Since the breakup of the Soviet Union, Russia has passed through a difficult period of building a market economy while production has slumped and living standards deteriorated. The country experienced a default of the ruble and at the same time it had to deal with numerous problems related to the formation of a modern infrastructure and a class of businessmen. However, from 1999 through 2003, the country’s GDP grew 37 percent; industrial production, 46 percent; agricultural production, 31 percent; capital investment, 74 percent; while real incomes rose 22 percent. The latter was primarily due to a 23-percent growth in retail trade and a decrease in the annual inflation rate from 36.5 percent in 1999 to 12 percent in 2003.

Russia’s economy has grown and become stronger, gaining a competitive capacity. This has been promoted by various objective factors, such as abundant and inexpensive natural resources and labor, a large productive and scientific potential inherited from the Soviet Union, and low tax rates. But there have been negative developments as well, and that list is, unfortunately, much longer than Russia’s list of achievements.

It is no secret that at the start of President Vladimir Putin’s term of office the pace of economic reform substantially slowed down and the country seemed to be entering a stagnation phase similar to that of the Brezhnev era. During that Soviet period, the economy depended on its oil and gas exports, and the country was dramatically lagging behind the West in technological progress and advanced military hardware. Eventually, all attempts to reform the economy were given up and the Soviet Union disintegrated. Presently, it seems that we are witnessing similar processes, but we cannot afford to repeat the bitter experience of the Soviet Union.

Today, a nation’s status in the world increasingly depends on its ability to innovate, promote new technologies on a large scale, and improve the living standards of its population. Status is no longer determined by the military might or even economic potential of a particular nation, i.e. the absolute value of macroeconomic parameters. In this respect, the situation in Russia leaves much to be desired. The latest reports indicate that the GDP’s share of expenditures for research and development has been exceedingly low; investment in this field has been steeply reduced since Soviet times; and the R&D sector has been marked by drastic job cuts, particularly among its researchers. Furthermore, capital assets have plummeted as has the number of patent applications.

So it is not accidental that in the field of its science and technology the Russian leadership encourages its industries to promote innovations and implement advanced technologies with the purpose of forming a ‘new economy.’ In his 2002 state of the union address, President Putin spoke about the need for creating a new model for the development of the Russian economy, that is, an innovative one. “Clearly, it would be inexpedient to revive the model of technological progression of the past years, a model that was both pretentious and archaic,” the president said. “We should help Russian researchers integrate into the global venture and capital markets, which would ensure the effective turnover of domestic science-intensive products and services; and we should start work in those segments of the world market where domestic producers can really compete.”¹ The president has particularly underscored the need for innovations that would help the country strengthen its manufacturing sector, while reducing exports of raw materials.

This approach is indicative of the readiness of the Russian authorities to increase investment in the sphere of domestic science and encourage advanced research. But what hands will the government’s investment fall into? It is rather doubtful that at this point the Russian scientific community will be able to properly use the opening opportunities.

During Gorbachev’s perestroika years and post-Soviet transformation, the leaders of many research institutions failed to show their willingness or ability to adapt to the new conditions. Most of the research institutes failed to reform themselves and have remained largely unchanged since Soviet times. Their main demand was increased financing (which has resumed recently), while they offered no guarantees of higher efficiency. They failed to cut back on redundant jobs and remove inefficient researchers. They failed to focus on the most promising fields, above all, on those projects that would promote (rather than impede) market reforms and serve the interests of the emerging business community, etc. As a result, today, as in Soviet times, scientific research appears to be alienated from production and higher education.

Russia’s economic science has proven to be unprepared for market reforms and has been unable to draw up a well-substantiated economic program, let alone a strategy for the country’s economic development. On the contrary, the conservative policies pursued by the Academy of Sciences leadership have resulted in a rift inside Russia’s scientific community, which has caused the emergence of numerous arbitrarily formed academies in various branches of learning. The country has been swept by pseudo-scientific and irrational forces and beliefs that are typical of a crisis period.

