THE FIRST TEN YEARS OF ECONOMIC REFORM IN POST-SOVIET
RUSSIA: OUTCOMES AND POLICY ALTERNATIVES
by
Dmitri Chepelev
B.A. , Kiev State University of Arts and Culture, 1986

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS
in
INTERNATIONAL STUDIES

© Dmitri Chepelev, 2002
THE UNIVERSITY OF NORTHERN BRITISH COLUMBIA
August2002

UNIVERSITY OF NORTHERN
BRITISH COLUMBIA
LISRARY
Prince George, BC

All rights reserved. This work may not be
reproduced in whole or in part, by photocopy
or other means, without the permission of the author.

ABSTRACT
Russia' s renewal since the collapse of communism has proved extraordinarily
difficult and uneven. While the political dimension of post-Soviet reform has for the
most part succeeded, the economic aspect of the reform has failed . This project argues
that the radical economic reform carried out by the Yeltsin government was doomed to
failure, because the design of the reform was unsuitable, and its implementation
unsatisfactory. The central thesis of this project is that Russia had no institutional
preparation for a rapid transition to a market economy of liberal orientation; a wrong
policy choice has been the main reason for the unsuccessful outcome of Russian
economic reform.
To analyze the issue ofRussian post-communist reform and its outcomes, this
project uses the case study method. The paper critiques the "shock therapy" approach as
a strategy of economic transformation and suggests an alternative set of policy options
based on gradualism and social-democratic values, arguing that the latter strategy holds a
better prospect of generating sustainable economic growth.

II

TABLE OF CONTENTS
Abstract
Table of contents

lll

List of tables

lV

List of figures

v

1. Introduction

1

2. Economic reform and its outcomes

4

11

2.1. Evolution of economic reform

5

2.2. Elements of economic reform: policies and their direct effects

10

2.2.1. Macroeconomic stabilization

12

2.2.2. Abolition of price controls and liberalization oftrade

14

2.2.3. Privatization

15

2.3. Long-term outcomes

20

2.3.1. Economic outcomes

20

2.3.2. Social outcomes

25

a) Decline in the quality of health care and education

25

b) Social costs ofunemployment

25

c) Poverty and inequality

26

2.3.3. Political outcomes

28

3. Why the failure?

31

3 .1. Radicalism

31

3 .2. A wrong choice of developmental strategy

33

3.3. Lack of mass support

37

4. An alternative developmental strategy

39

4.1. Alternatives: then and now

39

4.2. The role ofthe state

40

4.3. Transition to an alternative developmental strategy

44

4.4. Policy options

48

4.4.1. Short-term

50

4.4.2. Medium-term

53

4.4.3. Long-term

54

5. Conclusion

56

6. Bibliography

58

lll

p, !J q

LIST OF TABLES
Table 1

Inflation, 1992-1998

14

Table 2

General indicators ofRussia' s performance, 1993-1997

21

Table 3

Selected economic and social indicators, 1994-1999

22

Table 4

Estimates ofRussian poverty rates

27

Table 5

Changes in household savings

27

Table 6

The role of the state: G-7 countries

43

Table 7

Policy action matrix

56

IV

LIST OF FIGURES
Figure 1

Privatization vs. Performance in Russian industry

16

Figure 2

Annual dynamics of growth of state debt accumulation

23

Figure 3

The continuum representing different mixed economy
arrangements

34

v

{The} reform secured macroeconomic change, name ~y the destruction of the old economy. It
was a wildly painful break, surg ically crude, with the rusty grinding sound ofpieces of old
parts and mechanisms being ripped out together with the flesh ... .[That economy's} make-up
dictated precisely that sort of a break: over the knee.
-Boris Yeltsin 1

Sudden action is f or those who do not themselves suffer, do not think before acting,
who proceed by f ormula, not fact. Only if time is allowed can there be time fo r
thought- the thought that is attuned to pragmatic result and not to primitive ideology.
-John Galbraith 2

1. Introduction
It appears that most observers agree on the outcomes of the first decade of economic
reform in post-Soviet Russia, outcomes that could be rather effectively summarized by a
single word - failure. The above results can also be easily summarized in one sentence:
"during the twentieth century, no country in the world suffered in peacetime such an
economic disaster as did Russia in the 1990s." 3 The economic and social crisis went far
beyond any reasonable expectations in regard to the levels of anticipated transitional
recession. What is much less clear from the diverse literature on Russian transition is
what might have been the causes explaining the above results, and what lessons are to be
drawn from the experience.
As Job 4 shows, two models of explanation emerge from the mainstream economic
analysis of post-communist Russia. According to the first way of explaining the
situation, no extraordinary events have happened in the country; the road to the market

1

Boris Yeltsin as cited in Richard Sakwa, Russian Politics and Society (London : Routledge, 1996) 23 1.
John Galbraith as cited in Peter Nolan, China ' s Rise. Russia's Fall : Politics, Economics and Planning in the
Transition from Stalinism (New York: St. Martin ·s Press, 1995) 57.
3
Oleg Bogomolov, " Russia Facing the Challenges of the Twenty-First Century," lntemational Social Science Joumal,
Vol. 52 Issue 163 (March 2000): 95 .
4
Sebastian Job, "Globalizing Russia? The Neoliberal/Nationalist Two-Step,'' '111ird World Quarterly, Vol 22, N.
6(2001 ) 931-947.
2

goes naturally through economic depression and social instability, difficulties that are
only temporary "potholes" on the road to the market. In other words, within this
"minimizing theory" framework, both economic and social costs are seen as a necessary
price to pay for the opportunity of switching to the free market economic arrangement;
the burdens of the reforms are to be borne for the sake of inevitable success.
Another theory explaining the difficulties of the transition is that ofRussian
"exceptionality" or backwardness. According to this school of thought, it is historical,
cultural, and national peculiarities that explain the failure of economic reform in the
Russian context; it was the lack of democratic tradition, the lack of understanding of the
market's basics, the lack of an appropriate work ethic, the lack of the rule of the law, etc.,
that determined the post-Soviet failure. This emphasis on Russian exceptionalism,
although having some merit, can nonetheless be seen for the most part as an effort to
avoid any serious questioning ofthe nee-liberal formula for reform.5
This essay will argue that the failure of Russian economic reform cannot be
adequately explained by either of the above theories; instead, it is the structural
adjustment policies within the larger framework of the nee-liberal development strategy
adopted by the Russian government in 1991-1992 that lie at the core of the country ' s
unprecedented economic and social decline. Another major separate factor in Russia' s
fall has been the country' s incompetent and often self-interested political elite and its
uncritical and doctrinaire adoption of liberal policies combined with its surrender to the
pressures from oligarchic groups.6
Were there any feasible alternatives to the radical economic model adopted by the

5

Job 932.
Sergey Braguinsky and Grigory Yavlinsky, Incentives and Institutions: the Transition to a Market Economy in Russia
(Princeton: Princeton University Press, 2000) 200.
2
6

Russian administration in 1992? Another argument advanced in this paper is that it is not
the neo-liberal, but the social-democratic path that the Russian administration should
have chosen at that time. It would have been easier to move from state socialism to a
socially-oriented mixed economy - most elements of institutional infrastructure of social
democracy were already in place; there was no need to dismantle them. 7
Finally, is there any place for an alternative strategy for contemporary Russia?
While the social-democratic alternative remains a strategy that would be the most
beneficial to the vast majority ofthe country' s population, both the institutional capacity
and the economic ability to support a welfare state have been seriously weakened. Thus,
at this stage, a welfare state with full employment with free health care and education is
simply unaffordable and out of reach. This does not mean, however, that no elements of
a progressive economic program of modernization and development can be adopted at
this time. If the recent trends of economic and social degradation are to be overcome and
reversed, it is essential that efforts are made to develop and promote a reasonable
economic strategy appropriate to Russian conditions, a strategy that would produce
growth without disrupting social stability. This strategy, while accepting the market
system as the best way of organizing the production of goods and services, will aim to
use state institutions to ensure that the benefits of this system are distributed in a way that
ensures the maximum benefit for all groups of society. This progressive strategy of
social-democratic orientation would call for finding a new, country-specific balance
between the free market and state regulation, and would call for the state becoming more
active, efficient, and predictable while less bureaucratic.
To analyze the issue of the Russian post-communist reform and its outcomes, this
7

Bertram Silverman and Murray Yanowich, New Rich, New Poor, New Russia (London: M.E. Sharpe, 2000) 25.

3

project uses the case study method and more specifically a process study research design
in terms of Louise White' s classification of case studies;8 this type of research design is
commonly used in examining public policies.9 The case study investigates the following
two propositions: (1) an inappropriate economic development strategy has been adopted
by the Russian government which has resulted in economic and social decline on a large
scale; (2) the country could have done better had it chosen to pursue socially oriented,
incremental market reforms of socio-democratic orientation.
The first part of this project will examine the neoliberal economic reform adopted
by the Russian government in 1991-1992, focusing on implemented policies and their
immediate effects and long-term outcomes. The second part will suggest and analyze the
reasons for the failure of post-communist reform. The final section will discuss the
elements of a transition to a socially oriented market economy and offer some alternative
policy proposals.
2. Economic reform and its outcomes
Perhaps the best way to approach the task of analyzing Russian post-communist reform
would be to look at the process in a historical perspective, starting with the policies
introduced by the Gorbachev administration in 1986 followed by the strategy adopted in
1991 by the Russian government led by Yeltsin. In this section we will also consider the
policies implemented in 1991-1992 within the framework of radical economic reform,
and their immediate and long-term outcomes.

8

Louise G. White, Political Analysis: Technique and Practice (Fort Worth : Harcourt Brace College Publishers, 1999)
101-121.
9
White 118.

4

2.1. Evolution of economic reform
Soviet socialism never found an effective economic policy; the Soviet system stormed
into the industrial age but failed to respond to the challenges of post-industrialism. 10 As a
result, starting in the late 1960s, the Soviet Union had been increasingly lagging behind
the leading Western countries in regard to all the major economic indicators; by the mid1980s, it became obvious that the Soviet administrative-command system was no longer
capable of producing the results necessary for adequate economic development.'' The
Soviet centrally-planned economy failed for three major reasons: central planning
required an enormous amount of information, which was not always available and was
often out of date; a supply-dominated economy had a built-in tendency to supply what the
centre wanted to supply, rather than what consumers would prefer; and finally, the
operation of the planned economic system did not reflect relative scarcities, making
optimum economic decision-making impossible. 12 Reform ofthe country's economic
institutions was therefore both necessary and inevitable, even though the situation in the
early and mid-1980s can best be described as that of stagnation rather than of economic
decline. 13
The reforms instituted by Gorbachev in the late 1980s could be viewed as a
response to the crisis of an administrative-command economy managed from the centre.
These reforms could be summarized as follows : the growth and legitimating of market
transactions; an increase in private and cooperative trade; a greater authority given to
production units; adoption of the accounting principle of khozraschet whereby units had

10

Richard Sakwa, Russian Politics and Society (London : Routledge, 1996) 231 .
Anders As lund, How Russia Became a Market Economy, (Washington, D. C.: The Brookings Institution, 1995) 4150.
12
David Lane, The Rise and Fall of State Socialism (Cambridge: Policy Press, 1996) 101.
13
Nolan 40, 303, 304; Marie Lavigne, The Economics of Transition: From Socialist Economy to Market Economy (St.
Martin' s Press: NewYork, 1999) 45 .
11

5

to balance their income and expenditure; and the reduction of the central bureaucracy
while giving greater autonomy to the republics.14 The new economic model proposed by
Gorbachev and his advisers not only rejected the bureaucratic command structure in
favour of the market; it also abandoned the assumption that state ownership was the only
acceptable form of common ownership, adding new forms of cooperative and individual
ownership.
How much should have been planned by the state, and how much left to the
market, according to Gorbachev' s economic paradigm? While Gorbachev and his
administration rejected the extreme ideas of nee-liberal economics, including proposals
to close down all loss-making farms immediately and let prices rise until supply equals
demand, he did not commit himself to the continuation of direct administration of
production and investment by the state.15 Thus, he pointed out that the state management
... will be freed from the functions of direct interference in the operational administration
of economic units and concentrated on the establishment of general normative frameworks
and conditions for their activity. Its natural spheres will remain: the key directions of
scientific and technical progress; the infrastructure; the defense of the environment;
securing that people are adequately supported socially; the financial system, including its
instruments of taxation; and economic legislation, including legislation against monopoly
and its negative consequences for society. 16

It is evident that Gorbachev and the moderate reformers around him were aiming at a

democratic, politically pluralist form of social democracy with a mixed economy, a J
strategy that has had a reasonable potential for producing growth without disrupting
social stability. However, in the Russia ofthe late 1980s- early 1990s, there was another
political power centre: most of the ruling party-state elite of the Russian Federation,
influenced by the radical version of liberal economic theory and often motivated by their
desire to achieve the prosperity of its Western counterparts, became the centre of a

14

15
16

Lane 107.
Davies, R.W. , "Gorbachev' s Socialism in Historical Perspective," New Left Review 179 ( 1990) 14.
Davies 15 .

