Statist Quo

Lawrence A. Uzzell from the March 1994 issue

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Thanks to Prime Minister Cherno-myrdin's firm support of Viktor Gerash-chenko, the socialist chairman of the Russian Central Bank, the government has provided an unending supply of credit to obsolete state-owned firms. Many of these operations are "value subtractors," manufacturing unsalable products out of valua-ble raw materials and labor that in a free economy would be liberated for truly productive uses. These loans, of course, will never be repaid.

Though he enjoys a reputation as a reformer, Finance Minister Boris Fedorov has also fed inflation through excessive government spending. In 1993 spending probably exceeded 150 percent of revenues; at the end of the year, the government announced that spending on social programs alone would climb by more than one-third.

Supporters of the Yeltsin administration claim that such measures were forced on the president's team by the need to work with the socialist parliament. They argue that the new constitution approved by popular referendum on December 12 will make it easier to push through reforms even without the parliament's consent. The first of these claims is false, the second misguided.

During the 10 weeks between the storm- ing of the White House and the December elections, Yeltsin's executive branch had a monopoly of power--total freedom to decree whatever reforms it chose. This period offered Yeltsin his best chance ever for the much talked-about "Pinochet option" of combining poli-tical authoritarianism with economic freedom. But this unique opportunity was almost entirely wasted. The executive orders issued during these weeks--for instance, strengthening state control over the press--did more to buttress author-itarianism than to advance economic freedom.

The one decree of this period that touched the foundations of the economy, Yelt-sin's November edict on land ownership, fell far short of dismantling socialist control of real estate. For example, it left intact the ban on converting farmland to other uses. Russia's chronic housing shortage will thus continue indefinitely: At the edge of Moscow one can still see overcrowded, high-rise apartments standing next to empty fields.

As for the constitution, again the Yelt-sin team sacrificed long-term reform to their own immediate needs. In creating a super-presidential, super-centralized republic, they seemed to assume that Rus-sia's president will always be more enlightened than its parliament, and the central government more so than the provinces. Sooner or later that assumption is bound to fail, and statists such as the Liberal Democrats will gleefully seize the unchecked, unbalanced power structures that the Yeltsinites have created.

Russia's political tides are notoriously unpredictable. It would be a mistake to think a Zhirinovsky presidency is now inevitable, just as it was a mistake for the Yeltsin team to think the December elections would automatically repeat last April's referendum, in which the reformists triumphed. Nevertheless, when I arrived in Russia in the middle of 1992, comparisons to Weimar Germany seemed grossly alarmist to me. Today, they don't.