The Russian economy after systemic change

Europe - Asia Studies

Volumn 48, Issue 6, 1996, Pages 887-914

  Hedlund, Stefan ^a   Sundström, Niclas ^a  

^a UPPSALA UNIVERSITY   (Sweden)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC DEVELOPMENT; ECONOMIC POLICY; INCOME DISTRIBUTION; NATIONAL ECONOMY; POLICY DEVELOPMENT; TRADE LIBERALISATION;

RUSSIAN FEDERATION;

EID: 0030441909     PISSN: 09668136     EISSN: None     Source Type: Journal    
DOI: 10.1080/09668139608412390     Document Type: Article

References (92)

1. OECD, The Russian Federation (Paris, 1995).
2. Ronald H. Coase, 'The Institutional Structure of Production', American Economic Review, 82, 4, 1992, p. 714.
3. Douglass North, 'Economic Performance Through Time', American Economic Review, 84, 3, 1994, p. 366.
4. The theoretical shortcomings in the design of shock therapy will not be addressed further in this article. For an incisive approach, see Vladimir Gligorov, 'Gradual Shock Therapy', East European Politics and Societies, 9, 1, 1991. See also Portes' early reckoning with his colleagues in the economics profession: 'Those who remained academics rather than advisers have adjusted expectations, looked for new models, may even have changed views'. Richard Portes, 'Transformation Traps', Economic Journal, 104, September 1994, p. 1178.
5. The theoretical shortcomings in the design of shock therapy will not be addressed further in this article. For an incisive approach, see Vladimir Gligorov, 'Gradual Shock Therapy', East European Politics and Societies, 9, 1, 1991. See also Portes' early reckoning with his colleagues in the economics profession: 'Those who remained academics rather than advisers have adjusted expectations, looked for new models, may even have changed views'. Richard Portes, 'Transformation Traps', Economic Journal, 104, September 1994, p. 1178.
6. Oliver E. Williamson, 'The Institutions and Governance of Economic Development', Proceedings of the World Bank Annual Conference on Development Economics 1994 (Washington, DC, 1995), p. 173.
7. Liberalisation affected approximately 90% of all consumer prices and 80% of producer prices. Important exceptions in the latter category were domestic energy prices, which still today remain considerably below world market levels. This kind of manipulation created great opportunities for centrally placed actors to engage in various forms of rent seeking, e.g. to reap and share the gains from selective issuing of export quotas and licences.
8. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1996, 6, p. 5.
9. The exact figures indicate a decline from $203.6 billion in 1929 to $141.5 billion in 1933 (1958 dollars). See Historical Statistics of the United States, Colonial times to 1970 (US Department of Commerce, Bureau of the Census, 1975), pp. 224-225.
10. It should be noted that the revised data presented in this report have a pre-history, in the form of a joint study by Vincent Koen, then of the IMF, and the Russian economist Evgenii Gavrilenkov, who was then acting deputy director at Moscow's Centre for Economic Study (Evgenii Gavrilenkov & Vincent Koen, 'How Large Was the Output Collapse in Russia', IMF Working Paper, 94/154, 1994). This should be pointed out for the simple reason that the World Bank/Goskomstat study only recognises their effort en passant, in a rather critical footnote towards the end.
11. ECE, Economic Survey of Europe in 1994-1995 (New York and Geneva, 1995), p. 70.
12. Steven Rosefielde, 'Russia's Economic Recovery Potential to the Year 2000', in Ronald Hill (ed.), forthcoming, 1996.
13. Rosefielde also makes the following striking comparison: 'A rising chorus of voices contend, evidence to the contrary notwithstanding, that the standard of living in Eastern European countries is higher now than it was under communism and that this accomplishment is attributable to the liberalisation achieved under the G-7's guidance. Although one can easily anticipate the guffaws provoked by claims that the Great Depression of 1929 raised living standards and was a macroeconomic triumph, the same kinds of preposterous assertions regarding the former communist states are being credulously accepted by statesmen and academics alike'. Steven Rosefielde, 'Eastern European Economic Reform: Transition or Mutation?', Atlantic Economic Journal, 4, 23, pp. 327, 330.
14. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1996, 6, p. 5.
15. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1994, p. 42.
16. Claudia Senik-Leygonie, 'The Breakup of the Soviet Union', Economic Policy, October 1992, p. 360.
17. Vincent Koen & Michael Marrese, 'Stabilization and Structural Change in Russia, 1992-94', IMF Occasional Paper, 127, 1995, p. 54
18. ECE, pp. 10-11.
19. A similar approach may be found in a 1992 article by Sachs & Lipton, the two foremost advocates of shock therapy. They begin by arguing that the fall in output is positive, since that means that the old system is disappearing, but then go on to argue that the Russian reform programme is a success since it has resulted in a smaller fall in output than other East European transition economies. David Lipton & Jeffrey Sachs, 'Prospects for Russia's Economic Reforms', Brookings Papers on Economic Activity, 2, 1992. In a later article the same year, Sachs (now together with Andrew Berg) argues not only that the fall in Russian output is exaggerated, but also that Poland is a success since the fall in Polish output has been lower than in the Russian case. Andrew Berg & Jeffrey Sachs, 'Structural Adjustment and International Trade in Eastern Europe: The Case of Poland', Economic Policy, 7, 2, 1992.
20. A similar approach may be found in a 1992 article by Sachs & Lipton, the two foremost advocates of shock therapy. They begin by arguing that the fall in output is positive, since that means that the old system is disappearing, but then go on to argue that the Russian reform programme is a success since it has resulted in a smaller fall in output than other East European transition economies. David Lipton & Jeffrey Sachs, 'Prospects for Russia's Economic Reforms', Brookings Papers on Economic Activity, 2, 1992. In a later article the same year, Sachs (now together with Andrew Berg) argues not only that the fall in Russian output is exaggerated, but also that Poland is a success since the fall in Polish output has been lower than in the Russian case. Andrew Berg & Jeffrey Sachs, 'Structural Adjustment and International Trade in Eastern Europe: The Case of Poland', Economic Policy, 7, 2, 1992.
21. 'Floor Discussion of "Russia's Struggle With Stabilization: Conceptual Issues and Evidence", by Sachs', Proceedings of the World Bank Annual Conference on Development Economics 1994 (Washington DC, 1995), p. 90.
22. While the former measure compares average annual inflation between years, the latter measures the increase in prices from one year's end to the next. When monthly inflation rates are constant, the two coincide.
23. Ekonomika i zhizn', 1992, 10, p. 9.
24. Andrei Illarionov, 'Popytki provedeniya politiki finansovoi stabilizatsii v SSSR i v Rossii', Voprosy ekonomiki, 1995, 7, p. 7.
25. Ibid, p. 8.
26. Daniel Gros & Alfred Steinherr, Winds of Change (London, 1995), p. 383.
27. Carlos A. Végh, 'Stopping High Inflation', IMF Staff Papers, September 1992.
28. See further Stanislaw Gomulka, 'The IMF-supported Programs of Poland and Russia 1990-1994: Principles, Errors and Results', Journal of Comparative Economics, 20, 1995, pp. 325, 341; and Vincent Koen & Steven Phillips, 'Price Liberalization in Russia', IMF Occasional Paper, 104, 1993. The penalty tax on wage increases that was introduced in 1992 was far too low to have any serious effect.
29. See further Stanislaw Gomulka, 'The IMF-supported Programs of Poland and Russia 1990-1994: Principles, Errors and Results', Journal of Comparative Economics, 20, 1995, pp. 325, 341; and Vincent Koen & Steven Phillips, 'Price Liberalization in Russia', IMF Occasional Paper, 104, 1993. The penalty tax on wage increases that was introduced in 1992 was far too low to have any serious effect.
30. Gomulka, pp. 332-333.
31. Daniel Heyman & Axel Leijonhufvud, High Inflation (Oxford, 1995).
32. Williamson.
33. Ernesto Hérnandez-Catá, 'Russia and the IMF: The Political Economy of Macro-Stabilization', Problems of Post-Communism, 42, 3, 1995, p. 24.
34. Figures for the first two months of 1996 show a substantial improvement, as real wages increase by 9% and real incomes by 3%, both compared to the same period in 1995. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1996, 2, p. 5. These happy figures are perhaps best viewed within the framework of the presidential election campaign.
35. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1994, p. 147.
36. Ibid.
37. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1995, 12, p. 260.
38. Ibid.
39. Sotsial'no-ekonomicheskoe polozhenie Rossii, 1996, 2, p. 129.
