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The Death of Russia?€™s Premier Shock Therapist

Yegor Gaidar, acting prime minister during the critical months of 1992, was 35 years old when he assumed responsibility for economic policy under President Boris Yeltsin. His tenure at the top lasted less than a year, yet it was his name that is most prominently associated with the transition from a communist, planned economy to a market-based one. It is Gaidar’s name that became the symbol of free-market ideology in Russia. He was a courageous leader during the grim period of 1991-92, and throughout the difficult 1990s and 2000s Gaidar continued to stand up for free markets. He remained a dominant intellectual force in economic policy discussion until his untimely death Wednesday.

As an economist, Gaidar had an unusually sharp ability to see the country’s problems through all of the smoke and fog. As a politician, however, he was far too blunt. Many of Russia’s political leaders — and perhaps most Russians as well — have tended to view their country through the prism of Soviet propaganda and the difficulties that they experienced living in the Soviet Union.

Gaidar was much different. When he became “economic tsar” in November 1991, he spoke directly about Russia’s food shortages, while other top officials spoke impractically about preserving the Soviet Union, even after the failed putsch against Soviet leader Mikhail Gorbachev. Gaidar openly expressed a critical view of the Soviet military-industrial complex that produced useless goods and drained scarce resources from other industries, while his colleagues still clung to the inflated, worn-out demagoguery about the “treasured legacy of Soviet science and industry” and the empty platitudes about “Soviet achievements in the social sphere.” Instead, Gaidar worked around the clock to have basic foodstuffs delivered to Russian cities when the country was on the brink of famine in the last months of the Soviet Union.

Gaidar will always be remembered for his “shock therapy,” which in reality was never planned in advance. He understood that rapid price liberalization and the complete abandonment of import tariffs in early 1992 were a necessary evil; otherwise, the broken supply chain in a country teetering on collapse could have led to severe food shortages. Gaidar proved to be correct: Two weeks after his price-liberalization policy went into effect, Russians once again saw food and basic consumer goods in the shops after years of being absent. Moreover, cutting the budgets of dying Soviet industrial dinosaurs was politically painful and ultimately fatal for Gaidar as prime minister. But there was no viable alternative since the budget that the Gaidar government inherited had a deficit of more than 20 percent.

Most Russians, in search of a scapegoat for the turbulent, chaotic 1990s, continue to demonize Gaidar to this day. But their negative reaction to Gaidar is tantamount to Russia’s cholera outbreak in the late 19th century. Ignorant peasant mobs would sometimes kill doctors who came to villages to fight cholera. The peasants observed a pattern: The appearance of doctors were a sign that cholera is spreading through the area. For exactly the same reason, the overwhelming majority of Russians believed that Gaidar, who assumed economic leadership after six years of slow, incoherent and largely ineffective economic reforms under Gorbachev, was somehow responsible for the misery brought to the people by the economic collapse.

Yet Gaidar never stopped fighting for free-market principles, advocating what he believed would help transform Russia into a developed country from an endlessly developing one. He never compromised his beliefs, never wavered in the face of vicious ad hominem attacks and was never lured into the comfortable life of Russia’s pseudo elite or oligarchy. This is what separates Gaidar from other Russian politicians and will  make him a point of comparison for years to come.

Despite plunging popularity as a leader of a political party, Gaidar established himself as a dominant intellectual force in economic policy circles. His understanding of Russian politics was unrivaled. His strength was not so much in his ability to push a liberal agenda but in determining which elements of the liberal agenda are truly feasible for Russia at the moment. His Institute for the Economy in Transition, a policy think tank commonly called the Gaidar Institute, produced the lion’s share of economic reform blueprints in the 1990s. During the years when Vladimir Putin was president, Gaidar stayed out of the spotlight. Nonetheless, Gaidar’s economic policies were actively discussed among Putin’s top economic advisers, although few were ever adopted. Yet his intellectual influence was profound. Everybody, including the advocates of the “Back to the USSR” policies that Gaidar despised, discussed current economic affairs in terms that he himself defined. Analysts and journalists who attended Gaidar’s presentations — almost always standing room only — paid close attention to his every word. In the run-up to the global financial crisis, when most pundits believed that nothing could shatter Russian economic growth, he warned about the country’s growing dependence on natural-resource exports and correctly predicted that Russia would be hit hard by a crisis in the international finance markets.

His book “Collapse of an Empire: Lessons for Modern Russia,” published in 2007, was a masterpiece of political and economic history — a detailed account of the Soviet economic collapse. It defined the framework that most economists rely on when discussing Russia’s present and future. He wrote about the federal budget’s overdependence on oil revenues, the blind spots among the ruling elite because of closed information channels and the lack of competing ideas and the inefficiency of the overcentralized state. All of these factors are as relevant for today as they were relevant in the late 1980s.

It is a tragedy for Russia that Gaidar will not be able to contribute to these crucial discussions anymore because the outcome of this debate will ultimately determine the country’s economic position in the world and the prosperity of millions of Russians. Russia’s economic course will determine whether the country will remain a stagnant, natural resource-based economy, or whether Gaidar’s dream of Russia becoming a prosperous, leading global economic power will ever come true.

Konstantin Sonin, a visiting professor at the Kellogg School of Management at Northwestern University, is a professor of the New Economic School.

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