By Alan F. Fogelquist, PhD.
Eurasia Research Center – December 4, 1998
Here I present a quick review of some literature which reveals the complexity and inadequacy of reform efforts in the FSU. A reading of just some of the literature below will raise many questions about simplistic formulas for reform.
Two works which represent the viewpoints of western advisors to the Russian and other Post-Communist Transition governments are.
Anders Aslund, How Russia Became a Market Economy, Brookings, 1995
Jefferey Sachs, Wingt Thye Woo, and Stephen Parker, Economies in Transition, MIT, 1997.
In Russian similar views are presented by Yegor Gaidar in several works.
All of these books have a common two common characteristics. First, they go into considerable detail on the evolution of macro-economic policy, prices and exchange rates. Second, they contain very little detailed examination of what was happening in Russian enterprises as these policies were introduced, resisted, reintroduced etc.
These authors for the most part have attributed Russia’s woes to the resistance by members of the old nomenklatura to reform and the failure to continue the anti-inflationary monetary policies introduced by Gaidar in the first three months of the reform. Aslund’s book is particularly good for a detailed tracking of the policy changes and changes in aggregate prices during the first four years of the reforms. Aslund’s book is also useful in that he uses a language comprehensible to policy makers or laymen without advanced training in economics.
One thing Aslund’s tables show is that increases in the money supply usually elicited increases in price levels that were considerably higher proportionally than the increase in the money supply. Some of the critics whose works are reviewed below have pointed out that efforts to control prices by slowing down the increase in the money supply resulted in disproportionately high reductions in investment and production. Another peculiarity of the Russian economy is the surprisingly low ratio of cash to Gross National Product and the large proportion of barter transactions.
A SECOND GROUP OF WORKS
This group of works is more heterogeneous both in the professional background of the authors and the scope and focus of each study. All of these works combined provide important insights into issues not covered or only superficially and cursorily addressed by authors of the first group, several of whose authors participated in a major way in the formulation of Russian macro-economic policy while failing to address problems in the micro economy and sectoral levels. A thorough review of this literature and literature which provides information on the response of individual enterprises and industries to the reform policies is needed, I believe, to have a complete and balanced view of what happened. All of this points to severe deficiencies and neglect of important dimensions of economic reality in the works of the first group of authors.
Some works which analyze things from a different point of view casting light on the peculiar problems of Russian industry and Russian enterprise organization are discussed below.
Alice Amsden, Jacek Kochanowicz, and Lance Taylor, The Market Meets its Match: Restructuring of the Economies of Eastern Europe. Harvard University Press, 1994.
The above work is particularly important because it both points out some theoretical deficiencies in the assumptions of western advisors on economic reform and gives some detailed information on the exact technical and organizational problems of industrial managers and their industries at the time of the reforms. These specific problems of industry were not addressed at all by the macro-economic oriented reformers. They are part of the reason for industry’s often unexpected responses to reform. Amsden, Kokhanowicz, and Taylor show that industrial managers in Poland and Hungary often had a good ideas about how to make their firms more competitve but were prevented from doing so because they lacked capital and certain of the reform regulations created further difficulties.
Thus, the transition economies faced a dilemma. Tightened credit and monetary policies made it more difficult to obtain capital and technology and without major technological improvements many industries could simply not modernize or compete effectively with foreign firms. In the case of Russia and FSU, during the critical early years of radical reform, the managerial elites were far less prepared to operate in a market environment than their Central European counterparts and were often ignorant of elemental accounting and financial practices of a market economy.
A general work which adopts an entirely different view from that of Aslund is:
Marshal Goldman, Lost Opportunity: Why Reforms in Russia have not worked, New York: Norton, 1994.
There are reports by the Russian industrial organizations which Aslund and others in his school consider to be biased, but which present important facts and address important industrial issues which are left out of the studies of the first group of authors.
Other works which also deal with problems of industry or particular industries and enterprises plus other issues such as the social and distributional consequences of Russian policies are:
Linda J. Cook, Labor and Liberalization – Twentieth Century Fund, 1997.
