Economist Brian Easton says while the aim of a decent liberal Russia is still there, its achievement is likely to be a long way off

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

I was optimistic about the prospects for Russia when the Soviet Union – or, as I think of it, the Russian Empire – collapsed in the early 1990s. I never liked the Soviet Union from my first memory in 1956 when it invaded Hungary. That other large countries – some of which I felt more benign about – also bullied smaller countries, did not make any of the bullying more acceptable.

Despite my antagonism towards the Russian Empire, I have enormous respect for the Russian people, not least their stoicism in the face of some brutal leaders, and for their contributions to art, mathematics, medicine, music*, literature, philosophy, science and yes, even economics (although the majority of the great Russian economists were refugees or descendants of refugees). But many of their leaders I detest and even, say, for Mikhail Gorbachev my admiration has some reservations.

Gorbachev did not want to break up the Soviet Union. His goal was a decent, liberal Russian Empire – perhaps one which was distinctive from the societies of the West – but things got away from him, ending up with repressive Putin now trying to extend its remnants. I fear economics is not wholly innocent of that failure.

The post-dissolution task was to convert a highly centralised command economy into a liberal market one. It was a huge challenge. Take a simple example with which I was marginally involved. Russia had no cadaster with its system of defined and registered land boundaries; there was no need for one if all land was owned by the tsar or the Soviet state. But banks cannot advance mortgages on land without a rigorous cadaster for they do not want to end up in a squabble over who owns exactly what.

Alas such matters were not a priority. This was a time of ascendancy of neoliberalism and privatisation was rife. The Russian state was stripped of its commercial assets, usually at prices far below their true value. Greed ruled.

The economy plummeted. When towards the end of the 1990s a rise in oil prices saved the economy, the majority of Russians remain immiserated with businesses consolidated in the hands of extremely rich oligarchs, as the greed evolved into widespread corruption. And so rose Putin who used the power of the state to restrain the oligarchs, although not in the interests of the people but in the interests of the new tsar. (Putin is probably the richest person in the world.)

Could it have been different? Joseph Stiglitz (who has two grandparents born in the Russian Empire) pointed out that the equivalent Chinese market liberalisation under Deng was more successful because it was more cautious and because, initially, the state retained more control (though it still has ended up with a dictator). Assisted by US Marshall Plan aid, Western Europe went through a major reconstruction after the devastation of the Second World War but the foundations of a liberal market economy were already in place.

There was no Marshall Plan this time. The closest to it was that the World Bank was prepared to offer loans. But corruption was so widespread that the danger was the Bank’s advances would  go into private hands, the debt onto Russia’s state balance sheet and, in any case, little would to be done which would really benefit the economy.

An economist goes back into history to learn better how economies work. So I learned to appreciate ‘soft infrastructure’ – the rule of law, of statutes regulating business, a cadaster and other rigorous of definitions of ownership, of business culture and so on. Before then I had hardly noticed its importance.

The issue has not gone away. The expectation is that Putin’s demise by death or coup will be followed by much political turmoil. Will the outcome be a decent liberal Russia?

The same applies to the Ukraine with its 40m plus people; Russia is 140m plus. Ukraine suffered a similar post-Soviet transition and also ended up riddled with corruption. Zelenskyy was elected on an anti-corruption platform, but before the invasion was struggling against the power of the oligarchs. I have no doubt that in time we shall learn that corruption is occurring there today, weakening the Ukrainian war effort – profiteering from war goes with war. (Bulgaria and Romania illustrate how difficult it is to root out corruption, and why the EU has been cautious about Ukrainian membership.)

The Ukrainian transition may occur in the next couple of decades. One must be more pessimistic about Russia’s. It is not simply a matter of where it starts, but its sort of economy, underpinned by hydrocarbons and other minerals, does not easily fit in with the liberal market political economy. Commercial initiatives favour seizing the rents from these resources, rather than producing anything, politicising the entire economy. Putin has been at his most powerful when oil prices have been high. In a politically turbulent Russia, some Western interests may be constructive but many will want to join in the rent-seeking greed.

(Allow a reflection on why New Zealand is different. Our biggest resource is land, sun and water. Given our sort of farming – it was centred on family farms which were difficult to scale up – there were not the same opportunities for oligarchs to seize the rents; we have the equivalent of oligarchs, of course, but they are not as corrupt.)

Russia lacks much of the necessary soft infrastructure. It cannot be created overnight. It was evolving in the late nineteenth century; Russia abolished serfdom four years before the US abolished slavery. The Soviet state killed further evolution and set back what there was.

Perhaps Gorbachev’s ambition of a decent liberal Russian society was only a dream in his lifetime – and in ours. We can but hope for a better life for Russian citizens.

* When Russia first invaded Ukraine there were boycotts of Russian music. I wrote to the Chief Executive of the NZSO, that I would greatly regret if the NZSO were to participate in any such boycotts. Peter Biggs replied ‘we are not “cancelling” any Russian composers – we’ll continue to play the greatest music ever made, no matter the composer's country of origin and past or current context’; at their 75th Jubilee concert they played works by Rimsky-Korsakov, Shostakovich and Tchaikovsky. There is a universalism in the great arts, nicely illustrated by violinist Clara Galambos-Winter who, a Hungarian Jew, was treated brutally by the Nazis. The first work she played with the NZSO was Beethoven’s Fifth Symphony; she said to herself ‘I’m home’. That need not mean that music is detached from current events; in the last six months the NZSO and other groups have presented works by Ukrainian musicians.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.