FACTA UNIVERSITATIS

Series: Economics and Organization Vol. 1, No 7, 1999, pp. 43 - 50

DEVELOPMENT POLICY AS ILL-STRUCTURED PROBLEM

UDC 338.242:330.341

Sofija Adi
Faculty of Economics, University of Novi Sad
Put Moe Pijade 9-11, 24000 Subotica, Yugoslavia

Abstract. The current economic developments and a low controllability level of

economies in transition do not allow any conventional formalization or realization of
development policy. In line with the new concept of role of the state in economic
development, the tendencies and development tempo or particular economic
subsystems should be conceived as a result of complex interactions of institutional
changes, economic and political interventions, and, above all, modifications within
microeconomics behavior of economic subjects. Under such circumstances, a more
precise and complex apprehension of developmental decisions and their consequences
is required from economic policy creators and the releasers. This assumes the
establishment of an entirely new concept of planning system based on soft system
methodology in designing the developmental policies. The application of fuzzy theory
should enable a proper treatment of uncertainties and fuzziness, which are inherent to
subjectivity, imprecise preferences, restrictions and goals.

1. INTRODUCTION
A recovery of development, when the national market is narrow and the economy is in
transition, is possible only if there is a transformation and internationalization of the total
economy structure. Transformation and internationalization of the economy should be
founded on individual microeconomic rational basis, in such a way that property of the
company should be connected with the production that satisfies international needs, and
with the appropriate marketing to support such business orientation. Main characteristics
of such global orientation are flexibility fast response system to the environment
impulses and the quantitative economy. Wise and consistent concept and strategy of the
economy restructuring based on this, cannot be formed autonomously and independently
from its current performances and economic and system conditions such as:

Received March 9, 2000

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1. Market restructuring, ownership, organization, human resource, production, technology, etc.) enterprises made in the former economic system in which a great (relatively
speaking) capital is captured and which do not derive any profit,
2. Creation of stable political, legal and economical climate for private entrepreneurs
and investment, and
3. Modification of macro and mezzo organizational structure and division of labour.
Division which should provide braking of the existing rigid organizational structure and
formation of long-term interactions between industrial, agronomic, commercial and noncommercial servicing companies and scientific and research organizations of different sizes
based on net organizations to serve rational export orientation.
This is the only way to restart the accumulation of wealth on a national level tp
finance new development cycle. In spite of all that, it is impossible to avoid high cost of
this transformation - down a number of enterprises, increasing the percentage of open
unemployment, additional fiscal burdening of people, increasing public spending for
social transfers, additional money from foreign factors, etc.
The current economic situation and low control ability of (national) economic system
do not allow (in terms of modern economic system) formalization and realization of the
development policy. That is mostly the result of (objective) difficulties:
Unclear role of state in regulation of economy,
Poor quality of automatic feed-backs and information, due to underdeveloped and
deformed market, and
Intensive changes of the elements and the structure of feedback in the economic
systems that are moving from mainly administrative to mostly market inducements and
limitations.
Negative effects of these factors and subjective elements can be divided in two main
groups:
Low level of knowledge and culture of the creators and proponents of the economic
policies realization, and
The structure of plural interests in which it is impossible to articulate the solutions
for overcoming the conflicts that are exemplary for an open society, mostly because
of the mechanisms of power which still exist because of the inherited old social and
economic system and also because of irregular and institutionally unregulated
balance of power.
Dynamism, diversity and low predictability level of results and expenses related to
activities of the environmental adaptation, imply (as one of the alternatives for
neutralization) use of the planning system based on soft system methodology combined
with multicriterial compromise choice of (conditional) favorable goals and mechanisms
for their realization, which, to some extent, should represent a vision of dynamic
environmental changes.
In the presented observation, the real world is problematic, while process and
methodology are systematic. Such approach is primarily based on certain type of culture
and a principle of participation, or in another words, wide participation of all factors
involved in a problematic situation. This is the area in to be searched for greatest
limitations of operative application of this methodology. In addition to that negative

