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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
Viacheslav M. Shavshukov
Dr., Professor of
Saint-Petersburg State University,
Russia
Modernization of BRIC Economies in the Light of Global Crisis 2008–2009
Introduction.
At a first glance, the range of problems discussed within the frame of this Forum does not seem to be
interdependent. However, the global financial crisis of 2008-2009 knot the ends together. Global crisis is a crisis of
monetary economic model, which has been in operation since the 1980s, and financial system as a result of longlasting contradictions between global and national finances. While external reasons and mechanisms of its
expansion in global economy are quite clear, the nature of crisis is far from it. Wherever it is a painful shift to an
essentially new technical and economic structure within regular patterns of Kondratiev waves (K-wave), or it is
another global financial crisis of financial system elements, caused by the US mortgage market. The former case
assumes one type of anti-crisis measures and time-frame to overcome recession, the latter requires different ones.
In both cases, however, under globalization, interpenetration of assets, transformation of national
economies into global economy segments, efficiency of anti-crisis measures of monetary authorities could only be
reached by joint actions aimed in the same direction. These are essentially new phenomena for the world economy
which cover related anti-crisis measures, but rather a common view on the development of the post-crisis economy.
All this has pre-determined a striking similarity between different national strategies of the XXI century and
modernization programmes.
Modernization of national economies and redistribution of their place and role in geo-economy and
geopolitics have always been the focus of attention and centripetal tendencies for BRIC countries.
1. History of modernization of BRIC from 1980 to 2000.
Russian and Chinese experience of social and economic modernization is unique. For the first time in the
history two big world powers have undertaken in-depth reforms of “command economy”. Within 25 years they have
turned into dynamically developing economies with a potential to become world leaders.
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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
Modernization experience of India and Brazil is interesting as these economies are integrated into the world
economic system because of their potential for national capitalism, private national enterprise and international
division of labor established by the XX century.
Modernization goals for all four countries were identical – to reach competitive level of national economy
and business, to raise living standards, to integrate into the world economy.
The countries have applied different methods of modernization.
China, having preserved its political regime, started reforms with agricultural sector by introduction of
private property and market relationships. A big gap in industrial and technological development was bridged with
the help of foreign investment and free economic zones. Gold and foreign exchange reserves and profit-making part
of the budget were formed on the basis of export-oriented industrial strategy. The country was turning rapidly into a
“world factory” for branded industrial and consumer products. Principal financial resources remained with the state
government and the power of management was delegated to local authorities of Communist Party of China.
Privatization of industrial enterprises was moving slowly – from small to medium-size business. Smooth
modernization was guaranteed by stable fixed exchange rates.
As a result of these reforms China (without any social and economic shocks like those in Poland and
Russia) has reached high stable rates of GDP economic growth (9-11%), overcome malnutrition of millions of
people, established an operating system of “mixed economy”. The outcome of the 20 year period is dynamically
developing Chinese economy with huge export potential and national market, world leader in gold and foreign
exchange reserves. By 2020-2025 the country may become a world economic leader, unless there is a radical shift of
