Ten Years After the Soviet Breakup: The Advantages of Radical Reform

The collapse of the Soviet Union initiated a unique political and economic experiment. After half a century or more as part of one state, 15 countries parted company and simultaneously changed their political and economic systems. These states have pursued remarkably different policies since independence, and given that they shared many of the same initial conditions, we can judge the results through quantitative measurements and regression analysis.

Far too often, Russia is discussed on its own or in comparison with Poland or Hungary, countries with far more favorable initial conditions. A comparative analysis of Russia, Ukraine, and Belarus makes more sense, and it renders Russia's performance more impressive. Such a com-parative analysis of all the former Soviet republics yields many conclusions.

Strikingly, democracy and market reform have been very closely correlated following communism. The more far-reaching the democ-ratization, the more radical the market reform has been, and both democ-racy and market reform have been positively correlated with economic growth. Democracy and market reform have also been positively correlated in other regions, but not as strongly as in the postcommunist world.

This observation contradicts the conclusions of a broad social-democratic school of political economy, spearheaded by Adam Przewor-ski, Jon Elster, and Klaus Offe. They assumed that radical reform would cause higher social costs than gradual reform and that, consequently, voters would prefer the gradual strategy. Neither assumption is borne out by the evidence. They also presumed that continuing material deprivation and the ineffectiveness of representative institutions would undermine popular support for democracy. In truth, however, the real threat to democracy has come from the elite rather than the population, and it has emerged most strongly in countries with little market reform.

Contrary to widespread misperceptions, voters in democratic elections have not rebelled against radical reform. In the countries with the most radical reform programs, Estonia and Latvia, the communist parties were obliterated at an early stage, never to be heard from again; the former Lithuanian Communist Party remains significant, but it has been transformed into a normal social-democratic party. In countries with more gradual economic reform, however, the communists have reformed little and remained retrograde. Even so, they have continued to be quite popular. In Russia and Ukraine, dogmatic communists and their allies usually gather about 35 percent of the vote, and in Moldova they even won a parliamentary majority this year, thanks to chronically gradual--and thus unsuccessful--reforms.

Opponents of democracy, pointing to Deng Xiaoping's China or Augusto Pinochet's Chile, have argued that a benevolent dictatorship is needed to impose arduous market reforms. Yet no such benign despot has emerged in the post-Soviet countries, while quite a few self-serving ones are in evidence. The main threat to market reform has been an egotistical establishment seeking to exploit the omnipotent communist state for its own benefit. The best way of checking this harmful elite has been through democracy.

A small and powerful elite (the nomenklatura) is one of the main legacies of communism. As the end of the old regime was approaching, the nomenklatura split into two groups: unreformed communists, who remained dogmatic, and pragmatists, who wanted to get rich off the transition. The pragmatists tended to include enterprise managers, young communist officials, and all kinds of operators. Although they facilitated the collapse of communism, they did not desire a normal market economy; they wanted full freedom for themselves but overwhelming regulations for others. They bought commodities at home for a fraction of their world-market prices and sold them abroad, thanks to export privileges. They insisted on massive state credits to themselves at highly negative real interest rates. To make these outrageous practices politically palatable, the pragmatists presented their program as a set of socially conscious gradual reforms. For a variety of reasons, many Westerners played along. Where these parasites won, the outcome was a rent-seeking society.

The communist state was both lawless and kleptocratic, and...