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national experience in past related to the system of social consultations and deliberation in
which ideas of culture and participation were incorporated as means for neutralization of
uncertainties and influence of the environment, the directions and dynamics of their
changes in future.
2. DEVELOPMENT POLICY MODELING AS ILL-STRUCTURED PROBLEM
Since main problems in modeling development policy are located in decision-making
domain, so in the philosophy the concept od functional hierarchy of layers in decision
making, has been incorporated. This hierarchy is firmly based on natural principles
because it includes three main aspects of decision-making in the situation of uncertainty:
1. The choice of strategy to be used in the proces of solution.
2. Reducing and eliminating the uncertanty.
3. Search for desired direction of actions under apriori expectable conditions.
As a base for determination of the dissipated group for the contents of development
policy the Checkland's methodology for soft systems was chosen. This methodology,
conceptualised as a seven levels analytic proces and through appropiate learning system,
uses the main mental processes: perception, comparison, proclamation and decision-making,
and thus enables the flexibil problem solving.
Relying on the presented philosophical basis and principles we will present the analysis
of the soft system methodology application as a system approach for determining the
contents of the sector multivariation plan group with Checkland's methodology for soft
systems.
This methodology is a seven-levels analytical process which through the appropriate
system of learning, by using main mental processes: perception, comparison, assertion
and decision making, enable flexible solving of the problem
Necessary information are assembled in the first and the second phase through
adequate research of economic and key social and political elements, and through
appropriate system of learning, and by using the main mental processes: perception,
comparison, assertion and decision making, enable flexible solution of the problem.
In the first and the second stage, non-structured problem situation is discovered - in our
example: how can the state, i. e. its authorized institutions, via measures and instruments of
development, social and educational policy, stimulate the sectors transformation,
restructuring the large enterprises and developing small and middle industrial and service
enterprises.
In those two phases, the collection of information is carried out, trough the relevant
research of key economic and social elements of total economic structures and their
characteristic interactions and conflicting interests as well as the specific of common
economic and social culture and climate. Collected and systematically arranged
knowledge should define a picture within which the followings relevant topics are to be
defined:
1. Problems in the form of a vague assembly: {(Losses) Market sales, (Losses)
Market purchases, (Enormous lagging behind competition) Organizations and
technology, (Enormous surplus) Manpower, (Little and archaic) Managerial knowledge
and entrepreneurs, (High) Costs, (Expensive) A to external finance,}

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2. Actors also in the form of a vague assembly {Politicians, Managers,

Entrepreneurs, Workers, Experts, Farmers, Financial markets, Foreign investitors,
Public institutions (Schools, Social, Public-health and other institutions),}
3. Aggregates also in the form of a vague assembly {State administration, State
regulation, Public revenues, Public obligation,}
In the same time, it is necessary to carry out the analysis of cultural and social
standards as well as political system. From the picture established, different topic issues,
generatic relevant standpoints in the form of a relevant (vague) assembly:
{Problems, Actors, Aggregates} = {Problems, Actors, Aggregates}1 U
{Problems, Actors, Aggregates}2
On the basis of the totality of whole researches presented in the form of vague
assembly {Problems, Actors, Aggregates}, in the third stage a vague assembly {Abstract
picture (The FR Yugoslavia) Economy} is formed giving the original definitions of the
problem observed, in the form of refined verbal statements. As a matter of fact, the
statements represent idealized comprehension what a relevant system should be. The
basic goal is too precise:
1.What should be done?
2.Why this should be done?
3.Who should do this?
4.Who gains benefits and who disadvantages?
5.What are the limitations imposed by surroundings and which of
Them cannot be institutionalized and overcome in reality?
In the fourth stage, the transformation of the vague assembly:
{Abstract picture (FR Yugoslavia) Economy}
into main activities is carried out, in the form of the vague assembly:
{Development of structural adaptation of economy of FR Yugoslavia}
In our example and according to the general goal:
{Market restructuring t, organization, management and personnel structure
of national enterprises in order do develop intersector production according
to the criteria of open market}.
Because of the specified characteristics of the transiting economies it is necessary to
form a few parallel abstract pictures and base them to define a wider activity group
(Picture #3) in order to provide for the realization in the ex-ante set boundaries,
irrespective of the fact that in denying the application of the wrong abstract picture, or
significantly altered circumstances the final result must be a model with the structure that
involves the parallel existence of several possible solutions:
Picture "A" = {Program of infrastructure revitalization }
Picture "B" = {Program of large enterprises revitalization }
Picture "C" = {Program of small and middle industrial and services enterprises
development}