the technological mode of production. In this case the question about leadership will be left open. It also depends on
the ability of the USA to be the first in the ascendant period of Kondratiev cycle.
The forecast of global leadership for China is not definite. On the way to modernization China has already
faced a number of serious problems: social and economic differentiation of population, a gap between urban and
rural regions, poor quality of products and labor, noncompetitive level of development of national industrial
technologies. Any attempt at dealing with these problems will cause inflation growth, force Central Bank to increase
CNY exchange rates, reduce competitiveness of Chinese goods, impede export, reduce GDP rates and profit-making
part of the budget.
Russian way of modernization included several stages. In the 1980s – an attempt to go over to socialdemocratic model within current system. In 1990s – mass privatization of assets, a leap towards market economy
and market regulation, social and economic shock therapy and collapse of “command economy”.
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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
The 1998 default modified economic policy of state and business into “mixed economy”, with an increase
of government role and presence, public private partnership, export-oriented strategy of traditional industries and
establishment of national TNC. As a result of a 10- year increasingly favorable world market conditions, Russia
managed to reach high stable GDP growth rates (6-8% annual growth), third in the world of third base politics
(3BP), and turned into a growing market.
Russian economy claimed that it was able to become one of the global industrial and financial world
centers. Global crisis of 2008-2009 left no answers to such questions as to what methods and instruments were to be
employed in this process.
However, conditions and directions for modernization are quite clear: introducing values and institutions of
democracy, establishing priority of geo-economy over geopolitics, building competitive national economy and
business, overcoming structural backwardness of economy, stimulating private demand and private sector of
economy, public private partnership (PPP); reengineering of industry, energy, communication and transport,
updating telecommunication and medical equipment, providing legal, tax and diplomatic supervision of innovative
development of economy, attracting foreign technology and establishing cooperation with foreign partners in the
sphere of High & Green -Tech.
Modernization process in India relied on established market system, national capitalism and a division of
labor within British Commonwealth of Nations. Absence of language and religious obstacles created benefits for
Indian specialist and business both for entry into the world IT market, and for attracting leading TNC into free
economic zones. All this allowed for India’s 25% share on IT and R&D markets. Wide participation of foreign
assets in Indian economy contributed to the fast generation of Indian segment of global finance. Strong government
participation in national business promoted Indian capital entrance into international markets of debt instruments
and capital, increased competitiveness in solid assets acquisition in financial centers.
The main obstacle for Indian modernization is a weakness of the banking system. Banking credit facilities
are limited by small amount of Tier I capital, as well as liquidity of corporate bonds market is limited by narrow
investor base with weak mutual funds and insurance companies.
Modernization in Brazil relies on a relatively modern level of industrial technology and management,
strong position in the South American economy, financial market development, high level of world market
integration and attractiveness for investors. The modernization of this country is aimed at passing three corridors
with the help of BRIC: High-Technology, Green-Technology, High Wealth Economy.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
2. Nature of the crisis.
This is an essential question to determine anti-crisis measures and direction for post-crisis development.
Within academic and business circles there are three solutions, but no single point of view:

