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1. COMPUTER-BASED INFORMATION RESEARCH

Today the computer has made locating, gathering, and analyzing data much faster and cost-effective. Even individual who owns a good computer and a modem can access databases and conduct in-depth intelligence searches that in the past only large corporations and libraries could afford. Nowadays, using public and specialized online computer databases, one researcher can accomplish what formerly took the entire department far longer to accomplish. Some of the hardware required for efficient computerized searches includes a modem, fax machine, and high-speed printer. The faster the transmission mode, the more efficient your research is likely to be.

Many electronic network systems were created in 1989 and have continued to grow since then. They now offer access to information and the means to communicate with other individuals, businesses, or countries all over the world. A tremendous amount of pertinent information is available on what is termed the Internet. In fact, you do not even have to leave your computer to obtain information from the world famous libraries.

The Internet is a global computer network. It is developing very rapidly. You can read many publications (newspapers, magazines, journals) through the Internet. E-mail is the most popular service. A great many of people, who have access to the Internet, use the network only for sending and receiving E-mail messages. In many countries the Internet provides businesspersons a reliable alternative to the more expensive and unreliable telecommunications systems. That is always cheaper, because you send E-mail messages; you only have to pay for phone calls to your local service providers, not for calls across your country or around the world. For these services you pay your service provider a monthly or an hourly fee. Part of this fee goes towards its costs to connect to a larger provider; another part received by the larger service provider goes to cover its costs of running a worldwide network of wires and wireless stations.

Internet services combine the use of audio, video, graphics, and text for procuring information. If the topic of your paper is NAFTA, and you have narrowed this down to an update on the North American Trade Agreement, it is possible to gather material through an Internet service. When you enter this term, you might find dozens of sources. Therefore, you must make choices to narrow down your topic as you work. However the Internet is considered unreliable source of information. It is very important as you use the Internet to keep in mind the thesis of your research. Because it is so easy to gather information and nothing guarantees its quality and accuracy, the writer must not become distracted and must be the final judge of the facts obtained. Another problem is its insecurity. When you send an E-mail message to someone, it travels through many different networks and computers.

The information is constantly being directed towards its destination by special computers called routers. So it is possible to intervene into any of the computers along the route, read and even change the data being sent on the Internet. That is why you cannot send original contracts, letters of credit, invoices and other important documents through the Internet. However, these commercial and technical problems must be resolved in the nearest future.

Another popular Internet application is World-Wide Web. The number of Web-pages is hundreds of millions. There is a searching system to find the proper Web-page. Such a page contains a short description of a subject (program, institution, etc.) and the reference to other Web-documents. Availability of a home computer along with an on-line service could be very helpful. That involves installation and a monthly charge for the use of an on-line service. These charges are computed on the basis of time duration; however they are not computed according to the distance to your contacts. Therefore, the opportunities offered by having a home computer with on-line services may be cost-effective.

Electronic mail (E-mail) combines the advantage of writing with the responsiveness of the telephone. E-mail systems turn computers into in­boxes. As quickly as the term E-mail was established the ability to communicate with different libraries and countries has increased through linking it to an electronic network such as Internet. E-mail is used widely for internal and external messages and suits itself particularly well to short informal messages. Increasingly, organizations are adopting e-mail as the primary mode of internal communication. Some organizations have policies in place that treat e-mail as a business asset, not a personal asset; thus from a legal perspective, e-mail is admissible in court. All you need to get started in E-mail is access to a computer wit the right hardware, the appropriate software, and an E-mail address.

2. THE WORLD'S MAJOR CURRENCIES

Apart from a few misguided misers like Ebennezer Scrooge, no one wants a currency "to have and to hold, until death do you part." Currencies are used to buy goods and services, both at home and abroad. The currencies of the world's major economies have names and backgrounds that are as diverse as the counties themselves.

The dollar, used in many countries including the United States, Canada, and Australia, gets its name from a silver coin minted during the Middle Ages in a small valley, or "Thal," in Bohemia called Joachimsthal. Just as a sausage from Frankfurt came to be called a frankfurter, the coins from Joachimsthal were called "Joachimsthaler" or simply "Thaler," and came to be called "dollar" in English.

The pound, used in Britain, Egypt, and Lebanon among others, refers to the weight used in determining the value of coins, based on precious metals such as gold or sterling. The penny has the same origin as the word pawn, found in terms such as pawnshop, and originally meant "to pledge." A penny, like any currency, is a "pledge" of value.

In Italy and Turkey, the currency is called lira. The word is based on the Latin lira, meaning "pound," and once again refers to the weight of the original coins.

In Spanish, the word meaning "weight," peso, is used to describe the coins that were based on a certain weight of gold or silver. Originally, there were gold coins called peso de oro and silver ones called peso de plata. In Spain, the currency is called peseta, meaning "small peso." The word peso is used to describe the currency in many Spanish-speaking countries in Latin America.

In Denmark, Norway, and Sweden, the word for crown - krone in Denmark and Norway, krona in Sweden - is used to describe the currency that was originally minted by the king and queen, with royal crowns stamped on the earlier coins. Today, the crown has been replaced by other symbols, but the name remains.

The franc, used in France, Belgium, Switzerland, and other countries and territories, is based on the early coins used in France that bore the Latin inscription franconium rex, meaning "king of the Franks." The coin, as well as the country, took its name from one of the original tribes that settled in the area, the Franks.

The German mark and Finnish markka derive their names from the small marks that were cut into coins to indicate their precious metal content. The German mark, deutsche mark in German is often called by its shortened name, D-mark.

The riyal, in Saudi Arabia and Qatar, and the rial in Iran, are based on the Spanish word real - which, in turn, was derived from the Latin regal(is) - referring to earlier "royal" coins. The dinar, used in Iraq and Kuwait among others, derives its name from "denarius," a Roman coin that was worth ‘ten bronze asses’, an item of considerable value in days of old. In India, Pakistan, and other countries of the subcontinent the currency is called rupee (in Indonesia, rupiah), based on the Sanskrit word rupya, meaning "coined silver."

The ancient Chinese word yiam meant "round" or "small round thing." The name of the Japanese currency, the yen, and the name of the Chinese currency, the yuan, both derived from the old Chinese word refer to the round shape of the original coins.

It used to be that a currency's value was fixed by its government or was linked to some item of value. This is not necessarily the case today. In the United States, for example, dollars held by foreigners could be converted into gold until 1971. This gold standard was meant to guarantee that currencies would always have a fixed value, determining by the amount of gold in each country's vault. The value of the major world currencies - such as the U.S. dollar, the Swiss franc, and the Japanese yen - is no longer fixed but is allowed to fluctuate freely on the world's foreign exchange markets. Just like a concert ticket on the night of a sold-out performance, a freely floating currency's price goes up when it is increased demand.

Currencies are "scarce" commodities subject to the laws of supply and demand, as long as governments do not start printing too much money. When everyone wants to buy much French wine, for example, the "price" of the franc tends to increase. The franc's value will rise as importers around the world buy francs - with dollars, yens or D-marks - to pay for it. Likewise, if Danish should decide to buy the latest Japanese stereo systems and video games, the krone will lose value as it is sold on the foreign exchange market to buy yens.

The free-floating system still does not keep governments from trying to influence the value of their currency by buying or selling on the open markets. The present system, sometimes referred to as a "dirty float," is based on periodic central bank intervention to keep currencies from changing its value too quickly or from moving out of a predetermined range, such as those periodically fixed in the European Monetary System. However, like trying to reverse the flow of water, it is very difficult to intervene in the international currency markets. Because of the enormous amount of currencies traded every day on the foreign exchange (forex) markets, interventions by the central banks usually succeed in only slowing down a freely floating currency's inevitable rise or fall.

3. THEORY OF THE CONSUMER

The branch of economics known as microeconomics focuses on the behavior of individual consumers and individual firms. This section reviews the theory of the consumer and the following section reviews the theory of the firm. The theory of the consumer describes how individual consumers make economic decisions, given their preferences, their incomes, and the prices of the goods and services that they desire to purchase. Individuals consume goods and services because they derive pleasure or satisfaction from doing so. Economists use the term utility to describe the pleasure or satisfaction that a consumer obtains from his or her consumption of goods and services. Utility is a subjective measure of pleasure or satisfaction that varies from individual to individual according to each individual's preferences.

For example, if an individual's choices for a Sunday evening are to go out for dinner, to read a book or to watch television, then, depending on that individual's preferences, he or she will attribute different levels of utility to each of these three activities. Of course, it is not possible to measure utility, nor is it possible to claim that one individual's utility is higher than another's. Utility is just a ‘unitless’ measure that economists have found useful in their explanation of consumer choice. The utility that an individual receives from consuming a certain amount of particular goods or services is referred to as that individual's total utility. The marginal utility of a good or service is the addition to total utility that an individual receives from consuming one more unit of that good or service.

The law of diminishing marginal utility states that the marginal utility that one receives from consuming successful units of the same good or service will eventually decrease as the number of units consumed increases. As an example of the law of diminishing marginal utility, consider the utility that one obtains from drinking successful glasses of mineral water on a hot day. Suppose the first glass just begins to quench one's thirst. After two glasses, however, the thirst has all but disappeared. A third glass of mineral water might also provide some utility, but not as much as the second glass. A fourth glass cannot be finished. In this example, the marginal utility - the addition to total utility that one obtains from drinking mineral water on a hot day - is increasing for the first two glasses but is decreasing beginning with the third glass and would continue to decrease if one were to consume further glasses.

When consumers make choices about the quantity of goods and services to consume, it is presumed that their objective is to maximize total utility. In maximizing total utility, the consumer faces a number of constraints, the most important of which are the consumer's income and the prices of the goods and services that the consumer wishes to consume. The consumer's effort to maximize total utility, subject to these constraints, is referred to as the consumer's problem. The solution to the consumer's problem, which entails decisions about how much the consumer will consume of a number of goods and services, is referred to as consumer equilibrium.

Consider the simple case of a consumer who wants to purchase quantities of goods 1 and 2 so as to completely exhaust the budget for such purchases. Suppose that the price of good 1 is $2 per unit and the price of good 2 is $1 per unit. Suppose also that the consumer has a budget of $5. The consumer equilibrium is found by comparing the marginal utility per dollar spent for goods 1 and 2, subject to the constraint that the consumer does not exceed his budget of $5. The consumer's equilibrium choice is to purchase two units of good 1 and one unit of good 2.

The consumer's choice of how much to consume of various goods depends on the prices of those goods. If prices change, the consumer's equilibrium choice will also change. The effect of a price change on the consumer's equilibrium choice is often divided into two effects - known as the substitution effect of a price change and the income effect of a price change. When the price of a good changes the price of that good relative to the price of other goods also changes. Relative price changes cause consumers to substitute from one good to another - this is known as the substitution effect. The income effect takes account of how price changes affect consumption choices by changing the real purchasing power or real income of the consumer.

The consumer equilibrium condition determines the quantity of each good the individual will demand. The individual consumer, however, is only one of many participants in the market for good X. The market demand curve for good X includes the quantities of good X demanded by all participants in the market for good X found by summing together all the quantities.

The difference between the maximum price that consumers are willing to pay for a good and the market price that they actually pay for a good, is referred to as the consumer surplus. For example, the market price is $5, and the equilibrium quantity demanded is 5 units of the good. The market demand curve reveals that consumers are willing to pay at least $9 for the first unit, $8 for the second unit, $7 for the third unit, and $6 for the fourth unit. However, they can purchase 5 units of the good for just $5 per unit. Their surplus from the first unit purchased is therefore $9 - $5 = $4. Similarly, their surpluses from the second, third and fourth units purchased are $3, $2, and $1, respectively. The sum total of the surpluses equal to 10 is the consumer surplus.

4. THEORY OF THE FIRM

The theory of the consumer is used to explain the market demand for goods and services. The theory of the firm provides an explanation for the market supply of goods and services. A firm is defined as any organization or individual that purchases factor of production (labor, capital, and raw materials) in order to produce goods and services that are sold to consumers, governments, or other firms. The theory of the firm assumes that the firm's primary objective is to maximize profits. In maximizing profits, firms are subject to two constraints: the consumers' demand for their product and the costs of production.

Consider a firm that produces a single good. In order to produce this good, the firm must employ or purchase a number of different factors of production. The firm's production decision is to determine how much of each factor of production to employ. In the short-run, some of the factors of production that the firm needs are available only in fixed quantities. For example, the size of the firm's factory, its machinery, and other capital equipment cannot be varied on a day-to-day basis. In the long-run, the firm can adjust the size of its factory and its use of machinery and equipment, but in the short run, the quantities of these factors of production are considered fixed. The short-run is defined as the period during which changes in certain factor of production are not possible. The long-nm is defined as the period during which all factor of production can be varied.

