Dr. Litosh A.A., PhD, Professor
“Some aspects of the current anti-crisis management
As you know, the economic development of the region in market conditions occurs, according to the laws, described in the works of well-known economists N.D. Kondratev, Simon Kuznets, Clement Zhuglyar, Joseph Kitchin and many others.
Kitchin cycles are short-term economic cycles with a typical period of 3-5 years, discovered in the 1920s by the English economist Joseph Kitchin. Under the Kitchin cycle a violation and restoration of market equilibrium of demand and supply of goods on the market occurs, which corresponds to a certain level and the ratio of market prices. The balance of the first order N.D. Kondratev called the balance in the market, achieved in Kitchin cycle. The current recession of Kitchin cycle manifested in a sharp drop in global demand for most commodities, resulting in its lower point in 2009 the volume of world trade, according to the WTO, fell by 12%.
Zhuglyar cycles are medium-term economic cycles with a typical period of 7-11 years. They are named after French economist Clement Zhuglyar, one of the first, who described these cycles. In contrast to the Kitchin cycles, within Zhuglyar cycles we observe oscillations not only in the amount of goods and inventories in warehouses sellers and manufacturers, but also in the level of load on existing capacities in the growth of unemployment, as well as in reduction of the volume of investment in the renewal active part of the basic capital. Zhuglyar cycles were analyzed in detail in “Capital” by K. Marks, and N. Kondratev called the balance, achieved in these cycles, the equilibrium of the second order. The entry into recession of Zhuglyar cycle was marked by significant decrease in 2008-2009 of capacity of utilization powers, sharp rise in unemployment and significant reduction in the speed of renewal of the basic capital.
Kuznets cycles are the economic cycles with a characteristic period of about 20-22 years. They were discovered in 1930 by the Nobel Prize winner Simon Kuznets, who connected these cycles with demographic processes and corresponding changes in the volume of construction, so he called them “construction” cycles. Currently Kuznets cycles are considered in a broader context, as infrastructural cycles. In addition, large cycles in property prices concur with the Kuznets cycles. The decline in Kuznets cycle in 2007-2008 was shown in the mortgage crisis and sharp reduction in the volume of construction in housing, industrial and infrastructural spheres of developed countries, as well as a fall in prices for accommodation.
Large Kondratev economic cycles (K-cycles) have been continued 40-50 years and consist of two waves – downward and upward. In 2008, the global economy went into a downward wave to the sixth K-cycle, during which will occur the formation of the new sixth technological structure (TS), based on the nano-, bio-and other new technologies, without which the development of the further growth of the world economy will not be possible. But Kondratev warned that “average cycle (Kitchin’s, Zhuglyar’s, Kuznets’), attributable to the downside period of the large cycle, should be characterized by a particular duration and depth of the recession, the brevity and weakness of upgrades”. Therefore, excessive optimism from the world's leaders due to short-term rise in Kitchin cycle, in which the world economy is at present, is clearly premature, since after rise a new fall in Kitchin cycle will start.
All these cycles have different duration and reach their lowest fall points in different intervals, so after the initial resonant fall they start to work in an antiphase, and after simultaneous fall we have not a uniform process, but the amount of oscillations of different frequency, amplitude and directions. Prior to 2008, world GDP fluctuated around a single line, but the financial crisis and the collapse of the U.S. credit market, led to a fall in mass demand and reduction of consumption in the United States and other developed countries of the world. All this, in its turn, caused a massive decline in world production. So in 2007-2008 there was an effect of resonance, when in cycles: Kitchin, Zhuglyar, Kuznets and Kondratev almost simultaneously passed through the upper points of development, and the decline phase began.
But as the experience of overcoming the first wave of the global crisis in Russia showed, it is necessary to introduce new advanced methods of anti-crisis management, increasingly using terms such as “preventive anti-crisis management” and anti-crisis management “in the manual mode”.
These provisions are reflected in the recent speeches of leaders of Russia V. V. Putin and D. A. Medvedev.
In his article, published in the Mexican newspaper “El Universal”, dedicated to the problems of the world economy and the new challenges, facing the “Group of Twenty” (based on the Russian Newspaper 18.06.2012.), V.V. Putin notices:
Four years ago the world economy faced an unprecedented crisis. The shocks were clearly global in nature, in varying extent affected all without exception.
Such large-scale challenges required radically new approaches from leading countries. And for the first time in the history the leaders of the countries, representing almost 90% of world GDP, demonstrated a real commitment and ability to coordinate economic policy. The main thing they kept the world from sliding into a dead end trade wars and protectionism of the total, have started to restore order in the international monetary and financial system.
Thus, the G20, which existed until 2008 only in the form of regular meetings of finance ministers, has gained status as a leading global forum on issues of economics and finance.
In the midst of the crisis thanks to G20 were implemented measures to increase the capital of all the major multilateral development banks, as well as the resource base of the IMF. That, in turn, allowed the institutions to support the most affected countries. A long-term agenda of reforming the financial regulatory system has also been proposed, designated principles aimed at protecting the rights of consumers of financial services. Without exaggeration it can be considered a landmark, and the creation in 2009 – by the decision of the leaders of the G20 – the Financial Stability Board, which became the coordinating body for the development of the updated “rules of conduct” in the financial sector.
“Russia, being the sixth economy in the world by purchasing power parity, in recent years strengthened its fiscal system. We are on the 3rd place on the gold and currency reserves. The growth rates of the domestic economy – 4.3% – the highest among the major economies of Europe”.