Crisis of monetary “mixed economy model” of the 1980s.

Crisis of global financial system.

Crisis of separate elements within financial system.
The following logical analysis of the subject matter seems to make sense.
Globalization of financial markets made it possible for the capital to circulate freely around the world, impeding
taxation and national regulation.
Financial capital, unlike industrial, is in a privileged position. It has more opportunities for free access, easier
and faster entrance and withdrawal from the national market. The experience of liberal movement of capital in 1980
– 2000 proved that withdrawal of global investor may dramatically deepen recession processes in the national
economy. This is the reason why monetary authorities have to track and regulate movement of foreign, rather than
national capital.
Global financial and economic crisis has made contradictions between global and national systems even
sharper. Instability of global financial system is generated by the unjustified idea of self-regulation of international
financial markets (money, debt and Forex). Markets did not have any international regulation. There prevailed
market fundamentalism, where order was maintained only by the “invisible hand” of free competition. However,
under the pressures of the crisis, this system with no adequate, prudential regulation has collapsed.
In our view, this crisis has a dual nature.
On the one hand, leading economies’ crisis results from a drastic shift towards new technological and economic
mode of production. It’s enough to have a look at DJIA and NASDAQ average dynamics, where the latter has an
advantage of 0.95 points, and there is also a decisive turn of both government and business for the alternative
sources of energy and engines, green, environment friendly technologies.
On the other hand, 2008-2009 global crisis is a crisis of global finance system elements. The system demands
modification and revision of current regulators (adequacy of capital and reserves, off-balance liabilities, derivative
risk evaluation, taxation), introduction of new regulators, increase of supervisory prudential role of international
financial organizations, growth of individual investment.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
3. Regularities of world economy development in the light of global crisis.
Identification of such regularities is very important from the point of view of BRIC strategy development in
XXI century.
The following are the key patterns of world economy development:
1. Dependence of global finance on the financial centre (for G7 it is, first of all, the structure of the US
economy and financial system).
2. Growing dependence of global G7 centre on capital inflows from financial periphery.
3. Dependence of G7 and BRIC economies on world market structure.
4. Economic and technological dependence of G7 and BRIC on the size and investment structure of foreign
capital and transferred production.
5. Technological leadership of G7.
6. Dependence of G7 exchange rates and stock average on rate and stock dynamics.
7. Feedback effect of stock average, world commodity prices, exchange rate for G7 and E7, financial centre
and periphery.
Let’s consider the correlation effect in more detail.
I Correlation of stock exchange indices
1.1. According to stock market statistical analysis, correlation average for DJIA и Nasdaq Composite in 2000-2009
equals to 0.95. Firstly, it is a clear sign of recession in all sectors of US economy – both conventional and high-tech.
Secondly, it supports the idea that high-tech has not yet become an attractive sector for mass investor. Thirdly, the
shift towards new technological mode of production has not proved its economic value (for example, manufacturing
costs of 1 KW with petrol or diesel engine amount to $20, while with alternative engine – to $100).
Still, NASDOQ average benefit of 0.05 demonstrates a new tendency in the structure of economy in
relation to movement of capital and yield. A new trend is a formation of new technological mode of production,
which is registered by high-tech average. In comparison with DJIA, and S&P especially, NASDAQ is more
sensitive to growth and less so - to the fall.
1.2. Correlation average for DJIA, Nasdaq Composite, FTSE, DAX, and Nikkei-225 is approaching 1. Financial
centre stock instruments demonstrate relatively similar level of credit risks, economy trends and their
interdependence.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
II Price correlation for metal and oil in 2008-2000.
Oil, aluminum, copper and lead are correlated simultaneously.
Prices for precious metals (gold, platinum, silver) and oil are correlated asynchronously.
Precious metals, during the collapse of financial instruments and oil prices fall from $147 to $40 per barrel
from July 2008 to October 2009, were the only liquid and safe asset for the global investor.
III Correlation of stock exchange indices, metal and oil prices
Correlation is approaching 1 and is significant for the pattern: developed stock market responds to the
dynamics and cost of material for real production and public sector of economy.
IV Correlation of macro economic indices of the US, EU, Great Britain and Japan (industrial production output,
level of employment and inflation).
Correlation ratio for the US, EU and Great Britain equals 0.80.
It shows big vulnerability of non homogeneous economy of EU zone, export limitation, euro exchange
rates, impossibility for Germany and France to become leading forces in Europe.
Since 1990 Japan has been overexposed to mortgage crisis, financial collapse, and fall of domestic demand.
V Correlation of stock indices for G7and E7 markets.
Correlation ration equals 0.50. In 1997 - 1998 it was 0.30. This statistical dynamics demonstrates that E7
markets became more stable, independent with a large share of domestic investment capital.
Let’s reconstruct other world economy development patterns:
8. Lop-sided structure, inferiority of E7, BRIC economy as a result of their primary production, agricultural
assembling economic profile.
9. Interdependence between inflation rate, money multiplicator, interest rates and exchanges rates of E7 and BRIC
and export yields, US dollar exchange rates, world prices on leading export markets.
10. Increasing stability and dynamics of Chinese economy, sound ambitions of China to become a world leader.
11. A need for the revision of the current system of global finance in order to:

introduce additional world reserve currency,

reassess the place and role of Е7 and BRIC in international economic and financial organizations,

toughen international capital adequacy regulators for financial institutions, off-balance liabilities of banks
on derivatives and insurance.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
12. Sharpening contradictions between global and national finances.
13. Competitiveness of national economies in global economy, their place, role, standards of living in XXI century
depend on:

