Shock Therapy

Abstract

January 2012 marked the twentieth anniversary of the actual start of radical market reforms in Russia. The anniversary fell during times of social and political turbulence in the country that were caused by the parlimentary election and the presidential race, which pushed the anniversary into the shadow of new events. Neither the mainstream press nor academic circles paid much attention to it or tried to match the initial key reformist ideas with the main actual outcomes. But, from the developmental point of view, have we drawn the right conclusions from the transition experience in the past two decades?

Keywords::

• russia
• transition
• shock therapy
• institutions
• development

Notes

English translation © 2014, 2015 from the Russian text © 2014 by the author. “Shokovaia terapiia: Idei togda i realii 20 let spustia.” Mikhail Anatol'evich Sherstnev is a Candidate of Economic Sciences, and a lecturer at the Institute of Theoretical Economics and International Economic Relations at Samara State Economics University, Samara, Russia. Translation reprinted from Problems of Economic Transition, vol. 57, no. 6. doi: 10.2753/PET1061-1991570606

^1. This analysis was published in E, Iasin, “Stsenarii razvitiia Rossii na dolgosrochnuiu perspektivu,” Moscow: Fond liberal'naia missia; available at www.liberal.ru/articles/ cat/5355/.

^2.novyi mir, 1987, no. 5, p. 6.

^3. It is true that these key issues were put into official party forms and documents, but the possibility of finding solutions was largely limited to the official ideology. Now we know that the development of different variants of economic reform in the Soviet Union had been conducted since the early 1980s (N.I. Ryzhkov, for example, provides evidence of this). Official economists were also beginning to speak publicly about reformist ideas, but in a much less radical form (for example, the academics A. Aganbegian and L. Abalkin).

^4. Of course, the journalism boom and the expanded number of publications of non-Marxist Russian and foreign authors gave us the opportunity to broaden our horizons in the field of economic thought, and to supplement the study of Marx's capital and classical political economy. Such a unique diversity of ideas alongside MGU's traditionally cultivated skills of critical reception gave students in those years a serious boon compared to previous generations, who were limited by the range of ideas, as well as subsequent generations, who are paradoxically limited by other ideas. We also knew from our teachers that all these basic ideas in the mainstream press did not belong to these newly minted columnists, but were mostly borrowed from various areas in the world of economic thought (which unfortunately had been largely hidden until then in the silence of special depositories). Although the columnists themselves were not always excessively modest (for example, Shmelev did not mind comparisons with Milton Friedman).

^5. I should mention that the Soviet Union's economic development included significant copying of foreign experience (especially in the field of technology and specific organization of production), and there were well-known fits and starts. Therefore, the idea to quickly borrow social institutions that enable faster development of production capacity and improve the general welfare is also partly rooted in a Soviet legacy that dates back to the practices of Russian Bolshevism.

^6. Since I had majored in foreign economies (particularly the U.S. economy), I was thoroughly acquainted with these ideas, their theoretical justification in neoconservative currents of economic thought, and their practical embodiment in the form of Reaganomics and Thatcherism. At any rate, these ideas took an even larger place in upper-level courses than Marxist political economy, which traditionally dominated MGU's Faculty of Economics.

^7. In my opinion, this fact has not attracted enough attention from contemporary researchers and analysts studying the progress and outcome of the Cold War. Meanwhile the leading Soviet experts were fully aware of this (see S.M. Men'shikov, o vremeni i o sebe [Moscow, 2007], pp. 345–48). The current situation looks somewhat strange, with Russia facing problems funding its own armed forces and defense industry, but placing public funds into U.S. government debt. Both Russia and especially China should probably think about this, that is, if they do not want to strengthen U.S. military hegemony in the world today.

^8. The figure of Gorbachev remains a topic of heated debates and collisions between very different opinions. Accordingly, I would like to offer this thought: it seems quite unfair to consider Gorbachev a social reformer. A reformer is one who reforms; that is, he reshapes a form and achieves some specific positive result for that particular stage of development (such as Deng Xiaoping in China between the 1970s and 1990s, or Charles de Gaulle in France in the 1950s and 1960s). Gorbachev's policies, meanwhile, led to the total collapse of all public institutions, and not a single initiative endured or achieved development in real life. Therefore, the honest assessment of his activities, which Margaret Thatcher gives with purely British objectivity and insight in her book statecraft, seems quite fair. Meanwhile the West was, of course, grateful to Gorbachev for the disappearance of the Soviet military threat.

^9. It was this approach that the mainstream press dubbed “shock therapy.” This approach, of course, was in line with the set of practical recommendations from international financial institutions that John Williamson named the “Washington Consensus” in 1989. The heterodox macroeconomic stabilization plan, which involves the government's use of complex economic and administrative methods in the areas of prices, income distribution, and distribution of resources between different economic sectors, is generally considered an alternative to this approach.

^10. I considered it my duty to devote a short presentation to the memory of Sergei Nikitin during the panel discussion at the Corvinus University conference. I was greatly surprised to find a very negative evaluation of Nikitin's scientific, organizational, and administrative activities in Victor Martsinkevich's memoirs (V.I. Martsinkevich, chelovek iz proshlogo veka [memuar individualista] [Moscow: IMEMO RAN, 2011]; available at www.imemo. ru/ru/publ/2011/11012.pdf). Of course, I cannot judge all the events discussed there, some of which occurred before I was born, but I never felt any atmosphere of flattery and servility, and, in my own case, that of a graduate student from the provinces who was not burdened in those years with connections to high-level patronage, I always sensed a friendly attitude from his leadership that was not at all typical of the eminent staff of academic institutions and universities in the capital back then.

^11. The place and role of the Soviet system in world history (state feudalism, state capitalism, politocratic society, premature socialism, etc.) have always been the subjects of fairly intense debate in world Sovietological literature, the mixed echoes of which were reaching us for the first time in perestroika-era journalism. However, the Soviet Union's influence on all of twentieth-century global development, in social issues, in decolonization of Third World countries, and in creation of a certain system of equilibrium in international relations, is indisputable.

^12. Iu.V. Iaremenko. “Ekonomika khanzhestva,” pravda, January 9, 1990.

^13. V.V. Putin, “Rossiia sosredotachivaetsia—vyzovy, na kotorye my dolzhny otvetit',” izvestiia, January 16, 2012.

^14. The effectiveness and potential of market mechanisms in intertemporal choice is all a matter of debate, since the fundamental nature of uncertainty and the limited possibilities for transforming uncertainty into risk limit the ability of rational calculation (among recent work, see D. North, ponimaniie protsessa ekonomicheskikh izmenenii [Moscow, 2010]).

^15. V.M. Polterovich and V.V. Popov, “Evoliutsionnaia teoriia ekonomicheskoi politiki,” Voprosy ekonomiki, 2006, no. 7, p. 8

^16. Readers interested in this issue can refer to the very interesting work by Cambridge University professor Ha-Joon Chang (primarily Kicking away the ladder: Development strategy in Historical perspective [London: Anthem Press, 2002]).

^17. Some perestroika-era columnists once dreamed of three decrees, on private property, free enterprise, and price liberation, which would be sufficient action from the government for market forces to begin spontaneous creative action. That may be the case, but only in the writings from the neo-Austrian school of political economy, although even there the picture of evolutionary selection of rules and regulations is not nearly as straightforward and simple as these columnists described. These works on institutional development of market economy and new economic history, which received worldwide recognition, show the enormous complexity of forming effective institutions, and the role of political struggles in this process (and in fact some of the same ideas can be found in the classics of Marxist and Bolshevik theorists 100–150 years ago).