Some Diversification Factors of Old Industrial Regions\' Economy and Transition to the Innovative Development

$Some Diversification Factors of Old Industrial Regions\' Economy and Transition to the Innovative Development$

E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium

Some Diversification Factors of Old Industrial Regions’ Economy and Transition to the Innovative Development

Olga Tabashnikova1 1 Plekhanov Russian University of Economics, Kemerovo Institute (branch), 650992 Kemerovo, Kuznetskiy Av. 39, Russia

Abstract. The article presents the grounds for the necessity to diversify the mono-economy of old industrial regions and its transition to the innovative development based on the interaction of small and large businesses with the support of municipal, regional and governmental authorities. The examples of the world practice in state regulation of depressed territories of old industrial type and the participation of multinational corporations in their modernization are given. The role of business groups in the diversification of the Kemerovo region economy is described, as well as the importance of supporting this process by the governmental authorities.

1 Introduction The need to diversify the mono-profile (mono-product, mono-industrial) economy of old industrial regions, including the Kemerovo Region, is due to the objective requirement of their sustainable development and increase of social and economic parameters of the terri- torial management system. One of the important factors of this process is the effective interaction of small and large business. However, in modern economy, when the existing economic, production, and other links and mechanisms lose their importance and new ones are just being established, to create such interaction and ensure its development the pur- poseful efforts of the authorities on federal, regional and municipal levels are necessary.

2 Materials and Methods It should be noted that there is no "exact" (single, universal) definition of the term "old industrial region", despite the fact that many scientists have paid attention to this phenome- non during the past twenty five years in Russia [1-5]. The fact is that the definitions pro- posed by the researchers are determined by the aims of this or that study. At the same time, a sufficiently extensive scientific material accumulated in this sphere of research allows us making some generalizations. The English scientist R. Hudson believes that the old industrial regions, which he calls "the world's workshops," lose their importance over time [1]. In the development of the

© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0 (http://creativecommons.org/licenses/by/4.0/). E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium

strategy for the survival of "peripheral areas," to which mining areas exactly belong, according to Hudson, four possible reorganization options should be considered: 1. The development of small and medium-sized enterprises, the search for ways to create new jobs in small business, the development of the so-called entrepreneurial "culture of self-employment" instead of large-scale production. 2. The creation of an updated economic system based on the branches of large, and, if possible, multinational companies attracted to the region, upon condition of propaganda of an attractive image of the territories. 3. Transition to the economy of "service" - tourism, recreation, entertainment, etc. 4. The refusal from the production sphere and the transformation of territory into a zone of "housing and consumption", where the main source of living is state benefits and subsidies. However, R. Hudson emphasizes, that only local initiatives in implementing any variant or combination of options are not enough to solve the problems of territory restructuring [1]. At the same time, D. Sadler, being a member of the Cabinet of Ministers of Great Brit- ain, drew attention to the fact that the depressive state of some territories leads to the rejec- tion of entire regional population groups from the processes of social and economic development of society. By the example of some old industrial territories of Western Europe one can observe that low labor status, the regressive distribution of incomes, the underdevelop- ment of social infrastructure; the contradictions of social strata escalate the social and polit- ical situation in such areas [2].

Rests and iscssion At present in Western Europe there is a certain system of state regulation of depressed territories of the old industrial type. Common principles for all countries of this system are the following [6-8]: - recognition of the government support as a necessary condition for the recovery of crisis and depressed regions, which should be provided in advance, before the crisis, at the stage of stable development; - implementing regional policy to have an impact not on the region as a whole, but on the most problematic part of it; - solving priority social problems by creating new highly skilled jobs for local person- nel, developing social infrastructure, preventing the decline in income of the population; - stabilization of peripheral old industrial areas through the development in them new high-tech industries, business services, recreation; - orientation to the internal resources of the regions to achieve the stability of their development. As a rule, the old industrial areas play a special role in the development of economy of the territories, but they have a whole range of problems, from ecological to demographic ones. The main problem of such regions, and this fully applies to the Kemerovo region, is the excess of production capacity, represented by large and medium-sized enterprises with obsolete equipment and technologies. A basic feature of the Kemerovo region as an old industrial zone is its predominantly resource nature. Herewith the main economy resource in the absolute majority of Kuzbass towns, and in fact the source of their existence, is coal deposits the volume of which is lim- ited, and, according to experts, will provide the operation of coal mines and open pits for the next 50-60 years. By the level of economic development the Kemerovo region occupies an intermediate place between the relatively developed and moderately developed regions of Siberia.

