The Market Meets Its Match: Restructuring the Economies of Eastern Europe
By Alice H. Amsden, Jacek Kochanowicz, and Lance Taylor
Harvard University Press, 1995, 250 pp
Lost Opportunity: Why Economic Reforms in Russia Have Not Worked
By Marshall I. Goldman
W. W. Norton, 1994, 290 pp
These two books deal critically with the economic reforms of the early 1990s in formerly communist countries, although from quite different angles. Goldman's book is a lively and highly readable account of the evolution of economic reform in Russia, offering brief contrasts with economic reform and recovery in Germany and Japan after the Second World War and with Poland, Hungary, and China in recent years. He lauds Gorbachev for his political opening but is highly critical of him for equivocating on economic reform, missing the opportunity for gradualism and in effect forcing the Yeltsin-Gaidar team into their "shock treatment" of 1992, although in fact they did not introduce a full set of reforms then. He is also critical of the reformers for failing to reform the currency and for favoring privatization of state enterprises over creation of new enterprises, such as in China. But his basic message is that deep-seated Russian attitudes and institutions would have made reform difficult and prolonged even in the best of circumstances.
Amsden, Kochanowicz, and Taylor offer a detailed and scathing attack on what they take to be the uncritical application of market fundamentalism to the complex problems of transforming centrally planned economies into market-oriented economies, which they agree was necessary in both Russia and Eastern Europe. They emphasize the need for maintaining adequate aggregate domestic demand, arguing that exports could not plausibly provide adequate demand in the short to medium run; regret the effort at what they call "pseudoprivatization" on the grounds that it cannot provide the investment necessary for modernization and transformation; and argue that if there are appropriate models elsewhere in the world, they are to be found in the export-oriented dirigiste economies of East Asia, especially Japan and South Korea, with their strong government guidance, financial support, and even protection of selected activities, rather than the relatively laissez-faire British-American model.
Both these books presume that economic reforms in Russia have not worked. That judgment is premature. To be sure, they have not worked smoothly, and many Russians are materially worse off today than five years ago. But the Russian economy was deteriorating steadily before Yeltsin arrived, with little prospect of improvement without major change. That economy has been reformed dramatically, many Russians are better off, many problems remain, and the returns are not yet in.