint-Petersburg and Sevastopol.

The relevance of the topic of the article is very clear. Economic consequences of the COVID-19 pandemic (which continues to the day the article is written) require detailed and prompt attention from modern economic science. Moreover, it is difficult to overestimate the importance of public institutions in the mitigation of negative economic consequences of the pandemic. There is no doubt anymore about whether the current situation should be defined as a crisis or not. Therefore, it is crucially important to analyze features of the already tested anti-crisis measures in the area of industrial policy, including the range of its effectiveness. But the results of the previous article demonstrates that any assessment of the efficiency of examined measures should come after its systematization, classification or at least separation from other measures of anti-crisis response and economic support.

The practical relevance of the research is also obvious. After the mentioned usefulness of the preparations to the possible assessing the effectiveness of the measures taken by regional governments, we also should highlight the importance of the research in the field of political science. Studies of inter-budget federalism in Russia not only involve both economic and political sciences, but also actualize the thesis about inter-budget imbalance, imposition of political responsibility for social disadvantage from the federal to the regional governments. In other words, unpopular decisions are passed by federal authorities "at the mercy" of the regions, while the federal government uses budget disproportionality to concentrate political capital for social payments in its hands. Stimulating demand is one of the measures of anti-crisis industrial policy and an analysis of these measures on the regional plane will provide a basis for reflection in this area as well.

The aim of this paper is to systematize and classify the available abundance of empirical material based on the methods already tested in the previous article, which we will elaborately describe below.

Problem Statement

The formulation of such an academic problem is immanently connected with the analysis and classification of the anti-crisis industrial policy measures that are already involved. It is fundamentally important to identify the goal-setting of such measures. On the one hand, goal-setting can be determined by the response to the emerging ‘bazar economy’ (Sinn, 2005), and on the other hand, the generalization of the consensus of public anti-crisis management in the field of economics, which could already be observed in many countries even before the pandemic (Rodrick, 1993). Any author who appeals to this topic is faced with a methodological question about the interpretation of the very concept of ‘industrial policy’. Resource-industry and institutional approaches to interpretation can be chosen as having fundamental differences. A more detailed explanation of the choice of a particular methodology will be considered in the respective paragraph.

An additional research problem of this article may be the analysis of the ratio of the selected types of anti-crisis industrial policy measures. With a correct question formulation, the predominance, for example, of reactive measures over proactive ones can be an important marker of indirect factors that determine the specificity of public anti-crisis management in Russia. Such a technique can be borrowed from relevant studies of industrial policy in the European Union (Budzinski & Schmidt, 2006). The identification of such specificity can serve as an important component in determining the strengths and weaknesses of the industrial anti-crisis policy of the regions of the Russian Federation. It is important that despite the common political and discursive space, the heads of the regions at the time of the outbreak of the COVID-19 pandemic became pioneers in defining and testing the main directions of anti-crisis policy in practice. Given the variety of measures, it is possible to claim that the federal centre did not let down ready-made models of behaviour. On the contrary, it provided greater managerial freedom within the framework of the scope of responsibility outlined by the president for the heads of regions. In these conditions, the practices of anti-crisis industrial policy, which are self-reproducible in different regions of the federation, are becoming valuable research material.

Research Questions

Before formulating the questions that will determine the vector of this research, it needs to remark that the main part of the proposed work is the collection of empirical data and capturing the current situation in the regional anti-crisis management of industrial policy of the regions of the Russian Federation. In formulating research questions in the field of industrial policy research in developing countries, it will help to answer the following questions:

  • How applicable is the methodologically justified classification system that has been used similarly in the previous research at the international level for Russian practice?
  • Are there trends in the selection of regional anti-crisis industrial policy measures by the regional heads of the federation?
  • If so, what does determine these trends?
  • What are the perspectives and risks of the development of these trends?
  • Is it possible to detect the influence of specific characteristics of Russian federalism on the formation of anti-crisis industrial policy of the regions of the Russian Federation?

