Russian Theory in a Swiss Resort

February 03, 1994|By WILLIAM PFAFF

DAVOS, SWITZERLAND — Davos, Switzerland.--The drama of Russian reform was given a road-show performance at the 1994 World Economic Forum just held in this Swiss resort.

Western-trained, market-oriented Russian reformers made their case against the more conservative Russian economists who now have taken control of policy in Moscow. Russia's new prime minister, Viktor Chernomyrdin, traveled to Davos to answer them and also to respond to the criticisms of former Western advisers to the Yeltsin government who have quit Moscow and were present in Davos. The argument was nuanced; the outcome inconclusive.

The reformers accuse their rivals of having carried out an ''economic coup d'etat'' and say that the new government's programs will bring about hyperinflation in Russia by mid-summer. Prime Minister Chernomyrdin denies this, saying Russia must be stabilized but must also continue economic reforms. He said the country cannot turn back, but also cannot slavishly copy a Western model that rests on assumptions irrelevant to Russian conditions today.

''We will look after ourselves,'' he said. He also warned, ''Don't look down on Russia.''

Mr. Chernomyrdin's speech Sunday was understandably defensive. The Western press interpretation of the Russian reform struggle, and the reactions of the business and political leadership gathered in Davos, all but unanimously have held the Chernomyrdin approach wrong, if not perverse, and the young reform leaders -- Yegor Gaidar, the former prime minister, and Boris Fyodorov, the former finance minister -- clearly right.

Another young Russian present, a new entrepreneur, remarked to me that neither Mr. Gaidar nor Mr. Fyodorov had ever before run anything beyond an academic seminar. The policies they have tried to apply in recent months are those of the Western academic consensus, and also reflect what Western businessmen believe.

They rest on the conviction that radical privatization of state enterprises, whatever the cost in bankruptcies and unemployment, a total opening to market forces and tight monetary controls are the only way for Russia to construct an economy that works and will be able to compete internationally.

The argument against those policies is the practical one that they have produced politically dangerous conditions, with increasing poverty and wealth discrepancies, and much social unrest. Their positive results to date are inconclusive. A defender of those policies says, on the other hand, that in today's Russia it is ''easy to make money if you are clever. You can make a killing easier than anywhere else.''

He seemed to think this the right line to take with potential foreign investors. But it is an approach that has an obvious connection to the fact that most new Russian private enterprise today is wholly or partially criminal -- not what foreign investors like to hear. Marshall Goldman of the Russian Research Center at Harvard estimates that the Russian mafia now has a hand in 70 to 80 percent of Russian private business.

This problem gets bigger every day, and while foreigners don't want to invest in such conditions, ordinary Russians have to live with them. This is one reason many of them voted for conservative candidates, ex-Communists, and the radical and rabid nationalist Vladimir Zhirinovsky in the December parliamentary elections.

The reformers' case against the new Chernomyrdin government is that it is made up of people from the Gorbachev era who don't understand a free economy. They allegedly do not understand the importance of monetary policy and the struggle for sound money. They understand only production. The reformers say the new government lacks the political will to dismantle obsolete and unproductive industries.

Mr. Chernomyrdin replies that the country needs production, and needs stabilization and employment. His policy amounts to managed change -- industrial policy, in the language of the Western economic debate. His critics say this cannot work because it distorts the working of the market, which alone is capable of providing a healthy economy for Russia.

The uncomfortable thing about this is that a Western theoretical debate, far from settled in the West itself, is being acted out experimentally in Russia. The case for total faith in market decisions, and subordination of all social considerations to economic rationality, has only in the last decade or so become conventionally accepted. As recently as the 1970s these were controversial ideas, while state industrial policies, managed trade and Keynesian monetary policy all were widely defended and practiced.

While the debate over what Russia should do was going on in Davos, in other meetings business people and economists were arguing over whether the Western countries should, or can, continue to accept current levels of unemployment in the name of perceived economic rationality -- ''downsizing'' for ''competitivity'' in a world labor market that pits unprotected work forces or even slave labor against workers in the developed countries.

The West has been advising Russia on the basis of ideas about unchecked market forces that it itself continues to question. This is a dangerous situation and has invited the nationalistic reaction that took place in December.

William Pfaff is a syndicated columnist.

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