Russian experts look at the concept of the “old industrial regions” in a broader way – as the regions which have created structure of industrial production at different stages of industrial development since the end of the 19th century till 1960-1970s. In the past they were more developed in comparison with the other regions, but eventually they passed to the category of depressive owing to the aging of their branches of specialization. Russian old industrial regions are much more diverse than foreign according to the period of their formation and specialization.[②]

However, classifying old industrial regions, neither foreign, nor Russian scientists take into consideration resource-based regions, with one exception - coal-producing regions. In these regions the cause of depression is linked to the depletion of natural assets.

I. Breaking the Tradition:Phenomenon of the Old Resource Industrial Region

After our analysis of the genesis of old industrial regions we came to the conclusion that the general reason of a “depressivnost” of social and economic development of such regions, at all distinctions of their economic specialization, is the aging of their economic structure and loss of the competitive advantage of the previously basic branches of the economy. And branches, caused by old technological, infrastructural, institutional, including organizational, conditions of their functioning in the concrete region can really become outdated. A prove of aging of key economic branches is the production of noncompetitive goods owing to backward technology and equipment, the inefficient organization of production, its regulations, etc. The specific nature of a “depressivnost” of regions of resource specialization includes also (plus to previous reasons) aging of key branches because of deterioration of extracted resources, and lack of adequate equipment and technology to extract exhausted deposits.

The objective nature of aging of structure of the economy allows us to break the Russian tradition[③] and to include in the category of old industrial not only well developed regions, but also resource-extracting regions, and as a result to expand this typology with old industrial regions of resource specialization. We think that it is necessary to include regions where mining provides more than 50% of the industrial output and durable period of resource exploitation has ceased social and economic dynamics of the region.[④]

Old industrial regions of resource specialization have some specific features.  Exhaustion of natural assets caused by long period of operation, unlike material assets in manufacturing regions, has irreversible character and is expressed in steady deterioration of parameters of extracted resources. Therefore economic and social problems typical for these regions, are expressed here especially badly.

Phenomenon of old industrial region includes out-of-date structure of their economy; old social structures, and a certain type of thinking, preventing to go beyond the habitual trajectory of development of the region to look for regional prospects in new branches and fields of activity.[⑤]

Late acknowledgment of urgent necessity to change the former trajectory of development leads to strategic mistakes in management of such territories. It in turn causes "blocking" of development of these regions and considerable waste of time to look for new directions of restructuring their economy. The number of old industrial regions doesn't remain constant in time and depends, on the one hand, on intensity of obsolescence of concrete technological order, on the other hand, on the incessant attempts to restructure the economy of these regions.

II. How to Define Age?

Having revealed age of the economic structure as the reason of “depressivnost” in the development of old industrial regions, we face a methodological problem of definition of age. It is possible to consider this question in a wide context of endogenous model of economic growth in which development of regions is caused first of all internal, i.e., endogenous, factors, including economic age of the main local assets. It is known that the theory of endogenous economic growth is extremely popular among representatives of a modern economic science[⑥] and consequently inevitably affects many, even directly not related with questions of economic growth, lines of regional research.

The scientists investigating this category of regions, don't concretize duration of the period of development within a certain structure of economy from which the region should be included to the category of the old industrial region. In our opinion, this problem has no universal decision for all old industrial regions; and for each type one needs to elaborate solution  individually. One of the approaches, offered for monoprofile regions, consists in definition of economic age of the territory as the age of the key industry which production makes more than 50 % in industrial output and with which the regional economy has been related for a long period of time. We propose the following algorithm of diagnostics (fig.1.).We utilized this approach for the case of Magadan Oblast located in the Northeast of Russia where economy has been based on gold mining for 80 years.

III. Case Study:Gold Mining of Magadan Oblast, Northeast Russia

We understand the number of years which have passed from the moment of the beginning of large-scale industrial gold mining as the age of gold mining. We took for a reference point 1931. As a result by 2012 the age of gold mining makes 80 years, and the extracted production – three thousand tons of gold (placer 2.7 and ore – 0.3).

