Risks of Russian Economic Reforms: Lack of Theoretical Economic Knowledge

1. Risks of Russian Economic Reforms:Lack of Theoretical Economic Knowledge Svetlana Kirdina Institute of Economics, Russian Academy of Science, Russia, Moscow Knowledge and Society, 2006, September, 21-22, Madrid, Spain

2. Main idea of presentation • to show that the theoretical basis of the reforms conducted in the society is of paramount importance; • Russia as an example. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

3. Presentation structure • The situation in the field of theoretical economic knowledge in our country during the disintegration of the Soviet Union (1980-1990) • Which economic theories did our reform-makers address to and why. • Neo-institutional program of economic reforms in Russia • Neo-institutional program performance: unexpected risks • The development of Russian institutionalism • Russian institutionalism on economic reforms program: alternative project • Reforms’ results • Conclusion Knowledge and Society, 2006, September, 21-22, Madrid, Spain

4. The situation in the field of theoretical economic knowledge during the disintegration of the Soviet Union • Political economy of socialism, as the dominant domestic economic theory, failed to foresee economical and political crisis in the USSR in the 1990th • The trust to domestic economic theoretical knowledge was compromised • Foreign economic theories, neo-institutionalism especially, became the theoretical basis for Russian reforms Knowledge and Society, 2006, September, 21-22, Madrid, Spain

5. Why did Russian reform-makers address to neo-institutional economic theory (neo-institutionalism)? • The creation of new market institutions became the essence of the reformation process (economic institutions are the main subject of neo-institutionalism); • Neo-institutional theories pay a special attention to formal contracts between economic actors. The task of Russian reform was to formulate clearly vague property rights and economic duties of actors; • Neo-institutional theories consider the transaction costs minimization as a criteria for creation of new institutions. Russian economy needed efficient new rules in order to decrease total economic expenses; • Young economists (Yegor Gaydar, Anatholy Tchubays and others) were at the head of the reforms. They all had negative attitudes to political economy of socialism but they knew foreign economic theories. At that time neo-institutionalism was popular. Thus Nobel Prize winners for economics in early 1990th were neo-institutionalists, e.g. Douglass C. North, Ronald H. Coase. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

6. Neo-institutional (liberal) program of economic reforms in Russia • The support of market privatization/ That means: - the separation and further merger of property among responsible economic actors, - the spread of competition and contract relations with profit motivation as the main economic criteria; • The transparency of financial flows in economic activity, because otherwise it is impossible to define the responsibilities and duties of economic actors; • The development of the economic legislation basis; • Broad participation of citizens and all hierarchic levels actors in the reform process. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

7. Neo-institutional program performance: unexpected risks • political end economic efforts and expenses of reforming process are extremely high. Nevertheless the declared targets were not achieved; • reproduction processes are broken, branch and regional structure of production is distorted, which leads to the decries of economic safety of Russia; • economic reforms provoke long-term and permanent reduction of social development parameters including degradation of human potential, the deepening of income inequality, criminalization and corruption. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

8. The development of Russian institutionalism • the institutional theory of Russian economic evolution (by O. Bessonova); • the theory on institutional basis for different economic forms (by N.Lebedeva and N.Drozdova); • the institutional matrices theory (by S. Kirdina). Using some modern ideas of neo-institutionalism, these concepts creatively developed the traditions of political economy of socialism and Marxist sociology. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

9. The institutional matrices theory (one of Russian institutionalism example) was already being presented: • The first workshop of the ESA Social Theory Research Network, Copenhagen, 2000 (“Main provisions of the institutional matrices theory”); • The 5th Conference of the ESA "Visions and Divisions: Challenges to European Sociology", Helsinki, 2001 (“The Institutional Matrices Theory in the Context of Modern Sociology”); • XVth World Congress of Sociology, Brisbane, 2002 (“The institutional matrices of society”) etc. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

10. Main differences between Russian institutionalism and neo-institutionalism • interpretation of the term “institution”. Russian institutionalism pays more attention to historical components of institutions and their dependence on the environment and cultural context, where socium is being developed. That is material and technological conditions, geography and other parameters: • Russian institutionalism studies some non-market institutions neither the deviation from normal reproduction process nor as “institutional traps” but as some separate natural and rational phenomena. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

11. Russian institutionalism on economic reform program: alternative project • Modernization rather than revolutionary change of institutional structure; • Market transformation doesn’t mean the replacement of existing institutions by the new ones, but it means that these new market institutions fill in the gapes in institutional structure typical for Russia; • The specifics of external limits of economic development such as natural, geographical and technological is also taken into account. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

12. How does neo-institutionalism interpret the results of Russian reforms? • revolutionary process of economic structure change is going on in Russian society; • traditional paternalistic values of Russian population prevent the in-depth development of market economy. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

13. How do the theories of Russian institutionalism explain the results of Russian reform? • There is the modernization of inherent economic, political and ideological institutions into new forms; • The institutional structure complemented with new institutions so that to ensure the necessary variety of political, economic and social life. The lack of such institutions in the former USSR contributed to its collapse. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

14. Conclusions(1) The same trends which were typical for the Russian society development at that transition period were reflected in the development of theoretical economic knowledge. On the one hand, foreign institutions were actively implemented, such as market economy, federal state structure and new values of personal rights and freedom. The same process was observed in the economic theory. New methodology was developed on the basis of American and west-European neo-institutionalism. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

15. Conclusions(2) On the other hand, in 1990-2000th there was modernization of inherent Russian institutions and their adjustment to the global world challenges. That is why, state regulation and entrepreneurship were renewed; hierarchic vertical of power in Russian unitary state was modernized and became stronger; traditional communitarian values expressed themselves in new ideological forms. The same process took place in the economic theory. The Russian institutionalism based on domestic achievements in political economy and Marx’ sociology, starts to develop rapidly. Knowledge and Society, 2006, September, 21-22, Madrid, Spain

16. Conclusions (3) At present the balance of trust between external and internal innovations both in economy, politics, ideology and social science as well starts to shift from foreign to Russian ones. In practice, it means that domestic theoretical works are in more demand. That is why risks and expenses of Russian reforms can be reduced. And we will see that “there is nothing more practical than a good theory”. Knowledge and Society, 2006, September, 21-22, Madrid, Spain