6

coalition led by Yeltsin.17
Radical reformists became the chief beneficiaries of the August 1991 coup
attempt; after this, Y eltsin and his group emerged with increased legitimacy and with
almost no opposition. Shortly thereafter, the Yeltsin administration rejected an economic
platform that favored an industrial policy and which was designed by an alternative group
of his advisers along the lines of the "Asian economic model." 18 Instead, Y eltsin made
his choice in favour of an economic strategy put forward by radical reformers (the
Burbuilis-Gaidar group), whose Western inspiration was the Thatcher-Reagan revolution
and who favored the almost complete dismantling of government economic controls.19
While at least twelve alternative programs for the reform of the Soviet economy were
advanced by both Russian and Western economists between 1989 and 1991/0 the final
choice was made in the favour of radical "economic medicine" -that of shock therapy.
The discussion of the choices made by the Russian administration would not be
complete without acknowledging the enormous challenges the reformers were facing.
The task was no less than that of replacing the disintegrating state-controlled economy
with a modern mixed economy. There was no relevant precedent, theory, or experience
that could help in guiding the reformers through this uncharted territory 21 - and yet they
had to enter it. Another important factor that influenced the choice of reform strategy
was the assumed political threat of a return to communism and to central planning in
particular.22 The collapse of both the USSR and the Communist Party was seen as a

17

David Kotz and Fred Weir, Revolution From Above: The Demise of the Soviet System (New York: Routledge,
1997).
18
Jerry Hough, The Logic of Economic Reform in Russia (Washington, D.C.: Brookings Institution Press, 2001) 131.
19
Peter Reddaway and Dmitri Glinski, The Tragedy of Russia' s Reforms: Market Bolshevism Against Democracy
(Washington, D .C. : United States Institute ofPeace Press, 2001) 269.
20
Reddaway and Glinski 269.
21
Gail W. Lapidus, The New Russia: Troubled Transformation (Boulder: Westview Press, 1995) 39.
22
Peter Rutland, "The Rocky Road from Plan to Market", in Stephen White et al., eds., Developments in Russian
Politics, 4th ed. (Durham: Duke University Press, 1997) 150.

7

...

unique window of opportunity to introduce radical economic reform.23 Many reformers
believed that there was no real alternative to a radical strategy of economic
transformation. Thus, Aslund, who served as an economic advisor to the Russian
government at the time, writes:
Under the circumstances prevailing in Russia in late 1991, it would have been lethal to
hesitate or move slowly .... the real implication of compromise would be to surrender power
to the old antidemocratic establishment. ... the more radical the liberalization, the sooner
markets will be cleansed of distortions and corruption? 4

While some observers25 argued that the radical approach to economic reform was the only
option in late 1991, and saw shock therapy as the only bridge from communism to
capitalism, others26 suggested that there were alternatives to radical reform strategy at that
time, and that shock therapy was not the most feasible approach to the transitional
challenge. Thus, according to Reddaway and Glinski,
... we interpret shock therapy ... as a politically conservative counter-reform designed ... to weaken
the potential for the continuation of the democratic revolution .... Before the beginning of shock
therapy, Yeltsin and his associates possessed a number of alternative possibilities for leading
Russian society out of its historical impasse. The effect of shock therapy has been to complicate or
even to foreclose those altematives.27

On a theoretical level, the merits of radical economic reform and shock therapy as a
strategy of economic transformation were extensively debated by two prominent
specialists on Soviet and East European economics, Brada and Murrell/8 the two
contrasting perspectives were further assessed in detail by Hall and Elliot.29
While the debate between the proponents and opponents of the shock therapy
approach is an ongoing one, the analysis presented in this project is sympathetic to the
23

Rutland 149.
AslWld 10-11.
25
See, for example, AslWld, Sachs, Brady.
26
See, for example, Nolan, Stiglitz, Silverman and Yanowitch.
27
Reddaway and Glinski 256, 308.
28
Josef C. Brada, "The Transformation from Communism to Capitalism: How Far? How Fast?" Post-Soviet Affairs
( 1993/9/2): 87-11 0; Peter Murrell, "What is Shock Thempy? What Did it Do in Poland and Russia?" Post-Soviet
Affairs (1993/9/2): 111-140.
29
Thomas W. Hall and John E. Elliot, "Poland and Russia One Decade After Shock Therapy", Journal of Economic
Issues (JWle 1999): 305-315.
24

8

perspective of those30 advocating a gradualist, evolutionary approach with a socialdemocratic orientation. The following argument put forward by the opponents of radical
economic reform seems to be a valid one: in the autumn of 1991, six years since the
democratization process had been initiated by Gorbachev, and in a situation where both
the USSR and the Communist Party of the Soviet Union had collapsed, the real choice for
the Russian administration and the society as a whole was not about whether or not to
move from socialism to capitalism - this choice had already been made - but rather about
how to move to the market_3 1 It could be reasonably argued that in late 1991, while the

policy choices were indeed considerably constrained by the scope of the challenges the
reformers were facing, these choices nevertheless were not limited to radical economic
strategy alone.
Despite the alternatives available, on October 28, 1991, a speech was made by
Yeltsin where the main theme was his commitment to radical economic reform,
represented by a strategy with the basic elements of stabilization, liberalization, and
privatization, also known as the "Washington consensus" package.32 According to
Reddaway and Glinski, " ... [f]or the Russian parliament, unsophisticated in economics,
the confident tone and the reassuring promises [ofthe speech] relieved some oftheir
main worries," 33 and on November 1, 1991, the parliament voted to grant Yeltsin
additional powers to carry out the reforms. Two months later, Russia' s road to the
market began with a vigorous "big bang," better known as the "shock therapy" approach.

30

See, for example, Cohen and Schwartz, Silverman and Yanowitch, Reddaway and Glinski, Job, and Bogomolov.
Reddaway and Glinski 243.
32
Braguinsky and Yavlinsky 106.
33
Reddaway and Glinski 279.
31

9

2. 2. Elements of economic reform: policies and their direct effects
At a meeting ofthe G-7 in Houston in 1990, participants requested that the IMF, the
World Bank, and the Organization for Economic Co-operation and Development carry
out a study of the Soviet economy and to outline recommendations for reforms. A
number of Soviet economic and financial agencies also worked on the project. The
report' s proposed radical-liberal model of market reform had been rejected by
Gorbachev' s administration but later was adopted as a guide for the transformation of the
Russian economy by Yeltsin's administration despite warnings about potentially
dangerous consequences of the "shock therapy" approach.34 The essence of the reform
can be best described by referring to its three main components: macroeconomic
stabilization; abolition of price controls and liberalization of domestic and foreign trade;
and privatization.35
Macroeconomic stabilization implied a package of measures aimed at the
establishment of a stable, convertible currency combined with policies to control
inflation. These measures and policies included tight monetary and credit policy,
attracting international financing by utilizing foreign credit, making cuts in government
spending, balancing the government budget, and re-organizing the financial system
through reform of the tax and banking systems.36
The second element of radical economic reform, liberalization, included abolition
of price controls through the elimination of subsidies to consumer and producer goods,
services, and labour. 37 While a few basic commodities were excluded from price
liberalization, 90 percent of consumer prices and 80 percent of producer prices were freed
~

m
98.
Braguinsky and Yavlinsky 106-108.
36
Sakwa 235.
37
Aslund 140.
35

10

immediately after the policy of price liberalization took effect on January 2, 1992. 38 The
reformers were apparently convinced that a swift, comprehensive liberalization of prices
was a necessary pre-condition for the success of the transition.39 In addition to price
liberalization, the second component ofthe economic reform package included
liberalization of foreign trade through the lifting of export and import licenses and
quantative restrictions, lowering of tariffs, devaluation of domestic currency and making
it convertible on the current account. All enterprises were given the freedom to engage in
foreign trade.40 Liberalization of foreign trade took effect along with the liberalization of
domestic trade, which included the freedom to establish enterprises, to engage in trade
and production, and to determine prices on goods and services offered to consumer. 41
The final element of the radical economic reform was that of the privatization of
the state-owned enterprises. The purpose of privatization was to transform enterprises
into self-financing units, which could then be regulated by financial, fiscal and monetary
means that would replace the administrative-command methods of control. It was
assumed that the private sector of the economy in most cases would immediately become
more efficient than the state-owned sector.42
Small and medium-sized enterprises were privatized either through tender offers
or auction; large enterprises initially were meant to be privatized through voucher
schemes, though exceptions were made to this rule, including the "loans-for-shares"
privatization scheme discussed later. Privatization was the key part of the radical
structural reform package and it was carried out at high speed. According to Richard

38

Aslund 139.
Aslund 139.
40
Aslund 145-149
41
Aslund 139.
42
David Lane, Russia in Transition: Politics, Privatization and Inequality (London and New York: Longman, 1995)
145-157.
39

11

Layard, advisor to the Russian government, the privatization program produced the
"fastest rate of privatization in human history, in which in one month the Russian
government is privatizing more than Mrs. Thatcher did in ten years." 43 Already by the
end of 1994, 70 percent of state property had been transferred to private hands and 70
percent of all workers were working in the private sector. 44
The above strategy, proposed within the framework of the radical structural
reform package, could be briefly summarized as follows : cut government expenditures
and eliminate the budget deficit, raise all prices to free-market levels, privatize most state
enterprises, and economic growth will follow. Let us now consider some direct
macroeconomic effects of the structural adjustment strategy adopted in Russia in 1991 45 .

2.2.1. Macroeconomic stabilization
As we have seen, the policies of macroeconomic stabilization involved a budget deficit
reduction and strict limitations on credit and money supply. The inflationary spiral had
to be kept under control, the current account balance had to be improved, and the
government deficit had to be eliminated. If growth was to be resumed, it was important
at the time to mobilize domestic savings in order to be able to pursue developmentoriented policies. 46
The macroeconomic stabilization program had some positive effects. Direct
subsidies from the government to enterprises were abolished, and the government was
largely able to keep its budget deficit and the money supply under control. Much more

43

Richard Layard as cited in Nolan, 276; emphasis in original.
Nolan 276.
45
Although the focus of the following section primarily is on the immediate and medium-term macroeconomic effects,
occasionally it will be necessary to refer to a longer timeframe of up to seven years.
46
Luiz Carlos Pereira, Jose M. Maravall and Adam Przeworski, Economic Reforms in New Democratics: A SocialDemocratic Approach. (Cambridge: Cambridge University Press, 1993 ) 8.
44

12

attention was now being paid by the managers of newly privatized enterprises to the costs
and the quality of supplies, and to the marketing of products and services.47 However, the
adopted measures also produced a number of negative effects actually hindering the
transition to a market economy in very important respects. Thus, the share of lossmaking firms increased from about 7 percent in 1992 to almost 50 percent in 1997. With
that, a large number of unprofitable enterprises have stopped paying both taxes and
wages.48 Another effect ofthe Yeltsin-IMF program was money becoming so scarce that
more than half of the economic transactions had to be conducted through barter.
According to Braginsky and Yavlinsky' s analysis, the share of non-monetary settlements
rose from 6 percent in 1992 to 41 percent during the first half of 1997; another estimate
suggests that share could have been as high as 70 percent by the end of 1997.49 The main
result of the above once again has been a sharp drop in tax revenue.
Macroeconomic stabilization has also failed in its anti-inflationary aspect. With
the initiation of the policy of structural adjustment, the official rate of the rouble 50 to the
dollar began to fall dramatically: if by the summer of 1991 , the rate was approximately
25 roubles to the dollar, by December 1992 it had reached 400 roubles to the dollar and
by October of 1994, it was 3,926 roubles to a dollar. It follows that anyone- and that
includes the majority of country' s population - who held their savings in roubles in 1991
had the value of their savings drastically reduced and often eliminated.5 1 The table below
shows both the immediate and long-term outcomes in respect to the levels of inflation:
while these levels were the most pronounced in 1992 and 1993, a rate of inflation was

47

Braguinsky and Yavlinsky 109-110.
Braguinsky and Yavlinsky 111.
49
Braginsky and Yavlinsky 112.
50
A unit of Russian currency.
51
Bartlorniej Kaminski, ed. Economic Transition in Russia and the New States of Eurasia (London: M . E. Sharpe,
1996) 232.
48

13

standing at over 400 percent per annum on average during the first seven years of reform.
Table 1. Inflation, 1992- 1998
(Average annual rate, per cent)
1992

1993

1994

1995

1996

1997

1998

Yearly
average
for 19921998

1,354

896

220

190

48

11

84.5

400.5

Sources: adapted from Reddaway and Glinski, "The Tragedy of Russia's Reforrns"(2001) p.249; OECD Publications, "The Social
Crisis in Russian Federation" (2001 ) p.34.

Although Gaidar, one of the main ideologues of radical reform, predicted that
stabilization would take place within a year from the moment of the initiation of shock
therapy, it was not until 1999 that Russia finally achieved a limited degree of
"macroeconomic stabilization." 52

2. 2. 2. Abolition ofprice controls and liberalization of trade

The abrupt removal of price controls, while indeed balancing short-term supply and
demand and overcoming shortages ofbasic supplies, led to a significant increase in retail
prices:53 within a few days of lifting state controls over retail prices the latter rose by 300500 per cent, which resulted in a drastic fall in real consumption.54 Within a year, the
price of bread, for example, increased by more than a hundred times, while real earnings
declined by more than 80 percent. 55 According to Tikhomirov, the real average wage in
the Russian national economy fell by almost two-thirds during the first five years of
reform, 56 a factor contributing to a further decline in real living standards.