2 E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium strategy for the survival of "peripheral areas," to which mining areas exactly belong, ac- However, the following trend attracts attention: during recent years the sectoral struc- cording to Hudson, four possible reorganization options should be considered: ture of the gross regional product (GRP) of the Kemerovo region has become more prima- 1. The development of small and medium-sized enterprises, the search for ways to cre- ry. According to the Independent Institute of Social Policy, the share of extractive industry ate new jobs in small business, the development of the so-called entrepreneurial "culture of increased from 20.6% to 28.4% from 2004 to 2008, while the share of manufacturing indus- self-employment" instead of large-scale production. try fell from 24.5% to 19.8%. The reduced life expectancy and educational level of the 2. The creation of an updated economic system based on the branches of large, and, if population do not allow the Kemerovo region rising above the 31st place by the HDI in the possible, multinational companies attracted to the region, upon condition of propaganda of ranking of regions (2008). Earlier the position of the region was even worse (35-42 places an attractive image of the territories. in 2004-2007). The region's quality of life index grew in 2002-2005; it increased from the 3. Transition to the economy of "service" - tourism, recreation, entertainment, etc. 26th to the 11th place. As for the innovation index Kemerovo region occupies the 30th 4. The refusal from the production sphere and the transformation of territory into a zone place. The innovative development of the region is hampered by a small proportion of those of "housing and consumption", where the main source of living is state benefits and subsi- employed in science and scientific development. In 2000-2004, by the index of democracy, dies. the region occupied only the 66th place. Thus, according to the integral social indices, in However, R. Hudson emphasizes, that only local initiatives in implementing any variant 2008 the Kemerovo Region lagged behind most of the developed industrial regions of the or combination of options are not enough to solve the problems of territory restructuring country. [1]. At the same time, the recovery of enterprises of the Kemerovo region also began earlier At the same time, D. Sadler, being a member of the Cabinet of Ministers of Great Brit- than in other Russian regions. This was due to the improvement of the metallurgy global ain, drew attention to the fact that the depressive state of some territories leads to the rejec- market. However, this impetus for growth has dried up in 2010. The decline in 2009 as a tion of entire regional population groups from the processes of social and economic devel- whole was slightly less than the total for Russia (9 and 11%, respectively). The production opment of society. By the example of some old industrial territories of Western Europe one of the most important type of products - steel - decreased by 7% and amounted to 7.6 mil- can observe that low labor status, the regressive distribution of incomes, the underdevelop- lion tons (13% of all-Russian production). ment of social infrastructure; the contradictions of social strata escalate the social and polit- Unfortunately, in 2016 the value of integral indicator of the development of the Keme- ical situation in such areas [2]. rovo region fell even further and amounted to 0.152, as a result of which the region took the 78th place out of the 80th. The economic, social and environmental indices were 0.53; 0.223 and 0.03, respectively. Rests and iscssion The volume of production of coal mining industry in 2008 was 178 million tons. Crisis At present in Western Europe there is a certain system of state regulation of depressed terri- helped to increase the concentration of Russian coal production in Kuzbass: if in 2008 it tories of the old industrial type. Common principles for all countries of this system are the accounted for 55% of Russian coal production, in 2009 it was 59%. At the same time, the following [6-8]: volume of coal mining in Kuzbass is constantly increasing. Thus, the volume of coal pro- - recognition of the government support as a necessary condition for the recovery of cri- duction in 2016 increased by 5.4% compared to the level of 2015 and amounted to 227.4 sis and depressed regions, which should be provided in advance, before the crisis, at the million tons. stage of stable development; The coal mining industry is the main branch of Kuzbass specialization. The most im- - implementing regional policy to have an impact not on the region as a whole, but on portant centers of coal industry are Prokopyevsk, Mezhdurechensk, Belovo, Kemerovo, the most problematic part of it; Novokuznetsk, Osinniki, among the districts are Leninsk-Kuznetsk, Belovsky, Kemerovo, - solving priority social problems by creating new highly skilled jobs for local person- Novokuznetsk and Prokopyevsky. nel, developing social infrastructure, preventing the decline in income of the population; Leading coal mining companies are owned by large Russian business, mainly metallur- - stabilization of peripheral old industrial areas through the development in them new gical. Russian metallurgical companies bought mines and pits that extracted coking coal in high-tech industries, business services, recreation; order to control the entire technological chain of steel and rolled steel production. OJSC - orientation to the internal resources of the regions to achieve the stability of their de- "United Coal Company “Yuzhkuzbassugol” and the mine "Raspadskaya"are controlled by velopment. the holding company Evraz Group. Kuzbassugol (currently OJSC Coal Company “Severny As a rule, the old industrial areas play a special role in the development of economy of Kuzbass”) is owned by OJSC “Severstal”, OJSC Coal Company “Yuzhniy Kuzbass” – by the territories, but they have a whole range of problems, from ecological to demographic metallurgical company OJSC “Mechel”. ones. The main problem of such regions, and this fully applies to the Kemerovo region, is The largest company in the Kemerovo Region, OJSC Coal Company “Kuzbassrazre- the excess of production capacity, represented by large and medium-sized enterprises with zugol”, which accounts for a quarter of Kuzbass coal produced in 2009, is a part of the obsolete equipment and technologies. OJSC “Urals Mining and Metallurgical Company”. Moreover, this property is not linked by A basic feature of the Kemerovo region as an old industrial zone is its predominantly a single technological chain, since the “Ural Mining and Metallurgical Company” is the resource nature. Herewith the main economy resource in the absolute majority of Kuzbass second largest copper producer in Russia. towns, and in fact the source of their existence, is coal deposits the volume of which is lim- In the 90s of the 20th century, coking coals were supplied primarily to the domestic ited, and, according to experts, will provide the operation of coal mines and open pits for market. Their consumers were mainly metallurgical plants. At that time, the producers of the next 50-60 years. power generating coals were export oriented. However, in the second half of the 2000s the By the level of economic development the Kemerovo region occupies an intermediate export vector of Kuzbass grew stronger due to the increase in world prices for coal. In place between the relatively developed and moderately developed regions of Siberia. 2006, the volume of export of Kuzbass coal exceeded the volume of supplies to the domes-

