Fellow Russian economist Konstantin Sonin writing in the Moscow Times about the demise of one of Russia’s greatest living patriots, Yegor Gaidar (view photos from the funeral here, more on Gaidar from Yevgeny Kiselyov follows Sonin’s piece, and after that a third eulogy by Anders Aslund). Make no mistake, this man was a true giant and Russia is diminished by his loss irreparably.
Yegor Gaidar, acting prime minister during the critical months of 1992, was 35 years old when he assumed responsibility for economic policy under President Boris Yeltsin. His tenure at the top lasted less than a year, yet it was his name that is most prominently associated with the transition from a communist, planned economy to a market-based one. It is Gaidar’s name that became the symbol of free-market ideology in Russia. He was a courageous leader during the grim period of 1991-92, and throughout the difficult 1990s and 2000s Gaidar continued to stand up for free markets. He remained a dominant intellectual force in economic policy discussion until his untimely death Wednesday.
As an economist, Gaidar had an unusually sharp ability to see the country’s problems through all of the smoke and fog. As a politician, however, he was far too blunt. Many of Russia’s political leaders — and perhaps most Russians as well — have tended to view their country through the prism of Soviet propaganda and the difficulties that they experienced living in the Soviet Union.
Gaidar was much different. When he became “economic tsar” in November 1991, he spoke directly about Russia’s food shortages, while other top officials spoke impractically about preserving the Soviet Union, even after the failed putsch against Soviet leader Mikhail Gorbachev. Gaidar openly expressed a critical view of the Soviet military-industrial complex that produced useless goods and drained scarce resources from other industries, while his colleagues still clung to the inflated, worn-out demagoguery about the “treasured legacy of Soviet science and industry” and the empty platitudes about “Soviet achievements in the social sphere.” Instead, Gaidar worked around the clock to have basic foodstuffs delivered to Russian cities when the country was on the brink of famine in the last months of the Soviet Union.
Gaidar will always be remembered for his “shock therapy,” which in reality was never planned in advance. He understood that rapid price liberalization and the complete abandonment of import tariffs in early 1992 were a necessary evil; otherwise, the broken supply chain in a country teetering on collapse could have led to severe food shortages. Gaidar proved to be correct: Two weeks after his price-liberalization policy went into effect, Russians once again saw food and basic consumer goods in the shops after years of being absent. Moreover, cutting the budgets of dying Soviet industrial dinosaurs was politically painful and ultimately fatal for Gaidar as prime minister. But there was no viable alternative since the budget that the Gaidar government inherited had a deficit of more than 20 percent.
Most Russians, in search of a scapegoat for the turbulent, chaotic 1990s, continue to demonize Gaidar to this day. But their negative reaction to Gaidar is tantamount to Russia’s cholera outbreak in the late 19th century. Ignorant peasant mobs would sometimes kill doctors who came to villages to fight cholera. The peasants observed a pattern: The appearance of doctors were a sign that cholera is spreading through the area. For exactly the same reason, the overwhelming majority of Russians believed that Gaidar, who assumed economic leadership after six years of slow, incoherent and largely ineffective economic reforms under Gorbachev, was somehow responsible for the misery brought to the people by the economic collapse.
Yet Gaidar never stopped fighting for free-market principles, advocating what he believed would help transform Russia into a developed country from an endlessly developing one. He never compromised his beliefs, never wavered in the face of vicious ad hominem attacks and was never lured into the comfortable life of Russia’s pseudo elite or oligarchy. This is what separates Gaidar from other Russian politicians and will make him a point of comparison for years to come.
