Nick Kristof discusses the economies of Russia and China today in the Times. He wants to stop you from using the phrase “market democracies” quite so freely. China’s economy is doing very well. The centralised and basically despotic communist state has managed to smoothly introduce market-type institutions in the economy. Meanwhile nominally democratic Russia is a disaster. “I wish I could say that free elections pay better dividends than massacres” Kristof says, “But, although it hurts to say so, in this case it looks the other way around.”
He then looks for an answer to this question — why has democratic Russia done so badly economically, while communist China has done so well? — and here’s his answer:
bq. [I]t seems to me that the best explanation for the different paths of China and the former Soviet Union is not policy but culture. I’m sure I’ll regret saying this, but there really is something to the caricature that if you put two Americans in a room together, they’ll sue each other; put two Japanese in a room together, and they’ll start apologizing to each other; two Chinese will do business; and two Ukrainians or Russians will sit down over a bottle of liquor.
I don’t think culture can be the right answer. It’s always tempting to reach for it when we’re faced with a very complex, nationally-bounded problem. But you have to be careful how you think about it. In this case, Kristof clearly thinks of national cultures as being pretty stable. But if they’re stable, how can they explain the huge changes in each country over the past decade? You might think that the shock of the Soviet collapse allowed Russian cultural tendencies to express themselves fully, but that’s not very convincing. Were they not expressing themselves fully between 1917-91? There hasn’t even been a similar shock in the Chinese case, so why all the changes?
The question Kristof asks is one of the Very Big Ones in comparative political economy, so it’s not fair to blame him for not solving it in a short column. The depth of the problem isn’t always appreciated. For instance, you might say “Yeah, the Russians were just as lazy and vodka-ridden under Communism, they expected the state to provide for everything and they still do, hence the lack of economic growth.” This vastly underestimates what’s happened to Russia since 1991. A good paper by Ted Gerber and Mike Hout lays out the early evidence of the disaster and shows how little of the “market transition” ever happened. (JSTOR subscription required.) Things have gotten even worse since then. I don’t have the numbers to hand but I think Russia’s GDP fell by about 40% over the 1990s. (I want to believe that it couldn’t be that much, surely, but the number is stuck in my head. Clarifications welcome.) Life expectancy is down by about five or six years. People in the Soviet Union might have gotten used to state provision of services, or have a cultural tendency to sit around the table and drink, but I don’t see how that explains such a gigantic drop in economic output and basic life-chances in a country the size of Russia.
If the macro, long-term “Culture is to Blame” explanation is unconvincing, the micro, short-term “Economists are to Blame” explanation doesn’t work either, and for the same reasons. The neoliberal policies demanded by the IMF and thought up by U.S. economists haven’t done any noticeable good. They’re usually diagnosed (often now by their originators) as having failed because evil crooks got hold of all the assets in the economy. But again, there’s the sheer scale of the problem. Even if this is why the policies failed, it doesn’t seem sufficient to explain the catastrophic outcomes. Especially when you remember that — as Ronald Reagan kept telling us in the 1980s — evil crooks were in charge of all the assets when Russia was still part of the Soviet Union, too.
All of which leaves a non-specialist like me a bit confused and wanting to do more reading that I don’t have time to do. Maybe there’s a good theory out there I don’t know about. Place your plausible explanations of why Russia failed so badly — and here I’m assuming that “National Culture” and “Naughty Economists” are not that plausible — in the comments.
{ 20 comments }
Chris 08.29.03 at 9:20 am
I don’t have any answers here really, but three observations:
(1) Is what is being claimed about China actually true? I understand that many of the aggregate growth figures for the Chinese economy have been debunked. The picture I have is not of smooth transition but of boomtowns co-existing with appalling rural poverty in other places.
(2) The cases aren’t parallel. I remember talking to some China specialists years and years ago and they found the very idea that the Chinese economy had *ever* been planned in the way that the Soviet one was absolutely hilarious – basically, just a bit of Communist Party propaganda. So the systemic transition is much sharper in the Russian case, from a “planned economy” to a wild market without stable institutions in about 5 minutes. (As opposed to pretending you don’t have markets and being ashamed of them to admitting you do and promoting them over a much longer period.)
(3) The ex post Russian crooks are a very different proposition from the ex ante ones. The old Soviet bureaucracy might have ripped people off, but it was financing its (by Western super-rich standards) comparatively modest lifestyle by skimming from a going concern. The “oligarchs” are asset strippers.
PCD 08.29.03 at 1:23 pm
Its my understanding that part of the reason the soviet system collapsed was the countrys infrastructure, not to mention the economic infrastructure, was dilapidated. It was not repaired or replaced after political dissolution. China wasn’t dependent on such hardware and suffered no loss. Its still mainly an agricultural country.
In the US small agricultural towns simply dry up and blow away while cities that lose business look very much like Russia.
There are of course many other factors and even little differences can add up. I think that major loss versus controlled change is a major factor, even if the controls are sloppy.