However, not all system problems are solved. The consequences of the 2008 crisis are still visible. The accumulated imbalances are clearly manifested in the form of “budget holes”, the serious condition of banks, clearly “off-scale” beyond a reasonable level of debt to GDP in developed countries. Moreover, in recent months, the negative dynamics of markets, other disturbing signals cause analysts to build highly pessimistic forecasts.
These processes occur in the context of the changing landscape of the global economy. According to experts, the potential rate of growth in emerging markets will outperform – until 2017 – the traditional developed countries by more than 3.5 times. And in the next 15 years – more than 2 times. And the change is not only in points of global growth, but also the “geography” of trade and financial flows.
What are our positions in the current situation? Russia, being the sixth economy in the world by purchasing power parity, in recent years strengthened its fiscal system. We are on the 3rd place on the foreign exchange reserves. The rate of growth of the domestic economy - 4.3% - the highest among the major economies of Europe. Today, in contrast to 2008, the national banking system more resilient to fluctuations in global financial markets.
Our country does not have such “ballast” as excessive, dangerous debt load. The debts of the population in Russia are much lower than the level of other countries. The citizens’ debt on April 1 of the current year was accounted for 10.6% of GDP – versus around 60% of GDP in Germany and France, 87% of GDP in Spain, 92% of GDP in USA. As for Russia's national debt, then it is minimal among the “eight”, “twenty” and BRICS. And on May 1, 2012 it was 9.2% of GDP (for example: in Germany – 81% of GDP, France – 86%, the USA – 104%). Last year we were able to not only reach a balanced budget, but also to achieve a small surplus of 0.8% of GDP. That is, we have earned more than spent. And the trade balance is 198 billion of USA dollars.
However, if you subtract the income, received as a result of favorable market conditions in the oil and gas sector, we see the highest budget deficit. And this is not the oil and gas deficit has increased over the years of the crisis to the maximum level.
“We will seek a radical improvement of the investment climate, creation of a globally competitive business environment in Russia, the further removal of infrastructure limits, improvement of the quality of human capital, modernizing the economy as a whole”.
And we understand the need to speed up reforms. This is needed both to ensure sustainable development and to reduce dependence of our economy. Therefore, we will achieve a radical improvement of the investment climate, creating a globally competitive business environment in Russia, the further removal of infrastructure limits, improvement of the quality of human capital, modernization of the economy as a whole. Moreover, strictly fulfilling its social obligations. All these reforms – the most important agenda for all levels of government in Russia.
The upcoming G20 summit will take place in the context of growing uncertainty. Besides a difficult financial situation in some EU countries the majority of countries in the world to find a reasonable balance between the need for fiscal consolidation, strict budgetary discipline and employment creation, economic growth, the solution of social problems, including maintaining sustainability of pension systems.
In addition, the problems, arising with banks, and the scales of speculation, collapsing markets, show, that the global financial architecture is still not reformed, there are many inherent risks and internal contradictions. However, it has failed to take “firm ground under feet”, a “bind” to real assets and values. On the contrary, the dynamics of the financial markets in recent years has become to vary more significantly with the fundamental indicators of the real sector. What creates additional preconditions for the growth of general mistrust and instability – from which, as we know, is not far to the surge of financial panic.
Therefore, the need for new steps is obvious. And above all, we should strengthen the regulation of turnover of derivative securities, to ensure consistent application of the new system of financial regulation Basel 3, which reduces the possibility for the emergence of various “dummies” and “bubbles”. I believe that in the common interest to promote the emergence of new reserve currencies, expanding their scope of global trade and investment. Finally, a separate and very important issue is the implementation of G20 commitments to reform international financial institutions, including the IMF and the World Bank. And in particular, the translation into practice has long-reaching conversation about strengthening the role of developing countries and the “new” economic powers in the management of such institutions. In general – the formulation and adoption of the fundamental defining decisions.
“The essence and the meaning of our joint activity is development of fair rules for the sustainable development of the world economy. This is precisely the logic, which Russia will offer to our partners at the upcoming summit in Los Cabos”.
In this context there is another important accent. We all know that financial instability inevitably led to the increase in trade protectionism. Let me remind you: in 2009 the global trade fell by 12%. This is a record rate of decline since the end of World War II. Much of this happened because, despite public assurances, some countries have de facto widely used rigid protectionist measures to protect their markets. It is time to admit that against the background of the inadmissibility of protectionism, it becomes more sophisticated. For example, it disguises in the form of environmental and technological constraints.
It's time to stop the hypocrisy and honestly agree on an acceptable level of protection measures to preserve working places during the global crisis. For us, it is particularly important since this year Russia enters the WTO, and we intend to actively participate in the debate on the future of global trade rules. In particular, we will do our best to break the deadlock in the round of Doha negotiations.
All these topics will be discussed at the upcoming summit in Mexico. They will also become our priorities during the presidency of Russia in the G20 next year – along with the issues of global energy security. However, we realize the importance of preserving the credibility of the G20. And it may be devalued if a joint decision by good will declarations, “be hung in the air” – without execution and control.
And, of course, “the twenty” must not turn into another elite club, selfishly taking care exclusively for their members. The essence and the meaning of our joint activity is the development of fair rules for the sustainable development of the world economy. It is the logic which Russia will offer to our partners at the upcoming summit in Los Cabos.
Thus, the present state of the World Regions, and, in particular, Russia, needs the development of new methods and techniques of anti-crisis management, aimed at «prevention» of impact on the crisis manifestations and removal of it with the help of anti-crisis management in the «manual mode». Rationale and scientific research of these methods of anti-crisis management in conditions of the new wave of the Global crisis deserve special attention.