Problems of innovation in the light of evolutionary theory
The article examines the features of the economic order that has been established in the former Soviet republics and impedes their innovative development. It is shown that this order, based on the family and clan private economic power, rejects the cooperation of economic actors that produce, select...
Збережено в:
| Опубліковано в: : | Економічний вісник Донбасу |
|---|---|
| Дата: | 2010 |
| Автори: | , |
| Формат: | Стаття |
| Мова: | English |
| Опубліковано: |
Інститут економіки промисловості НАН України
2010
|
| Теми: | |
| Онлайн доступ: | https://nasplib.isofts.kiev.ua/handle/123456789/23994 |
| Теги: |
Додати тег
Немає тегів, Будьте першим, хто поставить тег для цього запису!
|
| Назва журналу: | Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| Цитувати: | Problems of innovation in the light of evolutionary theory / V.P. Vishnevsky, V.V. Dementiev // Економічний вісник Донбасу. — 2010. — № 4(22). — С. 5-17. — Бібліогр.: 33 назв. — англ. |
Репозитарії
Digital Library of Periodicals of National Academy of Sciences of Ukraine| id |
nasplib_isofts_kiev_ua-123456789-23994 |
|---|---|
| record_format |
dspace |
| spelling |
Vishnevsky, V.P. Dementiev, V.V. 2011-07-08T10:23:00Z 2011-07-08T10:23:00Z 2010 Problems of innovation in the light of evolutionary theory / V.P. Vishnevsky, V.V. Dementiev // Економічний вісник Донбасу. — 2010. — № 4(22). — С. 5-17. — Бібліогр.: 33 назв. — англ. 1817-3772 https://nasplib.isofts.kiev.ua/handle/123456789/23994 [338.1:330.341.1]:346.5 The article examines the features of the economic order that has been established in the former Soviet republics and impedes their innovative development. It is shown that this order, based on the family and clan private economic power, rejects the cooperation of economic actors that produce, select and inherit the “short rules” of interaction. It is proved that, in order to change it, it is necessary to create conditions for restricting the private economic power through co-opetition, the formation of organizational identification and “long rules” of interaction among the economic actors. Keywords: innovations, institutes, evolutional theory, economic order. У статті досліджено особливості господарського порядку, що склався в республіках колишнього СРСР і перешкоджає їх інноваційному розвитку. Показано, що цей порядок, заснований на сімейно-клановій приватній економічній владі, відторгає співпрацю економічних суб’єктів, що виробляють, відбирають і наслідують “короткі правила” взаємодії. Обґрунтовано, що для його зміни потрібно створити умови для обмеження приватної економічної влади за допомогою співпраці конкурентів, формування організаційної ідентифікації і “довгих правил” взаємодії економічних суб’єктів. Ключові слова: інновації, інститути, еволюційна теорія, господарський порядок. В статье исследованы особенности хозяйственного порядка, который сложился в республиках бывшего СССР и препятствует их инновационному развитию. Показано, что этот порядок, основанный на семейно-клановой частной экономической власти, отторгает сотрудничество экономических субъектов, которые вырабатывают, отбирают и наследуют “короткие правила” взаимодействия. Обосновано, что для его изменения требуется создать условия для ограничения частной экономической власти посредством сотрудничества конкурентов, формирования организационной идентификации и “длинных правил” взаимодействия экономических субъектов. Ключевые слова: инновации, институты, эволюционная теория, хозяйственный порядок. en Інститут економіки промисловості НАН України Економічний вісник Донбасу Economic Theory Problems of innovation in the light of evolutionary theory Проблеми інновацій в світлі еволюційної теорії Проблемы инноваций в свете эволюционной теории Article published earlier |
| institution |
Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| collection |
DSpace DC |
| title |
Problems of innovation in the light of evolutionary theory |
| spellingShingle |
Problems of innovation in the light of evolutionary theory Vishnevsky, V.P. Dementiev, V.V. Economic Theory |
| title_short |
Problems of innovation in the light of evolutionary theory |
| title_full |
Problems of innovation in the light of evolutionary theory |
| title_fullStr |
Problems of innovation in the light of evolutionary theory |
| title_full_unstemmed |
Problems of innovation in the light of evolutionary theory |
| title_sort |
problems of innovation in the light of evolutionary theory |
| author |
Vishnevsky, V.P. Dementiev, V.V. |
| author_facet |
Vishnevsky, V.P. Dementiev, V.V. |
| topic |
Economic Theory |
| topic_facet |
Economic Theory |
| publishDate |
2010 |
| language |
English |
| container_title |
Економічний вісник Донбасу |
| publisher |
Інститут економіки промисловості НАН України |
| format |
Article |
| title_alt |
Проблеми інновацій в світлі еволюційної теорії Проблемы инноваций в свете эволюционной теории |
| description |
The article examines the features of the economic order that has been established in the former Soviet republics and impedes their innovative development. It is shown that this order, based on the family and clan private economic power, rejects the cooperation of economic actors that produce, select and inherit the “short rules” of interaction. It is proved that, in order to change it, it is necessary to create conditions for restricting the private economic power through co-opetition, the formation of organizational identification and “long rules” of interaction among the economic actors. Keywords: innovations, institutes, evolutional theory, economic order.
У статті досліджено особливості господарського порядку, що склався в республіках колишнього СРСР і перешкоджає їх інноваційному розвитку. Показано, що цей порядок, заснований на сімейно-клановій приватній економічній владі, відторгає співпрацю економічних суб’єктів, що виробляють, відбирають і наслідують “короткі правила” взаємодії. Обґрунтовано, що для його зміни потрібно створити умови для обмеження приватної економічної влади за допомогою співпраці конкурентів, формування організаційної ідентифікації і “довгих правил” взаємодії економічних суб’єктів. Ключові слова: інновації, інститути, еволюційна теорія, господарський порядок.
В статье исследованы особенности хозяйственного порядка, который сложился в республиках бывшего СССР и препятствует их инновационному развитию. Показано, что этот порядок, основанный на семейно-клановой частной экономической власти, отторгает сотрудничество экономических субъектов, которые вырабатывают, отбирают и наследуют “короткие правила” взаимодействия. Обосновано, что для его изменения требуется создать условия для ограничения частной экономической власти посредством сотрудничества конкурентов, формирования организационной идентификации и “длинных правил” взаимодействия экономических субъектов. Ключевые слова: инновации, институты, эволюционная теория, хозяйственный порядок.
|
| issn |
1817-3772 |
| url |
https://nasplib.isofts.kiev.ua/handle/123456789/23994 |
| citation_txt |
Problems of innovation in the light of evolutionary theory / V.P. Vishnevsky, V.V. Dementiev // Економічний вісник Донбасу. — 2010. — № 4(22). — С. 5-17. — Бібліогр.: 33 назв. — англ. |
| work_keys_str_mv |
AT vishnevskyvp problemsofinnovationinthelightofevolutionarytheory AT dementievvv problemsofinnovationinthelightofevolutionarytheory AT vishnevskyvp problemiínnovacíivsvítlíevolûcíinoíteoríí AT dementievvv problemiínnovacíivsvítlíevolûcíinoíteoríí AT vishnevskyvp problemyinnovaciivsveteévolûcionnoiteorii AT dementievvv problemyinnovaciivsveteévolûcionnoiteorii |
| first_indexed |
2025-11-25T21:31:34Z |
| last_indexed |
2025-11-25T21:31:34Z |
| _version_ |
1850552107742003200 |
| fulltext |
5
Економічний вісник Донбасу № 4 (22), 2010
SCIENTIFIC ARTICLES
V. P. Vishnevsky, V. V. Dementiev
УДК [338.1:330.341.1]:346.5
V. P. Vishnevsky,
Dr. of Science (Economics), Prof., Institute of Industrial Economics NAS of Ukraine,
Donetsk,
V. V. Dementiev,
Dr. of Science (Economics), Prof., Donetsk National Technical University
Economic theory
The world financial crisis has vividly demonstrated
acute problems in the innovative development of the former
Soviet Republics (the USSR). The state with the innovation
there is depressing, if you look at it from the standpoint of
American and European leaders, and disastrous — when
compared with the Asian Dragons (South Korea, Singapore,
Hong Kong, Taiwan) and China (Table 1).
