Academic journal article Current Politics and Economics of Russia, Eastern and Central Europe

Modern Approaches to Natural Monopoly Identification and Regulation under Russian Economic Reform

Academic journal article Current Politics and Economics of Russia, Eastern and Central Europe

Modern Approaches to Natural Monopoly Identification and Regulation under Russian Economic Reform

Article excerpt

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INTRODUCTION

For over two decades, reforms oriented toward the transformation of the centrally-planned economy to a market one have been taking place in Russia. These reforms have given rise to many significant processes and phenomena. The Russian economy and its mechanisms differ considerably from those of the traditional, non-crisis market conditions of industrially developed countries, as do the behaviors of its main participants (business, banks, population, federal and regional authorities). There are considerable differences in terms of motivation, adaptation methods, specific features and parameters of the micro- and macro-economic environment for producers and consumers. The Russian economy is characterized by non-stationary factors including a high level of heterogeneous and multi-currency inflation, relatively comprehensive structure and essential risks level, the absence of effective markets and so on.

All of this supports the claim that the social-economic system that existed in the West prior to the current period of crisis could rightfully be characterized as a stationary one, and the one in Russia, in the process of radical reformation since January 1992, as non-stationary. The Russian economy has both normal market elements (demand, supply, market cycle, non-regulated prices, oligopolies, monopolies and others) and a high level of corruption, unstable legislation (including taxation), permanent reforming social and economic institutions, ownership structure and so on.

For both stationary and, especially, non-stationary economies, the institution of natural monopolies (NM) is extremely important. These are such economic agents as, for a range of different reasons, including economic ones, are not generally advisable to be integrated into a pure market. In other words, a large incumbent should not be split into multiple companies competing between themselves. An increase of NM efficiency should not be expected from adherence to standard types of competition as defined by Adam Smith's 'invisible hand'. The peculiarities of NM technology mean that use of such competition models can lead to opposite results. It is therefore not effective to split NM, and in case of embedding competition it should be of a special type.

Moreover, the fact that a business is of NM type, especially in the context of structural reform, requires the formulation of special identification criteria. Determining NM prices for such firms, moreover, cannot simply be entrusted to the market. Special and reasonable interference of government regulation authorities, including statements and models of NM theory, is required.

In this regard the works of leading economists W. Baumol, H. Demsetz, F. Ramsey, et al. have entered into standard practice. In Russia, however, these authors are hardly known, and appropriate approaches not applied in NM regulation practice. Familiarity with these works is vital for specialists in the NM sphere (transport, communications, electrical power and so on), not least because the opinion is widespread that overvalued tariffs for services of NM alone are a "bottleneck" for the development of the Russian economy and growth of living standards for Russians.

The course of Russian economic reforms often forces decisions regarding transformations in NM structure to be made without first elaborating an effective economic grounding. As a result, accumulated potential and possibilities of theoretical foundation used across the world for analysis and substantiation of the project measures of NM regulation are not taken into account to any considerable extent. Many important modern approaches to NM regulation, determining transformation measures at federal and regional levels are not adequately applied. Generally speaking, the concept of systems analysis regarding possibilities in relation to managerial techniques and incentive schemes is not available under the Russian transition economy. …

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