REGIONAL PROTECTION IN RUSSIA: HARMFUL OR BENEFICIAL?
Evgenia Kolomak
Summary
The regional authorities in Russia acting on the request of the local business
groups interfere with local market price mechanism and provide protection.
This paper gives a brief description of the situation in Russia and propose
several steps towards resolving the problem.
Background
The transformation of the Russian political system in 1992 led to the establishment
of the real federation. The sub-federal level of government in Russia has
got a real political power. However the distribution of the responsibilities
between the levels of power was not optimal and sometimes interests of the
federal authorities and the regional ones contradict. Protection of the local
producers is one of the fields where interests of the country as a whole
do not correspond to the regional policy. As federal budget subsidies decreased
in Russia as regional authorities join more actively in supporting enterprises
Current situation
Regional leaders are inclined to interference in the regulation of local
economy everywhere in Russia. Almost all regional policy-makers base the
micro-management at their jurisdictions on protection of domestic enterprises
and on resistance to expansion of the external ones.
Tools of the regional regulation includes as direct (price ceiling, making-up
price, limitations on profitability, limitations on trade extra charge, declaration
about change in price) as indirect methods (tax exemptions, credits, subsidies,
budget compensations).
Documents adopted at the sub-federal level in Russia regulate prices and
tariffs on a wide range of regional state and private production. However
the level of subsidizing, providing tax exemptions and direct price regulation
differ essentially among the regions.
Views and concerns of the affected groups
One of the results of the regional regulation is disintegration of the internal
market in Russia, what makes difficult to realize a macroeconomic policy
in the country at the federal level. There are high thresholds for interregional
trade even for neighboring regions, what can not be explained by transport
costs. There are also observed diverged time series of price levels in the
regions. For instance, in 1998 variation of regional living earnings was
30,9%, in 1997 the variation of indexes of consumer prices was 10%, indexes
of electric power price – 18%, values of consumer basket – 47% and its share
in population’s money income – 50%.
Very often the regional authorities explain the price control, subsidizing
and granting tax exemptions to local producers by social imperatives: a possible
decline in the local enterprises, growth of unemployment and social tensions
in the region.
However several facts contradict to this thesis. A characteristic of the
regional budgets is high level of overdue for salary and transfers to population
(more 40%), the next item is overdue to infrastructure monopolies, supplying
public utilities (28%). Hence, the biggest part of burden, resulted form
regional policy is imposed on population.
Proposed actions
The political options that could improve the balance of the federal and regional
interests in the field of the protection of the local producers are as follows:
• to organize public discussions about scope of the regional
interference into market;
• to organize consultations and round table on the problem
of subsidizing among scientists, policymakers of the federal and regional
levels;
• to raise accountability of the regional authorities to
the population for the public financial resources;
• to raise public awareness about regional programs and
policy.