Institutional environment: definition, structure and methods of development

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

The efficiency of the economy is directly affected by the institutional environment in which it develops. What is meant by it? The institutional environment of the economy is a set of fundamental legal, social, political and economic rules that determine the framework of human behavior. They form the basis for production, distribution and exchange.

General information

The subject of the article we are considering implies the presence of a clear, ordered set of institutions that determine the framework conditions for the functioning and development of economic entities. To conduct an adequate analysis of the institutional environment, it is necessary to deal with the exact interpretation of non-shadow structures. For example, something illegitimate may not contradict the current law and be open.

A very well-known special case is the optimization of tax payments. It assumes the use of tools (intermediaries) that help reduce the organization's debt to the budgets of all levels. It is quite legal, considered ascomponent of the functioning of the institution of entrepreneurship.

It should be noted that one part of the toolkit can be shadow, and the other can be transparent. In the first case, the non-criminal component is additionally isolated. In other words, there are relationships that are not regulated in any way (for example, the use of intermediaries) and those that are contrary to the norms (for example, various tax evasion schemes).

Why use their services? The fact is that the imperfection of informal, but quite legal institutions entails the emergence of relations that border on a dangerous line or even criminal schemes. What solution can be proposed in this case? It is necessary to ensure that the development of the institutional environment in the interests of ensuring efficiency transforms all developments into legal schemes with their subsequent acceptance or rejection by society as those that are contrary to the collective interests.

On developing a common position

The economic institutional environment can be considered favorable only if the interests of subjects and agents that are directly related to this area are coordinated. If contradictions arise inside, then this is an impetus for improving the situation and can be resolved at various levels. For example, in case of revealing the specific interests of agents or the formation of discrepancies, within the framework of the general development of the case (business), special and unusual methods of implementing economicinteractions.

Alternatively, they are separated into other groups. At the second level, it is possible to expediently consolidate new norms and rules within a separate community of economic relations. After that, there are two options to resolve the conflict:

1. Norms and rules that have proven to be invalid during the testing process are rejected.
2. Finally consolidated new developments that can provide effective relationships between economic entities. They receive the status of formal rules. In this case, the third level is additionally distinguished - the formation of a new institution and the opposition of the parties.

Other Development Features

Different ways and approaches to resolve internal conflicts and promote interaction form the basis for the formation of an institutional mechanism. It ensures the reproduction of rules that are adequate in relation to the external environment. All this allows to establish an order that contributes to the stabilization of the economic structure and controls the observance of general norms of behavior.

If the conditions in which economic activity is carried out change, then contracts and agreements should be reviewed. After all, the institutional mechanism acts as a process of continuous creation, development and transformation. As a functional subsystem, it forms organizational and regulatory conditions that ensure the stability of the work of economic entities, legislates the existingrelationships, contributes to the effective achievement of goals and the solution of tasks.

The level of development depends on the quantitative and qualitative characteristics of existing institutions. Therefore, in the process of formation, it is relevant and necessary to search for an answer to the optimization question. When drawing up the provision, it is necessary to analyze the totality that allows you to adequately understand the content and essence of the economic system, as well as the number of subjects that must be achieved in order to ensure the production process.

About creation and modification

The issue of cost is important in this case. In other words, it is necessary to understand what valuable resources need to be directed to the creation of the institutional environment and its use. This is important when there are changes in the nature and direction of the impact on the behavior of economic entities. The creation of institutions involves their conscious design (formation) based on existing real needs.

This is one of the functions of the state. It can form the institutional preconditions, create a progressive ownership structure, an attractive investment climate, the necessary conditions for the development of innovation, and everything else that is needed. But creation doesn't end there.

The institutional environment is constantly changing. This is due to the discrepancy between the conditions for doing business and the adopted provisions. This includes technologies that help change or create and disseminate new provisions that canensure cost reduction in the functioning of the economic system.

Another important point is distribution. In the case of a successful state of affairs, a positive adaptation occurs in a relatively short period. Then the institutional business environment continues to perform its functions with greater efficiency.

Exploring Opportunities

It is always necessary to carefully check the benefits and losses from the replacement of the old with the new. Let us consider on what basis the formation of the institutional environment is carried out. In this case, you need to provide for the following main steps:

• Goals and objectives are defined.
• A preliminary calculation is being made of the benefits and losses that various social groups will have from the introduction of something new.
• Searching for analogues in the past of the country or other state entities.
• Implementation strategies are being created.
• Line up (if necessary) the goals of the associated institutions.
• A set of adaptation measures is being developed that should minimize the costs on the part of certain groups.
• The final calculation of the benefits and losses from the introduction of the new institution is being carried out. The data is compared with available financial support. At the same time, it should be borne in mind that any ongoing reforms must have support to compensate for the losses incurred by certain social groups.