It cannot be stated that very few people understand
the importance of innovative development. Just on the
contrary: this idea is accepted by almost everybody —
from presidents to ordinary citizens. There have been
adopted the laws on innovation. The development of
innovative policies and programs at the national and
regional levels turned into a particular genre of standard-
setting activities. There were held parliamentary hearings
on the issue. However, neither Russia nor Ukraine, the
two largest economies in the former Soviet Union1, in
spite of good starting points, are not currently and,
apparently, will not become in the nearest future, the
innovation leading countries.
The reason which is often mentioned in analytical
documents of various kinds is the lack of financial
resources for innovation, caused by the complex
processes of market transformations. However, such
explanation gives rise to doubt.
Indeed, despite certain differences in the policies
of the former Soviet republics, their common economic
characteristic is a very low level of expenditure for
producing new goods, developing and introducing new
technologies. Yet this does not mean that resources
necessary for this are not available. For example, the
business costs for innovation are comparable, if not yield,
to expenditures for maintaining political parties, football
clubs, bribes, etc.2 This proves not a lack of funds, but a
specific scale of local entrepreneurs’ values. Investments
in innovation are not their primary need, and technical
and technological backwardness of the enterprises is not
a critical issue. All of these can be sacrificed in favour of
other, more important priorities.
The matter thus is not in the lack of money for
innovation. At least the question could be put this way:
why were not even the most abundant financial resources
of pre-crisis “mast years” used efficiently, and was not
money allocated for the production modernization and
productivity increase? Why, do even those businesses
which now have a high level of output liquidity and,
consequently, good financial opportunities have no
innovations or remain under-invested?
But before these questions can be answered, it is
necessary to refer to the methodology of researching the
issue.
Methodology
Innovation is usually understood as the introduction
of new products, new technologies and other types of
activities that promote knowledge transfers and adapt
production processes. From the standpoint of the
economic theory of the firm, innovation requires learning
about how to transform technologies and access markets
in ways that generate higher quality, lower cost products
(Lazonic 2006, p. 30).
Mainstream economics — the neoclassical
economic theory — considers innovation through the
prism of the optimizing firm. But the optimizing firm
cannot be innovative simply because the innovative firm
transforms some of those technological capacities or
opportunities and market prices that the optimizing firm
takes as given (Lazonic, 2006, p. 31). Therefore the
PROBLEMS OF INNOVATION IN THE LIGHT OF EVOLUTIONARY THEORY
1 In the Russian Soviet Federative Socialist Republic and the Ukrainian Soviet Socialist Republic there were concentrated approximately
70% of the former Soviet Union population and almost 80% of all industrial fixed assets.
2 For example, in the pre-crisis 2008, all enterprises of Ukraine spent about $240 million on research and development, while the total
annual budget of only two of the leading Ukrainian football clubs — Shakhtar Donetsk and Dynamo Kiev — exceeded $ 140 million.
6
Економічний вісник Донбасу № 4 (22), 2010
V. P. Vishnevsky, V. V. Dementiev
Ta
bl
e
1
So
m
e I
nd
ic
at
or
s o
f I
nn
ov
at
iv
e A
ct
iv
ity
in
th
e W
or
ld
*
LM
IC
—
lo
w
an
d
m
id
dl
e i
nc
om
e c
ou
nt
rie
s (
ac
co
rd
in
g
to
th
e W
or
ld
B
an
k
cl
as
si
fic
at
io
n)
.
**
H
IC
—
h
ig
h
in
co
m
e c
ou
nt
rie
s (
ac
co
rd
in
g
to
th
e W
or
ld
B
an
k
cl
as
si
fic
at
io
n)
.
C
om
pi
le
d
ac
co
rd
in
g
to
: W
or
ld
D
ev
el
op
m
en
t I
nd
ic
at
or
s 2
00
9.
—
T
he
W
or
ld
B
an
k:
D
ev
el
op
m
en
t D
at
a
G
ro
up
, 2
00
9.
7
Економічний вісник Донбасу № 4 (22), 2010
V. P. Vishnevsky, V. V. Dementiev
canonical economic theory does not give a satisfactory
explanation to the phenomenon of innovative activity.
Further, if we take into account the circumstances of
time and place, usually ignored by neoclassics, it is easy to
notice that the skills base used by enterprises to transform
technologies and to get access to the markets may
significantly vary even within the same type of industrial
activity in the same historical period, leading to various
innovative results, so that innovations naturally occurring in
the same institutional environment can just as naturally be
absent in the other. Moreover, even in one and the same
industry in one country the institutional environment that
produces good results in a given period of time may get in
the way of getting them in another period.
At the present time in Russia and Ukraine in
almost all sectors there has formed such an economic
order that rejects innovation. So the first task set in
this article is, using the tools of institutional theory, to
investigate (in the context of innovation) the features
of this order, i.e. specificity of those structured
interactions among people that were formed on the
basis of institutes-rules (organizational routines) with
their inherent mechanisms of coercion. In other words,
this task is to analyse the situation in which economic
actors operate “within the rules”.
But in the long run, the institutions-rules themselves
are not anything unchangeable, static (Hamilton 1970); they
are also variable, inherited and selected in the sense that:
(1) the source must be causally involved in the production
of the copy; (2) the copy must possess the capacity to
replicate and be like its source in other relevant respects;
(3) the process that generates the copy must obtain the
information that makes the copy similar to its source from
that same source (Hodgson and Knudsen 2006, p. 484).
From the evolution theory standpoint, they represent
one of the properties (factors) of fitness. One — because
there may be other properties defining the ability of
companies to survive under these time and place
circumstances. Ultimately, those can survive who, other
things being equal, acquire properties — choose the
standards of conduct — that are relevant to external
environment. This choice may be lucky or not.
In biological evolution by natural selection it is
possible to inherit the properties that solve the local
problem of individual genotypes transfer, but also interfere
with the reproduction of species as a whole and lead to
its extinction3. The same way the public life may follow
unsuccessful rules that help solve local problems (for
example, the survival of enterprises in the specific context
of the ongoing redistribution of property), but do not
create necessary prerequisites for solving more general
problems (for example, their successful competition with
the world’s innovation leaders who operate under
conditions of well-protected property rights).
The evolutionary methodology is appropriate here,
because variability and population theory of natural
selection by Charles Darwin can be considered as one
version of a more general form of historical explanation,
and the population mode of explanation can be applied
not only to organic species, but to the historical objects
as well (Toulmin 1972; Witt 2008). It is only important
to take into account that it is used not to explain any
changes in time, but only those when “... we are interested
in how open, complex systems become adapted to their
environments, how variety evolves from common origins,
and how design accumulates over time, Darwinism
specifies both the necessary and sufficient conditions to
explain these phenomena.” (Stoelhorst 2008, p. 358).
Our study is just the case, because:
open, complex systems — domestic enterprises —
adapt to their environment;
variety of organizational routines arises from the
general situation of initial anarchy of the post-socialist
accumulation;
selected routines for enterprises accumulated over
time and led to the formation of the current situation.
Hence the second task is to explore, using the tools
of evolutionary theory, how the institutions-rules that
prevent innovation have been formed, and on that basis
to substantiate what it is necessary to set the further
evolution of the rules on track needed for the innovative
development of the economy.
The Institutional Model
In the market economy the goods are not produces
unless they have effective demand. Since innovation at
domestic enterprises “will not go” in the former Soviet
Republics, it means that there is no effective demand for
them on the part of a business, or at least this demand is
suppressed.
Businesses’ demand for innovations is a demand
for them from the side of the dominant owners of assets.
