STRATEGIC BARRIERS TO SUSTAINABLE DEVELOPMENT OF THE ECONOMIES, FIRMS AND PROJECTS (EFP) IN CONDITIONS OF GLOBAL ECONOMIC CRISIS THREAT

Автор(ы): Доктор экономических наук, профессор Санкт-Петербургского государственного университета Маленков Ю.А.

Опубликовано: "Euro-Mediterranean Economic and Finance Review. The Review of Remereg", 2010, Vol.5, N2.
http://yu800.110mb.com/

Viability of economies, firms, projects (EFP)

Are possibilities of overcoming strategic barriers to sustainable development real or illusory?

The analysis shows that in order to overcome strategic barriers and be sustainable all EFP, different as they are, must have one common system trait - be viable. And vice versa, if they have it then not a barrier is insuperable to them. Of course EFP could sustain the big economic losses, but the viable ones will always survive and preserve its potential for further development.

Viability is vitally important for EFP, but one may find almost no trace of economical viability in the economical concepts of the past and today. Indirectly some very minor parts of it are heard, but the whole concept is missed. And viability means survival.

What is viability in general?

Wikipedia says; "Viable or viability may refer to: * in a general meaning, the ability of a thing (a living organism, an artificial system, an idea, ...) to maintain as it-self or recover its potentialities" [10].

Merriam-Webster Online Dictionary 2010 states:"… capable of living; especially : having attained such form and development as to be normally capable of surviving outside the mother's womb 2 : capable of growing or developing <viable seeds> <viable eggs>3 a : capable of working, functioning, or developing adequately <viable alternatives> b : capable of existence and development as an independent unit <the colony is now a viable state> c (1) : having a reasonable chance of succeeding <a viable candidate> (2) : financially sustainable <a viable enterprise" [11].

Half a century ago Stafford Beer (managerial cybernetics) proposed to build cybernetic Viable System Model by the direct comparison parts of human body and enterprise: "1. The Operation: the units which do the basic work (muscles and organs) 2. The Metasystem: provide a service to the Operations units and ensures they work together in an integrated and harmonious fashion (nervous system) 3. The Environment: all the environment elements, which are of direct relevance to the system in focus (external environment)" [12], [13]. But it proved to be only a bright hyperbole without any pragmatic managerial outcomes.

Human body is too complex, moreover too vulnerable and short-time living. By comparing an enterprise with a human body you substitute one unknown and very complex object (enterprise) with another one, more complex (human body). While on the contrary you should do vice versa, explain and simplify the initial very complex economical system. It is the same as if you tried to translate from the ancient and little studied language to the other more ancient and even worse studied language. What knowledge one would extract? When one mistake multiplies by another one, an unknown parameter by another one, what outcome would you expect? That's why it is absolutely useless to apply comparison of a human body with economic systems, which besides develop under quite different laws than human body. This analogy did not come into managerial practice and did not have any impact on the world economy and EFP. S. Beer followers still are trying to develop certain analogies but they remains technically narrow, too vague, practically are not connected with economy, give no way to the new ideas and concepts in economy.

Very rare attempts to use the term "viability" in economy have been and still remain unsuccessful. They focus rather on financial results, which are unstable in the turbulent economy and did not reflect EFP viability essence.

A typical example of an attempt to use financial indicators: "What exactly do "viable" and "immediate financial hardship" mean? As detailed by the SBA, to be viable, a business must be an established, for-profit business with financial statements that demonstrate it was profitable in at least one of the past 3 years (or since opening if in operation less than 3 years). It also means being able to project sufficient cash flow to meet current and future loan payments over a 2 year period from loan approval. Though ARC loan funds can go toward existing debt, the borrower cannot be more than 60 days past due on any debt to be repaid with the ARC funds. The borrower will also need to have "an acceptable credit score as determined by the SBA"[14].

Here viability is wrongly substituted with some indicators of financial stability. But one can see that there are quite a number of the firms and projects with such limitations which are very far from being viable. In this approach the time horizon is pressed to three years, no mentioning of market and management potentials, competition, and mobility and sustainability of market are considered, etc.

Viability of EFP in conditions of global economic crisis threat must include:

1. Preservation of the basic part of proprietors and their natural successors.
2. Protection against unfriendly takeovers.
3. Competitive advantages with long life cycles.
4. Ability to adapt for cyclic fluctuations of the market.
5. Top management focusing on strategy and tactics (not less than 80 % of time), instead of short-time current tasks.
6. Ability to endure economic recessions and consumer demand.
7. Support mainly on internal sources of financing.
8. High liquidity.
9. Continuous improvement of all processes and first of all management, including system of managerial training.
10. Continuous growth of full economic results (not separate indicators), including profit, business cost, effect from reinvestment).
11. Low dependence on the extra capital.
12. Low turnover of staff and simultaneously hiring talented persons in lagging behind directions of development.
13. Diversification of risks.

