Academic journal article The European Journal of Comparative Economics

Russia: An Abnormal Country

Academic journal article The European Journal of Comparative Economics

Russia: An Abnormal Country

Article excerpt

Abstract

Andrei Shleifer and Daniel Treisman recently rendered a summary verdict on the post Soviet Russian transition experience finding that the Federation had become a normal country with the west's assistance, and predicting that it would liberalize and develop further like other successful nations of its type. This essay demonstrates that they are mistaken on the first count, and are likely to be wrong on the second too. It shows factually, and on the norms elaborated by Pareto, Arrow and Bergson that Russia is an abnormal political economy unlikely to democratize, westernize or embrace free enterprise any time soon.

JEL Classification: P30, P40, P51, P52

Keywords: Russian economy, transition economics, comparative economic systems

Master Pangloss taught the metaphysico theologo cosmologicology. He could prove to admiration that there is no effect without a cause, and that in this best of all possible worlds, the Baron's castle was the most magnificent of all castles, and my lady the best of all baronesses. It is demonstrable, said he, things cannot be otherwise than as they are, for as all things have been created for some end. They who assert that everything is right, do not express themselves correctly, they should say that everything is best (Voltaire, Candide, Chapter 1 How Candide Was Brought Up in a Magnificent Castle and How He Was Driven Thence, 1759. (Google, Online Literature Library).

1. Introduction

Andrei Shleifer and Daniel Treisman (Shleifer and Treisman, 2004; Shleifer, 2005) contend that Russia has become a "normal country,"2 because thanks to the G-7's advice, Boris Yeltsin and Vladimir Putin have done most things right (Cf. Fischer and Sahay, 2004, Kuboniwa and Gavrilenkov, 1997; Cf. Ellman, 2004).3 They define "normalcy" interchangeably as 1) a nation which has crossed the threshold from a cold war, centrally planned, authoritarian martial police state to virtuous democratic free enterprise, and 2) a middle income developing country with mixed characteristics that might mature into the western ideal. There is no reason to doubt that Russia can be classified as normal in the later sense, without implying a common destiny, even though much of the evidence Shleifer and Treisman adduce is misleading, because the criterion is elastic, requiring little more than Russia's partial abandonment of authoritarian rhetoric, planning and state ownership. But the contention that consumer demand governs household supply under the rule of law, and people's preferences determine public choice is wrong, as are the assertions that the Kremlin eschews authoritarianism at home and domination in the "near abroad." Nor is it likely that Russia is favorably positioned to be as efficient and just as the developed west in the foreseeable future.

2. Muscovite abnormality

The abnormality of Russia's private sector economy is easily established by comparing its traits with those of developed western market systems, without begging the question by assuming that the flaws exhibited by developing systems are self-remedying. The litmus tests are the characteristics of ownership, property rights, rule of contract law, price determination, market entry, profit maximizing, utility maximizing, efficient equilibration, and state regulation responsive to popular will. The existence of markets is a necessary, but not a sufficient condition for western economic normalcy (Gaddy and Ickes, 2002).

Ownership in Russia fails this test. The land and most resources, as well as a large portion of the capital stock still remain in the hands of the state,4 and workers own a large share of the voting capital of industrial enterprises.5 Proprietary rights of ownership and control over non-state assets remain tenuous, as demonstrated by the expropriation and de facto re-nationalization of Yukos.6 Alienable proprietorships, especially lucrative ones operate more as rent-seeking than competitive profit maximizing entities. …

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