COURSE WORK
On the topic: “Economic growth and its models”
Is done by a student:
Facultyrecord book number
(Full name.)Scientific adviser:
(Full name.)| INTRODUCTION | 3 |
| 1. BASIC PROVISIONS OF THE THEORY OF ECONOMIC GROWTH. | |
| 1.1 Concept of economic growth | 5 |
| 1.2 Types of growth | 5 |
| 1.3 The problem of tempo | 6 |
| 8 | |
| 2.1 Resources for economic growth | 8 |
| 2.2 Multifactor model of economic growth | 9 |
| 2.3 Two-factor model of economic growth | 11 |
| 3 . CYCLICITY OF ECONOMIC DEVELOPMENT | 14 |
| 3.1 The essence of cyclicity | 14 |
| 3.2 Types of cycles | 14 |
| 3.3 Kondratiev long waves | 15 |
| 3.4 Cyclicity as a deviation from equilibrium and as a form of equilibrium. | |
| 4. V. LEONTIEV’S MODEL OF INTER-SECTORY BALANCE OF THE NATIONAL ECONOMY. | 18 |
| 4.1 Universal models of economic growth | 18 |
| 4.2 Input-output model | 19 |
| 5. REAL MODELS OF ECONOMIC GROWTH | 21 |
| 5.1 Keynesian models | 21 |
| 5.2 Domar model | 21 |
| 5.3 Harrod model | 22 |
| 5.4 Neoclassical models | 23 |
| 5.5 Production function | 23 |
| CONCLUSION | 25 |
| LIST OF REFERENCES USED | 28 |
| APPLICATION | 29 |
INTRODUCTION
The parameters of economic growth and their dynamics are widely used to characterize the development of national economies and in state regulation of the economy. The population evaluates the activities of the highest economic and political bodies of a particular country (for example, parliament, the President, the Government of the Russian Federation) primarily based on consideration of indicators of the dynamics of economic growth and the dynamics of living standards. Economic growth, its pace, quality and other indicators depend not only on the potential of the national economy, but to a large extent on foreign economic and foreign policy factors.
The relevance of the chosen topic is obvious, because Russia currently faces an urgent need to increase the rate of economic growth due to the backwardness of the national economy. Finding ways to achieve it is one of the priority problems for our country.
The object of study in this work is economic growth as a category of economic theory.
The subject of the study is the types, factors and models of economic growth.
The purpose of my research, I believe, is to identify the essence of economic growth and study the entire range of views of economists on the problem of economic development.
To achieve the goal, the following tasks are expected to be solved:
- in the theoretical part:
1. Identify the essence, types and factors of economic growth
2. Study models and resources of economic growth.
3. Identify the essence of the cyclical nature of economic development and types of cycles.
- in the analytical part:
1. Consider in detail the views of various economists.
2. Study V. Leontiev’s model of the intersectoral balance of the national economy
3. Consider real models of economic growth.
1. BASIC PROVISIONS OF THE THEORY OF ECONOMIC GROWTH.
1.1 Concept of economic growth
Economic growth is usually understood as an increase in the volume of goods and services created over a certain period. In some cases (for example, now in Russia), the increase may have a negative sign, which means a drop in production. Economic growth is usually measured relative to the previous period in percentage or absolute terms. In the case of single-product production, measurement in physical units may take place. The ultimate goal of economic growth is consumption and increased well-being. Their indicators are discussed above. In our country, for a long time, a significant portion of resources, to the detriment of the interests of the people, was directed to the needs of the army, the military-industrial complex and unjustified socio-economic projects, which caused damage to the domestic economy that was difficult to repair. At the same time, the increase in production of the military-industrial complex constituted a significant part of the increase in national production.
1.2 Types of growth
World economic history knows two main types of economic growth. Firstly, this is an extensive type. Its essence is that the national product is increased by attracting additional factors of production. Secondly, intensive economic growth, which is achieved through the use of more advanced production factors and technology, i.e. due to NTP. The result of intensification can be not only an increase in the volume of production, but also an increase in its quality.
Economic history does not know the intensive or extensive type of economic growth in its pure form. There is always predominantly intensive or extensive economic growth. The assignment of economic growth to one type or another is carried out depending on the size of the share of production growth obtained due to qualitative or quantitative changes in its factors. In the 70-80s. The increase in the national income of the USSR by only 20-30% was achieved due to intensive factors. The corresponding figure for industrialized countries was more than 50%.
1.3 The problem of tempo
Another classification of economic growth is possible: by the magnitude of its pace. Which rates are more profitable? At first glance, the answer is simple: it is better to have high rates. In this case, society will receive more products and it will have more opportunities to satisfy its needs. But there are two things to consider when answering this question. Firstly, what is the quality of the products. One can hardly rejoice if an increase in the production of, say, color televisions is achieved at the expense of devices, which then appear in the fire inspection reports as the cause of the fire. Secondly, the structure of production growth is important. If capital goods predominate in it and, accordingly, the share of goods for the population is insignificant, then this is of little good for the people. In previous years, the share of military equipment in the increase in production in our country was large. Therefore, although the volume of production increased, the standard of living of the people decreased or increased slightly. Relieving international tension makes it possible to solve the problem of demilitarizing the economy and improving people's lives.
Let's consider the option of zero economic growth rates. For a relatively short time, it does not threaten major negative consequences, since it can be carried out by reducing material consumption, increasing capital productivity and labor productivity. Another option is also possible when, as a result of reducing the costs of militarization, it is possible to reduce the output of military products.
As for the negative rates that are currently occurring in Russia, this is evidence of crisis processes in the country's national economy. The decline in economic growth in our country, which began in the 60s, is explained by a number of circumstances. Firstly, the high share of production, means of production and the huge amount of military equipment produced, the elimination of which today requires a lot of money. Secondly, the deterioration of the capital productivity indicator, i.e. removal of products from a unit of production assets. Thirdly, since the lion's share of production was directed to military needs, there was an ever-increasing shortage of mechanical engineering products to update existing production, which was aging morally and physically, losing its productivity and other necessary properties. Fourthly, this process intensified sharply, the pace became negative in the 90s due to the collapse of the USSR and the severance of decades of established economic ties between enterprises located in various union republics. This was compounded by the difficulties of the transition to a market economy.
In the future, when the crisis in the Russian economy is overcome and the country moves to normal development, the question of optimal rates of economic growth will arise. It seems that optimal rates should be based on the existing macroeconomic balance of the national economy and at the same time act as the most important means of ensuring it. They cannot be too high, because excessively high rates of development, as macroeconomics proves, inevitably lead to inflation. In general, it should be noted that this problem has not yet been developed in economic theory.
When assessing economic growth, its dynamics, rates and other indicators throughout the world (since 1993 and in the Russian Federation), the system of national accounts approved by UN bodies should be used.
To assess economic growth, welfare indicators such as life expectancy, amount of free time, etc. are becoming increasingly important.
2. MODELS OF ECONOMIC GROWTH
2.1 Resources for economic growth
The main factors (resources) of economic growth include labor, land, and capital. In turn, each of them is a set of “second order” factors. Thus, capital is buildings, structures, equipment, raw materials, fuel, etc., affecting the generated GNP to varying degrees. Capital can also include scientific and technological progress, the impact of which on the value and structure of GNP is constantly increasing. Of course, the aggregate demand of society should also be included among the external factors of economic growth, since it is this that acts as the “main locomotive” of economic growth, both in quantitative, structural and qualitative aspects. Obviously, all factors, with the exception of aggregate demand, are supply factors.
Section 3. Macroeconomics
Topic 7. Dynamics of economic development
3.7.3. Models of economic growth
The development of growth theory is carried out by economists of various directions.
In modern economics, there are three main areas of modeling economic growth:
1. Keynesian models of economic growth;
2. neoclassical models;
3. historical and sociological models.
1. Keynesian models are based on the dominant role of demand in ensuring macroeconomic equilibrium. The decisive element is investment, which increases profits through a multiplier. The simplest Keynesian growth model is the E. Domar model - this model is a single-factor (demand) and single-product model. Therefore, it only takes into account investments and one product. According to this theory, there is an equilibrium rate of growth of real income at which production capacity is used. It is directly proportional to the rate of savings and the marginal productivity of capital. Investments and income grow at an equally constant rate over time.