new technological basis of economy,

establishing democratic values and institutions in the society,

establishing multilateral peace in global economy and politics,

communication and cooperation between sub-civilizations to solve global problems in the sphere of energy
and food production, environmental protection.
The crisis has not only revealed all above mentioned patterns, but also aggravated them and prompted solution
and ways to increase compatibility of national economies, achieve leadership in geo-economy and geopolitics in
XXI century. The solution is – modernization of national and world economy.
Modernization is impossible if we overlook new characteristics of developing markets, new threats and
weaknesses of BRIC economies. Let’s examine them briefly.
4. New characteristics of developing market and BRIC economies.
Leaders of developing markets and BRIC have advantages in resources, labor costs, GDP and industrial
production growth rate, trade surplus.
BRIC companies become increasingly competitive on international markets (Russian companies - on the market
for hydrocarbons, Chinese and Indian – on the IT market). Developing countries also have a big share (41%) in the
world trade turnover.
These markets have become attractive for direct foreign investment.
It is the state, not a private business, that is the main issuer of debt instruments on international financial
markets, with a turnover only two times less than in developed countries ($500 billion v.s. $1 billion).
Strengthening of bank and companies’ capital, capitalization growth, transparency, credit ratings, local stock
market stability increase the volume of investment by international capital markets (average gross annual volume of
$500 billion, average volume of an issuance - $500 millon, to be cleared within 5-7 years, spread 150-200 b.p. over
US T-bills).
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
IPO is placed both at the financial centre (LSE) and periphery (и финансовой периферии (Hong Cong, Brazil).
IPO is followed by the GDR option. The book-runners of IPO are ТОР investment banks, as well as Indian banks.
Stock averages of developing markets become stable: annual margin on share price (High/Low) in comparison
with leading stock exchanges is only 8%; price/earning ratio is 12-24%, just a little lower than DJIA and NASDAQ
(21,5%). Correlation ratio of stock average of financial centre and periphery has grown from 1:3 to 1:2 during 19972009, which shows increasing stability of financial system and developing markets.
Since 2007 companies of developing markets have become major global investors ($130 billion vs. $129
billion). New centre of attraction for global investment – manufacturing and high tech companies of financial centre.
Banking sector is represented by strong banks with state administration and weaker private banks.
5. Main threats for developing market leaders.
These threats are stipulated by the low level of government and corporate management. Low technological
level of production and low-skilled labor force account for the technological dependence on transferred to TNC
production facilities.
Growth of wages and salaries outrun growth of labor productivity. Increase of domestic demand and earnings
stimulates inflation, which is significantly higher than world rates.
Weak banking system1, low level of business competitiveness, high level of outstanding debts to IMF (SDR
25millon), big share of foreign currency in 3BP structure (69%) and small in gold (18%) make financial system
unstable and unable to make long-term investments into real economy.
6. Lessons of the crisis for the monetary policy of Russia and China.
There are definite behavior patterns for national and global investor.
Investors get rid of default securities (shares, bonds, loans and credits), causing further depreciation.
Foreign investors withdraw their capitals. National investors go offshore. In 1998 $10 billion were called out of
the Russian Federation., in 2008 – $135 billion. The most attractive asset for investment is so called “dollar harbor”
– US dollar.
1
Irregularities in financial statements under inflation (omission of financial indices deflation). High liquidity risks due to the difference of
clearance terms for assets and liabilities, free capital deficit. Crediting by securities (15 % of portfolio). High level of off-balance liabilities. Low
quality of loan portfolio (10 major borrowers account for 50% of portfolio). Small capital and assets. First level capital of BRIC leading banks is
four times less than the capital of TOP ten world banks ($19 billion vs. $75billion, and fifteen times less without China’s state banks). Big
transaction costs, three times higher than world prices. As a result – high banking costs. Inability to control money laundering inflows ($1.4
billion a year) from financial periphery to the centre.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
Export-oriented economies of BRIC have common approach to monetary policy. Let’s examine them
briefly.
First methodological approach. To develop monetary policy export-oriented countries determine such
minimum price of basic export product, that will ensure that the state can service its debts and avoid default.
Thus, Russian Ministry of Finance set minimum oil-price level at $18.5 per barrel in 2000: oil-price
volatility affects volatility of current national balance of payments.
Second approach. Interdependence between money supply (MS), export prices and foreign exchange
earnings.
When oil prices go up, it increases MS. At a price of $100-145 money supply in Russia went up to 55%
with economic growth of 7%. Such gap stimulated inflation, rather than production. Money supply in Russia
increased by 50%, in China and Brazil - by 23-27%, in the USA – by 7-8%.
Third approach. Money supply depends on money multiplicator (MM).
In 2000 in the Russian Federation money multiplicator was 3 RUB, and in G7, where money supply and
macro-economic stability were higher and investors were well assured of government economic policy, money
multiplicator was 7-8 (with NR = 12-12,5%), in the US - 11 (with NR = 9%). Thus, in the USA 90% of deposits
were used for crediting, in the EU - 87%, and in the Russian Federation – 67%.
During 2008-2009 crisis money multiplicators were reduced, because banks had no confidence in the
borrower and it was difficult to forecast post crisis industrial profitability.
Fourth approach. Money supply depends on the liquidity of currency, level of liberalization of capital
transactions in the balance of payments.
Liberal currency regime is applied only in 20-25 countries over the world, including Russia. China, Brazil
and India have no free used currency. Russia is one of them, but it still allowed a high degree of currency freedom,
building a long-term global economy strategy for XXI century, being at the same time ensured against force majeure
by third in the world amount of gold and currency reserve ($450 billion).
Chinese monetary policy and its specificity.
 economic growth of 9-10% is ensured by the growth of money aggregate М2 – 20%;

