The Institute held international conference “Post-Communist Russia in the context of the global social and economic development” dedicated to the 10th anniversary of the IET on December 1 and 2 of year 2000. The conference focused on interpretation of the experience of first decade of the reform and elaboration of the concept of the country’s development for the future in the context of the global social and economic development. The organizers of the conference also aimed to elaborate specific practical recommendations in the area of economic policies basing on the results of this forum.

   The conference included two plenary meetings and work at panels. At the plenary meetings the participants discussed macroeconomic, political and economic problems of post-Communist reforms. The panels were dedicated to the following problems: macroeconomics, social aspects, issues of revolutions and evolutions in the post-Communist world, the international experience of the transitional period, agrarian problems, and regional issues. All speakers stressed the practical importance of the studies. The interest of the audience to the presented topics was manifested by an active discussion of the majority of issues at each panel. The participants of the conference had the opportunity to ask questions and comment on the presented problems. The comments often presented points of view different from those expressed by the speakers. Discussions also continued during breaks.

   Among the participants of the conference were such well known foreign economists as Robert Mundell (Professor of Economics at the University of Columbia, he received the Nobel Prize for Economics in 1999), Arnold Harberger (Professor of Economics at the University of California in Los Angeles), Lawrence Kotlikoff (Professor of Economics at the Boston University), Anna Krueger (Professor at the Stanford University), Robert Conrad (Professor at the Duke University of North Carolina), Graham Scott (Professor of Economics from New Zealand), Anders Aslund (Senior Associate, Carnegie Endowment for International Peace, Washington DC) and others.

   Among Russian contributors there may be noted Alexey Ulyukayev, First Deputy of the RF Finance Minister, Vladimir Mau, Director of the Center for Economic Reforms at the RF Government, Andrey Illarionov, President’s Advisor on economic issues, Mikhail Dmitriyev, Deputy Minister for Economic Development and Trade.

   Yegor Gaidar, Director of IET, in his opening remarks noted that ten years ago there was no such area of research as economies in transition, there was only a set of hypotheses derived from the experience of economic reforms carried out in socialist countries, stabilization programs implemented in other countries, there were some observations, which made sense, and some reflections on these issues, however, the very subject of the study and any relevant experience were lacking.

   The speaker stressed that such hard, but rich experience has been accumulated by present. There has formed a most rapidly developing school of the world economic thought. Hundreds of articles (many of which are very interesting and talented) have been written about the problems practically unknown ten years ago (barter, management under soft budgetary constraints, and many others).

   As the specifics of the transitional process became more clear, many problems were settled. The speaker noted that at present there appeared the potential to apply the accumulated knowledge about processes and trends of transitional economies to Yugoslavia, which is the last European country to start radical post-Communist reforms. The team of economists formed around the new Yugoslav government thoroughly studies the Russian experience in order to avoid the mistakes made by the Russian reformers and to optimize the transition of the country to market economy.

   Dr. Gaidar stressed that many problems still exist in this area. It is an ancient wisdom that it is impossible to comprehend the future without comprehending the past, and in this connection the comprehension of the dramatic period of the political, social, and economic history of the age of Russian reforms is extremely important for the formation of future strategies. The speaker said that exactly this was the chief aim and objective of the conference.

   Academician A. G. Aganbegyan (a co-founder of the Institute) reminded the audience about the history of its creation. The Institute for Economic Policies (created in 1990, the name was proposed by Ye. T. Gaidar) attracted young and talented scholars. Very fast a program of research was formed. Later, a subsidiary of the Institute under Anatoly Chubais was established in Leningrad.

   The programs intensively developed by the Institute in 1990 through 1991 were used by the new Russian leadership under President Yeltsin, who appointed Dr. Gaidar and his team as members of the Russian government, thus Russia started its transition to the market.

   The speaker reminded about the most difficult and dramatic situation the country was in on the eve of reforms. This situation was aggravated by the disintegration of the USSR, collapse of planned economy, and rupture of traditional economic links occuring at the background of huge foreign debt accumulated over the last years of the Communist regime.

   In this situation, stated A. G. Aganbegyan, a great courage was necessary to assume the full responsibility for the reform (even if at present the shortcomings in the work of the first Russian government are clear). The speaker stressed that at that time it was the only team in the country able to carry out such a revolution. It was rather a misfortune, than the fault of Gaidar’s government that this task was not fully accomplished.

   A. G. Aganbegyan expressed his view that the irreversible changes originated in 1991 through 1992 were the most important result of the work of the first Russian government to a considerable extent composed of the IET experts.

   A. B. Chubais, Chairman of the board of the UES Russia, stressed the fact that both supporters and opponents of Dr. Gaidar have to live “according to Gaidar,” and this is the most important result of the Institute’s activities over the last decade. Any discussion about the most important problems of the economic policy is conducted in “Gaidar’s language,” not only in Russia, but in neighboring countries as well, since they also refer to the studies carried out at the Institute.

   While apprising the scope of Gaidar’s reforms and their place in history, the speaker polemically compared Ye. T. Gaidar with K. Marx; however, he stressed that Gaidar had to remedy the consequences of the activities of his predecessor.

   The current studies of the Institute were applied with a great effect in the area of the transformation of the real sector, introduction of financial discipline, modern management, professional schemes of budgeting, formation of the system of marketing and sales.

   The speaker has further developed the statement of A. G. Aganbegyan concerning the rejection of studies carried out by Gaidar’s Institute by the official economic science. A. B. Chubais said that it was not necessary, since there is no “official” and “non-official” science, but only science and non-science. In this connection, it is fortunately for Russia to have the real economic thought and enjoy its results.

B. Ye. Nemtsov, leader of the SPS faction in the State Duma, stated that the historic role played by Gaidar and his Institute was that they saved the country from a civil war, since the choice was between a civil war accompanied by requisitions of food and “war communism” and liberalization. The speaker regretted that many reforms started by Dr. Gaidar and his team were not completed due to Gaidar’s resignation. B. Ye. Nemtsov thinks that at present the IET basic objective shall be to engage in the settlement of the most urgent and fundamental problems: pensions, military reform, reform in the area of housing and public utilities, and structural transformations, since it would be a crime to miss the exceptionally opportune moment for their implementation. B. Ye. Nemtsov stated that Russia shall not become a country of missed opportunities.

	REPORTS

   Presented at the international conference.

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   A. Aslund states that the purpose of his presentation “Myth of Output Collapse after Communism” is to figure out what really happened to output during the initial transition in the former Soviet bloc, comprising the former Soviet Union (FSU) and six East-Central European countries by applying some indirect methods. The author observes that the necessity to use indirect methods is determined by flawed socialist statistic, which have disinformed policy makers in post-communist transformation, inciting them to adopt inefficient gradual reforms, which reinforced rent seeking and prolonged stagnation. The author focuses on four aspects, namely contraction prior to marketization, increased underreporting of output and the incentives to such behavior, the reduction of value detraction, the elimination of implicit trade subsidies, and defense production.

   With the collapse of communism, officially-recorded output plummeted throughout the post-communist world. Annual falls over 10 percent were standard. The author questions these data and argues that his judgement is justified. Central planning was a system of cheating. Everybody had an interest in over-reporting production, as bonuses of ministers, managers, and workers depended on their gross production. This led to persistent over-reporting, probably amounting to some 5 percent of GDP The interest in such doctoring of numbers disappeared immediately with transition. Under capitalism, on the contrary, people and enterprises are anxious to avoid taxes, implying a downward bias. Furthermore, statistical agencies failed to keep up with myriad new enterprises. A large unofficial economy emerged, which was not necessarily illegal, but just not reported to the state statistical office. Basing on indirect data the author estimates the size of the unofficial economy. The average unregistered share of real GDP in former Soviet countries rose from 12 percent in 1989 to 36 percent in 1994. Taking the unofficial economy into account, the economic development of the region looks very different. First, on average the contraction from 1989 to 1995 was 32 percent rather than 40 percent for the whole region, and 36 percent instead of 54 percent in eight CIS countries.

