Sergei Nikitin (IMEMO economist), 1992

Interviewer — Metta Spencer

Metta asks why the Soviet reforms did not begin in the manner of the Chinese.

Nikitin: Because our agriculture is absolutely different from the Chinese one. In China there are peasants, but in our country we don’t know what to call these people who do the work. The problem of our agriculture is the most difficult problem of further development. The problem of starvation is actually real in this country. There is an imminent threat of hunger in the Ukraine, in certain northern regions of Russia, and maybe in other larger regions. The problem is not exactly one of hunger itself, but rather of a very narrow range of products to eat such as potatoes.

Metta: I thought your paper was very interesting and you asked several questions that I want to explore. Your paper on shock therapy asks, as I understand it, why radical reforms must begin with price liberalization, as I understand it.

Nikitin: It’s not a question for me but for the international monetary fund because they decided that it must begin with price liberalization.

M: As I understand it, in the Czech Republic, privatization began before prices were liberalized. They are more successful because the prices have not increased more than about three or four times the original prices.

N: Czechoslovakia is a more successful example of shock therapy approach, but they privatized before they had price liberalization. They privatized only very small operations, not all of them, but the success of shock therapy in Czechoslovakia could be explained by the fact that they did not start with prices liberalization, but with more serious anti-inflation measures. Then they price liberalized. The rise of prices was 60% pre year, which is not very much so they accomplished all their goals of shock therapy. Our shock therapy failed completely. What concerns our shock therapy/privatization is it is a very long process and we will probably see a lot of surprises along the way. We have a super monopolized economy, that’s the feature of the Russian economy: we have no practically no competition and we will not have competition.

M: You’ll have competition sometime, the question is when.

N: Maybe in a hundred years.

M: You’re a very pessimistic man.

N: No, I just know the economy very well.

M: Let’s go back to China because everybody I meet in Russia say’s it’s impossible to learn anything from the Chinese reforms and it seemed to me that your paper did express an interest in learning from the Chinese reforms. This is not only from the Chinese, but also from the Japanese. What concerns the opinions that you have heard expressed is that you must have met only the officials—economists. Among the economists, the Russian economists, lots of positions exist, but you were probably meeting the economists who read the newspapers. These people are the officials and when they cited newspaper articles, they cited ones that are written not by economists, but articles written by journalists, so you can’t consider it to be the only approach.

N: Actually it’s the usual thing for our country, for a Bolshevik country, you understand, its usual for an unofficial position to be expressed like that.

M: Tell me your own position then. What should I have heard that I didn’t hear?

N: My position is relatively widespread but it’s not an official one. It completely rejects the way of the transition to the market that is practiced in this country. I supported for a long time the transition to the market, but not by these means that are practiced here. What’s going on here now is that they are exactly following recommendations from the west, which are directed to breaking the economy.

M: Do you really mean that the westerners are attempting to destroy the economy?

N: Yes, westerners are responsible for destruction of the economy and also we are back in a totalitarian state. I think that it’s also the doing of the westerners, as in 1917 when westerners were helping the Bolsheviks.

M: Excuse me, I can believe that many bad things have come from the west, but probably not from the desire to destroy.

N: Well probably you can name me another country where democracy is connected with shooting in the parliament. That was recommended by the leaders of the western states. All the others were supporting it. Nobody was staying silent.

M: I understand.

N: If you think that shooting in parliament is a democracy, in any parliament, well.

M: Well I understand. I thought it was just a matter of the IMF, and I think the IMF people are mistaken.

N: I don’t want to blame only the west. We also have our problems, our faults. There are lots of useful interesting things in the west, but for this particular country only bad things are chosen, for example, shock therapy for Germany in ‘48, and by Japan in ‘49. Have you ever thought about the difference between those two shock therapies and ours?

M: You mentioned them, and I know you write about them, so I’d like for you to tell me more.

N: Shock therapy, as in Japan and Germany are not the same as what is recommended now by the IMF. Our shock therapy consists of three main recommendations: liberalization of prices, anti-inflation measures, and the liberalization of internal trade. In Germany and Japan shock therapy consisted only of the first two points: liberalization of prices and the anti-inflation policy. So they just couldn’t trade freely with other countries and in that way they preserved their countries from the purely economic robbery. ???Because? we accepted the IMF program, now every year the country loses 20 billion dollars. We have a famous writer name ________ who defines the economic reforms as a great criminal revolution. Everything that we have is being exported.

M: Exported, what?

N: Well, raw materials, everything.

M: Exported. More is being exported than imported?

N: Well it isn’t that. The problem is that what is being exported, is being exported for very low prices. (on the exchange rate: the buying power there is much less, whereas the exchange rate in Czechoslovakia has stayed the same in comparison to the dollar. The same as it was when they started their reforms.)

M: If you had been in charge of the reforms starting two or three years ago, how would you have proceeded? Is it still possible to proceed in that way or is it too late to use your approach?

N: I would use the Japanese experience after the second world war. I was doing everything that contradicts what we are doing here now and the results you can see here now. Now it’s impossible to go forward without firm economic guidance in this country. In policy we will go back and it will be the same in the economy, but first of all we must do what Japan did; close the channels of robbery, of the country, stop the conversion of military production.

M: Stop the conversion. Why?

N: Because as it is going on now, it is not conversion, but the destruction of a very effective and productive production system and ??even more? in the future the weaker that we are, the more chance there is for invasion of enemies into our country.

M: Who is going to invade you?

N: Well the first example may be your Canadian Peacekeeping troops will invade Georgia. So it’s our problem and it will be a real invasion. We don’t know about tomorrow. I’m speaking only about today.