Despite plunging popularity as a leader of a political party, Gaidar established himself as a dominant intellectual force in economic policy circles. His understanding of Russian politics was unrivaled. His strength was not so much in his ability to push a liberal agenda but in determining which elements of the liberal agenda are truly feasible for Russia at the moment. His Institute for the Economy in Transition, a policy think tank commonly called the Gaidar Institute, produced the lion’s share of economic reform blueprints in the 1990s. During the years when Vladimir Putin was president, Gaidar stayed out of the spotlight. Nonetheless, Gaidar’s economic policies were actively discussed among Putin’s top economic advisers, although few were ever adopted. Yet his intellectual influence was profound. Everybody, including the advocates of the “Back to the USSR” policies that Gaidar despised, discussed current economic affairs in terms that he himself defined. Analysts and journalists who attended Gaidar’s presentations — almost always standing room only — paid close attention to his every word. In the run-up to the global financial crisis, when most pundits believed that nothing could shatter Russian economic growth, he warned about the country’s growing dependence on natural-resource exports and correctly predicted that Russia would be hit hard by a crisis in the international finance markets.
His book “Collapse of an Empire: Lessons for Modern Russia,” published in 2007, was a masterpiece of political and economic history — a detailed account of the Soviet economic collapse. It defined the framework that most economists rely on when discussing Russia’s present and future. He wrote about the federal budget’s overdependence on oil revenues, the blind spots among the ruling elite because of closed information channels and the lack of competing ideas and the inefficiency of the overcentralized state. All of these factors are as relevant for today as they were relevant in the late 1980s.
It is a tragedy for Russia that Gaidar will not be able to contribute to these crucial discussions anymore because the outcome of this debate will ultimately determine the country’s economic position in the world and the prosperity of millions of Russians. Russia’s economic course will determine whether the country will remain a stagnant, natural resource-based economy, or whether Gaidar’s dream of Russia becoming a prosperous, leading global economic power will ever come true.
Former NTV uber-pundit Yevgeny Kiselyov, the Russian Ted Koppel, writing in the Moscow Times:
Yegor Gaidar, who led post-Soviet Russia’s first government reforms from 1991 to 1992, will be buried in Moscow on Saturday. People will remember Gaidar most of all for the economic reforms that he designed and implemented.
One of the biggest myths surrounding Gaidar was that his reforms bankrupted the country. Many Russians still believe that it was Gaidar who turned Russians’ hard-earned savings into useless paper. His reforms are blamed for dismantling what was mistakenly believed to be an economically viable Soviet economy and for crippling the country’s industrial enterprises and military complex.
In reality, of course, the Soviet economy was already in ruins by the time that Gaidar was invited by President Boris Yeltsin to join the government in November 1991. Oil prices had dropped to record lows, and the economy had reached the end of its rope after decades of spending far beyond its means in an arms race in which it was clearly in no financial position to compete. Moreover, the West was generations above the Soviet Union in terms of computerization and high technology. Gold and foreign currency reserves had dwindled to a paltry $30 million (compared with more than $450 billion today). In short, the Soviet Union was bankrupt.
At a time when Gaidar was trying to reform the economy, the country was unable to pay its foreign debt, while other countries and foreign banks, fearing imminent bankruptcy, cut off loans. Instead, the only thing that was being sent to Russia from abroad was humanitarian aid, as if it were a starving African country. Cabinet meetings were dominating by desperate discussions about how to save the country from famine. It is difficult for young Muscovites, who only know the capital as a modern, wealthy city, to imagine that Moscow was once a squalid, poverty-stricken city. When Gaidar was put in charge of the economy, people were scavenging the city looking for basic food items, while market shelves were empty in virtually every store. The most-prized thing you could bring to your friends and relatives from a business trip abroad was food — a piece of cheese, cooking oil, sausage or some fruits and vegetables.
This is the crippled Russia that Gaidar inherited when he set out to reform the collapsed economy. Nonetheless, most Russians are convinced that Gaidar was responsible for the country’s economic problems. Perhaps it was designed that way. Yeltsin put Gaidar in a position that nobody could have come out of unscathed. He was a convenient scapegoat for all of the country’s accumulated social and economic problems. Strangely enough, Gaidar understood this better than anyone, and he should be given full credit for taking on these onerous and thankless responsibilities.
Another fact that few Russians understand is that the foundation for Russia’s economic growth during the period from 2000 to 2008 was laid during Gaidar’s reforms. I remember how in the beginning of the 1990s Gaidar was fond of saying that future Russian economic growth was inevitable, just like in any other country making the transition to a modern market economy. And this is exactly what happened. Unfortunately, Gaidar’s contributions are rarely acknowledged, while most Russians are generous in their praise of Vladimir Putin for his supposed role in producing the economic boom during his two presidential terms.
