The Coming Russian Boom: A Guide to New Markets and Politics

The Coming Russian Boom: A Guide to New Markets and Politics

by Richard R. G. Layard, Richard Layard
     
 

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Since the fall of the Soviet empire in 1991, Westerners have been speculating about the future of its vast and long-oppressive economy. Politicians, economists, and businesspeople alike have watched with great interest as the new Russia has scrambled to get on its feet. As support for the communists has waned and waxed, Westerners have worried: Are Russia's

Overview


Since the fall of the Soviet empire in 1991, Westerners have been speculating about the future of its vast and long-oppressive economy. Politicians, economists, and businesspeople alike have watched with great interest as the new Russia has scrambled to get on its feet. As support for the communists has waned and waxed, Westerners have worried: Are Russia's troubles merely the growth pains of a rich new market waiting to take off? Or should businessmen and tourists stay away?


The bottom line, argue Richard Layard and John Parker, is a healthy and strong one. Democracy and free markets have taken root in Russia for good. The authors offer a soup-to-nuts analysis of the Russian economy, along with its political and social underpinnings, to demonstrate just how successful the reforms have been and what they mean for Western businessmen.


Layard and Parker argue that Russia has passed the crucial point of dependency on Boris Yeltsin; it has built a successful multiparty democracy; and it has passed through the worst of the economic aftershocks of communism. Inflation is finally under control, and with the growing success of privatization, many opportunities have emerged for both Russians and foreigners. Political shifts notwithstanding, Layard and Parker foresee a bright future for Russia, graced by strong economic growth, based on private enterprise. They argue that Russia's economy will grow faster over the next twenty years than most emerging markets, and that foreigners will reap good returns from investing in its markets and its amazing natural resources.


The Coming Russian Boom introduces Westerners to a Russia that is far healthier and more promising than the one they have read about in the papers, and shows how the greatest political-economic challenge of the post-Cold War world has become a resounding and exemplary triumph. It offers specific suggestions and guidelines for entrepreneurs, investors, and analysts. And it uses underlying economic structure to illuminate the surface confusion that will always be Russia.

Editorial Reviews

Library Journal
Layard, an economist and adviser to the Yeltsin government, and Parker, a former Moscow correspondent for The Economist, provide chapter-length answers to 12 questions concerning the political and economic situation in today's Russia. Questions such as "Is Russia different?" and "Has the West done enough?" describe some future scenarios. The subtitle seems to indicate that the business community is the intended audience, but this isn't a "how-to" guide for those seeking to invest or do business in Russia, such as Richard Poe's now-outdated How To Profit from the Coming Russian Boom (LJ 7/93). Solid in detailing Russian economic and economic-related political events of the past decade, Layard and Parker's work also includes lengthy background information on Russia that is better treated elsewhere. Events have superseded though not invalidated their relatively optimistic conclusions. Recommended for area studies and larger business collections.Michael Neubert, Library of Congress, Arlington, Va.

Product Details

ISBN-13:
9780684827438
Publisher:
Free Press
Publication date:
09/12/1996
Pages:
400
Product dimensions:
6.46(w) x 9.58(h) x 1.28(d)

Read an Excerpt

Chapter 1 Introduction

What has been achieved?
Why the pessimists were wrong
The future

Agreat nation loses a war and much of its empire. It then plunges into economic turmoil. This is the formula that produced Hitler. Will Russia go the same way? Or will it be a friendly neighbor, with a prosperous new capitalist economy?

Six times in the past three hundred years Russia has turned outward to the West, seeking to modernize its economy and liberalize its society. The first five of those attempts all ended in failure. Will this one succeed?

The answer is crucial for us all. For the reform covers every aspect of life:

* In economics Russia has been trying to build a market economy based on private enterprise. If the attempt continues, Russia will soon offer great opportunities for foreign investment and trade plus a better life for its people. But will the reform continue?
* In politics Russia for the first time in its life has a democratically elected government. But can democracy survive the clashes of interest generated by the process of economic change?
* In international relations Russia no longer aims to defeat the West and is making serious efforts to became a partner instead. But will Russian nationalism rise up again, like German nationalism between the wars, driving the world back to the old balance of terror?

These questions are critical to Western businessmen interested in business opportunities in Russia. They are also vital for Western citizens hoping for a more peaceful world. And they are even more important to every Russian who wants prosperity, freedom, and peace. We shall do our best to answer them.

To many people in both Russia and the West the omens seem bad. They point first to Russia's difficult background. Russia was much more deeply penetrated by communism than any other country in the world. Communists gained power in 1917 rather than after 1945, so nobody in Russia remembers what capitalism was like before they took over. On the political front, Russia has never been a democracy before -- tsar and general secretary were both autocrats. And, internationally, Russia always held itself somewhat aloof, an instinct reinforced by three murderous invasions from the West in 1812, 1914, and 1941. After each previous reform failed, Russia turned in upon itself, shunning the social and economic forms of the West.

The pessimists find further support for their case in the current situation. They highlight the return of Communist party power, the continuing imperfections in Russia's economy, the strength of the mafia, and the increasing self-assertion of Russia on the world scene. Many point to the danger that Russia, humiliated by defeat in the Cold War and confused with economic turmoil, will turn to nationalism and corporatism, as Germany did in the 1930s.

In recent years such pessimism has dominated Western comment on Russia and much of the comment in Russia itself. Yet generally the gloomy forecasts have proved false. Instead there has been progress on most fronts -- not in a tidy way, but usually by a process of two steps forward, one step back. The one step back is reported more than the two steps forward, consolidating the mood of gloom.

What has been achieved?

