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Essay Subject: Identifies the important individuals most associated with each economic perspective & the major dimensions & assumptions of their strategies for creating a market economy on the rubble of the Soviet system in Russia.... More...

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Paper Abstract: Identifies the important individuals most associated with each economic perspective & the major dimensions & assumptions of their strategies for creating a market economy on the rubble of the Soviet system in Russia. Paper Introduction: Introduction In a recent essay on the dramatic economic difficulties facing the former Soviet Union, Alexander Yakovlev, an intellectual architect of Gorbachev's Perestroika reform program, stated that "By placing Marxist-Leninist theory above reality, above life, we managed to cripple life itself. By embracing the views of Friedrich von Hayek and Milton Friedman without making any adjustments for Russian realities, we risk falling into the trap of imposing on Russian life programs that, although inherently sensible, may not be suited to Russian exigencies."[1] This paragraph succinctly summarizes the debate now exploding across Russia as to the appropriate strategy and direction of economic reform. On the one side are the proponents of "shock therapy," often associated by its critics with a missionary, Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Stephen F. See various issues of The Economist, (Aug. He sees the lobbying pressuresof the industrialists as significant and he also blames the West for onlypartially delivering on the $24 billion aid package promised by theInternational Monetary Fund (IMF). Ifsuch a policy were to be adopted, it might mean a new effort to providework for military factories by a determined export drive. He seesthe military and large industrialists demanding and receiving large flowsof cheap credit to pay workers and buy inputs in order to try to maintainproduction. Alexander Yakovlev, "Twilight in Russia," New Perspectives Quarterly (Fall, 1992), p. Such projects will provide thousands of jobs although it is notclear what the ultimate economic return will be.[15] Given Russia's shortage of hard currency and the specter of massunemployment, it is understandable that the managers should wish to keeptheir empires together by mammoth projects. Sachs thinks that more andmore of the credits find their way directly into higher wages and into theforeign exchange market where the value of the ruble has beencollapsing.[7] Sachs is not sure how much of this monetary policy is due to powerpolitics and how much is due to confusion. Yakovlev, "Twilight in Russia," p. The plan was to start in June 1991 and complete its firstphase in 1993. Yet Russia would continue to rebuildits economy along market lines, with state industry playing a somewhatexpanded role. 23, 1992), pp. Dobbs, "Reforms vs Re-Reformers in Russia," The Washington Post National Monthly, (Nov. Rather, hesees this situation growing out of deeply rooted traditions and intractablecircumstances, including a belief in Russia's special destiny which isalready producing a backlash against the West.[1 ] Other institutionalists such as Howard M. Thekey to the Harvard plan is to attract foreign capital and, in order forthis to happen, the ruble must be made convertible as quickly as possibleso foreign firms have the assurance that they can repatriate their profits. 53-55, (Oct. Wachtel, "Common Sense About Post-Soviet Economic Reforms," Challenge (March-April,1992), pp. 6. Jeffrey Sachs, "Crossing the Valley of Tears in East European Reform," Challenge (Sept.-Oct., 1991), pp. 622-624.11. 53-54.15. To make the ruble convertible, financial and monetary stability mustbe achieved: inflation brought down to below 1 percent, the budget in nearbalance, and the rate of growth of the money supply contained. Sachs & Lipton, "Russia on the Brink," p. This is a leftover body from Gorbachev's perestroika.Many of its members represent the interests of the old, centralizedeconomy, which made the Soviet Union a deformed military superpower. Ifnecessary, he also argues that some state enterprises may have to besubsidized for a period of time until employment growth occurs in the newly-born private sector.[13] The group of Russian backers of a more pragmatic path to economicrestructuring would be labeled by the "shock therapy" school as bureaucratswith a vested interest in the status quo. 56. Petri, "From Marx to Markets," Challenge (Sept.-Oct., 199 ), pp. The Russian defense industry will soon begin the development ofgas fields in the Barents Sea and will initiate elaborate copper miningprojects. The "shock"involved in such a strategy is the cost imposed on the average Russian.Higher unemployment is inevitable as budget subsidies to state enterprisesare cut and living standards deteriorate dramatically, at least in theshort run.[4] As the situation in Russia has worsened economically, one of theprime proponents of "shock therapy" in the United States, Jeffrey Sachs,Professor of International Trade at Harvard, has become alarmed. 16, 1992). 3 -32. He maintains that the urgent need is to stop the outflow of rublecredits from the Russian Central Bank to state enterprises and the budget.He blames the bureaucrats and politicians for believing that a return toprice controls, artificial exchange rates, and state orders are the curefor inflation. The project was called "Window of Opportunity." It was co-directed by Graham Allison of the Kennedy School at Harvard and GrigoryYavlinsky, a Yeltsin supporter who has been in and out of favor. But the former Soviet Unionpaid highly for the obsessive concentration of resources in a few prestigeprojects. Arkady Volsky and others havesought to weaken the more radical "shock therapy" reformers such as Gaidar. 46-48.14. 53.16. 