During the 1990s, Gaidar tried to stay loyal to the Kremlin, consistently avoiding crossing over to the opposition. Sometimes, however, he wasn’t able to hold back, such as when he resigned from Yeltsin’s presidential council at the beginning of the first Chechen war as a sign of protest again the bloodbath. He even participated in several anti-war protests and demonstrations. Yet this was an exception that underlined Gaidar’s loyalty to a lifetime rule that he explained in an interview shortly before his death: “Over time, I decided that our country has gone through enough revolutions and it’s better to reform from the inside. If you want to reform from the inside, you should at least belong to the select group of economic and political advisers that is connected with the ruling elite. Only then is there a chance to get something done.”
Gaidar was correct. There has never been a case in Russian history where economic, political or social reforms have been carried out from the bottom-up. Reforms in Russia have always been implemented from the top-down and only once the ruling elite realized that the country might collapse if drastic measures weren’t taken.
The problem today is that there are no more great reformers like Gaidar left in the ruling elite. There is nobody who is willing to take the risks and assume the huge responsibilities for reforming the country. Instead, our political leaders consist almost exclusively of power-hungry provincial bureaucrats — of which too many of them are former KGB officers — whose single concern is maintaining and increasing their hold on power, amassing personal fortunes and showing contempt for the opposition and public opinion.
After Gaidar left the government, he agonized over the economic difficulties that Russians incurred in the 1990s, although it is very difficult to imagine that he, or anyone else, could have done better given the circumstances. Although Gaidar, a quintessential member of the Moscow intelligentsia, tried to suppress his feelings of anguish, it seemed at times that he knew that his untimely end was near. This makes Gaidar an even more tragic figure in a country that has suffered so much from its tragic history.
Anders Aslund, writing in the Moscow Times, adds his own thoughts on Gaidar’s service to his country:
One of the great heroes of our time, Yegor Gaidar, has passed away. In November 1991, after being appointed by President Boris Yeltsin as deputy prime minister, later acting prime minister and head of his reform team, Gaidar was responsible for transforming Soviet Russia into a market economy. He accomplished this Herculean task, and he did it peacefully. He belongs to history as one of Russia’s greatest reformers.
In 1991, Russia was bankrupt. Yeltsin and Gaidar appealed to the West for financial assistance, but the West offered no support (except for humanitarian aid) for the country’s market reform and democracy. This proved to be a moment of great folly in the West’s policy that later alienated Russia. Gaidar and his team of reformers had to fight completely on their own.
Gaidar led the reform charge with intelligence and determination. His three main policies were radical price liberalization, fiscal stabilization and privatization. The price liberalization in January 1992 was preceded by tremendous social tension. People thought that the sky was the limit for deregulated prices because of the huge monetary overhang. The authorities feared a popular explosion. But no public protest occurred, although prices rose instantly by 250 percent. Gradually, shortages diminished, and goods that had not been seen for years reappeared in shops. A market economy slowly but surely was taking shape. In addition, Gaidar daringly cut military procurement by 85 percent, swiftly reducing the military-industrial complex that until then had been seen as a sacred cow in the federal budget.
Gaidar was firm in his principles. He justified his radical early price deregulation: “There were no reserves to ease the hardships that would be caused by setting the economic mechanism in motion. It was impossible to put off liberalization of the economy until low structural reforms were enacted. If we did not act decisively [in January 1992], in two or three months we would have an economic and political catastrophe, total collapse and civil war,” he said.
His problem, however, was that the reformers never gained control over the Central Bank, which pursued an extremely loose monetary policy, blocking all financial stabilization. Prices rose by 2,500 percent in 1992. Strangely, Gaidar was accused of strict monetarism, when the Central Bank’s opposition to monetary constraint was the problem.