This brings us to the need to address the interdisciplinarity of research. The issues of crisis management, economic theory, and political science are tied up to each other. It seems possible to consider them exclusively in aggregate. Any separation for individual consideration is artificial, synthetic, and harmful to the formation of a holistic and objective picture of these processes.

Purpose of the Study

The aim of the research is logically related to its certain relevance. The pandemic of COVID-19 has become a serious trial for the economic systems of various countries in particular, and the world in general. At the same time, it has become a practical test of number developing anti-crisis strategies. The whole range of anti-crisis industrial policy strategies should be analyzed, including for effectiveness, which is ultimately what our series of articles is aimed at. In this article, the aim can be described as the collection and primary analysis of empirical data on anti-crisis industrial policy strategies of the regions of the Russian Federation. If this occurs, potential recommendations will be sought for the adjustment of certain strategies based on the results of the application of strategies at the regional level. It is of paramount importance to formulate the most optimal strategy of interregional and region-federal center cooperation. The formulation of such a unified program at the federal level can be considered as the principal objective of this series of research. However, in this article, it is only possible to advance reasonable assumptions about prospective directions of research in this area without a substantive analysis of the effectiveness of strategies. Eventually, the outcome from this article will determine the vector of our further research.

Research Methods

The research is at the intersection of the study of state crisis management, industrial policy, and regional economics. In the context of industrial policy, our interpretations still remain in the tradition of the resource-sectoral interpretation of the St. Petersburg school of industrial policy Rybakov (2011) As for the state anti-crisis management of the Russian government, it refers to the relevant studies of Manushin (2012) Finally, the definition of certain aspects of economic growth of the Russian economy, including in the regional plane, is aligned with the researches of professors Korhonen and Lyakin (2017)

Within the framework of the classification system, the authors of the research decided to use the faceted method to build an appropriate model. The complexity and abandonment of anti-crisis measures make this choice justified. Some measures may drastically differ in areas and nature of impact, efficiency or goals, in such a case the construction of a hierarchical model appears to be at least hardly possible.

The empirical basis for the classification of anti-crisis measures in the area of industrial policy consists from the relevant decisions of regional authorities of the subjects of the Russian Federation. For the analysis were selected at least four regions from each federal district, and close attention was paid to federal cities: Moscow, St. Petersburg and Sevastopol. Totaly, 91 measures were analyzed and classified as an empirical basis during the current research.

In the context of the experience of a similar analysis in the previous article it is worth more detail describing the classification (Koshkin, 2021). For instance, during the research of the global experience of anti-crisis measures in industrial policies in market economy states, the indicator of the proactivity/reactivity has proved to be excellent. To what extent do regional authorities act as preemptive actors in different circumstances, or are their actions dictated by the absolutely urgent need to mitigate the situation right now? Regional authorities may only react to the current challenges of the industrial sector, or they may try to anticipate the development of the situation and to implement a solution of the problem even before the first symptoms will appear? More details about an indicator are available in the article by professor Pashkus (Aliaskarova et al., 2020).

The experience of classifying anti-crisis industrial policy measures by its aims can also be recognized as positive. Measures can be focused either at employment maintaining (maintaining the viability of enterprises), or at demand maintaining. Contrary, the indicator of preliminary preparation of measures, according to the experience of previous research, may be included in the indicator of measures consistency as its implicit element. Were these measures implemented on the basis of pre-planned and prepared mechanisms (legally prescribed financial support for enterprises in the case of an emergency), or are they carried out according to a plan created during a specific crisis situation?

The evaluation of the scope of taken measures requires special attention. In the previous paper, it was defined as major, medium, and minor-scale. Obviously, scale indicators of nation-states and regional authorities will be different. For a more correct evaluation, in addition to the analysis of the support amount in comparison with the available financial resources of the regional authorities and the gross regional product, it is necessary to make a comparison according to the indicator of the anti-crisis activities duration. Division into short-, medium-, and long-term groups will be useful to form a correct understanding of the scale of the measures.

