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The Consequences of the Russian Transformation on the Third World

The Consequences of the Russian Transformation on the Third World. Satoshi Mizobata Institute of Economic Research, Kyoto University, Japan mizobata@kier.kyoto-u.ac.jp 3-5 April 2007, SU-HSE, Russia. Aims of the paper.

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The Consequences of the Russian Transformation on the Third World

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  1. The Consequences of the Russian Transformation on the Third World Satoshi Mizobata Institute of Economic Research, Kyoto University, Japan mizobata@kier.kyoto-u.ac.jp 3-5 April 2007, SU-HSE, Russia

  2. Aims of the paper • The meaning of the Russian transformation from the experiences of the Third World • The transformation in the Third World compared with the Russian transformation • The transformation in Russia was deeply connected with the changes in the Third World. • The changes of the Third World have Influenced the Russian transformation.

  3. Key moments of changes in the Third World and the socialist system • Key moments: energy, technology and markets • external debt problem and polarization • The debt crisis worsened the position of the socialist system and the developing countries. • The debt crisis changed the actors of development policy making. IMF and the World Bank, structural adjustment policy based on neo-liberalism has lead the development and the transformation.

  4. Debts of developing economies(fluctuating interest, World Development Report, 1986, p.79)The long term interest increased during 1970-1984 in USA. 1970-1974: 0.7%, 1975-1979: 0.3%, 1980-1984: 4.9%, 1983: 8.1%, 1984: 8.2% (Bank for International Settlements)

  5. Figure 2 The catch-up (flying geese) model in East Asia Graduation NIEs Japan ASEAN China Vietnam Laos, Cambodia Myanmar Authoritarian Regime for development

  6. Availability of the flying geese model • In 1950s-1990s, the model can explain the successive development in Asian countries, from Japan to Vietnam. • Telescoping process and innovative combination played an important role. • Change of the model：

  7. Impact of the Transformation in Asia • The flying geese model • The transformation did not so noticeably affect developing Asian countries. Prior to the Russian transformation, many countries had accepted reform package (economic conditionality) with the financial aid, and the Soviet model had already been abandoned. • Virtuous circle for the development

  8. Developmentalism and Asian industrialization • USA changed the external policy to the developing economies, and nationalism from above brought about the developmentalism and the growth ideology. • Neo-developmental market economy after 1980s in Asia: promotion of export industry, the growth ideology using the centralized mobilization of resources (state intervention) • The growth ideology has been preserved and harmonized with liberalism ideology and new international division of labour. Developmentalism can survive in Asia.

  9. The Path of Three “socialist countries” 1) India • failure of import substitute industrialization • Assistance from USA • liberalization in 1980s with the financing from the IMF and the World bank, and the FDI

  10. 2) Vietnam Dependence on USSR and China In 1980-1990s, improved foreign trade relation with the west and an inflow of foreign capital offset the shock. 1980-1990: ruble denominated foreign trade increased in 2.5 times, dollar denominated foreign trade increased in 4.1 times. 1986, Doi Moi (socialist oriented market economy): acceptance of the IMF policy and the IMF financing, and the high growth of FDI and the foreign aid. The reform absorbed the shock of the collapse of the Soviet Union and the Russian transformation.

  11. 3) North Korea • Remarkable shock from heavy dependence on the Soviet Union • Closed economy but the specific path • Asian case, why 1) Liberalized by themselves, 2) IMF, World Bank, USA and Japan, 3) export oriented and interdependence within the Asia-Pacific Area

  12. Impact of the Transformation in Africa • Democratization or political changes in 1980s – domestic changes, influence of the end of the cold war and the collapse of the Soviet Union • Economic conditionality and political conditionality (democratization) which are similar to the Russian path • Dependence on ODA (in Tanzania, ODA occupied 40% of GDP), and distorted distribution by the elite. • Vicious circle • The transformation was to be carried out inline with development strategy.

  13. Some Lessons of the Transformation in the Third World • Meanings of the impact: 1) success story of the Asian countries with local-oriented measures and selective adoption of soft conditionality 2) inefficient transformation in Africa with the severe conditionality, similar to the Russian transformation (hard conditionality)

  14. Lessons of the Transformation • Authoritarian regimes weakened or survived. • Debt crisis caused the policy and system changes. • Initial conditions are strong. Informal sector and social capital • Local society embedded habitual institutions created the Asian model, based on Japanese and Korean model • The state failure and good governance • Laissez-faire is not fit to the newly created taxation system. • The transformation does not simply means marketization. –Dual transformation or Triple transformation

  15. Dual or Triple Transformation • Modernization: II and III sectors / I sector • Marketization or privatization: non-state sector / state sector • Maturity : Social expenditure and social welfare China: modernization – marketization Vietnam: marketization and moderate modernization The Asian transformation went in the same direction but followed different paths.

  16. Figure 5 The Transformation in China and Vietnam market／plan 4.0 ２００１ 3.5 3.0 １９９４ 2.5 ２００１ 2.0 Vietnam China 1.5 1.0 １９８６ 0.5 １９８６ １９７８ 0.0 0.0 0.2 0.4 0.6 0.8 1.0 1.2 modern／tradition Note) Non-state includes the collective. The employees in 1994 and 1995 are not continuous. Source) Kato, 2005. original from Statistical Yearbook in China, World Bank(1994, 1998, 2003)

  17. How about the Russian path? • Modernization before the transformation • Radical marketization • Regional gaps: concentrated (isolated) modernization and stagnant or declining modernization, regional gaps in marketization • The evolution of the transformation is different.

  18. Figure 6 The Transformation in Russia market／plan 2.0 2004 1999 1.5 1994 1.0 0.5 1990 1980 0.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 modern／tradition Source) Rosstat, Trud i zanyatost v Rossii, 1999, 2001, 2003, 2005, Rosstat, Rossiiskii statisticheskii ejegodnik..

  19. Figure 7 The Transformation in the Russian Regions Market／plan 2.50 2.00 1.50 1.00 0.50 0.00 0.00 5.00 10.00 15.00 20.00 Modern／tradition Source) Rosstat, Trud i zanyatost v Rossii, 1999, 2001, 2003, 2005, Goskomstat, Regionyi Rossii, 1997

  20. Table 3 Dual Transformation In Moscow and St.Petersburg Note) Upper figure is II+III/I, and lower figure is non-state/state in employment. Source) Rosstat, Trud i zanyatost v Rossii, 1999, 2001, 2003, 2005, Goskomstat, Regionyi Rossii, 1997

  21. Transformation as social changes • From the socialist welfare state to the market welfare state • Transfer of the social functions from the enterprise to the local communities and societies • Evolution of social responsibility: state-enterprise-region Therefore, the transformation goes with the change of the regional structure.

  22. Table 4 Comparison of social indicator: prevalence of child malnutrition % of children under 5, The World Bank, World Development Report 2007

  23. Table 5 Comparison of social indicator: Human Development Index Trends, UNDP, Human Development Report 2001, 2006

  24. International division of labour, Economic integration, and the Transformation • Transformation under the second wave of regionalism and globalization: common values and policy convergence • Spill-over effects of the regional integration and chain reaction : APEC • FDI and multinationals in East Asia and close network: intra-regional foreign trade in East Asia The external framework and the economic integration must be regarded as a key transition indicator. Four-fold transformation

  25. Table 7 Intra-regional trade (%)

  26. Conclusion • The Third World has different ways. • Dual or triple Transformation in Asia • Liberalization prior to the Transformation • External yardsticks of the transformation • Gradual and local-oriented model different from the Anglo-American model • New regional integration in Asia

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