Human and Technological Progress Towards the Socio-Economic Paradigm of the Future: Part 3 9783110692075, 9783110692051

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Human and Technological Progress Towards the Socio-Economic Paradigm of the Future

Interdisciplinary Thought of the 21st Century

Management, Economics and Law Series Editors Elena G. Popkova and Artem Krivtsov

Volume 1

Human and Technological Progress Towards the Socio-Economic Paradigm of the Future

Part III Edited by Elena G. Popkova and Marina L. Alpidovskaya

ISBN 978-3-11-069205-1 e-ISBN (PDF) 978-3-11-069207-5 e-ISBN (EPUB) 978-3-11-069211-2 ISSN 2626-7063 Library of Congress Control Number: 2020935254 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de. © 2020 Walter de Gruyter GmbH, Berlin/Boston Cover image: janeb13 / pixabay.com Typesetting: Integra Software Services Pvt. Ltd. Printing and Bindung: CPI books GmbH, Leck www.degruyter.com

Introduction The combined problem of the digitization of the economy, the digitization of humanity as a whole and human existence in time and space as a subject has been actualized in recent times. Indeed, the projects of the future world economy are inextricably connected with the achievements of scientific and technological progress linked with global social and economic transformations at the system and intersystem levels. Nevertheless, the question of urgency and the imminent necessity of these events arises. Is this process so necessary for modern Russia and other countries of the globalized world and what is its impact on the economic and social life of sociohistorical organisms? Back in the early 2000s, Robert Solow, winner of the Nobel Prize in Economics, wondered how the introduction of information technologies had an effect on the growth of labor productivity in various industries. The USA gave the answer – the staff of their Bureau of Statistical Analysis found out that the bi-factor productivity did not increase in any of the branches of the American economy, except for one – computer production. At the same time, there is a steady trend towards a decline in labor productivity and capital in the economy as a whole. In addition, the problem of universal access to information due to global Internet networks plays a less positive role in creating a favorable background of social comfort in the population of the countries of the global world. The standard of living of the notorious “golden billion”, formed in the late 1950s and early 1960s due to the introduction of innovative technologies in all possible industries and a sharp jump in bi-factor productivity, is still not achievable for the remaining almost 5 billion people using all sorts of “Gadgets”. This leads to the inevitable growth of social tension . . . Against the background of the “failures” of the modern socioeconomic system, some projects are offered to get out of this situation. Not all of these projects and proposals are unequivocal. Consequently, the outcome of their implementation is the same. In modern society, it is very difficult for a person to manifest his or her creative purpose. The consumer function of administration has become the embodiment of life ideals, aspirations, ambitions, social significance and status weight. The problem of human creative and generative self-realization and realistic realization of ideas in the economy of the future has faced the present society. Today, the variants of the future society are mostly drawn archaically harshly. However, we should not forget that, in accordance with the already established views, the acceleration of economic growth over the past 200–250 years of human existence was caused by three successive scientific and technical revolutions (STDs). The world is on the verge of the fourth. The West has always independently carried out technological “breakthroughs”, relying on all sorts of incentives: trade and production incentives, financial advantages, better conditions for the functioning of capital, as well as global integration. Moreover, Russia has always been able to choose the https://doi.org/10.1515/9783110692075-202

VI

Introduction

path of forward-pragmatic-rational-emotional movement, which is able to bring out not only her and her satellites, but the rest of the world from the dimension of nonexistence . . . In addition, if the future takes place, it will go along the development trajectory emotionally – an intuitive relationship space, remembering, of course, the ratio . . . This volume is about these major trends in the development of humanity, society and economy. Part III determines the specific features of socio-economic transformations of various spheres of the national economy with focus on the financial system, as an environment in which the recent financial crisis emerged. The authors consider the perspectives of development of industrial holdings in the electric energy sphere in the conditions of the world economy’s globalization and study the influence of technologies on the development of the sphere of fish farming and fish breeding in modern Russia. The global factors of using the possibilities of digital technologies at the municipal level during creation of “green” and “smart” cities are analyzed. The perspectives of development of tourism in the digital economy from the positions of supply and demand are determined. The specifics of the development of agricultural production in the age of digital transformations using the example of modern Russia are outlined, and “smart” agricultural platform, which allows for multiple increase of the agro-industrial complex’s efficiency, is developed. New possibilities and the need for the reformation of the international monetary system in the conditions of the Fourth industrial revolution are determined. The problems and perspectives of the development of Eurasian stock markets in current economic conditions under the influence of wide distribution of digital technologies are systematized. Specific features of the evolution of the forms of money – from gold to crypto currencies are – are distinguished. Specific features of benchmarking of depreciation of currencies (inflation) under the influence of globalization and regionalization of the international monetary system are determined. The authors present a concept of the banking system of the future in the conditions of macro-economic instability, which stimulates financial crisis management of the national economy, and determine the role of banks in aggregation and redistribution of monetary resources in economy in the context of digital transformations. In addition, attention is paid to social consequences of the digital modernization of the financial system – transformation of human’s social life in the age of innovative banking is shown. The effectiveness of online banking, as a new form of payment that is popular in the digital economy, is analyzed. The authors formulate competencies that employees of banks of the future, which will function in the digital economy, should have and study the perspectives of digitization of the practice of tax administration based on technological processing and analytics of Big Data using the example of experience of modern Russia, as well as related transformation processes in the existing practice of the tax system organization.

Introduction

VII

A concept of organization and management of the national tax system in the conditions of robotization of production and consumption is developed, and the role of blockchain technologies in improvement of the modern Russian tax system is determined. The investment platform for the modern digital economy is identified and, as a result, the scientific paradigm of the formation of the digital financial system in the conditions of Industry 4.0 is formed. For a better understanding all Russian sources have been translated into English. The responsibility lies with each author. Marina L. Alpidovskaya and Elena G. Popkova

Contents Introduction

V

Nikolay Rudenko 1 The Development of Industrial Holdings of Electroenergetic Industry in the Conditions of Globalization of the World Economy 1 Marina A. Allenykh, Svetlana A. Varvus, and Kseniya V. Naidenkova 2 The Impact of Technology on Development of Sea Fishing in Russia Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova 3 World Development Actors – Green and Smart Middle Cities

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21

Valentina B. Dzobelova, Rozita B. Hapsaeva, Lyudmila P. Bespamyatnova 4 Tourism in Russia under Socio-economic Development of the Country (Case Study: the Republic of North-Ossetia of Alania) 39 Vera D. Nikiforova, Aleksandr A. Nikiforov, Anna V. Kovalenko 5 Agriculture of Modern Russia: Challenges and Development Trends

51

I.V. Gurina, L.N. Medvedeva, A.A. Novikov 6 Convergent Technologies on the Smart “Agriculture Platform”: A Strategic Resource for the Development of Agro-Industrial Complex

61

Illona V. Mirzkhulova 7 Formation Opportunities of Agro-Industrial Clusters for the Purpose of Increasing Competitiveness (Case Study: Abkhazia) 71 Liana A. Amichba 8 The Development of Human Potential in the Republic of Abkhazia: The Implementation of State Policy 81 Yuri A. Kropin 9 Some Relevant Aspects of Reforming the World Monetary System Natalia I. Morozko, Nina I. Morozko, Valentina Y. Didenko 10 Decision-Making Based on Behavioral Approach in the Conditions of Transformation of the Financial System 95

89

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Contents

Irina Z. Yarygina, Inna V. Lukashenko 11 Eurasian Stock Markets: Problems and Challenges

103

Natalya V. Sergeeva, Anna A. Prudnikova 12 Development Prospects for the Russian Segment of the World Financial Market: Eastern Vector 121 Arunas A. Lapinskas, Mark M. Khaikin, Tatyana G. Sodnombalova 13 Features of Evolution of the Forms of Money: From Gold to Crypto Currency 131 Aleksei V. Kuznetsov, Victor Ya. Pishchik, Petr V. Alekseev 14 Features of Benchmarking the Currencies Value Against Globalization and Regionalization of the World Monetary System 141 Alisa S. Kirizlyeyeva 15 The Development of the Bank of the Future in the Context of MacroEconomic Instability: From Tools to Policy 149 Nataliya I. Valentseva 16 The Role of Banks in Ensuring the Quality of Redistribution of Monetary Resources in the Economy 161 Aza D. Ioseliani, Nelli V. Tskhadadze 17 The Transformation of Human Social Life in the Era of Innovative Banking 171 Kirill A. Gorelikov, Petr V. Arefyev, and Aliaksandr V. Krabtou 18 Market Analysis and Assessment of Effectiveness of Internet Banking in the Conditions of the Orgnization of New Economic Laying 181 Elena P. Shatalova, Elena V. Travkina, and Olga V. Alekhina 19 Features of Personnel’s Competencies Formation in the Model of a Future Bank 191 Valentine Vishnevsky, Aleksandr Gurnak, and Elena Vishnevska 20 Digitalization and Big Data Technologies in Tax Administration and Economic Regulation (Case Study: Russia) 203

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Valentina B. Dzobelova, Svetlana A. Vorobieva, Galina A. Sergutkina 21 Tax Administration as a Factor of Social and Economic Development of a Country 213 Dmitry A. Artemenko, Elena V. Porollo, Konstantin V. Novoselov 22 The Transformation of Methodological Principles of Tax Administration on the Basis of Digitalization 221 Valeriy A. Petukhov 23 The Taxation System in the Conditions of Production Robotization Larisa A. Aguzarova, Rozita B. Khapsaeva, Tamerlan A. Khubaev 24 The Role of the Blockchain Technology in the Improvement of the Russian Tax System 251 Konstantin N. Lebedev, Yuliya I. Budovich, Viacheslav V. Zubenko 25 R&D as a Factor of Inefficiency of the Fiscal System 257 Elena V. Lapteva, Slavyana Yu. Boldyreva, Yuliya A. Vasylchenko 26 The Investment Platform “Cashbery” and the Challenhes of Economic Science 267 List of Figures List of Tables Index

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275 277

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1 The Development of Industrial Holdings of Electroenergetic Industry in the Conditions of Globalization of the World Economy Introduction The branch of the electric power industry in Russia is a complex production and economic system, which was formed gradually over a long period of time. The conditions for transforming the electric power industry were formed after 1980. At this stage of development, signs of industry stagnation appeared: the renewal of production capacities grew at a slower pace than the increase in electricity consumption. In domestic and foreign scientific literature, the authors consider various aspects of the reform of the electric power industry. So, Kazenova T.M. in her study notes that the process of reforming the industry, as well as the goals and objectives are fixed by the Government of the Russian Federation dated July 11, 2001 No. 526 “On the re-formation of the electric power industry of the Russian Federation”. (Kazenova, 2006). The goal of reforming the electric power industry has created conditions for stimulating investment, ensuring uninterrupted supply to end-users of electric power, and improving the performance of electric power companies (Nizayeva, 2012). In this regard, radical changes are taking place in the industry: a competitive electricity market is developing, the system of state regulation of the industry is changing, industrial holdings are being formed. Pestov I.P. believes that the changes have captured the structure of the industry: the division of natural monopoly (transmission of electricity) and competitive functions in terms of the production and sale of electricity happened (Pestov, 2010). The main mechanism for reforming the electric power industry of the Russian Federation was the formation of a new form of interrelationships between industry subjects, based on foreign experience of competitive electricity markets, taking into account the specifics of the activities of Russian electric power enterprises. The result of the reform of the industry is the creation of a clear separation of enterprises for certain types of activities, including: electricity sales to the population, operational dispatch management, electricity generation, transmission and distribution of electricity (Gadzhiyev, 2009).

Nikolay Rudenko, Dostoevsky Omsk State University, Omsk, Russia https://doi.org/10.1515/9783110692075-001

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Nikolay Rudenko

The works of foreign authors, such as Tompson William, Kennedy Da-vid, Gore Olga, also address the issues of the state of the Russian power industry in the period of its reform (Tompson, 2005; Kennedy, 2003; Gore, 2012). Plekhova Yu.O. highlights the following factors affecting the development of enterprises in the electric power industry: – the emergence of innovative technologies – the predominance of factors of intensive development in all areas of production activities – globalization of economic relations and increased competition in existing markets for goods and services (Plekhova, 2008) In modern conditions, globalization of economic activity is developing in three key areas: the international movement of factors of production, including capital (in the form of direct foreign investment portfolio) and labor (in the form of workers’ migrations), international trade in goods, works and services, international financial transactions. According to A.V. Lazarev, the existing processes of globalization of economic entities stimulate the formation of processes of combining enterprises on an economic basis into groups, as a result of which the actual form of building the structure of organizations are related groups of companies called holding companies (Lazareva, 2016). In the scientific literature, a number of researchers such as A.S. Kamashev and L.K. Prokopenko distinguish various models of the organization of the electric power industry, including: – model of independent producers – model of a single buyer – vertically integrated model The characteristics of each model are presented below (see Table 1.1). Table 1.1: Models of the electricity industry. Mode

Characteristics

Model of Competitive relationships are independent possible in this model in the field manufacturers of generation, transmission and distribution. Electric power can be supplied by one company or by several organizations, and generation by independent producers.

Positives

Negatives

Generation can be carried out by independent manufacturers

State guarantees are required to attract private capital to the industry.

1 The Development of Industrial Holdings of Electroenergetic Industry

3

Table 1.1 (continued) Mode

Characteristics

Positives

Negatives

Model of independent buyers

Competition takes place between electricity suppliers in order to obtain a contract for the supply of electricity to a single purchaser, which provides electricity to sales companies

Opportunity to attract private investors

Lack of security criteria of transparency of the “single procurement”

Model of vertical integration

All stages from production to the sale of electricity (transmission, distribution: supply, generation) occur within single enterprise

Control over pricing; predictability for consumers and the state

The need for state participation in the financing industry

Source: According to Kamashev (2011) and Prokopenko (2017).

In large enterprises, the formation of vertically integrated models can be one of the main directions of development and the main lever for increasing the efficiency of the industry. The vertically integrated model allows us to combine the holding companies with the generating ones, sales and management functions of the enterprises of this industry. This model is able to concentrate and direct the electric power industry to a further increase in competitiveness.

Methodology In the process of research of industrial holdings in the electric power industry in the Omsk Region, the following scientific research methods were used: comparative and statistical analysis, expert evaluation method. The paper assesses the state of the industrial holdings of the electric power industry in the Omsk Region based on the analysis of the production index and the technological structure of industrial holdings. The coefficient analysis of the movement of fixed assets was carried out, the technical and economic indicators of industrial holdings of the electric power industry for 2015–2017 in the Omsk Region were analyzed. A scheme has been developed for the sustainable development of industrial holdings in the electric power industry.

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Nikolay Rudenko

Results There are branches of industrial holdings in the Omsk Region, such as: IDGC of Siberia PJSC, FGC UES PJSC, Inter RAO PJSC, Rosseti PJSC, SO UES JSC. The electric power complex of the region is an infrastructure-based economy, which not only ensures the livelihoods of all types of economic activity, but also largely determines the formation of parameters for the socio-economic development of the Omsk Region. Today, the power industry provides existence for the livelihoods of all branches of the regional economy and in many respects determine the formation of the main parameters of the socio-economic development of the Omsk Region. The share of value added by industrial holdings of the electric power industry accounted for more than 10 percent of the total value added of industrial production, of which more than 55 percent accounted for the type of production, transmission and distribution of electrical energy, more than 37 percent – production, transmission and distribution of steam and hot water; air conditioning and about 8 percent – the production and distribution of gaseous fuel (Promyshlennoye proizvodstvo Omskoy oblasti: Stat. sbor, 2018). Let us consider the dynamics of the production index of industrial holdings in the electric power industry, which is presented in (Figure 1.1). Dynamics of production index in 2017 (% to a certain period of 2016) 102.8 102.5 102.1 101.9 101.7 101.3 102.4 101.3

100.8

101.7

99.2

99.2

99.0

99.4

99.3

98.9

98.9

I

I–II

I–III

I–IV I–V Omsk region

I–VI

I–VII I–VIII I–IX Russian Federation

100.6

100.1

101.2

100.7

99.9

I–X

I–XI

I–XII

100 90 80

98.6

100.9

Figure 1.1: Dynamics of production index by industrial holdings for 2017.

At the end of 2017, the production index by type of economic activity provision of electric energy, gas and steam; air conditioning by 2016 in the Omsk region corresponded to 99.9 percent (in the Russian Federation – 100.1%). The production index by type of activity “production, transmission and distribution of electricity” by 2016 corresponded to 101.8 percent, “production, transmission and distribution of steam and hot water; air conditioning” – 97.2 percent, “production and distribution of gaseous gas fuel consumption” – 95.5 percent. (Promyshlennoye proizvodstvo Omskoy oblasti: Stat. sbor, 2018).

5

1 The Development of Industrial Holdings of Electroenergetic Industry

The technological structure of industrial holdings for the 2015–2017 year is presented (in Table 1.2). Table 1.2: Technological structure of industrial holdings. Period Fixed assets, The degree of mill. Rub. depreciation of fixed assets, %

Technological structure of fixed assets, %

buildings facilities

machines and equipment

transport

Other fixed assets



,

.

.

.

.

.

.



,

.

.

.

.

.

.



,

.

.

.

.

.

.

During the study period of the activities of industrial holdings from 2015 to 2017, there has been a decrease in fixed assets by 17% and as of the last reporting date the amount of fixed assets amounted to 74371, 1 million rubles. Considering the technological structure of fixed assets, it is clear that in the analyzed period, the largest share falls on machinery and equipment – 60.2%, and the smallest is other fixed assets of 1%. (Razvitiye promyshlennogo proizvodstva Omskoy oblasti: Doklad, 2018). Analyzing the degree of depreciation of fixed assets of industrial holdings, it can be concluded that, on average, a possible future replacement as depreciation was financed by 40% over the analyzed period. We will carry out a coefficient analysis of the fixed assets of industrial holdings engaged in economic activity “Provision of electrical energy, gas and steam, air conditioning”, which is presented (in Table 1.3). Table 1.3: Coefficient analysis of the movement of fixed assets. The name of the coefficient Calculation formula

Obtained results, %   

The cost of received fixed assets The cost of annual fixed assets

Admission rate, %

K adm. =

Refresh rate, %

K ref. =

The cost of new fixed assets The cost of retired fixed assets

Retirement rate,%

K ret. =

The cost of retired fixed assets The cost of assets for the start of the year

Liquidation ratio,%

K liq. =

Liquidated mainassets Main assets for the start of the year

.

.

.

.

.

.

.

.

.

.

.

.

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Nikolay Rudenko

For the period under review, there was a decrease in all indicators, in particular, the update rate decreased from 4.2% in 2015 to 3.7% in 2017, which indicates the absence of updates to fixed assets in the industry (Razvitiye promyshlennogo proizvodstva Omskoy oblasti: Doklad, 2018). The coefficients of disposal in the study period are less than the coefficients of income, and therefore, has an expanded reproduction of the main funds. The excess of the coefficient of income over the disposal of fixed assets for 2015–2017 makes it possible to judge that the industrial holdings of the industry are undergoing a process of renewal and physical deterioration of fixed assets only at a too slow pace. At the final stage of the analysis of the state of industrial holdings we will make a calculation on the main indicators of work for 2015–2017, (see Table 1.4).

Table 1.4: Technical and economic indicators of industrial holdings by type of economic activity “provision of electric energy, gas and steam; air conditioning”. Indicators

, million , million , million rubles rubles rubles

Turnover of holdings

,.

,.

,.

The volume of shipped goods of own production, completed works and services by own forces

,.

,.

,.

Fixed investment

,.

,.

,.

Average number of employees, people

,

,

,

Average monthly nominal accrued wages, rubles

,.

,.

,.

Profitability of goods, products (works, services) sold, %

.

.

.

In 2017, the turnover of industrial holdings for the provision of electric energy, gas and steam; air conditioning was below the 2016 level by 4.1 percent and the 2015 level by 2.1%. During the analyzed period, there was a slowdown in the growth of investments in fixed assets, so by the end of 2017, a decrease of 28.3% compared with 2016 and 43.5 compared to 2015 was observed (Promyshlennoye proizvodstvo Omskoy oblasti: Stat. sbor, 2018). There is also a decline in the profitability of goods sold from 8.1% in 2015 to 6.7% in 2017, i.e., 1 ruble, which is spent on the production and sale of products and will bring 6.7 rubles to industrial holdings. At the same time, the volume of own-produced goods shipped, work performed and services produced on its own increased by 4.3% over the analyzed period and

1 The Development of Industrial Holdings of Electroenergetic Industry

7

amounted to 50,745.6 million rubles as of the last reporting date. The growth is due to the increase in electricity production, the volume of distribution of gaseous fuels and the increase in prices of producers of industrial goods in this type of economic activity.

Conclusion Thus, according to the results of the analysis, a decrease in the coefficients of the movement of fixed assets, a reduction in the turnover of industrial holdings, a decrease in the volume of investment in fixed capital by industrial holdings in the electric power industry, and an increase in the degree of depreciation of fixed assets of industrial holdings were revealed. Current trends in the development of the Russian and world economies pose to industrial holdings new challenges, the solution of which will allow them to increase their competitiveness, increase the market value of their business, make a significant contribution to accelerating the socio-economic development of the Russian Federation and ensure their sustainable development. Under the sustainable development of industrial holdings understand the voluntary type of business, which includes economic, environmental, social criteria. The following principles underlie the sustainable development of industrial holdings in the context of globalization: – diversification of production; – the scale of investment; – an increase in the share of innovative technologies in the production process. Figure 1.2 presents the scheme of sustainable development of industrial holdings in the power industry. Consequently, modern economic trends in the development of industrial holdings in the electric power industry are their sustainable development, the ongoing processes of digitization of the energy sector and the introduction of blockchain technologies into the energy industry. Further sustainable development of industrial holdings of the electric power industry in the context of globalization should bring the national economy of Russia to a qualitatively new level of development and ensure the investment attractiveness of the Russian Federation.

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Nikolay Rudenko

Sustainable economic development – digitalization of production – introduction of blockchain technology – production automation

Sustainable environmental development – development of safe energy systems – saving of natural resources – increasing energy efficiency of production

Sustainable social development – customer orientation – corporate volunteering – digital charity Figure 1.2: Scheme of sustainable development of industrial holdings in the power industry.

References Gadzhiyev N.G., Daudova Z.A. Uchetno-analiticheskoye obespecheniye optimizatsii zatrat v elektrosetevykh kompaniyakh [Accounting and analytical support cost optimization in the power grid companies]. // Ekonomicheskiy analiz: teoriya i praktika. 2009. No. 36. URL: https://cyberleninka.ru/article/n/uchetno-analiticheskoe-obespechenie-optimizatsii-zatrat-velektrosetevyh-kompaniyah (Accessed 01. 04.2019) (in Russian). Gore O. & Viljainen, Satu & Makkonen, Mari & Kuleshov, Dmitry, (2012), “Russian electricity market reform: Deregulation or re-regulation?”, Energy Policy, Elsevier, vol. 41(C), pp. 676–685. Kamashev A. S. Sravnitel’nyy analiz modeley funktsionirovaniya elek-troenergeticheskikh otrasley v Rossii i mire v kontekste protsessov reformi-rovaniya [Comparative analysis of models of the functioning of the electricity industries in Russia and the world in the context of the reform processes]// Rossiyskoye predprinimatel’stvo. 2011. No. 3–2. URL: https://cyberleninka.ru/ article/n/sravnitelnyy-analiz-modeley-funktsionirovaniya-elektroenergeticheskih-otrasley-vrossii-i-mire-v-kontekste-protsessov-reformirovaniya (Accessed 01. 04.2019) (in Russian). Kazenova T.M. Razvitiye pravovogo regulirovaniya elektroenergeticheskoy otrasli v Rossiyskoy Federatsii [Development of legal regulation of the electricity industry in the Russian Federation]. // Energeticheskoye pravo.2006, no. 2, pp. 16–18 (in Russian). Kennedy D. (2003), “Liberalisation of the Russian power sector”, Energy Policy, Elsevier, vol. 31(8), pp. 745–758. Lazareva A.V. Organizatsionnyye osobennosti kholdingovykh struktur i ikh vliyaniye na postroyeniye uchetno-analiticheskoy sistemy [Organizational features of holding structures

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and their influence on the construction of the accounting and analytical system]// Auditorskiye vedomosti. 2016, no. 2. pp. 57–67 (in Russian). Nizayeva A. R. Sovremennoye sostoyaniye energetiki i formirovaniye sistemy upravleniya zatratami na predpriyatiyakh otrasli [The current state of energy and the formation of a cost management system in the industry] // Ekonomicheskiye issledovaniya. 2012. No. 2. URL: https://cyberleninka.ru/article/n/sovremennoe-sostoyanie-energetiki-i-formirovanie-sistemyupravleniya-zatratami-na-predpriyatiyah-otrasli (Accessed 01. 04.2019) (in Russian). Pestov I. P. Reforma v elektroenergetike: ot integratsii k klasternomu podkhodu [Reform in electric power industry: from integration to the cluster approach]// Aktual’nyye problemy ekonomiki i prava. 2010. No. 3 (15). URL: https://cyberleninka.ru/article/n/reforma-v-elektroenergetike-otintegratsii-k-klasternomu-podhodu (Accessed 01. 04.2019) (in Russian). Plekhova YU.O. Analiz vneshnikh rezervov razvitiya promyshlennykh predpriyatiy v postindustrial’noy ekonomike [Analysis of external reserves of industrial enterprises in the post-industrial economy] // Ekonomicheskiy analiz: teoriya i praktika. 2008. No. 3. URL: https://cyberleninka.ru/article/n/analiz-vneshnih-rezervov-razvitiya-promyshlennyhpredpriyatiy-v-postindustrialnoy-ekonomike (Accessed 01. 04.2019) (in Russian). Prokopenko L.K., Makarova M.V. Analiz zarubezhnogo opyta restruktu-rizatsii energeticheskogo kompleksa [Analysis of foreign experience in restructuring the energy complex] // Novaya nauka: ot idei k rezul’tatu 2017, no. 3, pp. 90–94 (in Russian). Promyshlennoye proizvodstvo Omskoy oblasti: Stat. sbor. [Industrial production of the Omsk region Stat. collection] // Omskstat. – Omsk, 2018, pp. 204 (in Russian). Razvitiye promyshlennogo proizvodstva Omskoy oblasti: Doklad [The development of industrial production of the Omsk region Report] // Omskstat – Omsk, 2018 – 56 p. Tompson W. (2005), ‘Russia’s Power Sector Reform: Creating Robust Competition a Potemkin Market?’, Russian/CIS Energy and Mining Law Journal, 3 (1–2).

Marina A. Allenykh, Svetlana A. Varvus, and Kseniya V. Naidenkova

2 The Impact of Technology on Development of Sea Fishing in Russia Introduction Russia is rich in various types of resources, including aquatic biological. Humanity has been actively engaged in fishing for many centuries. With the development of scientific and technological progress, people are increasingly using resources that were previously inaccessible. The share of fish stocks that are within biologically sustainable levels tends to decrease: from 90.0 percent in 1974 to 66.7 percent in 2016. In contrast, the share of stocks caught at biologically unstable levels increased from 10 percent in 1974 to 33.3 percent in 2016, with the largest increase in the late 1970s and 1980s. This trend will grow in a few next year. The result of this trend may be an increase in environmental problems. Nowadays, one of the promising areas of development is the Arctic region of the Russian Federation, which has significant aquatic biological resources for industrial fisheries. Its species diversity includes about 289 species of fish. Currently, more than a third of fish and seafood is harvested in the seas of the Arctic Ocean and about a fifth of all canned fish is produced. However, today, fishing on a significant scale is conducted only in the Barents, Greenland seas and the northern part of the Norwegian Sea, where in certain periods up to 4.5–5 million tons are catch annually. Fishing in the area is carried out by 28 countries, but on a regular basis it is conducted by such countries as Norway, Russia, Iceland, the Faroe Islands, Greenland (Denmark) and a number of EU countries.

Methodology In Russia, the organization of the process of processing fish and seafood interests many entrepreneurs. On the one hand, they are attracted by the rich resource potential: the proximity of large rivers, lakes, seas and oceans. On the other hand, the processing of river fish together with marine fish is extremely promising from an economic point of view. The segment width makes it easy to find your niche in it.

Marina A. Allenykh, Svetlana A. Varvus, Financial University under the Government of Russian Federation, Moscow, Russia Kseniya V. Naidenkova, Obninsk Institute for Nuclear Power Engineering, Obninsk, Russia https://doi.org/10.1515/9783110692075-002

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Marina A. Allenykh, Svetlana A. Varvus, and Kseniya V. Naidenkova

It is not surprising that there are so many small and medium enterprises in the fish market that are designed to meet the needs of a certain group of consumers. Thanks to the latest technologies, the output of the final product increases every year, the waste is processed more efficiently, and for organizing a business you no longer need to have large production capacity – just buy ready-to-use semi-finished product. Fish processing enterprises can be divided into three categories: – fish processing plants located in close proximity to the catch sites. Such enterprises carry out only basic processing of raw materials, clean it, cool it to a temperature of – 5 degrees Celsius, freeze or salt it. Then fish and seafood are sent for further development in the form of an industrial semi-finished product or a whole. Mostly, procurement stores are located in the basins of the Far East, North-West and Kaliningrad – 95% of all fish destined for processing is harvested here. – fish processing plants located near wholesale and retail outlets. These enterprises produce industrial semi-finished products. They buy cheap raw materials from primary processing enterprises, and then sell semi-finished products in bulk in the production of finished products. – enterprises in the final sale of products. Here, semi-finished products and fish raw materials are transformed into a finished product, which is immediately sold to the consumer. Such firms are much more mobile, they are acutely responsive to demand and can quickly adjust the range. It is in this segment most of all small and medium enterprises. Fish and seafood go a long way from the place of fishing to our table. The process and technology of processing fish and seafood directly depend on what product should ultimately be: chilled, frozen, dried, canned, salted, smoked, already prepared, for example, in the form of meatballs, minced meat and, of course, live. It would seem that you can do with living fish, so that it does not become dead and does not go on sale in the wrong form? It can and should be: get it from the fishing gear, sort it by type and size, and then put it in the tank in which it will be located until the moment it is sold. In order for a fish to survive, it must feel comfortable in its “pool” – the water quality, oxygen content, temperature and the availability of a water purification system are important. Live fishing is mainly river or commercial fish of the carp and sturgeon family, as well as sea fish caught near the coast. If it is not about living fish, then it is that it remains fresh until the next stage of processing. Cooling fish is the process of lowering the temperature to minus 1–2 degrees Celsius. This can be done in three ways – put in the refrigerator, fall asleep with ice or put in a cold pickle. When placed in a refrigerator, the appearance of the fish deteriorates, so the fish most often sinks into finely crushed ice.

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Chilled fish can be stored no more than 5 days, which significantly reduces the possibility of its transportation and processing. Therefore, in order for fish and seafood to go on sale in general, they are frozen at a temperature of up to -18 degrees Celsius. Refrigeration equipment for fish processing is divided into equipment of continuous and periodic flow. It is extremely important, that the effect of negative temperatures on a product that is in the process of cooling, freezing, transporting and storing is constant until it is sold. The finished, that is, the primary fish (fresh, chilled or frozen) is divided and, depending on the variety, size and type, and then sent for cutting, pickling and salting, dried or dried, smoked, canned or preserved. Arrived at the place of processing raw materials first thawed, if necessary, and then cut. The fish processing industry, as a rule, is equipped with special equipment for cutting: aggregates, nozzles for removing heads, saws for cutting the peritoneum, equipment for removing scales and skin, various fish scalers, etc. from one end of the conveyor and waste from the other. Fish processing products (large bones of the spine, skin, and so on) are used in the production of bone meal, which is actively purchased by animal feed manufacturers. It is safe to say that processing fish waste is no less beneficial than working with fish itself. It is extremely important that enterprises working with such perishable products closely monitor fish processing technology, as well as strive to maximize the use of raw materials, improve product quality and use the maximum production capacity of the equipment in which they work. At the present stage of development of the fishing industry and its competitiveness in the world market, it is necessary to update its production and technical base of enterprises and, above all, the fishing fleet. Russia’s transition to a market economy led to a decrease in the number of reefer vessels. In order to meet international requirements for quality standards, fish factories were modernized with replacement of technological equipment for production. Since the mid-nineties, vessels that were in operation were acquired mainly from Western countries with developed fishing (Kuranov, 2017). Since 2009, only 16 fishing vessels have been built, including 10 low-tonnage vessels. With a standard service life for various categories of vessels 16–20 years, according to the beginning of 2016, the average age of fishing vessels in the basins was: The Far Eastern basin – 26.3 years out of 640 vessels in the field; The Northern Basin is 25.7 years from 199 vessels in the field. However, the oldest fleet is operated in the West Basin (97.6% of the ships operate above the standard operating life) and on the Caspian – 97.4% of the ships. It can be assumed that the target figures of the strategy for catching bio-resources by 2020 (6 million tons) are unattainable due to the critical state of the fleet (Meyler and Moyseenko, 2017). Moreover, aging and reduction of the fleet is sustainable.

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Marina A. Allenykh, Svetlana A. Varvus, and Kseniya V. Naidenkova

Since the beginning of the 2000s, the number of vessels built in Russia has increased from 9 to 17 (the period up to 2016), while the number of vessels that were in service from 37 to 69 has increased. (http://www.rucompany.ru)

Results Today, fisheries provide food security, employment, socio-economic development and population of coastal areas. The activities of companies in this market lead to increased competition, in connection with which it is especially important to understand the state of competition of fisheries in the sea to regulate the fisheries complex and successfully manage them. In 2014, fishing in Russia was subject to the imposition of sanctions, but nevertheless, it is a fairly dynamic industry with high profitability ratios. The profitability of fish farming increased from 16.5% in 2013 to 49.9% in 2017. (www.gks.ru/wps/ wcm/connect/rosstat_main/rosstat/ru/statistics/publications/catalog/doc_ 1135075100641). While profitability in agriculture is no more than 3%, mining is about 26% (Varvus, 2018). According to the UN FAO, the world catch of fish and seafood is 95 million tons. Russia accounts for 5.5% of the global volume of fish (which corresponds to the fourth place in the world (www.fao.org/3/I9540RU/i9540ru.pdf). Only China, Indonesia and the United States are ahead). With the introduction of economic sanctions in 2014. fish imports decreased by 10% from some countries (Norway, etc.) (http://ru-stat.com/date-M201611-201711/RU/export/world/0103) (Table 2.1). Table 2.1: Characteristics of import and export of aquatic biological resources. Import, bln.$

Export, bln.$



.



.



.



.



.



.



.







.



.



.



.

In 2017, more than 1/3 of the volumes caught were exported. This is due to the lack of modern fish processing enterprises and the specifics of inspections at border and customs controls (basically, this is extra time for inspection if the vessel goes more than 12 miles from the coast). The largest buyers are China, South Korea, and Japan.

2 The Impact of Technology on Development of Sea Fishing in Russia

15

The structure of fish imports is impressive: frozen fish accounts for 42.2%, fresh fish – 21.9%, crustaceans – 13.2%, dried fish – 6.1%. The leaders among importing countries in 2013 were Chile (18.3%), Norway (15.8%), the Faroe Islands (13%), and China – 12.4%. In 2018, the leaders changed – Chile, the Faroe Islands, China, Belarus (respectively, 23.1%; 20.9%; 14.85; 6.1%) ( http://ru-stat.com/date-Y2013– 2018/RU/import/world/0103). Seafood consumption is growing at an average of 15– 18% per year (i.e., the fish saturation limit has not yet been established). This development was due to population growth, on the one hand, and urbanization processes, on the other. On the recommendation of the Ministry of Health of the Russian Federation for the normal reproduction of the Russian citizen must eat 19– 20 kg. fish at the recommended level of 22 kg. Fisheries are experiencing the effects of both the factors of the microenvironment of enterprises and the macroenvironment. The first group of factors includes a low level of investment in the industry, the absence of fishing vessels from enterprises. The second group of factors (macro environment) include: – population growth: By 2050, the world’s population will reach 10 billion people, which will need to be provided with food, including fish. According to the FAO UN, the population of Russia by 2050 will be 150 million. Therefore, fishermen are counting on increased consumption of aquatic biological resources; – global warming: The change in temperature in the sea in the Far East changes the migration of fish – salmon moves to the north, and sharks and tuna go to the south (Tropnikova, 2017; Kuranov, 2017; Meyler and Moyseenko, 2017; Tropnoikova, 2017); – institutional changes in the industry: Contradictions in the legislation in the field of control during the transportation of fish from the place of extraction to processing force us to say that the extraction of fish and its processing are not related industries. At the same time, from 01/01/2019 the order of distribution of quotas for the extraction of aquatic biological resources is changed. Stopping in more detail on this factor, we would like to note that the industry was reformed three years ago. The main idea of the state was to update the fixed assets and the flow of investment. A program was developed to allocate 20% of quota “under the keel” to companies that were willing to invest in the construction of new fishing vessels and fish processing enterprises. Crab auctions were introduced. There is also an active discussion in the industry – reducing the time limits for granting quotas for catching aquatic biological resources from 15 to 3–4 years. If the last initiative is adopted, there will be changes in the concentration of firms in the market, which will subsequently lead to an increase in the cost of fish products. Another Russian feature is quality water, which allows us to grow ecologically clean fish, which is a competitive advantage. The federal law on organic products adopted by the State Duma (it will enter into force only from 01/01/2020) [6] does not directly apply to fishery products, but regulates aquaculture. By introducing

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Marina A. Allenykh, Svetlana A. Varvus, and Kseniya V. Naidenkova

voluntary certification of their production facilities, aquaculture growing enterprises will emphasize that their products are environmentally friendly, which will further enhance the value of products and enter new markets. As a research object, a sample of enterprises engaged in marine fisheries (OKVED code 3.1) was carried out throughout Russia according to SPARK. Based on the sample, we calculated that, according to SPARK, the average age of the 10 largest companies in marine fisheries is 25 years. Industry leaders are concentrated in the Murmansk and Arkhangelsk regions, Primorsky and Kamchatka regions. The dynamics of changes in the number of enterprises in the industry is clearly presented in the table 2.2: Table 2.2: Dynamics of change in the number of firms in the marine fisheries of Russia since 2015–2017. Number of firms in the industry













The total revenue of the companies for the three-year period (2015–2017) was: 35,00,00,000 30,00,00,000 25,00,00,000 20,00,00,000 15,00,00,000 10,00,00,000 5,00,00,000 0 2015

2016

2017

Figure 2.1: Changes in the revenue of Russian sea fishing companies from 2015 to 2017, in rub.

Based on the data presented (Figure 2.1), it can be concluded that the high profitability in the industry has attracted new firms, which is reflected in the growth of revenues of companies in this market. To calculate the indicators of concentration of sellers, we determined how market shares are distributed among its participants. In this case, the authors of this study calculated the indicators of the concentration of sellers in the market (dispersion of market shares, concentration indices, HerfindahlHirschman index, relative entropy index). According to the analysis, approximately 46% of the market is distributed among firms with a market share of 1 4.5%. The other part is occupied by small

2 The Impact of Technology on Development of Sea Fishing in Russia

17

enterprises with a market share below 1%. The concentration index [1] of the three largest companies in the industry over the past three years shows that the three largest companies account for about 10% of the entire Russian marine fisheries market. The share of the ten largest companies accounts for 23.7% of the market in 2017 (CR10) (Figure 2.2).

Consentration Index CR3 и CR10 24.9 25 20 15 10.5 10 5 0 9.3

9.7

23.7

23.6

Figure 2.2: Dynamics of changes in concentration index from 2015 to 2017, in %.

The Herfindahl-Hirschman index calculated by us (Varvus,2018) is negligible and characterizes the industry as perfect competition.

Herfindahl-Hirschman index, 2015–2017 гг.

125 120 115 110 105 2015

2016

2017

Figure 2.3: The dynamics of the Herfindahl-Hirschman index from 2015–2017.

As the analysis of the chart shows, HHI in 2017 increased by 2.2 percentage points compared with 2016 and amounted to 115.5. At the same time, the value of the specified index in 2016 reached a minimum level of 113 (Figure 2.3). The high value of the relative index of entropy suggests that the industry is characterized by a low concentration of firms (Figure 2.4). Despite the high rates of profitability, government regulation of this market should continue, since the fishermen alone will not be able to cope with current

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Marina A. Allenykh, Svetlana A. Varvus, and Kseniya V. Naidenkova

Relative Entropy Indicator, 2015–2017 гг.

0.63 0.62 0.61 0.6 0.59 0.58 2015

2016

2017

Figure 2.4: Relative entropy index from 2015 to 2017, in %.

problems and threats. In general, we can conditionally identify several areas of state participation: – further subsidizing of the industry in terms of the cost of producing fish products – support for industrial enterprises in the form of creating fish clusters – the introduction of voluntary certification of production – development of a system for tracking the movement of fish in the market – further improvement of the regulatory acts governing the industry – the state to pursue a policy of promoting the consumption of fish. At the same time, it is better to pursue a policy in relation to each target audience in isolation. For example, for youth (adhering to a healthy lifestyle) should be told how to cut it and prepare.

Conclusions It can be concluded that fishing in the industry is in the “redistribution”. On the one hand, this is caused by the distribution of quotas by new rules from the beginning of 2019. On the other hand, the industry is closed and non-transparent, since there are poachers with unrecorded products. Undoubtedly, this will affect the processes of concentration of capital in marine fisheries. The industry is not strongly influenced by scientific and technological progress.

References Export i import Rossii po tovaram i stranam [Export and import of Russia by goods and countries] / Analytical portal. URL: http://ru-stat.com/date-M201611-201711/RU/export/world/0103 (in Russian).

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Export i import Rossii po tovaram i stranam [Export and import of Russia by goods and countries] / Export i import Rossii po tovaram i stranam. URL: http://ru-stat.com/date-Y2013–2018/RU/im port/world/0103 (in Russian). Federalnuy zakon No. 280-FZ of 03.08.2018. “Ob organicheskoy producziy i vneseniy izmeneniy v otdelnuy zakonodatelnue akty RF” [On organic products and on amendments to certain legislative acts of the Russian Federation] (in Russian). FSBI “Administration of the Sea Port of Murmansk” URL: http://www.rucompany.ru/ (in Russian). Kuranov U.F. Tendenzii razvitiya i obnovleniya rubolovnogo flota na severnom basseyne. [Trends in the development and renewal of the fishing fleet in the northern basin] //Bulletin of the Murmansk State Technical University. 2017. Vol. 20. No. 4. pp. 734–741 (in Russian). Meyler L.E., Moyseenko C.C. Analitysheskiy obzor avariynosty transportnogo i rubopromyslovogo flota. [Analytical review of the accident rate of the transport and fishing fleet]. //V sbornike: V INTERNATIONAL BALTIC MARITIME FORUM Forum materials. Sostavitel Kostrikova N.A. 2017. pp. 73–87 (in Russian). Rossiya v zifrah [Russia in in numbers]. / Federalnaya slugba gosudarstvennoy statistiky [Federal State Statistics Service] URL: http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/ statistics/publications/catalog/doc_1135075100641 (in Russian). Sostoyanie morovogo rubolovstva i akvakultyry. [State of World Fisheries and Aquaculture] / Food and Agriculture Organization of the United Nations. – URL: http://www.fao.org/3/I9540RU/ i9540ru.pdf (in Russian). Tropnoikova N.L.Sovremennye tendenziy v upravleniy razvitiem arkticheskogo promyshlennogo rubolovstva. [Current trends in the management of the development of Arctic fishing industry] // Management in modern systems. 2017. No. 1 (12). pp. 39–44 (in Russian). Varvus S.A. Osobennosty vliyaniya sankziy na otraslevoe razvitie economiki Rossii. [Features of the impact of sanctions on the sectoral development of the Russian economy] // Economy. Taxes. Right. 2018. Vol. 11. No. 4. pp. 44–53 (in Russian).

Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

3 World Development Actors – Green and Smart Middle Cities Introduction The human development vector makes the concentration of the population in cities, megalopolises, which indicates the necessity to develop models of cities that will function in the future. Among the numerous models, the most promising projects appear to create “green” and “smart” cities, creating favorable conditions for work and rest, creativity and entrepreneurship. Most Russian cities were created in the twentieth century and have an industrial or narrow specialization (science cities). The changed economic conditions, the increase in the well-being of the population, made the cities little adapted for further residence. In particular, the increasing number of cars almost paralyzed traffic on the roads; and small-sized apartments with low ceilings and small kitchens did not ensure the use of multifunctional household appliances, “smart devices” and eco furniture. The desire of a person to live in a unique and safe environment with many diverse functions, with individuality in everything, has caused the need for architects and managers to look for new approaches in the development of urban resources, to create models that would ensure competitiveness and be directed towards the future. In the registry of urban settlements in Russia, a group of medium-sized industrialized cities stands out, which have a high urban gross product, which have more reason to develop as “green” or “smart” cities. Each economic formation creates its own format of action, a scale in which a person’s efforts to change life for the better are more effective or less effective. The fact that the Urban Development Program adopted by the Ministry of Construction of Russia, determines, specifically, the development of “smart cities” in the 21st century, speaks about increasing attention to urban development issues (Medvedeva and Starovoytova, 2013; Shakhovskaya, Medvedeva, 2017).

Methodology In the course of the study, methods of systems analysis and analogies were used, and an economic-modeled approach was used to justify green and smart cities. Primary

Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova, All-Russian Research Institute for Irrigated Agriculture, Volgograd, Russia https://doi.org/10.1515/9783110692075-003

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Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

sources, historical and statistical materials that explain the conditions and prerequisites for creating “green” and “smart” cities based on medium industrialized cities were studied. As a research vehicle, predictive and abstract conclusions were used to justify the use of green and smart technologies in the infrastructure of cities in the 21st century.

Results Models of cities of the future, including “green” and “smart”, have long attracted the attention of scientists and futurologists. “Green” cities became the object of study at the end of the twentieth century, after the adoption of an international program for the sustainable development of civilization (http://www.unep.org/green economy). According to the authors, the cities had to meet strict requirements in terms of carbon emissions into the atmosphere, the amount of household waste produced, the use of renewable energy sources and an increase in green space. The term “smart city” (smart city) appeared in the late 1960s, when, with the advent of powerful computing devices, the idea to optimize urban management and planning emerged, to ensure the rapid movement of information between citizens and government. The term Smart Grid was first used in the work of Michael T. Burr in order to justify the use of the electronic process to effectively invest in the urban economy. In 2010, the Economist Intelligence Unit (EIU) research institute conducted a study to determine the green city development index and establish the rating of “a number of European cities for compliance with the requirements of the green economy”. The following indicators were taken into account: condition of water, soil, air; the efficiency of energy, transport, wastewater and waste disposal facilities; number of buildings with low energy consumption. As a result, the index of the “greenest cities” was obtained: Vienna, Amsterdam, Berlin, Bremen, Brussels, Copenhagen, Frankfurt, Hamburg, and Helsinki. The study was conducted in such a way that citizens on-line on special websites could track the processes of compliance of their cities according to the requirements for “green”( http://www.airqualitynow.eu at al.). “Smart Cities” were created by architects and designers by order of the authorities and investors. The most “smart” cities include: the eco-city of Tianjin (China), the infrastructure of which includes many copyright solutions in the field of renewable energy use, complete recycling of waste, water saving and video surveillance; Eco-city Masdar (UAE), in which the majority of management processes are transferred to the online mode, urban transport operates on electricity. Today, scientists identify several fundamental elements of creating models of “smart” cities (Table 3.1). The concepts of “green” and “smart” cities may be attractive to the authorities of newly created cities, as well as to the authorities of existing cities, in order to carry out renovation.

3 World Development Actors – Green and Smart Middle Cities

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Table 3.1: The main structural elements of the “Smart” city project. Name

System

Purpose

Smart Energy

In the field of energy (energy supply, energy saving, renewable energy – RE)

The system provides management of demand for electricity, economy, the use of renewable energy

Smart Water

In the field of water management, environmental safety

The system ensures the operation of smart meters based on a narrowband Internet for water metering; analysis of water consumption and leakage patterns; optimizes resource use

Smart Buildings

In the field of construction of smart The system integrates engineering and homes information networks into a single management system (BMS – building management system)

Smart In the field of creating intelligent Transportation transport and logistics schemes

The system covers a large number of different technologies and provides transport and logistics management in the city

Smart Government

Provides database connectivity with web interfaces; allows setting urban planning algorithms

In the field of public services

Individual components of the “smart city” work successfully in Moscow, St. Petersburg, Tyumen, Omsk, Yekaterinburg, Ufa, Samara, Volzhsky; and digital solutions in Innopolis, Skolkovo (Russia). If the concept of “green” cities gives priority to nature-like technologies in the urban economy, then the concept of Smart City, to a greater extent, focuses on the use of intellectual and information and communication technologies at all levels of city management. In 2019, the Ministry of Construction of Russia intends to launch a pilot project “smart city” in 18 municipalities in order to achieve significant improvements in: the transport sector (to increase the mobility of passenger traffic); health care (reduce costs in the diagnosis of diseases); education (improve access to knowledge); financial sphere (increase the safety of financial flows, speed up transactions). The study shows that the use of IT technologies in the urban economy can reduce energy consumption by – 30%, water loss – 20%, and also increase the economic and social activity of citizens – by 20%. In foreign publications, a “smart” city, as “effective integration of physical, digital and human systems in an artificially created environment in order to ensure a sustainable, prosperous and comprehensive future for citizens” is a combination of integrated and implemented IT solutions. You, too, time, the term “smart city” remains rather unclear in its understanding, and has many interpretations and definitions. Some scientists and city administrations believe that a “smart” city is

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Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

a hundred networked cameras and sensors; Others include here the city “is tied up with intelligent communication networks”. As always – the truth will be somewhere in the middle. The main customer of the introduction of models of “green” and “smart” cities should be the authorities, who by their obligations, based on public opinion, should form a long-term vision of the development of the city. According to one of the options for the development of a “smart” city, it must be present in it: video surveillance and photo and video recording systems; intelligent transport systems; professional radio and broadband internet access (LTE, 5G); IoT – Internet of Things; unmanned vehicles; augmented and virtual reality; geographic information technology and navigation. Cloud systems with a numerous system of video cameras, sensors, sensors, and computer programs should ensure the operation of such systems. The unification of processes in the management of cities can be achieved by local authorities with the help of ISO standards: ISO 37120: 2014 “Sustainable development of the community. Indicators of urban services and quality of life”; ISO 37151: 2015 Intellectual infrastructure of public utilities. Principles and requirements for the system of performance indicators and computer programs, including: “The city’s intellectual transport infrastructure (ITS)”, which has in its arsenal: traffic flow detectors; adaptive (smart) traffic lights; means of automatic fixation of traffic violations; electronic means of nonstop fare payment; parking meters; connected information boards; automated lighting control systems; automatic road weather stations; road controllers. The study allowed us to identify four main ways of “expanding intellectual capabilities” of the city. The first way – “anchor”, provides for the creation in the city of one common application that allows us to solve most problems; the second is the “platform”, which is associated with the creation of the basic infrastructure necessary to support intelligent applications and services; the third, the “beta city”, proves the need to use several applications, which together give a complete picture of the development of the socio-economic sphere of the city to adopt a strategy the fourth is “smart home”, according to which “smart” homes should be the starting point in the development of “smart” cities (http://www.tadviser.ru/index. php). A strategic consortium consisting of authorities, representatives of public organizations, entrepreneurs, and citizens should determine one of the possible ways to apply green and smart technologies and create a “green” or “smart” city. The Ministry of Construction of Russia is developing a city IQ rating based on innovative criteria that reflect the “smart” development of housing and public utilities, the formation of an affordable, comfortable and safe urban environment, the creation of an innovative infrastructure, digital construction and spatial planning, and the development of intelligent transport systems. The basic elements of a “smart” city include: an online bank of “smart” solutions and tools that improve the quality of urban resource management (Makarov, Ayvazyan, Afanasyev, Bakhtizin and Nanavyan, 2016). Table 3.2 shows the technological solutions and benefits from the implementation of intelligent IT-applications in the field of energy.

3 World Development Actors – Green and Smart Middle Cities

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Table 3.2: Tasks, technological solutions and benefits from the implementation of intelligent energy applications in a “Smart” city. SMART GRID TECHNOLOGICAL SOLUTIONS: KEY AREAS First

Second

smart counters, flexible AC transmission smart sensors systems; superconducting cables, semiconductor power electronics

Third

Fourth

integrated interfaces, energy demand management technologies, power system planning methods

integrated communications

TASKS OF ENERGY RESOURCES’ CONSUMERS – SMART GRID: increase of power supply reliability

energy quality improvement

consumer consumer full market interaction participant interface with energy suppliers

THE BENEFITS OF THE SMART GRID SYSTEMS’ IMPLEMENTATION specific revenues from equipping  energy metering point for group of EU countries: from  to  Euro

specific revenues from equipping  metering point for group  of EU countries from  to  Euro

The starting point in the development of the concepts of “green” and “smart” cities is spatial construction. The scientific publications present a palette of views explaining the spatial construction of cities – a model of E. Burgess’s “concentric zones” (Burgess et al., 1922) in which the inner space of the city is represented as functional zones; sectoral model of H. Hoyt (Lappo, 1997), explaining the feasibility of locating urban neighborhoods along highways; K. Harris and E. Ulman’s “multilobular theory”, in which the city center is represented as a set of “mini-centers”; the theory of the “right city” by M. White and V. Christaller (Christaller, 1966), which reveals the interrelation of the “core-Center” with the “corridors-zones”; the concept of I. Mayergoyz (Mayergoyz, 1986), highlighting the presence in the cities of zones with different levels of anthropogenic load (integral-spatial, territorial-sectoral, linear-nodal). The spatial structure of cities with different configurations is presented in Figure 3.1. In the single-core city development model, criteria for assessing the quality of residential areas from the center to the periphery, each of the zones, possessing a certain set of characteristics, provides conditions for changing its value and value. Figure 3.2 shows the plan for building a single-core city with functional living areas. Any management system is an integral part of the mechanism for streamlining the life processes of society. In turn, the development of society is carried out on the basis of basic values that fill all spheres of its life activity (Table 3.3). At the same time, the strategic and operational goals of managing business entities in cities are built on the basis of common priorities for the development of civil society.

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Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

3

2 3 1 2 3 4 5

4

6

7

1

2

3

1 5 4

5

3

3

2

3

1

6

A – concentric

B B – sectoral

1–3. Residential 1. Central business district. zones (descending the cost of 2. Transit zone. housing). 3. Residential 4. Educational and area. cultural zone. 4. Prestigious 5. Zona transport. residential area. 6. Industrial zone. 5. Housing for commuters. 7. Central “core”.

2 8

9

A

7 5

4

C C – multicore

D–single core

1. Central district.

1. Central business district.

2. Service area. 3–5. Residential areas (ascending cost).

2. Zona wholesale trade, the service sector.

6. Business district.

3–5. Living areas

7. Industrial zone. 8–9. Suburban area and suburban industry.

(by increasing the cost of housing). 4.Industrial zone.

Figure 3.1: Spatial urban models. Source: URL: http://www.admvol.ru

The conceptual understanding of the functioning of cities is associated with the implementation of the laws of the functioning of the biosphere and the processes of interaction of the economic, social and ecological systems, leading to balance or imbalance in management (Table 3.3). The Russian scientist A. Bogdanov (Bogdanov, 1989) substantiated that any social system is a self-organizing system with a built-in self-regulation mechanism. According to him, “a city is a kind of unity, consisting of elements, with connections between them, each element contributing something concrete to the unique characteristics of the whole” (Bogdanov, 1989). The system approach allows distinguishing the following components in the social organization of citizens: administrative structures, functional levels, territorial communities of citizens with legal norms. The ideas of A. Bogdanov served as the basis for the use in the municipal government of the synergistic effect and the self-organization of the system. According to the scientist, from the position of synergy, one can justify the main approaches in urban management: not to impose development paths for complexly organized systems, but to understand their own evolutionary trends; take into account the possibility of applying “small actions” (“theory of small steps”). According to the spatial construction, two groups of cities are distinguished: the first one, which gives preference to nature-like technologies; the second is aimed at

3 World Development Actors – Green and Smart Middle Cities

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3

2

1

Figure 3.2: The master plan of the one-nuclear city of Volzhsky (Russia) with the allocated functional zones. Notes: 1: central region; 2: sleeping area; 3: industrial area. Source: URL: http://www.admvol.ru

the use of IT-technologies. In the models of the cities of the future – public buildings are the cores of design solutions, in turn, natural objects (parks, squares, ponds) act as complementary elements that emphasize the priority of the commercial component. Such a model increasingly separates the citizen from nature and generates, in most cases, a feeling of loneliness and discomfort. One of the sites for the implementation of “green” and “smart” cities can be a group of industrialized medium-sized cities (Valentey, 1999). To assess their level of development and their use as a platform for the development of “green” cities, the CDI (City Development Index) can be used, it reflects the level of well-being, health and education of citizens; the state of the infrastructure (dwelling, water supply, sewage, electricity, telephone); the level of organization of waste collection and disposal (wastewater treatment, solid waste disposal); volume of city product received. The formula for calculating CDI: CDI =

n 1X Iij , n j−1

where Iij is the subindex of the i-th middle city, the j-th indicator, n – number of indicators.

(3:1)

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Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

Table 3.3: Basic laws ensuring a balanced integrated development of the urban system. System-wide laws Laws: similarity of part and whole; necessary diversity; system separatism; optimality; system periodicity Emergence Axiom The rule of system-dynamic complementarity Laws ensuring the interaction of man and the surrounding nature Laws: unity “organism – environment”; the indispensability of the biosphere; relative independence of adaptation; the irreversibility of the “man-biosphere” interaction; demographic saturation Rules for the acceleration of historical development; socio-ecological balance Laws that provide solutions to the problems of ecology of space Laws: increasing the knowledge-intensiveness of social development; consistent passage of development phases; coordination of structure and rhythmics (functions) of parts (subsystems); “Energy conductivity”; maintaining orderliness by I. Prigozhin; minimum of the energy dissipation (dissipation) by L. Onsager The rules governing the value of consuments by D. Jensen; strengthening the integration of biological systems by I. Schmalhausen; ecosystem multiplicity; territorial ecological balance Laws providing rational forms of environmental management Laws: the maximum of the biogenic energy (entropy) of V. Vernadsky – E. Bauer; the equivalence of all living conditions; the indispensability of all conditions of life; biogenic migration of atoms by V. Vernadsky; preservation of the structure of the biosphere by J. Goldsmith; orderliness of space filling and space-time certainty; ecosystem formation; internal dynamic equilibrium; limitations (exhaustion) of natural resources; self-control and self-regulation of the living by J. Goldsmith; reduce the energy efficiency of environmental management One to ten percent rule The laws of management theory and organization Laws: of synergies; self-preservation; development; awareness-ordering; unity of analysis and synthesis; composition and proportionality; management specialization; management integration; saving time; unity and integrity of the management system; efficiency of solving management problems of the volume of information use; compliance with the required and available time when solving management problems The specific laws of social organization Source: compiled by the authors.

Any component of the composite index is integral and includes a number of components: when assessing the general condition of the infrastructure, the ratio is taken into account: 25% water supply, 25% sewage, 25% electricity, 25% telephone. The value of CDI is measured in the range from 0 to 100, the closer to 100, the higher the level of development of the city, the higher the development possibilities in the development of a “green” city. The city development index is presented in Table 3.4.

3 World Development Actors – Green and Smart Middle Cities

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Table 3.4: Development index of medium industrialized cities of Russia, 2016. No. Cities

City Development Index

Including subindices infrahome structure improvement

public health

public education

city product



Magnitogorsk

.

.

.

.

.

.



Nizhny Tagil

.

.

.

.

.

.



Volzhsky

.

.

.

.

.

.



Cherepovets

.

.

.

.

.

.



Surgut

.

.

.

.

.

.



Sterlitamak

.

.

.

.

.

.



Komsomol’skupon-Amur

.

.

.

.

.

.



Taganrog

.

.

.

.

.

.



Nizhnevartovsk

.

.

.

.

.

.



Bratsk

.

.

.

.

.

.



Novorossiysk

.

.

.

.

.

.



Nizhnekamsk

.

.

.

.

.

.



Stariy Oskol

.

.

.

.

.

.



Norilsk

.

.

.

.

.

.



Dzerzhinsk

.

.

.

.

.

.



Orsk

.

.

.

.

.

.

To assess the state of the city, the social development index – HDI, the index of human satisfaction with work and life, the Human Development Project, can be used (http://www.minregion.ru). The development of the city is determined both by the welfare of the citizens, and the lack of social discrimination, respect for pensioners and the disabled. The identification of different types of cities ensures that weighted government policies with a support mechanism are implemented. The Russian medium-sized city is a stable type of settlement with a demographic capacity index ranging from 100 to 500 thousand people, an independent subject of civil and property relations, having a self-management circuit, a mechanism for developing existing resource potential, creating conditions for raising the living

30

Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

standards of all sectors of society. According to the results of the 2010 census, there are 91 cities in Russia with a population of 100 to 250 thousand people. i.e. medium cities. Among the medium-sized cities stands out a subgroup – 16 industrialized medium-sized cities with a population of more than 250 thousand people. with a share of industry in the economy – more than 70%. The study shows that the composite index of the development of medium-sized cities is lower than that of large cities and they lag behind in the development of social infrastructure by 15–20%, in sewage equipment by 1.5–2 times, water supply and heat supply by 1.5–2 times, gas supply 1.1–2.5 times. At the same time, in medium-sized cities, there is a fairly high level of housing provision for the population, higher returns on investments in the food and metalworking industries, and traditional crafts (Medvedeva, 2012). The middle city also serves as a transit link of the consumer market between the center and rural areas, which gives it an additional source of income. It also possesses certain specific properties in its sociocultural development, which reflects the historical experience of the people living here and the peculiarities of the surrounding landscape. A resident of an average city is ready to “try on the clothes of a green city” and have a higher happiness index (Happy Planet Index). Table 3.5 presents the indicators of the development of “green cities”. Table 3.5: The list of indicators determining the development potential of “Green cities”. No. Indicator

Unit of measurement

Industrial potential .

The cost of fixed assets per capita

rub. / Pers.



Capital productivity (the amount of CGU for one ruble of fixed assets)

rub.



The degree of depreciation of fixed assets at the end of the year

%



The volume of innovative products in the total volume of products

%

Infrastructure potential 

Waste disposal

kg / person



Availability of cars per  people

units



Availability of water supply with a degree of water purification up to %

units



The number of mobile subscribers and the Internet per , people

units

3 World Development Actors – Green and Smart Middle Cities

31

Table 3.5 (continued) No. Indicator

Unit of measurement

Financial potential 

The share of investment in fixed capital in the gross urban product

%



The volume of investment in fixed capital per capita

rubles / person



Costs of R & D in relation to the gross urban product

%



Budget expenditures for social events per capita

rubles / person

Human potential 

The share of workers with higher education in the total number of employed

%



Percentage of population engaged in productive labor, per  thousand population

%



Life expectancy at birth

years



The share of the population with incomes below the subsistence minimum

%

To take into account the weight of these indicators in the “green city” model, it is advisable to apply the method of multidimensional comparative analysis based on the calculation of Euclidean distances. According to the method, the assessment of each indicator should be made according to the formula: ki =

xi − direct indicator, maxðxi Þ

(3:2)

ki =

minðxi Þ − reverse indicator, xi

(3:3)

and

where: xi - the value of the i- indicator in the city, maxðxi Þ, minðxi Þ is a benchmark indicator, which can be selected as the optimal (threshold) values of the development indicators of the “green” city. One of the indicators that can be used to determine the prospects for the development of a “green city” is the enterprise development index. The enterprise development index, as a generalizing module of the regulatory vector with 25 components, is calculated by the formula:

32

Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

R=

rffiffiffiffiffiffiffiffiffiffi M P I2i i=1

Xn

(3:4)

where R is the composite index of entrepreneurship development; n is the number of the indicator; M is the total number of indicators; Xn is a local calculation criterion. It is the sum of the indices (Ii) of the indicators included in it (i = 1, 2, . . ., M): The method of expert assessments determines the weight of significance (ki) for each of the i-th indicators: from 1 to 0.9 – very high; from 0.8 to 0.6 – high; from 0.5 to 0.1 – low (Rogachev, 2017). The basic set of the “smart city” program is presented in Table 3.6. Table 3.6: The basic set of components of the module “Smart city”. The first block – housing and communal services management system Control systems of engineering infrastructure in buildings Utility Resource Accounting System Systems of remote control and management of housing and utility services “smart water utility”, “smart heating system” Online service for citizens on housing and communal services Online service for applications for the implementation of energy service contracts Online service for general meetings of homeowners Online service for monitoring the state of the elevator industry Online service for monitoring the concentration of domestic gas Online service for the provision of additional services to residents of homes The second block is a waste management system Online – service for managing municipal solid waste Online – a service for the treatment of citizens on waste management The third block is nature conservation and ecology Environmental monitoring system Online – a service for citizens on environmental issues

3 World Development Actors – Green and Smart Middle Cities

33

Table 3.6 (continued)

The fourth block – public spaces and public security Outdoor Lighting Control System Management and monitoring system of public spaces The system of informing passengers about the schedule and routes of transport Urban Parking Management System CCTV in the city Monitoring systems for building conditions, environment, engineering systems Public Security Monitoring System The fifth block – transport and logistics Automated traffic control system The management system of payment for the use of urban transport and settlements with carriers and operators of paid services The sixth block – city management Unified intellectual city management system City information model Digital topographic model Spatial planning system based on information model The system of operational monitoring of life support systems of the city Services of electronic voting, receiving and processing “feedback” from residents Big data collection and analysis system

The study showed that success in implementing the concept of a “green” city depends largely on the financial condition of the city. The results of the analysis of the financial condition of an average city can be presented in the form of a matrix “contractors” and “payments”, where aij corresponds to payments of counterparties, where i is the column number, j is the row number corresponds to the city counterparties (Table 3.7). When analyzing the matrix, it is clear that in each cell the financial flow from one counterparty to another is reflected. The balance is calculated for each of the counterparties using the following formulas:

34

Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

Table 3.7: Matrix of the financial condition of the average city, obtained on the basis of the diagnosis. i =

i=

i=

external environment

Popula- Local tion government

i=

i=

city Infrastructure Small forming busienterprise ness

j=

external environment

j=

Population

a

j=

Local government

a

a

j=

City forming enterprises

a

a

a

j=

Infrastructure a

a

a

a

j=

Small business

a

a

a

a

j=

Higher authorities

a

a

a

a

a

a

i=

i= higher authorities

a

a

a

a

a

a

a

a

a

a

a

a

a

a

a

a

a

a

Population balance =

7 X

ai2 −

i=1

Balance OMC =

7 X

7 X

ai3 −

7 X

ai4 −

7 X i=1

(3:5)

7 X

a3j

(3:6)

7 X

a4j

(3:7)

a5j

(3:8)

a6j

(3:9)

j=1

ai5 −

i=1

Small business balance: =

a2j

j=1

i=1

Infrastructure Balance: =

a

j=1

i=1

Balance of a city − forming enterprise: =

7 X

a

7 X j=1

ai6 −

7 X j=1

Also, in the calculation of the overall balance of the average city, payments (sums) of the relations of the urban counterparties with external contractors are taken: city balance = balance with counterparties

(3:10)

Figure 3.3: Certificate of state registration of computer programs in the field of Green City Management. Source: Kabanov et al. (2017a and b).

