As Normal as It Gets

I detest the phrase "a normal country." All too often, it refers to a fairyland -- usually Western -- characterized by efficient governance, prosperity and political civility. But if I walk 15 blocks in the wrong direction from my Washington office, I definitely do not feel I'm in "a normal country."

This is why Andrei Shleifer's use of the term is so refreshing. As he puts it, normality is not an idealistic aspiration but objectively quantifiable. Russia, given its economic indicators, is where it ought to be in terms of development and growth: It is a middle-income society with a functioning, if flawed, market economy. Hence the provocative title of Shleifer's new book, "A Normal Country: Russia After Communism."

Shleifer, of course, is not an uncontroversial figure. A Harvard economics professor who served as an adviser to the Yeltsin administration, his shock-therapy approach to Russian economic reform came in for criticism from many circles, including my own journal. Moreover, a U.S. federal court ruled last June that Shleifer -- who, as a consultant for the Harvard Institute for International Development, oversaw a U.S.-funded program to aid Russian reforms -- conspired to defraud the government by investing in companies affected by his advice.

Critics may view the timing of this book, a collection of nine edited essays originally written between 1992 and 2005, as an attempt to whitewash the past; some may even charge that Shleifer's alleged conflicts of interest make his opinions highly suspect. Perhaps. But those same opinions have regularly been echoed by economists who had no personal stake in Russia's reforms. To evaluate Shleifer's arguments only in the context of his actions would diminish the significance of his views.

Thematically, the collection can be broken down into three major arguments, the first touching on how misperceptions of the Soviet Union's one-time strength have affected assessments of Russia's progress. In the popular imagination, the Soviet Union was a developed country on a par with states like Britain, France or Germany, albeit more poorly run. Thus, the only way to explain how a mighty country was brought so low was to point the finger of blame at the reformers.

Shleifer counters with some hard data. To properly judge economic reform, one must identify an accurate starting point, he writes. In reality, Russia's per capita gross domestic product in 1989 placed it alongside countries like South Africa and Argentina, rather than the industrialized West. Viewed from this perspective, Russia has not undergone a precipitous decline over the past 15 years, but remained on a level with its peers. Shleifer dismisses evidence of a catastrophic contraction in Russian economic output as a cliche, observing in the final essay that "official statistics greatly exaggerate the true value of Russia's output at the beginning of the decade."

Not that he believes the reforms went as planned. As Shleifer emphasizes in a second theme, critics confuse his and other experts' opinions with the actual policies put into practice. Again and again, he points out the differences between his advice and the government's actions. During a discussion of privatization, for example, he notes that "the design of the program clearly reflected the political constraints" in place at the time. Later, he reiterates that "the Russian privatization program represented a political compromise" due in part to "political influences in the country." His point is that state interference and political pressure were largely to blame for corrupting the reform agenda.

Which brings us to Shleifer's third theme: Successful reform needs less, not more government (but not no government, since laws and regulations are required for markets to function). Bureaucrats and politicians make poor managers because their choices are not guided by economic criteria, he writes. Furthermore, an overregulated economy creates opportunities for corruption, favoritism and harmful distortion of markets. The "success of reform," in Shleifer's opinion, goes hand-in-hand with the "speed of turnover of political and economic leadership." Shareholders and voters must be constantly provided with the opportunity to remove from office directors and politicians who have failed.

Suffice it to say that Shleifer is not a proponent of state-guided reform. For him, the romantic notion of a group of gosudarstvenniki who place the national interest above personal gain is about as fantastic as Plato's concept of the philosopher-king; such people simply don't exist. "Many, if not most economic policies pursued by governments around the world reduce public welfare," he notes in one chapter from 1996. "Without a dictatorship or a foreign occupation, there are no good ideas for how to reform bureaucracy. Good public control, therefore, is usually not a viable option."

Shleifer makes good theoretical points, but the book shows traces of what I would term the N. Gregory Mankiw Syndrome. Mankiw, until recently the chairman of U.S. President George W. Bush's Council of Economic Advisers, unleashed a firestorm early last year when he said that the outsourcing of U.S. jobs was just another beneficial aspect of free trade. While Mankiw's economic data were quite accurate, his political assessments were way off the mark. The fact that the economy benefited as a whole did nothing to alleviate the distress of the hundreds of thousands of Americans whose jobs were exported to lower-wage destinations. Economics deals with aggregates and figures, but politics responds to masses of individuals.

Reuters Protests, such as this one in Moscow against social benefits reform, testify to continuing discontent despite positive economic trends.

In much the same way, even though a variety of statistics point to the fact that Russians are better off than they were in 1990, the perception of collapse and insecurity still weighs heavily on the minds of many. As Yevsei Gurvich, head of the Finance Ministry's Economic Expert Group, said in January about last year's widely criticized benefits legislation, "The reform was not properly prepared in terms of possible reaction from society. Not enough was done to cushion this reaction."

Economies are run by individuals, not abstract concepts, so the human factor can't be overlooked. In his discussion of privatization, Shleifer assumes the existence of a hyper-rational homo economicus, as if every owner is motivated by the same criteria. I do not dispute his overall conclusion that the oligarchs tended to promote investment and growth in their stewardship of Russia's private sector, outperforming their state counterparts. Yet are all private managers and owners really equal? Might not the Russian economy have turned out differently if the winners of the 1990s privatizations had been the great Old Believer merchants of 19th-century Moscow? Culture is not a subject covered in Shleifer's index, but Tufts University sociologist Lawrence Harrison and others have argued that economic performance cannot be separated from social factors. I think a strong case might be made for Russia's economic troubles having stemmed in large part from values and worldview -- precisely the types of stimuli to which politicians respond.

Yet this book needs to be read, particularly as Russians assess the legacy of the 1990s and Americans promote a new wave of liberalization in the Middle East. Its overall message -- that Russia is still moving in the right direction -- is a welcome palliative to the gloomy forecasts that have become the norm.

Nikolas K. Gvosdev is the editor of The National Interest and a senior fellow for strategic studies at The Nixon Center.