R. Harrod's model: economic growth rates are a function of the ratio of income growth and capital investment.
2. Neoclassical models consider economic growth from the point of view of factors of production (supply). The basic premise of this model is the assumption that each factor of production provides a share of the product produced. This model is called a production function: the volume of product is determined equal to the sum of the products of each factor and its marginal product. Thus, economic growth is the total result of such interchangeable factors: labor, capital, land and entrepreneurship.
3. Historical and sociological models.
R. Solow identified the stages of economic growth:
1. class society:
Static equilibrium of the economic system;
Limiting the possibility of using scientific and technological progress;
Falling per capita income.
2. creating conditions for increasing growth by increasing production efficiency.
3. take-off stage– due to the increase in the share of investment in national income. All achievements of science and technology are actively used.
4. mature society(path to maturity):
High rates of economic growth, in which production growth outstrips population growth.
5. society of high mass consumption:
Durable goods.
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Economic growth, its modeling, taking into account the state of the environment and social sphere in economic and mathematical models
Models of economic growth are widely represented in economic research. Based on these models, various problems of analyzing and forecasting the development of national economies are solved.
Modern models of economic growth take into account the possibility of investing not only in physical capital, but also in a number of other production resources. This is due to the recognition that increasing the efficiency of use of production resources is facilitated by a large number of technological, organizational and other factors, the totality of which is covered by the concept of scientific and technological progress (STP).
In addition, in recent years, more and more works have appeared that examine how production growth affects the environmental situation, how the environment affects the possibility of growth, and how the level of economic development is related to various indicators characterizing the state of the social sphere. However, due attention is not paid to the mutual influence of the economy, ecology and social sphere, despite the desire of many countries of the world for sustainable development, which is understood as development that satisfies the needs of both present and future generations for economic and environmental benefits. This means growing gross domestic product (GDP) while reducing anthropogenic pressure on the environment. The concept of sustainable development also includes the problems of reducing the gap in the levels of economic development of different countries and the well-being of their population, security, etc.
Solving these problems requires the use of methods of economic and mathematical modeling of economic growth, taking into account environmental and social factors.
Exogenous – external; endogenous - internal.
Development of economic growth models
The theory of economic growth has experienced three main waves of development. The first was associated with the work of E. Lundberg and developed by Harrod and Domar. These works appeared in the late 30s and 40s. In the mid-50s, the emergence of the neoclassical growth model of Solow and Swan caused a second, longer wave of interest among economic researchers in this topic. The third wave of research began in the mid-1980s with the work of Romer and Lucas and continues to the present day.
Harrod and Domar attempted to combine Keynesian analysis with elements of economic growth. They used production functions with low substitutability of factors to argue that the capitalist system is inherently unstable. Because they wrote during and immediately after the Great Depression, their arguments were accepted by many economists. Their results played a role in the development of the theory, but their analysis is very rarely used nowadays.
The next and more important development comes from Solow and Swan, who published their work in 1956. A key aspect of the Solow-Swan model is the neoclassical form of the production function, which assumes constant returns to scale, diminishing returns to each factor, and a positive elasticity of factor substitution. This production function, together with the constant rate of accumulation, is used to create the simplest general equilibrium model of the economy.
One of the implications of this model has only come into use as an empirical hypothesis in recent years. We are talking about conditional convergence. A lower starting level of real GDP per capita relative to the long-run or equilibrium state causes a higher growth rate. This property follows from the assumption of diminishing returns to capital. Economies with less capital per worker tend to have higher growth rates. The convergence of the relative equilibrium level of capital and output per unit of labor depends in the Solow-Swan model on the rate of accumulation, the rate of population growth and the state of the production function, i.e. characteristics that may vary from economy to economy. Modern research allows us to take into account differences between countries, especially in public policies and the initial state of human capital. However, the concept of conditional convergence, a core property of the Solow-Swan model, largely explains economic growth in different countries and regions.
Another consequence of the Solow-Swan model is that since technology does not improve indefinitely, growth (in terms of capital-to-weight ratio) must gradually cease. This is also a consequence of diminishing returns on capital.
Neoclassical growth theorists of the late 50s and early 60s. recognized such modeling as insufficient and often supplemented it with the assumption of the exogeneity of scientific and technological progress. This made it possible to talk about a positive, possibly constant, growth rate in the long term, and this growth depends on the rate of scientific and technological progress, which is determined outside the model.
Perhaps due to its lack of empirical relevance, growth theory virtually ceased to develop as an area of active research in the early 1970s. on the eve of the revolution of rational expectations and oil shocks. For about fifteen years, the development of macroeconomics has focused on short-term fluctuations. Major advances included the integration of rational expectations into business cycle theory, improved approaches to political development, and the application of general equilibrium analysis techniques to real business cycle theory.
Since the mid-1980s, the study of economic growth has experienced a new boom, beginning with the work of Romer and Lucas. The reason for this is that the factors determining long-term economic growth are much more important than the mechanism of the business cycle or the results of government monetary or fiscal policies aimed at counteracting cyclical fluctuations. But recognizing the importance of long-term growth is only the first step. To go further, it is necessary to avoid the limitations of the neoclassical growth model, in which the rate of long-term growth of the capital-labor ratio is tied to the rate of exogenous scientific and technological progress. Thus, it is necessary that new advances determine the long-term growth rate within the model. Therefore, the creation of endogenous growth models is required.
New research also includes models of technology diffusion. Since discoveries are made primarily in more developed countries, the study of diffusion raises the question of how other economies imitate these discoveries. Since imitation is cheaper than innovation, a form of conditional convergence emerges from diffusion models similar to that arising from the neoclassical model.
Another key exogenous parameter in the neoclassical growth model is the population growth rate. A higher rate of population growth reduces the equilibrium level of capital and output per unit of labor and thus reduces the growth rate of the capital-labor ratio for a given level of output. However, the standard model does not address the impact of returns on capital and wage rates on population growth. Other researchers address endogenous population growth by incorporating an analysis of household childbearing choices into a neoclassical model. Works have also been published that examine the endogenous growth of the labor force as a result of migration and the choice of workers in favor of work or leisure.
Theoretical conclusions from the presented growth models with endogenous technological progress are confirmed by many trends in world development associated with the deepening of globalization processes. At the same time, vulnerabilities of the new theory have been identified, especially in connection with “economies of scale”, which are not confirmed by empirical data at the country level. This concerns, in particular, the dependence of growth rates on the number of specialists employed in the field of R&D predicted in these models.
Fundamental or underlying sources of growth include variables that affect the ability of a national economy to accumulate factors of production and invest in knowledge production. Factors influencing economic growth include population growth, the state of the financial sector and the environment, natural resources, trade rules, the size of the state, and indicators of political and social development. In addition, a number of researchers Abramowitz, Dawson, Baumol and others consider the influence of such factors as the institutional structure of the economy, “social potential”, “social infrastructure” or “auxiliary variables”. Many authors consider human capital as a key factor in economic growth.
The history of the development of economics and economic science is associated with the attempts of economists to understand and explain the reasons for the dynamic or restraining development of economic systems, the growth of well-being of some and the poverty of others. This is reflected in the development of various theories and models of economic growth.
Economic growth models, like any models, are an abstract, simplified expression of the real economic process in the form of equations, graphs, tables, etc. A number of assumptions that precede each model initially move the result away from real processes, but, nevertheless, make it possible to analyze individual aspects and patterns of such a complex phenomenon as economic growth.
Compared to statistical equilibrium models designed to determine the conditions for achieving an equilibrium state, the purpose of developing an equilibrium model of economic growth is to determine the conditions under which it is possible to maintain balance during the development process. These are the so-called trend trajectories along which, deviating in one direction or another, the real economy moves.
Equilibrium growth models distinguish between stable and unstable development trajectories. Stable trajectories- these are equilibrium trajectories, deviating from which the economy returns to equilibrium again after a certain period of development. Unstable trajectories- these are equilibrium trajectories of balanced growth along which the economy, once reaching equilibrium, can move for as long as desired if its internal structure or initial conditions of development do not change.
Equilibrium growth models are designed to study the properties of equilibrium trajectories(their stability or instability), as well as to determine the conditions that return the economic system, to the equilibrium trajectory in case of deviation. These models should be distinguished from growth models forecast-oriented trends changes in real economic systems.