At the domestic enterprises they are presented, as a rule,
by physical (not legal) persons. Since commonly the
property has not been detached from the management
yet, it is usual that the owners and/or affiliates are at the
3 As noted by P. Samuelson: «Sexual selection … describes cases in which male birds evolve to have ever more elaborate tails, which
may serve no functional use and indeed may degenerate into dysfunctional baggage; yet this odd process can even accelerate if females for
whatever reason are preprogrammed to exercise mating choice toward ever-bigger tails». And further: «... there is something perverse and
pathological about sexual selection, in which what makes for individual fitness in the sense of differential survivability of genotypes within
the species can be definitely conducive to group unfitness. Those tails thus can grow indefinitely until they cause the species to be rare
or go extinct» (Samuelson 1993, p. 144).
8
Економічний вісник Донбасу № 4 (22), 2010
V. P. Vishnevsky, V. V. Dementiev
same time top managers (strategic controllers) of the
enterprise4. This phenomenon has been called “the
physical bodies’ economy” (in the Russian-language
literature) and “family and clan capitalism” (Roth 2005),
which means the concentration of economic power at
the enterprises in the hands of some individuals and their
families, exercising supreme control over the commodity
production and the distribution of incomes from its sales.
The owner of the assets in the post-Soviet countries,
like many other economic subjects, seeks to maximize private
utility (taking into account restrictions from the risks,
acceptable standards of behaviour, etc.), or, in other words,
the personal income. This is his causa finalis and, accordingly,
the purpose of managing the company under his control. In
relation to this objective everything else (innovations, new
equipment and technology, productivity, profitability of
production, its environmental characteristics, etc.) is of
secondary character and is accepted only in so far as it
contributes to the maximization of his personal income.
Personal income of the owner’s assets is derived
from the profit from the company controlled, remaining
after paying taxes, other compulsory payments, dividends
to minority shareholders, etc. Therefore, the initial point
to explain the lack of demand for innovation from the
assets owners is the analysis of the main sources of and
ways to maximize the profit of enterprises and further
— a personal income of the owner.
According to the canonical economic theory there
is no economic profit on the markets dominated by perfect
competition. Maximum the owner can count on is a so-
called “normal profit of entrepreneur”, which is a part of
economic costs. The condition for getting economic
benefit is the possession of some competitive advantage.
In the market economy, if we exclude the natural
monopolies, arbitrage transactions, and fraud, there are two
basic ways of creating competitive advantages for companies
to obtain economic profit. Moreover, these ways are to a
certain extent mutually exclusive and incompatible.
The first way is innovative. The company receives
an economic benefit, as it forms special production
capacities, ensuring lesser quantities of physical
production costs (lower resource consumption) per a
unit of output compared to other producers in the
industry, or releasing the goods with such characteristics
that competitors do not possess. This way is based on
the creating technical, technological and organizational
advantages by an entrepreneur over other producers. In
this case, the source of profits that he receives is a
temporary monopoly of the innovator.
An innovative way to create economic benefits is
associated with the risk of investment in research and
development, new equipment and technology, and involves
relatively broad time horizons of economic planning, since
such investments can usually provide returns only in the
long run. Therefore, the basic condition for innovative
development is the availability of stable, “long rules” ensuring
that economic gains resulting from investments in
knowledge, and further in new machinery and technology,
will not be confiscated, stolen, withdrawn legally, etc., and
business based on innovation, will not be taken away.
The second, currently predominant path is the rental
maximization of the economic profit. Its essence is that
a source of profit is an understatement, compared to the
market of free competition, of prices per a unit of
resources used, inflated prices for final products, refusal
to bear the full burden of social costs (the understatement
of tax and other payments from income), or the refusal
to share the profits received with other claimants. In this
case the owner assigns the rent, i.e. income that exceeds
the contribution of the owner and his own production
factors in the creation of the social product.
The condition of the rental, yet, in fact, the predatory
way of making profit is the advantage of having access
to resources of the economic power, making economic
actors agree to those conditions that are dictated to them
by the owner of assets (Takata 1995). This power can
be based on the market monopoly, power of money,
political, administrative, criminal power, etc. It is the
availability of private economic power that is the main
competitive advantage which allows receiving the rent
and makes the coercion, necessary for this, possible.
The private economic power is the most valuable
resource of domestic enterprises. Thanks to its availability
the owner’s assets gain the capacity to generate rental income.
But not every business owner and the owner of not every
business can receive such income. They are available only
to that owner, who dominates inside the enterprise, and
only to the company which may “impose” its own terms to
the suppliers of resources and/or to the product consumers.
That is, in order to make a profit, not enough to be the
owner of the assets, one should possess the power.
Within these realities the development of engineering
and technology, improvement of production engineering,
etc. are not the main conditions for receiving a profit. Only
minimal maintenance of its technical and economic level is
necessary to create products that are in demand on the world
or domestic markets. The main prerequisite for getting profit
is power, while production, engineering and technologies
are auxiliary (required but not sufficient) conditions.
So, the owner of the assets has to choose (whether
4 For example, a study carried out by the Corporate Governance Rating Service Standard & Poor’s in pre-crisis 2007 showed that the
boards of directors at the 75 Russian largest public companies, meeting the formal criteria for independence (non-affiliated directors),
occupy a total of 20% of the seats. See: Corporate Governance: Transparency And Disclosure By Russian Companies 2007: High
Turnover In Top 10 // http://www.standardandpoors.com/ratingsdirect.
9
Економічний вісник Донбасу № 4 (22), 2010
V. P. Vishnevsky, V. V. Dementiev
he realizes this or not): either innovative profit, or rent; or
reduction of resource consumption per a unit of output,
or imposing “correct” prices on suppliers and consumers;
or investment in new products and methods for their
production or investment in the system of economic power.
Choosing the owner of the assets as a rational
individual is determined by the relative return on an
investment unit in different ways of making profit. The
lack of effective demand for innovations means that the
current structure of costs and benefits of doing business
is such that investments in alternative ways of making
profit give greater returns than innovative. Here’s why.
First of all, we should note the lack of reliable
protection of property rights due to the deficit of effective
public (legislative, executive and judicial) authorities, the
government’s inability to enforce contracts. In practice,
this means the presence of arbitrary rules (“short rules”)
as a factor in economic life, availability of opportunities
to share income and assets not in accordance with the
contribution to social welfare, but in accordance with
the power (monetary, political, administrative, criminal),
which some peoples or group of persons possess.
On the basis of the arbitrary rules there is shaped
the asymmetry of economic power, which means its
surplus in some individuals and economic structures and
its deficit in other people. This excess of power, allowing
dictating prices and transactions conditions, can manifest
itself as: the market power, based on the monopoly of
the business entity, the corporate power, when some
companies through participation in the property and
otherwise take over other companies, the administrative
power within businesses, dictating the terms and
conditions of remuneration, the order and direction of
the profits distribution, the government power of the law
enforcement and judicial bodies used for private purposes;
the physical force power of the legal security structures
and criminality.
With this economic order, to make a profit the owner
must either have the power himself, or be under the
protection of the person who possesses such power, or,
finally, buy the services of the authority. Competition for
new technology and product quality — the basic condition
for the innovative economy — is supplanted and replaced
with competition for sources of power, resulting in its
ever-increasing concentration.
The desire for power in these conditions is dictated
not only by positive goals to increase personal income, but
also by protective purposes. Without access to the resources
of power under “short rules” conditions it is quite problematic
to do business and even to keep it. Thus, to some extent,
the owner of assets has no choice: to invest in power or
not. Without such investments it becomes impossible to
maintain his position as the owner, to receive income from
the assets controlled, and, often, to exist securely.
Investments in power are investments in: the political
system in the form of financing political parties’ activity
and promoting their representatives in the government
structures, corruption to make profitable decisions,
acquisition, takeover and seizure of enterprises that have
influence on the costs and benefits of doing business;
the establishment of new business structures whose
purpose is not production, but release of the owner’s
income from the control; the staff capable either to
exercise power or to serve the authority; the formation
of ideological influence on the political and economic life
and the ideological justification for the power claims; the
creation of the system for private violence in the form of
its own security structures and/or criminals.
