Financial control as the basis of reproductive management in the new economy

Lyapuntsova Elena Vyacheslavovna Doctor of Technical Science Professor, Department of Innovative Entrepreneurship, Bauman Moscow State Technical University 1005005, Russia, g. Moscow, ul. 2-Ya baumanskaya ulitsa, 5/1 lev77@me.com

Khokonov Beslan Mukhamedovich Assistant, Department of Economics and Financial Law, North Caucasus Institute-Branch of the Russian Presidential Academy of National Economy and Public Administration. 357502, Russia, Stavropol'skii krai, g. Pyatigorsk, ul. Dunaevskogo, 5 khokonov07@mail.ru Other publications by this author

The scientific and civil society, based on the analysis of many dramatic events of recent months, in fact, generally accepted the fact of the rapidly impending emergence of a new world and a new economy. ^[2] The reasons for the upcoming radical changes are associated, first of all, with the disruption of many reproductive chains due to the multiple increase in prices for raw materials and energy carriers. These phenomena appear to be long-term and entail a large number of imbalances of national and global economies. ^[1] Significant structural changes in the world economy will become objective prerequisites for a new economic order.

In this context, the priority of transformation of financial and currency relations is indicated, which will bring cardinal changes to the existing economic structure. ^[10] The expected negative consequences, in particular, according to scientists from the Center for the Development of the Higher School of Economics, annual inflation is likely up to 30 percent, and a reduction in gross domestic product (GDP) – up to almost 20 percent, are also linked to a sharp break in time and massive in number of long-term economic chains formed over the several decades. ^[29] This represents a systemic blow to national reproduction, which traditional tools are unlikely to overcome.

In this situation, in our opinion, it is advisable to pay attention to the potential of financial control, both from the standpoint of the historical features of its scientific research and interpretations, and from the perspective of the prospects for the development of digital processes in the Russian economy.

In the history of world financial science, the traditional approach was from a market perspective, according to which finance itself was interpreted through the concentration and use of limited resources in the income and expenditure flows of the population, corporations and the state. Hence, financial control was logically presented through functioning tools within the framework of various organizational forms, hierarchies and goals. These studies of instrumental and organizational components, carried out for a long time, have reached a fairly high level and largely correspond to the challenges of our time.

Another approach, significantly more limited in prevalence, was the presentation of finance as a kind of economic relations. The object of these relations were funds of money, diverse in many criteria, which were formed and used in reproductive processes. The localization of this approach was several planned socialist economies. In this case, financial control seems to be more functionally systemic and focused mainly on the structural and cost proportions of the creation and movement of GDP, which determine the corresponding flows of limited production and financial resources.

In the latter direction of research, the main criterion for the effectiveness of the movement of limited financial resources is the realization of the priority interests of participants in the dynamics of social reproduction. The content of financial control becomes functionally embodied in the general management system of national reproductive development.

This approach is generally preserved in modern Russian financial science, but in particular financial control, the main priority turned out to be instrumental interpretations. However, right now, both in the context of the protracted consequences of the global financial crisis, and from the standpoint of the formation of the foundations of a new economic order, the relevance of this approach has increased significantly. The fact is that the pronounced loss of reproductive control was and is an essential prerequisite for contradictory phenomena in the global and national economies, despite the fact that the main financial instruments in the markets have not lost their effectiveness and continue quantitative growth.

To overcome many modern contradictions of macroeconomic development, it is necessary to increase the functional role of the reproductive components of financial control, in which the economic relations of the participants mean much more than instrumental and organizational forms. Therefore, the transformation of financial control as a system element of economic relations seems to be one of the foundations of both reproductive management and the new economy. Relevant research will need to be carried out regardless of the real history of one or another economic ideology used, while focusing primarily on the processes of formation and development of new economic relations in the space of finance and control.

Modern financial control in its content and organization was formed mainly on the basis of market interpretations of finance, which led to the importance of system instrumental support. This has become characteristic of both the Western scientific tradition and the Russian sphere of financial science, although general financial research was based on different definitions.

Thus, the ideas of financial control were formed as derivatives of the most common interpretations of finance itself in the world, which focused mainly on the problems of money management. Among the latter, the most well-known are, for example: the theory of decision-making regarding the employment of limited production resources based on the assessment of financial markets ^[6]; pricing models for financial assets and the principles of their optimal distribution ^[5]; the concept of a portfolio approach based on the selection of its assets according to real efficiency ^[3]; methods of monitoring macroeconomic price compliance production and structure of financial markets ^[4] and a number of others. Thus, the main functional characteristics of finance are revealed mainly through the content of a sufficiently large number of instruments.

Accordingly, financial control received an even more concentrated instrumental expression. However, the potential of financial control in the instrumental system was not only not fully revealed, but also practically disappeared from economic relations altogether.