3 World Development Actors – Green and Smart Middle Cities

35

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Artem V. Medvedev, Viktor V. Melikhov, Maria V. Frolova

Balance of a city =

X

−

X6

i = 1;7

X

j = 1;7

j=2

aij

X6

i=2

aij =

X

Balance with contractors

The size of the balance of a mono-city and the dynamics of its changes indicate the level of development of the city and provides an assessment of its capabilities in the development of a “smart city” (http://www.minstroyrf.ru/upload/iblock/9fe/pa sport-proekta-31.10). Developed by the authorities, the smart city development program should include such sections as: regulatory regulation of the digital environment; information infrastructure; training for the digital economy; information security (Kabanov et al., 2017a; Kabanov et al., 2017b). Digital and green technologies are constants in the innovative renewal of society and the tools for shaping the economy of the future. The strategic consortium to ensure the future of the city should assess the available resources; rethink approaches to the management of infrastructure and systems of the city; adopt programs for the use of IT-technologies and artificial intelligence in all processes of the urban economy Governmental strategy – the creation of smart cities in Russia is based on the understanding: first, the use of the achievements of science, technology and technology; the second is the creation of a comfortable and safe living environment for all citizens; third, to ensure the introduction of nature-like technologies into urban infrastructure. One of the stages in the development of “green” and “smart” cities can be computer programs. Figure 3.3 shows the programs for managing resources in a green city. To make the city “smart” you need to enlist the support of the population, synchronize the activities of all city services and online services; to attract investment in the urban economy. By creating a convergent platform for the development of a “green and smart” city, local authorities ensure consistency and synchrony in the implementation of the chosen model.

References Air quality [Electronic resource]. – Access mode: http://www.airqualitynow.eu/; Ozone pollution. [Electronic resource]. – Access mode: http://www.eea.europa.eu/maps/ozone/map; State of bathing water. [Electronic resource]. – Access mode: http://www.eea.europa.eu/themes/ water/interactive; Air quality in the world. [Electronic resource]. – Access mode: http://itunes. apple.com/us/app/world-air-quality; Air pollution. [Electronic resource]. – Access mode: http://itunes.apple.com/us/app/expair; Radiation in the air. [Electronic resource]. – Access mode: http://itunes.apple.com/gb/app/cloud-health-radiation-monitor. Bogdanov, A. (1989), “Tectology. General Organizational Science”. In 2 books, M., Economics, 1989, 351 p. Burgess, E. (1922), “The Growth of the City: An Introduction to a Research Project”. Contemporary American Sociology Bergess E.W. (ed.) The urban community, selected papers from the ASS,

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1925. New-York: AMS press. 1971.S.P. Bankovskaya – Ernst Burgess. [Electronic resource] – Access mode http://socioline.ru/_seminar/library/history/mas/02_berges.php; Burgess, E. The city / E. Burgess, R. McKenzie, P. Park. – Chicago, University of Chicago Press, 1922. Christaller, W. (1966), “The Central Places of Southern German”, Englewood Cliffs, N. J., PrenticeHill, 1966. Kabanov, V.A, Medvedeva, L.N., Starovoytov, M.K., Lomakin, N.I., Medvedev, A.V., Zhabunin, A.Yu., Maksimova, O.N, Lyasin, D.N., Soloveva, E.A. and Fedotova, G.V. (2017a), Certificate of state registration of the computer program RUS 2017663126 of 03.10. 2017 “Neural network for determining the ecological and economic efficiency of the “green city” system functioning. Kabanov, V.A., Medvedeva, L.N., Melikhov, V.V., Sazonov, S.P., Shakhovskaya, L.S., Lomakin, N.I., Timoshenko, M.A., Aleksandrov, A.V., Popova, Y.A. and Plotnikov V.A. (2017b), Certificate of state registration of computer programs RUS 2017663127 of 03.10. 2017 “The system of artificial intelligence for forecasting the budget” green city”. Lappo, G.M. (1997), “Geography of cities”, M., Humanit. ed. Center VLADOS, 1997, 480 p. Maergoys, I.M. (2016), “Territorial structure of the economy”, Novosibirsk, Science, 1986, 304 p. Makarov, V., Ayvazyan, S., Afanasyev, M, Bakhtizin, A. and Nanavyan, A (2016), “Modeling the development of the regional economy and the efficiency of the innovation space”, Forsyth, 2016, V. 10, No. 3, pp. 76–90. Materials on the topic of smart city / http://www.tadviser.ru/index.php. Medvedeva, L.N. and Rogachev, A.F. (2012), “Formation of industrial and investment policy in an average city based on the methods of economic and mathematical modeling”, Volgograd: Publishing house of the Volgograd State University, 2012, 15 p. Medvedeva, L.N. and Starovoytova, J.M. (2013), “Development strategies of Russian cities”, Horizons of Economics, 2013, No. 2 (7), pp. 89–95. Official site of the Ministry of Regional Development of the Russian Federation. URL:www.minre gion.ru. Order of the Ministry of Construction of Russia of October 31, 2018 No. 695 / pr “On approval of the passport of the departmental project for the digitization of the municipal economy Smart City Access Mode: http://www.minstroyrf.ru/upload/iblock/9fe/pasport-proekta-31.10. Rogachev, A.F., Shokhneh, A.V. and Medvedeva, L.N. (2017), “Economic-mathematical modeling of the management of the development of medium-sized and single-industry cities using cognitive maps”, AUDIT AND FINANCIAL ANALYSIS Publisher, DSM Press (Moscow), 2017, No. 2, pp. 122–124. Shakhovskaya, L.S. and Medvedeva L.N. (2017), “Green economy as the basis for the formation of innovative clusters in the regions of Russia”, Moscow, RUSCIens, 2017, 228 p. Towards a “green economy”: the path to sustainable development and poverty eradication – a synthesis report for government officials. UNEP, 2011. [Electronic resource]. – Access mode: www.unep.org/greeneconomy. Valentey, S. and Nesterov, L (1999), “Human potential: new gauges and new landmarks”, Questions of economy, 1999, No. 2, pp. 92–93.

Valentina B. Dzobelova, Rozita B. Hapsaeva, Lyudmila P. Bespamyatnova

4 Tourism in Russia under Socio-economic Development of the Country (Case Study: the Republic of North-Ossetia of Alania) Introduction In 2015, 193 countries of the world ratified the Sustainable Development Agenda until 2030. This document outlines 17 major sustainable development goals. On the one hand, tourism in three of them is clearly present, on the other hand, tourism plays an important role in achieving each of the 17 goals. The complexity and diversity of the problems of tourism development in modern conditions determine the relevance of the chosen research direction. The information base for identifying trends in the development of world tourism are the UNWTO and WTTC data, which are grouped by countries and regions. So, according to UNWTO, international tourist trips (arrivals) have grown from 435 million people in 1990 to 1,235 million people in 2016 or by 183.9%. In general, over the past 26 years, international tourist trips (arrivals) grew in countries with developed economies by 129.1% and by 304.4% in countries with emerging market economies. According to the UNWTO regions, the increase in international tourist trips (arrivals) is: – to Africa by 290.5% due to growth in the countries of North Africa by 121.4% and sub-Saharan Africa by 512.5% – to Europe by 135.6% due to an increase in the countries of Northern Europe by 179.4%, Western Europe by 67.1%, Central, Eastern Europe by 271.7%, Southern Europe by 153.0% – to the Middle East by 458.3% – to Asia and the Pacific by 451.7% due to growth in the countries of North-East Asia by 484.5%, Southeast Asia by 434.0%, Oceania by 200.0%, South Asia by 690.6%

Valentina B. Dzobelova, Rozita B. Hapsaeva, North-Ossetian State University named after K.L. Khetagurov, Vladikavkaz, Russia Lyudmila P. Bespamyatnova, Razumovsky Moscow State University of Technologies and Management (the First Cossack University), the Don regional branch – State Institute of Food Technology and Business, Rostov-on-Don, Russia https://doi.org/10.1515/9783110692075-004

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Valentina B. Dzobelova, Rozita B. Hapsaeva, Lyudmila P. Bespamyatnova

– to North and South America by 114.8% due to growth in the countries of North America by 81.8%, Caribbean islands by 121.1%, Central America by 463.2%, South America by 326.0% Thus, Asia and the Pacific, Central America, South America, sub-Saharan Africa and the Middle East show the highest growth rates. However, in the structure of international tourist trips (arrivals), European countries continue to occupy a significant share (over 50%). According to the WTTC, in 2016 the direct contribution of tourism to world GDP was 2.3 trillion. dollars, which is higher than the contribution to the automotive industry and chemical production in GDP. Most of the sales (over $ 400 million) come from accommodation facilities, airlines and other transport companies, less sales (less than $ 400 million) are paid to visit attractions, car rentals, SPA and medical tourism. In the future, this trend is expected to continue. Indirect contribution and “induced impact” of tourism in world GDP amounted to 7.6 trillion dollars (10.2%), which allowed tourism to take 4th place in terms of its contribution to GDP after construction, financial services and retail trade. (Dzobelova and Olisaeva, 2018). In 2016, tourism provided a direct contribution to employment in the size of 108.7 million jobs all over the world. In addition, total tourism (direct and indirect contribution, “caused impact”) in 2016 provided 292.2 million jobs worldwide, which is more than automobile manufacturing, banking, mining, chemicals and financial services. Each job created directly in the tourism sector provides almost two additional jobs due to its indirect contribution and the effect on other sectors of the economy, which characterizes the interrelation of tourism with the rest of the economy as stronger than construction and agriculture. Over the next decade, the contribution of tourism to GDP will grow by 4.0% per year. For comparison, the global economy is expected to increase by only 2.7% per year. From the point of view of outbound tourism, according to Euromonitor International, the USA is leading by the number of trips on the world stage, however, by 2022, according to the forecast, China will come out on top (it is expected to grow at the level of 8.4% for 2017–2022). Chinese tourists are leading in terms of costs, and by 2022 this figure will increase by another 10.9%. At the moment, the most visited countries of Chinese tourists are: Hong Kong, Thailand, Japan, South Korea and Taiwan. These are the main trends in the development of world tourism: – In 1990–2016, international tourist trips increased by 183.9%, due to the increase in travelling to countries in Asia and the Pacific, Central and South America, sub-Saharan Africa, the Middle East – in the structure of international tourist trips (arrivals), a significant proportion of European countries continue to expand (more than 50%)

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– In 2016, the direct contribution of tourism to world GDP amounted to 2.3 trillion dollars. Indirect contribution and “induced impact” of tourism amounted to 7.6 trillion dollars – Total tourism (direct and indirect contribution, “induced impact”) in 2016 provided 292.2 million jobs worldwide – From the point of view of outbound tourism on the world stage, the number of trips leader is still the USA, however, by 2022. China will come out on top. – The leader in digital sales is the United Kingdom (the first in Euromonitor’s Digital Consumer Index), they nearly reached their maximum (almost 80%), followed by the United States, France, India, etc. The main problem is over crowding in some tourist destinations, as evidenced by the alienation of local residents, limited infrastructure, reduced tourist impressions, damage to natural resources and a threat to cultural heritage. These are the prospects for the development of tourism – over the next decade, the contribution of tourism to GDP will grow annually by 4.0% per year, and the global economy is expected to be only 2.7%. At the same time, there will be an increase in the role of IT and independence of decision-making in travel planning, the influence of mass culture in the choice of areas (films, sports events, etc.), interest in recreational trips, priority of group trips over single ones, etc.

Methodology Tourism in Russia is a dynamically developing branch of the economy, in which more than 500 thousand people are employed. According to the World Tourism Organization, Russia occupies one of the leading places in the world in the field of international tourism. In 2017, Russia received 24.4 million of international guests (9th place in Europe). Russia’s revenues in 2017 from international tourism amounted to $ 8.945 billion, or 3.4% of the country’s GDP. Russia’s rich cultural and historical heritage and natural diversity determine the growth potential of the country’s tourism industry. On the territory of the country there are 29 UNESCO World Heritage sites, 26 resorts, health resorts and medical and recreational areas of the Russian Federation of federal significance. At present, the service sector and tourist infrastructure in Russia are going through a period of renewal. According to the government-approved federal target program “Development of domestic and inbound tourism in the Russian Federation for 2011–2018”, special economic tourist zones have been created and are being created in the picturesque and popular tourist regions of Russia, which are supposed to obtain favorable conditions for organizing tourism business.

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The presence of a variety of tourist and recreational resources of the country allows us to develop almost all types of tourism, including: – recreational (beach resorts) – cultural and educational – business – active – wellness – ecological – sea and river cruises – rural – pilgrim tourism, etc. The state tourism development programs in Russia envisage the creation of a modern, highly efficient infrastructure and a competitive tourism industry, which, on the one hand, will provide ample opportunities to meet the needs of domestic and foreign citizens in tourism services, and on the other hand, contribute to the development of the national economy due to the tax revenues to the budget, the inflow of foreign currency, increase in the number of jobs, the preservation and rational use of cultural and natural resources heritage. In assessing the impact of tourism on the socio-economic development of the region, not only incomes of the tourism industry itself, but also incomes of tourismrelated industries should be taken into account, since tourist spending during travel includes not only expenditures on tourist enterprises, but also expenses in such industries as transport, communications, housing and communal services, retail, etc. In most cases, to assess the economic impact of tourism on the development of a region, the following methodologies are used (Table 4.1):

Table 4.1: Methods for assessing the impact of tourism on the socio-economic development of the region. Method Description

Advantages

Disadvantages

Satellite Tourism Account (STA). Such accounts contain both the main costs of a tourist’s stay in a destination, as well as spending on retail purchases, transportation, expenses in catering places, museums, and so on. Many European countries use a satellite account of tourism.

It allows us to carry out a detailed analysis of the demand of tourists for goods and services not only within the enterprises of the tourist sector, but also the expenditures of tourists in related industries.

An obstacle to the development of satellite accounting is the lack of a methodological base of accounting and its adaptation to the regional economy of the Russian Federation, as well as the incompleteness of statistical information of the tourist industry compared to other sectors of the economy.

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Table 4.1 (continued) Method Description

Advantages

Disadvantages

Tourism multiplier. The multiplier calculation implies identifying not only the direct income of the region from the tourism industry and its infrastructure, but also indirect income from tourism-related industries.

It allows us to take into account the cumulative effect of tourism, this indicator serves as the foundation for the development of programs for the development of tourism, the improvement of tourist infrastructure, as well as for the rational use of tourist resources.

The calculation of the multiplier can be difficult in a number of regions with insufficient statistical information, due to the complexity of its collection.

Baseline method. When assessing the impact of tourism on the region’s economy in the Russian Federation, the following types of indicators are used: Specific Absolute Dynamic

Ease of use, regions can independently choose indicators for evaluation

Disadvantage of these scores is the lack of accountingindirect resulttouristactivities. Nonmarketactivity intourism is nottaken into account.

The method of seasonal Ease of use, rather narrow difference. statistical base for the The income of enterprises of the application of the technique. tourist industry is calculated for a certain period (usually  year) in a destination. Then the month (year) with the lowest incomes is determined, the incomes in this month (year) are taken as the average sales incomes to local residents. The difference between their size and income in other months (years) corresponds to the income from tourism.

The controversy of the adequacy of the methodology, since it does not reveal the structure of incomes of enterprises of the tourist industry.

Thus, all the considered techniques have both advantages and disadvantages. It should be noted that often-incomplete assessment of the role of tourism in the regional economy is explained by the insufficient methodological support for assessing the impact of tourism activities on the socio-economic development of a region and, consequently, it leads to a decrease in the quality of regional programs and tourism extension strategies being developed. This phenomenon is partly associated with the imperfection of the collection of statistical information in the field of tourism. (Basiyeva and Rubayeva, 2014).

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The North Caucasus Federal District is also the object of close attention, because this region of Russia has good conditions for the development of sanatoriumresort facilities and many types of recreation and tourism, which is associated with favorable natural and climatic conditions. Today RNO-Alania occupies a very insignificant place in the world classification of tourist visits, its share is only 0.002% of the world market for inbound tourism. At the same time, being at the crossroads of the main roads of Eurasia, North Ossetia has a tremendous tourist potential. (Dzobelova, 2018; Weidong, 2014)

Results During many centuries, North Ossetia-Alania was one of the main trade and transport hubs of the Silk Road. This was the basis for such that since the mid-19th century, tourism in North Ossetia has been developing quite actively. With the collapse of the USSR and the beginning of the blood-sporadic inter-ethnic incidents and the protracted war in the Chechen Republic, the tourist section of RNO-Alania, just like the adjacent areas, was remained without proper interest. Political inconsistency and the dangers of terrorist acts turned out to be more important arguments against inexhaustible resort resources and the massive tourist potential of the area, the effective implementation of which will give an opportunity to receive an important financial response, arrange safe workplaces, breathe into the sphere of labor work of specialists in various fields. On the one hand, the progressive position of tourism in the republic is regarded as a crisis associated with a sharp drop in the volume of tourist offerings reached earlier, a decrease in the material base of the tourist branch and an important discrepancy in the needs of the population in tourist offers. The Government of the Republic of North Ossetia Alania pays great attention to the development of the tourism and recreation complex in the Northern Region and to the implementation of the functions and responsibilities stipulated by the legislation for implementing state tourism policy. (Dzobelova and Olisaeva, 2018). In accordance with the federal legislation, changes were made in the RNOAlania Law on tourist activities. The collegium of the Committee for Tourism, which performs the functions of implementing state policy in the field of inbound domestic tourism, has been significantly expanded. It included representatives of the travel industry, heads of districts, executive authorities, municipalities, public chambers, ministries of emergency situations. There is a process of promotion and popularization of the tourist potential of the republic, both in Russian regions and in priority foreign markets. Thus, within the framework of the 26th international tourist exhibition MITT, a memorandum was signed between the Committee on Tourism and the German company. The arrival of the first group of tourists in Ossetia is scheduled for April 2019.

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With regard to the development of such areas as Tsei, GornayaDigoria, Mamison, the federal support of the latter is currently planned. It was decided to include “Mamison” in the Strategy for the development of tourism in the territory of the North Caucasus Federal District until 2035. In late August, the Minister for North Caucasus Federal District Affairs Sergey Chebotarev and the Head of the RNO-Alania Vyacheslav Bitarov held a retreat where they discussed issues and prospects for the development of the ski project. It was decided to send an application to the Ministry of Economic Development to recreate a special economic zone in the territory of the future resort. In collaboration with the Research Institute of Health Resort of Pyatigorsk, certain events were developed. The concept of development of the balneological cluster was worked out on the basis of Tib, Karmadon, Ursdon and Tamisk sources. As part of the development program for the North Caucasian Federal District and the subprogram for the development of North Ossetia-Alania, a large tourist complex is being built with a hotel in the Kurtat Gorge. (Lalayeva, Lalayev and Dzobelova, 2017). The total amount of work on the project exceeds 400 million rubles. At the end of last 2017, almost three million citizens crossed the border crossing point of the republic, of which a third declared themselves as tourists. Together with the Federal Service for Technical and Export Control, the Government of Russia introduced a draft resolution proposing changes to the list of territories of the Russian Federation with a regulated visit for foreign citizens. It is expected that by the end of the year all major tourist destinations will be open to foreigners. The appearance of Chinese operators in the tourism sector of Ossetia is planned. Back in 2016, representatives of the PRC tourist industry came to the republic. Then the delegation of the diplomatic mission of the State Administration of Tourism of China in Moscow considered North Ossetia as the most attractive of all the subjects of the North Caucasus Federal District. Today’s visit is nothing more than the implementation of preliminary agreements. For several years now, China has been the leader of inbound tourism in the Russian Federation, demonstrating annual growth of almost 100%. In the first half of 2017, only the group flow through the “visa-free” channel exceeded 300 thousand visits and increased by 36% compared to the same period last year. For example, the Beijing Grand Vision Travel Service Shanghai Branch in 2016 sent 170 thousand of its customers to rest in Russia, and already in the first half of 2017 their number increased to 210 thousand. And for the tour operator Golden Russia, our country is generally the only area of work. Their traffic has also increased significantly: from 38 thousand people over the past year to 35 thousand in the first half of 2017 alone. In many ways, such interest of tourists from China is associated with the introduction of a simplified visa regime between the two countries, as well as fluctuations in the ruble exchange rate. The potential of this tour is huge. The population of China is numerous, the pay-efficiency of the visiting Chinese, taking into account Russian prices, is not in

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doubt. China has long and firmly occupied the first line in the ranking of the amount of travel expenses, which averages at least $ 3,350 per person per year. And, of course, the appearance of such tourists in North Ossetia is highly desirable. The main tourist routes from China are divided into three segments: border areas, Moscow and St. Petersburg. Moreover, the last two points are usually sold in one round. This centralization is largely due to convenient logistics. With the arrival of a Chinese tourist to North Ossetia, the issue of his movements becomes most acute, since one of the specific features of Chinese tourism is that in China there is practically no familiar concept of “vacation”, and therefore the Chinese people travel on the national holidays, which last an average week. Thus, one of the major problems that the newborn tour operator “Iriston-travel” will face is the Chinese tourist flow and tourist transfer from point A to point B in the PRC in Vladikavkaz will presumably fall on the company’s shoulders. In connection with the complete absence of regular flights, except with Moscow and St. Petersburg, this issue can be a serious headache for tour operators. The second problem will be the shortage of hotel facilities and, in general, insufficient development of the tourist infrastructure. And if the issue of transport can be solved by charter flights, then new hotels with a level of service not lower than three stars, which the average Chinese tourist is targeting, will not appear immediately. Meanwhile, if Ossetia manages to take on a segment of the Chinese market, it will economically be in a better position than Moscow and St. Petersburg. As the experience of the previous three years of the “Chinese boom” shows, Chinese or affiliated (or owned by Chinese business) firms are becoming the main flow regulators in central cities, as well as the excursion business in the capital region in this segment is actually captured by members of the Chinese diaspora. In this case, the economic return from the arrival of tourist flows to Ossetia from China may be greater due to the lack of a diaspora. The experience of Moscow and St. Petersburg, however, shows another alarming trend: reliance on a tourist who wastes money is not justified. One of the main features of the Chinese tourist is that he pays for everything “ashore”, that is, in China. Early booking leads to a significant reduction in the cost of services. The tourist, of course, wins, but the accepting side, due to currency fluctuations, can remain with less return than was expected. Despite all these problems, the possible arrival of the tourist flow from China will undoubtedly benefit both the economy and the entire tourist cluster of the republic, becoming the first sign for other republics.

Conclusions The leadership of the republic sets itself the task to increase the tourist flow to the republic three times by 2024 and another 1.5 times to 2030. Accordingly, the deductions to the budget of the republic should increase.

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Tourists’ requirements to the level of service have become higher. If the leadership of RNO-Alania really wants to develop tourism, wants people who would not only enjoy the beauties of the republic, but also participate in the development of the socio-economic sphere to come, it is necessary to create the appropriate conditions. Today, the tourist should have such conditions as safety, good roads, comfortable hotels, moreover, so that prices are moderate and services are of high quality. Therefore, it is important that the tourist and recreational complexes of the Republic actively develop. Since the middle of the 19th century, North Ossetia – Alania has positioned itself as one of the tourist centers of the North Caucasus, attracting a large number of travelers not only from Russia, but also from a number of foreign countries. The development of domestic and inbound tourism in North Ossetia is one of the issues of the political and economic agenda of the republic. The first steps are not long in coming: at the Russian investment forum “Sochi-2017” North Ossetia will present a project aimed at developing the tourism industry. The construction company STK-59 plans to build a tourist complex on the territory of the Kurtatinsky Gorge with a ski slope and the necessary engineering, municipal and transport infrastructures. Also, a positive factor is the fact that North Ossetia was removed from the list of territories with regulated visits for foreign citizens. The number of new comfortable hotel complexes that offer services at a high European level has increased in the republic. The number of cafes and restaurants is growing rapidly. The direction of hiking (ecotourism) has developed quite strongly. At the present time, a large number of travel agencies in Vladikavkaz offer their clients hiking routes of varying difficulty through mountain gorges. This area has long enjoyed success with European travelers who are tired of city life, for them it is a way to get a breath of fresh air and feel the unity with nature. The direction of extreme tourism is also developing rapidly. From year to year, healing thermal springs and mineral waters do not lose their relevance. There are more than 300 medical sources in the republic. Also, there’s a large number of ski resorts and summer tourist complexes, unique natural and architectural historical monuments. An unforgettable national cuisine will appeal to people of different hobbies and ages. The direction of tourism has great potential for further development due to the untouched corners of nature, combined with the monuments of the history of Vladikavkaz and the whole of Ossetia-Alania. However, it should be noted that there are many problems in this area. One of them at this stage is a shortage of qualified personnel. The unsatisfactory condition of most of the monuments of history and architecture, which are objects of the tourist show, also hinders its development. The second set of problems is a low level of infrastructure development. In addition to common problems, there are private ones that are generated by political instability. But, nevertheless, interest in the region is present, and due to the redistribution of tourist flows and a reduction in the

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share of outbound tourism, it just needs to be urgently fixed and turned into a profitable business that will make a significant financial contribution to the republic’s treasury. Of course, tourism in North Ossetia has room to grow and, with proper investment in this area, our republic can compete with all the tourist zones of Russia. To improve the methods of assessing the economic efficiency of tourism in RNO-Alania, it is necessary to develop and justify criteria for assessing the impact of the tourism industry on the socio-economic development of the region, which may be: the share of domestic tourism services in the total amount of paid services to the population of the territory (%); the number of consumers of domestic tourism services to the local population; the costs of various resources and labor per unit of tour-product (income); profitability of the tourism industry; the dynamics of new jobs, etc. It is also necessary to present a system of indicators that rationally characterize the state of tourist activity in the region, particularly: the volume of costs for the purchase of goods and services intended to serve tourists from other enterprises (with the industry divisions); the scope of tourism services; revenues from enterprises providing accommodation services; tax revenues from all enterprises of the tourist sphere of the region; tourism gross value, etc. It is crucial to organize the collection of statistical information necessary for the evaluation of the joint effect. The solution to this problem can be formed as a questioned survey of tourists directly at the places of accommodation. This survey will reveal the structure of tourism expenditures in the region, not only in tourism enterprises, but also in related industries, namely, the average expenditures on transport, food, purchase in retail stores and so on. Also, the country/region of arrival, the number of days in the region, the purpose of the trip will be recorded in the questionnaire. These questionnaires could provide collective accommodation facilities to territorial state statistical bodies for further processing. Thus, this survey will allow us to identify the ratio of incomes of the tourism industry with other sectors and, upon further calculation, reveal the cumulative effect of tourism in the region.

References Basiyeva M. and Rubayeva L. Sostoyaniyerazvitiyarekreatsionnoy infra-struktury RSO– Alaniya [The state of development of the recreational infrastructure of North Ossetia-Alania]. Problems of the modern economy; collection of materials – Ekaterinburg, 2014 (in Russian). Decree of the Government of the Russian Federation of April 15, (2014) N 317 “On approval of the state program of the Russian Federation” Development of culture and tourism for 2013–2020”. Dzobelova, V.B. (2018) New Ways of Qualified Staff Training by the Example of the Republic of North Ossetia-Alania. Proceedings of 2018 17th Russian Scientific and Practical Conference on

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Planning and Teaching Engineering Staff for the Industrial and Economic Complex of the Region, PTES 2018, pp. 23–28. Dzobelova, V.B. and Olisaeva, A.V. (2018) Staffing Needs in the Regional Economy under the Modern Conditions of Labor Market. Proceedings of 2018 17th Russian Scientific and Practical Conference on Planning and Teaching Engineering Staff for the Industrial and Economic Complex of the Region, PTES 2018, pp. 185–188. Dzobelova, V. and Olisaeva, A. (2018) Analysis of innovative development of the NCFD regions in Russia. IDIMT 2018: Strategic Modeling in Management, Economy and Society – 26th Interdisciplinary Information Management Talks, pp. 473–479. Eichfelder S., Schorn M. (2012) Tax compliance costs: A business-administration perspective // FinanzArchiv. No. 68. pp. 191–230. Hauptman L., Horvat M. and Korez-Vide R. (2014) Improving tax administration’s services as a factor of tax compilance: The case of tax audit // Lex Localis – Journal of Local SelfGovernment. No. 12. pp. 481–501. Lalayeva L., Lalayev A. and Dzobelova V. Upravleniyeinnovatsionnymproyektom v sfereagroturizma (naprimere RSO-Alaniya) [Management of an innovative project in the field of agro-tourism (on the example of RNO-Alania)]. Economy and Entrepreneurship, No. 12–3 (89), pp. 256–258 (in Russian). Olisaeva A. and Dzobelova V. Statisticheskiyanalizinnovatsionnogorazvitiyaregionov SKFO [Statistical analysis of the innovative development of the regions of the North Caucasus Federal District]. Regional economy: theory and practice, 2017, Vol. 15. No. 2 (437), pp. 355–363 (in Russian). The federal target program “Development of domestic and inbound tourism in the Russian Federation (2011–2018)” was adopted by the Resolution of the Government of the Russian Federation on August 2. Weidong L. (2014). “Study on the risk identification and warning of tax administration”, Lecture Notes in Electrical Engineering, No. 269 LNEE, pp. 1137–1142.

Vera D. Nikiforova, Aleksandr A. Nikiforov, Anna V. Kovalenko

5 Agriculture of Modern Russia: Challenges and Development Trends Introduction A natural phenomenon in the modern world is economic instability, which is generated by cyclical changes in the country’s economy, manifested in the form of rising unemployment, underloading of production capacity, inflation, government budget deficit and other fluctuations in economic activity. Globalization enhances the influence of international factors in the form of emerging benefits and threats, on macroeconomic instability, as well as economic security, including food security in the country. For agrarian Russia, agriculture is one of the most important sectors of the national economy; Although the percentage of villagers is declining, it still remains at a fairly high level – about 26%, a tenth of the country’s population works in the agroindustrial complex. The economic sanctions imposed on Russia by Western countries, the embargo as a country’s response to these sanctions, the policy of import substitution in the field of agriculture create impulses for the progressive development of the country’s economy and leveling effects that violate its safe operation. Under these conditions, the issues of ensuring national economic sovereignty come to the fore based on solving economic security issues, including food security and creating a technically equipped and competitive agro-industrial complex. Of course, the creation of a closed national economy is out of the question, since it is not only inexpedient but also practically impossible to isolate the national economy from the outside world. It is about the formation of the state economic policy of self-determination, based on: – national model of financial behavior of economic agents based on the priorities of the national economy, taking into account geopolitical and geo-economic processes and goals – own supply potential, providing the population of the country at the level of world standards of quality of life – technological innovations and renewal of key sectors of the national economy, taking into account the effective participation in the international division of labor – the growth of the number of the indigenous population not only in the cities, but also in the villages, and maintaining its high efficiency

Vera D. Nikiforova, Aleksandr A. Nikiforov, Anna V. Kovalenko, Financial University under the Government of the Russian Federation, St. Petersburg branch, St. Petersburg, Russia https://doi.org/10.1515/9783110692075-005

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Methodology In the studies of many economists, a diverse analysis of problems related to the agricultural economy, import substitution, investments in the technical re-equipment of fixed assets of agribusiness, risk management, etc. is presented. At the same time, studies of the effectiveness of the state policy of import substitution and the formation of a national model of the financial behavior of economic agents in the field of agribusiness are acquiring particular relevance today. To understand the current trends in the agrarian policy of the state, the scientific views of economists on the problems of agricultural development in the context of economic instability caused by globalization, the introduction of economic sanctions, the embargo and the influence of other external factors and internal contradictions have been systematized. Comparative analysis of the gross value added in agriculture over the past few years has helped to reveal a number of challenges and risks due to financial imbalance and inconsistency of the system of economic regulation in the field of agribusiness and to check out vulnerabilities of the agricultural economy. The use of expert assessments and the results of the author’s analysis of the state of risk management and investment activity in the Russian agricultural complex allowed us to formulate a number of conclusions and proposals on changing the relationship of banks and the state with agricultural producers, using the tools of state protectionism, as well as market instruments for the development of the agricultural sector and the achievement of supply security goals.

Results A specific feature of the current state of the Russian economy is the increased contribution of agriculture to the creation of gross domestic product, which indicates an increase in the degree of participation of the agricultural sector in the economic growth of the country. In recent years, beginning in 2012, the share of agricultural production in total GDP increased by 26% (from 5% to 6.3%). Despite a slight decrease in the growth rate of agricultural production in 2012 and 2014, in general, from 2012 to 2016, the growth rate of agricultural production is higher compared to the growth rate of production growth in other sectors of the economy and economic activities (Table 5.1). The growth rate of agricultural production in Russia in 2018 declined to 1.1% vs. 2.4% in 2017. However, the Ministry of Economic Development predicts an acceleration of growth rates: in 2019, the agro-industrial complex could grow to 1.3%, in 2020 – to 1.6%, in 2021 – to 1.9%. It should be borne in mind that in modern conditions the financial and monetary component of economic and financial instability is becoming increasingly

53

5 Agriculture of Modern Russia: Challenges and Development Trends

Table 5.1: Indices and growth rates (+) / reductions (–) of gross value added (GVA) by economic activity. 









.

.

.

.

.

+.

–.

–.

–.



Agriculture chain index rate of change, %

.

.

.

.

.

–.

+.

–.

+.

+.

Mining chain index rate of change, %

.

.

.

.

.

+.

–.

+.

–.

+.

Manufacturing industries chain index rate of change, %

.

.

.

.

.

+.

–.

–.

–.

+.

Building chain index rate of change, %

.

.

.

.

.

+.

–.

–.

+.

–.

Wholesale and retail trade chain index rate of change, %

.

.

.

.

.

+.

–.

+.

–.

+.

Transport and communication chain index rate of change, %

.

.

.

.

.

+.

–.

–.

–.

+.

Financial activities chain index rate of change, %

.

.

.

.

.

+.

–.

–.

–.

+.

Household activities chain index rate of change, %

.

.

.

.

.

+.

–.

–.

–.

–.

Indicators GVA chain index rate of change, % Including

Source: Calculated by the authors according to Rosstat: http://www.gks.ru/free_doc/new_site/ vvp/vvp-god/tab11.htm.

important. Financial imbalances, the banking crisis often precede economic crises, creating problems in agriculture and other sectors of the economy (Sidorenko and Ilyina, 2018; Kireeva and Sukhorukov, 2018). To a certain extent, overcoming the deficit and inconsistency of the system of regulating the economic processes taking place in society, aimed at creating a steady state and invulnerability of the national economy to external and internal threats, can help to smooth out these problems. According to Simon V., along with the manifestation of “nationalist” tendencies, it is necessary to strengthen international regulation through the activities of the IMF, the International Settlement Bank and other international financial

54

Vera D. Nikiforova, Aleksandr A. Nikiforov, Anna V. Kovalenko

institutions. (Simon, Vine, 2009). The activity of these institutions in the direction of harmonization of financial relations and the universalization of the systems of regulation of international financial markets seems to be quite appropriate for achieving anti-crisis stabilization. Moreover, it affects not only international cooperation, but also stimulates the optimization of the system of regulation of national markets. Of course, with the help of these measures, it is hardly possible to overcome the crisis phenomena within the national economy, including in the sphere of agribusiness, where the search for internal drivers of economic growth becomes more important. The “stronger” and more protected from the point of view of economic security, the internal economy of the country is, the more resilient it is to the destructive influence of external factors of instability in the commodity and financial markets. In the context of global financial instability, the role of the state in the economy increases, since the market economy itself is often unable to cope with market failures, as well as due to the fact that the costs of government, especially considering the creation of public goods, are lower than transaction costs. In Russia, the state that has set the task of transition to a post-industrial civilization has to take a number of measures to overcome the disintegration between agribusiness and science, maintain the investment and savings balance, create a single institutional space and other coordination measures. (Egorov A. and Trifonov Yu., 2018) Undoubtedly, on the way to achieving the desired results one has to face the contradictions of the macroeconomic system. In particular, the solution of the problem of economic growth in agriculture due to the growth of labor productivity becomes very problematic with low technological efficiency of the economic system, if the factor “capital” is not activated, the efforts of owners of agribusiness to update their fixed capital and introduce modern scientific and technological progress are not enough. It seems to us that great opportunities in the matter of state economic regulation provide the tools of public-private partnership, project financing, etc. At the same time, in order to avoid the inefficient use of public funds, it is important to organize public control and supervision over the spending of these funds on investment and infrastructure projects. Increased competition in agriculture, seasonality and dependence on natural conditions, low investment opportunities for agricultural entrepreneurship, high price volatility for agricultural products determine the importance of risk management problems (Frantsisko O., Molchan A. and Frantsisko P., 2015). Macroeconomic risks associated with changes in tax and monetary policy can cause a reduction in acreage, a decrease in livestock numbers. Certain risks are associated with the protectionist measures of the state in the form of restricting prices, exports and intervention. These risks may have an impact on the implementation of long-term programs aimed at increasing agricultural production, increasing the competitiveness of domestic agricultural producers that require investments.

5 Agriculture of Modern Russia: Challenges and Development Trends

55

In our opinion, risk management should be based on the interests of business owners, focused on creating and maintaining sources of financing agricultural production in the form of equity capital, long-term bank loans for investments, commercial loans to finance working capital, state guarantees and preferential interest on credit. Building risk management based on valuation of assets that are not always represented at market value in the balance of agricultural producers, i.e. cannot reflect the real selling price of these assets, is unacceptable for modern reality. Of course, it is necessary to take into account the interests of not only the owners, but also people who are in direct contact with agricultural producers in the area of damage to the lives and health of these people. Risks that have negative consequences can also be associated with opposite events that have a positive impact on the volume of agricultural production and the economic interests of the owner and agricultural producer. Therefore, when assessing the magnitude of realizable risk, it is necessary to take into account the amount of risk compensation in connection with the occurrence of these opposite events, which can still be considered as chances. In the conditions of Russian reality, usually the risks of agricultural producers are ranked by the following groups: – legal and political (agrarian policy, policy in the field of environment and in the field of trade in agricultural products, risks of cancellation or reduction of state support for agricultural producers, risks of joining trade agreements, as well as land, tax, insurance, trade legislation) – risks of corporate management and production (risk of management errors, risk of personnel errors; risks associated with the production, storage, marketing of products; transport risk, risk of loss of liquidity) – strategic risks (risk of soil quality deterioration, risk of land acquisition, risk of lack of qualified personnel; risk of contamination of soil and water bodies by industry, transport, agriculture) – natural and climatic risks (earthquakes, hurricane, hail, flood, atmospheric and soil drought, frosts, heavy rains, spring flood, strong wind, etc.) – market risks (risk of changes in the quality, volumes and prices of tangible assets, financial assets, labor resources; competition, reduction of household income and reduction of consumption, etc.) – epizootic (foot and mouth disease, mad cow disease, plague, swine flu, avian flu, etc.) – malicious actions (hacking, theft, vandalism, banditry, sabotage, etc.) In many ways, reducing the risks of agricultural entrepreneurs provide state support programs in various forms: – financing of agriculture, with the strengthening the role of regional financing; – compulsory state agricultural insurance (insurance against the risk of death or loss of crops and animals)

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Vera D. Nikiforova, Aleksandr A. Nikiforov, Anna V. Kovalenko

– interest rate subsidies for long-term loans and hectare support (subsidies are determined on the basis of yield per hectare) (Sharapova V. and Vlasova A. 2018) – grants for the creation of farms (up to 1.5 million rubles and one-time assistance for household equipment up to 300 thousand rubles) – subsidies for part of the first installment for leasing agricultural machinery – subsidies for the rise in price of fodder and fuel and lubricants – etc. Among the instruments of state support, concessional lending to agricultural producers is important, especially in the direction of export development. (Sharapova V., 2017) It is planned that the amount allocated for concessional lending will amount to 27.2 billion rubles by 2020, which will more than three times exceed the compensation of capital expenditures (4.3 billion rubles) and compensation of part of the cost of transporting products (4 billion rubles) combined. The main problem of Russian exports is that domestic products are not associated with quality products in foreign countries. From 2020, it is planned to introduce a domestic brand of “pure products”, which should become a quality mark, both domestically and internationally. The Ministry of Agriculture has planned to allocate 274 million rubles for this purpose in 2019 and 335 million rubles in 2020. It should be noted that approximately 355 thousand agricultural producers work in agriculture in Russia, of which more than 50% are individual entrepreneurs and small enterprises. (Bakanova, E.N., 2019) Many banks for small businesses mainly provide annual loans at an interest rate of 15.95%. Now, a short-term loan is the main source of financing the domestic agro-industrial complex (AIC). At the same time, the problem of shortage of long-term loans and investments is growing among agricultural producers, without solving which it is difficult to ensure the development of the agro-industrial complex in the long-term and the successful implementation of the state policy of import substitution in the agricultural sector. (V. Kopein and E. Filimonova, 2016) To solve this problem, such systemically important banks as Rosselkhozbank, Sberbank, and VTB launched a long-term loan program for agricultural producers at 2019 at a reduced interest rate. The average loan term is 10–15 years at 9–12% per annum. As the analysis has shown, without government subsidies, Russian agriculture provides an average industry profitability of no more than 6.5%; about 20% of agricultural enterprises are unprofitable. Moreover, this is on condition that the wages in agriculture are almost two times lower than in other sectors of the economy (about 22 thousand rubles per month, including small businesses). However, taking into account state co-financing, the profitability of agriculture rises and reaches more than 16%, the number of profitable organizations in the agricultural sector is growing. According to experts, in 2017, new state support measures (up to 16 billion rubles) in the form of reimbursement of investors’ funds up to 20% of direct capital

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5 Agriculture of Modern Russia: Challenges and Development Trends

construction costs will stimulate investment, primarily in such sub-sectors of agriculture as pig-breeding, greenhouse vegetable growing, seed growing, production of dairy products, fish, poultry and other export-oriented production. However, according to some Russian economists, these protectionist measures of the state may not be enough. (Nikitin A. and Ivanova E., 2018) Therefore, a number of additional economic measures are proposed, such as: – the introduction of a plurality of interest rates, as in other countries, to stimulate agricultural producers in areas in which Russia has a competitive advantage – strengthening the exchange rate of the national currency to stimulate the import of advanced agricultural machinery of foreign production – the introduction of the same budget security in various regions of the Russian Federation to overcome disintegration and successfully solve the problem of ensuring food security throughout the country – rejection of the policy of monetarism, increasing the level of monetization of the economy to stimulate investment processes in the Russian economy as a whole, including agriculture Assessment of the status and dynamics of investment activity of agricultural producers is presented in Table 5.2.

Table 5.2: Investments in fixed capital of agricultural producers and sources of their financing (without small businesses). No. Indicators 

Investments in fixed capital for the development of agriculture as a percentage of the total volume of investments in fixed capital

    .

.

.

.

Source: Calculated by the authors according to Rosstat data: http://www.gks.ru/wps/wcm/con nect/rosstat_main/rosstat/ru/statistics/accounts/#.

Undoubtedly, the low level of investment in fixed assets for the development of agriculture and the considerable deterioration of basic production assets are significant reasons for the low level of labor productivity in agriculture, which does not contribute to the development of agricultural production and the low level of corporate governance. According to the forecast calculations, the volume of investments in the fixed capital of agriculture will increase by 42% by 2020. In parallel, the level of profitability of agricultural organizations should increase, but without the support of the state and the financial sector it will not be easy to reach these indicators. To a certain extent, the clustering of agricultural production, taking into account the specialization of regions, can be used to solve these problems, both on the basis of selforganization and cooperation of agricultural producers, and with the participation of

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Vera D. Nikiforova, Aleksandr A. Nikiforov, Anna V. Kovalenko

regional and municipal authorities. Also, transition to process management, provided by professionally trained management specialists is important. Clustered small and medium enterprises, based on a combination of the principles of territorial and intersectoral management, have the opportunity to strengthen their competitive advantages and positioning in the commodity market.

Conclusions/Recommendations The analysis of gross value added by types of economic activity revealed an insufficiently stable, but still a tendency to increase the contribution of agriculture to the country’s economic growth. To this day, the debatable nature and lack of a unified and systemic view of protectionism and the manifestation of “nationalist” tendencies in agriculture remain. However, it becomes more obvious that in the sphere of the agro-industrial complex, with the help of increased regulation through the activities of international financial institutions, it is hardly possible to overcome crisis phenomena, and the search for internal drivers of economic growth is necessary. It turned out that today there remain significant challenges and risks for the risk management system in agribusiness. The imperfection of the institutional and market infrastructure that ensures the functioning of the agro-industrial complex forces the state to take a series of measures to overcome the disintegration between agribusiness and science, banks and investments in the technical re-equipment of agricultural producers and others (lending, project finance, multiplicity interest rates, etc.) in the system of public-private partnerships and other measures of protectionism. A positive synergistic factor can be the formation of agro-industrial clusters in the regions of the Russian Federation.

References Bakanova E.N. (2019) Strategiya ustoychivogo razvitiya malogo agrobiznesa Rossii v usloviyakh novykh vozmozhnostey i ogranicheniy [The Sustainable Development Strategy for Small AgroBusiness of Russia in the Conditions of New Opportunities and Constraints]. Business Journal. Education. Law, No. 1 (46). pp. 322–329 (in Russian). Egorov A.YU. i Trifonov YU.N. (2018) Gosudarstvennaya politika po razvitiyu sel’skogo khozyaystva: rezul’taty i perspektivy [State Policy for the Development of Agriculture: Results and Prospects]. Journal of Modern Society and Power, No. 2 (16). pp. 107–112 (in Russian). Frantsisko O., Molchan A. and Frantsisko P. (2015), “Institutional reforms in the agro industrial complex of Russia. Genesis, issues, current state, Modern European Researches, No 3. pp. 44–49. Kireyeva N.A. i Sukhorukova A.M. (2018) Usloviya i faktory izmeneniya gosudarstvennoy podderzhki regional’nogo APK [Conditions and Factors of Changes in the State Support of the Regional Agricultural Sector]. International Agricultural Journal, No. 1 (361). pp. 48–52 (in Russian).

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Kopein, V.V. i Filimonova, E.A. (2016) Importozameshcheniye v sel’skom khozyaystve: otsenki, problemy i ekonomicheskaya bezopasnost [Import Substitution in Agriculture: Evaluations, Problems and Economic Security]. Economic Sciences journal, March issue (in Russian). Nikitin A.V. i Ivanova E.V. (2018) Prognoz razvitiya sel’skogo khozyaystva Rossii v usloviyakh politiki importozameshcheniya [Forecast of the development of agriculture in Russia in the context of the policy of import substitution]. Journal of Science and Education, No. 3–4. p. 46 (in Russian). Saymon Vayn. (2009) Global’nyy finansovyy krizis: Mekhanizmy razvitiya i strategii vyzhivaniya [Global Financial Crisis: Development Mechanisms and Survival Strategies]. Alpina Business Books, Moscow (in Russian). Sidorenko O.V. i Il’ina I.V. (2018) Sovershenstvovaniya mekhanizma byudzhetnogo finansirovaniya agrarnogo sektora: regional’nyy aspekt [Improving the Mechanism of Budget Financing of the Agrarian Sector: Regional Aspect]. Journal of Agrarian Science, No. 2 (71). pp. 79–86 (in Russian). SHarapova V.M. i Vlasova A.S. (2018) Problemy rossiyskikh proizvoditeley sel’khozproduktsii pri poluchenii subsidirovannogo kredita [Problems of Russian Agricultural Producers in Obtaining a Subsidized Loan]. Journal of Russian Entrepreneurship, Volume 19, No. 7. pp. 2021–2028 (in Russian). SHarapova V. M. (2017) Gosudarstvennoye regulirovaniye APK cherez sistemu kreditovaniya [State regulation of the agro-industrial complex through the credit system]. International Conference on Business Development, Madrid, Spain, November 15, 2017, pp. 337–343 (in Russian).

I.V. Gurina, L.N. Medvedeva, A.A. Novikov

6 Convergent Technologies on the Smart “Agriculture Platform”: A Strategic Resource for the Development of AgroIndustrial Complex Introduction Agriculture is one of the important sectors of the national economy, in which resources are formed for the development of entrepreneurship, and technological platforms are created for future production and scientific discoveries. The purpose of the development of the agro-industrial complex of the Russian Federation for the period until 2030 is to ensure the food security of the country and become a global supplier of food products of a high degree of processing. The emerging rates of development of science and technology have led to significant changes in the formation of the strategy for the development of Russia, and agriculture, in particular (About the forecast, 2017). The development of agriculture, planned on the basis of foresight forecast methods, is projected on the premise that the vector of innovation is more associated with digital IT approaches and technologies in related fields (Program, 2017). Analysis of sectoral forecasts of the scientific development of the national economy allows us to identify areas of entrepreneurial activity and future investment (Manzhina, 2018). According to FAO estimates, as a result of the growth of the population of the Earth and the improvement of the quality of life, by 2050 global production of agriculture should increase by 70% compared with the 2000th year of the twentieth century, which will mean the production of additional products: 940 million tons of grain, 200–300 million tons of meat per year. Since grain and dairy cattle are necessary for growing meat and dairy cattle, this means only one thing: a significant increase in the load on ecosystems and a decrease in the stability of agricultural landscapes, which in turn will cause a decrease in the quality of land resources. Scientists and experts in the field of agricultural production forecasting point out that if innovation in the agro-industrial sector is not renewed, the average annual increase in agricultural productivity will be – 1.7%, and the population growth

I.V. Gurina, A.A. Novikov, Novocherkassk Engineering and Land Reclamation Institute of Don State Agrarian University, Novocherkassk, Russia L.N. Medvedeva, All-Russian Research Institute for Irrigated Agriculture, Volgograd, Russia https://doi.org/10.1515/9783110692075-006

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I.V. Gurina, L.N. Medvedeva, A.A. Novikov

rate may reach 1.8%, which may cause severe socio-economic upheavals (Vasilyev, Shchedrin, Kolganov, Medvedeva, Kupriyanov, 2018).

Methodology The study of the root causes of creating a convergent platform and the development of “smart” agricultural production (Smart Agriculture) through the creation of virtual land-improvement parks was carried out using systems, monographic, comparative and patent analysis using a functional-morphological approach, as well as targeted monitoring, including the use of information resources global Internet. Statistical analysis using international databases made it possible to determine the main directions for the development of “smart agriculture” and to offer tools for the development of small agricultural entrepreneurship on a convergent platform.

Results The growing concentration of the population in cities leads to the exacerbation of the problem of uninterrupted supply of food to the population. At the same time, cities are centers for the development of entrepreneurship, logistics infrastructure, innovation. The perception of agricultural production in Russia, as an economic activity in rural areas, continues to be hampered by the further development of small and medium-sized businesses. The paradigm of ideas about the agro-industrial sector as a sector associated with rural areas, with large land resources in the foreseeable future and in connection with the development of an urbanized lifestyle and the industrial synthesis of food can be a thing of the past (Melikhov, Novikov, Medvedeva, Komarova, 2017). The convergent platform “smart agriculture” can expand the view of entrepreneurial structures on the forms of agricultural development in the 21st century. Convergence (lat. Convergo “draws closer”) is the process of bringing together different areas of knowledge and types of business, in this case, in the sphere of relations that have developed in agriculture (Retunskih, 2017). The term “convergent technologies” was introduced by researchers at the US National Science Foundation (NSF) M. Roco and W. Bainbridge in scientific use in 2002 (Roco, Bainbridge, 2002). They believed that convergent technologies are a platform for the transfer of knowledge between different sectors of the economy. Convergent (NBICS) technologies are aimed at solving problems in the field of medicine, social services, energy, agriculture, and ecology. In 2015, Mikhail Kovalchuk, director of the Kurchatov Center NRC, presented the Strategy of Convergent Technologies Development to the Federation Council of the Russian Federation, thereby opening up a discussion on the role of convergent platforms

6 Convergent Technologies on the Smart “Agriculture Platform”

63

in the development of the national economy. In particular, M. Kovalchuk proposed to concentrate national resources on several sites (research institutes) and thus achieve: “the accelerated formation of domestic scientific and technological platforms, under the conditions of resource, qualification and time constraints”. It seems that this approach is narrowly focused, and can lead to a situation where “not promising convergent technologies” will lead to economic growth in other countries, as has happened more than once in history (Forecast, 2017) (Table 6.1).

Table 6.1: Indicators of digitization of the Russian economy, 2017. No. Name of the indicator





.

.

Performance NIOKR 

Share of organizations (industry, services) that carried out innovations in the total number of organizations, %



The number of patents for inventions issued by Rospatent per  million population, units

. .

Personal computers and Internet access 

The number of Internet subscribers per  people, population

–

.



The number of mobile Internet subscribers per  people

–

.



The level of digitalization of the local telephone network, %

.

.

Internet Using 

The share of organizations that used the Internet in the total number of organizations surveyed, %

.

.



Number of computers with access to the Internet per  employees of the organization, units







Share of organizations that placed orders for goods on the Internet in the total number of organizations

.

.



Share of organizations that received orders for manufactured goods via the Internet, in the total number of organizations

.

.



Number of personal computers per  households, units







Number of mobile phones per  households, units







The number of Internet users per  people.



The convergent platform “Smart Agriculture” is a platform of “agro-solutions” associated with the production of demanded environmentally friendly products; reducing the cost of production by reducing downtime and premature wear of equipment;

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optimization of production processes through the transfer of innovation; improving the investment process and the use of the Digital Navigator; the development of new business forms – vertical farms, robotic greenhouse complexes (Vertical Farming, 2019, Medvedeva, 2018, Manzhina, Medvedeva and Kupriyanova, 2018, Pakhomova, 2017). The management bodies of small and medium-sized cities (Komarov, Medvedev, Kozenko, .2015) can play a certain role in the revitalization of agrarian entrepreneurship. Forming a regulatory framework and creating a convergent infrastructure, they contribute to the emergence and promotion of new forms of agricultural entrepreneurship. One of these innovative areas is vertical pharming (Table 6.2), the appearance of which is due to the fact that at present more than 80%

Table 6.2: Objects of urban agricultural entrepreneurship. Name Vertical farm in the city

General form 5 4 3

2

Purpose

Characteristic

Grow lettuce, mushrooms, beets, arugula, radishes; bred earthworms and fish (tilapia)

-tier constantly rotating towerProtects crops from weather disasters; guarantees steady and high yield; customer proximity

The farm contains a herd of cows for milk.

It consists of floors – fields on which cows graze. Purpose getting milk in the city, approaching the product to the buyer

6

1 7 8

1 – aquaculture; 2, 3 – hydroponics; aeroponics; 4 – collecting rain and melt water; 5 – solar collectors; 6 – drip irrigation system; 7.8 cafe, shop; 9 – waste water removal system Vertical City Dairy Farm

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Table 6.2 (continued) Name Home “smart” greenhouse

General form

Purpose

Characteristic

Growing up to  types of vegetables, berries and herbs at home; harvest up to – times a year.

An enterprise in the region is required to prepare replacement cassettes with seedlings.

of the land suitable for growing crops around the world is already in use, and the vertical farms created in cities will allow the use of unsuitable industrial premises (for example, the buildings of factories removed from economic activities); generate your own renewable energy; apply autonomous systems for collecting and purifying water and recycling waste (Vertical Farming, 2019). New types of agricultural production is a platform for innovative ideas for small and medium-sized businesses (Medvedeva, 2018). Scientists predict that by 2030, vertical farms will become commonplace in cities, as they will produce several harvests per year; reduce losses during transportation of goods to the consumer (with modern methods of delivering food to food, the losses amount to 30%); reduce the risk of adverse weather conditions. Products obtained in greenhouses will be environmentally friendly. HUAWEI believes that by 2020, the market for “smart agriculture” (agricultural robots, precision farming, smart sensors, IT applications, Big Data) will reach $ 26.8 billion with an average annual growth rate of 14.3% (Smart farming). Russia plans to increase its presence in the world markets for agricultural products, and a convergent platform, “smart agriculture”, can become a driver for this. The priority markets for Russian products will be the countries of the Middle East, South and Southeast Asia, and Central Africa. To solve this problem will require the use of digital technology, economic and mathematical modeling. Building an economic-mathematical model for the functioning of an agricultural enterprise based on a linear-dynamic approach allows us to implement general principles of numerical modeling, describe the formal connection and meaningful unity of interrelated planning tasks for agricultural production and determine their role in providing integrated economic analysis (Rogachev, 2018, Retunsky, 2018). At the first stage of agricultural production management, a conceptual logical formulation of the problem of alternative choice of a planned solution is built. It defines the resource and technical constraints, technological and organizational options, requirements for the final output and production and economic costs. The most important is the

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choice of the integral criterion of optimality. At the second stage, the structure (layout) of the model of this task is formed in tabular form. This determines the number and composition of variables and constraints, based on the structure of the resources taken into account and technological requirements, as well as the requirements for the final output (volume, quality, time). The linear-dynamic model of optimization of the production structure includes n main blocks, for example, by the number of time cycles. The common linking block consists of the limitations for the entire simulated period of restrictions and a single objective function. Each main block essentially repeats the model of the optimization production structure for the corresponding one-year cycle of perspective development. The block diagram of the linear-dynamic model is presented in Figure 6.1.

Block 1 Auxiliary unit

Block 2

…

Block n

General matching unit

Figure 6.1: Structural diagram of a multi-sectoral linear-dynamic optimization model of agribusiness management.

The blocks of the economic-mathematical model are interconnected by restrictions on the costs of various types of resources (Figure 6.2). Linear dynamic model includes: 1. the totality of the main variables xj, describing the modeled production processes 2. a constraint system that defines the range of permissible values of the main variables: – production in each sector: Xj ≥ V i , where Vi – the planned volume of production of the j-th product. – resource constraints: X aij xj ≤ bi + xi, ði 2 M2 Þ

(6:1)

(6:2)

j2Q

where хj – an auxiliary variable denoting the unknown size of the j-th resource; ai,j – the rate of resource costs of the i-th species per unit of the j-th variable; bi – amount of i-th resource.

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“ESCORT” Hardware and software system Plant Vegetation card

Scouting card

Economic Management card

Electronic field map

Technical card

Technology Management card

Weather monitoring map

Vegetation map

Resource Management card

Figure 6.2: The main modules of the software and hardware complex “ESCORT”.

3.

the objective function, which is linearly dependent on the main variables, determines the optimality criterion of the problem. Since the goal of any business is to maximize profits, the maximization of the objective function is taken as the optimality criterion. Thus, the objective function will be as follows: X CX ) max, (6:3) where Cj – the standard of profit received from the production unit of the j-th species.

The presented block-linear model of agribusiness management allows assessing the optimal investment area when introducing information technologies taking into account resource constraints of various types of business (Rogachev, Melikhova, Shokhnekh, 2018, Melikhova, Rogachev, Skiter 2019). The use of computer programs, including the ESCORT software and hardware complex (FGBNU VNIIOZ, Russia), will help achieve effective business management: optimize the work of agricultural and irrigation equipment, introduce new lands into circulation, plan the irrigation of plants, ensure the sustainability of agricultural landscapes (Melikhov, Novikov, Medvedeva, Komarova, 2017, Rogachev, 2018). Open architecture, scalability, flexibility PAK “ESCORT” will allow to solve complex problems of production management. The Russian GLONASS global navigation system, which already competes with the American GPS (Global Positioning Sistem) system,

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plays an important role in controlling the technology. Navigation systems will allow you to find out the exact location of agricultural machinery in the fields, to determine the level of its workload and operation. Unmanned aerial vehicles can be used to monitor agricultural land. With their help, a multispectral analysis will be carried out, giving an idea of the vegetative activity of plants during the day, conclusions will be made about the norms of watering, fertilization (Vasilyev, Shchedrin, Kolganov, Medvedeva, Kupriyanov, 2018, Ukraintseva, 2017). Agribusiness in Russia has reached a certain maturity, as evidenced by the stabilization of the level of investment in agriculture and increased competition among agricultural producers. The leading role in the delivery of smart equipment to the market is assigned to foreign companies: John Deere, Trimble, Inc., Raven Industries, AGCO Corporation, Ag Leader, Autonomous Solutions (USA), Farmers Edge (Canada), CLAAS (Germany). For example, the BoniRob agrobot is capable of clearing fields from weeds in an automated mode (Figure 6.3).

Figure 6.3: BoniRob Agrorobot by BOSCH (Germany). Source: http://www.ipa.fraunhofer.de/agriapps.html.

It can be assumed that in the near future they may be competed with by Russian companies: Strizh Telematika, KB Panorama, CJSC, GEOMIR CJSC, Cognitive Technologies Group of Companies. One of the tasks of a small business is to obtain a greater

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efficiency from the current level of development of engineering and technology. To improve the efficiency of economic management, entrepreneurs can attract new “smart agriculture” from around the world (Manzhina, Medvedeva and Kupriyanova, 2018, Ukraintseva, 2017).

Conclusions The study shows that the main direction of development of agricultural production will be the use of IT-technologies on the convergent platform Smart Agriculture. In the coming years, new forms of innovative agricultural entrepreneurship will be further developed, such as: “vertical agrofarms”, “urban dairy farms”, and “home smart greenhouses”. Smart Agriculture Convergent Platform is a collection of technologies and products that support the evolution of agricultural production and land reclamation. Convergent technologies will allow to develop agricultural entrepreneurship and in the city, to apply smart solutions in the operation of resources and technology. Entrepreneurs, with the help of the Smart Agriculture architecture, which guarantees the compatibility of hardware and software products, will be able to ensure the development of new highly efficient types of business and services that ensure a higher profit rate. Created stratagems of the digital economy of agriculture should not be aimed at creating conditions to reduce production costs by digitizing business processes; providing agricultural enterprises with access to IT-technologies to add value; ensuring agriculture management on the basis of long-term forecasting principles.

References Komarova, O.P., Medvedeva, L.N. and Kozenko, K.Yu (2015) “Kontsept-strategiya “zelenykh gorodov” na baze promyshlenno razvitykh srednikh” (monografiya) FGBNU VNIIOZ, Volgograd: Izdatel’stvo OOO “Kruton”, 256 p (in Russian). Manzhina, S.A., Medvedeva, L.N. and Kupriyanova, S.V. (2018) “Novyi investitsionnyi vektor innovatsionnogo razvitiya APK Rossii – teplichnoe khozyaistvo”, in Information and Sovremennaya agrarnaya ekonomika: nauka i praktika of the international conference to Gorki Belarus, 2018. pp. 144–146 (in Russian). Medvedeva, L.N. (2018) Agrarnoe predprinimatel’stvo v srednem gorode: puti razvitiya MSP”, in Information and 17-ya Nauchno-prakticheskaya konferentsiya professorsko-prepodavatel’ skogo sostava VPI (filial) VolgGTU of the international conference to Volgograd, 2018. pp. 277–281 (in Russian). Melikhov, V. V., Novikov, A. A., Medvedeva, L. N. and Komarova O. P. (2017) Green Technologies: The Basis for Integration and Clustering of Subjects at the Regional Level of Economy Integration and Clustering for Sustainable Economic Growth. Springer International Publishing AG, pp. 365–382.

