Trajectories of Economic Transformations. Lessons from 2004 for 2024 and Beyond

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4. The new role of money. Turning money into a short-term resource is most attractive to businesses, banks, and households.

5. Significant weight of large owners of financial capital in the relations on the formation of economic policy in the country.

These changes were carried out in a very contradictory way, but they were milestones in the ongoing transformation of the Russian economy into a market-type economic system. And it was this last aspect that the official authorities and the relevant media emphasized when it was necessary to report on reforms.

Socio-Economic Indicators of Success

As for the first cross-section of the effectiveness of reforms, related to the dynamics of real socio-economic indicators, it was not in the public eye. The parameters of GDP, industrial and agricultural production, real incomes of the population, etc., did not appear in the reports on changes in the Russian economy. It is difficult to find a satisfactory explanation for this circumstance (except perhaps the desire of the authorities not to disturb society in the hope of A quick turn for the better), because the dynamics of almost all socio-economic indicators were consistently negative.

As can be seen from Table 4.1, GDP, industrial output, agricultural output, and capital investment in the economy fell almost continuously until 1998. At the end of the period under review, compared to the pre-reform year of 1990, GDP was less than 53%, industrial output was 46%, and investment in fixed assets was only 21%. Average monthly wage by the consumer price index was only 42% of the pre-reform level. The dynamics of retail turnover indices were flatter (less declining), but it should be noted here that, despite the abundance of goods in stores, the physical volumes of trade turnover in 1998 were less than in 1990.

Attempts by some analysts to draw attention to negative socio-economic trends were drowned in a stream of assertive praise of the chosen course. Economic recession was seen as the inevitable price to pay for getting rid of the evils of the past. This view was persistently introduced into the literature covering economic transformations. And even today, there are stories in serious publications aimed at proving the idea that the reform recession in the Russian economy (in 1991—1998) was Not only is it inevitable, but it’s not too big either. For example, in one of the articles in Ekspert, to the question “what did we (Russia) lose as a result of the victory of liberalism in the economy,” the authors give the following answer: “From an economic point of view, exactly as much as we should have lost,” because, they say, “most of the Soviet economy that Russia inherited was not viable.”

To make the conclusion convincing, comparisons are made with the economic recession during the Great Depression of 1929—1933, which amounted to about 30% in the United States. Russia, according to the article, lost 40%: “more, but not fundamentally more.” On the other hand, according to the authors, the radicalism of economic freedom has brought thousands of super-qualified people to the capital and labor market, which “has not been seen in any country in the world.”[24 - Ekspert. 2004. No. 1. Pp. 16—17.] Such assessments probably have the right to exist in the press. However, a comparison of the effectiveness of two processes: the Great Depression, this natural disaster in the eyes of the US government and public at that time, and a conscious policy of reform in our country, it still looks very extravagant. If one of the politicians of the United States had declared then that the Great Depression was a planned reformation action, it is unlikely that he would have been in good luck.

Ideological Confusion: Goals without Clarity

However, it would be unfair to attribute the unsatisfactory approach to launching market transformations to the government of young reformers alone. The general situation of the time in and around the country was based on a mixture of the reformist romanticism with the conservative pressure of what George Soros defined as ‘market fundamentalism.’ Blind faith in the miraculous efficacy of institutional market changes somehow dominated the worldview of many politicians who entered the arena of the country’s political life at the stage of Gorbachev’s perestroika. And it was this cohort of politicians, in alliance with superficial publicists, who laid down in our society unverified ideological imperatives, which largely determined the course of reforms for a long time. The criterion of transformation has moved from the field of economic performance to the realm of slogans and ideological clichés. For example, the statement of one of the politicians of that time (E. J. Vilkas, Chairman of the Commission on Social and Economic Development of the Union and Autonomous Republics, Autonomous Regions of the Council of Nationalities of the USSR Supreme Soviet) during the discussion of the draft plan and budget for 1990 is very typical: “The progressiveness of any economic measures today is assessed by one criterion: to what extent it helps the market to establish itself.”

As a result of a multifaceted analysis of the initial stages of economic transformations in the country, Academician Nikolay Fedorenko rightly noted: “The main root of the failure of Russian reforms is buried in the fact that Russia entered the crucial stage of the transition period without a targeted program for this transition!”[25 - Fedorenko N. P. Russia: Lessons of the Past and Faces of the Future. Moscow, Ekonomika Publ., 2000. P. 369.]

