The consequences of the liberalization of the economy were twofold. On the one hand, by the end of 1992, the commodity deficit had been overcome, and market mechanisms had been launched in the Russian economy. by 26 times in 1992, and, according to Rimashevskaya, to a depreciation of wages, a depreciation of the population's income and savings, an increase in unemployment, and an increase in the problem of irregular payment of wages. Economist, First Deputy Minister of Foreign Economic Relations in 1992
Sergey Glazyev claimed that price liberalization, which was not accompanied by the creation of restraining mechanisms, led "not to the creation of mechanisms of market competition, but to the establishment of control over the market by organized criminal groups extracting excess profits by inflating prices", in addition, the mistakes made "provoked hyperinflation of costs, which not only disorganized production, but also led to the devaluation of income and savings of citizens". Yevgeny Yasin wrote that liberalization triggers mechanisms of structural restructuring of the economy. This restructuring is accompanied by a crisis and recession, the closure of uncompetitive industries. However, the new prices actually reflect demand and stimulate the transfer of resources freed up from the planned economy to competitive industries. In the second phase of perestroika, reconstruction and growth of production, growth of incomes and investments begin. In an article by former IMF employee, economist Oleg Gavrilishin, based on a comparison of the results of market reforms in different countries, it is argued that the negative effects of the transition to the market should not be associated with liberalization; on the contrary, these consequences in Russia have increased due to the interrupted nature of
shock therapy and unfinished financial stabilization. Gavrilishin wrote that "the best path from the point of view of institutional development is not to delay liberalization. Countries that already at the first stage took rapid steps towards macroeconomic stabilization and liberalization have built more advanced institutions".
Fall in investment volume In 1992, there was a 40% fall in capital investment compared to the previous year.
Michael Intriligator, professor of economics at the
University of California, attributes the "depletion of investment with the resulting erosion of fixed capital" to one of the consequences of the failure of macroeconomic stabilization and the associated recession and inflation. Former Russian Minister of Economy Andrei Nechayev writes that in 1992, money had to be allocated not on the principle of "where we would like it to be", but on the principle of "where we can't help but give it". The most severe version of capital investment reduction was adopted, from which all long-term construction projects started in the USSR were crossed out, and only those projects whose necessity was obvious were left. At the same time, as Nechayev writes, one of the arguments in favour of such a reduction was that of the large projects in which money was invested in the last years of the USSR, not a single one was put into operation in 1991. The money, according to Nechayev, was mostly wasted "in the sand". In articles from 1990 to 1991 in the magazine "Kommunist", Gaidar wrote that the increase in capital investments in these years was one of the main causes of inflation. At the same time, a large number of newly started construction projects were combined with regular disruptions in the commissioning of facilities, an increase in the number of mothballed and stopped construction projects, and purchased but not installed equipment. The economic efficiency of investment projects was not confirmed by expert assessments.
Consequences of Foreign Trade Liberalization As Academician
Victor Polterovich pointed out, foreign trade liberalization was carried out in 1992 together with the liberalization of domestic prices, but domestic prices did not approach their equilibrium values. This led to extremely negative consequences for the country: In the collective work of the IET "Economy of the Transition Period" edited by Gaidar, the following are named as consequences of the liberalization of foreign trade: In contrast to the Russian reforms, Polterovich points to the successful experience of reforms in Eastern Europe. Gaidar, raising the issue of corruption, wrote that "the scale of nomenklatura theft in 1990-1991 far exceeded everything we had in this field in 1992-1994.
