Northern Caucasus: Choosing Strategic Landmarks

The article is devoted to the analysis of conceptual issues related to the development strategy of the North Caucasus region. These issues are pressing again because of the failure of the North Caucasus Strategy, confirmed by the audit of the Accounts Chamber of the Russian Federation. The analysis shows that the roots of the identified problems are related not to the wrong choice or configuration of the instruments stimulating accelerated growth in the region but to the inadequate character of the whole model of “modernization from above” as it is referred to in the article. This model is oriented to the implementation of large investment projects supported by the state and financed by investments outside the region. Despite attempts at “modernization from above” being ineffective not only in the North Caucasus region, but in other developing areas as well, and the modernization itself having significant downsides, the strategy is still perceived by many as a plausible policy toward stimulating economic development. The “grassroots modernization” model, based on internal rather than external resources of the region, is considered as an alternative. The state in this model facilitates the improvement of the investment climate and removal of the barriers to local businesses’ development as well as creation of an “enabling environment” in which local economy can grow and flourish. The issues of shadow economy legalization, stimulation of cooperation and formation of development infrastructure are discussed using the approaches of “grassroots modernization.” Relevant examples of international experience are used in the analysis, including the best and the worst practices of support for accelerated growth in Southern Italy as well as the experience of shadow economy legalization in several countries.

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