Other factors of production, however, are variable in the short run. For example, the number of workers the firm employs or the quantities of raw materials the firm uses can be varied on a day-to-day basis. A factor of production that cannot be varied in the short run is called a fixed factor of production. In the short run, a firm can increase its production of goods and services only by increasing its use of variable factors of production.

A firm combines its factors of production in order to produce goods or output. The total amount of output the firm produces, the firm's total product, depends on the quantities of factors that the firm purchases or employs. The marginal product of a factor of production is the change in the firm's total product that results from an increase in that factor by one unit, holding all other factors constant.

The law of diminishing returns says that as successful units of a variable factor of production are combined with fixed factors of production, the marginal product of the variable factor of production will eventually decline. Note that diminishing returns is a short-run phenomenon that will persist only as long as there are fixed factors of production; in the long-run, it will be possible to vary the amount of the fixed factor capital so as to eliminate the problem of diminishing returns.

The firm's primary objective in producing output is to maximize profits. The production of output, however, involves certain costs that reduce the profits a firm can make. The relationship between costs and profits is therefore critical to the firm's determination of how much output to produce. A firm's explicit costs comprise all explicit payments to the factors of production the firm uses. Wages paid to workers, payments to suppliers of raw materials, and fees paid to bankers and lawyers are all included among the firm's explicit costs. A firm's implicit costs consist of the opportunity costs of using the firm's own resources without receiving any explicit compensation for those resources. For example, a firm that uses its own building for production purposes forgoes the income that it might receive from renting the building out.

As another example, consider the owner of a firm who works along with his employees but does not draw a salary; the owner forgoes the opportunity to earn a wage working for someone else. These implicit costs are not regarded as costs in an accounting sense, but they are a part of the firm's costs of doing business, nonetheless. When economists discuss costs, they have in mind both explicit and implicit costs.

The difference between explicit and implicit costs is crucial to understanding the difference between accounting profits and economic profits. Accounting profits are firm's total revenues from sales of its output, minus the firm's explicit costs. Economic profits are total revenues minus explicit and implicit costs. Alternatively stated, economic profits are accounting profits minus implicit costs. Thus, the difference between economic profits and accounting profits is that economic profits include the firm's implicit costs and accounting profits do not.

A firm is said to make normal profits when its economic profits are zero. The fact that economic profits are zero implies that the firm's reserves are enough to cover the firm's explicit costs and all of its implicit costs, such as the rent that could be earned on the firm's building or the salary the owner of the firm could earn elsewhere. These implicit costs add up to the profits the firm would normally receive if it were properly compensated for the use of its own resources - hence the name, normal profits.

In the short-run, some of the input factors the firm's fixed costs. The firm's fixed costs do not vary with increases in the firm's output. The firm also employs a number of variable factors of production. The costs of these variable factors of production are the firm's variable costs. In order to increase output, the firm must increase the number of variable factors of production that it employs. Therefore, as firm output increases, the firm's variable costs must also increase.

The firm's total cost of production is the sum of all its variable and fixed costs. The firm's marginal cost is the per unit change in total cost that results from a change in total product. The firm's variable, fixed, and total costs can all be calculated on an average or per unit basis.

At low level of output, a firm can usually increase its output at a rate that exceeds the rate at which it increases its factor inputs. When this situation occurs, the firm's average total costs are falling, and the firm is said to be experiencing economies of scale. At higher levels of output, the firm may find that its output increases at the same rate at which it increases its factor inputs. In this case, the firm's average total costs remain constant, and the firm is said to experience constant returns to scale. At even higher output levels, the firm's output will tend to increase at a rate that is below the rate at which it increases its factor inputs. In this situation, average total costs are rising, and the firm is said to experience diseconomies of scale. The firm's minimum efficient scale is the level of output at which economies of scale end and constant returns to scale begin.

5. MONOPOLY

In a perfectly competitive market, there are many firms, none of which is large in size. In contrast, in a monopolistic market there is only one firm, which is large in size. This one firm provides all of the market's supply. Hence, in a monopolistic market, there is no difference between the firm's supply and market supply.

Conditions for monopoly characterize a monopolistic market structure. First, as mentioned above, there is only one firm operating in the market. Second, there are high barriers to entry. These barriers are so high that they prevent any other firm from entering the market. Third, there are no close substitutes for the good the monopoly firm produces. Because there are no close substitutes, the monopoly does not face any competition.

A barrier to entry is anything that prevents firms from entering a market. Many types of barriers to entry give rise to a monopolistic market structure. Some of the most common barriers to entry are:

1. Patents: If a firm holds a patent on a production process, it can legally exclude other firms from using that process for a number of years. If there are no other production processes that can be used, the firm that holds the patent will have a monopoly.

2. Large start-up costs: In some markets, firms will face large start-up costs - for example, the cost of building a new production facility. If these start-up costs are large enough, most firms will be discouraged from entering the market.

3. Limited excess to resources: A monopolistic market structure is likely to arise when access to resources needed for production is limited. The market for diamonds, for example, is dominated by a single firm that owns most of the world's diamond mines.

Not all monopolies arise from these kinds of barriers to entry. A few monopolies arise naturally, in markets where there are large economies of scale. For example, a local telephone company's marginal and average costs tend to decline as it adds more customers; as the company increases its network of telephone lines, it costs the company less and less to add additional customers. The telephone company's long-run average costs may eventually rise but only at a level of output that is beyond the level the local market demands. Hence, in the market for local telephone services, there is a need for only one firm; competition will not naturally arise. Gas, electric power, and other local utilities are also examples of natural monopolies.

Unlike a perfectly competitive firm, the monopolist does not have to simply take the market price as given. Instead, the monopolist is a price searcher; it searches for the profit maximizing price. The monopolist's marginal revenue from each unit sold does not remain constant as in the case of the perfectly competitive firm. The price that the monopolist can get for each additional unit of output must fall as its output is increasing. Consequently, the monopolist's marginal revenue will also be falling as it increases its output. If it is assumed that the monopolist cannot price discriminate, that is, charge a different price for each unit of output it produces, then the monopolist's revenue from each unit of output it produces will not equal the price that the monopolist charges. In fact, the marginal revenue that the monopolist receives from producing an additional unit of output will always be less than the price that the monopolist can charge for the additional unit.

The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equals marginal cost is used to determine the profit maximizing level of output of every firm, regardless of the market structure in which the firm is operating. However, in order to determine the profit maximizing level of output, the monopolist will need to supplement its information about market demand and prices with data on its costs of production for different levels of output. The monopolist’s market supply will not be independent of market demand.

In the discussion of a perfectly competitive market structure, a distinction was made between short-run and long-run market behavior. In the long-run, all input factors are assumed to be variable, making it possible for the firms to enter and exit the market. The consequence of this entry and exit of firms was that each firm's economic profits were reduced to zero in the long-run.

The distinction between the short-run and the long-run is not as important in the case of a monopolistic market structure. The existence of high barriers to entry prevents firms from entering the market even in the long-nm. Therefore, it is possible for the monopolist to avoid competition and continue making positive economic profits in the long-run. A monopolist produces less output and sells it at a higher price than a perfectly competitive firm. The monopolist's behavior is costly to the consumers who demand the monopolist's output. The cost to the consumer of a monopolistic market structure is the reduction in consumer surplus that results from monopoly output and price decisions.

Perfect competition and pure monopoly represent two extreme possibilities for a market's structure. The structure of almost all markets, however, falls somewhere between these two extremes. This section considers two market structures, monopolistic competition and oligopoly, which lie between the extreme cases of perfect competition and monopoly. According to its name, monopolistic competition is more closely related to perfect competition than to monopoly. Oligopoly is also a combination of monopoly and competition, but it is more closely related to monopoly than to perfect competition.

Three conditions characterize a monopolistically competitive market. First, the market has many firms, none of which is large. Second, there is free entry and exit into the market; there are no barriers to entry or exit. Third, each firm in the market produces a differentiated product. This last condition is what distinguishes monopolistic competition from perfect competition. Examples of monopolistic competitive firms include restaurants, retail clothing stores, and gasoline service stations.

In many markets, competing firms sell products that can be differentiated from one another. A firm's product can be differentiated in a number of different ways: by its quality, its convenience, its size, its color, its look, its taste - even by its brand name! As a firm's product becomes more and more differentiated, the firm faces less and less competition and will be able to act more like a monopolist in its output and pricing decisions. Thus, in a monopolistically competitive industry, firms seek to differentiate their products as much as possible. Much of this differentiation is accomplished through advertising.

Because the monopolistically competitive firm's product is differentiated from other products, the monopolistically competitive firm has less control over the price that it can charge for its output. The firm's control over its price will depend on the degree to which its product is differentiated from competing firms' products. The firm's control over its price will depend on the degree to which its product is differentiated from competing firms' products. The monopolistic competitive firm will be a price-searcher rather than a price-taker. The firm searches for the price that it will charge in the same way that a monopolist does, by comparing marginal revenue with marginal cost at each possible price along the market demand curve. The monopolistically competitive firm's behavior appears to be no different from the behavior of a monopolist. In fact, in the short-run, there is no difference between the behavior of a monopolistically competitive firm and a monopolist. However, in the long-run, an important difference does emerge.

The difference between the short-run and the long-run in a monopolistically competitive market is that in the long-run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short-run. New firms will be attracted to these profit opportunities and will choose to enter the market in the long-run. In contrast to a monopolistic market, no barriers to entry exist in a monopolistically competitive market; hence, it is quite easy for new firms to enter the market in the long-run.

The entry of new firms leads to an increase in the supply of differentiated products, which causes the firm's market demand curve to shift to the left. In the long-run, the competition brought about by the entry of new firms will cause each firm in a monopolistically competitive market to earn normal profits, just like a perfectly competitive firm. When the firm produces below its minimum efficient scale, it is under-utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

Oligopoly is the least understood market structure; consequently, it has no single, unified theory. Nevertheless, there is some agreement as to what constitutes an oligopolistic market. Three conditions for oligopoly have been identified. First, an oligopolistic market has only a few large firms. This condition distinguishes oligopoly from monopoly, in which there is just one firm. Second, an oligopolistic market has high barriers to entry. This condition distinguishes oligopoly from perfect competition and monopolistic competition in which there are no barriers to entry. Third, oligopolistic firms may produce either differentiated or homogeneous products. Examples of oligopolistic firms include automobile manufacturers, oil producers, steel manufacturers, and passenger airlines.

As mentioned above, there is no single theory of oligopoly. The two that are most frequently discussed, however, are the kinked-demand theory and the cartel theory. The first one applies to oligopolistic markets where each firm sells a differentiated product. It illustrates the high degree of interdependence that exists among the firms that make up an oligopoly. The kinked-demand theory, however, is considered an incomplete theory of oligopoly for several reasons. First, it does not allow for the possibility that price increases by one oligopolist are matched by other oligopolists, a practice that has been frequently observed. Second, the theory does not consider the possibility that oligopolists collude in setting and price. The possibility of collusive behavior is captured in the alternative theory known as the cartel theory of oligopoly.

A cartel is defined as a group of firms that get together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conductive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. The organization of petroleum ­exporting countries (OPEC) is perhaps the best-known example of an international cartel; OPEC members meet regularly to decide how much oil each member of the cartel will be allowed to produce.

Oligopolistic firms join a cartel to increase their market power, and members work together to determine jointly the level of output that each member will produce and/ or the price that each member will charge. By working together, the cartel members are able to behave like a monopolist. Once established, cartels are difficult to maintain. The problem is that cartel members will be tempted to cheat on their agreement to limit production. By producing more output than it has agreed to produce, a cartel member can increase its share of the cartel's profits. Hence, there is a built-in incentive for each cartel member to cheat. Of course, if all members cheated, the cartel would cease to earn monopoly profits, and there would no longer be any incentives for firms to remain in the cartel. The cheating problem has plagued the OPEC cartel as well as other cartels and perhaps explains why so few cartels exist.

6. LABOR MARKET

In addition to making output and pricing decisions, firms must also determine how much of each input to demand. Firms may choose to demand many different kinds of inputs such as labor and capital. The demand and supply of labor are most common inputs. They are determined in the labor market. The participants in the labor market are workers and firms. Workers supply labor to firms in exchange for wages. Firms demand labor from workers in exchange for wages. The firm’s demand for labor is a derived demand; it is derived from the demand for the firm's output. If demand for the firm's output increases, the firm will demand more labor and will hire more workers. If demand for the firm's output falls, the firm will demand less labor and will reduce its work force.

When the firm knows the level of demand for its output, it determines how much labor to demand by looking at the marginal revenue product of labor. The marginal revenue product of labor (or any input) is the additional revenue the firm earns by employing one more unit of labor. The term is related to the marginal product of labor. In a perfectly competitive market, the firm's marginal revenue product of labor is the value of the marginal product of labor. The marginal revenue product of labor is the additional revenue that the firm earns from hiring the additional worker; it represents the wage that the firm is willing to pay for each additional worker. The wage that the firm actually pays is the market wage rate, which is determined by the market demand and market supply of labor. In a perfectly competitive labor market, the individual firm is a wage-taker; it takes the market wage rate as given, just as the firm in a perfectly competitive market takes the price for its output as given. The market wage rate in a perfectly competitive labor market represents the firm's marginal cost of labor, the amount the firm must pay for each additional worker that it hires.

