2.1 The Course of Economic Policy
Mistakes in the realization
of economic policies or in the strategy?
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Supporters of "shock" therapy
usually attribute the
inefficiencies in the realization of these reformulation
methods to improper execution, stating that had the fiscal
and monetary policies been stricter, then the liberalization
of economic activity would have been that much quicker.
Reform activities of the Russian administration have, to
this point, been mainly to correct the chosen strategy of
political priorities of liberalization and fiscal
stabilization.
One might pose the question, however, of
whether it is
worth persisting with the chosen strategy and whether the
results of such a policy will turn out to be the best for
Russia. Or might there exist here some conditions which
separate Russia from the slate of other post-socialist
countries, and might it be worth considering other paths?
1. Institutional conditions of reform. That
Russia lacked
even a small market sector during the entire time of
Russia's administrative economy (70 years -- three
generations) points especially to the question of whether
there exists the possibility of the population and
enterprises reacting in unforeseen and contrary ways to
the
macroeconomic reform policies chosen by the administration.
(For example, traditionally in the West, a recession brings
along with it bankruptcy and unemployment. In Russia's
economy, however, there is no sign of such an occurrence,
despite the fact that the officially recognized recession
has lasted since the end of 1989, and the government has,
since 1992, drastically cut its support for enterprises.)
Without a doubt, the rejection of communist
ideology did not
automatically erase the psychological, ethical and other
barriers to the acceptance of a market ideology
and the
formulation of a market reaction to corresponding stimuli.
Moreover, during the unsuccessful institutional reforms,
these barriers sometimes receive fully materialistic
reinforcements; hence, the stereotypes formed regarding
collective property in government enterprises will long
hinder the economic reinvigoration of Russia.
The "socialist" transformation
in Russia's economy extended
in many different directions. It is therefore extremely
difficult to shrink government spending under such
conditions as virtually complete central budget financing
of
medicine and education. It is just as difficult to attempt
to create a labor market when apartments are still state
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property and while "free movement of
labor" in the country
is still impeded by various factors. To liberalize prices
in
the current conditions of a government monopoly structure
is
also awkward, as is the attempt to give economic freedom
to
state enterprises under a highly unclear set of property
rights and relationships. There exists an array of further
examples.
2. The depth of the structural deformation.
There is no
doubt that the economy of Russia faces far greater
structural deformation than the economies of Eastern
European countries. The reason for this is linked to 1)
the
formation of a socialist economy during the interwar period,
with the Soviet Union finding itself in hostile
surroundings, 2) the high costs of holding the status of
a
nuclear and aerospace superpower, 3) the traditionally
closed nature of the the Soviet economy, and so on. Upon
undertaking a "shock" policy of developmental
reform, the
former Soviet economy faces far sharper changes in the
structure of final demand than do the economies of Eastern
Europe. And if now new forms of existence are spontaneously
found by enterprises (e.g., the expansion of interindustry
debt), then those forms indicate an inclination to hold
on
to old structures, and not a shift toward new ones. In this
sense, no one can be satisfied -- neither
reformers nor
enterprises. Until now there has not yet been even one
sufficiently clearly expressed positive development in the
policy structure (In Poland, while still in the first months
of reform, the question of the export sector was but
parenthetical, while in Russia exports have fallen by over
one third in the first eight months of 1992).
3. There exist a range of political factors
connected with
the transformation of governmental affairs in Russia which
highly complicate the economic transformation: an
undefined zone of rouble circulation, unclear customs
borders, unregulated interrepublican trade, conflicts with
an array of regions inside Russia, and so on.
Reservations regarding the unconditional choice of tight
fiscal and monetary policy priorities not only occur
regarding the unique features of Russia's economy; there
also are a number of theoretical objections to such a policy
choice.
They are for the most part connected with the idea that
rules of the free market do not come into play in just any
situation, but only in a market "environment"
comprised of
free and rational leaders of industry (the "economic
man"
concept). For the creation of a market economy, a certain
critical mass of institutional conditions must be achieved.
The instantaneous switch of a post-socialist economy to
market conditions is likely long to hinder necessary
institutional transformations, usher in a highly deformed
market structure and throw the economy into a long period
of
economic stagnation. Moreover, when the very instruments
used to execute such a policy break upon contact with their
patient (as happened when a strict credit policy was found
to be powerless against the avalanche of interindustry
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debt), one must wonder about the expediency
of continuing
former strategies, and the efficiency of using former
instruments of economic regulation.
Under changing structure of final demand, there is a
consequent need for rebuilding of the whole economy. One
needs time and long-term investment for
such a
"perestroika." Otherwise, there exists only one
outcome in
this policy -- the cessation of activity in whole sectors
of
the economy and a structural equilibrium point at an
extremely low level which cannot satisfy the demands of
the
population even in those goods which previously were
considered to be first priorities. In addition, the policy
will result in massive unemployment. In that sense,
instantaneous structural reform policies are unacceptable.
And if such a result has not yet happened in Russia, then
this does not prove that applying shock methods of
structural reform is possible, but only shows the lack of
success in the application of those methods and a disregard
for the macroeconomic financial limits upon enterprises
and
for the means by which they compensate for these limits
(i.e., an increase in interindustry debt). Perhaps the very
breakdown of this perestroika has created an acceptable
shock therapy in Russia, despite the fact that the
population is willing to wait out its inherent consequences
-- a fall in the standard of living.
Inflation in the Russian economy is not
a question of
austere economic policy (although such a policy can and
must
be used to slow down price rises). Inflation here has
profound institutional and structural roots. The task of
surmounting inflation is not a short-term task of fiscal
policy, but a long-term problem in the systematic
transformation of the economy.
The greatest problem of the unsuccessful reforms of 1992
is
not insufficient resolve on the part of the country's
administration to take the only possible path, but the
incorrect choice of that path -- the very strategy of
economic reform itself.
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