Consequences for the military-industrial complex In 1992, the volume of arms and military equipment purchases was reduced by 67%. Andrei Nechayev, the Minister of Economy in Gaidar's government, said that he tried to maintain R&D costs in the
defense sector and created a system of conversion loans at preferential rates for military-industrial complex production, but the financing of the defense industry had to be cut. Nechayev described his experience of visiting one of the military production facilities, the
Omsktransmash plant, whose director demanded financing: "I saw a surreal sight: a clearing in the taiga, and as far as the eye could see, there were tanks covered in snow, and their rows stretched off into the distance somewhere. How many of them were there? Thousands, tens of thousands... I couldn’t stand it and shouted: “You scoundrel, you should be tried and shot. There are enough tanks for three big wars, and he’s asking a poor country for money to keep churning them out.” No funding was allocated. Nechayev admits: “It’s clear that this was a disaster for the plant.” Nechayev writes that the government tried to preserve the technology for producing unique weapons, helped military enterprises enter the foreign market, and launched programs to convert excess military capacity. The president of the League for Assistance to Defense Enterprises (representing the
Sukhoi Design Bureau,
NPO Soyuz,
Central Aerohydrodynamic Institute, and
NPO Antey) Aleksey Shulunov wrote that since 1992 the order of financing and conducting defense R&D has been destroyed. This led to the degradation and disintegration of research teams, from which young, promising personnel left. Shulunov considers such actions by reformers in the military-industrial complex to be at least a “major mistake”, if not something else.
Yakov Urinson, an employee of the Ministry of Economy in 1992 and Minister of Economy in 1997–1998, said that despite the lack of financial resources, by interacting with the heads of the military-industrial complex, “we still managed to preserve and even strengthen the potential of key enterprises in the military-industrial complex,” to form a methodology for mobilization planning, a system for coordinating and approving defense orders that was adequate to the new conditions. According to Urinson, a new approach was created to the development of the military-industrial complex in market conditions, using “the maximum possible level of military spending from macroeconomic considerations” as a percentage of GDP, with an increase in the share of R&D spending. The General Director of JSC "Corporation" Radiocomplex" Vladislav Fadeyev characterizes the actions of the government as incompetent, noting that the military-industrial complex "was dealt the first blow in 1992 with the arrival of Gaidar" Criticizing the actions of the Gaidar government in the defense sphere, member of the Council on Foreign and Defense Policy
Vitaly Shlykov names the following mistakes: maintaining an unjustifiably high level of military production and defense orders; the lack of restructuring and transfer of defense enterprises to the reserve, a reduction in consumer demand for consumer goods and production equipment. Shlykov believes that the decisive obstacle to the demilitarization of the economy is the lifting of restrictions on the import of consumer goods. At the same time, it was the military-industrial complex, in Shlykov's opinion, that should have been subjected to "shock therapy". The
chairman of the State Duma Committee on Economic Policy
Yuri Maslyukov spoke about the destructive influence of Gaidar's reforms.
Continued decline in living standards The decline in living standards and the increase in poverty that continued in 1992 began several years before the formation of the reformist government. Average real incomes of the population in 1992 fell almost twofold compared to the 1991 level; for a third of the population (42.6 million people), incomes fell below the subsistence minimum. An article by sociologist Valentina Sycheva stated that after Gaidar's price liberalization, "poverty became the most painful problem of the population," and during 1992 and at the beginning of 1993, "dramatic changes for the worse occurred in practically all spheres of the population's life support". A September 1992 VTsIOM poll on the material status of families showed that 54% of Russians "barely made ends meet," 31% "lived more or less decently," 9% "lived below the poverty line," and only 4% did not experience difficulties. A December 1992 poll by the Institute of Sociology of the Russian Academy of Sciences showed that 38.2% of respondents had become "much worse" in the past six months (since May 1992), 27.4% "slightly worse," 20.7% "remained the same," 8.6% "slightly better," and 2.3% "much better." The respondents compared their lives with May 1992, when the results were worse compared to the beginning of the year. According to the state report "On the state of health of the population of the Russian Federation in 1992", in 1992 there was a significant deterioration in the quality of nutrition, while, comparing the situation with 1987, "There is a forced breakdown of the diet established in previous years, the consumption of protein products and valuable carbohydrates is decreasing, which inevitably affects the health of the population of Russia and, first of all, pregnant women, nursing mothers and children". As politician Vladimir Milov notes, “2,438 kilocalories per day on average per Russian is the level of, for example, 2003–2004”. Sociologist
