Moscow's Rough Road to Capitalism
Article Summary and Author Biography
Radical socialists wanting to remake the Russian economy were once called maximalists; now the maximalists are fervent free marketeers. Yet separating radicals from gradualists only clouds the peril, progress and prospects of the Russian economy. Virtually all economists now accept four pillars of policy for Russia: controlled inflation, price liberalization, steady privatization and reformed legal and political institutions. A development bank for Russia is still needed to help manage the economic metamorphosis. President Clinton should be leading now, through the Group of Seven industrialized nations, to collar more money and free-market expertise for Russian reform.
Metamorphosis of an Old Debate?
The controversy over how to bring capitalism to Russia mirrors an argument of 100 years ago between revolutionary Marxists and agrarian socialists. In 1899, a revolutionary approach to destroying feudalism was staked out in Lenin's thundering prose. At the time, the issue was how to move from feudalism to capitalism, in order to then create a socialist economy. Now the contenders are self-professed capitalists, and the issue is how best to transform a communist economy into a capitalist one. The debate among these ardent latter-day Bolsheviks over how to proceed has increasingly assumed a reductionist form, cleaving the complexities of a capitalist transformation into the competing slogans of gradualism versus economic shock therapy, also called the big bang approach.
Non-economist advocates of these differing theories are often long on criticism of the opposing approach while short on specifics of their own. Shock therapists favor proceeding rapidly on all fronts to wrench a centralized economy into a capitalist mode, fearing that anything less will leave the old guard in command. Gradualists argue that a dismantling of the old system before enough of a new one is in place will lead to chaos and uncontrollable disruptions.
The current controversy began in the late 1980s with President Mikhail Gorbachev's perestroika and gathered steam with his rejection of the "500-day Plan" for instant capitalism in the Soviet Union and the initiation of rapid economic transformation in Poland. Since then debate has intensified, with stronger calls for gradualism in the wake of Russian President Boris Yeltsin's year-old program of bold capitalist reform and an accompanying plunge into an economy with sinking output, runaway inflation and a shrinking ruble.
In 1992 Russia's gross national product and industrial production fell about 20 percent. Retail prices rose twentyfold, with inflation reaching 30 percent in January 1993 alone. The ruble collapsed from the pre-reform market rate of 60 rubles to the dollar to nearly 600 at last reckoning. Furthermore the budget deficit continues to widen. The supply of money and credit is out of control and massive capital flight exacerbates the shortage of foreign exchange.
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