Tolerance

The Free Economic Society of Russia and the RAS Institute of Economics held a roundtable discussion on November the 2^nd 2011 on the theme “On the concept of long-term socio-economic development in Russia”.  The keynote speaker of the roundtable was Yevgeny Yasin, scientific director of the National Research University "Higher School of Economics”.  Following a report of Yasina’s made in another roundtable discussion the speeches were published in the Proceedings of the Free Economic Society http://www.iuecon.org/2011/156_VEOR.pdf.   Below is a text in reply to the speech by the Director of the Center for Interethnic Cooperation, Ashot Hayrapetyan.

In his report “On the concept of long-term socio-economic development in Russia” Yevgeny Yasin gave three variants for economic development of the country.  All three variations assume that development will happen in a positive way.  But the economic community would not be allowed to name itself “Free”, if we didn’t consider negative variations of development.

The economy in today’s Russia is similar to our domestic Yak-42.  The material and technical base was developed in the 70s.  It is fairly reliable, the new owners painted it and changed the interior cabin.  For some regions of the country it is irreplaceable.  The climate is harsh, the airfields are in poor condition- Boeing and Airbus cannot land there. But here our technology still works. But for how much longer are these soviet resources sufficient? 10 years? Maybe 20? Only one thing is clear- they will not last forever. 

In Russia there are many great economists. But does the the choice of strategy for economic development depend on their knowledge, talent or abilities? Not always.

In the cabin of airplane Yak-42 sat young, strong and successful people.  But they couldn’t depend on their strength, skill or talents and neither on the direction or the safety of the flight.  According to the findings of the Interstate Aviation Committee, the condition of the plane was entirely satisfactory.  The fate of the liner was entirely in the hands of those who held the steering wheel.

In his report Yevgeny Yasin spoke about three variants for modernizing Russia: rapid modernization from above, slow modernization from above and rapid modernization from below.  According to the author of the report, rapid modernization from below is impossible.  I would agree with this.  At the beginning of 90s, citizens believed that they were able to influence the situation in their country when they went onto the streets and squares of their cities.  They demanded change. They believed in a better future and believed in him, who promised them it. And they got what they deserved.  Now these people believe in nobody. Now everyone tries to solve only their own problems. For example, many women dream of marrying a foreigner and leaving Russia.

Yevgeny Grigovich didn’t even believe in the success of rapid reform from above. The reformers always have many enemies.  As a rule, the enemies are always in very high positions and have a lot of influence.  Reforms may not only deprive them of their power and money, but also place 200 of them in a prison cell. They would do everything in order to prevent the reforms. In Russia’s history only Peter the Great and Stalin were able to successfully modernize the country from above in a short amount of time. They had absolute power, absolute confidence in their beliefs and disdain for the fate of others. However, in these times human life was not worth a penny. But yet Stolypin and Gorbachev did not succeed. Their power was limited and they did not want to throw millions of human lives on the altar just for reform. And yet on the 7^th of September the airplane Yak-42 crashed- one pilot pressed the gas and pulled the wheel on itself, the other pressed on the break.  An attempt to carry out radical reform from above in modern Russia without considerable support from the citizens, would be accompanied by fierce resistance from the oligarchs, corrupt officials and law-enforcement agencies, which could lead to new disintegration of the state.

In the opinion of the former Economic Minister of the Russian Federation the only acceptable way to develop Russia is a slow reformation of the country from above. This is what Yevgeny Primakov did in 1998, when he became Prime Minister of the Russian Federation. He didn’t arrest the officials who were guilty of creating a crisis situation in the country, he didn’t organize a media company against enemies of the nation and he didn’t shift all the responsibility of the economic crisis on the shoulders of ordinary citizens. Primakov only showed that despite all the problems in the country there are still many resources and that using them resourcefully will not only improve the situation, but also provide a small but still significant economic growth. In any case, since the improvement of their living standards since Gaidar’s reforms Russians are in debt to Primakov. If Primakov had been given the possibility to continue working, he and his team would have been able ensure the modernization of our economy.  And then Russia would have had even been able to show similar economic growth like, for example, China. But, “Marv did his business, so Marv can go.”  Yeltsin’s entourage were not willing to permit a foreigner to steer the economy of the country, even more to allow them to distribute the profits.

