Russia is not Poland, and that's too bad
Put outside for moment the frightening crash of the ruble and the collapse of Russia's stocks and bond market last week. They are symptoms of the something larger - a deformed economy in wich the Government sets business taxes that few firms ever pay, enterprises promise wages that employees never see, loans go unpaid, people barter with pots, pans and socks and shady dealing runs rampant.
It's didn't have to be this way.
The Russians need only look to Poland to behold the better road untraveled.
Poland too began the decade saddled with paltry living standards bequeathed by a sclerotic,centrally centrally controlled economy run by discredited Communists.
It reached out the West for help creating monetary, budget, trade and legal regimes, and unlike Russia it followed throught with sustained political will.
It now ranks among Europe's fastest-growing economies.
Key to Poland's steady success have been two policy decisions, and discussing them help to illuminate by contrast what is going wrong in Russia.
First, Poland adopted what might be called the Balcerowicz rule,name after
Russia stifled the free-market choas of the kiosks.
Now it's left with only chaos.
Leszek Balcerowicz, the Finance Minister who masterminded Poland's market reforms.
Mr.Balcerowich invented ... of would-be entrepreneurs to sell, within loose limits, anaything they wanted anaywhere they want at price they wanted.
Economists called this liberalization.
The Poles called it competition.
The Balcerowicz rule helped break the chokehold of Communist-dominated, state owned enterprises and Government bureaucracies over economic activity.
Also, encouraging small start-ups denies organized crime opportunities for large prey.
When Poland broke away from communism, Western economists had wrung their hands trying to figure out what to do with its sprawling state-owned factories, which operated more like social welfare agencies than production units.
The solution, it turned out, was benign neglect.
Rather than convert factories, the Pole allowed them to shrivel.
Workers peeled away to set up retail shops and other small enterprises largely free of Government interference.
The second major decision was scarier.
Poland forced insolvent firms into bankruptcy, preventing them from driaining resources from productive parts of the economy.
That also ended a drain on the Federal budget by firms that had to be proped up by one disguised subsidy or another.
There were moments when the post-Communist Government in Russia appeared heared in the same direction.
In early 1992, the Yeltsin Government embraced the Balcerowicz rule.
Russians were invented to take to the streets and set up kiosks and curbside tables,selling whatever they wanted at whatever price consumers would pay.
But then Communist antibodies, in the form of the oligarchs who controlled the state owned factories and natural resources,were activated.
They detected foreign tissue and attacked.
Local government buried the Balcerowicz rule, imposing licensing and other requirements and eventually strangling start-ups.
Professor Marshall Gold-man of Harvard points to revealing comments by Vikior S.
Chernomyrdin, the off-again,on-again Prime Minister whom Presdent Boris N.
Yeltsin restored to his post last week.
Mr.Chernomyrdin observed that street vendors were an unattractive, chaotic bligh on a proud country.
The Russian authorities cracked down.
Snuffed Out
The impact was severe.Anders Aslund, a former advisor to the Russian Government now at the Carnegie Endowment for International Peace, estimates that since the middle of 1994, the number of enterprises in Russia has stagnated.In a typical Western economy, he estimates, there is 1 business for every 10 resident.In Russia, the radio is 1 for every 55.
By snuffing out start-ups, Russia lost the remarkable device by wich Poland drained workers out of worthlees factories into units that could produce the goods that people wanted to buy.
Russia not only stifles start-ups; it also props up incompetents.It tolerates businesses that cannot pay taxs or wages.They survive because of systems of barter and mutual forbearance of loans and taxs.Suppliers engage in round-robin lending by with everyone owes money to someone and no one ever pays up. That too throws a lifeline to insolvent firms.
Russian factories continue to churn out steel and other products that no one needs.One measure of the deformity is that Russia is littered with factories employing 10,000 or more workers.In the United States, such factories are a rarity.The effect is to keep alive concerns that chew up $1.50 worth of resources in order to turn out a product that is worth only $1 to consumers. Economists call this “negative value added.” Ordinary folk call it economic suicide.
Oligarchs
Russia, of course, was not like Poland before or after communism. History matters. Poland could let its relatively small number of mega-factories wither, confident that workers could be absorbed in fast-growing small enterprises. Russia’s officials had no such confidence about absorbing the worker from its numerous,gigantic state owned factories.