The main purpose of developing economic growth models is that, on the one hand, analytical work is carried out on their basis, and on the other hand, they make it possible to predict macroeconomic processes.
The first developments of macroeconomic models of economic growth date back to 1758, when F. Quesnay created his “Economic Tables”, in which he first put forward the concept of “product of society”, showed its movement between the main classes (tenant farmers, artisans and traders, landowners ); expressed the idea of the existence of an “economic surplus”, which was appropriated by the king and the church.
A. Smith, D. Ricardo, K. Marx, despite different approaches, considered capital as a decisive role in the theory of economic growth.
In modern economic literature, the following main models of economic growth are distinguished:
Neo-Keynesian,
Neoclassical,
- “input - output”.
1. Neo-Keynesian models.
E. Domar, an American economist and G. Harrod, an English economist, leading theorists of the neo-Keynesian direction, developed the theory of D. Keynes, studied the problems of the dynamics of aggregate demand, the use of investment, and the concept of the multiplier. They proceeded from the main idea of Keynes, developed by him in his work “The General Theory of Employment, Interest and Money,” which defined the dominant role of demand in ensuring macroeconomic development. The decisive element of demand is investment, which increases profits through a multiplier. At the same time, they themselves (demand, investments) are caused by an increase in profits, since capital investments are a function of increasing profits.
Model of economic growth by E. Domara
Considering a model in which investment is not only a factor in creating income, but also new production capacity. The dynamic balance of supply and demand is determined by the dynamics of capital investments, which create new capacities and new incomes. Therefore, the task comes down to determining the volume and dynamics of investment. Domar proposed a system of three equations for the solution: the supply equation, the demand equation, and the supply and demand equation together.
Supply equation: dx = I×G, where dx is the increase in production, I is the volume of capital investments, G is the average productivity of capital investments.
Demand equation: M = , where a is the average propensity to save, the inverse of which determines the value of the multiplier, I is the volume of investment.
This equation takes into account only the increase in investment. The basic equation of macroeconomic growth is the equality between income growth and production growth: Based on it, we obtain the rate of increase in capital investment. The Domar model is single-factor and single-product. It takes into account only investments and one product.
R. Harrod's model of economic growth.
R. Harrod's model is a development of E. Domar's model. As in it, in the Harrod model the rate of balanced growth is a function of the ratio of income growth and capital investment. This gave rise to calling these models Harrod-Domar models. At the same time, if the Domar model is based on the use of the multiplier principle, then the Harrod model is based on the accelerator principle, which consists in the fact that investment growth is accelerated compared to the growth of national income and consumer demand. Each increase in income generates a large increase in new investments:
,
where a is the accelerator, is new investment for a given period of time,
– income for a given period, – income for the previous period.
Thus, the increase in investment is equal to the product of the increase in income and the accelerator:
Harrod's model shows that by setting the savings rate (the share of income going to savings) at the proper level, sustainable economic growth can be achieved for an unlimited future.
2. Neoclassical models.
Neoclassical models of economic growth are constructed from a production function and are based on the assumptions of full employment, price flexibility in all markets, and complete substitutability of factors of production.
Cobb-Douglas production function model.
The model was created by the American economist P. Douglas and the American mathematician H. Cobba. The most important features of the Cobb-Douglas function are formed as follows:
1. It is assumed that profit and unit costs are constant, there is no accumulation, the sum of the elasticity of production (labor and capital) is equal to one. The degree of interchangeability of factors ranges from 0 to 1 and is usually less than one. The limits of interchangeability are set by this level of technical development;
2. unlimited replacement of labor with capital is theoretically possible;
3. The function does not take into account changes in the quality of production factors. The function is acceptable only for extensive economic growth.
The Cobb-Douglas function is obtained as a result of a mathematical transformation of the simplest production function Y=F(L,) into a model that shows what share of the total product is rewarded to the production factor involved in its creation. It looks like this:
Y = A, where a varies from 0 to 1, and β = l-a
Parameter A– a coefficient reflecting the level of technological production and in the short term it does not change.
Indicatorsa and β– coefficients of elasticity of output volumes (V) by production factor, that is, by capital (K) and labor (L), respectively. Moreover, if each of the factors is paid in accordance with its marginal product, then a and β show the shares of capital and labor in total income. That is, if the price of capital is equal to the marginal product of capital, and the price of labor is equal to the marginal product of labor, then the parameters a and β determine the proportion in which labor and capital receive their reward for the created product, that is, the share of capital in income AV and the share of labor in income βV.
Basic properties of the Cobb-Douglas production function:
First property– constancy of returns to scale, that is, if you increase the use of capital and labor N times, then the volume of total output, or the volume of income, increases by the same number of times.
Second property– is associated with a change in the marginal productivity of factors. If an additional amount of capital K is attracted into production, and labor L is used in the same volume, then, other things being equal, the marginal productivity of labor will increase, and the marginal productivity of the increased volume of capital will decrease. If we increase the amount of labor, other things being equal, then its marginal productivity will decrease, and the marginal productivity of capital will increase. Thus, a violation of the proportion between labor and capital for a given technology leads to a deviation from the optimal volume of production, that is, to its inefficiency.
Third property– the constancy of the ratio of income from labor to income from capital (), that is, the constancy of the ratio of the share of capital and labor in the national product.
Neoclassical models substantiate the sustainability of equilibrium growth over a long period. In them, the main methodological prerequisites are the presence of perfect competition, the automatic restoration of the general macroeconomic equilibrium due to price flexibility, the maintenance of full employment and the full use of production capacities, allowing the economy to develop at a pace determined by the dynamics of production factors.
R. Solow's model of economic growth
The model reveals the mechanism of influence of savings, growth of labor resources and scientific and technological progress on the standard of living of the population and its dynamics. The model is simple because it represents only households and firms.
The model uses the Cobb-Douglas production function, in which labor and capital are sub-institutions, determines the ratio of these factors and shows its change in the process of economic growth. Other prerequisites for analysis in the Solow model are:
Diminishing marginal productivity of capital;
Constant returns to price scale;
Constant disposal rate;
No investment lags;
A necessary condition for the equilibrium state of an economic system is the equality of aggregate demand and aggregate supply.
Solow proposed a formula known in modern economics as the “golden rule of accumulation.” In accordance with it, the retirement of capital cannot (should not be) greater than the marginal product created by functioning capital. The outflow of capital cannot (should not) be greater than the marginal propensity to invest.
The “Golden Rule” shows the level of capital-labor ratio that is optimal (under given conditions) for consumption (max 
).
The “Golden Rule” defines the stock of capital required for a steady state economy with the highest level of consumption. The highest consumption is determined not by the amount (as much as possible) of capital, but by its optimal size. In a steady state, investment equals depreciation coverage.
Practical conclusions:
1. A direct relationship has been determined between S (savings) → I (investment) → K (capital) → Q (GDP) in the long term.
2. Optimum C (consumption) is a function, but to achieve the optimum, investments are necessary, that is, consumption restrictions (C) and government incentives (I).
3. The equilibrium S = I is violated in practice, since the factors that determine S do not coincide with the factors on which I depends.
4. The formula S = gx, where g is the natural increase in labor costs, is the capital-labor ratio while maintaining the same proportion between K and Q, can be transformed g=. The increase in labor costs should not exceed the limits set by S and. The higher, other conditions being constant, the population growth (labor supply), the lower the volume of Q per employee.
5. If consumption is carried out at the expense of investment, then this threatens to curtail GDP output. The output is associated with the prospects of technological progress, in the unclaimed potential of resources.
3. Input-output model
American economist of Russian origin V. Leontiev, a representative of neoclassicism, winner of the Nobel Prize in Economics (1973), first developed the “input-output” model, which was called the input-output model and Leontief-type model. It is based on the method of economic and mathematical analysis “input - output” developed by him, the use of which made it possible to study inter-industry relationships and interdependencies between sectors of the economy, which can manifest themselves in the mutual influence of prices, production volume, investments, income, etc.
Analysis using the input-output method is associated with the construction of chess tables (chess balances). They assume that the manufactured product is divided into intermediate and final according to its natural material structure. Depending on how the composition of the final product is taken into account, the model may (or may not) reflect the volume of investment, and therefore reproductive capabilities in future periods, that is, models may take into account the time factor in the dynamic type or not take into account the statistical type.