After Primakov’s departure the economic growth of Russia was accompanied by a concentration of huge resources in the hands of only a small chosen group.  It seemed that the world financial crisis in 2009 would force the Russian powers to reduce the appetite of the local oligarchs. Nothing happened of this like. The number of millionaires doubled over the next years.

So I ask, these people who became fabulously rich due to the current economic system, do they even need the reforms? Who will cut the branch on which they sit?

We already had something of the like in the 70’s.  Brezhnev’s team quickly improved the economic situation in the country. They used the technical possibilities, which were created during Stalin’s industrialization, and raised the mood of the citizens with the aid of Khrushchev’s thaw. However after Brezhnev and his team consolidated their power, their main problem was not further reformation of the country, but retention of power. A force capable of accommodating them did not exist in the country.  As a result power itself became the main reason behind the backwardness of the world’s leading powers. The strategy of modernization from above is therefore only successful when those people who have powerful positions want to and are able to carry out reforms.  This strategy does not involve a change in the government. The transition of power in Russia for a long time has not just been down to radical change but also to strong pressure on the citizens and government agencies. The old technical capacity will be used as long as it is still possible. The Yak-42 will still fly for a long time in Russian skies.  However, the main income will not be received by pilots or technical staff, but by the owners of the airline.  However, when this resource is exhausted, we will need to ask each other “Who is to blame and what more can we do?”

Yevgeny Yasin’s prediction about long-team socio-economic development in Russia suggests a lack of serious economic crises in Europe and the world. But the current global economic system is far from optimal. It wasn’t created by economists or mathematicians, but by the military and politicians. The main objective of the system is to ensure the supremacy of certain countries over the rest of the world.

Many people in the world considered the collapse of the USSR as evidence of the advantages of a planned market economy.  It was considered that an ideal economic model is a free, self-regulated market.  However, according to the fundamental laws of nature an absolutely free market cannot be successful. We assume that the entities of such a market (companies, firms, factories, plants) are in coordination with the number of their partners and clients. Such a system is described fairly well by the model of ideal gas from statistical physics. According to the second law of thermodynamics, if such a system was closed, the entropy (i.e. disorder) can only increase.

As for the fully planned economic system of the USSR, it was not able to be competitive, because a small group of citizens can never accurately plan for the needs of the rest of the nation.  In addition, our history shows that when citizens are not able to influence decisions which have the most direct relationship to their lives, they simply accept the economic decisions taken by the state, for the sake of their personal interests. In reality, in the current global economy the rules of the game are not dictated by a free market, but by international corporations. They have the most financial capabilities and influence, more than the majority of the world’s governments. The collapse of the USSR and the disappearance of the countries, which were controlled by the Soviet , gave the world a few 100 of these corporations and hundreds of thousands millionaires. But did the global economic system become more stable after this?

According to the laws of the market, the success of any trade depends on the demand on it. Those who have money should continually invest it in something, or otherwise inflation will eat up the money. But what kind of shares, items and commodities should be bought in order to later sell them for profit? Naturally those which are currently in the most demand. The greater scope and geography of the market, the more likely it is that a large number of people or firms independently decide to invest their funds in the same commodities or equities. Accordingly, it increases the likelihood that over some time the demand for these commodities and equities will be much lower than the supply.  The discrepancy between supply and demand creates a financial wave in the market.  Everyone knows that a wave in the Pacific Ocean is significantly more dangerous than a wave in the Black Sea. So the collapse of the USSR and the strength of the global market positions of India, Brazil and China markedly increased the stability of the global economic system. 

To date, Russia’s economy depends more than ever on the situation in the world. Our main revenues are related to the export of oil, gas, metal and wood. We exchange these for our necessities- food, clothes and shoes. The global financial crisis could seriously affect Russia and nullify all attempts to modernize the country.

Long-term socio-economic development in Russia has a direct relationship to the fate of tens of millions of people. The pilots, who controlled the Yak-42 which crashed on the 7^th of September in Yaroslavl, had only a matter of seconds to make a decision- abort the flight and lose their bonus, or continue despite the risk. Yet those who currently hold the helm of Russian economy have enough time to weigh the pros and cons of their strategies for economic development. It is hoped that the recommendations of the Free Economic Society will be demanded.