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47

{Development for structural adaptation of FR Yugoslavia economy } =

{Solution "A"} U {Solution "B"} U {Solution "C"}
Where:
{Solution "A"} = {Goals}A -> {Measures and Instruments}A
{Solution "B"} = {Goals}B -> {Measures and Instruments}B
{Solution "C"} = {Goals}C -> {Measures and Instruments}C
The final result may be the model:
{Development for structural adaptation the economy of FR Yugoslavia}
With a structure comprising several parallel levels and the large spectrum of mechanisms
for their solution.
In the fifth stage, comparison of the structured model:
{Development for structural adaptation of FR Yugoslavia economy }
with reality is made in sense how the chosen structure of the model will behave in future
along with the definition of {Actors} (in our case, those are the measures and instruments
of development, social and education policy) influencing the process of transformation. In
the context presented, the transformation of the vague assembly:
{Multisolutional program for structural adaptation of FR Yugoslavia economy }
Composed of the combination of measures and instruments of development, social and
cultural policy could enable circle of subjects as large as possible.
On the basis of the structure, formed in comparison with reality, in the sixth stage it is
necessary to perform the analysis of limitations (i. e. restrictions) as the final framework
of changes. In the national example, the following restrictions have particular importance:
Incompetent state administration,
Passive and conservative management,
Insufficient protection of property,
Anti-development oriented fiscal and monetary policy,
Developed "gray" and "black" market and
Destroyed social policy.
Accordingly the vague assembly is formed:
{Restriction} = {State administration} U {Management} U {Property protection} U
{Fiscal-monetary policy} U {"Gray" and "black" market} U {Social policy}
On that basis, comparison between desirabile and feasible changes can be carried out:
{Multisolutional program for structural adaptation of FR Yugoslavia economy }:
{Restriction} = {Multisolutional program for structural adaptation of FR Yugoslavia
economy }
The phase of implementation (seventh stage), based upon the large spectrum of
measures and instruments of economic policy and adapted to different structures of

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restriction should allow the planed (meaning sensible, not ad hoc) actions of the makers
of economic, social and educational policy.
Presented methodology is based on the procedure of system observation in finding
what are the best ways to solve the observed problem situations? In which a large number
of actors with their partial observations and truths, and a number of fusibility analysis are
incorporated. Integration of their ways:
{Actors, Aggregates} -> {Goals} -> {Measures and mechanism development
(social and education) policy}
enables through the learning process to conduct more robust and flexible structuring of
the contents for the realization of the development policy.
3. FUZZY APPROACH TO THE INDETERMINATIONS REGARDING THE CONCEPTUALIZATION
OF THE DEVELOPMENT POLICY

In order to illustrate this, an attempt to construct a fuzzy model has been made:
"Standardization system and its role in support of the individual initiatives for the internal
transformation in order to implement the ISO 9000:2000 standards". The general idea is
to structure fuzzy model based on the results from the second and third phase of
Checkland's soft system methodology, and compose fuzzy rules with a group of the
following fuzzy variables described linguistically:
Internal barriers
Business culture:
Technical culture:
Management:
Organization:
Personnel (main orientation):
Knowledge:
Educational system:
Distribution system (main orientation):
Financial resources:
Technical resources:
External barriers:
Infrastructure for standardization:
Public educational system:
Funds for financial support:
Control system:
Support for implementation
Financial aid:
Technical help:
Administrative constraint:
Moral constraint

High, average, low

consumer, organization in dispersion
high, average, low
aggressive, moderate, passive
flexible, rigid, in dispersion
motivated, conservative, obstructive
modern, average, out-dated
existent, non-existent
result, other criteria
existent, insufficient, non-existent
existent, incompetent
High, average, low
developed, incomplete, undeveloped
developed, average, undeveloped
high, scarce, non-existent
developed, average, undeveloped
Active, passive, non-existent
non-addressed, selective, non-existent
strong, insufficient, non-existent
strong, passive, non-existent
strong, passive, non-existent

