The reforms were aimed at rapid systemic transformations that were supposed to change the entire structure of motivations, increasing the interest of enterprises, savers, banks, and managers in entrepreneurial strategies leading to high efficiency and income growth for all. But, if we recognize this as the starting point of the public choice made, then the assessment of the results of the reform plans should be carried out with the expectation of adequate socio-economic criteria.
A Bold Start: The Early Phases of Reform
It is believed that market economic reforms in Russia began to unfold at the end of 1991, when a team of young, educated, and radically transformative ministers was assembled in the government under the patronage of President Boris Yeltsin. As early as January 1992, bold measures were taken on the so-called shock therapy method. Control over prices was lifted, channels for the implementation of foreign economic relations on an entrepreneurial basis were wide open, a policy of all-round denationalization of the economy and privatization of state-owned objects was announced, etc. Almost at the same time, the existing money overhang in the retail market was removed, shortages of goods and queues in stores were eliminated, and the shelves were filled with imported goods that were previously unavailable for free sale.
At the same time, it was found that the prices of goods and services rose abruptly, at a rate that was many times higher than the rate of increase in production. Wholesale prices for cement, for example, in January 1992 increased by 6 times compared to December 1991, and by 8.4 times by January. Daily output was 99% by December and only 89% by January 1991. The shortage of goods was eliminated by a sharp decrease in the effective demand of the general population and enterprises.
The reversal of the events of the reforms of 1992 and subsequent years has been sufficiently described in the literature. The courage of the young reformers at that time was based on the desire to get rid of the shackles of the stagnant past as soon as possible and was fueled by the conviction that it was the radical version of economic liberalization that would lead to the rapid emergence of a workable market economy with automatic advantages over the Soviet economy. The realities, as we know, turned out to be much more complex than desires and hopes.
Measuring Success: Two Dimensions of Reform
The results of the reform efforts can be assessed in two main ways. The first is the final economic and social results recorded by statistics and felt by the population. These results are determined by the scale and rate of growth of the social product and shifts in the standard of living of the people. The second section is the institutional changes that mark the formation of a new economic system.
It is the second aspect that has been brought to the forefront of public attention during the first very long stage of reforms. The denationalization of the economy, privatization, and the expansion of all kinds of entrepreneurial principles were conceived as the most important directions for the formation of a new structure of institutions and a new economic climate. And quite soon in this respect it was possible to note many remarkable processes in the economy that strongly influenced the structure of economic interests:
1. Shifts in the structure of ownership, the multiplicity of interacting economic structures.
The multi-structuring of the economy has become a reality. It is known that the economic structure is a certain type of production relations that encompass a significant part of the economy and is capable of relatively independent reproduction. At the heart of every economic structure is first a certain type of property. After 1995, more than 70% of Russia’s GDP began to be created in the non-state sector. In 1994 this share was 62% and in 1993 – 52%. Especially characteristic were the changes in the structure of retail trade turnover by form of ownership. In 1991, 33% of Russia’s total retail trade turnover was sold through non-state forms, while in 1992 it was 59%, in 1993 it was 77%, in 1994 it was 85%, in 1995 it was 87% and in 1996 it was 91%.
2. A new influence of demand on the economy, turning it into a real structure-forming factor.
3. Openness to the outside world of the Russian economy as a whole and all its economic entities, ensuring integration into globalization trends.
4. The new role of money. Turning money into a short-term resource is most attractive to businesses, banks, and households.
5. Significant weight of large owners of financial capital in the relations on the formation of economic policy in the country.
These changes were carried out in a very contradictory way, but they were milestones in the ongoing transformation of the Russian economy into a market-type economic system. And it was this last aspect that the official authorities and the relevant media emphasized when it was necessary to report on reforms.
Socio-Economic Indicators of Success
As for the first cross-section of the effectiveness of reforms, related to the dynamics of real socio-economic indicators, it was not in the public eye. The parameters of GDP, industrial and agricultural production, real incomes of the population, etc., did not appear in the reports on changes in the Russian economy. It is difficult to find a satisfactory explanation for this circumstance (except perhaps the desire of the authorities not to disturb society in the hope of A quick turn for the better), because the dynamics of almost all socio-economic indicators were consistently negative.
As can be seen from Table 4.1, GDP, industrial output, agricultural output, and capital investment in the economy fell almost continuously until 1998. At the end of the period under review, compared to the pre-reform year of 1990, GDP was less than 53%, industrial output was 46%, and investment in fixed assets was only 21%. Average monthly wage by the consumer price index was only 42% of the pre-reform level. The dynamics of retail turnover indices were flatter (less declining), but it should be noted here that, despite the abundance of goods in stores, the physical volumes of trade turnover in 1998 were less than in 1990.
Attempts by some analysts to draw attention to negative socio-economic trends were drowned in a stream of assertive praise of the chosen course. Economic recession was seen as the inevitable price to pay for getting rid of the evils of the past. This view was persistently introduced into the literature covering economic transformations. And even today, there are stories in serious publications aimed at proving the idea that the reform recession in the Russian economy (in 1991—1998) was Not only is it inevitable, but it’s not too big either. For example, in one of the articles in Ekspert, to the question “what did we (Russia) lose as a result of the victory of liberalism in the economy,” the authors give the following answer: “From an economic point of view, exactly as much as we should have lost,” because, they say, “most of the Soviet economy that Russia inherited was not viable.”
To make the conclusion convincing, comparisons are made with the economic recession during the Great Depression of 1929—1933, which amounted to about 30% in the United States. Russia, according to the article, lost 40%: “more, but not fundamentally more.” On the other hand, according to the authors, the radicalism of economic freedom has brought thousands of super-qualified people to the capital and labor market, which “has not been seen in any country in the world.”24 Such assessments probably have the right to exist in the press. However, a comparison of the effectiveness of two processes: the Great Depression, this natural disaster in the eyes of the US government and public at that time, and a conscious policy of reform in our country, it still looks very extravagant. If one of the politicians of the United States had declared then that the Great Depression was a planned reformation action, it is unlikely that he would have been in good luck.
Ideological