ABSTRACT
Introduction Growing criticisms of neoliberal reform programmes and the Washington Consensus are based on data on the consequences of post communist reform efforts on economic, democratic and human development in Russia and beyond. As an example, a study published in the medical journal Lancet in 2009 found a direct correlation between the pace of privatisation and mortality rates, arguing that rapid transition had devastating effects on health, especially in Russia, where the population lost nearly five years of life expectancy between 1991 and 1994 (Stuckler et al. 2009). By the mid 1990s it had become clear to neoliberal architects of transition in Russia that things were not progressing as planned. At around this time, empirical data emerging on ‘instant capitalism’ laid the basis for a comprehensive critique of the Washington Consensus and its assumptions, leading to its partial theoretical revision after 1996. In turn, the theoretical revision led to policy modifications after 1998 and to the rediscovery of the importance of ‘market supporting institutions’. The question therefore arises: to what extent has criticism of the Washington Consensus and shock therapy modified the ideas on which the Russian post communist reform project was based? Three main responses to empirical data on failings of instant capitalism can be distinguished. The first emanates from adherents to neoliberal ideas about the role of law and regulation in a market economy and demonstrates a remarkable unresponsiveness to criticism. Building on justifications for rapid reform provided by Jeffrey Sachs in his early work on Russia, authors like Andrei Shleifer and Anders Aslund continued to maintain, even after 1996 when the major shortcomings of shock therapy became evident, that rapid liberalisation and the withdrawal of the state from the economy was not only correct but the only viable avenue to post communist reform. Based on the assumption that depoliticisation and market deregulation were (and are) the only means through which to create an effective liberal democracy, these authors have defended the reform priorities of instant capitalism and see in the recovery after 2000 a validation of their ideas. Even when they acknowledge the existence of adverse financial and social data, they either blame them on the inability of the Russians properly to follow
the neoliberal plan or trace most of modern Russia’s monstrosities, like the mafia and oligarchy, to the Gorbachev period. The second response to the failings of instant capitalism in Russia is exemplified by the work of commentators like Jeffrey Sachs (in his later work) and Bernard Black. Here blame for severe and lasting disruption brought to the Russian economy by shock therapy is attributed to a lack of attention paid to the institutional elements of transition. In this context, Black especially has turned against big bang reform in a much more direct way than Sachs. For many commentators, including Joseph Stiglitz, the haste and deregulatory thrust of shock therapy not only destroyed the capacity of the state to support the newly created market, but sowed the seeds for its criminal takeover. Sachs has responded to the lack of Russia’s institutional development by distancing himself from the original shock therapy programme. He has maintained that institutional development was part of his advice from the start and that the failure of the state to provide market supporting institutions was not a flaw in the design of instant capitalism but a product of unfortunate political factors. Most observers now, including the World Bank, ultimately agree that market supporting institutions and the rule of law cannot be neglected in the effort to create free market economies and that they need to be high on the list of reform priorities at the start of any such process. The third and final response to shock therapy offers not only a thorough critique of practical aspects of the reform process, but completely rejects the main ideas underlying instant capitalism. This response suggests that failures of shock therapy were the products not only of failures of implementation but that the very ideas upon which the reform project was based were seriously at fault: namely, the naturalness of markets, the human capacity spontaneously to organise economic activity in markets and the self-governing character of a free market economy. The failure of a model of minimal state regulation and light touch or self-regulating markets both in the context of post communist transition and as evidenced in the near collapse of financial capitalism in the west during the ‘credit crunch’ in 2008, demonstrates for those who reject neoliberalism that markets are neither spontaneous nor self-sustaining; that men are not inherently ‘economic’ and that markets are not inherently competitive and efficient in the absence of controlling frameworks. Perhaps most importantly, those who reject instant capitalism also reject the idea that a state ruled by law can be created in isolation from the wider economic and political environment in which it is rooted. This chapter will discuss these differing responses to the failings of instant capitalism in Russia and will seek to assess the accuracy and viability of key neoliberal ideas that informed the reform process. Subtle alterations in the theoretical positions of neoliberal advisers to the Russian government will reveal how the first stage of reform defined by shock therapy gave way to a second stage centred on institutional and rule of law reforms. The resulting critique of neoliberal orthodoxy can help explain Russia’s reform experience after 1996. A partial revision of the instant capitalism model, it is argued, has led to the
creation of a second generation of reforms, which, while in some respects departing significantly from the practice of shock therapy, nevertheless maintain some of its key assumptions.