40. Vladimir Pankov, 'Grassierender Wirtschaftskriminalität in Russland', Neue Zürcher Zeitung, 13 September 1995.
41. Jeni Klugman, 'Poverty in Russia - An Assessment?, Transition, September-October 1995, p. 8.
42. Euromoney, September 1995, p. 346.
43. See further Torsten Persson & Guido Tabellini, 'Is Inequality Harmful for Growth?', American Economic Review, 84, 3, 1994.
44. The presence of outright discrimination against small-scale private entrepreneurs may be viewed against a comment made by Gaidar, when warned that this sector was on the verge of collapse: 'So what? One who is dying deserves to die', quoted by Lynn D. Nelson & Irina Kuzes, 'Privatisation and the New Business Class', in David Lane (ed.), Russia in Transition (London, 1995).
45. Gustav Ranis, 'Another Look at the East Asian Miracle', World Bank Economic Review, 9, 3, 1995, p. 516.
46. Aleksander Frenkel, 'Strukturnyi kharakter spada proizvodstva stanovitsya vse bolee otchetlivym', Finansovye izvestiya, 25 May 1995.
47. See, for example, Sweder van Wijnbergen, The "Dutch Disease", A Disease After All?', Economic Journal, 94, March 1984.
48. See Paul Krugman, The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences of Mrs. Thatcher', Journal of Development Economics, 27, 1987, pp. 49-51.
49. See further Ronald Götz, 'Deindustrialisierung Russlands: unabwendbares Schicksal oder Problem der Struktur- und Währungspolitik?', Aktuelle Analysen des Bundesinstituts für ostwissenschaftliche und internationale Studien, 50, 1994; and Thomas Sauer, 'Konversion des Rüstungssektors - Entwicklungsoption für Russland?', IFO Schnelldienst, 32/94, 1994.
50. See further Ronald Götz, 'Deindustrialisierung Russlands: unabwendbares Schicksal oder Problem der Struktur- und Währungspolitik?', Aktuelle Analysen des Bundesinstituts für ostwissenschaftliche und internationale Studien, 50, 1994; and Thomas Sauer, 'Konversion des Rüstungssektors - Entwicklungsoption für Russland?', IFO Schnelldienst, 32/94, 1994.
51. Vladimir Buyev, 'Deindustrializing Russia', Moscow Times, 6 October 1995.
52. See further Kaspar Bartholdy, 'Are Growth Estimates for Eastern Europe too Pessimistic?, in The Transition Report (London, 1995).
53. The notion of GDP was introduced into Russian statistical yearbooks only in 1993, but discussions with Goskomstat officials reveal that GDP estimates were already made in the 1980s. Similar situations may be found in Central Europe, notably in Hungary, where Ehrlich used statistics on consumption to calculate GDP figures for socialist economies. Eva Éhrlich, Országok versenye 1937-1986: Fejlettségi szintek, struktúrak, növekedési üternek, iparositási utak (Budapest, 1991).
54. See Gavrilenkov & Koen.
55. Manuela Troschke & Volkhart Vincentz, 'Zuverlässigkeit und Problematik der statistischen Berichterstattung in Russland, Weissrussland und der Ukraine', Osteuropa-Institut München Working Papers, 176, 1995, p. 15.
56. It should be noted that Goskomstat does try to adjust for unreported activities, by adding 15-20% to its reported GDP data. It also undertakes regular surveys in order to enhance the precision of such additions (personal information from a senior Goskomstat official). The conclusion is that, unless carefully considered, the problem of unreported activities can easily be blown way out of proportion.
57. Jagdish Bhagwati, 'Directly Unproductive, Profit-Seeking (DUP) Activities', Journal of Political Economy, 90, 1982.
58. Using a large data sample, Mauro shows how corruption lowers economic growth, primarily through the channel of depressing investment activity. Paolo Mauro, 'Corruption and Growth', Quarterly Journal of Economics, August 1995.
59. William J. Baumol, 'Entrepreneurship: Productive, Unproductive, and Destructive', Journal of Political Economy, 98, 5, 1990.
60. Daron Acemoglu, 'Reward Structure and the Allocation of Talent', European Economic Review, 39, 1995, p. 27.
61. R. C. O. Matthews, The Economics of Institutions and the Sources of Growth', Economic Journal, 96, December 1996.
62. Illarionov, p. 19.
63. Peter Havlik et al., 'Growth in Central and Eastern Europe Contrasts with Recession in the CIS', WIIW Research Papers, 213, 1995, p. 74.
64. Georgii Belyakov et al., 'Poterya tempa pri potere kachestva', Kommersant, 23 May 1995.
65. Jeffrey Sachs, 'Russia's Struggle with Stabilization: Conceptual Issues and Evidence', Proceedings of the World Bank Annual Conference on Development Economics 1994 (Washington, DC, 1995), p. 63.
