Streetwise Professor

December 17, 2007

Cassandra Gaidar

Filed under: Economics,Politics,Russia — The Professor @ 10:33 am

Cassandra was the Trojan woman whom Apollo gave the gift of prophesy–and the curse of never being believed. Yegor Gaidar sees that Russia’s future depends crucially on coming to grips with its past, but present events make it clear that his prophesies, like Cassandra’s, fall on deaf ears.

In his new book, Collapse of an Empire, Gaidar has a pressing purpose: to alert Russians–and the world–to the dangers denying the real reasons behind the collapse of the USSR. Gaidar has a strong historical sense (which is often absent among economists, alas), and from his understanding of history (most notably, of Weimar Germany and post-Hapsburg Austria-Hungary), he knows that imperial collapse can be disorienting and dispiriting to the empire’s subjects, even if the empire brutally repressed them. He also knows that demagogues and revanchists can exploit this disorientation and depression to achieve power. Those suffering from post-empire depression are very susceptible to demagogic myths that imperial glory was destroyed by “stabs in the back” from enemies foreign and domestic, and that restoration of this glory requires the people to unite behind an authoritarian leader who will ruthlessly pursue traitors at home and take revenge on foreign foes.

But he foresees that this is ultimately the road to disaster:

The legend of a flourishing and mighty country destroyed by foreign enemies is a myth dangerous to the country’s future. . . . This is the picture that dominates Russian public opinion: (1) twenty years ago there existed a stable, developing and powerful country, the Soviet Union; (2) strange people (perhaps agents of foreign intelligence services) started political and economic reforms within it; (3) the results of these reforms were catastrophic; (4) in 1999-2000 people came to power who were concerned with the country’s state interests; (5) life became better after that. This myth is as far from the truth as the one of an unconquerable and loyal Germany that was popular among the Germany that was popular among the Germans in the late 1920s and 1930s.

The goal of this book is to show that picture does not correspond to reality. Believing that myth is dangerous for the country and the world.

As an aside, I can speak to the ubiquity and power of this myth. I have had a couple of Russian students in the United States. Both were intelligent and worldly. One had lived in the United States for 10 years. Both were going to business schools. And each believed that Gorbachev and Yeltsin were American agents, and that the collapse of the USSR was a CIA plot. The first time I heard this I was surprised, but thought it was an aberration. The second time I heard it I was stunned.

But back to Collapse of an Empire. Gaidar’s basic thesis is that the economic–and hence political–collapse of the USSR was inevitable:

[The collapse of the USSR] was preordained by the fundamental characteristics of the Soviet economy and political system: the institutions formed in the late 1920s and early 1930s were too rigid and did not permit the country to adapt to the challenges of world development in the late 20th century. The legacy of socialist industrialization, the anomalous defense load, the extreme crisis in agriculture, and the noncompetitive manufacturing sector made the fall of the regime inevitable. In the 1970s and early 1980s these problems could have been managed if oil prices had been high. But that was not a dependable foundation for preserving the last empire.

Gaidar recounts the chronology of collapse in excruciating detail; too much detail at times for my taste, but a choice that Gaidar defends as necessary to overcome the power of the myth.

Gaidar shows that agriculture was the Achilles heel of the Soviet system. Stalin ruthlessly exploited agriculture to fund industrial development. This worked for awhile, but only served to demonstrate that supply curves are much more elastic in the long run than the short run. In the short run, peasants could be forced to turn over the bulk of their harvest in exchange for a pittance. In the long run, however, the attempt to extract surplus from the countryside and the necessity of attracting labor to manufacturing and megaprojects led to a flow of the best and most productive labor out of agriculture and into industry. Soviet agriculture became progressively less efficient as a result. Combine this with assorted insanities, like the virgin lands program, and what was once the world’s breadbasket became a farming basketcase.

Forced to import larger and larger quantities of food, but non-competitive in the production of machinery or other manufactured goods, the USSR relied on the export of oil to pay for it. With increasing oil output from rich western Siberian fields, and spiraling prices (courtesy of OPEC and declining US production), for a time the USSR was able to overcome the creeping weakness of its agriculture sector, and even go on an aggressive military and political offensive that spanned the globe. But soon declining oil production (attributable to extremely inefficient Soviet practices) and plummeting prices (courtesy of growing non-OPEC output, burgeoning Saudi production, and more efficient consumption of energy in the West) conspired to create an acute fiscal crisis in the USSR.

Gaidar chronicles the results of this crisis, and the government’s (and Party’s) incompetence in dealing with it. The rigidity of a centrally planned system, the rudimentary nature of the financial system, the acute political constraints facing the country’s leadership, and the geronocratic nature of that leadership, made it impossible to respond. Things spiraled out of control. Price controls prevented smooth adjustment to external shocks. Fear of political unrest prevented the leadership from lifting the controls. Faced with incredible strains on the budget, the government ran the printing press overtime. Partial “reform” measures, and improvident policy choices (such as the anti-alcohol campaign that deprived the government of a large share of its domestic revenues), only made things worse. In the end, everything came tumbling down.

Gaidar’s narrative is compelling. To a Chicago-trained economist, it is almost axiomatic that socialist system that suppresses and distorts almost every market signal; deprives individuals of the ability to make coherent economic choices; and resorts to force in an attempt to make its irrational system work; will fail in the end.

To the Russians who grew up in the system, or who grew up in the aftermath of its collapse, alas, it is not so obvious. As Gaidar notes, the fall of an empire seems anything but common sense to those that lived it. Putin and the siloviki are exploiting this to the hilt, and are perpetrating the myth that the collapse of the Soviet Union, and the economic and social chaos that followed this collapse was not due to the inherent defects of the Soviet economic system, but instead resulted from malign external forces. The recent “elections” indicate that large swaths of the Russian populace have fallen for this myth hook, line, and sinker.

So for the present, anyways, Gaidar is doomed to play the role of Cassandra, prophesying that disaster will follow Putin’s Plan, but cursed to be disbelieved and ignored. Putin and the siloviki, like the Bourbons, have learned nothing and forgotten nothing. They have not learned from what destroyed the Soviet Union, but have not forgotten that the Soviet Union was once a colossus before which the world trembled. They want to restore this colossus (admittedly, and happily, without all the totalitarian baggage), and are pursuing this goal relentlessly.

I believe that Gaidar is right that down this path lies ruin. I fear, however, that Russia will have to find this out the hard way. So Yegor Gaidar is a prophet without honor in his own country, among his own kin, and in his own house. But I believe he is a prophet nonetheless. And I heartily recommend that you read his excellent book.

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1 Comment »

  1. [...] many of the Yeltsin reforms, he was ultimately disillusioned by Russia’s path under Putin.  I reviewed his book here.  Here’s the opening line of the review, which can serve as an epitaph: Cassandra was the [...]

    Pingback by Streetwise Professor » The Sisyphus Update — December 16, 2009 @ 7:33 am

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