A Long Time. Russia in the World: Essays on Economic History

Publication date
Tuesday, 18.01.2005

Ye. Gaidar

Publishing house "Delo"

The monograph attempts to understand Russia's place in the global socio-economic process, its transition to market economy after the collapse of socialism. The author tries to understand lessons from the world development and show in what environment the country has to develop and implement its economic reform strategy. Basing on the leading economies' experiences, the author attempts to identify the critical challenges Russia will face in the forthcoming decades. The monograph is designated for a wide array of readers who are concerned about the country's future. The book equally is for those who work or will work in the government, and will be dealing with design and implementation of decisions critical for Russia's long-term development.

from the Author’s Foreword

The past fifteen years have been the time of profound changes in Russia’s socio-economic and political structures. The totalitarian regime and the command economy in the USSR have collapsed and so did its satellite eastern European regimes, while newly independent states, borders and establishments have arisen throughout the former socialist zone.

The 1989 USSR, the 1992 Russia and even more so the 2004 Russia have very little in common. Their economies, the property structure, public and social institutions likewise appear organized differently. The collapse of socialism has given a rise to a long period of institutional disarray, with the old rules and establishments already non-existent, while the new ones have not come into being and could not work, for they lack traditions, customs and social consensus behind them. The time has come for weak and unstable governments, unreliable money and poorly complied with laws. It was the time when a government poorly exercised its functions of securing law and order particularly because it failed to change along with the society, and the latter has progressed much further than the state. Such a period always appears hard for those who happen to live therein.

At the moment the author is writing these words, the major post-socialist transition tasks have been solved in Russia: though imperfect, market institutions are in place; the country has survived through the post-socialist recession and its economy has steadily been on a sustained development track. Social, economic and political challenges that raise concern are still there, but these are different problems and appear similar to those that to some extent likewise face market economies that have never undergone deformations associated with the socialist experiment.

The recent changes generated an important effect, which is Russia’s comeback to the contemporary world. This process has been hard and contradictory, and not at all triumphal, nor it appears quite complete to date. It is because of Russia again becoming a part of the contemporary world, that it is necessary to realize how it is structured, why and how it became like this, what the key tendencies that determine the global development are, and which challenges and conflicts it may face.

The post-revolutionary stabilization policy bears an objective conflict. More specifically, political leaders that have just come out of the period of turmoil, riots and crises, have to take strategic decisions that determine the development path of a country for generations ahead. Such leaders’ operative horizon is forcedly narrowed to months or, at best, to a few years (until next elections), while a serious debate of long-term prospects seems an impermissible luxury.

Meanwhile in coming decades Russia will be challenged by its demographic dynamics, the change in the population age structure, stability of the pension system, shifts in the production and consumption structure. All these problems are determined by the country’s entering the post-industrial phase of development and appear of a long-term nature. To constructively discuss them, one needs a long historical background, understanding of the logic of long-term developments and problems generated by the inertia of the institutions established at the earlier stages of development.

This book is for those who are keen to explore into issues associated with long-term socio-economic development and design of development strategies for Russia in the 21st century. This is not a publicism. Those who would like to read it will need a desire and skill to analyze a huge mass of statistical materials. But I tried to make it understandable to any concerned and educated reader, including those who are not experts in economics and history.

Because of the immense problems therein, I was compelled to narrow to a maximum possible extent the scope of addressed issues. The book attempts to evaluate and employ the worldwide experiences to design a strategy of next stage of Russian reforms. The scope of the mission has forced me to split the contents into two volumes, with all the issues associated with globalization challenges, Russia’s place in the world, long-run changes in the global monetary system, foreign exchange regulations, opening of the global capital markets and changes of the role played by trade and financial policies constituting the subjects to be addressed in the second volume.

*  *  *

In the past fifteen years I have happened to be actively involved in the political process, making key decisions in the socio-economic policy area — from the price liberalization and introduction of a convertible currency in Russia to the implementation of the 2000—2002 radical tax reform. However, the present book is not memoirs. I tried my best to abandon the discussion on what has been made right or wrong in Russia. I discussed this particular subject many times. But it appeared impossible to avoid a discussion on the issue in this book and, particularly, in very important Chapters about Russia (see Chapter 8 and 9).

I am well aware from my personal experiences, as well as those of my friends and colleagues who held or are still holding offices (and not only in the Russian government) how challengeable an exercise is to keep the focus on the strategic prospects among a whole array of pressing issues. Hopefully, the ideas formulated in this book could be of some help to those who will be shaping the strategy of national development for new Russia in the first decades of the 21st century.