The absence of a public program for the transformation of the economic system with clearly defined goals at the very beginning of the reforms can be explained by the lack of time of those who took up the transformations, and the sharp political struggle between supporters and opponents of changing the economic system. However, all subsequent (after 1991) reformation steps took place under conditions of almost complete monopoly on the conceptual content of the transformations. This monopoly belonged to those in power. This means that it was the government of those years and the forces behind it that should be considered fully responsible for both the development of goals and the implementation of economic reforms. In the end, the responsibility should be shared equally by Russian society as a whole, which allowed the uncontrolled development of events.

The Human Factor in Economic Transformations

Let us draw attention to two fundamentally important conclusions made by international experts based on the analysis of the practice of market transformations in a large group of countries. Both observations relate to the human factor of transformation, or more precisely, to the socio-psychological side of managing major changes in society[26 - The State in a Changing World: World Development Report 1997. World Bank: Prime-TASS Economic Information Agency, 1997. Pp. 172—202.].

First, the beneficiaries of reforms must set the goal of compensating the losers as much as possible. Without such motivation of the initiators of reforms, the transformations do not turn out to be attractive to society and will eventually either stall or lead to violent social conflicts.

Secondly, the leaders of the reforms in the country become such and gain authority only since they give their people a sense of ownership of the reforms, instilling confidence that the reforms were not imposed from the outside. They should take care to maintain a feedback mechanism that allows for timely adjustments to the content of reforms. To this end, broad discussions on key policy areas and priorities are usually ensured. Every effort should be made to create an atmosphere where people can be heard.

We must admit that both conditions were not even minimally met in the course of reforms in Russia. And if we talk about the first of these points, then we must admit that the task of social guarantees for the weak and “losers” was not only not put at the forefront but was simply ridiculed by many ideological leaders of reforms. As a result of this attitude, a colossal differentiation of society in terms of wealth and social status unfolded incredibly quickly.

This can be seen in a variety of parameters that characterize the structure of our population in terms of income, consumption, savings, property, etc. Academician Dmitry Lvov characterizes our Russia today in two of its images – rich and poor. “Rich Russia is home to about 15% of the population, which accumulates 85% of all savings in the banking system, 57% of cash income, 92% of property income, and 96% of foreign currency spending. In Russia, 85% of the population lives poorly. It has only 8% of property income and 15% of all savings[27 - Lvov D. It’s Time to Show Trump Cards // Rossiyskaya Gazeta. 2003. 15 January. Scientific Newspaper Supplement. No. 1.].

In 1990, the USSR ranked 33rd among all the countries in the world on the Human Development Index, at its worst, and Russia, which had already undergone reforms, ranked 63rd at the beginning of 2003.

Privatization in the Structure of Reforms

The institutional side of the transformations was dominant throughout the entire period of reforms, and the privatization of state property became the central point in it. This, by design, should lead to the emergence of more efficient owners. In fact, the question of efficiency in its generally accepted sense did not arise at all during privatization. The organizers of this process were dominated by two aspects of motivation: 1) the distribution (almost free) of the most attractive pieces of property among the most active figures of the reforms; and (2) the final burial of social property as a phenomenon and socialism as a system of economic management.

Indicative is the admission of Anatoly B. Chubais, who was its chief manager during the main stages of Russian privatization, in one of his interviews in 2002. Speaking of the goals of privatization at the stage of the loans-for-shares auctions, he emphasized that “there was a singular task at hand: creating large capital that could prevent the return of communism in Russia. Ninety-five percent of the task was political and only five percent is economic.” Yes, Chubais admitted, “one can make fair claims to the procedure of these transactions from the point of view of classical economic theory. But large-scale private property was created in the country in a very short time.”[28 - Interview of A. B. Chubais to the magazine Ekspert (2002. No. 47. P. 33).]

As we can see, economic efficiency was in fact of minimal importance in the acts of privatization of state property. But the political emphasis emphasized by Chubais as the dominant of privatization should probably be regarded in a wider range of motives than just the eradication of communism. Rather, behind this political slogan there is a very pragmatic motivation of a narrow stratum of people who received a gift of a huge amount of money in a short period of time property, to prevent its new redistribution.

As for the interests of society, which, by definition, must be protected by the state, they were pushed to the fore in the course of privatization – against the background of the private interests of the established oligarchs, as well as powerful shadow figures.

