The aim of government supply-side policies is to free individual markets of imperfections, so as to allow producers to operate and expand more effectively.
Competition policy concerns the removal of restrictions to free competition which in turn inhibit market supply, output, and employment. Anti-competitive behaviour in Russian markets, such as price-fixing agreements by dominant firms, can be investigated by the Anti-monopolistic Committee, who can also recommend corrective measures.
Privatisation involves the transfer of public-sector activities provided by the government to the private sector. Supporters of privatisation argue that many public-sector concerns were often overmanned and inefficient because they faced no competition and did not have to return a profit. Competition to supply the services for profit therefore improves quality and efficiency. Others argue that privatisation has created private monopolies that have increased their profits by exploiting consumers.
The process of removing government restrictions on business and free competition is known as deregulation. Deregulation aims to remove some statutory regulations on business, ranging from restrictions on opening hours and the sale of ethylated spirits, to the licensing of employment agencies. The removal of these restrictions should reduce business costs.
Support for innovation in new technology. The government recognises the need for research and development (R&D) and implementation of new technologies in Russian industry to keep pace with that of our main competitors. New technology can improve the speed, accuracy, and quality of production, and hence release resources that can be used productively elsewhere and reduce costs.
However, the cost of R&D and the implementation of new technology can be high, and the payback in terms of lower costs and increased revenues slow to materialise. In the meantime, uncertainty about the economy, particularly price inflation and exchange rate and interest rate stability, can reduce firms’ incentive to invest in new products, equipment and methods.
The government is able to encourage firms to invest in R&D and new technologies by providing a stable economic environment, and through a number of other measures:
· Enabling capital expenditure on research and new technology to be offset against corporation tax on company profits.
· Providing funding for skills training in new technologies
· Funding R&D by the science and engineering base (i.e. universities and research establishments), and research commissioned by government departments
· Providing advice, networking between support organisations at a local and national level, and access to international research programs, new insights, practices, and technology developed overseas
· Improving education and training. In order to compete successfully in international markets, it is essential to have a highly trained and skilled workforce. Skill needs in industry are rising as competition and the pace of change in technology increase.
A well-trained workforce can have the following benefits for business:
§ Increased productivity and profitability. Training can help employees achieve maximum efficiency.
§ A flexible and multi-skilled workforce. Well-trained personnel will be able to adapt more easily to new products, technology, and production processes.
§ Improved fob satisfaction. Training motivates staff and enables them to derive greater satisfaction from their work. This will help firms retain staff with skills appropriate to their future needs.
§ Reduced accidents and injuries. Workers who are properly trained in health and safety procedures and able to operate machinery and materials correctly are less likely to be absent from work due to illness or injury.
§ Improved company image – and therefore, enhanced recruitment potential.
The government has taken a number of steps to improve productivity and labour force flexibility through skills training for those in work and the unemployed. Without government intervention, there would be no market for training people without a job, unless they could afford to pay for it.
Investment is defined as the act of buying new and often improved plant and machinery by private and public sector business organisations. Investment spending is, therefore, a source of demand and revenue for producers of business premises, machinery and other man-made resources. Investment spending is also known as gross domestic fixed capital formation.
Some investment expenditure will be to buy new assets to replace man-made resources – premises, machinery and other equipment - which are old, worn out and no longer productive. Simply replacing old equipment does not add to the ability of firms to increase their output. However, investment in new and additional premises, machinery and other equipment will expand productive capacity.
New investment by business is, therefore, essential if the productive capability of Russia’s economy is to grow. Investment in new technologies can also mean faster, more efficient production, less wasteful and better quality production. This can lower the cost of producing each unit of a good or service and, therefore, improve the competitiveness of Russian industry.
It is often argued that Russian firms are reluctant to invest compared to other countries because business owners are often uncertain about the profits they will earn from new investment. For example, in 1993 Japan industry invested around 31% of the total value of its output of all goods and services and Germany invested 22%. This suggests that these other countries are devoting a large proportion of their total national outputs to investment in new plant and machinery. However, these figures do not tell us how much of that spending is to replace old and worn out equipment or to increase productive capacity.
The government policy is to encourage both inward and outward investment. Inward investment refers to the setting up of foreign-owned multinational companies in Russia. By far the biggest foreign investors in Russia are German companies. Outward investment refers to Russian investment overseas. The setting up of Russian companies abroad provides access to foreign consumers, allowing Russia-owned business to sell more goods overseas and improve the balance of international payments.
The government suggests inward investment has the following benefits: «Inward investment brings world-class production techniques, technical innovation and managerial skills, which can be transferred to local companies. It has revived the international competitiveness of some sectors of Russian industry».
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