52

Reddaway and Glinski 248; macroeconomic stabilization as judged by GDP levels, inflation rates, and the volume of
industrial output. Figures illustrating the degree of economic decline are shown in section 2.3.1.
53
Vladimir Tikhomirov, The Political Economy of Post-Soviet Russia (New York: St. Martin' s Press, 2000) 228 .
54
Oliver Blanchard eta!, Post-Communist Reform: Pain and Progress (Cambridge: The MIT Press, 1993)19;
Reddaway and Glinski 247.
55
Michael Chossudovsky, The Globalization of Poverty: Impacts ofiMF and World Bank Reform (London: Zed
Books, 1997) 226.
56
Tikhomirov 192.
14

The instant removal of state monopoly in the area of foreign trade opened ways
for quick and virtually unlimited enrichment on the part of the Russian elite that had
access to, or control over, export production and distribution.57 On the other hand, the
opening up of the economy was followed by the local manufacturing industry sliding into
a deep recession: the abrupt freeing of foreign trade meant a massive supply shock to
national manufacturing, further aggravated by the negative effects of collapse in demand
from the former Soviet republics and the COMECON states, and in government
demand.58
Price liberalization carried out in the absence of an effective distribution system,
commercial banks or a labour market, inevitably led to a prolonged economic slump; the
lifting of price controls and subsidies should have been preceded by building institutions
and demonopolization.59

2.2.3. Privatization

The final element of the 1992 Yeltsin-IMF reform was the mass privatization of state
property: privatization has been the core policy of economic liberalization in Russia. By
the end of 1996, 90 percent of the gross output ofboth industry and the retail trade were
corning from the private sector. 60 According to the reformers, privatization of state
property should have led to the growth of efficiency in the economy as a whole, followed
by an increase in gross output and accumulation of investment capital within the country.
Yet the results were quite the opposite: national production output continued to decline,
efficiency in most sectors of the economy remained low, and large amounts of currency
57

Tikhomirov 229.
Braginsky and Yav1insky 115.
59
Sakwa 253
60
Tikhomirov 2.

58

15

·..

..

were exported from Russia as opposed to being invested in the economy.61 The graph
below shows that the mass sale of state property failed to achieve its main objective of
reversing Russia' s negative production dynamics: privatization has failed to generate any
significant growth in the national economy.
Figure 1. Privatization vs. Performance in Russian Industry
(indices, %)
100 80

-.

'*--

60

I

40
20

--...1 '

...e----0----o--.o

. . . --_,. . ---.. -

~

I

~
~

.L

~

~

~

~

~

1990 1991 1992 1993 1994 1995 1996 1997 1998
---- loss making

__. · private

_.,_ production

(production = Dynamics of industrial production (gross industrial output); private = Share of private
sector in industry; loss-making= Share of loss-making enterprises in industry)
Source: Vladimir Tikhornirov, "The Political Economy of Post-Soviet Russia," p. 262.

The essence ofthe privatization campaign was bluntly expressed by Yetsin' s chief
economic advisor and Deputy Prime-Minister Yegor Gaidar in the following way: "We
allowed the elite to exchange their power for property." 62 The fact that a small group of
insiders from the old communist-era elite took control over vast resources was viewed as
an injustice by those who believed in democracy and reform, and were supporting Yeltsin
and his associates during the critical time of their assault on the old system. Gaidar' s
statement, in fact, turned out to be only a half-truth: while elites indeed were able to
appropriate most of the state' s property, in many cases at the same time they were
allowed to retain power and their positions at the top levels ofboth the government and

61

Tikhomirov 25 9.
Yegor Gaidar as cited in Rose Brady, Kapitalizm: Russia' s Struggle To Free Its Economy (London: Yale University
Press, 1999) 63.
62

16

the enterprises. On the other hand, Gaidar' s statement shows the populism of earlier
Yeltsin declarations such as one in which Yeltsin told Russians that " ... we need millions
of owners rather than a handful of millionaires ... the privatization voucher is a ticket for
each of us to a free economy." 63
While indeed millions of privatization vouchers were distributed to the public one for every adult and a child - their value turned out to be worth less than $25 each.
Most people either sold them immediately due to their hyperinflation-caused
impoverishment, or else ' invested' them in fraudulent voucher pyramids posing as
legitimate mutual funds . In the end, the shares purchased with vouchers mostly ended up
in the hands of the same nomenclatura64 who benefited from other forms of
privatization.65 In addition, the value of state property was kept artificially low; therefore,
state assets could be - and were - acquired at a fraction of their market value.66 Thus, as
an example, a downtown Moscow hotel could have been purchased for less than the price
of a Paris apartment; an enterprise identical to a Polish company that sold earlier for $80
million during the course ofPolish privatization, sold in Russia for slightly more than
half a million.67
"Voucher privatization" should be differentiated from what became known as the
"loans-for-shares" privatization scheme, under which certain banks were allowed to
acquire control of some of Russia's largest oil and natural-resourse companies for low
prices. Sachs called the "loans-for-shares" scheme one ofthe most corrupt privatization
processes in world history: "tens of billions of dollars worth of natural resource deposits
63

Yeltsin as cited in Reddaway and Glinski, 248.
This term describes the Soviet (and later the Russian, Ukrainian, Kazakh, etc.) party-state elite. As the political
developments of post-Soviet Russia and the other FSU states have shown, nomenclatura turned out to be neutral to
ideology- and thus it could be communist, anticommunist, and even "democratic", depending on the circumstances.
65
Brady 65-118.
66
Menshikov 138; Chossudovsky 231.
67
Brady 75 .
64

17

.\

were turned over to Yeltsin' s insiders, doing much to create the corrupt 'oligarchy' that
has so poisoned Russia' s politics ... " 68 Most privatizations were carried out through
backroom deals among insiders, with company managers and the nomenclatura the most
frequent beneficiaries. In contrast to the Western practice of privatization, which started
with loss-making enterprises, in Russia it was the most profitable enterprises (including
strategic asset industries) that were first of all given up into private hands. As a result of
such a policy, the state treasury has been emptied and the state itself became almost
bankrupt.69 During the privatization campaign, "the ' property of all the people' was
turned into a boundless reservoir of funds for personal enrichment;" 70 it is no surprise that
most observers use negatively-charged terms while describing the event: "nomenklatura
privatization;" "predatory privatization;" "phony privatization;" and "robber baron
privatization." 7 1 Ill-designed, marked by corruption, failing to deliver results in terms of
increased efficiency, and adding another serious institutional lock-in to the extremely
difficult task of restoring Russian industry, " .. . the Russian privatization program [has
been one of] the most spectacular failures in the history of economic reform." 72
There are several lessons that can be learnt from the experience of the Russian
privatization attempt. First, privatizing ownership will not necessary make uncompetitive
enterprises operate more efficiency. Secondly, companies do not exist in an institutional
vacuum: socioeconomic institutions are needed as a precondition for private ownership.
Finally, dishonest and ineffective public administration and the related problem of
corruption represent a major threat to both economy and democracy.73

68

Jeffery Sachs, "Russia' s Tumultuous Decade," Washington Monthly Vol. 32, Issue 3, (March 2000):37.
Bogomolov 102.
70
Boris Kagarlistky, Restoration in Russia: Why Capitalism Failed (London: Verso, 1995) 3.
71
Terms used by Reddaway and Glinski; Derlugian; Braguinsky and Yavlinsky; and Stiglitz respectively.
72
Braguinsky and Yavlisky, 122-123.
73
Stephen Cohen and Andrew Schwartz, "Deeper Into the Tunnel," The Tunnel at the End of the Light: Privatization,
69

18

.

There were claims made by some observers that the policies of structural
adjustment/shock therapy were gradually phased out in the second half of 1992; another
viewpoint is that they had never been applied in Russia in its original design in the flrst
place. 74 However, the important thing to note here is that the flscal and monetary
prescriptions of shock therapy were generally adhered to by the Russian administration
during the timeframe between 1992 and 1999. Thus, as Gill and Markwick point out, in
the course of most of the 1990s,
[p]rices remained unregulated, state orders were reduced, government spending continued
to be reduced, industrial subsides declined, the rouble was made convertible, the economy
was opened up to foreign investment, most controls on exports and imports were eased ...
the second infsedient of shock therapy, wholesale privatization of state enterprises, was
implemented. 5

While the Y eltsin administration made numerous retreats and tactical maneuvers over the
course of two presidential terms, the doctrine of shock therapy within the framework of a
radical economic reform guided the policies of Yeltsin and his associates for most of the
1990s; as Reddaway and Glinski show, the appointment in March 1997 of radical
reformers Chubais and Nemtsov was seen by most Western and Russian observers as
"the second round of shock therapy offensive." 76 Therefore, claims stating that the
policies of shock therapy were applied in Russia only during a relatively short period of
1992-1993 cannot be supported by the available evidence.
To sum up the discussion about the elements of economic reform in Russia: the
neoliberal economic strategy with the basic elements of stabilization, liberalization and
privatization has had some positive effects on only a marginal part of the Russian

Business Networks, and Economic Transfonnation in Russia," ed. Stephen Cohen et al. (Berkley: University of
California, 1998) 8.
74
See, for example, Aslund; Sachs.
75
Graeme Gill and Roger Markwick, Russia's Stillborn Democracy? From Gorbachev to Yeltsin (New York: Oxford
University Press, 2000) 139.
76
Reddaway and Glinski 234, 532-541.

19

economy.77 The real economic indicators otherwise testify to a large-scale collapse of the
nation' s economy. Privatization, the core policy of economic liberalization, failed in its
objective of increasing the country' s economic output and ultimately raising the
population' s living standards.
As we have seen, the immediate and medium-term macroeconomic effects ofthe
structural adjustment policies have had, for the most part, a negative influence on the
national economy. At the same time, a short transitional recession has been both
predicted and anticipated by the proponents of the radical approach to the transition. Let
us now conclude the discussion of the direct effects of the adopted economic strategy and
move on to consider the more general and long-term economic, social, and political
outcomes that are the subject of the next section.

2.3. Long-term outcomes
The pitiful condition in which today' s Russia finds itself has become well known through
both the mass media and academic writings; it would be reasonable to assume this
condition is evident to most observers and is beyond dispute. Considering the space
limitations of this project, we will touch on a few topics that represent the major longterm economic and social outcomes ofthe post-Soviet reform.

2.3.1. Economic outcomes
The economic crisis experienced by Russia in the post-Soviet period has indeed been a
profound one. According to Reddaway and Glinski, the level of decline " ... has exceeded
that of the comparable American experience during the Great Depression and the
77

This progress mostly relating to foreign trade and consumer demand (Braguinsky and Yavlisky 11 6).

20

industrial loss inflicted on the Soviet Union in 1941-45 by World War 11."78 Let us look
at the most important indicators first. From 1991 to 1998, the national GDP declined by
43.3 percent; industrial production fell by 56 percent and the agricultural output declined
by almost 60 percent. 79 Capital investment in the Russian economy during the first four

.

{

years of reform fell by 78 percent and that trend has continued ever since.80 At the same
time, large amounts of capital are being transferred abroad: the issue of capital flight
became a serious problem in a country where an estimated US$12-15 billion is leaving
the country on an annual basis.81 The estimates of the gross capital flight since 1990
range anywhere from US$150 billion to US$400 billion during the first seven years of
liberal economic reform.82
It appears that one of the most helpful and illustrative ways to show the dynamics

of post-communist Russian development is to present essential indicators83 in a tabulated
form. The following two tables show selected indicators for the years 1993 -1999; both
illustrate the magnitude of the Russian economic recession.
Table 2. Genera/Indicators of Russia's Performance in 1993-97.
1993

1995

1997

Dynamics ofGDP, 1993-100"

100.00

83.9

79 .2

Purrnua1change, ~

-12 .0

-4.0

0.4

Revenues, 1993-1 ooan

100.0

108.30

90.2

Expenditure, 1993-1 oo•

100.0

65.6

57.0

Budget deficit, 1993=100"

100.0

23.1

24.0

100.0

129.7

136.6

Gross Domestic Product

Federal Budget

State Borrowing

Foreign debt in US$, 1993-100°
78

Reddaway and Glinski 2
Reddaway and Glinski 2.
80
Reddaway and Glinski 2.
81
Tikhomirov 148.
82
Tikhomirov 148.
83
Table 3 includes economic indicators as well as selected social indicators; the latter refer to section 2.3.2.
21
79

••

;,

<

Overdue Social Payments
Gross wage arrears, 1993= 1oo•c

100.0

143.4

330.1

Unpaid wages as % of gross monthly wage fund in all national
economy

7.7

27.1

66.7

Industrial output, 1993=100

100.0

76.1

73 .3

Agricultural output, 1993= 100

100.0

80.9

75 .3

Gross volume of unpaid taxes, 1993= 1oo•c

100.0

94.7

162.7

Inter-enterprise debt, 1993=100ac

100.0

33 .6

61.7

Dynamics of capital fight, 1993= 100

100.0

141.2

152.7

In US dollars, 1993=100

100.0

202.0

289.7

In constant prices, 1993= 1oo•

100.0

97.9

101.3

Unemployment, 1993=100Cd

100.0

154.6

153 .8

Peiformance of the Economy

Social Dynamics
Average income:

Notes:
'In constant prices. Calculated using GDP deflations.
b Russian Statistics on revenues of the federal budget include internal and foreign loans
' As at the end of the year.
d ILO methodology.
Source: Vladimir Tikhomirov, "The Political Economy of the Post-Soviet Russia" (2000), p. 325, 326.