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Melikhova, E.V., Rogachev, A.F. and Skiter, N.N. (2019) “Information system and database for simulation of irrigated crop growing”, Studies in Computational Intelligence, pp. 27–32 O prognoze nauchno-tekhnologicheskogo razvitiya agropromyshlennogo kompleksa Rossiiskoi Federatsii na period do 2030 goda: Prikaz M-va sel. khoz-va Ros. Federatsii ot 12 yanvarya 2017 g. No. 3, available at: http:docs.cntd.ru/document/456038646, (Accessed 11.05.2019)(in Russian). Pakhomova, A. A. and Roskoshnaya, A. S. (2017) “Kriterii otsenki innovatsionno-investitsionnykh proektov v agrobiznese”, Vestnik YuRGTU (NPI). No. 2. pp. 70–75 (in Russian). Programma “Tsifrovaya ekonomika Rossiiskoi Federatsii”: utverzhdena rasporyazheniem Pravitel’stva RF ot 28 iyulya 2017 g. No. 1632-r, available at: http://static.government.ru, (Accessed 11.05.2019) (in Russian). Rogachev A.F., Melikhova E.V. and Shokhnekh A.V. (2018) “Monitoring and Economic & Mathematical Modeling Of Manufacture And Consumption Of Agricultural Products As A Tool Of Food Security Management”, Espacios. Vol. 39. No. 1. pp. 10–17. Retyunskikh, S. N. (2018) “Analiz strategii razvitiya informatsionnogo obshchestva v Rossiiskoi Federatsii na 2017 – 2030 gody”. Nauchno-prakticheskii elektronnyi zhurnal Alleya Nauki No. 8(24) pp. 596–602. available at: https://elibrary.ru/download/elibrary, (Accessed 30. 05.2019) (in Russian). Rogachev, A.F. (2018) “Metodicheskie podkhody k polucheniyu i obrabotke dannykh distantsionnogo zondirovaniya dlya obosnovaniya meliorativnykh meropriyatii”, Izvestiya Nizhnevolzhskogo agrouniversitetskogo kompleksa: Nauka i vysshee professional’noe obrazovanie. No. 4 (52), pp. 332–339 (in Russian). Roco, M.C. and Bainbridge, W.S. (2002) “Converging Technologies for Improving Human Performance” NBIC NSF/DOC-sponsored report National Science Foundation, Arlington, Virginia June. Ukraintseva, I. V. and Avdeeva A. I (2017) “Predprinimatel’skaya deyatel’nost’ i ee osobennosti v sel’skom khozyaistve”, Nauchno-metodicheskii elektronnyi zhurnal “Kontsept”. Vol. 23. pp. 100–103, available at: http://e-koncept.ru/2017/770442.htm. (Accessed 11.05.2019) (in Russian). Umnoe fermerstvo: mozhet li mashina zamenit’ agronoma (2019) available at: http://ect-center. com/blog/smart_farming, (Accessed 30. 05.2019)(in Russian). Vasilyev, S.M., Shchedrin, V. N., Kolganov, A. V., Medvedeva, L. N. and Kupriyanov, A.A. (2018) “Meliorative institutional environment: The area of state interests”. Espacios. Vol. 39. No. 12, pp. 28–34. Vertikal’noe fermerstvo: plyusy i minusy (2019), available at: http://www.ecobyt.ru. (Accessed 11. 05.2019) (in Russian).

Illona V. Mirzkhulova

7 Formation Opportunities of Agro-Industrial Clusters for the Purpose of Increasing Competitiveness (Case Study: Abkhazia) Introduction The sustainable development of the agro-industrial complex, undoubtedly, determines the socio-economic situation of the country, ensures its food security, as well as the functioning of related sectors of the national economy. Abkhazia is no exception, on the contrary, it has traditionally been and remains an agrarian republic. Agriculture, being the basis for the functioning of the agro-industrial complex, allows ensuring a number of vital functions of the state, including social and economic ones. These include providing the population with agricultural products, maintaining the level of employment, creating new productions for processing agricultural products and others. However, the real situation in the countryside of Abkhazia is just the opposite. There is a decline in rural areas, most of the land is empty, the standard of living is very low, the communication infrastructure is poorly developed, and because of the lack of jobs, rural people, especially young adults, are migrating. All this leads to antisocial behavior, including an increase in crime, drug addiction, etc. (Shatipa, 2016). A survey of the rural population in the framework of developing a strategy for Abkhazia until 2025 showed the following: – The average monthly income of a rural family per person is up to 6,000 rubles per month (59.3%). – For the majority of respondents, living conditions are characterized as satisfactory (71.45%). – The most significant problems for the population of Abkhazia in rural areas are unemployment (24.4%), road condition (11.4%), quality of medical services (10.1%). – Factors that hinder the dynamic development of the national economy in the opinion of the rural inhabitants are the corruption actions of officials (28.4%), consequences of the war and political isolation of Abkhazia (21.7%), lack of due legal order (16.4%). – The assessment of the agriculture state in the republic is unsatisfactory (62.0%);

Illona V. Mirzkhulova, Abkhazian State University, Sukhumi, Republic of Abkhazia https://doi.org/10.1515/9783110692075-007

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– A significant part of respondents would like to expand their private subsidiary plots (74.6%). At the same time, they consider the shortage of finances (62.8%) and modern technologies (25.6%) to be the impeding factors. – The most preferred forms of organization of production for rural residents are the following: personal subsidiary farming (45.7%) and private farms (25.4%). – More than a quarter of respondents believe that in order to revive the village, first of all, it is necessary to create conditions for the sale of products (27.6%), a new agricultural infrastructure (21.6%), as well as provide state support for farms (17.6%). (Analytical report on the results of a sociological research in the framework of the development of the “Strategy for the Socio-Economic Development of the Republic of Abkhazia Until 2025”, 2015). – Consequently, Abkhazia needs new approaches aimed at improving the competitiveness of the agricultural sector. As such, it is advisable to use the cluster approach, not only at the state level as a whole, but, and above all, at the district level.

Methodology The statement of the problem determined the research methodology. The methods of analogy, questioning and interviewing, benchmarking, SWOT analysis, quantitative and qualitative analysis, data collection and processing, and other are used in the article. The total territory of Abkhazia is 8,7000 km2, including the farmland area, which is 397, 262 hectares or (46%). Nearly 50% of the country’s population lives in the villages of Abkhazia (Abkhazia in numbers, 2015). The number of rural households is 33,232, and the total number of households in Abkhazia are 69,800 (Bgazhba, Tsushba, Shatipa, 2014). Evaluating the role of agriculture as a sector of the economy, first of all, it is necessary to identify the social significance of the agrarian sector. The demographic situation is deteriorating in the villages of Abkhazia. There is a discrepancy between the rural population and the large size of rural areas. Thus, de-settlement of villages takes place. Youth unemployment, in the first place, is growing in rural areas. The problem of poverty and decline in the living standards of the rural population is becoming particularly acute. In addition, the engineering and social infrastructure in rural areas is unsatisfactory. The agrarian sphere of Abkhazia also continues to be in condition of the economic crisis, which is extremely negative. The indicators characterizing the depth of the crisis include the following:

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– Out of 70,000 people of the able-bodied rural population, according to official data of the Office of State Statistics of the Republic of Abkhazia for 2017, only 259 or 0.6% people are employed in agriculture. – Ihe share of agricultural enterprises in the total number of registered enterprises is 3%. – The average monthly wage in the industry is the lowest in the country and even lower than the minimum living standard (6,600 rubles). – All farms of the agroindustrial complex, including personal subsidiary farms and public ones, process only up to 30 thousand hectares. 90% of farmland are not used (Abkhazia in numbers, 2017). – 90% of gross output falls on personal subsidiary farms (PSF). – Personal subsidiary farms provide 34% of gross output of Abkhazia. – More than 60% of agricultural products are imported to Abkhazia. These include meat and dairy products, vegetables, fruits, etc. (Materials of the State Customs Committee of the Republic of Abkhazia, 2017). – The export of products of the agro-industrial complex (citrus fruits, nuts, etc.) in 2017 is 16% of the republic’s foreign trade turnover. – Agriculture is a field of specialization in all areas of Abkhazia, with the exception of Gagra. – The share of agriculture in the republic’s GVA in 2017 was only 4.5% (Abkhazia in numbers, 2017). – The share of state budget expenditures on financing agriculture does not exceed 1% (Abkhazia in numbers, 2017). The analysis of the current situation in the agrarian sphere will not be complete without identifying the strengths and weaknesses, opportunities and threats of the complex, which can be most fully traced through the strategic SWOT analysis as a whole (Table 7.1). Analysis of Table 7.1. indicates the need for systemic changes in the industry and the formation of new approaches to its modernization. This approach, as outlined above, can be a cluster approach.

Results The cluster approach, as the experience of many countries shows, is an effective tool that increases the competitiveness of the industry and enterprises operating in it. Cluster technologies will ensure the synergy effect within the cluster itself, since the effectiveness of the implementation of cluster unions creates an intensive interaction between the subjects of the cluster. Moreover, all organizations that are part of the cluster, pursue the same goals and objectives (Kulakova, 2013).

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Table 7.1: The strategic SWOT analysis of the agro-industrial complex of Abkhazia. Strengths (S)

Weaknesses (W)

Geopolitical role of the village; Unique soil, climatic, hydrological conditions; Environmentally friendly products that create competitive advantages, in particular in foreign markets; Rural way of life of the population and the traditional agrarian mode; High proportion of rural population (almost %); According to the population survey, the development of the agro-industrial complex is the preferred branch of the development of the national economy (.%)

Shortage of agricultural equipment; Capital base of the industry, destroyed during the war; Technological backwardness of the industry; Unsatisfactory state of the industrial repair base; Seasonality of the industry and dependence on natural and climatic factors; Unsettled land relations; Emerging trend of transferring land from the category of “agricultural” to other categories; Extensive nature of production; Growth in imports of agricultural products; Lack of new organizational and legal forms of entrepreneurship in agriculture; Reducing the share of agriculture in the GVA of the Republic of Abkhazia; Unsatisfactory assessment of the state of agriculture by the majority of the population of the republic (.%); Low level of development of the processing industry; Underdevelopment of production and commercial infrastructure; Inconsistency of the existing infrastructure with the modern agrarian structure of Abkhazia; Underdevelopment of credit and financial infrastructure (inaccessibility of loans); Serious problems in the sale of agricultural products; Low socio-cultural and housing level Low per capita incomes of the rural population; High proportion of informal employment in rural areas; Weak regulatory and legislative base of the industry; Lack of industry accounting and statistics; Low level of state funding for the industry; Lack of industry development programs; Absence of land cadaster.

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Table 7.1 (continued ) Strengths (S)

Weaknesses (W)

Opportunities (O)

Threats (T)

Elaboration of the Program for the Development of the AIC; Inventory of agricultural land; Preferred treatment for Russian investments (budget and private); Development of related industries, in particular tourism and recreation; Development of the processing industry by the use of its own raw material base; Reforming the legal framework for state regulation of agricultural production and the employed population in agriculture; Creation of new organizational and legal forms of agricultural production and modern infrastructure; Acquisition of agricultural machinery using a leasing mechanism; Personnel training and retraining for the agricultural sector, including mid-level specialists; Comprehensive financing of all areas of

Systemic crisis in the AIC; The risk of loss of food security; Outflow of the rural population, to a greater extent of youth; Reduction of the village role in society

A cluster is considered to be a “geographically concentrated group of interrelated companies (specialized suppliers, service providers, firms in relevant industries), as well as organizations related to their activities (for example, universities, standardization agencies, trade associations) in certain areas that compete, but, at the same time, work together” (Porter, 2001). Many studies of domestic and foreign scientists are devoted to the study and development of clusters. Moreover, the classical understanding of the cluster as an economic structure is constantly being improved. The effectiveness of the activities of cluster associations should be ensured on the basis of the cluster policy established in the country. Cluster policy is a state activity that includes setting a specific goal, clearly defined tasks, various mechanisms aimed at maintaining cluster associations, increasing their competitiveness, and, most importantly, introducing innovations in the agro-industrial complex (Ernst, 2018). The current realities in the Republic of Abkhazia are such that the overall state approach to cluster initiatives is defined in the Strategy for Socio-Economic Development until 2025, which is the institutional basis for their formation. However, there is no precedent for the formation and placement of economic clusters (Mirtskhulava, 2016).

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Nevertheless, the need to use the cluster approach to ensure conditions for the exit of the economy of the agro-industrial complex of Abkhazia from the systemic crisis is quite relevant, both at the level of economic entities and the state as a whole. At the same time, the formation of monoclusters is also not fully justified, since the point projects do not give the expected effect. According to the strategy of socio-economic development of Abkhazia until 2025, the agribusiness industry requires a step-by-step modernization based on the following long-term goals: 1. innovative transformation of the agro-industrial complex in order to develop and saturate the domestic market with local agricultural products 2. increase of the agricultural production efficiency through the rational use of the resource potential 3. achievement of sustainable growth in agricultural production At the recovery stage, the main objectives of the development of the agro-industrial complex are: – increasing the efficiency of agricultural production and the competitiveness of its products – growing rural employment and improving people’s living standards – reforming the industry management system at the republican and district levels – formation the optimal organizational structure of agricultural production that meets the modern requirements of the agricultural infrastructure (Strategy for the Socio-Economic Development of the Republic of Abkhazia Until 2025, 2015) Achievement of the designated tasks is impossible without the implementation of appropriate mechanisms, including legal, organizational and managerial, scientific and methodological, financial and economic, informational, personnel. Legal mechanisms should focus on the development and improvement of the regulatory framework of the agro-industrial sector, including the laws on state regulation of agro-industrial production in the Republic of Abkhazia, on leasing, on insurance of agricultural products, on state procurement of agricultural products, on public-private partnership, on personal subsidiary farms of the population, on Agricultural Consumer Cooperatives and other. Organizational and managerial mechanisms involve systematic monitoring of the implementation of long-term targeted programs; control over the rational use of agricultural land; conducting an agricultural census and creating a household book; completion of machine-transport stations with necessary equipment through the introduction of agro-leasing, as well as attracting investment; promotion of the development of food and processing enterprises producing high value added products; promotion of the creation of modern storage systems for agricultural products and logistics; development of a system for ensuring free access to markets and the creation

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of normal conditions for the sale of agricultural products by peasants in the markets of Abkhazia; development of rental relations in agriculture of Abkhazia. Scientific and methodological mechanisms should include the preparation of annual analytical reports by the Ministry of Agriculture; providing personal subsidiary farms with educational-methodical and reference-normative literature for the purpose of conducting scientific research; development of the Land Registry, etc. Financial and economic mechanisms should be aimed at a comprehensive increase in the volume of financing of the agro-industrial complex from the state budget, as well as through lending; the abolition of customs duties on the export of agricultural products; attraction of additional financial resources in order to improve the pricing policy aimed at reducing the dependence of the industry on natural and climatic conditions and disparity of prices for agricultural and industrial products. Information mechanisms involve the creation of a single information and consulting center at the Ministry of Agriculture of the Republic of Abkhazia, including the republican and district levels, the components of which should be counseling, training and retraining of personnel, the collection of accounting and statistical information, etc. Personnel mechanisms should ensure the development of a system of targeted training of specialists for the agro-industrial complex of the republic on the basis of the agro-engineering faculty of the Abkhaz State University, the Research Institute of Agriculture at the Academy of Sciences of the Republic of Armenia, universities of the Russian Federation; the creation of centers for retraining and advanced training of workers in the agro-industrial complex; the formation of personnel for doing business in the agricultural sector; increase the prestige of agricultural labor (the Strategy for the Socio-Economic Development of Abkhazia until 2025, 2015).

Conclusion Sustainable and stable functioning of the agro-industrial complex of the Republic of Abkhazia can only be achieved by the innovative development of its industries, the modernization of fixed capital, the introduction of energy-saving equipment and technology, the activation of intellectual resources, the optimal combination of market mechanisms and state regulation of the economy. All of these factors can be combined in the framework of the cluster approach to the development of the food sector. The implementation of these tasks is subject to a number of restrictions, including the lack of interaction between regional and republican government bodies; poorly developed cluster development infrastructure; lack of economic resources necessary for the formation and development of clusters, including financial, labor and etc.; weak promotion of cluster initiatives. In this regard, the subjects of the cluster organization (government and management, the business community, educational and scientific institutions) need to

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ensure intensive interaction through the use of a number of tools that promote cluster initiatives. As a result of their use, certain effects will be achieved (Table 7.2).

Table 7.2: Instruments and benefits of cluster organization. Subjects of the Tools for implementing cluster strategic objectives organization

Benefits

Government and administration bodies

Direct state support for cluster initiatives, including by the means of subsidies and loans, as well as tax preferences; Support of research centers through the allocation of grants;

Business community

Creation of an institution of public-private partnership in order to promote cluster formations; Creation of information resources to support national clusters.

Support of priority industries of the economy in particular the AICand tourism; Growth of population employment and wages; Decrease of social tensions in the region and improvement of living conditions; Development of the regional infrastructure; Multiplier effect and Expansion of the internal synergy of cluster market; participants; Possibility of using Creation of “cluster export potential; capital” as an Reduction of transaction independent resource for costs; domestic investment in Improvement of the the cluster and the competitiveness of country. products; General use of infrastructure.

Education and science

Use of the mechanism of network interaction in order to conduct educational and qualification and training events, including foreign experts

Source: composed by the author.

The possibility of close interactions with educational and scientific community, business; Growth of tax bases through concentration and enterprise interactions in the region; Increase of investment opportunities; Development of the territory infrastructure

Providing graduates with jobs; Real internship for university students; The participation of scientists in practical activities and the participation of practitioners in the educational process Professional development of personnel

Expected results in general

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Promotion of cluster policy in general will contribute to economic growth, decreasing the level of socio-economic differentiation of regions, strengthening their competitiveness, reducing disparity in incomes of the population, effective interaction of all cluster members, supporting priority sectors of the national economy, in particular the agro-industrial complex. The main feature of clusters is their ability to sustainably develop the regional economy, and the cluster itself is positioned as a market mechanism for the qualitative transformation of regional economic systems. Thus, the cluster approach in the spatial organization of the economy in the new economic conditions becomes an important tool for increasing the competitiveness of the regions of Abkhazia.

References Abkhazia v zifrakh [Abkhazia in numbers]. Sukhum, Statistical compilation UGS RA, 2015, 140 p (in Russian). Abkhazia v zifrakh [Abkhazia in numbers]. Sukhum, Statistical compilation UGS RA, 2017, 158 p (in Russian). Analiticheskii otchet po rezul’tatam soziologicheskogo issledovaniya v ramkah razrabotki “Strategii sozial’no-economicheskogo razvitiya Abhazii do 2025 g”. [Strategy of socio-economic development of Abkhazia until 2025]. Sukhum, CSS under prezident of Repablic of Abkhazia, 2015, 274 p (in Russian). Bgajba A.O., Zushba A.S., Shatipa H.K. Sozial’no-ekonomicheskie prozessi v sovremennoi Abhazii (2008–2012 gg.) [Social and economic processes of modern Abkhazia]. Sukhum, CSS under prezident of Repablic of Abkhazia, 2014, 147 p (in Russian). Ernst S.A. Razvitie integrazionnih prozessov v regional’noi sphere proizvodstva prodovol’stviya na osnove klasternogo podhoda [The development of integration processes in the regional sphere food production based on the cluster approach]. EPOS, 2008, No. 4 (36), pp. 52–55 (in Russian). Kulakova L.I. Klasternyy podkhod – osnova effektivnogo razvitiya regionov [The Cluster Approach as the Basis for the Effective Development of regions]. Russian Journal of Entrepreneurship. 2013, Vol. 14. no. 22. pp. 121–130 (in Russian). Mirtskhulava I.V. Osobennosti razvitiya regionov Abkhazii [Features of the Development of the Economy of the Regions of Abkhazia]. Strategic Guidelines for the Development of the Regional Economy. Part 1: Materials of the VII Annual International Conference, Volgograd, Volzhsky. Consult LLC., 2016. 480 p (in Russian). Porter, Michael E. Konkurenziya [Competition]. Moscow, Publishing House “Williams”, 2001, 95 p. Shatipa H.K. Spetsifika ekonomicheskogo mekhanizma i faktory karizisnogo sostoyaniya agropromyshlennogo kompleksa Abkhazii [The Specifics of the Economic Mechanism and the Factors of the Crisis State of the Agro-Industrial Complex of Abkhazia]. Moscow, Publishing House RGAU-ICCA, 2016. 243 p (in Russian). Materialy Gosudarstvennogo tamozhennogo komiteta respubliki Abkhaziya The materials of the State Customs Committee of the Republic of Abkhazia, 2017 (in Russian).

Liana A. Amichba

8 The Development of Human Potential in the Republic of Abkhazia: The Implementation of State Policy Introduction In the modern world there is a tendency to increase the role of the state in the system of human growth factors. Human potential is becoming a fundamental concept that defines the basic principles, goals and objectives of the state policy of priority development. The advanced development of the potential of the human personality depends largely on the efforts of the state, its institutions, for which this ideological task must be formulated as a political priority. This is due to the fact that only the state can finance basic science, most educational fields and much more, which today determines the quality of human potential through the distribution of social income and the creation of optimal conditions for the intellectual and spiritual development of the whole nation. The state develops a general development strategy for the country, the result of which will be: a certain level of human development; legislative establishment of the basis of human existence in the family and society; economic regulation, including labor relations in society; responsibility for the state of the natural environment (directly affecting the conditions of human activity). Consequently, the main advantage of any country lies in its human potential, largely determined by the success of the education system and health care, since they are the key areas in ensuring sustainable economic growth in the country in the medium and long term in the country as a whole. The quality of labor resources, and, consequently, the state of the economy depends on the level of education and healthcare. Consequently, their development is a priority of state policy, since the development of the entire state as a whole depends on the level of education and state of health.

Methodology In the process of research, the author used methods of quantitative and qualitative analysis, comparisons and analogies, etc.

Liana A. Amichba, Abkhazian State University, Sukhumi, Republic of Abkhazia https://doi.org/10.1515/9783110692075-008

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An important component of human potential, in many respects influencing the sustainability of long-term trends of potential development, is the quality of population health, on which the quality of labor resources and, consequently, the state of the economy depends. Education is the process that provide systematized knowledge and skills (this is a necessary condition for preparing a person for life and work, for obtaining a profession) (Fedorenko, Elistratova, 2012). Education is a process that interests a person, a society, a state. With the help of education, we implement our plans, improve our skills, and achieve our goals. Highly educated labor resources are the country’s wealth (Gataullina, 2011). Educated people are (Fedorenko and Elistratova, 2012): – the main condition for the success of economic and social transformations – the most important strategic resource of the country – the basis for the progressive development of the economy Studies on the development of human potential in public health are contained in the works of Russian scientists, such as Verenikina A.O., Bobyleva S.N., Zaslavskaya T.I., Kolesova V.P. etc. Among the fundamental works in the study of social functions of education are the scientific works of M. Weber (he considered “formal” education as one of the criteria of social prestige), E. Durkheim, P. Sorokin, U. Gordon, J. Coleman, J. Dewey, O. Banks. T. Parsons deeply studied education as an institution of socialization of modern society. K. Marx, P. Bourdieu, M. Hannan in their works revealed the interrelations of education and economic processes, their influence on the dynamics of social development. The works of domestic and foreign scientists P.V. Alekseev, V. Shakhov, V.M. Kolobashkin, E. Kindler, E. Salerno, I.U. Strang, E. Henderson give a general value analysis of the situation and the main problems of the educational policy of modern developed countries (Zaretskaya, 1992). Human development in the Republic of Abkhazia depends on the state policy in the field of education and health care. Consequently, the main strategic goal of the development of a nation and a state is the development of a national human potential. In the Republic of Abkhazia today, the state policy in the field of human development is fragmented. It is contained in various regulatory legal acts and program documents of the state. The development of human potential and its transformation into capital directly depends on the state policy being implemented and implemented. Thus, there is a need for the implementation of state policy in the field of human development in the Republic of Abkhazia. State policy in the field of human potential should include a set of state measures (political, legal, economic, socio-cultural and organizational) aimed at developing the basic elements of human potential. Consequently, at the present stage of development of the economy of the Republic of Abkhazia, there is an acute question of modernizing state policy in the field of human potential, both in education and in healthcare.

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Results A developed education and health care system is a source of shaping the potential of a country’s economic development, a prerequisite for personal success and an increase in the welfare of citizens. One of the main problems in the education system of the Republic of Abkhazia is the absence of the Law on Education, which should be created in the coming years. The situation can be rectified with the help of the state program for the development of the education system, which is designed to play a key role in the process of reforming the economic system. The Cabinet of Ministers of the Republic of Abkhazia approved the target program “Education Development – 2017”. The Program is monitored and implemented by the Ministry of Education and Science of the Republic of Abkhazia, the purpose of which is to provide high quality education in accordance with the objectives of the development of society and the economy and to increase the effectiveness of the implementation of educational policies in the interests of socially-oriented innovative development of the country. Achievement of goals is carried out by coordinated implementation of interrelated in terms of time, resources, implementers and results of subprograms and related projects and activities (a program of grants for the development of national educational and methodological complexes and for teachers in rural schools); informatization of the education system; sports events; improving the professional level of educators; International Salon of Education – 2017. To achieve the goals set, the following tasks are supposed to be accomplished: (RA Ministry of Education, 2018). 1. modernization of educational programs to achieve the modern quality of education 2. creating a modern system for assessing the quality of education and management 3. increasing the attractiveness of the teaching profession in the villages of the republic The expected results of the program should be: the long-term sustainable operation of a regular international expert discussion platform; improving the quality of educational and methodological complexes; introduction of innovative methods and textbooks into the curriculum; involvement of the pedagogical community in the development of educational and methodological complexes; improving the quality of education in rural educational institutions; increasing the prestige of the rural teacher’s profession; informatization of educational institutions; creating a system of online control of the financial component of the education system; development of a modern interactive system for monitoring the quality of education; improving student health; participation in international and republican competitions of students of educational institutions; advanced training of educational personnel (Ministry of Education of the Republic of Abkhazia, 2018).

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To assess the state policy in the field of education: it is necessary to clearly define what the education system is, what basic elements it consists of and how it is possible to influence the processes occurring in the field of education. The field of education includes several major components, without which it is impossible to determine the very essence of the educational process, such as: the formation of a person’s personality in all its versatility; the formation of human intellectual abilities; human socialization; transfer to a specific person of general and specific professional skills. In accordance with these objectives, an educational system is being built, consisting of several major stages, inextricably interconnected. Pre-school and school education perform several important functions at once, and first the function of forming the personality of the young person, the development of his intellect and creative activity. During the period from 2012 to 2017, the growth rate of pre-school educational institutions increased by 4.4%, including the number of children in them – 53.5%. However, there is a decrease in the number of general education schools by 5.9%, while the number of students and teachers in them increases by 4.9% and 7.25% respectively (Abkhazia in numbers, 2012–2017). Despite the positive dynamics in the number of pre-school educational institutions in the Republic of Abkhazia, there is a problem of a lack of children’s pre-school educational institutions, which adversely affects the quality of secondary education. One of the main problems of the educational system of the Republic of Abkhazia is staffing. Cities of the Republic of Abkhazia are provided with teaching staff, but the critical situation persists in rural schools. Unfortunately, the existing school education system cannot fully provide a high level of student training, due to the lack of financial resources. No country in the world will achieve the desired level of development without a reliable and efficient education system, and in order to have a decent education system and well-trained staff, substantial financial resources are required (Gataullina, 2011). The education system of the Republic of Abkhazia has centralized and decentralized funding. From the funds of the Investment Program for the Promotion of Social and Economic Development of the Republic of Abkhazia in 2017, 364.97 million rubles were spent on completion of construction, in 2018–286.09 million rubles, 2019 – 280.61 million rubles. (Materials of the Ministry of Economy of the Republic of Abkhazia, 2019). However, these investments in the development of the material base of school education still do not give significant results, since they are still in the operational phase of the investment cycle. The most important task of school education is the education and socialization of the individual. Therefore, along with the elements of education, the school is called upon to educate and socialize future citizens of the country. At a certain stage, the function of vocational guidance and vocational training should be

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included, which is also a major task, both for the person himself and for the state in which he lives. This is how the system of primary, secondary and higher professional education begins to work. In terms of secondary and higher education in the Republic of Abkhazia, for the period from 2012 to 2017, there is a negative trend, except indicators of the number of university professors (2.3%) and admitted students in universities (3.0%) (Abkhazia in figures, 2012–2017). The continuity of all stages of the education system is due to the physiological characteristics of human development. They must follow strictly one after another. Jumping from one stage to another without completing the previous one is unacceptable, as it can lead to a violation of a single continuous process. The current higher education system of the Republic of Abkhazia needs special attention from the state. This applies to the educational process and educational institutions, where the priority should be on the improvement of the quality of education, bringing it to the level that exists in developed countries, i.e. we are talking about reforms in the education system. Number of employees performing research and development in the Republic of Abkhazia for the period from 2012–2017 has a negative trend, except the rate of admission to graduate school 16.6% (Abkhazia in numbers, 2012–2017). The main factors behind the decline in the number of workers engaged in scientific research are due to low wages, the lack of prospects and opportunities to engage in scientific activities. Reducing the number of scientific workers has a negative effect on the ability of the economy of the Republic of Abkhazia to rapidly overcome the recovery period and begin to form an innovative development model. Equally important in the education system is the issue of raising wages in the education of the Republic of Abkhazia. During the period from 2012 to 2017, the number of employed people increased by 1.4%, including a decrease in the field of education by 18.6%. State budget expenditures on education increase by 9.9%, while the average monthly wage in the field of education reduced by 27.7% (Abkhazia in numbers, 2012–2017). The institutional basis for the implementation of the tasks of the education system at the first stage is the Strategy of Social and Economic Development of the Republic of Abkhazia until 2025, which defines the mechanisms for the implementation of the tasks. Among them are financial and economic ones (improvement of the material, technical and educational base of educational institutions; development of educational infrastructure, etc.); informational ones (active and purposeful use of modern information and communication technologies, electronic and other resources in educational and educational processes; creation of an electronic library system; efficient exchange of information with domestic and foreign universities and organizations); legal ones (improvement of the regulatory framework for the development of science and education, etc.) (Amichba, 2018).

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State regulation in the field of health care in the Republic of Abkhazia is carried out in accordance with the Law on Health Care by means of state control over medical and pharmaceutical activities and state sanitary and epidemiological surveillance; licensing and accreditation of medical and pharmaceutical activities; health certifications; state registration, re-registration and changes in the list of medicines, medical devices and medical equipment, certain types of products and substances that have a harmful effect on human health; government regulation of prices for medicines and medical services provided by public health organizations (Materials of the Ministry of Health, 2018). The main goal of health development in the Republic of Abkhazia is to improve the quality and accessibility of medical care for the population. Therefore, in order to analyze the situation in this area, it is necessary to select indicators reflecting the level of its development. For the period from 2012 to 2017, there has been an increase in the growth rate in terms of the number of doctors by 11.7%, (including per 1,000 units of population by 11.4%) and the average medical staff by 3.3%, (including a decrease per 1,000 units of population by 11.5%). In terms of the number of doctors in individual specialties, there is a positive development trend (Abkhazia in numbers, 2012–2017). The growth rate of the number of nurses for the study period was 0.3%. The growth in the number of nursing staff is due to the presence in the Republic of a medical college, which trains paramedics, nurses and midwives. The lack of such specialties at the Sukhumi Medical College, such as X-ray technicians and employees of the centers of hygiene and epidemiology, leads to a reduction by 30% and 8.9% respectively (Abkhazia in figures, 2012–2017). As for the development of material and technical base, the work in this direction has been going on for several years now through the implementation of agreements between the Ministry of Health of the Russian Federation and the RA. In recent years, there is an active reconstruction of medical institutions in the Republic of Abkhazia. The volume of financial assistance under the Investment Program to promote social and economic development amounted to 1,570.9 million rubles, including 484.85 million rubles in 2014, in 2015–2017 – 735.47 million rubles and in 2017–2019 – 350.60 million rubles. (Data by the Ministry of Economy of the Republic of Abkhazia, 2019). The current state of health care in the Republic of Abkhazia is at a qualitatively low level, despite the fact that the indicators for the current period of time 2012–2017 have a positive trend. The low level of health in the country hinders the development of the economy, and therefore, inhibits the development of human potential in the Republic. To solve the tasks set for the health sector, the following mechanisms are needed: financial (ensuring multi-channel financing of health care at the expense of state and local budgets, as well as at the expense of public and private partnerships

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and non-profit organizations; ensuring a guaranteed minimum amount of medical care for the population at the expense of state participation in the form of subsidies); personnel (development and implementation of a target project for training medical personnel of the highest level; optimizing the management of available human resources for their rational use; providing medical personnel in rural areas; conducting educational activities on additional professional programs: advanced training, internships, trainings); informational (carrying out an effective state policy on the formation of a healthy lifestyle among citizens of the republic, including the development and implementation of information companies and projects; the development and implementation of long-term targeted projects to improve the sanitary and hygienic and medical culture of the population; the creation of a unified system of dispatching medical vehicles; providing the population with information about the significance of work on reforming the health care system; widespread use of electronic information systems in medical practice, telemedicine technology and other resources; promotion of mass sports and healthy lifestyles); technological (widespread introduction into medical practice of innovative methods of diagnosis and treatment, improvement of the procedure for the formation of lists of drugs, which are provided in the framework of government programs and the implementation of national programs on transmitted diseases (tuberculosis, HIV / AIDS and sexually transmitted infections)) (Strategy . . ., 2015).

Conclusion The current education and health care system needs special attention from the state, whose policy will become the basis for creating conditions ensuring maximum high quality of the educational process and the quality of medical services that increase the level of human potential in the country. Therefore, the main goal of modern development of education and health care in the Republic of Abkhazia is the formation of a physically healthy and highly moral young generation with diverse knowledge, creative abilities, and ready to participate constructively in the development of modern Abkhaz society. The problems of the health care and education system must be solved on the basis of mechanisms for implementing state policy. The development and application of a system of normative legal acts in the field of health and education aimed at the development of human potential should be carried out on the basis of the program-target method. This approach will ensure the implementation of the goals and objectives.

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References Abkhazia v zifrakh [Abkhazia in numbers]. Sukhum, Statistical compilation UGS RA, 2012, 158 p (in Russian). Abkhazia v zifrakh [Abkhazia in numbers]. Sukhum, Statistical compilation UGS RA, 2017, 158 p (in Russian). Analiticheskii otchet po rezul’tatam soziologicheskogo issledovaniya v ramkah razrabotki “Strategii sozial’no-economicheskogo razvitiya Abhazii do 2025 g”. [Strategy of socio-economic development of Abkhazia until 2025]. Sukhum, CSS under prezident of Repablic of Abkhazia, 2015, 274 p (in Russian). Amichba L.A. Razvitiye obshchestvennogo sotrudnichestva v sisteme obrazovaniya Respubliki Abkhaziya [Development of human potential in the education system of the Republic of Abkhazia], Scientific electronic economic journal Theoretical Economics 2018, No. 6 (48). pp. 87–96. Fedorenko I.Yu. Elistratova E.Yu Sovershenstvovaniye mekhanizma finansirovaniya sistemy obrazovaniya [Improving the financing mechanism of the education system] / Financial journal No. 1 2012 pp. 149–158. Gataullina A.A. Gos. politika v sfere obrazovaniya Makroekonomicheskiye problemy v rynochnoy ekonomike [State educational policy Macroeconomic problems in a market economy] Modern trends in economics and management 2011, No. 11–1, pp. 62–66. Materialy Ministerstva zdravookhraneniya Respubliki Abkhaziya, [Materials Ministry of health of the Republic of Abkhazia] [Electronic resource] URL: http://minzdravra.org. Materialy Ministerstva obrazovaniya Respubliki Abkhaziya, [Materials Ministry of Education Materials of the Republic of Abkhazia] [Electronic resource] URL: http://minobr-ra.org. Materialy Ministerstva ekonomiki Respubliki Abkhaziya, [of the Ministry of Economics of the Republic of Abkhazia] [Electronic resource] URL http://mineconom-ra.org/ru/. Strategiya sotsial’no-ekonomicheskogo razvitiya Respubliki Abkhaziya do 2025 g., 2015 [Strategy of social and economic development of the Republic of Abkhazia until 2025, 2015] Tsentr strategicheskikh issledovaniy pri Prezidente Respubliki Abkhaziya. Center for strategic studies under the President of the Republic of Abkhazia. 274 p. Zaretskaya S.L. Gosudarstvo i obrazovaniye: opyt stran Zapada [State and education: experience of Western countries] 1992.

Yuri A. Kropin

9 Some Relevant Aspects of Reforming the World Monetary System Introduction Current turbulence in the development of the world economy clearly indicates the need to reform the system of external market relations that exist between countries and their residents. The current order of things in this area was shaped by the results of the Second World War, when two world sociopolitical systems began confronting each other, and when the monetary system, based on gold standard, functioned everywhere. In modern conditions, however, almost the entire world is dominated by a single economic system – the capitalist; at the same time, the monetary system is no longer based on gold standard, but market-oriented. These circumstances clearly indicate the need for a radical transformation of the world monetary system. This exact conclusion is made in the article.

Methodology In this article, methods characteristic of most Western schools of economic thought and of the Russian school, were used. Accordingly, in one case the emphasis was on the method of induction, and in the other case on the method of deduction. It also contains the scientific methods characteristic of one and the other school of economic thought. Among them are such methods as analysis and synthesis, discursive sequence in the study and presentation of the material, a representative sample and a number of other scientific methods. At the same time, the article contains a sufficient number of references to the works of authors, known not only in Russia, but also abroad. In presenting the author’s view of the problem of the transformation of the world monetary system, the article gives many references to his own works on this subject; which, in fact, indicates the consistent interest of the author to this issue.

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Results The fact that the currently existing international loan and settlement institutions were created just before the start, or specifically in the beginning of the Cold War, in the context of the confrontation between the two world socio-political systems, of course, impacted them. Behind the external necessity of their formation in order to regulate world economic processes and rebuild a destroyed post-war economy, the aspirations of countries – favorites of the world confrontation – the USA and the USSR – to dominate in the post-war period were rooted. These countries considered international institutions to be one of the instruments of domination. And since the same tools could not be in the hands of two subjects at the same time, with completely different political and economic arrangements, the creation of international institutions, common to the capitalist and socialist business systems, was not real in general. (Nureyev, 2019) The International Monetary Fund (IMF), the World Bank Group (WB) and several other organizations were created for the capitalist system, under the auspices of the United States. Accordingly, the real purpose of their functioning was to strengthen the capitalist system as a whole, to consolidate the role of the leader of this system for the United States and to gain victory in the confrontation with the socialist camp. The achievement of these goals has led to the spread of the principles of the organization of these international institutions to the entire world economy. (Efremenko, 2006; Kuznetsov, 2016). The IMF, the World Bank Group and a number of other international institutions have become instruments of US influence on the development of the world economy in modern conditions. However, dominance within the framework of only one socio-economic system and dominance in the entire world economy, in which, at present, new economic leaders have emerged, are somewhat different things. After the war, the United States had 75% of the world’s reserves of monetary gold and almost 50% of all world industrial production. (Zvonova, 2012) Objectively, this made it possible for their national currency instruments to dominate international settlements. At the Bretton Woods Monetary Conference, it was decided that the US dollar would not only have the status of “currency”, that is, the means all the participants in external market relations would use for settlements, but also the status of “international reserve currency” – a means, which should be the content of the assets of the central banks of those countries in which their own funds do not have the status of “currency”. However, since then much has changed. First, countries, the volume of the gross national product (GNP) which has become quite comparable with the US, have appeared. Secondly, the monetary system of all countries of the world economy has changed significantly – from gold-standard it transformed into a market one. These circumstances served as the basis for the need for a radical revision of the entire architecture of the world monetary system.

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The law of currency circulation, immanent to the new (market) monetary system, requires that the size of the national currency of a country be correlated both with the amount of foreign currency in the currency balance of that country and with the size of its current (payment) balance, existing between these countries (Kropin, 2019). The share of the United States in the gross world product (GWP) is now about 19%. Accordingly, approximately the same share of US dollars should be in international currency settlements. While now they occupy almost 50% of them. Such an evident surcharge of the share of US dollars in the currency settlement system is reinforced by the fact that they represent mainly the debt of the US executive branch. Moreover, the size of this debt has already exceeded the permissible limits and at the same time continues to increase threateningly (Starikov, 2017). Therefore, US dollars are a rather dubious asset for the central banks of those countries whose funds have a defective status, that is, do not have the status of currency, are not used as settlements in the sphere of external market relations. By analogy with the classification of securities, US dollars should be classified as “junk”. The further practice of applying US dollars in exchange payments, the definition of this country’s funds as an international reserve currency will inevitably lead to a deepening crisis in the development of the world economy. In such conditions, the revision of the entire post-war organization of international credit, loan and settlement institutions becomes relevant. If the decisions of the Bretton Woods monetary conference claimed the use in exchange payments by the participants of external market relations mainly the currency of the United States (and to a small extent of the United Kingdom), and the decisions of the Jamaican conference demonstrated the use of foreign currency of some other Western countries, It is obvious that international settlements should be carried out in the currency of all countries participating in foreign market relations. Exports must be carried out for national currency, and the import of commodity products for the currency of the partner countries. (1. Kropin, 2018. 2. Kropin, 2017). Accordingly, such a concept as “international reserve funds” in modern conditions should exist in principle. One of the conditions for a relatively equilibrium development of a country in the sphere of foreign market relations is that the volume of national currency in this area corresponds to the volume of foreign currency available to residents of the country. At the same time, the level of exchange rates of national currencies should be determined by establishing a mutually acceptable compromise between the national interests of countries that maintain external market relations among themselves. In such a situation, no country can generally have an excessive amount of national currency funds that could be deposited in the International Monetary Fund. The existence of this body in the conditions of a market monetary system is completely unjustified, it is a consequence of the previous state of affairs. At the same time, it should be noted that the formal scope of activity of this Fund is mainly focused on financing the external deficit of its member countries. From the position of the Russian school of economic thought, an important condition for the

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equilibrium development of a country in the sphere of external market relations is equilibrium in the balance of payments. Hence, a country should not at all borrow foreign currency from the IMF to cover what should not exist. But if such a deficit nevertheless still arises, it is necessary to apply directly for the means to overcome it to the central bank of the country with which the deficit in mutual trade arose. The International Monetary Fund in this situation is an unnecessary link in the system of international relations. Currently, members countries of the IMF make contributions to it without any conditions, while it provides them with their own funds (loans) in the implementation of a number of such conditions that meet the strategic interests of the countries owning the largest stake (votes) of this Fund. This state of affairs is clear evidence that the IMF is a tool of the past era, in which a small number of (Western) countries dominated, imposing on other peoples not only their own conditions for implementing world economic relations, but also their various “scientific” paradigms, their values, their ideology with the goal of turning the rest of the world into its own periphery. At the same time, it should be noted that a certain international organization, within the framework of which it would be possible to coordinate the norms of international settlements, develop general rules of conducting them and etc., should still exist. Currently, this is the Bank for International Settlements. However, this bank cannot serve as a “bank of central banks”, as the neoliberal school often positions it (Ivanov, 2008). Each country has its own national money. The Bank for International Settlements cannot produce and enter into circulation on a credit basis the currency of any country or any artificially created own currency with international recognition. For the latter to appear, only one state should exist in the world. However, this is almost impossible (Kropin, 2009). Introduction to the international calculations of any conditional monetary unit, in particular SDR, is actually a misunderstanding. In each country, special banking institutions must be in place that accompany currency settlements, external market relations and facilitate their implementation. The presence of such relations is not an end in itself, but a means of promoting additional commodity market saturation, a relatively stable equilibrium development of all countries of the world economy.

Conclusions Of course, international institutions regulating currency relations between countries and their residents in the world economy are necessary. These institutions should be arranged and operate on the principles of equality of all countries of the world economy, the equal status of all national monetary funds. Meanwhile, the

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modern system of these institutions, which was formed in the period of the “cold war” and continues to function until now, does not provide this. Therefore, it must be radically transformed.

References Efremenko I.N. Rol’ mezhdunarodnogo valyutnogo fonda i vsemirnogo banka v mezhdunarodnoy finansovoy arkhitekture [The role of the International Monetary Fund and the World Bank in the international financial architecture]. Moscow, Financial research, 2006, No.12, pp. 19–25 (in Russ.). Zvonova E.A. Den’gi, kredit, banki: uchebnik [Money, credit, banks]. Textbook, Moscow, Publishing house INFRA-M, 2012, 592 p. (in Russ.). Ivanov V.V. Den’gi. Kredit. Banki: 2-e izd. [Money, credit, banks: 2nd edition]. Moscow, Publishing house Prospekt, 2008, 848 p. (in Russ.). Kropin Y.A. Den’gi i sovremennaya denezhnaya sistema: monografiya [Money and modern monetary system: a monograph]. Moscow, Publishing house RUSCIENCE, 2018, 208 p. (in Russ.). Kropin Y.A. Den’gi, kredit, banki: uchebnik i praktikum dlya akademicheskogo bakalavriata 2-e izd. [Money, credit, banks: a textbook and a workshop for academic undergraduate 2nd edition]. Moscow, Publishing house Yrait, 2019, 397 p. (in Russ.). Kropin Y.A. Natsional’nyy kurs politicheskoy ekonomii (natsional’no-organicheskaya shkola) [National Course of Political Economy (National-Organic School): monograph]. Moscow, Publishing house of VGNA Ministry of Finance of Russia, 2009, 318 p. (in Russ.). Kropin Y.A. “Institutes and factors of external economic security of the Russian Federation” in Materials of the All-Russian scientific-practical conference Improving the efficiency of forms and methods of disseminating knowledge among the population on the issues of Russia’s economic and financial security, Moscow, Russia, Science, 2017, 248 p. Kuznetsov V. Funktsiya regulirovaniya mezhdunarodnym valyutnym fondom Yamayskoy sistemy ne yavlyayetsya simmetrichnoy [The regulatory function of the International Monetary Fund of the Jamaica system is not symmetrical]. World and National Economy, Edition MGIMO MFA of Russia, Science, 2016, No.4, 39 p. (in Russ.). Nureyev R.M. Denezhnaya reforma 1947 goda i eyë rol’ v vosstanovlenii narodnogo khozyaystva SSSR [The monetary reform of 1947 and its role in the restoration of the national economy of the USSR: a collective monograph]. Moscow, Publishing house KNORUS, 2019, 22 p. (in Russ.). Starikov N. Natsionalizatsiya rublya – put’ k svobode Rossii [The nationalization of the ruble – the path to freedom of Russia]. Saint Petersburg, Publishing house Piter, 2017, 448 p. (in Russ.).

Natalia I. Morozko, Nina I. Morozko, Valentina Y. Didenko

10 Decision-Making Based on Behavioral Approach in the Conditions of Transformation of the Financial System Introduction Digital technologies in processes allow optimizing costs, making operations transparent, and improving the quality of interaction with customers. The digital economy is a fundamental part of the architecture of the fourth industrial revolution. The main obstacles to the promotion of Industry 4.0 are: insufficient security of the use of digital technologies, significant costs for the purchase of software, complex configuration and restriction of access of devices to financial transactions, increased risks of investors during operations. The emergence of many new financial technologies that enable investment affects the behavior of potential investors. Changes taking place in the markets cannot be described by the models used with a sufficient degree of reliability (Morozko et al., 2018a). This is due to the fact that the behavior of potential investors is not rational, so it cannot be determined in accordance with a certain model. In modern conditions, financial management is associated with sustainable situational changes. Increased risks and uncertainty characterize conditions of functioning of the majority of organizations (Morozko et al., 2018b). The behavioral approach to decision-making takes into account the intuitive behavior of investors in risky conditions and uncertainty in financial transactions (Morozko et al., 2018c). Significant price changes at the highest and lowest rates in the market are determined by the behavior of the crowd. In particular, the behavior of the crowd allowed crypto currencies to reach the maximum level at the end of last year.

Methodology The actions of a significant number of market participants have an impact on the behavior of a potential investor (Morozko et al., 2018d). Following the behavior of the crowd is justified in the conditions of uncertainty and lack of possibility of fast processing of great volumes of data.

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The subjective factors that determine the actions of potential investors in the market include: – incorrect assessment of the real situation and, accordingly, distorted perception of reality – expansive parameters that determine the actions of investors in the current conditions The practical application of complex mathematical models requires special programs for processing large amounts of data and predefined skills, which are not available for many people (Morozko et al., 2018e). In this regard, most people, having limited information, use their own experience and intuition when making a decision. In some cases, potential investors react to the latest information without checking these data. The result of such a reaction is an unjustified increase in quotations in cases of positive information and an unjustified decrease if the information is negative. In contrast to the signs of rational behavior, the behavioral approach of financial management is a characteristic of irrational behavior which is common for potential investors: – Market participants do not assess risks from the perspective of expected utility. The probability of the occurrence of an event is considered from the standpoint of loss or income generation. – Market participants do not use the position of the theory of efficient markets, i.e. do not adhere to passive strategies (Morozko et al., 2018f). In some cases, unverified information is used. – Market participants predict future uncertain levels based on information belonging to the short-term previous period of time. Famous scientist K. Craik, in his work The Nature of Explanations, noted the following: “If the organism carries a ‘small-scale model’ of external reality and of its own possible actions within its head, it is able to try out various alternatives, conclude which is the best of them, react to future situations before they arise, utilize the knowledge of past events in dealing with the present and future, and in every way to react in much fuller, safer and more competent manner to the emergencies which face it” (Craik, 1952). For effective functioning of corporations at the present stage it is necessary to use perspective financial technologies which allow increasing efficiency of financial management and providing balanced functioning (Morozko et al., 2018g). New financial technologies are actively used in lending, insurance, asset management and settlement operations. The introduction of new financial technologies is caused by the influence of a number of factors: the need for innovation, transforming customer demands and increasing pressure from regulators (Morozko et al., 2018h). In a business environment, organizations interact with both customers and each other. Digital technologies

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in processes allow to optimize costs, make operations transparent and improve the quality of interaction with customers. Fintech is currently developing in different directions, offering products not only for financial institutions, but also for business in other areas on the basis of global digital transformation. Blockchain technologies, scoring models using big data, remote customer identification technologies are widely developed. The main priority is to provide users with suitable and profitable services. The integrator of new technologies are information technologies based on the digitalization of most relationships in which industrial production is one of the platforms included in industrial development. At the same time, it should be noted that the corporate sector has great potential in comparison with the consumer services sector. At the present stage, the key problem is the choice of financial technologies that are aimed at addressing specific issues and that will improve the efficiency of financial management. The following scheme is conventionally used for the implementation of financial technologies: – identification of financial problems that need to be prevented – assessment of the rational use of possible decisions in the adopted financial policy – selection of the solution according to the cost/efficiency criterion Constant innovations in financial management are especially necessary in situations of dynamic transformations in the external environment, increase of the scope of available financial technologies, which is confirmed by the analysis of various studies. Some studies have revealed that information and communication technologies have led to the constant adjustment of financial policy and advanced innovations in the financial economy of China. In other papers, it is noted that digitalization is adding new layers to the material cultures of financial technologies, offering the state new ways to expand the inclusion of new forms of “profiling” of poor households in the generators of financial assets (Morozko et al., 2018i). A cognitive approach was used in some studies of the capital structure of companies while attempting to create a basis for the management of operations in financial services. Cognitive construct can be seen as a way to reduce the complexity and unpredictability of the environment, it is noted that the abbreviation Financial Technology refers to the influx of technological tools, platforms and ecosystems that make financial services or products more accessible and efficient. A number of authors attribute modern technological revolutions to Kondratiev’s sixth wave/ fourth industrial revolution, that is, in the field of additive, nano -, bio-, robo-, information and cogno-technologies. The practice of corporate activities provides the opportunity to identify the negative positions in financial processes: – shortcomings in the flow of different types of information

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– the storage and accumulation of information in the form of a database is not formed – lack of motivation of managers on the maintenance and tracking of financial documents – terms of document flow between departments are violated – coincidence of functions of different departments – financial function is often performed by non-financial departments – financial analysis tools and generalization of conclusions from the analysis are not clearly used In recent years, many sources have noted the speed of the spread of financial technologies in many areas. However, there is no systematic approach to the study of the use of financial technologies in corporate finance. There are the following main issues of financial technologies: 1. definition of financial technology needs 2. identification of factors that facilitate and hinder the use of financial technologies 3. evaluation of the effectiveness of the use of financial technologies To assess the effectiveness of financial management, it is important to choose objectives. To do this, it is necessary to identify the strengths and weaknesses of the organization, opportunities and negative impacts on the organization. The possibility of measurement, specificity, achievability are taken into account while determining a goal. The use of modern information technologies in the financial management system is aimed at creating adequate tools of cognitive management of an organization. Cognitive management allows to identify problems, interrelations and offers solutions in the conditions of uncertainty and risk. Cognitive control technologies take into account the impact of internal and external environment and the use of objectively established trends. The cognitive management mechanism can be used for strategic and current planning in most structures. Based on the analysis of problems in the activities of organizations, we can identify the needs for the following groups of financial technologies: – problems related to the sale of goods – pricing policy, accounts receivable management – problems of lack of financial resources – ways to attract financial resources, accounts payable management – problems in efficient allocation of financial resources – distribution of net profit for investment, project financing Financial technologies are implemented through various types of transactions and operations performed by the corporation in the financial market.

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Results Currently, the development of small, medium and large organizations is possible only with due consideration of the modern trends of effective financial technologies. Financial technologies provide reasonable access of organizations to financial resources, form the principles of credit, insurance and guarantee companies. An adequate choice of particular financial technologies is the main objective of the organization’s functioning tactics. Modern financial technologies change traditional approaches to the system of interaction between the human factor and information systems in solving management problems while increasing the efficiency of decision-making based on cognitive methods. A possibility of effective management using new forms of digital business emerges. Programs of digitalization of management processes are a fintech’s developing segment. Fintech products include accounting and management accounting, financial analysis and planning, accounting of personnel movements. The Uptake project, as a business management system, tops the list of the most promising startups which confirms the materiality and significant level of distribution of financial technology opportunities. An increase in the level of financial management leads to the increase in demand for modern financial technologies for the efficient use of resources. Corporate finance is affected by many factors, both positive and negative. Selection of main factors is based on the SWOT analysis (Table 10.1).

Table 10.1: Matrix SWOT-analysis of the use of financial technologies in the organization. Internal factors

External factors

S – strengths

W – weaknesses

Reduction in terms of payments and transfers Large turnover of funds Flexibility, quick adaptation to change Reducing the cost of goods, works and services

Increased risks during transactions

O – opportunities

T – threats

Growth of revenue from the sale of services, works, products

The economic situation in the country

Creative self-realization

Lack of regulation at the legislative level and uniform requirements for transaction verification

Dynamic niche in the financial market

Issues Associated with the Release of New NonSecured Electronic Currencies

Opportunities for obtaining support from banks and insurance companies

Increasing the number of cyber attacks

Significant software acquisition costs Cybersecurity costs Difficult setting up and limiting device access to financial transactions

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Based on the analysis of various possible combinations of strengths and weaknesses with threats and opportunities (SWOT-analysis), the problem field of the studied corporations is formed: reduction of terms of payments and transfers; reduction of the cost of goods, works and services; significant costs for the purchase of software; risks of cyberattacks during operations. In a large corporate segment, the issues of information security and elimination of operational risks turn to be limiting factors. The strategy of solving the problems of development consists of strategic steps that set the sequence of changes of states of the system S0 ! S1 ! S2 ...Sm ! Sc where:

S0 – initial state, Sc – target state,

Si ! Si + 1 is a strategic step that identifies the problem and determines the desired change based on the analysis of factors.

Conclusions In corporate business, the main mass of solutions is the designer tailor-made. Financial technologies will be more in demand in corporate risk management. Almost all new technologies in the field of finance are aimed at successful integration into the conditions of the new reality associated with the change of B2B and B2C payment spheres, leveling obstacles in the process of the industry transition to digital technologies, the creation of new standards of electronic payments, business optimization, cost reduction through automation, reducing the burden on employees, the use of electronic assistants, personification of goods and works. For successful business in modern conditions, it is important not to use individual tools haphazardly, but to work out a reasonable strategy of digital transformation. Financial technology allows reducing the time of reporting within the corporation and of provision of financial statements, the level of control over the management of funds increases. The processes should contain the basic standards of successful business, should be efficient and economical, which leads to an increase in profits and, accordingly, to the increase in economic value added. The use of modern financial technologies can reduce the costs of corporations, reasonably determine the direction of strategic behavior in the market and adequately organize the financial functions in management.

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References Craik K. (1952). The Nature of Explanation. – London: Cambridge University Press, 451p. Morozko N., Morozko N. & Didenko V. (2018a). Rationale for the development strategy of small business organizations using the real options method// Academy of Strategic Management Journal – Volume 17, Issue 2, pp.: 1–19. Morozko N., Morozko N. & Didenko V. (2018b). Determinants of the savings market in Russia // Banks and Bank Systems – Volume 13, Issue 1, pp. 196–208. Morozko N., Morozko N. & Didenko V. (2018c). Assessment of cash flows in the tourism services market of Russia using the logistic regression model //Financial and Economic Tools Used in the World Hospitality Industry, pp. 149–155. Morozko N., Morozko N. & Didenko V. (2018d). Financial Management of Small Organizations Based on a Cognitive Approach // International Journal of Economics and Business Administration, Volume VI, Issue 2, pp. 83–91. Morozko N., Morozko N. & Didenko V. (2018e). Management of the Financing of Small Organizations on the Basis of a Cognitive Approach// Conference Proceedings, Jakarta Indonesia, ICABE 2018, pp. 27–35. Morozko N., Morozko N. & Didenko V. (2018f). Unbalanced Liquidity Management Evaluation of the Russian Banking Sector Volume 7, pp. 487–496. Morozko N., Morozko N. & Didenko V. (2018g). Modeling the Process of Financing Small Organizations.//Journal of Reviews on Global Economics, Volume 7, pp. 774–783. Morozko N., Morozko N. & Didenko V. (2018h). Сognitive approach in the analysis of using financial technologies in corporate finance// International Scientific Conference “Global Challenges and Prospects of the Modern Economic Development”, Volume LVII – GCPMED 2018, pp.1075–1081. Morozko N., Morozko N. & Didenko V. Didenko (2018i). Faktornyy analiz sberegatel’nogo povedeniya domashnikh khozyaystv [Factor analysis of household savings behavior] Finansovaya ekonomika. – No.9 (chast’ 2), pp.130–134 (in Russ.).

Irina Z. Yarygina, Inna V. Lukashenko

11 Eurasian Stock Markets: Problems and Challenges Introduction Originally, establishing Eurasian Economic Union, the member-states aspired for a very simple and noble cause. They joined forces, pooled knowledge and capabilities in order to protect their sovereignty and independence more efficiently, to make their voices better heard in international and global affairs, and to foster their internal economic, political and social development based on mutual respect and recognition of their specificities. These are entirely legitimate tasks, fair and logical, compatible in all their aspects with the aims and principles of contemporary international law. Member – countries has shown that achieving these goals is feasible and attainable. Coordination of efforts, activities and policies of the member-states on a wide variety of issues produced positive impact on the international economy and finance. Nevertheless, results could have been more impressive if the cooperation among members of the Eurasian Economic Union was stronger and deeper. Actually, the Eurasian Economic Union is an economic union consisting of the following states; Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. The treaty came into force on the 1st January 2015. This Union provides a single market for the 183 million inhabitants of the countries. This region has a gross domestic product of $4 trillion according to The World Bank. The single market provides, free movement of goods, capital, services and people. It also allows each member to use common policies in for their macroeconomic sectors such as, transport, industry, technical regulation, agricultural, energy, foreign trade and investment and competition. Provisions for a single currency and greater integration are envisioned for the future (Cbonds, 2017). The day to day work of the Union is performed by the Eurasian Economic Commission which is similar to the European commission. The main purpose of the union is to establish and open up economic development between the countries. Great attention is paid to the Stock markets and its possible alliances. Practice has shown that creation and development of firms exchanging their products and services within the framework of mutual export-import of goods and services between countries of Eurasian Economic Union lay at the basic of the mutual influence of these countries stock indices. Therefore, we have started with the assessment of the volume dynamics of mutual trade between the EAEU countries

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and researched how the macroeconomic indicator changed. Then we compared the stock indices of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan. 2000 year was taken as the initial year of our measurement. It was the year, preceding the creation of the Eurasian Economic Community. Despite the fact that there was no Armenia among the members of the EAEC from the very beginning of its existence, we include it in our statistics. Armenia has the status of observer from 2003. Such choice was dictated by the desire to make our statistical sample more representative. The last year of our measurement is mostly 2017. The research considers the trade turnover of goods and services between all five countries that constitute EAEU. If data is available the indices of 2018 are also presented. As there is no data available on the Armenian, Belarus and Kyrgyzstan stock markets, therefore, our research paper comprises of the final two countries; analysis of one minor Eurasian stock market the KZKAK (Kazakhstan) against one major stock market the MCX (Moscow). Enforcement of the relations between stock markets is important for a number of reasons. The relationship can have both positive and negative effects on fiscal and monetary policies (Cbonds, 2017). According to Gavin, a stock market which is booming can positively affect aggregate demand (Gavin, 1989). This justifies the relevance of this research. The two countries are neighbors which reflect their high trade to one another. Russia is the second largest receiver of exports from Kazakhstan consisting of 11.8% while Kazakhstan is the 10th largest receiver of exports from Russia consisting of 3.1%. Furthermore, the market capital size of the MCX index is reported by Bloomberg to be $9.97 trillion, while the KASE index is $346.59 billion. This suggests that the MCX is the major index while KASE is the minor index. The study is conducted to establish the relationship between the two countries and their interdependence of one another. The stock markets are compared along with the major groups in each market to obtain an understanding of the structure of the indices and to explain a high correlation that exists between the two markets. The structure of this project begins with a brief literature review to identify previous related research conducted in this area. Following this is the methodology. Then, a graphical analysis which includes a detailed analysis of the Eurasian markets followed by separate external analysis using a European and United States index to find external impacts on the Eurasian markets. This is then followed by the calculations, a development economic recommendation on the non-developed markets of Armenian, Belarus and Kyrgyzstan and the conclusion. With many studies available that have previously observed the stock markets of Eastern European countries and Russia, there remains a gap in available research between the stock markets of Eurasian countries. As there is no available information for Belarus, this research focuses primarily on the Russian stock market (MCX) and the Kazak stock market (KASE).

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Methodology The data collected consists of daily data of the prices for the internal study of the Kazakhstan (KASE) and Moscow (MCX) stock indices and includes an external study of the German (DAX), United Stated (S&P500) stock indices. The daily data ranges from the beginning of the Kazak stock market on the 12th July 2000 to November 2017. Bloomberg is widely used to collect the data. The data is processed true a combination of Bloomberg and Excel in order to produce the most accurate and correct results. The initial equation for the paper is outlined below: MCX = β0 + β1 *KASE + εt

(11:1)

Where: ε = Error Term t = Time Series Daily Data It is concluded that each variable is stationary in returns. Hence, an Ordinary Least Squares (OLS) regression is not adequate due to the use of data in levels. Hypothesis Testing: To prove that there is an interdependence of the Moscow stock market as the major index and the Kazak stock market is the minor index (Slav, 2017). In order to prove that this statement is correct, the research will present a correlation where: Ho: Corr ðM, KÞ > 0.7 0.7 is taken, as correlation so if this figure is above can be deemed to have a strong uphill (positive) linear relationship.

Results Graphical Analysis The first step is to interpret and analyze the graphs with the main aim of identifying behavior and trends of the data during the chosen period. Graphs are tools that are good to form an initial idea of the behavior of each data set. Bloomberg provides several types of graphs to identify facts quicker and logically. As the most suitable tool for this kind of data, this research consists of line charts alone. Beginning with the stock indices that are the primary focus of the study between Russia (MCX) in solid and Kazakhstan (KASE) in long dash. It is evident that the markets are somewhat independent of one another until mid-2016. A major

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factor of this is the significant fact that the KASE index only consisted of seven companies groups before 2006. The initial acceleration of the KASE index is a result of the inclusion of a new group, KAZ Minerals PLC, who now accounts for 41.09% of the weighted share of the index (Table 11.1). The indices are at high levels from 2006 until the beginning of the Great Recession in 2008. The high levels correspond with global stock markets that went soaring before their eventual collapse. The global recession is a contagion effect that is evident in northern hemisphere stock markets. This period saw in MCX decline by 73.74% and the KASE by 78.28% as investors lost faith in the markets. After this period, the two indexes remain highly correlated as can be seen in Figure 11.1 and in Table 11.2. Table 11.1: Members of the KASE index. List of group

Sector

State owned

Weight of shares (%)

Kaz Mineral PLC

Mining

N/A

.

Kaz MunaiGas

Oil

%

.

Halyk Savings Bank

Banking

N/A

.

Kazakhtelecom

Communications

%

.

Kaz Transoil

Oil

%

.

Kcell JSC

Communications

N/A

.

Kazak Electricity Grid

Electricity

%

.

Bank CenterCredit

Banking

N/A

.

Kazkommertsbank (Halyk Bank)

Banking

N/A

.

Source: Bloomberg Terminal.

Table 11.2: Correlations of major groups. Russian Groups Kazakhstan Groups

Nornickel

KAZ Minerals

–.

KAZ MunaiGas

Gazprom

Sberbank

.

Halyuk Savings Bank

.

Source: Bloomberg Terminal. Data Processed using Excel.

The Flash Crash of 2010 indicated on the above graph is an event that effected stock markets across the world, starting with the US markets. The event had a

2002

2003

2004

2005

2006

Financial crisis

Flash crash

2007

2009

2011

2012

2014 Copyright© 2018 Bloomberg Finance L.P.

2010

Figure 11.1: Values (prices), traded volumes, correlation coefficient of Moscow and Kazak stock indices. Source: Bloomberg terminal.

