siz. ‘Sunzodos wpaur snonunuo> pur soypmis Arnos toss ayqatreaw Ajppear‘saoord puv sg ayp toy Su>eaysqe pue sata sa1-Bu0} ayy BuLT9z0 hq aimotd orseut ay mexp 0} An om siodey> Sumpaoard ue paydope asyzeid ano Summoljoy Mara 24g s:parg y :o8ueyD onuowong weIssny sadaxd sesAjeute no Jo soalqns 21509 ou se "ymor8 pue yorfreur uo suoneztjexoue® axp OIL La}ua 0} st MO} SRL "pomopersaroy Apearye rydeyp peoxardia -puy ap se ‘pao oruIOUODA Pass 103 su e aanerediios ano yo Buy au TUE Yoo aM “uuMy uy -asoxy yaucranuT oF AN, pu a8 said Stain sofeus Sonins oy wou, adoxng ur paot0atp yout axp ag OF u puo kryood aioysn -euroqut pur ewssny aprsut ‘soumt9 o9m) sed oup soA0 208A paBUeyDUN YpLAK paonputos ‘oreqop Sumpuo zesau © on syySisuE ye Koauzas oy age aq 0 adoy aan Aqasauy “TeHE) ay ax am 00g stp ut asenUOD Aq “BupsstU Mayo ayn ok Bumsu ay) pure uoHsuEN Jo sonar MALE Ip nea IoAAO UT sjuaUIdofeaap sons Sa ib erssmy uo Supytom asou, suosied jsorpnys vase joqssep sf yeys ‘aBenSury werssnay OM parayseut Sujaey asouy Suoure pure AyumeRoD asudfop >xp wwOdy poyvajos oq 00} srayIwM eFSeNyT “asiopua pue ydope ays adiad anyysind Supypey uoyo SOUL e 4OF padu ayy ayeraN-ar ACUI 94 ‘azoUs—IRIM] “WH id se sasKjeue /saypnys Anuno9 uo Ajax am reur sede ue Suazo uussny| Jo Auiolew SunujoyAioAd aA Jo maEA axp UL yeUy A[sLCL *uouawio\rayd sseu # Koasoo oj adoy 2¢n army jorseU Jo A1049}e0 paysigeasa up Surpuayxa uy sioypo Aue pur ssonsd paxty wey syjord ssoj ayesoue® soatid 35 ‘spo qnpp ayN] axvyaq spoo$ ysou so fle JE BoUNYSUT Lox ozyELZO,eU Oy [Te] sau yoxela Waxy Aifeuones panache Ayensn sauronyno alaysa ‘Suypnoysizpiun Japoanq @ dope am saideyo siyy uy ‘Bumpy aaxy 20 etdodun soumsuos ‘Saqtfeu “epxo Bursid royepard yt payeroosse Ajpense uso} v2inpof 3%. asenuoo gf yy, 2uokr009 10} sopro pue ae apraosd 20 ‘Sone aster 02 hy sees Aqqensn are sypu8ts aod Sinmoroy ep aup yo pus a tar qimod8 ajqeureysns jo tuary Jo suoRTpUOD AULOUODD JOH [pure spar aytxouosa 40) WOU YAK a7}LOUET jO. |qepuessiapun aol¥op autos 0} ‘as0saiay, "AEE sIsILOUOD® oTUIEP 1 Ur Leg sey eissmy ur huey> 1 auy wea pauad Suroog, Aauuyzarg atp Suso7I9} ospe ynq ‘poured Rig at UT yarA0g at aous TYBIE Aquo Sean spy, “MouaLIadxa wets, ayp aztexaUEH OL papusy aurBar pro atp jo samqe9y juatfes aroyaxp ‘astduto yatAog atp 40 Hod woo} a4) 2q 04 pase eissmy "sub 'SonssF feONAIONH 4 payoaop 009 & ut ApTas animes & ay] Sunppautos wasut o; Aya suoneagsNf Jo soquITUE e aXe axOUL, EMNTIVA LDV OL ANTI Vd TLVIS WOW * ‘NOLLVAROASNVALL NVISSAYIn so doing our starting point is the insight developed in our previous mono- graph (Csaba, 1995) and supported by other analyses (Aslund, 2002; Mau and Starodubrovskaia, 2001) with different arguments, The collapse of the Soviet ‘empire could not be attributed to unquestionable policy mistakes, external fac- tors and other coincidental circumstances: it was inevitable. Furthermore, as explained in the monographs cited above, the fir of 1992-1993 was, entirely spent on trying to recreate the Russian administration, and to avoid large scale disinte lines, These historic factors dominated economic projects, diligently produced in contemporary workshops in Moscow and abroad; crisis management was the name of the game In economic terms, a systemic vacuum emerged (cf. also Popov, 1998, pp. 446-44) though this applies only at the level of formal institutions; thus fajor- mal institutions dominated the scene. Therefore, unsurprisingly for anybody familiar with the oeuvre of Douglass North and Friedrich August von Flayek, unintended side-consequences have regulerly proven more relevant in shaping cut comes, than formal priorities as reflected in government documents, fiscal plans or privatization strategies. The problem has become multidimensional insofar as the empire used t0 be a kind of ‘natural order’ for most agents, in terms of ideology and operation alike. Furthermore, following the failed coup ‘of August 1991, no new Constitution had been elaborated, that could have set the tone for change in the decades to come’ Then could ideally have been the fime to declare the discontinuity with Sot promulgating multiparty democracy, private property and freedoms in political and economic areas to bbe the cornerstone of the new Russian state! Lacking such a clear signal allowed, basically up to the 1996 re-election of Boris Yeltsin to the Presidency, to question any measure ‘mainstream of transition: the stabilization, liberal and privatization (SLIP) a ‘Communists could rightfully resist land privatization, actually any major pri- vatization, with reference to stipulations of existing legal and constitutional order. Thus whatever the reformist government did, they could only conduct with bad conscience, behind the scenes, in a defensive style, needing to justify the obvious. This is in sharp contrast to Hungary ~ but rest of Central and Eastern Europe ~, where legal foundations and political compromises allowed for co-operative games to evolve ~ in part as a conscious strategy of the reformist wing of the outgoing regime (cf. also Kulcsér, 1995). The com- monality of values, a degree of social consensus, that has been shown to play & One of the mast active particéponts (Mu, 1999, p 114-116) also underscores thi selecritical tone, sting the long row of ensuing ramifications fr reform policies. Act are of the entize postrevolutionary petiod, i nt fo be mired vp with ‘administration, usualy associated with contitation-drafing takes time des not rience, explained by an insider ~ minister of Seem to hold, if we compare itt the Hu Justice atthe time of systemic change (ulests, 1935). 26 pivotal role in the successful transformations in Central Europe, has been con- spicuously missing from the Russian society and from Russian democracy, rendering, it much more conflict-ridden even on basics (not to speak of detail). Rule by decree, a practice adopted by Yeltsin from Soviet and Tsarist era, made things only worse, since not even the point of reference has been left. Therefore, everything and the opposite of everything zemained questionable and questioned ~ until the time of writing, indeed. Ecratic policies of the president(s) allow for even more confusion to sustain and even less consensus to emerge. Allin al, these circurns ure} It's all the more impor and international ~ given, Z simply miss the point and have been practically irrelevant. Let us stress: the core state remained much too ‘embedded’ in the web of vested interest. Thus {thas been weakened in its main capacity to act asa refeee rather than one of the players. This is clearly the starting point rather than a consequence of what- ever polices conducted during the very same period, thus the criticism of cir- ‘cular reasoning does not seem to hold. The direction of causality, to follow the al argumentation of Jénos Komai (1992, subchapter 16.1), remained inged, from the state to the market rather than vice versa, if for no other than because of the fundamentally unreformed nature of the Soviet system until its very last days.* reform literature that was surveyed in our chapter on jon may suffice to support the claim that a weak core hardly cble to institute major changes. Already the fist step, stabilization ly to founder, if pressure groups can create an effective counter-weight to the monetary authority. The latter in turn is unable to control money supply, aggravating the non-negligible technical difficulties of doing so, even on paper. Furthermore, if erosion of central power undermines one of the basic functions of any state, the ability to raise revenue via taxes, while lobbies protect their acquired rights for continued central financing, the softening up of fscal policy is also given. Through this simple mechanism the logic of stabilization is turned to its head. No matter how much preaching on stabilization happens (or hap- pened in Russia in 1992-1994), it remained a declaration of good will, not of ‘operational policy. The presence of vested interest groupe had been manifest, 2 This concept is well developed in th politcal science and the development literature and describes sitation where the public authorities or asthe policy seform iteratarecallsit the core ory. Theseete (uonsury Su:ieu3s roaiyy ysed oY jo-apen ou (ojatoug, Siassnue w0q sy uoqup, wedaung ay fo uoxounf soypun 24) alnyoatieoui “sorgqo| Aus uno 980} » pauyoutoi vrssnyy roAdeoy ‘stauumns}uoNy ouany dre sroquamu asauy, gn Ut 1uad tod pr pur ZOOE UW g'SE. 1007 44 9'TE ‘0002 Ul juan zad gigz “sens arerapou axp 07 uaMop auloD sey VORP adorag [eID Luo suonenioRe AMO LALAL aUIL UL OST “‘pAMOIIOF 1eMy yPMEX Jo sIe—AK ani -naasuioo no} oxy 995 ose ane jf AyyeDodso ‘steyje Jo Butpea sno jo aanaoddns ‘66 Jo doap oxy Stupadoxa ypesor v pamous sead ssa yp ApLOATY Waai8 eo visomy ind pap pus ss10% axp Yo prem oF Jo a9 tad 01 {qn aM Jo MOREnfeAsp atp "4998 94 nbos Ruan © Sem atotp eM UOswaLajdurpsaxp 20} ‘U0 ay Sugpun ‘aie Aijeuoneusaqur pur 4 ard uoreuoysuen ueissmy oy saungrey quo SurquDse ‘mata Ku ‘sajeqop Arexodwaiuo> ays UL Jopun o8 oy popu LoNDURSIP sty ‘KjaveUMO}UN amyeu ursamunuo-y-sod xe] amb pue Arma JFoAO UDOMIDG YPREUISIT J Aap yenmMuTUtO--sod J0 $21 raLLOU, © a8] pure Kq SEM (666 -MIO}) L661 J0 sIsU> our yw a yo samo Imoy (018 add pue 119 Jed ¢E mop surg, yua0 Jad au nq "woRE|FUT yBry 0} 10déy MO aSpojeanuy{ uowues st [[R9 ‘poptaard are eyep uo Fens outa fy any ‘omy, sadn 7 gH, rurouoay pue chia ax so Bunaodax avy uo peseq sito ~dojanap syurouosnoro0Ut Jo walara4e We apeaoud [jays 9a Sueso]T0y 5p ‘uaaqno sti OF paynqys 409 AAC ISAC ‘9661-9661 wt Atepadtsa “ported Buypanaad aup ur sn £q Buaustay ‘any, souoop\ 1 aney pure ‘sauutino> Siadoyonap ur uweag aauy samyeoy asoup 1m 9! PUI aayoafus pum usaf Suxpi039q sea ‘gmouo>e jarr0ur Au ur yuouteSreUr SaToULo9A0L5eUT yO HOY He St PIA ‘Kouou yBnonp pu soleus pauteutar Kourou rad fy Sunsoae “002-8661 ‘aSeueus Arse pinos ‘osu jag ang se AypreUTOAgN. po}dop ‘OAMOY>YsEACT) OVAL aures ayy aous “iqnop 0} prey