Findings

During the research 32 regions including four regions from each federal district and 91 specialized solutions were analyzed (see Table 1). The analysis demonstrated 9 proactive and 82 reactive measures, 6 long-term, 52 medium-term, and 33 short-term. According to their goals 14 measures were demand-maintaining and 77 were employment-maintaining. Most of the demand-maintaining, however, were minor-scale (11 of 14) and short-term (12 of 14).

Table 1 - Anti-crisis measures of the constituent entities in Russia during the period of COVID-19
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The discussion of results should be started with the notion that the aim of the majority of measures of anti-crisis industrial policy of the regional authorities is to preserve employment (to maintain the viability of enterprises). The measures aimed to maintain demand mostly turned out to be minor-scaled and short-term. As it was mentioned in the introduction, this feature may be a consequence of the political aspect of Russia's budgetary federalism. Using budget disproportionality, the authorities concentrate political capital in their hands issuing social payments, and leaving regional authorities less attractive, from the electoral point of view, measures to support business. Regional authorities do not resist this system because it provides them with an opportunity to interact with regional economic elites. Simultaneously, regional budgets are simply unable to make noticeable social payments. The majority of the subjects of the Russian Federation are subsidized, so without targeted inter-budgetary transfers from the federal center most regional authorities are powerless in this area.

To assess the importance of inter-budgetary transfers it is necessary to note a few facts. Despite the crisis, accompanied by the introduction of measures restricting economic activity, the cancellation or deferral of some tax payments and the decline in real GDP by 3.6 %, revenues of consolidated regional budgets in 2020 grew by 9.8 %. It is close to the average growth rate for the period of 2016–2020 (9.9 %) and significantly exceeds the inflation rate. However, total revenues into consolidated budgets of subjects of the Russian Federation were provided by transfers from the federal budget, the growth of which amounted to 54 % (3.8 trillion rubles). All types of inter-budget transfers showed high growth rates: grants (41.3 %), subsidies (81.6 %), subventions (52.9 %) and other inter-budget transfers (48.5 %). We should also highlight the package of non-targeted financial assistance of 300 billions rubles, which exceeded the reduction of tax and non-tax revenues of consolidated budgets of regions (194.4 billions rubles).

However, let us return specifically to the economic aspect of this article. Research demonstrated that the most popular measure of support among subjects of the Russian Federation is tax benefits. The reduction of the pressure of taxation looks quite a logical step and does not look like something particularly dangerous for regional budgets during the crisis situation. In a number of cases, regional authorities have provided tax exemptions for taxes that are not included into regional budgets. The next popular measure is exemptions for tenants of regional and municipal property. Usually, this line of income is insignificant compared to the same inter-budget transfers (which in most cases represent a tax reverse). At the same time such lease privileges significantly reduce the fixed costs of tenant enterprises.

There is also a significant disbalance in the proactivity/reactivity of the examined measures. This quite correlates with the results from the previous article, where 7 out of 8 measures of anti-crisis industrial policy of Russia at the federal level were reactive (Koshkin, 2021). Such results of the study only actualize the issue of the planning timeframe of regional governments in particular and public management in general. This thesis can be formulated as "proactive measures of anti-crisis industrial policy will generally be more effective than reactive ones" and can be tested in the next article of the series. Despite the seeming obviousness of such a statement, it contains a number of difficulties. Thus, some reactive solutions allow authorities to mitigate the consequences of the crisis at a short-term distance and cannot be underestimated in the framework of anti-crisis policy. Perhaps it is worth considering measures from different points of view: the efficiency to invested funds and the efficiency to opportunity costs. These results correlate well with the conclusions made by our colleagues in related areas e.g. the study of this issue in the plane of the European Union (Karpova, 2020) and general methodology concerning sustainable development during the COVID-19 pandemic (Lanshina, 2020). The article studying the regional budgets in Russia in 2020 (Deryugin, 2021) can also be called an important reference point for the performed research.