First of all, it is advisable to pay attention that the interpretation of financial control exclusively as a tool focused on compliance with legislation is very characteristic of research in the field of public policy, as well as for the theory and practice of management. ^[17] This is where, in our opinion, the widespread idea of financial control comes from through a set of measures and operations to verify the financial aspects of economic activity.

A more pronounced example of this approach is the full inclusion of financial control in the space of financial law, implemented in the interaction of economic and legal institutions. But the content limitations of such interpretations are associated with the difficulties of practical development of common financial and legal framework definitions and norms. ^[18]

A certain way out of these contradictions could be a further expansion of the tools used (for example, controlling, budgeting, monitoring the motivation of financial agents, etc.), but there remains the problem of developing and adopting adapted indicators regarding the effectiveness of the use of limited production resources, which cannot be limited only by market criteria of profitability. Especially in the current conditions of the formation of a new economic reality.

The limitations of the approach under consideration are manifested in the absence to date of the possibility of using an integrated complex of financial control, in which all existing tools would be systematized in a single organizational structure. This would eliminate numerous facts of duplication of inspections and increase the requirements for the responsibility of performers, without which it is impossible to ensure an increase in the effectiveness of control. ^[9]

It is also not possible to ensure the systemic interconnection of economic, legal, internal, external, process and state forms of financial control, especially when it comes to system-forming industries and sectors of the national economy. ^[15]

Therefore, attempts are being made among scientists to create universal methods of financial control that allow for checks in all areas of interaction between market participants, in particular on the basis of multivariate coefficients of analysis and evaluation of financial decisions. ^[24]

All of the above causes another current situation – with a large number of opinions of scientists and specialists, to a certain extent, the formation of a unified and effective financial control management system is excluded. Moreover, there is simply terminological confusion and uncertainty, which is noted in the scientific literature. ^[8]

The given rather brief analysis of approaches to the existing problems in the field of financial control shows the need to transform functioning management systems not so much in terms of the tools used, as in the development of relevant economic relations. This challenge is integrated with the more general processes of accelerated formation of a new economic order. In fact, we are getting a so-called "window of opportunity" for an effective transformation of the financial control management system in conditions of a higher functional level of transformation of modern economic relations. Therefore, in our opinion, it is illogical to present the transformation of financial control management in the near future through traditional tools related to the establishment of legislative requirements, clarification of the composition of authorized persons, organization of interaction of participants in the process, etc.

From the standpoint of economic practice, the main shortcomings of modern financial control and its management system are most clearly manifested in the unfolding processes of financialization at the global and national levels. These processes are directly represented by the clear and increasing predominance of the financial interests of participants in economic activities of a purely commercial nature over the public interests of reproduction. ^[7] Along with the dominance of the financial sector in the management of the main resource flows, the prevalence of the number and functional significance of financial transactions in the economic space has increased. ^[13] Characteristic, since the eighties of the last century, has been the outpacing growth of the aggregate of financial transactions relative to the growth of both national products and the growth rate of investments in fixed assets of the real sector in the world economy. ^[19]

Figure 1. Indicators of added percentages to the gross domestic product of the United States in 2020, by industry, as a percentage of GDP (the chart is compiled by the author according to: Statista. Percentage added to the Gross Domestic Product of the United States of America in 2020, by industry (as a percentage of GDP).- https://www.statista.com/statistics/248004/percentage-added-to-the-us-gdp-by-industry /) (accessed: 05.04.2022).

Only from 1990 to 2015 there was a sevenfold increase in financial assets, and after the global financial crisis in the same year, with the doubling of the capitalization of the stock market in the main group of the most developed countries, that is, the USA, the EU, Japan and the UK, the number of investments remained at the same level. ^[20]

The dominance of the financial sector is well illustrated by the example of the United States in the structural dynamics of gross domestic product (GDP) (see Figure 1).

Directly according to Russian practice, as a typical example, attention should be paid to the widening gap in the dynamics of indicators of financial investments and investments in non-financial assets (see Figure 2).