The result of investment in power was the formation
of a particular economic order (and on its base — political
and social organisation) as a set of sustainable socio-
economic relations and forms of doing business, by which
the economic profit is created and then extracted and
assigned to the asset owners. The key element, the
supporting structure of such economic order is relationships
of dominance and power that are formed in the economy.
In such institutional conditions investment in
innovation faces several challenges.
The first problem is the narrow time horizons of
economic planning and short-term interests — what we
have called the “short rules”. In the world of private power
domination no one, neither at the individual level nor at
the firm level, is protected against arbitrariness, against
the situation when his incomes, property, position at the
enterprise, and finally, personal freedom, will be lost. The
famous phrase by J.M. Keynes that in the long run we
are all dead sounds especially topical in these conditions.
From this follows the dominance of short-term interests
and “investment myopia”. In the short run, while the
rules remain unchanged, profit or personal income can
be securely received only by being embedded into a power
system, but not through investment in innovation.
The second problem is the availability of alternative
sources of income and, consequently, low costs in the
form of missed profits from investments in innovation.
It makes no sense to invest in research and development,
design and implementation of new technology, creating
new products and bearing the associated risks, when the
same amount of income can be received by an alternative
way. Moreover, technical and technological
backwardness is not an existential threat to the domestic
business. So far it is much more afraid of the prosecutor
than of its own technical and technological backwardness
or low competitiveness of output.
The third problem is the high transaction costs of
innovation. They are associated with the fact that the
organizational structure of the business controlled by the
owner is focused on performing special tasks —
establishing economic power, concealing the property
rights and income, — and is poorly adapted to the
10
Економічний вісник Донбасу № 4 (22), 2010
V. P. Vishnevsky, V. V. Dementiev
innovation processes. There is no organizational structure
of managing the process of innovation promotion and
innovation management in the domestic business. This
structure is dominated not by the long-term production
development needs, but by the short-term financial
interests. Production management is detached from
financial flows management and occupies a subordinate
position. It is difficult to find such large private companies,
where the right hand of the owner is not a director of
finance, but a production director or a chief engineer. Any
promotion of investment through those networks, within
which the modern business operates, simply drowns in
the abundance of organizational problems and related costs.
The fourth problem is the staff resistance. The
current economic system makes the demand for such
personnel, the key feature of whom is either the ability to
exercise power and subjugate the people, or the ability to
maintain power and ability to serve to those in power,
and often, both abilities together. The rent-oriented
behaviour model, based on the private power, is
reproduced at all levels of governance: from top managers
to workers. And the value of individual income is
determined not by a contribution to the added value
creation, not by the labour cost, no by qualifications,
but, above all, by the place occupied in the managerial
hierarchy of companies. Just as in the economy as a
whole, the system of income distribution within the
business structures depends not on the ability to generate
new technical and technological solutions, but on the place
in the power hierarchy and the proximity to its centres.
In addition, there exists a banal resistance to the
innovators on a personal level, because they represent a
threat to the existing distribution of jobs and income in
the corporation. In the existing situation in the personnel
scheme there are no people able to generate and promote
technical innovation; they are rejected by the system.
The fifth problem is the lack of scientific
infrastructure for innovation. Effective functioning of
innovation systems assumes interaction among businesses
and research institutes and universities, availability of the
skilled and mobile personnel, able to perceive and transmit
new knowledge and skills (National Innovation Systems
1997). However, deriving the rent by understating the
costs of education and scientific research (on which it
seemed painless to save) resulted in the lack of investment
required for the reproduction of scientific research and
training scientific and technical personnel. In the end,
there remains no one to generate innovation and implement
them “in metal”. Business proved to be not ready to bear
the costs necessary for the maintenance and development
of innovation infrastructure.
Thus, the first principle of the existing economic
order determines how a profit is received. This is ensured
by the private economic power (based on the monetary,
political, administrative, criminal power), which under
conditions of “short rules” brings more income than
innovations. Let us now consider how this profit is
assigned to the owner of the business and becomes his
personal income, and how it affects the economic order.
Here comes into force the second principle of the
current economic order — secrecy. All domestic business
in the former Soviet republics is a great and “terrible
commercial secret”. The entrepreneur can safely declare
that his business is based on innovation, new products
and technologies. But he will not declare the fact that the
basis for getting profit is the power and understatement
of others’ income, and, moreover, he will not show the
real levers of power and personal income it allows
capturing (as the French philosopher M . Foucault once
remarked on this occasion, power is of clear and
undisguised nature only in prison and in a mental asylum).
For the same reason, in order to survive and earn income
in the world of clan capitalism it is necessary to possess
two essential qualities: power and secrecy. For the more
overt are the rights of property and income, the easier it
is to take them away, the more vulnerable they are.
As it has been already mentioned, the personal income
of the owner, as the absolute aim of his business, is formed
from the profit remaining after its distribution. The challenge
is, therefore, not only in inflating prices and minimizing
production costs, but also in minimizing the required
payments from company profits to the state and minority
shareholders (only in Ukraine there are about 18 million
such people). The best way to minimize the payment from
profits, and thereby maximize revenue for the owner is to
withdraw profits from the controlled enterprise and,
further, to hide the person who assigns it.
The most advantageous form of maximizing the
dominant owner’s individual income is not withdrawing
them directly from the profit of a controlled manufacturing
enterprise, but from the income of intermediary firms,
which hold major trade and financial flows. It occurs
according to a well-known scheme: the company products
are sold to such firms at lower (insider) prices and they
are subsequently resold (often repeatedly) and the income
is settled on the accounts of intermediaries.
This explains the paradox that, when the economy
based on private property, a huge number of enterprises
(in Russia — about 30% of their overall quantity, in
Ukraine — about 40%) remain unprofitable for a long
time and none abandons them. The matter is that the
company’s official (reported) profit is not necessary to
the assets’ owner; moreover, it prevents him from
maximizing his utility. Or he gets his personal income,
concealing the actually created profit and “pumping” it
in any way in his pockets, or if the company profits is
withdrawn by embedding it in a vertical hierarchy of
commercial structures, the owner assigns the income
(the income is shared with him) of controlled by these
entities of financial flows.
11
Економічний вісник Донбасу № 4 (22), 2010
As a result of investment in strengthening the
economic power and concealing the mechanisms of
gaining income there arises such an economic order that
rejects the innovation. Even if the owner wants to invest
in it, he will face a number of obstacles, which are
generated by the economic order created by him. This
order is associated high cost of innovative activity, which
has the effect of rejection of innovations by domestic
businesses and explains the lack of effective demand from
enterprises.
Thus, we emphasize again that the main obstacle to
innovative activity is not shortage of funds or lack of
attention to the state regulation of innovation processes.
The stumbling block for innovation is economic and
political institutes of the society, the asymmetry of
economic power and the economic order growing on its
basis. What is the condition of the rental path to profit
gaining — the private economic power — is
simultaneously a major obstacle to innovation
development. The benefits of private economic power
for the rental way of maximizing the income are the cost
for the path of innovation. Therefore the problem of
changing the businesses’ attitudes to innovation is
primarily the problem of changing the existing economic
order and its institutes.
The Evolutionary Model
The current economic order has developed
gradually. It grew out of the anarchy of the early years
of market transformations, “the war of all against all”
(according to Hobbes), when a planned socialist
economic system had been already broken, and no one
really knew how to build a new system of the market
economy. The destruction of the old official ideology,
which gave priority to public interests over the private
and group ones and denied the exploitation of a man by a
man, led to the rapid and widespread dissemination of
opportunistic behaviour and to prevalence of personal
selfish interests.
