Institutional environment of financial regulation of social innovations

Introduction.

In modern conditions, the increasing socio-economic challenges caused by the increasing complexity of international relations, the instability of the economy, the growth of social inequality, accelerated processes of transformation of market relations create obstacles to effective socio-economic development, which emphasizes the relevance of the development of institutional instruments aimed at stimulating the social activity of civil society and creating favorable institutional conditions that ensure the effective development of social space. The increasing attention to social innovations in recent years has been caused by the search for alternative ways to solve the problems of the public sector, transformational processes in socio-economic systems taking place under the influence of accelerating technological progress, as well as increased interest and participation of economic agents in solving these problems, including through financial regulation.

The purpose of the article is to develop theoretical ideas about the institutional environment of financial regulation of social innovations as a key tool for solving socio-economic problems caused by the increase in external and internal challenges and threats due to the increasing complexity of international relations, the risks of imbalance of the country's financial system, the growth of poverty and social inequality. The objectives of the study were to identify: factors affecting the stability of the institutional environment of financial regulation of social innovations; specific functions characterizing the institutional environment of financial regulation of social innovations; the main directions of the state's influence as the main subject of the institutional environment of financial regulation of social innovations; the subject-institutional composition of participants in the social innovation process.

The research methodology is based on the application of general scientific methods: analysis, synthesis, generalization, analogy. A graphical method of presenting information was used.

The research is based on the theoretical developments of foreign (Veblen T. ^[1], Commons J. R. ^[2], North D. ^[3], Daiglmeier K., Miller D., Fills J. ^[4], Swaminathan A. and Wade J. B. ^[5], Sadovskaya T.V. and Motorina O.I. [6 and others) and Russian (Shastitko A. E. [7], Oleinik A. N. ^[8], Tambovtsev V. ^[9], Kondratov M.V. and Garipov R.I. ^[10], Kashaev O. S. ^[11], Afonasova M. A. ^[12], Kucher A. G. and Zakharov P. N.. ^[13], Filatova A. A. ^[14], Veretennikova A. Yu., Popov E. V. and Omonov Zh. K. ^{[15],[16],[17],[18],[19]}) scientists developing the provisions of institutional economic theory.

The studied body of scientific research can be divided into three large groups that form various methodological approaches to understanding the essence of the institutional environment.

The first group includes authors who interpret the institutional environment as a set of formal and informal rules (for example, North D. ^[3]), reduce to the concept of an institution. In the framework of the second approach, the institutional environment is understood as a kind of process or system of economic relations (Shastitko A.E. ^[7], Kondratov M.V. ^[10]). We share the opinion of the authors of the third group (Popov E.V., Omonov Zh.K., Veretennikova A.Yu., etc.), who combine the key characteristics of the institutional environment identified in the first and second groups.

The results of the study and their discussion.

Social innovations and their development are directly interrelated with the specifics of the evolution of the public sector, which makes it possible to determine their main function, namely, covering or leveling the failures of the public sector and its institutional environment, which arose due to the impossibility of rapid transformation of the institutional environment due to the fact that state institutions do not always adapt quickly to changes in the external environment, this leads to the emergence of failures of the public sector and the emergence of barriers in the process of meeting public needs, thereby reducing the effects of the development of various spheres of society.

Of course, the development of social innovations contributes to a more effective solution of social problems, however, it should be noted that the currently formed institutional environment cannot fully quickly and effectively meet the urgent needs of citizens, including due to lagging reflection of the public sector due to limited financial resources ^[16].

The formation of an effective and stable institutional framework for financial regulation of social innovations is an important task and its relevance has recently been increasing, due to the positive social effects resulting from their introduction into the socio-economic sphere, and requires further development of institutions to support social innovations and their financial capabilities, more active use of the potential inherent in them using both domestic experience and successful practices of foreign countries.

The institutional environment of financial regulation of social innovations, representing a complex of interacting institutions and institutional agreements, has an impact on the formation of financial ties that arise between economic agents, defining the conditions (rules and norms) of their functioning and is capable of both encouraging the introduction of social innovations and creating certain barriers in the process of their implementation. It should be noted that today the institutional environment, which is directly focused on the development of social innovations, is in the process of formation, is insufficiently stable as it faces a number of obstacles arising in the socio-economic space, such as institutional dysfunction, institutional voids caused by the lack of required norms and rules or their low efficiency, which complicates the introduction of social innovations and, as a result, the solution of social problems.