   Much of Soviet manufacturing was sheer value detraction. For instance, Soviet fishermen caught excellent fresh fish. Rather selling it on the market, they processed it into often inedible fish conserves, reducing the fish’s value to almost zero. Incorrectly, this value detraction was recorded as value added in national accounts and thus included in the GDP. Value detraction increased down the processing chain.

   Proper national accounts should exclude most of the “production” of consumer goods and processed foods, and any elimination of such value destruction is positive. The decline in manufacturing was staggering everywhere, for instance, in Russia from 1991 to 1996, 84 percent in light industry, 44 percent in food processing, and 57 percent in civilian machine-building. Incorrectly, this reduction of value destruction was recorded as a decrease of GDP, and most observers misconceived it as a major tragedy. Unfortunately, the author observes, it is impossible to calculate the eliminated value detraction directly. The most relevant overall measurement of reduced value detraction available appears to be the decline in the industrial sector’s share of GDP. For most countries, this decline in industrial share – or reduced value detraction in industry – is in the range 9-20 percent of GDP till 1995.

   The economic distortions of communism were especially severe in trade among socialist states, as such trade was largely politically determined, with regard to both commodity structure and prices. Socialist states mostly exchanged goods nobody wanted, forcing substandard and overpriced merchandise upon one another. The share of unsaleable goods in their mutual trade was probably even greater than in the domestic economies.

   Subsidization dwindled only gradually after the break-up of the Soviet Union at great Russian expense. Thus, Russia’s total burden was an unaffordable 22.5 percent of GDP or $18 billion in 1992. As these subsidies were implicit, they boosted the GDP of the receiving countries. Their elimination was a result of political independence rather than any cost of transition. Therefore, the implicit subsidies should be deducted from the base GDP of the former recipients to facilitate a comparison with their post-communist output, while they were presumably included in the donors’ GDP, warranting no adjustment of their GDP.

   Soviet defense expenditure was a persistent dispute in the Western Sovietological community. Gradually, the CIA raised its assessment of Soviet defense spending to 15-17 percent of GDP in 1986, but that was based on the CIA’s clearly exaggerated estimate of Soviet GDP. As late as 1990, the CIA considered Soviet GDP per capita no less than 43 percent of the US level in purchasing power parities (PPP). Other assessments set Soviet GDP per capita at 32 percent of that of the USA in 1990 (and Soviet household consumption per capita at only 24 percent of the US level), while the defense burden would amount to 22 percent of GDP.

   The Russian reform government swiftly reduced military spending to an internationally normal level of about 3 percent of GDP, while most other post-communist countries reduced such expenses to 1-2 percent of GDP. This reduction of defense expenditures resulted in a nominal decline in the 1989 GDP of about 22 percent in the whole FSU. Yet, the author observes, this might be an exaggeration. Much of barter, arrears and enterprise subsidies pertains to the military-industrial sector. Unfortunately, there is no sufficient information to distribute the military costs among the FSRs. For Russia, Belarus and Ukraine, this nominal decline must have been at about 10 percent of GDP.

   Further the author dwells on the evaluation of decline in investment and real living standards over the period of transformation.

   The author concludes:

   First of all, the purported tragedy of universal output loss after communism is a myth, though the region suffered from stagnation during the first half of the 1990s. This helps to explain the mysterious absence of social unrest and of electoral backlashes against reformers.

   Second, the Soviet economy was in far worse shape than most Western observers believed at the time of its demise.

   Third, distorted official statistics have been a major cause of bad policies, as they did not reveal the strong, early supply effects shock reforms brought about. Consequently, the successful Polish model was not widely adopted, and many started calling for fiscal and monetary stimulation instead. Even if post-communist people are healthily skeptical of statistics, they tend to believe in bad news, which has led them astray. The distorted official statistics encouraged a march of folly towards bad policies.

   The overall lesson is that radical reforms, involving liberalization and financial stabilization, were both economically effective and socially desirable. The real social concern of post-communism was no initial decline in output but lasting stagnation in many countries. Better statistics are urgently needed to improve the understanding of the real effects of different policies.

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   Marek Belka aims his presentation “Lessons from Polish Transition” to synthesize the experience accumulated over the first ten years of transition from socialist central planning to a market economy   in Poland and to express some views on the future of Poland and other reforming countries of the region.

   Poland has been frequently quoted, particularly in the last period, as an example of successful reforms. High economic growth rates and general consistency of economic policy earned us a reputation of one of the front-runners in the process of transition. Both statistical data and political facts, such as Poland’s admission to the OECD in 1996, NATO membership in 1999 and the beginning of the accession negotiations with the EU confirm this positive assessment. More importantly, political and economic changes of the last years seem to have enjoyed broad support of the Polish society, as shown in virtually all opinion polls concerning its attitudes towards the market economy, democracy and Poland’s integration with the Western institutions.

   The starting point for reforms was in many respects highly unfavorable. Polish economy suffered from all typical deficiencies of central planning. The Stabilization Package of January 1990 is usually associated with what was later labeled as „shock treatment” or the Polish „big bang”. The author dwells on the basic elements of this program and economic agents’ response to it.

   The speaker observes that the economic activities in Poland after the start of economic reforms may be divided into four periods: transformation recession in 1990 through 1992; early revival in mid-1992 through end-1994; acceleration of growth in 1994 through mid-1998; and later slowdown. Looking at the experience of other successful transition countries one can notice certain similarities that suggest a common pattern, a sui generis transition cycle. The author reviews major factors behind the transition from one state to another.

   The speaker analyzes the necessity and major specifics of four important reforms started at the end of the decade. Three of these reforms pertain to the so far neglected sphere of social services financed predominantly from the budget – pension reform, the reform of public health service and education. On top of this, a decision was made to advance an administrative reform that provided for introducing a new level of local government and promised a significant decentralization of the functions of the state.

   The author dwells on the key factors behind the success of the transformation carried out in Poland and describes the necessary future steps: reconstruction of the whole agricultural sector, further restructuring of sunset industries, reform of the labour market and judiciary are among some of the most difficult challenges facing Poland.

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   Sergei Vasiliev focuses his presentation “Structure of Economy and Political Trends in Present-Day Russia” on the analysis of the impact certain sectors of the Russian economy had on the start of market reforms and their progress.

   At end-1980s the majority of economists agreed on the fact that the specifics of the Soviet (Russian) economic structure would seriously hamper the transition to the market. Among main factors there was named the dominance of the military industrial sector and related staple industries in the Soviet economy. The fuel sector industries were viewed as a positive factor for the transformation, since it was assumed that the natural rent would alleviate the social consequences of reforms.

   The author stresses that quite the contrary occurred in reality. The conversion of the military industrial complex was relatively painless. The defense industries experienced the minimal open social discontent. The role played by the oil and natural gas sector was much more ambiguous. On the one hand, observes the author, the oil and natural gas sector supported the idea of liberalization of prices and foreign trade, since the liberalization of the domestic market and foreign trade allowed it not only to privatize a considerable part of natural rents, but also realize it via higher salaries, purchases of imported equipment, or export to the West under dubious schemes.

   On the other hand, the industry was privatized at an initial stage of the reform, and new owners were not going to share their newly acquired wealth with foreign investors. However, if foreign investors had been allowed to participate in privatization and acquisition of large blocks of shares at investment tenders and auctions it would be exactly the case in this sector. This factor accounts for the early formation of a rather cold investment climate for foreigners. Only a small part of natural rents (as excises and export duties) went to the budget thus permitting to somewhat alleviate the budgetary crisis.

   The negative impact of the oil, natural gas, and resource sectors was even more obvious in the sphere of exchange rate policies, the trend toward the dependence of dollar exchange rates on the effectiveness of natural resources exports, what rendered non-competitive the large sector of processing industries.

   This so-called “Dutch disease” also manifested itself with regard to the human resources: the best professionals and businesspersons flowed into the resource sector and its infrastructure. All these factors (alongside with uncompleted privatization) contributed to the protracted depression of processing industries.

