Economic Transformation in Russia.

Leitzel, Jim

This is the third in a series of books, edited or co-edited by Anders Aslund, consisting of contributions by leading Russian and Western academics and participants in the ongoing Russian economic reforms. The papers in this volume date from mid-1993, after the April referendum that provided a boost to the efforts of economic reformers, and prior to the parliamentary elections of December 1993, in which the leading reform party, Russia's Choice, had a disappointing showing. The timing is important, not just because of the hopeful air that it lends to many of the contributions, but also because in general the papers are tied closely to the contemporaneous events. As Professor Aslund writes in the introduction, the "hope is that this volume will provide the reader with an analytical picture of the current state of the Russian economy, of achievements and failures to date, and of the line of thinking that is underlying the policies of the Russian government." The book succeeds in achieving these goals, though the picture of reforms presented here is clearly more positive - which is not to say uncompelling - than in most competing accounts. Perhaps the source of the optimism goes beyond the timing, since many of the contributors were intimately involved with the reforms that they assess.

There is an introduction, by Aslund, and eleven chapters. The first four chapters (by Stanley Fischer; Boris Federov and Andrei Kazmin; Jeffrey Sachs; and Jacek Rostowski) are concerned with the macroeconomy. Chapter 5, on foreign trade regulation, is by Petr Aven, who as Minister of External Economic Relations was the official responsible for foreign trade policy during the Gaidar reforms. There are three chapters on privatization and state enterprises, by privatization chairman Anatoly Chubais and Maria Vishnevskaya; Maxim Boycko, Andrei Shleifer, and Robert Vishny; and Irina Boeva and Tatania Dolgopiatova. The final three chapters offer a summary of the effects of reform on the "Conditions of Life," by Andrei Illarionov, Richard Layard, and Peter Orszag; a comparison of Polish and Russian reforms by Aslund; and a call for radical economic liberalization by Russian economist Vitaly Naishul.

This volume is marked by a substantial amount of internal agreement, both on strategies for reform and heroes and villains. Heroes are the Russian reformers such as Gaidar, Federov, and Chubais; goats are the old Supreme Soviet, the Central Bank of Russia, its chairman, Victor Geraschenko, and the IMF, which supported a unified ruble zone for too long. Stabilization is best accomplished with a fixed exchange rate, according to Fischer, Sachs, Rostowski, and Aslund, though there is little discussion of the costs and benefits of alternative approaches. The same four authors, explicitly or implicitly, suggest that Western aid, on a fairly large scale, is an important element of successful reform. These two points about reform strategy merit fuller treatment in the volume, particularly since the proponents of fixed exchange rates and large-scale Western aid seem generally to favor a liberal view of reform that perhaps fits more comfortably with floating rates and a "trade not aid" stance.

There is a good deal of useful insight and information throughout the book, though, as can only be expected, much of it has already become dated. The chapter by Jacek Rostowski, "Dilemmas of Monetary and Financial Policy in Post-Stabilization Russia," however, if not for the ages, at least transcends the time and place of Russia, 1993. This chapter includes a nice discussion of money multiplier dynamics during stabilization. In the high inflation prior to stabilization, low (possibly negative) real interest rates make enterprises less willing to hold bank deposits; they may shift to foreign currency, or even the domestic currency, if payment delays render the inflation tax to be higher on deposits than currency. Upon stabilization, the attractiveness of deposits increases, and the money multiplier goes up. This process adds yet another dimension to the uncertainty associated with monetary policy, which is complicated enough with a constant money multiplier. Rostowski provides some controversial policy recommendations as well. For example, he argues for a high reserve ratio, and hence lessened availability of bank credit during transition. Citing Polish statistics indicating that the bulk of credit goes to the worst firms, he views such a credit limitation as possibly a good thing. Rostowski also counsels that the best policy response to a surge in inter-enterprise debt is to do nothing.

The privatization chapters by Chubais and Vishnevskaya and by Boycko, Shleifer, and Vishny are basically straightforward, descriptive pieces on the method and results of Russian privatization through mid-1993. The chapter by Boeva and Dolgopiatova adds to a growing body of literature about the substantial changes that state-owned enterprises in transitional economies undergo, prior to official privatization. Based on surveys and interviews during 1992-1993 at ten industrial enterprises, Boeva and Dolgopiatova note both positive responses to the new economic environment, such as changes in the output mix and the adoption of cost-cutting measures, as well as less favorable developments such as collusive price fixing agreements.

Illarionov, Layard, and Orszag present a good deal of statistical information on income and consumption, as well as many of the reasons that the statistics are not entirely to be trusted. They document a point that appears to be little appreciated in the West, namely that poverty in Russia is associated not so much with pensioners as it is with large, or single-parent families. Their policy suggestion of a "major national program of training" to help deal with the expected rise in unemployment that will accompany structural adjustment should perhaps be compared with Vitaly Naishul's faith in viable built-in stabilizers: "The existence of an informal non-state network, which satisfies the majority of human demands, makes the society capable of organizing itself and preserving stability while the state withers away." Naishul's radical liberal perspective offers some interesting, and at times convincing, approaches to reform, though his hope for a workable system of voluntary taxation and free banking will strike most Western (and Russian) observers as extreme.

In summary, this is a useful book that succeeds in being informative and challenging with respect to the state of economic reform in Russia in mid-1993. As time passes, however, the need for a fourth such book in this series becomes more pressing.

Jim Leitzel Duke University