The factors influencing the stability of the institutional environment of financial regulation of social innovations should be differentiated into exogenous and endogenous (Fig. 1).

Compiled by the author

Figure 1 – Factors affecting the stability of the institutional environment of financial regulation of social innovations

Exogenous factors include factors generated by the external environment and forming the institutional space around the process of introducing social innovation, which includes the state, socio-economic conditions, human capital, innovation structure and informal institutions. Endogenous factors include factors affecting the processes of management and financial support of social innovations.

Institutions should also be divided into stimulating (for example, institutions of state financing of social innovations) and restraining (sanctions, embargoes), which makes it possible to determine the potential of the institutional environment and the obstacles created by it. The scale of the institute determines its place and importance in the hierarchy of institutions: (micro-, meso- and macro-institutes) ^[17].

According to the author, the specific functions characterizing the institutional environment of financial regulation of social innovations should include (Fig. 2):

1. Provision of conditions for the initiation and implementation of social innovations: assistance to social innovators in conducting research and developing social innovations, the formation of competencies necessary for the social innovation process, replication of social innovations aimed at meeting needs in accordance with existing public demands;

2. Ensuring resource, including financial stability in the process of implementing socio-innovative projects at each stage of the life cycle of social innovations;

3. Monitoring and control at the stages of creation, implementation and replication of social innovations through state regulatory institutions and public institutions;

4. Minimizing transaction costs in the process of developing and implementing social innovations.

Compiled by the author

Figure 2 – Specific functions of the institutional environment of financial regulation of social innovations

The development of social innovations is influenced to one degree or another by a fairly wide set of formal institutions, but two types should be distinguished among them:

– social innovation support institutions designed to create effective norms to support the development of social innovation;

– institutions of state regulation, which play a primary role in the process of formation and implementation of social innovations through their initiation and financing ^[18].

Under the institutions of support for social innovation, it seems appropriate to consider a set of norms and rules for the interaction of economic actors in the process of creating and promoting innovations in the public socio-cultural environment in order to obtain social effects as a result of meeting the social needs of society and correcting its institutional structure.

Institutions of state regulation, in contrast to institutions supporting social innovation, whose role is to create effective norms necessary for the development of social innovation, occupy a key role in the social innovation process, since the state is the main actor in the formation and implementation of social innovation, often acting as their initiator and implementer, as well as supporting citizens, participating in this process. Social innovations are implemented more successfully in the institutional environment where there is an effective regulatory environment aimed at the development of socially-oriented activities, which should include a legal framework that ensures access to tax preferences and various financial instruments for participants in the process.

In addition, social innovations can be the result of effective cooperation between the state and non-profit organizations (NGOs), business, and civic initiatives. Within the framework of the study, it seems important to highlight the main directions of the impact of the state as the main subject of the institutional environment of financial regulation of social innovations:

- formation and development of the regulatory and legal space, as currently some areas of state support are not fully formed (for example, there is no unified methodology for identifying the assessment of the social effect of social innovations to assess the effectiveness of budget expenditures, there are problems in the replication of social innovations). At the same time, we note that some elements, for example, the services of the Agency for Social Initiatives (ASI) are characterized by dynamic development and fairly rapid reflection on transformational processes in the external environment;

- institutional development that ensures the formation and sustainable development of institutions (organizations) involved in the socio-innovative process, aimed at the creation, distribution and use of human, material and financial resources to determine goals that require concentration of efforts and their achievement on a sustainable basis with maximum social effect;

- direct support for the development and implementation of social innovations (financing of social innovation projects through the provision of grants, subsidies and interest-free loans, etc.)

The norms and rules underlying formal institutions are usually established at the State or municipal level. The state's responsibility includes the formation of a regulatory framework, the creation of a comfortable economic space for participants in the socio-innovative process. Particular attention in their design and development should be paid to the availability and quality of the support provided. In this case, this requirement must satisfy the principle of reducing transaction costs. Possible dysfunctions of formal institutions can lead to an increase in transaction costs.

