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. Last Updated: 07/27/2016

Reform and Its Advisers




The recent publication in the weekly Novoye Vremya of a discussion with Harvard economics professor Jeffrey Sachs, who has advised such countries as Chile, Poland and Russia, among many others, raises questions over the role of international specialists on reform. Sachs pointed to some of the negative consequences of the economic course that Russia has pursued between 1992 and 1997 and drew some surprising conclusions. In the Russian text, he said this "should not be called economic reform." At the same time he said "reform suffered defeat on all counts." Almost four years after resigning as adviser to the young reformers inthe Russian government between 1992 and early 1994, Sachs says, "This is not at all what I advised, and not what I ever could have advised." He blames the Russian government, the opposition, big business, the U.S. government, the International Monetary Fund -- everyone except himself -- for the failure of the reforms.


For Sachs, the ideas that lay behind the reforms in Poland and Russia were similar. But if the ideas were so similar, why has there been such a difference in the results of reform in the two countries? Sachs believes that "the difference in the level of success of the reforms is perhaps rooted in the historical past of these countries, but ... however much people explain these essential differences, the behavior of the Russian leadership during this period is regrettable. President [Boris] Yeltsin had his head in the clouds. [Former Prime Minister] Yegor Gaidar and [Former Finance Minister] Boris Fyodorov tried to resist, but too many people were involved in plundering state property, which was easiest to appropriate."


As a professional economist like Sachs, I would draw attention to the deep differences between Russia and Poland, which, in my view, go far to explain the diverse directions that the countries took in applying the "analogous ideas" of reform during the period. First, the so-called socialist period of development lasted about a generation and a half in Poland and three consecutive generations in Russia. This could not but affect the mentality of people, their readiness to introduce market institutions and the character of the institutions themselves.


Furthermore, unlike in Russia, where fierce debates over private ownership of land continue to this day, 80 percent of Polish land is in private hands. Moreover, the role of agriculture in the economy in Poland has been greater than in Russia. About 28 percent of the active work force in Poland, as opposed to about 14 percent in Russia, is involved in agriculture. Moreover, as experience has shown in many countries, including China, Vietnam and Russia of the '20s, it is precisely market reforms in agriculture that have served as a powerful spur to the development of the economy.


Private enterprise and private property have always been preserved in Poland, however limited in scale, not only in the agricultural sector but in handicrafts, trade and service sectors as well. The distorted emphasis on heavy industry was far greater in Russia than in Poland. Moreover, the role that the military-industrial complex played in Poland is three to four times less than in Russia, which, according to former Soviet President Mikhail. Gorbachev reached 20 percent of Russia's gross domestic product. Clearly, reforming a military-industrial complex of such scale in a brief period is far more difficult than in Poland or any other of the former socialist countries.


The West turned out to be ready to forgive Poland for a significant part of its external debts, made access of Polish goods to its markets easier and invested capital into the country's economy. At the same time, Russia was obliged to pay the entire debt of the Soviet Union and could only have this debt restructured. Given that Russia is still not recognized as having a market economy, it runs into many obstacles in selling its goods to the West, and capital flight from Russia is perhaps higher than capital inflow.


Several social and political factors should be considered. Unlike Poland, Russia is relatively multi-ethnic, which, to put it mildly, has complicated the reforms that have been conducted by the federal authorities. If Russia can be characterized by religious heterogeneity and relative weakness of the Russian Orthodox Church and of other confessions, then in Poland, the Roman Catholic Church played a considerable role in consolidating the nation in the fight against totalitarianism, stabilizing the country and supporting reform. Finally, the banner of fighting for independence (from the Soviet Union) was one of the greatest factors allowing the Polish people to unite, and was later transformed into an ideology of economic and political reform and inevitable rapprochement with the West.


The collapse of the Soviet Union, the formation of the Russian government and the carrying out of reforms occurred in conditions not of unity but of a schism in society and an almost constant struggle between the executive and legislative branches of power. In 1993, this struggle took on a violent form. At the time, Yeltsin did not have his head in the clouds, but was forced to order a raid on the parliament, where the opposition, strongly opposed to reforms, was calling for his "dethronement."


Any attempt to abstract such social, political, ethnic, ideological and cultural realities when analyzing the results of reform in various countries can lead to gross errors. It seems to me that this is exactly what happened with Sachs. To paraphrase a well-known saying, his conclusions confirm that "if any successful reform has many authors -- or advisers -- then reform in Russia is an orphan."


Leonid Fridman is professor of economics at the Moscow State University Institute of Asian and African Studies. He contributed this comment to The Moscow Times.