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The Whys, Wherefores - and Hows - of Reform

© Jeffrey Deutsch

Some people have recommended that the new Premier, former Foreign Minister Yevgeny Primakov, renationalize certain industries and otherwise assume tighter government control over the economy.

I have said before, and will do so in further detail here, that that would be a bad idea.

The instability that has prevailed - not over this summer, but this entire year and much of 1997 besides - has been political instability, not economic. Market forces did not impel President Boris Yeltsin to fire First Deputy Premier Anatoly Chubais after repeatedly promising not to do so, or to toss Victor Chernomyrdin out as Premier after pledging no more reorganizations, or to skip paying thousands of miners and pensioners.

My point is that it is political forces that change the economic scene, much more than the other way around.

It is true, of course, that there are "private" interest groups - most notably the official/media/banking blocs repeatedly discussed here and in the RFE/RL reports we link to here - that benefit from government improprieties (like fire-sale privatizations).

But, it is not private influence that creates that situation in the first place. It is the fact that the state has the power in the first place to grant or withhold favours, that there is no rule of law to guarantee basic fairness to people not in government's favour, and that there is a distinct absence of public spirit among top government officials.

While we are speaking of the Soviet past, it is well to remember a book by Paul Craig Roberts, Alienation and the Soviet Economy. He points out that the Soviet Union, whatever its ideology of central control, was in fact a government-organized cartel of effectively independent enterprises. The enterprises and ministries lobbied for resources just as private enterprises do in any non-laissez-faire state, and indeed the "tail wagged the dog," in that each Five-Year-Plan was effectively revised after the fact to take account of enterprise capabilities (to say nothing of management bargaining power).

Another way of saying this is that the nationalization of all industry and 99 per cent of agriculture (that is, 99 per cent of the land, not 99 per cent of the production) did not reduce instability and conflict. It simply brought them deeper than ever into the state.

Soviet "growth" was what George Orwell referred to in his book Animal Farm, when one of the animals notes that the (pig-run) farm had gotten richer without making any of the (non-pig) animals themselves any richer. It is quite true that the Soviets engaged in massive military spending, and could allocate the equivalent of billions of rubles towards individual projects like Sputnik, which served the same purpose as the Egyptian pyramids: to impress the world with the state's might. Meanwhile, the ordinary (non-politically connected) person lived in deep poverty by Western standards.

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