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SENTENTIA. European Journal of Humanities and Social Sciences
Reference:

Ensuring regional security during the phase transitions of the economic space

Karginova Valentina Vladimirovna

PhD in Economics

Scientific Associate, Branch of Karelia Scientific Center of the Russian Academy of Sciences

185030, Russia, respublika Kareliya, g. Petrozavodsk, Pr. A. Nevskogo, 50

vkarginowa@yandex.ru

DOI:

10.25136/1339-3057.2018.4.26978

Received:

24-07-2018


Published:

21-12-2018


Abstract: The presence of phase transitions, not only quantitative but also qualitative changes, of the regional macroscopic indicators demonstrates the dysfunction, in particular, the growth of disunity and decrease in the permeability of the space. Consequently, phase transitions are a particular threat to the regional economic wellbeing. This work is aimed at justifying a special economic policy in the field of ensuring security in separate regions. The paper deals with introduction, relevance and scientific significance, statement of a problem and theoretical foundation; methods, results and conclusion are given. Within the framework of econophysics concepts, based on the entropy approach, a technique was proposed for determining the presence and nature of phase transitions. This methodology was tested on the data by Unified Interdepartmental Statistical Information System for the Russian regions. Four types of phase transitions have been identified, with instruments and institutions for ensuring economic security proposed for each one. The general requirements to the regional economic security system are formulated, particularly the need to move from extractive economic institutions to inclusive; sufficiency, but not redundancy of security measures. The findings have both, theoretical value for further research in the field of regional development, and practical: the recommendations can be useful for federal and regional authorities.


Keywords:

economic potential, entropy, regional risks, institutes, imbalances in development, system dysfunctions, security system, gross value added, assets, Russian regions

I. Introduction, relevance and scientific significance

Currently, one of the key factors that determine the evolution of the economic space is geopolitical instability and crisis phenomena in the fields of production and economics. And if it is possible to maintain a local equilibrium in some regions, then in others, phase transitions are observed. This study is aimed at developing a methodology for determining the presence and nature of phase transitions in the economic space that will allow formulating and confirming the need for a special policy of ensuring economic security in phase transitions in the region. The stated issue is relevant, as we have inefficiency of a single unified policy at the state and regional levels on the one hand, and the increased systemic risks of phase transitions on the other hand.

The work is based on the synthesis of economic security and regional development theories, supplemented by such a relatively new direction as econophysics [1]. A range of properties have been sufficiently studied when analysing physical phenomena and processes, and it seems to be appropriate to use similar paradigms in economic theory, in particular, within the framework of the meso-economic approach in the concepts of regional development [2].

Drawing on the data by the Unified Interdepartmental Statistical Information System, macroscopic territorial indices, characterizing the involvement of the available potential and its entropy, were calculated. Four types of phase transitions were identified. It is shown that the dominance of extractive economic institutions depletes the regional peripheral potential and slows its development. A number of institutional changes have been suggested that will ensure the economic security of unstable territories.

II. Statement of a problem

We shall note that the local balance is characterized by the invariance of the geometric values of the economic space and by the oscillation of macroscopic (averaged) ones within certain limits. The space phase transitions, from one quality to another, take place when the values change abruptly.

Furthermore, the dysfunction of the system is observed: the change in the transaction map (the emergence of new ones and the abandonment of old transactions), the growth of the space institutional disunity, the reduction of its permeability, which slow economic development and become a threat to security.

The purpose of the study is to justify a special policy in the field of ensuring regional security during phase transitions. Security is a fundamental condition for sustainable economic development and ensuring the required quality of living for the population.

III. Theoretical foundation

Providing regional security is carried out within the framework of three approaches: Anglo-Saxon approach (the implicit prevalence of the homocentric paradigm; the goal is the dominant position in the market), Asian approach (the civitacentric paradigm; the orientation to the reliability of resource flow) and Russian approach (the weighting of the external and internal factors) [3].

In the Russian Federation, several scientific institutes and schools are studying the regional economic security, in particular, the Economic security Center of the Institute of Economy of the Ural Branch of the Russian Academy of Sciences (Aleksander Anatolyevich Kuklin [4]; [5] is the head of the center); the Institute of Economics and Industrial Engineering of the Siberian Branch of the Russian Academy of Sciences (Sergei Vladimirovich Kazantsev [6]; [7]), Nizhny Novgorod State Technical University n.a. R. E. Alekseev (Sergei Nikolaevich Mityakov [8]; [9]), etc. At the same time, the basis for systematic work on regional security was laid by the Economic security Center of the Institute of Economy of the Ural Branch of the RAS. This center was established in 1989 to develop a methodology for assessing economic security for public authorities; at the initial stage, the work was carried out under the leadership of Leonid Ivanovich Abalkin [10].

Within the framework of modern security theory, the development of the regional economic space is viewed as a nonlinear process. Time series of quantitative indicators are analysed, but insufficient attention is paid to qualitative changes – phase transitions.

