Apr 1, 2007

Book Review: State and Evolution: Russia’s Search for a Free Market

State and Evolution, Yegor GaidarGaidar, Yegor

Seattle: University of Washington Press, 2003, 140 pages

Yegor Gaidar is an economist who was a member of the Communist Party of the Soviet Union. He joined forces with Boris Yeltsin in 1991, and held a number of positions in the post-Soviet Russian government, including a brief stint as acting Prime Minister of Russia. He was best known as an advocate for economic “shock therapy” in Russia, and he abolished price regulation, cut the Russian budget deficit, and reduced state subsidies to industry during his time as Prime Minister. He currently serves as director of the think tank Institute for the Economy in Transition, and recently made news after falling violently ill; Gaidar claimed he was poisoned by unknown persons.

Gaidar wrote State and Evolution in 1994 as a text that would more clearly delineate his free-market theories. Written for a literate general audience, the text does not require extensive knowledge of Russian and Soviet history to be understood, though readers might want to have access to reference sources to understand some of the terminology Gaidar used. The author noted in the preface to the 2003 edition that he “felt a certain temptation to rework the whole book, to incorporate everything that had happened since its first publication.” He decided against a revision, in part due to his belief that the original is a part of Russian history, and also because he believes that “recent history confirmed many of the book’s conclusions.”

Gaidar argued that Russia notions of land ownership evolved in between Western and Eastern traditions, something akin to the clash between civilizations described by both AJ Toynbee and Samuel Huntington. Following in the footsteps of Marx, Gaidar argued that Russian traditions of land ownership share similarities with “Oriental despotism,” whereby land is ultimately owned by an absolute monarch who bestows upon nobles the right to use land, and “official ties and relationships are the coin of the realm.”

Former Russian Prime Minister Yegor GaidarYegor Gaidar

The West, said Gaidar, underwent a “Greek mutation” in the first millennium BCE from which emerged “a highly evolved private property system seen as legitimate not only in juridical terms, but in social and psychological ones as well…” Russia, argued the author, with its tendency to imitate “Tatar-Mongol models of political hierarchy [and] property ownership,” simply “had no time to develop” into “a state based on private ownership and markets and the economic power those markets might create.”

Gaidar’s depiction of Russia caught between Eastern and Western models merits some praise, but the author’s claim that Russia lacked a sufficient amount of time to transition to Western-style capitalism – and its traditions of sacrosanct private property ownership – leaves this reviewer dubious. One could point to Tokugawa Japan, with its pre-capitalist structures and lack of private land ownership, as an example of an “Eastern” nation that recognized the challenges of modern capitalism and quickly overhauled its political and economic systems. Within a generation of the 1868 Meiji Restoration the Japanese were well on their way to economic parity with the West, and the supposedly “backward” Japanese shocked the West by defeating the Russian navy in the 1905 Battle of Tsushima.

Gaidar’s analysis of the failure of private property ideology to take hold in Russia, which is decidedly of an economic deterministic bent, could be augmented by an argument that recognizes the difficulty in effecting change in an empire as immense as that of the Tsars. By the twentieth century the Russian Empire stretched from the Baltic to Arctic seas, and was a complex conglomeration of peoples comprised of at least four major religions, dozens of language groups, and over 100 distinct ethnic identities.

The Bolshevik Revolution, argued Gaidar, actually reinforced the idea that “political authority and property ownership are one.” He maintained that Lenin’s description of imperialism – with its features of “(1) monopoly capitalism, (2) parasitic or rotting capitalism, and (3) dying capitalism” – could also be used to describe the state systems erected by Lenin, as the “parasitic nature” of the Soviet economy mirrored the capitalist imperialism Lenin once denounced. Moreover, argued Gaidar, Lenin and the Bolsheviks “methodically, viciously, and thoroughly wiped out the very notion of private property,” and it is within this context that the efforts of post-Soviet leaders to introduce market reforms must be judged.

The rise of the nomenklatura in the post-Stalin era represented a source of instability in the Soviet system, according to Gaidar. He argued that the U.S.S.R. was “devoured from within, by its own ruling class,” akin to the manner in which Marx predicted that the bourgeois class would eventually dig its own grave. No longer were Party officials content to wage war on private property in the struggle against global capitalism, and Soviet elites began to accumulate personal wealth.

Simultaneously markets began to develop in the Khruschev era; some of these were tangible, like the black markets that catered to the nomenklatura, while others were of a more abstract nature, such as the “bureaucratic markets” in which power, industrial materials, and perks could be exchanged between people with connections. It is only natural, argued Gaidar, that members of the nomenklatura were in a position to profit from the privatization of state assets in the post-Soviet era, as they had been acting in a quasi-captalist fashion for decades. Dismissing notions of a nomenklatura “conspiracy” to cause the implosion of the Soviet Union, Gaidar nonetheless acknowledged that the social elites benefited from the dispersal of state assets:
Everything was done as it has always been done throughout history – by process of trial and error. We should note, however, that it [privatization] was done rather effectively, in the sense that the bureaucracy profited from the trials, while the state ended up paying for the errors. The nomenklatura was feeling its way into the future, simply putting one foot in front of the other, following its instincts rather than some predetermined plan. It was following the scent of property, a predator after prey.
Gaidar does not, however, explore other reasons for the efforts by Gorbachev to introduce glasnost, uskoreniye, and perestroika in the mid-1980s. In particular, the author says nothing about the precipitous fall in the price of oil in 1985-86, which was the most important export item in the former Societ Union and the source of most of its foreign currency. The oil crises of the 1970s produced a financial windfall for the Soviet Union, allowing the country to mask its economic inefficiency, but the oil crash dealt a crushing blow to the Soviet economy, one that – more than the liberal Soviet reformists – forced the move to Western-style market capitalism.

Flag of the Russian FederationFlag of the Russian Federation

Gaidar in particular defended his actions to force the Russian economy into a more complete transistion to a market economy in the period from 1991-94. The nomenklatura-turned-entrepreneurs, argued Gaidar, wanted ownership of state assets without being exposed to the risks of the markets, and the author maintained that the elimination of price controls and state subsidies was a necessary (though painful) step to a market economy.

One might differ with Gaidar about the primacy of the role played by economic forces in the evolution of history, but State and Evolution provides valuable insights into the mindset of the liberals who presided over the dismantling of the Soviet Union. Gaidar as an analyst is an intriguing read, as he is both a product of his Marxist training and a person who is able to invert those background influences and expose the ironies and contradictions within Soviet ideology. The very title of the book is a play upon the title of one of Lenin’s most famous works, State and Revolution, and Gaidar – now a committed advocate of laissez-faire capitalism – keeps one eye wryly focused on the past as he plots the future of a capitalist Russia.

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