2008

2013

Oil prices hit 7 month low

Correlation (KZKAK Index, PR005,10,0) (INDEXCF) 0.6348

Kaz Mineral PLC enters stock market

INDEXCF Index (MOEX Russia Index) Monthly 31MAY2001–15FEB2018

2001

KZKAK Index - Volume 4.120M

INDEXCF Index - Volume 256.240B

Last Price INDEXCF Index 2267.80 KZKAK Index 2317.74

2015

2016

2500

–0.50

0.00

0.6348

4.120M

50M

256.240B

1T

2T

3T

0

500

1000

1500

2000

2267.80

15-Feb-2018 18:17:40

2017

US Presidential Election

Russian financial crisis

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substantial impact on both the MCX reducing its value by 20% and the KASE by 29.45% (Trenor, 2010). Another significant drop in both indices hitting lows on the 25th May 2012, where it is reported that the price of oil hit a 7-month low, two days previous (Riley, 2012). The MCX dropped by 22.94% and the KASE by 23.15% during this period. Also of further interest is the movement of the stock markets from the start of the Ukrainian political crisis in February 2014 and the sanctions that followed beginning in March. The string of events and sanctions during this period appear to have to long-term impact. The final peak in each variable, beginning on the 8th of November 2016, is the response from the result of the US presidential election that saw Trump as the victor. The election result was a response to the potential softening of relations between the US and Russia. This saw the MCX increase by 14.48% and the KASE by 21.23%. Eventually the optimism seized with the MCX declining in January 2017 and the KASE remained somewhat stagnant. Both indexes reacted positively to the election. The figure above shows information retrieved from Bloomberg, containing the members of the KASE index which reveals interesting facts that help to determine the movements of the stock market. The most interesting statistics is the fact that 21.66% of the stock market share depends on oil companies that are mostly privately owned. With the inclusion of the copper mining company Kaz. Minerals, the total weight for companies involved in the production of raw materials is 62.75%. This statistic is a reflection of how changes in oil or copper prices will have an impact on the movement of the KASE index, before considering macroeconomic reasons. In February 2017 it was suggested that Russia was the biggest producer of oil in the world (Slav, 2017). Including the mining industries, this figure further increases to 55.06% of the market weight. This figure is just below 20% of the KASE index but still represents a strong dependence on the production of raw materials. Where the price changes in commodities may impact the movement of the market. For relevance it is important to find the relationship between the largest groups in each index and comparing them by a correlation using excel. Three largest sectors in each index are oil, banking and mining. Therefore, the three largest companies in each sector of each index are used for a comparative study. These companies include: the Kazakh mining company KAZ Minerals PLC and Russian Mining company Nornickel, Kazakh oil and gas company KAZ MunaiGas and Russian oils and gas company Gazprom, Kazakh banking group Halyuk Savings Bank and Russian banking group Sberbank. This will assist in determining the importance and reliance that the companies have one on another. The table below represents the correlation results, followed by the analysis. Starting off the analysis is the mining companies KAZ Minerals from the KASE index and Nornickel from the MCX index. As can be seen from the table, the two groups have a negative correlation. This can be determined by the fact that KAZ minerals is a copper mining operation, while Nornickel is predominately a nickel and palladium mining operation. Although they are in the same operating sector, both

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companies most likely rely on the price movements of their relevant metal markets for revenue. This explains the negative correlation between these two groups’ stock prices. The second correlation is focused on the oil industry. This features KAZ MunaiGas from the KASE and Gazprom from the MCX. The two groups have a moderately positive relationship. This is a reflection that both produce oil and gas to the same markets. The reason that they are not as positively correlated as expected, can be down to the fact that each company has different contracts to different countries. The final correlation is in banking sector. The groups include Halyuk Savings bank from the KASE index and Sberbank from the MCX. The banks are shown to have a strong linear relationship. Reasoning for this strong correlation can begin by observing the banks credit ratings by the credit agencies. The Halyuk bank has a BB rating, while the Sberbank rating is Ba1 (Sberbank, 2017). Both ratings fall in the speculative grade with nothing separating them. This suggests that investors have no incentives to pick one over the other, in terms of return, which may be the cause for their relatively close price movements. From this analysis, it is concluded that the largest mining companies are negatively correlated as they produce different raw materials. The two largest oil and gas companies from each market are moderately correlated as they produce the same outputs. The two largest banking groups are strongly correlated as they have the same credit ratings which make them inseparable to each other for investors. Our external analyses considers the trade turnover of goods and services between all five member – countries. The graphical result of this study is given in Figure 11.2.

Mutual trade turnover of countries – members of EAEU 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

Trade Turneover KzKr Trade Turneover BKr Trade Turneover BKz Trade Turneover AKr Trade Turneover AKz Trade Turneover AB Trade Turneover RKr 01-01-2017

01-01-2015

01-01-2016

01-01-2013

01-01-2014

01-01-2011

01-01-2012

01-01-2010

01-01-2009

01-01-2007

01-01-2008

01-01-2005

01-01-2006

01-01-2003

01-01-2004

01-01-2001

01-01-2002

01-01-2000

Trade Turneover RKz Trade Turneover RB Trade Turneover RA

Figure 11.2: Trade turnover of EAEU-countries. Source: The authors’ calculations based on data information and analytics system Bloomberg. The date of reference is 01.09.2018.

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Where abbreviation of KzKr means Kazakhstan – Kyrgyzstan, BKr means BelarusKyrgyzstan, A means Armenia, R means Russia. Because of great difference in magnitudes of countries turnovers, given in millions of United States dollars it is reasonable to consider in one graph only relatively close to each other countries indicators. Such way we got the group of RKz and RB trade turnovers (Figure 11.3).

Trade Turneover RKz Trade Turneover RB

01

-0 1 01 -20 -0 00 01 1-20 -0 0 1 01 1-20 -0 02 1 01 -20 -0 03 1 01 -20 -0 04 1 01 -20 -0 05 01 1-20 -0 06 1 01 -20 -0 07 01 1-20 -0 08 1 01 -20 -0 09 1 01 -20 -0 10 01 1-20 -0 11 01 1-20 -0 12 1 01 -20 -0 13 1 01 -20 -0 14 01 1-20 -0 15 1 01 -20 -0 16 120 17

45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

Figure 11.3: The highest trade turnover group of countries (mln. USD). Source: The authors’ calculations based on data information and analytics system Bloomberg. The date of reference is 01.09.2018.

As it is obvious from the figure, given above, the dynamics of mutual trade between Russia and Kazakhstan, Russia and Belarus behave almost the same way with slight difference in magnitude. There are two falls stipulated by crisis of 2008 and introductions of anti-Russian suctions in 2014. Of course, their display has certain time lag. The creation of EAEU can explain the further rise of considered indicators, but the number of observations is insufficient for such conclusion yet. The other interesting group for study is group, consisting from figures of trade turnover between Kazakhstan and Kyrgyzstan, Belarus and Kazakhstan, Russia and Kyrgyzstan, Russia and Armenia (Figure 11.4). The graph shows the same character of interdependence, the rises and fall, the last two years’ growth in value. Only relationship between Kazakhstan and Kyrgyzstan avoids the last mentioned tendency. As for behavior of turnovers between Armenia and Kyrgyzstan, Armenia and Kazakhstan, they showed no correlation in their development. The position in the list of trading partner has the big potential to growth. Only Russia hold the first places toward its partners (except Kyrgyzstan, where Russia is second in list). Other countries are on positions of third, even seven decade of trading partner for each other (Kyrgyzstan is the 76th partner for Armenia; Armenia is 80th in list for Kazakhstan). Of course, it can be partly explained by the countries’ economies sizes. Nevertheless, the places were better in previous years.

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2,500 2,000 1,500 1,000 500

01 -0 1 01 -20 -0 00 01 1-20 -0 01 01 1-20 -0 02 1 01 -20 -0 03 1 01 -20 -0 04 1 01 -20 -0 05 01 1-20 -0 06 1 01 -20 -0 07 1 01 -20 -0 08 1 01 -20 -0 09 1 01 -20 -0 10 1 01 -20 -0 11 01 1-20 -0 12 1 01 -20 -0 13 1-2 01 -0 014 01 1-20 -0 15 1 01 -20 -0 16 120 17

0

Trade Turneover KzKr Trade Turneover BKz Trade Turneover RKr Trade Turneover RA

Figure 11.4: The second trade turnover group of countries (mln. USD). Source: The authors’ calculations based on data information and analytics system Bloomberg (date of reference: 01.09.2018).

All the indicators show the necessity of more close cooperation, of restoring the level of companies’ integration that will lead to deeper correlation of stock indices of countries- members of EAEU. The analysis of the Eurasian indexes with the inclusion of two indices from the USA (S&P500) and Germany (DAX) focuses on events which caused large movements in the external markets and determine whether they had a contagion effect on the Eurasian markets. Figure 11.6 shows the MCX in solid line and the S&P500 in long dash line. On an initial observation, the MCX index has greater fluctuations compared to the S&P while they are heavily correlated at all times. As can be seen in first shaded area of the solid lanes graph on upper screen of Figure 11.6, the S&P is on a downward trend, which reflects the crash of the dot-com bubble, when the stock markets in the US suffered from excessive speculation as a result of extreme growth of the internet. The MCX was not affected by this event, since it consists of few technological companies, and it continued in an upward trend while the S&P declined. Both indices are affected by the financial crisis, which began with the collapse of the Lehman Brothers in September 2008. Initially the MCX was on a downward trend before the crisis evidently caused the S&P to collapse. This situation is reflected in second shaded area of upper screen in Figure 11.6. The recent strong upward trend in the S&P has been determined by some economists as a big move by American companies to buy back their own stock as borrowing costs were ultralow (Bloomberg, 2017). The figure reported from the buyback of shares is in the region of $4 trillion (Kawa, 2017). The same cannot be said for the MCX as some of the groups listed are predominantly state owned and borrowing costs are not as cheap. Therefore, analyzing the data of the recent information is difficult to inspect (Figure 11.5).

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Figure 11.7 shows the KASE index in solid line and the S&P shown again in long dash line. On the first observation, it is clear that the KASE index is not affected by the dot-com crash as it is a relatively new index, which had no technological companies listed on their index. Before the financial crisis the indices are negatively correlated. This fact changes as both indexes plummet with global indexes during the financial crisis. The shocks and highs of each index do not appear to follow a significant trend to one another. Apart from the beginning of 2016 when both indexes fall due to a drop in Chinese equities and oil prices at 12-year lows (Valetkevitch, 2016). Following Figure 11.7 displays the MCX index in solid and the DAX index in long dash. On an initial observation, it is clear that both indices have a familiar trend. The correlation of both is high throughout the entire data set. Familiarly, the dot-com crash can be seen at the beginning of the time period with the DAX in a downward trend and the MCX remaining largely unaffected. Fears of a US recession caused a shock in both indexes in January 2008, before the ultimate decline of both markets which had a greater impact on the DAX. This caused the MCX to drop by 18.49% and the DAX by 20.18%. After the financial crisis, both indices gradually increase before they are both impacted by the European sovereign debt crisis, when credit rating agencies warned for the down grade of credit ratings of 15 European countries (Dean, Livesey, 2011). The MCX dropped by 17.25% and the DAX by 23.57%. Following on, the next significant drop that affects both markets takes place in October 2014 as growth fears increase with falling inflation and disappointing US economic data sent shares falling across the EU and the US (Wearden, 2014). Again, in August 2015 the indexes suffered a contagion effect when a large drop in Asian Equities caused a panic in the markets in Europe and the US (Pisani, 2015). Figure 11.8 contains the data of the KASE index in solid line along with the DAX index in long dash line. The first observation shows that the KASE index is somewhat not affected by the DAX until January 2006, similarly to the S&P. The correlation is rather weak in the pre-crisis period but strengthens afterwards. Both indices suffered during the financial crisis. There are few shocks from the DAX index that passed to the KASE index apart from the European sovereign crisis which saw a significant drop in both, effecting the KASE by 21.87% and the DAX by 23.57%. As far as calculations are concerned, they refer to the assessment of the percentage changes that were obtained for the graph analysis. The equation of the index’ value change for Table 11.3 is: ΔMCX = ðVf − ViÞ=Vi Where: Vf = Index value at the end of considered period Vi = Index value at the begining of considered period

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Table 11.3: Сhanges of MCX and KASE indices movements under external shocks (%). External Recession shock decline Stock index

Flash Oil price crash  -month low

US Presidential Election

Fears of US Recession

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.



.

.

.

.

KASE

.

.

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.

.

Source: Bloomberg Terminal.

The calculations show that, when an external shock occurs in any stock market, the markets will decrease at a substantially close level, indicating that there is a strong case for contagion effects between the relevant markets. The final calculation represents the correlation result of the two main indices of this study, the MCX and KASE. Sought coefficient is 0.785943. As the high correlation is above the Hypothesis of 70%, the Null hypothesis can be accepted. This indicates that there is interdependence between the two stock markets. This correlation is proved by data values taken from Bloomberg. This data was then cleared to remove weekend, holiday and unmatched figures using Excel. The data is daily, ranging from the beginning of the KASE index on the 12th July 2000 until November 2017. This consists of over 17 years of data. The calculation uses no lags as they are not relevant to this research method. The industries represented in the KASE consists of energy, banking, electricity and mining companies, while the MCX consists of energy, banking, mining, retail, technology, transport, electricity and steel. The KASE index represents 9 groups while the MCX consists of 50 groups.

Recommendations It may be reasonable to use the European Union as a template to use example of how countries can work together to strengthen their economies for development. More precisely using the Republic of Ireland as a case study of a very poor country in the 1950’s that relied heavily its agricultural sector which had slow growth. The country contained the characteristics of a closed economy of protectionism and self-sufficiency. The over dependence and reliance of one economic sector and the lack of trade resulted in a stagnant economy which reflects the situation of Belarus and Kyrgyzstan of the Eurasian Economic Union. In order to break the economic deadlock, Ireland’s economy had to introduce many economic policies that would pave the way for economic development. These policies included the following:

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better access to loans for commercial; courting of foreign investment; improved government grants to new industries; tax relief for manufactured exported goods.

The tax relief facilitated major advances in the industrial sector, which was responsible for an overall economic growth of 23% by 1963. This new strategy, resulted in 80% of investment coming through foreign capital by 1965. During the 1960’s this attracted 350 new foreign companies. This help to raise employment with high earning jobs which also increased domestic demand. A critical factor of the Eurasian Economic Union is the free trade that will enable the development of involved countries. Without the EU membership, Ireland would be so little of interest as a country for investment. Similarly, an economic union for the Eurasian members may be a vital component in future development. A part of the development of the Irish economy was the mass turnover of public enterprises into the private sector. This 21commercialization of state owned enterprises assisted in an increased efficiency of operations and general competition in the companies and their markets. Another important factor for the development of Ireland was the loosening of structural rigidities which includes trade unions, farming interests and government wage levels. details this, as the government determined that moderate wage growth was important for international competitiveness and to achieve control of public finances. These factors along with free second level education were the foundation of the underdeveloped economy of the 1950’s transforming into a developing economy of the 1960’s and a developed economy by the 1990’s.

Conclusions The graphical analysis of this research concludes that the Kazak index has a relatively weak relationship with the Moscow Index until 2007. Thereafter, the effects of the financial crisis impacted both indices resulting in them being highly correlated ever since. The correlation result reflects the results from the graphical analysis. Moreover, it is found that the Moscow index has a stronger relationship with external indices, including the DAX and the S&P 500, when examining external influences. This may be a reflection of the high volume of exports going to European countries. It is considered, that KASE index may be more dependent on the MCX, due to the large number of exports flowing to Russia. The analysis shows that the two Eurasia countries have a high dependence on the production of raw materials, while the S&P500 is a diversified index including a strong mix of technology, construction, pharmaceutical and energy companies. Thus, the integration of the countries in the new Eurasian Union will have to develop harmonized economic policy

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in order to attract new growth into economic sectors. The development of new branches along with a deregulation will stimulate growth. For Armenia, the support that they receive from the International Monetary Fund, World Bank and European Bank for Reconstruction and Development, helps to stabilize their heavily inflated currency and develop private business. The support is currently upgrading various branches, including, energy, agricultural, food processing, transportation, health and educational sectors. The research that is presented in this analysis can be further developed by some econometric modelling to determine the short run and long run relationships of the KASE and MCX, and also to find which index leads the other. The research found that both indexes still rely heavily on the production of raw materials and depends on the price movements of commodities more than any other factor. A further study could find the relationship between the KASE market with the oil and copper price movements. This could determine whether the KASE index depends also on the price movements of commodities more than any other factor. Finally, it is worth, while mentioning, that EAEU member face the changing world and possess the power of making it better. Thus, it is appropriate to take into consideration international experience in strengthening efforts for solving mutual problems and meeting challenges.

References Cbonds. S&P Global Ratings downgrades Local Currency LT credit rating of Halyk Bank to “BB” (Cbonds). 2017; Available at: http://cbonds.com/news/item/921307 (accessed 11 December 2018). Dean M., Livesey B. S&P Places 15 Euro Nations on Warning for Credit Downgrade (Bloomberg). 2011; Available at: https://www.bloomberg.com/news/articles/2011-12-05/s-p-said-to-placeall-17-euro-nations-on-downgrade-watch-over-debt-crisis. Gavin M. Fondovyy rynok i dinamika obmennogo kursa [The Stock Market and Exchange Rate Dynamics]. Journal of International Money and Finance,1989; pp.181–200 (in Russ.). Kawa L. U.S. Stock Buybacks are Plunging (Bloomberg). 2017; Available at: https://www.bloom berg.com/news/articles/2017-08-14/corporate-america-isn-t-buying-back-shares-the-way-itused-to (accessed 14 August 2019). Lander M., Timmons H. World Markets plunge on fears of U.S. Slowdown 2018; Available at: https://www.nytimes.com/2008/01/22/business/worldbusiness/22markets.html Pisani B. What happened during the Aug 24 ‘flash crash’ (CNBC). 2015 Available at: https://www. cnbc.com/2015/09/25/what-happened-during-the-aug-24-flash-crash.html (accessed 25 September 2015). Riley C. Oil prices slide to 7-month low (CNN). 2012; Available at: http://money.cnn.com/2012/05/ 23/investing/oil-prices/index.htm (accessed 10 February 2018). Sberbank. Kreditnyye reytingi [Sberbank. Credit Ratings]. 2017; Available at http://www.sberbank. com/investor-relations/debt-profile/credit-ratings (accessed 25 February 2019), (in Russ.). Shuvalov I. Evraziyskiy ekonomicheskiy soyuz poluchit edinuyu valyutu cherez 5–10 let (TASS) [Eurasian Economic Union to have common currency in 5–10 years] (TASS). 2014; Available at:

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http://tass.com/economy/742323 (accessed 16 March 2019) (in Russ.). Informational analytical system Bloomberg (accessed 15.02.2018–15.032019). Slav I. Russia Tops World’s Biggest Oil Producers List (Oilprice.com). 2017; Available at: https://oil price.com/Latest-Energy-News/World-News/Russia-Tops-Worlds-Biggest-Oil-Producers-List. html (accessed 16 March 2019). Treanor J. The 2010 ‘flash crash’: how it unfolded (The Guardian), 2015; Available at: https://www. theguardian.com/business/2015/apr/22/2010-flash-crash-new-york-stock-exchange-unfolded (accessed 10 January 2019). Valetkevitch C. US Stocks-Dow off to worst January start ever as China fears grow (Reuters). 2016; Available at: https://www.reuters.com/article/us-usa-stocks/dow-sp-off-to-worst-four-dayjan-start-ever-as-china-fears-grow-idUSKBN0UL1BD20160107 (accessed 16 March 2019). Wearden G. FTSE100 hits 15-month low as stock markets slide (the Guardian). 2014; Available at: https://www.theguardian.com/business/live/2014/oct/15/uk-unemployment-wages-chinainflation-shire-business-live (accessed 16 March 2019).

Natalya V. Sergeeva, Anna A. Prudnikova

12 Development Prospects for the Russian Segment of the World Financial Market: Eastern Vector Introduction The authors in no way claim to complete the disclosure of the topic. This work is just an attempt to draw attention to the actual problem and dotted out the most pressing issues. Today it is very «fashionable» to talk about the Eastern vector of our country’s foreign policy. This is largely facilitated by the active work of the Russian Government and the Ministry of Foreign Affairs in establishing foreign economic relations in the Asia-Pacific region. However, it is fundamentally wrong to view this trend as a reaction to Western sanctions. This course is not a consequence of modern problems, but a continuation of a balanced and consistent foreign economic policy of the world’s greatest power.

Methodology Let us analyze the main steps have been taken to implement the concept of a multipolar world and expand the «Eastern vector» in Russian foreign economic policy.

Russia-China The Russian-Chinese bilateral relations have received a new official definition as «an equitable trust partnership relationship aimed at strategic interaction in the 21st century» (Kitayskiy informatsionnyy Internet-tsentr [Chinese Internet Information Center], available at: http://russian.china.org.cn/international/archive/china-russian/node_ 2044079.htm (accessed 2 March 2019) (in Russ.)). As a result, cooperation was brought to the level of strategic partnership. Since 1989, after the normalization of Russian-Chinese relations, an intensive rapprochement between Russia and the PRC began, the basis for which was an awareness

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of the mutual benefits of economic partnership and an understanding of the need to resolve problems in bilateral relations. As a result of the efforts undertaken, in 2001, Russia and the PRC signed the Treaty on Good-Neighborhood, Friendship and Cooperation. Another important step towards the creation of a «belt of good neighborliness» was the significant agreements between Russia, China, Kazakhstan, Kyrgyzstan and Tajikistan. Thus, in April 1996 and April 1997, two important documents were signed: the Agreement on confidence-building in the military field in the border area and the Agreement on the mutual reduction of armed forces and armaments in the border area. Trade and economic relations between Russia and the PRC in recent years have gained rapid development. Below are only the most significant results of bilateral cooperation (CustomsForum.ru, available at: https://customsforum.ru/tags/%D0% 93%D0%A2%D0%A3%20%D0%9A%D0%9D%D0%A0/ (accessed 2 March 2019)): – In 2017, bilateral trade turnover increased by 20.8 percent, for eight consecutive years China maintained the status of Russia’s largest trading partner. – In the first eight months of 2018, bilateral trade amounted to 67.51 billion US dollars, with an increase of 25.7 percent in annual terms, which significantly exceeded the overall growth rate of Chinese foreign trade in 9.1 percent. – The total volume of Chinese-Russian trade in 2018 exceeded $ 100 billion. – In May 2018, China and the Eurasian Economic Union signed an agreement to simplify the procedure for customs clearance and reduce costs in trade in goods. – In 2017, China’s direct investment in the Russian economy grew by 72 percent and reached $ 2.22 billion. – Chinese contractors signed new agreements on the implementation of projects in Russia in the amount of $ 7.75 billion with an increase of 191.4 percent, which exceeded the similar indicators in most countries along «the Belt and the Path». – China is the largest trading partner and source of foreign investment for the Russian Far East. – Russia is the largest supplier of crude oil and electricity, as well as the fifth largest supplier of coal to China. – The launch into commercial operation of the second line of the Russia-China pipeline in January allowed an increase in the annual import of Russian oil to China via this pipeline from 15 to 30 million tons. – As expected, along the eastern route of the Russia-China gas pipeline, the construction of which is planned to be completed by 2020, up to 38 billion cubic meters of natural gas will be supplied to China annually. – In December 2017, production of liquefied gas began at the plant of the first stage of the Yamal LNG project on the Yamal Peninsula in Russia. In accordance with the agreement between the two countries, after the completion of construction of

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other production lines, at least 4 million tons of LNG will be supplied to China annually. Part of the project’s shares is owned by the China National Petroleum Corporation and the China Silk Road Fund. – In 2017, China and Russia established a joint venture to build long-range widebody passenger aircraft. – In 2017, the two countries also jointly established a center for research and development of high-speed rail technology. – Companies of the two countries are cooperating in such areas as nuclear energy, space exploration, digital economy and cross-border e-commerce. It should also be said that the Russian partners in the EAEU are developing cooperation with China. In May 2018, in Kazakhstan, a cooperation agreement was signed between the EAEU and China in the framework of «integration of integrations»: our Eurasian project is now officially linked to the «New Silk Road». If it turns out that Russia will be able to weave its alternative land and sea routes for the transportation of goods into the «One Belt – One Way» project, then Russia will play a new role in world trade over time.

Russia-Japan In the 1990s, E.M. Primakov as an excellent specialist – orientalist assessed the importance of the dialogue with Japan as one of the leaders of the Asia-Pacific region. It was necessary to strengthen the positive trend in the development of our bilateral relations. During this period, on the basis of an agreement between the heads of our states, negotiations are held between Russia and Japan on the issue of concluding a peace treaty. The principled position of the Russian Federation is that Japan should fully recognize the results of the Second World War, including Article 107 of the UN Charter. And only on the basis of this provision between our countries is a positive movement to resolve territorial claims. In December 2016, the visit of the President of Russia to Japan took place, under which the leaders of the two countries agreed on the statements for the start of negotiations on the establishment of joint economic activities in the southern Kurile Islands. The question of how to simplify the procedure of entry of the former Japanese inhabitants of the islands to the Southern Kurile Islands to visit the graves of their ancestors was also considered. At the same time, «joint economic activity» was considered as such sectors of the economy as the cultivation of seafood, growing vegetables in greenhouses, creating wind power stations, joint efforts to reduce garbage volumes, and also assumed the development of tourism in accordance with the peculiarities of the islands.

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As a result of preliminary agreements, from June 27 to July 1, 2017, the first group of business representatives from Japan and a number of government officials visited the Kuril Islands. The purpose of the trip was to get acquainted with the territories and infrastructure, on the basis of which it was supposed to implement joint Japanese-Russian projects in the field of medicine, ecology, tourism and fisheries. In October 2017, the second visit of the Japanese delegation to the Kuril Islands took place. It was aimed at concretizing joint business projects. During this visit, more than 50 business professionals and the Japanese government inspected various infrastructure facilities of the Kuril Islands, along with local residents. In August 2018, the third Japanese business mission visited the Kuril Islands. If we talk about intermediate actual results of establishing trade and economic relations with Japan, then in January-August 2018 the volume of trade between our countries amounted to 13.9 billion dollars, while Russian exports amounted to 8.2 billion dollars, in the same time imports reached 5.7 billion dollars. The basis of Russian exports are mineral products, metals and products from them, wood and pulp and paper products, precious metals and stones, foodstuffs and agricultural raw materials, etc. Russian imports are mostly represented by machinery, equipment and vehicles, chemical products, metals and products from them, etc. Investment business in Japan is very active in various sectors of the Russian industry and agriculture. Accumulated investment in the Russian economy reached two billion dollars. Today, Russian and Japanese entrepreneurs successfully implement about 100 joint projects on mutually beneficial terms. The Russian Direct Investment Fund and the Japan Bank for International Development have developed close cooperation. The Russian-Japanese investment fund established by them, helps companies of the two countries to attract credit resources for promising projects. The main direction of bilateral cooperation is energy. With the participation of Japanese companies in the framework of the Yamal LNG project in July 2018, the second production line of the liquefied natural gas plant was launched. The third stage is under construction with a total capacity of 16.5 million tons. It also considering the possibility of attracting Japanese partners to participate in the construction of the LNG transshipment complex in the Kamchatka Krai, as well as to such large projects as the Arctic LNG ‑ 2, Sakhalin ‑ 2, Baltiysky LNG, Russian and Japanese companies are working together on the development of oil field in the Irkutsk region. Cooperation in the nuclear field is expanding. Russian specialists are participating in the program for eliminating the consequences of the accident at the Fukushima ‑ 1 NPP, in particular, they are developing detectors for searching and identifying damaged fuel. The joint activity in the field of energy saving and renewable energy sources is dynamically promoted. Japanese companies are connecting to the creation of a modern transport infrastructure in Russia. Russian Railways, together with

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colleagues from Japan, has launched test container transportation on the TransSiberian Railway. A special role in promoting bilateral relations is played by cultural exchanges. In May 2018, the Year of Russia in Japan and the Year of Japan in Russia started. Such a large-scale project is being implemented in the history of Russian-Japanese relations for the first time. The program of these years includes more than 400 events in the field of culture, art, science, through youth exchanges and public organizations. After the conclusion of the Agreement (in the form of an exchange of notes) on mutual visits to Japanese and Russian graves on the territory of the USSR and Japan on July 2, 1986, the practice of travel of Japanese citizens to the Southern Kuril Islands on a visa-free basis is becoming more and more developed. The basis of this process was an intergovernmental agreement to improve the mutual understanding of the peoples of the two countries and to resolve the issue of concluding a peace treaty between Russia and Japan. Since 1992, such trips are carried out on a national passport with a special insert. Previously, former residents could only use sea transport for visits to the Kuril Islands. Since autumn 2017, charter flights have been launched between the two countries. It should be noted that not only ordinary citizens participate in exchanges, but also environmental scientists, physicians, museum workers and other specialists.

Russia-India At the end of the 20th century, a new stage began in strengthening Russian-Indian relations. Today, they can be described as «privileged strategic partnerships» (TASS [TASS], available at: https://tass.ru/politika/5643561 (in Russ.)). India is our likeminded neighbor and associate in international affairs. It should be noted that Russian-Indian economic and military-technical cooperation is very significant in both scale and dynamic, and cultural and humanitarian ties between the two countries are not inferior to them. The basis of Russian-Indian economic ties is traditionally military-technical cooperation, space technology and nuclear energy. The recent armed conflict between the two nuclear power states, India and Pakistan, has recently led to serious attention to the strategy of Russia’s foreign policy in this region. The peculiarity of this conflict is the fact that it is the first – after Pakistan and India joined the Shanghai Cooperation Organization (SCO). Actually, one of the goals of their simultaneous entry into this organization was precisely to use the SCO mechanisms for confidence building and conflict resolution between the two countries. In this area, the positive experience of the SCO is quite significant, since one of the goals of its creation was the joint struggle against terrorism, separatism and extremism.

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One of the first orientalists and politicians who raised the question of the possibility for cooperation between Russia, China and India was also E.M. Primakov. Today, BRICS is one of the most dynamically developing strategic associations of states, which actively influences not only world politics, but also global governance and the reform of international economic relations.

Russia-South Korea After the visit of E.M. Primakov to South Korea in July 1997, bilateral cooperation between our countries intensified. During the visit an agreement was signed on the creation of a secret communication channel between the leadership of the two countries, the so-called «hot line». Moscow and Seoul will strive to make the Korean Peninsula nuclear-free. This is stated in a joint statement of Vladimir Putin and Moon Jae-in following the talks in June 2018 at the highest level in Moscow. With South Korea, Russia is also implementing joint energy projects. «Korean companies are contributing to the development of Russian hydrocarbon deposits in the Arctic. For the transportation of gas from the enterprises of Yamal LNG, 15 iceclass gas tankers are being built at Korean shipyards. The possibility of the participation of Korean partners in the project for the extraction and liquefaction of gas on the «Arctic LNG 2» is being discussed», – the Russian leader said (Administratsiya Prezidenta Rossii [Administration of the President of Russia], available at: http://krem lin.ru/events/president/news/57835 (accessed 2 March 2019)). Following the visit, 12 documents were signed. In particular, the agreement on the creation of a free trade zone. Among the priority areas of cooperation – agriculture, tourism – for four years now there is a visa-free regime, and also industry and innovations. We agreed, in particular, on the participation of South Korea in the technological renovation of the «Zvezda» shipbuilding plant in the Primorye Territory and on the joint development of the latest technologies in medicine. The mobile diagnostic center will run across the Russian regions. They also spoke about trade and economic cooperation: an increase in commodity turnover and large-scale infrastructure projects are in priority.

Russia-DPRK Today much attention is paid to the development of contacts with the DPRK, our long-time partner and an important neighbor in the Far East. In 2016, the railway communication of Russia with the DPRK (Hassan – Rajin) opened. In May 2017, a sea communication appeared between Rajin and the Russian port of Vladivostok. The ferry service between these cities operates six times a month

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and allows to transport up to 200 passengers and thousands of tons of cargo between North Korea and Vladivostok. In Russia, especially in Vladivostok, one of the largest North Korean communities in the world lives abroad. Russia could also benefit from participation in telecommunications. According to the data of the American research group 38 North, from October 1, 2017, the Russian telecommunications company TransTelecom-TTK started providing Internet connection services to North Korea (38 NORTH, available at: https://www.38north.org/ (accessed 2 March 2019)). This connection plays an important role because it is the second way to access the global Internet in addition to the only Star JV previously used by Pyongyang, which was provided by the Chinese telecommunications operator China Unicom.

Russia – ASEAN Great importance is attached today to the Russia-ASEAN dialogue partnership. At the time, E.M Primakov did a lot to activate this process. With his active assistance, basic documents were signed and institutions were created, which to this day determine the nature of our cooperation with this organization. At the third Russia-ASEAN summit in May 2016 in Sochi, an agreement was reached which bringing it to the level of strategic partnership (Administratsiya Prezidenta Rossii [Administration of the President of Russia], available at: http:// kremlin.ru/events/president/news/51953 (accessed 2 March 2019) (in Russ.)). It should also be noted that in the mid-1990s, Russia’s bilateral relations with many countries of Southeast Asia – Vietnam, Indonesia, Malaysia, and Thailand – became more active. Since the second half of the 1990s, cooperation with partners in the APR has qualitatively changed and acquired the character of a purposeful, systemic policy, the priority of which is complex, multifaceted interaction.

Results At present, it is obvious that the basis of cooperation between Russia and the leading countries of the «Eastern vector» is the energy sector, which in turn affects the financial and economic relations of countries and in many other sectors of the economy, including transport and the environment. The development of cooperation between Russia and the countries of the AsiaPacific region, both bilaterally and multilaterally, is in the national interests of Russia and these countries. It will allow Russia to carry out a socio-economic recovery of the Russian regions of Siberia and the Far East. As a result of mutually beneficial cooperation, Russia will receive an influx of foreign investments not only in the energy sector, but also in the whole economy of the country. Attracting FDI and

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revenues from the implementation of contracts in the energy sector will affect the growth of savings and increase Russia’s competitiveness on the world market. The positive dynamics of the development of the Asian vector in foreign trade and finance may in the future partially offset the difficulties and losses in the European direction. In September 2019, the main international economic event will be held in Vladivostok, dedicated to solving the task of developing the eastern vector of Russian foreign policy, as well as integrating the Far East into the system of economic relations in the Asia-Pacific region – the Eastern Economic Forum. The president called the development of the Far East «Russia’s priority for the whole XXI century» (Avtonomnaya nekommercheskaya organizatsiya «TV-Novosti» [Autonomous non-profit organization «TV-News»], available at: https://russian.rt.com/russia/ news/447492-putin-razvitie-vostok-prioritet (accessed 2 March 2019) (in Russ.)). In 2019–2020, Russia chairs the Shanghai Cooperation Organization, and in 2020 also in the BRICS. It is at these international sites that Russia will actively manifest itself in the next few years. «The strength of our foreign policy, – said E.M. Primakov – in the maximum coverage of various states and especially in the development of relations with Asian countries. With such a configuration, it will be easier for us to deal with the West» (). It is no coincidence that in his last public speech in January 2015 there were such words: «Can we talk about the reorientation of Russia to the East? The answer is: it is not. Russia would like to normalize relations with the United States and Europe, but it would be unwise to ignore the importance of China and other countries in the AsiaPacific Economic Cooperation» (Informatsionnoye agentstvo InfoRos [Information Agency InfoRos], available at: http://infoshos.ru/ru/?idn=16172 (accessed 2 March 2019) (in Russ.)).

Conclusions/Recommendations The foreign policy of the Russian Federation is based on the concept of a multipolar world. And it is precisely the awareness of Russia’s fundamental national interests that lies at the basis of the so-called «Eastern vector» of Russian foreign policy. The main goal of Russia’s policy in the Asia-Pacific region is to provide favorable conditions for the economic and social development of the country on the basis of a solid foundation with our «eastern» neighbors, to strengthen mutual trust and ensure security. Summaries it, we can say that it is necessary to maximize develop of bilateral relations with the countries of the Asia-Pacific region. At the same time, our key task is to avoid the dollar in mutual settlements. Of equal importance is the active position of Russia in relation to all regional organizations and forums, as well as participation in their activities.

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References Avtonomnaya nekommercheskaya organizatsiya «TV-Novosti» [Autonomous non-profit organization «TV-News»], available at: https://russian.rt.com/russia/news/447492-putin-razvitie-vostokprioritet (accessed 2 March 2019) (in Russ.) Administratsiya Prezidenta Rossii [Administration of the President of Russia], available at: http:// kremlin.ru/events/president/news/51953 (accessed 2 March 2019) (in Russ.) Administratsiya Prezidenta Rossii [Administration of the President of Russia], available at: http:// kremlin.ru/events/president/news/57835 (accessed 2 March 2019) Informatsionnoye agentstvo InfoRos [Information Agency InfoRos], available at: http://infoshos.ru/ ru/?idn=16172 (accessed 2 March 2019) (in Russ.) Kitayskiy informatsionnyy Internet-tsentr [Chinese Internet Information Center], available at: http://russian.china.org.cn/international/archive/china-russian/node_2044079.htm (accessed 2 March 2019) (in Russ.) Ministerstvo inostrannykh del Rossiyskoy Federatsii [Ministry of Foreign Affairs of the Russian Federation], available at: http://www.mid.ru/ (accessed 2 March 2019) (in Russ.) TASS [TASS], available at: https://tass.ru/politika/5643561 (in Russ.) ASEAN, available at: https://asean.org/ (accessed 2 March 2019) CustomsForum.ru, available at: https://customsforum.ru/tags/%D0%93%D0%A2%D0%A3%20% D0%9A%D0%9D%D0%A0/ (accessed 2 March 2019) 38 NORTH, available at: https://www.38north.org/ (accessed2 March 2019)

Arunas A. Lapinskas, Mark M. Khaikin, Tatyana G. Sodnombalova

13 Features of Evolution of the Forms of Money: From Gold to Crypto Currency Introduction In the context of accelerating scientific and technological progress (STP), digitization of social and economic relations, assessments of social origin, including valuations, might seem to be replaced by the technical means of technological origin. One of the manifestations of this feature of human life against the backdrop of the accelerating scientific and technological progress, is the emergence of a new phenomenon in the global financial system – crypto currency. It is a very difficult problem to develop national monetary systems: first of all, there are problems of legitimization and the choice of forms of regulation, taking into account the need to minimize risks and integrate crypto currency into the existing financial system. The world’s largest banks, among which are Russian, are exploring the possibilities of not only the use of cryptocurrencies, but also the basic technology of blockchain. However, the absence of legal foundations in most countries of the world does not give these technologies a real scope for development. Accordingly, the creation of a legal framework in this area requires the development of theoretical foundations, primarily economic ones.

Methodology As is be shown below, many theorists of the evolution of the monetary system, as a main characteristic, indicate that almost everywhere money is managed by states that set the rules for its issuance and circulation. The most important question of the methodology is to determine the primary or secondary nature of the emergence of patterns regulating a particular phenomenon (in this case, the phenomenon is a crypto currency), regarding the emergence of the phenomenon itself. According to a number of authors, the creation of a new entity precedes the emergence of the laws of its functioning (radio and television, new types of transport, the Internet, etc. are given as examples). This view is also extrapolated to the area of monetary systems.

Arunas A. Lapinskas, Mark M. Khaikin, St. Petersburg Mining University, St. Petersburg, Russia Tatyana G. Sodnombalova, St. Petersburg State Transport University, St. Petersburg, Russia https://doi.org/10.1515/9783110692075-013

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In fact, the blockchain and crypto currency system is markedly different from modern national monetary systems. The features of crypto currency include the following: decentralized interaction, which allows minimizing (down to zero) commissions, the completely separate nature of transactions, maximum objectification of transactions (trust), pre-programmed emissions, eliminating manipulation or abuse of financial authorities, supranational nature, excluding the human factor by mathematical cryptography and etc. As a result of the last leap in the STP process- the “information revolution”, authors believe the crypto currency will have a significant impact on the development of the world monetary system, which, however, should not be exaggerated – balanced assessment is needed. The evolution of the economy is manifested in the alternation of large and small cycles, covering both the entire economic system and its individual sectors. As discussed below, the emergence of crypto currency represents the beginning of a new wave (cycle) in the development of the world monetary system. Crypto currency is a phenomenon the essence of which can be understood only by analyzing the essence of money as such that requires at least a brief overview of the evolution of its forms. The essence of money lies in, first of all, defining this term. It undoubtedly has an important practical significance, since this or that interpretation of the essence of money determines the understanding of the mechanism of operation of the entire monetary system; and knowledge in this area, in turn, determines the actions of financial authorities and other subjects of this system (a typical example is the global financial crisis of 2008–2009).

The Main Approaches to the Analysis of the Evolution of Money 1.

2.

3.

It is worth agreeing with A. N. Dubyansky, who says that “The Russian economic literature that is devoted to the study of monetary problems, pays very little attention to the topic of the origin of money, although it is of great importance for understanding its essence” (Dubyansky, 2017). There are two main approaches to the analysis of the origin and essence of money. They are called differently: rationalistic and evolutionary, phylogenetic and ontogenetic (Money. Credit. Banks, 2009), logical and historical, as well as functional (Gritsenko, 2009). Historically speaking, the rationalist approach was the first to emerge. According to it, money is the result of a social agreement, formalised by state legislation (meaning the rationalization of barter trade). The earliest ideas of rationalism can be found even in the writings of Aristotle, who believed that money became a legal means of exchange not because of its inner nature, but precisely because of the law (Aristotle, 1997).

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4. The state theory of money of the German scientist G.F. Knapp (Knapp, 1905) had a great influence on the development of this approach. His concept arose as a counterbalance to the then-dominant metal theory of money. He suggested that not only money with its own value (gold) can perform the functions of money, but also any currency that have different material carriers. According to this logic, it appears that the money arose at the state’s will, establishing though legislation the form and denominations of banknotes on various carriers; hence the name of the main theory of this direction – nominalism. 5. Opponents of this theory (evolutionists) argued that paper (or other defective) money cannot serve as a measure of value, since value is the price of a commodity, and price can be expressed only by the quantity of another commodity, in particular, gold. Therefore, the Italian traveler Marco Polo, who lived in China for a long time in the second half of the 13th century, was surprised to find paper money circulation there, as in Europe of that time, metallic money formed the basis of circulation. In his famous book «The Travels of Marco Polo», he described in detail the mechanism for issuing and circulation of paper money, noting the high efficiency of such a monetary system. In Europe itself, paper money began to appear only in the 17th century, and in Russia it was introduced by decree of Catherine II in 1768. 6. It is important to emphasize that there is an inevitable conclusion from the nominalist theory that the material basis of the carrier of the established “nominal” does not matter: this can be any metal, silk, paper or electronic record in a computer; the value is only a figure – the size of this denomination. An important disadvantage of “nominalism”, in our opinion, is that supporters of this theory paid (and pay) the main attention to the function of money as a means of circulation, which shifts both theory and practice away from the essential problems of the functioning of the monetary system. J.M.Keyns was «guilty» of that; The Nobel laureate P. Samuelson occupied the same position, believing that “money is an artificial social convention”, just a “lubricant” that facilitates transactions (Samuelson, 1964). Many modern Western theorists and practitioners, including B. Bernanke (Chairman of the U.S. Federal Reserve Board of Governors 2006–2014, who witnessed the global financial crisis of 2008–2009 originated in the United States) share such a viewpoint. C. McConnell and S. Brue explain the essence of money as follows: “What is money? Money is what money does. Everything that performs the functions of money is money” (McConnell and Brue, 1992). Afterwards, three functions of money – a means of circulation, a measure of value and a means of savings are formulated. At first glance, it seems to be the case – money changes all the time, but performs the same functions. However, if you think about it, it turns out that such a definition is a tautology, which shifts the focus away from the very essence of the question. In this regard, we can agree with O.I. Lavrushin, who believes that the “inner” content of money

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cannot be reduced only to the functions performed by it, since the properties of money remain in the shadow. Nevertheless, the nominalists, of course, made a significant contribution to the development of monetary theories. In particular, J. M. Keyns and his followers (Bell, 2001; Wray, 1998) highlighted an important feature of the nominalistic system – that money that does not have its own value arises as a result of credit and debt relations. According to the evolutionary approach, the emergence of money is the result of a long evolution of its various forms – from specific (highly liquid) goods to modern electronic money and cryptocurrencies. The founders of this approach are mainly representatives of the classical school A. Smith, D. Ricardo, K. Marx, L. Mises, and others. Russian economists also contributed to the development of this concept – I. V. Vernadsky, I. I. Kaufman, M.I.Tugan-Baranovsky and others. Particularly clearly the evolution of the forms of value were described by Karl Marx in Volume I of Capital. In the Marxist variant of the evolutionary approach, the problem of equivalence is posed, the solution of which manifests itself in the main function of money – the measure of value. For example, speaking of the “expanded relative form of value”, Karl Marx wrote that the cost of a given product, for example, a canvas, is now expressed in countless other elements of the commodity world. Every other commodity body becomes a mirror of the value (the authors put this in italics) of the canvas. Thus, only now this cost itself really appears as a clot of human labor devoid of differences . . . no matter what kind of natural form the latter has and whether it is materialized in a coat, wheat, iron, gold, etc. (Marx, 1973). In this case, the market transaction is considered as an exchange of equivalents – equal values, containing equal costs of abstract labor. It is important to emphasize that Marx, in contrast to the rationalists, in determining the essence of money, put at the center the function of the measure of value is not the function of circulation. Of course, in modern conditions the labor theory of the value of K. Marx looks somewhat archaic; in particular, labor costs (as well as other factors of production) affect only a part of the value of the goods – the bid price; the price of demand (and the second part of the cost of goods) is formed under the influence of marginal utility [for more details, see: Khaikin and Lapinskas, 2018). However, in the case of “market transactions”, i.e. In the market system, these features are taken into account “automatically”, so we can conclude that in terms of the evolution of cost forms, K. Marx was absolutely right. Thus, in essence, money is a commodity that plays the role of a universal equivalent (and not “everything that performs it functions”). However, as previously mentioned, the “rationalists” and “nominalists” disagree. In particular, A.N. Dubyansky, underlining the “logical perfection” of the evolutionary approach, at the same time believes that an increasing number of authors are beginning to doubt the correctness of the evolutionary approach. He believes that “there are still no historical examples confirming the existence of a barter economy”

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(Dubyansky, 2017). In his article, he also cites the argument of O. V. Butorina, which emphasizes the same circumstance: “We must admit that even nowadays, supporters of the spontaneous origin of money say nothing about how, in their opinion, the public need for coin led to its emergence” (Butorina, 2016), as well as a similar opinion of the English anthropology scientist D. Graber (Graber, 2015). As a result, A.N. Dubyansky comes to the conclusion that “Indeed, there should have been objective reasons and incentives that would lead to the creation of money in general and metallic money in particular” (Dubyansky, 2017). In our opinion, there is still a significant amount of historical facts confirming the evolutionary origin of money. Depending on the local natural and economic conditions, money became a variety of goods. It is enough to recall the origin and evolution of Russian money from the “kuna” to the silver hryvnia of the Kiev Rus. As “objective reasons and motivations” of the evolution of the form of money, one can cite well-known requirements for monetary material: 1) long-term persistence, 2) divisibility, 3) homogeneity, 4) transportability (transaction speed), 5) high cost in a small volume (rarity and portability), etc. One can immediately notice that these properties are consistently better met by the successive paper, electronic and crypto-money (although the last three forms do not correspond to the fifth requirement, but this is not the case – more on this will be said later). In the conditions of medieval Europe, such goods as gold, which became generally recognized monetary material, met these requirements best of all. Commodity forms of money appeared in the early stage of the emergence of citystates – a stage that many countries passed through. Under these conditions, the functioning of certain goods in the role of money was formed on the basis of the emerging market relations; signs of influence of state formations, for example, the stamp of the prince on a piece of silver (hryvnia) appeared later. K.Menger was the one to rightly note that the state sanction to use this or that good as money is not the creation of money by the state, but it greatly enhances the inherent nature of money. Of course, the thesis about the commodity nature of money takes into account the deep level of specificity of this “product”: first of all, high liquidity (no realisation problem). The most important feature of commodity money is the “spontaneous”, decentralized “issue” of it. This is where the first “convergence” of the form of money in the era of the “gold standard” and crypto currency is manifested, respectively, in the actualization of the “metal” theory of money, which has long disappeared. It is not by chance that the mining (“emission”) of gold and crypto currency is denoted by one term – “mining”. The emergence of paper money cannot be considered a denial of its commodity essence. The fact is that it appeared on a basis of the promissory note – like credit money representing real goods, first of all, gold (banknotes with gold content). And only when its issue became the monopoly of the state, did money turn into “pieces of paper” subject to inflation (hence F. Hayek’s skepticism towards the activity of central banks). The credit basis of paper (and, accordingly, electronic) money gives

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grounds to assert that it has its own value, taking into account its quantity in circulation. The truth of this statement confirms the fact that even gold money is subject to inflation if its amount exceeds the required size (a vivid example is the so-called “price revolution” in medieval Spain). This contradiction is explained by the quantitative theory of money.

Quantitative Theory of Money In our opinion, it originated at the interface of rationalism and evolutionism. The quantitative theory is based on the well-known Fisher formula: MV = PQ. Interestingly enough, I. Fisher himself denied the commodity nature of money. He believed that the purchasing power of money is determined precisely by its quantity, i.e. the size of the money supply, taking into account the speed of its circulation, the average weighted price level, clearing payments, etc. He focused not on the essential, but on the technological factors, linking the stability of the rate of money turnover with the invariance of institutional circulation factors. A prominent representative of this theory is the above-mentioned F. Hayek. He promoted the idea of denationalizing money and creating a multi-currency monetary system in which individual currencies would compete with each other (natural selection) (Hayek, 1996). Although there is a lack of consistency in his commitment to quantitative theory: F. Hayek called the era of the gold standard the only stable period in the development of industry (Hayek, 1996), with which one can only agree considering the relativity of this “stability”. On closer scrutiny, it appears that quantitative theory is the development of a “commodity” concept (albeit with elements of nominalism). The very same F.Hayek analysed a simplified version of the Fisher formula, which is obtained if the velocity of money and price dynamics are considered to be relatively stable: M = Q. In this case, the amount of money in circulation should be proportional to the physical volume of production; and this means that money is a measure of the value of circulating goods (and services); at the national economy level – GDP. Obviously, without the availability of goods (assets, property), the existence of money becomes meaningless. Moreover, the form of money – from gold to crypto currency – is not decisive; it evolves under the influence of both socio-economic and technological factors – STP. Thus, in essence, money is a commodity, and in its form it is a figure expressing the size of the value/value of goods circulating in markets of all levels and scales. This is generally taken into account in the information theory of money. Money is considered to be a kind of information about the cost/value of goods that can exist on different material carriers (paper, electronic records). Accordingly, with the transition of economy to different stages – from agrarian to post-industrial (informational) and under the influence of STP, the carriers (forms of money) evolved from

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gold to crypto currency . This is the meaning of the above thesis about the new cycle of the evolution of money: both gold and crypto currency do not require centralized emission (“mining” of both gold and crypto currency is the activity of private individuals); both are price meters, i.e. cost/value of goods; However, the technological level of both emissions (“production”) and circulation have significantly changed. It should be noted that the technical evolution of money has occurred in exact accordance with the necessary characteristics of monetary material, which were mentioned above, in the following sequence: commodity money – gold – coins – paper money – electronic money – crypto currency; at the same time, each new form increases the efficiency of transactions. The problem of the lack of own value in the last three forms of money is solved by government intervention, which nominalism explains. However, even a state with monopoly power to set nominal values is not able to “make money out of thin air,” as indicated by quantitative theory. But what about cryptocurrencies, since their issue is no-one’s monopoly? What other features are characteristic of this new phenomenon of the evolution of money generated by the last stage of STP?

Information Theory of Money As A.D. Kochergin said, the content of the concept of a “crypto currency” can be represented as a “digital expression of value”, which can be bought or sold in digital form and function as: a medium of exchange; counting unit; a means of preserving value without a legal status in any jurisdiction (Kochergin, 2017). Agreeing on the whole with such a definition, we consider it necessary to make a couple of comments. First, A.D. Kochergin, following the western trend, puts the exchange function on the first place and completely omits the function of the measure of value. In authors’ opinion, cryptocurrencies perform all the functions of money, like any form of money, however, of course, have a number of features. Secondly, any electronic money issued by a non-central bank, this author considers to be illegitimate. It is difficult to agree with this, since in the process of ordinary money multiplication (and this is also an increase in the money supply), it is not central banks that participate, but private commercial banks. If the crypto currency mining activity is not prohibited, it means that it is legitimate. As for international finance, we can cite the opinion of the head of the IMF, C. Lagard, who called on national banks to be more open to new developments and to take into account the treed to replace world currencies with electronic ones (See: The IMF Recognized the Legitimacy of Crypto currency / https://report.az/ru/finansy/mvf-priznal-legitimnost-kriptovalyut/). In Japan, since 2016, Bitcoin is considered the official means of payment; in a number of countries, including the USA, Canada and the EU crypto currency circulates legally and preparations are underway for the adoption of laws governing this process. The most important feature of crypto currency is its supranationality, which reflects the

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main trend of globalization. Of course, the development of crypto currency will have a significant impact on the evolution of the global financial system. From the point of view of the interests of society, the lack of centralized control of crypto currencies is compensated by the objectification of transactions and the maximum speed of their passage through the blockchain technology. Potentially, this technology covers all areas of economic activity without exception and has many areas of application, among which are finance, operations with any assets, accounting in organizations of any type and form of ownership. In fact, “blockchain is a new organizational paradigm for coordinating any kind of human activity” (Swan, 2017). The intrinsic value (rate, purchasing power) of crypto currencies, like all others, is determined by the Fisher formula, i.e. the size of their emissions. It can be assumed that, taking into account Fisher’s formula, the size of the Bitcoin emission by its author (s) was initially programmatically limited.

Results The analysis shows that all the above-mentioned theories of money correctly reflect one or another dimension of the development of the financial system, while at the same time having certain disadvantages. Accordingly, the correct understanding and interpretation of the newest form of money – crypto currency – involves taking into account the achievements of all the mentioned theories. In addition, each separately taken monetary theory is unable to explain the essence of this new phenomenon, which gives rise to a rather ambiguous attitude of analysts and practitioners of the financial system to it. Our analysis allows us to draw the following conclusions: 1) in the process of the long-term historical evolution of money, its form changes, while preserving the essential characteristics; 2) crypto currency is the newest result of technological improvement of the form of money, but this new form does not change the essence of money, therefore, the crypto currency is not a “new entity” and its circulation, like emission, is regulated by the same laws as other forms of money (technology emissions and circulation are a separate issue); 3) crypto currency, as a form of money, represents the beginning of a new wave (cycle) of money evolution, repeating many features of the monetary system of the times of the “gold standard”; 4) it has many advantages while minimizing the disadvantages of the previous forms of money; 5) the widespread use of crypto currency, like other cyber and physical systems, with an increase in the efficiency of the monetary system, carries with it the risks of increasing instability of the global financial system; 6) therefore, this new form of money should be developed under the close control of the state; 7) a general conclusion: a crypto currency is an attributive phenomenon of the

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digital economy – the present and the future of economic development in the context of globalization, with all its advantages and disadvantages.

Conclusion In conclusion, the authors believe that there is a repetition of some of the most important characteristics of the form of money inherent in the era of the “gold standard” in the crypto currency; therefore, one cannot argue that one or another monetary theory (or approach) is outdated and can be forgotten. Forms of money develop in an upward spiral, where the STP is the ascent engine, and the periodic change of emphasis to vertical and horizontal (in this case, money) communication due to its systemic advantages and disadvantages. If the emergence of a new international form of money can be described as a “technical press” in the form of digitalization, then from a social point of view it can be stated that the essence of money, with all its pluses and minuses, remains the same; money supply M is a reflection of the value of the mass of goods and services (GDP). A significant change in form, of course, also affects the content – yet this topic is the subject of another article.

References Aristotle. Nikomakhova etika (Nicomachean Ethics)/Philosophers of Greece, M.: Publishing House, “Eksmo-Press”, 1997, 204 pp. (in Russ.). Bell S (2001) The Role of the State and the Hierarchy of money//Cambridge Journal of Economics, Vol.25, No.2, P. 149–163. Butorina O.V. O proiskhozhdenii monet [On The Origins of Coins] // Modern Europe, 2016, No. 3 (69) pp.124–135. (in Russ.). Greber D. Dolg: pervyye 5000 let istorii [Debt: The First 5,000 Years of History]. M.: Ad Marginem Press, 2015, 528 pp. (in Russ.). Gritsenko A.A. Finansovo-ekonomicheskiy krizis kak iskhodnyy punkt obnovleniya finansovoekonomicheskoy arkhitektoniki [Financial and Economic Crisis as a Starting Point for Renewal of Financial and Economic Architectonics] // Initiatives of the XXI century, 2009, No.2., pp. 30–34. (in Russ.). Ivanova, V.V., Sokolova, B.I. Den’gi. Kredit. Banki: ucheb. – 2-e izd., pererab. i dop. [Money. Credit. Banks: Student’s Book] (2009), 2nd ed., revised and updated/ ed. By V.V.Ivanova, B.I.Sokolova. – M .: TK Velbi, Prospect Publishing House, 848 p. (in Russ.). Dubyanskiy A.N. Teorii proiskhozhdeniya deneg i kriptovalyuty [Theories of the origin of money and crypto currency] // Money and Credit. 2017. No.12., p. 97–100 (in Russ.). Khayek F.A. Chastnye den’gi [The Denationalisation of Money]. M .: Institute of the National Model of Economics, 1996, 229 p. (in Russ.).

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Khaykin M.M., Lapinskas A.A. Marksistskaya politicheskaya ekonomiya i problemy razvitiya sovremennoy ekonomicheskoy teorii [Marxist Political Economy and Development]. Issues of Modern Economic Theory // Problems of Modern Economics, 2018, No.1 (65) (in Russ.). Knapp GF (1905) Staatliche Theorie des Geldes. Duncker & Humblot, Leipzig 1905, – 397 p. Kochergin D.A. Mesto i rol’ virtual’nykh valyut v sovremennoy platezhnoy sisteme [The Place and Role of Virtual Currencies in the Modern Payment System] // Bulletin of St. Petersburg State University, Series 5., Economics, B. 33, 2017, Vol. 1, pp. 119–140. (in Russ.). Marks K. Kapital [Capital], T. 1, M .: Politizdat, 1973. (in Russ.). Makkonnell i Bryu. Ekonomiks [Economics]. Vol.1, M.: Respublika, 1992., 399 p. (in Russ.). Samuel’son P. Ekonomika [Economics].: Progress, 1964, 740 p. (in Russ.). Svon M. Blokcheyn (skhema novoy ekonomiki) [Blockchain: Blueprint for a New Economy]. “Olympus-business” V., Publishing House, 2017. (in Russ.). MVF priznal legitimnost’ kriptovalyut [The IMF Recognized the Legitimacy of Crypto currency]/ https://report.az/ru/finansy/mvf-priznal-legitimnost-kriptovalyut/ (in Russ.). Wray L R Understanding Modern Money: The Key to Full Employment and Price Stability. Cheltenham and Northampton, Edward Elgar Pub.

Aleksei V. Kuznetsov, Victor Ya. Pishchik, Petr V. Alekseev

14 Features of Benchmarking the Currencies Value Against Globalization and Regionalization of the World Monetary System Introduction The creation of global (regional) monetary units is a natural consequence of the globalization (regionalization) of the world monetary system and a necessary condition for its stable functioning. However, the circulation of national currencies as a reserve currency complicates (if not completely excludes) the possibility of effective supranational regulation of the world monetary system. This contradiction is primarily due to the use of the US dollar as the currency of international payments, loans, reserves and investments. The growth of dollar-denominated international liquidity leads to the formation of a triple deficit in the United States (budget deficit, trade deficit and financial account deficit) (Tang, 2014), global imbalances and a decline in the value of the dollar as the world standard of value. The article aims to define approaches to the benchmarking of an international monetary unit in the context of globalization and the regionalization of the world monetary system.

Methodology The history has seen three stages of measuring the value of money: commodity money, secured and unsecured money. The real commodity method of standardization of value has existed for thousands of years, when money served as a commodity, and its value correlated with the weight of a certain noble metal. The virtual commodity method of measuring value was characteristic of the era of the secured money of the Bretton Woods system, when gold was withdrawn from direct circulation, but partially returned to itself the function of money. During this period, only the US dollar could be exchanged for gold at the official rate of $ 35 per troy ounce. Finally, the virtual market method of value standartization characterizes the current

Aleksei V. Kuznetsov, Victor Ya. Pishchik, Petr V. Alekseev, Financial University under the Government of the Russian Federation, Moscow, Russian Federation https://doi.org/10.1515/9783110692075-014

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stage of unsecured (fiat or fiduciary) money circulation (Yusima and Svirchevskii, 2016). Trust in unsecured money is based solely on the legislative guarantees of governments to accept it as a means of payment at face value. The unsecured money system, on the one hand, has created the conditions for an unlimited increase in loan volumes in the economy. On the other hand, due to its extreme volatility, this system accumulates the risks of short and mid-term destabilization of the world economy, as demonstrated by the global financial crisis of 2008–2009.

Results The dollar value is virtual in nature, since it is determined daily on the exchange based on the value of other currencies. On the other hand, the dollar has lost more than 95% of its primary purchasing power since the U.S. Federal Reserve was founded. For example, nowadays you need to spend $20 to pay for a basket of goods worth $1 in 1913 (Rickards, 2011). The dollar is the basic unit for calculating global macroeconomic indicators, i.e. its external value (exchange rate) does not depend on its intrinsic value (purchasing power), since it is always taken as a unit relative to other currencies. The artificial retention of the high market rate of the dollar as the world standard of value is associated with an underestimated purchasing power of the national currencies of most countries of the world, and, first of all, of the BRICS countries. Thus, the nominal GDP in Russia, Brazil, South Africa and China at market prices in 2016 was two times lower (and India’s GDP is four times lower) than their GDP indicator, measured in purchasing power parity prices. In 1971, after the cancellation of the golddollar standard, the American currency lost its intrinsic value, but continues to enjoy the status of the main reserve currency due to the lack of worthy competitors. However, the credibility concerning the virtual properties of the dollar is not infinite. Former Federal Reserve Chairman A. Greenspan noted that Chinese currency could gain unexpected power in today’s international financial system of paper money if China had converted at least a small part of its foreign exchange reserves into gold, regardless of the convertibility of the yuan itself into gold (Greenspan, 2013). The absence of effective mechanisms for supranational regulation of the world monetary system in the context of the conservation of the dollar status as the key unofficial world reserve currency reinforces economic and financial imbalances at the global and regional levels. However, the introduction of a full-fledged supranational currency (unit of account), not related to the emission mechanism of the Federal Reserve System, is impossible without delegating part of monetary and financial sovereignty to the sphere of supranational monetary control agencies. Independent projects for the creation of a world currency were presented by laureates of the Nobel Memorial Prize In Economic Sciences – R. Mundell and

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J. Stiglitz. Both projects, however, had significant drawbacks. R. Mundell proposed to realise in the world currency the triune monetary standard based on the dollar, euro and yen (later yuan), hence the name of this currency – DEY. It was assumed that DEY can function only in conditions of fixed exchange rates, and control over its circulation will be exercised exclusively by the central banks of the United States, the Eurozone, and Japan or China (Mundell, 2005). As for the global currency project of J. Stiglitz, which he called “global greenbacks”, it covered only the sphere of international trade (Stiglitz, 2006). In the 1940s, J.M. Keynes proposed a revolutionary multilateral clearing settlementsproject to correct global imbalances while expanding world trade. The British economist believed that national currencies should not perform the function of reserve currencies and suggested assigning this role to a neutral unit of account – the bancor, which will be issued by the world central bank, established as an International Clearing Union (ICU). According to the Keynesian project, the settlement services in international trade moved to a supranational level, which made it possible to preserve not only sovereign governments, but also central banks with their monopolies to issue national currency units (Keynes, 1980). The Keynesian project was based on the idea of balancing the balance of payments symmetrically, according to which responsibility for the imbalances of international trade was assigned to debtors and creditors at the same time. Keynes proposed to impose sanctions against countries with a chronic trade balance surplus, which included: forced revaluation of currency and paying a fine to the ICU Reserve Fund of at least 5% charged on the cost of trade surplus. The fine could increase up to 10% if the country accumulated very large surpluses (Steil, 2013). At the present stage, such a policy could keep such countries as China and Germany from excessive trade expansion. The unique monetary and financial mechanism of multilateral clearing settlements in transferable rubles was a peculiar modification of the Keynesian project. It existed from 1964 to 1991 in the countries of the Council for Mutual Economic Assistance (Comecon). It is characteristic that within the framework of this mechanism, no country had the right to independently issue transferable rubles. A multilateral financial institution, the International Bank for Economic Cooperation (IBEC), was specially created for the emission of this currency. Countries could get access to the collective currency only in the process of reciprocal trade in goods and services of their own production. The IBEC loans were used if a country had a shortage of currency due to the excess of the size of imports over the volume of exports. Within the framework of the multilateral clearing system, any unilateral privileges were excluded, since the transferable ruble served the interests of all countries equally by performing international monetary functions. By this, the transferable ruble system was fundamentally different from the modern dollar monetary system based on the unilateral privileges of the United States. The clearing mechanism of the Comecon countries prevented the drain of brains, technology and capital, since it excluded the

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free movement of production factors.The participants of the multilateral clearing system interacted using the planned organization of economic activity and state ownership of the means of production, which made it impossible to transfer resources from production to speculative finance (Zvonova and Kuznetsov, 2018). The advantages of the transferable ruble system were that it allowed the countries of the socialist camp to take part in the creation of international liquidity, which was not controlled by the US Federal Reserve. The transfer ruble did not circulate in the form of banknotes, coins, and treasury notes, since it was a clearing currency. In the mutual trade of the Comecon countries, it played the role of a scale of prices and units of account.From 30% to 40% of machinery and equipment produced by Czechoslovakia, the GDR, Hungary and Bulgaria was sold on the markets of the Council for Mutual Economic Assistance. According to the UN, from 1985 to 1990, the volume of international trade was, on average, approximately 6 trilliondollars per year.At the same time, the average annual trade volume of the Comecon countries amounted to $ 310 billion. Thus, over the last five-year period of the existence of the Comecon in the multilateral clearing system, over 5% of world trade was carried out using the transferable ruble. Thanks to the mechanism of multilateral clearing settlements, all European Comecon countries had become economically developed countries (Kuznetsov, 2018). For comparison, in December 2017, the aggregate share of currencies of the BRICS countries (including the yuan) in servicing payments in world trade was less than 2% (SWIFT, 2018). No country of the BRICS group has been so far classified by the UN as a developed country. Currently, the conservative attitude of countries towards supranational monetary cooperation projects exists due to the intentions of new global players, first of all, the European Union and China to compete with the United States by issuing a world currency equivalent to the dollar. However, without the concept of a real market benchmark adopted by the majority of countries around the world, increasing competition in the framework of new currency blocks by replacing one world currency with several will not solve the problem of global imbalances. The growth of global, regional and country imbalances that is happening in the period after the global financial crisis of 2008–2009 has a destructive impact on the implementation, in particular, of the project to form a bipolar model of the international monetary and financial system based on the US dollar and the euro. Recently, significant imbalances have been accumulated in external lending and financing of EU countries in terms of net external debt and net international investment position. The 20-year experience of the regionalisation of the European economy in the format of the Economic and Monetary Union showed that over the past period, the euro has not become an equal partner and competitor to the dollar as a function of world currency, thereby not solving the problem of confidence in the global monetary system. The emergence of the euro, like any other monetary unit claiming to be a world currency, is influenced by the objective laws of dialectical unity and contradiction between the real economy sector, on the one hand, and the financial

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sphere, on the other. A currency can grow to thestatus of world money only if there is a close and balanced interaction between these two areas and the refusal of the priority attention of state regulatory institutions to the development of any one of them (most often the monetary and financial sphere). Over the past fifty years of progress towards a single European currency, monetarist concepts have dominated, which is reflected in institutional terms of the three legal forms of European monetary integration – the “Werner Plan” (1971–1980), the draft European Monetary System (1979–1998), as well as the European Economic and Monetary Union (from 1999 to present). The basic reasons that all three projects have not been completed, are rooted in the inconsistency of the practice of implementing currency integration projects with the economists’theory of integration. The main focus in the process of implementing projectswas on creating majorly collective regulatory mechanisms in the sphere of circulation, including the use of the mode of co-floating national currency rates, the creation of a European currency unit ECU and the establishment of the euro on its basis. At the same time, strategic structural decisions on the creation of an economic union and the formation of a single capital market remained at the periphery of the attention of European authorities due to the difficulties of their practical implementation. The fundamental contradiction of the eurozone, aggravated by the crisis of 2008–2009, was represented by the growing lack of complianceof the economies of a significant number of EMU member countries with the requirements of real convergence, justified by theorists.1 In the mid 2010s, EU officials acknowledged the systemic crisis in the region as a result of the exacerbation of structural problems and deepening external imbalances. The loss of competitiveness of most eurozone countries and the high degree of vulnerability of the bank-oriented model of the European financial market were recognized as a systemic problem.2 The consequence of the unbalanced reproduction model of the EMU crisis was the growing foreign investors’ distrusts of the euro. According to the EU Commission, in 2017 the share of euro-denominated international debt fell to 20% compared to 40% in the pre-crisis year – 2007. Throughout the whole post-crisis period, the share of the euro as a tool for benchmarking other currencies, a means of international payments and as an international reserve asset has been falling. The structural crisis of the euro was manifested in the deformation of its function of transferring savings to investment under the impact of the 2012 banking

1 According to the R. Mundell’s theory of the optimal currency zone, the essence of real convergence lies in that two or more countries receive economic benefits from the single currency if the economic cycles of these countries have a very high correlation between themselves (Mundell, 1961). 2 The analytical note prepared by the “four chairmen” out of the leaders of the supreme bodies of the EU for the informal meeting of the European Council held on February 12, 2015, entitled “Preparing for Next Steps on Better Economic Governance in the Euro Area”, stated the euro zone is experiencing a systemic crisis (European Сommission, 2015).