So what has been achieved? On the economic front, Russia has established a market economy. Inflation has been high, but by early 1996 was down to 40 percent a year. There continues to be more regulation than in the West, but there is now more private property in Russia than anywhere else in Eastern Europe and privatization has encouraged restructuring.

On the political side, Russia has a functioning democracy with a constitution similar to the French: a strong, directly elected president plus an elected parliament. Unfortunately, up to December 1993 it had an unworkable constitution in which powers were ill-defined but massive power was given to a parliament which had been elected one year before Boris Yeltsin was elected president, in far less democratic days. The parliament tried to block Yeltsin and the economic reform at every step. Yeltsin repeatedly proposed new elections to break the deadlock, and this proposal was supported in a popular referendum. But the parliament would not agree, and eventually Yeltsin unilaterally suspended it. The parliament then took to arms but was defeated when tanks attacked the parliament building. In the ensuing referendum the new constitution was adopted. From then to the time of writing in March 1996, political life has proceeded in a reasonably orderly way.

The third great achievement has been the peaceful dissolution of the Russian empire. Never has a great empire been taken apart with so little loss of life. By great good fortune, the collapse of the communist economy destroyed the power of the imperial Soviet government, allowing Yeltsin to remove Russia from the Soviet Union. The other fourteen republics left at the same time. But many divorces lead to massive rancor. In this case there was no major conflict between Russia and the successor states, because Russia never drove the other partners beyond endurance. There was unfortunately a bloody internal conflict when Chechnya tried to secede from Russia. The bloodshed there was cruel, unnecessary, and futile. But the majority of the Russian people opposed the war. Though Russian nationalism is on the rise, most Russians regard the celebrated nationalist Vladimir Zhirinovsky as a joke and do not want their children killed in efforts to reestablish the Russian empire or its power abroad.

Why the pessimists were wrong

So why have the pessimists been so wrong -- up to now? They overlook two crucial facts about today's world: the communications revolution and the new institutions that now exist for promoting international cooperation.

The first is the more important. Information and ideas now travel at a speed unknown before. So, once Eastern Europe had rejected communism, it was never plausible, as many people forecast, that Russia would remain communist for five to ten more years. In fact Russia quickly followed Eastern Europe. Russia's economic reform began in January 1992, one year after Czechoslovakia's and two years after Poland's.

The force that has swept Russia forward is exactly the same as the one that destroyed communism in Eastern Europe -- the observation that the capitalist West was prosperous and free. No jamming of radio stations could stop that message. Two conclusions followed. First, capitalism must be established in Russia, and second, Russia must be part of the wider capitalist world. Under Brezhnev Russia stagnated from lack of access to Western technology. Now most Russians are avid for all things Western, while well-placed Russians with money abroad understand that their best hope of personal wealth is through contact with the West. That is why Russia is unlikely to choose a ruler who again puts up the shutters.

Fortress Russia is also unlikely because Russia has by now joined most of the world's main clubs for international cooperation -- the IMF, the World Bank, and (since 1945) the United Nations. It belongs (with NATO) to the Partnership for Peace and has a "Partnership and Cooperation Agreement" with the European Union, aimed at the goal of free trade. And, most remarkable of all, the Russian president has become the eighth member at political summits of the G7 leading industrial countries.

It would have been impossible for Germany in the 1930s to have joined those clubs, since none of them existed in the disordered world of that time. But in today's world these forms of interaction have enormously helped Russia to become integrated with the rest of the world. What was almost impossible for Peter the Great has been difficult for Yeltsin, but not impossible.

Russia since 1992 is a remarkable story of change. It had to tackle three major problems simultaneously: building a new economic system, creating a functioning democracy, and building a new position in the world. From a situation of chaos, power vacuum, and flux, a new world had to be created. It was rather like 1783 in North America or 1792 in France. Everything had to be remade at the same time. And much remaking has been accomplished.

Rarely, if ever, has a country so turned its back on seventy-five years of its own history. That is what Russia has done. Russia's emblem is once again the eagle, and its flag the pre-1917 flag. Communism is considered an aberration -- at least by the young, and even by many who vote communist. But what religion will take its place? That remains to be seen. For the moment the struggle for personal survival dominates everything else. People are deeply cynical about all ideologies and distrust the promises of politicians, an excellent basis for the building of a market economy.

The future

So where will it all lead? What does the future hold for Russia's economy, for its democracy, and for its relations with the West? What happens after Yeltsin? All the world wants to know.

Our reason for writing this book is to provide some pointers for those who are trying to peer into the obscure future. No one correctly forecast the events of 1989 in Eastern Europe, and Russia's future, though less uncertain, is surely not clean But a balanced look at the recent past can throw much light on what forces are at work (many of them positive, but some negative). In this book we therefore try to answer twelve basic questions:

Is Russia different? Why did communism fail?
Was there too much shock therapy?
Has the West done enough?
How do people live?
Will Russia prosper?
Can Russia beat the mafia?
Will political deadlock recur?
Can democracy survive?
Will Russia break up?
Will Russia rebuild the Empire? and
Russia and the West: friends or foes?

Each question is the subject of a chapter. But behind everything are two themes that dominate all others, in the minds of both Russians and of Western businessmen wondering whether to invest or trade in Russia:

Will the free-market system take permanent root?
Will democracy survive?

Figure 1-1 poses these questions in the sharpest possible way. It shows how far Russia has come since 1985. But, as we move toward the millennium, will Russia continue in the same direction? The presidential election of June 1996 is an important milestone, but what of the basic forces at work after that?

Each of our chapters contributes some clue to this puzzle. In our final chapter we summarize the main points and then discuss what scenarios are possible and how likely they are.

Copyright © 1996 by John Parker and Richard Layard

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