   Taking into account these considerations, the author in contradistinction to the well known concept of “triangular” economy (resource sector, military industrial complex, other sectors) proposes to analyze a two-sector economy, where the first sector is defined as the core, and the second sector – as the periphery. The core shall include resource sectors generating high export revenues (oil, natural gas, non-ferrous and ferrous metals). The core shall also include natural monopolies (energy and railroads). The coal mining industry and certain industry in the chemical sector are rather close to the core; however, the development of these industries seriously differ from the processes in the core sectors. The characteristic features of the core are the following:

   - High level of concentration inherited from the Soviet time.

   - Centralization in the framework of financial and industrial groups.

   - The core industries are characterized by a considerable impact of government regulation on the results of their economic operations. For instance, for the oil industry this impact is determined by excise rates, export duties, regulations concerning the access to pipelines. The natural gas sector is affected by the rates of tariffs, excises, and duties, existence of privileged consumers. The same is true for the energy sector, with the exception of excises and duties. Metallurgy experienced an impact of such regulators as toll, transport and energy tariffs. While the state may control “core” sectors, the core sectors to the same extent strive to “size” the regulating authorities. In most extreme cases there occurs “fusion” of government agencies and enterprises belonging to the “core.” The speaker presents concrete examples of such fusion and its consequences.

   The author analyzes the consequences of the dominance of the core sectors. Since a small number of large “core” enterprises are located in certain areas, it results in growing cross-regional differentiation of living standards and other social indicators. This differentiation is somewhat alleviated due to the fact that a substantial part of natural rent is exported and does not flow into domestic consumption and accumulation funds. The segment of the core oriented towards the domestic market is the most important generator of payment arrears. Payment arrears play a diverse role. First, payment arrears (and low domestic tariffs) are a form of the redistribution of export rent, mainly to the benefit of regions. Second, payment arrears are an additional factor rendering the situation less transparent for the regulating authorities. For instance, energy consumers are divided into groups with different payment regimes. It is obvious that such arbitrary discrimination is a major factor behind the unequal competition and a key disincentive to foreign investments.

   The speaker proceeds to review threats to the sectors of the periphery. These sectors have experienced a much more considerable decline in output than core industries. The rent-seeking behavior in these sectors was minimal due to the fact that the state paid no attention to them. However, exactly these sectors were responsible for the unexpected growth in output and investment over the post-crisis period.

   From the standpoint of the long-term economic prospects, only periphery sectors may play the role of the locomotive for the development of the Russian economy. In case the resource orientation of the Russian economy persists, it will be seriously affected by the situation on international markets, what may result not only in considerable volatility of economic growth rates, but also devastating financial crises.

   The persisting dominance of the core sectors will affect the social situation (consequences: considerable social differentiation, narrow middle class, low development rates of civil society institutions). In this situation attractiveness of economic populism and the danger of authoritarian tendencies will be maintained.

   The author believes that at the moment the core and the periphery achieved a certain compromise with regard to the exchange rate. Both sectors are interested in the maintenance of low Ruble exchange rates, while the periphery may develop exports and substitute for imports, and the core may derive rent and export it under dubious schemes. The speaker analyzes the threats to this compromise and factors, which may alleviate these threats.

   Further the author reviews the consequences of too low tariffs existing in the sectors of natural monopolies and their inevitable increase in the nearest future for the sectors of the periphery.

   The specific structure of the Russian economy determined the dominance of several financial and industrial groups relying on their concentrated resources in the economic and political life of the country. The author analyzes the consequences of this alignment. At present the authorities try to get free of the influence of financial and industrial groups; however, later it may result in the formation of an economic structure, where the state actively interferes in the operation of core sectors, participates in the formation of investment priorities and financial flows thus maintaining the extremely ineffective structure of this complex.

   The author thinks that the dominance of the core sectors in the Russian economy determines the underdevelopment of party structures in Russian politics, while political organizations of the periphery oriented towards the middle class will become a key moving force behind structural reforms, the reform of natural monopolies, further deregulation of the economy, reforms in the social sector. The author puts forward a number of arguments supporting this point of view.

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   R. Gekker made presentation “Political Economy and Public Choice,” which characterizes Russia as an economy stuck in an intermediary state (virtual economy in terms of Gaddy and Ickes, 1998, 1999). A characteristic feature of such an economy is that a large number of enterprises in the real sector continues to detract value by producing non-durable goods. The reason behind this phenomenon is the Soviet price system, which ignored opportunity costs of the utilization of raw materials. This system was seriously biased towards the processing sector and staple industries and concealed the fact that in reality the majority of enterprises in this sector were engaged in value detraction. Only price liberalization revealed the actual extent of production of added value in the extracting sectors. However, the last transfer of value from extracting sector to the processing one was a simple account operation carried out by planning departments. On the other hand, the transfer of value from one sector to another in the Russian economy has already ceased to be a simple exercise for planners – now it is a complex problem of revenue redistribution. Many publications analyze this problem in the context of enterprises’ and directors’ behavior. Researchers resort to evolution analysis attempting to explain how directors use ”kin” capital to survive in the new hostile world.

   The author offers to overtly model the political process as a way of explanation of factors behind the redistribution of revenues in the Russian economy. First, he reviews the problem of revenue redistribution by applying the method of choice of the state policy and proceeds to the simple political economy model.

   Choice of state policy in the analysis of the revenue redistribution problem. It is difficult to justify transfers benefiting certain interest groups or sectors exceptionally in terms of law. There are at least two reasons politicians may resort to transfers to special interest groups: first, these groups may considerably improve the reelection chances of these politicians by contributing to their campaigns or by rendering them direct political support; second, these groups may enrich the politicians either by giving them sinecures in the future, or by bribing them..

   Redistribution benefiting special groups of interests may assume various forms: price control and subsidized prices, licensing requirements and other regulatory measures, import quotas, etc. How may the choice of a certain redistribution method benefiting interest groups be explained? There exists a number of approaches. The speaker outlines the most well known approaches. The author presents a game model, which includes two periods: during the first period a politician administrating benefits shall implement or reject a certain public policy or project not necessarily benefiting the public but necessarily securing revenues of an interest group. The politician may also make direct transfers from public funds to the benefit of the above mentioned group without resorting to political levers as a tool to effect transfers. The elections are held at the end of the first period, and the politician has to contend with a randomly chosen aspirant. The political power belongs to citizens, since only citizens determine the outcome of the elections. During the second period the politician simply chooses money transfers to the interest group. This two-period model determines the game where participate the politician, contender, and the citizen (voter).

   Political economy approach to redistribution. The author observes that in principle it is possible to considerably simplify the modeling of redistribution by restricting the concept of political competition. The results the author presents may be of interest for the implementation in a transition economy. The speaker reviews a model where a firm, a politician, and a representative of citizens interact for an infinite number of periods.

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   At the beginning of his presentation “The Importance of Experience of Inter-budgetary Relations in Canada for Russia” F. Gorbet stresses that there is no right way to align intergovernmental budgetary responsibilities. One size does not fit all, and there are many models to choose from. Indeed, fiscal federalism is a dynamic concept and even long-established structures within a country can, will and should evolve in response to changing economic, social and political forces. In large part, this is because fiscal federalism is not an end in itself. It is a tool to serve the interests and aspirations of citizens.

   The essence of federalism in complex, plural societies is to provide structures that allow citizens to be well served by finding a balance between the efficiency of socio-economic partnership and the protection of local and cultural autonomy.

   Although each model of federalism will have its own system of intergovernmental budgetary relations, there are some important principles that can help assess — in any federal system — whether fiscal federalism arrangements are working well.

   In his presentation the author single out three key principles: economic, social and political, which are of the great importance for fiscal federalism.

   Economic principles. It is generally agreed that fiscal federalism arrangements should support and reinforce economic efficiency. There are two key principles that contribute to achieving economically efficient outcomes – the first is protecting the integrity of the economic union; the second is ensuring that fiscal arrangements preserve and contribute to incentives to promote economic growth.

   Social principles. The key social principle underlying an effective system of fiscal federalism is fiscal equity. Fiscal equity requires that individuals in similar economic circumstances should receive similar net fiscal benefits wherever they reside in the nation.

