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Theoretical aspects of evaluation of the management of the border regional economic systems integration (by the example of the Amur region and Heilongjiang province)

Vasilina Aleksandrovna Babina - post-graduate student of the Far Eastern Academy of Public Service.(The Khabarovsk Territory, Bogorodskoye v.)

Е-mail: geopo@rambler.ru

The paper deals with evaluation of management of integration of border regional economic systems within the frameworks of the system theory. The article also reveals system factors of the Amursk region industries that prevent the region from efficient management of the economic system development within the integration process with economic system of Heilongjiang province.

Key words: evaluation of management, integration, border regional economic system, strategy, the Amursk region, Heilongjiang province.

management integration economic system

The relevance of regional economic systems management is connected with the fact that along with economic federalism development many plenary powers have been delegated to regional authorities. Consequently, accurate economic forecasts and programs development is the strategic goal for Russia and its regions secure and sustainable development as any economic system is determined by the external and internal environment.

According to system-organizational approach, regional government in order to protect regional economic interests tries to extenuate economic fluctuations caused by regional economic systems that begin from micro level and then as the result of self-organizational processes at higher levels of the economic system. The anti-entropic effect of the government regulation usually concerns reduction of the information obtaining and transactional expenses; therefore, social tensity decreases with help of market institutional tools [3]. Concurrently, high tax rates, low effectiveness of the resources distribution and laws can become generators of the fluctuations that increase entropy of economic systems. Besides, any economic system can develop in an evolutionary way (through adaptive transformations) or in a revolutionary way (through a “catastrophe” or a “shift”) [3].

Within the evolutional transformations an economic system endures gradual qualitative and quantitative changes of its elements and parameters. As the result of the changes, it's necessary to make a managerial choice either to adapt system to the changes or to make a “shift” from the existing economic system to a different one. However, the outcome of the “shift» is not always predictable; the “shift» can push the existing economic system forward or throw it back in its development.

If the choice is made in favor of adaptation, regional economic system forms a new structures that correspond with the goals and strategies that are set by the regional and state authorities in order to avoid the “shift” which can intense the fluctuation of the whole system under the influence of the aggressive external environment.

Nevertheless, sometimes the gaps between existing institutions of the economic systems and the changes of its elements, external and internal environment (entropy) grow in a way that the system looses its capability to adapt to a new environment and the instability accrues. Therefore, the increase of the instability makes the system vulnerable to external and internal fluctuations, which lead to a “shift” of backbone elements of the economic system. So, the further development of the system becomes hardly guided and chaotic, because “the shift” ruins the base of any economic system - its institutional subsystem. Even so, the force and the trend of the shift can be forecast through retrospective analysis of the system development.

Thus, two main parameters of the system development are adaptability and stability. An absolutely unstable economic system (an open economy) is not able to resist the fluctuations caused by internal and external environment as long as it lacks a capacity to adapt to changes and just assimilate to another system(s). Consequently, it is subjected to destruction. An absolutely stable economic system (a closed economy) neutralizing fluctuations lacks a capacity to adapt in order to meet the demands of a changing environment. So the destruction of such a system becomes a matter of time.

An economy of a region can be described as a complex system consisting of definite elements. Within the frame of the regional economic system the objects of the management are presented by such backbone elements as labor resources, export oriented and import substituting industries, as well as institutional and legal systems, budgetary and financial institutions. Subjects of the management are juridical and physical persons, government that involved into economic integration.

From the management evaluation perspective it is worthwhile to distinguish goals and functions of a regional economic system. The functions determined by the external and internal environment are self-reproduction (simple or extensive), qualitative parameters preservation, and adaptation to the changes under conditions of uncertainty of the global economic system. The goal is to achieve such a level of development of the economic system elements that corresponds with the strategic interests of the economic agents of this economic system.

Economic system elements and external environment are tightly connected. The elements constitute a compensatory and competitive potential of the region. Accordingly, the external environment that influences the regional economic system determines the competitiveness of the system. That's why, in order to evaluate management of the regional economic system it's necessary to evaluate the influence of the external factors produced by international and interregional cooperation.

