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“Innovative transformation of modern national economic systems”.The article the Chairman of the SCST A. Shumilin in the bulletin “Science and Technology”, no. 1, 2014

“Innovative transformation of modern national economic systems”.The article the Chairman of the SCST A. Shumilin in the bulletin “Science and Technology”, no. 1, 2014

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“Innovative transformation of modern national economic systems”.The article the Chairman of the SCST A. Shumilin in the bulletin “Science and Technology”, no. 1, 2014

This article deals with issues of the nature of economic systems, their differences and similarities and the categorical apparatus. The basic provisions, principles, features and characteristics of such transformations in the economy, which make national economic systems innovative, have been stated in the article.

The national economy of any country is a system because it fully meets the system features: consists of many components that are interconnected and interdependent. The economy as a whole has properties that are absent in its individual parts. It operates as a system in a given environment, and thus interacts with other systems.

The term “system” comes from the Greek word systema, which means a whole combination composed of parts. V. Chabanov gives the following definition: “The system is such a set of components, which gives a new quality, not reducible to the qualities of its component parts, being determined on the basis of certain principles.”

The economic system is defined as a set of entities of the economic organism, external (material, labor, financial, information) connections and internal connections (between components), as well as the administration with the purpose of organizing shared coordination of activities included in the system of structures and the bank (or accounting) which are carrying out the posting of all financial flows.

A systematic approach to the economy is grounded by the general theory of the system, the foundations of which were developed by a number of Russian and American researchers.

The most significant works in this area belong to A. Kolmogorov, N. Buslenko , V. Glushakov, N. Moiseev, L. Bertalanffy, R. Kalman, and M. Mesarovich.

The modern systems theory has a strong methodological base, which with high efficiency can be used for analysis of national economies and the processes occurring in them in particular.

The concept of an “economic system” in the scientific literature is treated differently. However, in this wide variety some authors (E. Erokhina, V. Kushlin, etc.) single out five main approaches in the interpretation of the concept of economic an systems:

1) an arranged  set of links between producers of tangible and intangible goods and consumers of these goods;

2) an interconnected set of business entities;

3) the set of production, distribution, exchange and consumption, that is, the economy is identified with the process of reproduction in the unity of the four phases;

4) a set of economic processes associated with the allocation of scarce resources;

5) a resource pool and a set of economic entities interconnected and interacting with each other in the production, distribution, exchange and consumption and forming a coherent whole.

In order to clarify the concept of the economic system that best fits the objective realit, according to V. Mogilevsky, it’s necessary to use the methodological framework of general systems theory.

In accordance with the specifics of the functioning and development, the economic systems are artificial entities, as they are created by people and are directly related to their life activities. Various interrelated and dynamic human activities are the condition for the existence of society and the driving force of social progress.

Target orientations of all economic activities are human needs which tend to continue to grow and change.

On this basis we can conclude the following: the primary cause of the formation and development of the economy as a complex system is a satisfaction of human needs.

The set of objective functions performed by the economic system depends on the way of this satisfaction.The result of the functioning of the economic system is varied material products.

The concept of matter includes matter, energy, knowledge and information in modern scientific literature. Based on these components of matter, economic systems are crucial.

However, a variety of other systems connected with the economic system, which have integral auxiliary formations are required for the successful functioning of the economic system.

There is an objective hierarchy of subsystems interconnected and subordinated to the implementation of major system functions within the national economic system.

The concept of “economic system” is widely used in the scientific literature along with the concept of the “economic system”.

Many authors correlate these concepts and establish their different content. So, Y. Kornay derives a very broad concept of the economic system, including the totality of organizations operating in the economy, their powers and procedures of regulation: enterprises, institutions, associations, unions, associations, households, political bodies and government agencies and state economic structures; the incentive system for decision makers; laws and government enactments regulating the economic activity, informal “rules of the game” in the economy, the stereotypes of business conduct complementing formal economic order in its structure.

The nature of economic systems was examined by Russian scientists such as A. Gavrilov, I. Syroezhkin, Y. Yasin, etc.

Thus, A. Gavrilov considers an economic system as a complete set of production and economic relations, which determines the order of interaction of economic entities within certain rules and conditions specified by the legislation or the State.

I.Syroezhkin made an attempt to uncover the economic nature of the modern economic system, based on the provisions of the system analysis.

The economic system is defined as “a set of administrative centers with a certain unity of organizing economic interests when making decisions.”

