Fri Aug 29, 2003

Russia and China

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:

[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.