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crisis. Large-scale injections of liquidity into the sphere of circulation by the ECB were required in 2015–2018 in order to expand credit support to the banking sector using quantitative easing programs. The cost of the regulatory financialization of the European economy was manifested in the accumulation of assets of various reliability forms amounting to 4.65 trillioneuros on the balance of the ECB by the end of 2018and, as a result, the growing distrust of the financial regulator’s policies and the aggravation of the debt nature of the euro. In an attempt to revive the monetary and financial integration in the European Union, the emphasis was placed on strengthening the euro position in the international turnover in accordance with the roadmap, which includes four sets of measures to realize the goal of its transformation into a truly global currency: a) measures to complete the creation of the banking union and the capital markets union; b) measures for the development of the intra-European financial market; c) measures to increase the share of the euro in operations on the international financial market; d) measures to increase the use of the euro in international payments in strategic sectors of the European economy (energy, agriculture, aircraft, etc.) (European Commission, 2018). A belated nature of the taken measures, largely due to geopolitical factors and the growing trade and economic confrontation between the EU and the United States stands out. The creation of a common payment and settlement infrastructure which is autonomous from settlements in US dollars is becoming a highly relevant task of the countries of the Eurasian Economic Union in the modern geopolitical context. The implementation of such a project will facilitate the creation and inclusion of a common currency in the form of electronic moneyin the system of cross-border settlements between the countries of the Eurasian Economic Union. The National Payment Council has made such a proposal with the support of the Russian Ministry of Finance. The Russian Finance Ministry believes that the creation of electronic money in the EAEU is necessary to accelerate and ensure the reliability of mutual settlements in conditions of the threat of sanctions. Conceptually, the currency will be similar to the European currency unit ECU, which preceded the emergence of the euro. The main difference is that the use of the collective currency of the EAEU may be limited solely to the operations of mutual settlements between members of the union and will not grow into traditional money (http:// www.plusworld.ru, 2018). An important methodological and practical task for the introduction of a common settlement monetary unit is the development, implementation and subsequent testing of the optimal model of clearing settlements within the EAEU. A promising stage in the development of the world monetary system is the transition to a real market method of currency benchmarking. At the same time, the greatest difficulties in connection with the application of this method are caused by the determination of what can serve as a “binding” of benchmarking. If one assumes that in the future monetary circulation will be fully translated into digital form, then the quantity of energy produced and owned by individual countries

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could serve as a “binding” of supranational money supply.Energy is not only the main resource for human life, but also the foundation of the digital economy. In particular, the circulation of electronic money becomes impossible without electricity. For example, the performance of a Bitcoin payment system is 7–10 transactions per second, or about 3,500 transactions per hour. Such performance is quite sufficient for the provision of a city of average size with electronic payment services. However, the total cost of energy needed to maintain the smooth functioning of the entire Bitcoin system is measured by the size of the whole national economy. At the beginning of 2014, the Bitcoin network in terms of total electricity consumption (about 5 GW) was comparable to a state like Ireland. By 2020, the Bitcoin payment system could potentially be consuming up to 15 GW while maintaining the current growth rate of computational efficiency, which is similar to Denmark’s electricity consumption in 2014 (Barrdear and Kumhof, 2016). With this in mind, it is relevant to analyze the possibility of linking supranational money supply to the total amount of energy produced by a country and the energy resources available to that country. Such an approach could create a material basis for a real market method of currency benchmarking and could serve as a factor in stabilizing the functioning of the world monetary system, both at the global and regional levels. This approach could be considered as an alternative to the modern method of determining the country’s place in the global economy and its role in managing the global monetary system.

Conclusion Modern reserve currencies under the national jurisdiction of the issuing countries have exhausted their potential in providing conditions for sustainable and balanced world development. To a certain extent, this also applies to the euro regional currency in its current internally contradictory status. A supranational clearing currency could be a real alternative to national monetary units, unofficially serving as reserve currencies. The successful functioning of the clearing mechanism of multilateral settlements of the countries of the Council for Mutual Economic Assistance has proved the practical feasibility of the theoretical concept of supranational monetary cooperation proposed by J. M. Keynes. As the experience of transferrable ruble circulation has shown, the balanced development of all participants in this system is quite compatible with the simultaneous expansion of mutual trade. At the same time, real, and not declarative, application of the Keynesian principle is neededfor the implementation of the project of supranational currency regulation in the system of international relations at the present stage – an equal sharing of costs and benefits of globalization (regionalization) among all its participants.

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Acknowledgments: The article was written based on the results of the research carried out at the expense of budget funds, which were provided to the Financial University as part of the state contract.

References “EAEU Plans to Create a Single Clearing Currency”, available at: https://www.plusworld.ru/daily/ platezhnyj-biznes/eaes-planiruet-sozdat-edinuyu-raschetnuyu-valyutu (accessed 15 March 2019). Barrdear, J., Kumhof M. (2016), “The Macroeconomics of Central Bank Issued Digital Currencies”, staff working paper No. 605, Bank of England, 92 p. Communication from the Commission to the European Parliament, the European Council (Euro summit), the Council, the European Central Bank, the European economic and social committee and the Committee of the regions towards a stronger international role of the euro. Brussels, 5.12.2018, com(2018) 796 final, pp.14, available at: https://ec.europa.eu/info/ sites/info/files/com-2018-796-communication_en.pdf (accessed 15 March 2019). Greenspan, A. (2013), The Map and the Territory: Risk, Human Nature, and the Future of Forecasting, The Penguin Press, NY, 400 p. Keynes, J.M. (1980), “Shaping the Post-War World: the Clearing Union”, in Moggridge, D. (Ed). The collected writings of John Maynard Keynes, Vol. XXV, Activities 1940–1944, London, рр. 42–66. Kuznetsov, A. V. (2018), “Supranational Currency Regulation: Theoretical and Practical Approaches”, Finance and Credit, Vol. 24, No.1, pp. 191−208. Mundell R. A. (1961), “Theory of Optimum Currency Area”, The American Economic Review, Vol. 51, Issue 4, September 1961, p. 661. Mundell, R.A. (2005), “The case for a world currency”, Journal of Policy Modeling, Vol. 27 No 4. pp. 465–475. Preparing for Next Steps on Better Economic Governance in the Euro Area.Analytical Note. Informal European Council, 12 February 2015, p. 8, available at: https://ec.europa.eu/commission/ sites/beta-political/files/analytical_note_en.pdf (accessed 15 March 2019). Rickards, J. (2011), Currency Wars, Penguin Books, NY, London, 304 p. Steil, B. (2013). The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the making of a New World Order, Princeton University Press, 449 р. Stiglitz, J.A. (2006), “Reforming the Global Reserve System”, in Stiglitz J. A., Making Globalization Work, W. W. Norton & Company, New York, London, pp. 245–268. SWIFT (2018) “RMB Internationalisation: Where We Are and What We Can Expect in 2018”, available at: https://www.swift.com/resource/rmb-tracker-january-2018-special-report (accessed 15 March 2019). Tang, T. C. (2014). “Fiscal Deficit, Trade Deficit, and Financial Account Deficit: Triple Deficits Hypothesis With the U.S. Experience”, discussion paper 06/14, Department of Economics, School of Business, Monash University Malaysia, 13 p. Yusima, V.N., Svirchevskii, V.D. (Eds.) (2016), Independent Supranational Currency: Theory and Practice, Moscow, INFRA-M, pp. 23–33. Zvonova, E.A., Kuznetsov, A.V. (2018), “Scenarios of World Monetary and Financial System Development: Opportunities and Risks for Russia”, World Economy and International Relations, vol. 62, No. 2, pp. 5−16.

Alisa S. Kirizlyeyeva

15 The Development of the Bank of the Future in the Context of Macro-Economic Instability: From Tools to Policy Introduction In the countries with a developing economy under the conditions of macroeconomic instability and instability of the banking system, an unreasonable policy of conducting banking business and inefficient management of banks’ liabilities and assets are carried out, which results in the decrease of modern banks reliability. In the context of the world banking system development, compliance of the developed countries’ banks with the recommendations of the international regulator on preserving reliability under different market development scenarios, including macroeconomic instability, the banks in the developing countries should move to a new level of functioning in the future. The combination of various internal and external, economic and noneconomic factors predetermined the low level of banks development in the developing countries, which is impossible in the conditions of the development of financial technologies, digital revolution and the global market. The formation and development of reliable banks in the future is possible only with the use of financial instruments of balance and off-balance, as well as the statutory and legal regulation of the banks activities by the regulator taking into account international recommendations.

Methodology The study used the methods of comparative analysis, retrospective analysis, statistical review and review of state statutory and legal regulators.

Results When creating a single economic space during the international economic integration, the consideration of the bank’s activities exclusively as those of an enterprise engaged in traditional banking operations does not fully reveal its specific features, possibilities and problems of functioning in the modern conditions of the Alisa S. Kirizlyeyeva, Public organization “Institute of local and regional development”, Kyiv, Ukraine https://doi.org/10.1515/9783110692075-015

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national economy development of any country in the world. So far the banks have come a long way of establishment and development to achieve the modern status (Ametistova and Polishchuk, 1999; Balabanov, 2002; Bunkina, 1994; Davidenko, 1997; Kachan, 2000; Kirizlyeyeva, 2016). Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 (as amended by Directive of the European Parliament and of the Council of 2000/28 / EC of September 18, 2000) laid down the basic legal principles of banking: a ‘credit institution’ can be called a business entity whose activity is to receive deposits or other means from the public on a returnable basis and to provide loans at their own expense, or an institution that performs electronic calculations in the meaning of Directive 2000/28/EC of the European Parliament and of the Council of 18 September 2000. Initially, banks carried out a limited range of operations: accepting temporarily free funds at a certain interest, issuing loans, making payments. Over time, banking operations became more complex, the range of banking services increased, the functions and scope of banking activities expanded (Korobova, 2007). Scientists and practitioners of all countries study and give their own definitions of ‘a bank’, its essence and peculiarities of its activity (Lavrushin, 2007; Orlyuk, 2003; Selivanov, 2000; Vishnevskiy, 2000; Volkova, 2000; Zhukov, 2010). But basically all these definitions come down to the essence of the a bank functioning as a credit institution with the exclusive right to perform three fundamental operations: opening and keeping current accounts, attracting temporarily free funds to deposits of individuals and legal entities, placing these funds on their own account and at their own expense on the conditions of repayment, payment, urgency, which is presented in the Federal Law of the Russian Federation of 02.12.1990, No. 395-I ‘On Banks and Banking Activities’, as well as in the Law of Ukraine ‘On Banks and Banking Activities’ of March, 20, 1991. There can be noted the narrowness of the legislative interpretation of a bank as a credit organization, and also the norms of the national legislation limit the activities of banking credit organizations. The analysis of the activities of banks, which reveals the problems of their functioning in Russia and Ukraine, reflects the aspects that need to be explored and improved today both in the legislative regulation of their activities and in practice by banks’ stakeholders (Figures 15.1–15.5). In actual practice we also observe the problems of non-diversified liabilities and assets in the context of the current development level in Russia and Ukraine, an insignificant use of off-balance financial instruments exclusively in the form of credit lines and guarantees. In Ukraine, the national regulator has not even established the requirement for the mandatory reflection of off-balance sheet claims and obligations data in financial statements, which makes it impossible for the bank’s stakeholders to have a true idea of financial opportunities, financial position and possible risks of the bank.

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Other assets 2018 Use of profit 2017 Fixed assets, intangible assets and inventories

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2011

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Accounts with the Bank of Russia and other authorized bodies

2009

Cash, precious metals and stones

2008

2007 0.0

20000.040000.060000.080000.0

Figure 15.1: The structure of Russian banks’ assets (bln. rub.).

The macroeconomic instability of the developing countries Russia and Ukraine gives rise to and determines the tendencies of traditional banks’ aggressive policy to invest in one type of assets faster than the formation of a stable resource base, the use of insider schemes, the withdrawal of money into offshore zones, the presence of the ‘drawn’ capital. Such group of bank’s concerned parties as its owners do not implement the institute’s strategic policy to increase its financial stability and reliability for the purpose of the development in the future, their interests are focused solely on obtaining maximum short-term profit. Thus, we observe the

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2018

Reserves for active banking operations

2017

Investment in securities

2016

Loans to individuals

2015

Loans to business entities

2014

Credits

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Correspondent accounts opened in other banks

2012 Funds at the NBU 2011 Cash and banking metals 2010 Total assets, some of which are articles

2009

2008

2007 0.0

1000.0

2000.0

3000.0

Figure 15.2: The structure of Ukrainian banks’ assets (bln. UAH).

conduct of banks’ aggressive policy in the short term prospects and their loss of solvency, which leads to numerous withdrawals of them from the market by the regulator. Withdrawal from the market of each individual bank is accompanied by a definite freezing of customers’ accounts, which is accompanied by a loss of solvency and bankruptcy of many enterprises and organizations, as well as by the jeopardy of the population welfare. To take into account the interests of all bank’s stakeholders, it is necessary to control the national regulators activities in terms of the introduction of the recommended Basel Committee principles, compliance with the requirements of the international regulator, which presuppose the implementation of the basic rules and

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Other liabilities 2018 Promissory notes and bank acceptances

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2016

Bonds

2015 Customer accounts 2014

Loans, deposits and other funds received from other credit organizations

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2012 Credit institution accounts

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Credits, deposits and other attracted funds received by credit institutions from the Bank of Russia

2010

2009

2008

Funds and profits of credit institutions

2007 0.0

20000.0 40000.0 60000.0 80000.0

Figure 15.3: The dynamics and structure of Russian banks’ liabilities (bln. rub.).

requirements of banks’ activities in the present and future that would, on the one hand, correspond to the financial and other technologies development level, and, on the other hand, meet the criteria of reliability even in the conditions of macroeconomic instability. According to the author, the bank’s financial instruments in the future are the totality of all financial instruments that are valid in the present, past and future,

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2000.0 Capital 1800.0 1600.0

The authorized capital

1400.0

Bank liabilities

1200.0 Means of economic entities

1000.0

Urgent funds of business entities

800.0 600.0

Funds of individuals

400.0 Urgent funds of individuals

0.0

Total liabilities 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

200.0

Figure 15.4: The dynamics and structure of Ukrainian banks’ liabilities, (bln. UAH).

4000

2000

0 2007 2008 2009 2010

2011

2012

2013

2014

2015

2016

2017

Irrevocable obligations of the credit organization Guarantees and surety issued by credit organization Figure 15.5: The dynamics of Alfa-Bank Russia off-balance sheet liabilities.

including off-balance sheet requirements, liabilities, and directly affect the results of operations and financial state, which conditions the introduction of a new cash flows management system. According to the international financial reporting standards, a financial instrument is an agreement, as a result of which one enterprise has a financial asset, while the other – a financial liability or equity instrument. The International Financial Reporting Standards regulate the mandatory reflection of all contingent liabilities and contingent assets, which should be recorded in the bank’s off-balance sheet as off-balance sheet liabilities and off-balance sheet

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assets. In the context of the digital revolution, the bank of the “future” in order to retain its positions in the financial market will need to expand and conduct operations not only with the onset of events in the present, recognizing them as financial liabilities and financial assets, but also possible liabilities and possible assets when events occur the future. The necessary off-balance sheet operations for banks in the future will be: asset securitization that allow them to simultaneously improve the quality of the loan portfolio and attract new cash flows to the ‘future’ bank; off-balance sheet credits sale operations, exchange operations with interest rates; financial guarantees (bank guarantees, digital bank guarantees using smart contracts, credit guarantees, sale of recourse assets, a guarantee letter of credit); off-balance sheet activities related to investing and hedging: forward foreign exchange transactions, interest and currency swaps, option, interest rate future; traditional debt obligations and exchange financial transactions (documentary letter of credit, digital letter of credit). The comparison of off-balance sheet claims and obligations of the Russian Federation and Ukraine shows that synthetic and, accordingly, analytical accounting of Ukraine is oriented at a more detailed reflection of all types of financial instruments recorded on the off-balance sheet, including derivative financial instruments. However, the analysis of some individual banks, presented above, shows the practical insignificance of the used tools, accounted for in the off-balance sheet. From the position of achieving objectivity in the future evaluation of the bank and effective management of liabilities, assets, off-balance sheet liabilities and requirements, it is important to ensure their high-quality, detailed, complete accounting and reporting for all internal and external users of information. In the conditions of digitalization, the future bank should seriously, constructively and on a large-scale change, improve the development strategy of its operations, which determines the adjustment and improvement of its functions and development factors (Figure 15.6). The digital revolution has identified the necessity for dramatic changes in traditional banking operations, which have always been carried out and reflected by banks exclusively as passive and active operations. The possibility of a digital transmission of virtually all informational data dictates new requirements for banks for their possible transition to the bank of the ‘future’, which, along with traditional banking services, will have all the possibilities of providing services and selling products that are the result of financial technologies. Thus, the banks of the ‘future’ will reflect new products, services and technologies in the assets and liabilities of the balance, as well as on the off-balance sheets. To comply with the competitive environment and the requirements of the modern technological world the bank of the ‘future’ needs not only to carry out certain passive and active operations, the ‘physical architecture’ of the bank, but also,

Quantitative and qualitative characteristi cs of liabilities and assets, off -balance sheet claims and liabilities structure Capital quality

Reputation

Strategic management in the context of economic crisis

Qualitative preventive risk management

Corporate culture. The level of qualification and professionalis m of managers and executives with the upto-date knowledge of financial

Functions An effective tool for regulating the economy at the national and international levels– ensuring a favorable investment climate in the redistribution of cash flows,ensuring competitiveness in the global Coordinationthe use of the resource potential of non-bank credit organizations, creating remote customer service Distribution- the satisfaction of customers’ demands not only in monetary means, but also in other values–goods, securities, derivative instruments, non-f inancial services Payment and Settlementintroduction of decentralized payment system principles and technologies, transition to electronic money circulation and paperless technologies, the future bank should act as a broker, introduction of data transfer services and applications to partners, developers using standardized and open API Investment- introduction of modern products and non-financial services for banks’ customers, digital interaction with customers Organization of issue and placement of securities– development and investment of banks in the technology platform Information and consultingcreating a modern technological bank of the future, prompt meeting of the digital consumers’ needs Innovativeinnovation in the form of objects, technologies, products

Figure 15.6: Functions and factors of a modern bank’s development.

Reliability – keeping institutions stable in the High-quality preventing risk management– context of different possible market development ensuring technological and information scenarios, reflection of the real financial condition security, the use of powerful algorithms to of the bank in the present and forecasting future identify external and internal security activities under different conditions of threats

Factors of banks’ external environment

Technological– the state of Political and legal– national and ability technological infrastructure; creation of and compliance of legislation with informational and technological support; international international restrictions; requirements and possibilities of the level of sustain requirements digital revolution; development of and standards; level of compliance of financial, banking technologies; corporate governance

Economic– globalization of the world economy and the degree of the country’s integration into the world market; the quality of regulation of solutions to the economic crisis consequences; state of the payment system; development level of national and global financial market.

Factors of banks’ internal environment

High quality and diverse range of services – in the conditions of digitalization the introduction of new modern products and nonfinancial services, the use of all financial and non-financial tools, digital interaction with customers, digitization services, the provision and useof data sets, cloud technologies

Alisa S. Kirizlyeyeva

Social and cultural – agreement of banking legislation with the system of people ’s values, with religious rules (Islamic banking); communication with customers through digital channels.

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taking into account non-economic external, namely, technological factors, quickly and flexibly implement other products and services that meet the requirements of the modern world. At the same time, the significant and main influence of technological non-economic factors on the need to transform a modern bank into a bank of the “future” strengthens and contributes to the development of moral and cultural factors that imply the need to communicate with potential customers through digital channels, “to feel them in an intuitive way”; and it also qualitatively changes the influence of internal non-economic factors of management quality, applied management methods, qualification level, professionalism of all managers and responsible executives of the bank, using information ‘prompters’ and infobots for office employees, electronic script-hints at workplaces, applications that aggregate information from all information bank systems; as well as automatic tracking, processing and analysis of complaints and requests. Traditional financial instruments – deposits, currency, loans, securities etc., which are reflected in the bank’s assets or liabilities balance sheet, or on the offbalance sheet, should be supplemented with new products and services in a modern bank in order to move to a qualitatively new technological level of development of the ‘future’ bank . In the future, new operations will cause the need to improve financial accounting in the bank of the ‘future’, to form a new accounting system not only for financial instruments, but also as a change in the legislative and regulatory framework of banks, and the possibility of showing non-financial instruments – new non-financial products and services: information digitization services, mobile applications, use and provision of cloud technologies, production services, implementation of payment chips, services for the provision and use of datasets, information to third parties to ensure the needs of their customers, including websites, mobile applications, retail banking platforms, high-performance computing and credit risk analysis, the block chain technology will allow to make payments with a high level of security, services based on online technologies, investment in fintech startups during the creation and use of financial and banking platforms. Advances in the field of cryptography and machine learning, the development of fintech explains the banks’ of the ‘future’ use of new robot advisers, aggregators, innovative trading platforms, P2P lenders and payment service providers; and the combination of the cryptography and biometrics capabilities will ensure the verification of the client’s identity and will provide access to the entire financial system in reliable ways. Such implementations in the bank of the ‘future’ as the use of robot advisors for making financial decisions in real time, the use of automated training systems, multifunctional multi-touch terminals; creation of work areas with consultants, equipment with multi-touch tables, contactless authentication and electronic signature means; self-service areas for long operations; self-study zones of products and services equipped with interactive panels with natural controls (touch, motion); artificial intelligence systems that promote optimal management of customer funds,

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transfer of assets from long-term to short-term or more liquid forms instantly and almost without loss; the provision of information brokers services for potential vendors or customers, social commerce services will result in the need to reflect the characteristics of the qualitatively new activities of banks in liabilities, balance sheet assets, and in off-balance sheet requirements and off-balance sheet liabilities. For example, in the developed countries, banks are moving from the role of intermediaries to electronic trading, creating and participating in e-commerce platforms that use algorithms to analyze and search transaction data to increase credit scoring, increasing reliability and making available loans with low interest rates, at that the distributed registry – a new technology – improves efficiency, accuracy and security of processes.

Conclusions/Recommendations The article proves that in the new conditions of the development of society and technology, the model of a modern bank with the probability of transition to the bank of the ‘future’ must be considered taking into account new development factors, financial and non-financial instruments of circulation, qualitatively new understanding of liabilities and assets, off-balance instruments. It also presents the types of new operations of modern banks, as well as international standards for their definition and accounting. One of the main differences of a modern bank from any other type of enterprise is that all financial instruments that are valid in the present, past and future are accounted for in liabilities, assets and off-balance. Off-balance sheet claims and liabilities are assets and liabilities (purchase – sale of a certain currency on derivatives, income or loss) that a modern bank will receive or will accordingly pay in the future. In the conditions of the prevailing modern world development trend, when forming the optimal structure of liabilities, assets, a modern bank with the probability of transition to the ‘future’ bank in order to achieve the main goal – to obtain maximum profit – should use all financial instruments and technologies available in the world practice that ensure the interests of the bank’s stakeholders, as well as rights, interests of all interested parties, even in the conditions of macroeconomic instability, legislative restrictions and frequently changing consumers’ needs. The development strategy of the bank of the ‘future’ should be formed taking into account the interests of all stakeholders (interested parties) in compliance with the international requirements stipulated by the international Basel recommendations. Thus, the formation of a bank in the future in the conditions of both economic growth and macroeconomic instability should involve not only traditional but also new operations in the form of reflecting financial and non-financial instruments on

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the balance and out of balance sheets, and also focus on the use and development of modern methods of banking risks management, which predetermines the customization of the national legislation of developing countries according to the international standards of banking regulation.

References Ametistova L. M., Polishchuk A. I. Rol bankovskoy sistemyi v ekonomike: Uchebnoe posobie po kursu “Bankovskoe delo” [The role of banking system in economics]. Moscow, MEI, 1999, 39 p. (in Russ.) Balabanov I. T. Osnovyi finansovogo menedzhmenta, kak upravlyat kapitalom? [The bases of financial management, how to control capital?]. Moscow, Finansy i statistika, 2002, 384 p. (in Russ.) Bunkina M. K. Dengi. Banki. Valyuta [Money. Banks. Currency]. Moscow, DIS, 1994, 175 p. (in Russ.) Davidenko N., Kudashev A. Finansovyiy menedzhment: evolyutsiya vzglyadov i utochnenie predmeta [Financial management: the evolution of perspectives and indication of object.]. The problems of theory and practice of management, 1997, no. 1, pp. 116–118 (in Russ.) Kachan A. A. BankIvske pravo [The banking law: scientific manual]. Kuiv, Yurinkom Inter, 2000, 288 p. (in Ukrain.) Kirizleeva A. S. Problemyi razvitiya bankovskoy deyatelnosti [The development problems of banking activities]. The current problems of economic, financial and credit systems development, 2016, pp. 135–139 (in Russ.) Korobova G. G. Bankovskoe delo [Banking]. Moscow, Economist, 2007, 766 p. (in Russ.) Lavrushin O. I. Dengi. Kredit. Banki [Money. Credit. Banks]. Moscow, Knorus, 2007, 560 p. (in Russ.) Orlyuk O. P. BankIvska sistema Ukrayini. Pravovi zasadi organIzatsIyi [Ukrainian banking system. Organization Law Basis]. Kuiv, Yurinkom Inter, 2003, 239 p. (in Ukrain.) Selivanov A. O. BankIvske pravo Ukraini [The banking law of Ukraine]. Kuiv, In Yure, 2000, 384 p. (in Ukrain.) Vishnevskiy A. A., Volohata K. O. Bankovskoe pravo Anglii [Banking law of England]. Moscow, Statut, 2000, 300p. (in Russ.) Volkova N. I. Dengi. Kredit. Banki [Money. Credit. Banks]. Donetsk, KITIS, 2000, 286 p. (in Russ.) Zhukov E. F. Dengi. Kredit. Banki. [Money. Credit. Banks]. Moscow, UNITY-DANA, 2010, 785 p. (in Russ.)

Nataliya I. Valentseva

16 The Role of Banks in Ensuring the Quality of Redistribution of Monetary Resources in the Economy Introduction The development of banking activities, the emergence of entities in the financial market, partially performing functions of banks, make it relevant to identify the advantages of the bank’s activities in the financial market on the basis of its qualitative assessment. Quantitative assessment of the phenomenon characterizes its size or volume. Qualitative assessment reveals the other side of the phenomenon. Since the term “quality” in Russian means a property or a characteristic that defines the worth of something (Ozhegov and Shvedova, 1955), a qualitative assessment of the bank’s activities must show the benefits of the activities of the credit institution compared to other subject, to characterize the importance of banks in the mobilization and redistribution of resources, what creates a basis for increasing the customer confidence in the assessment of the stability of the credit institutions.

Methodology of the Quality Assessment of the Activities of Commercial Banks The activity of a commercial bank is the activity of a credit institution in the financial market, which consists in the movement of funds from the lender to the borrower, from the seller to the buyer, resulting in profit, the performance of useful economic functions and the promotion of the solution of social tasks (Valenceva, 2019a). The specifics of commercial banks activities are disclosed in Table 16.1 in the context of its elements. In accordance with the content of banking activities presented in Table 16.1, the constituent elements of qualitative assessment may be its objects in the following areas: achieving the goal of activity, a variety of tools that ensure the implementation of this goal, the costs of the process of creating banking products, the quality of the result. The goal of the activity is the mediation in the redistribution of funds, which consists of the raising and allocation of resources.

Nataliya I. Valentseva, Financial University, Moscow, Russia https://doi.org/10.1515/9783110692075-016

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Table 16.1: Content of commercial bank’s activities. Elements of activities

Content of elements

Purpose of the activity

Mediation of the credit institution in the movement of funds on a returnable basis from the seller to the buyer

Means to achieve the goal Effective use of financial market instruments where credit instruments (credit, deposit, factoring, settlement of problem loans) are of greater priority. Process of the activity

Creation of products (services) through banking operations permitted by law

Sphere of activities

Financial market segments

Result of activity

(a) Financial result (b) Social result

The qualitative aspect of assessing the achievement of goals of the activities is associated with the efficiency of funds redistribution. The latter is largely determined by the ratio of the size and structure of the formed bank deposit base and the loans granted. The inadequacy of mobilized and allocated resources includes several types, depending on which the risk of transformation is introduced in the form of liquidity risk of the balance sheet or of the bank, currency risk and risk of profitability loss (Table 16.2). To assess the degree and nature of the transformation risk, the world banking practice has developed two types of coefficients: the coefficient of transformation of resources and the coefficient (rate) of surplus (deficit) of resources of a certain type (term, currency, type of customer, etc.). The degree of risk is determined by the absolute value of these coefficients. The nature of the risk can be judged by two criteria: a) the sign of the coefficient (+, –); b) what covers the shortage of resources or where their surplus is sent. The first coefficient allows us to give an overall assessment of the risk of the bank, which traditionally acts as an intermediary for the redistribution of deposit resources, investing them primarily in loans. Ctransfr =

P−A × 100 P

where: C – the coefficient of transformation P – deposit resources A – debt on loans The coefficient of transformation shows: a) what share of free deposit resources is invested not in loans, but in other assets, or b) the deficit of deposit resources

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Table 16.2: Inadequacy of mobilized and allocated resources. Type of inadequacy of mobilized and allocated resources

Form of manifestation

Type of the bank risk

. The timing difference of the – Investment of resources for a – balance sheet liquidity risk mobilized resources and assets period of t in assets of (a) the longer period of time (b) the shorter period of time . Differences in the nature (participants, currency, instruments) of the financial and credit market segments from which the bank mobilizes and to which it allocates funds

– risk of profitability loss

– The use of interbank loans for lending to organizations and individuals.

– liquidity risk of the bank

– The use of funds of individuals for lending to non-financial organizations.

– liquidity risks of the bank’s balance sheet and the loss of profitability

– The use of monetary resources in the provision of ruble loans.

– currency risk – risk of profitability loss

. GAP between the bank’s shortterm resources and short-term loans issued

– The lack of short-term resources – The surplus of short-term resources

– risk of profitability loss – liquidity risk of the bank’s balance sheet

. Discrepancy between the total amount of deposit resources of the credit institution and the loans issued by it.

– The lack or surplus of deposit resources

– liquidity risk

compared to the size of the loan. If there is a shortage of deposit resources, the assets will be covered by resources mobilized from other segments of the financial market. Each segment has common and specific factors of inflow and outflow of resources, which can lead to liquidity risk of the bank (Valenceva, 2019b). To identify specific risk areas, the coefficient of the surplus (deficit) is used. It is calculated by asset and resource groups. These groups are singled out based on the due date, customer group, transaction currency. Csurpl.ðdef.Þ =

Rt − At × 100 Rt

where Ct is the surplus (deficit) coefficient Rt are resources for a period of t At are assets for a period of t At the beginning of 2018, the coefficient of transformation for the existing commercial banks amounted on average to +13.4%. It demonstrates that the total amount

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of ruble and currency resources owned by organizations and individuals was enough to lend to these entities. However, the risk of transformation associated with the redistribution of resources through the credit mechanism between customer segments was much higher. The level of the coefficient of transformation of surplus (deficit) resources mobilized from organizations at the beginning of 2018 was about 50%. At the same time, there was a shortage of resources – about 11 trillion rubles, which was covered completely by a surplus of resources owned by individuals (up to 13–15 trillion rubles). The risk may be implemented as a risk of unbalanced liquidity in case of outflow of funds of the population with some compensation for possible losses due to higher interest margins. Rates for deposits of the population for the period up to 1 year at the end of 2018 were 1 point lower than the rates of nonfinancial organizations. Statistical data of the Bank of Russia also showed the presence of currency risk associated with the redistribution of resources between the sectors of the credit market. At the beginning of 2018, the mobilized ruble resources in the Russian banking system were sufficient for lending to organizations and individuals in the national currency: the coefficient of the surplus of rouble resources amounted to +6.4 percent. Relatively high risk remained in the currency segment of the credit market: the level of the coefficient of transformation of foreign exchange resources reached 32.7% at the beginning of 2018. Calculated by the author according to the Bank of Russia (Electronic resource, Bank of Russia website, Banking sector, 2018). The excess ruble and foreign currency resources have been transformed into assets, which are alternative to the credit ones: various types of interbank loans; deposits placed in the Bank of Russia.

Means to Achieve a Goal The assessment of the instruments used to redistribute resources in the economy is mainly quantitative: the volume of the list of tools, the variety of their types. The qualitative aspect of the assessment is of great importance in the market economy: the degree of orientation of the choice of instruments to customer requests, which vary within their individual groups (a standard client, a vip-client, a mass client, subjects of the Russian Federation, legal entities and individuals, etc.); mutual interest of the client and the bank in the use of specific tools for profit or indirect benefit; compliance with the bank and the client laws and ethical principles. In modern conditions, relatively few approaches have been developed to ensure the mutual interest of the bank and the client in the use of specific tools for the provision of services. In a market economy, such a base is, firstly, the assessment of the profitability of the relationship between the bank and the client; secondly, the

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development of benefits for the client associated with a specific instrument (for example, percentage) and dependent on the degree of profitability of the relationship. Assessing the profitability of the bank’s relationship with each client in the aggregate is too time-consuming. In this regard, it is advisable to evaluate it in the context of customer groups. The classification of these groups is possible on the basis of the legal status, industry and social affiliation of the client, the sector of the economy, the size of the activity and the degree of creditworthiness of the client. (Lavrushin O. I., 2020). The model for assessing the profitability of the bank’s relationship with a group of customers can be presented in the form of a balance sheet (Table 16.3).

Table 16.3: Balance of the bank’s relations with clients, which are non-financial organizations. No. Expenses related to raising funds from non-financial organizations

No. Income from placement of funds raised from non-financial institutions

.

.

Average annual amount of short-term loans to non-financial institutions (billion rubles)

. – in the ruble-denominated accounts

.

Average annual interest rate on loans (%)

. – in the currency accounts

.

Average annual interest income (billion rubles) =×

. – contributions to the mandatory reserve fund

. Free liquid balance on accounts of nonfinancial organizations for other placements (billion rubles)  =  – 

. the amount of liquid assets in the accounts on demand to meet the H standard

. Interest income from placement of funds of non-financial organizations in the form of deposits with the Bank of Russia (billion rubles)

.

. Interest income on the interbank loan in the range of exceeding the interbank loan(A) above the interbank loan(P).

The average annual balance of funds in the accounts on demand, subject to allocation (billion rubles)  = .+.–.–.

Balance of funds on accounts of fixedterm deposits to be placed (billion rubles)  = . + . – .

. – in the ruble-denominated accounts . – in the currency accounts . – contributions to the mandatory reserve fund

. Income from investment of resources of nonfinancial organizations in factoring operations (billion rubles)

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Table 16.3 (continued ) .

Average annual interest rate (%)

. – demand accounts

. Net interest income from services for nonfinancial institutions (+, -) (billion rubles)  =  +  + 

. – fixed-term deposits .

Interest expenses of the bank on resources mobilized from non-financial organizations (billion rubles)  = ( x .) + ( x .)

. Balance of the commission income (expenses) from non-financial organizations (billion rubles)

.

Cost of banking operations for servicing non-financial organizations (billion rubles)

. Total income from servicing non-financial organizations (billion rubles)  =  + 

.

Total costs of the bank for servicing nonfinancial organizations (billion rubles) =+

. Profitability of the bank’s relations with nonfinancial organizations  =  ÷ 

Process of the Activity The process of commercial bank activity consists of the stages of the creation of products (services). The quantitative approach involves assessing the availability of developed technologies to create products for all their varieties. Varieties in this context are understood as services within credit, deposit, investment and other products. The content of the activity process is individual for each service, but is common for this group of customers. According to the author, the qualitative aspect of the bank process assessment includes the compliance of the service with the needs of the client, as well as the level of the bank’s costs for the provision of services. The model for calculating the cost of providing services to the client involves the following actions of the bank: 1. identification of the stages of the process 2. definition within each stage of types of operations (analytical, legal, accounting and other), departments and workplaces participating in them 3. identification of the cost of working time – in minutes (seconds) – as % of the total fund of working time in a period 4. definition of the budget for each department or workplace 5. definition of the cost of creating a service in the context of departments or workplaces (budget X cost of working time in %) 6. calculation of the total aggregate costs of the process of creating services

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Financial and social results are singled out as a result of the activities of a particular bank. According to international accounting and reporting standards, the model of the bank’s financial performance is net profit. The result of the report on the financial result of Russian commercial banks is the “total financial result”, the method of calculation of which allows us to refer it to the named model: profit before tax is adjusted for tax expense (–) / income (+) and, also, for positive and negative changes in other total income. The latter is related to changes in the fair value of securities, operations with the accumulated increase (decrease) in this value, changes in the increase in fixed assets and intangible assets, the transfer to profit / loss of the accumulated decrease (increase) in the value of hedging instruments and other items.

Result of the Activity The quantitative assessment of the financial result is related to the profitability and profitability ratios of the bank, methods of assessing the profitability of the bank’s divisions, products, a workplace. The main methods of qualitative assessment of financial results are structural analysis of sources of the profit formation and factor analysis of ROA and ROE coefficients. Structural analysis of the sources of income (Valenceva, 2019a; Valenceva, 2019c; Valenceva et al., 2016) allows us to estimate the probability of preservation of profitable activity of the bank. This analysis is based on the identification of stable and unstable profit sources. The first is an interest margin and a non-interest one (mainly net fee and commission). Unstable sources of income are sources of market nature (the difference between the sale price and the purchase of assets), revaluation surplus of assets, the balance of income / expenditure of a one-off nature, the items of other total income (Valenceva, 2019a). For the period 2013–2018, the financial results of 10 large banks was completed (100%) due to unstable sources for 60 reporting dates in 20 cases. Only one bank out of 10 didn’t have such a situation. At 13 reporting dates, more than 50% of the positive financial result was from unreliable sources. Calculated by the author according to the Bank Of Russia (Electronic resource, Website of the Bank of Russia, Directory of credit institutions, 2013–2018). Obviously, it indicates the need to focus on a qualitative approach to the assessment of the bank’s performance. The decomposition of these coefficients for the multiplicands can be used when analyzing the factors of the coefficients of ROA and ROE. For instance, ROE is decomposed into three multiplicands: income margin, return on assets and leverage ratio. On the basis of the obtained formula (DuPont formula), the main risk zone of

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profit fall is identified and the main attention is paid to the factors of the fall of a particular multiplicand (Valenceva and Larionova, 2018; Valenceva, 2015).

Results In accordance with the above, the general model of qualitative assessment of the bank’s activities includes several blocks: – the assessment of achievement of the purpose of commercial banks on the basis of the risk of redistribution of funds (free resources) in the money market – the assessment of the quality of instruments of redistribution of resources in the economy based on the profitability of the bank’s relationship with the client and non-financial indicators (the degree of orientation of the instrument choice on the nature of resources, the direction of redistribution, customer requests) – the evaluation of the quality of the activity process on the basis of its costs – the assessment of the financial result of the activity taking into account the degree of stability of the profit sources and the risk zones of decrease in the bank net income (Valenceva, 2019b).

Conclusion/Recommendations It seems reasonable to increase the role of a qualitative approach to the assessment of Russian commercial banks. The evaluation model described above is one of the options for this approach at the macro and micro levels. According to the author, the development of various options for quality management of credit institutions, the choice of the best option will contribute to strengthening the stability of the banking system.

References Valenceva, N.I. (2015) Model’ ocenki effektivnosti deyatel’nosti kommercheskih bankov [Model of estimation of efficiency of activity of commercial banks]. Moscow, Banking, No. 2, pp. 64–70 (in Russ.). Valenceva, N.I. (2019a) Kachestvennye aspekty ocenki deyatel’nosti kreditnyh organizacij [Qualitative aspects of assessment of activities of credit institutions]. Moscow, Banking services, no. 2, pp. 2–10 (in Russ.). Valenceva, N.I. (2019b) Novye traektorii razvitiya finansovogo sektora Rossii [New trajectories of development of the financial sector]. Monograph, edited by M. A. Eskindarov, V. V. Maslennikov, M, Kogito-Center, 367 p. (in Russ.).

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Valenceva, N.I. (2019c) Upravlenie riskov transformacii resursov banka kak uslovie ego finansovoj ustojchivosti», monografiya «Novye yavleniya finansovogo rynka i tendencii razvitiya bankovskoj deyatel’nosti» [Risk management of the transformation of bank resources as a condition for its financial stability”, monograph “New developments of the financial market and development trends of banking], section 3.1, under the editorship of Lavrushin O. I., Almaty, 336 p. (in Russ.). Valenceva, N.I. i Larionova, I.V. (2018) Ocenka finansovoj ustojchivosti i perspektiv deyatel’nosti kreditnyh organizacij [Assessment of financial stability and prospects of the activities of credit institutions]. Moscow, KnoRus, 242 p. (in Russ.). Valenceva, N.I., Bazarova, S.G. i Guzlikova, A.S. (2016) Identifikaciya faktorov snizheniya kommercheskoj effektivnosti deyatel’nosti bankov [Identification of factors decreasing the commercial efficiency of the bank activities]. Moscow, Banking, No. 2, pp. 48–51. (in Russ.). Lavrushin, O.I. (2020) Bankovskoe delo [Banking]. Textbook. Moscow, KnoRus, 630 p. (in Russ.). Ozhegov, S.I. i SHvedova, N.YU. (1955) Tolkovyj slovar’ russkogo yazyka [Explanatory dictionary of the Russian language]. 3rd ed., Moscow, AZ, 960 p. (in Russ.). Elektronnyj resurs: Sajt Banka Rossii, Bankovskij sektor (2018) Ob”em privlechennyh kreditnymi organizaciyami sredstv yuridicheskih lic [Electronic resource: Website of the Bank of Russia, Banking sector (2018), “The Amount of funds raised by credit institutions of legal entities]. https://www.cbr.ru/statistics/print.aspx?file=bank_system/4-2-2_18.htm&pid=pdko_sub& sid=dpbvo (accessed 19. 02.2019) (in Russ.). Elektronnyj resurs: Sajt Banka Rossii, Spravochnik po kreditnym organizaciyam (2019) // Central’nyj bank Rossijskoj Federacii: oficial’nyj sajt [Electronic resource: Website of the Bank of Russia, Directory of credit institutions (2019) // Central Bank of the Russian Federation: official site]. URL: https://www.cbr.ru/credit/main.asp (accessed 19. 02.2019) (in Russ.).

Aza D. Ioseliani, Nelli V. Tskhadadze

17 The Transformation of Human Social Life in the Era of Innovative Banking Introduction One of the characteristic features of social development in modern civilization is the digitalization of being, that is, the translation of being into the language of numbers, the accelerated and ubiquitous development and distribution of distance technologies. The Internet, which is a global network, has had and has a tremendous impact on all areas of human activity, including daily routines, economics and business. In the context of digitalization, it is necessary to touch on a new phenomenon, which quickly became for people close, clear and necessary; this is a remote banking service, “Innovative banking”. The banking sector, as well as other spheres of social life, is developing along the lines of the latest changes and scientific and technical breakthroughs. (Digital Russia: New Digital Reality, 2019).

Methodology The methodological basis of this work consists of the principles of unity of the socio-philosophical and logical, concreteness, objectivity, comprehensive consideration, as well as the analysis of the reflexive concepts of the object under study. To achieve scientific results in the article, the methods of analysis used in modern social philosophy, logic and methodology of science, as well as the heuristics of scientific search are used. Such methods include dialectical, logical, scientific historical, comparative and others.

Opportunities and Technical Support of Internet Banking The fundamental principle of remote banking service is the exchange of various information between the client and the bank at a distance and the execution of various transactions. Of particular importance in this matter is the provision of a high

Aza D. Ioseliani, Nelli V. Tskhadadze, Financial University under the Government of the Russian Federation, Moscow, Russia https://doi.org/10.1515/9783110692075-017

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level of security and confidentiality of communication. (The phenomenon of globalization. Edited by E.M. Mikhailova, 2017) The clients have extensive capabilities in such operations as, for example, remote access to their accounts, transfers, payments, management of deposits, as well as information reception about exchange rates or the location of nearby ATMs, etc. (Eremin, 2018) To use the marked remote banking service facilities, the client needs to have access to mobile and Internet connections, as well as a technical device with appropriate software and a specialized software product provided by the bank. Experts call the remote banking service e-banking, the term Internet banking also appeared. These concepts quite accurately reflect the essence and character in the banking sector. Here the banking sector’s dependence on the level of development of high technologies and technical innovations is clearly visible, enabling customers to carry out transactions online. (Kirichenko, Bulavenko, 2019) In the modern technogenic world, the main forms of remote service in the banking sector are online banking using mobile communications, via the Internet and special self-service devices (terminals and ATMs).

Advantages and Disadvantages of Internet Banking Many studies conducted by analytical companies indicate a rapid increase in the number of online operations, which are becoming the dominant trends in modern society. In addition, nowadays online-banking from a popular add-on is transformed into an inseparable component of retail banks (in this regard, it can be compared with bank cards when they first appeared). The set of functions and comfort in use led to an increase in interest from the client base. One of the purposes of internet-banking is to improve the quality of customer service. Innovative banking has the following advantages: – high level of efficiency – time saving – payments without delay – payments made in any cities and countries of the world – the ability to conduct various operations 24 hours a day without visiting bank offices – implemented procedures tracking – non-cash payments – management of various accounts in parallel – money transfers – round-the-clock control of own accounts – the ability to open an account in any bank

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Modern Internet banking is also convenient for the client because there is no need to have cash anytime and anywhere. (Kirichenko, Bulavenko, 2019) Of course, Internet banking, with so many benefits, is attractive to cyber criminals. Therefore, the modern system of internet services provided by the bank should provide reliable protection of customers’ financial assets. Compared to the United States and Europe, remote banking in Russia is somewhat lagging behind, but it is still developing at a rapid pace, banks are successfully developing the Internet space, the quality of services is increasing, so does the level of service. Like any other complex social phenomenon, Internet banking, along with the marked advantages, also has negative sides, creating certain risks. The disadvantages of remote banking include, for example, the inadequate protective mechanisms of the client base and their funds from cyber-fraud, the lack of competent guidance on using the Internet banking system, psychological difficulties causing fear and mistrust among customers, problems in using digital signatures, etc.

Socio-Philosophical Foundations of the Transformation of Social Life In the modern technogenic world, the problems that determine the qualitative change in the daily life of a person have deep social and philosophical roots. In the social environment, people communicate, experience feelings, think, and acquire themselves. This process establishes the existence of people, undergoing a complex and significant transformation. The real spatial boundary, which was originally given by nature, escapes the humanity. The true border of reality begins to lose its meaning. The life of people has shifted to the plane of social and communicative spaces, which is supported by various technologies and technical equipment. In modern life, people are inseparable from technology. There is a merger of people with technology (Ioseliani, 2019a). Today, people are studying reality, while actively using technology. The technology has enormous opportunities, but at the same time it takes people into slavery. Observation of the world of nature is no longer interesting to man, like a round-the-clock immersion in screens. New information technologies integrate the world into global networks of instrumentalism. Communication carried out with the help of various methods of computer technology, has led to the emergence of a large number of communities that exist exclusively in the virtual world. (Ioseliani, Tskhadadze, 2019). However, the characteristic tendency of the 1990s in the political and social spheres was the following: to form social action and politics based on primary identities, which are either built in the chaotic process of finding spirituality and meaning, or rooted in geography and history.

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Information societies took the first steps toward the realization that identity, as an organizing criterion, should dominate. Identity is the process by which the social factor recognizes itself, forms meanings, primarily on the foundation of a given cultural quality or complex of qualities, refusing a broader comparison with other social structures. If identity is established, then it can in any case be compared with other identities (for example, women and men). It can also encompass the entire society under the auspices of its identity (for example, religious fundamentalists seek to convert as many people as possible into their faith). (Yablonovskaya, Shlyapnikova, 2018) Thus, modernization is not limited to economic and political changes; it is not completed by them. The internal content of the process of modernization, as a development, constitutes a change in the value priorities of the individual. The new society, emerging in the framework of such a transformation, is both capitalist and informational. In different states, such a society forms an abundance of characteristic variations, according to the specifics of national institutions, national culture and history in accordance with information technologies. One of the definitions of people is “homofaber” – a creature that makes an instrument for the immediate relief of work and life. That is, technology is a tool that allows one to achieve great results with minimal loss of power. The problems of the people of our era are connected with the fact that the means of life often comes to replace the goals of life. It can dominate to such an extent that the goal is erased over time from human consciousness. The technical purpose of life does not exist. There may be only technical means. The goals of life in any case will be in other areas, areas of the spirit. The new picture of society presented by scientists and futurologists is gradually acquiring certain features: First, a unified computer and information community is formed of people who live in houses equipped with various electronic devices and various “intelligent” devices. Secondly, new industries, which form in the framework of the use of information technology and high-tech industries develop. Thirdly, the cultural content in social development is changing priorities within the family, the development of virtual museums and the use of various forms of human interaction change. Fourthly, the process of ensuring the daily lives of people is carried out using innovative principles and means of production, payment for goods and services (for example, electronic money, Internet banking, mobile banking, WAP banking, SMS and others) These changes, exerting a complex effect on the whole of society, lead to significant changes in the industrial and spiritual life of a person.

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Technology, technological innovations, widely available information increase the adaptive properties of individuals to the increasing volumes of knowledge, but the power of nature of a person decreases due to the organization, “rationalization” of working conditions, creating comfortable living conditions. N. Berdyaev speaks quite vividly about this: “Technique is the culprit of the terrible defeats of spiritual life, and, above all, of emotional life, of human feelings. In modern civilization, the extinction of the sensuous and emotional elements takes place . . . It is difficult for the Heart to withstand touching the cold metal, it is not able to exist in a metallic environment.” (Berdyaev, 1994) Mass use of computers provides access to information, relieves people from routine work, speeds up the adoption of optimal decisions, and automates the processing of information. As a result, the driving force behind the development of society is the production of not a material, but an information product. As for the material product, it becomes more “informationally capacious” and its cost largely depends on the volume of innovations made in its structure. People’s activities are mainly focused on information processing, and the production of energy and material products is entrusted to machines. Within the framework of philosophies, man is the main figure in the development of the information society. Within philosophy, man is considered a complex being with a complex of multidimensional universal qualities. When an individual indulges in his thoughts and forms informational objects, then at some point there is a need to comprehend this phenomenon of the original transformation by people of nature and themselves. A philosophy of this kind integrates into the field of human information activity, gives him many questions, including questions concerning the appropriateness of such activities. Moreover, at the moment it is informational activity that leads to the most significant problems of mankind. The man himself, as a result of the described activity, is threatened with existence. Considering that this problem is incredibly acute, modern philosophy carefully analyzes the submitted question. Information is a powerful tool that allows you to influence people and society. The owner of a large amount of information on a particular issue has an advantage over other people. The way of existence of a person in terms of history is characterized by the following relationship: man – instrument – technology. Over the centuries, the collection and systematization of certain information relating to what surrounds a person helped us to survive in difficult circumstances: the ability to manufacture tools and hunting were handed down from generation to generation, clothes and healing tools were created on an ongoing basis. The amount of information is constantly updated, incorporating new information – each analyzed phenomenon provides an opportunity to switch to something new, to a phenomenon with a more complex structure. Over time, an abundance of information about the world around us led to

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scientific and technical progress. The society progressed: at some point people learned how to manage various types of energy and matter. The modern world, as a result of the development of practical human activity in historical terms, is a space that is informational and technologized. It is important to understand that the man himself managed to technologize his nature. It exists in a space that is technically conditioned. Man realizes himself on the basis of the laws of nature, as well as on the basis of the laws of the technical sphere. The transfer of information data is one of the decisive nuances of the formation of such an environment, the existence of a person within it. Over time, the importance of information in people’s lives became more and more vital. There was a need to explore and realize not only natural laws, but also the values and concepts of society (we are talking about architecture, art, books, etc.). In this context, it is necessary to point out some negative consequences of the computer revolution in the traditional mode of existence. These include the fact that writing (including books) fade into the background, giving way to the Internet and typing characters on keyboards. The emergence of new forms of communication, transformation in the usual set of traditions, the transformation of social values - all this is carried out so quickly that the mass consciousness of society, as well as many experts studying these processes, call the computer revolution just as a crisis of culture. If in the past, cultural adaptation to innovative phenomena was mostly stretched out (fast transfer, assimilation and dissemination of a large amount of information were impossible from a technical point of view), then at the moment we see that the speed of mastering all the benefits of world culture has increased dramatically. The growth was so great that many theorists began to raise the question of the potential of the human psyche to take it all. This question is considered topical. There is no doubt that the culturegenesis of the 21st century can not be imagined without the use of personal computers, information technology, the Internet and TV. With the help of these funds, the ability to choose the flow of information is translated into reality. These factors on the perception of the world by man act in different directions and not positively in all cases. Thanks to these factors, the time of social existence is accelerated to a significant extent: the human psyche is driven into an increasingly strict framework. Recently, it has become obvious that interest in the capabilities of artificial intelligence has increased. The main reason for this phenomenon is that increased requirements for information systems. Home appliances are becoming more complex, as the software goes “smarter.” In the modern world, people have the right (and even the duty) to reflect on what exactly the information revolution means for themselves, for their existence as for living and real, and not abstract beings. In view of the fact that society is becoming more and more computerized, the importance of authoritarian tendencies increases. The point is that computer networks

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provide the following possibilities: to manipulate the consciousness of the masses, to receive detailed information about each member of society. It is quite possible to imagine a situation when the elite endowed with the power know everything about everything, and all the rest are ignorant. Development trends in the field of information provide an opportunity to make an assumption that, for example, the political power obtained by the majority based on the concentration of information data will reduce the value of elections and the value of the real power of politicians and tribunes. The ruling circles, formed in this way, can turn into an infocracy (when information is assigned the main role). This is the source of power, which has no authority upon the people. It has only a wide potential for the application of information data. As an example, we can observe how the oligarchs are fighting for the media. Each of them seeks to acquire television channels, newspapers, radio stations. Super rich people see this as a guarantee of political power, which is based on the possession of a large amount of informational data, guarantees that allow one to manipulate information. Due to the fact that electronic systems penetrate into all spheres of human existence, we need new forms of organization of human relations. Work with high technology requires high preparedness, spiritual maturity and personal responsibility. If harmony is broken in the direction of technology (it develops faster than the moral resources of society), then various aspects of human existence are dehumanized. Moreover, computers form not only deserted production processes. It is also about the formation of “deserted” communication (instead of the interlocutor, we see the PC). We see how distinct forms are acquired by a new reality based on computerization (virtual reality). This is an artificially created pseudo-environment with which one can communicate as with a real environment. Computer technology becomes part of the life of a modern person from the earliest years: these machines replace the theater, books, friends, reducing the intensity of traditional communication. Computers form another reality that can be taken more seriously compared to the outside world. This environment has a powerful influence on the human psyche (this influence is impossible to predict). At the moment, this perspective becomes obvious. In addition, in the phenomenon of immersion in virtual reality with an abundance of pseudo-varieties of human activity (as an example, people who are headlong immersed in computer games, turning into a kind of zombie). The information society dictates new rules to man. This, first of all, is about the readiness to change activities, the ability to maintain a high level of mobility, the ability to relearn and study new professions. At the last stage of development, the value of such skills was not so relevant. The anthropogenic civilization is based on the following: man is the main value of the functioning of society as a whole and its individual subsystems.

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It can be assumed that in the future there will be other negative consequences of the robotization of life, which actively influence people and society. A person, as a being who has responsibility, in all cases makes any decisions related to the transformation of the environment. However, the infosphere makes its own adjustments to this state of affairs. (Ioseliani, 2019b) Intellectual systems do not just store information data. They exploit it in order to make decisions and look for answers to existing questions. They are able to cooperate with other systems, to receive information, about which there was no speech at the initial formulation of the task. Even today, the decisions that machines find are often not made by people. It is all because people do not understand the basic principles of its receipt. The deeper the introduction of technologies that can be used to carry out complex computational processes, the higher the risk that at some point people will not be able to understand the essence of machine solutions, the logical way on which these solutions were based. It is not always possible to seek explanations of certain actions from computers. This is one of the most significant tasks facing specialists involved in the creation of artificial intelligence. If the submitted question is not resolved, there will be a very clear danger of catastrophes, accidents and chaos (Ioseliani, 2018). Thus, it is imperative to find ways by which one can effectively control intelligent assistants. It is possible that in the future there will be such reliable machines that the need for human intervention will disappear. However, with such a development of events, the risk of degradation of people’s skills, degradation of their ability to react to external changes and make management decisions in case of serious failures may become obvious. Another problem related to intellectualization concerns the educational level of society members (the requirements for their qualifications and competence will increase). The need of society for unskilled labor will decrease. At the same time, it is important to answer the question: does everyone have the ability to use high technology? It is possible that people deprived of this ability will be among the unemployed. As a result, the society will have to protect them, to support them. Moreover, some experts believe that the massive integration of expert and information systems can lead to the emergence of “parasites”. Such “intellectual drones” will fully trust the machines, refusing the efforts of the intellectual plan. It is not yet clear whether it is worthwhile to consider these assumptions seriously, but it is still impossible to indiscriminately dismiss such thoughts. Man’s aspiration to computerize his existence cannot be stopped (and it has always been so). Would humanity become too dependent on soulless machines? Will we not become slaves of computers? What physical, psychological and social impact does rapid computerization have on us? How to protect a person from the huge masses

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of information that falls on him every day? Can modern advertising be called a kind of violence against human consciousness? Some experts argue that the computerization process has a negative impact on people and society. For example, V. Volpert states the following: computers have a negative impact on the psyche and creative skills of people, cause serious psychophysical abnormalities, hit on life activity, destroy creative nature. (Volpert, 1984)Other scientists believe that these claims have the right to exist, but all these problems can be solved. For example, K. Hefner proposes to create a humane-computerized society, to form humane and carefully developed relations between computers and people (Haefner, 1984). Last quarter of the 20th century was marked by the fact that humanity has entered a new stage of information development. The formation of a society of information services and new technologies, the invasion of the information economy, mass personal computerization are phenomena that humankind has not yet encountered. Future development should be based on the following: humanity must preserve the treasure that is presented to us by the process of evolution. This is, of course, the life of mankind. However, this does not mean that it is necessary to urgently abandon research and innovation. We must provide a new approach to such phenomena. It is just important to understand that the end and the beginning of all stages of development of any scientific direction on an ongoing basis transform into each other.

Conclusions Transformation and digitalization of public life, the introduction of distance technologies are not limited to economic and political changes, they are not completed by them. Profound and ambiguous changes occur in all spheres of being, in people’s communication. However, in these processes the most significant changes undergo the value orientation of the individual, as the core of the modernization process. Thus, a new society, which form within the framework of such transformations, creates a large number of specific variations in accordance with the distinctive features of national culture and history, as well as with relations with digital technologies. Intellectual systems can influence and drastically change social everyday life, but the question is what kind of influence is it and how much a person is protected as a thinking being. Technical civilization dictates its values and priorities. One of its main priorities is a new social space, a new type of communication, other conditions of social being, which determine the priorities of competition, rivalry and benefits.

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References Berdyayev N. (1994), «Filosofiya tvorchestva, kul’tury i iskusstva». T. 1. S. 1052 Eremin I. (2018), «Islamskiy banking: ekonomika i dukhovnost’» // V sbornike: Aktual’nyye voprosy ekonomiki i upravleniya v usloviyakh modernizatsii. – Smolensk, 2018. S. 156–160. Fenomen globalizatsii i problemy sotsiokul’turnogo mnogoobraziya v sovremennom mire (2017) // Sbornik materialov Mezhdunarodnoy zaochnoy nauchno-prakticheskoy konferentsii / Otvetstvennyy za vypusk E.M. Mikhaylova. CHeboksary, 2017, 199 s. Haefner K. (1984), Mensch und Computer im Jahre 2000. Basel-Boston-Stuttgard Ioseliani A.D. (2019a) «Iskusstvennyy intellekt» VS chelovecheskiy razum»/ Manuskript No. 4, 2019 S. 102–106 Ioseliani A.D. (2019b), «Formirovaniye infosfery: sotsial’no-filosofskiy rakurs». Available at: http://scjournal.ru/articles/issn_1997-292X_2016_3-1_18.pdf (accessed 20. 05.2019) Ioseliani A.D. and Tskhadadze N.V. (2019), Challenges and hazards of the modern era of change/ Innovatsii i investitsii No.4, 2019/ S. 70–73. Ioseliani Aza D. (2018), «Man as a subject of Internet communication» /Ubiquitous Computing and the Internet of Things: Prerequisites for the Development of ICT, Springer, Switzerland, 2018, 449–453pp. Kirichenko L. P., Bulavenko O. A. (2019), «Sistema internet-bankinga v Rossii». Dostupno: http://cyberleninka.ru/article/n/sistema-internet-bankinga-v-rossii (Data obrashcheniya 21.04.2019) TSifrovaya Rossiya: novaya real’nost’ Digital. (2019), – [Elektronnyy resurs]. – Dostupno: http://www.tadviser.ni/images/c/c2/Digital-Russia-report.pdf (Data obrashcheniya 21. 04.2019g.). Vоlpert W. (1984) Macht die Arbeitam Computеr Stumpf//Bild der Wissenschaft. #11 Yablonovskaya T.V., SHlyapnikova M.N. (2018), «Informatsionnaya paradigma obrazovaniya v usloviyakh postneklassicheskoy ratsional’nosti: realii i perspektivy» // V knige: Obrazovaniye – put’ k uspekhu/ Sbornik nauchnykh trudov Vserossiyskoy nauchnoprakticheskoy konferentsii. Pod obshchey redaktsiyey E.V. Pluzhnika, T.V. Yablonovskoy. 2018. S. 182–189

Kirill A. Gorelikov, Petr V. Arefyev, and Aliaksandr V. Krabtou

18 Market Analysis and Assessment of Effectiveness of Internet Banking in the Conditions of the Orgnization of New Economic Laying Introduction Currently, there is a revival of interest in Internet banking. In modern society, the market of electronic banking services is the most interesting direction due to the wide range of banking services provided in this area. On the one hand, Internet banking is an unsafe and unfinished product of the banking sector. On the other hand, this is a promising and innovative development that enjoys inherent popularity among consumers. In the article we give a comparative analysis of the interest of different countries to this type of service. Also, we supplement the existing data on the security of this field of activity and on protecting the rights of customers who use Internet banking, analyze the Internet banking market, evaluate the effectiveness of this market service, explore the virtual bank efficiency in practice. The article contains analytical data that reveal the essence of electronic banking services and their significance in the commercial sphere.

