Restoring Capitalism to Communist States

Capitalism is more than just non-communism or private property, in the '90s the eastern bloc had to disassemble the old one and build capitalist institutions from scratch. The coercive mechanism of the command economy were disassembled, but there was nothing there to replace it. Some kind of "transformational recession" was unavoidable, there was a drop in output potential output as unprofitable enterprises shut down, their employees were laid off, and the capital stock was rearranged into a productive configuration by market incentives.
In '90s Russia the old planning system was taken away, but there were no function institutions (trust in markets, function legal system and contract enforcement, business expertise, etc.) to replace it. Previously economic planning had submitted for coercion to some degree, so output in a situation that still had undeveloped institutions - planning was lower than before. It took time but Russia has definitely filled the gap, Russian GDP per capita and life expectancy have surpassed their 1989 levels by now.
Screen Shot 2019-02-26 at 11.08.44 PM.png (Source: Are Command Economies Unstable? Why did the Soviet Economy Collapse?)

Another factor was whether or not the ex-communists where in charge. In Poland there was large dissident movement ready to take over with a consensus in favor of reform, but in places like Russia and Ukraine there was no substantial dissident movement ready to take over. The ex-communists elites were divided as to the pace and form of reforms, and in places like Ukraine there was a shortage of qualified people with knowledge or experience of what a market economy should look like.
Poland was more of a success than Russia success because of its more developed non-communist leadership and its earlier economic crisis. Once Solidarity took over, the leadership had in support of shock therapy/The Balcerowicz Plan. Communist Poland was the Greece of the 1980s, it had run up so much debt that it depended on IMF loans in exchange for rapid privatization and reforms. If it hadn't ripped off the band-aid, so to speak, and scarified long-term growth to avoid short-term pain, it would look more like Ukraine. Jeffrey Sachs was an economic advisor to both Poland and Russia in the '90s, he's written a memoir on his experience.

It's also worth remembering how much variety there is within the post communist transitions, the year when GDP started growing again differed dramatically, so it's easier to go into detail on a country by country basis. After the Cold War ended, the countries that had been part of a united communist drifted apart to become more like their neighbors. Central Asia started to look like the middle east, the Baltics started to look like Scandinavia, etc. The two exceptions to this heuristic are Belarus, a dictatorship in the middle of Europe, and Mongolia, a capitalist democracy wedged between Russia and China.

Screen Shot 2019-02-26 at 11.03.47 PM.png 2560px-FormerUSSRRepublicsGDPPC.svg.png This graph of GDP per capita show a massive gap between the Baltics, Russia, and the rest of the countries.
(Data from Post-Soviet States and Economy of the Soviet Union)

 
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There's a reason the soviet system fell, I don't see an advantage from hanging on to a water-down version of command economics. If someone had their hand on a hat pan, I wouldn't tell them to slowly take their hand off of it to make the transition more gradual.

You also don’t stick your hand in a bucket of liquid nitrogen after you take it off the hot pan. Same reason you don’t put a hypothermia patient in a sauna. Russia went from glasnost and perestroika straight into balls-out capitalism, and whatever their thought process, it resulted in Moscow being among the world’s most expensive cities - at one point it topped the list - and a borderline dictator running the country.

And anyway, my point was more about having a plan that works for the citizens in a transition to capitalism. What they did didn’t help but a well-off minority, the bulk of whom invest largely outside of Russia, and now one has to wonder if much has really changed from communism.
 
You also don’t stick your hand in a bucket of liquid nitrogen after you take it off the hot pan. Same reason you don’t put a hypothermia patient in a sauna. Russia went from glasnost and perestroika straight into balls-out capitalism, and whatever their thought process, it resulted in Moscow being among the world’s most expensive cities - at one point it topped the list - and a borderline dictator running the country.

And anyway, my point was more about having a plan that works for the citizens in a transition to capitalism. What they did didn’t help but a well-off minority, the bulk of whom invest largely outside of Russia, and now one has to wonder if much has really changed from communism.

No, it didn't. One of the problems is that it took half measures both under Gorbachev and Yeltsin. Its UR topped off at 5.6% and it needed to go considerably higher. You can't grow without pain. Great change is painful. Looking at how much needed to be changed, 15-20% or so was optimal. To put it bluntly mines, factories, and various stores needed to be shut down.

Until the old ones are shut down you can't build new ones as not enough people and other resources are available to construct the new facilities and to man them as they are being used on obsolete equipment making obsolete products. There will be a lag between them being fired and them being rehired. A high but declining tarrif was probably needed.
 
No, it didn't. One of the problems is that it took half measures both under Gorbachev and Yeltsin. Its UR topped off at 5.6% and it needed to go considerably higher. You can't grow without pain. Great change is painful. Looking at how much needed to be changed, 15-20% or so was optimal. To put it bluntly mines, factories, and various stores needed to be shut down.