The results of the introduction of social innovations largely depend on the presence of developed social ties, social capital, which is determined by the values that were formed during the development of a particular territory, which, of course, requires the creation of conditions to support the interest of social innovators in the introduction of social innovations, the continuation of this activity directly in this territory. Consideration of ethnic and territorial characteristics should be reflected in regional and municipal development programs. This will make it possible to activate civic initiatives as a source of social innovation, as well as to involve the population in solving social problems, for example, within the framework of initiative budgeting, to increase their social responsibility.

Also, in our opinion, considering the institutions of socio-innovative activity, it should be understood that the set of norms and rules governing the interaction between economic agents in matters of support, development and implementation of social innovations as a result of positive effects can stimulate their development, and in the case of a reverse effect – to restrain and these properties must be taken into account at the initial stage the construction of this group of institutions in the formation of an effective institutional environment.

The level of trust and readiness of the population and state and municipal authorities for mutual cooperation plays an important role. At the same time, it should be noted that despite the intensification of activities in this direction, the level of state and regional support remains insufficient, which is due, among other things, to a small number of developments, both theoretical and methodological in terms of the formation of an effective institutional environment.

Note that the influence of institutions on social innovations is different, due to their differentiation in scale, level of distribution, contractual agreements, budgeting. For example:

– human capital development institutions, resource support institutions, civil society institutions have an impact on low-budget social innovations;

– medium-budget social innovations depend on the degree of impact of human capital development institutions, resource support institutions, civil society institutions;

– social innovations that require significant amounts of budgeting are dependent on institutions for the development of human capital, institutions of public administration, institutions of socio-economic development.

Thus, human capital development institutions have an impact on all types of social innovations. Institutions of resource support have a greater impact on low-budget and medium-budget social innovations, which is due to the insignificant coverage and severe limitation of resources for these types of innovations ^[4]. Low-budget social innovations are significantly influenced by civil society institutions that allow effective implementation of civic initiatives. Innovation infrastructure institutions stimulate the expansion of social innovations to the level of medium-budget ones, which is ensured thanks to the norms of support for social innovators from innovation funds, technoparks, technopolises ^[19].

Institutions of public administration and socio-economic development have a greater impact on large-budget social innovations, which is due to the need for the state to respond to significant changes in the public or social sphere, the vector of which is formed by the dynamics of socio-economic development.

The institutional environment of financial regulation of the social innovation process (social innovations) reflects the interrelation of system elements, where the main burden falls on the subject-institutional composition of participants in this process, who perform their specific functions.

Compiled by the author

Figure 3 – The subject-institutional composition of participants in the social innovation process (social innovations)

The subject-institutional composition of participants in the social innovation process (social innovations) seems appropriate to be considered as a set of three blocks (Fig. 3):

1. Subjects and institutions that initiate and implement social innovations. This block includes:

- the state (state authorities, state institutions of all organizational and legal forms);

- socially responsible business;

- social entrepreneurs;

- NGOs, socially oriented NGOs (SONKO);

- citizens, social groups, society;

2. Mediating the socio-innovative process:

– financial support institutions and financial institutions (government, financial development institutions, business entities, credit organizations; guarantee organizations, venture funds, charitable organizations);

– organizational and auxiliary entities (ASI, CISS, etc.)

– organizational structures that provide regulation and control of the implementation and financial support of social innovations (Ministry of Finance, Ministry of Economic Development, Accounting Chamber, Control and Accounting bodies of regions, Federal Tax Service, ministries and departments for social sectors, etc.).

3. Those who act as direct consumers of social innovations are beneficiaries, beneficiaries – citizens and their target groups, society as a whole.

Since the article is theoretical in nature, the task was not set to determine the quantitative characteristics of the institutional environment. However, we will give concrete examples of successful practice of financial regulation of social innovations.

From our point of view, the following subjects of the institutional environment are of particular interest, the functioning of which is aimed at financial support and promotion of the development and replication of social innovations.

