A Chronology of Reform. Economic Reform of the Late 20th Century: Lessons and Experience from Recent History

Abstract

Leonid Grigoriev — Head of the Department of World Economy, National Research University “Higher School of Economics”. Address: 20, Myasnitskaya St., Moscow, 101000, Russian Federation. E-mail: lgrigor1@yandex.ru

The reforms of the 1990s are commonly evaluated from the standpoint of economic growth. In this article the author, who was, in fact, a direct participant of those events and one of the designers of these reforms, discusses it in the context of institution building; particularly, he develops the idea that decisions taken at the earlier stage of transformation affected the very foundations of society and thus predetermined the following sequence of events, as well as particular course of evolution of institutions. The more the country is involved in transformation, the more inertial its development gets, and the more power emerging institutions and interest groups accumulate. The reforms of the 1990s and the 2000s are two essentially different stories: they have different targets, yet similar goals. In the first case, the foundations of society were changed and the primary economic institutions were formed; and the second case was an attempt to influence these institutions.

The author tries to reconstruct the sequence of events in the 1990s by suggesting his own periodization, highlighting the most interesting details of the situation from which Perestroika began. He also analyzes the circumstances in which different programs were developed and adopted, as well as their major consequences (default, the development of situation the in 2000s).

Prior to the beginning of the Russian transformation, there was a fierce discussion as to which measures should be taken first — macrostabilization, liberalization and opening of the foreign trade, or privatization. The problem of building market institutions was, of course, insufficiently covered in the academic media of that time. The general prevalence of macroeconomists created a strange impression among experts that the primary task was macrostabilization, since everything else would follow and should resolve by itself. It was only ten years later that the discussion was redirected towards institutionalism and the problem of institutions and liberalization in general.

The situation of the 1990s was vastly influenced by the two legal acts introduced earlier, i.e. ‘Law on State Enterprise’ and ‘Law on Cooperatives’. In the theory of property rights, this meant that managers of state-owned enterprises were allowed to control and dispose property without being accountable to the state, i.e. this led to the process of latent privatization of state property by its managers. By ‘switching off’ the monitoring agent state corruption was doomed to flourish. Being an opponent of how the privatization was actually carried out, the author claims that the major mistake was an excessive de-specification of property rights at the cost of its pace. And it was exactly this moment of the reform that shaped the particularities of the national economy, economic and political institutions, private property and corporate management for the years to come.

It is important, in author’s view, to understand that current capitalism in Russia was shaped exactly in 1992-1994 — a 3-4-year period of hyperinflation, privatization and the issuing of the first laws. All that happened afterwards was influenced by the particular property relations and corporate control from the most powerful interest groups, which won their first round at the very beginning. And today, any further policy, be it right or wrong, can only be carried out by accounting for these interests. Since 1994-1996 there has been no room for reforms from scratch. It is now a problem seriously constrained by existing interest groups.

In the last two or three years, it has become clear that Russia cannot solve their own problems of development (i.e. infrastructure, education, innovation, etc.), even with favorable world prices for oil. The challenge is to find new ways of development under the circumstances of growing bureaucracy.