Figure 1. Change in Average Content in Placer Objects of Magadan Region

In the first years of gold mining all mines had developed unique and rich fields: the average content of gold in deposits reached more than 100 g/m3. After the peak of average concentration - 36 g/m3 in 1933, the main qualitative characteristic of placer objects began to decrease, and now it is less than 1 g/m3 (fig.1).

Utilizing indicators of gold mining that are more sensitive to the age, one can reveal three periods of development – young, mature, and old (fig.2). According to these periods social and economic dynamics of the region are considered.

The most sensitive to age of gold mining are the following indicators: volume of gold production, the average concentration of gold, a ratio of placer and ore production, use of different equipment.

Other indicators like number of subsoil users, a share and a rating of the region among other gold-producing regions, etc. are less sensitive to the age. The external factors influencing a situation (for example, the price for gold) could not stop or turn back objective process of aging.

Figure 2. A Periodization of Gold Mining in Magadan Region

Each period of gold mining can be described by the system of indicators. In the youth of gold mining (1931-1956), the biggest annual volume of gold mining for the history in the Magadan area was produced – 79.2 t and the highest average annual volume – 49.2 t; and the average concentration of gold in sand was 11 g/m3 (table 1).

The share of ore production in the youth of gold mining was insignificant and very expensive (4% from total production in 26 years). Simple mining and geological conditions of the placer deposits caused surface production predominantly. During the first period of gold mining the Magadan area became the leader among gold producing regions, providing more than 40% of the total gold mining production of the USSR.

The beginning of gold mining caused industrial development of the territory: the seaport, airports, roads, power plants, settlements, schools and hospitals were constructed. Use of work of prisoners impeded the development of the social sphere that provoked population outflow from the region in post-war years.

Reduction of average annual production of gold by 25% in only five years (from 1951 to 1956) and lack of acceptable working conditions had decreased the average number of working in the Magadan area for the same period by 29%. Crisis of gold mining caused the crisis of social and economic development of the region shown in reduction of number of a manpower and outflow of the population from the region at the beginning of the next period (from 1957 to 1959 about 30 thousand people (9.1%).

As a result of deterioration of characteristics of resource base in a maturity stage of gold mining (1957-1995) secondary processing of scatterings, distribution of more difficult and expensive ways of production – underground, drazhny, hydraulic – and preparation for large-scale development of ore fields had begun. The peak of production made 66% from a maximum in youth average production – 40.3t (in youth - 49.2t), a share of ore production increased slightly (8% of total volume of gold). The average concentration of gold in deposits had decreased from 4.0 to 1.1 g/m3. Exhaustion of resource base, prevalence of small objects promoted splitting of several large subsoil users into 80 small and medium-sized enterprises; the gain of industrial stocks ceased to compensate their selection, by the end of the period of a maturity having made 78 %. Thanks to intensive improvement of equipment and technology of production development occupied in branch grew by one during this period rather previous in 3 times, having made 2.7 kg.

Since 1984 the Magadan area conceded leadership in gold mining to the Republic of Sakha (Yakutia), having moved to the 2nd place in a rating of gold producing regions of Russia. Deterioration of parameters of gold deposits, lack of technical and financial possibilities of subsoil users for their effective working off coincides in time with falling of the world price for gold and transition of the Russian economy to the market relations in aggregate lead to the next crisis in branch and to crisis in regional economy: from 1990 to 1995 production of placer gold was reduced by 35%, industrial output decreased by 40%, outflow of the population made 37 %. The branch and area had passed to the old age period.