66. Hérnandez-Catá, p. 23.
67. The Economist, 25 April 1992, p. 20. See also Yegor Gaidar, 'Russian Reform', in Yegor Gaidar & K. O. Pöhl, Russian Reform - International Money (Cambridge, MA, 1995), passim.
68. The Economist, 25 April 1992, p. 20. See also Yegor Gaidar, 'Russian Reform', in Yegor Gaidar & K. O. Pöhl, Russian Reform - International Money (Cambridge, MA, 1995), passim.
69. Gomulka, p. 341.
70. Andrei Kuznetsov, 'Economic Reforms in Russia: Enterprise Behaviour as an Impediment to Change', Europe-Asia Studies, 46, 6, 1994, pp. 965-966.
71. Anders Åslund, How Russia Became a Market Economy (Washington, DC, 1995), p. 88.
72. Illarionov, p. 9.
73. Gaidar, pp. 37-38.
74. In autumn 1995 Dmitrii Tulin, Russia's representative at the IMF, concluded that 'Russia has failed so far to accomplish any of the stabilisation programmes agreed with the Fund', Transition, 6, 9-10, 1995, p. 12. In March 1996 Russia received a further S10 billion, representing the second largest credit ever granted by the IMF.
75. See further Claudia M. Buch et al., Overcoming Obstacles to Successful Reforms in Economies in Transition (Tübingen, 1994).
76. For a powerful account of the Russian case see László Csaba, The Capitalist Revolution in Eastern Europe (Aldershot, 1995).
77. Belyakov et al., p. 53.
78. Evgenii Vasilchuk, 'Razogrev ekonomiki stavit krest na popytke finansovoi stabilizatsii', Finansovye izvestiya, 20 June 1995. It may also be noted that velocity is very high in Russia and that the monetary base is small. This implies that even minor changes in money supply may translate into large effects. Hence it follows that a budget deficit which looks small on paper may lead to considerable inertia in the inflation process.
79. Andrei Illarionov & Mikhail Dmitriev, Programma finansovoi stabilizatsii-95: na grani provalya', Finansovye izvestiya, 6 July 1995.
80. Evgenii Vasilchuk, 'More novykh rublei gotovo zakhlestnut' ekonomiku', Finansovye izveslia, 4 July 1995.
81. The 'complication' of the connection between money expansion and recorded inflation during autumn and winter 1995/96 may be linked to the political process, where the government was increasingly in the position to exercise both direct and indirect control over economic and statistical institutes. The official rate of inflation for December 1995 is a good example of how statistics may fall victim to this process. In November 1995 Goskomstat suddenly announced a reduction in the October figure for nominal GDP, from 214 trillion rubles to 178 trillion rubles, which also allowed a reduction in the GDP deflator. Already at the end of November, First Deputy Prime Minister Vladimir Petrov announced that the inflation rate for December would be 3.2%. For some reason or other, he would prove to be exactly right! See further Evgenii Vasilchuk, 'Podavlenie inflatsii idet s operezheniem grafika', Finansovye izvestiya, 21 March 1996.
82. IMF, 'Russian Federation', IMF Economic Reviews, 16, 1995, p. 83.
83. In 1994 household savings accounted for 27% of nominal money incomes, or about 95 trillion rubles. Of this total, 17 trillion was placed in domestic currency and 22 trillion in securities. The remainder - corresponding to about $24 billion - was placed in foreign currency. Consequently, only 40% of Russian household savings were placed in the country's own currency. V. Ivanov & V. Elakhovsky, 'Nyneshnii god sulit pochti dvoinoe uvelichenie sberezhenii', Finansovye izvestiya, 22 June 1995.
84. Kapital, 18 October 1995; Segodnya, 19 October 1995.
85. Kapital, 18 October 1995; Segodnya, 19 October 1995.
86. José De Gregorio, 'Inflation, Taxation, and Long-Run Growth', Journal of Monetary Economics, 31, 1993, pp. 271-298, presents an inflation model which captures some of the central issues in the Russian economy. The government covers a budget deficit by means of inflation and income tax. There is a cost associated with raising the tax, a cost which increases with the inefficiency of the tax system. With greater inefficiency the government's inclination to resort to inflationary financing increases.
87. Simon Cooke, The Trials of the Tax Police', Euromoney, May 1995.
88. OMRI Daily Digest, 23 June 1995.
89. Andrei Illarionov, 'Upushchennyi shans', Voprosy ekonomiki, 1996, 3, p. 91.
90. W. Franz (ed.), Hysteresis Effects in Economic Models (Heidelberg, 1990).
91. Sachs, p. 63.
92. Ibid., p. 75.