3 E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium

i h i i n in h hin u iin n h y n in iin n n uz iniiny n h hy y uyin ni n zin Chi n uz ui uni h h ni ui inuy i hn h h uin h in inuy in h in uy ui n in uzn n in n h hin ny u On h OJSC “ZapadnoSiiiy uihiy binat”, i n h i in ui n in h hiy h iy i iin n n iin n y uzn ui C C ui uin h inuiizin i h iy n iiz in h uin i u uin uin Juy OJSC “ nSibirskiy metallurgicheskiy kombinat” S n C n S u iin n in iin n iin n u h ni u uy uzn uinu n i in h iy n h ny uin uinu n i h ih uinu u in ui n h ni nuuin inuy h in h uh ni h OJSC “Yu hinuiin n” Yu h hin uiin ni in h in uin inin uin h uz i C ny nh “ynz” h nuu n nn n OJSC in Cny “Siiiy Cn” h hu i in h in ni “iny Cn” is in i hih u n huin n nuin OJSC z u inui hih u hn in hi u n h i n hi uin h ni h inni iiui in n y h i h n h h in h n nny inin h i in ny i n yi i u hi in ui h i i n h in h h n h in i i ny in u h in nnh uu h ny h in h nn in u n iny unii u n y nuuin u ih u h nn ny n h i n u h nn ny n n n ny i hih i iin inuiin u n nn n nn y inuu nin h i h h inn u h i unii nii h in hih h in ni uu in u y n y ni iiy h nu h in h unii iiiin ny n niin h inni n n h inn h u n ny u inni u h uu nin h iiiy iy hihh inui n hun u hiiy in h i h SS