Viability is essential for going through the next waves of global crisis.

What about the second wave of world crisis? Is it just a possibility because of the strict governments control already, or is it imminent because no control can withstand it? Will the second wave of world global crisis come or not?

Objective statistics proves sharp worsening of the word economical situations in the past few years:

Table 1. Central government debt, total (% of GDP)

	2005	2006	2007	2008	2009
Russian Federation	16,8	9,9	10,5	6,4
United States	48	47,1	47,9	55,7
Euro area (the EU 27)	60	61,4	58,8	61,6	73,7

(Source: 2010 The World Bank Group, http://data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS, Eurostat News release Euroindicators 55/2010 - 22 April 2010 Provision of deficit and debt data for 2009 - first notification).

Today government debts of many countries in the EU have overreached 65% and continue to raise quickly undermining current belief in the EU economic stability.

In the USA the situation is also far from positive. The stern government action taken lately strives to put crisis national finance and economy under strict control, but is it already not too late? Have they not lost the whole reserve of the time left? The answers will be given in the nearest years to come.

The overall conclusion is: it is absolutely necessary to prepare for the nest wave of the global crisis. The world economical situation is getting more and more unstable and unpredictable. China, the USA, the EU – three leading economical forces and developing countries have theirs own high profiles of risk., But one thing is common - they all have Strategic barriers to sustainability and not a single country, firm or international project have been able to overcome them all successfully (Fig.1).

Strategic barriers to sustainable development

Modern science has no means of secure future forecasting. However modern science possesses some important and not utilized intellectual tools - it can offer methods of strategic factors system management for strengthening of viability of national economies, firms, projects (EFP) in conditions even of the hardest crises. But it requires clear description of real, and non- virtual or foggy strategic barriers to sustainable development. What is needed is the new clear and pragmatic theory of Strategic barriers on the way to global sustainability. Without it the management of sustainable development of the organizations becomes ineffective or impossible. Strategic Barriers interfere with organizations development as a whole and are critical for preservation of its viability.

Fig. 1. Strategic barriers on the way to sustainable development

As one can see every national economy, firm or projects (EFP) may have a different trajectory of development (Fig. 1). Some overcome internal barriers but are stopped and thrown back to instability; others overcome internal and even local external barriers but have no means of overcoming global barriers. And only the most successful which go through all barriers can enter zone of sustainability.

If Strategic barriers to sustainability are not fully understood and dealt with efficiently, it is hopeless to wait for transforming world economy, as well as firms for better, and crisis will steadily and quickly continue until the Global Crash. On the global scale it will mean the return to Dark Ages, economically, mentally, morally with degradation, mass victims, devastation, and social disturbances turning into social chaos.

To evade this very realistic and highly probable global catastrophe there is only one way: to study carefully Strategic barriers to sustainability, as the good commander studies his opponent before a battle, and to work out a set of efficient global and local strategies, strategic actions able to pass them. Overcoming of Strategic barriers is a paramount and necessary condition of going from global crisis's to global sustainability.

Barriers make impossible for national economies, firms and projects to reach and maintain sustainability of development without overcoming them however hard management strives and whatever resources it invests. The study of Strategic Barriers is quite insufficient today and many a firm or project fails because they do not realize which barrier closed them way to sustainable success.

The carried out analysis leads to conclusion that it is necessary to identify the following strategic barriers to sustainable development: Internal Strategic Barriers and External Strategic Barriers (Fig. 1).The Internal Strategic Barriers depends on EFP management and are formed by personal features of managers, management methods, organizational culture, stereotypes of thinking and others.

External Strategic Barriers do not depend on the EFP management and are formed by external global and local environments. They could be divided into three groups:

1. External Local Barriers.
2. Existing Global Barriers.
3. Future Global Barriers.

External Local Barriers are usually those that are made by national or local environment (e.g. heavy national tax system, poor infrastructure, etc.).

Existing Global Barriers are those that manifest themselves today and prevent EFP from sustainability. E.g. strong disagreement between members of the EU on the coordinated packet of strategic actions. Other examples - the growth of budget deficit in almost every national economies, environmental crisis in Gulf of Mexico (oil spill).

Future Global Barriers – global barriers which will rise in the nearest or distant future because of the consequences of the chosen way of world development. These are the most difficult to realize. Usually they appear abruptly, as the last crisis, which preconditions has been growing in the past decades, but went unnoticed by majority. They are only partially observed, like an iceberg in an ocean, and fully understood only by a few specialists whose opinions more than often are not heard. For example climatic changes, consequences of total food poisoning, genetic experiments in private institutions and others.

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