Reforms Called History's Worst

MTCo-editors Cornia, left, and Popov unveiling their book in Moscow on Wednesday.
The co-editor of a new book on the efforts of 28 socialist countries to move toward a market-based economy in the post-Soviet world has concluded that Russia's bungled reform effort was "the biggest man-made economic disaster on record."

Vladimir Popov, co-editor of "Transition and Institutions: The Experience of Gradual and Late Reformers," launched this week in Moscow, said Russia suffered more than all the former socialist states because key figures like Yegor Gaidar and Viktor Chernomyrdin too drastically cut spending on ordinary government, including health care, education and law and order.

The book argues that the economic strength of former socialist and communist countries at the beginning of the transition explains only 60 percent of the variations between them. An equally, if not more important, factor in determining the success or failure of a country's transition is the strength of its institutions, primarily its ability to collect taxes and enforce the law.

"The story of post-socialist transformation in the former Soviet Union was much more a story of government failure than of market failure," said Popov, head of research at the Russian Academy of the National Economy in Moscow. "No other government in the world reduced real government spending as much as Russia."

The book is a publication of the World Institute for Development Economics Research of the United Nations University in Helsinki, Finland. Co-editors Popov and Giovanni Andrea Cornia, a former director of the university who now teaches at the University of Florence, said that by focusing on economic conditions and the strength of institutions, they hoped to add new life to the debate over transitions to market economies. "Most economists try to link economic performance to the degree of liberalization," Popov said.

A focus on how quickly countries implement market reforms results in a distorted picture, they argue. They highlight a comparison of good market transitions in China and Vietnam, countries that have maintained communist governments, to those in more liberal, Central European countries to make this point. "Even though they had communist regimes, China and Vietnam turned out to have transitions more similar to those in Central European nations than to those in the former Soviet republics," Popov said. "Why? Because they continued to deliver public goods like law and order."

The book argues that Soviet leader Mikhail Gorbachev's reforms in 1985-91 failed not because they were gradual, while President Boris Yeltsin's reforms were costly not because they were quick, but because the government allowed the weakening of state institutions. A 60 percent drop in spending on ordinary government between 1989 and 1996 helps explain a 45 percent drop in the country's economic output from 1989 to 1998, the book concludes.

Economists in Russia are embracing the book, but are questioning its harsh assessment of the government. "When an empire implodes, you can't expect the tax collector to remain on duty," said Christof Ruhl, the World Bank's chief economist in Moscow.