Sergey Kara-Murza wrote: “Already in 1992, there was a sharp and profound deterioration in the nutrition of the majority of the population”, and the director of the Institute of Market Problems of the Russian Academy of Sciences wrote that “it was precisely under Gaidar that hungry people appeared”. According to the State Statistics Committee, the deterioration in living standards and nutrition began before 1992. In 1991, sales of basic food products decreased: meat and poultry by 21%, milk by 13%, butter by 18%, vegetable oil by 17%, sugar by 20%, potatoes by 17%, vegetables by 22%. The result was a budget deficit of 32% of GDP, which, as Illarionov wrote, was “unthinkable for peacetime government finances.” The inflationary wave created, according to Illarionov, by Gaidar's efforts ultimately led to the resignation of Gaidar and his government. According to
Grigory Yavlinsky, such high inflation could have been avoided by carrying out small-scale privatization before price liberalization. In particular, the 500-day program envisaged its implementation over three months. This would have allowed the demonopolization of the Russian economy and significantly reduced the imbalance between the money and commodity supply, and would have given the reforms a reliable foundation and regulator - the small and medium-sized owner. According to a report by the World Bank, government spending in 1992 amounted to 69.1% of GDP. According to IET calculations,
government spending in 1992, including budget loans (less their repayment), amounted to 65.1% of GDP, while government revenues amounted to 40% of GDP. Of these, 25% (10% of GDP) came from off-budget funds. The federal budget deficit in 1992 amounted to 29.4% of GDP. The same figure, excluding subsidies to importers (primarily food), mainly financed by external loans, amounted to 18.9% of GDP. Inflation at the end of the year in 1992 amounted to 2609%. As Harvard University economist
Marshall Goldman noted, contrasting Russia with Eastern European countries, economic growth in European countries began two to three years after the start of reforms. In Russia, according to Goldman, GDP steadily fell until 1999 and decreased by 40-50% during this time. In general, Russia's real GDP recovered to the level of the early 1990s only in the second half of the 2000s. Vladimir Mau writes that in all reformed countries, "growth begins within a year after stabilization." Russia was no exception, although budget stabilization occurred later than predicted. Academician of the
Russian Academy of Sciences Abel Aganbegyan writes that if
Gaidar's government had not been dismissed in 1992 and had maintained its course of fighting inflation, Russia would have been among the leading countries in emerging from the transformation crisis. The academician sees the reasons for the protracted decline in the actions of subsequent Russian governments, which pursued a soft budget policy. As Gaidar writes, there are different points of view regarding the factors of growth that began in the late 1990s: Vladimir Putin's rise to power and political stabilization, rising oil prices, and the depreciation of the ruble. Yevgeny Yasin wrote that the resumption of economic growth in 1998, "in addition to the devaluation of the
rouble, was facilitated by Gaidar's reforms, which awakened Russian business, created a market economy and gave it the energy for development". Swedish economist and former adviser to the Russian government Anders Aslund also holds the opinion about the connection between economic growth and the market reforms of the 90s. Economist
Stanislav Menshikov, conducting an analysis of the factors of economic growth, notes: "To claim that for the economic growth of recent years we should bow and thank Gaidar, who allegedly paved the way, is, to put it mildly, a very free handling of the facts". At the same time, Menshikov, referring to a
World Bank report, speaks of the same factors of economic growth in 1999–2002 as Gaidar did in his description of recovery growth: additional loading of idle capacities and the use of excess cheap labor.
Political consequences of reforms In 1992, a gradual split began among those forces that had previously acted as a
united anti-communist opposition. The key points of disagreement were the attitude to the
Belovezha Accords and the economic reforms carried out by the
Yeltsin-Gaidar government. Nevertheless, the majority of democratically oriented forces in 1992 continued to support the government's reformist activities. At the same time, characterizing the state of affairs at that time, one of the leaders of
Democratic Russia of that time noted: "The entire discussion between Gaidar and his opponents was not perceived as a discussion on macroeconomics, in which, with the exception of members of his economic team, almost no one understood anything. Gaidar was rather perceived as a continuer of a consistent reformist democratic and progressive tradition. There was a clear boundary between
Soviet conservatism on the one hand and the movement forward, the focus on progressive transformations that would lead us into the circle of civilized countries. And Gaidar was associated precisely with this attitude". In 1992, the Public Committee of Russian Reforms (OKRR) was also active, the participants of which were called upon to explain to the population the essence of the ongoing reforms and to promote them. For the most part, the OKRR included members of "Democratic Russia". ==See also==