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#7 - JRL 8088 - JRL Home
Date: Wed, 25 Feb 2004
From: Joseph Wolpin <jrussianews@yahoo.com>
Subject: Comment on Schleifer/Treisman

Dear Mr. Johnson,

My name is Joseph Wolpin and I have been reading your list for about five years. I am currently a U.S. Fulbright scholar researching Russian domestic politics in St. Petersburg. I also was recently named a Marshall scholar and will enter graduate school in Post-Soviet Studies at the London School of Economics next fall. This is my first time submission to the Johnson List. The Schleifer/Treisman article struck me as quite flawed, and given that it was published in Foreign Affairs, I felt compelled to organize my thoughts and offer them to your list. I appreciate your consideration of my writing and thank you for the great service you provide us all.

Sincerely,

Joseph Wolpin

The Shleifer/Treisman article abounds with dubious assertions and shortsighted analogies. Consequently, there is room for much criticism, and I look forward to hearing others’ ideas, but here are the points that I find most unsubstantiated.

The authors’ statistical evidence that Russians’ lives are improving often lacks context. For example, the fact that “the number of Russians going abroad as tourists rose from 1.6 million in 1993 to 4.3 million in 2000,” is superficial. Where are most of these Russian tourists going? Many can only afford a cheap trip to Turkey, Finland and other nearby destinations. It is little accomplishment that a slightly less-microscopic fraction of Russians can now afford an inexpensive getaway, spending their savings on a vacation they believe is a better use of their money than depositing it in a bank. Also, the argument that “there has been improvement even at the bottom of the social pyramid,” followed by figures showing that 27 percent of Russian housing do not have running water, 41 percent are without hot water, and a majority of Russian apartments lack a telephone, a utility that tens of thousands of Americans possessed in the late 1800s, is hardly convincing. In fact, the authors’ watered-down conclusion that, “it is likely that Russians today are on average better off than they were in 1990,” seems hardly the groundbreaking scholarly thesis.

But the authors’ central aim is not to quibble over Russia’s progress or lack thereof, but to argue that despite its shortcomings, Russia ultimately is quite “normal,” and concern about the country’s current course and future are overblown. The authors admit that not all “normal middle-income countries,” are “exactly alike.” No other such country, they say, “has Russia's nuclear arms or its pivotal role in international affairs.” However, in an economic analysis, these are weak examples of the differences. The authors gloss over Russia’s historical and cultural legacy, its large population, vast territory, resource distribution, and ethnic diversity, factors that are intimately related to the country’s economic policy and development.

Shleifer and Tresiman also claim that “Russia's inequality increase can be attributed not to privatization, unemployment, or rising business profits, but to growing disparities in wages” However, this ignores that privatization, and specifically the Loans-for-Shares program severely undercut the government’s ability to pay wages. As people like Khodorkovsky, Potanin, and Abramovich bought state monopolies at rigged auctions for ridiculously undervalued prices, their actions simultaneously stripped the government of potentially profitable enterprises and failed to reimburse them at a fair market price. Worse, tax evasion prevented the government from recouping its losses as the now private companies amassed huge profits. More disturbing is the authors’ lament that, “[a]s unfortunate as the growth of inequality in Russia has been, it is largely the result of the inevitable upheavals associated with rationalizing economic activity.” This is an extremely vague, unsupported, and unscientific explanation of Russia’s current economic situation. Many Russians already associate the U.S. and its scholars with the country’s financial troubles and the rise of the oligarchs. Now we are telling them that their economic plight was largely unavoidable, and even more astoundingly, is a normal and reasonable side-effect of “rationalizing economic activity.” American oligarch William Vanderbilt was known to have said “the public be damned!” Little did he realize his words would one day become economic theory.

The reference to an American tycoon is apropos, for Shleifer and Treisman argue that the Russian oligarchs are merely following in the upstanding tradition of John D. Rockefeller and J.P. Morgan. Both men, it should be noted, were harsh critics of competition until their deaths. Faithful to gospel of monopolies, our early “robber barons” deemed free competition wasteful and destructive. Do the authors hope a similar business ethnic for Russia? The question is moot, Shleifer and Treisman breezily reason, because “[l]egal reforms eventually alleviate such problems.” But legal reforms are possible only when a lively opposition can propose and pass them. Today in Russia, no such opposition exists. Citing high voter turnouts as proof of a vibrant electorate is misleading. The Soviets held elections with high turnouts (as does modern Cuba, Uzbekistan and most other totalitarian states). Although the Soviet era is over, today, older citizens who cling to their former Soviet duty to cast a ballot account for a large percentage of Russian voters. Nevertheless, in St. Petersburg’s recent gubernatorial election, turnout was quite low. When the authors attempt to demonstrate that Russian elections have often shocked political elites evidence against the idea of a “phony democracy” in the country they of course fail to provide examples after 1999, because since Putin’s ascension, the winners in Russian elections have surprised no one.

Finally, an important premise of the article is that when CIS countries are the measuring stick to judge post-Soviet performance, Russia emerges relatively “normal.” Again, this logic lacks relevant context. That “Russia's politics have been among the most democratic in the region” proves little. Excluding the Baltics, none of the NIS have demonstrated lasting, impressive democratic results. Given that Russia inherited the vast majority of wealth, military power and territory from the Soviet Union, coupled with the fact that Moscow ensured that ethnic Russians occupied most key military, industrial and political positions in the Soviet Union, to argue that Russia is par for the region’s course is, if anything, a further indictment against the country.

Numerous other aspects of the article are questionable as well. For example, characterizing Uzbekistan as a “very slow reformer” (What reforms? Targeting an even broader segment of society for arbitrary imprisonment?) and emphasizing that 11 countries suffered more severe drops in currency value than Russia’s appalling 99 percent loss (I thought the article sought to prove Russia was “normal,” not simply that it is not the absolute “worst” country in the world). The somewhat perverse goal to prove that Russia’s current economic and political situation is not as bad as the pundits say, and more importantly, that Russia’s situation is not unique or particularly alarming given an “objective comparative standard” is fallacious both in fact and theory. More sadly, it smacks of jaundiced apologetics for the failed Western-influenced reforms of the 1990s. This is not the way to solve Russia’s problems or the image that the U.S. should present to the world. ï»¿