Introduction 7

Section 1

Chapter 1. Contemporary Economic Growth 17

§1. Millenniums of a Static State of Society 18
§2. Contemporary Economic Growth: Its Concept and Main Features 21
§3. Structural Shifts in the Society 26
§4. National Paths of Contemporary Economic Growth 35
§5. Russia’s Evolution against the Background of the World Economic Developments over Two Past Centuries 36

Chapter 2. The Economic Determinism and Experiences of the 20th Century 47

§1. Historic Conditions of the Rise of Marxism 48
§2. «Iron Laws of History» and Their Destiny 54
§3. The Beginning of the Crisis of Marxism 58
§4. The Conflict between the Theory and the «Secular Religion» 64
§5. Revising Marxism, Challenges Generated by Post-Industrial Development 66
§6. Marxism and the Modern World. Some Conclusions 74

Chapter 3. The General and Peculiar in the Contemporary Economic Growth 81

§1. Historic Time 82
§2. Prevailing Ideology 91
§3. Lagging behind the Leaders 98
§4. The Impact of Traditions 107

Section 2

Chapter 4. The Traditional Agrarian Society 127

§1. The Neolithic Revolution 129
§2. The Transition to the Settled Way of Living and the Beginning of the Property Stratification of the Society 134
§3. The Rise of Agrarian States 141
§4. Evolution of Indigested Withdrawal of Resources into Tax Systems 144
§5. Dynastic Cycles in Agrarian Societies 151
§6. Trade in the Agrarian World 159

Chapter 5. A Different Path 171

§1. Specifics of Mountaineer Civilizations 171
§2. Historical Way of Nomadic Cattle-Breeding 175

Chapter 6. The Phenomenon of Antiquity 189

§1. Natural Prerequisites of the Antique Civilization 189
§2. Organization of the Economic and Social Life of Greek Settlements 196
§3. The Antique path of Evolution of Social Institutions 201
§4. Sources of an Immanent Instability of the Antique Social Structure 211

Chapter 7. Capitalism and the Rise of Europe 220

§1. Decline of the Antique Civilization and Emergence of Feudal Institutions in Western Europe 220
§2. Specific Institutions of the Agrarian Europe. The Town and the Rise of Capitalism 226
§3. The Great Geographic Discoveries: Their Foundations and Impact on Establishment of Prerequisites of the Contemporary Economic Growth 237
§4. Evolution of Financial Systems in Western European Countries 241
§5. Transformation of Land Property Rights 251

Section 3

Chapter 8. Peculiarities of Russia’s Economic Development 259

§1. The origins: Europe and Russia 259
§2. The Impact of the Mongolian Yoke on Evolution of Socio-Economic Institutions in Russia 267
§3. Russia’s Catch-up Development Period until the beginning of Contemporary Economic Growth 273
§4. The Beginning of Contemporary Economic Growth in Russia 278
§5. Marxism and Laying Ideological Foundations for the Socialist Experiment 283
§6. Historical Roots of the Socialist Experiment in Russia 287
§7. From «the Military Communism» to NEP 293
§8. The Choice of Development Strategy and Emergence of the Model of Administrative Control over Economy 303
§9. Costs of the Socialist Industrialization 308
§10. Long-term Consequences of the Selection of the Socialist Model of Growth 322
§11. Collapse of the Socialist Economy 336

Chapter 9. Post-Socialist Crisis and Recovery Growth 361

§1. The Post-socialist Transition, as Historical Process 362
§2. The Problem of Transformational Recession 372
§3. Dependence on the Prior Development Path 377
§4. The «Shock» и «Evolutionary» Paths of the Post-socialist Transition 380
§5. Financial Stabilization, Monetary and Budget Policies in the Process of Post-socialist Transition 391
§6. Recovery Growth, as a Stage of the Post-socialist Transition 399
§7. Russia as Market Economy 412

Section 4

Chapter 10.. Population Dynamics and International Migration 417

§1. Main Tendencies in Demographic Behavior since the 18th Century. 422
§2. Peculiarities of Demographic Processes in Russia 433
§3. Social and Economic Context of International Migration 452
§4. Prospects for the Contemporary Russia’s Migration Policy 464

Chapter 11. The State Burden on the Economy 471

§1. The Share of Public expenditures in GDP. Historical Evidences 471
§2. An Evolution of Concepts of the Volume of State Burden on the Economy in the Period of World Wars 480
§3. On Tax Withdrawal Marginal Rates 485
§4. The State Burden in Post-socialist Economies 492

Chapter 12. The Rise and Crisis of the Social Protection Systems 499

§1. Origins of Social Protection Systems 501
§2. Development of Social Protection Systems 504
§3. The Crisis of Contemporary Pension Insurance Systems 514
§4. Reforming Pension Systems 522
§5. Problems of the Social Protection Systems in Russia 529

Chapter 13. Evolution of Educational and Health Care Systems 539

§1. Organization of the Public Education System 539
§2. Health Care 566
§3. Issues of Reforming Russia’s Educational and Health Care Systems 579

Chapter 14. Transformation of the System of the Armed Forces Draft 590

§1. The Armed Forces Draft Systems prior to the Conscription 590
§2. Universal Conscription in the Leading Countries 597
§3. Conscription in the Post-industrial Era 606
§4. Issues of the Russian Army Draft 615

Chapter 15. On Sustainability and Flexibility of Political Systemsм 621

§1. On the Correlation between the Level of Economic Development and the Nature of Political Institutions 621
§2. Conscription in the Post-industrial Era 625
§3. Groups’ and National Interests 633
§4. Mature Democracy and Its Options 635
§5. What a «Closed», or «Managed» Democracy Bears 640

Conclusion 645



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