Operation of the exhausted resource base in an old age (since 1996 – to the present) was accompanied by the rapid deterioration of parameters. Maximum amount of gold was only 36.4 t (69.3% from a maximum level in a period of maturity), average annual production decreased to 26.4 t (65.5% from level of the period of maturity). The average concentration of gold in placer deposits had decreased 2.5 times in comparison to the maturity period, having made less than 1 g/m3. Large-scale gold deposits, in a fly-in- fly-out mode, without expenses on construction of the constant settlements have been exploited. The share of ore production in separate years surpassed the share of a placer gold production and for 1996-2007 reached 49.1% of total volume. The number of users continued to increase to now more than 160.

Temporary growth of gold mining during working off of a large-scale ore deposit of Kubaka had provided recovery of the region, the area again became leader among the other gold mining regions (in 1997-2002), but after its working off production had promptly fallen, the main socio-economic indexes of the territory had decreased also. As a result gold mining in 2007 concerning the end of the previous period of a maturity had decreased 1.5 times (placer 1.7 times), industrial output –1.6 times, population of area and in the economy –1.4 times; the share of federal transfer in the consolidated budget of the region had increased 1.6 times.

For confirmation of an age-regulated role of gold mining in the economy of the region retrospective modeling of the main social and economic indicators of the Magadan area depending on the value of the average concentration of gold in placer deposits has been carried out. As a result of modeling it has been received (table 2) that if gold mining was in the maturity period now (the average concentration of gold was 2.3 g/m3), and at the same scale of production, the area would extract 36t of gold and would be the leader among gold mining regions of the Russian Federation, and volume of a gross regional product would move in a rating of regions of the Russian Federation from the 78th to the 74th place, and share of federal transfer in the budget – from the 71st place to the 47th.

Even bigger growth of indicators would be reached by the Magadan area under the conditions of youth stage of the gold mining (the average concentration was 11 g/m3): the volume of gold mining production would be 151 t (contemporary all-Russian level), increase in a gross regional product 3.7 times (the rating on GPR among the Russian regions with the 78th would raise to the 46th position), Oblast would become region with budget free of federal transfer payments, and the region would move in a rating of regions of the Russian Federation from the 81st on the 28th place according to the population figures.

Modeling of socio-economic indexes of area in the conditions of a countdown of the periods of gold mining showed the reason of negative tendencies in the regional economy - long functioning within out-of-date structure of industrial production. In other words, problems of social and economic development of the Magadan area have been caused not only by aging of gold mining in such, but also that this branch still remains a key branch of the region, occupying about 70% (taking into account silver production) in industrial output of the region. The received conclusions allow including the Magadan area in the group of problematic old industrial regions[⑦].

IV. How Fatal Is the “Aging” of Magadan Gold Mining?Big Difference between Economic and Biological Age (Reversible and Irreversible)

There is a question, how fatal is the “aging” of a key branch of the Magadan economy? Whether there are the rejuvenation mechanisms, capable to give new impulses to gold mining and regional development as a whole? The economic history of the Magadan area in the last 80 years shows that they really exist both in the gold mining, and in regional economy as a whole, besides there is a successful experience of other regions.

Results of the analysis of world experience in overcoming of “depressivnost” of development of old industrial regions showed effectiveness of the restructuring of their economy. A necessary condition of its implementation is problem understanding at the state level, assistance of the federal and regional authorities in the form of direct financing of creation of infrastructure and the new enterprises, institutional measures – creation of special legal regimes of managing (bonded economic areas, tax privileges) for investment appeal of old industrial regions.[⑧] For old industrial regions of resource specialization we suggested the following key directions of restructuring which are considered as rejuvenation mechanisms: diversification, introduction of innovations, and also development of new competences for transition to other branches and fields of activity.

V. Regional Economy Restructuring as Source of Rejuvenation:Diversification of Resource Using

Possibilities of realization and a specification of the directions of restructuring of economy of the region are defined by the capacity of the territory, in particular – by its resource potential. In value structure of resources of the Magadan area coal occupies 40%, hydrocarbons 24%, non-ferrous metals - 15% and 16% - noble. Therefore the prime directions of restructuring can be considered in a mineral complex.

