The coming Russian boom


LONDON -- Astonishingly, since the apparent success of Boris Yeltsin's heart operation Russia has all but dropped off the lead pages of our newspapers. Does this mean that Russia, only recently described as "disintegrating," "mafia-ridden," even "on the verge of another revolution," has found an equilibrium?

Quite possibly. Russian efforts to find traction on the slippery surface of modern-day capitalistic economics now look rather auspicious. Some experts are even predicting growth rates that will better the high achievers in eastern Europe.

In a relatively short time Russia has shed the most constraining and containing of all economic systems, not to mention its political straitjacket. It may escape the experience of other troubled giants that moved from the path of despond to the trajectory of success only to fall back or build up unmanageable problems.

Brazil was a flash in the pan in the 1970s. India industrialized after achieving independence, then bogged down in red tape and over-regulation. And while China is growing fast, it has taken extraordinary risks with high inflation and country-to-town migration, fueling explosive urban growth. Moreover, China still has the enormous albatross of a huge, inefficient, state-owned industrial sector and an unreformed, uncertain, inflexible political system, quite unsuited to the needs of a modern economy.

Russia, in contrast, has rather deep foundations -- in industrial life, in transportation and, above all, in education, the great legacies of the Soviet system. All that was needed to make this dough rise was the yeast of individual freedom and benign political institutions. The transfer of power from diktat to democracy, from perestroika to private initiative, has been rough and bumpy, but it has been done.

A new book

A new book, "The Coming Russian Boom," written by a London School of Economics professor, Richard Layard and the former Moscow correspondent of The Economist, John Parker, shoots down much current criticism.

To the argument that the monopolies should have been broken up and firms privatized before prices were freed, the authors suggest that the shock tactic of ending price controls worked. Higher prices eliminated the endless lines and queues and gave "supply" the chance, which it has taken, to meet "demand."

Could this have happened, as it did in Poland, without the high inflation that racked Russia until quite recently? Very doubtful, say the authors. Russia began its reforms with much more

excess money and much longer lines than Poland ever had.

Could the suffering of the last five years have been avoided? The authors argue that the suffering has been overstated. The dramatic rise in the death rate for men should be balanced by the fact that women no longer have to spend 20 hours a week in lines, often in biting cold. Housing and heating are still almost free; living standards have not fallen fast as is often suggested.

Still, Russians need not have suffered as much as they did if the West had been more forthcoming. It missed an opportunity in November 1991 when Yegor Gaidar was appointed economic overlord with a mandate for sweeping reforms.

But the West held back, seemingly a prisoner to old beliefs that Russia somehow was still a future threat. The top Westerner to visit Moscow at this time was David Mulford, the U.S. Treasury's undersecretary, whose mission was to find out who would pay the debts of the old Soviet government.

If the West had provided the kind of financial aid it did to Poland, Russia might have reached its present stage three years sooner with a lot less personal suffering and political turbulence. Two percent of NATO's defense spending would have done it -- and made Russia a firm friend.

The West must learn from this mistake and not compound it with another slap in the face, pushing NATO's reach right up to Russia's borders. If the West loses its historic opportunity with the new Russia, it will deserve whatever a humiliated and hurt Russian bear has in store for it -- and the scary Cold War headlines that go with it.

Jonathan Power writes a column on the Third World.

Pub Date: 12/06/96

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