Table 3. Selected economic and social indicators, 1994-1999
1994
1995
1996
1997

1998

1999

Real GDP index (per cent change)

-12.7

-4.2

-3 .5

0.9

-4.9

3.2

Real industrial output index (per cent
change)
Consumer price inflation (per cent)

-21.0

-3 .0

-4.0

2.0

-5.2

8.1

215.1

131.3

21.8

11.0

84.5

Real per capita income ( 1993 - 100)

111.9

83 .9

99.6

102.8

83 .1

36.5 ~
84.9

Unemployment rate (ILO definition, per
cent)
Share of loss-making enterprises (per cent)

7.4

8.8

9.9

11.2

11.7

12.6

32.5

34.2

50.6

50.1

49.2

48.7

Mortality rate (per 1,000; 1990 = 11.2)

15.7

15.0

14.2

13 .8

13.6

14.7

Population (million)

147.9

147.6

147.1

146.7

146.0

145.6

Total social spending (per cent ofGDP)

17.9

15.1

16.2

17.3

16.4

12.6

Sources: OECD Publications, "The Social Crisis in the Russian Federation" (2001) p. 34, 37; Jeni Klugman, " Poverty in Russia:
Public Poli cy and Pri vate Responces"(l997) p. 93.

The radical economic reform of 1992 eliminated the old structures of regulation, finance,
i

and law, but failed to build an adequate system of domestic institutional infrastructure,
including institutions of financial regulation, a system of proper taxation, a policy in
22

I

support of competition, an appropriate legal framework, and measures to stimulate the
transfer oftechnologies and to enhance market transparency.84 On the threshold ofthe
new century, the productivity of the Russian economy "was cut to less than half,
industrial output fell to 40 percent of what it had been, and in the light industry and the
food industry it dropped by two-thirds," 85 as compared with the pre-reform level.
Since the beginning of the transition, the Russian economy has not experienced
any meaningful growth. Neither has the Russian government succeeded in accumulating
foreign currency reserves on any significant scale.86 While most of the investment in
industry was directed towards the oil and gas sectors, no new notable production plants
were built during the years of reform; the Russian economy does not have internal
economic mechanisms for growth. 87 Within a period of seven years the country's
external debt has grown 3.7 times from about US$40 billion at the beginning of the
reform in 1992 to about US$147 billion in early 1999. 88 The figure below illustrates the
dynamics of state debt accumulation.
Figure 2. Annual Dynamics of Growth of State Debt Accumulation (billion current US
dollars; annual gross borrowing only, not net debt)
100
80

60
40

20
~

1992

1993

~

1994

~

1995

~

1996

1997

Q Annual Gross Internal Borrowing
fiij

Annual Gross External Borrowing

Source: Vladimir Tikhomirov, "The Political Economy of the Post-Soviet Russia" (2000), p. 61.

The financial crisis of August 1998 and the Russian government' s default on its loan

84

Stiglitz, "Whither Reform" 24.
Bogomolov 99-100. The figures cited by Bogomolov differ slightly from those sited by Reddaway and Glinski at the
beginning of section 2.3.1.
86
Braguinsky and Yavlinsky 116.
87
Menshikov 92.
88
Vladimir Tikhomirov, "The Second Collapse of the Soviet economy: Myths and Realities of the Russian Reform."
Europe-Asia Studies Vol 52 Issue 2 (March 2000): 207.
.-1
85

23

repayment obligations has further underscored the fragile and unstable nature of the
Russian transition to the market economy.
Thus, as Braguinsky and Yavlinsky note, "the ' achievements' ofthe policy of
macroeconomic stabilization are ... completely illusory." 89 It can be argued that one of
the major causes ofthe reform failure has been too much emphasis on macroeconomic
stabilization at the expense of institution-building. 9° Creating a purely liberal economy in
Russia over a short period of time, in conditions where an appropriate institutional
infrastructure has been almost nonexistent turned out to be a utopian idea.
It must be noted that over the last two years 9 1, the Russian economy has finally

achieved, for the first time since 1991, stabilization of its economy and even a modest
degree of economic growth.92 The two major factors of this recovery were high global oil
prices and a fivefold depreciation of the national currency. High oil prices created a
surplus in the budget while the devaluation stimulated national production and exports.
Despite this growth, the Russian government itself on many occasions has admitted that
these favorable factors cannot be counted on in the medium and long term.93 The
economy remains highly vulnerable to commodity price swings. Resource extraction
revenue alone cannot support the Russian economy for any prolonged period oftime.94
Unless the national economic growth of the last two years is secured by sustainable
economic policy, the Russian administration " ... will confront an impoverished
population and a crumbling Soviet infrastructure with no tools at hand." 95
In summing up the discussion regarding the outcomes of Russian economic
89

Braguinsky and Yavlisnky 11 6.
"Sick Patients, Waning Doctors" Economist 18 September 1999: 81.
91
1999-2000.
92
Deluguian 26.
90

93

94

95

Lukin48.

Braguinsky and Yavlinsky 242.

Lukin48.

24

reform, it is difficult not to agree with Tikhomirov' s conclusion when he states that
" ... by the end of 1998 Russia was even farther away from achieving its initial reform
objectives, than it was at the very start of reform in 1992." 96

2.3.2. Social outcomes
a) Decline in the quality of health care and education
The eroding safety net resulted in the rapid deterioration of the health care and
educational systems. There was transfer of responsibility for these spheres from the
central to the local and provincial governments. Since such a transfer was not
accompanied by an adequate transfer of funds, the quality of health care and education
has been reduced. 97 Doctors and teachers are presently among the lowest incomeearning group; both hospitals and schools were forced to introduce user fees for a number
of essential services, making such services inaccessible to the poorer segment of the
population. There was a large increase in mortality rates coupled with a decrease in life
expectancy that coincided with the attempts to introduce market reforms. Studies have
shown that mortality in Russia is strongly correlated with such measures of reform
success- or its failure- as GDP growth, inflation, and unemployment rates. 98
b) Social costs of unemployment
It came as no surprise that reductions in state subsidies and the privatization of state

property made unemployment unavoidable. However, the magnitude ofunemployment
has been larger then predicted. According to Nolan, already in 1994 the number of
unemployed was estimated at 10 million, representing 13 percent ofthe economically
96

Tikhomirov 332.
Silverman and Yanowich 25 .
98
Elizabeth Brainerd, "Market Reform and Mortality in Transition Economies," World Development (1998, Vol. 26,
No. 11)2013.
97

25

active population. At the same time, a large proportion of the employed were receiving
no pay for long periods oftime.99 According to Tikhomirov, total employment declined
from a figure of over 75 million people in 1990 to 64.6 million in 1997, representing a
negative change of 14 percent over the time period of 1990-1997.100 The unemployment
indicators from yet another source show a pattern where unemployment is slowly but
steadily increasing from 1 percent in 1992 to the high of 13 .3 percent in 1998, only
slightly diminishing to 12.0 percent in 1999, based on official estimates.101 Determining
the real levels ofunemployment is difficult since the registered unemployment figures do
not include a substantial number of unemployed who fail to register. 102 Clarke cites an
example of one of the Russia' s regions where the official unemployment rate was
standing at 2 percent, while the independent labor force survey came to a conclusion that
the unemployment rate at the time stood at 23 percent. 103 Thus, another outcome of
liberal economic reform has been that of a previously unknown phenomenon, mass
unemployment. 104
c) Poverty and inequality

Unemployment resulted in falling incomes, which in tum were followed by an increase in
levels of poverty for the majority of the population. The reforms "created a handful of
super wealthy individuals, while leaving the rest behind to struggle." 105 According to
different estimates of poverty shown in Table 4 below, poverty levels were within the
range of30-50 percent on average in 1993-94 and remained almost unchanged five years

99

Nolan22.
Tikhomirov 170.
101
"Key Data 1990-99", <http://www.bcemag.cornl_bcedblhistory.idc>
102
The collapse in real government expenditure led to falling levels of government illlemployment pay; as a result,
fewer and fewer illlemployed were bothering to register.
103
Clarke, "Poverty in Russia" 12.
104
Bogomolov 100.
105
Braguinsky and Yavlinsky 7.
100

26

later, standing on average at around 40 percent in 1999. It follows that in absolute
numbers, over 58 million people in the Russian Federation were living below the poverty
line by the end of 1999. 106
Table 4. Estimates of Russian Poverty Rates
Source

Period

Yogesh Atal

1960-1985

Official Estimates:
Ministry of Labour

Non-official Estimates:
International Labour Organization (ILO)
All-Russian Standard of Living Centre
"Arugmenty ifacty" newspaper
Russian Centre for Public Opinion Research (VtsiOM)
Tat'iana Saslavskaia
Reddaway and Glisnki

Estimated proportion
of impoverished
population(%)

10

1991
1992
1993
1994
1999

55
36
29
25
38

1992
1994
1994
1994
1993
1999

85
39
61
54
40.7
41.2

Sources: Atal, "Poverty in Transition and Transition in Poverty," (1999) p. 31 ; Silverman and Yanowitch, "New Rich, New Poor,
New Russia" (2000) p. 42, 47, 48; Reddaway and Glinski, "The Tragedy of Russia's Reforms" (2001) p. 620; OECD Publications,
"The Social Crisis in the Russian Federation" (200 1) p. 39.

At the same time, the household savings have been steadily diminishing over the period
of 1991-1994:
Table 5. Changes in Savings Concentration
(Survey question: "Does your household have any savings?'7
Answers

August 1991

March 1992

June 1993

Yes

66

60

25

No

30

36

Difficult to
answer

4

4

October
1993

February
1994

7l

76

78

4

5

5

19

17

Source: Atal, "Poverty in Transition and Transition in Poverty," (1999) p. 208.

Rising inequality has been yet another feature ofRussian post-Soviet

developments. The measures of income distribution below indicate how rapidly the
country has been transformed from a relatively equal society to one with considerable

106

The subsistence minimum, based on the concept of absolute poverty, is used as the official poverty line in the
Russian Federation. It is detennined by the cost of a market basket, valued at average prices in each region, that
provides the minimum required caloric intake.

27

I

income disparities. The Gini coefficient, a general measure of inequality, rose from 0.24
in 1989 to 0.48 in 1996, a doubling ofinequality 107 . According to Shlapentokh, the
Yeltsin regime demonstrated very little concern for the plight of the poor, viewing social
inequality as a "prerequisite" for economic growth:
... the liberal establishment of the 1990's virtually discarded such words as "equality"
and "parity" from its lexicon. These words were almost completely absent from the
speeches made by Yeltsin and his premiers in 1992-98, nor were they present in the
multitude of articles and essays which lauded the regime during this period.108

The income ratio between the wealthiest and the bottom 10 percent of population
increased from 4: 1 in 1990 to 15 :1 in 1994, and in terms of the disparity in personal
income, Russia is now ranked among countries such as Brazil, Venezuela and Mexico.
As it stands today, all Western countries including the United States are much more
egalitarian than Russia. 109 According to a recent study conducted by the World Bank, the
level of social and income differentiation in Russia is estimated as the highest in Eastern
Europe, and most participants of the study claimed that "the well-being of the absolute
majority of the people had deteriorated during the last decade. " 110

2.3.3. Political outcomes
Democratization ofRussian society- as represented by a relatively free press, mass
political parties, freedom of speech, and mostly free elections - appears to be the only
major achievement the post-communist period can be credited with. However, that credit
should be given mainly to Gorbachev' s administration rather than that ofYeltsin' s, as all
the above democratic freedoms came during the period of 1987-1991 111 • Furthermore,

107

UNDP, Human Development Report 1999 (New York: Oxford University Press, 1999) 85 .
Vladimir Shlapentokh, "Social Inequality in Post-Communist Russia," Europe-Asia Studies. (November, 99): 1167.
109
Shlapentokh 1155.
110
"Consultations with the Poor," The World Bank, http://worldbank.org/poverty/conspoor/national.htm.
111
This despite the fact Gorbachev has never been elected by the populace in contrast to Yeltsin.
108

28

many observers point out an inclination toward authoritarianism by both the Y eltsin and
Putin administrations.112 The Yeltsin regime's attempts to retain and consolidate its
power without addressing the legitimacy issue resulted in a pattern of escalating
autocratic centralization of executive powers. Traditions of totalitarianism and
Bolshevism that Yeltsin and his aides inherited from their Soviet incarnation led to
Yeltsin severely restricting the democracy created by Gorbachev. 11 3 Thus, the Russian
constitution was fraudulently amended in 1993 to increase presidential powers.11 4
Perhaps the most profound violation of the constitutional law occurred in October
of 1993, when Yeltsin dispersed a democratically elected parliament by way of attacking
the Russian White House with heavy artillery and special commando units, ending the
Russian experiment in the democratic separation of powers and killing in the process
close to two hundred members of parliament and their defenders.115 Yet another
spectacular violation of democracy and the law took place during the 1996 presidential
elections, when the expenses of Yeltsin' s campaign ran at least thirty times above the
legal spending limit and an additional $10 billion in the Russian Treasury funds were
spent with the aim of securing wider electoral support. There also were serious violations
of the law in television and press coverage of the election campaign, coverage that was
strongly tilted in favour of Yeltsin. 11 6 In sum, "the logic of the political struggle led
Y eltsin to eliminate or significantly curtail the powers of the independent institutions that
had emerged during the Gorbachev period," 11 7 destroying the parliamentary republic and