As a result of the retrospective analysis of 80-year development and an assessment of available potential we can suggest ways to diversify regional economy of the Magadan area, as the expansion of a range of extracted resources, expansion territorial area of production and development of different types of deposits. At the result of these efforts one need to organize not only new extracting, but also processing branches that will promote to diversification of the whole economy of the Magadan area.

Widespread minerals. In total in the Magadan area the state balance considered stocks of all-widespread minerals in 137 fields (the general total stocks make 316802 thousand m3), including 83 fields of construction materials of a sand-gravel mix, a construction stone, ceramic raw materials, construction sand, a facing stone and 54 fields of peat. New spheres of these application caused possibility of production of resources absolutely new to the Magadan area – zeolites, basalts, perlites, etc. which can be used for intraregional needs, and can be taken out to other regions and countries.

Non-ferrous metals. Geological researches in the territory of area revealed some deposits of non-ferrous metals (copper, molybdenum, tungsten, lead, zinc and tin) which settle down practically in all districts of the Magadan area. Asian Pacific countries are among the biggest importers of non-ferrous metals (mainland China, Korea, Japan, and Taiwan). They can be potential consumers of the Magadan non-ferrous metals under a steady favorable environment of the world market of non-ferrous metals: growth rates of the world prices during 2000-2010 nearly 16 times on molybdenum; on tungsten and lead more than 5 times; on copper - 4 times.

Iron ore. Regional geological survey in the territory of the Magadan area revealed numerous deposits of iron of the various genetic types of more than 1 billion tons. From 2000 for 2010 the price for iron ore grew in the world market 7.5 times that raises prospects of development of this type of resource in the region.

Hydrocarbons. Prospects for oil and gas on the Magadan off-shore territory are high. In December, 2011 the license for geological studying, investigation and production on the continental shelf was given to the largest Russian company JSC Rosneft. Oil and gas production in North-Okhotsk shelf can become the most large-scale direction of diversification of a mineral complex of the territory and can radically replace its profile, causing inflow of investments, new specialists, and services.

VI. Regional Economy Restructuring as Source of Rejuvenation: Deepening of the Former Specialization

The second direction of restructuring of the regional economy can be the realized and perspective institutional, technical and technological and organizational innovations in a mineral and raw complex and economy of the Magadan area, economy of the old industrial region promoting rejuvenation through deepening of specialization and transition to production of the knowledge-intensive production.

Gold. In spite of the fact that gold mining in the Magadan area has been developed for  80 years, the potential of this metal has not exhausted. However for its extraction application of technical and technological, institutional and organizational innovations is necessary.

It is necessary to utilize technical and technological innovations to modify extraction of gold; extraction of all useful components from complex gold-rare-metal deposits; development of new types of deposits; use of technologies of increase of efficiency of extraction of gold.

As institutional innovations, application of the differentiated taxation depending on the geological characteristics of the deposits is offered. As an organizational innovation to increase competitiveness of gold mining in the region it is necessary to consider formation of mining clusters in Magadan area utilizing all necessary preconditions: resource potential, the reserve of the cheap electric power and existence of the regime of the Special economic zone, system of learning for the qualified personnel[⑨].

Fuel and energy resources. Reserve of coal in the deposits of Magadan area is estimated to be 672 million tons as stone coal and 1451 million tons as brown coal[⑩]. Escalating of coal mining can be connected only with the use of coal as raw materials for manufacture of high technology production – liquid motor fuels, a methanol, extraction of a complex of the components applied in agrochemical and pharmaceutical industries, that is application of innovative technologies of processing of coal.

Peat resources in Magadan area are considerable, but they were studied only in the south of region. In total in Magadan area there are about 50 deposits with the general stocks of 51 million tons, from them in 10 deposits it is concentrated 43 million tons of peat. Prospects of use of the richest potential of peat are connected with possibility of its complex processing for fertilizers, sorbents for clearing of the polluted waters, peat carpets, peat pots and blocks for sprouts, peat wax, etc.