The conservatism of the domestic economic science has clearly manifested itself by the reluctance by many directors of academic institutions to accept even non-radical models of market reform. Those academicians, who hold to the old beliefs and oppose restructuring and innovations, have continuously demonstrated their archaic clan psychology and have snubbed the president’s policy.

For instance, Academician Nikolai Petrakov, who in Soviet times was known as a market proponent, has reviewed his former position and now sharply lashes out at the ongoing transformations in the Russian economy. Rather than criticizing particular drawbacks, which would have been reasonable and understandable, he opposes the very idea, the very strategy of the reform, and rejects it as fundamentally erroneous. In 1996, Academician Petrakov and Vladimir Perlamutrov (currently a corresponding member of the Russian Academy of Sciences) wrote: “An analysis of the Gaidar-Chernomyrdin cabinet’s policy gives grounds to suggest that due to their efforts during the past four years, Russia has moved from a state of crisis to a state of catastrophe. Having adopted the concept of financial stabilization, which has a rather limited and secondary significance, they have multiplied destabilizing factors.”² Today, Academician Petrakov (director of the Institute of Market Economy (!) at the Russian Academy of Sciences) also fiercely criticizes market reforms in Russia.

Victor Ryazanov, St. Petersburg-based economist, has proposed to “entirely reject the bankrupt reform policies” and rely on the state, its economic activities and investment, rather than on business activities and “the primitive lust after money.”³ 

Academician Dmitry Lvov wrote last year: “The heat of perestroika and pseudo-market reforms made the enormous hardships and misfortunes of the people useless… The people have developed an amazing adaptivity to what seems unbearable – a syndrome of getting used to a catastrophe.”⁴ 

Today, it is obvious that the above opinions are groundless. Despite all the hardships, Russia has proceeded with its transformation and corresponding economic growth. There has been no catastrophe in the country and, as mentioned above, by 2003 positive changes have taken place, including a noticeable growth in the real incomes of the people.

Similarly negative attitudes are expressed regarding privatization, although it laid the foundation for a market economy in the country. In an overly politicized manner, Lvov writes: “People have flatly described this privatization as theft… the demands that the privatization results should be revised have been loud enough, especially as the new owners of what used to be state property have failed to show the ability for effective economic management.”⁵

Sergei Glazyev, a well-known Russian economist, a corresponding member of the Russian Academy of Sciences, and now the leader of a left-nationalist faction of the State Duma, states that “after seven years of monstrous devastation in the country it is necessary to pursue emergency policies… The economic reform has flopped in terms of end results… I have no doubt that to prevent famine, the authorities in many regions will have to resume centralized supplies of essential foodstuffs for the population.”⁶ Recently, Glazyev has repeatedly stated that a market model is a “corrupt model of social order;” it has been introduced into Russia in the interests of the oligarchs and the West.⁷ As for the oligarchs and other bourgeoisie, Russia should get rid of them as alien elements. 

Both academician Lvov and his follower Glazyev have for many years called for the return to the Soviet model of “economic growth,” and have insisted that the state levy a natural resource rent (which certainly was the case in Soviet times) and raise taxes on the wealthy, especially oligarchs (which, naturally, could not be done in Soviet times). This idea may be a talking point, but it is being voiced not from social-democratic positions (as was done in the West), but from the standpoint of class struggle, social genocide and primitive Marxist egalitarianism that are expounded as patriotism and concern for the people’s needs. It is not unlikely that the next proposal by these “scholars” may be disposing of those who think differently or think “wrongly.”

It is apparent that not only the Russian Academy of Sciences, but the domestic economic science as a whole, have been unable or reluctant to develop a genuinely scientific foundation for a radical change from the Soviet model, in order to make the transition to a market economy and provide a boost in production, using the country’s available scientific and technological potential. Moreover, the deluding beliefs of the Russian economic school of thought, deeply rooted in socialist dogmas, have not become a thing of the past. Many of its representatives have retained their high posts in the research institutions, government agencies and political movements in Russia; they have openly and persistently called for backtracking, for adopting “market socialism,” while bitterly criticizing the efforts – true, not always successful – of the reformers.