The application of fuzzy techniques in the presented example is additionally stressed by

the following factors. Since all the model variables are described in a linguistic form, experts
can measure them only in relative units or degrees end. These variables are also marked by:

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49

Ambiguity, since the described phenomenon can be interpreted

Difference, and
Imprecision due to the incapability to identify different conditions and events
exactly and to set borders of different phenomen.
It is impossible to use statistic methods to process the data because they are not based
on historic data and experience. It is also impossible to use the principles of probability
theory, so called Bays theory. Probability is a proportionate coincidence that an event
might occur. Fuzziness on the other side, is an extent to which an event occurred. After
the event has occurred the whole probability calculation is no longer necessary, while the
fuzziness is necessary for the description of the event, which stays (after the correction) at
our disposal.
The idea is, (based on fuzzy model and initial values) to form abstract base of the
fuzzy knowledge for flexible definition of multivariate plan contents, based on
multicriterial approach, which should enable parallel realization of at least two goals:
Effective and selective support of individual initiatives for internal transformation in
order to achieve microstructure and culture which should result in a verification of
ISO 9000:2000, and
The development of administrative and technical infrastructure necessary for the
development of constraint and control of gradual and real implementation of ISO
9000 requirements by using combined consultation - constraint principle in as large
number of companies as possible.
After defining the variables, we can proceed with the fuzzification, or in other words
joining the membership functions to every variable. There is an algorithm for approximate
conclusion to be made by experts.
4. CONCLUSION
Soft system methodology provides a valid way for treating indeterminations and
fuzziness, which are inherent to the subjective determination of preference, limitations and
goals in the environment where there is no science, practice or tradition in respecting formal
structures. The achieved results can be used for satisfactory open version of development
policy. Its main characteristic is the high level of subjectivity in handling a problematic
situation and in creation of the problem solutions. Its effective operacionalization depends
on the adequate integration of the paradigm "learning" with the fuzzy set of goals on one
side, and passive and nonaddressed measures and mechanisms of economic policy on the
other side. Concrete direction and development should come as a result of complex
interaction of institutional changes, economic and political interventions, and changes in
microeconomics behavior of economic subjects.

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REFERENCES
1. Adzic, S., Sedlak, O., System Approach to the Developing Policies as Ill Structured Problem, PC 120
PAMM, Balatonalmady, 1997.
2. Adzic, S., Sedlak, O., The Model of Multicriteria decision making within National Sector Policies, 4th
Balkan Conference on Operational Research, Thessalonica, 1997.
3. Checland, P. B., Science and The Systems movement, Systems Behavior, Edited by Open Systems Group,
Harper and Row Publishers, London, 1980.
4. Checkland, P. B., Soft System Methodology in Action, Wiley, Chichester, 1990.
5. Checland, P. B., Towards a Systems - based methodology for real-world problem solving, Systems
Behavior, Edited by Open Systems Group, Harper and Row Publishers, London,
6. Mesarovic, M. D., Macko, D., Takahara, Y., Theory of Hierarchical, Multilevel Systems, Academic Press,
New York, 1970.

RAZVOJNA POLITIKA KAO SLABO STRUKTUIRANI PROBLEM

Sofija Adi
Tekua privredna kretanja i niska kontrolabilnost privreda u tranziciji ne dozvoljavaju
konvencionalnu formalizaciju i realizaciju razvojne politike. Novi koncept razvojne politike zavisi
u prvom redu od uloge drave u privrednom razvoju, tendencija razvoja pojedinih sektora i
predstavlja rezultantu kompleksnih interakcija institucionalnih promena, ekonomskih i politikih
intervencija i, pre svega, promena u mikroekonomskom ponaanju privrednih subjekata. U takvim
okolnostima neophodno je kompleksnije i preciznije donoenje odluka i sagledavanje njihovih
posledica od strane kreatora i izvrilaca razvojne politike. Jedan od moguih pristupa je primena
metodologije za soft (meke) sisteme u dizajniranju razvojne politike. Aplikacija fazi teorije
omoguava pouzdanije tretiranja neizvesnosti i rasplinutosti koja su imanenta subjektivnom i
nepreciznom poimanji preferencija, ogranienja i ciljeva.