<OT: Former Soviet Union, Capitalism, Democracy - Part II>
George, I will now try to tackle the capitalism part of your provocative question.
First of all, I have to confess that I am not an economist, and so I will be on much shakier ground here. Secondly, my remarks will deal with Russia ONLY. Bear in mind that we are talking about 15 different countries here, three of which (the Baltic countries) are already both "democratic" and "capitalist."
That said, I will risk a few observations.
1) The Russian "reformers," Gaidar & Co., clearly made many mistakes. You do not have to be an economist to see the two I consider to be the most serious; all you need is common sense. Surprisingly (or unsurprisingly?), however, many economists, ours as well as theirs, have overlooked them.
What I have in mind specifically is the failure to encourage the development of small and medium-sized enterprise, and the failure to devise a rational tax policy.
The reformers started right in with the toughest part of the agenda (the one the Chinese, wisely, deferred to the last): privatizing the big state-owned "dinosaurs." The Chinese had realized it would be both cheaper and easier to encourage the growth of small businesses that could fill all the holes in the economy with much needed consumer goods, and perhaps, by providing much-needed competition, even force the "dinosaurs" to be more efficient. By the time the Chinese turned to the task of privatizing the dinosaurs, small and medium size enterprises were producing over 50% of the nation's GNP!
The Russians, unfortunately, did not draw on the Chinese experience at all. The rush was on to privatize everything that already existed (much of it was junk anyway), and often at bargain-basement prices, but nothing was done to encourage the growth of anything new.
Not only that --the growth of anything new was actually discouraged by a wacko tax policy that was especially biased against producers and thus (relatively speaking) in favor of traders. For example, "income" was equated with "profit," and the business was taxed on that. Clearly, somebody who has an expensive production plant to maintain is going to be hurt more than someone who does not.
The result? Enterprising businessmen fled from production (if they were ever in it in the first place); everyone was forced to cheat on the tax man, which in turn contributed to growing lawlessness; production fell catastrophically, while virtually all consumer goods were imported from abroad; etc.
Russia has banks (which are now failing); it has a stock market; it has a mafia (which is so intertwined with legitimate business that it is hard to tell where one begins and the other leaves off); it has a lot of traders - petty traders who travel to Turkey regularly to get goods to peddle in outdoor markets, as well as big shots who trade raw materials to Western countries. But the only productive businesses out there are, for the most part, the now privatized enterprises inherited from the Soviet period, many of which are barely functioning, which cannot pay their workers, & etc...
On top of this, there is an almost total lack of the kind of legal infrastructure a modern market economy requires. The reformers' idea was that they would privatize first, and then all the laws, regulations, courts, etc., would sort of spring up later, or spring forth, like so many Minervas from the head of Zeus. Well, it didn't happen. This is one other explanation for the rise of the mafia.
Mr. Ivanov, for example, signs a contract with Mr. Popov for the delivery of something or other, and pays him in advance. Mr. Popov does not deliver. How can Mr. Ivanov get his contract enforced? There is no court he can turn to. So, he calls in an "enforcer" - Vanya, let's say. Vanya & his boys kidnap Mr. Popov, and force him to deliver the goods, or return the money. Mr. Ivanov is happy, Vanya & his boys are happy (they have gotten paid). Have they committed a criminal act, or not?
Frankly, I don't know what kind of economic system Russia has now. The one thing I can say for sure -- it certainly is not capitalism. But since many people think it is, it has given capitalism, like democracy, a bad name, at least for the time being.
So, will "real" capitalism ever develop in Russia?
That is a question I will have to sleep on, along with your new double-barreled question, namely: is capitalism possible without democracy, and is democracy possible without capitalism? Luckily for me, a couple of people have already tackled that one. And I can go to bed! <gg>
jbe |