Academician Oleg Bogomolov, for example, has expressed his position flatly. “Liberal market transformation begetting the law of the jungle has hardly any future. Much more promising is the socially orientated transformation. Surveys have shown that during a transition, so called ‘market socialism,’ or ‘mixed economy’ appears to be particularly effective.”⁸

There are even more telling examples. Grigory Khanin, a Novosibirsk-based economist, has lately published a series of articles in which he claims that the Soviet social system was progressive; under Stalin this system gave rise to the “Soviet economic miracle”⁹ which “laid the foundation for successful development of the Soviet economy for several decades.”¹⁰ But then the same can be said about the German economy under Hitler. Needless to say, in modern Germany such statements would be impossible from the moral and ethical viewpoint. The crimes and fanaticism of the dictators did immeasurable harm and caused woes that cannot be compared to the odious advances in production or technology.

Still more bizarre are the statements voiced at a scientific conference held in Moscow by the Russian Academy of Sciences and Moscow State University last year. Its participants flatly asserted that “a planned economy is by far more efficient than a market one.” In the opinion of the participants in the conference, the market “has used up its potential for promoting the progress of civilizations… it is only a revival of socialism that can ensure further social progress and bring our nation into the mainstream of common global development trends.”¹¹

No less orthodox views are held by technology (non-economic) scholars from the Siberian affiliate of the Russian Academy of Sciences. “Rather than leading society toward democratic reform and making the democratic formula ‘All power to the Soviets!’ really work, the state and political leadership have fallen victim to the strong-arm confrontational ideology and outdated neoliberal concepts. Having ruined the old power structure which enjoyed the people’s trust, yet required democratic modernization, second-wave reformers have proven incapable of replacing it with a new, more effective model.”¹²

Several specialists of mathematical economics are quite close to reaching such obscurantism. Academician Yuri Yaryomenko, for one, believes that “no matter how hard we try to push our economy into a market, it will only crack and break; the way it is now, it will never enter the market.”¹³ Instead, Yaryomenko suggests creating a “rationally planned economic system” that would “later, or simultaneously, develop some self-working mechanisms.”¹⁴

Regrettably, normal market mechanisms, such as price formation, competition, etc. are just “some self-working mechanisms” for these scientists. The addiction of such scholars to the centralized planning system makes them immune to the laws of the market. This sort of economic “science” is alien to reality as it cannot meet modern requirements for the country’s economic development.

The above not only attests to the surprising fallacies of many Russian scientists (and not only economists), but also indicates their being totally detached from world science, from the real values of the processes of modern civilizations. It is not surprising that there have been no prominent names among Soviet and Russian economists that would compare in scale, authority or influence with globally recognized scholars, including those from Eastern Europe (Hungary and Poland, for example).

According to Boris Fedorov, a well-known Russian economist, “70 years of the notoriously ‘most progressive state system’ have not given the world – particularly the world, not an individual nation – a pioneer in economics to whose grandeur colleagues would bow. Actually, economic studies in the Soviet Union can hardly be regarded as scientific, if one recalls that Soviet economists were strictly ordered to be class- and party-conscious.”¹⁵

The Russian Academy of Sciences remains reluctant to restructure and sees one problem only – the need for more allocations from the state budget. Financing has improved, but restructuring has stalled. Meanwhile, the gap has been widening in the remuneration rates set for academicians and rank-and-file researchers. Rent and other incomes received by the administrations of research institutions from leased assets and premises tend to grow. The staff of the research institutions exceeds all reasonable limits and, as in Soviet times, those institutions offer ‘jobs for the boys’.¹⁶  Academician Zhores Alferov, the Nobel Prize winner in physics, has noted that “the Academy has increasingly isolated itself from real science and turned into an exclusive caste which, due to the circumstances, lives at the state’s expense… The upper crust of the Academy has increasingly estranged themselves from the people, turning into a purely bureaucratic group reluctant to do anything to help researchers in conducting experiments, field investigations, etc. Against this background, the recent increase by several times in remuneration rates for Academy members and the pompous resumption of Academy sessions – even though they are really needed – look arrogant.”¹⁷