st amavD) SM “(666T “MEW ‘B66 “P2 TEPID) uy pep uy payiodar are save aumaxe :hotiowr quid oy imo stop YAMreflect Latin American (or more generally, developing country) conditions. For {nstance, in Peru itis only 11 per cent, in Morocco 18 per cent, according to the World Bank tables already quoted several times. Looking at the utilization of GDP it is easy to until 1998 had been a dominant factor. Seeing investment used to be bloated under the soc must have come as healthy correction of a previ ing for the inefficiencies, or correcting at least some of those must have led to less investment. However, as seen in Table It, the bottom of 144 per cent was a 9 per cent only 3s less than a country production level needs for the long run. once recovery started, investment grew ag of about two years. On the other hhand, if we consider the level of investments low, than both the sustaining surplus in the current account and the occasionally megative FDI numbers give ground for grace concern. If locals do not find @ good idea to invest home, why Should others do so, provided locals are by definition better informed than outsiders? that collapse of investments hard to overlook that 1d, thus some decline jon. Also not allow- Stagnant exports and imports are no signs of good: stagnant exporis are recoried at times of high ol prices, Recovery of overall economic activity, partic- ularly in industry, should have triggered a surge in imports if this growth were to be over and above the levels provided by from devaluation. Cautious exchange ra vided some protection to domestic output. while export values stagnate, this is indicative of an out of date export patter, ‘The latter is unlikely to produce sufficient revenue, furthermore is unlikely to sustain as a growth engine in the long run. The stagnant share of machinery and equipment at 10 per cent of total exports is a clear sign of that. Table 1 is indica- tive of a diminishing openness of the Russian economy, morcover the export/ GDP ratio fluctuates widely, year by year, as in developing countries relying on primary commodity exports only. The stagnant share of imports in GDP is a sign of caution: revenues are expatriated rather than spent on modernizing domes- tic fixed assets. True, some partial, rather defensive modernization and upgrad- ing of services is observable on the sites. Finally, import penetration, at 24 per cent of GDP or a third of Central European levels is a cle The share of industry has gone down from 46 to 22 per cent in GDP. This is ‘with the numbers observed in Central Europe and should by no means for de-industrialization. By contrast, the share of agriculture in GDP ‘however investors, with afew exceptions, have no! shows up. 20 dropped to 8 per cent, while in employment its share is still over 13 per cent, ‘This is an indication of continued inefficiencies, furthermore this rate of employment is very high for European standards, The forecast is indicative of the continued growth, led by the fuel sector and import substitution, with activity leveis improving the employment situation, without endangering dis- inflation (yet another ease when the Phillips curve is vertical). The deceleration of inflation reflects, inter ali, the strong fiscal position. However, the policy of the Centrobank does not move towards the single digit —even lower single digit levels of Poland and the Czech Republic. The virtu ‘a means to manage political compromises remained of growth rates however, is perceptible, even thous) 2n atiained, Moreover, issues of overall ~ techn« jodernization and #he struchural problems do n ‘addressed in the 'good years’, when ample domestic and external financing could have been available, External debt and its financing do aot ‘seem to pose a major problem for Russia any longer. ‘On balance, Russia seems to have been stuck as a 8 thousand $ per capita GDP country, without any indication of a lasting catch-up period, but also with out signs of the catastrophe scenarios, once produced diligently in a number of research centers. The one-time factors of growth seem to dominate, and addi ‘odernization are not trivially i is FDI. The system of market, have not been showing improvement (a shall address below). Therefore the trajectory per cent annual growth rate, first envisaged in the Gref Plan in 2000 for a | and re-iterated in the presidential address in May 2003 for up then, seems to be widely optimistic. This is nothing. ig less than @ mechanistic extrapolation of the recovery of the 11999-2003 period of high fuel prices, yielding an average growth rate of 6.7 per cent, Still, there is considerable way to regain the 1989 levels in per capita e other hand, the dooms-dayers have also proven to be wrong, in far as there is no sign of Russia returning to what they described as a ‘depression’. In a way, especially if foreign entry remains as limited as in the of changes, Russia is more likely to follow a path typical ofa ‘peripi- economy than any of the extreme scenarios. in this sense ~ but only xd sense ~ we accept the overall evaluation of Shleifer and Treis- man (2004) calling Russia a ‘normal country’ and blaming analysts for their inflated expectations in terms of democracy and market type environment. But having opted for a different alternative than emerging Europe also has a price, especially in the long run developmental perspective. At the end of the day, this finding may be supported if we look into the salient features of the Russian economic system as evolved over the past decade. in thisop aanopsit eissnyy y>ttyan ‘eare Aanize ouo 0} paurensar aq, Pi} “UOSPD: JO\JO OW 10} J] ALO aYp 1940 -exF AP ISU aN eH MOUS 0} [zo0z ‘eaeS>) foue99 [eorpeT Aoyiod Burzrpenuan jo aime Kzororpentios au pa Sng WOT 23838 jo asuopiadaput ay UN nu a9 pinoys Fouaprsaig wxng ISH aup Jo saseUd ony amp "AHof Sy ‘sey prin 8 88 661-8661 ‘poLiad sryp aes wea 294 “ysISBayp sea o8UEYp feaM|OANS YBNOIR Wana ‘sonDAar HedND Jeuontppe papiacid puv ay 0} uotsod pe>syy ay pomorfe Yaron 1a Toyjo ue dq payioddns zaacy sem sellop Jo UoN>aRoud pieoq aip ssoIoe HugpIA ours sof woos n porva1a pun Reyunod ay) fo Rouaajos ayy asosaa ispoaap Surtaste au, “StoAoDoN SI JO aFpPE at Ut eIssMy HY AED WOLFE) au Wat ‘gg6L tena jo ster fouazan> ay) 4a paxoSa oso sou pays aun &q pauionad ‘pareay sa Jo Kuvur Se “Tou ysinowp ‘parjey Sea ssavord sn oajuoo adhi yaxrew jo suorIMNsur a1s69 at BueALD fq ‘aseq STULOMIEDS sf pue zomod 813 ‘donserd cogt ap Jo uoneandas ayy pod are Apoqou pue Kpoqdiaaa, o Katodoud ayy Jo sae ole mow oup aun ap Aq Yo\p aans ayeUt oF payLrEm wiog aiqeurano8 ureutax of seen BIBEMy FF “U Ap aBoueur o Yse> papsout ued asoup araya ‘punos “nungupuawou yo per Supya8 30 wou! utd BU OF Z6I 1 sadope aut jeurdtzo ax moyioy 04 ajatssocumy poutim sey 1 ‘wsotatos pur Jsiny four ap je2an astf sn tof (2661 {ADAO Aa eondteue arour 20 ‘g66r “pa ‘Tepres Jo aun jon Ang axp Aq "89 Se) qunodd" onistrayazduron v yuasoad oy BuNySTM MOTT, Sotpoq Arostpe pue ywhuaumusano8 snores Aq rwak yea pausyignd Up sureuSoid wonezneand ax 03 souerquioser 1autp api pey IeUA ot Jo amjeu snoauejuods Ajai tp sossans woKn|ong, ‘um aig sea (m4 “sounyonuys afUIOOD9 pure JwoRElod ‘s3OpH {uguyapar 19 yuads uae Ae} E66 1-266] S#¥94 auf) ‘BAOAE PassMDsIp sy Jp uresfiond a ou08, 18 2q pIno> ysarayUH ayeA ud Kuve &qjeut afaxa ‘hiopos Bunuyelireq v se uOTU WIANG atN Jo Shep are aK paquosap (L66f ‘INUSIEN) sontosqo Arexoduiayuon y “auue} WeISsry 0; sjenbo suSa asym ‘KoeyTUr oy} jo romod FureuuTB9] akp pur snsuASUOD [20S aut ‘ours yary ain eaVEp aTIOISTY SIM, “poossrapun unjsapy sy ur Arye ‘sea yuauraeueUt 194 ta9q Sey Oya J9PLO] salord uuoyax apeos-aitiey way, ‘poured sa wau8 aig sdvyrad seme Ayear pue 5 ayurouoD9 axp 8 aamy spolqns stay, ue saurepumog ynouyar ajeqap peor & YRS p ustendes ayeig so/pue yey PEM ayy swusyeydeD werssnyjential elections in March 2004 ha allowed for major changes to mat Ausual pre-election year, where ‘oli- garchs’ have conspicuously been ed, support for the pro-presidential alliance shored up in all conceivable means. The building up the needed media, financial and organizational support for @ President (basically without lan operational economic program) prevailed over reform projects. On one level of abstraction this may seem as @ lost opportunity, since reforms are best have been irplemented. This igh on the agenda as say, the prior to presidential elections). On itiparty systems, where rulers can unex- holds despite the election year, Joans for shares program in late 196 the other hand, we do not know of ‘out (despite opinion polls to their favor), where experimentation fon of power would be the rule. tions and the ensuing ‘consolidat rrmal is that no major econar of improvisations emerged even after a landslide victory for the President Alas, \e 1995-1997 period in a more favorable per ty, where theor aged by local authorities in a variety of hidden manners, irrespective of central ly with reference to social needs. This of course is, by impli- aint on the market nature of Russian economic order. ve not followed offical pronouncements. Inthe period of vouch- 3 in propery reform was slow. The big jamps are ate secior reached its peak in large number of bold state- be particularly Numbers on industrial productivity indirectly prove our claim that stabi- lization and hardening the budget constraints of enterprises started in 1995, Joes not ake place primarily throvgt ‘But this isnot the wor isue, ab is | | | | i \ | ted to subdue. Also unemployment started to be fe diminishes with the rebound of economic activity. labor productivity, however, evaporate since 1999, rements available by passive restructuring, that is new investment and new management allow for a gradually diminishing roductivity no good sign for sustaining growth. Turning to the banking sector the radical decline in the number of financial ym 2297 in 1995 to 1329 by 2002 according to the Economist chapters, may pose a te run business