VII. Scenarios of Regional Development under Economic Restructuring

As a result of two basic directions of re-structuring – diversification and introduction of innovations - six scenarios of development of the economy of region are developed, in different degrees and through different mechanisms allowing to overcome depressive state of territorial development. Scenarios are generated on the basis of the following principles:
1. Scenarios include only directions of re-structuring supported by investment projects or predesign calculations;
2. The sequence of inclusion in the scenario of directions of diversification and innovative development is caused by probability of their realization: realized; expected in the near future (1–3 years); expected during the period of 5–7 years; dependent upon the scales of necessary investments in the basic projects.
On the basis of estimations of the different ways of the mineral development six scenarios are generated (table 3).

1. Gold for the Magadan area – the resource of traditional specialization extracted from a subsoil of the territory more than 80 years. An example of an introduced innovation is development of the Natalkinsky gold-ore field - the first experience of development of type new to the territory – bolsheobjemny, that is with large stocks, but with very low contents of gold in ore. Gold mining volumes on which are planned in a range of 24.7-37 tons per year (in calculations level 24.7 tons is accepted), the beginning of production of 2013-2014.

2. Brown coal. Some years in the Magadan area the project of development of Lankovsky and Melkovodnensky Brown coal fields for the purpose of processing and receiving gas in volume 230 million cubic m/year, motor fuel and coal briquettes, and also mountain wax is discussed. (mechanism of innovations).

3. All-widespread minerals. As prime types of all-widespread minerals are considered peat, with receiving from it peat briquettes, peat kipovanny and organo-mineral fertilizers; zeolites for the purpose of production of mineral fertilizers; cement (receiving cement and cement mixes) and plaster (for production of dry construction mixes of plaster knitting and pazogrebnevy plates)[11]. This scenario includes the diversification mechanism).

4. Non-ferrous metals. From 61 objects profitable for development 3 objects of zinc, 2 - tungsten and 1 – molybdenum are recognized[12]. This scenario assumes the diversifikatsionny mechanism of restructuring of economy.

5. Iron. According to experts, after carrying out prospecting works and opening of fields production of iron ore raw materials in the Southern Omolon iron ore area will make 8.5 million tons. For the organization of the finished iron ore cycle iron and steel works construction in capacity of 4.5 million tons of iron is supposed, and for ensuring technological process being coked coals of nearby fields (diversification) will be used.

6. Oil. Experts assume two options of development of North Okhotsk shelf: it can be predominantly oil or gas. The minimum potential at which extraction is profitable is 2.8 million tons of oil or 2.5 billion cubic meters of gas. As the oil option is preferable for the regional development, it is considered in this research. In this scenario the other diversifying tools are also utilized.

Influence of the directions (and specific projects) of restructuring on economic and social situation in the territory was estimated with the help of classical economic indicators of gross regional product (GRP), the income of the regional budget, employment and population[13].

The results of modeling of the gross regional product according to development scenarios for the mineral resources sector have showed that in comparison of 2009, growth of this indicator will be in a range from 1.1 to 1.43 times. The smallest growth of GPR will be reached in the case of implementation of projects on the widespread minerals, the greatest – under implementation of the oil project –1.41 times (figure 3).

As the considered directions of a diversification aren't alternative, implementation of all projects will provide 2.35 times increase in GPR.

In the case when the majority of projects and first of all the development of North-Okhotsk offshore oil and gas will be realized, the share of federal transfers in the regional budget will decrease from contemporary 56.2% to 24.7% (table 4). Implementation of all the projects will increase the total income 1.4 times.

Implementation of the above-mentioned projects will demand additional number of workers and that will respectively lead to the growth of population of the Magadan area (table 5).

It is necessary to emphasize that only direct effects from the considered projects are considered, taking into account indirect effects their importance for the territory will essentially increase in serving branches and fields of activity.

