17.02.2004
Relapses of Socialism
№1 2004 January/February

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.