11 2

See, for example, Hough, Job, K.agarlistky, Fish, Deluguian, Buzgalin and Koganov, and Reddaway and Glinski.
Hough 129.
11 4
Job 933.
115
Alexander Buzhalin and Andrei Kolganov, Bloody October in Moscow: Political Repression in the Name of
Reform. (New York: Monthly Review Press, 1994) 188,189.
116
Reddaway and Glinsky 515.
11 7
Aleksander Lukin,"Putin' s Regime: Restoration or Revolution?" Problems of Post-Communism (Jul/Aug 2001, Vol.
48, Issue 4):38.
113

29

introducing super-presidential rule.
It can also be argued that a high-speed transition in itself is undemocratic: the

faster the transition process, the less possibility there is for the population to provide
feedback or to participate in that process. Thus, in Russia the population has been largely
excluded from providing comments or suggestions in regard to reform outcomes due to
the speed of the transition.118
Just a few years after adopting the neo-liberal developmental strategy, Russia
ceased to have an independent economic policy and sunk to the level of a heavily
indebted third world country, forced to comply with conditions imposed by the
international financial institutions.11 9 "Russia became ever weaker internationally, to the
point that its policies were constructed at the direct instruction of the major international
capitalist institutions. In the brief space of just a few years it had been humiliated and
broken as a great power." 120
Late 1999 and early 2000 saw Y eltsin successfully transferring his power to a
chosen successor, Vladimir Putin. While it is too early to say which way Putin' s
presidency will affect democratic development, certain actions of the new Russian
president give reason for concern: in his first decree, Putin granted his patron Yeltsin
immunity from prosecution; he also has further concentrated political and economic
power in his hands.121
As we can see from some of the accounts and observations discussed above, the
fate ofRussian democratization at the moment lies in the balance. While the future of
democracy in Russia is uncertain, it is important to note that under Yeltsin, "Russia was
118

Nolan 87.
Nolan 286.
120
Nolan 302.
121
Lukin 48.
119

30

thrown backward regarding the development of civil society and is now farther removed
from the initial goals ofthe democratic movement than it was before Yeltsin came to
power."122

3. Why the failure?

The roots of the reform failure are interconnected ones and can be ultimately traced to
wrong policy choices. Economic and ideological radicalism, a wrong choice of
developmental strategy, attempts to impose reform through a top-down approach while
alienating the majority of population to the reform process through implementation of
policies that have widened the gap between elites and society - these are the principal
factors explaining the reform outcomes. Let us examine each one in tum.

3.1. Radicalism
It is highly symbolic that both Russian revolutions of the 20th century- that of 1917 and

of 1991- came under the sign of radicalism, both ideological and economic. Both the
original socialist Bolsheviks and their new "market" incarnation viewed themselves as an
enlightened vanguard who needed to implement their program from the top down; in the
process, pain and sacrifice were a necessary part ofbuilding a brighter future . Neither
group believed in alternative strategies to achieve its goals nor in a gradual approach to
transforming the economy. 123 Both groups were able to ultimately seize power and to
implement their top-down policies nation-wide. No wonder that the outcome has been
122 Reddaway and Glinski 628.
123

Silvennan and Yanowich xx (introduction).

31

similar, too : from the political oppression, economic inefficiency and ideological
dogmatism of communism, the country moved to political instability, economic collapse,
and poverty and inequality ofthe 1990s' unfettered capitalism. The nee-liberal economic
radicalism of the last ten years, combined with the economic radicalism of the seventy
years of the communist regime, resulted in a situation where the country found itself in a
state of deep economic, social, and ideological crisis by the end of the 20th century.
In order to better understand the radical approach to economic reform and the
roots of its failure in Russia, it is instructive to examine the viewpoint of shock therapy' s
most prominent advocates and the advisors to the Russian government in 1991-1992,
David Lipton and Jeffery Sachs. Their discussion of the transition emphasizes the
political success of the reform, at the same time ignoring, for the most part, the
immediate economic effects. The focus has been on replacing existing institutional
structures, as opposed to changing them. As Murrell writes, "[h]istory, society, and the
economics of present institutions [were] all minor issues in choosing a reform
program." 124 In the analysis ofLipton and Sachs circa 1992, "enormous scope exists for
increases in average living standards ... the issues of greatest importance can be solved
within half a year." 125 While the establishment of a market economy, as envisioned by
Lipton and Sachs, included the destruction of existing institutions, it was assumed at the
same time that institutional construction can be achieved through technocratic solutions
that are easy to implement. Thus, shock therapy in the view of its advocates "is nothing
less than a revolutionary strategy for the complete reconstruction of the economic
arrangements of a country," 126 a strategy to be carried out within a relatively short period
124

Peter Murrell, "What is Shock Therapy? What Did it Do in Poland and Russia?" Post-Soviet Affairs Vol. 9 Issue 2
(1993): 113-115.
125
Lipton and Sachs as cited in Murrell, 114.
126
Murrell 115.

32

of time utilizing a top-down policy approach.

3. 2. A wrong choice of developmental strategy
Judging by the economic indicators of the late Soviet state, it becomes evident that the
inefficient state-controlled planned economy of pre-reform USSR had to be dismantled
and replaced with a modern mixed economy. An important question here is: what
developmental model would have been the most suitable and beneficial? More
specifically, what balance between decentralized decision-making and government
control would have been the most appropriate for transitional Russia? Figure 3 shows a
straight line representing the continuum of all existing and known economic systems with
Britain ofthe first halfofthe 1800s (unfettered capitalism) at one end and the USSR with
its almost pure command system at the other end. It is evident that a transition to a
social-democratic economic model could have been an easier option for Russia: such a
movement would have covered a much shorter distance on the continuum. The distance
between "USSR" and "LE" represents a more difficult transition than from "USSR" to
"SD", since an all-embracing change ofthe country' s economic and institutional
structures was required for a transition to a liberal model of economic management. In
other words, many institutions of social democracy were already in place; there was no
need to dismantle them.127
Figure 3. The continuum representing different mixed-economy arrangements.
• U,SR (and later Russia)
Planned allocation of resources:
formal organization with commands;

LE

so

• I

Pefectly mixed
economy (50/50)

socialism .
SD = Mixed Social-Democratic Economy
LE = Liberal Economy
127

Silverman and Yanowitch 129.

33

•

Britain

•

Spontaneous allocation
of resources: market and
free exchange; capitalism

However, while the institutions ofthe old system had been largely destroyed in 19901992, it was assumed that the new market institutions are of secondary importance and
would arise by themselves. This contradicts the growing evidence to the contrary in
general, and the argument of the Nobel Prize laureate Douglass North in particular, who
writes that
[i]institutions are the humanly devised constraints that structure human interaction. They
are made up offormal constraints (rules, laws, constitutions), informal constraints (norms
of behaviour, conventions) .. .. The single most important point about institutional change
128
... is that [it] is overwhelmingly incremental.
----1

As we can see, markets are not self-forming mechanisms, but a set of institutions that are
created on a gradual basis. In the Russian case, the existing institutions could have been

adapted to the market economy framework in the way it has been done in China, where a
gradual approach to reform was chosen and where existing institutions were modified to_j
fit the new market realities.
One of the most comprehensive comparative Russia-China studies has been
carried out by Peter Nolan, 129 in which he analyzed and compared reform policies and
transition strategies in both countries. According to Nolan, prior to transition both
countries shared many areas of fundamental similarity. On the other hand, looking at the
differences between the systems, Nolan suggests that overall, the USSR was in a much
more favorable position prior to the initiation of the reforms and thus was likely to
perform better than China, not the reverse. 130 The key to understanding China' s success
and Russia' s failure lies in the respective country' s approach towards the transition
strategy: in Russia, the leadership rapidly introduced most of the measures under the

128
Douglass C. North, "Epilogue: Economic Performance through Time," in Lee Alston, Tirrainn
Eggertsson, and Douglass C. North, eds., Empirical Studies in Institutional Change (Cambridge: Cambridge
University Press, 1996) 344.
129
Nolan 1-320.
130
Nolan 307.

34

"stabilization and structural adjustment package;" in China, on the other hand, an
incremental, gradualist system of reform was chosen:
... the selection of different policies in Russia could have produced rapid growth of
output and a large improvement in popular living standards, ... [while] the selection of a
different set of policies in China could easily have produced a political and economic
disaster, with a large decline in popular living standards .... [T]he contrasting outcomes in
China and Russia stem from the sharply different approaches taken by the respective
131
leadership in the two countries towards the transition orthodoxy.

Despite the fact that the economics of the Chinese reform were often considered in the
West as primitive and were widely criticized, the Chinese leadership resisted those
pressures and adopted policies what were quite contrary to those of the neo-liberal
orthodoxy.132 The gradualist, incremental approach to reform resulted in a spectacular
economic boom that continued almost uninterrupted into the 21st century. The growth of
output and real income translated into substantial improvements in the physical quality of
life for the majority of the country' s population.133 In the Russian case, " .. . the
fundamental cause of the [Russian] collapse lies in the destruction of the state
administrative apparatus and the nation-state .. .. the reforms caused a disastrous decline in
investment and industrial output, setting in motion a vicious circle of economic
collapse." 134
China's reforms show that a gradual process of institution creation 135 is both
possible and viable, by pragmatically combining elements ofthe old and the new; and
that sustained economic growth is possible without mass privatization of the state
sector. 136 Over the ten-year period 1989-1998, Russia's GDP almost halved while
China' s GDP nearly doubled. At the same time, inequality in Russia doubled. 137 The
131
132

Nolan 302 305
Nolan 306,
.

133

Nolan 303.
Nolan 309, 302.
135
Institutions as represented by structures of law, finance, and regulation.
136
Murrell 121.
137
Joseph Stiglitz, "Whither Reform? Ten Years of the Transition," World Bank Keynote Address (April 28, 1099) 3.
134

35

enormous success of China can be reasonably explained by that country' s reliance on its
own path of transition in contrast to the Russian approach, where a "blueprint," "onesize-fits-all" method had been applied. China' s development path can be credited not
only with rapid economic growth, but also with creating a vibrant non-state-owned
collective enterprise sector, and with stimulating large-scale foreign investment in
infrastructure, particularly in manufacturing. In contrast, there has been little productive
investment in the post-1991 Russian physical infrastructure.138 An argument stating that
China's experience should be regarded as purely specific and unique and, therefore,
should be looked upon as an exception is hardly convincing since the twenty years of
sustained economic advance cannot be attributed exclusively to some kind of especially
favorable circumstances specific to that country.139
As Stiglitz argues, the institutional infrastructure, including both regulatory and
legal structures, is absolutely essential to a functioning market economy. 140 According to
Pereira et al., "[m]arket orientation is not sufficient to generate market coordination
toward collective prosperity." 141 Moreover, the reform approach must be highly
dependent on the history and the specific nature of a given country. 142

3. 3. Lack of mass support

This paper has been arguing that an alternative, moderate economic strategy with a
social-democratic orientation would have been far less costly and would have offered
better prospects for the Russian economy. For the purposes of this essay we will define

138

Hough 14-15, Gustafson 221-222.
Bogomolov 100.
140
Stiglitz, "The Insider," 58
141
Pereira et al. , 6; emphasis in original.
142
Murrell 125.
139

36

social democracy as an economic system operating within a framework of a mixed
capitalist economy with a public sector accountable to the government, the national
economy amenable to fine-tuning of demand, the vitality of democracy sustained by
political pluralism and mass parties. This version of a social democratic project could be
viewed as the principal democratic alternative to liberalism, a strategy ensuring that
capitalism works for the maximum benefit of all.
Why social democracy? Apart from the institutional infrastructure aspect
discussed above 143 , a social-democratic approach to reform would cushion the transitional
shocks experienced by the majority of the population and therefore would have the
potential to ensure continuous mass support for reform. This aspect is of critical
importance. Reform has failed, at least in part, because the Russian liberal reformers
failed to understand that mass support is crucial for the outcome of the reform process.
The implemented policies impoverished the majority ofthe population while increasing
the gap between elites and the rest of society.
The great majority of Russian society was completely unprepared for the
encounter with the market system and as a result ended up in financial ruin, becoming
"the losing majority on the Russian expressway to capitalism." 144 Thus, popular support
for the market economy, which had been widespread in the country prior to the initiation
ofthe radical reform program, has greatly diminished: the social costs of reform to
Russian society have turned out to be exceptionally high. 145 It can be argued that mass
support is central to both the achievement of a democratic outcome 146 and to a success of
the economic dimension of reform. In the absence of such support, social tensions
143

See discussion in relation to Figure 3.
Boris Kagarlitsky, Restoration in Russia (London: Verso, 1995) 118.
145
Reddaway and Glinski 29, 307, 384, 385.
146
Gill and Markwick 251 .
144

37

threaten the viability of economic development; numerous strikes that took place in the
1990s 147 and continuous parliament opposition to many economic initiatives put forward
by the Russian administration are just two examples of tensions that undermined the
efforts ofthe government to stabilize the economic performance. Thus, lack of popular
support, initially being an outcome ofthe adopted reform course, also became in many
ways a cause of reform failure .
A viable middle class is another important pre-condition for a successful
transition to capitalism. As Naumova points out, "[ o ]nly a strong and numerous middle
class can serve as a bulwark of reform, ensuring ... economic growth and the economic
effectiveness ofreforms." 148 The shock therapy of 1992- 1997 and the financial crisis of
1998 combined with the post-Soviet changes in income distribution "are indicative of a
process of gradual disappearance of the Russian middle class," 149 the very force that the
Russian liberal reformers were counting on for support and promotion of the nee-liberal
model of economic management.
In sum, it can be argued that the reforms could have had a different outcome had
the Russian government chosen an alternative, moderate economic strategy utilizing
some of the existing institutions, a strategy emphasizing social justice and public welfare
and based on a mixed economic model with the elements ofKeynesianism. According to
Bogomolov,
[a] comparative analysis of the results of the reforms in the post-socialist countries makes it
possible to draw an important conclusion: some continuity should be maintained with the
socialist past; not everything has to be mdically altered. The Soviet model, created on the
principles of state ownership and centralized planning ... was in some ways viable, since it
did ensure development (in some periods highly dynamic) of the economy and a rise in
living standards. Its evident flaws ... made it necessary to abandon the model. But this
does not mean that the pages of history have no value at all and need to be rewritten
entirely. 150

The uncritical embracing of an unsuitable developmental strategy based on the

147

Gill and Markwick 232, 233 .
Nina Naumova as cited in Silverman and Yanowitch, 30.
149
Tikhomirov 191.
150
Bogomolov 101.
148

38

assumption that an unregulated market would always self-coordinate and would achieve,
in all circumstances, allocative efficiency can be seen as the key explanation for reform
failure .