If in the planned economy the high implementation
standard was the priority, now the economic initiative
popped in the first place. This process was attended by
the creation of the corresponding new forms of social
interaction, structuring the relationship among the
participants of the economic process, and the dying out
of the former forms.
During the transition from the planned to market-
based coordination mechanism in the Russian Federation
and Ukraine there have been adopted decisions on price
liberalization, privatization of the state property and
elimination of state monopoly on foreign trade.
However, instead of the expected formation of a
class of effective private owners, operating on the basis
of stable market rules in the environment of free
competition and are able to meet consumer demand and
to ensure overall growth of the economy, such actions
have resulted in rent-oriented owners-oligarchs (family
clans), driven by the “short rules”, and in unprecedented
for the peacetime economic collapse conditioned by their
actions. One of the mechanisms that ensured such
transformations has been transfer pricing due to price
differences in time and space.
First, prices released in the earlier formed monetary
“overhang” led to hyperinflation — the rapid growth of prices
over time. Persons with the authority to conclude contracts
on behalf of companies have been able to use the material
and financial resources at their disposal for personal gain, in
effect, to privatize them by establishing double (transfer)
prices: current prices — to conclude formal contracts, and
actual prices (including inflation for the period of the
contract) — for the informal, shadow contracts.
Secondly, elimination of the state monopoly on
foreign trade has made available to decision makers the
income from the difference in commodity prices in the
space — on the domestic and external markets. Products
that had the largest price gaps and were in demand on
the foreign markets were above all cheap in the planned
economy of the former USSR energy resources, raw
materials and construction materials. Revenues from the
difference in prices for these commodities were
appropriated by setting double (transfer) prices: for the
domestic market — to clinch formal contracts, and for
foreign markets (taking into account the price difference
in space) — for non-official, shady contracts.
Understatement of income from the implementation
of formal contracts was used by top managers to make
payments to suppliers of material resources, employees
and the government, while unaccounted difference between
official and real incomes — for personal enrichment, and
investments in property privatization, development of the
infrastructure of intermediaries who organize the shadow
profits withdrawal, and protective investments in power.
Such a redistribution of income, in effect, meant the
appropriation of unpaid labour in the huge dimensions,
which resulted, on the one hand, in the impoverishment of
the working masses, as well as (due to shortage of taxes)
of budget and retirees, and, on the other hand — in the
rapid enrichment of top managers, the concentration in
their hands of property and income from its use.
A right to sign contracts in the planned economy
originally belonged to the people occupying an appropriate
place in the management hierarchy established in the
planned economy (senior managers). Under the conditions
when the mass privatization began, it was necessary to
confirm this right again. To do this, there was used insider
information, informal connections and shadow incomes,
invested in the property rights acquisition. Then logically
it was necessary to consolidate them through defensive
investments in power, because in such circumstances
only “might makes rights”(Umbeck 1981).
V. P. Vishnevsky, V. V. Dementiev
12
Економічний вісник Донбасу № 4 (22), 2010
The opportunity to extract revenue from the transfer
pricing was for the new owners similar to acquiring
control over the gold-bearing lodes: without any special
concern about the production development, investments
in new technological solutions, etc., it was possible to
receive the rate of return unattainable for innovation.
Therefore, the history of voucher privatization is so
reminiscent of the gold rush in California (the USA) in
the XIX century. Then, in the initial conditions of anarchy
the masses of people tried to “stake out a claim” to obtain
ownership of the previously abandoned wealth and,
starting the production, to get rich quickly, but the real
benefits from this were derived by those who have found
effective ways of exploitation of the gold miners’ labour.
During the period of mass privatization the people
also tried a variety of behaviours that they believed could
provide them with equal participation in the former
common state property, but ultimately, by the end of this
period, there have been selected and inherited the patterns
of egoistic behaviour of insider-managers acting through
the appropriation of unpaid labour of others. Expressed
in terms of the dichotomy “innovative-conservative”, the
innovators of the rent-oriented way of gaining profit won
(economically).
However, it was a Pyrrhic victory, reminiscent of
the dead-end branch of gender selection in biology, where
the increased individual adaptability leads to the
degradation of the species.
First, the selected model of the planned economy
transformation resulted in the predominance of enterprises
specializing in manufacturing products of low degree
processing, which enjoyed steady demand in the foreign
markets, while the world’s dominating innovative companies
manufacture high-tech products of high degree processing.
Secondly, the privatized enterprises that fell under
control of the dominant new owners are their personal
“klondikes”, but created not by nature, but by unpaid
people’s labour, and therefore necessarily based on the
opposition of the owner and employees, while successful,
innovative enterprises are always creative teams of the
people working together, not of individual actors: “The
innovation process is collective, as the transformation of
technological and market environment requires integration
of the large numbers of people with specialized
knowledge and skills. So these people are involved in
cooperative relationship for developing and using
productive resources” (Lazonic 2006, p. 23).
Third, the evolutionarily stable strategy5, growing out
of the primary chaos of the selfish individuals’ fight for
the initially abandoned wealth is a strategy that involves
investing in aggression (taking action to seize somebody’s
property) (Wä rneryd 1993). In these circumstances the
property remains potentially insecure, because there is
always a danger that the more successful actions of the
aggressive competitor would lead to its loss (a typical
example is measures for large-scale revision of privatization
that followed the victory of the Orange Revolution in
Ukraine in 2004). This, along with price uncertainty, and
other specific risks of the transitional economy, creates
those “short rules”, which were discussed above in the
institutional model, which reproduce the high risks of
the property rights infringement, while innovation requires
long rules and cooperation, rather than only rivalry, of
the economic actors (what was called “co-opetition”
(Brandenburger and Nalebuff 1996)). In contemporary
conditions “... innovation in industries is the result of the
interaction of different actors (firms, universities, public
agencies, financial organizations…) that have collaborative
relationships of formal and informal types” (Malerba 2007,
p. 677) and, for example, in such innovative areas of
business as pharmaceuticals and biotechnology
cooperation of large, small and new firms is pervasive
(Malerba 2007, p. 685).
The root of all these problems is selfish behaviour
of the dominant owners in the transition to the market
economy and the associated ineffectiveness of anarchy6.
It is a well-known fact that if individuals make independent
selfish decisions, social optimum is usually not achieved
and the resulting equilibrium in dominant strategies
(where the choice of one individual does not depend on
the decisions of another) is not Pareto-optimal. In other
words, the “invisible hand” of Adam Smith in such
circumstances does not work.
The last statement does not contradict the
presumption that the competition of economic entities,
acting in their own interests, may help increase their own
and the general welfare. The matter is that the people’s
own interests are not necessarily selfish.
This thesis requires a special explanation.
Economists have long noted that individuals often
extend the scope of their own interests to the objects
that are outside themselves and their families, giving time
and money to what is usually characterized as public
goods (national defence, donation, charity, etc.). There
is nothing unusual, strange in this. On the contrary, “...
theory and data now being advanced are more compatible
with the view that true altruism —acting with the goal of
benefitting another — does exist and is a part of human
nature” (Piliavin and Charng 1990).
The economic theory of rational choice explains
5 A strategy is considered stable if in a population where everyone except a very small minority of mutants play it, its expected payoff
is greater than that of the mutants strategy (Wä rneryd 1993, p. 12).
6 In the game theory there is known a so-called “price of anarchy”, which determines the loss of efficiency as the ratio of socially
optimal welfare to the welfare of the Nash equilibrium when players act selfishly (Roughgarden 2005).
V. P. Vishnevsky, V. V. Dementiev
13
Економічний вісник Донбасу № 4 (22), 2010
altruism in terms of diversity of the human behaviour motives.
For example, according to G. Margolis, inside a person there
seem to exist two individuals: S-Smith (from “self-interest”)
and G-Smith (from “group interest”) (Margolis 1981). For
such a “society”, consisting of two people, there can be
developed the rules of rational distribution of resources,
adherence to which can explain the people’s observed
behaviour (for example, their participation in voting,
inexplicable from the standpoint of the usual comparison of
benefits with costs) (Margolis 1981, p. 267).
