Trajectories of Economic Transformations. Lessons from 2004 for 2024 and Beyond. Valery Kushlin

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СКАЧАТЬ its promises, and becomes an instrument for private profit at the expense of most of the population. At the same time, only a few are becoming fantastically rich, and most of the population is sliding deeper into the abyss of poverty, and the cynicism in relations with the state and the law is greater than it was a decade ago.

      Many hoped that privatization itself, no matter how it was done, would create a demand for an institutional infrastructure that would conform to the market economy and the law, when the all-powerful hand of the hapless state would be replaced by the invisible hand of the market. However, there is neither economic theory nor historical precedent to support such hopes. Only the middle class in the process of its development creates a need for such institutions, and in the last decade there has been the destruction of the middle class in Russia and the creation of a new, more concentrated oligarchy that is not interested in the rule of law, healthy competition, and a fair bankruptcy regime.

      The focus on the redistribution of property has diverted attention from the creation of new businesses. The way privatization was carried out did not pay enough attention to the management of firms and did not encourage the creation of new enterprises.”

      The authors criticize the prevailing views on the role of the priority of anti-inflationary policy. “Attempts to strengthen the price mechanism by suppressing inflation,” they write, “may have the opposite effect. In addition, there is a view that if there are barriers to lower wages and prices, then moderate inflation is even desirable. Since transition economies are particularly in need of adjustment, the ‘optimal’ level of inflation may be higher than in other economies. The experience of the countries of Eastern and Central Europe shows that it was not the countries with the lowest inflation that developed the fastest… Wherever inflationary paranoia has contributed to the clampdown, macroeconomic policy appears to have played a significant role in the economic downturn.”

      Some of these estimates, such as the arguments about inflation, can probably be argued with to some extent. However, in our opinion, it is inadmissible to consider the multilateral critical analysis of the above-mentioned work as some insignificant circumstance that allows it to be ignored. For my part, I tried to convey this position to the Russian public and the government as persistently as possible, but without a proper reaction32.

      In addition, this material contains not only criticism, but also practical constructive conclusions and rational proposals. Thus, the authors believe that at the current stage in Russia, “the following macroeconomic strategies are needed:

      – recognition that the country needs a growth strategy and should not focus only on financial stabilization;

      – acknowledging that the current large-scale non-payment of taxes (as well as other direct and indirect obligations to the state) provides a unique opportunity to correct some of the mistakes of the past decade;

      – recognition of the need to restructure the economy from top to bottom, through the creation of medium-sized and small enterprises that emerge anew or by spun-off from large ones;

      – recognition of the need to build a resilient social democracy that can revive social capital.”

      Nicholas Stern, the World Bank’s chief economist, has also published a rather critical assessment of the key stages of Russia’s reforms. Here are excerpts from his article: “The reformers ‘gifted’ ownership and control over enterprises to ‘their people’, insiders – nomenclature directors, who were the real owners of the enterprises. They also managed to forge relationships with a new class of oligarchs who made their fortunes either in the final years of the old regime or during the period of inflation that became a feature of the early years of the transition. The oligarchs have taken over the most lucrative sectors of the Russian economy. The reformers depended on the support of the oligarchs and, using a highly dubious scheme of mortgage auctions, transferred additional state assets to these tycoons. At the end of the article, the author noted that an important task of his organization (the World Bank) “is to help Russia” and that “today Russia has a chance to start all over again.”33

      Post-Default Economic Shifts

      Analyzing the course of economic transformations in Russia, it is impossible not to single out the change in economic dynamics that took place after 1998. Since 1999, Russia has switched from negative parameters of GDP change to the dynamics of economic growth (Table 4.2). Surprisingly, the default of August 1998 helped to mobilize our economy.

      The economic growth rate in 2000 was particularly significant due to the sharp fall of the ruble against the dollar after the default and a significant improvement in the foreign economic situation for Russian exports in the commodity markets, especially oil and gas, and a few other favorable circumstances. Economic growth continued in 2001—2004.

      In December 1998, inflation was recorded at 84% and in 1999 it was 36%, but in 2000 and 2001 the consumer price index fell to 20%. There was a steady increase in gold and foreign exchange reserves in the Central Bank of Russia: if in 1999 they were at the level of $12.5 billion, by the end of 2000 – $28 billion, then at the beginning of 2003 – $50 billion, and in mid-2004 – $65 billion.

      In Table 4.2, along with the data on macroeconomic indicators for the favorable years (1999—2003), a comparison of the indicators of 2003 and pre-reform 1990 is given (see the last column of the table). As we can see, the growth indicators achieved over the past 5 years are far from compensating for the recessions that were allowed during the previous period of reforms. In 2003, GDP was (in comparable prices) lower. 27% more than in the base year of 1990, industrial production by 33%, and agricultural products by 28%.

      The situation is particularly destructive in mechanical engineering (-38% of the 1990 level) and in light industry (-85%). But the fuel and energy sectors, some managers of which are inclined to present their activities as “saving” for Russia, also have nothing to be proud of, because the decline in them was significant (-13%), but at the same time there was a significant increase in industrial and production personnel. Thus, in the first ten years of reforms, electricity production decreased by one quarter, and the number of personnel in the industry increased by 1.5 times. The volume of oil production amounted to 60% of the 1990 level, while the number of employees increased by 1.9 times.

      It should be noted that investments in fixed assets remain at an extremely low level. Their volume in 2001 was 3 times lower than in the pre-reform year of 1990.

      In 2003, real disposable incomes were almost one-third lower than in the pre-reform year. Moreover, according to this indicator, the gains achieved in 2000 and 2001 did not compensate for the losses incurred in the year of default. As of 2001, the share of the population with incomes below the subsistence level exceeded 30%.

      Thus, the economic results of the entire past period, which is identified with radical reforms, do not look satisfactory even against the background of the rather favorable years of 1999—2003. Therefore, doubts that the current economic course has the necessary potential to reach the boundaries of the people’s well-being and the development of production soon, which would become compensators for the previously incurred losses in the economy, are more than justified.

      The high levels of 2000 cannot be replicated or sustained, and economic growth rates in 2001 and 2002 were significantly lower. Further trends were in fact determined СКАЧАТЬ