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

have become key miscalculations of state economic policy. In the full sense of the word, they “slaughtered the chicken” that laid the main “golden eggs” for the state budget. It is impossible not to notice that the decisive beginning of these steps was set within the framework of the USSR, during the period of “perestroika”.

      The outward amorphousness of the goals of economic transformation in Russia had its reasons. The absence of clearly expressed goals of reforms from the standpoint of society was primarily in the interests of the shadowy inspirers of the processes of breaking the old order. In the context of the blurring of strategic goals and in the absence of institutional constraints, it was easier to achieve the redistribution of the main parts of the previously social wealth, efficient capacities, and natural resources in the clearly defined personal interests of the new “elite,” which was locked in several positions with the criminals.

      The Cost of Reform Programs

      Criticism of the actions of the reformers’ government on the pages of the scientific press is quite often and rightly built around the thesis that there is no clear program for the transformation and development of the economy. Official circles usually respond to this by referring to the existence of several government economic programs related to the implementation of market reforms. Yes, there have been and continue to be such programs covering periods ranging from one to 4—5 years. Options have also been developed long-term socio-economic programs (for example, the well-known program of German Gref). However, none of these programs had the scope and status of a national strategy for socio-economic development. And the Gref program (claiming to be a strategy) was not even officially published and remained a semi-draft. It is impossible to name a single program document where the ultimate goals of economic programs would be presented in the form of reasonable parameters available for public scrutiny and would be supported by balance sheet calculations linking effects and costs in time and space.

      The lack of a clear strategy for economic transformations was aggravated by the fact that there was no objective monitoring of reforms from the standpoint of results, and the government did not have the desire to self-critically evaluate its reform programs and actions. Meanwhile, there were numerous reasons to do so in a timely manner. It was necessary to at least analyze the assessments of qualified experts from the outside, if there was any distrust of critics inside the country. Here are some of the public assessments of the course of economic reforms in Russia, made by foreign experts whose reputation is beyond doubt.

      For example, Joseph Stiglitz, the world-renowned economist and the 2001 Nobel Prize winner in Economics, in his analytical report Macro- and Microeconomic Strategies for Russia prepared jointly with David Ellerman, put forward very serious critical observations30. Subsequently, Stiglitz has developed these observations in articles and in a book on the contradictions of globalization that has received worldwide resonance31.

      Let us cite a few excerpts from the above-mentioned report, because they were made at a time when there was an opportunity to correct many things. “Russia’s experience of transition from communism to the market has turned out to be much more complex than it seemed a decade ago. The increase in prosperity promised by the market did not materialize; moreover, GDP fell by more than 50%, and the share of the poorest population increased from 2% to 50%. It is necessary to recognize these facts and outline a program for the country’s exit from this state. Today, ten years later, we have inherited not only a new young emerging class of entrepreneurs, but also an even faster growing mafia. The state as an institution violates the social contract again and again, fails to fulfill its promises, and becomes an instrument for private profit at the expense of most of the population. At the same time, only a few are becoming fantastically rich, and most of the population is sliding deeper into the abyss of poverty, and the cynicism in relations with the state and the law is greater than it was a decade ago.

      Many hoped that privatization itself, no matter how it was done, would create a demand for an institutional infrastructure that would conform to the market economy and the law, when the all-powerful hand of the hapless state would be replaced by the invisible hand of the market. However, there is neither economic theory nor historical precedent to support such hopes. Only the middle class in the process of its development creates a need for such institutions, and in the last decade there has been the destruction of the middle class in Russia and the creation of a new, more concentrated oligarchy that is not interested in the rule of law, healthy competition, and a fair bankruptcy regime.

      The focus on the redistribution of property has diverted attention from the creation of new businesses. The way privatization was carried out did not pay enough attention to the management of firms and did not encourage the creation of new enterprises.”

      The authors criticize the prevailing views on the role of the priority of anti-inflationary policy. “Attempts to strengthen the price mechanism by suppressing inflation,” they write, “may have the opposite effect. In addition, there is a view that if there are barriers to lower wages and prices, then moderate inflation is even desirable. Since transition economies are particularly in need of adjustment, the ‘optimal’ level of inflation may be higher than in other economies. The experience of the countries of Eastern and Central Europe shows that it was not the countries with the lowest inflation that developed the fastest… Wherever inflationary paranoia has contributed to the clampdown, macroeconomic policy appears to have played a significant role in the economic downturn.”

      Some of these estimates, such as the arguments about inflation, can probably be argued with to some extent. However, in our opinion, it is inadmissible to consider the multilateral critical analysis of the above-mentioned work as some insignificant circumstance that allows it to be ignored. For my part, I tried to convey this position to the Russian public and the government as persistently as possible, but without a proper reaction32.

      In addition, this material contains not only criticism, but also practical constructive conclusions and rational proposals. Thus, the authors believe that at the current stage in Russia, “the following macroeconomic strategies are needed:

      – recognition that the country needs a growth strategy and should not focus only on financial stabilization;

      – acknowledging that the current large-scale non-payment of taxes (as well as other direct and indirect obligations to the state) provides a unique opportunity to correct some of the mistakes of the past decade;

      – recognition of the need to restructure the economy from top to bottom, through the creation of medium-sized and small enterprises that emerge anew or by spun-off from large ones;

      – recognition of the need to build a resilient social democracy that can revive social capital.”

      Nicholas Stern, the World Bank’s chief economist, has also published a rather critical assessment of the key stages of Russia’s reforms. Here are excerpts from his article: “The reformers ‘gifted’ ownership and control over enterprises to ‘their people’, insiders – nomenclature directors, who were the real owners of the enterprises. They also managed to forge relationships with a new class of oligarchs who made their fortunes either in the final years of the old regime or during the period of inflation that became a feature of the early years of the transition. The oligarchs have taken over the most lucrative sectors of the Russian economy. The reformers depended on the support of the oligarchs and, using a highly dubious scheme of mortgage auctions, transferred additional state assets to these tycoons. At the end of the article, the author noted that an important task of his organization (the World Bank) “is to help Russia” and that “today Russia has a chance to start all over again.”33

      Post-Default Economic Shifts

      Analyzing

30

The report has been translated into Russian and is available on the Internet at www.ecaar-russia.org/stiglitz-ellerman_ru.htm.

31

Stiglitz J. E. Globalization and Its Discontents. Translated from English and commented by G. G. Pirogov. Moscow, Mysl Publ., 2003.

32

Ekonomist. 2001. No. 8. Pp. 3—10.

33

Transformation. 2000. No. 5. Pp. 1—3.