H. Simon explains altruism in terms of bounded
rationality and susceptibility to learning (docility7): “At the
social level, the gradual change and selection of culture traits
are producing patterns of information, advice, and resulting
behavior that enhance the average fitness of members of
the society; and because of docility, social evolution often
induces altruistic behavior in individuals that has net
advantage for average fitness in the society” (Simon 1993,
p. 157). In the modern society, altruism often takes the
form of loyalty towards the organization or organizational
identification — “... a powerful altruistic force conditioning
both participants’ goals and the cognitive models they form
of their situations. Appropriate attention to altruism, especially
organizational identification, substantially changes the theory
of the firm and, consequently, theories of the economy”
(Simon 1993, p. 160).
This aspect is perceived by the modern theory of
the innovative firm, which pays special attention to the
organizational integration — the set of relationships that
create incentives for people to apply their skills and efforts
to achieve organizational goals (Lazonic, 2006, p. 34).
We mean not banal cash bonuses, but developing new
forms of labour cooperation related to the broader
foundations of the social organization — the desire to
develop internal corporate spirit and corporate loyalty 8.
Organizational identification is not limited to the
corporate level, and can manifest itself as a phenomenon
of a higher level of community, which is necessary for the
formation of regional and national innovation systems —
a set of interrelated institutes that determine the capabilities
to create, save and share the relevant knowledge, skills
and artefacts. Specialists in the field indicate that the
development of such innovative systems requires a special
mode of actions, which stresses the role of joint research
and other technical collaboration among enterprises and
public sector institutions, emphasizes the high level of co-
patenting, co-publications and personnel mobility, the
implementation of intellectual property rights, labour
market policy and exchange programmes that promote
such collaboration”(National Innovation Systems 1997).
Thus the economic order conducive to innovation is
the order providing not only competition, but also
collaboration of economic agents, which together generate,
select and inherit the “long rules” of interactions, while its
foundation is the organizational identification of various
community levels based on the manifestations of altruism.
The current economic order unfavourable to
innovation is the order, rejecting the cooperation of
economic agents, which themselves generate, select and
inherit the “short rules” of interaction, and its basis is the
family-clan private economic power, based on the
manifestations of egoism.
The Areas of Transition to Innovative
Development
The main condition for the transition to an innovative
way of development is the transformation of the existing
economic order through coercion of the dominant owners
(strategic controllers) of enterprises to show the instinct
of mutual assistance in economic activity, creating such
conditions that give chances of survival to the economic
agents’ behaviour, based on the “long rules” interactions.
To do this, first of all, It is necessary to alter their socio-
economic environment and/or move their activity within
the framework of other — innovative — “populations of
organizations”9.
7 “Docility” by Simon is “… the tendency to depend on suggestions, recommendations, persuasion, and information obtained through
social channels as a major basis for choice” (Simon 1993, p. 156).
8 A typical example in this respect are the East Asian traditions of governance, where the corporate officials regard themselves as the
members of one big family and associate with it more than just the execution of routine duties. In its time the success of these models made
the U.S. and European countries reconsider their approaches to corporate governance, so that there appeared even the special phenomenon,
named Japanization/Toyotaism of management (Wood 1991).
9 In the context of the problems studied it is important to understand why altruism survives in the nature. If you follow the logic of natural
selection, within each population of individuals the altruists’ genes should be replace by the egoists’ genes: as selfish people benefit from
altruistic behaviour of others, they are more likely to leave offspring. Nevertheless, altruism and cooperation continue to exist and develop.
The solution to this puzzle was offered by a theory of multilevel selection. Its basic idea is that the frequency of altruists in a structured
population is determined by two factors: individual selection within subpopulations (groups), unfavourable for the altruists-cooperators,
and group selection that is conducive to cooperative subpopulations. In other words: “Selfishness beats altruism within groups. Altruistic
groups beat selfish groups” (Wilson and Wilson 2007, p. 345).
Transferring the idea of multilevel selection in the sphere of economic life, “selfish enterprises”, operating within groups rejecting
cooperation, can be compelled to change the mode of actions, activating the rivalry of these groups with subpopulations of economic
entities that are engaged in cooperative behaviour (to increase the influence of the group selection factor) or converting these enterprises
into cooperative subpopulation (to teach by imitation).
V. P. Vishnevsky, V. V. Dementiev
14
Економічний вісник Донбасу № 4 (22), 2010
This problem can be solved by the government
incentives of the domestic companies’ exit on the
foreign commodity and financial markets (by means of
foreign exchange regulations, customs and tax policy,
etc.), where there are other, more innovation-friendly
rules than at home. The accumulated experience shows
that their increased participation in international trade
has a positive innovation effect. Empirical studies based
on the data of business activities in several economies
in transition showed that “... policy measures that
facilitate foreign direct investment and international trade
enhance domestic welfare through greater innovative
activities of domestic firms” (Gorodnichenko, Svejnar
and Terrell 2009, p. 29), and the best innovative results
are demonstrated by the private exporting firms having
access to external funding (Ayyagari, Demirgüç -Kunt
and Maksimovic 2007, p. 26)
Even a simple implementation of the requirements
of foreign exchange trade regulators contributes to the
growing transparency of domestic companies, forcing
them to dispose of non-core assets, improve the
structure of capital ownership, develop new models of
corporate governance. As evaluated by Standard &
Poor’s, basing on the data of 90 largest Russian public
companies’ activity, the average transparency index for
the Russian domestically operating businesses is 1.3-
1.5 times lower than the index of those listed in London
and New York (Transparency and Disclosure by Russian
Companies 2009).
It is obvious, however, that for objective reasons
not all domestic enterprises can operate in the foreign
markets. Hence altering the prevailing economic order
within the country is also of utmost importance for
innovation.
Partially this problem has been solved by the very
course of the economic development.
First, the potential for gaining profit from the
differences in commodity prices over time and space
has been exhausted to a large extent: inflation is measured
by one-digit numbers, the price gaps between domestic
and export markets have narrowed significantly, while
seemingly safe raw materials business in the context of
the global financial crisis demonstrated its high volatility
and vulnerability. There can be observed a situation of
exhaustion of opportunities to get profit by means of the
former products and activities — a situation that marks
the advent of the phase of the crisis, restructuring and
economic turbulence (Arrighi 1994, p. 235).
Secondly, long-term artificial lowering of prices
for production factors to extract rent results in violating
the conditions of reproducing resources required for
the normal business activities. The consequence of
low wages is the lack of skilled labour force and
engineers; the consequence of lower tariffs for
transportation is a crisis of rail freight transportation
system etc.
Third, science and technology in the world do not
stand still. On the one hand, reduction of the physical
costs of production as a result of using innovative
technologies outstrips the possibility of domestic
enterprises to retain the depressed prices for resources.
On the other hand, the introduction of new equipment
and technologies leads to creating products with such
characteristics that the domestic economy is no longer
able to produce. As a result, there is observed a gradual
decline in the quality of the domestic products “niche”
and the threat of its displacement from the global markets
in general is becoming increasingly real.
The desire to survive in such conditions pushes the
owners of enterprises in the innovative way of
development. It is important to support them in this in
time with the help of economic incentives and other
measures (taxes, credits, new technical regulations and
standards, etc.). For example, in the field of taxation it
may be the redistribution of tax burden from mobile
factors of production (capital and labour) to resource
and environmental charges.
Yet this is not enough. It is necessary to learn to
form “long rules” for interactions, overcoming family
and clan selfishness and “investment myopia”. This can
be done by means of indicative planning (national,
regional, local) with built-in incentive to achieving
development targets. Such planning proceeding from the
notion of a fundamental divergence between short-term
business aspirations and long-term investment interests
of the society, between individual and collective rationality,
can reduce uncertainty in the economic life. But in this
case it is important not only the visible end result — the
long-term objectives of economic development, reducing
risks for businesses — but also the communicative
process of joint decision-making, improving the
institutional environment, generating organizational
identification at different levels of community and
building trust between counterparties through a
permanent open interaction of the government, business
and trade unions10.