M: Well that’s a very interesting conversation a whole different one than the one I expected to talk about. One of the things that interested me was that your paper says that shock therapy is a way of giving permission for inflation. (he shakes his head) No? I thought that was the argument and what I see now is that people are complaining that the government is using methods of restraining inflation that are too hard on the population. That is being done in the name of shock therapy. I think that the notion of shock therapy seems to be ambiguous. Sometimes it seems to me ??they’re? allowing shock therapy and sometimes it seems to me, ah trying to control it too harshly.

N: We speak about the scientific definition of shock therapy; it can be successful or unsuccessful. The success of shock therapy can be seen in a few months, not more, very, very soon. The criteria of ______, the success of shock therapy consists of the liquidation of the deficit in the production of goods. The illumination of inflation, no more than 10% rise in prices per year and the stabilization of the rate of exchange of the ruble for foreign dollars. That’s what happened in Czechoslovakia so shock therapy was successful there. Poland also accomplished it, but at a much higher price. We still have not accomplished any of those goals. We still have a deficiency in the production of goods especially in some areas. The official information about the rise of prices is reduced. According to the official information during 1992 the rise in prices went up 22 fold. Unofficially this figure is 55 fold and last year ’93 according to the official information it went up tenfold. In fact it is much higher, so this high inflation shows that shock therapy has failed completely. Now they propose to do the same, to start the same thing again and again it will fail. The other thing is that here the monetary way of fighting inflation is masked by the definition of shock therapy.

M: I’m not clear about that.

N: Well so people call shock therapy the monetarist methods to fight inflation, but it’s not shock therapy itself, they just use that definition.

M: If I may return to China, the Chinese economy is growing at about 10% per year and the Chinese began their reforms with small agriculture and small manufacturing production. They privatized agriculture but they did not liberalize prices very much. Can you evaluate that approach with respect to the possibilities for Russia.

N: Before the beginning of shock therapy here the Chinese way was the best approach for us with some modifications though that, our recommendation was not accepted and we even got an order to stop speaking about that and to close all discussion of it. To silence it.

M: Oh well, please tell me about that order. It sounds horrible.

N: (He laughs) In our country such orders are not written, they just tell you it oral and that’s all. We recognize those orders while watching TV and listening to the radio, for example we know what is being said here among scientists and then we watch TV and we understand what is possible to speak about and what is silenced. That’s how we understand what the order is about—what it’s possible to say.

M: You’re saying then that if you had recommended the Chinese model of reform nobody would have printed it or said it in the press or on television.

N: The overwhelming majority of magazines and newspapers will not publish it, probably only certain scientific journals but not all of them.

M: Is that the same as before or have there been some changes?

N: It’s just the same as always. In some ways there are even less opportunities to publish—no pluralism.

M: That’s a very sad story.

N: Well let’s speak about the Chinese experience. It was silenced and then a representative of the governing circles, Volsky started to speak about it. It was done with great delay; several years passed, but then he started to speak about it in a positive manner. But a majority of the newspapers, although they respected this guy, they did not accept his ideas about the Chinese approach. Volsky has been speaking of ?them? favorably, so since that time some of the mass media have begun to mention it, but the majority of them do not speak about it. Volsky is the leader of the Union of the Industrial Producers, manufacturers, so in that case what could some professor say?

M: So that means that you have no possibilities.

N: Yes, you see, this guy Volsky had every possibility and he did everything, though he did it with great delay, but the reaction was negative. Now it is silenced.

M: Oh well, can you tell me your predictions for the economic changes over the next year.

N: It will be worse in every respect. Do you know the predictions of the IMF? According to their predictions and those of the bank of reconstruction the stabilization of the economy in this country will occur only at the end of the year 2010.

M: If your reforms were put into practice now is it too late to benefit from the kinds of recommendations you would make?

N: The result of two years of reforms in our country, ’92 and ’93 is equal to the results of two years of war. The best way out of this situation is the Japanese experience, so now that’s what I would support—the Japanese experience. So if anything is left on this territory, it’s possible to start at any moment.

M: You speak about the Japanese experience of 1945, ’46 ’47.

N: Yes and the whole Japanese development beginning in the first of the post war period. Yes certainly we should take something from the Chinese experience as well, but now it’s to late to use it. We were defeated and destroyed in the cold war and so we are forced to use the international recommendation for the economy and development. That is our situation today.

M: Can you say anything more about how you would privatize agriculture, if you would do so?

N: It is all privatized now, already. It isn’t owned by the state, it’s in a different form of ownership. I prefer that the peasants decide for themselves what form of privatization they want.

M: I understand that a decree will be forthcoming soon, in a couple of days about the privatization of agriculture. What do you think of what is likely to be said?

N: All the decrees on agriculture in this country never brought anything except evil to this country.

M: Thank you for giving me your thoughts and I feel like apologizing as if I personally were responsible for these problems.

N: My opinion is not very unusual. You just didn’t speak to people who hold my—the views that I have—which are quite widespread.

M: But I’m really referring to the fact that Western influences seem to have been so harmful for this country.

N: Well we will speak about it then, when the Canadian troops come to Georgia. We have lots of regions where the troops can be sent under any banners.

M: Yes, I understand. I want to thank you for talking with me and I wish you good results. I will publish your ideas in Canada.

N: Actually I have published my ideas in scientific journals but it’s impossible in the mass media. There is no rule about that, but there is a kind of information blockade.

Audio file

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The Russian Quest for Peace and Democracy, by Metta Spencer, published by Lexington Books