   Political principles. In author’s judgment meeting this political principle of fiscal federalism – this challenge of accountability and transparency — is the greatest challenge that fiscal federalism reform will face over the medium term. I think that the key to addressing this challenge lies first on the revenue side. Regions must be given a stake in protecting the integrity of the national tax base, through encouraging rather than impeding national efforts to collect taxes that are legitimately due. In the current environment, the federal authority determines the structure and the rate of tax, and revenues collected are shared with the region. In general, the region has no ownership in, or accountability for, the revenues it collects. And regional influence over the effectiveness of the collection system can lead to a situation where regional taxpayers can effectively arbitrage their obligations by avoiding taxes while providing alternative benefits to the regional government that are worth more than it would receive in transferred tax revenue if taxes had been paid. This situation may well be compounded by the capacity of regions to “bid” for economic activity by offering “shadowy” budget policies.

   The speaker illustrates the above mentioned principles by examples from both Canadian and Russian practices.

   The author dwelled on the problems Russia will face in the course of elaboration of further steps in the process of the evolution of its system of fiscal federalism.

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   In his presentation “Social Policy and Political Cycle: Lessons for Reformers” M. Dmitriev aims rather to put forward new questions arising in the context of the new stage of social policies than answer them. The main problem is: what measures out of those the author thinks are really important from the standpoint of their practical results in the area of the social policy shall be implemented in the context of the political process Russia undergoes at the moment, and in the context of the political cycle, the volatility experienced by the social policy over last few years.

   The reforms, or at least the reforms, which are actual at the moment and which the government included into its program, are reforms of the so-called second generation. These reforms are mainly related to institutional transformations implemented, as a rule, by economies in transition at the second stage of the transformation after the problem of high inflation rates and macroeconomic stabilization are (at least to some extent) settled. Russia had to settle these problems twice, respectively, there were two attempts to implement social reforms.

   The first attempt was made in 1996 through 1997, when there appeared indications of the macroeconomic stabilization, and the government tried to formulate an integrated program of reforms in the social sphere. The second attempt took place after the crisis of 1998, when the country started to overcome the period of rather serious macroeconomic instability, what presented a new opportunity to actualize a whole set of social transformations.

   These developments may be also explained in terms of political cycle: each time the package of social reforms was promoted after a wave of elections, at the beginning of a new political cycle. The State Duma elections of 1995, the Presidential campaign of 1996, the appointment of a new government resulted in a new program of reform in the social sphere. At present, observes the author, we in fact experience the repetition of this political cycle. The government has a clear program of social reforms; however, the questions put forward at the beginning of the presentation remain without answers. The author became aware of these problems in the course of a study he conducted in the first half-year of 2000. The speaker found out that in contradistinction to the government, the attitude of the State Duma to the social reform is ambiguous, and the balance of power is uncertain. Another problem is if the Federation Council is ready to approve the proposals put forward by the government. Last, but not least, is the attitude the regional authorities vested with rather broad powers in the sphere of social policies will take to the new program of reforms, which objectively infringes upon their jurisdiction.

   Basing on the analysis of a number of empirical studies aimed to find out how social and economic programs of the parties represented in the State Duma (over 5 per cent of votes by federal constituency) changed in comparison to the elections of 1995; what impact on the share of votes for different parties represented in the State Duma have different social and economic indicators across RF subjects (basing on the election data of 1993, 1995, 1999); what influence elections have on the amount of the expenditure for the maintenance of the budgetary network, the speaker arrives to the conclusions he thinks to be the problems worth to reflect upon.

   1. Many reforms, especially extremely complex and protracted ones, may be rejected by regional elites and a considerable part of the Federation Council.

   2. Present political realities are hardly favorable for the consolidation of political forces at the federal level with regard to such an important component of social reforms as the introduction of targeted social assistance to the poor and the liquidation of not-targeted social transfers. This problem causes a rather serious split both in the society and the Federal Assembly, and the political resistance faced by the government reflects the real configuration of interests backed by serious political forces.

   3. The situation in the sphere of the pension reform is not so ambiguous, there are observed certain elements of consensus; however, this consensus pertains only to the initial stage of the introduction of accrual elements of financing.

   4. As concerns the reform of education and health care sectors, the author argues that only partial consensus is possible in this sphere. Obviously, there is the consensus with regard to an increase in the financing of these expenditures. The necessary structural transformations will be supported by urban populations, first of all the consumers able to make a responsible choice. However, regional elites will see the reform as a serious infringement on their interests (they will be deprived of many traditional forms of control over financial flows they often misuse), what will certainly affect the voting on this legislation in the Russian parliament. It is a reason why the process of institutional transformations in the sphere of education and health will not be smooth and will take more than a year.

   5. All measures proposed to be implemented in the sphere of social reforms are planned for a period from 3 to 5 and more years. This program may be implemented only gradually, since to reach a consensus with regard to these reforms is practically impossible due to the forming structure of interests.

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   Sergei Drobyshevsky focuses his presentation “Econometric Model of the Russian Banking Crisis” on the factors behind the problems faced by certain Russian banks in 1997 through 1998 basing on the econometric analysis of panel data. The author’s main hypothesis is that determinants of the banking crisis existed at three levels: micro-level (balance indicators of individual banks), meso-level (characteristics of the consolidated balance of the banking system), and maco-level (change in macroeconomic variables), so the character of the development of crisis processes was determined by the combined influence and dynamics of all levels.

   The following tasks were set to settle this problem:

   – to single out a set of indicators characterizing a “problem bank;”

   – to analyze and single out factors determining the probability that individual banks from the whole sample will face problems;

   – to analyze and single out factors determining the probability that individual banks from sub-samples (broken down by time, groups of banks) will face problems.

   The analysis was conducted on the basis of data contained in balance sheets of certain Russian banks derived from the rankings of Russian banks prepared by RC “Rating,” open publications, and the RF CBR web-site presenting balance sheets of commercial banks. Twenty six commercial banks, which made their balance sheets available, were selected for the study. The aggregated assets of these banks made 40.6 per cent of the total RF banking system (as on August 1, 1998, excluding the RF Sberbank).

   A key problem of the econometric analysis of banking crises is the determination of the set of indicators characterizing the concept of “problem banks.” The author singled out four indicators of problems experienced by banks:

   1) banks experiencing serious liquidity problems in the third and fourth quarters of 1998 and later denied licenses or subjected to the management of ARCO;

   2) negative balance capital in the current quarter;

   3) banks receiving CBR loans in the current quarter;

   4) the share of overdue payments in the current quarter exceeding 5 per cent of the total amount of inter-bank credits, payments due to the customers, or loans received from CBR RF.

   The author argues that this set of indicators is a reliable basis to find out if it is probable that a bank will experience problems.

   Methods of evaluation of regression models with binary endogenous variables were applied to apprise the impact of these factors in quantitative terms on the probability that these banks would experience problems.

   The analysis conducted by the author permits to arrive to the following conclusions with regard to the chief factors behind the fragility of the Russian banking system in 1997 through 1998, and the factors, which determined the beginning of the crisis of 1998:

   1) low quality of banking management, first of all manifested by the disparity between the terms of assets and deposits;

   2) credit expansion coupled with high risks of default on credits, which was initiated, among others, by federal and regional authorities;

   3) build-up of foreign liabilities in the situation of increasing country risks in Russia;

   4) policy envisaging increasing interest rates on household deposits in the situation of deteriorating liquidity of the banking system and the dwindling confidence of the population in Russian commercial banks.

   The grouping of banks from the sample according to their standing after the crisis of 1998 (“alive” and “problem” banks) permitted to find out that the probability of “alive” banks to experience problems was, first of all, related to short-term problems of liquidity and profitability, while the standing of “problem” banks was bad enough even prior to the crisis; however, it became more difficult to conceal problems in the situation of the Ruble devaluation and the “raid on banks”.

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   P. Kadochnikov presents “Application of Models of Currency Crisis of the First Generation (on the example of Russia 1996-1998)” focused on the description of an aspect of the Russian financial crisis (1998) – the currency crisis. The almost fourth-fold devaluation of Ruble coupled with the default on the internal debt became a most important development in the autumn of 1998. The author remarks that certainly the currency crisis was only a component of the 1998 crisis; however, to look at the events from the standpoint of the currency market helps to more precisely understand the mechanisms of the aggravation and development of the financial crisis at large.