4 E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium

i h i i n in h hin u iin n our opinion the most interesting eample o industry diersiication on such old in n h y n in iin n n uz dustrial area as the emeroo egion is the eperience o regulating the problems in the iniiny n h hy y uyin ni n zin uhr rea in ermany Chi n uz ui uni h he old industrial uhr rea, hich played a huge role in ermanys industrialiation, h ni ui inuy i hn h h unites today in one communal union the uhr region cities and adacent areas occupy uin h in inuy in h in uy ui ing an area o , thousand suare km ith a population o million people n in uzn n in n h hin ny ter the Second orld ar, the region restored its economic poer ithin a decade, u On h OJSC “ZapadnoSiiiy uihiy binat”, i n h based on the coal industry ne mines ere built, and coal production reached i in ui n in h hiy h iy i million tons in oeer, already in the second hal o the s, a crisis started in iin n n iin n y uzn ui the uhr coal industry due to the imported oil competition Coal production ell sharply, C C ui uin h inuiizin i h iy n iiz many mines ere closed, the crisis spread to the coalrelated industries, and unemployment in h uin i u uin uin Juy OJSC increased “ nSibirskiy metallurgicheskiy kombinat” S n C n he goernment o the ederal epublic o ermany chose the ay o special econom S u iin n in iin n ic support or the uhr rea Subsidies ere granted to the coal industry, the coal consump iin n u h ni u uy uzn tion, especially to the Central eating and oer plants, in order to maintain the consumer uinu n i in h iy n h ny uin uinu n demand or coal n , a ederal la as adopted to restructure and recoer the coal i h ih uinu u in ui industry and the coalmining region, according to hich the goernment determined the n h ni nuuin inuy h in h uh minimum reuired olume o coal production in the country, the amount o subsidies, sub ni h OJSC “Yu hinuiin n” Yu h hin sidies to the reedup orkers and their retraining costs uiin ni in h in uin inin uin h uz i C n , the hole uhr coal industry as merged into one concern ourkole uhr ny nh “ynz” h nuu n Coal on the basis o the agreement o the erman inister o conomy, the goernment nn n OJSC in Cny “Siiiy Cn” h hu i o orth hineestphalia, the oners o mines and trade unions in h in ni “iny Cn” is in i hih u Coal mining enterprises ere bound by the longterm contracts ith metallurgical n huin n nuin OJSC z u inui plants and poer plants speciic ta coal pennig had a signiicant impact on the hih u hn in hi u n h i n hi stabiliation o coal sales ach etra pennig , marks paid by the consumers etra uin h ni h inni iiui in n y price o kiloatthour o electricity came to a special und or coal consumption, all o h i h n h h in h n nny hich ent to buy erman coal instead o cheaper oreign one he ta as abolished in inin h i in ny i n yi i u hi in ui h i i n h in h h n h hese measures o the goernment o the ederal epublic o ermany alloed aoid in i i ny in u h in ing the collapse o coal production and gaining time or the gradual and controlled restruc nnh uu h ny h in turing o the entire uhr economy h nn in u n iny unii u n he main directions o restructuring the regions economy ere y the moderniation o old industries nuuin u ih u the deelopment o higher education h nn ny n h i n u the creation o technology centers and, on their basis, hightech industries h nn ny n n n ny i improing the enironment hih i iin ndustrial moderniation coered most o the metallurgical and chemical plants, heay inuiin u n nn n nn y engineering enterprises cologically polluted industries ere eliminated, the range o inuu nin products as radically updated, and industrial territories ere reduced n in the h i uhr region ne uniersities ere ounded ith the aim o creating training centers, re h h inn u ducing youth unemployment, limiting emigration rom the region and attracting ne per h i unii nii h in hih h in sonnel signiicant part o local students studies ree o charge, loincome students re ni uu in u y n y ni iiy h ceie scholarships nu h in h unii iiiin ny n n , the total number o students reached thousand, hich as tice the num niin h inni n n h ber o mines, the number o scientists and teachers increased multiold ele technologi inn h u n ny u inni u h cal centers ere created that contributed to strengthening the scientiic and innoatie po uu nin tential o the region, proiding premises or entrepreneurs, euipment, logistics, organia h iiiy iy hihh inui n hun u hiiy tional and inancial assistance in h i h SS limination and recycling industrial aste, protection and epansion o the green land scape ere coordinated by the unicipal nion using arious inancial sources he re sult o this program as the ecological improement o the entire region, and the most pol

