Economic Reform: a View from the Ministry for National Economy

Abstract

Yakov Urinson — Professor, Department of Business Analytics, National Research University “Higher School of Economics”. Address: 20, Myasnitskaya St., Moscow, 101000, Russian Federation. E-mail: uym@rao.elektra.ru

It has been now over half a century since the 20th Party Congress took place. The publications that followed this event addressed the numerous problems and questions raised for the first time during this congress. However, one thing was left alone, and that was the problem of cutting military expenses. Remarkably, it was over 50 years ago that the ruling establishment dared to admit that the country cannot constantly increase its huge expenditures on the army and the military-industrial complex.

This task remained unsolved and became one of the major factors contributing to the collapse of the Soviet economy and the radical economic change in the 1990s. In 1967, a group of prominent researchers from the Central Economic Mathematical Institute prepared a serious paper concerning the state of the Soviet economy, which is now often remembered as the first seriously grounded document that incited the discussion of market reforms in Russia (precisely, it called for a balanced use of monetary and fiscal leverages in the economy) and, thus, was officially claimed as anti-Soviet. Hence, it was already as far back as the 1960s that people began to understand the disorganization in the socialist economy.

The attempts at reform in 1979, initiated by Gosplan and State Committee for Science and Technology (i.e. N. Baibakov, V. Novikov and V. Kirillin) in the name of scientific and technological progress, were just another large-scale economic experience. They made absolutely no sense, unlike the reforms of 1964, because they suggested no feasible change to the real economy.

Further ‘cautious market’ ideas and concepts started to make their way through to the top, however, there was no serious political support for them. By the beginning of the 1990s (and accounting for the mistakes of the 1980s), the ideology and the necessary measures were already developed and the first real program of market transition by E. Gaydar (which was then only partially implemented) was prepared in two months.

In Gaydar’s government administration, where many former CPSU and Sovmin officials were involved, there was a serious lack of experts strongly committed to the idea of liberalizing the economy. And the former officials resisted the new reforms by all means.

Further promotion of reforms (the programs of Chernomyrdin and Kirienko, who were, to the author’s view, very loyal to reforms and suggested quite adequate solutions) were very much complicated by contradictions within the State Duma, the President’s administration, the Chechen War, and by the presence of people still committed to the socialist idea. The threat of rolling back into state dirigisme was quite realistic during the crisis, but fortunately was not realized. Owing to the mechanisms established in 1992, the economy revived itself very quickly. Its actual parameters from 2000-2002 turned out a lot better than the ones set by the anti-crisis program of November 1998.

The Ministry for National Economy developed and delivered GDP forecasts (with a breakdown into industrial and territorial structures) to the State Duma and the Government annually. There were fierce debates about each figure, since they were an initial point in making up the federal and regional budgets. Along with other ministries and departments, the Ministry for National Economy was responsible for defense procurement and acquisition, the national investment program, and several large-scale industrial projects — such as the conversion and development of the military-industrial complex, the reform of natural monopolies, the restructuring of the coal industry, regulating the market for alcohols, etc.

But, generally speaking, many important and necessary programs of change and reform, especially in the military-industrial sector, were never realized to their full extent. One of the most successful changes was the coal industry, where the most serious challenge was, of course, the political activity of the coalminers. There were certain miscalculations and downsides in the project of reforms, but the primary reason for their failure was, in no doubt, a political constraint combined with financial and economic difficulties.