INTERNATIONAL  INSTITUTE FOR SOCIAL AND ECONOMIC STUDIES 
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It is Time for Russia to Change the Course of Globalization

27.07/2018

Published with the kind permission of the author 

The global economic and political chaos is rapidly evolving. At the same time, solving the problems with the use of “business as usual” military force has become dangerous for all and everyone. Therefore, today when the world is being gradually dragged into the third world war, which may destroy the civilization, it is necessary to take action for changing the course of globalization. What tools are currently available on the basis of the accumulated management experience in order to change the course, which is detrimental to the civilization? 


Mercantilism (17th century) became the first system of the economic policy of the state. For gaining the wealth, which symbol was gold, the leading states used an unequal exchange: in the scale of the world trade this was protectionism (import/export duties; restrictions and prohibitions) for exporting goods with high added value and importing cheap raw materials; in the scale of a particular country, this was a lobbying in favor of the “points of growth” and their support with preferential taxation, subsidies, etc., which, in fact, meant a state regulation of the economy based on an indicative planning; a colonial policy of providing the leading countries with cheap raw materials, workforce, and markets resulting in the strengthening of their financial capacities and accelerating the technological progress. The history of the 17th-20th centuries confirms inclination of mercantilism to the use of armed forces for protecting the interests of competing metropolises. 


The Industrial Revolution, which began in the late 18th century, was marked by the emergence of machines that simultaneously operated several mechanical tools to overcome the limited human capabilities thus providing for a significant increase in the labor productivity. The revolution began with an automation of technological processes, resulting in the establishment of the capitalist mode of production in the 19th century. The purpose of such production was to maximize the capitalist profits through an unequal exchange with the hired workforce and dependent countries. This led to a centralization of the world capital, a growth of social inequality within and between the countries, and their technological disparity.  


After Napoleon’s war, Britain became the “world’s workshop” – a leading industrial, financial, and economic power. To realize the competitive advantages, it became profitable for Britain to abandon mercantilism and implement liberalism promoting the ideas of freedom of business and trade. The state stopped interfering in the organization of production and relations between workers and owners, with the exception of the strikes. Crises resulting from spontaneous (disproportional) development of the economy become an integral attribute of capitalism, contributing to the emergence of transnational corporations (TNCs). The crises consequences were becoming increasingly destructive. 

The free competition required a stability of monetary relations. The Central Bank of the country became the regulator of its economy. The bank’s discount-rate policy supported the free convertibility of banknotes into gold: the interest rates went up and down depending on the balance of payments of the state. The ideas of independence of the Central Bank and the gold standard from the state were used by Britain to create the first world monetary system (IMS) in Paris in 1867, involving all countries striving for technological progress into the world trade and capitalism. This allowed Britain to have a growing trade deficit, which meant a launch of global inflation redistributing the incomes generated in other countries in favor of TNCs established by the end of the 19th century. World War I was required to launch the process of inflation for redistributing incomes in favor of TNCs. The war destroyed the existed gold standard. 

After World War I, the states and then after World War II, the IMF intervened in the monetary policy of Central Banks. Inflation was becoming universal and chronic. On the eve, during, and after the war, rapid inflation was used to restore the economies. Then the world monetary system was built based on the key currencies of the TNC host countries and gold, which was gradually displaced by 1971 as a basis for determining the currency parities. This allowed the leading countries to export fictitious capitals to redistribute the incomes generated in other countries for their benefit, thus increasing the technological and social inequalities in the world. In turn, countries with key currencies defeated in the world wars were pursuing a policy of deflation (slow inflation) for their financial stabilization, thus increasing the technological disparity between them and the U.S.A., the leader of the system. 

In the inflation-deflation system strengthening the financial powers of TNCs, the world war becomes inevitable. There are historical analogies. Thus, in the 20th century after the policy of financial stabilization in Europe in the 1920s, there was a transition to inflation in the 1930s. It was a moderate inflation in the U.S.A. and Great Britain, while Germany and the Soviet Union experienced a rapid inflation with food rationing and production planning for industrialization. This period, accompanied by a “war” of customs barriers and currency devaluations, ended with World War II. Nowadays, after a financial stabilization, began a transition to a “war” of customs barriers, sanctions, and devaluations. After the U.S. introduced protective duties on imports of steel and aluminum, China imposed trade duties on goods from the United States. After that, the U.S. blamed other countries for the devaluation of their currencies. 

Following the IMF and World Bank recommendations, the developing countries continue accepting the burden of the global crisis thus delaying a catastrophe for all. Typical recommendations are as follows: privatization of state property, reduction of social spending, currency devaluation, raising or lowering interest rates, indicative planning for lobbying “growth areas” (projects), fighting corruption in the lobbying system, chaotic growth of regulatory documents for combating corruption generating reverse results. 