state control over inflation rate – not more than 3%;
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
 understated in relation to other foreign currencies, Yuan exchange rates allow for production of enormous
amounts of Chinese export at damping prices, destabilizing international markets;
 during crises banks usually have difficulties to find reliable borrowers. In China state banks are provided
with instructions to lend. It increases money supply, expands loan portfolio. However, as demand is decreasing,
rather than increasing, it leads, on the one hand, to the growth of manufacturing reserves (overstocking) and surplus
production, and makes investor go to the financial market and real estate market, on the other hand. As a result,
share and real estate prices grow.
Monetary policy of Russia and China during crisis and post-crisis periods.
Loan portfolio depends on world prices. Loans guarantee economic growth: in 1929 loan portfolio in the
US was 160% of GDP, in 2008 – 365%. Expensive oil prices lead to the growth of money supply and aggregate
loan portfolio. However all these are short-term loans. Since 2000 increase in loans in Russia was higher than in
G7. Before crisis growth rates for loan portfolio were 14% in the USA, while in the Russian Federation it reached
30-40%! At the same time the best crediting rates were unavailable to base industries (high interest rates, stimulated
by high inflation, were strangling manufacturing industry).
Monetary policy of Russia during post crisis period.
 Growth of lending must be achieved not by petrodollars, but by money mulplicator growth and progressive
reduction of inflation rate.
 Increase of FOREIGN EXCHANGE RESERVES is a necessary and the only correct government action,
when market mechanisms cannot contain inflation and currency exchange rates growth.
Monetary policy of China during post crisis period.
Monetary authorities of China undertake the same measures as Russian ones. However, the situation in
China is more complex: money inflows into the country are significantly bigger than into Russia. For this reason
Central Banks of China is actively buying up export market currencies for the reserves and issues a huge number of
securities on Shanghai Stock Exchange and IOP on Hong Cong Stock Exchange. The main purpose is to tie up
Yuan, issued to buy export earnings. While inflation and interest rates are relatively low, Central Bank of China can
control the situation with money sterilization. Still, there is a high risk of loosing this control.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
Priorities for the BRIC monetary policy:

reduction and stabilization of inflation rates;

increase of savings;

growth of investment projects to be supported by credits and loans;

conformity between monetary policy and aggregate demand;

growth of money supply with the growth of lending;

