Pradeep Mitra, the chief economist of the Bank’s Europe and Central Asia region, made the introductory remarks for this edition of the Practitioners in Development series. Dr. Yegor Gaidar, currently the Director of the Institute for the Economy in Transition in Moscow, and Russia’s former Acting Prime Minister and former Minister of Finance and Economy under President Boris Yeltsin, was the guest lecturer.
Dr. Gaidar noted that in a just concluded interview with B-SPAN he was asked why Russia had not followed China’s gradual path to a market-based economy, a path that bypassed much of the volatility experience in the former Soviet Union (FSU). The answer he suggested was that the political and economic regimes in the FSU were closely inter-related. To illustrate his point, he said when the totalitarian regime of Iraq was destroyed, so was law and order in Iraqi society. He also used examples from his own country, such as the decline of grain procurement following the collapse of the Soviet government in 1991. This situation threatened the nation with economic collapse as well. Efficient transitions are obviously less painful, but Russia had few choices in 1991, Dr. Gaidar suggested.
Developing sound institutions was an immediate concern. There was no functioning Central Bank, Customs Service or tax system in Russia following the collapse. Time is needed to shed the old system in order to create new institutions which are sound. Dr. Gaidar admitted that he and colleagues underestimated this hurdle because it was relatively easy to pass legislation and create the infrastructure, but part of institution building is based on culture as well. Time was needed to overcome 75 years of socialism. He also noted that the country fell into a depression following the collapse, as industrial production declined, and though economists thought it would be of short duration, this had an important impact of the transition work. He compared the Russia situation with what had been happening in Poland. Poland experienced a decline in production following the fall of its government, but there was an economic recovery starting in the third year. Gaidar and colleagues assumed Russia would have a similar experience. But they were wrong as the Russian depression was longer and deeper.
In the post-socialist environment, the process of getting inputs and selling outputs had completely changed for the business community. Dr. Gaidar noted the concept of GDP was created by economists under the assumption that it was an output of a market-based economy that had a limited role for a democratic government. This assumes transactions in the marketplace happen because of practical needs or desires. The transition to a socialist society therefore is extremely difficult. He illustrated his point with the inefficiency economic conduct of the state when trying to control water levels of the Caspian Sea. The post-socialist period then was a time of transition from a period of selling activities which the market would not wish to purchase to selling activities that it would wish to purchase. The duration of the recession was also unanticipated, but Dr. Gaidar noted that many people who had lived under a market-based economy in eastern Europe were still alive following the collapse of communism. Russia had lived under socialism, however, for 75 years.
Dr. Gaidar suggested that assessing the current economic situation in Russia is not an easy task as the country is so large and diverse. But he believes that the basis of the economic growth since 1999 is from recovery growth, a term that suggests a recovery of growth from the existing production infrastructure and workforce established during the socialist period. He provided some historical context of recovery growth in Russia. The initial stage of recovery growth was strong. It was unsustainable, however, prompting policy makers to consider alternative monetary and economy policies. Dr. Gaidar noted that fortunately this period of reflection did not result in any drastic initiatives. Policy makers used this time to think about moving the economy into investment-based growth from new facilities and labor. This growth is more dependent on stronger institutions. This means a stable government, property right protections, tax reforms. All these take time, but it appeared in 2003 that the initial trends of investment growth were taking hold with more investment and machine building. Much reassuring still needs to be done with the investment community, however. Dr. Gaidar concluded his remarks at this point.
Gur Ofer, a professor of economics from The Hebrew University in Jerusalem, and an expert on the Russian economy, provided the first commentary on Dr. Gaidar’s lecture. Ofer noted his surprise at Gaidar’s plan to liberalize prices in the early 1990’s and improvise from there to launch the reform process. In reading Dr. Gaidar’s writings from 1992, Ofer suggested the approach to privatization and dialoguing with civil society could have been done differently. He then focused his discussion on the growth history of Russia with periods of growth and stagnation followed by growth recovery. He called Russia’s historic growth modest and suggested it was an underachievement. He noted that Gaidar believes much institution building is still necessary for Russia and that it is a country still in transition. Professor Ofer also noted that Gaidar identified a cost associated with the transition from recovery growth to investment growth, provided some examples, and then discussed some of the results in Soviet society. Debt, delay, haste, inefficient investments in economic policy making at different periods all served to reduce Russia’s growth rate. The transition period was also impeded by the changing from old to new institutions. Data suggests that from 1973 to 2003, there was no growth in Russia, and from 1928 at the beginning of the revolution, there was only 2% growth. Ofer said he doubted whether the socialist experiment was worth the cost.
Anders Aslund, Director of the Russian and Eurasian Program at the Carnegie Endowment for International Peace, was the second discussant. He noted that the groundbreaking work by Gaidar in the mid-1980’s analyzing the Soviet economy was his introduction to the man. In a subsequent meeting in 1991, Gaidar indicated he would try to transition Russia into a market-based economy, which Aslund suggested was the exactly right approach at the time. Aslund suggested Russia today is mildly authoritarian regime and democracy has failed there. While an economic program was pushed through the legislature, supported by the Bank and IMF, there was no comparable know how on how to create a democracy. Aslund said in Russia, the Washington Consensus has worked. 25 of the 28 post-Soviet states are capitalist. On the political side, only half achieved some sort of democracy. He credited much of the success to Dr. Gaidar and like minded reform colleagues throughout eastern Europe. Interestingly, in central Europe, most people believe did the best of the post-socialist countries. Aslund suggested these countries have been economic failures because they had growth rates of 3% instead of higher. In the FSU, most of the countries are achieving growth of 5% to 6% over the last five years, and are more successful than the central European countries. He cited other data on employment, budget deficits, public expenditure percentages, taxes supporting this surprising view. Central Europe has adopting a social welfare model, Aslund said, which generates slow growth. The FSU is taking its cue from the economic theory of the Washington Consensus. Aslund called the European Union good at democracy but not at economic growth. Since there was a correlation between corruption and growth, which is an issue in the FSU, Aslund called on the EU to increase its involvement.
|
Home
> Learning
& Knowledge > BSPAN
> Presentation
High Speed
Low Speed
Audio 
