Boris Yeltsin (1931-2007)

Boris Yeltsin has died, the grand-master of transition, and a better leader for Russia than what went before (or since). It seems appropriate to discuss the economic liberalism that accompanied the political freedom he delivered, because we're in danger of judging "shock therapy" a failure, and an indictment of free-market reforms. Only the former is true.

Any reform process is a matter of credibility, and the rhetoric of liberalisation must be accompanied by deep, geniune, and credible structural reforms. According to Pete Boettke, "Yeltsin's Shock Therapy Applied Too Little Voltage".pdf - the signal that prices were free was a deceit, and financial markets didn't buy it. At the time free market economists like Larisa Piyasheva were making this point, but reforms had been "outsourced" to a Harvard team with the full weight of the Washington bureaucracies of financial expertise.

Monetary expansion in 1994 undermined the legitimacy of the Central Bank resulting in a collapse of the ruble. The state retained controls of the supply of resources: corruption became rife, entrepreneurship blocked. The price liberalisation began in earnest in January 1992, but by March Yeltsin was already condeming "profiteering" and imposing quantity limits on sales. Privatization was corrupt, slow, and self-defeating:

“As a result of privatization, managers and workers ended up owning about 70 per cent or more of each company, with managers obtaining far more than they got in closed subscriptions... Workers and management collude to maintain their existing position with subsidies from the central bank. In a typical large-firm privatization, only 14% of shares are owned by outsiders.”
Robert Skidelsky, 1995 The Road From Serfdom Penguin p.156

In the end Yeltsin flirted with geniune liberalisation but never made the leap of making the requisite political reforms to convince capitalists that Russia was open for business. His leadership was a tragedy on two counts: avoiding the credibility needed to make Russia prosperous; and reducing the credibility of economic liberalisation. But it's a sad day, and worth pausing for reflection.

We are stuck halfway, having left the old shore; we keep floundering in a stream of problems which engulf us and prevent us from reaching a new shore.

Comments

[Quinn]

I'm genuinely interested; why do you feel Yeltsin was a better leader than Gorbachev?

[Mike Molloy]

Any reform process is a matter of credibility, and liberalisation and/or structural reforms must be accompanied by deep, geniune, and credible rhetoric, more like...

[aje]

Sorry for not replying sooner. On reflection 'leader' is the wrong word. Gorbachov fundamentally changed the course of the nation, Putin galvinised and united - both are better 'leaders' than Yeltsin. I guess all I was trying to say was that compared to a communist and a dictator, an easily-led drunk isn't too bad.

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