   An analysis of the pre-crisis situation by applying macroeconomic indicators and the comparison of the situation in Russia with currency crises taking place in other countries demonstrates that the Russian crisis manifested itself via fundamental indicators related to the real and external economic sectors, and indicators of financial markets.

   The author justifies the choice of the first generation model (which differs from standard models by the introduction of a separately modeled risk premium for the investment in national securities that permitting to take into account the interrelation of the currency and internal debt (GKO) markets, while analyzing the possibility of a crisis and a shadow exchange rate) to describe the Russian crisis. The study aimed at the testing of the possibility to apply this model for the description of the moment of devaluation of the national currency and to test the prognostication quality of this model for the Russian economy.

   The basic equations used in the first generation model are the demand for money, parity of purchasing capacity and parity of interest rates, money supply and equilibrium conditions on the money market.

   For the further testing of the model the author applied the approach offered by H. Blanco and P. Graber (after the econometric evaluation of unknown coefficients in equations and introduction of other model equations in the equation of money demand there shall be constructed a variable, which, on the one hand, depends on the fundamental variables of the model, and, on the other hand, represents the unbalance of demand for the money supply caused by the situation on the currency market).

   The model was applied to calculate the values of the shadow exchange rate, i.e. the rate of the floating exchange rate causing the system to be in equilibrium; the probability of a currency crisis, i.e. a case when the shadow equilibrium exchange rate will exceed the upper limit of the foreign exchange band; the minimal admissible amount of reserves, i.e. the amount of reserves of the Central Bank, at which it will cease to maintain the fixed exchange rate.

   In the course of analysis of the obtained results the author singled out time intervals in the framework of the period under observation, which are characterized by specific dynamics of the observed parameters and evaluated the policy pursued by the Central Bank with regard to the situation on the currency market. The speaker reviewed policies the Central Bank might pursue to alleviate the consequences of the devaluation of 1998.

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   Robert F. Conrad is the author of presentation “Should Russia Have a Stabilization Fund? Some Microeconomic Implications for Macroeconomic Policy.” First the speaker focuses on the concept of the stabilization fund. The speaker defines such funds as macroeconomic tools the governments of countries with relatively rich mineral resources may use in case it is necessary to compensate for mineral raw materials price fluctuations on world markets. The governments accumulate revenues derived at times the prices for mineral resources are high at stabilization funds and spend them at times the world prices of mineral resources fall. Budgets and current expenditures are the instruments determining guidelines for the utilization of these funds.

   The discovery of a new deposit of mineral resources or a price hike increase the capital of a given economy (measured as the real value of reproducible capital, human capital, capital in the form of mineral resources) by the current amount of revenue inflow originated due to the discovery of the mineral deposit adjusted for risks. Gross revenues from mineral resources shall be shared among the producer deriving these revenues and the owner of the deposit (in most cases the government). Owners of mineral resources are well aware of the fact that the value of deposits decrease in the course of their depletion. Therefore, notes the author, it is important to estimate the amount of savings the owner of these (or other) resources shall have in order to maintain the accumulated wealth and to sustain higher consumption levels. The speaker shows possible approaches to the settlement of this problem.

   The author analyzes the change in the structure of the domestic product due to the discovery of a deposit or a rise in prices of mineral resources, since this may affect the comparative advantages of a given economy. Respectively, other conditions being equal, reproducible capital and labor will flow to this sector of economy from other sectors in order to profit by the change in the comparative advantage. Such inflows generate expenditures in the economy as they are related to transaction costs, acquisitions, and losses specific for each sector of the economy.

   The author mentions two types of economic consequences at the micro-level: first, the income effect resulting from the change in the level of “mineral wealth;” second, the substitution effect generated by changes in the comparative advantage. The speaker analyzes these factors in the context of the substantiation of the “Dutch decease,” suffered by Holland after the discovery of oil deposits in the Northern Sea.

   The speaker also analyzes the effect of discoveries of mineral resources deposits and increases in “mineral wealth” resulting from the rise in prices of mineral raw materials on the change in the balance of assets of a given economy. The owner of resources will diversify the capital depending on this owner’s “risk preferences” and available options. The author mentions that there is no rule that revenues derived from sales of domestic raw materials shall be necessarily invested in the home economy. Such investments shall be made only in case the expected revenues adjusted for risks are at least equal to revenues from investment in the world market of capital.

   Governments own mineral resources in the majority of countries. Therefore, state budgets profit from both rises in prices of raw materials, and the discovery of new deposits. The speaker warns of the danger to mistake a growth in revenues over a current year for net budgetary revenues, which could be spent to cover current expenses.

   The decision on the establishment of the stabilization fund often depends on the fact that the government needs to preserve capital reserves and in this way control state expenditures. The form of the stabilization fund will depend on the concrete objectives pursued by such policies. Moreover, decisions taken on the design and the way to launch the fund affect the way this fund will be utilized (investment rules) and the way to utilize revenues (distribution rules). The author analyzes the factors, which may affect the fund depending on the purpose it was created for. The following objectives are reviewed: preservation of funds and control over budgetary expenditures. The speaker gives some examples of calculations of the amount of the stabilization fund.

   Further, the author touches upon some concrete problems of the creation of a stabilization fund in Russia. Before the decision on the establishment of the fund is taken, the following question shall be answered: what does Russia need the stabilization fund for? Stabilization is only one of the mechanisms employed to preserve a share of revenues derived from the export of oil products. The speaker mentions that a single fund will be hardly able to settle both micro- and macro-economic problems applying a uniform set of rules and procedures. However, certain objectives may be complimentary. For instance, some countries and individual regions use stabilization funds for:

   - Substitution for capital in the form of natural resources in order to avoid a decrease in the amount of net capital (the sum of physical capital, natural and human resources) – Alberta in Canada and Alaska in the USA;

   - Diversification of the assets in the economy by investing in domestic and foreign fixed capital (the majority of countries use stabilization funds exactly for these purposes);

   - Sterilization of a part of returns denominated in foreign exchange to alleviation of the Dutch disease (Norway, Chili);

   - Toughening of budgetary discipline in order to restrict the striving of the government of the legislature to utilize revenues derived from high prices of raw materials for current expenditures (Chili).

   It is principally impossible to create a single stabilization fund able to settle all problems and other tools may be required to achieve all objectives. For instance, in case the fund is purposed to substitute the capital in the form of natural resources it may be required to collect annual assignments from all revenues derived form the sales of mineral resources to a permanent fund. On the other hand, a traditional stabilization fund may be required to sterilize revenues denominated in foreign exchange derived at the time high prices of raw materials persisted and to utilize these revenues for current state payments.

   The author points out potential sources of means required to create a stabilization fund in Russia. At present, oil revenues of the Russian consolidated budget are formed at the expense of export taxes, royalties, various charges, taxes on enterprises’ profits, excises, and production sharing payments. The method of accumulation of these means affects both their amount and the response of the private sector. Therefore, the speaker mentions that it is important to analyze the inflow of means into the stabilization fund in the context of the general government policy concerning taxes and payments, including:

   - Short term outlook: the introduction of a system of export taxes with two or more rates depending on the price; longer term outlook: the evolution towards a more rational system of payments for mineral resources excluding export taxes;

   - Implementation of production sharing agreements;

   - Rationalization of the system of royalties/excises;

   - Improvement and collection of the tax on supernormal profits;

   - Reform of the tax on enterprises’ profits.

   The author stresses that the Russian government shall elaborate a system of verification and self-restrictions in order to achieve the reliability of the stabilization fund, whatever its form may be. There are listed factors making it necessary for the fund to be transparent and reliable in the context of the Russian policy in the area of state expenditures. The procedures governing the utilization of the stabilization fund’s revenues are analyzed.