Methodology The market of electronic banking services is undergoing a transformation stage due to the conditions and events taking place in the banking sector. Banks can benefit greatly from the transition to banking based on mobile and Internet technologies. The United States is experiencing a cycle of increasing key rates, signs of monetary tightening are also evident in the UK. Banks that can successfully target customers under high-precision data analysis, compose complex and satisfying banking products and carry out most of their work with customers in the digital space would benefit from capital accumulation and lower interest rates on deposits. US banks are lagging behind the introduction of mobile banking-based technologies as the center of a new

Kirill A. Gorelikov, MGIMO University, Moscow, Russia Petr V. Arefyev, Financial University under the Government of Russian Federation, Moscow, Russia Aliaksandr V. Krabtou, State University of Management, Moscow, Russia https://doi.org/10.1515/9783110692075-018

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model. Banks in Europe and some Asian countries have already entered a similar trajectory, as well as creating radically new business models based on a new view of banking services. In these regions, regulation plays a key role. In Europe, the Payment Services Directive (PSD2), as well as the Open Banking Standards in the UK, have transformed the rules for accessing and using customer data, and reduced barriers to entry into this market. The UK. The UK has a huge resource and potential for electronic banking services with the maximum benefit for banks. In 2014, Internet banking in this country was already used by more than 50% of the population, in 2020 their number is estimated to increase to 66%, and the increase in absolute value is 7.5 million. This provides great opportunities for new banks that can achieve the location of new customers by providing electronic service. The turnover of funds and the number of transactions through Internet banking should also increase from £ 5.8 billion to £ 9.4 billion in 2013 and 2020, respectively. As for mobile banking, this segment expects an even greater increase in users. According to the Center for Economic and Business Research, in the UK by 2020 there will be about 32.6 million bank customers using mobile devices to conduct banking operations. This is due to the fact that the mobile applications of British banks have become simpler, more convenient, and the level of satisfaction with the software is growing significantly from year to year. It is also worth noting that the British have become more willing to use payment methods at the box office through the phone, using popular mobile payment systems like Apple Pay or Android Pay. According to estimates of the same center, by 2020 one fifth of all transactions in the UK will be carried out through similar systems. In the USA, a rapid transition to mobile banking is noticeable especially among the millennials. In 2015, the share of people using mobile apps of banks was 43%, most of this share is young people up to 29 years old. According to the survey, in most cases, the mobile application is used to reconcile the balance and the last completed transactions. Among the incentives that encourage the use of mobile banking, basically everyone gives convenience (39%), buying a smartphone (26%), and the persistence of banks that themselves offered to switch to a mobile application (19%). Among those who have a smartphone, but do not use a mobile bank, the prevailing view is that this channel of communication with the bank is simply not needed (88% have a smartphone and do not use MB). 73% of the same stratum of Americans are concerned about safety, just as many prefer to go to the offices to establish personal contact with employees. 43% called the smartphone screen too small. The main security threats are: – phone hacking – loss of phone – distrust to providers and payment companies (both banks and enterprises) – online distribution of personal information

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According to a study by the Federal Office for Work and the Economy of Germany, mobile banking in this country is a new trend. Almost all banks surveyed believe that having a mobile bank application is necessary for successful cooperation with customers. However, a part of consumers of banking services do not observe such a prevailing opinion. Almost half of the clients (47.6%) do not show interest in the mobile application, and only 18% use it on an ongoing basis. Also, opinions differ on the monetization of mobile applications. On the one hand, many view this platform as being capable of generating profit, suitable for testing new strategies and offering new services. On the other hand, many German banks perceive mobile banking as a tribute to the trend, so they create their own offers in order to remain modern. The clients of German banks, in turn, see the main directions of improving the experience of using mobile applications in security, the volume of services provided and the possibility of linking the application with the business. In general, a positive trend is expected in Germany with respect to the development of Internet technologies and mobile banking, which is associated with the government’s course on digitalization, as well as narrow demand from the younger generation. Banks expect that in 5 years 78% of customers under 28 will use the mobile application. Asian-Pacific area. In Asia, digital technology has penetrated deep into the markets of countries like South Korea, India and Singapore. Many banks have already established contact with customers through their Internet services and mobile applications. However, in some countries, like Indonesia, Vietnam and Malaysia, people are not accustomed to the usual methods of working with banking services and at least a quarter of bank customers go to offices once a week. An interesting fact is that almost every third Singaporean who uses banking services, weekly contacts the call center of his bank. Japan is lagging behind in the introduction of mobile technologies for the distribution of its services. Despite the fact that the country is represented as one of the most technically advanced, Japan is lagging behind in mobile banking from countries like India or even Nigeria. The Japanese use more cash circulation and ATMs, which abound in the streets of Japanese cities and provide a wide range of services, and also enjoy great confidence. Some banks, like Jibun Bank Corp, are trying to encourage customers to use mobile applications, but even within the bank there is not always enough support to implement such an initiative. In Australia, the Big Four of local banks provides the opportunity to receive the full range of services through the Internet and mobile applications. According to the Ernst & Young report, 8% of the population of Australia has access to banking services, and 73% of Australians who have internet and a smartphone use mobile banking.

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In Russia, there is a steady increase in the popularity of mobile banking, however, according to some estimates, there are signs of market saturation. 40% of all payments of individuals proceed through mobile applications and the Internet. Russian customers are attracted by an easy way to pay for services. Moreover, we can also include the ability to pay fines and even taxes. 50% of banks, in turn, form offers to customers and inform them about it through a mobile bank, since this communication channel has become more efficient than SMS sending or phone calls. In addition, the functionality of the mobile application of many banks is almost level with the fact that the Internet offers, which in turn further adjusts the customers to install a mobile bank on a smartphone. Russian banks remain deeply interested in promoting Internet banking and mobile applications. This is evidenced by active advertising campaigns to promote their contactless cards, informing about the advantages of a mobile bank. The market for mobile and Internet banking is developing rapidly around the world, as evidenced by statistics. One of the main challenges that banks face in moving these communication channels is security. Not all customers are sure that payments and transfers are guaranteed to be protected from cyber attacks or fraud. According to the Bank of Russia, in 2015 over 31 thousand unauthorized operations were carried out in the remote banking systems for individuals with a volume of 1.2 billion rubles. Also, customers are concerned about the anonymity and security of personal information, the possibility of authentication in their accounts by fraudsters. To prevent such cases, banks have already used the practice of SMS alerts and the use of generated one-time passwords to enter the application. Internet banking has become the norm for many customers, which is an undoubted sign of the development of the banking sector. Banks respond to the opportunities, the potential and desires of the market, create effective platforms and communication channels. It can be concluded that by eliminating the greatest threats to customers, banks will be able to achieve the maximum effect from mobile and internet banking.

Evaluating the Effectiveness of Internet Banking We can evaluate the effectiveness of Internet banking from two perspectives: macroeconomic and microeconomic. On the one hand, it is possible to assess the impact of the use of new models on the growth of the economy of a country or region as a whole, on the other, compare the key financial indicators of the bank, evaluate the changes and make a conclusion about the viability of a particular model.

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The studies of economists in some European countries study the impact of the introduction of Internet banking on some economic indicators. For example, in Finland, after a series of observations and calculations, it turned out that the speed of money circulation, despite more optimistic expectations from Internet banking, has decreased (Parker and Parker, 2008). At the macroeconomic level, there is reason to believe that innovation and new technologies are an essential part of a country’s economic growth, as well as the development of the banking sector. In general, R&D costs throughout the economy and in the financial sector have a positive effect on the profitability of the assets or capital of banks using Internet banking, and also reduces the cost-to-profit ratio. However, the cost of information technology, as a component of GDP, does not entail an improvement in banking sector indicators. Rather rising costs reduce profitability (Arnaboldi and Claeys, 2008). If we talk about the impact of Internet banking on bank profits, then the financial institutions themselves disagree, since the effects of the introduction of such systems can vary enormously in different countries. Some banks claim that Internet banking reduces profit margins. The use of Internet banking is only a measure of satisfying the requests of large and influential clients who need an online service to work (DeYoung and Duffy, 2002). Other banks can challenge this thesis, because, in their opinion, this channel of communication with customers increases the noninterest income of banks. The De Young study analyzes the operations of more than 400 US banks. The work claims that the Internet banking increases the profits of banks by increasing the fees for servicing deposits (DeYoung and Duffy, 2002). It is also worth noting that there is a positive correlation between the introduction of Internet banking and non-interest margins in developed countries. In developing countries such a relationship is rare. This is due to the need to introduce more technologies, distrust and financial illiteracy of the population (Malhotra and Singh, 2009). Banks expect that the use of new information technologies will improve financial performance, as this will reduce the costs associated with hiring and wages of employees working in the daily operating activities of the bank (Khrawish and AlSa’di, 2011). However, in the short term, the introduction of Internet banking increases transaction costs, which gradually decrease over the course of several years (Hernando and Nieto, 2007). Moreover, there are signs that the costs associated with the Internet entail even greater costs to maintain the work of “call centers”, as well as increase the average salary of employees of the information and technological division of the bank, as the complexity and sophistication of new systems require additional skills and more knowledge (Van Dinh, Le and Le, 2015). Due to the inconstancy of assessments and research results, it is difficult to predict the effect of Internet banking on bank profitability. Therefore, each bank can determine for itself what model is more appropriate for it. It is possible that the costs for small banks will be too high to keep the model efficient and competitive. For example, in China, for a long time the Internet banking services were provided

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by the 4 largest banks (Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China), and only a few years later the rest of banks joined (Yuan and Seok, 2010). A solution for small banks can be an IT sharing platform, in which a certain number of banks will use the same system, which will significantly reduce their costs. Also, let us not forget about the younger generation, which will push banks to go to the Internet and mobile environment, so as not to lose a large number of potential customers in the future.

Results Most banks that use the Internet and mobile devices to work with customers, combine the presence of physical objects such as offices, and carry out a certain list of services through new channels. Recently, however, some banks began to abandon their presence on the market in physical manifestation and are switching only to platforms based on the Internet. The share of such banks in the market is not high – in the mid-2000s in the USA, where such banks first appeared, there were no more than two dozen with a total share in online services of less than 5%. Only 1% of users of Internet banking services indicated that they use a virtual bank as their main banker. In theory, virtual banks provide certain advantages both to their customers and themselves (for example, the main financial advantage can be called savings on the costs of maintaining a network of offices. Customers, in turn, can receive additional interest income from deposits due to funds saved by the bank). The ability to set deposit rates above the market average, as well as the ability to access a potentially larger circle of depositors, may allow virtual banks to show higher growth rates. However, in practice it is rather difficult to determine to what extent virtual banks can be profitable without receiving the costs of servicing branches and branches. These costs include the maintenance and operation of offices, as well as, most importantly, the remuneration of staff. The bank can use similar cost savings to increase market share or to attract customers with higher deposit rates. And although this reduces the interest margin, excess customer deposits can be used for investment, which will cause an additional scale effect. According to a study conducted by Robert De Young, a senior economist at the Federal Reserve Bank of Chicago, the majority of virtual banks that appeared in the early 2000s are statistically financially weak. On the other hand, statistics is based on a small number of new banks that go through a period of maturity and are only consolidated in the market. However, if this fact is not taken into account, then the average virtual bank is less profitable than the average ordinary bank that uses both models. The study also indicates that virtual banks are experiencing faster asset growth than traditional banks. In conjunction with the problem of growth in deposit rates, this causes a decrease in the ratio of deposits to loans to a level below the

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market average. The rapid growth of assets also explains why virtual banks have to have high capital adequacy ratios, which are necessary not only to promote growth, but also to cover the high costs incurred when starting such a bank. For these reasons, in the US, FED requires an increased value of the authorized capital of a virtual bank. As for indicators such as ROA and ROE, they are mostly lower for virtual banks than for traditional ones, as indicated by various studies, even with allowance for the fact that they are young and not large. Moreover, according to statistics, new banks using the Internet as one of their channels have much lower rates of return than new banks that do not use the Internet (see Fig. 18.1 and Fig. 18.2).

Find out where the ATM

Bill payment The Americans who performed these operations, %

Check Cashing

Money transfer

Balance check 0

20

40

60

80

100

ROA

Figure 18.1: The reasons for using a mobile bank in 2015 in USA. Source: Consumers and Mobile Financial Services 2016, March 2016.

3.00% 2.00% 1.00% 0.00% –1.00% –2.00% –3.00% –4.00% –5.00% –6.00% –7.00% –8.00%

1

3

5

7

9

11 Traditional New traditional New virtual

Year of operation activities

Figure 18.2: ROA in traditional bank, new traditional and new virtual banks (USA). Source: Robert DeYoung (2005, p. 902).

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In European banks, ROA and ROE figures are not very different in traditional and virtual banks. In some countries, like Finland and Italy, virtual banks provide better financial performance compared to traditional ones using both models. Also, Finnish virtual banks are distinguished by the cost-to-income ratio (CIR), which is also lower than in traditional banks (see Table 18.1 and Table 18.2). Table 18.1: Percentage of bank customers using a communication channel with a bank at least once a week. The Internet 















Smartphone 















ATM

















Office

















Call-center

















China Hong Kong India Indonezia Malaysia Singapore South Korea Vietnam Source: EY, Winning through customer experience: EY Global Consumer Banking Survey, 2014.

Table 18.2: Financial performance of banks in Europe (2003–2006). Spain

Finland

Italy

England

Traditional

.

.

.

.

Virtual

.

.

.

–.

ROAA

ROAE Traditional

.

.

.

.

Virtual

.

.

.

.

Traditional

.

.

.

.

Virtual

.

.

.

.

CIR

Source – www.ub.edu, “Internet Banking in Europe”, 2008.

Conclusions/Recommendations In general, research shows that the virtual bank model cannot justify itself as a constantly profitable one. However, from a more positive point of view, this model has

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prospects to increase its chances to better establish itself in the market. First of all, it concerns the expansion of such banks and their “growing up”, since over time, the economies of scale could create prerequisites for reducing the difference between traditional and virtual banks. Secondly, the high costs at the initial stage of the establishment of the bank, as well as the costs associated with the constant need to invest in innovation and attract more trained staff, do not always mean reduced profitability and unattractive financial indicators. Thirdly, as noted above, virtual banks face stricter regulation with overstated regulations. As soon as regulators feel that such a model does not cause much concern, excessive capital requirements may be weakened, which will contribute to increased profitability and attract new investors (Miceli, 2013; Furst et al., 2002). In light of the facts obtained and the analysis performed, it can be concluded that there is no significant statistical difference between traditional banks and banks using new technological models. Nevertheless, we must not forget that the IT revolution and the spreading Internet technologies are changing the banking environment. Online banks are being introduced into the existing banking ecosystem as an additional service or a desirable bonus, but their existence as independent business models that can effectively compete with traditional ones seems unlikely at the moment. On the other hand, virtual banks, like mobile banks, help large players attract more customers who are focused on new technological solutions. This advantage can significantly increase the bank’s chances of survival in the future, when the spread of banking services via the Internet reaches its peak. Acknowledgments: The article is prepared in the framework of the state budget task of the Financial University under the Government of the Russian Federation on fundamental research on the topic “Cyclical development of world economic systems”.

References Arnaboldi, F., & Claeys, P. (2008). Internet banking in Europe: a comparative analysis, Research Institute of Applied Economics 2008 Working Papers 2008/11, 20. Board of Governors of the FRS – Consumers and Mobile Financial Centre for Economics and Business Research – Future trends in UK banking, 2015, p.4. Consumers and Mobile Financial Services 2016, March 2016, p. 16. Deloitte – 2018 Banking Outlook: Accelerating the transformation, p. 11. DeYoung R, Duffy DJ (2002) The challenges facing community banks: In their own words. Economic Perspectives, 4th Quarter. Expert RA – Internet-banking v Rossii: potencial ne ischerpan, 2015 [Expert RA -Internet banking in Russia: the potential is not exhausted], available at: https://raexpert.ru/researches/banks/in ternet-2015 (accessed 30 May 2019). Expert RA – Internet-banking v Rossii: vremya dlya avtomatizacii [Expert RA – Internet banking in Russia: time for automation], available at: https://raexpert.ru/researches/banks/internet2016 (accessed 30 May 2019).

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EY – Banking in Asia-Pacific, 2015, p. 26, available at: http://www.ey.com/Publication/ vwLUAssets/EY-banking-in-asia-pacific/$FILE/EY-banking-in-asia-pacific.pdf (accessed 30 May 2019). EY, Winning through customer experience: EY Global Consumer Banking Survey, 2014, p. 17. Furst K, Lang WW, Nolle DE, “Internet banking”, J Financ Serv Res, vol. 22, (2002), pp. 95–117 Hernando I, Nieto MJ (2007) Is the Internet delivery channel changing banks’ performance? The case of Spanish banks.Journal of Banking and Finance31: 1083–1099. International Banker – The Uptake Of Internet Banking In Australia And Changes In Banking Services, 2016, available at: https://internationalbanker.com/banking/uptake-internetbanking-australia-changes-banking-services/ (accessed 30 May 2019). IT-Finanzmagzin – Studie: Mobile Banking wird schneller zum Standard für Bankgeschäfte werden als Onlinebanking, 2016, available at: https://www.it-finanzmagazin.de/studie-mobilebanking-wird-schneller-zum-standard-fuer-bankgeschaefte-werden-als-onlinebanking-33616/ (accessed 30 May 2019). Japan Times – Internet banking slow to take root in nation where branches offer friendly face time, 2015, available at: https://www.japantimes.co.jp/news/2015/09/22/business/internetbanking-slow-take-root-nation-branches-offer-friendly-face-time/#.WuHXRYhuaUk (accessed 30 May 2019). Khrawish HA, Al-Sa’di NM (2011) The Impact of E-banking on bank profitability: Evidence from Jordan.Middle Eastern Finance and Economics. Malhotra P, Singh B (2009) The impact of internet banking on bank performance and risk: The Indian experience.Eurasian Journal of Business and Economics2: 43–62. Miceli Campailla Andrea, A Performance Analysis of the Online Banking System, 2013 Parker, T., & Parker, M. (2008). Electronic banking in Finland and the effect on money, Velocity. Journal of Money, Investment and Banking, 4, 20–25. Robert DeYoung, (2005), The Performance of Internet-Based Business Models: Evidence from the Banking Industry, The Journal of Business, 78, (3), 893–948. Van Dinh, Uyen Le and Phuong Le (2015) Measuring the Impacts of Internet Banking to Bank Performance. J Internet Bank Commer 20:103. Yuan, X., & Seok, H. (2010). Present and future of internet banking in China, Journal of Internet Banking and Commerce, April 2010, vol. 15, no.1, 9, 39.

Elena P. Shatalova, Elena V. Travkina and Olga V. Alekhina

19 Features of Personnel’s Competencies Formation in the Model of a Future Bank Introduction Analysis of the behavioral environment in the banking segment shows that the issues of innovative modernization of banking personnel competences are particularly relevant in the context of a significant and structural transformation of the banking business. Information technology development in the modern digital economy opens up broad perspectives, that can dramatically reduce the cost of information transmission and processing, while having a significant impact on many businesses, including representatives of one of the most conservative types of business – banking. Changes occurring in banks are dictated by changes in consumer behavior. Paradoxically, the financial industry, which was spending enormous resources on IT, personnel, infrastructure, and marketing, was unable to keep up with the changing consumer behavior of its services. There will be profound changes in business models, technologies, and banking service scenarios. At an early date, the role of the branch as a sales channel will change significantly. The consumer wants to have a choice of options for interaction with the bank, where he services. Some of the banking clients want to have an opportunity for around-the-clock management of their account, regardless of their location, and electronic channels are ideal for this. For other consumers, such as mortgage buyers, human contact is important. They want to sit next to the manager and talk with a real person. For distribution channels it is important to be able to support the various needs of customers, and branches play a crucial role in this. It is believed that the development of the Internet and mobile communications has played a decisive role in changing consumer behavior. We live in the era of the consumer who is used to getting any information, access to resources and knowledge, instantly and cheaply (or almost free). Telecommunications have become a new logistics channel in the delivery of services. The part of the time we spend in the virtual space has increased significantly and is measured today by the hours in the daily routine of the city dweller. In this situation, consumers expect that the companies around them, brands, products

Elena P. Shatalova, Elena V. Travkina, Financial University under the Government of the Russian Federation, Moscow, Russia Olga V. Alekhina, Plekhanov Russian University of Economics, Saratov, Russia https://doi.org/10.1515/9783110692075-019

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and banks, will also be active in the virtual side of their lives. And at the same time, trust and attitude towards brands that have come through the Internet are sometimes the same as in real life. How can banks build trust in their brand and long-term relationships with consumers, when they are used to getting everything instantly and are ready to transfer money to another bank at any minute? The answer to this question will also be the answer to the question, what are the features of formation of competence of bank staff, considering the trends in the model of banking and entry into the labor market of the millennial generation.

Methodology The main task that banks face in a modern digital financial environment is to build and justify customer confidence. The historical path of banking systems development in the world and in Russia, more than once demonstrates many illustrative examples where the frivolous attitude of credit institutions to values, that are important to customers, eventually leads to massive bank bankruptcy. Bank representative offices and branches were a specific territory in which, the formation of communication between a banking organization and consumers of its services and products took place. It is very important for a person to communicate live with another person. For example, when you need to call the police or ambulance, it is not done through e-mail or social network. Bank representative offices and branches have become an evidence element of bank reliability. We can note, that this evidence is very expensive, but not more expensive than trust, which is the core value of banking. Technological development in the banking sector, as well as the expansion of channels for the provision of banking services and products contributes to the transfer most of the routine banking operations to self-service. This in turn contributes to higher profits and reduced bank costs. At the same time, it is very convenient for banking customers and satisfies their digital banking needs. Many modern banks set the main goal to save on costs and at the same time do not think about the value of self-service of their clients. The active reduction of cash and settlement units and the transfer of cash transactions to an ATM network, that is served by outsourcing, is a rational and attractive process for banks. In modern conditions, we observe that the large availability of ATMs and payment terminals has become the industry standard, however, customers still stand in line at the cash registers. Paradoxically, with significant investments in digital innovations, banks are not trying to increase their clients’ knowledge of these innovations in their activities. By moving the “routine” to remote channels, banks significantly save resources. But can they make money from it? Most of the operations are payments, account

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replenishment, money transfers, currency exchange, which bring commission income. This income is not enough to pay back the bank. Banks can arbitrarily increase commission income and optimize costs, but in the best case it can “untie the hands” and allow bank to use the released resource to sell customers more complex and profitable for the bank products, and even more importantly to build relationships with customers. Perhaps it is relationships that have the greatest influence on the creation of consumer experience; relations are able to smooth out problems and unpleasant episodes in the work of the bank (which, by the way, are often dictated by the market situation and are not strongly dependent on it). Despite technological innovations, which, as might be expected, will reduce the dependence of banking institutions on the number of branches or additional offices, the number of separate structural divisions of full-service banks in different countries has increased since the early 1990s (Rykova, Gubanov and Dzansolova, 2017; Hirtle, 2007). The new task of branches is to build and maintain long-term relations between the client and the bank. At the same time, an adequate assessment of the effectiveness of additional offices of the bank allows to make management decisions regarding the transformation of the network of these structural units and maintain routine procedures for material incentives for staff (Shatalova and Shatalov, 2019).

Multichannel Service Cooperation of banks with their customers is carried out through various communication channels, and today it makes no sense to argue which channel is better and more efficient. Only the convergence of channels can bring business success. New devices, such as smartphones and tablets, help banks to visualize their products and speak with the customer in the language already familiar to them. Several years ago, large banks in the USA and Asia actively included modern gadgets (iPads) in the customer service scenario, demonstrating the features and characteristics of the product being sold through touch screens. Clients who spent their personal time visiting the department were offered to use application. But what should be the motivation of the consumer to come to the office, if there he is offered to communicate with a computer? The concept of branch in which IT occupied a central place, replacing managers, quickly showed its inconsistency. Banks abroad refused intermediaries between the manager and the client in the form of an electronic device, guided by the consideration that since the client came to the department and did not use his smartphone, it means that the client needs advice or support. At the level of their subconscious, the banking client perceives the remote channel as unsafe. For him, the banking brand is indivisible for various channels, such as convenient online service and bad branches. The client has a general

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impression about the bank. It should be noted that for the most part banks have an identical quality of service in different channels. The confusion in the branches and the intricacy of the banking site interface, the difficulty in orienting online banking are the reflections of the level of development of the bank’s corporate culture, and not a question from one of the banking technologies. Banking service is not only an information environment for the bank’s technological development, but also an indicative state of its corporate and technological culture (Morozova and Travkina, 2018).

Change of Service Scenarios After using the banking product, the client always has a consumer experience. Very well, if it is associated with the achievement of any financial, more importantly, life goals. Bank can help in achievement of these goals. Everyone knows that the client is not interested in the mortgage, he only wants to buy a house. The client does not need a car loan, he wants to buy a car. But at the same time in the bank the client is told only about the conditions of the financial product. Obviously, banks that have already transferred transactions to self-service, would think about the value they create for customers and for their consumer experience. Working with consumer experience through a deep understanding of the real needs of the client will be the most important innovation for banks. A crucial innovation will be changes in customer service processes and scenarios. The reason why a client comes to a bank branch is to solve important issues for him. Retailers of various industries have long learned how to create the best consumer experience for a client. When a client comes to MacDonald’s, TGI Friday’s or Starbucks, the client physically feels the atmosphere and values of the brand. Interesting and progressive in this aspect are the formats for servicing wealthy clients, which were originally created to build long and trusting relationships. Some service scenarios from Private Banking can be implemented in retail banking. For example, one of the difficulties for retail banking is providing adequate privacy. Clients quite often complain that their conversation with the manager cannot be called confidential and other people in the bank branch can see and hear what is happening. In such an atmosphere, the client experiences additional stress, this negatively affects loyalty, so the client wants to end communication with the manager as soon as possible and leave the bank. Interestingly, such worries due to lack of security begin to be transmitted by the client to other service channels. In this case, the retail bank can use a more closed and premium service for communication, that is available to wealthy customers. This service includes communication with the client in the negotiation module, where instead of intrusive cross-selling, the manager will try to identify the client’s capabilities and needs. Sometimes it’s enough for banks to start to work on weekends.

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Traditionally, banks are unwilling or unable to provide good quality service to the customers with the lowest level in their segmentation pyramid. However, from the point of view of a client who deposits even a small amount (and is significant for a given client), the bank does not provide an adequate level of service for a significant deposit. The challenge for banks is the question of organizing a better-quality service scenario, despite the target for cost reduction (Vygodchikova, Firsova, Vavilina, Gorlova and Kirillova, 2016). The desire to increase confidentiality must be combined with the trend of greater openness and transparency of banks.

Reduction of Branch Space as a General Trend In modern banking business, another tendency can be distinguished: the reduction of large bank branches with irrational use of space. Today, banks are trying to implement their large functionality in small areas. The solution to this problem is to create a rational organization of client flows, jobs and functional modules, as well as the unification of equipment. How to combine this with the desire to implement a premium service? In practice, there are several methods that make the bank more interesting for consumers of banking products and services, without increasing (or even reducing) the size of bank representative offices. In developed markets, designers often allocate maximum space for the welcome and waiting area. Customers are most sensitive in this part of the department. It is important to give visitors the opportunity to adapt to the atmosphere of the department, show the brand in the best possible way and prepare the client for communication with the manager. The most attention should be given to this area. Some banks are planning a “choreography” of the client’s visit in such a way that the client spends a certain amount of time in the waiting area and has managed to get a series of brand messages, and only then began to conduct negotiations or transactions. Client does not feel the waiting time within 5–6 minute, if it is carried out with interest and benefit for himself.

Location of Bank Branches Bank branches should be located on places with high traffic of potential customers and with a high concentration of the target audience. The question is not only in the number of departments, but also in their correct location. Currently, it is considered that the best sites for banks are crossroads of business districts and shopping centers. In the developed countries of Asia (Japan and Singapore), banks tend to open branches in shopping centers. Departments for young clients of the Millennium

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generation (Generation Y) are located on the premises of educational institutions and entertainment centers. Citibank in Tokyo has its own transaction offices right at the metro stations, where ATMs often form customer queues, despite the active distribution of electronic payment channels. It should be noted that the Japanese contactless payment system began its operation in 2003, but despite this, there are constant queues at ATMs, based on which we can conclude that people need banks in such places.

Errors in the Design of Offices A modern banking client is in a continuous informational and advertising environment. Every day, hundreds of brands are trying to convey to him certain information. And due to this background, banking services lose their attractiveness. In this information flow, the bank can be distinguished only by simple and concise advertising, explaining difficult things to the client in accessible language using simple and practical sentences. The design of bank branches should not be complicated. He should be remembered by the client and impress him, but at the same time the bank should not turn the client’s visit into a quest. In order to improve the speed of service and economy, banks often depersonalize their branches, saving on everything. As a result, visitors do not feel any emotions, they do not form brand loyalty and addiction to its visual attributes. Consumer experience in such cases says: “This is a regular bank, the same as all the others.” By forming a comfortable and safe atmosphere, small banks have an opportunity to express their customer care, which can be felt even physically. Indeed, the speed of service is a constant modern banking attribute, but still, speed is not an emotion.

New Scenarios of Work of Banking Personnel In the future, many believe that the responsibilities of bank staff will be transformed. Nowadays, the posts of cashiers and sales managers are already being reduced. Employees of the future bank, should determine the client’s needs and be able to offer a relatively standard product to the client as if he was created and customized specifically for the individual case of the client. Another task in the banking sector will be to continuously train clients to work with innovative service channels in order to ensure comfort and safety of movement without losing the opportunity to receive customary banking services and the emotional connection with the banking brand. Proper identification of trends in the area of changes in the required competencies of bank personnel may be particularly important for the development of higher

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education programs, that are designed to provide graduates with those competencies that are most valued by society and that can lead university graduates to the successful entry into the labor market. (Blázquez, Herrarte and Llorente-Heras, 2018). The trends underlying many of the global shifts in higher education includes student enrollment patterns, competition, government funding, government support, curriculum revision, increased personal and institutional debt, and inequality between many groups of higher education stakeholders (Jacob and Gokbel, 2018).

New Type of Banking Specialists “Millennials” Currently, there is a rapid intercalation of representatives of the “Generation Y” into the structure of banks, who completely transform and create a new portrait of a modern bank employee. In this vein, banks modify their personnel policies, and therefore, educational institutions should take this trend into account when training personnel for the financial sector. At the beginning of the millennium, researchers, analyzing the motivation of the “Generation X”, which was preceding to “Generation Y”, proceeded from a confirmed hypothesis about the efficiency of wages as a motivator for increasing staff efforts. Following expectations theory, researchers found that receiving wages, being in conditions with higher levels of local unemployment and racial differences, expectedly increased the level of human effort (Goldsmith, Veum and Darity Jr., 2000). For Generation X, global competition tendencies put students at lower socioeconomic status, ethnic minorities, and people from rural and remote areas were in a significantly disadvantaged position. Researchers concluded that limited financial resources and cultural orientations forced many underprivileged students to register for fewer courses, enroll for fewer prestigious programs and choose less expensive institutions of higher education (Furlong and Cartmel, 2005). Representatives of the Millennium Generation, or Generation Y, are people born between 1981 and 2000. In accordance with expert assessment (EY, 2015), by 2025, they will account for 72% of the total working-age population. This generation is considered the most advanced in the field of technology. It is representatives of this generation, who will adequately meet the technological requirements of developing banking. More and more banks need people who have technical skills, as well as with skills in the banking specialty. At the same time, this generation is characterized by a number of features that do not correspond to traditional ideas about the nature of the labor expectations of a banking specialist. The most striking feature of the representatives of this generation is individualism and increased mobility. Distinctive features of the representatives of Generation Y are: – active change of employer, with dissatisfaction with their salary, flexibility of working conditions and career growth, they – master several professions, which further enhances their mobility

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– they actively use digital means of communication when communicating with friends and colleagues, while blogs and social networks are an integral part of their life and allow them to share their experience and opinion with a wide audience, receiving feedback – they consider the need for personal development in the workplace to be as natural, as the need for a decent assessment of work – they do not want to “burn” at work, they want to have a portfolio of professional skills and at the same time continue to develop Dedicated modern behavioral characteristics of human resources are actively taken into account in the banking sector, when banks implement their personnel strategies. At the same time, the main targets for banks are the mobilization of intellectual abilities of employees, while forming differentiated approaches to staff motivation across categories of different generations. Accurate knowledge of what competencies allow graduates to get a good result in the labor market is especially important in the context of debates about whether universities should graduate with a “general profile” or “narrow specialization”. The findings from the research help educational institutions to determine the competencies most demanded by employers and the ability of graduates to achieve high wages. The main goal of research in this area is to determine the degree, to which higher education equips graduates with the competencies required by the society of modern knowledge. Most of the literature analyzing the results of the labor market, mainly focuses on the traditional characteristics of human capital, such as education, experience, or professional training. However, scientists began to doubt that education continues to provide the skills, that are most in demand in today’s labor markets. This judgment was caused by the fact that graduates would be competent in a wide range of areas now, including both cognitive and non-cognitive skills. As a result, in recent years, more attention has recently been paid to the importance of various types of competencies in the field of human capital, as an effective tool for improving graduates’ opportunities for a smooth transition to the labor market.

New Requirements of Employers Employers, on their side, are more interested in recruiting practice-oriented employees with pronounced professional competencies. Internet banking and online technology have allowed banks to increase operational efficiency, and therefore the range of tasks that can be solved without human intervention is expanding. New banking technologies are mainly aimed at automating manual processes, and this

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leads to the fact that some banking professions disappear, and the number of bank employees performing standard operations is reduced. Banks are introducing working methods with the involvement of staff and freelancers and with the use of automated devices and digital technologies, and as technologies will develop, the forms of work organization will become more flexible. In a substantial part of the work, a transition is expected from the traditional work on the schedule of specialists of a wide profile to the involvement of highly specialized employees selected for solving a specific task in real time and possessing developed professional competencies. The current trend is that in developed countries, university education is becoming increasingly more expensive, and banks are beginning to practice the admission of staff without a university degree (EY, Global generations: A global study on work-life across education, 2015).

Results In a substantial part of banking work, a transition is expected from traditional work on the schedule of broad-based specialists to attracting highly specialized employees selected for solving a specific task in real time and having developed professional competencies. The new look of the bank in the digital economy dictates the need to create a new system, which is a structural model of competencies in the personnel potential of the bank. The essence of the new approach to creating a competence model of a bank employee, is based on the allocation of qualification requirements for a bank employee in three areas: – work with traditional banking services – work in innovative banking – work in the communicative banking sector and in the field of sales of banking products and services Specialization of each employee and bank manager is inevitable. Good employees are the best specialists: specialization is a means of solving the problem of lack of competence. For selected areas, it is necessary to develop and introduce profiles of qualification requirements for banking personnel for the future (Table 19.1). The given system of competencies corresponds to the challenges of time. The implementation of this structural model of personnel competencies in the HR policy of commercial banks will significantly increase the efficiency of their activities.

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Table 19.1: Structural model of competencies by profiles of qualification requirements for an employee of the bank of the future. Areas (profiles) of banking

The competence of the Bank employee

Financial and credit operations technique

1. 2. 3. 4. 5. 6. 7. 8.

Financial and accounting, balance sheet analysis, internal audit. Calculation and analysis of cash flows. Analysis of the dynamics of the exchange rate and yield of securities. Assessment of creditworthiness of borrowers. Investment analysis. Financial mathematics and statistics. New theories of the financial market. Asset and liability management.

Informatics

1. 2. 3. 4. 5. 6. 7.

General Technical literacy Applied computer programs Individual data processing Software development IT architecture LAN Trading: realization of transactions with securities, currency, money market instruments

Management (on the principles of rationality and efficiency)

1. 2. 3. 4. 5. 6. 7. 8. 9.

Management Theory Project management Business process management Problem solving technology Conflict resolution technology Teamwork Quality management Change management Internal communication

Communications and sales

1. 2. 3. 4. 5. 6.

Informing customers Ensuring mutual understanding with customers Customer contacts Marketing and sales Presentations, consultations Public speech

Macroeconomics

1. 2. 3. 4. 5.

Understanding the general processes in the economy Knowledge of money and capital markets Knowledge of industries and enterprises Understanding of macro-regulation Strategic planning

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Table 19.1 (continued ) Areas (profiles) of banking

The competence of the Bank employee

Global conditions

1. 2. 3. 4. 5.

Foreign language Intercultural communication Cultural Aspects of Economics Politics and economics in their relationship Regional geography.

Conclusions In the future, banks will become a place for building relationships between a client and a bank, creating consumer experience for clients, and a banking brand communication, they will be less focused on mechanical sales of products. New ways to assess the effectiveness of the banking business are needed, including the ethical component. Efficiency will be determined, by basing on new ethical criteria for the entire business of the bank. At an early date, bankers will have to realize that consumer experience and social responsibility will become the point of differentiation for the banks of the future. The bank of the future, thanks to modern information technologies, will be able to substantially eliminate personal sources of errors. The human reliability of a bank employee must be supplemented by qualifications in any of the specialized profiles discussed above. In this regard, we offer a new and easy-to-use approach to the development of banking personnel competencies in the new image of the “bank of the future”. This approach involves the formation of new staff competencies in three areas: in the field of work with traditional banking services; in the field of technological banking innovation; in the field of work with communications and sales. The study used methods of comparative analysis in the framework of multichannel assessment and banking service scenarios, areas of bank branches, location and errors in the design of bank branches. According to the results of the study, a system was developed that represents a structural model of competencies of a bank employee, based on identifying fundamental areas of banking with a proposal of profiles of qualification requirements for the employee of a future bank. Based on an empirical analysis of the possibilities and consequences of the application of new competencies of a bank employee, it has been proved that it is advisable to introduce this competency model in order to increase the efficiency of banking business in the conditions of digitalization of the economy.

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References Blázquez, Maite, Herrarte, Ainhoa, Llorente-Heras, Raquel, Competencies, occupational status, and earnings among European university graduates, Economics of Education Review, Volume 62, 2018, Pages 16–34, URL: https://doi.org/10.1016/j.econedurev.2017.10.006. Cartmel, Furlong, F. Graduates from Disadvantaged Families: Early Labour Market Experiences, Policy Press, Bristol, UK (2005). EY, Global generations: A global study on work-life challenges across generations, 2015. Goldsmith, Arthur H, Veum, Jonathan R, Darity, William, Jr., Working hard for the money? Efficiency wages and worker effort, Journal of Economic Psychology, Volume 21, Issue 4, 2000, Pages 351–385, URL: https://doi.org/10.1016/S0167-4870(00)00008-8. Hirtle, Beverly, The impact of network size on bank branch performance, Journal of Banking & Finance, Volume 31, Issue 12, 2007, Pages 3782–3805, URL: https://doi.org/10.1016/j.jbank fin.2007.01.020. Jacob, W. James, Gokbel, Veysel, Global higher education learning outcomes and financial trends: Comparative and innovative approaches, International Journal of Educational Development, Volume 58, 2018, Pages 5–17, URL: https://doi.org/10.1016/j.ijedudev.2017.03.001. Morozova Yu. V., Travkina E.V. Rossiyskiy kartochnyy biznes v usloviyakh tsifrovoy ekonomiki: tendentsii i perspektivy razvitiya [Russian card business in the digital economy: trends and prospects]. Economic journal. 2018, No.4(52), P. 63–82. (in Russ.). Rykova I.N., Gubanov R.S., Dzansolova B.S. Regional’nyy bankovskiy rynok Rossii: voprosy teorii i praktiki [Regional banking market in Russia: theory and practice]. Banking. 2017. No. 8. P. 30–39. (in Russ.). Shatalova E.P., Shatalov A.N. Otsenka effektivnosti dopolnitel’nogo ofisa banka [Evaluating the efficiency of a bank branch]. Finance and credit. Vol. 25, issue 3, March 2019, Pp. 533–552. (in Russ.). URL: https://doi.org/10.24891/fc.25.3.533. Vygodchikova I.Y., Firsova A.A., Vavilina A.V., Gorlova O.S., Kirillova O.Y. Estimation of bond risks using MINIMAX. Journal of advanced research in law and economics. Vol.7. No. 7. 2016. Pages 1899–1907. URL: https://doi.org/10.14505/jarle.v7.7(21).38.

Valentine Vishnevsky, Aleksandr Gurnak, and Elena Vishnevska

20 Digitalization and Big Data Technologies in Tax Administration and Economic Regulation (Case Study: Russia) Introduction The digital revolution creates and develops advanced technologies that open up new opportunities in various fields of economic activity. Tax administration is one of the fields these technologies have already been applied. The digitalization of the relationship between taxpayers and tax authorities, analytics of generated big data, modeling and influencing the behavior of taxpayers can solve a number of important tasks facing tax administrations related to reducing the costs of tax collection, opposition to opportunistic behavior and corruption. However, the consequences of these measures are already beyond the scope of tax administration itself. They have such results that should be considered in a wider context of fiscal regulation, because they affect the behavior of economic entities (their propensity to save and invest), interfere in the distribution of income between the private and public sectors of the economy, are important in the context of state macroeconomic policy. In addition, in connection with the use of big data as an instrument of administration and regulation, new layers of problems inevitably arise that are associated with defining the new role of the government in the economy and forming a new state and society based on new “smart” and effective democratic or, alternatively, “smart” and effective non-democratic principles. All this in a complex determines a high degree of relevance of the issues under consideration.

Methodology The problem of the tax consequences of digitalization has received much attention in the special literature in recent years. The tax implications of digitalization and the application of big data technologies are analyzed by many organizations and

Valentine Vishnevsky, Institute of Industrial Economics of the National Academy of Sciences of Ukraine, Kyiv, Ukraine Aleksandr Gurnak, Financial University under the Government of the Russian Federation, Moscow, Russian Federation Elena Vishnevska, Institute for International Cooperation Development, Poznan, Poland https://doi.org/10.1515/9783110692075-020

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experts. A particularly large number of studies are devoted to tax administration issues (which is understandable due to the practical significance of the problem) (Baisalbayeva, Van der Enden, Tenan and Flores, 2018), as well as the formation of a new state using digitalization and big data for organizing a new, more sophisticated mechanism of control over the activities of individuals and legal entities (Dai, 2018). However, in general, the situation remains unclear. In addition to the obvious substantive complexity of the problem, this is due to the fact that the world is not homogeneous, both in sociocultural and tax aspects. Different countries and groups of countries that differ, among other things, in tax terms (Vishnevsky, Goncharenko, Gurnak, Vishnevskaya, 2018) create their own recipes for solving the problems of human and technological progress towards the socio-economic paradigm of the future. And that is fine. Modern institutional theory states that in principle there is no single universal solution for all countries in the world (Furubotn and Richter, 1998), but some typical solutions can be found that can assist in the search for reliable ways to develop groups of countries characterized by similar conditions. In this regard, the experience of Russia, which is trying to find its development path between the world West and the East, is significant, despite the fact that it has achieved certain success in digitalization of the tax sphere and is already facing new unresolved problems. This article is devoted to the institutional analysis of these problems and possible solutions. Its structure is structured as follows: first, the authors review the processes of digitalization of the tax sphere in the Russian Federation, analyze the experience of using the obtained digital data to improve tax administration, and then proceed to consider the macroeconomic consequences associated with changes in tax administration and discuss possible ways to improve the mechanism of tax regulation of the economy associated with the formation of social ratings and building a reputation state.

Analysis of Digitalization of the Russian Tax System In the tax sphere, expanding the tax base, optimizing tax revenues, increasing the inefficiency of tax administration, and combating tax evasion are important goals for every government. Among the typical problems that need to be resolved are the high cost of generating and transferring tax reports by taxpayers, as well as relatively high costs of tax administration and tax control by the state. Many countries have begun to overcome these barriers by providing tax authorities with the right to access large amounts of data from various sources directly or indirectly related to taxation. These data and sources range from publicly available Internet records, data arising from the performance of ordinary state functions, to information about commercial transactions or other processes that require special state supervision. The obtained information resources can be used to collect taxes, improve the efficiency of tax control, promote the development and implementation

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of economic policies both at the national and at the regional level. Currently, 159 out of 193 UN member states are using information and communication technology (ICT) intensive systems for tax management (World Bank Group, 2016). Yet the solutions are as varied as the unique problems that each country faces. In the Russian Federation, like many other countries, there is a special digitalization program that includes, among other things, the tax direction. The results are already present. According to the head of the Federal Tax Service (FTS) of the Russian Federation, M. Mishustin, Russia is already ahead of many jurisdictions in terms of digitization of tax services. In the Russian Federation websites, web portals and personal electronic services were first created in the field of tax administration. Currently, work continues on mobile applications and individual proactive services. In the future, tax administration should turn into an adaptive digital platform in Russia that works exclusively with digital data and electronic persons. Over time, there are plans to transform this structure into an IT service that interacts in real time with digital processes within taxpayer companies, including for the purpose of checking the correctness of accrual and payment of taxes. There are four main elements of the digital information system of the Federal Tax Service: (1) an automated control system of VAT refunds (ASC VAT); (2) automated control systems for the use of cash registers (ASC CR); (3) information system for marking and tracing of goods (IS MTG); (4) information system of the population register and civil registration (IS CR). (1) ASC VAT is an automated system that allows for a very short time to track the path of goods and payments for it from the manufacturer to the final consumer through a chain of intermediary sellers. The system was first launched back in 2013. Since then, several of its versions have changed and the third generation system (ASC VAT 3) is already in operation, which allows to process large amounts of information and get more accurate results. Thanks to this system, the tax administration has received online access to the accounts of enterprises and entrepreneurs – individuals and can now see all the calculations of economic agents: how much money came, from whom and for what, how much of it was paid, to whom and for what, how much tax was paid and/or unpaid. All this greatly complicates the possibility of illegal VAT refunds and the use of various schemes of tax evasion on sales. (2) ASC CR consists of three subsystems: registration of CR in electronic form; ensuring verification of the cash receipt and filing a complaint with the tax authorities on the correctness of the application of the CR; reception of fiscal data. From July 1, 2017, all organizations using CR are required to transmit sales data to the tax service through online fiscal data operators. At the beginning of 2017, about 20,000 CR were transferred online. At present, the total number of functioning online cash offices in Russia is 2.3 million. At the same time, online cash offices provide an opportunity to control retail funds in the amount of 2.5 trillion rubles per month (V. Shmyrova, 2019).

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(3) IS MTG is a unique project aimed at building an unprecedented product authentication system in the world, based on the assignment of each commodity unit to unique digital codes protected cryptographically. This allows the government, business and consumer to control the path of the marked goods from the manufacturer to the final buyer and counteract their illegal traffic. IS MTG is introduced in stages. A start was made in 2016, when the system of mandatory labeling of fur products was introduced, and as a result, the turnover of such products increased 12 times in physical terms, and in value terms – 6 times. In 2017, it was decided to create a national digital product labeling system. Since 2019, mandatory labeling has been introduced in the Russian Federation for such specific groups of goods as tobacco products, footwear, clothing, tires, etc. By 2024, it is planned to create a system of continuous labeling of goods based on public-private partnership in the IT sphere. According to the government, this will allow for the construction of a unique complete system of guaranteeing the authenticity of goods in Russia. (4) (IS CR). The operator of this system since October 1, 2018 is the Federal Tax Service of the Russian Federation and it has already been put into commercial operation. And if earlier to receive a certificate in the Russian Federation, a citizen had to go to the registry office, where his birth record was made, at present, a single cloud technology allowed all the registry offices to be connected by a single chain. The government plans that within two and a half years the subjects of the Russian Federation will have to process and digitalize the registry offices archives for almost 100 years (since 1926) and, accordingly, enter them into the system. In the future, this may serve as the basis for creating a unified register of the population of the Russian Federation. The use of information systems allows the FTS to ensure a steady increase in tax revenues to the budget. Only in 2018, due to the use of analytics tools, the Russian government received an additional 345 billion rubles of tax revenues (Shmyrova, 2018). As shown in Figure 20.1, the number of on-site tax audits is constantly decreasing, while their performance is growing: in 2017, it was almost 3 times higher than in 2013. Naturally, this ensures a high return on investment in tax administration: for every one ruble of spent funds, a return in the form of tax revenues received by the state treasury is more than 100 rubles. An important element in improving the efficiency of tax administration is the coordination of the activities of various departments. In particular, the automated system for monitoring VAT refunds was linked to customs systems. As a result, the Federal Tax Service of the Russian Federation has the ability to track the appearance of all imported goods in the country, as well as the export of goods, in which there is a VAT refund. In addition, the Federal Tax Service and the customs service coordinated their inspections of taxpayers, which helps to reduce the number of inspections and improve their performance (Shmyrova, 2018).

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41.3 36.8 30.7 26 20.2

4.7

4.3

3.2 2013

2014

9.5

6.7

2015

2016

2017

Number of on-site tax audits (in thousands) Performance of on-site tax audits (in millions of rubles) Figure 20.1: Some indicators of the Federal Tax Service (FTS) activity.

Results The consequences of changes in tax administration in the context of the state economic policy. Due to the new methods of tax administration, tax revenues have “left behind” the economy: taxes in 2016–2018 (when digital technologies began to be widely used in tax administration) grew faster than the national economy and real incomes of the population (Figure 20.2).

110 107.0

106.9

104.2

105

103.3 99.5

%

100 95

94.3

90 85 2013

2014

GDP growth

2015

2016

Real income growth

2017

2018

Tax revenue growth*

Figure 20.2: Some indicators of Russian economy development. Note: The main tax revenues include VAT, corporate income tax and personal income tax (in 2012 prices).

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This indicates that on the one hand, digital technologies for tax administration can be very effective and efficient. However, on the other hand, the consequences of their application are already beyond the framework of economic relations “payer – tax inspector” at the micro level. An increase in taxes is an increase of the tax burden on the economy, the redistribution of limited resources in favor of the public sector, despite the fact that, as shown in Figure 20.2, the economic growth has been small in the Russian Federation in recent years and the real money incomes of the population do not increase. In principle, proceeding from the standard theory of public finance, this is rather a pro-cyclical rather than counter-cyclical fiscal policy. The explanation is that at present the priority of the Russian government is macroeconomic stability. The digitization of the tax administration system, as an element of fiscal policy aimed at increasing tax revenues to the state’s treasury, clearly contributes to this task. In addition, such a fiscal policy corresponds to the moderately tight monetary policy of the Central Bank of the Russian Federation, which puts the control over inflation at the forefront. Such an economic course of the government is the subject of criticism of some specialists who believe that excessively tight monetary and fiscal policies impede economic growth (Glaz’yev, 2017). A different point of view is that the problems of the Russian economy are mainly “structural”, so that easing in the monetary and fiscal sphere can accelerate inflation more than the real economy (Kudrin and Mau, 2017; Kudrin, and Sokolov, 2017). With the current low share of fixed investments (slightly more than 20% of GDP), the Russian economy needs new impulses, positive examples, which will bring investors. To this end, the Russian government has decided to implement a number of national projects funded by accumulating financial resources. However, this is only one part of the problem. It is important not only to attract private investors, but also to focus their activities on national interests. In this regard, the second side of using the information initially obtained for tax administration purposes and increasing tax revenues to the budget becomes of high importance – namely, the ability to use big data to estimate, predict and influence the behavior of economic entities. Prospects of using tax big data to build a reputation state and create new methods of tax regulation of the economy and society development. The Russian Federation still has no experience in using digitalization opportunities to influence the behavior of economic entities in an integrated system of state regulation and management. In this respect, the People’s Republic of China has advanced the furthest. In 2014, the Chinese government announced a large-scale plan to create a social credit system (the Social Credit System, the SCS). Its goal is to increase the mentality of integrity and the level of creditworthiness of the whole society (State Council of the Republic of China, 2014). When developing the SCS project, the Chinese government envisaged that such built-in mechanisms of reputation as assessments, ratings, blacklists, etc., will be used to solve actual problems of the socio-economic sphere: overcoming

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fraudulent behavior in the market, difficulties in enforcing court decisions, corruption in government, professional abuse and even plagiarism in science. Since the adoption of the plan to create SCS, the main data collection and exchange centers have been established, various government agencies and commercial credit rating services (including such an IT giant like Alibaba Group) began to apply the SCS in practice. This indicates that, despite a number of bureaucratic and technological barriers, by 2020 China should have formed the basic structures of this system. In the Russian Federation, the possibility of using the potential of digitalization in the form of creating a system of social ratings (following the example of China) was rejected at the government level as “a rather obvious threat” for society “with the classical humanistic tradition” (Business online, 2018) However, the SCS system is not so simple and unambiguous, especially since China also has thousands of years of classical humanistic traditions. It is important to bear in mind that the driving force of this innovative project is not a threat, but the promotion of an increase in the culture of trust in society. The measures introduced within the SCS system are aimed primarily at solving such socially important tasks as curbing corruption, increasing the efficiency of execution of court decisions, punishing unethical behavior of professionals (lawyers, doctors, teachers), etc., which are undoubtedly relevant for Russia, as well as many other countries, especially those with an emergent economy. The experience of building the SCS in China, obviously, should be carefully analyzed, and the very idea of this system, in principle, should not be rejected. Moreover, in 2018 in the Russian Federation, the value of the “trust index” to the main institutions of government decreased and almost returned to the 2012 figures (Regnum, 2018), and the existing methods for assessing the activities of government bodies are far from perfect. In this regard, it is important to emphasize that the SCS system applies not only to individuals, but also to legal entities. In relation to the latter, the task is to, on the basis of monitoring and evaluating the economic and non-economic activities of enterprises and organizations (including government ones) by using big data technologies, form a set of ratings that stimulate investment in priority technologies and encourage socially and environmentally responsible behavior of legal entities. In other words, this means a revival of the idea of the optimal combination of centralized and decentralized methods of economic regulation in the new conditions, at a new level and in new forms. However, it is not only about this anymore. New forms of public organization are appearing in the world – a “reputation society” and a “reputation state” (X. Dai, 2018) – in which social ratings based on the analysis of “big data” will play a fundamentally larger role than they do now. From the standpoint of economic efficiency, SCS is a way to reduce the information asymmetry and, consequently, improve the action of the “invisible hand” of the market. In addition, thanks to the regulation “from the inside” (self-checks and self-control),

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SCS significantly reduces the cost of achieving socially responsible and effective behavior compared to conventional legal regulation (X. Dai, 2018). The main criticism of SCS, in addition to questions to the technical aspects of the implementation of the plan, as well as to the aspects of information privacy and security, concerns the potential for abuse by the state. Therefore, it is important to form a set of restrictions for the actions of officials who could use such systems too arbitrarily and / or widely. Altogether, all of the above indicates that rating methods for regulating the economy, based on big data analysis, are gradually becoming a new reality, with the obvious fact that the processes of formation of modern reputation societies and states are very complex and ambiguous. They generate new institutions of power and new mechanisms of enforcement. This does not mean that sociocultural factors (including Russian ones) will disappear or “dissolve” in the globalized world. On the contrary, they will acquire greater importance in the new conditions, since social ratings and the institution of reputation bear a clear civilization imprint.

Conclusions 1.

Digital technologies already provide economic benefits in tax administration. Moreover, the effect is quite large, so that the dynamics of tax revenues may even different significantly from the dynamics of the real economy (at constant tax rates). At least the Russian Federation has witnessed this for several years now, and it seems that exhaustion of the potential of digitalization and habituation effect is in the distant future. 2. From the standpoint of economic development, this may be good, and may also be associated with negative consequences. Much depends on the current state of the economy as a whole, the range of tasks and the chosen development strategy. In any case, significant results of tax reform in the Russian Federation indicate that digital tax administration should be built into the overall holistic system of economic regulation. 3. Digitalization of the tax administration results in externalities, since the big data on which digital tax administration is built acquire an independent value. They, like collected taxes, become an instrument for regulating business processes, including through the mechanisms of social ratings and the formation of new institutions of trust, supported by the force of legal enforcement. This is a new reality, developing into a new normality. Big data will continue to accumulate and they will continue to be used to compile various ratings that affect the behavior of economic agents, regardless of how the government of a particular country relates to this. 4. The question of how organically formed new mechanisms of motivation, based on social assessments, can complement the usual market system, is on the

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current agenda. In principle, this question is not new, since market mechanisms are initially immersed in the institutional environment, which already has its categorical imperatives (informal sociocultural norms, which are the result of a long evolution) and informal social ratings. The novelty of the current situation lies in the fact that, thanks to the digital revolution, the influence of these imperatives and ratings can be greatly enhanced, including through targeted government action. This, in turn, raises the issue of the optimal combination of centralized and decentralized regulation methods in the conditions of digitalization to a new level, on the increasing importance of democratic institutions, the importance of correctly taking into account sociocultural factors and the civilizational context of economic and state development.

References Baisalbayeva, K., Van der Enden, E., Tenan, R. and Flores, R. (2018) The Data Intelligent Tax Administration. Meeting the challenges of Big Tax Data and Analytics, PwC, Microsoft, available at: https://www.pwc.nl/nl/assets/documents/the-data-intelligent-tax-administra tion-whitepaper.pdf (accessed 23.05.2019). Business online (2018) V pravitel’stve RF ne otsenili ideyu sozdaniya sistemy sotsial’nogo reytinga dlya grazhdan [The Government of the Russian Federation Did not Appreciate the Idea of Creating a Social Rating System for Citizens], available at: https://www.business-gazeta.ru/ news/402082. November 11, 2018 (accessed 08. 04.2019).(in Russ). Dai X. (2018) Toward a Reputation State: The Social Credit System Project of China. SSRN Electronic Journal, 61 pp. DOI: http://dx.doi.org/10.2139/ssrn.3193577. Furubotn E.G. and Richter R. (1998) Institutions and economic theory. The contribution of the new institutional economics. Ann Arbor, MI, University of Michigan Press. Glaz’yev S.Y. (2017) Ryvok v budushcheye. Rossiya v novykh tekhnologicheskikh i mirokhozyaystvennykh ukladakh. [A Leap Into the Future. Russia in the New Technological and World Economic Structures]. Knizhnyi Mir, Moscow. (in Russ). Kudrin, A. and Sokolov, I. (2017) “Byudzhetnyye pravila kak instrument sbalansirovannoy byudzhetnoy politiki” [Fiscal maneuver and restructuring of the Russian economy], Voprosy ekonomiki [Russian Journal of Economics], Vol.3, No 3, pp. 221–239. (in Russ). Kudrin A. and Mau V. (2017) “The principles and goals of the Russian state in the twenty-first century”, in : Russia: Strategy, Policy and Administration, pp. 17–29. Regnum (2018) Sotsiologi zayavili o snizhenii doveriya grazhdan RF k institutam vlasti [Sociologists have stated a decrease in the confidence of Russian citizens in the institutions of power], available at: https://regnum.ru/news/2494482.html (accessed 08. 04.2019).(in Russ). State Council of the People’s Republic of China (2014). Planning Outline for the Construction of a Social Credit System (2014–2020), available at: https://chinacopyrightandmedia.wordpress. com/2014/06/14/planning-outline-for-the-construction-of-a-social-credit-system-2014–2020/ (accessed 08. 04.2019). Shmyrova V. (2018) Glava FNS: Blagodarya «analiticheskim sistemam» byudzhet poluchil 345 milliardov [The Head of the Federal Tax Service: Thanks to the “Analytical Systems”, the

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Budget Received 345 Billion], available at: http://www.cnews.ru/news/top/2018-11-21_glava_ fns_blagodarya_analiticheskim_sistemam_kazna (accessed 16 May 2019). (in Russ). Vishnevsky V.P., Goncharenko L.I., Gurnak A.V. and Vishnevskaya E.N. (2018) Nadnatsional’nyye modeli nalogovykh sistem: ot Kitaya do Magriba [Supranational Models of Tax Systems: From China to the Maghreb], Infra-M, Master, Moscow. 272 р. (in Russ). World Bank Group (2016) Digital Dividends Overview. DC: World Bank Group, available at: http://www.worldbank.org/en/publication/wdr2016 (accessed 23. 05.2019).

Valentina B. Dzobelova, Svetlana A. Vorobieva, Galina A. Sergutkina

21 Tax Administration as a Factor of Social and Economic Development of a Country Introduction The theoretical aspects of tax administration as part of the science of taxation are analysed in the papers of such foreign scientists, as: A. Wagner, E. Engel, A. Laffer, P. Lorange, C. McConnell, F. Nitti, A. Sand, A. Smith, J. Sismondi, V. Pareto, P. Proudhon and others. The processes of managing the tax system, in particular in terms of organizing tax administration, are of interest to leading financial scholars. V. Andrushchenko, T. Bondaruk, S. Varnaly, A. Vasilik, S. Zakharin, T. Efimenko, A. Ivanishina, S. Tereshchenko, O. Timchenko and others made a significant contribution to the study of the problems of managing the tax system, in particular, in terms of organizing tax administration. (Ryndina et al., 2010; Balaeva et al., 2013; Dzobelova, 2019; Dzobelova and Olisaeva, 2018; Dzobelova and Olisaeva, 2019; Eichfelder and Schorn, 2012; Sugarova, 2015). Management activities of tax authorities are carried out through tax administration. For the first time, tax administration was applied in 2004 in the regulatory acts of the Russian Federation, and since 2005 the tasks facing tax authorities, the issues of improving tax administration were considered annually in the budget messages of the President of the Russian Federation to the Federal Assembly on budget policy for the next year. The peculiarity of doing business, objective and subjective reasons, economictransformations in the country and many other factors influenced the transformation of the concept of “tax system management” into the concept of tax administration. (Dzobelova, 2017).

Valentina B. Dzobelova, North-Ossetian State University named after K.L. Khetagurov, Vladikavkaz, Russia Svetlana A. Vorobieva, Mordovia State University Mordovia after N.P. Ogaryov, Republic of Mordovia, Saransk, Russia Galina A. Sergutkina, JSC RZHD, Moscow, Russia https://doi.org/10.1515/9783110692075-021

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Methodology Tax administration in the Russian Federation has switched to a new format of analytical work of the Federal Tax Service, which allows to improve the quality of the approach to verification at the expense of not an all-embracing, but a targeted approach to the relationship between tax authorities and taxpayers. (Weidong, 2014). Tax violations, timely advice, control procedures require careful study, identifying one or more business entities, which further allows one to extend the accumulated practice to the entire industry. Modern tax policy is aimed at improving the efficiency of tax functions, by tightening control, increasing tax revenues to the budget, and trusting relationships between tax authorities and taxpayers, which is the key features of the crisis time. Order of the Government of the Russian Federation from 10.02.2014. No.162-p approved the Action Plan (roadmap) “On Improving Tax Administration.” The roadmap is aimed at improving and optimizing the tax administration system, the purpose of which was: – improving the comfort of interaction between the tax authority and – the taxpayer (procedures for filing and forming tax reports);- the improvement of cameral control – opposition to tax evasion – transition to modern technologies of tax administration (in terms of improving the principles of electronic document management)

Results The results of improving tax administration resulted in the key changes reflected in Table 21.1. The results of the implementation of the tax legislation were the following: – tax monitoring to increase the comfort of the relationship between the tax authorities and taxpayers – “CFC Law” was elaborated as part of de-offshorization measuresto counteract tax evasion – Automated VAT Control System, a technologically advanced solution, was created to improve the cameral control Considering the VAT declaration in more detail, authors outline that the VAT tax declaration from 2015 contains all the information on invoices in special tax registers (the book of purchases, the book of sales, the register of invoices). (Hapsaeva, Brtsiev and Totoeva, 2018)

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Table 21.1: Improving tax administration. Tax administration tool

Date of adoption of the Characteristic regulation

Introduction of a new tax return form for VAT (with information on invoices)

Order of the Federal Tax Service of October ,  No. ММV-- /  @ “On Approval of the Form of the Tax Return on Value Added Tax, the Procedure for Completing it, as Well as the Format of the Tax Return on the Value-Added Tax in Electronic Form”(with amendments and annexes).

Successful results of use in the control work of the “ASK VAT” system. It should be recalled that this system is a complex that processes information from invoices and books of purchases and sales submitted by taxpayers in electronic form. The analytical tools of this complex allow the tax authorities to identify “unscrupulous” VAT payers using tax evasion schemes, including through cashing.

Development and introduction of the ASK VAT- system

“Order of the Federal Tax Service of Russia dated July ,  No. MMV-- /  @” On Conducting a Pilot Software Project Implementing the Functions of the Task “Automated Control System for VAT refunds” Order of the Federal Tax Service of Russia of October ,  No. MMV-- /  @ On the Commissioning of Software that Implements the Functions of the Task “Automated System for Monitoring VAT Refunds”

The information from the taxpayer’s reports is automatically compared with the data of its suppliers and customers. If there is a difference in the chain, the program signals this to the company. The company must explain the reason within  days. If there is no explanation, the tax inspector takes the case. Having inspected, what are the reasons for the discrepancies, official decides whether to reimburse the company VAT or refuse it. The effectiveness of the program is evident in terms of speed in detecting errors in the chains of counterparties. Automated system helps to cover % of counterparties. Previously, the tax inspectors did not have enough time for this. It is another question whether the introduction of the program has resulted in a positive trend in the growth of tax collections. The increase could (and most likely) be influenced by a combination of factors: declaring large amounts of VAT by taxpayers, judicial practice in – in favor of tax authorities, enhancing the quality and effectiveness of tax control not connected with the ASK.

