“General Approaches to the Modernization of Economic and Social relations in the North Caucasus: institutional alternatives"

Abstract

This paper examines the main theoretical approaches to the issue of economic catch-up. The preprint formulates the two key types of economic modernization policy – “top-down modernization” and “bottom-up modernization”. The idea of “top-down modernization” is to create new industrial enterprises in a struggling region at the expense of the state budget or large third-party investors. In turn, “bottom-up modernization” implies relying on existing resources in communities, supporting local firms already in operation, and implementing measures aimed at increasing the competitiveness of all existing firms in the community or region. The analysis of practical application of these strategies shows that most attempts at “top-down modernization” have not been too successful so far – despite achieving some acceleration of economic growth in the short run, they eventually failed to reduce the economic lag due to insurmountable management problems and creating wrong business stimuli. At the same time, the “bottom-up modernization” strategy has proven more successful, as shown by the example of Southern Europe and East Asia, albeit with reservations – to achieve accelerated economic growth, it is necessary that the region should already have the prerequisites for development (from the availability of human capital to the people’s willingness to trust each other). 3

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