   Further the author outlines the international experience in creation of stabilization funds formed on the basis of revenues from sales of mineral resources. The speaker used the data pertaining to: the Alaska Permanent Fund (APF) (USA), the Alberta Heritage Savings Trust Fund (AHSTF) (Canada), the Chilean Copper Stabilization Fund (CCSF) (Chili), the Norway Government Petroleum Fund (NGPF) (Norway). Two of these funds operate at the level of regional (province, state) government, and two – at the level of the national government. These funds are compared on the basis of their design, sources of revenues, rules governing the distribution of means, and procedures of investment activities.

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   The past decade of economic reform, or what has been labeled “economic reform,” has taken a terrible toll on the Russian economy and the Russian people. None have suffered worse than Russia’s elderly who have seen their pension benefits paid late and paid in rubles of declining real value. The first eight years of economic reforms left average pension benefits at the subsistence level. The last two years lowered them by another third. Bad advice, bad policies, bad enforcement, bad behavior, and bad luck all share the blame for the miserable state of affairs – thus has Lawrence Kotlikoff started his presentation “The Right and Wrong Ways to Reform Pensions in Russia”. The author noted that unfortunately, the situation could get worse if Russia squanders the opportunity to reform properly its financial institutions, including its pension system.

   Pension reform, if it is to be successful, can’t be done in isolation. It needs to be accompanied by major policies that foster economic growth and that restore international confidence in the Russian economy and its policymakers. Opening up the economy fully to international trade and investment, utilizing the international financial market, adopting a sound currency, rationalizing the tax structure, eliminating the red tape facing new companies, demonstrating that Russian capital flows are a two-way street, and giving workers cheap, easy, and safe access to the world capital market in exchange for their claims on the current bankrupt state pension system – all these are the components of a successful reform of the pension system, believes the author.

   In contrast, preventing full foreign ownership of domestic assets, maintaining existing trade barriers, trying to rebuild one’s own banking, insurance, mutual fund, and regulatory systems, investing exclusively at home in government bonds and in a limited number of Russian companies, continuing to print money whenever convenient, and letting the pay-as-you-go system grow with the economy – all this is the sure path to continued Russian economic misery, stresses the author.

   The Russian pension system is a mess. It not only delivers extremely low benefits, it also pays for them by levying an exorbitant payroll tax that costs workers more than a quarter of what they earn. Benefits are provided independent of contributions, so no one has an incentive to pay the taxes he or she owes. Since few employees and fewer of the self-employed pay their proper taxes, the rate needs to be very high to collect the necessary revenue.

   As bad as things are, they are projected to get much worse. By 2050, Russia will be one of the oldest countries in the world, with only one worker for each retiree. Today there are three workers per retiree. The author thinks that even crude arithmetic proves that it will be necessary to triple the payroll tax if the current system is maintained and benefits grow with real wages. Of course levying an 87 percent payroll tax rate would be economic suicide. But cutting real benefit by two thirds is no solution either unless there is a very major private retirement benefit to replace the public one.

   Further, the author proposes a plan of the reform of the pension system, which includes features that protect non-working or low-earning spouses, that help the poor, that protect the disabled, that lower the costs of investing, that limit the risk in choosing when to annuitize accumulated assets, that provide survivor benefits for those who die young, and, most importantly, that eventuate in a zero long-run payroll tax rate.

   The speaker believes that the key to make the reform of the pension system work is increasing foreign investment in Russia. In letting its workers invest abroad the Russian government will be saying in very clear terms that investment in Russia is a two-way street. Money can come in and also go out. The author is of the opinion that if Russia adopts this proposed pension reform and the other policies recommended in the presentation, the problem will be too much capital inflow, not too little.

   The Russian Personal Security System (PSS) A Framework for Reforming Russia’s Public Pension System (the presentation contains rather detailed and justified concrete recommendations on all points of the framework for reforming Russia’s public pension system):

   - The 29 percentage-point payroll tax used to finance Russia’s public pension system is reduced immediately to 22 percent.

   - Workers contribute 7 percent of their earnings (up to a ceiling) to PSS accounts.

   - Married workers’ PSS contributions are shared 50-50 with their spouses, so that each spouse has an equal-sized PSS account.

   - The government matches PSS contributions on a progressive basis to help the poor.

   - PSS balances are invested by an established, international investment company, chosen through a competitive bidding process, in a world-index fund which holds all the equities and debt instruments being traded in established international financial markets in proportion to their share of the valuation of the world’s financial market.

   - The PSS establishes individual PSS accounts for each worker and sends each worker quarterly statements. The PSS accounts represent private property. Contributions to PSS accounts are not subject to income taxation, but withdrawals from PSS accounts are taxable.

   - Starting at age 57 and continuing for 10 years, PSS balances are gradually annuitized on a cohort-specific and inflation-protected basis. At age 62 workers begin receiving annuities from account balances annuitized prior to age 62. Between age 62 and 67 workers receive additional annuities each year based on that year’s annuitization of remaining account balances.

   - Workers who die prior to age 67 bequeath their non-annuitized account balances to their spouses, children, or other designated beneficiaries.

   - The government makes contributions to the PSS accounts on behalf of disabled workers.

   - The government contributes 7 percent of all unemployment consumption to the accounts of unemployed workers.

   - Current retirees receive their full current public pension benefits. These benefits are indexed against inflation.

   - Current workers receive, upon retirement, a real monthly benefit from the existing public pension system that is declining share of their pre-retirement earnings, where the fraction declines to zero over successive sets of retirees.

   - Payment of public pensions during the transition is financed by a) the ongoing 22 percent payroll tax, b) financial assistance from the World Bank, the IMF, and other international lenders, and c) government domestic and international borrowing.

   - Actuarial calculations are prepared showing that the present value of the ongoing 20 percent payroll tax will suffice to cover the present value of the ongoing benefit liability of the old system. These calculations will also show when the 20 percent payroll tax rate will be terminated.

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   Alexey Lavrov focuses his presentation “Main Trends in Interbudgetary Reform for Medium Term” on the fact that the current concept of inter-budgetary relations has been successfully implemented, and there have been created favorable conditions for the further development of reforms. The speaker notes that there are grounds to believe that a new concept of the reform of inter-budgetary relations for years 2002 through 2004 will be elaborated and officially approved by the government by the middle of the next year.

   The author stated the basic principles and approaches to be reflected in the new concept. His point of view is that the recommended principles of the reform of inter-budgetary relations and regional finances shall be very radical, since there will be many of those wishing to soften these principles at all stages of discussion.

   The speaker is of the opinion that at the present stage the reform shall be carried out along two guidelines: the delimitation of expenditure powers and delimitation of tax powers.

   The principal issue is the choice between the centralization and decentralization of the budgetary system. The author argues that at present there exists the legal, or official, budgetary totalitarianism and real budgetary anarchy. The author is of the opinion that the golden mean is needed, i.e. there shall be uniform binding rules for everybody, however, subjects of the Russian Federation and local governments shall enjoy broad autonomy and bear the full responsibility for the results of their actions. In case the decentralization of tax powers were accomplished before this problem is settled, a serious situation may arise. The further progress towards the decentralization is fraught with mounting conflicts at the lower levels of the budgetary system.

   The current version of the budgetary code lacks the concept of expenditure powers. The author recommends to officially introduce this concept in the legislation next year. There shall be three types of expenditure powers: regulation of expenditures, provision of financial resources for these expenditures, and financing powers per se. Only after all this is accomplished, the expenditure powers shall be distributed among authorities of different levels. At the same time, it will allow to settle the problem of federal mandates. The author outlines the draft rules, according to which these three different levels of powers shall be combined.

   Further the speaker dwells on concrete restrictions on expenditure powers. He argues that it its necessary to approve a law on state minimal social standards as a way to protect RF subjects from non-financed federal mandates. Further the author justifies the necessity to take a principal decision concerning the uniform tariff schedule of wages, since it is a huge mandate the responsibility for which bear regional authorities.

   Tax powers. The author believes that the system of distribution of tax revenues principally faulty. It does not allow the subjects of the Russian Federation annually receiving a share of federal taxes to effectively care about this tax base and manage the revenues in a responsible way. The author is of the opinion that it is necessary to replace the division of taxes into regulating, assigned, etc. with a more progressive system. All taxes shall not be shared. At the same time, tax powers and the list of regional and local taxes shall be considerably expanded. The speaker analyzes concrete taxes from this standpoint.

