What hit Russia's economy? A raging war of scholars

The Argument

Catastrophe or success, cause or consequence -- pick your own answer

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April 27, 2003|By Craig Eisendrath | Craig Eisendrath,Special to the Sun

Today, a little over a decade after the fall of the Soviet Union in 1991, the gross domestic product of Russia, the major heir of the Soviet Union, is roughly that of Brazil or the Netherlands. What happened? Few topics have resulted in more controversy among international economists and scholars.

Some claim that the decline was predictable because of the marked inefficiencies of the Soviet economy, and that blame can be laid entirely on the Russians themselves for "losing" their own economy. Others believe that the United States, and the International Monetary Fund (IMF) under its control, vastly exacerbated the problem by rigidly doctrinaire policies, which imposed "shock therapy" on Russia. Still others deny that a major economic decline occurred at all.

There is also marked disagreement over whether Russia has emerged or is still stuck in the quagmire of the last decade. What makes the discussion more than academic is the danger that Russia, under stress, could revert to some form of totalitarian government and once again constitute a major international threat.

Anders Aslund, a senior associate at the Carnegie Endowment for International Peace, argues that the "decline" of the Russian economy is more a matter of unreliable statistics than of economic fact. In an article in the July / August 2001 issue of Foreign Policy (see also his Building Capitalism: The Transformation of the Former Soviet Bloc, Cambridge University Press, 550 pages, $27), he writes: "According to official statistics, gross domestic product (GDP) plummeted 44 percent from 1989 to 1998. However, this figure is grossly exaggerated because of the peculiar quirks of communist and post-communist statistics." If the Russian economy is roughly on a par with Brazil, Aslund says, that's where it was before the fall.

As for the charges of widespread corruption and bribery that other analysts see at the very core of a disastrous privatization policy, Aslund disingenuously argues that "privatization permanently deprives public servants of public property, so they can no longer charge money for the privilege of using it. Today, the bribery that plagues Russia is not related to privatization but is overwhelmingly connected with law enforcement, tax collection, and state intervention." In other words, you can no longer steal something that has already been stolen.

What Aslund argues away, others see at the heart of the problem. In The Oligarchs: Wealth and Power in the New Russia (Public Affairs, 576 pages, $30), David E. Hoffman, head of the Moscow bureau of The Washington Post between 1995 and 2001, provides a detailed picture of corruption whereby the former Soviet Union's vast, publicly owned economy disappeared into private hands, at a small fraction of its real value.

Focusing on a small group of oligarchs, Hoffman provides convincing detail showing how they corrupted the system to their benefit, by bribing officials to gain control of public assets, and how they managed to ship much of their money overseas.

A far racier account is provided by Matthew Brzezinski, a reporter for The Wall Street Journal, in his Casino Moscow: A Tale of Greed and Adventure on Capitalism's Wildest Frontier (Free Press, 317 pages, $25.) Both books emphasize not only the almost-unimaginable venality of oligarchs and public officials, but also suggest that this venality must have had a long incubation period during the Soviet years.

Officious bureaucracies breed corruption. In addition, the long years of centralized planning ill prepared the country for a precipitous conversion to a free-market economy. The U.S.S.R. had banks, but not banks that knew how to loan money and insist on prompt payment. It had manufacturing enterprises, but not ones that knew how to secure the capital and materials to manufacture goods nor operate in a competitive market to meet shifting consumer demands.

Where other countries, like Poland or Hungary, innovated during the post-World War II period in using new economic methods and mixed forms of public and private ownership, the Soviet Union remained tied to a centralized planning system that rigidified to the point of extinction.

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