Here is just one aspect of the losses suffered by Russian society (represented by the state) from the distorted orientation of privatization, which is noted over time by Ilya Klebanov (then Minister of Industry, Science and Technology of the Russian Federation): “I consider it a big mistake that during the privatization of defense enterprises, the state did not value its intellectual property in any way. In fact, it ceased to own the rights to developments that were created with state funds and always belonged to the state. It simply took it out of its pocket and, saying ‘take it’, gave away its property for free. That’s wrong… Together with the Ministry of Property and independent appraisers, we conducted a study of several private defense enterprises and found out that all their capital, machine tools, real estate, etc., is only ten to fifteen percent of the amount that this enterprise would be worth together with intellectual property. It turns out that the defense industry was sold on the cheap.”[29 - Ekspert. 2003. No. 1. P. 48.]

Hasty steps to eliminate the leading role of the state in such spheres of activity as the production and sale of wine, vodka and tobacco products had an even greater impact on the bleeding of the national economy. It is known that revenues from these sectors of the economy have almost always been extremely significant for the state treasury. It is no coincidence that the problem of the “vodka monopoly” was unequivocally solved by the state in its favor back in tsarist times. Concessions in favor of private business in the field of wine and vodka products, cigarette and tobacco products, medicines, etc., have become key miscalculations of state economic policy. In the full sense of the word, they “slaughtered the chicken” that laid the main “golden eggs” for the state budget. It is impossible not to notice that the decisive beginning of these steps was set within the framework of the USSR, during the period of “perestroika”.

The outward amorphousness of the goals of economic transformation in Russia had its reasons. The absence of clearly expressed goals of reforms from the standpoint of society was primarily in the interests of the shadowy inspirers of the processes of breaking the old order. In the context of the blurring of strategic goals and in the absence of institutional constraints, it was easier to achieve the redistribution of the main parts of the previously social wealth, efficient capacities, and natural resources in the clearly defined personal interests of the new “elite,” which was locked in several positions with the criminals.

The Cost of Reform Programs

Criticism of the actions of the reformers’ government on the pages of the scientific press is quite often and rightly built around the thesis that there is no clear program for the transformation and development of the economy. Official circles usually respond to this by referring to the existence of several government economic programs related to the implementation of market reforms. Yes, there have been and continue to be such programs covering periods ranging from one to 4—5 years. Options have also been developed long-term socio-economic programs (for example, the well-known program of German Gref). However, none of these programs had the scope and status of a national strategy for socio-economic development. And the Gref program (claiming to be a strategy) was not even officially published and remained a semi-draft. It is impossible to name a single program document where the ultimate goals of economic programs would be presented in the form of reasonable parameters available for public scrutiny and would be supported by balance sheet calculations linking effects and costs in time and space.

The lack of a clear strategy for economic transformations was aggravated by the fact that there was no objective monitoring of reforms from the standpoint of results, and the government did not have the desire to self-critically evaluate its reform programs and actions. Meanwhile, there were numerous reasons to do so in a timely manner. It was necessary to at least analyze the assessments of qualified experts from the outside, if there was any distrust of critics inside the country. Here are some of the public assessments of the course of economic reforms in Russia, made by foreign experts whose reputation is beyond doubt.

For example, Joseph Stiglitz, the world-renowned economist and the 2001 Nobel Prize winner in Economics, in his analytical report Macro- and Microeconomic Strategies for Russia prepared jointly with David Ellerman, put forward very serious critical observations[30 - The report has been translated into Russian and is available on the Internet at www.ecaar-russia.org/stiglitz-ellerman_ru.htm (http://www.ecaar-russia.org/stiglitz-ellerman_ru.htm).]. Subsequently, Stiglitz has developed these observations in articles and in a book on the contradictions of globalization that has received worldwide resonance[31 - Stiglitz J. E. Globalization and Its Discontents. Translated from English and commented by G. G. Pirogov. Moscow, Mysl Publ., 2003.].

Let us cite a few excerpts from the above-mentioned report, because they were made at a time when there was an opportunity to correct many things. “Russia’s experience of transition from communism to the market has turned out to be much more complex than it seemed a decade ago. The increase in prosperity promised by the market did not materialize; moreover, GDP fell by more than 50%, and the share of the poorest population increased from 2% to 50%. It is necessary to recognize these facts and outline a program for the country’s exit from this state. Today, ten years later, we have inherited not only a new young emerging class of entrepreneurs, but also an even faster growing mafia. The state as an institution violates the social contract again and again, fails to fulfill its promises, and becomes an instrument for private profit at the expense of most of the population. At the same time, only a few are becoming fantastically rich, and most of the population is sliding deeper into the abyss of poverty, and the cynicism in relations with the state and the law is greater than it was a decade ago.