order in Russia in the long r “important to note that in the 1999-2003 period the Russia, based on barters and other non-money forms of transactions gra disappeared, The share of bad loans peaked in 1998 by 39.8 per cent, and come down to 12 per cent by 2001. This development has dispelled much of the theorizing about a new brand of market order emerging on the base of money s. However, the very low EBRD index of banking reform reflects that, administrative measures, precious little has been done to tackle the developed banking sector in the country. A detailed study of Berglof et al (2003, pp. 108-112) has found that foreign ownership accounts of Russian banking assets (against over 80 per cent in Hungary, Croatia or the Czech Republic) Meenwhile, the Central Bank of Russia applies lax regulation serving insider interests, thus further discourag- ing foreign bank entry. In tur, the room for new ventures to get externally funded ited, as the declining share ious dynamic constraint on the evolution of capitalism as granted to the domestic sector prise restructuring, or for endogenous, innovation-based develop- sian industzy. Other see the closure of big private banks on non- trivial grounds as a sign of cumulating strains, reflecting ongoing mismanage- ‘ment, rather than yet another element of single-handedness (Handelsblatt, 6 Tuly 2008)aa a4 jo " uo jou wor map fo Sime, ap sdtusye we poinque afqeue LOAD pe uesnyy Uae “yjnor$ uy exon Burpnpsuoo ayt ur yoeq auwoo [ous at anast Ue S31 qorprew jo ad} ueadamng asp a4 3 70 01 919 Uo zo\deup ap aaao Atuot033 s pue ynoqe BuSusq ur Arey 294 Jo ajor jeyoard atp uo eyeiogepe oy wy speay yey stsoUy v “sys MOLAIAL Aadoid, oe wsyonces uessmy SuquDsap (L992) prntpapy Aq ultep ade op sau ‘arouttaip mg ‘paonerd 3q of suetyNos ynoq.04s wpuiadap yped ang “uououIoUayd Maw e yout ‘oemoD 2tp 20} jueyoduir e1out st uoREDstUNEpE ages aM “BIUB atoyen uoREntts e Sunouap ‘axyerayy juoLUdoyenap aUp Jo usted 7 -1yod, o wei payjeriqease oxp Aq pegudsap [om st epssey ur aaaasqo am ‘potzad Fo9z-N007 UF a1qeas9eqo sem ye IprYiodo snpow vw aSueyp @ ue soNpex sjuczp un aBump w sean x 'spto0n x2URO Uy “pef of dap sigy uawous ney (p09e “ELETH Pu Tasyey) Voscnsz09 uo efanans [20 -induro aaneredutos ‘sez jo ares Aaios simp aBuEyp oy dae Ue se (Sra Is no awos Aq ua9s pus) padenuod-yjos sem Aouapisaiy wang 1s 4p YINOIL, mndnazo> oy aqqeso4pn ssautsng 0} aieysou sey uoIjo (aN Butoq ayes aM Aamgnmba, se Ayyjenb pat Aow soumres pape ares aun ets 0} parenba s 1g sonouoDe BuIpedy yuaLmo imou8 jenuatod 40 posmnbs suoyss 395 mu SurwoNDUNy pue BuNsIX Ue Jo UBIs yUEYZodur SoU axH se HIxEI aq PMO penned ’seare sup Kem wu (zg “d pu gg-d ‘99g ‘saupey.) sun FayyO atuos uF SoIpms jeoudui yusd—s Aq payeaisuowop “i vor padlunoo Zursjona atp uo was wrewar 0: paprs-au0 ag pinoas if ‘PUD au UG “seaze pauwsoyetun 259u) 30 ayy dq possocdos Apuosing Jou pure (puvoq a 69M atp UL S10>e8 yorTEUT Bq OH [ny aif apnppur geare asouy,‘pauofan od 02 #noqe 1of Suysnaaod ‘sioys05 24 1 S89 AH “(G002) WISE AuBAax jo stsdyeUe 1uadaH e -nieid ~ wstjenp jo vorsuaunp juenofax soy sueaUr OU hq Yr "PV ‘oUF UNOS JO BUND “PERI UY BP D009 are sampid \pog ‘Ayaaod pue kesep ‘kes ‘vt pakoains atues ayy ‘jauidojaaap Suny nuinoo ayo UF uerA azzqezaueB 0} JopIwY EAE 1H 20 450% 10 *po108 ‘aanyeay pu “uotBax MwOS0IN, 8 Ich juudeoop “yueuBeya Jo 9s ‘ypeoidde aayduosap & yo red jsnf st sty) ‘30s ‘9M yeyM auOpUOD JOU Op BM os BiNOp UT -MOjaq [Hap dUZI05 UF passazppe aq (0) 3orqTeu ueyesmy ayy Jo BuUOHDUNY Jo sox Jo spunoi8 uo se ‘yapos aup uy ammyqRoride pure Azisnpk uo ‘SppAay da Jo spunox® uo paynsnl 94 Risqunoo Susdoqacay ore) 0} warpadro axow suID%6 HE SONsst SNOUT 960K Surssarppe uJ gsomrouoss yoreur soyFO tH UBSID p Awouooo ayn unpssny ayy fo samnquaf koyroad ayy aqya>sap ‘uns ‘punode 198u0T OU Sf 9A pen araym Amunoo uvadomny peueeyn we 105 quad sad ge sea Kop, ‘Komdomn onrosoxdat SF 16 9q 01 pauiodar st Aijenbaut Jo 1ua!IBFe0D [NED aM. 98294 101 ING SEYcouris has also been traditional in Tearist Russia and the Soviet : With weak courts and non enforceable laws (often inherited sr: ried, like the ones punishing profiteering) recreate the environs of low trust and extralegal law enforcement, that was once ealled by Nemtsov (then Deputy PM) as majfia capitalism. The more we have to do with the ‘paradox of plenty’ the higher the probability of an authoritarian solution is to be lasting, For this - the resource-bnsed economy ~ neither needs mor requires ‘more sophisticated forms of control. Money thus matters, but not just money lone; allocation continues to be distorted at the macroeconomic level. Non- ‘market forms of co-ordination (other than ethicel) play a lasting role in man- till a spe- This reflects the age-old tradition whereby enlightenment tends to come from the center, while local power is often more conservative and backward looking. This also implies that many central deezees and lowes aimed at liberalization are openly sabotaged. The most common practice is reference to shortage, special circum- ‘tances, or the need to sustain local supplies. In doing so the local authorities have introduced de facto customs barriers, ‘export’ and ‘import’ stops from and to their areas, obliged producers to supply locally the goods rather than selling it to the highest bidder; not allowing foreigners to start business in areas, allowed for by the national laws. ‘Similarly, local power tended to be involved in privatization deals, especial- ly in spontaneous privatization, or management buy-outs. Locel politicians, on jon even the local administration, retain shares in the firms, and micco- ‘manage their activities. This feature makes it dificult to establish zh private, and if privnte, what that means in reality. Whereas in the West {on is the act of making firms independent of state bureaucracy, in Russi may or may not be the case. As it seems, the attempt by President Putin to ‘overnule local power by simply appointing the central presidential envoys has not changed much of the balance of power. ‘Under these circumstances rule of law, transparency, objective evaluation of asset value and the like remain abstract concepts, The Russian slock exchange, that emerged from the very outset as an instrument of financing the government, not the corporate sphere (ci. Rethi, 2003), continues to defy the name ‘capital market” that should have lent itself to be the constituent of the new order. Tf we describe these mixed forms of control as ‘equilibrium solution’ in any ‘way, this implies, that the 1998-2004 period has proven: Russia no longer faces disintegration, nor there is a threat of an alout reversal fo the Soviet model. ‘This is demonstrable by the discontinuation of all secessionist movements except for Chechnya, and local governors supportive of the President in zeshaping the upper house in his own favor. The Communist Party, for its part, having always voted for the budget in the Duma, is obviously more of a movement of protest and a rallying point of the disenchanted, united by nationalism and Populism, than a classical Marxist movement of any sort, with its vision of the future better world. The original capital accumulation, that has taken place (oris not) 208 in the 1989-2003 period cannot be undone, short of yet another Stalinist dic- tatorship. But conditions for the latter are obviously missing in a modern Russia, For instance, it has become a strategic partner for the USA in the war against terror, which has obtained a major say in world security matters by the NATO-Russia Council, established in Rome in Jun 2, and where ‘the well functioning part of the dual economy is so manifestly transnational- ining. ‘Summing up what has been said, the ‘Wild East’ can neatly co-exist with state capitalism, since these define diferent aspects of the same structure, a feature ‘well known from Latin American countries. An assertive state power should not be mixed up with the East Asian type of developmental state, though the intertwining between business and the administration is equally strong in the latter case. However, the basic difference is that a weak and captive state is unable fo launch and organize big development projects that could change the land- ‘scape of the macroeconomy. ‘The technical assistance of the O1 liberalization project, elaborated under the to take off. Even if private investment ized, the continued harassment of major “ycoons’ is unlikely to build confidence among those who have anything to invest there, be there local zesicents or foreign strategic investors. The numbers presented in Table 2, showing that only 20.3 per cent of revenues accrucs to the ‘central state, does not allow for that. On the conirary: one of the major challenges iely to come from the inadequate public investments into physical infra- iment and health care, Lacking these public goods may act 25 an mnal constraint on economic development, which is a broader concept How Can We Test If Russia Is Indeed a Market Economy? ‘This seemingly naive question has far reaching repercussions. For one, mer- bership in the World Trade Organization, where Russia lost out the contest in 2002, against China, it is a fundamental question defining the fate of applica- tion and the related disciplines, if and under what conditions the applicant is accepted as a fully-fledged market economy. Likewise, the main trading part- ner of Russia, the European Union applies a scries of protective measures against state trading countries. While much of the original rationale of these is ‘arsenal hits all the more those outside the global trading framework disciplines. Finally, both in policy literature and in the more academi- ly oriented comparative economic systems literature itis a relevant theoret issue if we can establish the existence of a market order or conversely, the Tack of it » tis hard to overlook the strong presence of Russlan speaking universities, RD enters and cultural establishments. By cont cual in most Western irge msmber of "new RRussiang” eared their qualifications in Westem universities; their businesses often relate to Western counterparts. 