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Table 21.1 (continued) Tax administration tool

Date of adoption of the Characteristic regulation

Development and testing of a new version of the VAT verification program – ASK VAT-

Order of the Federal Tax Service of Russia of March ,  No. MMV-- /  @ On Approval of the Provision on the Automated Information System of the Federal Tax Service (AIS “Tax-”)

Integration with banks was added in this version of the program and it allows tax officials to identify situations, for example, when a buyer received an invoice, claimed a deduction, but the buyer does not receive money for a long time, which may indicate an illegal VAT optimization. In , ASK VAT  was launched. The new program became more advanced in terms of checking payers. All data is processed, not only declarations, but also cash registers. The equipment reads all data from cash registers and compares it with the sales books of organizations. As a result, one-day firms disappear automatically. Read more on Saldovka.com: https://saldovka. com/nalogi-yur-lits/nds/ask-nds.html

Introduction of the rules of controlled foreign companies and new forms of tax reporting

Federal Law of  November  No. -FZ “On Amendments to Parts One and Two of the Tax Code of the Russian Federation (in Terms of Taxation of Profits of Controlled Foreign Companies and Incomes of Foreign Organizations)”.

In , the Federal Law of  November  No.-FZ “On Amendments to Parts One and Two of the Tax Code of the Russian Federation (in Terms of Taxation of Profits of Controlled Foreign Companies and Incomes of Foreign Organizations)” came into force, known as “CFC Law”. The essence of the adopted amendments is reduced, in particular, to taxing the retained earnings of foreign organizations (entities without a status of a legal entity) owned and operated by Russian taxpayers. In addition, the CFC Law combines other special rules to combat tax evasion (specific antiavoidance rules – SAAR), such as the concept of beneficial owner income, tax residence of legal entities, as well as countering the indirect sale of real estate.The importance of this law is difficult to overestimate. For the first time in the Tax Code, mechanisms for countering tax evasion with the help of foreign legal structures were described in sufficient detail. That marked the beginning of a new phase in the fight against offshores.

The seller of goods (works, services) calculated all paid VAT, prepared a declaration, put together all calculations and then presented summary calculations to the FTSup to 2015. Also, the buyer separately, without regard to the seller, filled out his declaration and filed with the FTS. The tax authority received only summary data and then conducted anin-house audit.

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Changes enshrined in the legislative framework from 2015 allowed the tax authority to fully get an idea of the movement of goods (works, services) in the chain of counterparties (seller-buyer). That is, the existence of two counterparties dictates both sides to take action, on the one hand, the seller takes into account the invoice in the sales book and pays VAT, on the other hand, the buyer receives the invoice, records it in the purchases book and and takes VAT deduction. For the tax authority, this scheme provides data on invoices that are taken into account by two counterparties at the same time. Therefore, by using this data, one can verify, for example, whether a seller, a buyer existed, and the correctness of the invoice. As the goods move from the seller to the buyer, a chain is built up between pairs of counterparties, which makes it possible to fully understand the movement of goods, discrepancies and the possibility of using “gray schemes” by one-day firms. The possibility of comparison of the invoice scheme is carried out using the VAT-2 automatic control system (VAT ASK), which has all the data on the invoices of the country, compares them with each other and issues the result to the tax authority. If the system finds a discrepancy, information about it is sent to the counterparty to provide the tax authority with an explanation of the identified gaps. An important condition for the functioning of the data processing system is providing information in electronic form on VAT and the taxpayer’s response to the identified discrepancies in electronic format. If the tax authority sends a claim to the taxpayer, the latter must provide a document which certifies claim receipt otherwise sanctions, up to blocking the company’s accounts, can be introduced. Tax authorities adhere to their rules for conducting comparisons, and in general, if this is the period for filing a declaration, then comparison is performed automatically. Comparison is conducted in the following order: 1. the period of submission of the declaration, from which several days are counted, in order to enable the submission of late declarations . . . 2. After all the declarations have been collected, the verification algorithm is launched, which works fairly quickly, since the ASK system works in a similar manner. The duration of the algorithm is about 12 hours, processing data from the whole country. The steps of the algorithm are as follows: – format control which verifies the correctness of filling in these declarations (date, presence of counterparty, etc.) – logical control which checks the correctness of filling in the declaration between sections, that is, the relationship between sections is checked (sent, submitted, code, operation number, etc.) – control of comparison of the VAT declaration with other declarations filed by other taxpayers – comparison of data of counterparties – taxpayers (TIN number, PPC, search for pairs of data in declarations), that is, all invoices are compared based on certain indicators

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– identifying discrepancies, ranking in order of importance, materiality and significance (for example, all indicators are the same, but the date differs by one day, so one organization might have created an invoice one day, and another the next day; or, the difference is due to rounding operations to 1 ruble) – comparison and construction of a chain of movement of goods, that is, verification of transaction volumes between two counterparties in total, according to the movement of goods. This is due to the fact that only the name of the goods is written in the invoice which is not unique, making it impossible to use the program in the algorithm (the absence of the goods classifier code in the invoice) – Chains of interaction of movement of goods must be without gaps, that is, all taxpayers must file declarations and, in the absence of information about the money flow, the taxpayer, suggests that there is an abuse that can be quickly detected. The last stage of the considered algorithm characterizes the indicator of improvement of the tax system, as the legislative base affecting the company’s labor costs has been changed, electronic filing of the declaration has been introduced for all categories of taxpayers, as well as the use of modern IT technologies for processing a huge array of information.

Conclusion The tax authorities have received an opportunity to more hold tax audits extensively, in that they have the right to request taxpayer documents as part of a desk audit and to conduct an inspection when entering the taxpayer’s territory. The ASC VAT program independently verifies all the data provided by the organization. If the risk of violation is very high, the company is checked by all regulatory authorities. The program’s approach consists of several factors for which it was created: to understand how the discrepancies affect the work of the company and the preparation of tax reports. For companies that have passed the risk zone of the program, the opportunity to do without additional verification has increased. That is, if the company’s actions are legitimate, no need to worry that there will be additional questions from FTI. It should be understood that any company may be at risk. A minor committed mistake, human factor, so to speak, and one is already under the control of the inspectors. Even a simple legal change of address, name, is already a reason for inspection. In order not to be on the black list of the ASC VAT and avoid additional control, it is necessary for one to perform a number of actions after the launch of the new “total” control machine:

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– It is necessary to check the counterparty. An official representative of this organization must also present the documents when signing contracts. – Check the accounting data, the assets of the organization. A potential counterparty must have a postal and a legal address. Check the bailiffs’ database. Careful verification of future partners will help not only to avoid encountering scammers, but also protect from entering the “black” list of the ASC system.

References Balaeva D.A., Aguzarova L.A., Aguzarova F.S. Osnovnye napravleniya sovershenstvovaniya nalogovoj politiki. [The Main Directions of Improvement of Tax Policy]. In the collection: Actual Problems of Tax Regulation in Modern Russia, a Collection of Scientific Papers. Vladikavkaz, 2013, pp. 22–26. (in Russ.). Dzobelova V.B. Finansovye principy organizacii nalogovogo planirovaniya na predpriyatiyah malogo biznesa v RF. [Financial Principles of the Organization of Tax Planning in Small Businesses in the Russian Federation]. Economy and Entrepreneurship. 2017. No. 8–3 No. (85–3), pp. 434–436. (in Russ.). Dzobelova, V.B. (2019) New Ways of Qualified Staff Training by the Example of the Republic of North Ossetia-Alania. Proceedings of 2018 17th Russian Scientific and Practical Conference on Planning and Teaching Engineering Staff for the Industrial and Economic Complex of the Region, PTES 2018, pp. 23–28. Dzobelova, V.B., Olisaeva, A.V. (2019) Staffing Needs in the Regional Economy under the Modern Conditions of Labor Market. Proceedings of 2018 17th Russian Scientific and Practical Conference on Planning and Teaching Engineering Staff for the Industrial and Economic Complex of the Region, PTES 2018, pp. 185–188. Dzobelova, V., Olisaeva, A. (2018) Analysis of innovative development of the NCFD regions in Russia. IDIMT 2018: Strategic Modeling in Management, Economy and Society – 26th Interdisciplinary Information Management Talks, pp. 473–479. Eichfelder S., Schorn M. (2012) Tax compliance costs: A Business-Administrative Perspective // FinanzArchiv. No. 68. pp. 191–230. Hauptman L., Horvat M., Korez-Vide R. (2014) Improving Tax Administration’s Services as a Factor of Tax Compilance: The Case of Tax Audit // Lex Localis – Journal of Local Self-Government. No. 12. pp. 481–501. Khapsaeva, R. B., Brtsiev, Kh.A., Totoeva, F. B. Uproshchennaya sistema nalogooblozheniya: sushchnost’ i perspektivy sovershenstvovaniya. [Simplified Taxation System: the Nature and Prospects for Improvement]. Accounting and Control. 2018. No. 12 (38). pp. 15–19. (in Russ.). Ryndina M.N., Vasilevsky E.G., Golosov V.V. and others. Istoriya ehkonomicheskih uchenij [History of Economic Studies” Textbook for Econ. spec. universities / – M.: Higher School of Economics, 2010. (in Russ.). Sugarova I.V. Finansovyj kontrol’ i mesto Federal’noj sluzhby finansovo – byudzhetnogo nadzora v sisteme finansovogo kontrolya. [Financial control and the Place of the Federal Service for Financial and Budgetary Supervision in the Financial Control System]. Taxes and Taxation. 2015. No.7. pp. 556–564. (in Russ.). Weidong L. (2014) Study on the Risk Identification and Warning of Tax Administration // Lecture Notes in Electrical Engineering. No. 269 LNEE. pp. 1137–1142.

Dmitry A. Artemenko, Elena V. Porollo, Konstantin V. Novoselov

22 The Transformation of Methodological Principles of Tax Administration on the Basis of Digitalization Introduction Improvement of the organizational structure and methodological approaches in the control work of tax authorities should be considered as a necessary condition for achieving social efficiency of tax relations in the context of the new budgetary reality characterized by financial instability and slowdown in economic growth. The decision to widely introduce digitalization in the Russian economy is justified by the fact that at the present stage digital data is defined as a key factor of production, which, in turn, contributes to the competitiveness of the country and business, their economic growth and development, and appears as an instrument of democratization of public administration. According to the Decree of the President of the Russian Federation No. 601 from 07.05.2012, in 2018 70% of all services should be provided in the electronic form. E-government has become the main Russian megaproject in the field of state power informatization. The process of digitalization of public administration has opened an opportunity of building a democratic society and “smart cities”, reducing the bureaucracy, acted as a catalyst for the emergence of a multifunctional electronic, open government. In recent years, the vector of tax administration reform in the direction of digitalization has been chosen by the tax service. Successful tax administration and the optimal balance of its methods contribute to the achievement of the necessary quality and effectiveness of planned, regulatory and control measures, which promote the sustainable development of the tax system and economy. At the same time, shortcomings of tax administration can serve to reduce tax revenues, increase tax violations, disrupt the balance of inter-budgetary relations, and, as a consequence, social tension emerges. In this regard, the use of information and communication systems based on modern digital technologies can significantly improve the quality of tax management.

Dmitry A. Artemenko, Southern Federal University, Rostov-on-Don, Russia Elena V. Porollo, Rostov State University of Economics, Rostov-on-Don, Russia Konstantin V. Novoselov, Financial University under the Government of the Russian Federation, Moscow, Russia https://doi.org/10.1515/9783110692075-022

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It can be stated that tax authorities are actively implementing projects to introduce information technologies into the practice of tax administration. For the first time, a draft concept of technological modernization of the tax service was developed by the decision of the state tax service of Russia in 1995. It involved the purchase of computer equipment and software for the automation of technological procedures and processing of information (Artemenko, 2009). The Federal target program “The development of tax authorities (2002–2004)”, approved by the government of the Russian Federation from 21.12.2001 No. 888 appeared as a significant document on the way to the modernization of the Russian tax system. The implementation of this program has allowed to improve the tax collection rate through the fight against tax evasion, to expand the scope of service to taxpayers, to increase the level of equipment with modern systems of technological processes and operational management tools, cost optimization and development of resource support. During the period of the Federal target program, the implementation of inspections with computer equipment was increased to 60%. By 2005, local computer networks had been modernized in the territorial tax authorities of the Russian Federation and the electronic data processing system had been fully implemented. The staff of tax authorities was trained in the technology of working with the program complex “EDP system of local level”. The subsequent technological modernization of tax administration was associated with the improvement of the efficiency of tax authorities system, ensuring the growth of tax literacy and public awareness. The inspections improved the technology of work with the automated information system of tax authorities (AIDS “Tax”), improved the possibility of electronic document circulation with taxpayers, including the implementation of the principle of feedback through the automatic registration of taxpayers’ appeals coming through the Internet portal of the Federal tax service, their processing and control over the results of consideration. In addition, departmental electronic document circulation and interdepartmental information interaction of the tax service with various state bodies (law enforcement, customs, Federal Treasury bodies, bailiff service, extra-budgetary funds and others) were established. A new area of tax administration was the development of electronic interaction between tax authorities and credit institutions to provide information on the opening and closing of accounts, as well as the introduction of a billing system in which each formed payment order of an individual is assigned a unique 15-digit index, which is then transferred to the credit institution for subsequent automatic identification and accounting of tax payments. However, by 2010, the Federal tax service had depleted the resources of the information system in force at that time, and a number of serious organizational problems had arisen, including increased labor costs for routine procedures, obsolescence of information platforms and increased costs for their maintenance, subjectivization of the choice of the object of inspection, and an increase in the volume of information

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about the activities of taxpayers. Without serious changes, the qualitative development of tax administration would be impossible. To solve these problems, the main efforts of the tax authorities were concentrated in 4 main areas: 1) increase the level of automation of business processes of tax administration (Karepina, 2016), including through the creation of specialized units for processing and preparation information in the form of electronic records of a taxpayer (Labyntsev, 2012); 2) expanding the scope of electronic interaction with taxpayers through new e-services, create a single call centre for round-the-clock provision of information on appeals, posting on the web portal on a variety of thematic consultations; 3) optimization search techniques, generalization and analysis of information obtained by tax authorities in order to implement a risk-based approach, including that in relation to specific industries and economic activities (Porollo, 2013); 4) implementation of internal compliance and control procedures of tax administration. For the development of contactless methods of interaction with taxpayers in 2010, a new official Internet portal of the FTS of Russia was developed (www. nalog.ru), including a wide range of electronic services. By the end of 2011, 22 electronic services had been placed on the official website of the Federal tax service. The most popular online services of the FTS website among taxpayers during the first year of its operation were the Information contained in the Unified State Registers of legal entities and individual entrepreneurs (24 million applications), “Find out your debt” (20 million applications), “Mass registration addresses” (14 million applications) (Federal tax service, 2019). Thus, the introduction of modern information technologies gives tax authorities an opportunity to obtain a modern mechanism based on the maximum automation of all work processes, which allows to improve the quality of tax administration, to move to a better level of relations with taxpayers, which is primarily necessary in the context of innovative development of the economy. Currently, estimating the dynamics of development of the tax system and the establishment of the chronology of tax administration, it is possible to say that Russian FTS service which mission is the effective oversight and enforcement activity and the high quality of the services provided for lawful, transparent and comfortable business, enforcement of taxpayers’ rights and the formation of the financial basis of the state activity.

Methodology Currently, the FTS of Russia has a wide range of functions, including control over the correctness of the calculation of taxes and fees established in the state; supervision of compliance with current legislation in the field of taxation; control and supervision of the use of cash registers, turnover of tobacco products, the correctness

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of the calculation and timeliness of payment of insurance premiums; registration of legal entities and individual entrepreneurs; implementation of currency control within the powers granted and other state functions. Undoubtedly, the proper execution of the assigned functions, the performance of work with a huge amount of information is already difficult to imagine without new digital technologies that contribute to the transformation of tax administration in all directions, including the introduction of new forms of combating tax abuse. In general, tax administration is a well – established and effective tool of influence on taxpayers in order to ensure strict compliance with the current tax legislation. The Federal tax service of Russia, putting digitalization at the head of its agenda, has carried out a large-scale modernization of the entire information system in recent years, as the amount of information processed by the tax authorities increases exponentially every year. The intensity of information exchange between tax authorities and taxpayers, state bodies and organizations, as well as information exchange at the international level, is growing. These processes are typical for tax authorities at all levels. In total, the information system of the Federal tax service stores and uses data of 4.8 million legal entities, 3.8 million operating sole traders and 155 million individuals, four petabytes of data are stored and processed. To understand these scales, the comparison given in one study is interesting: this amount of information is comparable to the amount of research conducted on the Large Hadron Collider during the year. According to some studies, the volume of data in 2025 may be 10 times higher than the total data for 2016 (Starodubtseva and Markova, 2018). Up to half a million declarations and accounting reports, millions of invoices and notifications, thousands of claims, requests of taxpayers and agencies within the framework of interdepartmental electronic interaction systems are received and processed quarterly by the tax authorities. Only in the Rostov region more than 4 million individuals, 80 thousand legal entities and 136 thousand individual entrepreneurs are registered with tax authorities. Every day, each of tax inspections of the Rostov region serves about 400–500 taxpayers, and in the days of mass reporting, this figure is doubled. With a huge amount of tax information, the lion’s share of the work of the tax authority at any level falls on the movement, analysis, forecasting of data. Working with a large array of data requires appropriate infrastructure. The creation of such infrastructure is a separate complex task implemented by the Federal tax service. In 2016, the main and backup data processing Centers (DPC) of the Ministry of Finance of the Russian Federation were put into operation in Dubna and Gorodets. They served as a technical basis for processing large data on Big Data technology, including indicators of tax and accounting reporting, data on the movement of taxpayers’ funds, including those aimed at paying taxes, the state of debt, information from state registers for different purposes, information provided to the tax authorities by authorized persons.

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It should be taken into account that the unconditional advantages of the digital economy over the classical material commodity-money exchanges are that the consumer can receive the necessary services or goods without waiting for the delivery of goods or the provision of services in material form. But at the same time, the development of the digital economy contributes to the emergence of challenges and threats. First of all, there is the problem of the protection of human rights in the digital world, the safety of digital data of the user, as well as the problem of ensuring citizens’ confidence in the digital environment; threats to the individual, business and the state associated with trends in the construction of complex hierarchical information and telecommunication systems that widely use virtualization, remote (cloud) data storage, as well as heterogeneous communication technologies, the growth of computer crime, including international one; the dependence of socio-economic development from the export policy of foreign states, etc. An urgent problem in the digital economy is the increase in tax risks of the state, that is the possibility of losing part of the tax revenues to the budget. The decrease in tax revenues is due to the difficulty of tax control by the state due to the fact that with the development of the digital economy there are such new tools as electronic money, artificial intelligence, robotics. In modern conditions, tax evasion is becoming more sophisticated. The danger of tax violations is, first of all, that the channels of cash flow to the revenues of the country’s budgets are blocked and, thus, the effectiveness of the budget and tax policy of the Government of the Russian Federation and its subjects, which are deprived of one of the most effective means of economic management, is reduced. Nowadays, information and communication technologies provide business structures with such opportunities as the implementation of the latest algorithms of economic activity, the implementation of tax optimization, the expansion of the territorial framework of the business processes, including those on an international scale, which can lead to difficulties in the implementation of tax administration, reduce its efficiency. The solution of these problems is seen not only in the improvement of tax control technologies, but also in the construction of customer-oriented interaction with taxpayers on a legal basis. In such circumstances, tax administrations, if they want to keep up with the changes, have no choice but to create their own digital platform for the formation of an ecosystem of work with taxpayers and participants of foreign economic activity. The Federal tax service of Russia is working to create the most convenient communication between the population and business with the state, and efforts are being made to transfer taxpayers to full interaction in electronic form. The result of this work was the implementation of 48 interactive services (Rukina, 2017), operating on the official website of the tax service, the possibility of electronic document management, the functioning of information systems that reduce paper and manual work. Thus, innovative technologies of tax administration contribute to the development of the culture of implementation of tax relations.

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The method of tax control as a set of techniques, methods and means of controlling the impact of tax administrators on the obliged participants of tax relations, is characterized by a plurality of techniques and methods of identifying distortions of taxable indicators, among which are direct methods of information support of evidence of tax offenses (based on the confirmation of tax calculations documents, accounting registers, actual data on the availability of taxable objects) and indirect methods (based on information not directly used in the calculation of taxes, but which allows to confirm its reality). Analytical or indirect methods occupy an important place in the practical arsenal of tax control, as they provide an integrated approach to assessing the completeness of compliance with tax legislation, allowing to take into account not only the information declared by the taxpayer in the tax reporting, but also its real financial situation, business strategy, range of market relationships, the specifics of transactions and the volume of transactions. The analytical methods are based on the idea of understanding of activities of a particular taxpayer in all its diversity, which allows the tax authorities to determine the objectivity of the declaration of tax liabilities and the probability of the risk of reflecting inaccurate data in tax and accounting. The objective nature of the evidence obtained using indirect methods also makes it possible to specify the amount of tax liabilities in case of impossibility to make a direct calculation, inadequacy of the taxpayer’s accounting system, tax evasion and tax audits. In addition, the widespread use in the practice of tax audits of indirect methods of determining real income, the validity of the claimed rights to recognition of expenses, deductions, tax benefits and other grounds for reducing the amount of taxes payable, strengthens the evidence base in the identification of tax offenses and increases the inevitability of tax liability. This determines the risk-oriented and preventive value of indirect methods that limit the possibility of distortion of tax reporting. However, despite the practical relevance of indirect methods of tax control, their content and classification are not sufficiently studied. A. I. Ukraintseva highlights such indirect (non-traditional) methods such as pricing control, external and internal comparative analysis of the enterprise (calculation by analogy), the method of analysis of equity among the calculation and analytical methods (Ukraintseva, 2011). T.E. Totikova classifies indirect methods with distribution to three groups: 1) accounting and statistical (evaluation of statistical data); 2) methods of open inspection (detection and suppression by specialized regulatory authorities of violations of currency, customs, banking, tax, antitrust legislation); 3) special economic and legal methods (establishment of interrelation and interdependence of various economic indicators characterizing the economic activity of the taxpayer) (Totikova, 2014; Rukina, 2014). Mishin V. I., Paskachev A. B., Sadygov F. K., Sahakyan R. A. consider the possibility of using indirect statistical methods to identify imbalances in the development of various industries, indicating the presence of hidden income from unaccounted production (Mishin, Paskachev, Sadygov and Sahakyan, 2004).

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S. N. Macedonskiy, while structuring a set of indirect methods, distinguishes such varieties as: – methods of economic analysis, involving the comparison of various economic indicators to verify the formation of the tax base (the ratio of the volume of purchases of stocks with the release and sale of products, gross income and expenses, expenses of material and intangible nature, labor costs, growth and disposal of assets) – methods of calculation of cash receipts (comparison of declared indicators with data on cash flows on bank accounts) – methods of analysis of information on the income and expenses of the taxpayer (assessment of profitability and structure of expenses of other taxpayers in comparable conditions of activity, comparison of expenses with the income, the analysis of structure of buyers and volumes of realization) – accounting and statistical methods (identification of patterns indicating the concealment of income, using data on commodity flows, the volume of production and sales in real terms, the increment of property, the cost of working time) – the method of stereotypes (identifying tax fraud) – methods of evaluation of capital (definition of the factors of capital gains, cash deficit, cash flow, cover expenses, the ratio of market conditions) (Macedonskiy, 2005) It is impossible to agree with S.N. Makedonskiy who identifies indirect and alternative methods of calculating tax liabilities. Alternative taxation is a modified form of tax on business income, in Russian practice it is represented by a single tax on imputed income, trade duty, minimum tax in the application of a simplified tax system, that is, they are independent taxes. Indirect methods of control of taxable indicators can be applied to these taxes, for example, in order to verify the reliability of physical indicators for a single tax on imputed income and trade collection, the completeness of accounting for income under the simplified tax system at the cash method. In this regard, it can be stated that indirect and alternative methods solve different problems and their mixing is incorrect. E. Biber (Biber, 2010) in its study focuses on the analytical nature of indirect methods of control of income and expenses of the taxpayer, their justification for the idea of inadmissibility of excess of expenses over declared income, different applications of analytical approaches in the accrual method and cash method, taking into account the specifics of the taxpayer’s operations. Among the main types of indirect methods, they identified a method for assessing income from bank accounts, a method for assessing the ratio of costs and sources of origin of funds (balance sheet method), a method of asset growth, a method of percentage mark-up (used to determine revenue in the presence of information on the volume of purchases or for the correct determination of expenses in the presence of data on their overstatement), a

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method of quantitative assessments (the use of data of production accounting of the taxpayer or information from third parties on the volume of purchases, sales in kind, the volume of output, piece-rate of pay), the method of industry standards and business processes (benchmarks for industries and areas of economic activity). Thus, indirect methods of assessment of taxable indicators are characterized by a significant variety, and the possibility of their practical application is determined by the peculiarities of the specific task solved by the tax inspector in justifying the conclusions about the presence or absence in the tax reporting of distortions and contradictions that require additional confirmation. The increase in the level of own tax revenues and intensification of efforts to realize the tax potential of regions and municipalities is an important factor in the development of the revenue base of territorial budgets in the conditions of financial instability (Rukina, 2017), since the lack of fiscal revenues, which is common primarily to regional and local budgets, as I. A. Maiburov fairly notes, is the main threat to tax security (Maiburov et al., 2017). At the same time, property taxes as a source of own income occupy a small share in the structure of tax revenues of the consolidated budgets of the subjects of the Russian Federation (from 15.1% in 2013 to 15.2% in 2017) and maintaining growth rates at an average level, despite the ongoing reform of real estate taxation at cadastral value (Federal Treasury of the Russian Federation, 2018). The solution to the problem of achieving completeness and timeliness of property taxes in regional and local budgets can be identified in three main angles. First, ensuring reliable planning of tax revenues; second, the development of methodological support for tax control measures; and third, improving the procedure for collecting arrears and other types of debt on property taxes (penalties, fines, interest) (Porollo, 2015). The first area, the assessment of tax revenues, is crucial for the forecast of tax revenues of the budget, the completeness of which should be considered as a target indicator of the effectiveness of fiscal policy (Efremenko, Panasenkova, Artemenko and Larionov, 2018). In this regard, it is necessary to consider the improvement of the accounting of objects of taxation, in particular, real estate as a priority.

Results Changes in conceptual approaches to tax control require revision of the existing methodological tools, which identify illegal actions of taxpayers, and substantiation of new fundamental approaches of tax authorities to prove the facts of the use of “aggressive” mechanisms of tax optimization and implementation of tax schemes. It should be taken into account that the amendments made to the law did not lead to the expansion of the powers of tax authorities to collect evidence, while the principle

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of presumption of good faith of taxpayers remains in force as a fundamental principle of the legislation on taxes and fees. In this regard, the effectiveness of tax audits can be ensured by systematization of methodological methods for detecting violations committed by the taxpayer in the following main areas: First of all, tax administration in modern conditions is focused on the identification of signs of a conscious reduction by a taxpayer of the tax base and (or) the amount of tax payable as a result of distortion of information about the facts of economic life (the totality of such facts), about the objects of taxation to be reflected in the tax and (or) accounting or tax reporting of the taxpayer. At the same time, the scope of possible violations is defined as deliberate actions of the taxpayer in the form of purposeful distortion of information about the facts of economic life, about the objects of taxation in order to reduce the tax base, the amount of tax payable. Characteristic features of such actions are the creation of a variety of schemes, as a result of the application of which there is incorrect or artificial application of reduced tax rates, tax benefits and tax regimes due to the “splitting of business”, manipulation of the status of the taxpayer and the terms of international treaties, violations of the obligations of the tax agent for the calculation and withholding of taxes, the Commission of imaginary or sham transactions. Methods of distortion of tax accounting data are reduced to underestimation of revenue (income), reflection in tax calculations of obviously false information on objects of taxation, including allegedly made transactions (unreal transactions). In order to conceal the deliberate nature of actions to understate tax liabilities, taxpayers often resort to the inclusion of formally independent persons in schemes to obtain unjustified tax benefits. In this regard, an important methodological method of establishing evidence of a tax offense is to identify the predetermination of the movement of cash and commodity flows, signs of artificial document flow, the establishment of a sequence of non – random actions, subordinated to a single goal, that is the possibility of reflecting false information about the facts of economic life and objects of taxation. Another important method of tax administration within the framework of the concept of unjustified tax benefit is the re-qualification of the main purpose of transactions made by the taxpayer, if it is established as a result of control measures that the disputed transactions are not due to economic expediency, but are aimed at non-payment of tax or offset (returns). Examples of such re-qualification can be reorganization transactions involving the joining of unprofitable organizations that do not have potentially significant assets from a business point of view in order to reduce income tax; acquisition of a share in the capital of an organization that has expensive property in order to reduce the amount of value added tax; movement of funds in the order of profit distribution under the guise of loans, etc. The tax authorities are required to reliably establish a sufficient body of evidence that collectively testified to the deliberateness of the actions of the taxpayer. Analysis of modern practice shows that such facts can be used as evidence:

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– the lack of economic opportunity for the disputed agent to fulfill his obligations – the absence of expenses which are necessary and characteristic for real financial and economic activity (for rent, utilities, electricity, communication services, wages, economic needs), as well as payments of sums of money to other persons in connection with the need to fulfill obligations under disputed transactions – the registration of the disputed counterparty after the conclusion of the contract with the taxpayer – the absence of disputable counterparties at the place of state registration and addresses stated in primary documents – tax return of the disputed counterparties represented with a minimum amount of taxes – officials of disputed contractors do not come to the tax authorities when they receive summons about a call on interrogation – disputed counterparties transfer funds to the same persons – the main part of the funds from the current account of the disputed counterparties is directed to replenish the account and return the funds under the loan agreement to the founders It should be noted that the collection of information to establish the above facts requires the use of a wide range of diverse information that is provided by the integration of modern information technologies in all business processes of tax administration. Information systems of the Federal tax service use large amounts of information, including information flows of authorities and management, law enforcement and other fiscal authorities (Federal customs service, extra-budgetary funds, Federal service for alcohol market regulation). The unified technological base, in addition to facilitating control procedures to increase tax revenues and ensure prevention of violations of tax legislation, reduces transaction costs for taxpayers (Artemenko and Artemenko, 2018). Methodical support of control measures of tax authorities is provided by the electronic dossier of the taxpayer, reflecting his activities, connections, specifics of formation of the tax base, its usual structure and dynamics, the main economic operations. However, in modern conditions, the development of information technology is exponential. Thus, in 2015, an automated system of control over the calculation and payment of VAT (ASK-VAT), based on analytical tools of Big Data technology, was introduced. The system analyzes a huge array of primary data of taxpayers (books of purchases and sales) on several dozens of risk criteria, which becomes an effective tool for tax authorities to identify and suppress the facts of tax evasion or attempts to fraudulently reimburse it. The result of this analysis is an automatic comparison of taxpayers’ information, and in case of discrepancy between the mirror principle of VAT “accrual-deduction” technical errors, as well as potential tax fraud, are promptly identified. At the same time, together with the Blockchain

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technology, tax authorities have the opportunity to track large transactions with large VAT, tax refunds and cross-border transactions. The results of the use of the system indicate not only a significant increase in the collection of VAT, but also an increase in the overall tax culture of legal entities, when the use of evasion schemes become simply economically inefficient. Thus, the use of Big Data increases the transparency of tax processes, ensures the rationality of planning control efforts and focus on those areas where the risk of tax violations is increased (Artemenko, 2010). The effectiveness of the introduction of information systems, working on new principles of analysis of a wide and diverse array of data, led to an increase in federal budget expenditures on technological equipment of tax authorities. Thus, in 2017, compared to 2016, the IT-budget of the Federal tax service increased by 68.4% (from 10.49 billion rubles to 17.66 billion rubles). The largest items of expenditure in 2017 were the modernization of AIS “Tax-3” (1.3 billion rubles), the creation of FSIS” Unified state registry office (682 million rubles), the development of AIS “Marking” (450 million rubles) (Federal tax service, 2019). In 2017–2018, the sphere of analysis of the process of compliance with tax legislation significantly expands due to the connection of cash registers based on the transfer of data on calculations to tax authorities online. The expediency of using indirect methods is determined by the influence of such factors as the poor quality of accounting for taxable indicators or its unreliability, the absence of primary documents or their inconsistency, the doubtfulness of economic operations, the incomparability of the results of economic activity with industry-wide indicators, the presence of losses or the declaring of minimum income at a high standard of living of beneficial owners of the business. The economic efficiency of indirect methods is predetermined by the additional strengthening of the arguments of tax authorities when making decisions on the results of tax audits and when considering tax disputes in court. In other states, the rules and conditions for the use of additional data on the taxpayer are widely used for the purpose of tax calculation verification. Thus, the US Internal Revenue Service discloses the conditions for the use of indirect methods of tax control, indicating examples of their implementation on its official website on the Internet. Article 225 of the Tax Code of the Republic of Moldova establishes the composition of indicators and sources of information that can be used by the tax authorities in the framework of indirect methods, including the assessment of the specifics of a number of parameters and the scale of business, structuring customers, analysis of quantitative and qualitative parameters of raw materials used, the cost of rent, as well as a number of analytical techniques, including analysis of data on transactions made by the taxpayer, received from state bodies and other organizations, and in respect of individuals – information on the presence of expensive property, servants, belonging to various social groups. In the Federal Republic of Germany indirect methods of calculation of the tax base include 1) the method of general comparison of property, involving a monthly

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comparison of the declared income with consumption (production and personal one) and the increment of property, the absence of confirmed sources of increment of property indicates hidden income; 2) the method of comparison of income with cash turnover, in which cash flow is compared with its surplus after tax, at higher costs, it is concluded that the taxable income is understated; 3) the method of analysis of inventories, based on a comparison of the declared sales volumes with the actual production costs (Efremova, 2015). Institutional support of indirect methods of control in the Russian Federation is provided by the right of tax authorities to independently calculate the amount of tax on the basis of available information on the activities of the taxpayer or similar taxpayers embodied in article 31 of the Tax Code of the Russian Federation. The basis for the application of such calculation is the taxpayer’s refusal to carry out the procedure of inspection of used premises and territories by the tax authority in order to establish the reliability of data on objects of taxation, or if the tax authority does not provide documents confirming the calculation of tax liabilities for more than two months, or the lack of accounting of income, expenses, objects of taxation, or a significant violation by the payer of the established rules of accounting and tax accounting, which does not allow to make a reliable calculation of tax. At the same time, specific methodological techniques that the tax authorities have the right to apply are not established by law. This seems to be correct because otherwise there are unjustified restrictions on the ability of tax authorities to use a wide range of indirect evidence of tax offenses. A significant expansion of the scope of long-term use of indirect methods of tax control determines the institutionalization of the concept of unjustified tax benefit in article 54.1 of the Tax Code of the Russian Federation, introduced in 2017 and implying the need for tax authorities to search for information that would indicate the actual settlement of transactions concluded by the taxpayer, their reality, the conditionality of economic feasibility, the absence of coordinated actions to maximize tax benefits in formal compliance with the law. At the same time, the implementation of control measures becomes more complicated by the increasing dynamism of modern business processes, their virtualization, the widespread use of modern technologies of interaction and calculations in the global information environment. It is obvious that effective counteraction of tax authorities to aggressive business models cannot be provided without scientifically proved systems of risk management, the advanced IT infrastructure and automated systems which not only support carrying out tax audits on the expired periods but also work for the operational prevention of possible violations from taxpayers. It is important to understand that the concept of unjustified tax benefit was built on the proof of the fact of deliberate actions of the taxpayer, and therefore the technical error in the calculation of tax liabilities do not entail the application of article 54.1 of the Tax Code of Russia.

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Accordingly, the materials of tax audits should reflect the specific actions of the taxpayer (its officials) and evidence of intent to cause damage to the budget system. To this end, tax authorities in the framework of tax control measures are guided by the identification of circumstances indicating the awareness of a person of the illegal nature of his actions (inaction), for which the following issues are investigated: determination of the substance of misstatements in the calculation of taxable indicators (tax amount), identification of causal relationships between the misstatements and specific actions of the taxpayer, the presence of intent to benefit from the reduction of tax liabilities, actually caused harm to the budget system. Taking into account the requirements of article 54.1 of the Tax Code on the need to monitor the actual execution of business transactions, the tax authority is obliged to establish the circumstances indicating that the actual settlement of the transaction was actually carried out by the persons specified in the primary documents. A proof within the tax audit of the fact that the counterparty does not have a taxpayer (supplier or contractor) of storage facilities, personnel, property to fulfill the terms of the transaction can be a formal indication of the unreliability of the information stated in the primary documents. In such circumstances the tax authority proves that 1) the transaction is not executed by the declared counterparty (methods of the inventory, surveys, site inspection, drawing up of commodity balances, obtaining explanations, examination, etc. are applied); 2) the execution, provided by the disputed transaction is made by the taxpayer, not its counterparty (methods of the survey of officials of the taxpayer directly involved in the production process, as well as officials of the counterparties with the establishment of the actual circumstances of the transaction, the study of primary documents and production records of the taxpayer in part of the access regime and access to the territory, waste disposal, other indirect signs of a lack of real execution of the transaction are applied); 3) a formal workflow for the improper accounting of expenses and statements of tax deductions for disputed transaction is organized (methods for the determination of cashing in of money in the chain of economic relations of the taxpayer and their subsequent use by interested persons, the identification of violations in the organization of circulation and contradictions in the content of economic operations, the evidence of joint activities (use shared IP-addresses, unified leadership, management and organizational processes, the presence on the territory of the taxpayer seals and documents of other persons) are used); the atypical actions of the parties in the conclusion and execution of transactions). In the digital economy, analytical support of tax control must comply with rapidly changing business conditions, including the establishment of contracts using Internet resources, including multiple transactions with individuals for the purchase and sale of goods (works, services). In this regard, the use of technologies based on the analysis of a significant array of data on cash flows, the grounds for the interaction of individuals and legal entities and the property consequences of

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such interaction, not only enhances the representativeness of data on the conditions of the audited taxpayer, but also allows you to organize a systematic monitoring of its current property status in real time and future changes in the business model (Radyukova, Sutyagin, Treschevsky and Artemenko, 2018). The expansion of digital platforms used to promote commercial proposals for the sale of goods (works, services), the use of electronic payment services, the active introduction of various sales technologies on behalf of individuals in social networks without official registration of business activities contributes significantly to the development of analytical technologies of tax administration. In the majority of countries, tax authorities have now introduced information systems that monitor the financial condition of economic entities and the population through the accumulation of data in special data storage and processing centers. The need to ensure adequate taxation of income received in the process of Internet trade and from the provision of advertising, communication, information and financial services in demand in the global virtual space, the volume of which is often hidden through the use of non-traditional methods of payment (including crypto currency technologies), is a significant modern challenge for tax authorities around the world (Efremenko, Panasenkova, Artemenko and Larionov, 2018). The lack of a consistent, systematic policy of state registration of real estate has led to the fact that the real state of land and buildings located on it is not always true. Mistakes in the organization of tax assessment of real estate significantly reduce the potential of property taxes. So, owing to part 8 of article 47 of the Federal law of July 24, 2007 N 221-FL “About the state immovable property cadastre” provisions of regulatory legal acts in the field of implementation of the state technical accounting and technical inventory since January 1, 2013 are not applied. Therefore since January 1, 2013 the state accounting of housing stock is not performed, including calculation of inventory cost of objects of the housing stock is not conducted on the territory of the Russian Federation. Accordingly, on the territory of constituent entities of the Russian Federation, which has not switched to calculating the tax on property of individuals according to the cadastral value, the taxation is carried out according to the inventory value of the property, based on recent data about the inventory value submitted in the prescribed manner to tax authorities before March 1, 2013. In this regard, real estate objects placed on the state cadastral register from January 1, 2013, up to the introduction of taxation on cadastral value on the territory of the Russian Federation are not actually subject to taxation. For example, in the Rostov region, local budgets lost tax on the property of individuals on facts of construction and acquisition of real estate for 5 years (from 2013 to 2017). As a target of tax control in the field of property taxes, it is possible to identify objects that are not involved in taxation. The main factors that distort the information about the tax base and the assessment of potential tax revenues are the following:

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– Many buildings constructed before 1998 (the introduction of mandatory state registration of rights to immovable property) were not timely put on technical accounting, while legal instruments that could be used to force owners to register such objects are absent. – No technical inventory was carried out in respect of objects which were independently rebuilt and reconstructed by the owners (self-building) – The actual use of land does not meet the intended purpose. – The registration of objects which initially to be used for business purposes, for individuals in order to simplify registration procedures, minimize the cost of construction and commissioning of constructed facilities, which does not allow to objectively assess the potential of the property tax of organizations and the investment potential of the region (Frolova and Koroleva, 2013). – Owners of real estate objects evade from carrying out procedure of the state registration in connection with the actual absence of responsibility for nonobservance of this duty. – Significant costs and complexity of registration of rights to immovable property do not allow to fulfill the requirement of the law on state registration of rights to immovable property and ensure reliable accounting of objects of taxation. The organization of such work requires, among other things, a continuous inventory of the actual state of real estate by the method of inspection and a complete bypass of households. This method was used in Soviet practice, and its relevance is proved by the results of the experiment on taxation of real estate in Veliky Novgorod during 2000–2005. The lack of officially established methods of real estate inventory requires the development of appropriate regulations at the local level. It is obvious that the inventory should be carried out on the initiative of local governments, financially interested in a significant increase in tax revenues. At the same time, it is the local self-government that can ensure the interest of the population in establishing order in the sphere of accounting for tax objects due to the policy of openness in addressing local issues (Bogoslavtsevа, Korepina and Bogdanova, 2017), the use of a result-oriented approach (Ivanova and Rukina, 2012) and the promotion of a responsible attitude to the timely execution of tax duties. The inventory will provide up-to-date data on the availability of real estate, its quality characteristics and owners, which can become the basis of the municipal register of real estate, primarily in relation to objects formed before 1998, for which local governments are obliged to submit information for the calculation of land tax to individuals annually by February 1 to tax authorities. In this regard, it may be appropriate to conduct an inventory on a systematic basis both by local authorities, including that through the creation of interdepartmental working groups and by attracting specialized commercial organizations for this work.

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Conclusions/Recommendations The development of analytical methods based on digital technologies is provided by the solution of a number of problems, among which, first of all, we can distinguish the collection of information in electronic form. For this purpose, the regulatory requirements strengthen for taxpayers to provide not only information on income and other transactions in the order of the declaration in electronic format, but also data at the request of the tax authorities for tax control purposes, including electronic images of various documents (agreements, contracts, primary documentation, accounting registers), as well as explanations of taxpayers on specific circumstances that have attracted the attention of the tax authority. As a result, if there are obvious advantages of such interaction, there are also negative effects of digitalization, which include increasing the number and volume of requests from tax authorities by automating the procedures for processing information received from taxpayers and other persons, which increases transaction costs. Automation of processing of information received by tax authorities reduces the efficiency of interaction with the tax authorities by limiting the communication of the taxpayer with the real performer, that is a person. Unfortunately, the formalization of tax indicators processing requires a high level of analytical competence from the taxpayer, and their lack does not allow to provide comprehensive explanations on the substance of the issues arising from tax authorities. The fixation of benchmarks by which taxpayers’ data are tested for compliance with the requirements of tax legislation can be considered as another negative effect. Despite the positive manifestations of a standardized risk-based approach to improve the efficiency of tax administration and fraud prevention, formal criteria may not always accurately reflect real economic processes. In this case, taxpayers who do not comply with the established restrictions may be subject to excessive control procedures, which, in addition to the effect of dispersing the efforts of tax authorities, adversely affects the quality of tax relations, increasing their conflict potential. In addition, it can be stated that the acceleration of the pace of digitalization of tax administration, increasing the degree and efficiency of generalization of data on transactions and operations of the taxpayer, provide a rapid response of tax authorities to potential threats of evasion, which is not always timely supported by legally embodied rules and mechanisms, that also contributes to the deepening of contradictions between the interests of participants of tax relations. The solution of these problems can be achieved, in particular, by changing the existing models of interaction of tax authorities with the network community, expanding the scope of cooperation and dialogue on compliance with tax rules. The most promising direction in this field is the simplification of procedures for attracting individuals to pay taxes on the most popular services implemented through specialized web portals (rental housing, personal professional services), through the

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introduction of the institute of tax agents in relation to Internet intermediaries (site operators) and the establishment of fixed tax rates by type of income. Ensuring effective tax administration and full fulfillment of tax obligations by taxpayers is defined as a priority of the state policy in the sphere of public finance management by the State Program of the Russian Federation “Management of public finances and regulation of financial markets” (approved by the Government Resolution No. 320 of April 15, 2014). It should be noted that the effectiveness of the tax administration of local taxes levied on individuals in terms of completeness and timeliness of collection of accrued tax amounts is constrained by the complexity of operations for the formation and distribution of tax notifications and tax claims, as well as tracking the response of taxpayers. Overcoming the current situation requires the implementation of a set of measures to prevent the formation of tax debts on property taxes and its minimization in the following main areas, implemented on the basis of the latest information technologies: 1. active promotion among the population of the idea of the responsible performance of tax duties and wide awareness of taxpayers about the terms and conditions of payment of local taxes 2. increasing the involvement of the population in innovative technologies of interaction with tax authorities (electronic services, personal accounts of taxpayers), which can significantly reduce transaction costs 3. combining the efforts of tax, law enforcement and other state and local selfgovernment bodies to identify and include latent objects in the tax base 4. ensuring completeness of coverage by taxation of real estate objects with application of modern geoinformation technologies, including concerning the parcels of land on which cadastral cost is not defined or disputed; the capital construction objects which are not registered in accordance with the established procedure; the lands which are not used for the intended purpose; the real estate objects which are not registered in systems of cadastral information 5. development of methods of individual work with taxpayers, including sending notifications about debts at the place of work, publication in the media of information about individuals who have significant debts to the local budget, the use of deferral and debt restructuring, taking into account the property status of debtors 6. introduction of economic incentives for timely fulfillment of tax obligations, including encouragement of individuals to comply with the deadline for payment of taxes by providing a discount for early fulfillment of tax obligations set as a percentage of the amount of tax payable, taking into account the positive possibilities of this tool, demonstrated by world practice (discount within 10 %) 7. introduction of the obligation for owners of real estate to present receipts for payment of tax at state registration of transactions with it

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8. timeliness (two months prior to the maturity date) and order sending, to the payer of tax notices, including the transfer of the print functions and the centralized distribution of the federal establishment “Nalog-SERVIS” of the FTS of Russia 9. elimination of legal uncertainty of procedures for recovery of arrears from the heirs of the deceased taxpayer 10. introduction of an interim measure in the form of seizure of property in case of missing the deadline for payment of tax 11. application of the simplified method of collecting tax debts (without opening of administrative proceedings by court bailiffs) The practical implementation of measures to identify real estate objects, that are not involved in the tax turnover, contains special measures for aerial photography and the commission bypass of the areas. It should be taken into account that one of the problems that reduce the pace of registration of rights to immovable property is the need to collect many documents and significant loss of time. Therefore, it is advisable to introduce a single comprehensive state service for registration of rights in regional multifunctional centers. At the same time, amendments to the Tax Code of the Russian Federation on the application of an increased rate of land tax in relation to the land on which the unregistered real estate object is located are necessary as an economic lever to accelerate the process of updating cadastral information. The introduction of new information systems will improve the efficiency of the risk-based approach and enable the tax authorities to better understand the activities of taxpayers, which provides positive effects not only for the budget system by reducing the “shadow” sector of the economy, but also for business by increasing the transparency of the economy, creating equal competitive working conditions with a minimum administrative burden.

References Artemenko D.A. Strukturno-funktsional’naya organizatsiya i mekhanizm nalogovogo administrirovaniya [Structural and functional organization and mechanism of tax administration]. Terra Economicus, 2009, Vol. 7. No. 3–2, рр. 29–35 (in Russ.). Artemenko D.A. Razvitiye metodicheskogo obespecheniya vzimaniya nalogov [Development of methodological support of tax collection]. Terra Economicus, 2010, Vol. 8. No. 3–2, рр. 22–29 (in Russ.). Artemenko G. and Artemenko D. The use of fractalanalysis inassessing there liability of taxpayers information. In book: Fractal Approaches for Modeling Financial Assets and Predicting Crises, 2018, pp. 151–171. Biber E.. Revenue Administration: Taxpayer Audit-Use of Indirect Methods / / Technical Notes and Manuals / International Monetary Fund, 2010, April [Electronic resource]: Access mode – URL: https://www.imf.org/external/pubs/ft/tnm/2010/tnm1005.pdf.

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Bogoslavtsevа L.V., Korepina O.I., and Bogdanova O.Y. Kontseptual’nyye podkhody realizatsii printsipa otkrytosti mestnykh byudzhetov kak instrumenta prinyatiya munitsipal’nykh upravlencheskikh resheniy [Conceptual approaches to the implementation of the principle of openness of local budgets as a tool for making municipal management decisions]. European Social Science Journal, 2017, No. 5, рр. 106–112 (in Russ.). Efremenko I.N., Panasenkova T.V., Artemenko D.A., and Larionov V.A. The Role of Crypto-Currencies in the Development of the World Currency System. European Research Studies Journal, Volume XXI, Special Issue 1, 2018. Efremova T.A. Razvitiye predproverochnogo analiza pri planirovanii vyyezdnykh nalogovykh proverok v kontekste risk-oriyentirovannogo podkhoda [Development of pre-test analysis in planning of on-site tax audits in the context of risk-based approach]. Taxes, 2015, No. 4, рр. 14–18 (in Russ.). Federal tax service [Electronic resource]: Access mode – http://www.nalog.ru Frolova I.V. and Koroleva N.Yu. Regional’nyye determinatsii upravleniya investitsionnym potentsialom territorii [Regional determinations of management of investment potential of the territory]. Terra Economicus, 2013, Vol. 11. No. 3–3, рр. 111–115 (in Russ.). Ivanova O.B. and Rukina S.N. Upravleniye regional’nym byudzhetom [Regional budget management] / / Financial studies, 2012, No. 2 (35), P. 87–95 (in Russ.). Karepina O.I. Razvitiye gosudarstvennogo nalogovogo kontrolya v Rossiyskoy Federatsii v sovremennykh usloviyakh [Development of state tax control in the Russian Federation in modern conditions]. Innovative science, 2016, No. 2–1, рр. 144–146 (in Russ.). Labyntsev N.T. Nalogovyy uchet i nalogovyy kontrol’: rossiyskiy i mezhdunarodnyy opyt [Tax accounting and tax control: Russian and international experience. The monograph]. Rostov-on -don, 2012, p. 76 (in Russ.). Maiburov I.A. and Ivanov Y.B. Osobyye ekonomicheskiye zony. Teoretiko-metodologicheskiye aspekty razvitiya [Special economic zones. Theoretical and methodological aspects of development. Book 1: monograph]: YUNITI-DANA, 2017, p. 44 (in Russ.). Makedonskiy S.N. Mekhanizmy nalogooblozheniya, osnovannyye na uproshchennoy otchetnosti i kosvennom opredelenii nalogovykh obyazatel’stv. [Taxation mechanisms based on simplified reporting and indirect determination of tax liabilities]. M.: Russian-European Centre for Economic Policy (RECEP), 2005. 50 pages (in Russ.). Mishin V.I., Paskachev A.B., Sadygov F.K., and Sahakian R.A. and others. Analiz i planirovaniye nalogovykh postupleniy: teoriya i praktika [Analysis and planning of tax revenues: theory and practice. The monograph / under the editorship of F. K. Sadigov]. M.: Publishing house of economic and legal literature, 2004, рр. 25–30 (in Russ.). Porollo E.V. Nalogovyy kontrol’: sushchnost’ i mesto v sisteme gosudarstvennogo finansovogo kontrolya [Tax control: essence and place in the system of state financial control].Terra Economicus, 2013, Vol. 11. No. 3–3, рр. 84–88 (in Russ.). Porollo E.V. Problemy obespecheniya rezul’tativnosti nalogovogo administrirovaniya i kontrolya regional’nykh nalogov [Problems of ensuring the effectiveness of tax administration and control of regional taxes]. Taxes and financial law, 2015, No. 7, рр. 124–125 (in Russ.). Radyukova Y., Sutyagin V., Treschevsky Y., and Artemenko D. The Problems of Financial Security of Modern Russia. In Vision 2020: Sustainable Economic Development and Application of Innovation Management. – 2018. Rukina S.N. Upravleniye dokhodami regional’nykh byudzhetov [Revenue management of regional budgets]. Finance and credit, 2014, No. 7 (583), рр. 40–45 (in Russ.). Rukina S.N. Sovremennyy etap razvitiya gosudarstvennogo nalogovogo kontrolya [The modern stage of development of the state tax control]. Financial studies, 2017, No. 2 (55), рр. 47–55 (in Russ.).

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Starodubtseva E.B. and Markova O.M. Tsifrovaya transformatsiya mirovoy ekonomiki [Digital transformation of the world economy]. Vestnik of the Astrakhan state technical University, 2018, No. 2, pp. 7–15 (in Russ.). The Federal Treasury of the Russian Federation. Official site. Reports on the execution of consolidated budgets of subjects of the Russian Federation [Electronic resource]. URL: http://www.roskazna.ru. Totikova T.E. Vnedreniye kosvennykh metodov opredeleniya nalogovykh obyazatel’stv kak napravleniye povysheniya effektivnosti sistemy nalogovogo kontrolya dokhodov fizicheskikh lits [The introduction of indirect methods of tax liability assessment as the direction of increase of the effectiveness of the system of tax control of individuals income]. Izvestiya of Saratovskiy university. New series. Series called Economy. Management. Law, 2014, Vol. 14, vol. 3, p. 561 (in Russ.). Ukraintseva A.I. Sushchnost’, formy i metody nalogovogo kontrolya // Administrativnoye i munitsipal’noye pravo [Essence, forms and methods of tax control]. Administrative and municipal law, 2011, No. 6, рр. 79–84 (in Russ.).

Valeriy A. Petukhov

23 The Taxation System in the Conditions of Production Robotization Introduction The word “robot” itself is derived from the Czech word “roborti” (forced labor). The international standard ISO 8373: 2012 defines a robot as a drive mechanism programmed in two or more axes, having a certain degree of autonomy, moving inside its working environment and performing tasks intended for it (ISO / TC 299 Robotics – ISO 8373: 2012, International Federation of Robotics – “Industrial Robots – Definition and Types”, 2016). In turn, Professor Mel Siegel (The Robotics Institute at Carnegie Mellon University) believes that the robot must meet four characteristics – namely, “the robot perceives, thinks, acts and communicates” (Siegel, 2015). The Krugosvet encyclopedia gives the following definition – a robot is an automatic device designed to carry out operations that are usually performed by humans (Encyclopedia Krugosvet, 2017). Chilidze Marvala (University of Johannesburg, South Africa) agrees with the following wording – a robot is a form of machine that is able to perform a task or function automatically (Marwala, 2017) and notes that in South Africa even traffic lights are called robots. He also wonders if Microsoft Word can automatically save documents and automatically spell check ie. what people used to do manually before, does this mean that Microsoft Word is a robot? There are many definitions of robots, but even using the above, the author believes that a robot can be understood as a specific mechanism that automatically (that is, without direct human participation) responds to certain environmental changes to achieve the intended result. Historically, it is necessary to recognize that simple robots appeared along with the advent of Homo sapiens. Traps for catching animals acted on two or more axes, were autonomous, moved within their working environment and performed the tasks assigned. Gradually, with the progress of mankind, automatic mechanisms arrived more and more, and since the beginning of the 19th century, an avalanche-like increase in the number of these mechanisms began – for example, an automatic centrifugal speed regulator of the steam engine, automatic adjustment of the inclination of the propeller blades in an airplane, etc.

Valeriy A. Petukhov, Financial University under the Government of the Russian Federation, Moscow, Russia https://doi.org/10.1515/9783110692075-023

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At present, disputes about changes in taxation under the conditions of production robotization are almost completely reduced to the issue of imposing taxes on robots. As will be shown below, at the moment, in accordance with the tax legislation, the robot, according to the entrepreneur, has a clear advantage when “hiring” over an employee, although in terms of its technical parameters the robot can be completely identical to this employee. Therefore, in this article, the author will write almost exclusively on tax on robots and on its impact on economic growth. Bill Gates believes that governments need to tax robots to finance other types of employment, even though this may slow down production automation. A robot that picks up your work would have to pay taxes (. . .). You have to be ready to raise taxes and even slow down the speed of automation (. . .), Says Bill Gates (Gates, 2018). The famous physicist Stephen Hawking believed that intelligent systems can make people obsolete, because human labor is expensive and unreliable compared to them. According to him, expressed in an interview with the newspaper “Independent”, the impact of automation on society may be different – the result will depend on how everything is distributed. Everyone can enjoy a luxury vacation if they share the wealth produced by the machine, or most people can be extremely poor if the car owners successfully lobby against the redistribution of wealth (Hawking, 2015). Among the well-known supporters of the tax on robots include Elon Musk and Xavier Obersson. In his article “South Korea introduces the world’s first robot tax”, McGoogan in the newspaper The Telegraph describes the world’s first tax on robots. South Korea will limit tax breaks for investments in automated systems as part of the proposed option of changing its tax laws (McGoogan, 2017). But this tax also has opponents – so Andrus Ansip, the EU Commissioner who is responsible for digital technologies, believes that the tax on robots in Europe will lead to Europe losing its leading position, and these positions will be transferred to other regions. The World Bank also expressed its point of view – it opposes a tax on robots, since this tax will reduce productivity and will also contribute to tax evasion in large business (both from corporations and from their shareholders).

Methodology If we approach this problem from an utilitarian point of view, then the employee and the robot can be considered as “biological” and “non-biological mechanisms”. An employee as a “biological mechanism” (like any other machine) requires periodic refueling with “fuel”, “lubrication”, requires “seasonal and current maintenance”, etc. In this case, there is nothing sacred and mystical in living labor compared to machine labor. (Human creativity in other areas is another topic). In the production

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process, live hired labor is equivalent to the work of a machine, and differs from it in form, but not in substance. The similarity is further enhanced if we consider that depreciation is charged for robots, and a kind of “depreciation” is also incorporated in the wages, which are necessary in order to ensure the appearance of the next generation of workers. It should be noted that the French materialists (Julien Offray de La Mettrie) compared the human being with the biological machine in the 18th century – and even earlier Leonardo da Vinci. The entrepreneur, comparing marginal costs and marginal revenue, makes a choice in favor of a more efficient mechanism. This was clearly visible at the beginning of the 19th century during the industrial revolution in England. So D. Ricardo, who had already investigated the question of replacing hired workers with machines, noted that machines and labor are in constant competition between themselves, and the former can often be used only when the price of labor rises (Ricardo, 1820). However, with regard to taxation, the differences are quite significant – when living labor is applied, taxes are paid, and when using robots, they are not. If taxes were not paid in both cases, the competition would be on an equal footing, but the robots currently have significant advantages here. Thus, the effects of automation are tax cuts and falling employment (at least in the short term). It should be borne in mind that the collection of taxes is the most significant way to generate revenues to the budgets of different levels. At present, 4 main types of depreciation are applied in Russia (Tax Code of the Russian Federation (part two), 2019) (the author does not stop at various depreciation details): – linear method – declining balance method – method of writing off the cost of the sum of the numbers of years of useful life – method of writing off the cost in proportion to the volume of production None of these types of depreciation is subject to any tax. Accelerated depreciation is also often used in a number of countries, as it is widely used in the United States, and to a certain extent in Russia, for example, for enterprises in the UPHO regime. In this case, the company pays the same amount of taxes, but the tax burden is distributed unevenly in time, and falls mainly at the end of the life of this mechanism, which is undoubtedly beneficial for the enterprise. At the same time, when hiring an employee there is no such tax shift – all taxes are fully charged from the first month of work. Consequently, the procedure for calculating depreciation in modern conditions gives the robotic systems a certain advantage. It is also necessary to take into account another advantage: when purchasing various fixed assets (robotic systems, etc.), the enterprise has the opportunity not to immediately enter them into production (and therefore start to charge depreciation), and they can be taken into account in the company’s accounting records on the 8th account. This allows the manufacturer to easily carry out installation,

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commissioning, equipment of these mechanisms without commissioning and without depreciation. In contrast to this situation, the employee and the company must pay taxes in the first month of work of a certain person, although in some cases the benefits from starting work are small (as is the case with trainees). The investment tax credit used in Russia, which allows deferring (for a period of one to five years) the payment of income tax, relates primarily to high-tech industries, and, therefore, robotic systems here also have a certain advantage when an entrepreneur decides between mechanisms and living labor (Federal Law No. 261, 2009 and Federal Law No. 392, 2011). Let us consider the standard tax situation when hiring an employee, leaving aside minor details. In accordance to Article 425 of the Tax Code of the Russian Federation (Tax Code of the Russian Federation (Part Two), 2019), the entrepreneur deducts 22% from the wage fund to the Pension Fund, 5.1% to the MHIF, 2.9% to the FSS. The employee pays 13% personal income tax. Therefore, the entrepreneur and the employee pay taxes on each of the ruble received by the employee in the amount of 49.42 kopecks. (130–87 / 87). That is, in order for an employee to have the opportunity to buy bread for 50 rubles, taxes in the amount of 24.71 rubles must be paid to the budget (almost 50% of the cost of bread). And when buying bread for 50 rubles, VAT is already included in this price (for bakery products it is 10%, but many products for the population are sold at a VAT rate of 20%). At the same time, when buying a robotic system (suppose for simplicity, that it performs the same work as the employee), the entrepreneur has to pay only VAT (20%). There is a clear bias in taxation in favor of robots – a robot of the same “capacity” as an employee is more beneficial to an entrepreneur, since costs much cheaper – for the employee as a whole, the entrepreneur needs to pay (if VAT is left aside) – 74.71 rubles, and for the robotic system – 50 rubles. If we consider the situation as a whole from the point of view of economic theory, then all taxes paid by employees (in this case, personal income tax) are paid from the profits of the entrepreneur. In fact, if the real wage (i.e., the quantity of goods and services necessary for the normal reproduction of labor) is considered a constant value, then any employee tax (in this case, personal income tax) is paid by the entrepreneur – in this case the real wage remains unchanged. Thus, any taxes related to hiring an employee (deductions to the Pension Fund, MHIF, FSS, NDFL) reduce the profit of the entrepreneur, and the amount of this profit is the main driving force behind the business. However, in reality, real wages are subject to change, and an increase in personal income tax for an employee may lead to a drop in his standard of living. In this case, the amount of the increase in personal income tax will be paid by the employee (by reducing the real wage), not by the entrepreneur, and will not reduce the entrepreneur’s profit. If in the production process there is no fundamental difference between an employee and a robot as a “biological” and “non-biological” mechanisms, then profits can be created both by living labor (using Marxist terminology we call it surplus value)

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and by a robot. This kind of profit, created with the help of a robot, can be so large in volume (after all, the organic composition of capital is increasingly changing in favor of mechanisms and equipment compared to living labor), that part of this profit can be directed (including through all sorts of budgets) to increase the living standard of the employee. (The remaining majority of the profits will provide the nation with good opportunities for economic growth). Thus, an employee can receive back more value than he created in the production process. In this case, the question of the exploitation of the employee immediately disappears (Petukhov, 2017). Practical difficulties arising from the automation of production and taxation of robots. 1. It is often stated that during automation, people lose their jobs, and, accordingly, tax revenues for the tax administration fall. However, at the same time, another part of people is taking a new job, as evidenced by a fairly steady level of natural unemployment (in different countries it ranges from 4 to 7%). This means that, in general, government tax revenues are fairly stable. So the argument about reducing the amount of taxes collected as a result of automation is not in any way weighty. For the sake of justice, it should be noted that the author does not consider the situation under the conditions of the crisis characteristic of medium-term economic cycles. In general, in this case, the worker has very weighty indisputable advantages over the robot in terms of adaptation to a new type of activity. 2. In general, it follows from the foregoing that the modern taxation system provides clear advantages to robotic systems in comparison with living labor. The conclusion is that in order to equalize the chances of both parties it is necessary that the robot is taxed on equal terms with a living person. The first way is to increase all sorts of corporate taxes. However, it is quite difficult, because of need to achieve an equal level of taxation. The second way is to tax the robot with exactly the same taxes as an employee. The second way is more rational and acceptable, because taxation will be carried out according to a wellestablished pattern, and this will automatically achieve equality in taxation. Nevertheless, there is a considerable difficulty. As it was mentioned earlier, the entrepreneur pays all taxes from the profits. The emergence of new taxes (in this case, robot taxes) will lead to a corresponding drop in profits. This decline can be so great that the entrepreneur will not be interested in further investing or will give up the business. Let us consider a simplified model. Let an entrepreneur do business with a 10% annual profitability. The costs (which includes taxes on workers) are 100 currency units that decay in proportions of 60/40, i.e. 60 currency units go to employees, and 40 currency units go for everything else (depreciation, raw materials, transportation, etc.). Now imagine that the same taxes were imposed on robots as on workers (PIT, PF, FSS, MHIF) and at the same rates (take the existing rates in the Russian Federation). Let us also suppose that various kinds of systems costing

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20 c.u. were assigned to robots. Then we need to add to this value a tax burden equal to 49.42% (see previous calculations from the 4th part), and the entrepreneur as a whole will pay for the same robots already 29.884 c.u. (round this value to 30 c.u.). Tax burden will increase by 10 c.u. and thus, it is just exactly the one to eat all the profits of an entrepreneur, equal to 10 c.u. In this situation, the businessman is forced to either look for ways to reduce costs, or give up the business, or move to another country, or go into the shadow economy to evade taxes. Let us consider another option. The initial conditions are the same, but various kinds of automated systems worth 10 c.u. have been assigned to robots. We levy the corresponding taxes on these robots and see that the tax burden has increased by 4,942 c.u. (round this value to 5 c.u.). Then we subtract this amount of additional taxes from the profit of 10 c.u. and we get that the profit left by the entrepreneur is 5 c.u., and the annual business profitability in this case will be less than 5% per annum (5/105 * 100% = 4.76%). World experience shows that a sharp decline in investment activity (ceteris paribus) occurs when the annual business profitability falls to the level of 5–3% per annum. So in our situation, the business has practically reached a critical point. From this example, it follows that taxing robots equally with hired workers can lead to a significant slowdown in the introduction of robotic systems and to serious problems in the economic development of a country. David Ricardo at the beginning of the industrial revolution in the UK considered the question of replacing living labor with machine labor and came to the following conclusion – machines and labor are in constant competition between themselves, and the former can often be applied only when the price of labor rises (. . .) Introducing the machines can not be scot-free obstacled in any state; if capital could have been prevented from receiving the greatest net income, that the use of machinery in the home country could deliver, it would have moved abroad, and this would have reduced the demand for labor to a more serious degree than the widest use of machinery. (Ricardo, 1820). Summarizing the above, it is important to note that the spontaneous and thoughtless imposition of taxes on robots can lead to a slowdown in technical progress, to a lag in the international economic competition, to capital outflow, to the development of the shadow sector and other negative aspects. Therefore, in this case, it is important to take a balanced approach to this problem, and the author agrees with Chalidze Marval that it is necessary to maintain a delicate balance between living labor, automation and taxation (Marwala, 2017). A possible way to equalize the chances in terms of taxation between living labor and the robot while simultaneously stimulating economic growth could be the following scheme: a gradual reduction of the tax burden for an entrepreneur in hiring workers and a corresponding increase in taxes on robots, so that the total tax burden on the businessman remains the same.