8. WhatGaidar and the "shock therapy" school seem to instinctively understand isthat the turn to the market is not a game that can be engaged in half-heartedly. Instead, he holds this strategy responsiblefor skyrocketing consumer prices, a further collapse of the ruble, theimpoverishment of most Russian families, plummeting industrial productionand a continuing decline in popular support for liberal economic andpolitical reform.[9] Cohen believes that most economic thinking about Russia today, in theU.S., is based on the missionary premise that the U.S. 2. 55. As Alexander Yakovlev has maintained, "... H. 46-48.13. Such bankswould accumulate savings of depositors, provide loans to the new smallenterprises, and remove some of the rubles from the street, thus mobilizingexcess rubles for employment and growth. 12-18, 1992), p. M. The problem of subsidies to stateenterprises could be handled by establishing a "social contract" with thepopulation that calibrates the reduction of subsidies and employment in thestate sector to growth in the new independent sectors of the economy. Such stability is usually achieved atthe expense of employment growth and improvements in living standards. Inventories have swelled andenterprises have continued to cut their output. Such fundamental questions are never settled without astruggle. Jeffrey Sachs and David Lipton, "Russia on the Brink," Financial Times, (Oct. The institutionalists in Russia, going further than their U.S.counterparts, have also pushed for a slackening of financial and otherrestraints on the military-industrial complex and an economic strategywhich would make state enterprises the primary engines of modernization. This group has its own economists.[14]Evaluation A showdown between the shock therapy school and the institutionalistswill take place in early December 1992 in Moscow at The Congress ofPeople's Deputies. Oneprominent proponent of this perspective is Stephen F. However, as Gaidar and the U.S. The analysis which follows will identify the most importantindividuals associated with each perspective as well as describe the majordimensions and assumptions of their respective economic strategies. Cohen, "The Election's Missing Issue," The Nation (Nov. "Boris Yeltsin's Last Stand," The Economist, (Oct. 43-47. 12-18, 1992), pp. These include prominentindividuals in the newly formed Civic Union such as General AlexanderRutskoi, the vice-president; Mr. Arkady Volsky, the president of theRussian Union of Industrialists; and Mr. Nikolai Travkin, the leader of theDemocratic party. 4. An agreement mayeventually be struck which allows some of the "shock therapy" members ofYeltsin's government to remain in power while the military-industrialcomplex would secure a slower pace of economic growth. 19; and Jeffrey D. Cohen is adamant that of all Russian future possibilities,Americanization of its economy is not one of them. 26-32 5. 3. Therewere 41 measures ranging from reduction of enterprise subsidies, tomacrostabilization, to large scale privatization. Both sides in thisdebate know that the way in which the Russian economy develops willdetermine who gets rich and who gets poor and who is the boss and who isthe worker. This strategy has consistently maintained that there willbe no return to a state distribution system, that there will be tightcontrol over the ballooning money supply, that there will be no wage orprice freeze, and no artificially low exchange rate. Massunemployment would be avoided by continuing subsidies to heavy industrialplants and a high budget deficit would continue to accumulate.[16] If such a compromise is reached, it would destroy much of the Russiangovernment's "shock therapy" program. Thus, the move to privatization must inevitably invoke therationalizations and fury of the institutional industrialists because ofthe new private power centers which will be created. Cohen, professor ofpolitics and director of Russian Studies at Princeton University. 19.17. 24-3 , 1992), pp.33-54. The market system in theproposal is largely an abstraction, however, composed by western economistsfor recitation to elites in the former Soviet Union.[3] This program and others like it are primarily designed to achievefinancial and monetary stability. 46-48.12. Onthe one side are the proponents of "shock therapy," often associated by itscritics with a missionary, dogmatic view of the economic changes necessaryto introduce market reforms. Sachs, "Privatization In Russia: Some Lessons from Eastern Europe," American Economic Review (May, 1992), pp. 7. 622-624.1 . Cohen maintains thatrecent economic developments there are not primarily the result ofnefarious political intentions, poor understanding of markets anddemocracy, or hard-line military industrial complex thinking. M. The most likely outcome of this economic power struggle is some typeof compromise between the two contending camps. Wachtel, "Common Sense," pp. Production continues to fall, andis estimated to be about 2 percent down from 1991.[2] However, it is also true that the march to the market has begun.Market behavior is being studied, adapted, and adopted.Few appear to be talking about non-market reform; it is only a question ofwhich strategy is best for reaching that ultimate goal.Shock Therapy Back in late 1989 and early 199 , a $1 billion plan was puttogether between Harvard and the Center for Economic and Political Researchof the USSR. Focus would be onimproving as rapidly as possible the extraction of oil, gas, and preciousminerals with privatization of large state firms limited. However, he fearsthese fundamental achievements are being swept away by hyperinflation. 19. Wachtel, "Common Sense," pp. An expansion of this emerging trend could put Russia incompetition not only with western manufacturers but also with arms plantsin the Ukraine and other former Soviet states. 44- 45, (Sept. They have demanded the resignation of reformist ministers, accusing themof trying to foist an inappropriate western model onto Russia. by institutionalistslike Cohen and Wachtel. 