Many hoped that privatization itself, no matter how it was done, would create a demand for an institutional infrastructure that would conform to the market economy and the law, when the all-powerful hand of the hapless state would be replaced by the invisible hand of the market. However, there is neither economic theory nor historical precedent to support such hopes. Only the middle class in the process of its development creates a need for such institutions, and in the last decade there has been the destruction of the middle class in Russia and the creation of a new, more concentrated oligarchy that is not interested in the rule of law, healthy competition, and a fair bankruptcy regime.

The focus on the redistribution of property has diverted attention from the creation of new businesses. The way privatization was carried out did not pay enough attention to the management of firms and did not encourage the creation of new enterprises.”

The authors criticize the prevailing views on the role of the priority of anti-inflationary policy. “Attempts to strengthen the price mechanism by suppressing inflation,” they write, “may have the opposite effect. In addition, there is a view that if there are barriers to lower wages and prices, then moderate inflation is even desirable. Since transition economies are particularly in need of adjustment, the ‘optimal’ level of inflation may be higher than in other economies. The experience of the countries of Eastern and Central Europe shows that it was not the countries with the lowest inflation that developed the fastest… Wherever inflationary paranoia has contributed to the clampdown, macroeconomic policy appears to have played a significant role in the economic downturn.”

Some of these estimates, such as the arguments about inflation, can probably be argued with to some extent. However, in our opinion, it is inadmissible to consider the multilateral critical analysis of the above-mentioned work as some insignificant circumstance that allows it to be ignored. For my part, I tried to convey this position to the Russian public and the government as persistently as possible, but without a proper reaction[32 - Ekonomist. 2001. No. 8. Pp. 3—10.].

In addition, this material contains not only criticism, but also practical constructive conclusions and rational proposals. Thus, the authors believe that at the current stage in Russia, “the following macroeconomic strategies are needed:

– recognition that the country needs a growth strategy and should not focus only on financial stabilization;

– acknowledging that the current large-scale non-payment of taxes (as well as other direct and indirect obligations to the state) provides a unique opportunity to correct some of the mistakes of the past decade;

– recognition of the need to restructure the economy from top to bottom, through the creation of medium-sized and small enterprises that emerge anew or by spun-off from large ones;

– recognition of the need to build a resilient social democracy that can revive social capital.”

Nicholas Stern, the World Bank’s chief economist, has also published a rather critical assessment of the key stages of Russia’s reforms. Here are excerpts from his article: “The reformers ‘gifted’ ownership and control over enterprises to ‘their people’, insiders – nomenclature directors, who were the real owners of the enterprises. They also managed to forge relationships with a new class of oligarchs who made their fortunes either in the final years of the old regime or during the period of inflation that became a feature of the early years of the transition. The oligarchs have taken over the most lucrative sectors of the Russian economy. The reformers depended on the support of the oligarchs and, using a highly dubious scheme of mortgage auctions, transferred additional state assets to these tycoons. At the end of the article, the author noted that an important task of his organization (the World Bank) “is to help Russia” and that “today Russia has a chance to start all over again.”[33 - Transformation. 2000. No. 5. Pp. 1—3.]

Post-Default Economic Shifts

Analyzing the course of economic transformations in Russia, it is impossible not to single out the change in economic dynamics that took place after 1998. Since 1999, Russia has switched from negative parameters of GDP change to the dynamics of economic growth (Table 4.2). Surprisingly, the default of August 1998 helped to mobilize our economy.

The economic growth rate in 2000 was particularly significant due to the sharp fall of the ruble against the dollar after the default and a significant improvement in the foreign economic situation for Russian exports in the commodity markets, especially oil and gas, and a few other favorable circumstances. Economic growth continued in 2001—2004.

In December 1998, inflation was recorded at 84% and in 1999 it was 36%, but in 2000 and 2001 the consumer price index fell to 20%. There was a steady increase in gold and foreign exchange reserves in the Central Bank of Russia: if in 1999 they were at the level of $12.5 billion, by the end of 2000 – $28 billion, then at the beginning of 2003 – $50 billion, and in mid-2004 – $65 billion.

