Egor Gaidar, RIP

Yegor Gaidar died December 16, 2009 at the age of 53, not far below the shocking national average in Russia of under 59 for males. Gaidar was a controversial and pivotal
figure in Russia’s transformation from a failing centrally planned economy to a
struggling, largely market economy. Boris Yelsin appointed Gaidar as Russia’s
(rather than the Soviet Union’s) First Vice-Premier and Minister of Economics
from 1991 until 1992, and Minister of Finance from February 1992 until April
1992. Yeltsin appointed him Acting Prime Minister from June 15, 1992 until
December 14 when the Russian Parliament refused to confirm him. In that short
period Gaider freed prices to be determined by the supply and demand forces of
the market, and launched a dramatic drive to privatize state owned enterprises.
He was, in short, a champion of “shock therapy.”

I had the pleasure of spending three days with him on the
Dalmatian Coast of Croatia in June 1999 while attending the Croatian National
Bank’s annual monetary conference in Dubrovnik organized by my friends Marko
Skreb (then governor of the Croatian National Bank), and Bob Mundell (who
receive the Nobel Prize for Economics several months later) and my IMF
colleague Mario Blejer (who two years later served as the Deputy Governor then
Governor of the Central Bank of Argentina). I had lunch with Mr. Gaidar on one
of those days and found him surprisingly sensitive to and, I thought, perceptive
of the thinking of the Russian man on the street.

Because of its large and growing inefficiencies, the Soviet
centrally planned economy was rapidly collapsing in the 1980s and the downturn
in oil prices (the USSR’s primary export) in the late 1980s sealed its doom.
Gaidar and others (including the IMF) concluded that the quickest way to
restructure the Russian economy was to liberalize it quickly (the big bang). A
more gradual approach ran the risk that the political old guard would stop needed
reforms midway (as to some extent it now has been by President/MP Putin). The
collapse of the Russian economy and living standards was more sever than Gaidar
or we at the IMF had anticipated.

The efficacy of a big bang was much debated at the time but
primarily from the perspective of the appropriate sequencing of liberalization.
Few of us sufficiently appreciated the time required to develop the
institutional, legal, knowledge infrastructure upon which capitalism relies to
achieve its efficiencies, dynamism, and growth. We laughed at the strange
mixture of goods offered in the little kiosks that sprung up everywhere (trade
was the first thing to benefit from liberalization—production took much
longer)

, assuming they would learn
quickly
. Street merchants (those who were able to round up enough money to buy
import consignments) offered for sale whatever they could get a hold of. A
typical booth might offer, tooth paste, combs, toilet paper, ladies underwear,
and chocolates.

More than these challenges, which were daunting, was the
failure to replace the system of social services attached to jobs in state
enterprises as these enterprises collapsed. They were the sources of schooling,
medical care, pensions and recreational facilities for their employees. People
were not only thrown out of work but where cut off from everything else
provided by their employers. For a while many firms furloughed employees rather
than fire them so that they could continue to receive the services that were
provided with their jobs. But the government lost its source of revenue as
firms lost money (the state was financed by the profits of these firms rather
than taxes) and when it could only continue to pay for these services by
printing money, it robbed the elderly of the value of their pensions with the resulting
hyperinflation. Average Russians, and especially older ones, were devastated.

Another serious miscalculation concerned the mass
privatization of state owned companies. To some extent the existing rulers were
bought off by giving them state resources at bargain prices. They gave up power
for resources in the expectation of riches. We tended to think that it was less
important for Russia’s future how resources got into private hands than to
subject them to the competitive discipline of the market as quickly as possible.
The Russian public saw this as unfair, which further eroded public support for
Gaidar’s reforms. This impression was further strengthened when Yeltsin bought
political support and campaign financing for his successful reelection campaign
from what came to be known as the Oligarchs by selling them large state firms
at low prices. Thus the transition to a market economy caused more pain than
necessary and lost essential public support. Enter Mr. Putin.

The Washington Post called Gaidar a hero for his big bang,[1]
though many Russians, such as my friend Denis whose comments you have seen here
before, hated him: “hero????? He was a bustard for most of Russians whom he
dragged into poverty and chaos and misery orchestrated by American
neo-conservatives……he will go to Hell!

I will pray for that…..”[2]

“Anders Äslund,
who was one of three principal foreign advisers to Mr. Gaidar as he carried out
“shock therapy” in Russia in the grim winter of 1992… said Mr. Gaidar was
unjustly blamed for the hyperinflation that wiped out the life savings of many
Russians. The main cause, Mr. Äslund said, was budget deficits, over which Mr.
Gaidar had little control.”[3]

Leon Aron, director of Russian Studies at the American
Enterprise Institute, described Gaidar the last time he saw him as “deeply
depressed—by the direction Russia was taking; by his inability to do anything
about it; and by the vicious calumny spread by the Kremlin about Russia’s
freest years, the 1990s, and about his reforms, which literally saved the
country from the famine everyone expected in 1992…. As if Dostoevsky’s Great
Inquisitor was right when he told the imaginary Christ: you have come to make
people free, but they don’t want to be free. I know that this is not so, and I
know, too, that deep down, Egor did not believe this. But it must have been so
hard to keep faith. The last eight years have gradually killed him. He died of
a broken heart.”[4]

Poor Mr. Gaidar and poor Russia. We must be patient with
Russians and hope that they find their ways to the better lives they dream of.