1) The Presidential Grants Fund, which allocates grants on a competitive basis for the implementation of socially significant projects of non-governmental NGOs on co-financing terms.

Table 1 presents data indicating an annual increase in both the winning projects and the amount of grant funds allocated for their implementation. There are projects that have not started to be implemented for various reasons, which leads to an indicator of 96-98% of the approved amounts. Exclusively as a positive moment, we regard the growth in the volume of co-financing in excess of the amounts indicated when submitting the tender application. In just 5 years, 33.3 billion rubles of grant funds were allocated, 26.6 billion rubles were mobilized for co-financing, i.e. almost 60 billion rubles were spent on important projects. According to the results of the first competition in 2023, 4.3 billion rubles have already been allocated for 1,845 projects.

Table 1 – The amount of funds allocated for the implementation of projects – winners of the Presidential Grants Fund competitions for the period 2017-2021.

*The data for 2019-2020 in the Fund's reports are not divided due to the special conditions for the implementation of projects in the context of the spread of coronavirus infection. Data for 2022 will be published in the fall of 2023.

Source: Compiled by the author according to the Reports on the evaluation of the implementation of projects published on the official website of the Presidential Grants Fund.

2) The autonomous non-profit organization "Agency for Strategic Initiatives" (ASI) has various activities, in particular, it works on the National Social Initiative (support and replication of effective solutions to problems in the social sphere), holds a Forum "Strong ideas for a new time" (23 thousand applications were submitted). In 2023, according to the results of the forum, 100 million rubles were distributed among the top 60 authors of ideas. The author of the article is a public representative of the ASI in the Rostov region, acts as an expert on projects, including this Forum.

3) The Social Projects Support Fund, whose activities are aimed at solving the tasks of developing the environment of social projects and social entrepreneurship through assistance in attracting financing (grants, crowdfunding, returnable financing), direct financing of social impact projects, creation of social franchises, marketing support and beta testing of new products and services (consultations on financing are provided social projects, possible sources of their financing are proposed, assistance is provided in the formation of an application for attracting financing and finding partners and investors).

4) The Fund of Regional Social Programs "Our Future", created by entrepreneur V. Alekperov to support long-term socially significant programs and projects based on the principles of social entrepreneurship. In 2021 alone, 55 projects worth 25.4 million rubles were supported.

Based on the above, it seems appropriate to understand the institutional environment of financial regulation of social innovations as a set of economic, legal, financial, social and public institutions that ensure the implementation of social innovations at all stages of the life cycle in order to obtain the maximum possible positive social effect. The social effect of social innovations should be considered a useful result of meeting social needs, obtained not only at the stages of their life cycle, but also at an indefinite stage after the implementation of a socio-innovative project and the scope of its coverage (improving the quality of life, expanding the range of social services, expanding employment, reducing unemployment, etc.).

Conclusion.

Thus, as a result of the study, it was revealed:

– the institutional environment of financial regulation of social innovations determines the basis for the formation of conditions for interaction of subjects of the social innovation process;

– the indispensable conditions for the effective development of social innovations is the resolution of inconsistencies, contradictions arising between formal and informal institutions;

– the creation of a favorable institutional environment is possible only by fully taking into account the interests of potential innovators, stimulating them to develop this process. At the same time, these conditions can serve as both constraining factors and opening up opportunities for the development of socially-oriented business.

Social innovations are aimed at improving the welfare of society, the formation of an effective institutional environment for their financial regulation will allow the full use of both economic and human potential to solve social problems.

In modern conditions, social innovations are of particular importance, since they can potentially become a key tool for solving many socio-economic problems, including those caused by the increase in external and internal challenges and threats due to the increasing complexity of international relations, the risks of imbalance of the country's financial system, the growth of poverty and social inequality.

The effectiveness of social innovations is directly dependent on the development of the relevant institutional environment and the well-functioning mechanism of interaction of the subjects of the socio-innovation process. In this regard, further development and transformation of the institutional environment of financial regulation of social innovations should be aimed at creating conditions for stable functioning and regulation of social innovation activities, involving the widest possible range of stakeholders in it, expanding access to the necessary sources of financial resources.