Currently, reporting interindustry balances, together with the system of national accounts, form the basis for analytical calculations. With their help, specific economic problems are studied:
Economic structure and economic growth rate;
The relationship between possible changes in taxes, wages, prices and profits;
Intersectoral production connections and the most important economic proportions in the economy.
Models can be used to assess the impact of different economic policy options on economic growth.
A model is a formal scheme for analyzing real life, allowing one to understand the economic connections between phenomena in order to develop economic forecasts.
There are two-sector and multi-sector models of economic growth.
The two-sector economic growth model is a model of economic growth built on the assumption that only two factors - capital and labor - are involved in creating the gross national product. The first to propose a two-sector model were American economists C. Cobb and P. Douglas. According to this model, an increase in the means of production, capital, in relation to a fixed amount of labor in the absence of technological changes will lead to a fall in the rate of profit on capital, as well as to a decrease in the real interest rate while simultaneously increasing real wages and production volume. This model is simplified because it does not take into account the influence of technological progress.
Later, R. Solow's production function appeared. In it, the Cobb-Douglas production function is supplemented by another very important factor - technical progress. According to this function, in the absence of technical progress, the economic system reaches a stable state in which only simple reproduction is possible.
In modern conditions, it is impossible not to take into account the third – natural – factor of production. Therefore, a three-factor model of economic growth appears to be more accurate, which takes into account all three factors of production, as well as scientific and technological progress.
Multifactor model assumes the impact on growth of all factors of economic growth.
12.4. Problems of economic growth in Russia
Russia has seen some improvements in a number of areas of development. There is an increase in the gross domestic product, and there are improvements in industrial development. Investments have increased and inflation has slightly decreased. There are some positive changes in the social sphere: wages, pensions, benefits have increased, and in general there is an increase in cash income on average per capita. There has been some success in implementing priority national projects.
Meanwhile, one cannot help but notice that, despite individual improvements in a number of areas, in general, fundamental and qualitative changes in the economy and social sphere have not occurred recently.
Problems of ensuring economic growth in Russia:
To increase the rate of economic growth in Russia, an effective state is needed that will ensure:
– improving the investment climate and the emergence of a diversified economy in order to reduce excessive dependence on the oil and gas sectors;
– financial sector reform to promote effective intermediation between savers and investors and reduce the influence of state-owned banks and radically strengthen banking supervision, corporate governance and creditor rights;
– displacement of ineffective enterprises from all spheres under the influence of competition;
– further liberalization of foreign trade and elaboration of issues related to accession to the WTO and globalization of the world economy;
– public administration reform to eliminate corruption and improve state support for innovation and the competitiveness of the Russian economy: direct government intervention should not dominate in solving problems of increasing economic growth rates.
In a modern economy, it is necessary to increase economic growth through:
– development of manufacturing industries that influence the increase in production efficiency and product competitiveness;
– ensuring favorable legal, economic and financial conditions for the activation of innovative activities;
– development of a system of venture investment and insurance of innovation risks;
– reorganization and closure of inefficiently operating organizations;
– restructuring of some industry research and design institutes into engineering organizations with a developed financial, economic, marketing and commercial structure;
– protection of intellectual property rights.
conclusions
1. Economic growth is an increase in GDP per capita, a process that occurs at the production stage, becomes sustainable at other stages of social production, leads to quantitative and qualitative changes in the productive forces, an increase in the social product over a certain period of time and an increase in people's well-being.
2. There are two main types of economic growth: extensive and intensive. Economic extensive growth is an increase in GNP due to an increase in the number of production factors used, i.e., more factories, land. GNP (the country's output of material goods) can be increased even in the short term if it is possible to use idle resources. Economic intensive growth is an increase in GNP due to the introduction of new equipment and technology.
three ways:
– an increase in real GNP over a certain period of time, for example, over a year;
– an increase in real GNP per capita;
– annual growth rate of GNP as a percentage.
4. Economic growth is determined by a number of factors. Main factors of economic growth:
– growth in the quantity and quality of labor or human resources;
– increase in fixed capital;
- technical progress;
– new in the management system;
– development of natural resources.
5. There is a division of factors depending on the nature of growth into intensive and extensive.
TO extensive growth factors include:
– increasing the volume of investment while maintaining the existing level of technology;
– increase in the number of employed workers;
– growth in volumes of consumed raw materials, materials and other elements of working capital.
TO intense growth factors include:
– acceleration of scientific and technological progress (introduction of new equipment, technologies by updating fixed assets, etc.);
– advanced training of employees;
– improving the use of fixed and working capital;
– increasing the efficiency of business activities due to its better organization.
6. There are single-sector, two-sector and multi-sector models of economic growth.
The two-sector economic growth model is a model of economic growth built on the assumption that only two factors - capital and labor - are involved in creating the gross national product.
The three-factor model of economic growth takes into account all three factors of production, as well as scientific and technological progress.
7. Problems of ensuring economic growth in Russia:
– reduction in industrial production. The main growth of the economy and exports still relies on the extractive industries, which gives only a formal reason to talk about any success;
– problems continue in agricultural production;
– the country receives a small amount of foreign investment;
– in most modern market economies, small and medium-sized enterprises (no more than 50 employees) are the main driving force of development, competition and innovation processes. Government support for small businesses is required for their active development:
– further reform of the tax system and radical changes in the field of tax administration are necessary;
– corruption. The fight against corruption in modern conditions is turning into a necessary and quite powerful factor in accelerating economic growth in the country;
– inflation brings depreciation not only of the currency, but also of incentives to work, and of the entire system of macroeconomic regulation as a whole.
Basic terms
Issues for discussion
1. What is economic growth? Give a definition.
2. Name the two main types of economic growth.
3. Economic growth can be measured three ways. Name them.
4. Name the main factors of economic growth.
5. Name the models of economic growth.
6. What is a two-factor model?
7. What is the three-factor model?
8 What is a multifactor model?
9. Name the problems of ensuring economic growth in Russia.
Tests
1. The law of diminishing productivity of factors of production operates in economics. How is economic growth maintained under these conditions?
a) less and less production resources will be required;
b) more and more resources will be required;
c) the increase in additional resources will not increase, but rather decrease the total volume of production?
2. An increase in the volume of production resources expands society’s capabilities to:
a) improvement of production technology;
b) increasing the standard of living;
c) increasing the production of goods and services.
3. In the long run, the level of output is determined by:
a) preferences of the population;
b) the amount of aggregate demand and its dynamics;
c) the amount of capital and labor, as well as the technology used.
4. What is meant by the category “extensive factors”:
a) growth in labor productivity;
b) reduction of labor resources;
c) an increase in the volume of investment while maintaining the existing level of production technology?
5. Intensive factors include:
a) expansion of production capacity;
b) growth in labor productivity;
c) decrease in capital productivity.
Literature
1. Economic theory: textbook for universities / ed.: A. I. Dobrynin, L. S. Tarasevich. − 4th ed. – St. Petersburg: Peter, 2010. – 560 pp.: ill. – (Ser. “Textbook for universities”).
2. Course of economic theory: textbook. / under. ed.: M. N. Chepurina, E. A. Kiseleva. – 5th ed. corr., add. and processed – Kirov: ASA, 2006. – 832 p.
3. Economic theory: textbook. manual / edited by A. G. Gryaznova and V. M. Sokolinsky. – 2nd ed., revised. and additional – M.: KNORUS, 2005. – 464 p.: ill.
The mechanism of state regulation.
Financial policy
13.1. The role of the state in a market economy.
13.2. Finance and financial system of the state.
13.3. Taxes and tax system.
13.4. State budget and public debt.
13.5. Fiscal policy of the state.
13.1. The role of the state in a market economy
In a broad sense, the role of the state in regulating a market economy is to distribute the macroeconomic impact of the political system on the national economy.
Ideas about the role of the state and the degree of its impact on the country's economy have a long history. It should be noted that the role and functions of the state have changed with the development of the market economy itself.
Historically, the first concept of the role of the state in a market economy is the concept of the classics of the political economy of capitalism. Many prominent economists of the 19th and early 20th centuries who entered the history of economic thought as representatives of classical political economy(David Ricardo, John Stuart Mill, Alfred Marshall, etc.), believed that the market system is capable of ensuring the full use of resources in the economy. From the point of view of the classics, such levers of market regulation as fluctuations in the interest rate, on the one hand, and the elasticity of the price-wage ratio, on the other hand, are capable of maintaining full employment and that, acting together, these two regulatory mechanisms have transformed the full employment of available resources into inevitability. They began to perceive capitalism as a self-regulating economy in which full employment is considered the norm. State assistance in the functioning of the economy was considered unnecessary and even harmful. The logic of classical theory led to the conclusion that the most acceptable economic policy was state non-intervention.
