Tuesday, December 9, 2014

Branko Milanovic on the creation of Russian plutonomy by Western advisors after the dissolution of the USSR

When I calculate or read about these astonishing numbers regarding wealth concentration in Russia, I cannot but think about the people who made all of this possible. I was then working on “transition countries” in the Word Bank research department, and was able to see what was happening. I travelled to Russia, knew lots of people who worked there and “advised” the government and had a chance to witness the overall disarray and dissolution of the country. But leaving aside the economists who found in all this chaos, their own financial interests, most were driven by economic ideology which, when it came to privatization, argued three things. 
(1) Be a revolutionary. We need to privatize fast because “the window of opportunity” is now and Communists may be back any moment. Do like the French revolution did with Church lands: give it or sell to anyone because it would be hard to nationalize later. 
(2) Coase theorem. It does not matter for efficiency to whom the assets go. Sure, assets will be given for free to the people close to Yeltsin and the “family”, and who really do not know what to do with them, , much less manage them efficiently, but this is a distributional matter. The efficiency will not suffer. The newly rich will sell these assets quickly to the entrepreneurs who know how to manage them. Everything will end in the best possible manner. 
(3) Demand for rule of law. Once you do that, there will be immediately demand for rule of law, even if privatization is done in the most lawless and non-transparent fashion. The new millionaires will, like the robber barons in the United Stares, demand the rule of law because they will need to protect their newly acquired wealth.

It is clear that if your hold these three views, you would do exactly as the privatizers did in Russia (and Ukraine) in the mid-1990s [as advised by Western neoliberal "experts" like Jeffrey Sachs]. Why did economists hold these views? 
I think because of a wrong paradigm which first, disregarded distributional issues by simply relegating them outside economics, and second, because they failed to take into account globalization; their views were based on “methodological nationalism”.…
The naiveté of neoliberal ideology that resulted in the de facto rule of the Russian mafia.

Global Inequality
Coase theorem and methodological nationalism
Branko Milanovic

3 comments:

Ryan Harris said...

Brilliant unexpected move by Ukraine. The Ukraine government asked Russia to bring troops in to Ukraine to help de-escalate the crisis. Pro-Russian seperatists won't shoot at Russians, Right?

Ryan Harris said...

The OSCE and US also requested Russian help, so we don't have to get all conspiracy theorist either)

Ryan Harris said...

Ironically, Sputnik is also running a story about a brown bear that was run over by cruel train operators but appears to have gotten away while the train guys are up for long prison terms.