Phase transitions were determined for physical processes, for example, the transition of water to gas or ice [11]. Later this apparatus was adapted for biology (in particular, descriptions of changes in the behavior of fish shoal and flock of birds [12] or polymers [13]), sociology (social networks [14], opinion formation under various forms of influence [15]), demography [16], and also for the purposes of economic theory [17]; [18]. However, the very term of the phase transition applied to economic systems has not yet settled, there is no universally recognized methodology for its detection [19].

Ekaterina Aleksandrovna Pogrebinskaya studied the causes of phase transitions, as well as its differences and relationships with fluctuations in the economic space [20]. The effect of phase transitions on the state and development of a separate industry complex was carried out by Alexander Alekseevich Petrov and Inna Nikolaevna Geras'kina [21], individual processes – by Sergei Vladimirovich Shmanev and Tatyana Nikolaevna Egorova [22]. The features of phase transitions at the macroeconomic level are considered by Nikolai Ivanovich Yegorenkov, Elena Nikolaevna Kazakova, Maria Nikolaevna Starodubtseva [23], Alexander Alekseevich Miasnikov [24].

It was proposed to consider the Dow Jones Industrial Average as one of the indicators of phase transitions in the US economy [25]. Terry Bossomaier, Lionel Barnett and Michael Harré in the information approach demonstrated the possibility of detecting phase transitions using indicators such as mutual information and entropy [26]. The study of phase transitions on the basis of information indicators was carried out with reference to the financial markets of USA in 1995–2008 [27]. Both Jan Novotny and Hynek Lavička used entropy as a measure of studying structural changes to study the economic phase transitions in relation to employment, production and consumption [28].

The available theoretical basis, namely entropy as an indicator of phase transitions, can also be used to determine phase transitions at the meso-economic level (in certain regions).

Previously it was shown that a small event (minor changes) could lead to a system phase transition [29], which would be critical for it (see, for example, for financial markets [30]; [31]; [32]). Accordingly, the presence of phase transitions must be taken into account in the construction of economic security policy.

IV. Methods

Taking into account the theoretical base, the level of potential utilization and its entropy were chosen as the main macroscopic indicators for determining phase transitions. The choice of these indicators is due to the fact that together they allow us to examine the entire contract system, taking into account its heterogeneity.

1). The level of use of potential.

In this case, the economic potential was defined as the ability of the regional assets to capitalize. This approach was described in more detail in the previous articles of authors, see e.g. [33].

The potential share of gross value added in the assets of the j-th sector of the i-th region was calculated (see (1)):

, (1)

where is the potential share of gross value added in the assets of the j-th sector of the i-th region;

rij is the gross added value of the j-th sector of the i-th region;

aij is the assets of the j-th sector of the i-th region;

is the average value of the gross value added of the j-th sector;

is theaverage value of assets of the j-th sector;

M is federal district (macroregion).

Then, the average potential share of gross value added in the value of assets for the region was determined (see (2)):

, (2)

where is the average potential share of gross value added in the value of assets of the i-th region;

n is the number of sectors;

is the potential share of gross value added in the assets of the j-th sector of the i-th region.

Based on this indicator, the level of capacity utilization was calculated (see (3)):

is the average actual share of gross value added in the value of assets of the i-th region;

is the average potential share of gross value added in the value of assets of the i-th region.

2). Entropy of regional potential.

Entropy is an indicator of disorder, on the basis of which it is possible to judge the existing system risks in the realization of the potential [34] (see (4)):

, (4)

where means entropy of the potential of the i-th region;

n is the number of sectors;

is the potential share of gross value added in the assets of the j-th sector of the i-th region.

is the average potential share of gross value added in the value of assets of the i-th region.

In simplified form, two groups of risks can be distinguished: institutional and sectoral.

The time series of macroscopic indicators characterizes the evolution of the economic space (see (5)):

,

,

,…

...,…

(5)

where F is the transformation operator (change of the state parameters of the X-region system);

is a matrix of values of the level of use of the potential and its entropy for different regions.

The conclusion about the presence of a phase transition was made when the deviation sign of the matrix had changed. In this case, deviations are understood as the difference between the average value for the federal district and the value for the region.

V. results

In accordance with the described methodology, the data for 2015-2016 were analysed, which showed the presence of a phase transition in 21 regions of Russian Federation (see table 1), and:

· in 12 cases the phase transition was accompanied by a sharp change in the level of capacity utilization (there was an increase in the level of capacity utilization in 3 regions, and decrease – in 9 regions);

· in 11 cases a sharp change in entropy was noted (growth of entropy – in 6 regions, and decrease – in 5).

TABLE I. regions where macroscopic indicators were sharply changed, 2015-2016

Dynamics of the indicator

Macroscopic indicatorsa

Level of use of potential

Entropy of regional potential

Increase

Republic of Kalmykia, Republic of Tuva, Chechen Republic

Bryansk Region, Sevastopol, Trans-Baikal Territory, Kirov Region, Orenburg Region, Tomsk Region

Decrease

Astrakhan Region, Trans-Baikal Territory, Ivanovo Region, Kursk Region, Komi Republic, Rostov Region, Samara Region, Tomsk Region, Chuvash Republic

Altai Territory, Republic of Ingushetia, Republic of Crimea, Republic of Tatarstan, Tambov Region

a. As part of the calculations, the data on the sector of public administration and military security were not taken into account due to the existing features of the functioning, and on the sector of households due to the lack of data on assets. In other cases, in the absence of data on gross value added or assets, the share of added value in assets was 1.