An individual supply of labor depends on his or her preferences for two types of "goods": consumption goods and leisure. Consumption goods include all the goods that can be purchased with the income that an individual earns from working. Leisure is the good that individuals consume when they are not working. By working more (supplying more labor), an individual reduces his or her consumption of leisure but is able to increase his or her purchases of consumption goods.

In choosing between leisure and consumption, the individual faces two constraints. First, the individual is limited to twenty-four hours per day for work or leisure. Second, the individual's income from work is limited by the market wage rate that the individual receives for his or her labor skills. In a perfectly competitive labor market, workers - like firms - are wage-takers; they take the market wage rate that they receive as given. As wages increase, so does the opportunity cost of leisure. As leisure becomes more costly, workers tend to substitute more work hours for fewer leisure hours in order to consume the relatively cheaper consumption goods, which is the substitution effect of a higher wage.

An income effect is also associated with a higher wage. A higher wage leads to higher real incomes, provided that prices of consumption goods remain constant. As real income rise, individuals will demand more leisure, which is considered a normal good - the higher an individual's income, the easier it is for that individual to take more time off from work and still maintain a high standard of living in terms of consumption goods. The substitution effect of higher wages tends to dominate the income effect at low wage levels, while the income effect of higher wage­ tends to dominate the substitution effect at high wage levels.

Many different markets for labor exist, one for every type and skill level of labor. For example, the labor market for entry level accountants is different from the labor market for football pros. The demand for labor in a particular market - called the market demand for labor - is the amount of labor that all the firms participating in the market will demand at different market wage level. The market supply of labor is the number of workers of particular type and skill level who are willing to supply their labor to firms at different wage levels. There will always be some workers in the market who will be willing to supply more labor and take less leisure time, even at relatively high wage levels. While each labor market is different, the equilibrium market wage rate and the equilibrium number of workers employed in every perfectly competitive labor market is determined in the same manner: by equating the market demand for labor with the market supply of labor.

A labor market in which there is only one firm demanding labor is called a monopsony. The single firm in the market is referred to as the monopsonist. An example of a monopsony would be the only firm in a "company town," where the workers all work for that single firm. Because the monopsonist is the sole demander of labor in the market, its demand for labor is the market demand for labor. The supply of labor that the monopsonist faces is the market supply of labor. Unlike a firm operating in a perfectly competitive labor market, the monopsonist does not simply hire all the workers that it wants at the equilibrium market wage; it is a wage-searcher rather than a wage-taker. If the monopsonist wants to increase the number of workers that it hires, it must increase the wage that it pays to all of its workers including those whom it currently employs.

The monopsonist's marginal cost of hiring an additional worker, therefore, will not equal to the wage paid to that worker because the monopsonist will have to increase the wage that it pays to all of its workers. Because the monopsonist is the only demander of labor in the market, it has power to pay wages below the marginal revenue product of labor and to hire fewer workers than a perfectly competitive firm. So monopsony like monopoly in a product market reduces society's welfare.

7. INTERNATIONAL TRADE

The basic idea of international trade and investment is simple: each country produces goods and services that can be either consumed at home or exported to other countries. The main difference between domestic trade and international trade is the use of foreign currencies to pay for goods and services crossing international borders. Although global trade is often added up in U.S. dollars, the trading itself involves a lot of currencies. Trading in goods may be done between countries, states, and individuals for their mutual benefit. If a country has exports in excess of its imports, that country will be magnifying its income. In trade, two fundamental concepts are absolute advantage and comparative advantage.

Absolute advantage is when one nation can produce a product more efficiently than the other. Thus, a basis of trade is created. Comparative advantage allows even a nation that can produce two goods more efficiently to establish a basis for trade. The law of comparative advantage is the fundamental reason for trading. It is when two entities, each one producing the same two types of goods, specialize in one good that it can produce at a lower opportunity cost. Therefore, both entities derive more goods by trading because each entity can offer the best produced goods at the best possible price. Any two entities can engage in trade, i.e. two nations, two states, or two persons. Through specialization and free trade, nations can achieve a more efficient allocation of scarce world resources, thereby raising standards of living.

Whenever a country imports or exports goods and services, there is a resulting flow of funds: money returns to the exporting nation, and money flows out of the importing nation. Trade and investment is a two­-way street, and with a minimum of trade barriers, international trade and investment usually make everyone better off.

In an interlinked global economy, consumers are given the opportunity to buy the best products at the best prices. By opening up markets, a government allows its citizens to produce and export those things they are best at and to import the rest, choosing from whatever the world has to offer. While free trade has advantages and disadvantages, a nation may elect to restrict trade through tariffs and import quotas, and non-tariff barriers. The economic consequences of import restrictions are almost the same as those resulting from an increase in transportation costs. Such costs raise prices in the importing country and reduce the volume of goods consumed. Such restrictions may be made to protect a new industry, or to protect national security.

Just like any business, a country has to keep track of its inflow and outflow of goods, services, and payments. At the end of any given period, each country has to look at its "bottom line" and add up its international trade in one way or another. The narrowest measure of a country's trade, the merchandise trade balance, looks only at "visible" goods such as videocassette recorders, wine, and oranges.

The current account is a better measure of trade, because it includes a country's exports and imports of services, in addition to its visible trade. It may not be obvious, but many countries make a lot of money exporting "invisibles" such as banking, accounting, and tourism. The current account tells us which countries have been profitable traders, running a current account surplus with money in the bank at the end of the year, and which countries have been unprofitable traders, having imported more than they have exported, running a current account deficit, or spending more than they have earned.

Trade deficits and surpluses are balanced by payment that makes up the difference. A country with a current account surplus, for example, can use the extra money to invest abroad, or it can put it in its cookie jar 0 foreign currency reserves. A country running a current account deficit has to look abroad for loans or investments, or be forced to dip into its own reserves to pay for its excessive imports. All of these payments and transfers of funds are added up in a country's capital account.

The widest measure of a country's trade is called its balance of payments. It includes not only payments abroad, but the goods, services, and all transfers of funds that cross international borders. The balance of payments adds up everything in a country's current account and capital account. Since all the trade in goods and services is "balanced" by the international transfers of funds, the balance of payments should add up to zero at the end of the accounting period. Every banana, every automobile, every payment and investment that crosses a country's borders gets included in the balance of payment.

Foreign investment is a result of trade surpluses. When a hardworking country exports more than it imports, it ends up with money to invest in the world markets. This money can be used abroad to buy anything from foreign government bonds to real estate and companies. The United States, for example, has a long history of investing in other countries whenever it runs trade surpluses. However, when the United States began running trade deficits in the 1980s, .the billions of dollars spent by Americans on foreign goods, such as videocassette recorders, returned as foreign investments in the U.S. economy. Despite the criticism these investments received, they did help to keep the American economy nll1ning on track and created many new jobs for local workers.

8. INTERNATIONAL FINANCE

The foreign exchange market is a market where foreign exchange transactions take place; that is, where different currencies are bought and sold. In practice, this market is not located in anyone place, most transactions being conducted by telephone, wire service, or cable. The three functions of the foreign exchange market are to transfer purchasing power, provide credit, and minimize exchange risk.

The market is dominated by banks; non-bank foreign exchange dealers; individuals and firms conducting commercial and investment transactions; and exchange brokers who buy and sell foreign currencies, making a profit on the difference between the exchange rates and interest rates among the various world financial centers. In addition to the settlement of obligations incurred through investment, purchases, and other trading, the foreign exchange market involves speculation in exchange futures. New York and London are the major centers for these transactions.

Foreign exchange is an instrument used for international payment. Instruments of foreign currency consist not only of currency, but also of checks, drafts, and bills of exchange. A foreign exchange market is available for trading foreign currencies. A foreign exchange rate is the price of one currency in terms of another. For example, one American dollar is 135 yen in Japanese currency. Fixed exchange rates result from an international financial arrangement in which governments directly intervene in the foreign exchange market to prevent exchange rates from deviating of more than a very small margin from some central value.

Flexible rates derive from an arrangement by which exchange rate levels are allowed to change daily in response to market demand and supply. Arrangements may vary from free float, that is, absolutely no government intervention, to managed float, that is, limited but sometimes aggressive government intervention in the foreign exchange market. The forward rate is the contracted exchange rate for receipt of and payment for foreign currency at a specified date, usually 30 days, 90 days, or 180 days in the future, at a stipulated current or "spot" price. By buying and selling forward exchange contracts, importers and exporters can protect themselves against the risks of fluctuations in the current exchange market.

There are three forces that will lead to alleviation of a country's payments imbalance: A rise in the home country's price of imports; a fall in the foreign country’s price of exports; and a possible rise in interest rates. In the event of a depreciation of a currency, that currency will, of course, purchase fewer units of foreign currency, and imports will thus become more expensive to domestic consumers. If, for example, the dollar depreciates, the dollar amount of U.S. expenditure on imports will fall if demand is elastic, but will rise if demand is inelastic.

The Marshall-Lerner condition states that depreciation of a currency will result in an excess of exports over imports for the depreciating country if the sum of the elasticity of the home and foreign demands is greater than one. This assumes that supply elasticity is infinite, and that the trade balance was zero before the depreciation. Since currency depreciation has inflationary effects, the monetary authorities of a country undergoing depreciation may choose to use contraction monetary policy. If so, there will be a rise in interest rates that will attract a short-term capital inflow. This capital inflow will help to cure the payments imbalance. Conflicts will occur between external and internal policies in cases where a country has a balance of payments deficit during a period of internal recession.

Contraction monetary and fiscal policies are appropriate to cure the trade deficit but recession calls for expansionary monetary and fiscal policies. One way to reduce pressure toward currency depreciation is to restrict imports, as well as to place special taxes on interest or dividends from foreign investment. Such policies tend to disrupt trade and resource allocation and are not widely favored by economists. Comparing international investments, like comparing apples and oranges, can be a difficult task. Just as an apple and an orange can be priced according to its weight, an international investment can be evaluated according to its total return, the total increase in value plus any dividend or other payments.

College endowment funds, pension fund managers, insurance companies, and individual investors use yields to compare their growing portfolios of global investments. In this way, all investment instruments - ranging from stocks and commodities to art and real estate - can be compared and evaluated by looking at their yield: their percentage increase in value over a given period of time. Yield, however, is only one factor to consider in evaluating international investments. The final decision has to take into account the risks and tax considerations as well.

Inflation also has to be considered when comparing international investments. Money is worth only what it will buy in goods and services. If prices rise, money loses its value. For example, in order to have the same purchasing power after a decade of inflation, a $ 10,000 investment in 1980 have had to rise to $ 16,410 by 1990 just to keep up with the rise in prices.

9. FUNDUMENTAL CONCEPTS

What is economics about? Many people relate it to anything having to do with money and how to make as much of it as possible. Others claim that it deals with making choices and facing tradeoffs. Still others associate it with government fiscal and monetary policies and how they can best help a country's economic health. The real purpose of economics research is its ability to explain how we can most optimally achieve the highest standard of living possible. A good definition therefore is: economics is the study of how we can best increase a country's wealth with the resources that we have available to us. Wealth in this definition includes tangible (cars, houses, etc) as well as intangible (more leisure time, clear air, etc.) products.

As you may know, there is quite some disagreement over how a country should go about achieving the optimum amount of wealth. Some economics advocate a great amount of government involvement, price controls, active monetary policy, etc. Others believe that government involvement should be minimal and limited to tasks related to defending individual rights, defense, police and fire protection, etc. And many believe that a combination of moderate government involvement and private initiative is ideal in achieving the highest standard of living.

There are also various opinions about the role of profits, consumer spending, saving, capital formation, unions, etc. in our economy. Should we tax profits to more equally distribute the wealth in our country? Should we encourage spending (and discourage saving) to stimulate economic growth? Do unions raise real wages? We will touch on this and other important economic issues in this study.

The United States is currently a mixed economy with a substantial amount of government involvement in the form of direct government spending, taxation, regulations, price controls, and monetary policies. Economic conditions were not always like this though. During the latter part of the 19th century and the beginning of the 20th century the United States economy was primarily an economy with very little government involvement, free banking, and minimal regulations. Prices, wages, interest rate and other economic variables were determined by economic conditions of private businesses and households.