E. Yasin shows the difference between the economic and business systems.

It’s noted that the economic system is a set of economic entities (organizations and individuals), connected by a horizontal by material, information and financial flows.

The economic system includes: a set of base production relations of socio-economic area; organizational structures, i.e., enterprises and institutional relations between them and within them; an economic mechanism, i.e., the relationship of a form and a method of coordination of the interests of businesses.

An economic system is linked to the economy, but it is not entirely included.

The Russian researcher Y. Olhsevich believes that the economic system is “a primarily defined system organization of production, exchange, distribution and use of the social product.”

Thus, he focuses on socio-economic motives the economic system is based on, as well as the forces bringing them into action.

The theorist of Western German reforms V. Oyken also focuses on the social significance in establishing the essence of economic systems.

He defines them as "a set of implemented forms in which in each case the economic process proceeds in concreto every day."

V. Oyken considers the economic system through the category “an economic order” introduced by him, which provides an orderly economic activity.

In order to define the economic and business systems, it is necessary to consider the basic methodological approaches and achievements of modern economics, and the feature of activities and interaction of economic agents and control structures.

The globalization of the world economy and the development of socio-economic, political and cultural processes have brought a lot of new things into interaction, cooperation and integration of economic entities.

Major economic structures started transcending national economies increasingly and creating international and transnational corporations.

A network of international infrastructure units and global communications has been developing; appropriate institutional conditions for the functioning of the economy have been formed.

Economic systems are created and developed under the influence of economic interests that form economic relations.

Economic activity in the conditions of a market economy is actively initiated by entrepreneurial interest which forms economic relations.

Business organizations act as primary economic entities and basic cells of economic systems.

The interaction of people and organizations for implementation of the constantly renewed economic interest and business goals can be regarded as an economic system. Creation and development of modern economic systems in the conditions of a market economy are guided by the laws of supply and demand and market competition laws. The transition from a planned directive economy to a market policy is economically and psychologically complex for the CIS member states.

It’s not easy to realize and accept the market laws after decades of domination of the planned socialist economy.

Various units take part in the modern extended reproductions which integrate with each other forming complex business systems.

They direct their activity to the satisfaction of needs of different social-territorial agglomerations of people from the point of view of populations, cities, regions and countries. That’s why the business systems should be considered not only from the point of view of productive-economic characteristics, but also from the point of view of territorial and mental characteristics, because social needs are always associated with the place and the life-style of people.

The right understanding of new processes depends on the understanding of their nature. Scientifically it enables to determine basic definitions and categories both of business systems and economic ones. Let’s give our definition for them.

The business system is a totality of business entities and its governing bodies, as well as the conditions and the order of regulation of their activities. The economic system is a totality of units, conditions and processes ensuring the satisfaction of people’s needs within the public production and distribution of goods and services.

The business system is a component of the economic system.

Economic systems are not frozen formations as well as commercial systems.

They are dynamic and keep changing and evolving. The changes happen in each system individually . However, there are general trends that are dictated primarily by the situation in the regional and global markets, and by the general course of social development.

In order to operate by innovative categories, let’s give them definition. “An innovation is a new component in the known phenomenon.”

An innovative growth is a movement of the level of development due to innovations based on scientific achievements and the improvement of production technologies. An innovative product is a product made by updated technologies.

Innovative activities are development and innovations.

An innovation process is an introduction and use of innovations in production, distribution and management.

An innovative economy is the basing of the production and distribution of goods on new technologies, scientific and technical achievements and new processes. An innovative management is the management of the innovation activity.

National economic systems, on the basis of internal features, react differently to the external influences.

The reaction of the economic system to modifications of internal and external factors is versatile, i.e., the changes happen to a greater or lesser degree in all of its parameters.

This dynamic is reflected in the transformation of the basic properties of the system economic organism.

The economic system contains in its structure complex and highly dynamic formations, such as reproduction processes, science and technology processes, investment processes and other processes, as a consequence of our definition.

One of the leading ideas of the modern world economy is a trend of innovative development. It makes national economic systems search for their way of innovation activity.

In our opinion, the  innovative development of the national economic system can be represented  in the form of social theory, which includes three starting points:

- the dynamism of  development , i.e., the constant changes in all their main parameters: development goals and tasks, structure and properties, objective factors and various update conditions, effectiveness and efficiency, etc.;

- thestudy of internal objective factors of internal renovation  including primary factor-resources (scientific, technological , human, financial and other factor-resources) and secondary  factor-processes (production, technological, management  and other factor-processes);

- the study of external objective renewal factors, including  economic factors (development of technologies and industries, the global technology transfer, etc.) and social factors (growth of customer requirements, high level of competition on the world market, etc.).