How the institutional environment is developing in Russia

Domestic and foreign experience has clearly demonstrated that the dissemination of the developments of developed countries to countries with economies in transition is very difficult and is accompanied by a set of negative consequences. This is due to differences in the structural environment.

As a rule, this process is accompanied by a whole range of negative consequences. For example, mechanical copying of foreign experience in our conditions turned into complications of the social and economic situation in the country. Therefore, the main criterion for evaluating institutions should be their effectiveness. In a market system, this means building a foundation on individualistic values and the ability to realize mutually beneficial interests.

If not very effective developments were implemented, then this situation is called an "institutional trap". This means that the system did not choose the best path of development, which resulted in all sorts of losses and losses. Moreover, over time, reaching the optimal development trajectory can be considered as an insufficiently effective solution.

Features of developments

The institutional business environment should work not only on the creation, design and dissemination, but also pay attention to diagnosing the maturity of developments and their suitability for use at the current level of development of economic relations. Particularly relevant in this regard is the formation of a mechanism for monitoring the effectiveness, consolidation of the createdtools in the daily activities of business entities, timely replacement of obsolete elements with newer ones.

An analysis of the institutional environment is of great help in this. After all, it allows you to consider various proposals from the standpoint of practical experience. For example, if a new law is introduced into economic life, this does not mean that it will be observed. Evidence of this is the fact that even under the current legal framework, business structures often ignore formal rules.

In this regard, the process of institutionalization is singled out. It is formed as a unity of two components in the short and long term. In the first case, certain rules and norms are declared at the legislative level. The long term takes over legitimization, public recognition and consolidation.

About development methodology

The concepts of various economic schools, as well as the works of domestic and foreign scientists, are often used as a theoretical foundation. Although the situation is common when they start from the practical developments of individual commercial structures. When assessing the situation, dialectical, deductive, inductive, abstract-logical, evolutionary, historical, functional and psychological methods and approaches are used.

The objects of study for them are the factors and conditions of transformation, the system of public authorities, as well as enterprises. At the same time, it revealscontradictions are classified, a detailed description of the situation is given, an analysis of the conditions of functioning is carried out. All this is necessary to address important issues.

The situation in the Russian economy

Let's consider the features of the domestic economy. The institutional environment of Russia is interesting due to the ongoing processes throughout the country. A special role in this case is played by the analysis of property rights. After all, the Soviet Union still existed. In those days, the issue of ownership of the income of enterprises was considered resolved. Everything was controlled by the state (in fact, the nomenklatura that represented it).

Then natural resources were not actually valued. The price of the created products, which were produced with their use, was underestimated. In this case, the society benefited directly. Earned profit was mainly spent on the reproduction of the mineral resource base.

During the transition to a market economy, new property relations have been formed that regulate the distribution and appropriation of natural resources in a different way. Now the greatest attention is paid to the problems of financial stabilization. Although there were some problems here, for example, the mechanism for the formation of natural rent became opaque. Ownership of natural resources is uncertain. This creates conditions and opportunities for the appropriation of income by individuals. Insufficient structures have formed instead of a vacuum.

Say that this problem was successfulovercome, it is impossible even now. However, there is hope that in the future the situation will be completely resolved. It cannot be limited to one national level. There is also an institutional regional environment. It is one of the tools for local influence.

Economic conditions in Russia

The state, through direct and indirect regulation, declares an attempt to achieve an optimal market level of production and the best social output of goods. All this is done in the public interest. The institutional configuration of the regional business environment makes it possible to judge the opportunities and the approximate level of requests that exist and can be formed.

The state sets various norms, standards and other parameters. At the local level, they can be adjusted by the authorities. For example, it depends on regional civil servants what rate will be set for a number of tax payments. Although the parameters of the institutional environment are not very dependent on them, this has a certain influence. The state should have the greatest influence, because it is it that can solve issues of structural importance. So, practical experience testifies:

• Underestimating macro regulation has negative environmental consequences.
• When establishing a system of rules and relations, the interests of economic entities always come first.
• It is necessary to take into account the presence of different groupsinterests: society and the state, employees and business structures, present and future generations, regions and the center. Their feature is the presence of a multidirectional character. This creates a lot of controversy.

Therefore, the creation of an effective system is still relevant today. It is necessary to develop such a system of relationships (real, not nominal), in which the benefits will be maximum both at the level of individuals and for the whole society.