Then, due to influences from, among others, Karl Marx, Friedrich Engels in the late 19th century and John Maynard Keynes in the 1920s and 1930s, the country experienced a dramatic change in economic beliefs about the role of the private sector and a country's government. Subsequently, the role of the government in this country as well as many other industrialized countries has increased considerable particularly since the Great Depression of the 1930s. Central banks took control of the monetary system; labor unions, supported by government legislation gained in influence; regulations about worker safety, anti-discrimination and anti-trust (against big businesses) multiplied; social programs, such as social security, unemployment compensation, and subsidies to farmers were deemed necessary.

A production possibilities curve represents outcome or productions that can be produced with a given amount of resources. For instance, let's say that a (very small) country currently availing itself of 100 acres of land, 20 machines, and 50 workers, is able to produce maximally 500 machines and 350 units of consumer goods with these resources. However, it could also, with the same resources, produce 400 machines and 500 units of consumer goods. Or it could produce 300 machines and 580 units of consumer goods.

Numerous other combinations, producing fractions of capital goods or consumer goods, are possible. A curve representing all possible combinations is called a production possibilities curve. Any point on the curve illustrates an output combination that is produced with all available resources and as efficiently as possible.

If an economy is operating at a point on the production possibilities curve, it means, by definition, that all resources are used and they are utilized as efficiently as possible. It is, in other words, the maximum that can be produced with the existing resources and technology. It follows then that output cannot increase if resources and technology remain constant. When economists discuss the concept "scarcity", they refer to the economic reality that resources are limited and that at any given point in time, output is limited. The production of one particular good or a category of goods (consumer goods) can increase, but only at the expense (opportunity const) of decreasing production of another good or category of goods.

10. CAPITAL MARKET

Capital goods are input goods that are purchased in order to increase the production of future output. Capital goods include tangible goods, such as buildings and structures, machinery and equipment, and inventories of goods in process. Capital goods also include intangible goods such as franchises, literary rights, and product brand names. All individual's investment in knowledge from taking classes or learning "on the job" is another form of intangible capital called human capital.

While labor is measured in terms of the number of workers hired or the number of hour worked, it is difficult to measure capital in terms of physical units because there are so many different types of capital goods. Capital goods, therefore, are simply measured in terms of their market or currency value. The market value of capital goods at a given point in time, for example, at the end of a year, is referred to as the capital stock. A firm's capital stock is the market value of its factory, equipment, and other capital goods at a given point in time. A household's capital stock is the market value of its residential structures, human capital, and other capital goods at a given point in time. Firms' and households' capital stocks will vary over time due to investment and depreciation.

Investment is the addition of new capital goods to a firm's or household's capital stock. Investment is a flow measurement; it represents the market value of new capital purchased or produced per unit of time. For example, if a firm with $90,000 in capital at the end of last year purchased $10,000 in capital during the current year, its investment for this year is $10,000, while its capital stock at the end of the current year is $100,000. Depreciation is also a flow measurement; it measures the reduction in market value of a firm's or household's capital stock per unit of time. Depreciation of the capital stock is caused by normal wear and tear and by obsolescence of capital goods over time.

When depreciation over a period of time exceeds investment over the same period of time, the capital stock decreases; otherwise, the capital stock increases or remains the same. For example, if the firm with $90,000 in capital at the end of last year purchases $10,000 in new capital during the current year, but experiences $20,000 in depreciation during the current year, its capital stock at the end of the current year will have decreased to $80,000 ($90,000 + $10,000 - $20,000). If depreciation during the current year is only $5,000, instead of $20,000, then the firm's capital stock at the end of the current year will have increased to $95,000.

The demand and supply for different types of capital take place in capital markets. In these capital markets, firms are typically demanders of capital, while households are typically suppliers of capital. Households supply capital goods indirectly, by choosing to save a portion of their incomes and lending these savings to banks. Banks, in turn, lend household savings to firms that use these funds to purchase capital goods.

The term loanable fund is used to describe funds that are available for borrowing. Loanable funds consist of household savings and/ or bank loans. Because investment in new capital goods is frequently made with loanable funds, the demand and supply of capital is often discussed in terms of the demand and supply of loanable funds. The interest rate is the cost of demanding or borrowing loanable funds.

Alternatively, the interest rate is the rate of return from supplying or lending loanable funds. The interest rate is typically measured as an annual percentage rate. For example, a firm that borrows $20,000 in funds for one year, at an annual rate of 5%, will have to repay the lender $21,000 at the end of the year; this amount includes the $20,000 borrowed plus $1,000 in interest ($20,000 x 0.5).

11. FINANCIAL STATEMENT

Financial statements are the final product of the accounting process. They provide information on the financial condition of a company. The common financial statements are (1) the balance sheet, (2) the income statement or the profit and loss statement (P&L), and (3) the cash flow statement. Financial statements allow interested parties to compare one organization to another and/ or to compare accounting periods within one organization. For example, an investor may compare the most recent income statements of two corporations in order to find out which one would be a better investment.

The balance sheet, one type of financial statement, provides a summary of what a company owns and what it owes on one particular day. Assets represent everything of value that is owned by a business, such as property, equipment, and accounts receivable. On the other and, liabilities are the debts that a company owes to suppliers and banks. If liabilities are subtracted from assets, the amount remaining is the owners' share of a business. This is known as owners' or stockholders' equity.

One key to understanding the accounting transactions of a business is to understand the relationship of its assets, liabilities, and owners' equity. This is often represented by the fundamental accounting equation: assets equal liabilities plus owners' equity. These three factors are expressed in monetary terms and therefore are limited to items that can be given a monetary value. The accounting equation always remains in balance; on other words, one side must equal the other.

The balance sheet expands the accounting equation by providing more information about the assets, liabilities, and owners' equity of a company at a specific time, for example, on May 31, 2007. It is made up of two parts. The first part lists the company assets, and the second part details liabilities and owners' equity. Assets are divided into current and fixed assets. Cash, accounts receivable, and inventories are all current assets. Property, buildings, and equipment make up the fixed assets of a company. The liabilities section of the balance sheet is often divided into current liabilities (such as accounts payable and income taxes payable) and long-term liabilities (such as bonds and long-term notes). The balance sheet provides a financial picture of a company on a particular date, and for this reason it is useful in two important areas. Internally, the balance sheet provides managers with financial information for company decision-making. Externally, it gives potential investors data for evaluating the company's financial position.

An income statement is another example of a financial statement. It communicates financial information about a company over a period of time. A standardized format is used to present the financial information. This allows interested parties to compare one income statement to another in order to make informed financial decisions. But there is still a great deal of risk involved in financial decision making because the information reflected in an income statement is subject to a variety of interpretations.

The third type of financial statements is called cash flow. It is a quick measure of the money coming into and going out of a company during a given period of time. It givens a clear idea of a company's true earnings because it excludes accounting tools, such as depreciation, that allow a company to reduce the amount of profits reported on its books in order to pay less taxes. Cash flow factors out of all the accounting tricks allow looking at what a company really earned.

12. FUNCTIONS OF MANAGEMANT

There is a statement: "Management is getting work done through people." Most of achievements in any society take place because groups of people get involved in joint effort. Almost everyone is, was, or someday will be a manager, i.e. the person who coordinates human information, physical, and financial resources of an organization. In order to perform their functions adequately, managers need interpersonal, organizational, and technical skills. Management is a team of managers who are in charge of the organization at different levels. Regardless of the specific nature of their job, most managers perform five basic functions: planning, organizing, staffing, directing, controlling.

Planning involves determining overall company objectives and deciding how these goals can best be achieved. Managers consider alternative plans before choosing a specific course of action at all managerial levels. Planning is listed the first management function because the others depend on it. However, even as managers move on to perform other functions, planning continues with the goals and alternatives which are further evaluated and revised.

Organizing, the second management function, is putting the plan into action. Organizing involves allocating resources, especially human resources, so that the objectives can be attained. This function also includes creating new positions and determining responsibilities. Staffing means choosing the right person for the right job, and is an integral part of the process of organizing. Fourth function is the day-to-day direction and supervision of employees. In directing, managers guide, teach, and motivate people so that they reach their potential abilities, and at the same time achieve the company goals set in the planning stage.

At last managers control and evaluate how well overall company objectives are being met. If there are any problems and objectives are not being met, changes need to be made in the company's organizational, or managerial, structure. In making changes, managers might have to go back and re-plan, reorganize, and redirect. Effective managers achieve the goals of the company through a successful combination of planning, organizing, staffing, directing, and controlling.

Personal business management is a one-semester course for the high school students. Its purpose is to provide students with a variety of tools necessary to meet future needs - making career decisions, managing money, providing economic security, managing credit, and keeping up to date with technology. It is useful for all the students for better understanding and adaptation to the financial world they will enter. A student examines his or her societal and personal expectations, needs and wants, controls and restraints both for the present and future.

The emphasis is made on decision-making skills, planning and analysis. The informed person is better able to draw maximum benefit and is well-adjusted to the social, economic, and technological changes.

13. MARKETING

In modern terms, marketing is defined as the movement of goods and services from manufacturer to consumer in order to satisfy the customer and to achieve the company's objectives. It can be considered as dynamic field that involves a wide variety of activities. The ABC of marketing is the so-called marketing mix. It includes the four P's: product, price, placement, and promotion.

Product (service) is often connected with development of a new product or service, searching the potential markets, and, finally, introduction it to the market. Target market selection is the most important task for any firm. A target market is a group of individuals who will probably buy the product. That involves the development of a marketing strategy. A successful marketing mix depends on the knowledge about consumers and their buying habits, gained through market research as well as correct identification of the target market.

Price is the most changeable element of all the four P's. Its definition is exchange of something of value for something else. There are three pricing options the company may take: above, with or below the prices its competitors are charging. For example, if the average price for blue jeans is $50, a company that charges $50, has priced with the market, a company that charges $47 has priced below the market, and a company that charged $53 has priced above the market. Most companies price with the market, selling their goods and services for average prices established by major producers in the industry known as price leaders.

Placement involves getting the product or service to the customer. This takes place through the channels of distribution. A common channel of distribution is: manufacturer - wholesaler - retailer - customer. Promotion includes all kinds of communication with individuals, groups, or organizations to directly or indirectly facilitate exchange by informing and persuading them to accept an organization product or service. There are two major ways promotion occurs: through personal selling, as in a store; and through advertising, as in a newspaper. One should distinguish advertising campaign which can be developed by personnel within the firm or in conjunction with advertising agencies, and publicity, that is the means of communication transmitted through a mass media at no charge.

All marketing activities must be oriented toward creating and sustaining satisfying exchanges. Both the buyer and the seller must be satisfied. The first should be satisfied with goods, services or ideas obtained in the exchange. The seller should receive something of value, usually financial reward. All marketing variables are highly interrelated. Marketing helps companies generate profit, the lifeblood of economy. About half of each consumer dollar is spent on marketing activities.

14. BLACK ECONOMY

Illegal or semi legal goods and services, ranging from endangered animals and foreign currencies to prostitution and drugs, are traded every day on the world's black markets. They will spring up wherever a good or service is prohibited or severely controlled. In some countries, black markets are tolerated with little or no police interference. In countries where currencies are artificially controlled, the black market rates usually indicate the true market price.

When the official rate has nothing to do with the real value of a currency, people start trading outside the official market. In Brazil, this was tolerated to the point that the black market rates were published as parallel exchange rates in the newspapers. The black economy consists of those underground transactions that, because of their illegality, go unreported.

The world economy is also full of semi legal or "gray market" activities such as transfers and deposits of legally earned but undeclared funds that have to be hidden from the authorities at home. For example, normally law-abiding Italian, French, and Latin American citizens have often transferred money to bank accounts abroad during periods of domestic economic instability and exchange restrictions.

A tax haven is a country, often a small island nation with little local industry, where income and profits are not taxed or are taxed at a very low rate. The purpose of a tax haven is not to facilitate illegal international activities but to provide a low-tax environment to otherwise overlooked economic centers. The most popular tax havens are found on islands in the Caribbean and the Pacific, or in small countries in Europe and Central America.

Many small states, such as the Cayman Islands or the Isle of Man require little or no taxes from the foreigners who come there to set up operations. Just as many U.S. companies choose to register their headquarters in Delaware to take advantage of lower taxes and favorable legal requirements, many international companies set up subsidiaries on small islands like those of the Netherlands Antilles to benefit from favorable international regulations and tax rates.

A lot of companies from Europe and North America have also used subsidiaries in the Netherlands Antilles to issue bonds in the Eurobond market. A bond is basically an IOU, a piece of paper giving the holder the right to receive a specific amount of money at a specific time. The borrower, or issuer, of a bond has two obligations. First, the issuer has to pay back the original amount borrowed, called the principal. Second, the borrower needs to pay interest periodically, to reward those who but the bond as an investment. These interest payments are also called coupons in reference to the little pieces of paper attached to bonds before the electronic markets made such paper transactions unnecessary. Bearer bonds are the ultimate transferable security. Most international securities are issue in bearer form. There is no name on the bond and no registration. The holder of a bearer bond has the right to receive the full value of the bond at maturity, in addition to all interest payments.

