Kieran Healy’s Weblog Sociology and other distractions

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.

Presuming that this site’s data is accurate…

Russia’s GDP fell by 1.2%/year over the 25 year period ending in 2000, and 4.6%/year in the 1990s.

Ten Years:
http://www.nationmaster.com/graph-T/eco_gdp_gro_199&int=-1

Twentyfive Years: http://www.nationmaster.com/graph-T/eco_gdp_gro_197&int=-1

Man that’s bleak.

The data on that site is facinating for laying waste to various insta-theories of “why”. It’s a shame you can’t plot various stats against each other. I wonder if there is a well accepted set of statistics for various measures of social structure – i.e. bowling alone like metrics, damage of colonialism, % capricious deaths in living memory, availablity of local entertainment…

Kristof: “I’m sure I’ll regret saying this.”
I don’t know if he will, but I’d hope the New York Times gets a raft of letters (as seems likely) and decides never to print this kind of cheap ethnic stereotyping in their paper again. I’d have thought they’d have stopped it years ago.
Surely he could have fitted Jews or blacks into his overview? I can’t think why he didn’t.

The Simpsons had a lovely 1919 Itchy and Scratchy cartoon where Itchy runs into a Scotsman. Hoots mon!

I seem to recall having heard arguments suggesting that economic change, especially free-market oriented ones, need to be supported by the right kinds of enforcing institutions (e.g. institutions to enforce contracts, etc.). Similar arguments have come up in the “planning” that preceded the invasion of Iraq. The main point was that market-economies are made possible by all sorts of trust relationships backed up by institutions, and this complexity and subtlety is what is often overlooked by naive cheerleaders of free-markets. Joseph Stiglitz makes similar points in his critique of globalization as practiced by the IMF and World Bank, or, basically, the US. In the case of Russia, corruption abounds, and so there are no accountable supporting institutions to create the right envirnoment for proto-capitalism. In China, well, I guess there’s lots of discipline. If this view is right, I suppose it means that China’s despots know what’s good for them in the long run.

R: and you explained that without a series of remarks about what two Russians or Chinese people immediately do if you put them together. Could this be a new direction in economic theory?

Two quick points:

1. The question is not so much where have they gone, but where are they going. And ten years isn’t much of a history to extrapolate.
2. Calling the Ukraine a democracy is really somewhat generous.

One other quick thing – the data on both sides is pretty unreliable. The Chinese are known to be exaggerating their numbers (though realistic revisions are still quite impressive). Data from the end of the Soviet Union is probably even less reliable. One of my professors once handed my class a historical GDP chart with three lines – one relatively flat, one middling, and one quite steep. The steep line was the GDP data that the Soviets published. The middle line was the best estimation of Soviet GDP that the US government could come up with at the time. The flat line was the current estimate of Soviet GDP during the same time period, far lower than the Soviets had said or the Americans had thought. Trying to get an estimation of Soviet GDP data that’s even remotely reliable is essentially impossible right now.

Well over at The Peking Duck it’s been pointed out how much of a house of cards China’s growth has been. Nearly all of the banks are on the verge of collapse, and there are massive unemployment problems, in the cities AND the rural west of China. The 200,000 or so remaining govt. owned companies are almost all kept afloat by increasing govt. debt, and if they let the currency peg against the dollar float, much badness will result.

Not to disparage the real gains of the last 10 years (they actually HAVE a middle class now!), but China is not all roses like most of the Western press would have us believe. And corruption there is rampant (rule of law and contract enforcement are sick jokes at best). Asian blogs paint a very different picture than the press.

Russia now has the same GDP as Mexico, which is very sad. MEXICO.

A very good friend of mine who left Russia in the early 90’s said that their transition to ‘capitalism’ mostly consisted of transfering state owned enterprises to Party cronies and their gangster friends, hardly a good transition. And they are now sliding back into totalitarianism, except an elected one this time. As Putin himself said “Don’t ever think that there is such a thing as an ex-KGB agent”. They just changed the initials.

You can find more country GDP stats at indexmundi.com. Also in Spanish and French.