Industrial modernization and business strategies in transition economies

Proponents of neoliberalism stipulate the importance of market self-regulation, privatization, unrestricted free trade and reduction in government interference in the functions of markets. Institutional political economy proponents prescribe that economics cannot be divorced from the social and political context since the market itself is an institution, which is to say is politically constructed. Transition economies are economies that undergo structural transformations intended to develop market-based institutions. Out of all transition economies, Russia experienced a stark contrast between the sudden deregulation followed by the more gradual state-led transition to a market economy. This study finds that the shock therapy approach proposed by the neoliberal policy in the beginning of the Russian transition led to severe setbacks in the national innovation system of Russia in the 1990s due to inabilities of the society and organizations to function in a newly liberalized economy without strong institutional frameworks. In 2000s, the new government managed to centralize the power and established strong functional institutions that provided a more clear-cut business environment that supported firms. This resulted in alignment of business strategies from short-term-profit-seeking with a strategic path of trading in the newly liberalized economy towards more long-term investment strategies including vertical integration, modernization and R&D