5 E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium

luted area along the mscher ier as turned into a huge landscape park ith a length o km, containing recreation areas and ecoones, technology museums and innoatie ehibitions he eect o specialiation may arise hen using highly speciic material and or in tangible assets, or eample, the interaction o a large construction company “emero opromstroy” ith a small enterprise “inestra”, hich supplies it ith o the produc tion ood constructions or building on the basis o longterm contracts here are a lot o eamples o this kind in economic actiity, in particular, the transer to the audit irm a part o the inancial planning unctions by a large enterprise “emeroohimmash” account ing, proiding legal support, consulting, recruiting, adertising and other serices proided by irms specialiing in their implementation to a ide range o small and large enterprises he need to distinguish specialiation as the basis or interaction beteen small and large businesses is determined by the processes o diision o labor, and also by the act that it is small business that largely determines the iability and eectieness o ne types o busi ness taking innoatie risks Complementary additional eect occurs hen using tangible assets tools, ra materi als, materials and is ocused on their ull use n eample o a more complete use o pro duction capacity is the proision by the large enterprise “emeroo plant o reinorced concrete structures” o eisting euipment, hich is engaged in the basic production o an aerage shits, to a small enterprise that produces paing slabs n eample o more complete use o ra materials is the production o household products by a small enterprise ubasski Scarabei rom the residues let as a result o production at a large chemical enterprise “O”

oncsion e emphasie that the desire to achiee such eects in an eplicit or implicit orm acts as one o the incenties or the interaction o dierent orms o business he basis or soling practical problems o territorialindustrial integration deelopment is the theory o clusters ccording to it, the production structure o the region should be deeloped in such direction that allos using the product o one industry or the needs o the others hus, beteen all the industries represented in the region stable links are being created t allos supporting these industries and promoting the innoatie deelopment o the economy o old industrial region

Reerences adson, Economia Restraction Tendencies and their Implications for Development Strategies in the Peripheries of Europe irmingham, ommond, Sadler, Marginality in the New Europe irmingham, ommond, urke, ough, J organ, ughes, J arence, and se olicy, , 47 Cała, Ostrȩga, rch in Sci, 58:2, J retschmann, uras in 2, , J retschmann, nt J in Sci ech 23, rossek, Schneider, essel, etterau, iktorin, Atlas der Metropole Ruhr –Vielfalt und Wandel des Ruhrgebietes im Kartenbild, Emons Verlag amburg, ollmann,

6 E3S Web of Conferences 21, 04022 (2017) DOI: 10.1051/e3sconf/20172104022 The Second International Innovative Mining Symposium luted area along the mscher ier as turned into a huge landscape park ith a length o Gespräch mit Experten des Regionalverbandes Ruhr in Essen am 04.12.2012 ichael km, containing recreation areas and ecoones, technology museums and innoatie chareRodrian ehibitions he eect o specialiation may arise hen using highly speciic material and or in tangible assets, or eample, the interaction o a large construction company “emero opromstroy” ith a small enterprise “inestra”, hich supplies it ith o the produc tion ood constructions or building on the basis o longterm contracts here are a lot o eamples o this kind in economic actiity, in particular, the transer to the audit irm a part o the inancial planning unctions by a large enterprise “emeroohimmash” account ing, proiding legal support, consulting, recruiting, adertising and other serices proided by irms specialiing in their implementation to a ide range o small and large enterprises he need to distinguish specialiation as the basis or interaction beteen small and large businesses is determined by the processes o diision o labor, and also by the act that it is small business that largely determines the iability and eectieness o ne types o busi ness taking innoatie risks Complementary additional eect occurs hen using tangible assets tools, ra materi als, materials and is ocused on their ull use n eample o a more complete use o pro duction capacity is the proision by the large enterprise “emeroo plant o reinorced concrete structures” o eisting euipment, hich is engaged in the basic production o an aerage shits, to a small enterprise that produces paing slabs n eample o more complete use o ra materials is the production o household products by a small enterprise ubasski Scarabei rom the residues let as a result o production at a large chemical enterprise “O”