State regulation of investment activity: the problem of internalization

The state can redistribute resources in the economy not only through direct intervention in financial intermediation and subsidizing enterprises, but indirectly through state regulation of investment activities, sanctioning violations by enterprises of financial discipline before the budget and counterparties. The resulting soft budget constraints exempt, to a certain extent, the enterprise from the need to attract financing from the financial system. Instead, there is a redistribution of resources within the real sector, from profitable industries and enterprises to unprofitable ones, a "virtual economy" is formed, a system within which state support for investment activity practically loses economic sense.

Non-payments can be considered as one of the most important sources of financing for enterprises; in any case, the share of non-payments in GDP can be several times higher than the share of bank loans. The enterprises financed in this way, regardless of any form of state regulation of investment activity, are exempted from the need to transfer control powers to anyone. As a result, internal control takes place.

Against this background, the state regulation of investment activities is degrading , the processes of searching for and appropriating rents, plundering assets, exporting capital, and increasingly merging business and power are actively unfolding. Moreover, the lack of an active structural policy on the part of the state, attempts to compensate it through state intervention in the redistribution of resources, lead to deepening of structural disproportions in the economy and strengthening its raw materials orientation.

Such a specific financing structure and soft budget constraints stipulate internal control. The reason for the sustainability of soft budget constraints, as well as state intervention in the redistribution of investment resources, is the political interaction between the state and the corporate sector. At the same time, it would not be entirely correct to reduce this process only to lobbying for their interests by the management of industrial enterprises seeking to change the state regulation of investment activity and its vector.

Equally important here is the political activity of ordinary employees of enterprises, which thus protect their human capital. To a certain extent, this situation falls under the definition of the "institutional trap" introduced by VM Polterovich, where an institutional trap is an ineffective norm or a way of behavior of economic agents that prove to be stable, despite the availability of more effective alternative ways of behavior. Stability of inefficient norms is due to high costs of transition to another norm, or transformational costs, which can negate the efficiency gains achieved as a result of the transition.

Indeed, in conditions of large-scale structural disproportions in the economy, in the absence of a developed banking system and an efficient stock market, state regulation of investment activity and its role in the redistribution of financial resources proved to be most in line with the interests of most post-Soviet companies. Formed largely due to their impact on the political process, the system of financing and, as a consequence, the management of industrial firms, proves to be quite stable today, as it quite suits the enterprises of the real sector, and financial institutions and authorities.

Attempts to reform the mechanisms of company management in isolation from structural adjustment and institutional reforms have led to the formation of an ineffective, but sufficiently stable system of financing and managing corporations. They formed the internalization of financing, which, in turn, leads to the internalization of control, ie, the independence of corporate owners from outside investors.

In order to change the current situation with corporate governance, an active structural policy is needed, removal of restrictions on the movement of human resources within national economies, sound social policies, effective centralized control over the implementation of reforms and enforcement of legal acts, combating corruption and the full promotion of development New firms.