   Further the author reviews problems of the distribution of the federal aid to the subjects of the Russian Federation, mutual payments and loans between the levels of the budgetary system, management of regional budgets, administrative systems managing regional budgets. The speaker expressed and justified his point of view concerning each of the above mentioned problems.

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   Vladimir Mau’s report “Economic Policy of Revolution: Interpreting Post-Communist Economic Reform in Russia” aims to analyze the modern history of Russia as a revolution and through the prism of a theory of revolution. It turned out that the thesis of a post-Communist revolution was unacceptable for representatives of all sectors of the political spectrum, since the academic debates in Russia were over-politicized over the last decade.

   Referring to the point of view expressed by a most prominent researcher in the field of the theory of revolution J. Goldstone, the speaker noted that the understanding of the post-Communist transformation as a revolution spreads. The author is of the opinion that at present it is necessary define some basic characteristics of this transformation as a revolution. In the framework of this analysis the speaker singles out the following issues being of special interest.

   First, is the post-Communist transformation a revolution by definition, or are the revolutionary nature of these transformations a specific feature of certain countries?

   Second, what is the importance of looking at the post-Communist transformation through the prism of a theory of revolution for the purposes of the research? Does this approach contribute to a deeper understanding of the nature of the observed developments, and does it improve economic and political prognostication?

   Third, what new ideas may be developed in the existing theories of revolution due to the analysis of post-Communist transformations as revolutions?

   Since a thorough analysis of all above mentioned problems is impossible in the framework of this presentation, the author focuses only on individual aspects of these questions manly related to the economic problems of the revolutionary transformation.

   1. The concept of revolution. The comparison of the developments taking place in Russia over last fifteen years permits to attribute the Russian transformation to this class of phenomena. First of all, it concerns the logic of the development of the crisis of the Communist system and its transition from one stage to the next. The author refers to “The Anatomy of Revolution,” a famous book by Crane Brinton written in the thirties, which compared British, American, French, and Russian (Bolshevik) revolutions. The speaker thinks that in case this book were timely translated and published in the USSR in the late 1980s, it could become a book of reference for the purposes of political prognostication, since the similarity of phrases, specifics of political struggle and economic processes in the past in our present is astonishing.

   A society may be transformed from one state to a radically different one in many ways. The change of qualitative characteristics often requires to use the term “revolution.” However, all these revolutions may be defined as such only because of their result: a qualitative change in the state of the society. This broad definition does not permit to interpret these or other “revolutionary” developments as such, since the mechanism of these transformations is of the same importance as their profoundness.

   Traditionally, revolution was defined as a forcible overthrow of a regime related to the emergence of new elites and ideologies. The author thinks that the experience of post-Communist transformation requires the revision of this definition. The role of violence, changes in elites and ideologies shall not be overestimated. The fact that a full-scale revolutionary transformation occurs in the situation, when the state power sharply weakens is its much more important characteristic. The political manifestation of this crisis is an acute conflict between main interest groups, the absence of a consensus on key issues of the further development of a country. At the same time, for economists the weakness of the government is first of all manifested via a financial crisis, via the inability of the state to collect taxes and to strike a balance between its expenditures and revenues.

   Exactly the weakness of the state determines the spontaneous character of economic and social processes, what makes great revolutions so astonishingly alike, both in terms of the stages of the development of economic and political crises, and their basic characteristics. Not the violence, but the spontaneous character is the constituting attribute of a revolution.

   Of course, elites change in the course of a revolution. However, this change shall not be understood as the physical liquidation of old elites. Two circumstances shall be taken into account. First of all, historians of revolutions tend to overestimate the completeness of the renewal of elites. Second, the renewal of elites shall not be related to individuals representing them. A new elite is the readiness of people to act under new circumstances, to play according to new rules, applying a new logic. The same is applicable to the transformation of ownership. The change in the form of ownership is more important than the change of the owner. The author is of the opinion that the factor of new ideologies also shall not be overestimated. Revolutions are related to ideologies, however, this relationship is more complex than it is usually assumed. A revolution does not impose a new ideology upon the society. To the contrary, it occurs when the society is carried away by new concepts of the “right” social system. The dominating ideology of an age determines the general framework of the revolution at large and its economic policy in particular.

   So, the author understands the revolution as a systemic transformation of the society in the situation the sate is weak. It is a certain mechanism of social transformation, a mechanism of transit through a systemic social crisis and adaptation to new challenges of the age.

   The concept of the revolution presented by the speaker allows him to arrive at a number of important conclusions: 1. The liberation from Communism in the majority of countries in Central and Eastern Europe may be hardly seen as a series of revolutions per se. 2. The concept of revolution as a certain mechanism of transformation does not make easier the prognosis of the beginning of respective changes. 3. The specifics of the Russian transformation is that it was carried out via a revolutionary mechanism, what makes it radically different from other post-Communist countries.

   2. Economic problems faced by revolutions. In this section the author dwells on general economic problems faced by all revolutions.

   I. Growth of transaction costs. Political crises and caused by them growth of transaction costs form the basis of economic problems faced by revolutions.

   II. Budget crises of revolutions. The issues of sources of revenues was always the central one for revolutionary and post-revolutionary governments. The author singles out the following manifestations of a revolutionary budget crisis: 1. Falling tax revenues and the inability of the government to enforce the collection lawfully imposed taxes. 2. A sharp increase in importance of borrowing. In the majority of cases the borrowing is not of the usual voluntary nature, but of “voluntary-forced,” or even openly forced nature. 3. The default on state liabilities in various forms is typical for many revolutions. 4. The arrears of payments to recipients of budgetary resources become a widespread phenomenon. 5. The weakening of the state, its inability to collect taxes and borrow financial resources on the market forces the authorities to seek for “non-traditional” sources of revenues, first of all, redistribution of property and emission of paper money.

   III. Demonetization of the economy also is a integral feature of revolutions. Political instability of the revolutionary period results in a decrease of the amount of money in circulation.

   IV. At last, decline in output is a characteristic feature of many revolutions. However, its importance becomes substantial only in revolutions of the 20th century. Revolutions taking place in agrarian societies were much less susceptible to the decline in output.

   3. Revolutions and post-revolutionary economic development. The impact of revolutions on further development of the economic and political systems is a most disputed and most affected by ideological considerations issue. The author stated three possible points of view on this problem expressed by different researchers at different times. First, revolutions become catalytic agents of economic progress liberating the countries’ economies from the fetters of previous regimes. Second, the impact of a revolution is insignificant, since the chief trend of development originates still under the old regime. Third, revolutions negatively affect the development.

   All three scenarios were observed in the course of the human history. The author stresses only one aspect of the effect revolutions have on the further development, which is related to the level of social conflict. Basing on examples taken from the history of different countries and revolutions the speaker formulates the following hypothesis: the formation of a consensus with regard to basic values of the development in a country is the most important prerequisite for the withdrawal from a revolution and obtaining of stability, while the absence of conflicts over the issues of economic policy is a source of stagnation and conservation of economic underdevelopment.

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   While yet in the early 1990s the fundamental reforms in the social sector were absent from the agenda of the majority of developing, half-industrialized, and post-Communist countries, at present these reforms are a priority for many governments in Latin America, Central and Eastern Europe. The awareness about these problems rises practically everywhere. Joan Nelson made a report on the problems related to the reform of the social sector “Second Phase Adjustment and the Politics of Social Sector Reforms: Cross-regional Perspectives.”

   The problem of the reforming of the social sector is not a specific feature of developing and post-Communist countries: practically all industrial democracy face more or less similar difficulties.

   The author attempts to answer the following questions: Why are systemic reforms in the social sector especially difficult? Why does the public more and more often perceive reforms in the pension system, health care, and education as a decisive factor for the consolidation of the society after painful measures implemented over the transitional period? Why did the basic changes in pension systems progressed in many countries, while the reforms in the sphere of health care and education skidded? What factors and tactics were responsible for the acceptance and implementation (at least partial) of these reforms?