When economic agents belong to the same state, they are subjected to the state system of regional economic systems management. As distinct to the interregional integration within the framework of one state, international economic integration produces more serious threats to self-preservation, development and adaptation, as its agents pursue interests which conflict with the strategic interests of the economic system. This is the result of the fact that international economic external environment is characterized by the maximum level of uncertainty, changeability, imperfection of the information. The lack of the internationally admitted economic standards of cooperation makes impossible to manage global economic system.

The strength of the mutual influence of the external environment and inner parameters of the regional economic system might be described by two opposite cases. On the one hand, the regional economic system development does not depend on export and import of goods and services, the industry production satisfies all the demands of the population of the territory, but then the loss of profit of the economic agents that do not participate in international cooperation and integration tend to its zero as it represents the case of a completely closed economy.

On the other hand, the economic system development completely depends on international cooperation and trade, i.e. the economic system is fully opened and it doesn't have any border barriers for goods and services international migration.

However, these are the examples of a theoretical assumption that are not real as it's impossible to satisfy all human needs within the one country or a region (human needs are infinite, resources are limited), as well as the development of a region in one country can't completely depend on import from another country, because there is no use in state borders then.

Despite the fact that the A-point (Picture 1) describes an absolutely stable economic system, the B-point - an absolutely unstable economic system, both states are unattainable.

Picture 1. The curve of the border regional economic system stability

ES (economic stability) is the level of the stability of the economic system of a region; MB is a marginal benefit of the region from international economic integration, X - the optimum point for a marginal benefit of the region from international economic integration and stability of the regional economic system.

The movement from the A-point to the B-point shows the decrease the stability level of the regional economic system that is characterized by the following economic transformations:

- Qualitative and quantitative curtailment of industries and other elements of the economic system that satisfy domestic demands;

- Structure shifts that lead to increase of extractive industries and low surplus value industries;

- Increase of dependence from food and goods import;

- Decrease of institutional and legal effectiveness;

- Lowering of control and management;

- Weakening of the financial system etc.

Thus, the degree of the involvement of the region into the international integration must be defined by finding the optimum point of stability, adaptation and the marginal benefit for the region from integration.

All the points situated in the AX interval show the decrease of stability of the regional economic system during the gross of marginal benefit of the region from the integration. All the points situated in the XB interval show the loss of the marginal benefit from the international integration of the border regions in order to sustain the existing economic system. The more strength of impact of external environment on economic stability is, the less developed the regional economic system is. So, the more curve is bent, the more competitive and compensational potential of the region is.

It's necessary to highlight the fact that despite stability the key concept of the scheme is the concept of the marginal benefit. The marginal benefit of the regional economic system is the (divergence) gap between private benefits determined by the economic agents and the public benefits under the influence of the external environment.

This contradiction is a particular case of the system entropy, which was studied by the scientist of the Cambridge economic school. According to the Arthur Cecil Pigou theory the level of the public welfare includes not only goods and services, but also environment, safety, working conditions, leisure and so on, that's why the change of the public welfare is possible without the change of the economic welfare of the society [9, p.147]. Pigou in his work “The Economics of Welfare” describes the cases when the enterprise activity has external effects that influence public welfare and harms public goods.

On the one hand, the marginal benefit from integration highlights economic interests of the economic agents to obtain the marginal income from the every extra item sold in the process of expanding the economic integration [5]. The regional government interest is to create economic and institutional conditions to provide the maximization of tax mobilization and inner demands satisfaction.

On the other hand, the imperfection of the legal, institutional and economic systems leads to the increase of negative external effects during getting the marginal benefit. Thus, the main goal of the government in this case is to prevent this increase of external effects that influence public welfare.

On the whole, the X-point is one of the interpretations of the Pareto optimum when the marginal benefit from integration doesn't make worse public welfare and doesn't increase the marginal expenses to sustain public welfare. This optimum is associated with optimum of extractive and processing industries, developed infrastructure, legal and institutional development.

The growth of global integration stimulates the development of the complementary industries of the border regions, common markets, letting each country to find its place in global trade system. However, international integration usually is very spontaneous and it doesn't always meet the strategic interests of all the participants of the process.

For instance, within the bounds of the complementary theory of Chinese scientists the Far Eastern regions of Russia are traditionally considered as the resources base for development of the old industrial regions of China. At the same time, Russian government hasn't developed the strategy of international cooperation of the Far Eastern regions and the regions of the Chinese North-East. Consequently, commission processing and installation, import of equipment for collective investment funds of international enterprises and so on have not been widespread yet [6, с.101].