Such a set of recommendations in different combinations is being supported in Russia by three expert groups. The commonly support the globalization course of “inflation-deflation” to shift the burden of the global crisis on Russian citizens. The result of work by these “strategists” is a “black box.” They are quite satisfied with the existing production chains within the globalization framework where Russia is given the role of a raw material appendage. The differences between the groups are in supporting lower (neo-liberalism) or higher rates of inflation (post-Keynesianism) as well as in the choice of “growth areas.” 

The neo-liberal strategy by the head of the Center for Strategic Research Alexei Kudrin lobbies for the road sector development, proposes to increase spending on education along with cutting the defense expenses, reducing wages in the public sector and social support for people, and increasing the retirement age. The strategy suggests creating conditions for private investors and an open economy. Ultimately, this will lead to the sale of the country to foreign investors. 

Boris Titov’s Party of Growth and Konstantin Babkin’s Action Party suggest launching inflation by lowering interest rates. At the same time, B. Titov proposes to move to a competition-based model of the economy (under the rule of TNCs?) and lobby the interests of business by suggesting a preferential taxation, which will ensure a growth (of what?) due to a rapid decline in the living standards. Since the party is going to create a digital economy implementing the principle of the network instead of hierarchical management, the result of such a program will be the collapse of the state. Another post-Keynesian K. Babkin proposes to lobby for a non-resource-based production through protectionism and preferential taxation, which will also cause a rapid decline in the living standards. Given his proposal to increase the share of regional budgets in tax revenues, the result of the program will also be the collapse of the state. 

Meanwhile, the world is undergoing changes. A greater part of the world’s elite harshly criticizes capitalism and advocates changes in the course of globalization. This was stated in the recent anniversary report by the Club of Rome calling everybody to unite (“Come On”) for building a global harmonious civilization based on humanist principles and social justice. This approach first implies a transition toward a polycentric world where the states should have a stronger control over TNCs for implementing an alternative economic model based on moral principles and then embarking on a new course of globalization. 

The main question is how to do it? Many UN experts believe that it is necessary to restore social justice. Meanwhile, this is not a solution to the problem as it is caused by the chaotic development of the world economy leading to the centralization of world capital with all the negative consequences. The G20 experts believe that it is necessary to use modern digital technologies, i.e. to introduce a digital economy (DE), which will overcome the information chaos and generate a model of economic planning. Meanwhile, such introduction of DE without a deep understanding of the model of economic planning for improving people’s lives will digitize the same very chaos, while the civilization will lose momentum to peacefully resolve the crisis. 

In his Address to the Russian Federal Assembly, President Vladimir Putin emphasized the necessity of solving the crisis problems by way of increasing the productivity of managerial work. He named effective and efficient interaction in science, production, and education as key factors for a successful introduction of DE, comparing its importance with the electrification of the country. In fact, we are discussing here an introduction of a single digital platform (an economic cybersystem) to the government administration system, which will allow coordinating in real time the enormous industrial information flows to secure a growth of the public wealth. This will mark a beginning of the second industrial revolution, the revolution of management, which will facilitate a growth in productivity of managerial work, i.e. a transition to cybereconomy. 

To move to the cybereconomy, we need to utilize the USSR experience, where the essence of planning was to harmonize the planned “input-output” calculations at all hierarchical levels for ensuring the economic development in the desired direction. The USSR’s economic and technological ideas were focused on the problems of “live” planning with the use of a feedback. Therefore, the science of Economic Cybernetics was established in the USSR along with the development of a dynamic model of inter-industrial and inter-sectoral balance (MOSB) as a system of algorithms with direct communications and feedback for coordinating the end-user orders with the manufacturers providing secured employment as a core of a uniform digital platform. 

The “USSR project” started in 1917 and ended in 1991. The pivotal importance of economic cybernetics for the effective management of the “Corporation USSR” was ignored by the country’s leadership. Focusing on key industries, ignoring price equations as a feedback, failed nationwide automated data processing and control system (OGAS) due to the lack of a dynamic MOSB model as well as the reforms increasing the chaos in management led the country’s economy into a crisis. The collapse of the Soviet Union blocked its transition to the cybereconomy. Today, this factor constitutes a threat of the third world war or a stateless world anarchy. Under the new conditions of the emerging polycentric world, Russia is the only country with an experience and knowledge of economic planning, possessing the required potential natural resources and its citizens’ ability to quickly consolidate in the time of difficulties around their national leader who focuses on a management revolution. Therefore, Russia’s time has come to introduce cybereconomics to change the globalization course in favor of the public wealth development. All citizens of the world do need it.