A. Smith, in particular, argued that the desire of producers to achieve their private economic interests and the presence of competition on the market from counterparties constitutes the main mechanism for the development of a market economy, which leads to an increase in the wealth of each commodity producer and society as a whole.
In the economic sense, state intervention at the early stage of the development of capitalism was reduced to two main functions: legislative protection of private property rights and independence of decision-making, i.e. protection of freedom of economic choice. The economic role of the state in the 18th–19th centuries consisted of protecting these primary rights.
The end of the 19th century was characterized by a deepening of the social division of labor under the influence of the acceleration of the pace of scientific and technological progress and the emergence of new industries. To ensure the normal functioning of individual capital, a need arose for coordination and anti-crisis regulation.
World crisis 1929–1933 and the Great Depression forced us to reconsider the classical theory of the role of the state in a market economy.
In 1936, the largest English economist John Maynard Keynes after the end of the Great Depression of the 30s, he developed a comprehensively substantiated theory of the objective need for government intervention in the market economy. J. Keynes identified the relationships between the main macroeconomic indicators and took practical measures to implement them through government decisions, while putting forward a new explanation for the level of employment in a capitalist economy. According to this theory, under capitalism there simply was no mechanism to guarantee full employment, full employment is more random than regular, and capitalism is not a self-regulating system capable of endless prosperity. Thus, J.M. Keynes in his works laid the theoretical foundations of macroeconomics, or the national economy - the sphere of state activity.
Representatives of modern economic thought believe that the economy cannot govern itself, without government intervention, even if it is guided by the omnipresent and “invisible hand” of personal gain.
In a modern market economy, there are many reasons that create an objective need for government intervention to prevent or mitigate the negative impact of the market. All these reasons are related to the very essence of a market economy and its imperfections.
As you know, there are economic problems that are commonly called market fiascos (failures, insolvency), that is, situations when the market (price) mechanism cannot effectively allocate resources. First of all, market forces are not enough to maintain such a volume of national production that would ensure full employment of the production resources available in the economy, as well as to maintain a stable price level. In this case, it is necessary to use the mechanism of state regulation.
A market free from any kind of government intervention can only be a theoretical abstraction. The economic reality is that the state is an active participant in market relations. Already during the period of free competition, a significant part of the productive forces outgrew the framework of classical private property and the state was forced to take upon itself the maintenance of large economic structures: railways, post office, telegraph, etc.
In conditions of monopolistic competition, when production began to be characterized by great complexity, capital and energy intensity, the monopolies themselves turned out to be interested in strengthening the regulatory role of the state and in its constant support in the domestic and foreign markets. Today's efforts at interstate integration lead to the fact that common economic processes transcend national borders and form new socio-economic tasks related to defense, science, ecology, and reproduction of the labor force. The market mechanism is not able to solve all the problems of economic growth. Along with the driving forces, it also contains elements that hinder economic development. This was observed before, when equilibrium in the economy was achieved with underemployment of resources and, above all, labor.
A decrease in production, mass unemployment, depreciation of money, and an increase in crime have a negative impact on the bulk of the country's population, causing an increase in social tension. Thanks to government intervention (redistribution of income, flexible financial policy, development of state entrepreneurship, etc.), the economic crisis of 1929–1933 was the last destructive socio-economic phenomenon in the global economy of the 20th century.
The state today is able to modify the economic cycle, reduce the depressive phase of the cycle to a minimum, and reduce economic losses. In the 21st century, the importance of government intervention in the socio-economic life of society is increasing, acquiring new features. The 21st century is the century of humanity’s entry into the post-industrial era of development with its new productive resources - information and knowledge, the formation of a new factor of production - intellectual capital. In connection with new trends in the socio-economic development of the world economy, national states, along with traditionally performed functions (redistribution of income through taxes and transfers, maintaining the stability of the country's monetary system, reducing inflation and unemployment, etc.), are called upon to increase investment and its influence on the development of fundamental research, infrastructure and education (especially higher and higher education).
The active participation of the state in economic life is due to the following main reasons:
Firstly, this is required by the “core” of the market mechanism – competition. The development of monopolies undermines the competitive nature of the market economy, negatively affects the solution of macroeconomic problems, and leads to a decrease in the efficiency of social production. Therefore, the omnipotence of monopolies must be opposed by legislative and other anti-monopoly activities of the state.
The first experience of organized antitrust activity by the state began with the adoption of antitrust legislation in the United States in 1890 (the “Sherman Act”). Later, similar laws appeared in other countries. Antimonopoly legislation is aimed at maintaining a production structure that would allow it to remain competitive.
Secondly, there have always been types of production that “reject” the market mechanism. First of all, this is production with a long payback period for capital, which society cannot do without, and the results of which cannot be measured in monetary form, for example: fundamental science, maintaining the country's defense capability, maintaining law and order, maintaining the disabled, organizing education, healthcare, creating and maintaining normal functioning of the general economic structure (money circulation, customs control, etc.).
Third, there are reasons arising from the limited capabilities of market self-regulators: ensuring balance in the economic system, maintaining employment at the required level, legal support for the functioning of the market mechanism, developing the theory of public choice and principles of rational economic behavior.
In economic development, the state is called upon to correct those shortcomings that are inherent in the market mechanism. The market does not contribute to the conservation of non-renewable resources, environmental protection, and cannot regulate the use of resources that belong to all of humanity (the fish resources of the ocean). The market has always been focused on satisfying the needs of those who have money.
To summarize, we can say that the strengthening of the economic role of the state in a market economy is associated, as a rule, with “failures” and “fiascoes” of the market - cases when the market mechanism does not ensure the effective use of limited resources of society. Market failures include, in particular:
Monopolization (transition from a market of perfect to imperfect market competition);
Failure to conserve non-renewable resources and protect the environment;
Irrational distribution of society's resources;
Lack of market interest in the production of public goods;
Unevenness in income distribution;
Instability of macroeconomic development.
Market “failures”, as well as a number of external factors (the existence in the recent past of socialist countries, the collapse of the world colonial system, increased competition in world markets) led to the increased participation of the state in the economic life of society.
Based on the above, the need for government intervention in a modern market economy should be based on the principles of protecting national socio-economic interests and the interests of society as a whole.
What indicators are used to evaluate the scale of economic activity of the state? There are several opinions on this issue. For example, in a course on Marxist political economy it is customary to use mainly statistical data on the share of employees in state-owned enterprises and on the share of products of state-owned enterprises in the total volume of goods produced.
In modern science this approach is not rejected, but it does not enjoy due authority. The most representative indicator is the share of government spending in GDP, the so-called government quota. At the same time, the idea is taken as a basis that the full scope of the state’s activities is most fully reflected in the scale of its financial costs realized through the budget. Purely production activities of state enterprises do not completely reflect the entire sphere of economic activity of the state (for example, in the social field).
Various definitions are given in the economic literature economic policy.The broadest concept of this economic category comes down to the fact that economic policy is usually understood as a strategy of behavior of all government structures developed by the state, aimed at achieving the socio-economic goals set for them.
Under the concept "subject of economic policy" usually means the state itself. This view is simplistic. Economic theory takes a broader approach. There are several subjects of economic policy. These include the following:
1. State: endowed with power precisely so that it can connect the interests of various groups with each other, encourage them to be active in order to achieve certain common goals. Within the framework of the state management system, there is a division of power functions. At the parliamentary level, the main directions of economic policy are discussed and approved in principle. The executive branch – the government – is responsible for its implementation. It, in turn, transfers the rights (and tasks) to implement policies to institutional bodies. The nature of the division of functions depends on the type of organizational and political structure of the state itself. As is known, it can have federal, confederal, centralized and other structures. In the federation, it is customary to distinguish three levels of subjects of economic policy: federal, regional and local.
2. Regional and local institutional formations included in the state.
3. Non-state unions, associations: these include various associations that express the interests of certain layers and groups of the population. These are, first of all, trade unions, entrepreneurs' unions, cooperatives, etc. Religious and cultural organizations also play a certain (albeit rather modest) role in implementing the social aspects of economic policy.
