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SOURCE. Yevgeny Yasin, Rost i razvitie rossiiskoi ekonomiki [Growth and Development of the Russian Economy]. Paper dated December 27, 2002. At the website of the Liberal Mission Foundation: http://www.liberal.ru

In this paper, the prominent reform economist and former economics minister Yevgeny Yasin sets out his view of Russian economic prospects. (1) One commentator has described this view as "structurally grounded pessimism" (2) -- and this is fair enough so far as the short term is concerned, but as regards the long term one could equally well speak of Yasin's structurally grounded optimism.

The paper is a long one. I summarize the most crucial sections in which the author explains why Russia's economy has experienced a modest rebound over the last four years, which growth factors are (and which are not) available to Russia, and what preconditions must be created in order to take advantage of these factors. (3)

Growth began in 1999, peaked in 2000, and slowed down in 2001, dampening euphoric expectations and provoking fears of a new crisis. By the end of 2001, one third of the 43 percent decline in GDP that occurred in 1991-98 had been reversed, and labor productivity was back to 80 percent of what it had been in 1990. In 2001 retail turnover surpassed that of 1990 for the first time. Other indicators were a little less impressive: productive investment was still only a third of the 1990 level, while real per capita income had merely returned to where it was on the eve of the 1998 crash (equal to 52 percent of the 1991 level).

The main factors underlying the rebound, in the author's view, were the following:

* The [partial] default on debt reduced the burden of repayments on the state budget, permitting renewed funding of other important items, including the backlog of wages owed to state employees.

* Devaluation of the ruble made exports more competitive and led to a fall in imports, thereby enabling Russian producers to re-conquer the home market.

* Liberal reforms had created a strong private sector of companies that were adapted to market conditions and thus capable of exploiting the opportunities opening up in the new situation. These companies increased their profits and were accordingly able to pay more taxes.

Yasin gives the main credit for the rebound to the reformers who (whatever their other failings) created a functioning market, the benefits of which are at last being reaped. He rejects out of hand the view of those who emphasize the salutary effect of Primakov's measures to enhance the economic role of the state. (4)

Turning to long-term growth factors, the author rules out the harnessing of additional labor resources: for demographic reasons no increase in available labor resources is to be expected. (He does not consider the option of mass immigration.) He also notes that "the energy of the agrarian- industrial transition is exhausted."

Nor does he hold out much hope for export-led growth. The export of cheap products to Western markets is possible, if it is possible at all, only in a few not very important sectors. Sole reliance on the export of natural resources is a recipe for continued backwardness; at best it can secure a growth rate of 2-3 percent a year. And eventually the oil and gas will run out.

What is left? Russia must invest in innovation and in its human capital. Russians have great inventive capacity, but practical innovation depends on social support and a competitive market environment. There are sources of capital investment to be tapped both abroad and at home, where savings continue to make up 30-33 percent of GDP. The problem is how to create a favorable investment climate.

What such a strategy requires above all is effective market and democratic institutions and a liberal culture consonant with them. Russia does not yet have such institutions and culture; that is why it needs a full package of liberal economic and political reforms. Under these circumstances, an "economic miracle" like those in Japan, China, and South Korea is possible in Russia too, though "not soon, at least not in the next 2-3 years." (In 4 years then?)

Yasin is confident that the necessary change in Russians' values is underway. Values do change, but they change slowly. That is why the old values present an inevitable obstacle at the initial stages of reform, giving rise to a temporary conservative reaction. However, as time goes by the obstacle is overcome. In general, change occurs first in real relations, then in formal institutions, then in informal institutions, and last of all in values.

In support of this contention, the author marshals data from public opinion surveys conducted by the sociologist Yuri Levada. Such traits as energy, practicality, and sense of responsibility are coming to be perceived by increasing proportions of Russians as elements of their ethnic self- perception. (5) And liberal values are concentrated in the younger and more educated section of the urban population.

In one of the surveys cited, respondents are asked: "What type of state would you like to see in Russia?" Replies are distributed as follows:

[A] 2 percent wanted "an imperial monarchy as in Russia before 1917."

[B] 21 percent wanted "a socialist state with a communist ideology like the USSR."

[C] 15 percent wanted "a state with its own special system and path of development such as has not yet existed in the world."

[D] 34 percent wanted "a democratic state with a market economy as in the Western countries."

[E] 26 percent did not care what type of state they lived in; what mattered to them was how they and their families lived.

Optimistically counting [E] as well as [D] as "most likely liberals," Yasin concludes that a liberal majority already exists.


(1) The reader may find it useful to compare Yasin's analysis with that of the French economist Jacques Sapir, summarized in RAS No. 8 item 1.

(2) "2003: The Vision, the Values, and the Messy Reality," RFE/RL Business Watch, Vol. 3, No. 1, January 14, 2003.

(3) I have omitted Yasin's discussion of Primakov, Gref, and the economic policies advocated by each of them. Much of the paper is taken up by a review of standard Western economic theories (e.g. Rostow's stages of economic development) and analysis of the experience of China and the Asian "tigers."

(4) In my opinion the two views are not mutually exclusive. The existence of market-oriented private companies was essential to the rebound, but perhaps Primakov's measures to impede capital flight also helped them focus their energies on the home market.

(5) "Energetic" -- up from 9 percent in 1989 to 29 percent in 1999; "unpractical" -- down from 31 to 9 percent; "irresponsible" -- down from 22 to 2 percent. Ref. Iurii Levada, Ot mnenii k ponimaniiu: sotsiologicheskie ocherki 1993-2000 [From Opinions to Understanding: Sociological Essays 1993-2000] (Moscow: Moskovskaia Shkola Politicheskikh Issledovanii, 2000), p. 448.

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