Ze Don Quon, a physicist from Novosibirsk who heads a laboratory at the Institute for Semiconductor Physics, the Russian Academy of Sciences’ Siberian affiliate, echoes Academician Alferov’s words. He believes that today “many researchers revel in criticism of the government that is responsible for ruining ‘the remarkable’ Russian science, while recalling the epoch of the great Soviet science… It is not worth shedding tears over the late great Soviet science. It is just a Myth… In the name of Science, they blessed the Baikal-Amur Railway project, plans to divert rivers, the country’s militarization and other follies of the socialist national economy. Russian science of today is that same Soviet science, only much poorer. And this problem poses the main threat to the fragile budding of normal Science… A way out of this critical situation can be found anywhere but in the corridors of the Russian Academy of Sciences, which is unable to accomplish an intelligible reform. Not so much because it has been corrupted by bureaucracy, but because it remains the Soviet Academy of Sciences in essence and it cannot be different.”¹⁸

The Russian Academy of Sciences has continuously called for the necessity to build a “knowledge-based economy.” Aren’t these just fine words? Accumulating knowledge from books is one thing. But having a mechanism for consistent large-scale transformation of new knowledge into new products and technologies is what really matters. In other words, we need to have a normal innovation mechanism based on progressive market mechanisms, mature market infrastructure and sound business activities. However, this is what our modern Soviet economists reject. Most Soviet nomenclature scholars, having retained their posts since 1992, have failed to stand the test of market reform.

The prophet Moses guided his people for forty years in the wilderness before they finally reached the Promised Land. But the freed slaves stuck to the old traditions and habits and were not against going back into slavery. It is only time, trials, learning and a change of generations that will bring us to the Truth.

According to the prominent Russian businessman Vladimir Potanin, “Russia has to choose between two routes – a path toward development and prosperity in close interaction with the most developed nations, or a path to degradation into a poverty-ridden third world nation ruled by dictatorial methods.”¹⁹ 

We must make the right choice.

¹ Otechestvennyie Zapiski,  No. 7, 2002, p. 195.

² Voprosy Ekonomiki, No. 3, 1996, p. 76.

³ Victor Ryazanov. Russia’s Economic Growth. St. Petersburg: Nauka, 1998, p. 712. – Russ. Ed.

⁴ Ekonomicheskaya Nauka Sovremennoi Rossii, No. 1, 2003, pp. 37, 38.

⁵ Ibid, p. 44.

⁶ Sergei Glazyev. We Kept Retreating for Too Long… Moscow: Terra, 1999, pp. 11, 24, 238. – Russ. Ed.

⁷ Sergei Glazyev. Why Are We So Rich and So Poor? Moscow: Terra, 2003, pp. 76, 79, 81. – Russ. Ed.

⁸ Vlast, No. 11, 1997, p. 6.

⁹ Svobodnaya Mysl, Nos. 7, 8, 2003.

¹⁰ Ibid, No. 8, pp. 68, 69.

¹¹ Ekonomist, No. 7, 2003, pp. 45, 46, 49.

¹² V. Koptyug, V. Matrossov, V. Levashov, Yu. Demenko. Stable Development of Civilization and Russia’s Place in It: Problems of Formulating National Strategy. Vladivostok, 1997, p. 40. – Russ. Ed.

¹³ Yuri Yaryomenko. Priorities of Structural Policy and Reform Experience. ?oscow: Nauka. – Russ. Ed.

¹⁴ Yuri Yaryomenko. Economic Discussions. ?oscow, 1999, p. 23. – Russ. Ed.

¹⁵ Ekonomicheskie Strategii, 05-06, 2001, pp. 30, 31.

¹⁶ Nezavisimaya Gazeta, April 23, 2003; Komsomolskaya Pravda, December 17, 2002.

¹⁷ Nezavisimaya Gazeta, December 25, 2002.

¹⁸ Nezavisimaya Gazeta, February 12, 2003.

¹⁹ Vladimir Potanin. Corporate Governance: “Russian Model” in Progress. Russia in Global Affairs, No. 3, 2003, p. 196.