Figure 2. Dynamics of indicators of financial investments of organizations and the volume of investments in non-financial assets in the Russian Federation in 2000-2020, as a percentage (the diagram is calculated and compiled by the author according to the Federal State Statistics Service: URL: https://rosstat.gov.ru/investment_nonfinancial ; https://rosstat.gov.ru/folder/14476 (accessed: 04/10/2022)

Thus, with sufficient reason, it can be argued that financial control, from the point of view of macroeconomic management, does not ensure the real fulfillment of the main functional goal - maintaining the equilibrium of the cost proportions of national reproduction. And this is despite the separate effectiveness of the tools used. In fact, the main modern threats to economic development turned out to be out of financial control. Accordingly, the Russian scientific literature notes the need not just to strengthen financial control, but to raise it to a new qualitative and functional level. ^[22]

At the same time, the need for a new quality of financial instruments and financial systems is also recorded by foreign specialists. First, after the global crisis, the question was raised about the revision of the historical postulate about the unconditional efficiency of the distribution of limited production resources by free financial markets. ^[16] Secondly, a real attempt was made to reform the international financial system as a result of the global crisis. The plan of the leaders of the G-20 countries provided for the transformation of international financial institutions, new forms of stimulating world trade, expansion of investments to restore employment of resources. However, as highlighted in the annual Report on Trade and Development of UNCTAD, trillions of dollars were spent ineffectively, as they were mainly aimed at restoring the old system. ^[12]

Therefore, in our opinion, the need for a new quality of financial management remains and is reinforced by additional challenges of recent months. Financial management should become, firstly, reproductive in nature, and secondly, based on constant financial control. It is necessary to actively integrate financial control tools into modern reproductive process management systems. Priorities should be given to the integration of financial control with the development of management decisions.

These needs are currently being combined with new technological capabilities, which is a characteristic feature of modernity. On the one hand, the prospects for the transformation of financial control are predetermined by the active processes of digitalization of the national economy. On the other hand, the prospects of financial control are largely interrelated with the formation of network-centric principles of the organization of management systems.

Among the main characteristics of the new economy, it is advisable to highlight three points. Firstly, the reorganization of traditional market economic relations in connection with significant changes in lifestyle, consumer preferences and behavioral motivations, radically changing the principles of economic decision-making. ^[28] Secondly, the transformation of the living space and economy in urban and rural areas under the influence of the implemented smart infrastructure with a correspondingly growing burden on financial resources. ^[11] Thirdly, the systemic integration of the foundations of social and economic development through unified digital technologies, which opens up opportunities to increase the level of synergy in economic relations, especially in their financial part. ^[25]

In digital technologies in the financial sector, priority is currently given to the end-to-end digital technology of a distributed public registry. ^[27] Its main advantage lies in the effective system integration of distributed nodes into a peer-to-peer network operating on the basis of self-management and permanent transaction recording functions with their subsequent storage and access to them by participants. Due to the sequence of chains and blocks being built into a connected list with subsequent storage on a variety of computers, this technology has received a common name as blockchain technology.

It is this technology that creates the potential for universality and efficiency for financial control, since the constant accumulation of new records of financial transactions is accompanied by the creation of conditions for the complete exclusion of the possibility of changing previously implemented ones. On this basis, prerequisites are created for real universal and absolute control over the actions of all participants in the financial market and the national economy. ^[21]

The use of the potential of the distributed registry in financial control processes creates new opportunities for the implementation of its main goal - ensuring an effective balance of the cost proportions of reproduction. In fact, the development of financial relations is integrated and involves the introduction of elements of financial control into their entire space.

More specific ways to implement the new quality of financial control in financial management systems are associated with the expansion of the practice of network-centric management. This terminology itself, being quite opportunistic, has its roots in the military-political spheres, but currently has a deep meaningful relationship to the space of economic and managerial relations. Like the Internet, it was also originally developed in the depths of military structures, which became the basis of modern transformation and digitalization of the economy.

The concept of network-centricity means such a principle of creation and functioning of a management system, in which a multi-level continuous updating of the maximum number of primary information sources is carried out in the mode of constant and complete situational awareness of all its hierarchical structures. Thus, two most important requirements of managerial decision–making are realized - the concentration of participants' efforts on the task at hand with the maximum possible use of the fullness of information. ^[23] In terms of building an effective financial management system with a control function, it becomes possible to support reproductive goals at all hierarchical levels and generate solutions based on self-organization. All effective financial control tools, be they institutions, projects, subsystems, etc., can be fully integrated into the processes of implementing financial relations, and in management systems use not only horizontal and vertical, but also diagonal relationships.

The network-centric management system eliminates the breakdown into separate levels and, being decentralized, multi-agent and distributed, eliminates the former rigid hierarchy and administrative forms of control. ^[26]

Network structures are generally assigned one of the fundamental properties of the new economy, and their management is network-centric. In general, the network-centric management concept makes it possible to use the competitive advantages of information superiority in the economic and financial spheres. ^[14]

Thus, financial control is integrated into the subsystem of financial relations, which functions in order to optimize the efficiency of national reproduction. Financial control integrated into network-centric financial management systems forms the basis for decision-making taking into account the interests of the reproductive development of the national economy and can ensure the concentration of financial resources on nodal reproductive drivers in the new conditions. Especially when the informatization and rationalization of economic relations prioritizes the principles of civilizational development in contrast to the earlier motives of net profit.