Trajectories of Economic Transformations. Lessons from 2004 for 2024 and Beyond. Valery Kushlin

alone. The general situation of the time in and around the country was based on a mixture of the reformist romanticism with the conservative pressure of what George Soros defined as ‘market fundamentalism.’ Blind faith in the miraculous efficacy of institutional market changes somehow dominated the worldview of many politicians who entered the arena of the country’s political life at the stage of Gorbachev’s perestroika. And it was this cohort of politicians, in alliance with superficial publicists, who laid down in our society unverified ideological imperatives, which largely determined the course of reforms for a long time. The criterion of transformation has moved from the field of economic performance to the realm of slogans and ideological clichés. For example, the statement of one of the politicians of that time (E. J. Vilkas, Chairman of the Commission on Social and Economic Development of the Union and Autonomous Republics, Autonomous Regions of the Council of Nationalities of the USSR Supreme Soviet) during the discussion of the draft plan and budget for 1990 is very typical: “The progressiveness of any economic measures today is assessed by one criterion: to what extent it helps the market to establish itself.”

      As a result of a multifaceted analysis of the initial stages of economic transformations in the country, Academician Nikolay Fedorenko rightly noted: “The main root of the failure of Russian reforms is buried in the fact that Russia entered the crucial stage of the transition period without a targeted program for this transition!”25

      The absence of a public program for the transformation of the economic system with clearly defined goals at the very beginning of the reforms can be explained by the lack of time of those who took up the transformations, and the sharp political struggle between supporters and opponents of changing the economic system. However, all subsequent (after 1991) reformation steps took place under conditions of almost complete monopoly on the conceptual content of the transformations. This monopoly belonged to those in power. This means that it was the government of those years and the forces behind it that should be considered fully responsible for both the development of goals and the implementation of economic reforms. In the end, the responsibility should be shared equally by Russian society as a whole, which allowed the uncontrolled development of events.

      The Human Factor in Economic Transformations

      Let us draw attention to two fundamentally important conclusions made by international experts based on the analysis of the practice of market transformations in a large group of countries. Both observations relate to the human factor of transformation, or more precisely, to the socio-psychological side of managing major changes in society26.

      First, the beneficiaries of reforms must set the goal of compensating the losers as much as possible. Without such motivation of the initiators of reforms, the transformations do not turn out to be attractive to society and will eventually either stall or lead to violent social conflicts.

      Secondly, the leaders of the reforms in the country become such and gain authority only since they give their people a sense of ownership of the reforms, instilling confidence that the reforms were not imposed from the outside. They should take care to maintain a feedback mechanism that allows for timely adjustments to the content of reforms. To this end, broad discussions on key policy areas and priorities are usually ensured. Every effort should be made to create an atmosphere where people can be heard.

      We must admit that both conditions were not even minimally met in the course of reforms in Russia. And if we talk about the first of these points, then we must admit that the task of social guarantees for the weak and “losers” was not only not put at the forefront but was simply ridiculed by many ideological leaders of reforms. As a result of this attitude, a colossal differentiation of society in terms of wealth and social status unfolded incredibly quickly.

      This can be seen in a variety of parameters that characterize the structure of our population in terms of income, consumption, savings, property, etc. Academician Dmitry Lvov characterizes our Russia today in two of its images – rich and poor. “Rich Russia is home to about 15% of the population, which accumulates 85% of all savings in the banking system, 57% of cash income, 92% of property income, and 96% of foreign currency spending. In Russia, 85% of the population lives poorly. It has only 8% of property income and 15% of all savings27.

      In 1990, the USSR ranked 33rd among all the countries in the world on the Human Development Index, at its worst, and Russia, which had already undergone reforms, ranked 63rd at the beginning of 2003.

      Privatization in the Structure of Reforms

      The institutional side of the transformations was dominant throughout the entire period of reforms, and the privatization of state property became the central point in it. This, by design, should lead to the emergence of more efficient owners. In fact, the question of efficiency in its generally accepted sense did not arise at all during privatization. The organizers of this process were dominated by two aspects of motivation: 1) the distribution (almost free) of the most attractive pieces of property among the most active figures of the reforms; and (2) the final burial of social property as a phenomenon and socialism as a system of economic management.

      Indicative is the admission of Anatoly B. Chubais, who was its chief manager during the main stages of Russian privatization, in one of his interviews in 2002. Speaking of the goals of privatization at the stage of the loans-for-shares auctions, he emphasized that “there was a singular task at hand: creating large capital that could prevent the return of communism in Russia. Ninety-five percent of the task was political and only five percent is economic.” Yes, Chubais admitted, “one can make fair claims to the procedure of these transactions from the point of view of classical economic theory. But large-scale private property was created in the country in a very short time.”28

      As we can see, economic efficiency was in fact of minimal importance in the acts of privatization of state property. But the political emphasis emphasized by Chubais as the dominant of privatization should probably be regarded in a wider range of motives than just the eradication of communism. Rather, behind this political slogan there is a very pragmatic motivation of a narrow stratum of people who received a gift of a huge amount of money in a short period of time property, to prevent its new redistribution.

      As for the interests of society, which, by definition, must be protected by the state, they were pushed to the fore in the course of privatization – against the background of the private interests of the established oligarchs, as well as powerful shadow figures.

      Here is just one aspect of the losses suffered by Russian society (represented by the state) from the distorted orientation of privatization, which is noted over time by Ilya Klebanov (then Minister of Industry, Science and Technology of the Russian Federation): “I consider it a big mistake that during the privatization of defense enterprises, the state did not value its intellectual property in any way. In fact, it ceased to own the rights to developments that were created with state funds and always belonged to the state. It simply took it out of its pocket and, saying ‘take it’, gave away its property for free. That’s wrong… Together with the Ministry of Property and independent appraisers, we conducted a study of several private defense enterprises and found out that all their capital, machine tools, real estate, etc., is only ten to fifteen percent of the amount that this enterprise would be worth together with intellectual property. It turns out that the defense industry was sold on the cheap.”29

      Hasty steps to eliminate the leading role of the state in such spheres of activity as the production and sale of wine, vodka and tobacco products had an even greater impact on the bleeding of the national economy. It is known that revenues from these sectors of the economy have almost always been extremely significant for the

25

Fedorenko N. P. Russia: Lessons of the Past and Faces of the Future. Moscow, Ekonomika Publ., 2000. P. 369.

26

The State in a Changing World: World Development Report 1997. World Bank: Prime-TASS Economic Information Agency, 1997. Pp. 172—202.

27

Lvov D. It’s Time to Show Trump Cards // Rossiyskaya Gazeta. 2003. 15 January. Scientific Newspaper Supplement. No. 1.

28

Interview of A. B. Chubais to the magazine Ekspert (2002. No. 47. P. 33).

29

Ekspert. 2003. No. 1. P. 48.