19. can and should helpconvert that historically very different society into a market replica ofAmerica. In the months preceding the Congress, many of these institutionaliststried to persuade Yeltsin that Russia's military power can be retargeted tomake the country successful and prosperous. "Hot Autumn," The Economist (Sept. Cohenargues that the leap to capitalism "shock therapy" that has thus far beeninflicted on Russian society by Yeltsin and Gaidar at the urging of Westerngovernments and banks and spearheaded by the IMF has predictably failed tofulfill any of its promises. Theend result will hopefully be a more complete understanding of the politicaland economic conflict now swirling through Russia.Overview of the Economy The economy in Russia today is awful. To someextent this same argument is articulated in the U.S. Such a strategy would also seem to mean a new emphasis on "self-reliance". p. As a consequence, Sachs believes that the money supply hasdoubled since July of this year when the floodgates of credit wereopened.[6] For Sachs, such credits allowed the enterprises to produce, but didnot generate customers for the output. Thus, for Wachtel, the hardcurrency problem can be solved for the next three years through thedevelopment of oil and gas reserves without the need for a convertibleruble, thereby sparing the Soviet population from an austerity regime.[12] Wachtel would deal with the problems of inflation by first starting asmall-scale private sector and supporting it through the creation ofintermediate institutions such as small independent banks. 9. Gary H. 23-29, 1992), p. By embracing the views of Friedrich von Hayek and Milton Friedmanwithout making any adjustments for Russian realities, we risk falling intothe trap of imposing on Russian life programs that, although inherentlysensible, may not be suited to Russian exigencies."[1] This paragraph succinctly summarizes the debate now exploding acrossRussia as to the appropriate strategy and direction of economic reform. 24-3 ) pp. 4, 1992), pp. Wachtel, Professor ofEconomics at American University, see the "shock therapy " of Sachs andGaidar as a mantra promising a new utopia to replace an earlier one, buteventually stumbling on its own pretensions. References 1. 4-15. Introduction In a recent essay on the dramatic economic difficulties facing theformer Soviet Union, Alexander Yakovlev, an intellectual architect ofGorbachev's Perestroika reform program, stated that "By placing Marxist-Leninist theory above reality, above life, we managed to cripple lifeitself. in order togrow an apple tree in a place with a different climate, you must choose theright kind of tree and not try, as some already have, to grow apples at theNorth Pole."[17] On the other hand, the most significant weakness of theinstitutionalist perspective is its easy appropriation by ex-communistbureaucrats and members of the new bureaucracy to help justify theirattempt to gain personal power and control of the reform process. Sachs, "Crossing the Valley," pp. Wachtel believes that theproblems of post-Soviet economic reform should not be underestimated butone should also avoid abstractions that make it seem all the moreinsurmountable.[11] He maintains that the first job of the Soviet economy is to earnhard currency and that a convertible currency is not needed to attractforeign investment in oil and gas because there are alternative ways tocompensate foreign investors in these areas. 29-Sept. shock therapists have argued, Russianeeds a new type of economy responsive to market forces and the demands ofordinary people. Cohen, "The Election's Missing Issue," pp. The monthly rate of inflationis estimated to be between 2 and 3 per cent, the budget deficit issubject to so many different accounts that no single figure can be given--but it is probably more than 15 percent of gross national product (GNP).The ruble, which stood at about 17 to the dollar at the beginning of 1992,has seen its value drop to about 5 to the dollar. It would not be nirvana but it might be the best that canbe hoped for in an increasingly difficult situation.Conclusion The most powerful point made by the institutionalists andpragmatists, both within and outside Russia, is the argument of not takingRussian reality with all its strange and terrible history fully intoconsideration . He states that the political elite in Russia remainsmesmerized by heavy industrial capacity, with the military-industrialcomplex bitterly resisting any forced decline in its production. There is no agreementbetween Russia and the other republics of the former Soviet Union on acommon ruble zone and no agreement between the Russian government and thecentral bank on the granting of credit. Jefferson and Peter A. On the other side are the institutionalists,or pragmatists, who are often seen by their critics as apologists for thestatus quo unwilling to institute the inevitable policy choices, whichwill, in the short run, increase tremendously the economic burdens on theaverage Russian. Russia isalready offering tanks, submarines, aircraft carriers, aircraft, and armsfor sale. Finally, Sachs argues that Yeltsinstands to lose everything to hyperinflation by making compromises with themilitary-industrial complex and thus courting financial disaster.[8]The Institutionalists The economists and political scientists in the United States who areassociated with this strategy take an extremely critical view of "shocktherapy." They see the marketization process as going forward but nottowards the type of "free-market capitalism" endorsed by Jeffrey Sachs. Sachs & Lipton, "Russia on the Brink," p. Hebelieves that Russia's economic reforms are now falling prey to confusion,communist counterattack, and neglect from the West.[5] Sachs argues thatthe inial reform steps taken by acting prime minister, Yegor Gaidar, didachieve some success in the areas of launching an initial privatizationprogram, freeing prices, and undertaking legal reforms. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.