Russia’s State Capitalism Built A Middle Class Who Know There’s No Future If The Country Doesn’t Change

Sergei Guriev and Aleh Tsyvinski
Business Insider

Twenty years ago, Soviet President Mikhail Gorbachev resigned, the Soviet Union ended, and Russia began an imperfect transition to democratic capitalism – a transition that has proven to be far more difficult than expected.

And yet the recent protests – somewhat similar to those that preceded the end of the Soviet Union – provide grounds for cautious optimism about the future.

So, what lessons can we draw from the successes and failures of Russia’s last two decades of post-Soviet transition? And what lies ahead?

The first lesson is that market competition, responsible macroeconomic policy, and private enterprise generally work. Market reforms eventually resulted in historically high growth rates. While high commodity prices played a part, privatized and new enterprises were the fastest-growing part of Russia’s post-communist economy, and the government played an important role by ensuring macroeconomic stability, maintaining a balanced budget, and using oil revenues to create significant foreign-currency reserves.

Second, a market economy needs strong political and legal institutions to protect property rights and competition. Such institutions are difficult to build from scratch, and doing so is not merely a technocratic task; it requires political change.

Contrary to popular belief, Russia’s reformers understood this challenge from the start. They created a completely new judiciary and tax system, established fiscal federalism, and introduced an independent central bank, an antitrust agency, and many other institutions. But they also knew that these institutions would work effectively only if there was political demand for them – and that this could come only from private owners, a critical mass of which thus had to be created as soon as possible…


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