Publication: Monitor Volume: 4 Issue: 175

Russian Prime Minister Yevgeny Primakov has promised to announce the main outlines of his government’s new economic policy on either September 29 or October 2 (Itar-Tass, September 22). At least two teams of economists are busy drawing up proposals.

The first team includes a number of senior economists who are members of the Russian Academy of Sciences and were advisers to Mikhail Gorbachev in the late 1980s. Their leader, academician Dmitri Lvov, said yesterday that he is working with fellow economists Leonid Abalkin and Nikolai Petrakov under the leadership of First Deputy Prime Minister Yuri Maslyukov. Russia, he declared, should not rely on “portfolio investment” but should instead draw on its own internal resources–an odd and unclear depiction of the alternatives (Russian agencies, September 23). However vague these words, it can be inferred from earlier statements he has made that Lvov favors taxing natural-resource producers and using the proceeds to revitalize Russian manufacturing. He believes that foreign inward investment should be restricted and domestic producers protected by import controls.

Lvov, who heads the Academy of Sciences’ economics department, is a distinguished member of the old Soviet school of mathematical economists and long a critic of the “young reformers” in successive Russian governments. He argues that, if Russia were to insulate itself more from the outside world, it could restore its manufacturing capacity, much of which was, during the Soviet period, in the military industrial sphere (for example, the aerospace industry). He and his teammates have difficulty acknowledging that what the USSR used to produce was not up to international standards and could not compete on world markets. Much of it was in essence a deficit rather than an asset and therefore unsustainable–in the absence of dramatic efficiency gains–over the long term.

Lvov and the other academicians on his team were good critics of what was wrong with the Soviet system. Most of them, however, have not proved emotionally able either to accept the full logic of market reform or to acknowledge that many Soviet-era enterprises have no future in an open, competitive economy. Many Western and reformist Russian analysts believe that the cause for the debacle of Russia’s latest reforms was the government’s failure to follow through on early measures and establish hard budget constraints for enterprises, thereby forcing a radical restructuring of production. The academicians, by contrast, are alarmed, first, by how much restructuring has already taken place and, second, by how much output and employment in the formerly most prestigious parts of Russia’s economy have already declined. Hardly any enterprises have yet been bankrupted. Western critics point to enterprises which are still operating inefficiently, with high payments arrears and use of barter and money surrogates. What the academicians see is those same enterprises producing far less than before and employing far fewer people. Westerners say the logic should be continued until unreformable enterprises close down. The Russian academicians say the enterprises should be resuscitated and prevented from closing down. Both groups are looking at the same situation, and each sees what a mess it is. But they disagree diametrically about how to resolve the situation.