Analysis of the 'Shatalin plan' to introduce a market economy within 500 days.
Ed A. Hewett is a Senior Fellow in Foreign Policy Studies at The Brookings Institution in Washington, D.C. He is also editor of the journal Soviet Economy and Chairman of the National Council for Soviet and East European Research.
Among the many conflicts in the U.S.S.R. in the summer of 1990, none was more riveting or important than the clash between Mikhail Gorbachev and Boris Yeltsin, the chairman of the parliament of the Russian Soviet Federated Socialist Republic (R.S.F.S.R.). Since last May Yeltsin has been on the attack, accusing Gorbachev of dragging his feet on the introduction of market reforms and of denying Russia its sovereignty. The demand for sovereignty has been popular among Russians convinced that their lives would improve dramatically if they could only liberate their republic's resources from the hands of Moscow bureaucrats. For other republics it was an immense boost to have Russia-the core of the U.S.S.R. and Gorbachev's power base-join their side in their battles with the central government. The call for a rapid move toward a market economy also found enormous resonance in a population frightened by the combination of a chaotic economy and a government helpless in the face of the decline of the Soviet Union.
For Gorbachev, skilled politician that he is, Yeltsin's approach and its appeal could hardly have come as a surprise. The Soviet president must have watched with a tinge of envy as his old rival used his advantage as a leader of the opposition to insist that the problems were easier to confront than the leadership supposed and, in particular, that introducing a market economy need not be painful if only it were handled well.
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Gorbachev's political liberalization has not produced economic revitalization, but rather economic crisis which threatens his political survival.
Most people think that Russia's economic problems are due to the shock of fast and radical reforms. Actually, the Russian economy is not very liberalized at all, and its problems have been caused by reforms that were too slow and partial, not too sweeping. Russia suffers not from too free a market but from corruption, which thrives by preying on an unwieldy bureaucracy. Still, the outlook for the months ahead is promising. If Poland could do it, why can't Russia? The private sector got a salutary wake-up call from the 1998 collapse of the ruble, and the strength of the political center bodes well for economic recovery and social change.
Russia does not need a Pinochet, but it does need the Chilean economic model. For Russia to grow at self-sustaining annual rates of seven to ten percent for a decade or two -- the only way it can pull itself out of poverty -- it needs much more economic liberalization. Four reforms inspired by Chile's dramatic turnaround can help Russia out of its doldrums: pension privatization, tax reform, radical deregulation of coddled industries, and the replacement of the ruble with the euro. The indispensable element is not a strong four-star general but a team of determined economic policymakers who know that freedom works.

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