After less than half a year, a motley crew of communists and nationalists mobilized in resistance. They blocked Gaidar’s reforms, and in early December 1992 they rallied in the Congress of People’s Deputies to have him ousted as acting prime minister. As a result, the reforms that Gaidar had started were put on hold. Russia completed its fiscal stabilization only after the financial crash of 1998, which was caused by loose fiscal policy long after Gaidar’s departure. When Russia’s budget deficit finally was eliminated, an average growth of 7 percent a year followed for almost a decade — from 1999 until 2008.
Life is not fair. Many Russians have blamed Gaidar’s “shock therapy” for economic misery, seemingly unaware that the Soviet Union and its economy had collapsed before he initiated reforms. The same people praise Vladimir Putin for the great economic growth since 1999, forgetting that growth started long before his first presidential term. Cause precedes effect. After major transformations, time — in Russia’s case several years — is needed before the effect is seen.
Gaidar rose to prominence in 1986 as the best and most erudite economist in the country. He set up his own Institute of Economic Policy in Moscow, where he had gathered the best and the brightest of Russia’s young economists. Like Gaidar, they were the children of the pre-eminent Soviet intelligentsia. When I visited his institute in June 1991, it was evident that Gaidar had gathered the best Russian economic team possible to take over the government.
In September 1991, Yeltsin understood that Gaidar was the man that the country needed to lead its economic reforms and appointed many members of Gaidar’s team to his government. Yeltsin later wrote: “It was high time to bring in an economist with his own original concept, possibly with his own team of people. Determined action was long overdue in the economy.”
Gaidar was actually the only Russian economist able to conceptualize a viable economic policy in this total crisis. He was greatly inspired by his good friend Leszek Balcerowicz’s radical market reforms in Poland in 1990. Soviet economics were ruefully backward, and even during the perestroika years it still clung to anachronistic elements of Marxism-Leninism.
No other economist came up with a comprehensive program. Neither ordinary Russians nor the elite had a clue what a market economy was. They preferred cherry-picking and did not understand the need for a consistent system. Without Gaidar, Russia could have easily ended up as Belarus with a Soviet-like economy (minus Soviet ideology).
At the time, Jeffrey Sachs, David Lipton and I had the privilege of assisting Gaidar as his economic advisers. We went to Moscow in September 1991 and met with different groups of economists who were competing to join Yeltsin’s government. Gaidar’s team was head and shoulders above the others. He welcomed all the help he could get. It was a chaotic time when everyone was working around the clock, but Gaidar and his friends did what it took in a desperate situation.
In 1993, Gaidar briefly returned to the government. After forming the liberal political party Democratic Choice of Russia, he was elected to the State Duma for two years. He was elected to the Duma again from 1999 to 2003 as a member of the Union of Right Forces .
In the end, however, he was more of an intellectual and brilliant economist than a politician. His passion was to sit at his dacha and write books. In one of Gaidar’s best books, “Collapse of an Empire,” he analyzed how the Soviet Union had fallen apart. His greatest work, however, is “Dolgoye Vremya,” a book about long-term economic growth that will soon be published in English. But he remained a prominent elder statesman as long as Yeltsin stayed in power. He was always a much-demanded speaker at prominent international conferences.
In Putin’s increasingly authoritarian and corrupt Russia, however, Gaidar felt deeply uncomfortable and frustrated. Even many years after he left the government, he was still attacked as a villain by the official media, leading Communists and nationalists. Labeled as a liberal and a democrat from the “ruinous 1990s,” Gaidar was no longer allowed to appear on government-controlled television to defend himself. He was essentially beaten with his hands bound behind his back.
Yet as a prominent intellectual and member of the establishment, open opposition to the government was alien to him. Gaidar considered crudeness beneath contempt. Always kind, he had many loyal friends and a large family. During Putin’s two presidential terms, the economic establishment paid close attention to Gaidar’s advice, but few of his reforms were ever instituted.
After Gaider left public service in 2003, he quietly wasted away. As a true Russian patriot, he had no thoughts of emigration, but he suffered every day. I last saw him in November. His pessimism about Russia’s future was profound. Although only 53 years old, Gaidar was a marked man.