ABSTRACT
Two extreme scenarios can be presented for the process of transition to a market economy in Russia. The optimistic scenario attributes a major proportion of the blame for the poor performance and the relative backwardness of the Russian economy to the failure of the economic system created by Stalin to provide a functional system of incentives to management, labour and owners of capital, which would provide them with an incentive to innovate and diffuse technology and new working practices rapidly through the economy without the use of widescale coercion and terror. As the use of terror and coercion as a means of economic mobilisation has become less effective (as the successful application of modern technology increasingly requires a well motivated and better educated and trained labour force), economic growth has decelerated and the capital stock has become increasingly obsolete. The logical outcome of this argument is that, if the former Soviet republics can replace an outmoded economic system and modernise their capital stock, they have the potential to reverse the decline in output and then to grow faster than economies at equivalent or higher levels of development and narrow the gap in production and living standards between themselves and the industrialised economies.