Thus, on the example of Magadan region we can work out a new approach to the problem of the old industrial resource regions, which allows us to benefit from all available tools in the world at "work" with the old industrial areas in order to overcome the economic depression of Russian old resource regions. This approach can be used for restructuring of the specialization of old resource regions in Russia and abroad.

Conclusion

It is possible to add one more type of regions into the group of old industrial territories, that is, old industrial regions with resource specialization. And Magadan Oblast located in the North-East of Russia is such type of region. Its economic age can be determined by the age of the major branch of its gold-dependent economy, we mean gold production. We can reveal three periods in the history of Magadan gold mining – young, mature, and old. And each period did influence several key age-dependent indicators of the regional economy like the volume of gold production, average concentration of the gold in placer deposits, ratio between placer and ore deposits where gold had been extracted.

We suggested the following key directions of restructuring which are considered as rejuvenation mechanisms: diversification, introduction of innovations, and development of new competences for transition to non-gold branches and fields of activity. Then we describe projects from each type of activity and understand that all these projects can be packed under six scenarios. In the case of implementation of all scenarios of development contemporary indicators of the Magadan Oblast economy would be more than 1.5-2.5 times bigger than it is now according to different economic and social indicators.

The critical goal of the government of mono-resource territories is not to wait for their inevitable evolution into old industrial region but to take the adequate measures, allowing to restructure the mono-profile economy, in advance.

Example of such approach to rejuvenate the economy of potentially old industrial region can be  China's oil industrial region of Daqing. After 40 years of large-scale oil production, the measures promoting maintenance of economy of the region even under the decrease of oil production have been developed. These measures can be channeled within three key directions of restructuring of the economy[15]:

1. Deliberate decrease in oil production in the interests of extension of terms of operation of the oil fields - as a result after 100 years of production the plan will be to extract 20-25 million tons of oil and gas in an oil equivalent (about 50% of peak  production);

2. Experts of the region, which have high qualification and the experience have started to  enter the world market of exploration and production of oil resources, mastering oil resources of Mongolia, Iran, Sudan, Venezuela, Kazakhstan and Indonesia. At the result the income from foreign economic activity has compensated for the loss from decrease in oil production in the region (this is territorial diversification of branch of specialization);

3. Accumulation of oil and gas processing capacities. Earlier the main part of oil extracted in the region and gas went for processing to other regions of China, now Daqing takes the second place in the country on methanol production, the third place in production of the complex fertilizers, the fifth place in oil refining capacity and the sixth place in production of ethylene. Besides, the city is the world leader in production of polyactrilamid: the first stage of construction the factory to produce polypropylene of 300 thousand tons per year has completed; this factory will become the country’s first and world's second by capacity. Therefore petrochemical industry has become basic for the city economy and is capable to replace oil production (change of branch of specialization through introduction of innovations in a key branch);

4. The government of Daqing has started to pay attention to production of agriculture (in particular, the dairy). Thanks to development of the dairy industry in Daqing there was a number of villages specializing on cultivation of dairy cows (diversification of the former specialization);

5. To overcome the monoprofile structure of the economy, the Government of Daqing purposefully diversifies economy, attracting investments from other regions of the country and from abroad. Foreign investors have created in Daqing not only the petrochemical enterprises, but also textile, and the hi-tech enterprises thanks to which the economic structure of the city becomes more and more balanced. For example, the South Korean investor has organized here the largest hi-tech enterprise for production of chips for integrated schemes among similar in Asia of the diversification;

6. To attract investors the Administration of Daqing has provided many privileges and created over 20 zones of attraction of the capital for development of new specialization for the territory: soybeans, corn, potatoes, dairy products, textiles and electric devices, new construction materials, production of the software, leather products, oil equipment, rubber, production of the thin chemical industry (an institutional innovation);

7. The new direction in recent years is development of geothermal resources and mineral water, tourism development (diversification).

This is an impressive example of how active efforts in the traditional directions of economic restructuring let to avoid an economic depression in the old industrial region of Daqing.

Source of documents：Global Review