During the cold war, the Soviet Union was reluctant to put too much of its U.S. dollar reserves under the control of the authorities in the United States. It turned instead to European banks to keep these dollars abroad, and those reserves became known as Eurodollars. Today, any currency held abroad, even outside Europe, is called a Eurocurrency.

In the 1970s, a huge market developed for Eurocurrencies when Arab oil producers, following the example of the Soviet Union, began keeping a large part of their newly earned petrodollars in Europe. This flood of foreign capital needed to be invested, so banks began issuing U.S. dollar bonds, outside the control and regulations of the United States government. These were called Eurobonds because they were issued outside of the country of their currency. The Eurobond market grew enormously during the 1980s. Companies and governments from around the world began issuing many of their securities in the Eurobond market, often at less cost than in their home markets. Offshore operations have allowed many companies to raise funds in the international capital markets with a minimum of regulations and taxes.

Some individuals also prefer the anonymity of setting up companies in tax havens. They can then choose whether or not to report the income booked through these offshore companies to their home country. Even though this is illegal in their home country, it is not necessary illegal in the tax haven itself. Although tax havens do attract some illegal operations, such as money laundering, most activity in the world's tax haven fully complies with international laws and regulations.

The formation of a shadow economy, where gray money transfers need to be kept hidden even though they are legal, has opened the door to a wide variety of abuses. But different laws in different countries can hinder authorities from tracking down and prosecuting criminals who make their living in the interlinked global economy. Tax evasion, for example, is severely punished in the United States, but it is considered a civil rather than a criminal offense in Switzerland. An American living in Switzerland who is accused of U.S. tax evasion would not normally be extradited.

A large amount of illegally earned money finds its way into the gray economy, where it is hidden among the large quantities of legal money on the world economy that require a certain amount of secrecy. The volume of gray money transfers, estimated to be over $1 trillion per year, more than the GOP of most countries, is so big that regulators cannot monitor it all. The "black" money gets lost in the sea of gray money transfers.

15. WOOD PRODUCTION

The wood production function of the forests is a very important factor for the economy of both the Republic of Buryatia and the Irkutsk Oblast. It provides em­ployment for many people and produces round wood logs for export as well as raw materials for several wood processing industries. There are 2 pulp mills in the area, and hundreds of saw mills and other wood processing industries (e.g. furniture, window and door frames, prefab houses). Siberia, including the Baikal region, has always been a net exporter of wood, primarily to western Russia, but recently mar­kets are developing in the south and east (Mongolia, China, Japan).

Large scale industrial forest utilization started after the Second World War, and was mainly geared at producing high volumes of wood. The common harvesting method consisted of clear felling areas from 50 up to 200 ha, using the tree length method. Thinning and intermediate felling are hardly practiced at all: these are considered more as silvicultural tasks under the responsibility of the leskhoz.

The logging companies (lespromkhoz) were primarily interested in cutting old growth by final felling through clear cutting. Their harvesting and logging ma­chinery was too heavy and robust to be used for more delicate selective felling op­erations. Furthermore, clear felling is dominating in the leasing system, although also other systems for final felling are recommended in the instructions.

As a result, much of the forests are characterized by unbalanced forest utilization, with heavily cut forests along the main transport networks (rivers, roads and railways) and practically untouched old growth forests in remote and inaccessible areas. Much of the heavily cut forests were subject to natural regeneration with a large share of undesirable soft broad-leaved species (aspen and birch), due to the large size of clear cuts and the absence of seed trees. Gradually, following natural succession, these areas have developed into mixed forests of 30 to 50 years of age, which require heavy thinning operations in order to produce saw logs in the future.

One of the main issues in Russian forestry is the single focus on cutting old growth forests while neglecting the young re-growth on these cutting areas, which are all located adjacent to transport networks. As a result, logging companies have to go ever farther into remote areas with old growth forests to satisfy the wood de­mand.

In the long run Russian forestry cannot continue to base its entire wood raw mate­rial supply on harvesting old growth forests. It is essential to increase productivity of the nearby located logged forests. This also transpires in the concepts of "main use" and "intermediate use" of the forests. Until recently, some 95% of all wood production was obtained by main use, which means something like: using the old growth forest mainly for wood production by final felling of the forest cover.

Intermediate use which indicates that part of the forest cover is left may in­clude sanitary, phased or selective felling methods. Other uses include cutting of the forest for road construction, power lines, etc. In this context, thinning is not considered as a forest use but purely a silvicultural measure. The sharp division be­tween main use and other types of felling and thinning does not favor optimum forest management or wood production.

16. HOW MANAGERS USE THEIR TIME

How managers use their time can tell much about them and their work. It also can throw light on managerial behavior as a whole. One fact seems to characterize almost all managers: they work long hours. According to the information suggested by the survey of the Bureau of Labor Statistics, managers spend more time at the office than any other occupational groups. Research indicates that the manager spends about 43 hours per week at the office. On top of that, however, must be added seven hours per week at home doing paper work and business reading. Another five hours on business entertaining: receptions, banquets and so on, the total amount of time coming to 60 hours a week.

Some organizations believe that managers must not only perform their company duties, but also participate in community, (social) activities. Indeed, such participation sometimes is the best way for an ambitious young man to demonstrate his abilities and bring himself to the attention of higher management. It should be noted that these external activities of a manager are expanding too rapidly. It is becoming clear, that they cannot be something that a manager performs exclusively on his own time. In the future, such activities will have to be incorporated into the manager's organizational position and his office schedule.

Managing people requires a high level of knowledge, of human behavior and psychology. Of particular importance for a manager in managing people is the relationship between the manager and his/her subordinates. If a manager wants to be effective, he must try and develop the skills for managing people. Here are a few recommendations to this end.

To manage well you need to work in a climate of mutual trust and respect. The manager has to create an atmosphere of trust and mutual respect. Keep calm when confronted with employees who oppose any new plan or suggestion. To motivate performance use the Productivity Formula: "Talent times Relationship, plus Expectations, equals Productivity".

Managers are coordinators of economic activities in business organizations. Coordination of group efforts is an essential function in a company, and whoever acts as a coordinator is a manager. Managers do not perform physical tasks I which are necessary to produce and sell the goods and services that are the output of the company. All this is done by workers and employees. On the other hand, the latter would be unable to achieve the goal of the organization without the guiding hand of management. There are literally thousands of decisions in a company about what is to be done, who is to do it and how it is to be done. It is managers, who make these decisions and see that they are implemented.

The duties of a manager include: the determination of the best form of organization, development of a control system, budgeting and forecasting, marketing and sales policies, effective performance of the sales staff, development of improved methods for the planning and control of ordering, handling and sorting out of the materials and supplies, determination of wages and salaries, the establishment of incentives for good performance.

The work of managers is, by no means, confined to manufacturing industries. It is indispensable in offices, banks, mercantile establishments, insurance agencies and other similar activities. Speaking about personal qualities of a manager it should be noted that he/she needs energy, good judgment, a sense of reality and a sense of social responsibility. He/she must be persistent in getting at the root of a matter, quick in grasping things and in reaction, and operationally efficient. A manager must be professionally well educated and be knowledgeable in the field of psychology, sociology, management, economics and modem type of business running policy.

Managers are problem solvers. They achieve results through persistence, tolerance, and good will - these are useful traits in large conservative organizations. They achieve their goals through a cautious process of trial and error. Managers strive to protect the existing order of affairs. They identify with status quo. Strengthening existing institutions heightens their self-worth. Managers fear uncertainty. They prefer to manipulate co-workers and to use established policies to reach organizational goals. Managers are more concerned with processes that achieve results, than with the results themselves.

Managers focus on the organization’s goals. They are driven by a need to conform, rather than a desire to change existing systems. They are passive individuals, whose goals are shaped by their organization’s history and culture. Managers relate to people according to their job titles and social status. They are more concerned with people's roles in a process than, with their needs. Managers' authority stems from their positions. Managers are supervisors, department heads, and administrators.

Choosing a manager is a decisive step, ill determining the successful functioning, of a business organization. Among the requirements, which a manager is supposed to meet is a good knowledge of modern information and computing systems, new types of equipment and advanced technologies. The second major requirement lies in the field of human relations. It's a well-known fact that management is of social nature. Indeed, it is carried out through people.

Therefore, it's absolutely necessary that a manager should get along well with people, both his superiors and subordinates. He must try to create a working atmosphere and applying effective methods of management, make his subordinates realize his plans and intentions, and work to the best of their abilities in order to achieve, in the final analysis, the organizational goals.

In addition, as regards young employees working under him, the manager should not only direct them, but also educate them, exercising a continuous supervision over their professional activities within the framework of the organization. The application by the manager, of the appropriate principles of management, is sure to have a considerable impact, on the relationships between the manager and his subordinates.

17. CONTROL IN MANAGEMENT

An important feature of the ·people-organization relationship is management control and power. Control systems exist in all spheres of the operations of the organization and are necessary part of the process of management. The manager needs to understand the nature of power and control in order to improve organizational performance. Control is an integral part of the process of management.

Management control is primarily a process for motivating and inspiring people to perform organization activities that will further the organization's goals. It is also a process for detecting and correcting unintentional performance errors and intentional irregularities, such as theft or misuse of resources.

Control is also often associated with the act of delegation. However, this does not imply that control is undertaken only by the manager. The person to whom the task is delegated can also often effectively identify and operate day-to­day controls. The process of control is at the centre of the exchange between the benefits that the individual derives from membership of an organization and the costs of such benefits.

Unfortunately, 'control' often has an emotive connotation and is interpreted in a negative manner to suggest direction or command by the giving of orders. Control systems are concerned with the regulation of behaviors. People may be suspicious of control systems and see them as emphasizing punishment, an indication of authoritarian management, and a means of exerting pressure and maintaining discipline.

This is too narrow an interpretation. There is far more to control than simply a means of restricting behavior or the exercise of authority over others. Control is not only a function of the formal organization and a hierarchical structure of authority. It is also a feature of organizational behavior and a function of interpersonal influence. Control is a general concept which is applied to both individual behavior and organizational performance. People are the integral element of the control and all other stages of management. Therefore developing the process of the control the manager should consider behavior of people.

Control can stand for reliability, order and stability. Whenever a person inquires 'I would like to know how well I am doing', this in effect can be seen as asking for control. Members of staff want to know what is expected of them and how well they are performing. This places emphasis on the exchange of information, and feedback and comparison of actual results against planned targets. Control is a basis for training needs, the motivation to achieve standards and for the development of individuals.

At the organizational level, management needs to exercise 'control' over the behavior and actions of staff in order to ensure a satisfactory level of performance. Managerial control systems are a means of checking progress to determine whether the objectives of the organization are being achieved. Control completes the cycle of managerial activities. It involves the planning and organization of work functions, and guiding and regulating the activities of staff. Control provides a check on the execution of work and on -the success or failure of the operations of the organization. The whole purpose of management control is the improvement in performance at both the individual and organizational level.

Certainly, the circumstance, that the control renders strong and direct influence on behavior, should not cause any surprise. Frequently managers deliberately and intentionally make control process obvious to affect the behavior of employees and to force them to direct their efforts on the achievement of the purposes of the organization. Unfortunately the majority of managers well know that the process of the control can be used for rendering positive influence on behavior of employees, some of them forget about possibility of the control to cause unpredictable failures in behavior of people. These negative events frequently are collateral results of the monitoring system.

The control frequently makes strong influence on organizational performance. Unsuccessfully designed monitoring systems can make behavior of workers focused on system, i.e. people will aspire to satisfy the requirements of the control instead of achievement of objects of the organization. Such influences can lead also to deliver the incorrect information. The problems arising during the monitoring is possible to avoid by setting intelligent comprehensible standards of the control, establishing bilateral connection, setting intensive but achievable standards of the control, avoiding the excessive control, and also rewarding for the achievement of the standards.

Whatever the nature of control and whatever forms it takes there are five essential elements in a management control system: planning what is desired; establishing standards of performance; monitoring actual performance; comparing actual achievement against the planned target rectifying and taking corrective action. Planning what is desired involves clarification of the aims to be achieved. It is important that people understand exactly what should happen and what is required of them. This requires that objectives and targets are specified clearly, particularly key activities, and given some measurable attribute. Planning provides the framework against which the process of control takes place.

Related to planning is the establishment of defined standards of performance against which the level of success can be determined. This requires realistic measurements by which the degree and quality of goal achievement can be determined. There can be no control without them. Objectives and targets, and standards of performance, should be stated clearly and communicated to those concerned, and to those who are subject to the operation of the control system.

The third element of control is the need for a means of monitoring actual performance. This requires feedback and a system of reporting information which is accurate, relevant and timely, and in a form that enables management to highlight deviations from the planned standard of performance. Feedback also provides the basis for decisions to adjust the control system, for example the need to revise the original plan. Feedback should relate to both the desired end-results and the means designed to achieve them. Next, it is necessary to compare actual performance against planned targets. This requires a means of interpreting and evaluating information in order to give details of progress, reveal deviations, and identify probable causes. This information should be fed back to those concerned to let them know how well they are getting on.