It is necessary to pay attention to the fact that the mode of action of these subjects is different. The state is vested with political and economic power. Unions and associations can rely only on their economic strength - they have no legislative power.
Objects of state regulation are:
– economic cycle;
– sectoral and regional structure of the economy;
– conditions for capital accumulation;
– employment and prices;
- money turnover;
– conditions of competition;
– state of the environment;
– foreign economic relations, etc.
The main goal The economic policy of any state is to achieve the well-being of the country's population, increase its income and, accordingly, consumption.
There is a group of economic theories called the theory of economic welfare. Its supporters make attempts to define the concept of well-being, which seems very difficult, since the assessment of this category by an individual is largely subjective. There are economic welfare, social welfare and welfare state.
Economic well-being– this is that part of well-being that is determined by the consumption of goods and services. According to A. Pigou, this part can be expressed in monetary terms and, therefore, objectively assessed.
Public Welfare– the well-being of society as a collection of individuals and groups. Unlike the economic one, it includes a subjective, individual-evaluative side.
Welfare State– a state where the government’s main goal of economic policy is to achieve well-being for each member of society.
Welfare is also studied using the welfare function, which is a variant of the utility function:
U = U(X, Y, Z, …),
where X, Y, Z are the quantities of goods consumed.
In addition to the main goal of economic policy, there is a set of second level goals, which include:
– free development of society;
– legal order;
– external and internal security.
Achieving these goals provides the fundamental, so-called framework conditions for the existence of a market-oriented society.
The subgroup classification of the main goals has changed over time. The first, which became a “classic”, was given by A. Smith. Based on the works of F. Bacon and V. Petty, he put forward the following list of goals:
1) ensuring safety in relation to the external environment;
2) creation of a legal order;
3) state provision of infrastructure.
Subsequently, economists developed this classification, making it much more extensive. It is significant that goals related to the free development of society are now put in first place.
Having considered the main goals of economic policy, let us turn to the totality practically oriented goals. They represent methods of achieving the highest goal - ensuring the well-being of the nation. In practice, they are implemented as a desire for maximum GDP growth. The task of the state is to pursue an economic policy such that the scale and proportions of the generated GDP are optimal to the greatest extent possible.
However, in real practice, focusing on the GDP growth indicator is quite difficult. This index does not accurately reflect the level and quality of life.
When using the GDP indicator as a criterion for the level of well-being, it is important to take into account not only its absolute, but also its relative volume, i.e. GDP per capita. At the same time, much is decided by the proportion between the growth rate of GDP and the increase in the country's population. If population growth occurs faster than GDP growth (as is currently the case in some developing countries), then real welfare levels fall, despite absolute GDP growth.
There is another weakness of the GDP indicator in relation to assessing the level of well-being. This assessment, as is known, is determined not only by the volume of the product produced, but also by the nature of its distribution. A certain GDP growth rate does not clearly indicate a similar increase in the well-being of the entire nation.
All this leads to the conclusion that the formulation of the main goal of economic policy as the growth of well-being does not provide accurate and unambiguous economic guidelines for specific strategy development. That is why in specific practice it is necessary to introduce a system of more specific, clearly defined targets.
The economic policy of the state is also a process of solving certain tasks.
In addition to compensating for the market fiasco, the state also performs such an important task as legal support for the functioning of the market mechanism. The market is a system of voluntary exchange. In this regard, it is necessary to create a legal framework that protects economic entities from violence (deception, theft, extortion). Here it is necessary to recall that the state in the broad sense of the word means “a set of institutions that have the means legal coercion, which are used in a certain territory and in relation to its population, denoted by the term “society”.
Legal protection of producers and consumers is the most important task of the state. First of all, property rights must be ensured. An owner who is not confident in the inviolability of his property will be afraid of its alienation and will not be able to use his full creative and material potential. Therefore, it is necessary to have legislation that provides specification of property rights.
The state develops laws regarding the protection of intellectual property, banking activities and other areas of economic life. For example, criminal legislation against theft, violence, and murder creates a more stable situation in the country and also improves the functioning of the market.
Thus, the state comes to the aid of the market in those areas where the market fails.
It should be noted that the state’s influence on the economy cannot be arbitrary. The competitive market “dictates” its requirements to the economic actions of the state. The use of “external” regulators should not lead to a weakening of market incentives. Otherwise, society is faced with such phenomena as a breakdown of the monetary system and public finances, intertwining unemployment with rising inflation, etc.
In a mixed economy, the government is fully integrated into the circulation of material and monetary resources that form the economic mechanism. All actually functioning economic systems are “mixed” systems; Everywhere, government and the market system share the responsibility of answering the central questions of economics:
1. What and how much should be produced? How much or what proportion of available resources should be borrowed or used in the production process?
2. How should these products be produced? How should production be organized? Which companies should produce and what technology should they use?
3. Who should receive these products, how should they be distributed among individual consumers?
Different economic systems of the world and individual states differ from each other in the relationship between the roles of government and the market in economic management. The differences relate to the set of methods and forms of regulation, the limits of action of one or another form, as well as the direction of economic regulation.
Based on world experience, all tasks that can and should be resolved at the level of a modern state can be reduced to the following:
1. Ensuring the development of basic industries: energy, metallurgy, fuel industries, stimulating new industries.
2. Strategic forecasting of the development of science and technology, long-term forecasting of the development of the economy as a whole, assessment of the socio-economic consequences of scientific and technological progress from a national perspective.
3. Coordination of society’s efforts to protect and improve the environment.
4. Creation of industrial and social infrastructure: transport, communications, culture, education, healthcare.
5. Development and provision of social guarantees, especially for groups of the population that cannot fully engage in socially useful work.
6. Maintaining the normal state of the monetary and financial system.
None of the listed problems can be solved at the level of an enterprise, corporation, industry or region. This is the prerogative of the state alone.
In economic theory, the field of activity of the state (government) is characterized by the functions it performs.
Before dwelling in more detail on the functions of the state, it is necessary to consider the scope of its activities. These include, in particular: the production of public goods, minimizing negative and promoting positive externalities, suppressing asymmetric information, protecting competition, smoothing macroeconomic fluctuations, and income maintenance policies. In all these cases, the state helps to minimize transaction costs associated with the operation of the market mechanism. This situation is not entirely new for us, since institutions help save transaction costs by facilitating the coordination of the actions of economic agents.
Economic functions of the state are very diverse, among them we can highlight:
1) ensuring the legal basis for the functioning of private business (defining the “rules of the game” for economic entities) - justified, sustainable, mandatory legislation is the key to the successful functioning of a market economy;
2) protection of competition - monopolization of the economy has a number of negative consequences: there is a shortage (underproduction) of goods, inflated prices, average costs do not reach the minimum, etc. It is impossible to solve this problem using exclusively market methods. That is why antimonopoly activity and maintaining competition are becoming one of the main functions of the state;
3) redistribution of income through a system of progressive taxation and transfer payments (pensions, benefits, compensation, etc.). In the distribution of income, the market system can generate great inequality. In stable states, governments develop and implement social security programs, set minimum wages, unemployment benefits, fix prices in order to increase the income of certain groups of the population, and establish differentiated tax rates on personal income of the population. Thus, governments regulate the distribution of income through direct intervention in the functioning of the market and indirectly through a system of taxes and other payments. Through the mechanism of taxation and government social security spending, an increasing share of national income is transferred from the relatively rich to the relatively poor;
4) financing basic science and environmental protection;
5) financing of national defense, maintaining public order, socially normal living conditions, education, medical care, etc.;
6) changing the structure of production in order to adjust the distribution of resources taking into account negative and positive external effects arising in the economy - effects attributable to third parties (not participating in a market transaction).
There are two main ways to minimize negative externalities. The first method is to take administrative measures against those whose activities cause negative externalities. The state is entrusted with monitoring activities that generate negative external effects using administrative and command measures, penalties, market licenses for the discharge of waste up to a certain level of environmental pollution, etc. With the help of these measures, the state promotes the creation of market mechanisms to combat negative external effects. Another way to combat negative externalities is an indirect method, which is carried out through the tax sphere. The idea is that producers, who are the main culprits of negative externalities, are taxed, which forces them, in a sense, to change their behavior.
