How to Make a Market

John Lloyd

  • Eternal Russia: Yeltsin, Gorbachev and the Mirage of Democracy by Jonathan Steele
    Faber, 288 pp, £17.50, March 1994, ISBN 0 571 16368 8
  • Post-Communist Societies in Transition by John Gray
    Social Market Foundation, 45 pp, £8.00, February 1994, ISBN 1 874097 30 5

A growing school of thought, especially on but not confined to the Left, holds that the reform of Russia and other post-Communist states is being carried out in such a way as to destroy rather than improve them. The villains are held to be the international financial institutions (IFIs), such as the International Monetary Fund and the World Bank, and with them the economists, consultants and advisers who flocked into these states after the Fall to inscribe their new dogmas on the ruins of the old. The IMF is thought to be especially guilty. Because it extends loans to its members on conditions which are usually onerous and nearly always require a heavy curtailment of expenditure, it can easily be represented as both parsimonious and interventionist. The money is doled out a bit at a time and the country in question is almost always required to adopt neo-liberal economic principles, including balanced budgets, low inflation and a privatised industrial and services sector.

The IFIs and the Western advisers figure large in the rhetoric of Russian and other former Soviet opposition parties. Alexander Rutskoi, the former Russian Vice-President, who is seeking to put himself at the head of the nationalist/Communist forces opposing Yeltsin, depicts the President as an agent of the IMF, furthering its mission to destroy Russian statehood and the economy in the interests of US capital. One of the legacies of the Soviet period, and perhaps of the empire as a whole, is a view of the world as a zero sum game: if the US and other major nations are up, Russia is down. And there are enough examples of foreign states reacting to Russia’s efforts to achieve some market share for its products by creating tariff and other barriers for that belief to have more than a purely pathological provenance.

As the influence of the Fund increases, the Rutskoi line will harden. Ukraine, under its new President, is inching into compliance with an IMF programme. Even impoverished Georgia, where inflation is over 100 per cent a month, is preparing for inclusion in the Fund’s intensive care unit; in mid-September, it jacked up prices by vast amounts – the price of bread has risen almost 300-fold. Eduard Shevardnadze, the head of the Georgian Parliament, went on TV to apologise but at the same time insisted that ‘the sources which will help our country should be the IMF and the donors associated with it.’ And the IMF, he continued, ‘will not give you even a dollar if you do not follow the prescription it is offering’. The faith vested in the Fund’s prescriptions, and those of Western advisers like Jeffrey Sachs and Anders Aslund, is immense. Since none of the ex-Soviet countries apart from Russia and the Balkan states has the capacity to develop and sustain an economic reform programme of its own, they must rely on the Fund and other agencies for what amounts to their economic policy.

The Fund, and to a lesser extent the other Bretton Woods institutions, tend to secrecy. In large part this is because they are dealing every day with information confided to them by member governments. But it is also a result of their hieratic mode of operation; at the IMF in particular criticism tends to be stilled, there has been little encouragement of debate, agreement is what’s wanted. The formal arrangement which the IFIs have with their member governments – that the former stand in a purely advisory relation to the ministers and officials who determine the latter’s policy – masks the dependence, sometimes all but complete, of these officials on a strategy which is wholly unfamiliar to them and of which, to begin with, they may understand little. For that reason, above all others, it is essential that the strategies adopted by these institutions are debated more widely and more knowledgeably.

Both Jonathan Steele’s book and John Gray’s essay sharpen a critique which has so far been fragmentary and diffuse. They articulate deeply-felt arguments against the type of reform Russia is undergoing and warn of the dangers of social upheaval if it continues in the same way. Both writers command respect for their views, although I believe them to be wrong. The position they take – in greatly condensed form – is that Western economic and social models have done more harm than good when applied to the post-Communist states. They both argue that what has been offered is a neo-liberal model of capitalist development, derived from the Reagan and Thatcher projects, which defined state ownership as de facto bad, government as suspect, private enterprise as the source not simply of wealth but of virtue, and the individual as the essential unit of polity.

I take them to be wrong, not because the neo-liberal model is always and everywhere the right approach to post-Communism, but because certain basic elements of the model are common to all presently available approaches to the creation of market societies and democracies; and it is only when these basic elements have been successfully applied that a choice can be made as to whether a society is to be ‘neo-liberal’ or ‘social democratic’ or ‘corporatist’. The pressures on the post-Communist governments dictate radical action; the evidence shows, in broad but so far unmistakable terms, that the complex of measures which have come to be known – usually inaccurately – as ‘shock therapy’ is allowing the societies that have undergone this ‘shock’ to enjoy rather more real choice as to the kind of capitalism they would prefer.

Jonathan Steele is the most experienced British reporter of the Soviet and post-Soviet Union. He has written half a dozen books in which Soviet Communism is the main, or a substantial, theme. He has visited and reported on the area since the Sixties. His last Moscow tour of duty for the Guardian lasted from 1987 to 1994, an unusually long time, and this book is at its best when Steele’s reportorial skills, insights and humour are allowed full play. He tells, for example, of being in Beijing during Gorbachev’s state visit in 1990. Late for a hastily rearranged press conference he rode his hired bicycle down a lane reserved for ambulances and official cars, holding up a picture of Gorbachev as a talisman and passe-partout, and earning applause from the crowd and friendly assistance from the police because of the affection in which the Russian leader was then held by the Chinese. His resourcefulness and his ability to see himself as a little absurd are typically engaging.

His reports on the big set-pieces of the last years of the Soviet Union are excellent – particularly the elections to the reconstituted Supreme Soviet in 1989. During one illuminating gathering at the Red October plant in Moscow, the manager is proposed as a delegate to the Supreme Soviet. As in the old days, he is the only candidate. This time, however, he is challenged from the floor by the first few people willing to see how far they can go without being shut up.

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