29uuyous sex Asoo aU fe SUTEqUOD “1092 “PE “WoIA pue ‘unowss y9yr6ur luooq aavy sostexeyy “i “rout atp Jo anna atp 8 1 paveyar Arpyerpoununt st sta pu “essnyl ut uouautouaryd peardsapye w sf aum> paztuv8i9 Avsouoda eyyeur v ont yr%p 21 -woueds [je 4q payerpasdde “won reo $9} OU Ing ‘pare|aL WY “srayyns ayes axe aN Zuo au, “patuoutaydU usaq Sey 200} Paulz0atp jo ULIO:y, of wowysey poydraiooun ue ut asps0 puro ure jo 80) ojuausepuny stor WA UY so5e9 ap Jo 2u0 yno apBus 0} ep aup ur punoge euowrouatyd asary uo s3rodoy, worskud yo deoap aun ‘soe>gpuy weoysAs poorer ay 40 "uoneadod wossany a4p J0 0s usadoung 10430 Uupumouytin uonepextop [eyaumuorTAN Jo sw20} auIaN}x9 fo SauNjadid jo auoIe -o1dx9 Jo stiodar sejnfaz se “saqqnan Jo aamnos v us9q Set SHY, ‘AMUAKAT a6 7 ofe9s jenua> axp jo Auge pasty, ay UMOYS aABY aA *pOpLOHEUM UTeUIOT aie%s 8109 ay} Jo suLONSUNY 2468 auIOS UA “TOpIO yYseUI UOPOLE e YALL ose santcis9 pu spoe8 aygnd ays apiaoud oj uouisod w ut Aypxeq stat eK jo avers pes xp gad ya Aaiouosa yoxrout jo ody ywYyrA “eprom sOMjO IL poly 4p soup pg snowy 0} L098 am I pe [ems Sp (suorU ayy Ur wer Ajo;RUBEp 1 yng ‘suCLOYsTY BuOUT aLeqap Jo TBAIqnS B Inns sf aqua yoexa ay) sant] ueuany 30 suri} uy aur YerAOS ayp Sasodtunt Jp soo snopuauioy oy Sumouy « payspoon feu yon pew uaa astaraxe otf jo asodimd ayy sem sri anus ‘ssavats sofa v wang say woHs eassomy ays acs Rauaad sup uy anys 9 aguas ysopeosy sy. wt AUIO (Gugpzoooe joe op sian pur sr cide yj Jo sajdurexa yooqpx=y axp yo auo ‘aBesyary “saonid 8 offgnd arauyee avers axa shsion “sariue> anes Aq posaudas st ‘uorssaidar pu Ueno sayy 2upud wt 2uqppayy ‘quounuop are saoyid yeuy sumaur sy, Aoutazano Uitax05 woAE Bunyhcona fog ww fouous 10} ‘pareaddesip s1eaK yo1s03 aye ayy ut pesard a pasn yy sOBEUOS ‘suowat Sumoudssrauy paureSas paapur axvy seotzd ‘ey [fe ye OU ING Ise] “euw8z0 ayess snouea Jo syafoud ayesoqeyp ay Aq uerp rays Aypounqods hq po yeururop waaq envy sassanaid ayy [CY 10 YoReZHEALad noge HUI aM IL OSTY sraideyp stip 103 @ xtpuadde aun ur salqea ano Ul UeHOUus se “DON uy Suumjansos pu s0y908 Aneutad xoy swuoursoaur ares Uy worszoxMIOD Aree pue C+ Ur BU “205 pappe anqea yfiy o} mop avy Pinoys suounEAuT Aeod up Suyzmoar oy, peoAqe st yeyp‘SuaRLY oyes OF parroystted} st Lpjeem STA ‘eaMDOTU FH GuORTpLOD NOY pie J] YRIEOM [ouoSN sIPIp sozmupCeUL yo soxBareNs ‘moyqos ‘29103 Aq pazumesaid saapun pure ‘sas0o Jo Ai ‘suuadie aqutouoge suza2tte> Stadio ue £an0 “Aso 1H aout ayy etSsh Ue ‘aqnop puokag st 31 assrq “paysTgeise aq 0} stutod jo apdnoo # axe alot “ay “exon at Jo uoNr28 ase] © UT yuoe=2d Suumysod [worSoqoaps oH prone 994 ILthe case of Russia the property right system is particularly weak. Not only is e property not protected from the state, but similarly, public property is fen unprotected from grabbing, The evolution of a nor-transparent mix of property structure explains why issues of corporate governance remain chroni- ally unattended. By the same token restructuring in large corporations is bound to remain slow ~a feature that has been conspicuously showing up in the mea- ‘get export performance of the Russian engineering sector. If one gives credit to 2 patt of the intellectual capacity having produced spuinih, ballistic missiles ‘and still capable of operating new spaceships and space stations, the lack of improvement of export performance of Russia is becoming all the more per- plexing, True, institutions are the mediators between endowments and market curtcomes, Once the central role of property tights is accepted, the causal chain seems straightforward indeed. In short, lacking both sticks and carrots man- agers may be induced to asset stripping rather than maximizing the asset value of an owner, who is not always different from them. The flux between their private and managerial capacity distorts the usual incentive structure and leads to low level equilibria. Survival rather than expansion is then the name of the game. Or alternatively, as Pekka Sutela (1996) formulated, the secondary market for assets remained nor-existent, thus the control mechanisms remained extinct, thus the built-in inefficency has become constant feature at the macro-level what degree, the weakness of property rights and related institutions is historically given. The customary reference to the shadowy privatization deals ~ ‘the theft ofthe century’ does not seem to hhold, once we consider the experience of the United States. Not only is there a social norm not to ask for the origins of the first million dollars. The role of gold miners, robber barons and the like has richly been documented, to the point of being a commonplace about 1 century America. On the contrary, theory would expect the emergence of civilizing institutions, once the need for transferring, bequenthing, securing, splitting etc. of wealth becomes real, which are elementary functions of human social behavior. In our view, policy neglect, lacking traditions (both from Tsarist and Soviet periods) and the ongoing lack of ‘ed by the low social status of law enforcing agents, contribute to this phenomenon. Lack of clear division between central and local state, between state and pri- vate, a8 a lasting phenomenon undermines the efficiency enhancing qualities, of the market order, without however, transforming it into something historically unknown social construct (often postulated by Russia watchers and Russian social scientists). An inefficient market economy ~ Bolivia as the standard ref- erence in American debates ~is by mn. The emphasis of the post-Washington Consensus on good governance is a lear seflection of this insight. It ts way to the policy litera- ture as well. To be fair, the continued failures of top-down, designed reform packages in Russia (to attain what the designers wished) have had a major (or the entire economics profession, and in the gradual rediscov- institutions and values. Liberalization and deregulation has long been seen as a major side condition for of Thatcher and Reagan, deregulation and liberalization have been on the agenda, also for established market economies. Leaving the ideological com- is easy to accept, on the grounds of microeconomic theory, is good for efficiency and adjustment. In the case of Russia, ‘Table 12, this has proven to be the least advanced side of eys- temic change. Interestingly and importantly, lack of liberalization in an envi- ronment with big arbitrage possi! ch as in foreign trade or currency transactions, or privatization, isa direct call for the non-law-abiding behavior, so widespread in contemporary Russia. Limited liberalization is problematic in more than one respect, First, lack of entry supports monopoly positions and diminishes efficiency gains from pri- vatization. Second, monopolistic markets dominated by networks of produc- crs call for different type of public policies, in terms of competition, than con- testable markets do (Torok, 2001). Third, with lacking liberalization the micro- economic incentives for change become therefore improvement in the fature may well not be forthcoming under self-regulation. This may explain in part the continued low efficiency of many activities in Russia, not only in indus- ‘ry, but in banking, trade and services Finally, the rule of law is though a value on its own right, but is also con- i type of market economy that emerges. As any broad concept — tangiblas to conscientious behavior of a tradesman — it covers a variety of formal and informal institutions and their interaction. The less con- ditions are conducive to a law abiding behavior becoming a social norm, the higher the probability is that capitalism equals to wheeling and dealing for the small scale, and theft or corrupting the state for level. And though one should not take these features of Russia as hist given, the outcomes can indeed be explained by a sinigie chain of 's based on the type of intertwining between the state and the market, policies and institutions. From this angle, the ongoing attempts ofthe first and second Putin Presidency to ‘liberate the state from the capture by the oligarchs’ has further diminished the credibility of any policy based on the nw. By contrast, the tradition of ‘might is right and that is the top pol «der who is the final judge on. all major issues has been revived." If our previous line of reasoning holds, at Teast to some degree, we must see this tradition as one of the components lead- ing to the chain of low efficiency and low level stendy state equilibrium in the Russian market economy. It is in this context that Alexander Radygin (2004) interprets the changes in terms of a move toward a model of state capitalism, {This ie the intorprtaton of neutral Swiss observers: Russland: ein Jahr mit der Yukos _Affare.Newe Zarcher Zeitung, 7 uly 200 2381 pao ut ae Jo 7901 pur Aovopwy Suesnan> oy Aue (ego) ones 30 se pea panned OA HT -powpid suopeznueio juared x9tp aatas or puss asaup yeuy Sussdans Aqpsey sy 11 farojarany, wiordzes ayy sun 8tq hq porPeg souO ayA pure SpieqUIONOSPUSSAA, ‘sfueg oveIs paysyaeis9 “plo ayy Te uoes sem jealamns 214 aroun Supgeur Aq sfuteq atnory sary paysrqeise wig. sun TeLNSMpUT Hq at atom f 40} ‘SiSal0qU JeLASMPUL O} ayeuIpsogns aaq BuO] sey wsks BUD4UEG ‘2omos oures op oF Bumpsoode yoxzEUI fence ayy wor} paoueUTy 2 20 Burp O POS jor Oy ay WoRUATAP OTL re sotioayy jewuauidoyenap anmeseditio> ata Jo pire inog o1p Jo asdesjov ayy Jo sisfeue snc) ‘sasodind ywauryseAu 10} Pez PE daipoue 20 Kem au aeip asoddns se 7 ‘Moy suIUTaL [CY pue yuMOsDe NAL sy Uo sapdias sepaSas e sun Ly -imoo aqp ayn ‘sureysns aoureysumast> Sms aBujuaciad g fig 1509 295 ue am eA “IS stoUdo ayetidoadde yout Temapno jo couerrodusr a4 yopteur pexdeo amp Jo yepO "you pond w hing saoinoses fo Wo [E90] a4p BussooUD UT SIOHDE aoueura408 ayerodie> quadar our ay uo ano tine st Aral ug, ‘AMS 10} MOU OP 2M TPUAA {20} Stor TpUoD ty ButAar Aq payoddns 24 4 Buipeat sou) Se Yon ‘suIIO Far vonerauad puosos jo aun © Apeare Sem B/6T ATR Ul amrysaueapy “aummbax pu asoddnsaad pynom oueuaos ist io ur tunds aun ayqemed =o e yeyi Jo axtsoddo op aBzey pure Aq souyus as tad Hurd dure ‘ejqnax Jo somos tuopuiodopuy ue outovaq Aeur suorsto—p jo ¥oe] Bure] 12 Bun yUnT0D Jo. pue ‘ouapisend ys1y agua saydo avey, 0} sut908 sourdaoq uonsonb sity, 1b] 0 apr Surpinord pue yrouuasau fuopyynBo fpuaesf ssomsng pu Siayquue uy ySroap voweuiod yauu8 wow prroys aie [erasap\ ood ain uy Arfod [etzisnpuy “sureteq owezonraing Suro8uo Jo asmo> ayy UE pauyepar Suraq uo daay rep sojoae Sug}as Jo vorednoa0ard suompen arnb axp aBuetp 0} aun st “paimaas sou st potted ¢n92-6661 auf JO Uo! 