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3.

For equal taxation of both a robot and an employee we need to make it a subject of the economy. This is the most simple and rational way, because it allows the most simple and clear way to integrate the robot into the existing tax system. Parliament of the European Union on January 1, 2017 approved the report, which provides the emergence of “electronic identity of the robot.” The recognition of the legal personality of robots leads to their recognition as fiscal entities. 4. There is a serious practical question – how to determine that the enterprise (in the office) is a robot? With computers (but not all of them) the question is pretty clear. And what about an iPad, owned by the company, with scanners at the checkout, with air conditioners? What shall we finnaly do with the self-switching festoons in the storefront? Are there any cost restrictions? Obviously, a list of mechanisms (maybe with a number of subsections) that relates this equipment to robots will be needed. And this list in turn should be based on a number of legislative acts, which also need to be developed and adopted.

Results The modern system of taxation gives clear advantages to robotic systems in comparison with living labor. So in the Russian Federation, taking into account the rates of the Tax Code of the Russian Federation, a robot of the same productivity as an employee, costs the entrepreneur almost 1.5 times less. The author, conducting a comparison of employees and various mechanisms as “biological and non-biological mechanisms” shows that both are equivalent for the entrepreneur in terms of profit, and a marginal analysis of costs and results allows one to make a choice in favor of one or the other. This approach, however, has its limitations – so it is hardly applicable in science and creativity. Nevertheless, this method can be used in analyzing the difference between the cost and the price of production, which was delivered by Marx in Volume 3 of Capital. The problems associated with the robotization of production will become increasingly relevant, because the process of replacing living labor with machines is taking place all over the world, and the organic composition of capital is correspondingly growing.

Recommendations This issue is still under discussion and only the first practical steps are being taken. According to the author, in this complex issue at this stage the initiative should be given to developed countries that have sufficient resources to solve this ambiguous

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problem. Russia, which does not have such resources, should in the future use the options already tested in practice. The author believes that a possible equalization of chances in terms of taxation between the employee and the robot while simultaneously stimulating economic growth could be the following scheme: the provision of a gradual reduction of the tax burden for an entrepreneur when hiring employees and a corresponding increase in taxes on robots, so that the total tax burden on the businessman remains the same (or even reduced). The introduction of tax (taxes) on robots will lead to the need for significant changes in the tax laws of many countries.

References Еntsiklopediya Кrugosvet [Encyclopedia Krugosvet]. URL: https://www.krugosvet.ru/enc/nauka_i_ tehnika/tehnologiya_i_promyshlennost/ROBOT.html (accessed 17.01. 2019) (in Russ.). Federal’nyi zakon ot 23.11.2009N 261-FZ «Ob energosberezhenii i o povyshenii energeticheskoi effektivnosti i o vnesenii izmenenii v otdel’nye zakonodatel’nye akty Rossiiskoi Federatsii» [Federal Law of 23.11.2009N 261-ФЗ “On energy saving and increasing energy efficiency and on the introduction of amendments to certain legislative acts of the Russian Federation]. URL: http://ppt.ru/docs/postanovlenie/fsfr/n-261-fz-93978 (accessed: 09.04.2019) (in Russ.). Federal’nyi zakon ot 03.12.2011N 392-FZ “O zonakh territorial’nogo razvitiya v Rossiiskoi Federatsii i o vnesenii izmenenii v otdel’nye zakonodatel’nye akty Rossiiskoi Federatsii” (v redaktsii ot 28. 12.2013)[Federal law of 03. 12.2011N 392-ФЗ “On the zones of territorial development in the Russian Federation and on amendments to certain legislative acts of the Russian Federation” (as amended on 12/ 28/2013)]. URL: http://ppt.ru/docs/fz/392-fz-89438 (accessed: 09.04.2019) (in Russ.). Gates, B. (2018), Interview Edition QUARTZ available at: https://qz.com/911968/bill-gates-therobot-that-takes-your-job-should-pay-taxes/ http://ek-lit.narod.ru/ric031.htm (accessed 23 January 2019). Hawking, S. (2015), Interview to the newspaper Independent 9 October 2015 available at: https:// www.independent.co.uk/life-style/gadgets-and-tech/stephen-hawking-says-robots-couldmake-us-all-rich-and-free-but-were-more-likely-to-end-up-poor-and-a6688431.html (accessed 18 January 2019). International standard ISO/TC 299 Robotics – ISO 8373:2012 Robots and robotic devices – Vocabulary, 2012 available at: https://www.iso.org/standard/55890.html (accessed 24 December 2018). International standard International Federation of Robotics – “Industrial Robots – Definition and Types”, 2016 available at: https://ifr.org/img/office/Service_Robots_2016_Chapter_1_2.pdf (accessed 24 December 2018). Marwala, T, (2017), «About the robotic revolution and taxation» (PDF) arxiv. Cornell University Library, available at: https://arxiv.org/ftp/arxiv/papers/1808/1808.01666.pdf (accessed 18 December 2018).

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McGoogan, C. (2017), “South Korea introduces world’s first ‘robot tax’», The Telegraph, 9 August 2017 Режим доступа URL: https://www.telegraph.co.uk/technology/2017/08/09/ south-korea-introduces-worlds-first-robot-tax/ (accessed 21 January 2019). Nalogovyi kodeks Rossiiskoi Federatsii (chast’ vtoraya)” ot 05.08.2000 N 117-FZ (red. ot 25.12.2018) (s izm. i dop., vstup. v silu s 01. 01.2019)[Tax Code of the Russian Federation (Part Two) “dated 05. 08.2000N 117-FZ (as amended on 12/25/2018)(as amended and added, took effect from 01/01/2019)]. URL: http://ppt.ru/upload/pdf/kodeks14-2.pdf (accessed: 09. 04.2019) (in Russ.). Petukhov V.A. Analiz stoimosti i ego prakticheskoe primenenie pri issledovanii ekonomicheskoi tsiklichnosti: monografiya [Cost analysis and its practical application in the study of economic cyclicity: a monograph]. Moscow, Publishing House «Creative economy», 2017, 119 p. (in Russ.). Ricardo, D. (1820), The beginnings of political economy, available at: http://ek-lit.narod.ru/ric031. htm (accessed 22 December 2018). Siegel M. (2015), “What is a robot?” available at: https://postnauka.ru/faq/45313 (accessed 21 December 2018).

Larisa A. Aguzarova, Rozita B. Khapsaeva, Tamerlan A. Khubaev

24 The Role of the Blockchain Technology in the Improvement of the Russian Tax System Introduction In the modern world, blockchain technology is becoming increasingly important. Russia is not an exception. The blockchain technology is pretty young. The idea of creating this technology was born in 1991, when Stuart Haber and W. Scott Stornett experimented with storing documents on a cryptographically fixed chain of blocks and tried to organize these documents into blocks. However, the innovation did not attract much attention until 2008, when an unknown programmer under the pseudonym Satoshi Nakatamo, gave an impetus to the use of the blockchain. He solved some important technical problems that did not allow the technology to function before. Satoshi created Bitcoin, a peer-to-peer payment system built on blockchain technology.

Methodology The blockchain system is a decentralized database that maintains an ever-growing list of entries called blocks. In other words, a blockchain is a chain consisting of a large number of blocks where various information can be stored. Each subsequent block stores data about each previous one in an encrypted form. The uniqueness of the technology lies in the fact that the entire data register is decentralized, and its copies are simultaneously stored on tens of thousands of computers around the world. This provides the highest level of protection against third-party interventions. The data stored in the system is almost impossible to compromise, replace or delete. This system is often positioned as a transactional network. Practical use of the blockchain is virtually unlimited. Currently, there are solutions for this technology that are successfully implemented in the areas of logistics, medicine, law, trade, leasing, etc. This system is very attractive to all the areas, because it provides transparency of transactions. Blockchain offers transactions between different computers directly,

Larisa A. Aguzarova, Rozita B. Khapsaeva, SOGU after K.L. Khetagurov, Vladikavkaz, Russia Tamerlan A. Khubaev, Financial University under the Government of the Russian Federation, Vladikavkaz, Russia https://doi.org/10.1515/9783110692075-024

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without intermediaries. The system automatically tracks the actions of each participant and adds all their actions to one common chain. The key principles of the blockchain system are: – decentralization – lack of intermediaries – publicity – consensus of participants (Artemenko, Artemenko and Hasheva, 2018) Today, hundreds of computer science, cryptography and mathematics professionals are working on the blockchain study. There are conferences held on cryptocurrencies and blockchain technology all over the world. Leading industry experts, marketers, lawyers, investors and other professionals gather at one site to discuss the prospects of the industry. As part of the implementation of the strategy for the development of the digital economy, many countries are creating regulatory sandboxes to study ways to implement the blockchain in various industries. Russia has already prepared a smart city concept document, in which a pilot implementation of the blockchain in many areas will begin in 25 municipalities. Let us define the advant ages and disadvantages of the blockchain. The advantages of this technology include: – Decentralization (this term means the absence of a central server or regulatory authority). This ensures that none of the users can gain control of the block chain. – The cost of transferring funds through the block network is much lower compared to banking operations. – Blockchain allows you to process transactions much faster. The disadvantages are: – High energy dependence, which makes it a costly technology – The complexity of the massive implementation. To implement it, financial institutions will have to abandon current networks. Since economic processes in Russia go the same direction as the majority of developed countries, in the Russian tax system, there is a need to create your own digital platform, forming a unified system for taxpayers and all the participants of foreign economic activity (Dzobelova, V. and Olisaeva, A., 2018). The creation of a single digital platform will allow tax authorities to improve work with data files, increase the efficiency of interaction with taxpayers, will contribute to the acquisition and development of new competencies. With the introduction of digital technologies, the current order of registration of legal entities and individual entrepreneurs will lose relevance, as it will take place mainly in the “real time” mode. Also, with the transition to primarily “digital” addresses, it will lose the meaning of determining the actual address of the location of legal entities and individual entrepreneurs.

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Today, tax authorities are interested in the early introduction of this technology, since switching to an open registry can take control to a completely different level. Currently, the introduction of new technologies in the business leads to the emergence of new forms of economic activity (Dzobelova, V. B., 2019). All tax systems face with the active development of digital currency based on the blockchain and the introduction of mobile banking. Many multinational companies use technical innovations to increase profits. This is manifested in the application of double taxation, when there is no income from the receipts to the budget of the country of the resident, where the income is generated, as well as in the country of the resident – the recipient of this income.

Results The introduction of digital technologies will affect the improvement of tax relations not only within the country, but also in the external economic space. The combination and interaction of tax administrations of states will enable the use of a single international standard for digital identification based on blockchain technology. Technologies inevitably transform economic relations and translate them into virtual space. E-business, e-banking, e-insurance, e-commerce, e-auctions and exchanges create a number of negative trends for modern tax administrations. Such trends are forcing tax authorities to pay attention to the transfers of global financial flows into digital format. The tax rules governing the traditional business are not adapted to electronic versions, because a part of the financial flow cannot be controlled. (Aguzarova L. and Martirosova M., 2017). According to the Chairman of the Board of PJSC “Sberbank”, the blockchain technology will make the tax system personalized: everyone will have the opportunity to track where his payment went. He also noted that the blockchain is more reliable than state agencies for registering transactions: The transaction will be completed when the payment passes; ownership . . . will go from one to another, it will be registered on thousands of computers – and no one will ever be able to cancel it. This is more reliable than any state registry of rights. Blockchain technologies can increase the security of the tax payment system. They are of great importance for the tax service, because they provide full protection of the information contained in the documents and their confidentiality. In the near future it is planned to introduce innovations in the work of tax authorities – mobile applications and other means designed to ensure the convenience of interaction with taxpayers. With the help of innovation and new technologies there is a possibility to bring together a tax service and the fiscal obligated persons. The main goal of cooperation of the tax service with the tax authorities of other countries is also to provide an adequate level of service to our taxpayers.

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Conclusion At the present stage of development of the tax system of the Russian Federation, service issues are becoming increasingly important in the work of tax authorities, in addition to the actual fiscal activities. Moreover, there is an urgent need for a system that fixes each operation and is reliably protected from all kinds of hacker attacks. Thanks to a fast and secure transaction processing method, payments are made immediately with minimal cost. Protection against unauthorized access ensures that confidential information is safely stored in each of the blocks of the chain. Despite a number of advantages offered by the blockchain platform, for example, such as a significant increase in the efficiency of the tax accounting mechanism – due to savings in information administration and the ability to conduct audits and checks online, the use of the blockchain in tax services poses certain challenges. The first challenge is to ensure the stability and unification of tax administration during technological improvements. The second is the constant improvement of technical and personnel support for tax departments. There are challenges based on law studies, too. For example, how interfere the smart-contacts into the legal field. Is it possible to extend tax rules to them? If the parties use crypto currency, then how to determine the taxable value? From the point of view of a competent lawyer, a smart contract is a regular contract, in other words: the source of rights and obligations. As for the crypto currency, fiscals will be able to apply the practice of regular prices, and the most popular exchange platforms will help them in it. (Artemenko D., 2017; Aguzarova, 2018; Aguzarova and Valgasov, 2015; Artemenko and Artemenko, 2018; Badova and KHubayev, 2016; Dzobelova and Olisaeva, 2019; Kasayev et al., 2015; KHapsayeva et al., 2018; Lazarova and Dzobelova, 2016). Currently, the blockchain technology is being implemented into the payment systems like Qiwi, Webmoney and others. Great prospects for its implementation and use are seen not only by financial organizations – in some countries enthusiasts and startups are already quite successfully introducing blockchain technology in the field of the Internet industry, as well as using it in government institutions. Blockchain, in fact, is a digitized registry that is reliably protected from damage and attacks. Consequently, it may successfully work in the financial sphere. The technology has already been implemented by some banks, including the Swiss UBS and the English Barclays. The use of blockchain allowed us to speed up the execution of agreements and expand the auxiliary functionality. According to bankers, such innovations should have significantly reduced the cost of customer service. In addition, there has been a system based on the technology created called Vault OS for working with accounting documents. The blockchain technology allows us to speed up any payment and transfer of financial assets. It has revolutionized the process of making payments and remittances. But its capabilities are not limited to one area, because the blockchain is able to drastically change the world around it. Representatives of the progressive part of

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business are confident that the technology will open up new opportunities for most industries. Today, a certain experience of using blockchain during transactions has been gained. At the same time there is no need for centralized management of the platform. Young projects offer new ways to use blockchain technology. Thus, the blockchain technology has a great future; many analysts compare the importance of its emergence with the invention of the Internet. It will be able to fully unleash its potential in about the third decade of the 21st century.

References Aguzarova F.S. Rol’ regional’nykh i mestnykh nalogov v formirovanii dokhodov konsolidirovannykh byudzhetov sub”yektov Rossii (The role of regional and local taxes in the formation of revenues of consolidated budgets of subjects of Russia). Regional economy: theory and practice, 2018, no. 2. pp. 323–334. (in Russ.). Aguzarova L.A., Martirosova M.P. Nalogovaya politika Rossii: analiz osnovnykh napravleniy i pokazateley (Tax policy of Russia: analysis of the main areas and indicators). Audit and financial analysis, 2017, no. 5–6. pp. 11–15 (in Russ.). Aguzarova L.A., Valgasov G.A. Osnovnyye napravleniya nalogovoy politiki Rossiyskoy Federatsii v kratkosrochnoy perspektive (The main directions of the tax policy of the Russian Federation in the short term). Modern problems of science and education, 2015, no. 1–1. p. 810. (in Russ.). Artëmenko D.A. Teoriya nalogooblozheniya i nalogovoye administrirovaniye [Theory of taxation and tax administration], 2017, (in Russ.). Artemenko D.A., Artemenko G.A., KHasheva Z.M. Perspektivy vnedreniya blokcheyn-tekhnologii v sistemu nalogooblozheniya Rossii [Prospects for the introduction of blockchain technology in the tax system of Russia] In the collection: Actual aspects of the implementation of the modernization strategy of Russia: the search for a model of effective economic development Collection of articles XXX III International Scientific Practical Conference. Edited by G. Kleiner, V. Sorokoherdiev, Z. Khasheva, 2018, pp. 23–26. (in Russ.). Artemenko G. and Artemenko D. (2018), “The use of fractal analysis in assessing the reliability of taxpayers information“, in book Fractal Approaches for Modeling Financial Assets and Predicting Crises. pp. 151–171. Badova L.K., KHubayev T.A. Istochniki pravovogo regulirovaniya kosvennogo nalogooblozheniya eksportno-importnykh operatsiy [Sources of legal regulation of indirect taxation of exportimport operations]. Youth and science: current problems of the socio-economic development of Russian regions. Materials IV All-Russian scientific – practical conference, 2016, p. 53–56. (in Russ.). Dzobelova, V. (2019) “New Ways of Qualified Staff Training by the Example of the Republic of North Ossetia-Alania”, in Proceedings of 2018 17th Russian Scientific and Practical Conference on Planning and Teaching Engineering Staff for the Industrial and Economic Complex of the Region, PTES 2018, 23–28 pp. Dzobelova, V. and Olisaeva, A. (2018) “Analysis of innovative development of the NCFD regions in Russia”. IDIMT 2018: Strategic Modeling in Management, Economy and Society – 26th Interdisciplinary Information Management Talks, 473–479 pp. Dzobelova, V., Olisaeva, A. (2019) “Staffing Needs in the Regional Economy under the Modern Conditions of Labor Market”, in Proceedings of 2018 17th Russian Scientific and Practical

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Conference on Planning and Teaching Engineering Staff for the Industrial and Economic Complex of the Region, PTES 2018, 185–188 pp. Kasayev K.A., Olisayeva A.V., Dzobelova V.B. Sanktsii v otnoshenii Rossii i ikh vliyaniye na razvitiye ekonomiki regionov. [Sanctions against Russia and their impact on the development of regional economies]. In the collection: Strategic directions of modern socio-economic transformations: theory and practice Vladikavkaz, 2015, pp. 145–151. (in Russ.). KHapsayeva R.B., Brtsiyev KH.A., Totoyeva F.B. Nalogovyye itogi 2017 goda na primere regionov Rossii [Tax results of 2017 on the example of Russian regions]. Economy and management: problems, solutions, 2018, no. 10. pp. 88–92. (in Russ.). KHapsayeva R.B., Brtsiyev KH.A., Totoyeva F.B. Uproshchennaya sistema nalogooblozheniya: sushchnost’ i perspektivy sovershenstvovaniya [Simplified taxation system: the essence and prospects for improvement]. Economics and Management: problems, solutions, 2018, no. 11. pp. 105–108. (in Russ.). Lazarova E.T., Dzobelova V.B. Analiz sovremennogo sostoyaniya vneshneekonomicheskoy politiki RF. V sbornike: Teoreticheskiye i prakticheskiye aspekty razvitiya nauchnoy mysli v sovremennom mire. [Analysis of the current state of foreign economic policy of the Russian Federation. In the collection: Theoretical and practical aspects of the development of scientific thought in the modern world]. Collection of articles of the International Scientific and Practical Conference, 2016, pp. 153–156. (in Russ.).

Konstantin N. Lebedev, Yuliya I. Budovich, Viacheslav V. Zubenko

25 R&D as a Factor of Inefficiency of the Fiscal System Introduction One of the functions of the tax and budget system of the state is the financial support for the development of industries of great social importance. R&D is considered one of them. Their results are the basis of innovative development of countries, which, according to popular opinion, is only able to ensure their prosperity, unlike, for example, export-raw material type of development. In these circumstances, countries lagging behind in their economic development (primarily in terms of GDP per capita), in particular Russia, may be imposed an expensive, although prestigious, strategy of innovative development, consisting in leadership in R&D provided by the budget, to the detriment of financing more important needs. Russia is among the leaders in the share of R&D in state budget expenditures. In 2015, the state budget expenditures on R&D amounted to 0.89 percent of GDP in Switzerland, 0.87 in Germany, 0.78 in the USA, 0.75 in Japan, 0.69 in France, 0.56 in the UK (0.81 in Russia) (Bobylov, 2018). If the state budget expenditures in the GDP of countries are 1/3 (as in Russia), then R&D occupies approximately 1.7–2.7% of the state budget expenditures of the developed country (multiply the share of budget allocations for R&D in GDP by three), and Russia on this indicator – 2.42% (0.81 * 3) – is closer to the upper limit. The share of R&D in the Russian state budget does not seem large, but there is a risk of a substantial increase due to the low share of domestic R&D costs in GDP compared to developed countries and the persistent reluctance of business to allocate substantial funds for R&D. In 2016, domestic R&D expenditures in GDP in Israel were 4.25, South Korea – 4.24, Japan – 3.15, Germany – 2.94, USA – 2.74, France – 2.25, and Russia – only 1.1% (32nd place in the world) (Rashody stran, 2018). If in 2013 in the US business financed 60.9% of R&D expenditures and the state – 27.7, China – 74.6 and 21.1, Japan – 75.5 and 17.3, Germany – 66.1 and 29.3, respectively, in Russia business in the same year financed only 28.3% of R&D expenditures, while the state – 67.6 (Shadieva, 2016). At a time when an increase in the share of domestic R&D expenditures in GDP is possible only through budget financing, every percent of growth in the share of R&D in GDP, ceteris paribus, means an increase in the share of R&D in state budget

Konstantin N. Lebedev, Yuliya I. Budovich, Viacheslav V. Zubenko, Financial University under the Government of the Russian Federation, Moscow, Russian Federation https://doi.org/10.1515/9783110692075-025

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expenditures by 3%. Hence, an increase in the share of R&D in GDP from the current 1.1% to, for example, 3.1%, i.e. to the level of Japan, would increase the share of R&D in government spending to 8,4% (2,4+2*3). In this case, the expenditure of the state budget on R&D will be comparable to its expenditure on education or health. With state budget (Federal, regional and local budgets, state extra-budgetary funds) expenditures, amounted in 2017 to 33.9 trillion rubles (Ezhegodnaja informacija, 2019), R&D costs would be 2.8 trillion rubles (33,9*8,4/100), while spending on education was 3.3 trillion and on health was 2.8 trillion (Ezhegodnaja informacija, 2019). The option of a significant increase in the share of R&D in state budget expenditures does not seem so incredible when public opinion, and the opinion of scientists, connects the underfunding of science with its budget underfunding. This is best evidenced by the titles of publications on this topic, such as the title of the article of E. Onishchenko “Science on the budget margins. How Russia saves on science” (2016). Its author is sure that the budget allocated to science (as well as to education and health) the country’s leadership considers as a “stash”, which if anything can be spent on other (more important) needs (for example, the maintenance of enforcement agencies and public administration) (Onishchenko, 2016).

Methodology The proof of the undesirability of increasing the share of state budget expenditures on science is the proof of the uselessness of innovative development as a way to ensure stable and rapid economic growth and a significant share of domestic R&D expenditures in GDP as a condition of innovative development, proof of the higher efficiency of R&D financed by the private sector, and the relative inefficiency of budget expenditures on R&D.

Results The problem of innovative development as a condition for ensuring the prosperity of lagging countries is that innovative development, including the priority development of R&D, is not necessary to ensure their stable and rapid economic growth, the elimination of the backlog in which should be their main concern. This is proved by the example of Russia itself, which doubled real GDP for the decade 1999–2008 (with an average annual growth rate of 7%) on the way of export-raw material development, and not due to R&D. In the “fat” years 2000–2008, the average annual percentage of domestic R&D spending in GDP was only 1,14% 1,06, 1,18, 1,25, 1,29, 1,15, 1,07, 1,07, 1,12, 1,04% in 2000–2008, respectively (Indikatory nauki, 2012), which is slightly more than 1.1% in 2016 (see above). This is also proved by the fact that the countries

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included in the top ten of the rating “Global innovation index 2018” (Switzerland, the Netherlands, Sweden, the United Kingdom, Singapore, the United States, Finland, Denmark, Germany, Ireland) (Pen, 2018), are characterized by modest economic growth. If the world economy grew by 3.8% in 2018, the largest countries of the top ten had economic growth rates (forecast): the UK – 1.3%, the US – 2.4, Germany – 2.0 (Dynkin, Baranovsky, 2017), i.e. significantly below the world average. The problem with domestic R&D expenditures as a factor of a country’s innovative development is that they can only achieve this if their results are used in the country, which is reflected in the expenditure on innovation. And the situation in Russia with innovation activity is extremely unfavorable. While in the US in 2014 the share of industrial enterprises that carried out technological innovations in their total number was 65.7%, in Japan – 63.0, in Germany – 59.8, in the UK – 53.3, in Russia – only 9.7 (Bobyrev, Kosorukov, 2017). The problem of non-use of R&D results is particularly acute in the public sector of science and innovation in Russia. According to the results of the audit of budget spending on dual-use R&D in 2011–2014 by the Russian Prosecutor General’s office, Prosecutor General Yu. Chaika in a letter addressed to the President of Russia noted that the results of R&D, even those that are patented, are not used in the framework of the state defense order. There were not implemented in production 450 inventions on government contracts that cost the budget 95 billion rubles (Chernyshev, 2018). Besides that, the innovative development of a country can do without its own R&D, since the necessary R&D results can be purchased abroad, and even without them – by acquiring new technologies immediately. This option of innovative development of the country was also considered in the Strategy of innovative development of the Russian Federation until 2020 adopted in 2011, under the name “Catching-up option”, and as an official version of the policy of technological modernization, the option of combining leadership in the key scientific and technical sectors with catching-up innovative development in most sectors of the economy was chosen (Strategija, 2011). The problem of R&D financed from the state budget, is their low efficiency – low productivity (physical output of product per unit of cash costs) and quality of work, compared to R&D financed by the private sector, despite the fact that private Finance here is a real alternative, in contrast to, for example, funding the costs of defense or national security. At the same time, the loss of funds from low efficiency is accompanied by the loss of public funds due to tax shortfalls due to R&D benefits (see below). The low efficiency of R&D financed from the state budget, including financing through state scientific funds, etc., compared with R&D financed by the private sector (except for fundamental and exploratory research, which occupies a small share in R&D), is due to the fact that organizations interested in using the relevant results participate in the formation of R&D topics and the acceptance of their results, and in their financing – organizations (the same) interested in minimizing the relevant costs. Herewith, the main factor of low efficiency of budget R&D is, at least in Russia,

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not the lack of interest in using the results and minimizing the cost of R&D, but corruption (see below). The low efficiency of budgetary R&D is complemented by a low level of nonutilization of its results, such as dual-use R&D results (see above), as they are often intended for use in the public sector, whose organizations have little interest in doing so. Finally, the problem of budget expenditures on R&D is their low efficiency in comparison with other types of state budget expenditures, which is due to the peculiarities of R&D itself: Significant probability of failure, i.e. failure to receive the planned results. Although there is still such a filter as innovation in the way of turning R&D results into new products recognized by buyers, the well-known fact that only 5% of R&D are embodied in such products (Gol’dshtejn, 2004) indicates the highest level of risk of failure in R&D. This is not, for example, in the construction of residential buildings, which, if funding is available, are usually completed and put into operation. It is obvious that it is preferable to spend taxpayers’ money on projects that will be completed than on those that are even with 50% probability will not bring any results. A higher probability of turning the project into an unpromising one. It is difficult to find cases where, for example, the construction of a house or a road was stopped due to its uselessness (for example, due to the fact that another house or parallel road was quickly built nearby). However, it is common for research and development projects to be closed because they have become unpromising in R&D. Thus, in 1998 155 defense research and development projects were closed as having lost their relevance, while in the late 1990s – early 2000s 500–600 defense R&D projects were opened annually (Mjasnikov, 2017). Much more significant complexity to identify the unpromiseness of the R&D project, which leads to a delay in the financing of projects that have become unpromising. There are clear examples of this in the defense research and develoopement. The unpromiseness of the project to create a Russian tank of “new generation” T-95 was established by the Ministry of defense (in 2010) 17 years after the start of work (due to the inability of Uralvagonzavod to bring the machine to an acceptable operational and production condition, the high price – 400 million rubles against 71 million 915 thousand for the T-90A tank, the inability of the industry to produce such a high-tech tank in commercial quantities and, finally, the tank does not meet modern requirements) (T-95, 2013). The unpromiseness of the joint Russian-Ukrainian project to create an An-70 medium transport aircraft was established 25 years after the start of work (the external reason for the closure was the termination of military-technical cooperation of the countries in 2014 for political reasons) (Otkaz Rossii, 2015). Herewith, as of 2011, Russia spent $ 1.1 billion on its financing (Ishhenko, 2011). It is clear that the unpromiseness of the construction of a house or road is much easier to install. Systematic overstatement of prices due to the fact that price is not formed under the influence of the interaction of supply and demand, but is determined basing on

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the calculation of the costs of the research team plus overhead costs (including profits) in a certain percentage of them (Durnev, Zhdanenko, 2014), which claims their leadership. Much more significant complexity to assess the results of R&D, compared, for example, with the assessment of construction results. This leads to a systematic underestimation of the quality of R&D compared to the quality of other products paid out of the budget. Significant tax benefits provided for R&D. Tax expenditures on R&D in 2017 amounted to 143.1 billion rubles (Gorodnikova et al., 2019). At the same time, according to the Ministry of Finance, in 2017 the total amount of budget losses from tax benefits was 2.5 trillion rubles (Sikorskij, 2017), i.e. tax benefits on R&D amounted to 5.7% (0,1431/2,5 * 100) of the total amount of tax benefits. And this is despite the fact that R&D occupies only 1.1% of GDP (see above), i.e. the level of tax benefits for R&D exceeded the national average by more than 5 times in 2017 (5.7/1.1 = 5.2). Refusal of tax financing of R&D in favor of other expenses would lead to an increase in tax revenues by 115.1 billion rubles (143,1–143,1/5,2). It is sad that the Ministry of Finance of Russia that announced in 2018 preparation for the optimization of tax benefits (in 2018, tax preferences were estimated at 3.1 trillion rubles), drew attention to the uneven distribution of benefits only in the industry (the main underpayment of taxes – from the fuel and energy complex and agricultural producers) and the territorial section (the main beneficiary – the Kaliningrad region) (Netreba, 2018). Significantly higher corruption of R&D arising from R&D peculiarities. The complexity of the evaluation of the quality of R&D results, which makes it difficult, above all, independent monitoring of their evaluation by customers, and the high probability of failure in R&D, lead to increased direct embezzlement of budget funds. A striking example is R&D worth 50 million rubles, made by Rosatom. The R&D report consisted entirely of candidate dissertations and diploma works obtained on the Internet (Pozhidaev, 2011). The complexity of the evaluation of the quality of R&D results and their cost allows to profit much more from the financing of R&D, both to officials allocating funds (to receive a “rollback”, i.e. a bribe in a certain percentage of the cost of the contract), and to performers, than from the financing of other public procurement. A. Yakovlev, Vice-rector of the National research University “Higher school of Economics”, explained the increased rollback intensity of R&D. When purchasing a product, it is necessary to show the product itself, the quantity and quality of which, as a rule, can be checked. For this reason, the scale of rollbacks is physically limited. When purchasing the research it is necessary to write a report on the work, the cost and quality of which is difficult to assess, and what is new in this report, is determined by the customer. Therefore, the rollbacks in purchase of goods or services of about 15–20% are already problematic, whereas in the purchase of R&D they can be 50% or more – in cases where the customer deliberately goes to overestimate the price or agrees to

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accept a fake report, which is a cutting of other people’s texts (Chto meshaet zakupkam, 2010). In the final document of the IX International Forum “Innovative development through the intellectual property market” (Moscow, April 7, 2017) it was noted that over the past 20 years, the field of R&D has become one of the most corrupt areas and a real threat to national security (Rekomendacii uchastnikov, 2017). By the value (percentage) of the rollback R&D is ahead of all the traditional industries of the state order in the country (road construction, supply of equipment, etc.). In the above document it was noted that if in 2007–2009 rollbacks made a third of all budgetary expenditures for R&D, now reach a half (Rekomendacii uchastnikov, 2017). In the field of R&D on rollbacks to officials there are own Champions. These are R&D in the field of information and communication technologies and the defense research and development. According to O. Uskova, President of the National Association of innovation and development, in 1996–1999 the size of rollbacks for R&D in the field of IСT was 10–15%, in 1999–2003 – 20, in 2003–2005 – 35, in 2005–2008 – 40, in 2008–2009 – 60, and in 2010 the size of rollback reached 70–75% (Korchagin, 2012). The maximum amount of rollbacks for defense R&D is estimated at 80% of the cost of work under the contract (Ishhenko, 2011). The losses of the budget from rollbacks can be judged by the times of overstatement of the price at different sizes of rollbacks. Let the normal cost of R&D is 100 rubles. Then, to pay 10% of the contract value and to remain 100 rubles necessary to fulfill the order, you need to inflate the price by 1.11 times (1/1–10/100). With a rollback of 20%, the order price is overstated by 1.25 times (1/1–20/100), 30 – 1.43 (1/1–30/100), 40 – 1.67 (1/1–40/100), and 50% – already 2 times. At a rollback of 60%, the order price is overstated 2.5 times (1/1–60/100), 70% – 3.33 times (1/1–70/100), 75% – 4 times (1/1–75/100), and 80% – 5 times (1/1–80/100). According to these data, we can judge the relative losses of the budget from rollbacks due to R&D financing. Suppose that the rollback for R&D is 50%, and for the other public procurement – 20. If a rollback is 20 per cent, the state loses an amount equal to only ¼ of the real value of R&D, if a rollback is 50 per cent – equal to 100 per cent of the real value of R&D, i.e. 4 times more. The theft of budget money continues actively in the R&D organization itself. In IСT R&D, only 10–20% of the contract value is sometimes spent on the direct execution of work, which is usually done by students (Lokotkova, 2014). This means that even at 70 percent rollback to officials from one to two thirds of the remaining 30% of the funds disappears in the research organization. In defense research and development, only 2–3% of the contract amount is sometimes spent on direct R&D execution (Ishhenko, 2011). This means that even at 70 percent rollback from 90 ((30 – 3) / 30 * 100) to 93% ((30 – 2) / 30 * 100) of the remaining 30% of the budget disappears in the defense research Institute. According to the chief military Prosecutor, most of the crimes in the enforcement agencies were committed during the execution of the state defense order of R&D (Ishhenko, 2011). It is the theft in R&D

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organizations that leads to a significant underfunding of work is the cause of poor quality of R&D results. The complexity of identifying the unpromiseness of R&D allows much longer to Finance projects that are known to be unpromising. Obviously, the examples are presented in defense research and development. It is established that defense R&D in the vast majority of cases should not last more than 2–3 years, as with longer duration, they lose their relevance. However, according to the results of the audit by the Accounts Chamber of defense R&D carried out in the late 1990s – early 2000s, the backlog from the initial terms of R&D on a number of topics was 8–13 years. In 2009, the chief of the General staff of the armed forces N. Makarov admitted that for that year on a number of topics there was a lag for 10–15 years (Mjasnikov, 2017).

Conclusions When choosing a strategy for innovative development, the Russian state should proceed from the preference for private sector financing of R&D, the inadmissibility of increasing the state budget expenditures on R&D at a time when more socially significant goals or factors of accelerated economic growth are underfunded.

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Ezhegodnaja informacija ob ispolnenii konsolidirovannogo bjudzheta Rossijskoj Federacii (dannye s 1 janvarja 2006 g.) [Annual information on the implementation of the consolidated budget of the Russian Federation (data from 1 January 2006)]. URL: https://www.minfin.ru/ru/statistics/ conbud/ (accessed: 28.01.2019) (in Russ.). Gol’dshtejn G.Ja. Strategicheskij innovacionnyj menedzhment: Ucheb. posobie [Strategic innovation management: Textbook]. Taganrog, TRTU, 2004, 267 p. (in Russ.). Gorodnikova N.V., Gohberg L.M., Ditkovskij K.A. et al. Nauka. Tehnologii. Innovacii: 2019: kratkij statisticheskij sbornik [Science. Technologies. Innovation: 2019: summary of statistics]. Moscow, HSE, 2019, 84 p. (in Russ.). Indikatory nauki: 2012: Stat. sbornik [Science indicators: 2012: Stat. collection]. Moscow, HSE, 2018, 392 p. (in Russ.). Ishhenko S. Armejskij vestnik. Nedovooruzhjonnye sily Rossii [Army Bulletin. Unarmed forces of Russia]. URL: https://army-news.ru/2011/03/nedovooruzhyonnye-sily-rossii/ (accessed: 26.02.2019) (in Russ.). Korchagin Ju. Mnenie uchenogo. Korrupcija, imitacija i profanacija [Opinion of scientist. Corruption, imitation and profanity]. URL: http://communa.ru/ekonomika/mnenie_uche nogo-_korruptsiya-_imitatsiya_i_profanatsiya/ (accessed: 22.10.2018) (in Russ.). Lokotkova S. (2014) Kal’kuljator standartnyh otkatov – vse tarify po sektoram [Calculator standard rollbacks – all tariffs by sectors]. URL: https://www.rospres.org/finance/14860/ (accessed: 27.02.2019)(in Russ.). Mjasnikov V. Nenasytnye NIOKR. Konstruktorskie razrabotki zatjagivajutsja do polnogo ustarevanija [Insatiable R&D. Development are delayed to complete obsolescence]. URL: https://old.flot2017.com/item/monitoring/3676 (accessed: 02.02.2019) (in Russ.). Netreba P. L’goty otmenjajutsja: Minfin nashel den’gi pod ukazy prezidenta [Benefits are canceled: the Ministry of Finance found the money under the orders of the President]. URL: https:// www.gazeta.ru/business/2018/07/09/11831611.shtml (accessed: 30.01.2019) (in Russ.). Onishchenko E. Nauka na bjudzhetnyh zadvorkah. Kak Rossija jekonomit na nauke [Science on a budget-backyard. How Russia saves on science]. URL: https://www.gazeta.ru/science/2016/ 01/20_a_8032067.shtml (accessed: 22.02.2019) (in Russ.). Otkaz Rossii ot An-70: konec proekta? [Russia’s rejection of the An-70: the end of the project?]. URL: https://news.rambler.ru/politics/29400961-otkaz-rossii-ot-an-70-konets-proekta/ (accessed: 01.02.2019) (in Russ.). Pen E. Global innovation Index: mesto Rossii v mire innovacij [Global innovation Index: Russia’s place in the world of innovation]. URL: https://www.rvc.ru/press-service/media-review/eco/ 132926/ (accessed: 30.01.2019) (in Russ.). Pozhidaev E. «Innovatory» i raspil [“Innovators” and cut]. URL: http://www.rosbalt.ru/business/ 2011/07/22/871814.html (accessed: 22.10.2018) (in Russ.). Rashody stran na NIOKR [Countries’ spending on R&D]. URL: https://nonews.co/directory/lists/ countries/research-development-expenditure (accessed: 28.02.2019) (in Russ.). Rekomendacii uchastnikov IX Mezhdunarodnogo Foruma «Innovacionnoe razvitie cherez rynok intellektual’noj sobstvennosti [Recommendations of the participants of the IX International Forum “Innovative development through the intellectual property market”]. URL: http://struc ture.sfu-kras.ru/files/structure/rniiis_itogi.pdf (accessed: 24.10.2018) (in Russ.). Shadieva D. Analiz mirovyh tendencij finansirovanija innovacionnoj dejatel’nosti [Analysis of the world tendencies of innovative activity financing]. National and World economy, 2016, no. 2 (37), p. 6 (in Russ.). Sikorskij D. Bez l’got, no s rostom: Minfin peresmotrit politiku finansovogo stimulirovanija [Without benefits, but with growth: the Ministry of Finance will revise the policy of financial

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stimulation]. URL: https://rueconomics.ru/258778-bez-lgot-no-s-rostom-minfin-peresmotritpolitiku-finansovogo-stimulirovaniya (accessed: 30.01.2019) (in Russ.). Strategija innovacionnogo razvitija Rossijskoj Federacii na period do 2020 goda (utv. rasporjazheniem Pravitel’stva RF ot 8 dekabrja 2011 g. No. 2227-r) [Strategy of innovative development of the Russian Federation for the period up to 2020 (app. by order of the Government of the Russian Federation of December 8, 2011 No. 2227-r)]. URL: https://www. garant.ru/products/ipo/prime/doc/70006124/ (accessed: 28.02.2019)(in Russ.). T-95 – mertvorozhdennyj monstr rossijskogo tankoproma (2013) [T-95 – stillborn monster of Russian tank industry]. URL: http://alternathistory.com/t-95-mertvorozhdennyj-monstrrossijskogo-tankoproma/ (accessed: 01.02.2019)(in Russ.).

Elena V. Lapteva, Slavyana Yu. Boldyreva, Yuliya A. Vasylchenko

26 The Investment Platform “Cashbery” and the Challenhes of Economic Science The Phenomenon of a Financial Pyramid Scheme, Historical Precedents and Legal Penalties for the Pyramid Creation From the 18th century the concept of “pyramid scheme” is tightly integrated into the life of society. One of the first and the most famous ones was the financial pyramid built by John Lo (Lapteva, 2012). A pyramid scheme is a way to generate income for project participants by attracting new money; it is also called the investment pyramid. The income of the participants is paid through attracting funds of new recipients and depends on their number. Usually the organizers of the financial pyramid scheme advertise a significant and rapid growth of income, hiding the true state of things. This is a fraud and today is criminalized by the Code Penal of the Russian Federation. Financial pyramids often have different names and are disguised as commercially successful projects; however the result of such projects is bankruptcy. It is usually accompanied by significant losses of investors, who were the last to join the project. Mathematically described, financial pyramid is a specific system (Dmitriadi, 2002). In December 2015 the State Duma profile committee on criminal law approved a bill that introduces criminal liability for the creation and management of the financial pyramid. In 2016, the law came into force. The Code Penal of the Russian Federation is supplemented by a new article 172.2 “Organization of activities to raise funds and (or) other property”, which criminalizes the organization of activities to raise funds or property of individuals and / or legal entities on a large scale. The penalty was a fine amounting to 1 million rubles, either forced labor for up to 4 years, or imprisonment for the same period, with restraint of liberty for up to 1 year; there are other possible options. Especially large damage caused by the financial pyramid entails a penalty amounting to 1.5 million rubles or other income, wages for 3 years, or forced labor for up to 5 years, imprisonment up to 6 years and etc. (Federal law of 30.03.2016 N 78-FZ).

Elena V. Lapteva, Financial University under the Government of the Russian Federation, Moscow, Russia Slavyana Yu. Boldyreva, Lomonosov Northern (Arctic) Federal University, Arkhangelsk, Russia Yuliya A. Vasylchenko, Volgograd State Agrarian University, Volgograd, Russia https://doi.org/10.1515/9783110692075-026

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Methodology The methodology of the study is based on the principle of problem-chronological analysis, involving systems analysis. The research methodology also includes elements of sociological and retrospective research. In developing the subject, the author relied on documents from the Central Bank of the Russian Federation, the legislative base of the Russian Federation. The author used the electronic resources materials, used a method of quantitative analysis and elements of historical situations computer modeling method.

Financial Pyramids and HYIP Projects in Europe and Russia: Historical Experience After the collapse of a number of financial pyramids in Europe, the West has long been vaccinated from the financial pyramids massive creation. Although a few cases still do occur (Henriques, 2014). It is important that the degree of financial literacy of the population in Western countries is quite high. The Albanian experience can be considered the last phenomenon of the construction of financial pyramids with the mass participation. The first financial pyramids appeared in Albania in 1991. Albania is a poor country in the Balkan region, and the population actively responded to the opportunity promised by the organizers of the pyramids to get rich quickly. By the beginning of 1997, several dozens of pyramid schemes were operating in Albania, which involved about 90% of the population of Albania into their activities. Raised funds exceeded the national product of the state (about 1 billion dollars). It is believed that the Italian mafia, engaged in illegal trade and money laundering, can be responsible for organizing financial pyramids in Albania. The Albanian financial pyramids heyday was in 1996; that year the % of deposits in financial scheme projects exceeded 100% per month. But at the end of 1996, the first pyramid collapsed, and others followed. The collapse of the financial pyramids caused mass unrest in the country, which resulted in a civil war and culminated in the resignation of the government. Russia in the 1990s also had experience in financial pyramids construction, although not as large-scale and fatal. Despite the collapse of the pyramids of the 1990s, the construction of financial fraudulent constructs continues today. In 2019 there is a list of new financial projects with signs of a financial pyramid scheme. Many of them are also known as HYIP-projects. HYIP – High Yield Investment Program is a fraudulent project with a features of a high-return investment fund. In 2017–2019 these are mainly online projects that work with electronic financial resources and cryptocurrencies. Most HYIP projects can be divided into 3 types: short-term, medium-term, long-term. They propose different interest rates of return

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and exist a different amount of time. Among them are Vdolg.ru, SuperKopilka, ProMLM, Bit Points, leopays, Isclub ltd., Fexbet, Mine Bank, etc. The most famous fraudulent scheme of recent years, with signs of a financial pyramid, is Cashbery.

Cashbery Investment Platform Investment platform “Cashbery” originated in 2016 as a Cashbery Group. It was led by Arthur Vardanyan, who obtained the post of the CEO. Vardaryan is a resident of the United Kingdom, but the company, which promiced him a great profit, was opened in the Russian Federation The company’s top-management also included Roman Alekseev, the director and founder of Cashbery LLC, Irina Rusakova, the marketing director, and Marek Novak, the head of the IT department. There is a version that Cashbery, like the Sky Way project, was created by one person – Victor Morozov.

Cashbury as a Financial Pyramid in the Assessment of the Central Bank of the Russian Federation Cashbery undoubtedly has signs of a financial pyramid. They are fixed by the Central Bank. Here are 8 signs of financial pyramid scheme according to the Central Bank. – payment to participants from funds deposited by other investors – the lack of a license from the Federal Financial Markets Service of Russia (FCSM of Russia) or the Bank of Russia to hold fundraising activities – the promise of high yields, several times higher than one of the market level – guaranteeing profitability (which is prohibited in the securities market) – mass media and online advertising with the promise of high yield – the absence of any information about the financial situation of the organization – lack of own fixed assets, other expensive assets – lack of precise definition of the organization’s activity Moreover, in January 2017, the Central Bank listed a number of signs of financial pyramid schemes, among which emphasis was placed on massive and rather aggressive advertising in the media and the Internet, social networks, lack of transparency in explaining the sources of project profitability, characteristics of network marketing with a necessary down payment, statements about guaranteed high yield, etc. In their advertising such schemes often use a slightly modified symbolism, mottos and slogans of famous brands, which can be easily confused with the real. In some cases (especially in the 1990s), promises of high incomes were replaced by promises of cheaply (and even for nothing) receiving scarce real estate

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objects and goods – automobiles, etc. Fraudulent financial schemes are usually registered in offshores in Cyprus, Singapore, Seychelles, etc .; in some cases, they do not have an office, either they often change it, or they only meet with clients in a virtual way. As a rule, they do not have a long history, these are one-day firms with a minimal authorized capital. They do not have FCSM / FFMS of Russia or the Bank of Russia license to hold fundraising activities or other licenses. In order to protect citizens from ill-considered investments, the Central Bank proposes to pay attention to the specifics of the contract. As a rule, this is a unique contract, which is formulated in such a way that the organization, individual or public project does not have any obligations to the investor (depositor) of funds, and the return of funds to the depositor seems impossible in any case. The Central Bank also proposes to pay attention to the product of information technology, which is used by such schemes. As a rule, this is a poorly created website hosted on free (cheap) hosting centers; it is registered offshore, but is in Russian, does not provide information on constituent documents, organizers and any financial statements. The Central Bank, describing the risks of involvement into such a scheme, still insures itself on its website with the following: “When evaluating an organization, an individual or a public project, it should be borne in mind that the presence of the above-mentioned signs only indirectly indicates that it is a financial pyramid scheme (each financial pyramid has one or several of these features, but not every organization, individual or public project with signs is a financial pyramid)”. The Central Bank recommends to contact the Bank of Russia Internet reception in case of questions.

The Structure and Activity of Cashbery in Russia The above-mentioned characteristics are quite suitable for the Cashbery project. Initially, the project included 3 branches – Cashbery Limited, an English financial company that regulates the activities of all divisions, Cashbery LLC and Cashbery microfinance organization (Warsaw). The truth is that the citizens of Great Britain had a greater experience with financial pyramids, and a much higher financial literacy than the Russians. As a result, the English project did not bring such profit to Vardanyan as the Russian one. Moreover, the British Office for the Registration of Companies sent Cashbery Limited a notice of a forced liquidation. In January 2017, the Cashbury project was announced in Russia. Considering the previous experience of financial pyramid schemes in Russia, as well as the fact that since 2015 the organization of financial pyramids in Russia is criminalized (Federal Law of 30.03.2016 N 78-FZ), the construct existed for quite a long time. On September 26, 2018, the Central Bank announced the transfer of information about “Cashbery” to the General Prosecutor’s Office of the Russian Federation and the Ministry of Internal Affairs. According to the regulator, money was raised in rubles and

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crypto currency, but there are no signs of real economic activity. Characteristically, not only the organizers of the pyramid, but also those who involved depositors can be criminally liable, and these are the people who chose to receive passive income with a minimum investment of 15 thousand rubles and bring new investors through personal links. The idea of the project was ingeniously simple – to connect the contacts of investors and borrowers; the profit was based on the idea of profit at the expense of huge percent on microloans (2% per day or 700% per year) to private individuals and small and medium businesses. But the Central Bank claims there is no documentation indicating the cooperation between Cashbery and microfinance organizations. According to Cashbery organizers it is possible to earn passive income by investing the amount of 15 thousand rubles. Your income will depend on how many new investors you attract. The site contains layouts and tables with attractive calculations demonstrating the growth of initial invested funds to the final profit. The Central Bank announced that the companies of the Cashbury Group are basing their activities on the principles of network marketing, promising excessive profitability, and conducting aggressive advertising in the media and social networks. There have no Bank of Russia financial services licenses. Pyramid 2019 also announced an investment in crypto currency and bankruptcy trading. Part of this money was intended to be given to the investors as a return on an invested capital. Moreover, according to A. Moldovan and his colleagues, “Cashbery” does not have a banking license, but offers to lend money under pledge of property (Moldovan, Sakhno and Kalmykova, 2018). The company maintains an active marketing and advertising campaign, using even social networks for this purpose. For example, in contact, they position themselvesm as “Cashbery financial and investment holding, a symbiosis of many companies that interact for the benefit of ordinary people!” The absence of the Central Bank official permission to carry out financial activities in Russia, was an obstacle but it did not stop the organizers. Cashbery activity was extensively exposed in 2017–18. “This is one of the largest financial pyramid schemes that we have identified in recent years, it has launched its activities in many regions, almost throughout the country. Moreover, lately, the project has been promoted increasingly actively, in order to involve as many citizens as possible, “ says Valery Lyakh, the director of the Central Bank’s Department for Combating Unfair Practices (Hisamutdinov, 2019; Lapteva, 2019). After a series of closures and reorganizations, the Cashbery website was launched again in 2019 (let us recall the immortal MMM financial pyramid – revived with the new slogan). The company announced an increase in profit bonuses, The Cachbery service was designed perfectly, it was convenient to work in it. It was necessary only to register on the site, top up the balance, choose a tariff. Invest money. Tariffs are based on the principle “the greater the amount of the deposit, the higher the interest.” The first interest charge is very fast. But money withdrawal

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is very difficult, almost impossible. You need to submit an application in advance, and then try to wade through all sorts of difficulties: insurance payment, choosing a card, etc. Many Russians faced this. In 2019, Cashbery focused on the science-like nature of ads; on the company’s website, the ad is full of terms that are difficult to understand for an ordinary person: “referral and executive bonuses”, “level 1 referral”, “critical risks”, “level 2 referral”, etc. It is true that Cashbury, as a literary character, Alhen the thief, is trying to compromise and warns the depositors: “Do not risk money that is CRITICAL for you!” (Context: well, if they are uncritical, then risk! Greedy and rich need to be punished). The Cashbery website says that the transfer of earned assets to a card or a crypto currency wallet is made within a day after the application, but actually this is not how it happens. The Internet is full of defrauded investors’ statements. They even formed a special Vkontakte community: https://vk.com/cashberyobman. In the Telegram resource there is a channel “Lokhotron Cashbery”. (Cashbery scam). There are chat screenshots and other materials confirming the fraudulent activities of the Cashbery platform. In addition, a lot of Internet sources warns their users that Cashbery is a financial pyramid scheme and gives useful tips: “You have one way out: go to the police with a statement about fraud against the person to whom you’ve transferred the money”. The Article 159 of the Criminal Code (“Fraud”) states this obviously: you were misled (deception about the allegedly high-yielding investments that the company makes – the pyramid did not make any investments) and seized the money “ (Vkladier, 2018).

Cashbery Financial Investors the Phenomenon of Defrauded Investors Their stories are similar. Many of them were “bought” on the promise of 600% of annual profits. Some of the contributors followed the example of acquaintances who made VERY short-term deposits at the very beginning of the Cashbery existence. The amount of an average deposit is about 200–300 thousand rubles, although the amount of some deposits ranged from 1 thousand rubles to several million. Many investors confess that they did not understand a significant part of the information presented on the website due to the lack of special education. Many of them relied on the mythic insurances offered by Cashbery. Investors were guided by their immediate needs, wanting to earn extra money. In an environment of constantly rising prices and wages remaining the same, of often cuts in staff, this desire is understandable Like in case of MMM, many depositors who have lost money blame the government, which has blocked the Cashbery accounts and practically closed the activities of this organization. Probably, the essence of this phenomenon lies in the Russian national character, accustomed to long patient waiting and strong belief in miracles.

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Here the experience of Albania, where the collapse of the financial pyramids caused a mass unrest and riots against government inaction, which led almost to a revolution in the country, is worth-mentioning. But in Russia, a firm belief in a miracle, in a pike that fulfills desires, continues to exist – many depositors complained not about the fact that they invested money in the fraudulent scheme, but about the fact that they failed to withdraw it out in time. Consequently, many investors who have lost their money are going to continue working with Cashbery as soon as the platform resumes its activity. The words of the famous satirist Mikhail Zadornov “In Russian folk tales the people’s dream of freebie is embodied!” are worth-remembering And this is the young part of the population, the people who can easily use the Internet, are able to get information at any time, to deal with terms, precedents, etc. What makes them believe and invest their money in organizations like MMM, Vlastiline, the Russian home of Selenga, Hopper, Cashbery etc. again and again ? These questions are to be answered by social scientists, psychologists, economists, journalists, and media representatives. In the meantime, the investors who want to get rich by a miracle and have lost their money will multiply.

Conclusion and Recommendations The Cashbery phenomenon opens up a wide field of research for the humanities (primarily for economic science). The psychological phenomenon, the symbiosis of faith in a miracle and the desire to get rich without doing anything, certainly deserves a separate study. This is the task of psychological science. Sociologists will also have a domain for research, studying groups of the population, clusters that are most susceptible to the belief in the financial fraudsters advertisement. Mathematical modeling and prognostication may not only be able to explain the schemes for fraudulent financial constructs creation, but also to predict certain directions of their future development. Therefore, it is possible to warn people against such errors. Economic science faces no less important tasks. First of all, the financial literacy of the population is to be boosted. Financial literacy is a prerequisite for life quality improvement, which implies the mastery of financial knowledge throughout a person’s life. Being financially literate means competently managing the money at any age. “The fact is that retired persons need to manage their savings properly, without succumbing to the tricks of financial pyramid schemes. And young people are still acquiring the skills of budget management, the ability to competently deal with their savings”, say L. Egorova and E. Yukhnovskaya (Egorova and Yukhnovskaya, 2016). Improving financial literacy of the population is a broad field for economic scientists’ knowledge application. In Moscow, financial literacy courses for the population are currently organized, with full-time and distance education. At these courses,

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people are taught to draw up an investment plan, get aware of the types of investments and their diversification and the risks that exist in the financial market, as well as they are taught to predict profitability. Financial scientists can also act in close alliance with aw enforcement agencies representatives, analyzing certain schemes of organizations with a high degree of profitability that attract capital from the population. Financial literacy could be ameliorated through the mass media. Within the framework of the Financial University, this can be done by FinTV. Russian economists work closely with representatives of other professions in order to protect citizens from fraudulent schemes. In particular, the Central Bank’s economists together with software mathematicians developed a robot to identify online financial pyramids. He behaves like an ordinary client surfing the net looking for a platform for making investment. Companies responding to it are looking for new customers with capital. After identifying such interest, the robot analyzes the legality of this company, the promised revenues. The diversity of modern financial pyramid schemes, their quick response to changing reality makes economists and financiers strengthen their work on the study and analysis of this phenomenon and work together with representatives of other sciences such as mathematicians, lawyers, sociologists, political scientists, etc.

References Consultant Plus (2016) “Pyramid schemes” criminalized “, available at http://www.consultant.ru/ law/hotdocs/46042.html/ (01.03.2019). Consultant plus (2016). “The decree of the Government of the Russian Federation dated 17.11.2008 No. 1662-r “The concept of the national program for improving the level of financial literacy of the Russian Federation for the period till 2020 year”. Available at http://www.consultant.ru/ document/cons_doc_LAW_82134/ (access date 01.03.2019). Dmitriadi G. (2002). Financial pyramid models: a deterministic approach. URSS, Moscow 2. Egorova L., Juhnovskaja E. (2016), Improving financial literacy in contemporary Russia” Concept, Vol. 41, 2016, p. 91–96. Available at http://e-koncept.ru/2016/56924.htm (access date 01.03.2019). Expert (2018) “What is Cashbery and how does it work?”, available at https://finansist.expert/ mfo/chto-takoe-keshberi-i-kak-ono-rabotaet.html (01.03.2019). Henriques D. (2014). The Wizard of Lies: Bernie Madoff and the Death of Trust. Russ. Ed.: Azbuka business, 2014 M.4. Hisamutdinov A. (2019) “Cashbery: what should the victims do”, available at https://vklader.ru/ ne-rekomenduem/cashbery/(01.03.2019). Lapteva E. (2012) “John Lo – the man who created the first financial pyramid in Europe”. Humanities. #3. p. 45–50. Lapteva E. (2019) Pyramid scheme and its historical precedents. Actual problems of Russian law. 12. #12. p. 25–31. Moldovan A., Sakhno A. and Kalmykova A. (2018) “Pyramid scheme in Russia in XXI century» journal Science Alley. #6. p. 380–384.

List of Figures Figure 1.1 Figure 1.2

Dynamics of production index by industrial holdings for 2017 4 Scheme of sustainable development of industrial holdings in the power industry 8 Figure 2.1 Changes in the revenue of Russian sea fishing companies from 2015 to 2017, in rub 16 Figure 2.2 Dynamics of changes in concentration index from 2015 to 2017, in % 17 Figure 2.3 The dynamics of the Herfindahl-Hirschman index from 2015 –2017 17 Figure 2.4 Relative entropy index from 2015 to 2017, in % 18 Figure 3.1 Spatial urban models 26 Figure 3.2 The master plan of the one-nuclear city of Volzhsky (Russia) with the allocated functional zones 27 Figure 3.3 Certificate of state registration of computer programs in the field of Green City Management 35 Figure 6.1 Structural diagram of a multi-sectoral linear-dynamic optimization model of agribusiness management 66 Figure 6.2 The main modules of the software and hardware complex “ESCORT” 67 Figure 6.3 BoniRob Agrorobot by BOSCH (Germany) 68 Figure 11.1 Values (prices), traded volumes, correlation coefficient of Moscow and Kazak stock indices 107 Figure 11.2 Trade turnover of EAEU-countries 109 Figure 11.3 The highest trade turnover group of countries (mln. USD) 110 Figure 11.4 The second trade turnover group of countries (mln. USD) 111 Figure 11.5 Comparison of MCX index with S&P500 index dynamics 112 Figure 11.6 KASE with the S&P500 113 Figure 11.7 MCX with the DAX 115 Figure 11.8 KASE with the DAX 116 Figure 15.1 The structure of Russian banks’ assets (bln. rub.) 151 Figure 15.2 The structure of Ukrainian banks’ assets (bln. UAH) 152 Figure 15.3 The dynamics and structure of Russian banks’ liabilities (bln. rub.) 153 Figure 15.4 The dynamics and structure of Ukrainian banks’ liabilities, (bln. UAH) 154 Figure 15.5 The dynamics of Alfa-Bank Russia off-balance sheet liabilities 154 Figure 15.6 Functions and factors of a modern bank’s development 156 Figure 18.1 The reasons for using a mobile bank in 2015 in USA 187 Figure 18.2 ROA in traditional bank, new traditional and new virtual banks (USA) 187 Figure 20.1 Some indicators of the Federal Tax Service (FTS) activity 207 Figure 20.2 Some indicators of Russian economy development 207

https://doi.org/10.1515/9783110692075-027

List of Tables Table 1.1 Table 1.2 Table 1.3 Table 1.4 Table 2.1 Table 2.2 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 4.1 Table 5.1 Table 5.2 Table 6.1 Table 6.2 Table 7.1 Table 7.2 Table 10.1 Table 11.1 Table 11.2 Table 11.3 Table 16.1 Table 16.2 Table 16.3 Table 18.1 Table 18.2 Table 19.1 Table 21.1

Models of the electricity industry 2 Technological structure of industrial holdings 5 Coefficient analysis of the movement of fixed assets 5 Technical and economic indicators of industrial holdings by type of economic activity “provision of electric energy, gas and steam; air conditioning” 6 Characteristics of import and export of aquatic biological resources 14 Dynamics of change in the number of firms in the marine fisheries of Russia since 2015–2017 16 The main structural elements of the “Smart” city project 23 Tasks, technological solutions and benefits from the implementation of intelligent energy applications in a “Smart” city 25 Basic laws ensuring a balanced integrated development of the urban system 28 Development index of medium industrialized cities of Russia, 2016. 29 The list of indicators determining the development potential of “Green cities” 30 The basic set of components of the module “Smart city” 32 Matrix of the financial condition of the average city, obtained on the basis of the diagnosis 34 Methods for assessing the impact of tourism on the socio-economic development of the region 42 Indices and growth rates (+) / reductions (–) of gross value added (GVA) by economic activity 53 Investments in fixed capital of agricultural producers and sources of their financing (without small businesses) 57 Indicators of digitization of the Russian economy, 2017 63 Objects of urban agricultural entrepreneurship 64 The strategic SWOT analysis of the agro-industrial complex of Abkhazia 74 Instruments and benefits of cluster organization 78 Matrix SWOT-analysis of the use of financial technologies in the organization 99 Members of the KASE index 106 Correlations of major groups 106 Сhanges of MCX and KASE indices movements under external shocks (%) 117 Content of commercial bank’s activities 162 Inadequacy of mobilized and allocated resources 163 Balance of the bank’s relations with clients, which are non-financial organizations 165 Percentage of bank customers using a communication channel with a bank at least once a week 188 Financial performance of banks in Europe (2003–2006) 188 Structural model of competencies by profiles of qualification requirements for an employee of the bank of the future 200 Improving tax administration 215

https://doi.org/10.1515/9783110692075-028

Index Administration 225–227 Agriculture 26, 52, 63 Communication 196, 197, 200, 203

International relations 104, 159, 160 Mobile 184, 193, 194 Modern Russia 5, 6, 63, 65 Money 163, 168, 171

Digitalization 151, 168, 183

Finance 67, 70, 84 Future 108, 115, 130

Security 194–196 Smart 33, 34 Socio-economic development 51, 53, 54 System 227, 229, 231

Globalization 13, 14, 19

Tax 196, 215

Human 93, 97

World economy 271, 276

Effectiveness 205, 213, 227

https://doi.org/10.1515/9783110692075-029