The process of innovative transformations in the national economic system generates a number of features :

- innovative changes affect most  components of the economic system;

- innovative activity is based both on the internal factors of the economic system and the external influence on it;

- innovative transformations are both planned and stochastic, i.e., they are probabilistic and variable, in other words, it is not always possible to predict or plan time and nature of the changes.

The study of the internal factors of the upgrade is defined as the second position of the theory of innovative development of the national economy. The factor-resources are: new technology, modern technology, human resources, organizational and administrative resources, information, business, finances, and other natural resources.

The complex of resources creates the objective premises of production, which can be quantitatively and qualitatively measured by composition and proportion, and the effect of which on reproductive processes can be predicted and calculated.

The formation and functioning of this complex of factors is the main content of the pre-production phase of social reproduction, which in modern conditions has gained special importance. The complex of factors of development is very dynamic, and the transformative capabilities of each factor change periodically.

However, the consideration of these dynamics enables to determine the quantity and the quality of resources, and also the proportionate combination of resources necessary to introduce into the pre-production phase to get the expected socioeconomic results.

Recent advances of the economic science and practice have shown convincingly that today innovative factors are the basis of development of the national economic system: new technologies, a system innovative technology, a new organization of labor and production, a new set of stimulation such as motivation and innovative entrepreneurship.

All these components are those innovative components that are able to transform production activities, to upgrade the technological level of production and the production management, to prepare and encourage workforce to innovative activities.

The preferential use of the set of innovation factor-resources in the development of any economic formation is the essence of the transition of its development to a totally new level. The factors resources enable to implement the innovative transformation of the national economic system, to give it the most important properties of the market- economic stability and market competitiveness.

The innovative development of the economy is a qualitatively new phenomenon which is objectively conditioned by four reasons:

- firstly, the conversion of the majority of factors resources most into comprehensive formations (technological, technical and qualification ones), which transformed them into the ways of economic growth, the increase of the volume and quality of production. The productive forces moved to a new stage of progress , which is characterized by high interconnection and interdependence of all components of the economic system;

- secondly, the multiple growth of energy supply of vital activity compared to the area of the intensive economy. This dramatically increases the dependence of the society as a whole and the individual on the power supply. If it’s violated, the life is simply impossible;

- thirdly, the need for a radical target reorientation to the already  increased, complicated and rapidly changing needs of the people, such as economic, social, spiritual, environmental, physiological, and other needs.

Changes occur in the interests of the people and in the motives of labor activity ;

- fourthly , the rearrangement  of converting opportunities in the field of resource-factors in favor of cognitive factors, i.e., obtained with the help of new , holistic and multidisciplinary scientific knowledge. Knowledge is the basis for the development of economy in innovative ways.

The economic capacity building by the innovative way is very effective. This is due to the distinctive features of an innovative development way that creates concrete economic advantages.

According to V. Kushlin, the innovative development of economic systems is characterized by three complex features:

1) innovative activity goals and  its innovative results in each period of the development of the economic system . Often this is accompanied by the emergence of new niches on the commodity markets and even by short-term monopoly position of producers of them;

2) innovative means of achieving innovative goals , i.e., constantly updated technology production processes;

3) a set of internal and external conditions for innovation orientation of production on a continuous basis.

A normative legal base of innovative development, a new dynamic structural- functional model, a set of factor-resources, innovative management, a modern motivational mechanism of personnel, an ability to integrate the economic system of education, science and production are among these conditions.

V. Kushlin presents the main features of innovative development of the economic system as a special chart. We’ll represent the author's version of the innovative development of the economic system on the basis of this chart (Fig. 1).

Innovative transformations lead to a number of economic trends which are, in fact, peculiar laws, since they are characterized by stable recurring business relationships arising in the creating innovative production.

The following four trends can be considered as new emerging trends in the innovative development economic system:

- the increasing integration of education and science, on the one hand, and production and the market, on the other hand. This is manifested in the emergence of innovative corporations,  macro-technological associations, inter-sectoral and inter-regional scientific and industrial structures, venture enterprises, etc. These new formations become components of the innovative economic system;

- the growth of intellectualization of all kinds of work activities: management , production, business and intermediary activities.

