RUSSIA'S STORMY PATH TO REFORM Edited and Introduced by Robert Skidelsky Will Russia s latests t izatton programme succeed? Why did previo~'efjfdr;ts:'fail? Why did Communtsm collapse? What is 'Ma:fi,a,fJapitalism '? Will Russia break up? How can#te ~st help? These and other issues of key importance in Russia's Election Year are debated by leading Western experts and Russian politicans including Richard Layard, Mancur Olson, Jeffrey Sachs, Robert Skidelsky, Boris Fedorov, Yegor Gaidar, Sergei Glaziev and Grigori Yavlinsky. ~ CENTRE FQR l1ANSITION ECONOMIES lTlS THE SOCIAL MARKET FOUNDATION The Foundation's main activity is to commission and publish original papers by independent academic and other experts on key topics in the economic and social fields, with a view to stimulating public discussion on the performance of markets and the social framework within which they operate. The Foundation is a registered charity and a company limited by guarantee. It is independent of any political party or group and is financed by the sales of publications and by voluntary donations from individuals, organisations and companies. The views expressed in its publications are those of the authors and do not represent a corporate opinion of the Foundation. Patrons Viscount Chandos Lord Flowers FRS Rt Hon Lord Owen CH David Sainsbury Chairman Professor Lord Skidelsky FBA Members of the Advisory Council Professor Nick Bosanquet Professor John Kay Sir Samuel Brittan Alex de Mont Evan Davis Andrew Tyrie Michael Fallon John Willman David Willetts MP Members of the Board Nick Alexander Alex de Mont Christopher Stone Acting Director Roderick Nye Editorial Consultant Lord Kilmarnock RUSSIA'S STORMY PATH TO REFORM edited by Robert Skidelsky ©The Social Market Foundation 1995 First published in November 1995 by The Social Market Foundation 20, Queen Anne's Gate London SWlH 9AA Tel: 0171-222 7060 Fax: 0171-222 0310 ©The Social Market Foundation 1995 All Rights Reserved CTE Paper No. 1 ISBN 1 874097 85 2 Cover design by Adrian Taylor Printed in Great Britain by Xenogamy plc Suite 2, Westcombe House 7-9 Stafford Road, Wallington, Surrey SM6 9AN Typesetting by Wimyk Enterprises D Contents iii CONTENTS Participants 1v Preface and Acknowledgments vn Editor's Introduction 1 Greetings by James Norris 7 Chapter One. 'The Devolution of Power in 9 Post~Communist Societies' by Mancur Olson Chapter Two. Speeches: Gaidar, Sachs, Glaziev 43 Panel Comment: Yavlinsky, Polishchuk General Discussion Chapter Three. Speeches: Yavlinsky, Umov, Mau 61 Panel Comment: Fedorov, Ouliukaev General Discussion Chapter Four. Speeches: Fedorov, Vasiliev 85 Panel Comment: Gaidar, Glaziev General Discussion Chapter Five. Speeches: Chubais, Livshits, Skidelsky 101 Panel Comment: Layard General Discussion Chapter Six. 'On the Future Cohesion of the 119 Russian State' by Peter Murrell Chapter Seven. 'The Collapse of Communism: 129 the Political Economy Context' by Robert Skidelsky Participants iv Conference Participants ANATOLY CHUBAIS is the First Deputy Prime Minister (in charge of the economy) and former Minister of Privatisation. He is the chairman of the Federal Commission on Securities and the Capital Market. He is also Russia's representative to the IMF and the World Bank. BORIS FEDOROV was the Minister of Finance in 1990 and from 1993- 4. He was the Deputy Prime Minister in charge of economic reform from December 1992 to January 1994. Since February 1994 he has been Chair of the Duma sub-committee on money and credit policy. He leads his own political bloc, Forward Russia. YEGOR GAIDAR was the Minister of Economics from 1991-92, acting Prime Minister of Russia from June to December 1992 and First Deputy Prime Minister in 1993. He resigned from government in January 1994 and now leads Russia's Democratic Choice, the successor to Russia's Choice. He is head of the Institute of the Economies in Transition. SERGEI GLAZIEV is the leader of the Democratic Party. He was formerly the Minister for Foreign Economic Relations before resigning in September 1993. He is currently Chairman of the State Duma's Committee on Economic Policy. JAMES NORRIS is mission director of the Agency on International Development (USA). CHARLES CADWELL is the Director of the IRIS Center and an attorney with an extensive record of involvement in economic policy making and antitrust law, both with the US government and in the private sector. RICHARD LAYARD is the Director of the Centre for Economic Performance at the London School of Economics. He is also the founder of the Employment Institute. ALEXANDER LIVSHITS is a Professor of Economics and chief economic advisor to the Russian President. f v Participants VLADIMIR MAU is a Deputy Chairman of the Institute of Economies in Transition and a Professor of Economics at Moscow's Higher School of Economics. A long-standing adviser to Yegor Gaidar, he is the author of many publications on the history of economic reform in Russia. PETER MURRELL is a Professor of Economics at the University of Maryland, and a member of the Executive Committee of the Council of