Until the old ones are shut down you can't build new ones as not enough people and other resources are available to construct the new facilities and to man them as they are being used on obsolete equipment making obsolete products. There will be a lag between them being fired and them being rehired. A high but declining tarrif was probably needed.

I could see that. The problem I see is this - can you name a single Russian corporation? Gazprom is the largest Russian corporation, and that and Lukoil are the only ones anyone has ever heard of. Also, wealthy Russians tend to invest a lot outside Russia - or they run the country. Vladimir Putin has more money than Bill Gates, Brangelina and the Mormon Church combined and he uses his wealth to consolidate power. Mikhail Prokhorov? Richer than hell and he buys a sports team. Not a Russian sports team. He didn’t buy a KHL team and try to lure Alex Ovechkin. He didn’t try to reform the Russian basketball league to be more awesome. He bought the Brooklyn Nets.

Another thing I noticed - of the 25 most profitable Russian corporations, all but three are headquartered in Moscow. Russia is kind of big, and yes, 12 million people live in Moscow, but 135 million Russians don’t. Picture if 90% of America’s corporations were headquartered in Texas - the other 49 states would have a dearth of business talent and limited room for advancement. It has “brain drain” written all over it. And if the young and ambitious can’t get into an overpriced, crowded city like Moscow, one that’s probably a massive old boys’ club, what are they going to do? Not stay in fucking Russia.

I’m listening to the book Red War by Vince Flynn - basically it’s about an expy of Vladimir Putin falling ill with cancer and deciding to go balls-out at destroying the West (as much of a dick as Putin is, this expy makes him look like a teddy bear by comparison.) But the problem is the same - young Russians see themselves as entrepreneurs and opportunity seekers, and Russia gives them nothing; meanwhile, the old guard sees itself as “all glory to mother Russia” and thinks these youngsters are punks and won’t help them. The young are disaffected with the current system just as people in the 80s were disaffected with communism.
 
I could see that. The problem I see is this - can you name a single Russian corporation? Gazprom is the largest Russian corporation, and that and Lukoil are the only ones anyone has ever heard of. Also, wealthy Russians tend to invest a lot outside Russia - or they run the country. Vladimir Putin has more money than Bill Gates, Brangelina and the Mormon Church combined and he uses his wealth to consolidate power. Mikhail Prokhorov? Richer than hell and he buys a sports team. Not a Russian sports team. He didn’t buy a KHL team and try to lure Alex Ovechkin. He didn’t try to reform the Russian basketball league to be more awesome. He bought the Brooklyn Nets.

Another thing I noticed - of the 25 most profitable Russian corporations, all but three are headquartered in Moscow. Russia is kind of big, and yes, 12 million people live in Moscow, but 135 million Russians don’t. Picture if 90% of America’s corporations were headquartered in Texas - the other 49 states would have a dearth of business talent and limited room for advancement. It has “brain drain” written all over it. And if the young and ambitious can’t get into an overpriced, crowded city like Moscow, one that’s probably a massive old boys’ club, what are they going to do? Not stay in fucking Russia.

I’m listening to the book Red War by Vince Flynn - basically it’s about an expy of Vladimir Putin falling ill with cancer and deciding to go balls-out at destroying the West (as much of a dick as Putin is, this expy makes him look like a teddy bear by comparison.) But the problem is the same - young Russians see themselves as entrepreneurs and opportunity seekers, and Russia gives them nothing; meanwhile, the old guard sees itself as “all glory to mother Russia” and thinks these youngsters are punks and won’t help them. The young are disaffected with the current system just as people in the 80s were disaffected with communism.

There are problems, no doubt about that. We were talking about the past though and how to change it. The problem is Russia starts off pretty much screwed by the fall of Communism as it happened too late. The best you can help for is to be screwed as little as possible over the long run. An even more painful '90s for Russia results in a better off Russia by now.

No matter what Russian companies are unlikely to be well known by now. The Russians were simply too backward and isolated. It would take a real big boom for Russian companies to be well known already. Russia was starting out 40-50 behind the US in most technologies. IMO. what they should have done is divide each company equally among employees with stock being issued for it. Have all the stock registered centrally as A,B,C,D and E series stock. You can sell the A series in 6 months, the B Series in a year, C series in 18 months and D Series is 2 years. After the first sale of the stock, the stock is converted to E series which can be freely traded. For example, if you sell your A series stock in 7 months it is converted electronically to E series. In this way, the stock would have time to adjust to a reasonable price.

If a business goes bankrupt within the first six months the book value is divided by the number of employees and are given Russian Central Bank Bonds in that amount. They will get a declining percentage of that for the first two years. This is to help protect the people who got stuck with crappy outfits. Getting food aid from the US shouldn't be too difficult so they won't starve. Turn some of the abadoned factories into homeless shelters for a time.
 
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