Abstract

This paper looks at Russian experience with austerity programmes since the breakdown of the former Soviet Union in 1991. Downsizing of the state was one of the major elements in a reform package designed to transform the centrally planned economy into a market one (together with deregulation, privatisation, macroeconomic stabilisation and the opening up of the closed economy). This downsizing, however, proved to be the single most important reason for the collapse of state institutions, which in turn deepened the transformational recession, contributed to the dramatic rise of income inequalities, corruption and crime, and the decline in life expectancy. The story of the successes and failures of transition is not really the story of consistent shock therapy and inconsistent gradualism. The major plot of the postsocialist transformation ‘novel’ is the preservation of strong institutions in some countries (very different in other respects—from Central Europe and Estonia to China, Uzbekistan and Belarus) and the collapse of these institutions in other countries. At least 90% of this story is about government failure (the strength of state institutions) and not about market failure (liberalisation).

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