Nicholas Weininger 08.29.03 at 1:51 pm
You’ve mentioned the cultural effect on politics, but what about the political effect on culture? Remember that Russia had been under one or another sort of absolutist, extraordinarily economically inefficient tyranny for virtually its *entire history* up to 1991. The 1905-1917 period might be considered a partial exception, but that’s it.
That kind of history is not, to put it mildly, good for the culture. And it creates a vicious cultural-political cycle: the more people get used to tyranny, the less well suited the culture becomes to building the institutions of a free civil society. The fact that Russia, in 10 years, has not succeeded in breaking that thousand-year-old cycle is not really that much of an indictment of freedom and democracy.
Richard Pipes’ _Property and Freedom_ has a nice examination of the origins of Russian economic failure in Russian political attitudes.
dipnut 08.29.03 at 2:18 pm
Democracy is no substitute for the rule of law. Anyone trying to start a business in Russia will be shaken down by corrupt bureaucrats on one hand, and gangsters on the other. Under these circumstances, to say that Russia even has markets is a bit of a stretch. And yes, there is a culture of despair and cynicism which renders the situation impossible to fix, though culture as such is not to blame.
Russia might be best referred to as an Anarcho-Bureaucracy. If the Chinese outperform the Russians, that’s not saying much.
Here‘s the “plausible explanation”, which shouldn’t tax your reading time too badly.
Jack 08.29.03 at 3:09 pm
China has had fifty years to get its act together, Russia had shock therapy ten to twelve years ago. Maybe it takes a little time and effort ot get it right.
Red HgS 08.29.03 at 3:39 pm
We’re making an awful lot of assumptions about the quality of the information we’re using to compare pre- and post- market reforms.
In the Soviet Union, I believe, the numbers were frequently exaggerated (or at least quantities were accurate to appease Gosplan, but quality was often terrible or non-existent), so the slide in output could partially be accounted for by a more realistic accounting (or one differently motivated).
In China, the communist state allows them to have almost as much control over information now as before the introduction of market reforms. I for one would question some of the statistics, like life expectancy, both now and before.
But, more generally, (though I don’t like the sound of it :) I agree with “dipnut”. Markets thrive within a strong rule of law, they require enforcement of contracts, property rights, etc. In this light, it’s not terribly surprising that a strong-enforcement communist state would outperform a lawless klepto-democracy.
dipnut 08.29.03 at 3:43 pm
Re-reading the Tayler piece I linked above, here’s what seems to have happened:
Soviet Russia was every bit as lawless in its own way, as Russia in the present day. And there was plenty of corruption. But the system was spared from immediate collapse by Communist ideology. The state had a Project, a goal. Its operations might be brutal and inefficient, but total failure (or total corruption) was punishable.
Then Russia switched to democracy. But the Soviet apparatus remained in place. After all, it was the only government they had.
The apparatus proved fertile soil for organized crime. The criminals simply beat the capitalists to the punch. Given the nature of the bureaucracy, this was inevitable. As Tayler makes clear, there never was any way to lawfully run a business in Russia.
And unlike the Soviets, the mafiozy have no ideology beyond their own immediate-term enrichment. They have no dreams of world conquest, no overriding Project which they even pretend to serve. If the whole system collapsed, they could just cut and run.
Where before, total corruption would get you purged, now it’s the ticket to the high life. Everybody wishes to be a criminal now.
Add to that, the looting of the Soviet system by the “oligarchs” in the early stages of the transition, and you have a plausible explanation for the bankrupt, unstable current situation.
Matthew 08.29.03 at 3:47 pm
Chris,
I think the general understanding is the GDP figures overstated the ‘true’ picture by about 2% a year (taken from comparing with energy usage and achievable ‘typical’ energy efficiency). However even if true this means China grew at 7% from 1978 to 2002, not 9%, so doesn’t negate the achievement.
Furthermore, at least in my own field, what can’t be denied is that China is now the world’s largest producer or importer of many commodities, the latter immune to statistical falsification.
Of course it all began from a very low base, and there are 1.3m people, so the record is undoubtedly going to be patchy. But even on PPP figures it doesn’t seem to me that China’s GDP per head is out of line with other Asian countries at simlar stages of development.
Now, where’s D-Squared when we need him?
Matthew
robin 08.29.03 at 3:54 pm
Kristof doesn’t compare “China” and “Russia” in his article; he compares a rural area in Ukraine to Guangdong province, and extrapolates the comparison to “Russia” and “China”.
Guangdong province borders the rabidly free-market and very crowded entity of Hong Kong, and is also quite close to Taiwan. Guangdong takes the overflow from HK and TW for any enterprise requiring land (HK and TW simply have no land to spare) or heavy industrial activity or open spaces for resorts and private homes.
Guangdong’s secret of success is neither the postponement of democracy nor the irrepressible business acumen supposedly inborn in ethnic Chinese. Its secret is that it has a nice, steady job working for its richer super-capitalist neighbors.
If Kristof really wants a useful Chinese case to compare to his Ukrainian ancestral home, he could choose any area in Sichuan, or a coal-mining region in the north, or practically any place in China other than Guangdong, Canton, Shanghai, or Beijing.