4. An alternative developmental strategy

4.1. Alternatives: then and now
An argument has been presented in this essay to the effect that it was ideological and

economic radicalism that is the root cause of Russia' s failure to avoid the large-scale
economic disaster of the 1990s. The neo-liberal development strategy uncritically
embraced by the shortsighted and self-interested Russian government has bankrupted the
country' s economy and caused an unprecedented social decline. This paper has also
argued that a moderate, social-democratic strategy based on traditions of mass social and
economic creativity within the context of a genuinely democratic, socialized mixed
economy could have been a better answer to the challenge of reforming the Soviet
system. In the late 1980s and the early 1990s, it was still possible to reform the country' s
economy while retaining the major elements of a welfare state such as full or near-full
employment, free health care and education, and a universal social safety net.
Today, a decade since the neo-liberal paradigm was adopted by the Russian
administration, the country is in a different condition, whereby some of the more
progressive policy alternatives that were available and could have been adopted in the
early 1990s cannot be afforded and thus are no longer an option. A welfare state with full
or near-full employment, free health care and education and a comprehensive social
safety net is simply out of reach for the bankrupt Russian economy ten years after the
39

initiation of the neoliberal reform. Does this mean that there is no place for an alternative
economic strategy for contemporary Russia? Given that certain progressive elements of
the socio-democratic model can no longer be afforded, the only way to overcome the
recent trends of economic and social decline is to combine and apply progressive policy
alternatives that are still within reach. Among such measures are policies aimed at
preserving democracy and civil liberties, promoting the development of civil society and
democratic institutions, giving priority to production and decriminalization, and reversing
some of the most controversial economic decisions taken under the Yeltsin
administration. Most importantly, the state must be reformed to become less corrupt and
bureaucratic and more effective and competent; it must start playing an active role in
economic recovery and long-term economic development.
4. 2. The role of the state
In the context of this discussion, it is instructive to consider the role of the nation-state in
detail since the social democratic approach to reform places a strong emphasis on the
concept of an activist state. Governments can stimulate, facilitate and support the
development of competitive enterprises, as well as enhance the linkages between
production, investment, trade, and technology. In Russia, however, no attempts have
been made to influence the economy through the state' s activist policies. One of the
country' s most fundamental problems is the weakness of the state; the government cannot
even perform such essential functions as the enforcement of contracts or tax collection.151
The state withdrawal has been driven by the decline in revenues and this retreat has been
forced and unplanned; as such, it is a highly damaging process.152 Thus, "[t]he major

151
152

Chrystia Freeland, "Not-so-badfellas," New Republic 10 December 1998: 18.
Thane Gustafson, Capitalism Russian-Style (Cambridge: Cambridge University Press, 1999) 2 13-214.

40

threat is that the Russian state may well become weakened beyond repair, while its core
functions are being privatized by illegitimate and unaccountable forces, including corrupt
officials and organized crime." 153
The question of the state' s role for transitional economies is an important one.
The concept of extreme dominance of the state should, of course, be rejected; but it is
now time to acknowledge that "in the contemporary world building a capitalist system
requires an activist state role and a considerable period oftime." 154 According to Stiglitz,
"[t]here are certain areas of macro-economic management where central governmentinitiated action should be the norm." 155
Traditionally, the state has a number of important economic functions . It provides
essential infrastructural support, maintains order in society, establishes a set of economic
policies, changes domestic economic arrangements in response to the changing demands
of the world economy, provides necessary training for the labour force and so on.156
Besides promoting economic growth, governments are also involved in the process of
redistribution of resources through taxation and welfare plans and in other aspects of
social development.
There are only a very limited number of nation-states (if any at all) where
governments do not interfere with the market; most present-day economies are mixed
ones - a fact which implies that a certain degree of state intervention should not only be
accepted but also encouraged. Therefore, most governments are involved in managing
the national economies through regulations, policies, standards, and rules. Another
important function of nation-states is development and implementation of a set of rules
153

Reddaway and Glinski 3.
Kotz, David. "Capitalist Collapse: How Russia Can Recover" Dollars and Sense, (Issue 220, 1998): 11.
155
Stigilitz, "Whiter Reform? Ten Years of the Transition," 26.
156
Alan Thomas, Poverty and Development in the 1990s, (Oxford University Press, 1992) 131, 132.

154

41

and policies to be adapted for international interactions. Governments sometimes protect
domestic producers from international competition by trade controls that include tariffs,
import quotas, subsidies, and licensing.157 There are a number of important roles- such
as imposing order and collecting taxes - that only the state can perform. Moreover,
"severely weakened states will encourage conflict, as they have in Africa, Central
America, and elsewhere." 158 Sen argues that public policy is important for successful
development strategy:
.. . positive state activities have played quite a considerable part in the historical
process of economic development. .. . In addition to favoring general economic
development, any responsible state has to consider issues of equity and disparity. 159

Generally, the government is an institutional arrangement that compensates for market
failures, provides public goods and deals with externality issues.160 According to Lall,
.. . in theory, an active role may exist for governments to improve the functioning of
markets. In practice, many governments have played just such a role, and gained
unprecedented success for their countries as a result. 16 1

While neo-liberal developmental strategy has recently advanced throughout most of the
world, can we reasonably assume that state-minimizing policies have been closely
followed by the world's leading economies? Judging from data on government spending,
shown in Table 6 below, the state has never really abandoned its functions in the G-7
countries even during the Reagan-Thatcher era, when the ideology of"laissez-faire"
economics reached the peak of its popularity.

157

Thomas 131 132
Jessie a
~ ;'Power Shift: The Rise of Global Civil Society," Foreign Affairs, (Jan/Feb 1997, Vol. 76):58.
159
Amartya Sen, "What' s the Point of a Development Strategy?" Development Economics Research Programmed
Paper, London School ofEconornics (April 1997): 4, 5.
160
R Mendez, "The Provision of Financing of Universal Public Goods," in M . Desai and P. Redfern, (eds.), Global
Governance, (London: Printer, 1995): 57.
161
Sanjaya Lall, "TNCs: The New Custodians of Development?" in R. Culpeper, A Berry, and F. Stewart, (eds.)
Global Development Fiftv Years After Bretton Woods (New York: St. Martin' s Press, 1997):179.
158

42

Table 6. The role of the state: G-7 countries
162
Government spending as % of gross domestic product
1980

1996

Canada

38.8

44.7

France

46.1

54.5

Germany

37.9

49.0

Italy

41.9

52.9

Japan

32.0

36.2

UK

43.0

41.9

us

31.8

33.0

Average

38.8

44.6

Source: Irving Michelman, "The March to Capitalism in the Transition Countries" (1998), p.l66 .

During the period 1980 to 1996, social services and welfare payments alone averaged 25
to 30 percent ofbudget in the G-7 countries.163 Furthermore, the state as a taxation agent
collected 36.2 percent ofwages in taxes in 1978 and 38.7 percent ofthat in 1995 .164
Thus, both the levels of spending and taxation point out the fact that, minimalist rhetoric
non-withstanding, the state continues to play an important role in the economies of the
world's most economically developed countries.
In light of the above analysis, it appears that the state plays a fundamental role in
economic development in advanced and developing economies alike. A successful
transition to a socially oriented market economy is nearly impossible to achieve in the
absence of effective public institutions and a more activist role for the government. An
economic model of this orientation would include the following essential features : a
mixed economy representing both the private and the public sectors with strategic
industries under public control; a coordinated macroeconomic policy on a national level;
and a re-distribution policy aimed at providing a social safety net for those affected by
162

The comparable figures for Russia are: 28 per cent of GDP in 1994; and 21.8 per cent of GDP in 1997. Sources:
UNDP, Human Development Report 1997 (New York: Oxford University Press, 1997) 222; The Economist, Pocket
World in Figures: 1997 edition (London: Profile Books Ltd. , 1997) 178.
163
Irving Michelman, The March to Capitalism in the Transition Countries (Brookfield: Ashgate, 1998) 166. In
contrast, total social spending in Russia has been only 12.6 per cent of GDP, as Table 3 shows.
164
Taxes on wages for an average one-earner couple with two children in the G-7 countries; cited in Michelman, 166.

43

loss of income or other simil ar factors.
The World Bank 's 1997 World Development Report has re-evaluated the Bank's
earlier approach to the relationship between state institutions and developmental
strategies for transitional and developing countries, turning from the concept of
minimalist state to a "state-friendly" outlook. In a noteworthy modification of the Bank' s
ideology, it was concluded that "[h]istory has shown that development requires an
effective state. Stateless development as well as state-dominated development have
failed . The state is central to economic and social development, not as a direct provider
of growth but as a partner, catalyst, and facilitator." 165

4.3. Transition to an alternative developmental strategy
In today' s interconnected world, a transition to a market economy in practice implies a
wider process of integration with the global economy, with all the opportunities and
challenges that such economic globalization presents. Thus, it is essential to consider
how a transitional country can integrate into the global economy in the most optimal and
beneficial way, at the same time reducing the associated risks.
While the transitional and developing countries should attempt to integrate into
the global economy, the retention of policy autonomy is essential to the success of such
integration, as liberalization requires a new partnership between the state and industry.
Both liberalization and integration should be implemented on a gradual basis; rapid
integration ofthe LDCs in global markets often results in massive destruction of the
national industries by international competition, as experiences of sub-Saharan African

165

Leen Boer, "The State in a Changing World: World Development Report 1997," Third World Quarterly (Dec 97,
Vol. 18, Issue 5): 935.

44

and some post-communist states show.166
What is an appropriate policy response to the process of globalization for
developing and transitional countries? It appears that there is no universal policy mix
that could be applied to different national economies with equal success. It is clear,
however, that an effective policy of adaptation of national conditions to global
competition would include a long-term industrial policy, measures to protect domestic
infant industries, correcting reliance on long-term domestic investment as opposed to
short-term foreign investment, promotion of research and development, improvement of
economic infrastructure and provision of a social safety net.
In addition, governments should have the ability to create the necessary
macroeconomic and market conditions in order to mobilize savings that can be
transformed into long-term lending for enterprise development. Governments should
retain enough policy autonomy in order to be able to reduce commercial, financial and
investment risks associated with sharp tax increases, interest rate adjustments, or
currency movements. 167
Many observers agree that a larger role for the state in protecting domestic
industry and correcting markets is needed if developing countries are to succeed in the
global economy. Thus, Lall shows that there is convincing empirical evidence in favor of
a "strong custodian role for the government. . (and] careful selective and functional
interventions." 168
According to Singh, developing countries should seek not a "close" but a

166

John Sam, "Sub-Saharan Africa in Global Capitalism," An Independent Socialist Magazine, (JuVAug 99, Vol. 51 ,
Issue 3): 13.
167
James Mittleman, "The Globalization Challenge: Surviving at the Margins," Third World Quarterly, (Sep. 94, Vol.
15, Issue 3): 427.
168
Lall 189.

45

" strategic" integration where the state plays an active role of not only that of a manager
of a national economy, but also a mediator between the local and global economies. 169
Singh argues that one of the key elements is an active industrial policy:
... in mixed economy countries with reasonably effective states, the governments should
pursue a dynamic industrial policy to bring about the desired structural transformations in
170
the economy as speedily as possible, to achieve rapid economic growth.