This trend is conditioned by the progress of modern productive forces and relations of production, the complication of technical and technological equipment of social reproduction;

- the increase of the innovative role of investments, which are involved in the development of industrial and commercial activities. According to A. Folomeva , V. Gvozdova , E. Lenchuk , G. Vlaskina and others, this trend is evident not only in the growth of the share of investments into  technical and technological and innovative development , but also in the appearance of their varieties with a clear preferential orientation on innovative reproduction  in the structure of investment means. We are talking about the use of venture capital, industrial leasing, technological know-hows, various types of intellectual property, including patents, trademarks, etc. in the innovative investment;

LEADING FEATURES

External (exogenous) development factors and conditions

Internal (endogenous) development factors and  conditions

Socioeconomic results

Positivedynamics of demand

Permanent update of theproduction base

Increase in volumes of production

New market development

Modern innovation management

Profit enhancement

Positive dynamics of  the institutional environment

Support of the innovative entrepreneurship

Production efficiency enhancement

Developed innovation structure

Motivation of creative activities

Increase  in productionaggregate valueand consumption

Formation of the national innovative system

Active innovative activity, including with the attraction of investment

Increase of salaries and incomes of citizens

OTHER CONDITIONS

Availability of competitive advantages

State scientific-technical

Innovation policy

Acceleration of economic and scientific-technical

processes

Integration of science, education and production

Positive dynamics of citizens’ needs

Fig. 1.Chart of innovation development features

- intensification of  interdependence of the type of development of subsystems within the economic system. The type of development of subsystems including on the macro-regional level can be different from the type of development both of the system as a whole and its separate elements. This means that, in particular, the regional economy cannot be innovation-oriented if the majority of businesses and corporations develop mainly either by extensive way or intensive simple way. The ideas of innovative transformations inevitably must permeate the entire economic system in all its subsystems and components.

 Innovative transformations inevitably cause changes in all the components of the national economic system.

Significant changes occur in the technological base, the organizational structure, the infrastructure, the resource provision and the complex of reproductive processes. The changes are aimed at strengthening the economic integrity, coherence, continuity, a combination of different types of property , the development of the mechanism of regulation and control, management and motivational area.

The development strategy, the priorities of markets, proportional relationship between consumption and accumulation and between preproduction and production phases, etc. fundamentally change.

Innovative transformation affect the totality of strategic and tactical objectives of the economic system, but they do not change it fundamentally . Economic stability and competitiveness remain priority goals among the goals of development. However, the ways (areas) keep significantly changing and the means of objectively existing goals of the elements of the economic system- businesses.

Economic stability of the system does not close its ability to preserve their essential characteristics and the position under the influence of negative externalities.

Stability is transformed into an integrated complex property, which is expressed in readiness , capabilities and needs to strengthen its position in the core business subsystems and system components.

This is the basis for an economic system to turn into the body with qualitatively new properties, new effect of operation, new social and economic opportunities for the people under the influence of innovative transformations.

Competitiveness of the national economic system is a holistic property of innovation transformed the national economy and the real economy sector. This property is complex, it depends on the state of the economy of all qualities: proportionality possibilities of self-development, integrity , manageability, resource efficiency , flexibility and competitiveness of the economy, etc. Competitiveness is manifested in a number of its ability to compete in the market with other national economic systems. In the absence of competition in the market need for competitiveness as an important property of the national economic system disappears. Modern competition on the world market is associated with high-tech goods, such as sophisticated technology, information technology , biotechnologies and nanotechnologies and products based on them.

Competitiveness of the economy is its ability to generate and effectively use the factor-resources, together with the necessary set of conditions conducive to the establishment of sustainable competitive advantages in the global market by a business entity of the national economy.

In addition, the competitiveness helps local entrepreneurs in the competition for profitable investments and orders, cheap resources and skilled labor, for access to the results of scientific research and technological innovation .

CONCLUSIONS:

1. Economy is a system formation. The national economic system is a set of entities, conditions and processes that ensure the needs of citizens in goods and services.

2. Economic systems are dynamic formations which are constantly changing.

Innovative transformation contributes to the progressive development of national economic systems.

Innovative transformation process has several features: changes affect most of the components of the system; innovations are based on internal and external factors; changes are planned as well as stochastic.

3. Innovative development of national economic systems is characterized by three complex features: innovative business objectives;

innovative means of attaining goals;

a set of internal and external conditions of innovation orientation of social reproduction.