JRoth 08.29.03 at 5:06 pm
I second the demand for D-Squared’s presence. In his absence, I’ll paraphrase a bit from one of his best/funniest posts, in which he addressed the issue of how Russia went quite as badly as it did:
No matter what the incentives are, people don’t just go tools-up and go home to starve to death.
edward hugh 08.29.03 at 5:07 pm
Just try looking at underlying demographic reality in both cases, you won’t need to ge much further.
PG 08.29.03 at 5:08 pm
Good point by Robin.
One could argue that people in the most rural parts of China are doing worse as economic Communism recedes.
Tina 08.29.03 at 5:46 pm
I recommend Doug Guthrie’s book, Dragon in a Three-Piece Suit, to everyone interested in this issue. He argues that China built new institutions to support the transition to capitalism, whereas Russia simply dropped a free market down and watched it go.
dipnut 08.29.03 at 5:50 pm
It’s believable that Kristof took non-representative samples, and that both the Soviet and Chinese Communists have inflated their success in the telling, which makes present-day Russia look comparatively worse.
But man, those godless ChiComs crank out the goods. I’ve been trying not to buy Chinese, and it’s a bitch. Try to buy a pair of shoes, or sunglasses, or a computer chassis, not made in China. It’s doable (my shoes were made in Vietnam), but unreasonably difficult. Spot-check random items at GI Joe’s, or Target, etc. When you tune in, you realize America’s standard of living is heavily dependent on Chinese, hence Communist, labor. Whether that’s something to freak out about (and whether buying Vietnamese is any better) is worthy of debate; I personally find the Chinese preeminence in this area very disturbing.
No Way will Russia export on that scale, in the current climate. It’s simply impossible. Even if the production capacity miraculously appeared, money doesn’t want to go into a place with such shaky financial institutions. You can’t do international trade in cash.
James Hamilton 08.29.03 at 6:01 pm
Back in the days when I was a historian, I remember that the trouble with both Russia and China was that ALL the economic data had been largely made up to please the institution demanding it. It bore NO relation to anything that might actually have happened. The miracle was that things had managed to carry on (more or less) regardless. (It’s fair to say that a lot of modern, Western writers on Soviet history can’t quite take that on board – Robert Conquest has interesting things to say about this).The most extreme case concerned the Soviet census before WW2, where statisticians made an honest attempt to come up with the correct figure, and were executed for their trouble. (Their figures revealed the full extent of the purges and the 1920s famine, and were consequently buried). I understand that this procedure is still common among esp. Chinese banks, and that there is some doubt as to their long-term viability as a result.
People commenting here on the consequences of the lack of reliable rule of law in Russia will find, no doubt to their surprise, (it was certainly to mine) that Margaret Thatcher argues exactly that in “Statecraft” (she emphasises the absence of properly enforced property laws in particular).
pathos 08.29.03 at 7:07 pm
Also, don’t forget the “self-fulfilling prophecy” part of the story. China has ONE BILLION people and will be the NEXT BIG MARKET and you don’t want to be LEFT BEHIND.
Every major company is currently investing in — and losing money in — China to be sure that they get a foothold.
Now Citibank — unlike say, pets.com — can pump money millions into China’s economoy for years and years without a major long-term impact on their business. But eventually (in however many years), companies will either have to start making money in China, or the foreign investment will stop.
Now, it might happen, but it might not. And if foreign investment stops, the whole China things turns out — in retrospect — to be a huge bubble.
Roberta Taussig 08.29.03 at 7:10 pm
It’s easier to institute dramatic change if you’re in despotic control than if you’re not. China’s doing better because it is still tightly controlled. Russia is doing worse because it’s uncontrolled. For an analogy, look at population control in China and India. China brutally instituted its one-child-per-couple policy, and it has its growth under control. Democratic India couldn’t, and it hasn’t.
Democracy has a lot to be said for it, and it sure gets my vote, but it’s not efficient.
cmdicely 08.29.03 at 7:39 pm
he compares a rural area in Ukraine to Guangdong province, and extrapolates the comparison to “Russia†and “Chinaâ€.
Actually, he extrapolates to “the former Soviet Union” and “China”, which is a little less bad, since at the very least, the Ukraine is actually part of the former Soviet Union, but not Russia.
Russia is not the same thing as the former Soviet Union, though its part of it.
Matt Weiner 08.29.03 at 9:04 pm
I’ll third the demand for D-squared’s presence. In the meantime, here’s a suggestion–it’s just a suggestion, since I don’t know anything about it but what I read in the papers at the time–
Yeltsin’s armed attack on the Duma was conducive neither to the rule of law nor to a healthy democracy. Discuss.
Gabriel 08.29.03 at 9:33 pm
For a positive view of the aftermath of shock therapy, Anders Aslund’s Building Capitalism is a very good number crunchy exposition which concludes that “The frequent statement that Russia suffered from too radical reform is a misrepresentation of facts. Russia undertook a brave attempt at an initial radical reform, but, unfortunately it did not reach far enough.”
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