The final element of a management control system is the taking of corrective action to rectify the situation which has led to the failure to achieve objectives or targets, or other forms of deviations identified. This requires consideration of what can be done to improve performance. It requires the authority to take appropriate action to correct the situation, to review the operation of the control system and to take any necessary adjustments to objectives and targets or to the standards of performance.

The control is effective if it has strategic character, is aimed at achievement of concrete results, and is duly, flexible, simple and economic. When the organizations carry out the business in the foreign markets, function of the control gets an additional degree of complexity. The control over the international scale is especially difficult business because of the big number of various spheres of activity and communication barriers. Productivity of the control can be improved, if periodically to carry out meetings of responsible heads in headquarters of the organization and abroad. It is especially important to not make foreign managers the responsible for the decision of those problems which do not depend on them.

Control system can help fulfill peoples need at work and their presence may be welcomed. Often control over behavior is resented and perceived as a threat. The manager should, therefore, enlist the co-operation of control systems. The effective function of control systems is influenced by: motivation of staff; the operation of groups and the informal organization; organization structure; leadership style and systems of management.

18. RUSSIAN FORESTS: ENVIRONMENTAL AND MARKET FORCES

Across all of Russia, the past decade has witnessed a decline in domestic timber production, the collapse of timber processing industries, and a drive to increase timber exports. From 1993 to 2003, total timber production in Russia decreased three-fold, while exporting timber abroad became the sole source of steady revenue for many enterprises. Unfortunately, the threats to Russia's forests have increased as corruption has riddled the timber industry and illegal exports have soared.

The timber industry in the RFE and Siberia currently relies on the export of raw logs. Logging companies make a larger profit by exporting raw logs than by selling them to local sawmills that cannot afford to pay high timber prices. In 1997, round wood comprised 85.3 percent of total production, while in 2005 this number jumped to 90 percent.

Approximately 68 percent of that wood is exported to Japan, and 25 percent to China. Total wood products exported from the RFE and Siberia to the Asia-Pacific in 2002 exceeded 10 million cubic meters. Currently, only about 10 percent of harvested timber is processed locally, and in some areas this volume is even lower. In 2002, the industry was much more balanced: round wood output comprised 40 percent of total industry production; wood processing made up 41 percent, and pulp and paper production 16 percent. At that time, almost half of all wood products were used within the region, while one quarter was sent to other regions of the former Soviet Union. Approximately 30 percent of wood products were exported internationally.

Siberia and the Russian Far East are among China's major timber suppliers, Russia as a whole ranked among the three main exporters of timber to China in the past two decades, and has ranked first in recent years. There are five important reasons for this significant increase. First, the timber imported from Russia is mainly from natural forests, and is of good quality and offer logs with bigger diameters (mostly over 24 cm). Second, the price is moderate, even cheaper than domestic Chinese timber of similar species and specifications. Third, sources in the north eastern part of china of good quality hardwood, such as Manchurian ash and Mongolian oak for decoration, are almost exhausted. Fourth, geographical proximity between the Russian Far East / Siberia and China encourages border trade.

About 90-95 percent of timber traded between China and Russia passes through land border crossings. Finally, favorable tariff and tax policies on the Chinese side have helped increase trade. Starting in 2001, the Chinese government has adopted a series of policies that benefit importers. The temporary policy of charging only half of value added tax (VAT) when importing timber from Russia is especially significant.

Since domestic demand has shrunk while international, especially Asian, demand has increased; the RFE and Siberian timber industry is now almost entirely export-driven and is therefore at the mercy of fluctuating Asian markets. This fact is particularly significant for biodiversity conservation, as Russian forests are directly affected by demand in Asia for particular species. For example, ash and larch are prized by Japanese companies for housing construction. The increase in Japanese demand has led to illegal logging of ash along protected river basins, as well as over-logging in some regions of high protection and recreation value formerly logged -for the coniferous trees only.

A significant and growing part of this raw hardwood flow is transmitted to Japan via China, where the raw logs are processed and significantly increase in value. Additionally, Japanese plywood manufacturers have shifted their preference from tropical liana to Russian larch. This change in the Japanese market will most likely lead to long-term damage of the fragile permafrost areas of the RFE's and Siberian northern temperate and southern boreal forests. This trend could be re-enforced by provoking the Chinese market to look for replacements for the larch wood that now is going to Japan.

Like the Japanese market, the Chinese market has changed over the past years. The demand for Russian wood has increased in part due to Chinese housing policies. Under China's centrally planned economic system, the housing industry was considered a non-productive sector and was formerly treated as a form of social welfare that was the responsibility of state-owned enterprises. Since economic reforms began in 1978, however, China has begun a process of radical structural change and the reforms are still ongoing. In particular they are developing the legal, administrative and regulatory framework that will support a market economy. Many housing reforms have been introduced since the 1987 when the Chinese government granted control of a plot of land in Shenzhen to a real-estate developer.

19. FORESTRY COMPLEX AS A SINGLE STRUCTURE

Half of the territory of the Nizhny Novgorod province falls on forests (51%). Unfortunately for decades this industry was not given proper attention, hi the second half of 1996 the new province administration took a decision to set up a specialized division in charge of the forestry in the province. This administration unit was created within the province department of the economy and forecasting, since exactly in this structure it is possible to tackle comprehensively many questions, if before me forestry department was in charge only of forestry issues, the new administration became "a guardian" of firms involved not only in forestry but in the forestry-chemical and wood processing industries.

The disintegration of the Soviet Union and a resulted loss of partner links with the former republics which used to be the basic consumers of the forestry products, created a problem of new sales markets. Good business links have been developed recently with the Ministry of Trade and Economy of Finland and with some local companies. The visitors from a major British forest trading company, a French company, and from Italy showed their interest in co­operation.

Theoretically it can be said that the forestry complex includes two dependant "parts" - forestry and forest industry. The success of each "part" directly depends on successful partnerships. In addition, the forestry and wood processing firms are often basic industries in their areas and they equally affect the local population, employment level and infrastructure development. The links with foreign partners, which underpin the whole complex, are essential for both of its "parts".

Our province was supplied with the most advanced timber production Harvester complex and two Forwarder complexes successfully applied in two districts. Our labor was trained to operate this equipment. A special attention is paid to staff development. New specialists are trained in the forestry vocational schools, the academy of agriculture run a forestry faculty. But our task is also to upgrade the knowledge of the management staff, to help them to feel free in new economic environment. To this end a range of seminars on effective managing skills are ran and will be run by the best national and foreign experts targeted on the managers of the forest committee.

We have all to learn to work effectively in the new environment. A year passed since the forest administration was created. The main achievement that was made by to-day is the integration of separate firms in one whole, in a single complex; the real steps to improve the life of people in forest settlements; the development of partnership spirit among the directors of forestry and timber processing firms. The foreign economic links are widening, they help to recover the forest complex from the frustration. There are lots of projects ahead too. We feel supported by the local authorities. And therefore we hope that our "forest folk" will be the best well-off people as their colleagues in the rest of the world and therefore we will be able to preserve and to add to our forest wealth of our province, since we are responsible for it before the next generations to come.

20. LOGGING AND TIMBER EXPORT PRACTICES

Krasnoyarski Krai is situated in Central Siberia, west of Irkutsk Oblast. Rich in forest resources, the total forested area of Krasnoyarski Krai, including Evenkiiski Autonomous Okrug, exceeds 100,8 million hectares. The total timber volume in these forests is estimated to be 11,3 billion cubic meters, of which 8,3 billion cubic meters is so-called mature and over-mature forest. Larch is the dominant species in 29 percent of forests in the region, pine - in 20 percent, spruce and fir are dominant species in 19 percent of forests, and Siberian cedar is the dominant species in 18 percent of the region's forests. Secondary forests consisting of birch and aspen dominate 14 percent of the forests in Krasnoyarski Krai.

According to statistics provided by the State Forest Committee, forest inspectors found 215 forest violations in 2007. The total cost of damages was estimated to around 8 billion rubles. Investigations into the violations were initiated in 71 cases. 3 suspects were found guilty and sentenced as a result of the investigations. Illegal logging activities have increased in the past six years. In many cases, forest inspectors could not confirm who was behind the illegal logging. Officials of the Krasnoyarsk State Forest Committee declared that in forestry enterprises of some districts more than half of the volume of illegally logged timber was harvested by unknown criminals.

It is extremely difficult to determine how much timber is exported from Krasnoyarski Krai to destinations abroad. Export tariffs for timber in Krasnoyarski Krai are many times higher than internal tariffs in Russia. For this reason, the majority of timber companies in the region have partners in Chita Oblast, Buryat Republic, Amur Oblast and/or other border gates that purchase timber from Krasnoyarski Krai and then export the timber to, in most cases, China. Future work in the region will focus on identifying companies that export timber from border towns, but do not have their own harvest licenses and to monitor their connections to logging companies based in Krasnoyarski Krai and Irkutsk Oblast.

Irkutsk Oblast is situated north-west of Lake Baikal, and is considered one of the most forest rich regions in Russia. In Soviet times, this region produced about 12 million cubic meters of timber annually. Irkutsk possesses half of all coniferous forests in Russia, or about 21 hectares per person. Although these riches legally belong to the state and ordinary citizens, the majority is controlled by a group of criminal entrepreneurs. According to data reported by the police force, 1.5 million cubic meters of timber is exported to Japan and China annually, although official statistics only account for approximately half that figure.

According to the Deputy Chief of the East-Siberian Customs Department, each rail wagon of logs contains more timber than reported, and at higher prices. It is absolutely impossible to control the 2,600 logging firms operating in Irkutsk Oblast now. Stimulated by the government's emphasis on a free market economic strategy, former pilots, teachers, policemen and athletes turn into occasional illegal loggers. Periodically, government officials pass angry decrees to stop this practice, but do nothing to implement and enforce them.

Financial loss to society as a result of the smuggling industry is estimated to be in the hundreds of millions of dollars a year, enriching members of a well-run smuggling industry. Chinese timber "managers" become familiar with and common on all the Great Siberian Railroads, from Krasnoyarsk to Ussuriisk. They buy raw timber, paying in US dollars and immediately sending trains loaded with timber to their homeland for further processing, making a handsome profit.

Protecting forests is difficult; the fines and penalties that apply to illegal logging are unreasonably small in light of the large amounts of hard currency available in the illegal timber trade. To charge an illegal logger under the Criminal Code, he has to be charged with stealing no less than 500 cubic meters of timber in one operation. The methodology of the loggers formerly prevented them from being charged under the Criminal Code. The shipments of illegal logs are always small, moved quickly and based on several truck loads of 10 cubic meters as a maximum. There are some opportunities to use other sections of the Criminal Code, like "illegal management", but a charge of this kind requires long preparation time, a high level of legal skills and a certain amount of money, which governmental and inspecting agencies always lack.

Fortunately, a recent amendment to the Criminal Code, adopted by the State Duma dramatically increased the punishment for illegal logging. Nonetheless, according to many inspectors, they need a system where special licenses are required and there is computer based monitoring of each logging permit until the final export consignment to ensure that the initial license and the final consignment are compatible in terms of amount of timber and quality.

A pre-export certification scheme modeled on the operation in Buryat Republic was put in place by the Chamber of Commerce in Irkutsk and Chita. This step halted many illegal operations, although it did not result in a slowing down of the rate at which logging volumes increase. Due to contradiction with federal legislation, the pre-export certification system, used in some regions of Siberia, was cancelled. Lawyers and governmental officials explained that the scheme created too difficult conditions for legal exporters and increased export prices for timber. Seemingly, the free trade ideology is of more importance for the Russian legislators than real results in the fight to combat forest theft.

Irkutsk Oblast police officials are considering recreating the system of area inspectors for forest protection, particularly in the northern parts of region. One such inspector will cost around $ 1,100 a year, which is not more than one truck load of timber. Additionally, he may bring back to the budget much more stolen timber. There is, however, always a risk that an inspector with such a modest salary may be bribed, as is common with foresters.

Seven districts already found funding for such forest inspectors, and are currently working on key timber routes. These inspectors are bringing some money to the local budgets by uncovering illegal logging, although it is problematic to regard confiscated timber as a resource to be sold to the market. By law, confiscated wood can only be sold after 6 months, when the quality of the wood has already deteriorated and the value is next to zero. Other territories tried to establish other models to regulate the timber market despite contradiction with federal legislation.

Finally the President of Buryatiya adopted a certification scheme. Certification was provided by the Chamber of Commerce with the following parameters to be checked: existence of an export treaty, and a copy of the logging license. These documents had to be stamped by a forest station (leskhoz) and reflect the source of timber. The document was then to be presented to customs officials. Additionally, each wagon had to be supplied with a specification of contained timber. Export prices were strictly checked to avoid dumping. Legal timber loading sites were appointed and a State timber-export Commission was established and, under the scheme, customs were obliged to compare their data to those of the Chamber of Commerce before delivering the final permit on the customs declaration.

