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  • The Ascent of the Inflationists
  • Vladimir Mau (bio)

The story of political and economic reform in Russia from the failed coup of August 1991 to the parliamentary elections of December 1993 is, among other things, a tale of falling and rising institutions and social groups. The changes that have taken place at the very core of the political system are inseparable from the radical economic transformations that have also occurred. Economic interest groups are now the key players in Russian politics; political parties, by contrast, have been and remain weak and unstable. In the corridors of power, they wield much less influence than associations of managers and entrepreneurs.

The configuration of interests that was reflected in last December's election results had already become manifest earlier in the year. The newly elected Federal Assembly, and especially the State Duma, now solidly represents the views and interests of Russia's most influential social groups. The State Duma, therefore, will be the arena in which these groups struggle over the future direction of economic policy, deciding which of the available economic paths Russia will follow.

What are the alternatives? Essentially there are only two, though each admits of certain nuances. The first, which I call the "inflationary" option, features the use of massive governmental subsidies to support uncompetitive, lame-duck enterprises; the attempt to reinstate centralized command mechanisms in hopes of "managing" the economy via its still-dominant state sector; and the enactment of overtly protectionist trade policies. Advocates of this model argue that the state must be intimately and pervasively involved in the structural transformation of the Russian economy; they recommend the restoration of a ramified structure of government management as a necessary means to this end.

The other alternative, which I call "anti-inflationary," was formally embraced by the Yeltsin government when it launched radical economic reform in the fall of 1991. This scenario envisions sustained economic liberalization through the deregulation of foreign trade and investment, tight credit policies, and the steady privatization of state-sector assets [End Page 32] and enterprises. Those who defend this method of proceeding want to foster a state of affairs in which business entities themselves—and not some central political authority—can make everyday decisions about production, investment, industrial relations, and trade. Therein, they claim, lies Russia's only hope for economic recovery and prosperity.

The December 1993 balloting was a triumph for the inflationists, who now fill at least two-thirds of the seats in the State Duma. Here, however, the internal divisions within the inflationist camp are worth noting. The so-called soft option, which seems to enjoy the sympathy of Prime Minister Chernomyrdin, emphasizes increased government intervention in the way business is organized rather than unrestricted financial support for state enterprises. More specifically, the "soft-liners" call for:

  • • Active efforts by the government to determine which enterprises "deserve" priority backing from the state.

  • • Vigorous cultivation "from the top" of robust "financial and industrial groups."

  • • Protection of Russian industries and markets from foreign competition.

  • • A general "go-slow" approach to privatization.

While backers of the "hard" inflationary option generally agree with these kinds of organizational and structural changes, they place their main emphasis on what they see as the urgent need for looser financial and credit policies as part of an overall effort to support Russia's struggling productive enterprises and their employees.

In the medium term, the differences of emphasis between the two factions within the inflationary camp will probably count for far less than what unites them. The intervention and subsidy options will merge readily into a single policy stream. Experience and common sense alike suggest that the creation of monopolies that are closely tied to the government and shielded from customer preferences and foreign competition will furnish lucrative opportunities for those with good government connections.

It is clear that the Russia's Choice delegation is the most consistently anti-inflationist bloc in the State Duma, while the Communists and the Agrarians are the most thoroughgoing supporters of the inflationary alternative. The economic nationalism of Zhirinovsky's LDP will incline it to side with the Communists and Agrarians, whose proposals include a strong element of protectionism. To the extent that...


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