   The speaker thinks that the increasing awareness of the problems faced by the social sector at the second and later stages of the transitional period are rather not of the technocratic nature, but are the response to political pressures, including the negative reaction of households with medium incomes to the market.

   The author analyzes positive and negative factors and trends affecting the reform policies in the social sector. The most important negative factors include the lack of a generally accepted model of the reform, a considerable time required for the elaboration and implementation of reforms, a large number of actors, large amounts of necessary information, not obvious losses suffered as a result of delay in the implementation of reforms. However, some trends facilitating the change counterbalance these considerable difficulties on the way of reforms in the social sector. Although the experience of the reform varies considerably across individual countries, the general features may be singled out for the successful reforms: the increase in the number of supporters of the reform, weakening resistance of interest groups, and growing acceptance of new ideas.

   The author stresses that it turned out that the pension reform was easier to implement than other social transformations. Although the explanations of this fact vary across countries, the decisive factor was the clearly defined alternative model (basing on some elements of the Chilean model), which appeared in early 1990s and replaced the traditional payment of pensions from current incomes.

   The author notes that although the implementation of the pension reform faced difficulties in certain countries, some researches tend to consider it as a potential model for other social reforms, especially in the area of health care and education. The speaker argues that the experience acquired in the course of the pension reform is of little importance for effective reforms in other social sectors, since their implementation is not so directly related to economic benefits for the state on the whole, and therefore the government circles are less inclined to support them.

   The speaker analyzes the experience acquired in the course of reforms carried out in the sphere of health care and education in individual countries both at the national, and regional and local levels, as well as individual aspects of the system. It is stressed that the success of reforms is, as a rule, related to a considerable decentralization of authority and responsibility in these sectors. Various options and tactics of successful reforms in the area of health care and education are reviewed, groups of supporters and opponents of various variants of reforms are examined.

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   Alexei Ulyukayev, the author of “Economic Growth in Russia: Problems and Prospects”, starts his presentation with the specifics of the transformational slump in Russia before moving on to the problem of growth that, in his view, being necessary to adequately analyze the specifics and causes of the economic recovery taking place over two last years.

   The slump of industrial output (45 per cent) was close to the average across all economies in transition and slightly better than the average for the whole former Soviet Union. Mr. Ulyukayev stresses the problem of the protracted transformational slump. The Russian economy experienced the most protracted recession among other economies in transition. This fact is linked to a number of factors within the realm of economic policies.

   The author focuses on the analysis of these factors, which include: first, the delayed and lengthy process of disinflation, its inconsistency; second, a serious gap between the monetary and budget policies. Even after the destructive role of inflation became clear, and sufficiently consistent and tough monetary measures were implemented, the budget policy remained not only inconsistent and soft, but even had relapses of increasing budgetary deficit (as was the case in 1996 and 1997, when the budgetary deficit increased even in comparison with the huge deficit of 1995. All this resulted in problems of either monetary or market financing of the deficit, what bled white the economy, diverted investment resources, and led to very high risks of surges in debt servicing rates in the situation of low monetization (what was the case of well-known events in 1998).

   Another serious factor was the gap between more successful macroeconomic transformations and less successful transformation in the sphere of microeconomics. Russian enterprises failed to fit in the system of tough budgetary constraints, what resulted in the reproduction of very serious problems at the level of enterprise finances and in corporate governance.

   Weak resource redistribution mechanisms, the weak banking system, the underdeveloped stock market did not allow the resources made available in the result of the transformational slump in inefficient sectors to be transferred to potentially efficient sectors. All this prevented the opportunity of an earlier start of economic growth.

   The low quality of the market environment in general, a large number of different distortions of monopolistic nature, a large number of unjustified privileges for certain producers coupled with the discrimination of other producers, distortions linked to the weakened competition also created obstacles to the formation of the potential for economic growth.

   In general, both operators of the Russian market and foreign investors always greatly overestimated investment risks.

   The speaker stressed that all above mentioned facts formed the basis for the more protracted transformational slump than it could have been if some other economic policy were applied.

   However, the author thinks that the economic policy was not the only factor involved. There were also factors connected to the general structure of the economy. The Soviet economy, and especially its part inherited by Russia, was overburdened by enterprises of the military and industrial complex and most heavily subsidized sectors (first of all agriculture) in comparison with other economies in transition. It was an economy, which included a huge mass generating a gap between world and domestic prices, what constantly provoked a problem of subventions or cross-subsidies. The author stressed that the protraction of the slump was in many ways related to these basic problems.

   At present the transformational slump is over; the growth started in 1999. While discussing the problem of the factors behind economic growth in 1999 and 2000 Mr. Ulyukayev noted that usually the following factors are mentioned: the first is linked to the improvement of the competitive environment for Russian enterprises resulted from the profound devaluation of the Ruble and the changes in the international business situation caused not only by growing prices of traditional Russian exports and falling prices of Russia’s staple imports, but also by changes in the US dollar / EURO exchange rate. Since the dollar rate went up with regard to EURO in the situation most import contracts were denominated in EURO and export contracts were denominated in US dollars, it resulted in additional growth of the active balance of trade.

   However, the author thinks that these factors can not fully explain the growth and disagrees with statements that the exhaustion of these factors is the cause of the cessation of the growth. First, the most profound and rapid growth (adjusted for seasonal factors) occurred at the period, when world market prices (for instance, oil prices) were extremely low.

   The same may be applied to devaluation factors. Devaluation facilitates the growth of exports and import substitution; however, devaluation also results in decreasing real incomes and falling consumer demand these factors being constraints upon economic growth. A factorial analysis shall be carried out in order to find out more precisely the relationship between devaluation and economic growth.

   Further, the author dwelled on the set of indirect relations between devaluation and economic growth. For instance, the situation of some Russian enterprises improved mainly due to the displacement of imports, while the growth in other sectors of the economy was to a considerable degree caused by the fact that the returns of exporting enterprises allowed them to settle accounts with their suppliers more properly, what gave an additional impetus to the development of the economy. Besides, there occurred a serious improvement of the financial standing of enterprises chiefly linked to decreasing real wages and salaries and the falling share of real wages and salaries in GDP. It shall also be taken into account that until mid-2000 tariffs set by natural monopolies increased at a slower rate than the consumer price index, what resulted in a diminishing share of tariffs set by natural monopolies in enterprises’ costs and GDP on the whole. The most important factor of growth was the increasing monetization of the economy. A large amount of labor and capital resources available for a fast injection into the turnover in case of an improvement in the business situation was also among the factors of growth. Therefore, the rather rapid growth in 1999 through 2000 was caused by the fact that the transformational slump in a certain way responsible for the accumulation of the resources, which could be rather fast injected into the turnover.

   Many of these factors in different combinations were at work over previous periods, and serious changes in the management of Russian enterprises and improvement of the business environment were responsible for the fact that these resources were utilized for the purposes of development.

   In the course of year 2000 the configuration of factors somewhat changed and the consumer demand gave an additional impetus for growth. The increase in real incomes practically equal to the increase of retail turnover created an additional potential for the consumer demand. The 20 per cent increase in the amount of investment created possibilities for an increase of output in sectors producing investment-purposed products. Moreover, elements of growth in supply, based on previous investments, were registered in a number of sectors, for instance, in the fuel industry.

   Summing up the facts mentioned above, the author stresses that since the growth in the Russian economy is affected by many factors, their impact shall be subjected to a complex analysis.

   What did happen in the area of the economic policy at the background of objective parameters, which were rather favorable for the growth in 1999 and 2000? The speaker noted two components of the economic policy. As concerns monetary and budget policies, they were rather satisfactory; the monetary authorities has been able to maintain control over inflation even in spite of the extremely high active balance of trade with regard to the current account. Besides, the author thinks it is a very important principle of the budget policy that the state shall meet its liabilities (both current and accumulated), what improves predictability and decreases budget risks for the economy.

   Some dissatisfaction may be expressed with regard to the strategy of the economic policy. For instance, over this period the structural reform has hardly progressed at all. The whole set of factors related to the excessive regulation, competition, investment risks, discrimination of certain producers against other producers has persisted in the economy thus seriously hampering the growth of investment and improvement of business activity on the whole.