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Investment, Financial and Institutional Drivers of Russian Industrial Recovery

Investment, Financial and Institutional Drivers of Russian Industrial Recovery

Journal of Institutional Studies, , Vol. 11 (no. 1),

Possibilities of recovering Russian industry are analyzed. The sector of market services is chosen as a recovery counterpart, which used to be in a rather poor state in the USSR and then within a short time achieved enormous success in the new market economy. Such achievements were attained through high return on assets in the service sector, calculated by the authors based on alternative estimates of production output, profit and asset costs. Official statistics announces industrial profit. These official data are erroneous. Their inaccuracy is due to the fact that statistics relies on underrated data about the asset costs in such estimates. The authors have calculated depreciation charges based on the asset replacement costs and then use them to estimate the actual costs in industrial activities. Our estimates confirm an enormous loss ratio of industrial operations. A goal is set to ensure high positive return on industry assets instead of their current unprofitability. It is suggested that the goal can be reached by redistributing the income of the population. Estimates are given for possible annual scope of withdrawing resources for the industry needs. The revenue from wholesale and foreign trade also can be a source of financial resources for the industrial needs. These sectors are currently used as tools for converting resources of industrial companies in the shadow income of their managers. Generated enormous resources will relieve a lot of industry sectors from taxation and subsidize industrial production for a number of years as well as R&D and manpower training necessary for industry revival. Contrary to the services sector, industry recovery dictates active involvement of the state. It appears that the role of the state is first of all to revive education and create a system of industrial engineering.

Keywords: economy of the Russian Federation; industry of the Russian Federation; reindustrialization; import substitution; redistribution of the income of the population; alternative estimates of return on assets; higher education; industrial engineering

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