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Institutional Innovations in the Forest Industry in Russia: a Case Study of Irkutsk Province

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Institutional Innovations in the Forest Industry in Russia: a Case Study of Irkutsk Province MISCELLANEA GEOGRAPHICA – REGIONAL STUDIES ON DEVELOPMENT Vol. 18 • No. 4 • 2014 • pp. 17-23 • ISSN: 2084-6118 • DOI: 10.2478/mgrsd-2014-0027 Institutional innovations in the Forest industry in Russia: a case study of Irkutsk province Abstract Multiple global changes are impacting Russia today. Economic Dennis V. Dayneko1 transformations in Russia have prompted the establishment of new Eric J. Gustafson2 business relations, which are based on innovations in the economic, institutional and ecological spheres, including within the Forest industry. This paper focuses on the Forest sector in Irkutsk province and beyond, 1Irkutsk State Technical University examining the basic problems related to the institutional innovations in Irkutsk Science Center the Forest industry of the province, and the major factors and conditions SB RAS e-mail: [email protected] influencing the dynamics of institutional innovations. A brief historical background and analysis of institutional structures are also presented. 2Institute for Applied Ecosystem Studies Northern Research Station Keywords USDA Forest Service Irkutsk • Forest industry • innovations • institutional innovation • institutional e-mail: [email protected] changes • global changes © University of Warsaw – Faculty of Geography and Regional Studies Received: 30 October 2013 Accepted: 29 May 2014 Introduction “The abundant forest resources of Russia have global value, History of the Forest industry in Russia and Irkutsk province both economic, and ecological. They are a source of lumber Wood has been an important economic commodity in for Russia and all the world, they are a symbol of the wild Russia for hundreds of years, both for domestic consumption nature untouched, and play a crucial role in stabilization of and international trade. Russian exports of forest products are the global climate.” (S. Nilsson, International Institute for insignificant compared to the wood stocks available (Moiseev Applied Systems Analysis, Austria) 2004). The opportunities for harvesting timber in Russia considerably surpass the needs of Europe through increased Forest comprises about 45 % of Russia’s territory. The area access to a greater proportion of the forest and the use of modern of woodlands is 886.5 million hectares, of which 763.5 million technologies. For many centuries, Irkutsk province has been a hectares are covered by forests. In contrast, the United States source of logs, soft resin, wood materials and, since the 1700s, has 296.0 and 209.6 ha of woodland and forest, Canada has industrial materials. These forests also have other uses, such as 453.3 and 247.2 ha, Sweden 28.0 and 24.4 ha, and Finland 23.4 hunting, cultural-recreational activities, research, and the use of and 20.1 million ha respectively. The total stock of wood in Russia non-industrial forest products (Vaschuk 1997). is about 81.6x109 m3, exceeding the wood stocks of the USA, Canada, Sweden and Finland combined (63.4x109 m3). The The institutional structure of the Forest industry and its annual increase of wood volume in Russia is 822x106 m3. transformation The Forest sector is an important component of the national Russia is in the midst of significant cross-societal changes, economy of Russia, contributing 1.3% to gross domestic including the economic and institutional spheres. The on-going production and 2.4% of national exports. In 2012 there were more economic transformations have also affected the Forest industry, than 5550 registered business entities operating in the Forest providing both opportunities and difficulties for the development industry of Irkutsk province, whose business was directly related of regional policy. The formal study of Forest industry functioning, to forest management and forest product production (Table 1). development and institutional transformation has only occurred In this paper we describe the Forest sector institutional in the last few decades, led by pioneers such as D. North, R. innovations in Russia, and more specifically in Irkutsk province. Kouze, D. Byukenen, and others. Understanding these issues We provide a detailed analysis of the challenges faced by is important because the Forest industry directly impacts the the Forest sector, including problems related to institutional economic prosperity and quality of life of many citizens living in transformation and ecological sustainability. In order to provide the forest regions, and the vast forest resources of Russia hold perspective we first briefly describe the history and functioning of enormous national economic growth potential. the Forest sector. 