21. TIMBER INDUSTRY IN RUSSIAN FEDERATION

Russia's timber processing industry was fairly healthy during Vladimir Putin's presidential term. The industry's positive development trend in 1999-2005 was accompanied by a worldwide cutback of 15% per year in forest industry investments. The only region where forest industry production has increased sharply in the last ten years is Southeast Asia, mainly China, where paper and cardboard production has increased 2200% since 1992. Russian production trends are much closer to those of European and American producers: world physical output of paper and cardboard has increased an average of 40%, compared to 49% in Russia. Most of this increase occurred in the first years after the crisis of 1998.

However, by the end of 2002 it was clear that industry's growth was primarily the result of a favorable market situation and the effect of devaluation. In 2003, average growth in the industry was only 1.5% vs. 7% in the economy as a whole. For a long time, the timber processing industry has relied on mobilizing reserves of processing equipment purchased abroad 25-30 years ago. Therefore, according to analysts' pessimistic forecasts, in 2015, Russia, which possesses the world's largest timber reserves, could turn into the largest importer of both pulp and paper products and timber products as a whole.

But this applies only to pessimistic forecasts. If the plans of the industry's main players are implemented, the forest industry will not lose its place in the Russian economy for at least the next five to ten years. And the industry's strategic objective in this period is to maintain its place on the world market and promote increased demand at home. And apparently it will be achieved to the greatest possible extent until 2010.

Russia's forest industry was in a unique situation in the first four years of Vladimir Putin's presidency. The government was so enthusiastic about forestry reforms that the industry developed without state intervention. At the same time, the use of the state apparatus as a weapon in the "forest wars" was the main obstacle to the development of timber processing in Russia. But in the last years, the government and the new president anticipated that oil and aluminum magnates would see related objects for investment in the forest industry and invest hundreds of millions of dollars in it. An improved situation on the main forest product markets, especially pulp and paper, as well improvements in the macroeconomic situation and a surplus of spare cash in the resource industries, produced the desired effect.

By the beginning of 2005, forests had become a trendy object for investment. However, the result was not a flourishing business, but forest wars - the main industry topic from 2000 to 2006. The most important events in the Russian forest and pulp and paper industries in the last six years were the changes in corporate governance of companies, the start of the formation of vertically integrated, specialized holdings, and the search by investors for forest industry.

Prior to 2000, the majority of Russian forest industry companies were more oriented towards the principle of "live for today, not for tomorrow". And although the forest industry is a long way from the principles of corporate governance that oil companies, for example, have adopted, transparency, strict corporate accountability, and division of management powers are regarded as targets for most management teams. Nevertheless, despite the fact that most forest industry companies are corporations, this can be considered a formality, since managers are often indistinguishable from owners.

The development of long-range plans at Him Pulp, Archangelsk Pulp and Paper Mill, Continental Management, and Segezhabumprom called for the formation of holdings uniting timber-processing companies and raw material producers. The process generally came down to the major players actively buying the regional logging companies that supplied them with raw materials. However, as a whole, major exporters did not become timber processors. They generally limited themselves to securing 40-70% of their own raw materials and buying the rest on the market as before.

Finally, in the period from 2000 to 2006, many investors, both Russian and foreign, began a fairly active search for unoccupied niches in the Russian timber-processing market with considerable success. Russian companies also actively expanded cardboard packaging production. There are already hundreds of smaller projects worth $1-15 million in the forest industry. In spite of all the wars, private investments in local timber-processing projects have become commonplace, and the investment revival has led to a revival of nearly all the paper, pulp, and woodworking companies that have existed since Soviet times.

Finally, certain improvements have also been observed in logging and timber exporting, which are considered the most troubled sectors of the forest industry. Despite the fact that most Russian timber exporters are still in the shadows, this is not preventing them from moving into the light in small, very cautious steps. These organizations are gradually becoming more public. In any case, the share of round timber, especially the share of contraband timber, in total actual Russian forest industry exports has slowly but steadily fallen.

22. REMOTE SENSING METHODS IN RESOLVING STATE FORESTRY TASKS

Countries with biggest forest areas arrived at an understanding of the necessity of the forest remote sensing monitoring a few years ago. Russia is slightly lagging behind the other countries in this respect, mostly in sphere of the national information policy. In Finland and Sweden all the forest areas are annually covered by middle-resolution satellite images (10-30 m) for account of the state budget. The received data are actively used in forest inventory, forest funds assessment and illegal logging detection.

For example, in Sweden, annual satellite imagery (starting 2000) enabled to reduce illegal logging from 10 to 2 percents. The government is not only financing the imagery, but also promoting up-to-date remote sensing methods to the forest sector, providing for the proficiency training of the forest specialists and operators. Already proven and implemented "Scandinavian" remote sensing technology can enjoy even better success in Russia, taking into account the sizes of the Russian forest.

The acting Russian Instruction on Forest Inventory (1994) provides for the use of space images in decision-making within a wide range of tasks, especially when managing unexploited forests of northern and eastern regions of Russia. For the years past since the publication of this instruction both surveying equipment technology and interpretation capabilities had a dramatic increase. Manuals written by the local scientists for the use of satellite images in forestry are as good as the foreign tutorials, however these works were regarded as experimental scientific studies for the past few years.

The situation started to change only in early 2005, when Rosleskhoz initiated the introduction of satellite imagery into illegal logging monitoring practices. Recurrent satellite imagery of the Russian territories will enable to resolve the following forestry tasks on a new level:

* logging monitoring (including illegal logging detection);

* forest fires damage assessment;

* forest health monitoring;

* inventory of forest fund, forest blocks certification;

* reforestation assessment.

It should be noted that all these tasks can be resolved independently on the federal, regional, as well as on the major forest leasing companies' levels.

At the beginning of the Russian forest space monitoring system development there were serious problems caused by myths. There were three principle myths:

1) Russian territories are being continually surveyed from space by a big number of satellites, including Russian ones;

2) Imagery data can be downloaded from the internet for free;

3) If you pay for the order, you can quickly get satellite images of any area and date within a couple of days.

All these myths, having little truth at the bottom, are far from reality. For example, regular space imagery of the Russian territories is indeed performed by several satellites; however their spatial resolution is very low (250 m and more). Principal tasks of the forest sector can not be resolved using such low resolution images. To date, none of the satellite operators do a complete and recurrent middle- or high-resolution imagery of Russia. Such imagery is made only on order, therefore the archive data is available in form of area and time fragments.

Until recently regular imagery of Russia at middle resolution was performed by the American satellites of the Landsat series. However, in 2003 the last satellite almost became inoperable. For the past few years, French satellites, as well as Indian satellites, became an efficient alternative to Landsat in many countries (including Scandinavia). However, imagery of Russia using these satellites is also made on order. Besides, for all these satellites (as well as for most of the others) Russian imagery possibility and efficiency depend on the ground equipment.

In this context, all the arguments of some officials about the possibility of purchasing the required data from the archives abroad looked inconsistent. As to the free internet data (including the new Google Earth project), only small advertising fragments or outdated images (over 3 years old) are available.

The following satellite system components are required for the forest fund monitoring (including illegal logging control):

* ground stations network, covering the whole territory of the country;

* availability of relevant licenses for the data acquisition from satellites;

* data processing and archiving centers;

* special software for images processing.

Russian Center ScanEx has a great experience in resolving complex remote sensing tasks. This implies a comprehensive management control cycle: production of different types of ground stations; license purchase and direct broadcasting from various satellites; building of big space imagery archives; development of special processing software. ScanEx personal ground stations constitute currently the backbone of the Russian ground stations' "fleet".

Three UniScan stations are required for an efficient monitoring of most of the Russian forest funds, whereas at least five UniScan series stations can provide for the full coverage of the Russian forests. Nowadays, only two stations - one in Moscow and one in Irkutsk - are acquiring data from the relevant satellites. Other stations of the Ministry of Natural Resources did not receive enough funds over the last few years, and many stations suspended the operation. Moreover, these stations need to be upgraded in order to acquire middle and high-resolution images.

Another important issue of the monitoring system is the availability of relevant licenses to receive the data from foreign satellites. It is obvious, however, that a systematic imagery of the entire Russian forest fund can be financed only by the government or big partnership between the government and a private agency - such tasks are not affordable to a stand-alone private company.

23. NATURAL RESOURCE-BASED ECONOMIC DEVELOPMENT PROJECT

The Natural Resource-Based Economic Development Project has six interrelated components.

1. Value-Added Wood Processing. The project is assisting in the development of the region's value-added wood processing capacity. When the project was first proposed, there was limited capacity for the manufacture of value-added wood products in the Russian Far East, and what there was, was of poor quality. Even items that were in high demand, such as building components and furniture, were either not produced or simply not able to compete with imports. Local markets exist for dimensional lumber, chairs, and tables, wooden crates for packaging perishables, doors, window frames, and products for light construction.

Russian and Canadian value-added processing and marketing experts are working to identify a small number of products that require minimal capital investment and training to become more productive. These products are expected to generate early revenues, build confidence, and strengthen the enterprise and its partnerships. Training / has been provided in lumber drying techniques; in the manufacture of furniture, thermal windows, and doors; and in the construction of Canadian-style wood frame and round log homes.

2. Non-Timber Forest Products. The goal is to increase local production capacity of non-timber forest products (NTFPs) and to enhance their market acceptance by improving the quality and presentation of the final products. This will provide employment opportunities for aboriginal peoples and other forest dwellers in rural areas where few economic opportunities exist. The Nanaisky Consumer Cooperative is the largest partner organization in this component of the project and has received assistance in developing a promotion and advertising plan for its products.

The project is assisting in the development of NTFP businesses. A business plan has been developed for selected products and market opportunities are being explored for birch sap, fir oil, berries, honey, and mushrooms. Studies are being undertaken to determine the equipment needs of producers and eventually to assist them in purchasing the equipment. The Canadian project team is providing assistance with marketing, packaging, and production technologies. The NTFP component is taking constructive steps to ensure that economic development of the forest resource will be permanent and self-sustaining within the Nanaiski Raion region.

3. Tourism-Based Industry. There is a great undeveloped potential for tourism in the Russian Far East. Of greatest potential is the sport fishing, outdoor adventure, and cultural tourism activities primarily enjoyed by Western tourists and, to a lesser but growing extent, Russian tourists. The project team is working with the local tourism industry to increase the economic importance of this sector to the region. To do so, they are collaborating in developing a regional tourism strategy, improving infrastructure, and identifying opportunities for new businesses.

Studies are being undertaken to determine the potential to attract tourists from both North America and Russia. In addition, promotional materials are being prepared to target potential clients. Russian travel agents and tourism officials have participated in a study tour of British Columbia to become familiar with the operation of Canadian facilities offering similar attractions. Similarly, Canadian tour operators have visited the Russian Far East to become familiar with the opportunities there and to offer suggestions to Russian entrepreneurs on how they can make their operations more attractive to international travelers.

As a consequence of the efforts of the project team, it is expected that the Russian tourism operators will be able to offer a variety of experiences to meet the needs and tastes of Western travelers. There is now a nucleus for expanding tourism between British Columbia and Khabarovsk Krai / Nanaiski Raion. This will support the sustainable long-term economic development of the tourism industry and enhance the economic relationships between Canada and Russia.

4. Creation of a National Park. The governor of Khabarovsk Krai has decreed that 400,000 hectares in the Nanaiski Raion are to become Amur National Park, the first of its kind in Khabarovsk Krai. As a national park, the area will be protected from future development that could adversely impact its ecosystems and threaten the continued existence of its rich endemic flora and fauna. The park is home to rare species such as the Siberian tiger and the Himalayan bear. It is part of a network of protected areas that form ecological corridors for the movement of wildlife.

The park will also be the focal .point for the implementation of the regional tourism development strategy. As part of a balanced strategy for sustainable growth, the creation of protected areas will set an example for other areas in Russia of the possibility for local-level initiatives to pay environmental dividends to current and future generations.

The project is providing assistance in park planning, satellite photography, park rangers’ training, communications and infrastructure. The boundaries of the park have been established, and ongoing work includes the preparation of promotional materials, including a video and still photography. The project is also assisting in the preparation of satellite-based maps that will form an important tool for the preparation of a comprehensive management plan for the park. It is anticipated that the construction of a tourist camp on the Amur River and the development of an interpretative trail to showcase aboriginal people's traditional knowledge of medicinal plants will enhance the tourism value of the park.

The park component of the project will contribute to safeguarding the integrity of the ecosystems and the biodiversity of the area. It will help to protect its rare and endangered species, and it will assist the efforts of Russian stakeholders in raising public awareness of the park and the multiple values associated with it. The development of tourist destinations with appropriate infrastructure will create economic opportunities for the region.