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The latter unattended — a bad news for long ran growth. or a pessimistic assessment ofthe possibilities of ‘The obvious signs of what the development litera- activities and regroup the capital regained from Russia is therefore, for structural and institutional reasons, phenomenon known developed countries. aimed at sustaining through a variety of ey fora sustaningly is as the major obstacle to Russian road to WTO. lated issue is financial intermediation and corporate governance. As Jong as savings are not secure and the incentive to invest them abroad is great, es, has to be taken as given ‘away from the primary sectors and upgrade its manufacturing base. Once the uilt-in conservatism of the financial sector is understood, it is rational to ‘expect slow changes in the long run, whatever the governmental structural pri- 0) report of the halving of labor pro- xe than 70 per cent more 5 opgraded Rassia in ‘om being secuted. 236 orities may be. The I sets are both unique inherited human ea ‘The less mnanagement al changes, discussed i ion chapter, the more industral- see government policies.” The strength of local power only soengihess the unfavorable phenomena, and so does the lack of clearly defined and enforceable property right structure. Without major inflows of FDI, endogenous growth is dependent exclusively on local innova- tion, as embodied in technological change applied in the business sector. The latter is known to have been the traditional wound point of the Russian industry all across its history. Moreover, as the comparative study of Piatkowski (2003, 2 capita ICT spending in Russia remained atone third sits influence on labor productivity could be may abstract level of modelling, to claims that governmental activism can and should be able to replace, even in part, the lacking micro-foundations of sustainable economic monograph Weigert (2003, pp, 194-206) blames the lack of ‘of capital Fight teansaedon, without related tothe overall business unfriendly trneephere and lowing the war en oligarchs) the UCTAD speci in Russia as ‘premature’ (pp. 130-131),6 jas oo 6 se AISDESE SG we oat atp apnpput am jf ‘arojarayy, ‘998 ye puo ‘squaiafirene euoRM 4 Jo UORULIO} aLp O4 Parngiznes ancy O} aol 994 OAOaIOW, eadarng [Eula Jo ssavons alps auinefjatyazonuy us ays paureydxe {aq pind stonjeuuiossuen Uersomy jo suOReKUNT ay aus “NORD UOT 2 oF utod pynom sity “aaoge suoRe|AD=ds ano UT Yin Jo umoXPOU! @ st aTR oop Sunstxe jfe Surgypp ojdwsexo ue se wissmy dn yySrarq sexy (C002) ON sse(noq Yoo SumooAoy sty Buyzixeurs axmqop quaaL v Ul ‘Aueutia xem3sod 10 uted ‘eoutesy Eat pasasqo om se UORE! 420 s8uayjeyp jeinyyn> v paepul st sn puy ‘asuas peoig ayg ut Az0}8 fouoneE ‘1 pojoap axour yy © By2s0d0 04 MOY nf DHsHear 9q OF wia9s you op santId ABIoU9 10 wapr aun “(e002 ‘THE payed] uaeq |ALY SOL ort suvour ou a, st p zofew aod amonns seis yatang-3s0d up StL] auour atp) astanayy] “puedxe sanqasos pur sua 20} av01y ‘Kmo|s Kuo mou seomoser 105 soy -eOr pouty pute ELLDAUT 10g 105 “Ui 50 1008 29351 582] v1of sjaodeaid yey} suas yf AKoyod oyur yuBtst “ung 8u0] au UL eIssmy ut UL mods jo sad1n0s Funmsueg, quuop 1uoLTUIDAOS ayy aq aay pay snoys f ae sofureyp asatys, 1199 Jad £°[ 01 9'9f Wosy uasop iam AnyspUL YB Jo a7eY ‘ayy amiymn ues sod gy 0} 9 wor UoRInpard [wlaut snosI9y-UOU UID 70d §9] (03 ¢°9 wo «xa18 saxasmpur jong "eqo%, aq ()) 3u29 tod Gg 0} ggOL UE AD 0d FE ‘uorponposd ABiau> auyp9j9 Jo areys au, ‘fuouosz0/a0H lunng sx auf 29pun aoeyd uaye, sey raslod ajpprut e jo sues ayy OF uonerdepe aij seorouyy “aimSaure feqoy’s pue weadaIng aunyny 4) UE EISSN, o ajor fepunjod ayy ‘suejd offaqens pur feoayod werssny yo yuownssessear elusoud Ao 9 uy dawg Su8ione, sem yep [opour wwodoang [exuDt onurAdp sacks ypu ‘oma 89m nels aapO! ayy Uoowaq 4501}409 4p >OOHDA O} pL eta Aqpontod paureurax uondo ayy uy asn jory pue AB:ouN SuySTUNTP UBT ssoU8 pinaD sOqUIOUOD® WIAISAM Tl “972-9'1 Jo 14aPYPOD & Aq masB poured enoz-—N66r aA UE MdaAO Jo HUE Je Aaysuajuy somosar eanyeu pue -ABtroue axp Toaoatoyy, 8itc0s fo 4 3Y) JO 20 5} rps ‘sus “fs v 99,09 ano: worsen] a9 Jo word seopzd [0 4 40} Wor ayy 204 "unt or seou peg S130 padseid qervaurdojeaap tsay-Buoy jo Mala ‘exsomy ur wasaid {Isnorago o8 28mm 384) sauo ‘pakeyap aq [jaM ABUL ep SOLO se suLZOJar sOda—p axoUp 396 OF ATEN 81 drysropea] ayn “ssn 20) apei8 yuounsonur ue Suni 10; soe LutoU009bbroad church of economics, as we certainly do, then we are a step closer to an explanatory theory of economic development in the world and in the largest state capture that has un Following the breakdown of ‘a weak state emerged. It is thi hhas proven to be an outcome of ‘human action rather than human ation’ (Hayek, 1995). References ANDRarE, W. (2008): Rossiskala privatizatiia: pocknodi i posledstvitia. (Privatization in Baer, W. and BaNo, J. (2002): Privatization and equity in Brazil and Russia. Kyles, vol. 58. 14. pp- 495-522 Benioy,E— Kuno - Sve Yu - Yuan Ks, 208} The Naw Pie Economy of ries and Econorie Tranafor- ope. Cheltenlem/UK and North- | | |Z 3 | | | 1 i i Conus, L (1997): As oj orose kormény gazdaségpolitkgje, (Economic policies of the new isenkeeffektivnostispolzovantia nats ficiency of use of. ‘Groby, Cand Hit, F. Q003): The Siberian Curse: How Conmniat Planners Laft Russia Out in the Cold. Washington, D. C: The Brookings Institution Press. Hane, PG, (1996): Privatization in comparat Hie, H.~ Toosa,S.~ Westriat, A. edt: hham/UK and Northampton/USA; E. Eig perspective: An overview of Key issues, I ronomic Problems of Transformation. Chalten- 5p. 192-214. ‘ember! trv eredménye, (An eutcome of University Press. Lavery, (2000) Fi ‘University Press ‘of 2003 and ofa four-year period: Poltis versus the economy). Veprory Ekonaaki, vol 75.n0. 3. pp. 23 2aeve, Tala Tara ‘puny Aseiaipngenxe pus sia8pnq eso pre UOTE! 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In this chapter we try to address one of the more puzzling features of the polit- ical economy of emerging countries: the experience of China, The Asian gient at the time of writing is already the seventh largest economy of the globe, with ‘export performance and import capacity on par with such members of the 5-8 as Canada or Ttaly. The People's Republic of China is still a single party system. The Congress of the Communist Party, convened in January 2004, endorsed private property as constitutional. However, in reality the majority of firms operate ina long contimuunt of mixed property in varying distance from the two ideal types, public and private, Thus one of the most successful emerging economies of the contemporary giobal economy seems to defy all theories of ‘comparative economics. The latter would require a coherent economic order. By contrast, the Chinese experience allows for frequent calls, both in the aca- demic and policy Literature, to lock Eastward rather than Westward in search for a successful model of development. Tt would be futile to attempt to elaborate this complex matter in a single chapter exhaustively. However, a monograph on emerging economies could hardly aspire for being recognized in the field of new political economy, as defined in our Foreword, ifit were to leave the most contentious issue tnan- swered, In the following pages we try to answer the question if, and to what degree, China can be considered, ms, a8 an alterna development. Our hypothesis, to be| the experience of market social Eastern Europe. Therefore in the first, longer part we try to present a compara- five overview of what is known today, with the benefit of hindsight of market socialism. We shall define market socialism in detail later. For now it may suf- fice to note that forms of socialism, both in theory and practice, that deviate from the classical model, generalizing Soviet experience (most exhaustively described in: Kornai, 1992; but also in: Hanson, 20C3) are called this way, These attempt at, and also realize, to varying degree, more reliance on horizo 1e predominance of vertical, bureaucratic co-ordination, ted later in this that empirical experience has shown this be unstable. In ‘part of the chapter we try to specify the Chinese features of market socialism, Finally, in the third part we try to offer an answer io the two funda- ‘mental questions about the Chinese model, First is the Chinese model of mar- ket socialism sustainable for many decades, as official analysts in Beijing main- tain, or is there a threat of implosion? Second: is it true, and if yes, to what degree, that the Chinese experience defies all ideas of economic theory, particularly growth theory and development strategy, as summarized in terms of the post- Washington Consensus? Those having read the preceding chapters may already suspect that our answer is in the negative. But at this point we may for- te it as a working hypothesis only. China - A Challenge to the Post-Washington Consensus {At the outset of transformation there has been al the market system hes no alternative. While this insight has found its place in the current mainstream on development economics, the new Washington con- sensus or post-Washington consensus, (Kolodko, 2000, pp. 