Thus, expenditures of the consolidated budgets of the entities of the Russian Federation in 2020 increased by 14.8 %, exceeding not only inflation, but also the growth rate of income, and amounted to 15.6 trillion rubles, which indicates that the regions are conducting an active anti-crisis budget policy. In the second half of the year, the growth rate of expenses slowed down significantly. In comparison to the first half of the year it is 12.0 % against 18.9 %, which is explained by the completion of several anti-crisis measures.

In general, it is worth saying that we analyzed the specialized decisions of very different regional governments from different parts of Russia. They all have different traditions of political management. It seems that the results obtained are the clearest evidence of the fact that with its flaws, but anti-crisis industrial policy was conducted in addition to the federal level and also at the regional level. The inevitability of dependence of regional political elites on regional economic elites led to the very active inclusion of them in solving the problems of their counterparties. A promising topic for other studies is the study of the correlation of some structural features of regional economies and the measures of anti-crisis response.

And before turning to the conclusion, we can make one last remark. At first sight utilitarian and narrow in its discipline, the study in the tradition of modern scientific trends turned out to be properly interdisciplinary.

Conclusion

At the conclusion of the performed research, we should summarize its results and identify promising areas for the next article in the series.

The first result of the paper is a table with 91 measures of anti-crisis industrial policy of the regional governments of 32 subjects of the Russian Federation, classified according to four criterias. Four subjects from all 8 federal districts of Russia were analyzed.

Already within the framework of the analysis of the data obtained, a number of conclusions were made, which can rightfully be named as the second result according to the outcome of this article. Thus, it was revealed that on the basis of goal-setting measures, most specialized solutions can be classified as measures aimed at maintaining employment. Those that were aimed at maintaining demand turned out to be mostly point-based and short-term. The most popular measures of anti-crisis industrial policy among regional governments have become tax benefits and concessions for tenants of municipal and regional property. And, as noted in the previous section, the predominance of reactive measures over proactive ones was revealed.

As part of the discussion section of the results, assumptions were made regarding the need to update the issue of the planning time-frame of regional governments, to study the correlation between the effectiveness and proactivity/reactivity of anti-crisis industrial policy tested measures and to define the role of the features of budgetary federalism in Russia in the obvious disbalance towards maintaining employment versus maintaining demand. This can be named as the third result of this work, which allows us to identify the goals and objectives for the next article in the series of papers focused on the analysis of anti-crisis industrial policy during the COVID-19 pandemic.

A particularly topical task is to start studying the measures analyzed in this and the previous article of the series for their effectiveness. As already noted, it may make sense to consider efficiency itself in different planes: efficiency in terms of invested funds and efficiency in terms of opportunity costs. Thus, some reactive solutions make it possible to stop the consequences of the crisis at a short distance, which cannot be underestimated in the framework of anti-crisis policy.

In general, this research topic seems to be sufficiently promising. It provides answers to a number of applied and quite important questions of our time, as well as actualizes issues within related disciplines, giving valuable empirical material for reflection. The theory of crisis management itself has been applied in a variety of aspects and conditions. The pandemic has resulted in significant losses for humanity, both from the economic point of view and from the direct side of human lives. The task of the scientific community is to make the most sense of the gained experience, especially given such an abundance of recorded empirical material, which is unusual for socio-economic sciences.

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25 November 2022

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Koshkin, A., Rakhman, K. M., Sharagina, A., Fedorov, A., Yakovleva, E., & Popov, D. (2022). Anti-Crisis Industrial Policy Of The Russian Regions During The Covid-19 Pandemic. In D. Bataev, S. A. Gapurov, A. D. Osmaev, V. K. Akaev, L. M. Idigova, M. R. Ovhadov, A. R. Salgiriev, & M. M. Betilmerzaeva (Eds.), Social and Cultural Transformations in the Context of Modern Globalism (SCTCMG 2022), vol 128. European Proceedings of Social and Behavioural Sciences (pp. 386-397). European Publisher. https://doi.org/10.15405/epsbs.2022.11.54