As a separate macroregion, the Crimean Federal District was considered, which was abolished on July 28, 2016.

Source: compiled by the author according to the Unified Interdepartmental Statistical Information System.

It is interesting to note that only in two of the Russian regions there has been a sudden change in both indicators: in Trans-Baikal Territory and Tomsk Region. At the same time, only in one federal districts – Northwestern – the changes occurred in just one region – respectively, the Komi Republic. In the Far Eastern and Ural Federal District there was no abrupt change in the indicators.

The presence of a phase transition in a separate region of the federal district indicates a distortion of the general vector of space transformation. So, with a change in the level of capacity utilization, we can talk about institutional imbalances, with entropy changes – about sectoral disproportions.

Accordingly, in regions with a phase transition, a special economic policy is required that takes into account specific external and internal factors. Moreover, as the risk of system dysfunction increases dramatically during the phase transition, regional security should become the basic element of the policy. Regarding some risks that are not regulated now, it is possible to completely lose the ability to regulate. At the same time, they will turn from regional to national.

It is also important to take into account that the proposed security measures should be sufficient, but not superfluous. Charles Perrow applied to technological risks showed that security measures can cause crisis phenomena. For example, it happened at the Chernobyl nuclear power plant, where the accident was preceded by the testing of a new security system. The reason for such crises Ch. Perrow considers the initial complexity of the systems under consideration and their subsequent complication with the introduction of additional security measures, as well as the density of connections in the system and the presence of a catastrophic potential [35]. This work allowed to draw a conclusion about the negative impact of excessive security measures [36].

Joseph Tainter came to similar conclusions, analysing the risks of the collapse of societies. In his opinion, societies cease to exist when investments in social complexity begin to bring a minimal return. At the same time, social complexity, as well as the complexity of technological systems, is increased when security is needed: new institutional roles, mechanisms of communication and coordination are emerging [37].

Aforementioned information confirms the need to analyse the presence and nature of phase transitions, and to apply those measures that the region needs, rather than building an excessively complex institutional security system.

The smoothing of institutional disproportions, expressed in the growth of the level of the capacity utilization, can be achieved by increasing the tax burden (creating a basis for social security of citizens), stimulating accelerated depreciation (the basis for innovative development, which is appropriate if the resources are available to entrepreneurs), accelerating growth institutions small and medium-sized businesses (the basis of large-scale entrepreneurship, the transition to which temporarily slows economic growth, but brings a long-term effect in the form of increased demand for labor and tax base). With a decrease in the use of potential, backward measures are necessary: tax incentives, depreciation break, support for small and medium-sized businesses, since in the emerging conditions it is easier to open a small business than a large one.

The levelling of sectoral imbalances is possible through a diversified economic policy in the field of individual industries. With high entropy, it can be concluded that there are administrative, political and regulatory risks. Accordingly, to ensure economic security, it is necessary to adjust the sectoral programs and strategies, improve the regulatory framework, etc. In this case, the emphasis should be on their consistency (it is the misalignment that causes the phase transition). A low level of entropy indicates market risks (the risks of single-industry towns in the crisis of a city-forming enterprise). Accordingly, it is necessary to provide preferences for new production and business activities in the region.

However, it must be understood that the current institutional arrangement, in particular the dominance of extractive economic institutions, limits peripheral companies in the ability to determine the financial result of their activities. In the regions, goods and services are produced with a small share of added value, and their price is even lower than the market price due to transfer pricing. Consequently, the adjustment of the regional policy in the field of economic security should be accompanied by replacing the extractive institutes with inclusive ones, including at the federal level. The possibility of this proves the historical experience of other countries, for example, Britain in advance of the industrial revolution. But the transition cannot be made solely by replacing the elite, this will only lead to a change of the extractive institutions, old ones to new ones [38].

The emergence of inclusive institutions will create value chains in the region and subsequently turn them into networks. This will not only increase the value added produced, but also make the region less dependent on external suppliers and buyers, which is also one of the regional security factors.

The introduction of inclusive institutions should be accompanied by a levelling a gap in the quality of the infrastructure of central and peripheral regions. At the same time, regional peculiarities should be taken into account: actively use local cheap fuels (for example, shales or peat), adjust public-private support programs, introduce special incentive measures.

VI. Conclusion

In conclusion, it should be noted that the novelty of the methodology has determined the overall novelty of the study and findings. As part of the meso-economic approach, it was shown that ensuring the regional security should be based on the analysis of phase transitions. A method of determining the phase transitions of the economic space was proposed, which, in turn, made it possible to identify and analyse the risks that arise, including systemic dysfunctions. Inclusion the features of evolution in phase transitions and existing risks formed the basis for the proposed measures and tools for stabilizing macroscopic characteristics.

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