119-141 and pp. 2348-356; Williamson, 2000; Srinivasan, 2000), very few would venture to repeat in an academic writing the once famous dictum of Vaclav Klaus: the third road leads to the Third World. Much of Western Europe has remained within the framework of the welfare state, despite its obvious limitations? Also in the transforming economies, the rollback of the state has proven to be much less than the tough normative language adopted by early reformers would have @ consensus view that indicated. Actually, as explained in the context of fiscal sustainability, dis- ‘cussed in the chapter on Non-Stability Pact, itis the structure rather than the size of public spending in these countries that may lead to social and econom- ic strains by providing less than optimal conditions for sustaining economic growth. And even in the United States the Clinton period did not era of ‘unbridled capitalism’? Thus the ‘do what I say, not wha advice stemming fzom the international agencies and much of the academe has lost its original appeal. Last but not at all least, the return of the Right in the US and in most of Europe by the first half of the first decade of the 2000s has not 2 Weta ates in rope, rm Sweden to the Netherlands have endergone quit ubstanl changes over the pas decade. However, most analysts would not consider hese as changes in the node rather odiicaton in Sey of eration. "The then active parlpant, nd later Nobel Prize winner Joseph Ste 200) posvely usibates the sucess ofthe Clinton povod tothe disregard of gid academic inthe poboy making proces, primarily, but net exciusively, by PED Chairman Alan Gsoy UF ave38 axeyrom op JO [eazasns aul. (ROI-90r “dd “666 ‘sBIUIZS Oste 3) Uy arayardue punoy ud0q jad sey IP sYurouoD9 aQeIA JaYO OM se ‘LusOUEDa jarleWt 0} SOK v and ses0wop jepos ypuary pur usqusrpaus Buneuiproco ojos axp se j>4rEUF ay Jo uaLUSsaEEe ywIaAo Perpdoys rans Joge] MON Jo A>rod pure Atooy jopuod ADaau Loup 240] ung “wiseydumney yaxseur Jo uupaq sdemnje sey ‘90 20} ((b660) auTBag Azooys otucouooa ut Suppunp Leak prskp Jo ywansNOZapUN ot, go apuasoad Suoays panuiptios ay} ¥o0|%9A0 OF Prey ST I ‘PUEY IBYFO 34 UO, peur aAcy ISNUE [9POUE Les pe Aq yors, Aoyoc peo ax oF paren: onutoucog Many we}TeSunpy axp jo Apmis axp arora “UR styl, ‘adoang wiaysex, ut sioUB|sap Uraysés Jo saDqoyp ADyfod pure JeuOLMNSUT Ajproipaurun aroymou aazy ‘Buto8u0 js ISITEHOS jo SfopouT AANLUIAT!E WO S=IEqap [ed 9¢ 4 g661) marDoqeg 975971 ingy aup Jo asdelico up Z9ADMOF] id pu ‘Spi6E aup aouts 4a, md oO “0S 40 savad QgL sect ayy 5980 podoppaap suaxaXs jaxseuruout Jo sjayout jonouonyy 204jsq sino Azo at Wot} Xe 94 ST 7] snstiasuo UOISuIySEM amo wor puR{UEUITY Jo atp jo Avuouode y208re] yuoAas ayy Buseq CU 50 10] Supunoose puv aqo[s asneoag Ajuo you 1ueyrodu sf AsraqoruoD aul, gewiurRrEaTe 2694), {JO ued au0 Se ‘spaaoons UNE) Hp wIs!|eID0e sorte fo asmuseq 4x 5] “sano Jo uousenb Yoreasas dn-moljo} b 09 sPe>] -ast2au0> 40 “spjoy azmyexa] ‘antssoudutt 08 uaaq sey uo! 11 o5p 'aa108 19 eM) 29 01 uonsanb Bq ay, sen Jo roquunu v ut ayzznd e sureurar pure usaq SA sey CURD puETTEA oranda oq cr sprou cuauadde sou ayt KyUEXOdUE sour yng ‘sem jo saquunu & ur Bunpzznd osye st yf aanpadsiod Aoyjod Snurapene auf wor yioq wueVodunt 31 sn axpoodsiod ano rosy erp 305 any [aM asus “raydeyp Surparoid v ug pasnosIp sv ‘ur jo sastanord wfinoippe ‘pouaddeny you sey sk, “woryeUNpI-09 Jo sKIOG [wom ue ray seu jo Smaypsirans ay pue ares ani fo oqo a4y fo aanson ayqoniasu ayy uo ‘sBuntim stotaaid ano uy ied ut payors ‘suonepedxo Sse nin sip 9 end fo ise 2A mnumiop-ysod uvadomg U0 pod square “yee 4 ‘coe ‘wortunyseyy “{ueR POM ‘s002 H0d7 [Te Hoy saamnes) Azpmnas padopesspropun we jo japou Aue 2 weadf BuypsSt.0 gaD Jo 9 49d 75 yy1n’KpnoD anf SPE TOE UES U9 O9 0} 250)9 Sumuqene mogur fede oyatd you ayy, ‘arayp doss 10U op soyads axp ang, ‘ago/8 ay Ur soxunco snjeans apeN may arp Jo au eUND BupqeLL ‘Hq, 0g Apwau Aq, sjiodusy Stredyno pue ‘epetre> yo yey} 0} wwoqeamba steep * 1 § uq 797 Supear sodxo astpueypzou Yea ‘porrod LOOC-D66 sod (j) 91 Jo. SupBiigs w &q Sirmo1 ua9q sey PUT JO ACID: -euranUr a1 BuIpLOIy {pmol oyeRarB3e 30 suite ut SUL un AtBa fajsnpuy oe posit at 30 334 jes ayy SuyAws U9—d ANE a8dK ses aun Jo sjenaurepuny au} paluey> rou ancy Dei.) pus Yong “orsnpiog go sjuowuson08 aanearasuo> 146 pure gyno x0) JO mabostp sruiouasomeu Simeas sopisog ‘sota}uno> Sun ro. pa aque Y aloo Ut saupau "yseppeg iasrEUT aa © poONpoId.tern Barope and of the state redistribution in transforming economies, coupled with the Chinese experience do require a rethinking of what we should think about the appropriate mix of bureaucratic and market co-ordination, of insti- Jes. These issues are discussed in our chapters on Develop- rnon-met y sible in a single chapter. Allowing for the inevi tions of the discipline we try to achieve a more modest goal, Namely to present a summary of evidence, at the level of models applied in comparative economic sys- tems, of what i known about market socialist systems in historical perspective, jological part of economic ‘would be close to impos- pluralism in all big ques- land then compare to it the Chinese experience, so at the level of stylized facts. ‘This may help explain what is indeed peculiar about China, a factor frequent- ly over-emphasized and indiscriminately accepted in much of the area studies Lterature. In doing s0 we rely on analyses by other scholars, and do not aim at waiting up yet another China monograph, or yet another book on the other successful market socialist experiment, to be found in Hungarian economic history of the 1953-1986 period. Our discussion remains at a more abstract level, while country-specific and timespecific circumstances tend to be abstracted away in order to underscore the systemic, inherent or structural fea- tures that lend themselves to generalizations. Why Marketize Socialism? Salient Features of the Classical Model Much has been written on the possible role of matket co-ordination in a Soviet economic model. Here we offer a brief schematic rehash of what economics now has to say about the starting point. In doing so we zely on the classical monograph by Jénos Koznai (1993), Leszek Balcerowicz (1995) and our previ- fous monograph (Csaba, 1995) and avoid repeating arguments in the literature, Ina way, this is the axiomatic part for the rest of the chaptey, interpreting China in terms of a market socialist model {in line with the self-deseription offered by the official economists) Salient Features of the Soviet Model: Poetry and Reality In the following we present those features, that apply to several co several periods, over and above historic contingency. We also try ‘observations to what most researchers of comparative economics studies would concur. 1 The classical socialist system was based on mono-archy, Hat is a single chain vertical unilateral dependence, In other words, there was no functional differ- entiation, characteristic of moder and post-modern societies. Ideological representation was merged with functions of governmental administration, 256 Similarly, in the Soviet type economy, interest representation was merged with party and economic functions. Bureaucratic forms of co-ordination ‘ough do not fully replaced, other forms of co-ordination. What med ‘the genetic program’ of the system was hierarchical sub- iological leadership, that sustain, though both ideologies and the forms of subordination may change. The defining feature, for the eco- nomic structure, was always and in every country the uniform/undifferen- “the people’, ie. to nobody, but man- ippression and command were organ- ives, moral suasion and identification ir place, though only as additional factors Therefore it was nowhere easy to privatize, not easy to set up joint ventures, not easy to introduce exit of firms, hardening the budget constraints, as the hierarchy dominated, and various functions of property ownership (even. tusus, usus fructus and abusus, as known from Roman law have been missing). Te was lese than cleay, for instance, who owned @ Soviet or a Yugoslav of a Hungerian enterprise once Communism colla Allocation of resources followed central deliberations, bureaucratic deals/baz- ins, ideolo, tlates, but by no means market or price signals. This observed in the classical East ordination ari izing principles. True, at ti with goals also did have Asian developmental dictatorships as well. uunderscare this point, as known from Lu existence of capital markets, is the defining feature of any market systers. If allo cation of resources at the macroeconomic level follows bureaucratic rather than market signals, sooner or later the dominance of bureaucratic and polit- ical-oppressive forms of co-ordination prevail. This theoretical insight had been amply demonstrated by the re-centralization tendencies ofall socialist reforms, when decentralizing tendencies had invariably been reverted. Similarly, the sustaining authoritarian political features of the developmental dictatorships, as became clear in the wake of the 1997-1999 East Asian crisis. could surpass this point, otherwise the switch “from srus and Laski, 1989) becomes inevitabl ic processes from the global economy is ms the opposite case feedback from the woi lover the ‘autochtonous’ or arbitrary priorities set by the planners/politi- ‘dans, overruling consumer sovereignty. It should be stressed, that it is not 7 of foreign trade that really matters, though centrally planned / Soviet type economies tended to trade significantly le economies of a similar size and at level of dev: under-trading had, of course, been an a: socialist sys- market crosses coin the Brezhnev period Gret Russian imperial thinking clearly domineted egal- starianims ikese then nobody was gerously Persecuted let alone executed (even Solzhenitoyn ould eave the USER in 1970) Phil Hanson (2008, p. 25) barnes this fa disintegra- fion of the hierarchic command structures; my own view Is that