In poorly developed democratic institutions, when
the state has considerable political and administrative
impact on the economy, it also acts as one of the main
factors of uncertainty that the business is trying to take
control. Therefore, in the current realities the transition
to innovative development requires not forceful
V. P. Vishnevsky, V. V. Dementiev
10 The social aspect of joint development of public decisions is developed by the theory of communicative/collaborative planning,
which is characterized as “... respectful, interpersonal discursive practice that is tailored to the needs of liberal and pluralistic societies,
where one social group can not legally impose its preferred decisions on collective problems of other groups” (21, Sager 2009, p. 3).
15
Економічний вісник Донбасу № 4 (22), 2010
separation of business from the government (more
corrupt, and therefore more dangerous, than in
developed countries), which is contrary to its natural
desire to reduce the risks of economic activity and
fraught with weakening the market position with further
hostile takeovers by aggressive competitors, and the
organization of participation in the cooperative
development of ways for economic development
through the mediation of authorities and cooperation of
competitors (“co-opetition”), involvement in decision-
making processes a wide range of stakeholders, forming
an atmosphere of “synergistic partnership” (Brand and
Gaffikin 2007, p. 283).
In these conditions the technostructure of the
government (politicians, bureaucrats in the centre and
locally) may be used to organize such cooperation and
create conditions conducive to innovation-based
growth. The economic crisis of the recent years has
led to a reduction in posts, savings on the salaries of
officials (or, at least to the need to declare such reduction
and savings), reduced rent payments from the
impoverished companies. The logic of maintaining and
increasing bureaucratic advantages demands expanding
economic activities of the enterprise-country (“Russia-
corporation”, “Ukraine-corporation”) at the expense of
restoring the economic growth, which, as the events
of the recent years have proven, may not be sustainable
if they are not innovative by themselves. And such
actions from the part of the state technostructure have
already been observed11.
In this regard, it should be noted that the situation
with a strong political and administrative influence of
the state on the economy takes place not only in the
former Soviet republics. An example is the Republic of
Korea, where quite recently “... the military government
was the main source for uncertainty in the environment,
which should be brought under control” (Oh and Varcin
2002, p. 717). To reduce this uncertainty, the South
Korean chaebols — business conglomerates owned by
individual families — find it expedient to increase the
economic power through diversification, thereby
strengthening their bargaining position with the state.
Here is how the logic of such actions has been explained
by the chairman of Sunkyung Group Board of directors
(interview, 1995), “When your business is small, the
bureaucrats of all types and levels want to visit you and
extort onerous payments. These thieves are the district
police chiefs, district fire-fighting authorities, district
tax administration, heads of regional utility services, etc.
But if you take over two or three subsidiary companies,
then these low-level gangsters are replaced by the police
chief of Seoul, the head of the Tax Administration of
Seoul, etc. And when you get ten more, you already
deal with the heads of departments in government
ministries. Finally, if you become as big as we are, the
Chairman of the Board of Directors passes all the
intermediate bosses and negotiates directly with the real
boss — the President” (Oh and Varcin 2002, p. 717).
After the financial crisis in 1997 the South Korean
government has taken steps to democratize the system
of the “state-chaebol” through financial liberalization,
involving social organizations in the regulation and
raising social capital. Nevertheless, the government’s
influence on the economy remains strong. Moreover,
the course that is being implemented here does not
imply its weakening in the spirit of neo-liberalism, but
on the contrary, it is considered that “The rich social
capital ... will allow creating a strong government and
strong market” (Lee 2005, p. 301). This indicates that
in the conditions of a developed organizational
identification12 a strong political and administrative
control over the economy of the state, which is
sometimes even called “mafia” is not a stumbling block
for developing the national innovation system — for
many years now South Korea has been and remains
one of the world innovative leaders.
At the regional level to form a new economic order
based on organizational identification it can be important
to create innovative clusters — regional groupings of
independent businesses in one or more sectors of the
economy — innovative start-ups, small, medium and
large enterprises, as well as research organizations
promoting innovation through intensive interaction,
sharing facilities, exchanging knowledge and
experiences (The Concept of Clusters and Cluster
Policies 2008, p. 5). As noted by the European experts,
such clusters “... are a form of “self-organisation” that
offers competitive advantages. Clusters facilitate both
intense competition and close cooperation, sometimes
described as “co-opetiton”. Geographical proximity is
believed to facilitate the flows of tacit knowledge and
the unplanned interactions that are critical parts of the
11 An example is the Russian Federation Government’s decision to establish the Russian equivalent of the Silicon Valley — the
technopolis in the village Skolkovo, Moscow region — the construction of which, characteristically, was to be headed not by an official,
but a businessman — the head of Renova Group, Victor Vekselberg (http://finance.rambler.ru/news/economics/ 66030826.html).
12 The level of citizens’ loyalty to the “Korea-corporation” was demonstrated by the events of the financial crisis in 1997. Then South
Korean government appealed to the people to donate their treasures to the needs of the national economy. In response millions of people
from various walks of life lined up in long queues to gold purchase points in order to turn in their jewellery. In a short time they managed
to collect 270 tons of gold, which strengthened the state reserves, helped banks and other financial structures to survive tough times. See:
Economic Crisis and People’s Responses: S. Korean case. — http://www.boostworks.com/?p=200.
V. P. Vishnevsky, V. V. Dementiev
16
Економічний вісник Донбасу № 4 (22), 2010
innovation process” (The Concept of Clusters and
Cluster Policies 2008, p. 8). The stability of such flows,
in turn, depends on the degree of trust among economic
actors, their willingness to inform others about their
knowledge and skills.
***
Nearly 140 years ago Charles Darwin wrote, “It
must not be forgotten that although a high standard of
morality gives but a light or no advantage to each individual
man and his children over the other men of the same
tribe . . . an increase in the number of well-endowed
men and an advancement in the standard of morality will
certainly give an immense advantage to one tribe over
another” (Darwin 1871, p. 166). Now the standard of
morality common for the former Soviet republics, based
on making selfish interests absolute, have led to the
formation of the economic order, conducive to the private
family-clan economic power, but destructive to
innovation.
Socio-biological aspects of the individual’s
selfishness in relation to the current regime of the physical
entities’ property rights have become the problems for
enterprises and the society.
The periods of economic reforms are accompanied
by social mutations of the institutes-rules that guide the
behaviour of economic agents in a certain direction. As
evidenced by the results of natural experiments in Russia
and Ukraine — the shock transformation of the economy,
when in a short period of time there was totally
destroyed the old economic order — here such social
mutations resulted in the victory of the institutions-rules,
inefficient in regard to innovation. It also emerged that
a direct analogy between replicators in biology (genes)
and economy (institutions-rules, or organizational
routines) does not work. Economic replicators, unlike
biological ones, appeared to be more fragile and easily
destructible.
The economic institutions-rules are epigenetic in
nature and, like any cultural-behavioural
superstructure, are based on a biological basis — in
the sense that they are formed by living beings who
are carriers of genetic information and who are guided
by instincts — innate responses to external and /or
internal stimuli. In this basis there are represented both
selfish, and altruistic genotypes (Nedelcu and Michod
2006). Therefore, in principle, it provides the potential
opportunity to form the high types of cultural and
behavioural add-ons that promote organizational
identification and competitors’ cooperation (social
reciprocity, reciprocal altruism (Alexander 1990)).
These types are based on altruistic behaviour, which
in the human society is transmitted not only genetically,
but through copying, through imitation, memes
(Blackmore 2000).
But this is only a potential opportunity, and nothing
more. First, the biological basis is the ground for the low
(selfish) the types of cultural and behavioural
superstructures to naturally occur (low levels of
organizational routines), encouraging the
uncompromising rivalry and competition. As for the
higher (altruistic) types, they should be cultivated
purposefully, long and hard.
