Second stage reforms

Introduction The final part of this book is concerned with the theoretical consequences of the evolution of ideas that lay behind the ‘instant capitalism’ model of post communist transition. As we have seen, the realisation that shock therapy had failed to effect a complete transition to liberal democracy led to the advocacy of so-called institutional/rule of law reforms. Reforms of this sort had in fact been contemplated in theoretical revisions of the ‘instant capitalism’ model since at least 1996, and they began to be actively promoted in Russia after the financial collapse of 1998. It is argued here, however, that while a new emphasis on the need for ‘institutions’ in discussions on transition represents a change from original reform models, it does not constitute a radical departure from the basic neoliberal theoretical assumptions of shock therapy. Further, it is argued, second stage reforms associated with a push for the establishment of the rule of law and institutional supports required by the market continue to ignore the fact that the creation and maintenance of a market economy is an inherently political process. Crucially, an insistence on a minimal state and a belief in the self-governing capacity of free markets and ‘naturalness’ of market activity (based on private property rights) remain the foundations of reform efforts even in its current institutional/rule of law variant. Chapter 5 examines the content of proposals for institutional reform and promotion of the rule of law. Its main conclusion is that reforms promoted by international institutions and the Russian government after 1998 have been stronger on rhetoric than substance and do not substantially differ from shock therapy. Building on this finding, Chapter 6 reflects on consequences of critiques of instant capitalism (and its institutional revision) on the coherence of neoliberalism as a theory of development. In doing this, it places in context both a socalled emerging Post Washington Consensus and a possible tempering of neoliberalism’s deregulating trends brought about by the ‘credit crunch’ and recession of 2008. The conclusion of this part of the book is that the separation of politics from economics, which is so fundamental to neoliberal thought, provides neither a solid basis upon which to create a market economy nor a viable basis for constructing a functioning democracy. Chapter 6 finds consequently not

only that contemporary reform projects based on the emergence of a Post Washington Consensus do not cure deficiencies in original reform efforts but that the growing emphasis being placed on the role of law in the process of transition and on the significance of regulation in the maintenance of a market economy is causing neoliberalism to lose its theoretical coherence

Increasing focus on law

What are now presented as ‘second stage reforms’ in Russia’s transition, centre on rule of law and institutional reforms. Consequently this chapter will focus first on the concept of the rule of law, then on the idea of market supporting institutions. Modern discourse on reform towards liberal democracy largely revolves around the notion of the rule of law. In much contemporary literature, the rule of law is proposed as a remedy to governance problems on a global scale, so much so that it has become a necessary ingredient of nearly all development programmes. The provenance of the rule of law discourse relating to transition can be traced to critiques of the communist system in Russia that were based primarily on the absence of the rule of law (Hayek 1944). Opponents to the authoritarian and monolithic regimes of Eastern Europe under communism highlighted the absence of a state governed by law, suggesting a state that abided by rules and applied those rules equally to everyone. Consequently, one would expect that market reforms (which were, at the very least on a rhetorical level, part of a desire for a wider democratic transition) after 1989 would concentrate on creating institutional structures that promoted the rule of law. As we have seen, however, post communist reform efforts concentrated instead on economic reform, attaching secondary importance to institutional reform, even in respect of those institutions widely considered necessary for the proper operation of the market. Nevertheless, the promotion of the rule of law has increasingly come to be a major theme in discussions about transition to capitalism and democracy. It is considered by many to be a ‘sine qua non’ of modern western political ideals. Indeed, this belief seems to be shared by opinion makers at a global level. For example, the Prime Minister and former President of the Russian Federation, Vladimir Putin, has always presented himself as a fervent supporter of the rule of law. As he noted (PBS 2003):

Everyone must be equal in the eyes of the law; a modest clerk, a civil servant, even one of the highest rank, as has now happened to a well-known former federal government minister. Everyone must be equal, no matter how many billions he has in his private accounts.