nether sticks nor exrrote reanained by the ne Gorbachev accaded to power in 1985, 257Tenuao st yetp “urstes08 Aue jo ojdiourid Supeu roy amp saupTaLL TEIN SALONS Jeunoy] sequos Aq vorssajoud ayn Aq parayo siojzey Kzcyeunjdye [euo| aip Bowe oste arom sz0120s (ean ayp Jo uowsauddo payeanow: Ajjeotrod auf pue ‘spoau/awounsoaur yi sed ut sos uonduunstion 3 03 sosturoad dod ‘wstjenides Bupyerrano jo ARojoapy ati, ‘5804 SOLASMPUT parejat pu sOPDas asuAIAp ay} Uo siswyduS ‘swafoid dn-Zunpie9 snopiquie-tav0 ‘sued. payear> oes pure systurouese Arezoduzoyti09 Jo uospiauo> daap ayy sea ‘eoueieut soy ‘voproop jexanas 10} [ee UORPUID] pnod KutOLODe © mou pile Agys jo nb aug BtmuFE|dxo Jo ayqedeour panard (42034 “tiopout Lo ‘Kurouos® purBUTut0 euro soupf Jo Yoo snowE; OM spotiod ysurioyar ayy Sup IP UL MOR PEpre0D Jo sO} 23 241 Jo aane0q "OseaL Apaneiquenb soupo pure suerzosty 303 se [jam se SystWUOUO9 Jo UOIS amtia auy oy saaur peg sy Sty, “sopmyuBeU jour UeAy JOLTED spt! ©} puoy demonized ut ‘paye|noqeoor uaxa ‘Onaneys ysHyeII0s puw yeraued ut [eott0as0y ums 3uo] {FQ axp wo wedur sreuy pu sa8uerp femjonns Jo asneDoq “uoseas Jaifo OU 40} j| ByewASsaNB e ue AIO IOU UaRIO sf ya ing ‘Soyeuse aAnenteND jo poou anes us aze (ojoya & se vonIsueN Jo Wak TeOUEED azo aup uy Aijepadso ‘osnye>} de Sjopia sonzesd e) sprepireys urmumupar jeuois cuts are 2561 40 7661 JO 2801p jemyo Bupqe Afexoyy 41 taydeys ut pataao> Hy outpap yndino jenioe Jo ae ay 20 609 10 az46 atp toao KeroA0, ‘21qepuessiapun AyeorSoyoypésd yshowp sf PIA 8 uep (Asoa\n Apraqns yom snoueA-asourey{ snouie) sy se tens) oT pezisnyod-seao uayo pu pesysqe esau o7 aoueoduIt azour tal snquAL o} ASuspuA) e IA suy azOYLL “ApsnoHtos oo} sooud BuPfEy Aq suod axp passrur uanyo aay ‘xapduttoo ue ‘uo2euto xpo|q HuIpen yeIA0s a1 508, Pur apg, 2x9 JO a1eqap Big ap 10 ' (quourafeueut zuerogjo pue snynoqe> seep) hi peonpouurar eet plnom wistueypeut snopnoeatur afd ‘quo 12m] aup ui) ee yiog Uy ye2o1d mopeys amncuay 0} wap aM PIP os: ayy Suusstur Ajdims seat ‘asnirouosa umansures Jo suonysodard preptress ‘yt Jo ato sKeaste sean yexp “OU! zouud aouanbasitos @ sy ysour ut sozayamput yuwpUE, HORT YoOIa AG wy 9 oy ato(and later the political) system of socialism, long before the collapse Soviet empire (basically by 1980, when the Solidarity mass movement ‘could emerge and was tolerated for over a year). Let us add: bureaucratic coordination alone cannot give a full explanation to the question why such an obviously irational system, running counter to the basics of any school of economics, ive fr 9 long. While the prophe- cy of von Mises on the decay of the: tem ultimately, proved right, his estimate of the time it would rather than decades) has proven wrong,’ Besides the crucial supportine factors, such as the lend-lease agreement during World War Two, the oil price windfalls of 1973 and 1979, or the lavish exterral financing of the 1980s and many oth cers, several additional circusmtances helped the long survival. First ofall, what {was described in textbooks as a command economy, worked ineality through ‘all-encompassing bargaining. This has bridged the split between perceived / lanned and actual processes, however it has annthilated the ex ante coordina- tion dlaim of the planned economy. While itren counter to ideological claims, ww for corporate and regional interest articulation and inter- “Thereby it was softening up the irationalities and strains ‘was formally a purely hierarchic system of subordina- colorful account of this is the bulky volume by Tamés Baver, 1981). politically orchestrated movements, supported ; played recutringly a major role in attaining a few ‘om the construction of the Dnieper Dam to the con- i * Being » Viennese intellectusl of the fn de siele elore migrating to Chicago, Ludwig von Mises could not even conceive the brutality of oppression and the cruelty of tie Soviet regime. ‘ery few people if any coald have euch Orwallian insights atthe time. Orwell himself benefited from at insights gained from inputs) were though denied, especially in the early idealistic period, but d, Later the tse of closed shops open to certain people, like party bosses or miners, or the Intershop chain in East Germany where off Cally earned Western currency could buy most scarcity products, became parts of normalcy. The large monograph of Attila Sods (1986) shows how ws and money continued to play a major role in the reform Com m fods as well. Lacking these the slowdown of economic perfor- mance, readily observable in countries of consolidated Communist ru such as East Germany, Czechoslovakia or the Soviet Union during the 1980s, became inevitable, threatening the continued existence of not be found in the ealm of ideology been shown to be a fry ery from junction with nationalist and/or imperial ideology. i fied tersitoril expansion an assert needs eculd dominate move mundané such as welfare maximization or civil talist sentiment and military might \der generation, and tend to enhance the image the “good old ‘many analyses is the assumption that transition should have goodies that the ancien régime had promised, and iked, such as an extended welfare system, free provision of services, hhigh living standards and low working hours etc. These claims are still rep- gly in the political platforms of various parties in all post- Communist countries, despite mounting evidence that these aims are either ‘or never produced by the very socialist arrangements (first 1972/1992; more recently Gedeon, 2008, pp: 37-39). cal Sovi Jat major features: The ideology of 1. Promotion of eg 2, Planned and proportionate development, throug! ing growth of GDP; 3, Ex ante regulation of macroeconomic and social processes;™ © This wa the sobjec ofthe previous monograph ofthe present au This ly wrong by the aie works porary co ‘overinterpetation by fe later volume of Mindi (1992) 2617. 380 AOU #20) aru 0} Liswo}s sem saBEHONP SSOMposd ates uO TOAD 0 ‘emyeroiy juourefeueur ssoujsng ap jo sBuIpuy payserse ayy yeadar 0 Sunuiem anew sam iompoud pen ABojouo2y “uoxozqurdso ‘soucyd aoxp ‘uf raoU OF UMMOU are suONBAOUTU] rapIsuCD Yok am Ayedeo aaeaoLnt ‘Moy Jo wrafgord aur azaaas azour axp ‘sarToayn ~BMor snoua#opus 10/pUE eo1sseppoou ur anatiag 2a afour au, ormmaout of ayys0y ApLaraNp st K>eID sneaung Aue yep aatosqo 0} azeiduouuon ssounsnq pue e>x80]OPOS ¥ Sf 3] 'G ‘ayy jo Aouats anyer deur 24, vadoung Jo sui ue Jo suLI0) ut pe LoModueUt Jo sue UT reusuo9 aamosar Uan|f pur ARopoun: ay, qwaudopaaap Jo jana] uaal’ oyp ye ajqeurene oq 1 dovsafun osayeakioe2 pus shes sum atufian qerouad ut uonesouut pue soSumyp onmuukp “sog61 axn Suuamp autpap Krein yarAog nuoneztueiio pure AtjearBojoupay saya “ssnlpo oy ‘tt, 6RGL SE aiet 5e “(DoONpOLd eA Teo AUR axoYM) AUCUIAD sey TuEpn/out so1gitnoo ysxfetoes [ye tt paystx9 siead ZI-g Jo ananb v jag (elapour WIE, Areroduranios ut sieok 9-5 04 poredutos) weds ayy jo sze08 ge Sit UE 2DLI8) {uo powaurar sere 42> ay vem jomad aot pue aysi9M sot PopA ~eAOWuY at, “ORSeF aATEAOWNT Ll UT SAAMos—x JazOod PRUE YO P: ‘s0g, 27 30 taemsxIOA ayy 40} juaULaDeydar v se paonponut ‘3 paroprsuca sem aueqeay, ayy. 38 yeqET] ayy Kq paren ‘spotsod ysrursojax ayp ut oqo you ‘jrauruTUNT ud9q pey a8ueyD 10; yeuprogns sayy pue wisneysou yo SunpIIMS ayy suMUT umDIsés TAPSTe-OUOW ayy IB wPAID*E [Papioae aq jou pinoo autpap axneredwioo tia, Buoy ays ‘ewedjng Jo weaid sayndwoo Biq ayy 40 ‘Areunpy 0} Loo pur ippe Aids ‘sume ap adequaarad /-¢ Jo USUNSAut pn ‘wes ap pollad g61-0¢61 at ‘up Aa -Teatipouyoo Ue) 23 -Te[naas arp ‘uayoy aunes au Aq “saauzd jo uoruny Bum] aig Suymouy asudins ou st s1y,1, ‘selurouDDe 1a juanrffous uonoud pey sexT0s—t Jo woRNOORY~ “Ananoz’ Jo suzy palpaimownpe Indoyy yooz. ath pur ~ Puanypsrrapy sex ent sun re syatitiadya yse1Dos Jo saouanbastio ou snowarayap 2 papueape arour ayy “tL (oansneapea 04 0} Sujoue uree gnovptad) smoyjoy se st japour yang axp Suef fo syrsae a4, (paise88ns ayer -rano pue ssedins, ue80}s pyo ok st) -adns 5; aundojanap weurny pue 8u -reun auy Jo sme euosrachu Jo ramod auaysds jaceur ayy ue) 4491005 ut ‘feraymou poze uaqeus én Suypwo sf yep ‘poopy aig BuppersO90 pue Susssedns, yo sorword =e -Fteach of these can and does pose major problems for the competitiveness of firms. ‘Thisis the’ micro-foundation’ of macroeconomics, the hostility to innovation has been a major source of decay in all existing socialist systems known today. “The comparative performance of split countries (Korea, Germany, for a time ‘Vietnam, but also Hong-Kong and mainland China) leaves no doubt as to the ‘weight of this argument. The downfall ofthe Soviet empire was also intimats- ly elated to its inability to mobilize resources that Would have been needed to Keep pace with a technology-inspired military program, such as Star War'® By the same token socialist lagging behind is inevitably cumulatioe. Cont- rary to some ‘revisionist’ contemporary views, advantageous features of the ‘Socialist syste could not compensate for its less advantageous sides. This could be observed even in the priority defense sector, but also in many other areas and in the subsequent difficulties of conversion to peaceful aims. The ‘tue size of this problem is still being uncovered by the unfinished process of German re-unification,” where despite major injections of official and pri- ‘vale capital flows, the massive presence of Western managerial and admin- istrative skills, cultural commonalities, and a quick integration into a stable monetary frame, catching up virtually came to a halt by 1997. In the past fi teen years we do not know of any major endogenous success story in larger scale in East German industry, banking, or vatious services, let alone uni- versities and research centers. ‘Reform Socialist Models Reforming the system or introducing market socialism instead ofthe classical Soviet ‘model ig defined as an attempt to avoid changes in the construction of the :machinery (the macro-system as a whole), even ata high cost of