Soviet and East European Research. He has written extensively on economic transition. MANCUR OLSON is the chairman of IRIS and a Professor of Economics at the University of Maryland. The author of The Logic of Collective Action and The Rise and Decline of Nations, he is also a former Vice-President of the American Association of Economists. ALEXEI OULIUKAEV is a Deputy Director of the Institute for Economies in Transition. A former adviser to Yegor Gaidar, he holds a doctorate in economics from Moscow State University. LEONID POLISHCHUK is a Professor of Economics and a Project Director and Research Associate with the IRIS Centre. He specialises in studies of institutional reform and economic behaviour of formerly communist nations. JEFFREY SACHS is the Professor of International Trade at the University of Harvard. He has contributed to the design of economic reforms in Bolvia, Poland and the former Soviet Union. He has also served as a consultant to the IMF, the World Bank and the OECD. ROBERT SKIDELSKY is Professor of Political Economy at the University of Warwick. He is Chairman of the Social Market Foundation and of its Centre for Transition Economies. He is the author of The World After Communism and a biographer of John Maynard Keynes. MARK URNOV is the Head of the Analytical Administration of the Russian President. SERGEI V ASILIEV is Deputy Minister for the Economy and Deputy co­ chair of the Chubais Committee. GRIGORI YAVLINSKY is leader and co-founder of Yabloko. Formerly a Soviet Deputy Prime Minister and aide to Mikhail Gorbachev, he currently chairs the Centre for Economic and Political Research in Moscow. Preface vii Preface and Acknowledgments The conference 'Russian Reforms: Established Interests and Practical Alternatives' was held at the Aerostar Hotel, Moscow from 13-15 April 1995. It was organised by the Center on Institutional Reform and the Informal Sector (IRIS) of the University of Maryland at College Park, the Institute of Economies in Transition, Moscow, and the Anaytical Centre with the President of the Russian Federation. This edited edition of the proceedings has broadly followed the conference format, with the four sessions (divided into opening speeches, panel comments and general discussion) forming the central chapters, framed by Mancur Olson's introduction (chapter one) and the papers by Murrell and Skidelsky (chapters six and seven). The conference proceedings, held in both Russian and English, were recorded, and transcripts made, which were translated as appropriate for the English and Russian editions. The translations were done by Nathalie Shelotchkova of the Social Market Foundation's Centre for Transition Economies. The conference organisers would like to thank the US Agency for International Development for its generous financial assistance. Given the failing telephones, faxes and administrative chaos of post-communist Russia, organising the conference was an extraordinarily difficult task. The credit for doing so with such aplomb goes to Charles Cadwell, the Director of the IRIS Center and his associates Leonid Polishchuk and Sergei Tagor. Without these financial and administrative contributions, the conference would not have been possible - nor this volume of its proceedings. Editor's Introduction 1 Editor's Introduction This is the first major paper from the Social Market Foundation's Centre for Transition Economies. It has been made possible by the generosity of IRIS, which provided a grant towards its publication. What follows is an edited version of a conference on Russian Reforms held in Moscow on 13- 15 April 1995, and attended by leading Russian politicians and Western experts. Framed by a magisterial introduction by Mancur Olson and comparative perspectives offered by Peter Murrell and Robert Skidelsky, it offers a Western readership a unique insight into what Russia's own leaders are thinking and arguing about in the run-up to the critical parliamentary elections to be held on 1 7 December. Professor Olson is best known for his two books, The Logic of Collective Action (1965) and The Rise and Decline of Nations (1982). These are searching enquiries into the causes of collective organisation and the consequences for economic and political health of the existence of different types of organised group. Using standard economic theory, Olson argued that members of a group who seek to maximise their personal welfare will not, in the absence of coercion, organise to achieve a good common to the group unless the organisation can offer them some benefit additional to the achievement of the group's goal. The reason is suggested by public goods theory: individuals will not buy goods whose benefits are collective since in that case they get the benefit irrespective of whether they pay the cost. Collective goods will therefore be undersupplied relative to demand unless people can be coerced to contribute, by the state through the tax system or by an organization able to impose or offer 'selective incentives' for joining - ranging all the way from intimidation to membership privileges.