Lynn D. Nelson and Irina Y. Kuzes – Radical Reform in Yeltsin’s Russia, M E Sharpe, 1995
Bertram Silverman, New Rich New Poor New Russia, M E Sharpe1997
A book which analyzes the connections between particular advisors, western universities, and Russian and East European “reform” politicians is
Janine R. Wedel. Collision The Strange Case of Western Aid to Eastern Europe 1989-1998.
In Russian there are numerous articles and pieces by Grigoriy Yavlinskiy challenging the wisdom of the reform course adopted. Yavlinskiy is accused by the first group of thinkers of ‘neglecting money’ but presents some interesting evidence about how the Russian economy and society are different form western and developing market economies and hence the unpredictable behavior of enterprises and the economy as a whole.
There are numerous monographs and works in Russian addressing the particular problems of Russian industrial competitiveness in particular branches of industry.
One such study is:
Ekspertnyi Institut – Konkurentosposobnost’ Rossiiskoi Promyshlenosti – Moscow 1996
A book which takes a comprehensive comparative analytical view of Post Communist reform and adopts positions similar to those of Amsden, et al. is:
A D. Nekipelov. Ocherki po ekonomike postkommunizma. Rossiiskaya Akademia Nauka – Institut mezhdunarodnykh ekonomicheskikh isledovaniia. Moscow 1996.
A book in English which analyzes the special problems of Russian military – industrial enterprises is
Clifford G. Gaddy. The Price of the Past Russia’s Struggle with the Legacy of a Militarized Economy. Brookings Institution, Wash D. C., 1996.
On Central Asian economic reform, the views of one of the local architects of eonomic stabilization policy are presented in:
Akezhan Kazhegeldin. Ekonomicheskaya politika v period podavlenia inflatsii i stailizatsii proizvodstva, 1994-1998, Almaty: Valery, 1998.
Two works which have information on organized crime and its relationship to the Russian economy are:
Sstephen Handelman, Comrade Criminal: Russia’s New Mafia, New Haven: Yale University Press, 1995
Rensselaer W. Lee III, Smuggling Armagedon, the Nuclear Black Market in the Soviet Union and Europe, New York: Saint Martins Press, 1998.
These are just a few works which provide ample empirical evidence on problems overlooked by key western advisors on macro economic policy like Aslund and Sachs. All of these point to a conclusion that the understanding of these two in particular was over simplified and that there were many aspects of economic and social reality that were of critical importance but simply ignored by people with this orientation. Later some of these authors have introduced new elements into their explanation of what has happened that were absent in their original policy formulations.
There is much information in Russian and Central Asian newspapers and journals which provides evidence of the peculiar institutions, and conditions at the regional, local, branch, and firm levels which should have been factored in to the policy formulations.
A tentative conclusion, based on a reading of such literature and many more professional and journalistic reports, is that there were serious deficiencies in the thinking of several key reform advisors from the west. They simply didn’t have enough information about the Russian and FSU economies, histories, societies, and political, social, and military forces to produce policies that were successful and humane.
Little attention was paid by the macro-economic reform experts to creating social safety nets for the losers in the transitional period. The outcome, in terms of human suffering has been enormous.
The reform experts simply failed to foresee the real political and social consequences of the policies they were recommending with such confidence in 1992, 1993, and 1994.
Recently some of these authors have been blaming current problems of the CIS on the “Mafia” phenomenon as a kind of all purpose exogenous factor completely independent of macro-economic policy.
There is enough contradictory and complex evidence to quibble and debate about many of the issues raised here for decades with no definitive resolution in sight. All this points to a need for more research on important but inadequately addressed factors other than aggregate policies.
I believe that all of the above is also directly relevant to the problems of Central Asian – Post Communist political and economic development. I have chosen mostly Russian examples because the Russian case has been more thoroughly reviewed and much of the literature I have on Central Asian economies comes from a great many shorter articles and reports, especially those from the Central Asian and Russian press.
(c) Copyright Alan F. Fogelquist – Eurasia Research Center, 1998