In addition to negative externalities, as we know, there are also positive externalities, when not only the direct consumer of a given good benefits, but also “third parties.” By “third parties” here, as a rule, we mean society as a whole.
The state encourages activities that generate positive externalities. For these purposes, producers or consumers of positive externalities are subsidized. As a rule, the government seeks to provide a subsidy to those who have a higher income elasticity of demand, since the sensitivity of demand for goods after the subsidy will be higher. The state subsidizes healthcare, education, and various charitable programs, since the implementation of activities in these areas benefits not only the immediate recipients of the benefit, but also society as a whole: after all, the more healthy, educated and cultured people there are in a society, the lower the transaction costs of coordinating activities between people. Consequently, other things being equal, such a society has more prerequisites for economic growth;
7) control and regulation of employment levels, prices, economic growth rates, as well as smoothing macroeconomic fluctuations. The government's function in stabilizing the economy is to help the private sector ensure full employment of resources and stable price levels. The level of production directly depends on the total volume of expenditures. A high level of total expenditure means that for many industries it is profitable to increase output; a low level will not ensure full employment of resources and the population. Any government must, on the one hand, increase its own spending on public goods and services, and on the other, cut taxes in order to stimulate private sector spending. Another situation may arise if society tries to spend more than the economy's production capacity allows. The excess of total spending over the value of output at full employment will cause an increase in the price level. Excessive total spending is always inflationary in nature. The cyclical phenomenon inherent in the market gives rise to a lot of economic problems that the market itself is not able to cope with. Therefore, countercyclical policy is the prerogative of the state;
8) suppression of asymmetric information - for example, those who try to insure their health have more information than those who provide insurance services. In this regard, due to asymmetric information, private insurance companies may refuse to insure certain types of risks, and then the state will deal with this. The state can smooth out information asymmetry by monitoring the quality of goods and services, disseminating information that consumers need, preventing the spread of misleading advertising, etc. Legislation in the field of consumer protection is of great importance. Serious sanctions are taken against the sale of low-quality goods, provision of false information about the activities of companies, etc. The state, by providing consumers with information about the quality of goods, the degree of risk in the areas of investment and insurance, etc., thereby creates a public good (information) , which is used free of charge by all economic entities;
9) financing of production or direct production of public goods and services. An important function of the state in a market economy is the production of public goods. The peculiarity of public goods is that their utility extends to more than one person (example: national defense, bridges, flood protection, etc.), they cannot be provided to one person without providing to others. The production of such goods is unprofitable for the private sector, but since they are necessary for society as a whole, the state takes over their production.
Distinctive features of public goods (compared to private, individual) are:
Non-excludability – an individual cannot be excluded from consuming public goods (a person cannot be excluded from consuming street lighting or traffic light services). The private sector has no incentive to produce such goods, since the positive externality from their creation and consumption can be enjoyed by anyone, regardless of whether they paid for these goods or not;
Indivisibility – it is impossible to divide the services of law enforcement agencies among all residents of the country;
Independence of production costs from the number of consumers (if a traffic light is installed, the costs of its production and installation do not depend on whether 100 or 1000 people cross the street daily);
Non-rivalry – public goods do not compete with each other;
The benefits received by consumers of public goods are associated not with their purchase (as is the case with private goods), but with their production (a bridge built across a river allows the consumer to receive benefits, although he, as a rule, does not pay, “does not buy” travel across bridge). It is customary to distinguish between pure public goods and mixed public goods. Pure public goods have properties to a pronounced degree. A classic example is national defense. For mixed public goods, individual properties may be less pronounced. An example of a mixed good is roads. In some cases (when there is traffic congestion), entry fees are introduced for certain areas. As competition on congested roads increases, non-excludability from consumption is undermined by the introduction of tolls on the congested section of the road.
Goods that do not have these properties at all are called “private” and are produced on a market basis. To acquire a private good one must pay for it;
10) development of foreign economic policy and regulation of foreign economic relations is the exclusive function of the state. The goal of the foreign economic policy of any country is to protect and implement national economic interests, solve foreign economic problems on a mutually beneficial economic basis, and ensure the economic security of the country. A well-thought-out, flexible protectionist policy of the state is essential in achieving these goals.
State protectionism is a system of relations into which the state enters as a spokesman for the interests of the national economy with internal and external economic entities regarding the creation and maintenance of the best conditions for the development of the national economy (as a whole), ensuring the sovereignty of economic development, preserving and improving the country’s position in the world farm.
It is necessary to distinguish between the narrow and broad meaning of the concept of “protectionism”. In a narrow sense, protectionism is limited to the sphere of trade and is aimed at protecting national producers in the domestic market.
In a broad sense, protectionism represents a system of protective measures covering the entire reproduction process and aimed at realizing long-term national economic interests before foreign economic expansion.
As part of the policy of protectionism, the state protects broad public interests. Defending the economic interests of the nation, protectionism is an institutional regulator of the immunity of the national economy.
State protectionism is carried out in three directions:
1) to prevent an existing or potential threat to national economic interests from external forces - defensive or passive protectionism;
2) to create especially favorable conditions for the accumulation of domestic capital in order to accelerate the rate of economic growth and impart stability to the entire national economy - active protectionism;
3) to strengthen the competitive capabilities of national entrepreneurs and enter the world market - offensive protectionism.
When developing foreign economic policy, it should be taken into account that protectionism and free trade are two interconnected contradictory processes in market conditions, in the development of which two trends can be distinguished.
The first is the struggle between protectionism and free trade in the same period. In this case, two participants in this struggle can be traced - large commercial and financial capital with the protection of free trade and productive capital, interested in protecting domestic producers from foreign competition.
The second trend is the struggle of these two trends (protectionism and free trade) over time. The bottom line is that when domestic production is just gaining strength, it is interested in implementing protectionist economic policies. But as domestic production accumulates and grows, interest in the free market appears.
Leading countries are interested in free trade. In practice, the free trade policy for economically developed countries serves as a continuation of the policy of protectionism. Developed countries have had a long period of strict protectionism in their history. It should be noted that even now they are pursuing a selective policy of protectionism and tough trade (ensuring defense capability or national security, protecting young and weak industries from dumping, etc.).
In implementing protectionism in foreign economic policy, the state uses a whole system of economic institutions (benefits and restrictions, tariffs, duties, quotas, licenses, state legislation), determines the order of economic relations of economic entities with foreign countries.
Russia's foreign trade relations during the years of reform were characterized by the absence of any well-thought-out protectionist government policy. In this area of activity, as well as within the country, the government has essentially abandoned comprehensively justified, cost-effective regulation. Having opened the domestic market to foreign manufacturers and destroyed the manufacturing industry, the government has focused its interests on raw material exports, which makes the Russian economy unstable and dependent on the outside world.
The Russian economy and Russia's national interests require the development and implementation of a flexible, comprehensively thought-out protectionist state policy in all three areas.
Performing complex functions of regulating market relations can be effective in the case when powerful economic levers of control are concentrated in the hands of the state, when it itself is economically strong.
The state has economic means and tools that allow it to achieve effective results in economic regulation.
The material means of influencing economic development are state property, the country's budget, gold and foreign exchange reserves, and the issue of money.
Instruments of state regulation are the rules, norms and institutions that implement them, allowing the state to carry out its regulatory role. The main instruments of government regulation include: licensing, regulation, antimonopoly prohibitions, quotas, standards, regulations;
– government orders, loans, grants and subsidies;
– forecasts, plans, programs;
– taxes, tax breaks, customs duties, discount rate, required reserve ratio, open market operations, foreign exchange interventions, etc.
The goals and objectives of macroeconomic policy are implemented through government regulation. Let us highlight the main methods of government intervention in the economy.
1. Administrative methods: involve the expansion of state ownership of material resources, management of state-owned enterprises, and lawmaking. These methods are based on the power of state power and include measures of prohibition, permission, coercion and persuasion; they limit the freedom of economic choice. Administrative measures are based on relevant legislation - on property, transactions, contracts and obligations, consumer protection, labor and social security, environmental protection, taxes, restrictions on monopolistic activities, etc.
