Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed


November 19, 2007, 3:00 AM EST
Peterson Institute for International Economics, Washington, DC
Anders Åslund (PIIE), Andrei N. Illarionov (Former Economic Adviser to President Vladimir Putin) and Richard Pipes (Harvard University)

Event Summary

The Peterson Institute released the latest book by senior fellow Anders Åslund, Russia’s Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed, at a meeting on November 19, 2007. Author Åslund presented the major conclusions from his book and was joined in discussion by well-known Russian historian and Harvard Professor Richard Pipes and Andrei N. Illarionov, former economic adviser to President Vladimir Putin.

About the Speakers

Anders Åslund joined the Institute in January 2006 after spending 11 years at the Carnegie Endowment for International Peace, including as director of its Russian and Eurasian Program. He has written extensively on Russia's transformation for the last two decades and served as an economic adviser to the Russian reform government during 1991–94.

Richard Pipes, professor of history at Harvard University for over 40 years, is one of the world's leading authorities on Soviet, Russian, and Caucasian history. His expertise has led governments, organizations, and publications to seek out his advice. In addition to being a senior professor at Harvard, Dr. Pipes has served as director of Harvard's Russian Research Center (1968–73), as an expert for the Russian Constitutional Court (1992), as director of the National Security Council's East European and Soviet Affairs team (1981-82), as a member of the State Department's Reagan Transition Team (1980), and as chairman of the CIA's "Team B" to Review Strategic Intelligence Estimates (1976). He is a member of the Council of Foreign Relations. Pipes is the author of many books including Communism: A History (2003).

Andrei Illarionov is a senior fellow at the Cato Institute's Center for Global Liberty and Prosperity. From 2000 to December 2005 he was the chief economic adviser to Russian President Vladimir Putin. Illarionov also served as the president's personal representative (sherpa) in the G-8. He is one of Russia's most forceful and articulate advocates of an open society and democratic capitalism and has been a long-time friend of the Cato Institute. Illarionov received his PhD from St. Petersburg University in 1987. From 1993 to 1994 Illarionov served as chief economic adviser to the prime minister of the Russian Federation, Viktor Chernomyrdin. He resigned in February 1994 to protest changes in the government's economic policy. In July 1994 Illarionov founded the Institute of Economic Analysis and became its director. Illarionov has coauthored several economic programs for Russian governments and has written three books and more than 300 articles on Russian economic and social policies.

Event Materials

Presentation: Russia's Capitalist Revolution [pdf]
Anders Åslund

Book: Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed
October 2007

News Release: Market Economy and Democratization Likely to Prevail in Russia's Future [pdf]
November 19, 2007

News Release

Market Economy and Democratization Likely to Prevail in Russia's Future

Washington—Russia's Capitalist Revolution has produced an unusual combination of a reasonably free market economy and increasingly authoritarian politics reminiscent of the tsarist period. Peterson Institute Senior Fellow Anders Åslund, who predicted the fall of the Soviet Union in 1989, concludes that this situation is not likely to hold. Russia is too wealthy, educated, pluralist, and open to be so authoritarian. Either the market economy or the authoritarian rule will have to give in the not-too-distant future and the market economic system appears much stronger than the authoritarianism, which is still relatively mild.

Åslund's new book, Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed, explores for the first time Russia's economic and political transformation from 1985, when Mikhail Gorbachev launched his reforms, until the present and looks at where Russia might head in the future. The short-term concern is that a small group of KGB officers from St. Petersburg has seized control of the state and its corporations. They let inefficient giant state enterprises purchase successful private companies, and often these renationalizations are not voluntary. However worrisome these developments are, the results are likely to be so harmful even in the short term that the Russian leadership, which is focused on maintaining macroeconomic stability and a high growth rate of 7 percent a year, will be deterred and will correct the damage it is causing. But such a development would be impeded if the oil price stays at $100 a barrel and reduces the need for economic reform.

Åslund's book argues that Russia's current economic success is the result of a critical mass of economic reforms undertaken in the 1990s: deregulation, privatization, and eventually financial stabilization. From a historical perspective, it is impressive that Russia built a dynamic market economy in only seven years. The Russian financial crash of 1998 delivered the catharsis Russia unfortunately needed to adopt responsible fiscal policies. President Vladimir Putin is not the generator of Russia's current economic success but its beneficiary and custodian. He has also greatly benefited from high international oil prices.

At the same time that a market economy has taken hold in the country, democracy failed in Russia because of the absence of any clear idea of how to build it. Åslund argues that the brief window of opportunity when democracy could have been built was missed. Boris Yeltsin should have dissolved the old, unrepresentative parliament within half a year after the aborted August 1991 coup, which delivered Russia's democratic breakthrough. He should have held an early founding election to stabilize Russia's democracy and disbanded the KGB. Instead, a major conflict evolved between president and parliament, and since the parliament did not really represent anything, it had no reason to compromise. Two years too late, Yeltsin dissolved the parliament, but it was recalcitrant and Yeltsin's administration inept, which caused serious bloodshed. The bloodletting stained Russia's nascent democracy.

Despite this failure, Åslund still argues for a democratic future for Russia. The country is just too rich, too economically pluralist, too educated, and too open to continue to be so authoritarian. In the slightly more distant future, a new wave of democratization is likely.