In Table 4.2, along with the data on macroeconomic indicators for the favorable years (1999—2003), a comparison of the indicators of 2003 and pre-reform 1990 is given (see the last column of the table). As we can see, the growth indicators achieved over the past 5 years are far from compensating for the recessions that were allowed during the previous period of reforms. In 2003, GDP was (in comparable prices) lower. 27% more than in the base year of 1990, industrial production by 33%, and agricultural products by 28%.

The situation is particularly destructive in mechanical engineering (-38% of the 1990 level) and in light industry (-85%). But the fuel and energy sectors, some managers of which are inclined to present their activities as “saving” for Russia, also have nothing to be proud of, because the decline in them was significant (-13%), but at the same time there was a significant increase in industrial and production personnel. Thus, in the first ten years of reforms, electricity production decreased by one quarter, and the number of personnel in the industry increased by 1.5 times. The volume of oil production amounted to 60% of the 1990 level, while the number of employees increased by 1.9 times.

It should be noted that investments in fixed assets remain at an extremely low level. Their volume in 2001 was 3 times lower than in the pre-reform year of 1990.

In 2003, real disposable incomes were almost one-third lower than in the pre-reform year. Moreover, according to this indicator, the gains achieved in 2000 and 2001 did not compensate for the losses incurred in the year of default. As of 2001, the share of the population with incomes below the subsistence level exceeded 30%.

Thus, the economic results of the entire past period, which is identified with radical reforms, do not look satisfactory even against the background of the rather favorable years of 1999—2003. Therefore, doubts that the current economic course has the necessary potential to reach the boundaries of the people’s well-being and the development of production soon, which would become compensators for the previously incurred losses in the economy, are more than justified.

The high levels of 2000 cannot be replicated or sustained, and economic growth rates in 2001 and 2002 were significantly lower. Further trends were in fact determined by the external environment in the energy markets, which is by no means a sustainable growth factor.

Professor Jacques Sapir, Director of the Higher School of Economics of Social Sciences in Paris, said: “After the 1998 financial crisis, Russia experienced significant growth over the next three years… This growth came as a real surprise to most Western observers. The Russian government, born out of the 1998 crisis, did not enjoy the sympathy of Western observers, who were more lenient with previous governments. Recall that in April 1999 the IMF provided for a decrease in GDP to -7% for the current year. However, the year ended with an increase of +5%. The error amounted to more than 12 points of GDP – a gap that is infrequent and unexpected for the estimates of well-known professionals. But it must be emphasized that this mistake occurred at a time when relations between the IMF and the Russian government, headed by Yevgeny Primakov, were bad, and the probable causes of the mistake must be sought in a misunderstanding[34 - Sapir J. Russia’s Economy in 2001: From the Satisfactory Present to the Unclear Future // Chinovnik. 2002. No. 2. P. 67.] of the mechanisms of the Russian economy.

Sapir, like other serious experts, points to the lack of an effective investment policy as the reason for the crisis state of the Russian economy. He notes the illusory hopes of some members of the Russian government for foreign direct investment and, in contrast to this, points to the importance of intensifying investment in the private sector. “Resources derived from both domestic trade and exports,” Sapir writes, “have been only partially reinvested.” At the same time, he states that from 1994 until the financial crisis of 1998, Russian oligarchs “played big.” They “actively used their financial resources to facilitate the re-election of Boris Yeltsin, and then played the card of devaluation of the ruble on the export of raw materials, when world prices fell as a result of the Asian crisis.”[35 - Ibid. Pp. 69—70.]

Balancing Ideals and Results

Comprehending the results and the course of transformations in Russia, analyzing the experts’ assessments, we must conclude that the percentage of negative phenomena in the overall balance of the results of transformations was exorbitantly high. Russia as a state has lost almost a quarter of its territory with the richest mineral reserves, half of its population and half of its economy, assets worth more than $500 billion have been exported abroad, and our military-strategic potential has been reduced by dozens of times.

The main destructive influence stemmed from two circumstances. First, it was the wrong choice of the conceptual basis of economic reforms and turning it almost into a religion. Secondly, from the inability (unreadiness) of society to resist the egoistic pressure of the criminals, who were increasingly merging with the authorities. Moreover, these circumstances taken together were well used by external forces interested in weakening the former political rival.