While certain elements of globalization (such as export orientation and adoption of new
technology) should be adopted, others should be rejected or reduced (short-term capital
flows and dependence on borrowing from outside sources). According to Singh, industry
protection, export promotion and performance standards are complementary policies that
promote a strategic advantage over foreign competitors. Foreign direct investment
should be discouraged, not encouraged, as the mainstream neo-liberal economic
paradigm insists. Finally, governments should have an option to intervene by way of
domestic price controls and by supporting their national technological systems.
In a similar fashion, Rodrik argues that it is not the high degree of liberalization
and integration that creates national economic growth; developing countries should adopt
a set of policy responses to be able to successfully fit into the new global economic
environment; according to Rodrik, "openness is [only] a part of development strategy; it
does not substitute for it. " 171 Rodrik points out the unstable nature of the global
economy that frequently produces large external shocks affecting national economies in
an extremely negative way. A correct policy response to external shocks is critical for
national governments of developing countries. A set of economic, social and political
measures including the maintenance of a high rate of private and public domestic
169

Ajit Singh, "Openness and the Market Friendly Approach to Development: Learning the Right Lessons from
Development Experience," World Development (December, 1994) p. 1811-1823.
170
Singh 1811 .
171
Dani Rodrik, The New Global Economy and Developing Countries: Making Openness Work (Washington, D.C.:
Overseas Development Council, 1999) 2.

46

investment, and the establishment of institutions that manage social conflict should
provide economic stability, especially during times of global ' turbulence. ' 172 It is not
trade or the degree of economic openness that matters; what really matters is economic
growth:
Governments and policy advisors alike have to stop thinking of international economic
integration as an end in itself. Developing nations have to engage the world economy on
173
their own terms, not on terms set by global markets or multilateral institutions.

Several case studies of countries belonging to the "Asian Miracle" group (South Korea,
Taiwan, Malaysia, Thailand, and Indonesia) also seem to support an interventionist
developmental model :
A number of detailed academic studies of East Asia found that ' developmental' states
had indeed played notable roles in shaping the direction and growth of their economies,
through a broad array of regulatory institutions, market-guiding policies, and even
protectionist support for national industries.174

Governments ofEast Asian countries intervened heavily in all spheres oftheir economies
during the periods of fast industrialization and at the same time avoided close integration
with the world economy in the sphere of finance during their high growth phase.
East and South East Asia, which were the only regions to escape stagnation or decline in
the eighties, were led by countries whose defining characteristic was the fact that they
protected and used their sovereign power to pursue national development strategies
focusing on the creation of a strong national industrial and technological base, dense
networks of domestic economic linkages, and relatively equal income distribution.175

The general observations and conclusions cited above once again confirm that the set of
policies chosen by the Russian administration has not been an adequate response to the
challenge oftransition. An alternative strategy is the subject ofthe next section.

172

Rodrik4-10.
Rodrik 4.
174
Emest Harsch, "Africa, Asia and anxieties about Globalization," Review of African Political Economy, (Mar 1999,
Vol. 26, Issue 79): 117.
~ Manfred Bienefeld, " Assessing Current Development Trends: Reflections on Keith Griffin' s "Global Prospects for
Development and Human Society," Canadian Joumal of Developing Studies (XVI, 3, 1995): 375.
47
173

4. 4. Policy options
Outlined below are proposed policy options that may help to gradually overcome the
economic and social difficulties present in Russia and described earlier. We have seen
that these difficulties have been for the most part a product of an uncritical
implementation ofthe neo-liberal developmental strategy in general and the almost total
withdrawal of the state from the regulation of the national economy in particular. 176 It
follows that the badly needed correction in the reform strategy must include thereconsideration of the role of the state as the top priority. Moreover, almost all of the
proposed policy options will have to be either actively supported or implemented by the
state apparatus.
While it could be argued that the proposed measures aimed at strengthening the
state apparatus run the risk of that state retreating into authoritarian, dictatorial and/or
bureaucratic rule, such a risk is both justified and manageable. First, a capable and stable
state with an efficient and de-politicized civil service has a better chance of eventually
progressing toward a democratic, market-oriented and decentralized system of law and
order as opposed to a situation where the state is weak, divided, and chaotic. Secondly,
the above risk can be actively managed by taking measures aimed at improving the
selection and qualifications of officials, eradicating corruption through more adequate
levels of pay within the administration, and reducing staffing levels to a reasonable size.
The authoritarian tendencies can also be counterbalanced by further developing
institutions of representative democracy, in particular though achieving a better
distribution of power between executive, legislative and judicial branches.
The goal of this alternative policy proposal is to ensure the welfare and the
176

Tikhomirov 259.

48

material well-being ofthe people through both enabling the economy to grow and
introducing certain re-distributive measures. The means to achieve this goal are through
implementing a set of policies that imply more reliance on the state and less on the
market as a self-correcting agent. The policy recommendations fall into three categories :
economic, social, and political. They are further grouped into short-term, medium-term
and long-term measures in accordance with the expected time needed for the policies to
be implemented and to take effect. The short-term policies represent the most urgent
policy priorities that are, in effect, crisis management measures. Many ofthe polices
placed in the medium-term and the long-term categories would require substantial levels
of government spending and could be implemented only over a longer period of time due
to present financial constraints. Thus, the short run measures can reasonably be
implemented within 1-2 years; medium-run within 3-5 years; and long-run within 10 to
20 years. The outlined measures are interdependent by nature and must be taken
simultaneously in most cases. It is hoped that the short-term measures combined with the
present favorable economic climate due to high world oil prices can set in motion a
process of positive cumulative causation that will gather momentum for further rises in
incomes, demand and investment.
At this time, it is possible only to lay out the general recommendations. Given
political and economic uncertainties, specific and more detailed recommendations are
often not possible. Nonetheless, it is hoped that the general shape of recommendations is
clear. The proposed measures may allow for a successful transition to a socially oriented
market economy, initially creating the necessary pre-conditions for the stabilization of
living standards, the gradual reduction of poverty and the income gap, and prevention of
mass unemployment; and later leading to sustainable economic growth and social
49

stability.

4. 4.1. Short-term policy options
1. Temporary industrial protection
The government should establish temporary protection of selected domestic industries
and agricultural products in order to give national producers an opportunity to modernize
and thus better compete with foreign firms.

2. Capital controls
A system that will control capital flows in and out of the country during the initial stage
of the transition should be put in place. This will help stopping capital flight and will
discourage dependency on short-term foreign loans. Closed capital accounts in China
played a critical role in that country's economic success.177

3. Reducing dependence on international financial institutions.
Many observers, both Russian and Western, agree that IMF' s lending has been harmful to
Russia's economy and national interests.178 According to one estimate, "at least a third of
budget revenues are spent on the servicing and repayment of foreign debts. " 179 Thus, any
new borrowing should be either significantly reduced or discontinued as soon as possible.
This is entirely possible at the moment, since high global oil prices have been creating a
budget surplus over the last two years.

4. Better redistribution through better taxation.
The flat rate taxation system currently in use does not provide for equitable distribution
of resources and should be replaced with a well-enforced system of progressive taxation.

177

Stiglitz as cited in Reddaway and Glinski, 303.
See, for example, Nolan, Reddaway and Glinski, Chossudovsky, Sachs, and Bogomolov.
179
Reddaway and Glinski 620.
178

50

Further, considering enterprises, Russia is a country of unpaid taxes.180 Taxes must be
collected in a more aggressive way from enterprises that refuse to pay them. Enterprises
that are not able to pay salaries and/or taxes must be re-privatized.181 Additional financial
resources provided by a better system of tax collection should be directed towards the
formal system of social support.

5. Poverty Amelioration
Due to the higher incidence of poverty among seniors and children, the lowest pensions
need to be increased and additional benefits provided to single-parent families.

6. Health Crisis Management
Access to a basic package of health care benefits should be guaranteed to those currently
unable to afford medical services.
7. Promotion offood security for the poorest segments of the population

Although Russia's economy was suffering from economic decline throughout the 1990's,
it can be argued that the state has enough resources to provide a guarantee of a minimum
nutritional intake (using, for example, a food stamp scheme) for those in need.

8. Re-privatization
Enterprises that were given away or sold for less than their true value must be either reprivatized, or in some instances re-nationalized. This is especially important in regard to
strategic asset industries such as transportation, energy, mineral extraction, and
communications. The best mechanism to initiate this process is through judicial
proceedings that will review the results of privatization where it is suspected a breach of
the laws has taken place.

180

Peter Boettke, "The Russian Crisis: Perils and Prospects for Post Soviet Transition," American Journal of
Economics and Sociology (July 1999): 371 ; Braguinsky and Yavlinsky 223.
18 1
Meaning that the enterprise owners who are unable to properly manage it must be forced into bankruptcy and their
property auctioned off.

51

9. The introduction of a new social contract.
While the old paternalistic social contract (which can be briefly formulated as, "Do what
you are told and you will be taken care of') has been abandoned, there has been no
consensus on what form the new social contract should take. This has led to a great deal
of confusion in the Russian society as a whole.182 The new type of social contract should
clearly outline the rights and responsibilities of both the general population and the
government. The basic message could be elaborated along the following lines: "The
government will assume the responsibilities of providing a safe environment free (as
much as possible) of corruption and crime; and at least some minimum level of social
safety net. The population will have to adjust to the new market realities and to work
harder in order to succeed." In other words, the rules of the game should be made clear
to both participating parties.

4.4.2. Medium-term policy options

10. Credit
Credit should be provided at low cost for productive uses in industry, construction and
agriculture, while steered away from financial speculation.

11. Promotion of gender equity
Empowerment of women by ensuring equal rights and access to land, credit, job and
training opportunities, and political participation is essential for achieving both social
stability and economic growth. The most urgent policy actions in regard to the gender
issue are opening all occupations to qualified persons irrespective of gender, providing
pro-active employment and entrepreneurship programs for women, and promoting the

182

Braguinsky and Yav1insky 193,194.

52

provision of child-care facilities to improve the labour mobility of women.183

12. Creation of a new, socially useful third sector in the economy
This sector could provide goods and services that normally are not profitable in a freemarket economy. Most importantly, this publicly subsidized socially useful third sector
will provide unemployed people with a source of income (however small that income
might be) and will play an important social integration role by transforming people's
lives though meaningful employment and social involvement. 184

13. Judicial reform
One of the main objectives of the process of democratic state-building includes the
creation of a stable society ruled by law. In this context, one of the main challenges to a
successful transition remains the weakness of legal institutions and mechanisms to
regulate business and competition and to combat crime and corruption. 185 Thus, a judicial
reform that would include the building or restructuring of legal institutions into a viable
legal system is long overdue. The rule of law, separation of powers and an independent
judiciary are vitally important for the development of an effective market economy.

4.4.3. Long-term policy options
14. Public Spending
Public spending on science, technology, public health, and education should be gradually
increased. Russia's financial loss from the decline of its science is estimated at $500-600
billion annually.186 Investing in public health and education will in part result in a more

183

Monica S. Fong, The Role of Women in Rebuilding the Russian Economy (Washington, DC: The World Bank,
1993) 14-18, 30.
184
Alan Lipietz, Towards a New Economic Order: Postfordism, Ecology, and Democracy (New York: Oxford
University Press, 1992) 99-103; Jeremy Rifkin, The End of Work (New York: G.P. Putnam, 1995) 239-243 .
185
Sakwa 65-72
186
Reddaway and Glinski 3.

53

efficient and more competitive workforce.

15. Poverty Reduction
The disturbing trend of increasing poverty can be reversed if poverty reduction is to be
given a higher priority on a national level. Fundamentally, one of the most important
pre-conditions for poverty reduction is the determination to address the issue of poverty.
A sustainable economic growth providing financial possibilities for boosting social
expenditure is another such pre-condition. A long-term strategy aimed at mass poverty
eradication should include the following elements:
a) Increasing the guaranteed minimum wage level and old age pensions to the subsistence
mtmmum;
b) Eliminating errors in targeting. Studies indicate that while a significant proportion of
the poor and the very poor do not receive any benefits from the government, households
that are not poor often do receive public transfers.187
c) Reinforcing social protection of disabled, elderly, children, and other categories not
capable of active work.
d) Securing support for persons who have lost their employment; introducing active
programs aimed at helping unemployed to re-gain employment.
e) Re-establishing a comprehensive public welfare system that can be jointly funded by
the government, trade unions and large corporations and that would provide temporary
support and protection for those who have fallen below the poverty line.

16. Health Care and Education
Essential health care and free elementary and secondary education must be guaranteed to
all. The authorities should determine the content of a realistic package of health services
187

Jeni Klugman and Jeanine Brathwaite, "Poverty in Russia during the Transition: An Overview," The World Bank

54

and establish the necessary procedures and responsibilities for providing these services.
Responsibility for the elementary and secondary education system should be assumed by
the state; this system to be entirely financed through tax revenue.

17. Institutional development
It is important to restore confidence in state-power and to enhance its regulatory role.

Measures should be taken to make the state administrative apparatus more competent,
democratic, efficient, predictable, accountable and transparent, while less corrupt and
bureaucratic. The power of the state should be used for giving reforms a social
orientation, stimulating domestic production, and pursuing structural and development
policies. Structures of law, finance, and regulation appropriate to the new economic
environment must be developed and strengthened.
Promotion of the democratic system is essential; this includes free elections and
constitutional changes to achieve a better balance of power among the executive,
legislative, and judicial branches. The state will also benefit from the devolution of
power from federal to regional and local authorities.188 The government should also
pursue an active labour-market policy and stimulate entrepreneurship.