growth of loan portfolio does not stimulate inflation growth.
Such monetary policy restrictions are due to 60% threshold of public debt. Public debt of 90-100% or more
(Italy, Greece, Japan) is within the “red zone” of state financial security. High social liabilities for EU countries
during global countries led to the formation of effective public debt equal to 100% of aggregate GDP. With the
rate of national debt increase of 8-10% of GDP a year, the cost of borrowing is bound to grow as well as impede
economic growth.
As institutional structure of Russian and Chinese economies is undeveloped with weak financial institutions
and competition, the state has to rely heavily on monetary regulation. National regulation of economy focuses on
macro economy, which is ineffective. Central Banks of the two countries (just like G7) have pumped the financial
system with cash, but unlike G7 could not back up commercial banks liabilities and issue government bonds to
cover them.
Russia and Eastern Europe were the worst hit by these patterns. China, India and Brazil suffered less.
What monetary policy (goals and instruments) should G7 pursue during post crisis period, considering that:

export market prices go up;

aggregate demand and nominal wages start to grow;

government increases social allowance and payments, education, science, health and medical insurance,
defense expenditures;

there is a growth in export foreign currency earnings, capital movement in the balance of payments,
external trade surplus.
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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
The main goal of monetary policy is to prevent consolidation of national currency and inflation growth.
Monetary policy measures and instruments:

to sterilize money supply,

to increase savings rates,

to reduce progressively inflation rates,

to increase the target number of money multiplicator,

to tie up money supply growth to the growth of loan portfolio and real production,

to correlate interest rates and level of profitability of basic industries (7-8%),

to increase the share of long-term loans,

to stabilize the amount of direct foreign investment at 70-80%,

to neutralize surplus foreign currency earnings in foreign exchange reserves and government bonds
issuance,

