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. Last Updated: 07/27/2016

Feds to Run Economy?

Radical market reforms in Russia have failed in large part due to the delusion that noninterference on the part of the government or, in any case, a sharp curtailing of its role in the economy, together with the liquidation of central planning and the introduction of private property, will automatically lead to the emergence of a market system similar to those that have taken shape in modern economies around the world.


But anyone who has studied the practices of these countries cannot fail to conclude that none of them has purely market relations. Indeed, there is no such thing as a free market and the more civilized the country the more vigorous is its policy of a controlled market. Especially instructive here is the United States' post-Depression experiment dedicated to recovery and reform, Franklin Roosevelt's New Deal.


Nevertheless, the debate as to whether the government should play a role in Russia's economy rages on. Unfortunately, forces favoring the government's complete withdrawal from the economy have the upper hand for now. They continue to trust in the "invisible hand of the market" and have a clear interest in preserving the current organizational morass that has made the national economy all but ungovernable.


What is the position of the Russian Union of Industrialists and Entrepreneurs?


It should be said at the outset that attempting to recreate anything like the planned economy that existed under Soviet rule would be as ludicrous as trying to stop the flow of time. That Russia is on the road to a market economy is irreversible. The question is, what model of market economy should we be aiming for?


Needless to say, we must not create the mirror image of any of the models that exist in the West. But if we take the positive in their experience as a frame of reference, then we must be careful to avoid repeating the negative. Thus the question immediatley arises about the need for the state to be far more actively and effectively "engaged" in the economy.


This primarily concerns those functions which the government is supposed to fulfill in any case in any modern market economy, even given its liberal conceptions: formulating the rules of the game (or the laws) and providing for their implementation; conducting tax, credit and monetary policy; controlling specific areas of the market (such as the financial sector of natural monopolies). This would include such noble missions as creating equal conditions for all participants in the process of forming the market economy, so that advantages were given to the best, rather than to those with connections to the people invested with the power to make decisions.


Meanwhile, one should not forget that those market mechanisms and institutions which took shape and improved by natural means over the course of hundreds of years in the West must now be created in Russia in almost no time at all. These mechanisms cannot be the product of natural historical processes, but must be brought about by "social engineering." And the principal engineer here must be the government.


Without the active participation of the government, and all possible means of influence -- scientific forecasts, planning, regulation and stimulation, structural policy -- real steps to revive Russia's scientific and industrial potential on the basis of advanced technology are unthinkable. Without the government, it will be impossible to stop our country from becoming a colonial-style economy dedicated to the production of raw materials. But with the government, we may gradually improve the standard of living, which for most people, compared to the years before reform, has plummeted


The creation of a federal government contract system and government market of goods and services is, in our view, crucial. As the experience of many countries attests, a federal contract is a strong instrument of government economic management.


Many people in Russia now realize the pressing need for increased government regulation and this is reflected in the latest decrees by President Boris Yeltsin and his government. In part, we credit ourselves and our persistence for making the government see the role it should be playing today. However, very little of a concrete nature has been done to this end so far, and the powers-that-be seem not to be in possession of a well-considered or detailed plan. Also lacking is the logically formulated legislative base without which no market economy can manage to function on its own. The inviolability of private property must be stipulated, legal observance of contracts must be guaranteed, and citizens must be protected against the arbitrary rule of bureaucracies. The most important normative acts should be considered those aimed at steppng up the fight against corruption, especially in the top echelons of power. One example of this sort of normative act is the "Honesty Law" adopted in the United States in the 1930s at the instigation of President Roosevelt.


The Russian state has always been a leading light of world civilization. Now, in this transitional state, Russia is significantly weakened. One cannot allow this ruinous tendency to continue. We must move more purposefully and energetically toward a managed market. For this, we need not invent anything. We know what we have to do. Of course, we will have to reconsider some of those decisions taken earlier.


The main thing is that we act in strict accordance with the Constitution. And we need not frighten ordinary Russians with talk of a return to rationing and coupons, and the redistribution of private property. All we need to do is to recall the mistakes we have made, admit them, and learn from them. What else are mistakes for?





Arkady Volsky is president of the Russian Union of Industrialists and Entrepreneurs. He contributed this comment to The Moscow Times.