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

of perfect competition” and “if transaction costs are negligible”.14

      That these latter conditions are far removed from reality in the real modern economy probably does not require extensive proof. It should be asserted even more confidently that the assumptions about “zero transaction costs” or the existence of “free competition” did not correspond to the realities of the period of the reversal of market transformations in Russia. The asymmetry of information used in economic decision-making by different agents of the entrepreneurial class was glaring in Russia. Involvement in this information radically depended on the proximity of economic agents to the power structures and on “investments in corruption”. Under these conditions, transaction costs were by no means zero, but commensurate with the volume of the final economic product.

      It would also be necessary to assess in a transactional manner the cost components that arise from external efforts to transform institutions in countries with economies in transition. The level of external investment in different countries of this group was different at the initial stages of transformation. The volume of foreign aid was especially large in such countries as Hungary, Poland, the Czech Republic, the Baltic states, which were formerly part of the USSR, – Estonia, Lithuania, Latvia. The selective nature of financial assistance to transforming countries speaks for itself in many ways. For example, net official assistance to Poland from international organizations amounted to $876 million in 1998, $1,186 million in 1999, and $1,396 million in 2000. These are the largest amounts of aid compared to what has been received by other countries in Central Europe and the Baltics. For example, the three Baltic states together received $323 million, $318 million, and $254 million in the corresponding years.15 In this regard, if we talk about the level of official assistance to Russia and such countries that were formerly part of the USSR as Belarus or Moldova, then it is absolutely symbolic against the background of even the volume of assistance provided to the above-mentioned Baltic countries.

      In addition to the channels of “official aid,” “foreign investment,” “forgiven” foreign loans, and so on exert a significant and varied external influence on the transformation processes in the post-socialist countries. In Russia, so-called foreign investment had almost no positive impact on the real economy. A significant part of them were various kinds of “systemic” loans, which either patched up the needs of the country’s current budgets, or flowed through complex channels, settling in private funds of incomprehensible social purpose. Many commercial loans were “tied.” In addition, the volume of foreign investment in Russia was not commensurate with the scale of the country, and it was an order of magnitude (or more) lower than, for example, foreign investment in the economy of China or even Poland. Between 1994 and 1998, Russia received $13.6 billion in foreign direct investment, while China received $198 billion. According to some reports, Poland has received about $450 billion from the West in various kinds of investments and assistance during the entire period of market reforms.16 It should be noted that the foreign investments that came to these and many other reforming countries were implemented by their governments (unlike Russia) for the benefit of macroeconomic development.

      China has experienced and is experiencing a real boom in foreign investment, which actively contributes to maintaining consistently high rates of socio-economic development of the country. For example, in 2003 (despite the destructive impact of the SARS factor) foreign direct investment in this country amounted to $53.5 billion, in 2004 – about $60 billion, and in 2010 it is expected to reach $100 billion. per year. And in total, over the years of moving towards a market economy, China has received (including from the Chinese from abroad) probably at least $0.5 trillion in foreign investment.

      Thus, the external factors of economic transformations have a multifaceted potential that contains not only negative, but also positive aspects. Therefore, it is unreasonable (because of the dangers of negative external influences or for other reasons) to refuse to take an active part in world economic relations. The advantages objectively present in the international division of labor can and should be used as much as possible during transformations. A country that excluded itself from the global world economy would find itself outside the modern flow of innovation and managerial experience. But in everything, as has long been established, a measure is needed. Reducing the impact of the negative external factors of transformation and strengthening the manifestations of their positive aspects is an objectively necessary and quite feasible task for the governments of countries with economies in transition, even in the increasingly rigid grip of unipolar globalization. The realization of such opportunities depends on the specific policy in the country and the social and moral health of society.

      Chapter 3. The Economic Structure of the Soviet Union: From Growth to Collapse

      The complex problems faced by the former Soviet Union and Russia and other countries that emerged after its collapse, as well as the difficult course of reforms in them, have formed in a significant part of society a purely negative attitude towards the entire period of Soviet history, including the economic results associated with the 70-year period of socialism. Meanwhile, the USSR, even as of 1985—1986, when the Gorbachev perestroika began, the harbinger of market reforms, it had an economic potential that could not be ignored in the world. This was ensured by the high growth rates of production in the main sectors of the national economy over the previous years. The economy on the territory of the USSR functioned as a single (without exaggeration) national economic complex, all parts of which were located in the space of cooperation branched to detail and were subject to a common plan. For all its serious drawbacks, this cooperation has been quite powerful in binding the country’s economic structures together in a focus on sustainable economic growth. In the external dimension, the country’s economy was presented both objectively and subjectively as a significant factor.

      The Nature of Soviet Economic Growth

      In 1985, the national income in the USSR reached 66% (according to official Soviet statistics) of the level of the United States. Industrial output accounted for more than 80% and agriculture for 85% of the U.S. figures. The volume of annual capital investments was characterized as 90% of the level of the United States. The comparison in terms of the parameters of economic efficiency looked somewhat worse. For several years, according to the USSR Central Statistical Office, labor productivity in industry was at the level of 55% and in agriculture, about 20% of the U.S.17

      Consistently high rates of economic growth distinguished the Soviet economy from the economies of many other countries both in the pre-war (before 1941) and post-war periods. The national income produced in 1940 was 5.1 times higher than in 1928, and between 1950 and 1985 it increased 10.2 times.

      As can be seen from Table 3.1, the USSR was basically ahead of the United States in terms of the average annual growth rates of national income, industrial and agricultural production, capital investment, and some other indicators. At the same time, in the context of the five-year periods presented in the table for the USSR, there is a noticeable tendency to reduce the growth rates of almost all economic indicators.

      It can be stated that up to the Ninth (1971—1975) Five-Year Plan in the USSR, the average rate of economic growth was quite high, at the level of not less than 6—8% per year (Table 3.2).

      This was facilitated by the high scale and rate of capital investment in the national economy and a significant and stable increase in the production apparatus over a long period of time. The growth rate of production in industry was higher than the average in the national economy. Although the productivity of social labor increased continuously, economic growth

14

Economic Issues. 2002. No. 3. Pp. 138—141.

15

Statistical data of the Committee for Assistance to the Development of the ECOS. Public Administration in Transition Economies. Open Society Institute. Spring 2002. P. 3.

16

Currency Rain Dried Up the Polish Economy // Rossiyskaya Biznes-Gazeta. 2001. 20 March.

17

The National Economy of the USSR for 70 Years. Moscow, Finance and Statistics Publ., 1987. P. 13.