The consequence of the economic order established
in the former Soviet Republics is their innovation gap
with the developed countries. In order to bridge this gap
it is necessary to create such cultural and behavioural
add-ons and the conditions for disseminating such high
moral standards that will be paying tribute to the economic
agents’ setting not only for the rivalry and competition,
but for cooperation and mutual assistance. These actions
will result in restricting private economic power and
establishing the new economic order, based on
organizational identification and the “long rules” of
economic actors’ interaction.
The time will tell whether all this will become
possible.
References
1. Arrighi G. (1994) The long twentieth century:
money, power, and the origins of our times. London:
Verso. 2. Ayyagari M., Demirgüç -Kunt A.,
Maksimovic V. (2007) Firm Innovation in Emerging
Markets. The World Bank, WPS4157. 3. Blackmore S.
(2000) The meme machine. Oxford: Oxford University
Press. 4. Brand R., Gaffikin F. (2007) Collaborative
Planning in an Uncollaborative World. Planning Theory,
6, 282-313. 5. Brandenburger A., Nalebuff B. (1996)
Co-Opetition: A Revolution Mindset That Combines
Competition and Cooperation: The Game Theory Strategy
That’s Changing the Game of Business. — New York:
Doubleday Currency. 6. Darwin C. (1871) The Descent
of Man, and Selection in Relation to Sex, Volumes 1 and
2. New York: Appleton. 7. Alexander R. (1990)
Epigenetic rules and Darwinian algorithms: The adaptive
study of learning and development. Ethology and
Sociobiology, 11, 4-5, 241-303. 8. Gorodnichenko Y.,
Svejnar J., Terrell K. (2009) Globalization and
Innovation in Emerging Markets. The World Bank,
Development Economics Department, WPS 4808.
9. Hamilton D. (1970) Evolutionary Economics: a Study
of Change in Economic Thought. NM: The University of
New Mexico Press Albuquerque. 10. Hodgson G.,
Knudsen T. (2006) The nature and units of social
selection. Journal of Evolutionary Economics , 116, 477-
489. 11. Lazonic W. (2006) The Innovative Firm / The
Oxford handbook of innovation. Oxford: Oxford
University Press. 12. Lee Y. (2005) Participatory
Democracy and Chaebol Regulation in Korea: State-
Market Relations under the MDP Governments, 1997-
V. P. Vishnevsky, V. V. Dementiev
17
Економічний вісник Донбасу № 4 (22), 2010
2003. Asian Survey, 45, 2, 279-301. 13. Malerba F.
(2007) Innovation and the dynamics and evolution of
industries: Progress and challenges. International Journal
of Industrial Organization, 25, 675-699. 14. Margolis H.
(1981) A New Model of Rational Choice. Ethics, 91, 2,
265-279. 15. National Innovation Systems (1997).
Organisation for Economic Co-operation and
Development. 16. Nedelcu A., Michod R. (2006) The
Evolutionary Origin of an Altruistic Gene. Molecular
Biology and Evolution, 23, 8, 1460-1464. 17. Oh I.,
Varcin R. (2002) The Mafioso State: State-Led Market
Bypassing in South Korea and Turkey. Third World
Quarterly, 23, 4, 711-723. 18. Piliavin J., Charng H-
W. (1990) Altruism: A Review of Recent Theory and
Research. Annual Review of Sociology, 16, 27-65.
19. Roth G. (2005) Max Weber , Scion of the
Cosmopolitan Bourgeoisie: Historical Context and Present-
Day Relevance // Max Weber’s Economy and Society.
Stanford: Stanford University Press. 20. Roughgarden T.
(2005) Selfish Routing and the Price of Anarchy.
Cambridge: The MIT Press. 21. Sager T. (2009)
Responsibilities of theorists: The case of communicative
planning theory. Progress in Planning, 72, 1-51.
22. Samuelson P.A. (1993) Altruism as a Problem
Involving Group versus Individual Selection in Economics
and Biology. The American Economic Review,83, 2, 143-
148. 23. Simon H. Altruism and Economics (1993) The
American Economic Review, 83, 2, 156-161.
24. Stoelhorst J.W. (2008) The Explanatory Logic and
Ontological Commitments of Generalized Darwinism.
Journal of Economic Methodology, 15, 4, 343-363.
25. Takata Y. (1995) Power Theory of Economics. —
New York: St. Martins Press. 26. The Concept of Clusters
and Cluster Policies and Their Role for Competitiveness
and Innovation: Main Statistical Results and Lessons
Learned (2008). Commission of the European
Communities, Brussels. 27. Toulmin S. (1972). Human
Understanding: The Collective Use and Evolution of
Concepts. — Princeton: Princeton University Press.
28. Transparency and Disclosure by Russian Companies
2009: The Gap Between the Highest Scoring Companies
and the Lowest Scoring Companies Widens (2009).
Standard & Poor’s Governance Services and the Centre
for Economic and Financial Research at the New
Economic School. 29. Umbeck J. (1981) Might Makes
Rights: a Theory of the Formation and Initial Distribution
of Property Rights. Economic Inquiry, 19, 1, 38-59.
30. Wä rneryd K. (1993) Anarchy, Uncertainty, and the
Emergence of the Property Rights. Economics and
Politics, 5, 3, 1-14. 31. Wilson D.S., Wilson E.O.
(2007) Rethinking the Theoretical Foundation of
Sociobiology. The Quarterly Review of Biology, 82, 4,
327-348. 32. Witt U. (2008) What is specific about
evolutionary economics? Journal of Evolutionary
Economics, 18, 547-575. 33. Wood S. Japanization and/
or Toyotaism (1991) Work, Employment and Society, 5 ,
4, 567-600.
Vishnevsky V. P., Dementiev V. V. Problems of
innovation in the light of evolutionary theory
The article examines the features of the economic
order that has been established in the former Soviet
republics and impedes their innovative development. It is
shown that this order, based on the family and clan private
economic power, rejects the cooperation of economic
actors that produce, select and inherit the “short rules”
of interaction. It is proved that, in order to change it, it is
necessary to create conditions for restricting the private
economic power through co-opetition, the formation of
organizational identification and “long rules” of interaction
among the economic actors.
Keywords: innovations, institutes, evolutional theory,
economic order.
Вишневський В. П., Дементьев В. В. Про-
блеми інновацій в світлі еволюційної теорії
У статті досліджено особливості господарського
порядку, що склався в республіках колишнього СРСР
і перешкоджає їх інноваційному розвитку. Показано,
що цей порядок, заснований на сімейно-клановій при-
ватній економічній владі, відторгає співпрацю економі-
чних суб’єктів, що виробляють, відбирають і насліду-
ють “короткі правила” взаємодії. Обґрунтовано, що для
його зміни потрібно створити умови для обмеження
приватної економічної влади за допомогою співпраці
конкурентів, формування організаційної ідентифікації і
“довгих правил” взаємодії економічних суб’єктів.
Ключові слова: інновації, інститути, еволюційна
теорія, господарський порядок.
Вишневский В. П., Дементьев В. В. Пробле-
мы инноваций в свете эволюционной теории
В статье исследованы особенности хозяйствен-
ного порядка, который сложился в республиках быв-
шего СССР и препятствует их инновационному раз-
витию. Показано, что этот порядок, основанный на
семейно-клановой частной экономической власти,
отторгает сотрудничество экономических субъектов,
которые вырабатывают, отбирают и наследуют “корот-
кие правила” взаимодействия. Обосновано, что для
его изменения требуется создать условия для ограни-
чения частной экономической власти посредством
сотрудничества конкурентов, формирования органи-
зационной идентификации и “длинных правил” взаи-
модействия экономических субъектов.
Ключевые слова: инновации, институты, эволю-
ционная теория, хозяйственный порядок.
Received by the editors: 28.10.2010
and final form in 01.12.2010
V. P. Vishnevsky, V. V. Dementiev
|