17 MISCELLANEA GEOGRAPHICA – REGIONAL STUDIES ON DEVELOPMENT Vol. 18 • No. 4 • 2014 • pp. 17-23 • ISSN: 2084-6118 • DOI: 10.2478/mgrsd-2014-0027 Table 1. Number of enterprises in Irkutsk province according to business activities in 2012 Services and Products Enterprises Entrepreneurs and farmers Harvesting industry 1413 1100 Forestry and Forestry services 181 54 Total Forest harvesting and Forestry 1594 1154 Wood processing 2040 683 Pulp & paper producers 68 15 including Cardboard producers 51 15 Source: Bir-Analytic System 2014. Available from: http://bir.1prime.ru/ Figure 1. Institutional transformation of the Forest industry The transformations happening in the Forest industry are control institutional changes in the market economy. Social and frequently spontaneous and inconsistent. National and regional economic institutions arise when individual habits are adopted economic and social policy reforms significantly influence by a society and/or by a group. Institutionalists define institutions institutional transformation, and the reform of policies affecting not in the narrow sense of formal organizations, but in the wider the Forest industry often outpaces the rate at which institutional context of socially predetermined behaviour as “the widespread structures can respond (Dayneko & Chernikov 2012). Therefore, and constant way of thinking or acting, which is implanted in additional study and coordination of institutional transformation is habits of a group or in customs of the people” (Seligman & Johnson needed to effectively and efficiently respond to policy development 1967). Institutions can be considered to be public capital, which in multiple spheres within the region. In this paper we examine can vary depending on depreciation and new investments. the institutions that make up the Forest industry and their transformations. For our purposes, institutions are considered to Types of institutions be a set of behavioural rules, customs and norms (both political There is no uniform approach in economic theory to and economic) of a society. In modern societies, these are characterize the functional role of institutions. There are various formally stated in legislative and executive decisions, and are classifications available (Gutnik 1995 or Shastitko 1999), but they implemented (and enforced) by governmental organizations. usually include two types of institutions: system (or external) and However, institutions can also be the established mechanisms locally-organizational (internal). System institutions determine of the coordination of political and economic decision-making the type of economic order, i.e. the dominant type of economic processes, such as elections or markets. Modern economic system. These institutions establish the key rules of economic science defines “institution” as “a steady complex of mutual activities; therefore, they include not only purely economic roles and relationships, and behavioral features of social and rules and norms, but also political and ethical norms, which are economic agents” (Grebenschikov 1998). These institutional realities required for the effective functioning of an economic system. impact the Forest industry. The suggested scheme of institutional Examples of system institutions are institutions specifying and changes in the Forest industry for the further evaluation of their protecting property rights, making economic decisions, changing effectiveness is presented in Figure 1. the norms of economic ethics, and so on (Weber 1990). System Jack Knight (1992) thinks that “institutions are the set of forming institutions may include all varieties of institution arising rules, structuring public mutual relations in a specific way, during the development of a market economy and providing an the knowledge of which should be known to all members of a opportunity for the functioning of institutions of the upper order, certain community”. Institutions include formal rules and informal such as banks, financial systems, and so on. restrictions, such as conventional norms of behaviour, agreements Institutions that structure interactions, including transactions made, internal restrictions of activity, and certain characteristics in the open market and those within organizational structures, of compulsion to perform according to the conventions. Formal are called locally-organizational. These include such institutions institutions are often created to serve the interests of those who as share and commodity exchanges, banks and financial firms. 18 MISCELLANEA GEOGRAPHICA – REGIONAL STUDIES ON DEVELOPMENT Vol. 18 • No. 4 • 2014 • pp. 17-23 • ISSN: 2084-6118 • DOI: 10.2478/mgrsd-2014-0027 Not only do they make transactions among various economic are extremely powerful in Russian society, and they are highly entities possible, but they reduce uncertainty and risk to some resistant to conscious reform. The primary agent of institutional degree
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