5. Business Ties between Canadian and Russian Indigenous Groups. This component facilitates the establishment of commercially viable projects by Canadian and Russian indigenous peoples. Since 1995, they have been working together to identify opportunities for joint economic and cultural projects that will strengthen each of their communities. Successful new businesses will create much-needed employment and income.

Currently, the most promising businesses are based on traditional handicrafts. A business plan has been developed to promote embroidery and sewing crafts and an arts-and-crafts bazaar by local women. As a starting point, the project has been assisting the Nanai people to improve the marketing of their existing crafts in Russia, Western Canada, and the United States. A study tour was organized to give Nanai representatives exposure to the industry as it is practiced in British Columbia. It is hoped that this will help foster greater capacity within Russian indigenous communities.

Numerous participants have been trained in basic business management skills. They are now better qualified to plan and manage their businesses in the future, basing them on sound market research and financial management. This will lead to more business opportunities and increased productivity. The project has also assisted stakeholders to attend seminars to further develop their skills in project-related activities. Strengthening the entrepreneurial skills of the Nanai people will allow them to increase sales and diversify their products, resulting in greater wealth and employment for both women and men.

6. Replication of Project Successes. From the beginning of the project, there has been a conscious strategy to share the results of the project with other groups in Russia. To do this, the project has strived to clearly document what has been done and to share its experiences and lessons learned with others in the country.

Plans are underway to train people in small business development by contracting and Training a local entrepreneurial development officer who will provide continuity after the project is finished. Business connections are being established by building a network of contacts through Canadian business development missions to Russia and by assisting Russians to attend business expositions, seminars, and conferences. The replication of the project's approach in Russia is being facilitated by the development of a decision-making tool that will aid in determining where and how this approach can be introduced successfully elsewhere.

24. SATELLITE MONITORING OF RUSSIAN FORESTS

Space imaging is a new method of getting data about the Russian forests. The interest to the space imaging data is currently increasing due to an active introduction of the Russian forest resources into the world economy, as well as due to the activity of the international and Russian nature protection organizations. Typical signs of globalization are the appearance of major foreign timber companies on the Russian market, introduction of international certification standards, and involvement of Russia in the process of illegal logging control, especially within the frames of the Big Eight.

Basically, all the urgent problems of the forest sector (leasing relations development, certification, old-growth forest protection, illegal logging control) require the most up-to-date and independent information about the forest for decision-making. There are very few sources of such information. Topographic maps are updated less than once in 10 years and contain almost no data about the forests, whereas detail maps at the scale of 1:100 000 and larger are still "classified". Similar forest inventory data on many regions is desperately obsolete, since even during the Soviet Union the forest inventory was performed once in 10-20 years.

In some regions even these terms were exceeded. Fresh forest inventory data (in case it was recently performed) is not accessible for its users — forest business enterprises, local authorities, scientific and nature protection organizations. Typically, even forest administration authorities can experience problems with receiving forest inventory data (especially electronically). In this situation satellite imagery turned out to be in great demand and the most accessible kind of data. Which features make satellite images in the demand in the current Russian conditions in the first place?

Objectivity. Each space image is a document, reflecting actual condition of the area for the time of imaging. For example, the size and direction of the logging area detected by the image are independent on the land allotment in the leskhoz in subject. Image falsification is a useless effort, because many other operators are making their own images of the same spot and the "faked images" can be easily revealed. Basically, satellite imagery gives an opportunity of an independent cross check of the forest sector by different Russian and international organizations, including the Rosprirodnadzor (Federal Service for Supervision of Natural Resource Usage) and Rosleskhoz (State Forest Service).

Urgency. Satellite data can be obtained for the images of different acquisition dates. As a rule, the archive history of the middle resolution images (around 1:25 000) for the Russian forest territory does not exceed 1-2 years. Middle and high resolution satellite imagery can be usually ordered within several weeks.

Immensity. Modern general scale imaging enables to take the image of vast territories in quite high details. Thus for example, the size of one scene of the new IRS-P6 satellite is 740x740 km. Such scene covers almost half of the European North of Russia, whereas the 55 m resolution images enable to detect the cutting areas starting from 5-10 ha.

Exterritoriality. Imaging areas are not bound to the state or administrative borders; no permits are required for imaging. All this allows the operator to receive unified data on the forest status in different leskhozes, federation subjects, on "this" and "that" side of the border.

Accessibility. This is perhaps the most important reason of active use of satellite images for the past years. (In the former Soviet Union times, images were accessible only to a narrow circle of specialists of the closed high-security organizations). Currently, all the data on satellite images with 2 m resolution and lower is free to use. The procedure to order and to obtain such images is simple and is described in details in the internet on the sites of the internet service providers.

In 2005, remote sensing monitoring of the forest use covered over 52 mln ha of forest within the areas of intensive logging on the territory of seven federation subjects. Around 16 000 fellings were inspected, about 100 000 ha of large-scale ground truth aerial photo surveys performed. According to the press-service of the Russian Ministry of Natural Resources, the total amount of revealed penalty costs constituted 900 min rubles, with 500 min rubles claimed by December. The offenders volunteered to pay off 50 mln rubles of the total. In 2006 Rosleskhoz is planning to cover the entire territory of the intensive logging in Russia by aerial survey and satellite-based monitoring (about 100 mln ha of the forest fund).

Federal budget is allocating 200 mln rubles for this purpose. Satellite imagery has the lowest costs in remote sensing monitoring - in 2005 satellite imagery expenses did not exceed 12% of the total project funding. The most important result of the year 2005 was the fact that for the first time Rosleskhoz obtained the data on the main types and volumes of infringements directly after the independent interpretation of space images, rather than via their own local authorities and leskhozes. In most cases the results were shocking. Flagrant violations are made both by logging operators and leskhozes. For example, in Permsky Territory a random inspection of leskhozes revealed the absence of logging plans, nonconformity of logging cycles (up to one third of all logging sites) and of logging area condition to their certification acts. To the credit of Rosleskhoz leaders, all these facts are taken into account and serve as guidance for response actions.

"Pictures", showing the frontal moving of the logging operators onto the intact frontier taiga in Arkhangelsk Region made a dramatic impression on the forest inventory officials and forestry executives. Greenpeace representatives were demonstrating such images many times before. However, only after the start of their own remote sensing monitoring program the forest inventory enterprises performed the analysis of leased areas and cutting sites location, showing how the manipulations with the annual allowable cut are resulted in extensive and destructive ('concentrated') clearcuts within a few years in terms of their scale. Consequently, the question of changing the annual allowable cut definition rules was put in the nearest plans of the Russian Forest Agency.

Monitoring of illegal logging program became the first acting governmental high-resolution remote sensing monitoring program in the country, in this respect putting the importance of this project far beyond the frames of the forest sector proper.

25. FOREST USE IN RUSSIA

Forestry is a type of human activity that includes all aspects of interrelations between humans and the forest. The major interests of forestry are: studying and inventorying forests; forest reproduction; fire and pest control; forest exploitation; and control over forest exploitation. A specific feature of forestry is a long production cycle (more than 100 years) that is largely determined by the growth of the forest type. Forestry in Russia has been based on the principles of stability and sustainability. There are about 20 general criteria for sustainable forest exploitation. The major ones are:

- maintenance of productivity;

- maintenance of appropriate sanitary conditions;

- maintenance of the protective functions;

- biodiversity conservation and maintenance of forests in the global carbon cycle;

- maintenance of social and economic importance;

- availability of legislative instruments for forest conservation and sustainable forest management.

Forestry is regulated by the "Forest Code of the Russian Federation", forest codes of subjects of the Russian Federation, and other legislative and technical documents. The forest reserve is the object of forestry. Forests of the country are held as Federal property according to the Forest Code. However, the legislation does provide an opportunity to transfer a part of the forest reserve to ownership of subjects of the Russian Federation. Forest management is to a greater extent concentrated at a regional level. The major unit of forestry management in Russia is a regional unit -leskhozes (about 8,000 exist) that in its turn is subdivided into forest districts - lesnichestvos (there are about 8,000). During the past decade, the total number of the employees in this sphere has been about 200,000 (60% of them, state forest guard).

The system of forest works in Russia includes forest management and the inventory of forests by means of remote sensing, monitoring, and various types of investigations (e.g., forest-pathological investigation). Forest management includes periodical inventory of forests (at intervals of 10-15 years) and development of long-term plans of harmonious forest exploitation for regional forest units. Inventory of forests by means of remote sensing is performed in distant sparsely populated regions. Forest areas covered by the inventory have decreased sharply; they made up 30,000,000 to 40,000,000 hectares annually during the past decade.

The objectives of monitoring are the situation tracking of the forest status and tendencies of forest development, the prevention of and control over natural and man-induced disturbances in the by an undesirable change in tree composition. For example, such pioneer species as birch and aspen can move into the burnt-out or felled areas that had been primarily occupied by dark coniferous tree species. Forestry has worked out a considerable number of procedures to further natural afforestation.

It is of the greatest importance to conserve the young forest generation, i.e., the undergrowth, when cutting the mature standing trees. This can be achieved through the implementation of special kinds of cuttings (selective or gradual) or progressive technologies that conserve undergrowth under final cutting. Southward, in the forest-steppe and semi-desert zones, natural afforestation usually does not take place. Man-planted forests are required in that case. Forest plantations are formed mainly by means of seedlings.

In 1960-2000, afforestation was performed in Russia within an area of 1.6 to 1.8 million ha, including sowing and planting of forests within 600,000 to 700,000 ha. The quality and integrity of the plantations were not always satisfactory. In 2005, only 15.36 million ha of the forest plantations were maintained. In addition to afforestation, forest planting on barren lands and lands of low productivity beyond the area of the forest reserve was performed within an area of about 100,000 ha, mainly with a view to protecting agricultural lands. In the past years, areas of afforestation and forest planting have decreased significantly. For example, in 1996-1997, these operations were performed annually within an area of 1,100,000, ha including annual sowing and planting of the forest crops within the area of not less than 300,000 ha.

Forest fire control and forest management control are losing ground. In 1988, 1,910 km of forest roads were built; in 2003, this number was only 0.480 km. The scope of irrigation and drainage construction was reduced by ten times and the planting of forest shelter belts on agricultural lands decreased by four times over the same period. The number of aircraft used for forest protection decreased from 598 in 1988 to 378 in 2004, and the number of flying hours shrank by 5.4 times over this period.

There are fire, forest-pathology, and other kinds of monitoring. There are 44 forest expeditions belonging to 13 state forest management enterprises which perform inventory of the forests. The first pan-Russian inventory of forests was made in 1957. Data on the state of all forests in Russia are presented in the materials of the State Inventory of the Forest Reserve that are performed each 5 years.

Multi-purpose forest exploitation includes complex utilization of all forest resources and numerous environmental and social utilities of forests. Use of forest resources includes the harvesting of timber, galipot, auxiliary wood, medicinal raw materials, wild fruits, nuts, mushrooms, berries and also side utilities such as hay making and hunting. Timber is harvested by means of final felling (felling of the mature forest, about 85% of total volume of the harvested timber) and intermediate felling (thinning and sanitary felling). Final felling is performed only in the forests under exploitation. The quota of the sustainable final felling is set on the basis of the annual cut that, in turn, is determined by dominating species within the regional forestry unit. Over the past years, the annual cut has slightly exceeded 500,000,000 cubic meters. Actual felling made up about 300 to 350 million m3/year of saleable wood in the 1970s to 80s. In the past decade, only 20% to 30% of the annual cut has been used because of economic crises. This fact caused great social and economic problems, especially in the regions, where forestry was a major sector of employment. Thinning is of the greatest importance. In 1988, thinning was performed in an area of 1,270,000 ha. In 2002, this operation covered only 610,000 ha.

There are great prospects for harvesting the non-wood resources. About 2,500 of the more than 20,000 vascular plants growing in Russia are of medicinal importance, and about 300 of them are included in the state pharmacopoeia. The potential reserve of food is in the range of hundreds of thousands of tons. However, currently an insignificant part of these reserves is used. In 1998, forestry enterprises harvested 16.8 million tons (t) of wild fruits and berries, 1,800 t of mushrooms, 2,600 t of medicinal herbs, and 7,000 t of honey. In years past, the volumes of these products have been reduced by three to ten times and even more in some cases. At the same time, actual volumes harvested by the local population have increased, especially in the distant forest regions, where these resources are of survival importance.

Afforestation on the deforested areas (fire sites, cleared spaces, etc.) is one of the most important objectives of forestry. Afforestation can be natural, through seeds and springwood. The intensity of natural afforestation depends on the specific region, forest type, causes and areas of disturbances, availability of seed sources, and ecological features of the tree species. In the forest zone, especially in taiga, natural afforestation is completed successfully.