to observe the 60% threshold of public debt,

to supplement macro economic regulation with expansionary actions in micro economics.
The nearest future of the world economy and BRIC strategy in the XXI century.
1.
10% GDP annual growth to increase the weight of traditional industries in the world GDP.
2.
Breakthrough into the innovative economy on account of national and public private partnership..
3.
Shift from export-oriented economy, based on primary production and traditional light industry, to the
high-tech, energy-saving and environment friendly production.
4.
Establishing national TNC and TNB to determine quality and price, to form the demand on the world
markets, to attract high technology and cheap money from international markets.
5.
Government support of small and medium-size business in order to form domestic market and compete
with world TNC.
6.
Generating such investment climate so as to attract conservative global investor.
7.
Reducing money value to 4-6% as a result of depressed inflation, growth of money multiplicator to 6-10 %,
efficient currency rates, wide use of syndicate lending.
8.
Concentration of banking capital as a result of mergers and acquisitions. Building and maintaining
competitive environment.
9.
Introduction of alternative reserve currency (Yuan or another regional currency)
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
10. Increase of market capitalization to $2-3 billion, and capitalization of leading public companies to $250300 billion.
6. Methods of world financial system regulation.
The key issue of post crisis functioning of world financial system is the problem of international regulation.
There are two possible directions for international regulation of global finance system.
The first variant is to build the system of international regulation on the basis of national sovereignty.
Basel standards of capital adequacy have become international since 1988 and at the moment they are
adopted by national central banks. These were central banks that validated them in their home countries. Sovereign
is the final source of legitimacy of international standards, agreements and contracts!
Governments, supporting national central banks, proceed from the need for financial and economic security
of their countries. It establishes grounds for financial protectionism. For instance, Central Bank of Norway will have
less confidence to Icelandic banks after their actual default, and the Central Bank of Russian Federation may revise
its requirements to the banks with foreign capital.
Second variant. International regulation.
International regulation must dominate over national regulators. Otherwise, traders on international markets will
speculate in differences of regulation in different market segments. Business assets will be relocated to the countries
with the most attractive investment climate and mild regulation.
The success of the 1980s globalization was conditioned by the liberalization of currency legislation, notably to
the loosening up the degree of national regulation. It was a blow on the binding nature of the state.
As shown by the crisis, market fundamentalism could not insure against international financial market collapse.
It is also a reason why it is so difficult to persuade monetary authorities reject national regulators in favor of
international ones.
Great depression of 1929-1933 proved that the rejection of trade protectionism made it easier to overcome
world economic crisis.
Under the current conditions of global economy, which go back to the 1980s, rejection of financial
protectionism may also facilitate the process of overcoming the effects of 2008-2009 financial and economic crisis
and eventual its second wave.
Despite the fact that there is a high risk of global crisis in the global economy, open economy has more
advantages than the closed one. It is easier to regulate the system of global finance on the international than on the
national level.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
Thus, the global crisis of 2008-2009 is a crisis of global finance system elements. This system has a need for
modification and revision of current regulators (capital adequacy, reserves, off-balance liabilities, evaluation of
derivative risks, taxation), introduction of new regulators, increasing supervisory and prudential role of international
financial institutions, growth of retail investment.
International regulation of global finance system, with national finance and national markets been an
essential element of it, is more effective and efficient. Basel standards of capital adequacy, International Accounting
Standards (IAS), SWIFT, INCOTERMS are a good proof to this fact.
7. Modernization of BRIC economies in the light of the crisis: similarities and differences.
Program of Russian economy modernization.
The program has five directions.
1.
Technological renewal of all production spheres.
2.
Introducing changes into mixed economy structure to reach the maximum of its macroeconomic and social
efficiency.
3.
Adoption of national target programs in the sphere of R&D and higher education to provide for the
scientific and technological breakthrough, training of qualified and skilled personnel for clever innovative economy.
4.
Wide use of advanced (high, green, environmentally clean) technologies, scientific ideas, attraction of
qualified labor from abroad.
5.
Reforming global finance system.
Content of modernization policy.
Technological renewal must be carried out in the sphere of medicine, development and production of
information, space and telecommunication technologies.
This choice of directions for technological renewal is not accidental for Russia.
New medicine technologies.
Medicine technologies are to provide for the solution of two key problems of national health within the
national security policy: low population lifetime and demography.
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Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
New energy supply and power production technologies.
Development of energy technologies is aimed not only at increasing energy efficiency and saving in the
economy, but also at a shift towards a wide use of nuclear power stations of new generation, hydrogen energy, reach
of a superconductivity effect. The problem of energy efficiency is dealt with within two directions: use of hidden
resources and development of new alternative types of energy and technology.
At present Russia can save up to 45% of total consumption of primary energy. To realize this potential it is
necessary to invest $320 billion. This investment can ensure annual saving of $80billion for final consumers, $120150 billion for national economy and may be covered within 2-4 years. Realization of the energy program will lead
to the saving of 240 billion cubic meters of natural gas, 340 billion kW of electric power, 89 million tonnes of coal,
43 million tons of crude oil and its equivalent in the form of treated petroleum products.
What are the benefits for Russia?
The increase of energy efficiency will reduce costs, incurred due to the high energy consumption of
Russian economy, which is 30% higher than in the EU. It will allow Russia:

to increase compatibility of the industry (avoid raising tariffs by reducing energy subsidy of
$40billion), resulting in diminishing return of producing industries by 15% and cut in offer prices;

to increase revenues from oil and gas exports by $100 billion;

to cut budget expenditures of all levels by $3-5 billion;

to improve environmental situation;

