A Failed Political Vision

What follows is a WSJ book review of an excellent exposition of the Russian-Soviet experience. Gaidar’s analysis offers some important insights into our own economic travails. Our monetary and fiscal policies seem to be adopting the same strategy of “destroying value rather than creating it.”

Shock Therapy’s Unsung Hero

The Soviet economy created goods and services that nobody wanted via processes that destroyed value rather than creating it.


The causes of modern economic growth are one great mystery, the sources of Russia’s plight another. Only someone with the intellectual ambition of Yegor Gaidar would try to penetrate both mysteries in a single volume.

Gaidar was for two decades one of the most important intellectual forces in Russia. As deputy prime minister he launched the country’s sprint to a market economy in November 1991, amid the ruins of the Soviet system. Personally austere and intellectually rigorous, he despised the corruption and cronyism that took root in Russia in the 1990s. But he was still more disillusioned by the authoritarian course plotted by Vladimir Putin after he became president in 2000. Gaidar died in 2009, at age 53.

“Russia: A Long View” synthesizes this remarkable man’s thinking about economics, history and politics. It ranges from the puzzles of slowing GDP per capita in the agrarian societies of the Neolithic Age to the quirks of alcohol consumption in 19th-century Germany. It is an uncompromising tombstone of a book, first published in Russia in 2005 but only posthumously in English, in an exemplary translation by Antonina W. Bouis.

Gaidar updated the book after the world economic crisis broke in 2008 and edited it slightly for a foreign audience. But he warns readers not to expect “journalism” and tells them that they will require “the willingness and ability to analyze statistical material.” (The book has scores of tables and graphs.) Despite its Russo-centric title, Anders Åslund, the Swedish economist, describes “Russia: A Long View,” in the book’s foreword, as one of the best single-volume economic histories of the world ever written.

It opens with a survey of Marxist analysis of economic growth. The author has some sympathy for Karl Marx himself, who in Gaidar’s view saw the weaknesses in his own theories more clearly than his followers did. But he blasts the Marxist simplicities that surrounded much Soviet-era thinking about economic development—in particular the Marxian assumption that economies conform to “the iron laws of history.” Far from obeying iron laws, Gaidar says, modern economies find themselves subject to “an incomplete, continuing process of dynamic transformations without precedent in world history.”

Having established his theoretical framework, Gaidar turns to the root causes of Russia’s backwardness. He places special emphasis on the eclipse of the self-governing medieval republic of Novgorod in northern Russia, a polity akin, he says, to Italy’s then-thriving city-states. When Novgorod was subjugated by Moscow in the 15th century, becoming part of Russia’s vast feudal apparatus, it lost its self-governance, and Russia became separated “culturally, religiously, politically and ideologically from the center of innovation that Western Europe was rapidly becoming.”

Russia came to perceive Western Europe “as something alien and foreign.” The effect was “the narrowing of cultural exchange and more suspicion and isolationism.” Whereas elements of a “taxpayers’ democracy” were becoming entrenched in Europe, Russia’s system was of the “Eastern despotic type,” based on maximizing the resources that the state could extract from the peasant population. [Hmm, sounds a bit like US Federal tax policy.]

Here Gaidar is echoing a point that has been ably made at greater length by the historian Alexander Etkind of Cambridge University. The natural abundance of Russia—furs and forests in the past, mineral resources later—encourages rulers to loot their country by “internal colonization” rather than to develop it.

In the years before the Russian Revolution, Gaidar argues, the country was beginning to shed the burden of its past, with urbanization and fast economic growth narrowing the gap with Europe. But communist economics brought a sharply different course, marked by the state ownership of property, the bureaucratic allocation of resources, forced industrialization, militarism and ruthless political repression.

The economic growth that followed the revolution was fitful and unsustainable, Gaidar notes, recapitulating a theme of his earlier book, “Collapse of an Empire” (published in English in 2007). In “Russia: A Long View,” he turns quickly to the months after the Soviet collapse, citing the graphic memorandums about impending famine and social breakdown that piled up on his desk in November 1991. He rebuts several ideas about what happened at that time, including the bogus claim that economic reform caused the crisis—i.e., that price liberalization, monetary stabilization and privatization resulted in a catastrophic fall in output.

Such a claim, Gaidar says, comes from viewing the problem the wrong way round. Soviet money wasn’t real money, just as Soviet output wasn’t real production. The economy created goods and services that nobody wanted via processes that destroyed value rather than creating it. Ending phony incentives to produce was bound to send recorded output crashing down. Reform was necessary because the Soviet leadership had bequeathed a crisis that threatened the country’s very existence. [Hmm, sounds like the Greenspan-Bernanke Federal Reserve.]

Gaidar concludes by assessing Russia’s current leadership. “It is not hard to be popular and have political support,” he writes, “when you have ten years of growth of real income at 10 percent a year.” But that era is over. The regime must now choose between repression (“tempting but suicidal”) and what he calls “regulated liberalization.” In particular, he argues that Russia needs to restore freedom of speech, open up its process of decision-making, institute an independent judiciary and wage a “war on corruption.” Taiwan, Spain and Chile, he says, offer examples of how to do it. It would be a task worthy of Gaidar’s own talents, if only he were around to offer them.