As is well known, our “elite” did not hesitate to choose certain refined principles of the free market as a conceptual basis for economic reforms, reduced to the form of universal recommendations of the “experienced” West for “newcomers” entering the market world. But more and more well-known economists of the world are forming an opinion that the standard reform policy, recommended at a certain stage by international economic and financial institutions as a model for developing countries and countries with economies in transition, in fact turned out to be quite ineffective and clearly does not correspond to the realities and requirements of the future. This type of economic policy is associated with a set of provisions developed in the early 1990s, called the Washington Consensus, and it remains the basis for existing Russian economic programs.

In fact, sharp criticism of the concept of the “Washington Consensus” now comes even from the circles directly involved in its development. The already mentioned Professor Stiglitz, who until recently served as senior vice president and chief economist at the World Bank, argues that the attractive simplicity of this scientific doctrine is in fact “using a very simplistic model of calculation.” He notes that these programs do not include effective financial regulation, measures to stimulate technology transfer, maintain competition and enhance the transparency of markets.

For example, as can be seen from Table 4.3, the structure of industrial production in Russia over the years of market transformations has undergone a clearly negative shift towards a decrease in the role of mechanical engineering and metalworking and a noticeable increase in the share of the fuel industry, metallurgy, chemistry and petrochemistry. Some progress has been made in the development of the food industry, but it is taking place based on the expansion of foreign capital and is often several steps behind the world’s highest technological level. A clear degradation is observed in the light industry sector.

The most tragic consequence of the mistakes of the economic course since the beginning of the reforms is the consolidation of the trend towards the degradation of the productive forces of our country, the transition to economic dynamics based on the consumer attitude to the resource potential of the nation. Clear evidence of this is the strengthening of the raw material orientation of the economy and the sharp curtailment of the manufacturing sector and high-tech industries, the outflow of capital from the country many times higher than foreign investment, the degradation and squandering of scientific potential, the brain drain and, in general, the best genetic fund abroad, a sharp weakening of control over the environment for the sake of current economic interests, etc.

As a justification for the absence of any active innovation and industrial policy with the start of economic transformations, interested politicians and experts usually refer to the lack of investment resources. But this reason is secondary. The main thing lies in the unsatisfactory structure of motivations at enterprises, in the orientation of the behavior of management in economic structures and employees of the relevant state bodies. Table 4.4 shows that there was a serious decrease in 1990—1993 in the share and volume of depreciation deductions, which, as is known, is the most important source of investment in fixed assets. The table also shows how little economic influence the item of labor costs has on the interests of entrepreneurs and workers in the real sector. If the share of labor costs in total costs is 11—13%, and 2/3 of the total costs are material factors, then the creative components of motivations, which are concentrated in the labor potential of enterprises, objectively cannot be properly developed.

The situation in many branches of industry, which in Soviet times reached indicators comparable to the best world ones in terms of technological level and scientific intensity, is very sad. Here is just one of the testimonies (published in 2002) concerning the domestic aviation industry. “Russian aviation has been in a severe crisis for more than a decade. To understand the depth of this crisis, suffice it to say that until 1991 we produced more than 80 long-haul aircraft per year, and in the last five to seven years – two or three, production has decreased by thirty to forty times. And if in 1990 the USSR controlled more than 25% of the civil aviation equipment market, i.e. every fourth aircraft in the world was produced in our country, then since the mid-1990s our share is practically zero. For many years now, the world’s largest aircraft manufacturers have not only not taken us into account, but simply not mentioned us in their marketing studies.”[36 - Ekspert. 2002. No. 16. P. 28.]

The Russian market economy, which did not yet have training in complex market bindings, easily succumbed to new attractive trends in the global financial and economic space, including those related to the separation of financial turnover into an independent business sector, isolated from the real economy, where the dynamism and profitability of operations seemed to be the highest. Under the influence of this circumstance, the formation and development of banks, one of the decisive components of a normal market economy, in Russia, the path of participation in speculative operations rather than the provision of investment and other services to the real sector has taken the path of participation in speculative operations. Most of them limited themselves to performing the functions of financial offices. Overall, the Russian financial system (as well as the finances of many other countries) has become subordinate to the external monetary and financial system based on the US dollar. In the domestic circulation of several countries, the dollar has not just captured individual bridgeheads, but has gained strategic dominance. In Russia, on the eve of 1998, the dollar supply accounted for about 68% of the national monetary base[37 - Abdulgamidov N., Gubanov S. Double Standards of Unipolar Globalization // Ekonomist. 2002. No. 12. P. 22.].