Ferrous and non-ferrous metals, timber, fuel and energy export growth, goods nomenclature shrinkage prevails in foreign trade between the Far Eastern regions and China [1] (Picture 2).

Picture 2. Export structure between the Far Eastern regions and China

Besides, the share of foreign trade turnover of the Russian Far Eastern border regions with China in average has been 74 % for the Jewish Autonomous oblast, 70% for Amursk region (two regions that border only upon China), 47% for Khabarovsk Territory, 33% for Primorsk Territory.

Beginning from 1991 Amurskaya oblast has signed about 20 agreements with Heilongjiang province. One of the main agreements is “The agreement upon trade, economic, cultural relationships development and fortification between Amurskaya oblast and Heilongjiang province”. However, the most part of agreements have been pigeonholed. The most important federal level documents that define Russian-Chinese integration nowadays are “The Treaty on Good-Neighborliness, Friendship and Cooperation” [2], and “The Plan on realization of The Treaty on Good-Neighborliness, Friendship and Cooperation between RF and the CPR (2005 - 2008)” [8].

In contrast to Russian position China has developed a regional strategy, which defines the role of Heilongjiang province in the Russian-Chinese cooperation. Heilongjiang is the only Chinese province that is the most economically oriented towards Amurskaya oblast and other Far Eastern regions. Heilongjiang province belongs to central economic regions that have a specially developed economic program and beginning from 1990 realizes the police of “openness of the border regions”, the main goal of this policy is to export Chinese labor force, hi-techs and resources import [6, с. 43].

The Amursk region has been the hot spot for Heilongjiang for along time as the base for resolving its Heilongjiang inner economic problems, as Heilongjiang government tries to widen export to Amurskaya oblast and other Russian regions in order to increase the net of export industries and attract big industries from Central and Eastern China to modernize old enterprises and establish new ones [7, С. 26]. In this connection in 1998 Harbin export zone was founded in order to produce new product for Russian market and to develop technical and economic cooperation [6, с. 222]. Besides, the Institute of Russian studies of the Academy of Social sciences of Heilongjiang developed a strategy of trade and economic escalation with Russia. After that the law “On preferential policy in the Heihe border trade and economic zone” was promulgated in 2000 [4, с. 62].

As the result, Amurskaya oblast economy has come up with the resources oriented export and food and ready goods import dependence.

So, the evaluation of the management of international processes of the border regions is supposed to be based on the following assessments:

- Marginal benefit maximization from integration;

- External effects minimization;

- Legal and institutional systems optimization.

Literature and the sources

1. The Far East - Exports and imports // official website http://dvtu.customs.ru/ru/statistics/detail.php?id695=4096&i695 2007. (05.09.2008).

2. The Treaty on Good-Neighborliness, Friendship and Cooperation between RF and the CPR from 07/16/2001 № 9-FL // Legal system “Garant”.

3. E.A. Yerokhina Theory of economic development: system - synergy approach //http://orel.rsl.ru/nettext/economic/erohina/2-4.html

4. Ni JiangPing To the meeting of new development of the regional cooperation between China and Russia // A glance outside the frames of old problems: Russian - Chinese border cooperation experience. Slavic Research Center Occasional Papers. - Sapporo: Hokkaido university, 2005. - № 52. - 547 p.

5. History of economic thoughts. A series of lectures. -http://polbu.ru/economy_history/ch30_all.html

6. V.L. Larin In the shadow of the awaken dragon: Russian-Chinese relationships on the edge of the 20-21st centuries. - Vladivostok: Dalnauka, 2006. - 424 p.

7. Li Chuanyong Retrospective glance at the Far Eastern policy of Russia towards China and its future intentions // Zhongguo waijiao. - 2000. - № 6. - P.124.

8. The Plan on realization of The Treaty on Good-Neighborliness, Friendship and Cooperation between RF and the CPR (2005-2008) from 10/14/2004 // Legal system “Garant”.

9. Arthur Cecil Pigou. The Economics of Welfare. - London: Macmillan and Co. - 427 p.

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