to avoid buying quotas for CO2 discharge (in 2030 this discharge will be 205 less than in 1990,
under the condition of carrying out the program).
All necessary measures in the sphere of energy efficiency include basic measures, measures ensuring fast
return, high cost and high performance measures.
Basic measures are aimed at forming the policy of energy efficiency to form the basis for financially
justified investments. The main instruments here are the standards of energy efficiency for constructions, industrial
equipment, and efficiency of fuel consumption. Increase of energy saving is also a necessary condition to receive
subsidies for capital repairs and bank loans, development of energy supply system.
Measures of fast return (within one year) require moderate expenditures and include: reorganization of
public companies into private commercial regional power generating companies with the right to sell power within
national quotas, use of PPP, setting up purchasing norms to stimulate the use of energy effective technologies,
stimulate banks and leasing companies to provide loans for energy effective business projects.
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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
High cost and high performance measures include: reform of tariffication, liberalization of electric power
and gas markets, integrated planning of transport as a part of a single infrastructure of national economy.
Which industries have the largest potential for energy efficiency? It belongs to:

housing facilities,

power production (at present, there is no coordination between power supply enterprises, no efficient
system of heating. Besides, there is casing-head gas combustion and current methods of tariffication do not allow for
operational energy efficiency),

manufacturing industries.
Information technologies.
Information technologies have to provide wideband access to the Internet, digital television, and mobile
connection of the fourth generation. It is not only a technological breakthrough in the generation and supply of
information as a factor of production, but also a solution to a great number of economic, social and humanitarian
problems in the largest country in the world.
Space technologies.
For 50 years space technologies have been forming the technological policy of the USSR, determining its
status of a great power. Russia has all necessary scientific and technological resources for national and international
space programs to be the main unit in the space infrastructure of mankind.
Telecommunication technologies.
Telecommunication technologies have been developed in the USSR since the end of the 1940s. The first
soviet computers (БИС-1 и БИС-2) were technically equal to the USA computers. However, after a notorious vote
at the Academy of Sciences of USSR in 1949 against cybernetic and genetics, the research in these two most
important directions of scientific and technical progress was stopped until the 1960s. Nevertheless, Russia has
managed to fill the gap and still has one of the world leading schools in mathematics and programming. In the 19601980s they proved its high level by working in the sphere of national aerospace, nuclear, spaceship technology
development, production of nuclear submarines and, in the 19190s – in the Silicon Valley.
Nowadays telecommunications must apply high technologies to solve such problems as national government,
defense, national economy, major, middle-size and small business enterprise management.
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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
It requires powerful national super and personal computers, software and distribution. The most costly and
science intense component is hardware development and production. From the market point of view it is the supply
of different industrial technologies with developed hard- and software. Russia will take steps in this direction. It is
open for cooperation with India in the sphere of software development, and with China – in the sphere of
components.
Main steps in the realization of modernization strategy.
Step 1. Modernization of the public sector (in 2009 its share accounted for 40%). The main criteria of government
participation in the economy should be not some quantitative indicator, but efficiency. Efficiency of the
management of public enterprises, natural monopolies and budget efficiency (the share of the profit-making part of
the budget per capita. Here the performance of Russia is 70 times worse than, for example, Norwegian) will be the
main indicators of compatibility of national economy in the XXI century.
Step 2. Optimization of public expenditures.
Step 3. Support of innovative enterprises and projects, grants, business incubators on the basis of leading
universities, attracting business into R&D sector.
Step 4. Changes in legislation in order to provide administrative, tax and financial incentives for the development of
innovative economy.
Step 5. Attraction of best technologies and conservative capital from abroad.
Step 6. Reforms of global finance and collective security systems on the basis or UNO.
Similarities and differences in the modernization of BRIC countries.
Similarities: establishing competitive national economy and business, improving living standards, setting up a new
power centre in geo economy and geo politics. Decisive shift towards innovative economy.
Differences:
China and Russia: rejection of command economy in favor of mixed and market economy with a reliance on state
capitalism. Exploitation of export opportunities (China – in the sphere of consumer production, Russia – in the
sphere of energy supply).
China has maintained its political regime, while Russia has rejected the system.
China, India and Brazil in order to bridge the technological gap and saturate domestic market make a state on
foreign investment. India and Brazil also rely on national capitalism, small and medium-size business.
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Shanghai Forum 2010, May 29-31, 2010
Economic Globalization and the Choice of Asia: Reflect, Recover and Restructure
References and resources:
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