In his introduction to the publication of an expert report on the problems of building the institutional foundations of the market economy, the President of the World Bank, James D. Wolfensohn, has shown that countries with market transformation programs need to be creative, namely to “choose only those institutions that work and reject those that do not.” Countries, he continues, “must have the resolve to do so to abandon unsuccessful experiments in a timely manner.”[38 - World Development Report 2002. Building Institutions for Markets. Moscow: Ves Mir Publ., 2002. P. IV.]

As already noted, one of the main reasons for the insufficient effectiveness of market reforms is the poor understanding by most of the people of the ultimate goals of the reforms, and this stems from the lack of a publicly presented and consistent strategy for the country’s socio-economic development in the long term. During the reform period, the Russian government did not make the necessary efforts to create and maintain a feedback mechanism between the announced programs, their effectiveness in implementation and the perception of transformations by the people. At the same time, it is only with such feedback that it is possible to adjust the content of policies and reforms in a timely and accurate manner, while maintaining the interest of the entire society in them.

Although this principle of regulating influences on social processes has long been known from the theory of governance, in the Russian political elite such productions began to appear too late, and even then, mainly on the part of the opposition. For example, in January 2003, a group of State Duma deputies addressed the President of Russia with the following statement: “In our opinion, the main drawback of all legislative activity is that that bills are proposed for consideration by the State Duma, which, in the opinion of the government, build only a scheme of market relations, but there are no bills aimed at the active participation of the entire population of the country in these relations.”[39 - The People Will Be Saved by Deeds, Not Wishes. Open Letter of the State Duma Deputies to President Putin // Sovetskaya Rossiya. 2003. 25 January.]

Analyzing Reform to Influence Future Policies

The above set of assessments of the period of economic transformations in Russia after 1991 to the present day, in which critical motives predominate, should not be perceived by the reader as a denial of the very need for serious economic and political transformations in the country using all the advantages and opportunities of market relations and the entrepreneurial factor. By focusing on mistakes and miscalculations, we only overcome their silence (often unselfish) and would like to to promote the establishment of the practice of managing reforms according to their socio-economic results, extending to society (people) as a whole.

The management of reforms and transformations according to the criterion of achieved socio-economic results should help to overcome the influence of ideological extremes on economic policy. The deification of the ideals of Western-style market liberalism with boundless self-flagellation of the Russian past, and pride in the spirit of belief in one’s own uniqueness or in the immensity of Russia’s resources can also be dangerous.

We need to accustom ourselves to listening to such assessments, even if not very pleasant, but close to the truth, such as the one that Eric Brunat, European Executive Director of the Russian-European Center for Economic Policy, and Vice President of the University of Savoie (France), made in 2002. “Despite its potential, Russia,” he argues, “is still a country with low labor productivity and high transaction costs.”[40 - Ekspert. 2002. No. 16. P. 52.] These are indeed fundamental problems for the transformation of the Russian economy, and it is impossible to solve them without addressing the study of all human experience and trends in the world economy.

It is impossible not to agree with the following statement of Academician Oleg T. Bogomolov: “The economy cannot be healthy and efficient if consumer prices, the cost of purchasing housing is steadily approaching and even compared with the level of Western countries, and wages, due to the standards set by the state and the monopoly position of employers, sometimes lag behind by dozens of times. As in the former Soviet Union, the wages of most workers in Russia remain unacceptably low, not only in comparison with other countries with a comparable level of development, but also in relation to the achieved labor productivity. In terms of labor productivity, Russia lags the United States by the factor of 5—6, and in terms of average wages by the factor of 15—20.”[41 - Bogomolov O. What voters hope for // Rossiyskaya Federatsia segodnya. 2004. No. 7. P. 3.]

After more than a decade of reformist actions in Russian government circles, the initial neglect of the range of problems related to the impact of transformations on the rate and quality of economic growth has been overcome, thanks God. In his address to the Russian parliament on May 16, 2003, President Putin put forward the task of doubling the country’s gross domestic product over the next ten years. This production, however, caused a wave of skepticism among a significant number of experts and politicians. The task is indeed difficult, since it assumes an average annual GDP growth rate of at least 7.2%, whereas over the last five years (1999—2003), when statistics recorded economic growth after a long recession, the average annual GDP growth was less than 6%, even though the calculation here is based on the crisis year of 1998.