Development Strategy of the North Caucasus: Main Challenges

Abstract

This article is devoted to the applicability in the North Caucasus of various approaches to stimulating catch-up development. The paper highlights two similar approaches: “modernization from above,” based on public investments and state support of large private investments, and “modernization from below,” where the main driver is local business whereas the state creates conditions and eliminates barriers to its successful development. “Modernization from above,” which demonstrated its potential in the industrial era, has been seeing more and more serious failures in modern conditions, since it forms a distorted motivation among all participants in the process—federal and regional state bodies, development institutions, investors, local bodies and the population. This is confirmed by the unsatisfactory results of the implementation of the North Caucasus Development Strategy until 2025, based on this model. However, the inefficiency of “modernization from above” does not mean that a model of “modernization from below” may be implemented in the region. Our quantitative and qualitative research has shown that there are certain prerequisites for the success of “modernization from below” in the North Caucasus: a positive attitude of respondents towards entrepreneurship and its support by the state; the willingness of the local population to do business; and the potential of open social capital. At the same time, existing barriers, primarily related to the lack of human capital and the poor quality of the institutional environment, can hinder the success of any catch-up development policy. Therefore, the updated strategy for the development of the North Caucasus should not only be aimed at supporting local businesses, but also include measures to improve the quality of higher education in the region, as well as, along with the policy of improving the investment climate, contain tools to “buy out” administrative barriers.