2. Economic methods: they imply the preservation of freedom of choice, they involve the influence of the state on the economic interests of business entities, creating a material interest in them in choosing a line of behavior that contributes to the ongoing state policy. Economic methods are divided into:
Direct: designed to influence individual sectors of production, corporations (for example: government subsidies to corporations, direct government investments, benefits, subsidies, etc.). These include the activities of the public sector - a collection of enterprises, institutions and other organizations owned in whole or in part by the state. State entrepreneurship (production, procurement, sales of goods, investment) has a great influence on the development of the private sector and the economy as a whole;
Indirect: they equally affect all economic entities of a market economy, without creating any competitive advantage for anyone. They involve the implementation of state regulation through the use of basic instruments of state economic policy, which include: budgetary and tax (fiscal) policy - maneuvering budget revenues and expenditures and monetary (monetary) policy - regulating the amount of money in circulation in order to influence the economy.
In practice, indirect methods prevail over direct ones. Indirect methods are perceived by commodity producers as inevitable, while direct methods cause a certain wariness.
Legal legislation and the institutions that practically implement it form the basis of the economic role of the state in a market economy. Legislation establishes the “rules of the game,” or legal principles for the interaction of all economic entities in society - producers, consumers, and the state. Among these rules, it is necessary to highlight legislative and regulatory acts that determine the status of private property, forms of entrepreneurial activity, conditions for the functioning of enterprises and their interaction between themselves and the state. Legal forms apply to problems of product quality, issues of relations between the workforce and the administration, compliance with safety regulations and health protection at enterprises.
Adopted laws allow the state to prohibit certain types of activities (for example, the sale of drugs and weapons), as well as apply sanctions in case of violation of the country's legislation.
Legislation is designed to ensure the normal implementation of economic activities by all entities. Laws and mechanisms that ensure their implementation contribute to achieving a compromise (harmonization) between the numerous, always economically contradictory, interests of subjects of a market economy. If the state manages to find a coordinated solution in the system of economic interests of economic entities in society, then the solution to the problem of state regulation can be considered largely effective.
To develop effective economic policies in countries with developed market economies, forecasting and programming methods are used.
Economic forecasting is a system of scientific ideas about the direction in development and the future state of the economy as a whole, as well as its individual elements. The method of economic forecasting consists of quantitative and qualitative processing of collected information about the socio-economic state of the national economy at the moment, identifying natural trends in its change, which allows us to get an idea of the main directions of the state and development of the country's economy in the future. The use of modern methods of collecting and processing factual material using the latest computer technology allows not only to quickly process a huge amount of factual data, but also to build a lot of scenarios and possible options for the socio-economic development of the country. Economic forecasts can be updated and revised in accordance with the prevailing conditions in the country at a given time.
Economic forecasts serve as the basis for the development of socio-economic programs designed to be implemented within the time period specified in the program. The program is specified by areas of state activity, tasks to be accomplished, and quantitative parameters in each area. In addition, the program provides for the expected results from its implementation.
State programming is the highest form of government regulation and involves the integrated use of all methods of government regulation to achieve certain economic goals.
The objects of programming are industries, regions, the social sphere, scientific and technological progress, employment, economic growth rates, foreign trade, etc.
Programs are classified according to various criteria. Based on their duration, there are short-term, medium-term and long-term programs. By type of program they are divided into:
– targeted (programs for the development of a particular industry or region, a certain area of scientific and technical progress or employment, for example, youth);
– national (stabilization or development of the economy as a whole);
– emergency (fighting inflation, mass unemployment, social protection of the poorest population, etc.).
Programming stages:
1) formation of the target function;
2) development of several economic policy options to achieve the goal;
3) drawing up budgets for individual options, determining a system of management and control over a particular policy;
4) program selection.
The difference between programs developed in a market economy and plans adopted in an administrative-command (planned) economy and which were of a directive nature is their recommendatory-indicative (positive) nature.
Thus, government intervention in a modern market economy is objectively necessary. However, the measure, methods and areas of this intervention cannot be borrowed from other countries and cannot be constant for each country, since production conditions and the socio-economic situation in the country change. Only the main principle of state economic regulation remains unchanged - to correct the imperfections of the market economy, which it cannot cope with or solves economically and socially ineffectively.
The modern economy of most countries is neither purely market nor entirely state-owned. “Two components - the market and the government - are necessary for the sustainable functioning of the economy. Running a modern economy without them is like clapping with one hand.” Thanks to government intervention in the functioning of markets, developed countries have managed to significantly reduce the amplitude of cyclical fluctuations, alleviate the severity of crisis phenomena and achieve significant progress in economic development. The macroeconomic role of the state is manifested through the implementation of monetary and financial (budget) policies.
Judging by the clearly defined trends in the socio-economic development of modern society, the role of the state in a market economy will increase. This is due, first of all, to the growing need for state participation in the formation and development of human and intellectual capital, in financing fundamental scientific research, protecting the natural environment, etc. The state can solve these problems, relying only on an effectively functioning national economy, in creating conditions for which the state is indispensable.
13.2. Finance and financial system of the state
In a market economy, finance occupies a special place, since it is financial flows that reflect the quantitative and qualitative aspects of the use of production factors, trends in the development of the country’s economy, as well as regions, enterprises and corporations. Effective financial relations are a comprehensive lever for developing production and accelerating the rate of economic growth of any state.
In the process of evolution, humanity has passed the path from direct commodity exchange to commodity-money relations, in which money has become the universal equivalent, and the state, in the development of its activities in managing economic and social processes, began to keep records of income and expenses in monetary form, forming various monetary funds.
Finance as a historical category appeared simultaneously with the state during the stratification of society. As a result of the first major division of society into classes, slave owners and slaves appeared, as well as the first slave state. Then, in the process of development of society, there followed a transition from a slave-owning socio-economic formation to a feudal one, which led to the formation of feudal states.
In pre-capitalist formations, most of the needs of the state were satisfied by establishing various kinds of in-kind duties and fees, and the monetary economy was developed only in the army. With the gradual transition to the capitalist mode of production, monetary income and expenses of the state began to acquire increasing importance, while the share of in-kind fees and duties began to decline sharply.
Public finance became a powerful lever for the initial accumulation of capital that took place in the 16th–18th centuries. Enormous wealth came to the metropolises from colonial countries, and could be used as capital at any time. Government loans and taxes were used extensively to create the first capitalist enterprises.
Until the second half of the 18th century, emergency financial resources for the Russian state and its government were mainly requisitions (forced alienation) or forced loans from monasteries and private individuals. The compulsory nature of the state's credit relations with treasury creditors was explained mainly by the shortage of free capital in Russia, which could be voluntarily loaned to the government.
Currently, finance mediates direct and reverse relationships that arise in the process of forming funds of funds and acts as a kind of comprehensive indicator of the socio-economic development of the country. The solution to a complex of both tactical and strategic socio-economic tasks of the state depends on the effectiveness of the financial mechanism.
In the works of economic thinkers, the definition of the category under consideration is its understanding in a broad and narrow sense. Finance in a broad sense is a system of relations in society regarding the formation, distribution and use of monetary funds (in the areas of public (state) finance, credit system, sectors of the reproduction process, secondary financial market, international financial relations) in order for the state to fulfill its functions and tasks, ensure conditions for expanded reproduction. Finance in the narrow sense Only state (public) finances are considered - a system of monetary relations regarding the formation and use of funds necessary for the state to perform its functions.
In Russian literature essence of finance serves as a subject of discussion. Some economists adhere to the so-called imperative concept of finance.According to this concept, finance arose with the formation of the state and in modern conditions performs functions related to the role of the state in the socio-economic sphere.
The most common is distributive finance concept.Its supporters define finance as monetary funds formed in the process of distributing the gross social product and national income and the relationship regarding the formation and use of these funds.
There is also reproductive approach in considering the content of finance. Proponents of this concept proceed from the fact that relations regarding the formation of finances arise not only in the distribution of national income, but also in all spheres of its movement and, above all, in the sphere of direct creation of national income.
According to supporters of the distributive concept of the content of finance, their reproductive approach makes it difficult to identify the specifics of financial relations and their place in the system of monetary relations.
If we consider that finance is the monetary resources necessary to ensure the reproduction process both within the country and at the level of each enterprise, then the reproduction concept of the financial system is not without economic meaning.
Financial resources– an object of financial relations, which represents funds at the disposal of all economic entities of the country-state, legal entities and individuals. Finance and financial resources are not identical concepts. Financial resources themselves do not define the essence of finance, do not reveal their internal content and social purpose.