Think Again: Russia

The Soviet Union stoked mythology by being a closed society, allowing people to allege just about anything without being exposed as wrong. Ironically, Russia's transformation into an open society has engendered its own mythology. With Russia's faults laid bare for all to see, Western politicians and media have commonly described the former superpower as a nation in decline, beset by corruption and a collapsing infrastructure. But most of these flaws are remnants of Soviet mismanagement only now being put right.

BY ANDERS ÅSLUND | JULY 1, 2001

"The Russian Economy Has Collapsed"

Not true. According to official Russian statistics, gross domestic product (GDP) plummeted 44 percent from 1989 to 1998. However, this figure is grossly exaggerated because of the peculiar quirks of communist and post-communist statistics.

Under communism, everybody padded output to reach targets in the planned economy, while nobody cared about the quality (or even the usefulness) of the items produced. For instance, even though the Soviet Union manufactured more than six times as many tractors as the United States, its agricultural output lagged far behind because production was so wasteful. Much of Soviet manufacturing was unfit for consumption, and Russians flocked to alternative, imported goods that flooded the market following the liberalization of foreign trade. The subsequent decline in the production of useless final goods and unneeded inputs was not a tragedy but a desirable change. At least one fifth of Soviet output fell into one of these categories, and the estimated GDP of the Soviet era should be reduced accordingly.

After communism, the statistical measurement of output shrank far more than its actual level. According to the best estimates, the underground economy accounts for at least one quarter of this purported contraction. Thus, the Russian economy hasn't collapsed. Rather, it is more accurate to say that, until 1998, the economy stagnated because of sluggish and incomplete reforms. Russia's level of economic development remains where it was during the Soviet era, roughly on par with Brazil.

Nor has Russia developed a new "virtual economy" based on barter rather than money. The share of barter transactions in Russian industry peaked at 54 percent in August 1998, but the financial crash curtailed this system of hidden subsidies that had been the norm for Russian enterprises. Non-monetary transactions fell like a stone as Russian industry realized it could no longer depend on the state and would have to earn real money in the marketplace. Today, the virtual economy is marginal.

According to the latest official data, Russia achieved a GDP growth of 5.4 percent in 1999, 8.3 percent in 2000, and growth continues today. While many systemic problems remain, Russia appears to have attained a critical mass of market reforms and privatization. (The same is true of several other countries in the region, such as Kazakhstan, which are also booming.) Considering the enormous distortions left behind by communism, that is a splendid achievement.

 SUBJECTS: ECONOMICS, RUSSIA
 

Anders Åslund is a senior associate at the Carnegie Endowment for International Peace. His book Building Capitalism: The Transformation of the Former Soviet Bloc (Cambridge: Cambridge University Press, 2001) will be published in September.