changing each and every nut and bolt, Reforms are thus always initiated from above and aim atpreserving rather nsforming the logic ofthe socialist systems. In the fol- owing we survey major alternatives to the Soviet model, that emerged in the course of crises, such as in the mid-60s, and as a response to these. Thus tve do sot know cases there enlightenment or insight, rather than political and economic exi- ‘gency would have triggered the introduction of these alternatives. In the fol- Towing we survey the policy alternatives that emerged in various times and countries Contemporary analysts spoke of Totter (waging an arms race to death) in describing the [Reagan strategy af undermining Soviet economic power by the defense program sehe shave of engineering products was stil in the range of ten () percent in Russian exports fn 200. + according tothe decisions ofthe Bundestag the mor tancfors to easter provinces will on linge at leet i 2014 Ths ofcourse, has been setting severe limits to how far market coordination could go, and how relevant money could be as reauringly underseored in the synthetic account by Balazs Himext (2000) 264 Bukharin’s New Economic Policy In this and other subchapters we do not aim at historical accounts, but attempt to distill socialist institutional and policy models from various episodes. There- fore, historians are likely to continue discussing the role of individual person- alities or the exact conditions that triggered given reforms. It is unlikely to be disputed, however, that in 1921, following the uprising of Kronstadt, when the base tured against the Bolsheviks, that Lenin changed sides from among the hardJiners, led by Trotskiy, to the ‘doves’, led by Bukharin. Following his switch the Bolshevik leadership made allowances for ‘petty burgoise ele- ments’, the peasantry and abolished War Communism. The series of improvised ‘measures added up to what all historians and comparative systems’ theorists consider a practical allernative to the original (naive) Marxian ideas, ones that negate the role of market coordination. This practice was in existence in 1921-1928 in Russia, thus empirical evidence can back up the theory. Let us survey the main features/stylized facts of the emerging first market socialist system.” 1. Agriculture has been de-collectivized, though by no means privatized. One of the first decrees following the Bolshevik takeover has been the famous Dekret 0 Zenl’e, the Decree on Land, that has played a symbolic, even ritual role, efining for common people and party-folk alike what made Soviet Russia different from the rest of the world. Relying on the long standing, tradition of ‘communal land ownership, only partially abolished by the land reforms of the 1860s and ‘90s, the Decree began with the programmatic sentence: Land belongs to the people” While collective farms, created forcibly by the Bolsheviks in 1918-1920 were abolished, private property was never restore. Only usus fructus had been transferred to the peasants, who accounted for over 90 per cent of the Soviet population. ‘There wes no possibility of trading Jand, thus no possiblity of concentration ofownership and emergence of scale econornies, which is vitally important to some (though by no means all) sectors of agricultural production. Capital accumulation was severely restrained through state of most prices and the need to pay taxes in Kind (prodnalog) th le room for major accumulation of wealth. Meanwhile, the incentives to produce, and thereby to overcome imminent famine, did emerge. The state tended to con- ‘ol machine purchases, and from 1924 on procurement prices served indus trial accumulation, not the enrichment of successful farmers. Ths sportane- wed through the backdoor, and the idea of « society without money finally abandoned. » This survey is based on Nove (1992, pp. 39-158}; Carr andl Davies (I Brus (1972) snd Baleerowies (1995, pp. 18-1) plain why land coald Seamnuely (1974)wt anu aided ded ‘siepqyo & Aoropen) soonpoad Ayad 4a, suas aed gt som iad cg Joao jo posodwias Anuneo v yo Aine: puw Aquesved senardiuos © ayp Suowe jou ssodutt jo ss01 stouy dlaverpaunu yay ose sassoq Atsed pure AOeromeaINg ‘seydiound jo uosean se ga at Buurepop uonisoddo Sup yj ayy yan osin0 Lan aL, eAIqUIsaIUOD AjjeaneDneama, pure ‘amyrpuadxo warms pur sipnsa, ase pen ‘uSror0y zoa0 onuoo og (Goyod gaN amua ayy aquDsep 0} past EL] wwi0} 9) torssooue9 Zresoduny v pautaap sem woRdo ay ‘Foqomou oj wariat | ‘euroasaao aq Aqpenper8 pyro ayy] ayp pur sjesayet us aiepaurionut ensnput jo “poo Jo afeoyg “3]qna axa jo aun pue etsstry 10140g Jo uoneTOst feuopeMLANET ax se Tem pue sem Aq pajeas sypauayyoq fo Suawo2iond 04 aroma soeqMOD pue jexides ‘aBpapao 0-31 pino> sjorquoo pu aifpa,mouy ‘ue aug jo aucen 3 snotnavd pun siouBtadof oj suorssoou09 Bupa yo aonaexd yp 9p S076T 948 40 21 fq ysep todo ue 0} ainoo ancy eisemy ur jeatasns Aep-oFk pum aoumiaao8 Are} 208 1 fourclott aug Jo ustjepos, axp ysuyede Ysep2eq [eo!oqoapt ayy, ‘pasnpoid gain USERS Jo ad 24) uonsonb 0; posters Ajayeipaunen sistyeXoy Ayed uoseal Aina sit 04. stews au Aq paruosasdan warzowy pure Aotog uIOUED MANY “PDOs WSHTEID08 P9zATEN ered mo sper ou ase HANGIN J ew 24H Uo seas eissm 30 syed paronbuco Apeare ayy Ur spiepueys Surzosdunt an UO ‘Pevps me n paptenofiun st yy yey Aqoureu pists atanu Jo aauaiouto axthe large-scale industrial proletariat, Therefore they sat introduce a modicum of rationality. By contrast, ideolog motivated revolutionary leaders saw it the other way around. The confi hhad been builtin, from the very outset, due to the clash of two conflicting, logic: that of the market and that of bureaucracy (ideology). 6. The outcome of the clash of too logies could hardly be questionable as long as the Bolsheviks managed to consolidate their power, both within the borders of what remained of the Tsarist Empire and internationally. The latter fol- lowed the separate deal with Germany in Rapallo in 1922. After the econo- ‘War One) took over. With the benefit of hindsight, the change had hardly been coincidental, atributable to ideological or per~ sonal faciors, of the need to overcome backwardness (usually invoked in ‘contemporary and later political science and history ‘Once the almighty, uncontested bureaucratic-poli established, its need to switch ofall possible feedback or forces of protest could dominate other considerations." Once the priorities of industrializa~ ind military build-up had been established, the death sentence of NEP ‘was passed, Similar tums in polices produced similar outcomes in Hungary jn 1955 and 1959, in Poland in the “60s and the “70s, as well as in Romania in the 1970s, ‘More importantly, one does not need these priorities to get market reforms rolled back. As has been seen in the economic reforms of Poland in the 19805, and of Czechoslovakia in the 1967-1971 period, once the uncontested power of the Comonunist party emerges, and the power of bureaucracy by and large con- solidated, reversion of market i i political démarche or the lack ence, which will be discussed Economie Policy has not proven to be that major ideological re-assessment market socialiss later attributed to it (Szamuely, 1974; Brus, 1972). lt never acquired any degree of ideological approval, a normative dimension other than a necessary step back, a tactical concession Instead, what Jénos Kornai (1992, chapter 15.3) later termed as ‘the genetic program of the system’ prevailed. ‘The lesson for the general azgument thus is, that the Russian market social- {st experiment was though workable, but it produced an unstable system. Tt hhas proven to be unable 10 reproduce itself Thus stability, a core component of Given that the same story has been seplicated soveral times under differen historical condi- tions, such as in Hungary in the post-1972 perio, or the postl958 and post 1989 pe the syslem ishard to overlook, ad the coincidental explanations remain of hte judge the intentions of Nikolai Bokharin with retrospect: what we know of ather reform Communists, ike Ime Nagy or Lubomir Srougal, os Wladyslaw Gumnlk, doesnot give tach ground for hope 268 any economic order/ model was missing. It ceased to exist due to the inter- nal contradictions of the model, not because of external intervention or Decause of the spillover of the Great Depression. The Yugoslav Modek: Decentralization and Self-Management A second market socialist model, combining plan and market, that came in existence for a long period of time**is that of the former Yugoslavia. Similar to the NEP in Russia the model of Yugoslav Communists never related in any form to the debates on market socialism, conducted with great fervor in the 1920-1948 period in the Western academe. Though the latter have produced some interesting theoretical and methodological i these never indlu- enced policy-makers in Belgrade to any significant degree.” In fact, Marshall Tito asa fully fledged Communist, acknowiedged Soviet practice as the only feasible, only possible, only acceptable model that each countzy needs to emu late, While this insight followed from the over-centralized and uniform nat of Cominform/Cominter, the international movement of Communist parties, actually a side-condition for anybody to survive the great purges of 1937-1938, property, attempts to organize collective farms, persecution of non-Commu- nists, limitation of civil society, brutal oppressions of dissidents and support- ive options. Oppressions were extended to Croat and Hungarian nationalities (collective responsibility principles). These measures were hardly extraordinary if seen in the context of contemporary Soviet domestic practices, or later the Bast European experience. However, in 1945-1947 Stalin felt still constrained by Yalta. He was hoping for consolidating the government posi- tion of Comm ties in the West of Europe. Thus the idea of ‘people's 1e Sovietization pol jt a right wing ‘rev mathematical methods fr planning and many others.