18. Promotion of civil society
Citizen participation and engagement in national policy-making must be encouraged as
much as possible. Citizens' movements and campaign groups can and should
democratically define and shape the country' s development path and policy priorities.

Research Observer (February 1998): 44 .
188
Braguinsky and Yav1insky 198.

55

A policy matrix summarizing the above policy options and further categorizing them into
economic, social, and political measures follows .
Table 7. Policy Action Matrix

Economic

Social

Political

Short-term

1, 2, 3, 4

5, 6, 7

8, 9

Medium-term

10

11 , 12

13

Long-term

14

15, 16

17, 18

5. Conclusion

In the late 1980s and the early 1990s, the Russian Federation was uniquely positioned for

a successful transition to a mixed market economy with a social-democratic orientation.
While under socialism there was huge underachievement in relation to human and
physical resources, a large potential existed for well-designed institutional change to
produce a substantial and lasting improvement in economic performance. Unfortunately,
this potential has been wasted. Yeltsin ' s attempt to instantly replace a failed communist
utopia with a new, equally utopian economic regime based on radical deregulation,
privatization, and economic austerity led not to a rational and consistent transition, but to
a decade of turbulence, political instability, economic decline, and hardship for the vast
majority of the population. The nee-liberal developmental strategy, uncritically adopted
by the incompetent and often self-interested Russian leadership, led to the collapse of the
welfare state and left the government with few financial resources needed during the time
of transition. Withdrawal of the state from the regulation of the national economy has
had a profoundly negative impact on economic development.
56

I

Thus, the central reason for the unsuccessful outcome of Russian economic
reform has been a wrong policy choice. This project suggests an alternative set of policy
options based on rational pragmatism and social-democratic values. The proposed
strategy is based on the fundamental premise according to which the role of the state
continues to be paramount in the ongoing development of democratic capitalism.
Three generalized lessons may be derived from the Russian transitional
experience. First, a policy of attempting to radically shift all the parameters of a national
economy over a short period of time has a high likelihood of ending in failure . Second, a
pragmatic, gradualist approach to reform based on a country' s needs, history, and stage of
development is essential in designing a viable reform strategy. Third, institutional
infrastructure and a coherent, effective state apparatus are necessary preconditions for
both a successful transition to the market economy and sustainable economic growth.

57

BIDLIOGRAPHY

Anderson, Perry. "Introduction" in Perry Anderson and Patrick Camiller, Mapping the
West European Left (New York: Routledge, 1994).
Aslund, Anders. How Russia Became a Market Economy (Washington, D.C.: The
Brookings Institution, 1995).
Atal, Y ogesh. Poverty in Transition and Transition in Poverty (Paris: UNESCO
Publishing, 1999).
Bienefeld, Manfred. "Assessing Current Development Trends: Reflections on Keith
Griffin ' s "Global Prospects for Development and Human Society," Canadian
Journal ofDeveloping Studies (XVI, 3, 1995).
Blanchard, Oliver, et al. Post-Communist Reform: Pain and Progress (Cambridge: The
MIT Press, 1993).
Boer, Leen. "The State in a Changing World: World Development Report 1997," Third
World Quarterly (Vol.18, Issue 5, Dec. 1997).
Boettke, Peter. "The Russian Crisis: Perils and Prospects for Post Soviet
Transition," American Journal ofEconomics and Sociology (July 1999).
Bogomolov, Oleg. "Russia Facing the Challenges of the Twenty-First Century,"
International Social Science Journal (Vol.52, Issue 163, March 2000).
Brada, Josef "The Transformation from Communism to Capitalism: How Far? How
Fast?" Post-Soviet Affairs (1993/9/2).
Brady, Rose. Kapitalizm: Russia' s Struggle To Free Its Economy (London: Yale
University Press, 1999).
Braguinsky, Serguey and Yavlinksy, Grigory. Incentives and Institutions: the Transition
to a Market Economy in Russia (Princeton: Princeton University Press, 2000).
Brainerd, Elizabeth. "Market Reform and Mortality in Transition Economies," World
Development (Vol. 26, No.11 , 1998).
Buzhalin, Alexander and Kolganov, Andrei. Bloody October in Moscow: Political
Repression in the Name ofReform (New York: Monthly Review Press, 1994).
Chossudovsky, Michael. The Globalization ofPoverty: Impacts ofiMF and World Bank
Reform (London: Zed Books, 1997).
Cohen, Stephen and Schwartz, Andrew. "Deeper Into the Tunnel," The Tunnel at the
End of the Light: Privatization, Business Networks, and Economic
Transformation in Russia, ed. Stephen Cohen et al. (Berkley: University of
California, 1998).
58

I

Davies, R.W. "Gorbachev's Socialism in Historical Perspective," New Left Review 179
(1990).
Derluguian, Georgi. "Recasting Russia," New Left Review 12 (2001).
The Economist, Pocket World in Figures: 1997 edition (London: Profile Books Ltd.,
1997).
Fish, Stephen M. "When More is Less: Superexecutive Power and Political
Underdevelopment in Russia," Russia in the New Century: Stability or Disorder.
Ed. Victoria Bonnell and George Breslau (Boulder: Westview Press, 2001).
Fong, Monica S. The Role ofWomen in Rebuilding the Russian Economy (Washington,
DC: The World Bank, 1993).
Fox, Jeremy. Postmodern Encounters: Chomsky and Globalization (Cambridge: Icon
Books, 2001).
Freeland, Chrystia. "Not-so-badfellas," New Republic (10 December 1998).
Gill, Graeme and Markwick, Roger. Russia' s Stillborn Democracy? From Gorbachev to
Yeltsin (New York: Oxford University Press, 2000).
Glinski, Dmitri and Reddaway, Peter. "Why Did Reform in Russia Fail?" Wilson
Quarterly (Vol. 23 , Issue 3, 1999).
Gustafson, Thane. Capitalism Russian-Style (Cambridge: Cambridge University Press,
1999).
Hall, Thomas and Elliot, John. "Poland and Russia One Decade After Shock Therapy",
Journal ofEconomic Issues (June 1999).
Hough, Jerry. The Logic ofEconomic Reform in Russia (Washington, D.C. : Brookings
Institution Press, 2001 ).
Job, Sebastian. "Globalizing Russia? The Neo-liberal/Nationalist Two-step," Third
World Quarterly (Vol22, No.6, 2001).
Kagarlistky, Boris. Restoration in Russia: Why Capitalism Failed? (London: Verso,
1995).
Kaminski, Bartlomiej , ed. Economic Transition in Russia and the New States ofEurasia
(London: M. E. Sharpe, 1996).
Kautsky, Karl. Social Democracy versus Communism (New York: The Rand School
Press, 1986).
59

Klugman, Jeni and Brathwaite, Jeanine. "Poverty in Russia during the Transition: An
Overview," The World Bank Research Observer (February 1998).
Klugman, Jeni. "Introduction and Overview," Poverty in Russia, ed. Jeni Klugman.
(Washington, D.C.: The World Bank, 1997).
Kotz, David and Weir, Fred. Revolution From Above: The Demise of the Soviet System
(New York: Routledge, 1997).
Kotz, David. "Capitalist Collapse: How Russia Can Recover," Dollars and Sense, (Issue
220, 1998).
Lall, Sanjaya "TNCs: The New Custodians ofDevelopment?" Global Development Fifty
Years after Bretton Woods. Ed. R. Culpeper, A. Berry, and F . Stewart (New
York: St. Martin ' s Press, 1997).
Lane, David. Russia in Transition: Politics. Privatization and Inequality (London and
New York: Longman, 1995).
Lane, David. The Rise and Fall of State Socialism (Cambridge: Policy Press, 1996).
Lavigne, Marie. The Economics of Transition: From Socialist Economy to Market
Economy (St. Martin' s Press: NewYork, 1999).
Leys, Colin. Market-Driven Politics: Neoliberal Democracy and the Public Interest
(London: Verso, 2001 ).
Lipietz, Alan. Towards a New Economic Order: Postfordism. Ecology, and Democracy
(New York: Oxford University Press, 1992).
Lukin, Aleksander. "Putin' s Regime: Restoration or Revolution?" Problems ofPost
Communism (Jul/Aug 2001 , Vol. 48, Issue 4).
Matthews, Jessie. "Power Shift: The Rise of Global Civil Society," Foreign Affairs,
(Jan/Feb 1997, Vol. 76).
McFaul, Michael. Russia' s Unfinished Revolution: Political Change from Gorbachev to
Putin (London: Cornell University Press, 2001).
Mendez, R. "The Provision ofFinancing ofUniversal Public Goods," Global
Governance. Ed. M . Desai and P . Redfern (London: Printer, 1995).
Menshikov, Stanislav. "Russian Capitalism Today," Monthly Review: An Independent
Socialist Magazine (Vol. 51 , Issue 3, July/August 1999).
Michelman, Irving. The March to Capitalism in the Transition Countries (Brookfield:
Ashgate, 1998).
60

I

Mittleman, James. "The Globalization Challenge: Surviving at the Margins," Third
World Quarterly, (Sep. 94, Vol. 15, Issue 3).
Molyneux, Maxine. "Women ' s Rights and the International Context in the Post
Communist States" Feminist Visions ofDevelopment. Ed. Ruth Pearson and
Cecile Jackson (New York: Routledge, 1998).
Murrell, Peter. "What is Shock Therapy? What Did it Do in Poland and Russia?" PostSoviet Affairs (Vol.9, Issue 2, 1993).
Nolan, Peter. China' s Rise, Russia' s Fall : Politics, Economics and Planning in the
Transition from Stalinism (New York: St. Martin' s Press, 1995).
North, Douglass C. "Epilogue: Economic Performance through Time," Empirical Studies
in Institutional Change. Ed._Lee Alston, Thrainn Eggertsson, and Douglass C.
North (Cambridge: Cambridge University Press, 1996).
Pererka, Luiz Carlos, Maravall, Jose M., and Przeworski, Adam. Economic Reforms in
New Democratics: A Social-Democratic Approach (Cambridge: Cambridge
University Press, 1993).
Reddaway, Peter and Glinski, Dmitri. The Tragedy ofRussia's Reforms: Market
Bolshevism Against Democracy (Washington, D.C.: United States Institute of
Peace Press, 2001).
Rifkin, Jeremy. The End of Work (New York: G.P. Putnam, 1995).
Rodrik, Dani. The New Global Economy and Developing Countries: Making Openness
Work (Washington, D.C.: Overseas Development Council, 1999).
Rutland, Peter. "The Rocky Road from Plan to Market", in Stephen White et al. , eds.,
Developments in Russian Politics, 4th ed. (Durham: Duke University Press, 1997).
Sachs, Jeffery. "Russia' s Tumultuous Decade," Washington Monthly (Vol.32, Issue 3,
March 2000).
Sachs, Jeffrey. "Making it Work" Economist (09/12/98).
Sachs, Jeffrey. "What Went Wrong in Russia," New Prospective Quarterly (Winter 1999,
Vol. 16, Issue 1).
Sakwa, Richard. Russian Politics and Society (London: Routledge, 1996).
Sam, John. "Sub-Saharan Africa in Global Capitalism", An Independent Socialist
Magazine, (Vol.51 , Issue 3, Jul/Aug. 1999).

61

I

Saunders, Paul. "Why ' Globalization' Did Not Rescue Russia," Policy Review (Issue105 ,
Feb/Mar.2001).
Sen, Amartya. "What' s the Point of a Development Strategy?" Development Economics
Research Programme Paper, London School ofEconomics (April 1997).
Shlapentokh, Vladimir. "Social Inequality in Post-Communist Russia," Europe-Asia
Studies (November, 1999).
Silverman, Bertram and Yanowitch, Murray. New Rich, New Poor, New Russia: Winners
and Losers on the Russian Road to Capitalism (Armonk: M .E. Sharpe, 2000).
Singh, Ajit. "Openness and the Market Friendly Approach to Development: Learning the
Right Lessons from Development Experience," World Development (December,
1994).
The Social Crisis in the Russian Federation (Paris: OECD Publications, 2001).
Stiglitz, Joseph. "The Insider," New Republic (Vol. 222, Issue 16/17, April 2000).
Stiglitz, Joseph. "Whither Reform? Ten Years of the Transition," World Bank Keynote
Address (April28, 1999).
Thomas, Alan. Poverty and Development in the 1990s (Oxford University Press, 1992).
Tichomirov, Vladimir. "The Second collapse ofthe Soviet economy: myths and realities
of the Russian Reform," Europe-Asia Studies (Vol. 52, Issue 2, March 2000).
Tikhomirov, Vladimir. The Political Economy of Post-Soviet Russia (New York: St.
Martin' s Press, 2000).
UNDP, Human Development Report 1997 (New York: Oxford University Press, 1997).
UNDP, Human Development Report 1999 (New York: Oxford University Press, 1999).
Wade, Robert and Veneroso, Frank. "The Asian Crisis: The High Debt Model Versus the
Wall Street-Treasure-IMP Complex," New Left Review (Issue 228, March 1998).
White, Louise G. Political Analysis: Technique and Practice (Fort Worth: Harcourt Brace
College Publishers, 1999).
Yeltsin, Boris. Zapiski prezidenta (Moscow, Ogonek, 1994).

62