Economic sciences after the fall of communism: explaining its evolution in

Russia and Bulgaria

(The rise and fall of neoclassical economics)

Nikolay NENOVSKY

CRIISEA, University of Picardie

Amiens, December 2016

Main objectives

Reconstruct the evolution of economics in post communist period

Phases, forms, driving forces

Institutions, interests and ideas (Boyer, 2015)

Russia (in comparative perspective with Bulgaria)

Some reflexions on orthodox/heterodox economics

Main working hypothesis

Evolution (orthodox/heterodox) economics in Post Communist Countries follows broadly the evolution of post communist society:

Economic transformation

Political regime etc.

Geopolitical developments etc.

• Orthodox and heterodox thinking should be put in broad societal and historical context

Russia

Russia/GDP

Tree periods • T1 (1990-1998), Gorbachev (perestroika), Yeltsin (choc therapy

and cronyism )– Liberalisation, privatisation, oligarchs – 1998 deep crisis, debt default, state capture

• T2 (1999-2012), Putin era I and II– Stage of growth (7% annually for 2000-2008), oil prices rise – “Vertical of power’’, state (order), expropriation of oligarchs– Ordo liberal phase = State + Market – Later corporatist phase, business capture

• T3 (2013 -), Putin era III• Authoritarian phase, business capture • Geopolitical tensions • 85% approval of Putin

Russia/oil prices

Economic Sciences in Russia What is Russia? Main archetypal dilemmas/on Russian civilisation,

• Europe/Asia (or both = Euroasianism)

• Westernizers/Slavophiles

(Slavophiles/soil (ground) writers, pochveniki, atterrés)

– Holistic-anthropocentric legacy (Tsar, Putin)

– Community, collectivism, conciliatory principles (sobornost)

– Power dominates property rights (“power ≡ property”)

• Oligarchs were deviation, now they depend on Putin’s will, they property and enterprises could be confiscated at any moment …

– Specific civilisation (orthodox church), culture (risk), institutions etc.

– Different explanations (geography, Tatars etc. )

Tutchev, 1866/68

You will not grasp her with your mind

Or cover with a common label,

For Russia is one of a kind –

Believe in her, if you are able...

Don't try to get it with your mind,

Don't try to fit in your dimension:

There is no Russia of your kind -

Here your belief is only mention.

Nul mètre usuel ne la mesure,

Nulle raison ne la conçoit.

La Russie a une stature

Qui ne se livre qu'à la foi

T1 (1987 – 1998)• Systemic change, destruction, depression, crisis

– 1992, Radical free market reforms, price and exchange rate liberalisation, monetary restriction (shock therapy), later rapid privatisation (oligarchs, A. Shleifer corruption debacle)

– Week state captured by oligarchs

– Neoclassical and monetarist economics dominates, IMF, American experts (Sachs, Aslund, Shleifer, …)

– Yegor Gaidar and his team (A. Chubais, B. Federov, …, A. Yulukaev, V. Mau)

– Poland (Balcerovizch), Estonia (Maat Laar)

– Transition = jump, no theory of deep social change

A. Shleifer and the « Harvard Mafia »

Shleifer’ss paper« Corruption», QJE,

1993

1998 crisis • Unbelievably deep crisis, total collapse, default…

– Complex causes, many publications, (role of Governor V. Gerashchenko, «the world’s worst CB governor’’, in oligarchs legitimation)

– Institutional vacuum, absence of norms, ‘’Anomie» (adapting Starodubrovskaya, 2015)

– Need of order, control, norms, need of new anchor

– Need of strong state, rules of the game

– Demand for protection, bottom up process (Yakovlev, 2006)

(radical free market ideology and anti communist speaking, is not enough)

Putin is this new anchor !!!

(IMF proposed Currency Board ‘’to fixe Russia to USA’’)

Putin era

• Putin era (exceptional growth, oil prices) - 2012

– Putin era I (till 2004/5)

– Putin era II (after 2004/5 – 2012)

– Putin era III (since 2012)

T2 (1999-2012)/Putin era I

• Till 2004/5, “vertical of power, order, rules’’, oligarchs are slowly expropriated (end of “state capture”), liberal, ordoliberal, anti-communist speaking continue, flat tax (13%), Gref’s Programme …

– A. Illarianov, Putin’s adviser, the most Austrian economist in Russia (since 2005 works for CATO)

– Austrian Economics became popular, Mises Institute in Russia, translations….

– More and more institutional economics, but still dominate neoclassical one…

T2 (1999-2012)/Putin era I

• Till 2004/5

– New (orthodox/neoclassical and liberal) Universities (sponsored by oligarchs)

– Higher School of Economics, annual conferences

– Gaidar Institute of Economics

– New School of Economics (teaching in English, only MSc, and only famous American professors, extremely mathematised teaching, modern finance (corporate, financial markets) etc. )

• Currently repressed, in decline, S. Guriev (scpo/EBRD)

• Many publications in reputable American journals

T2 (1999-2012)/Putin era II

• After 2004/5, more and more authoritarian regime, radical confiscation of oligarch property, Yukos (Khodorkovsky), Medvedev (2008-2012); phase of “business capture” (by the state, Yakovlev, 2006), outflows of Russian capital

• Mini crisis 2008/2009

• Geopolitical tensions (Caucasus, Georgia, NATO, Clinton etc. )

– Back to Slavophil tradition

– Heterodox economics gain momentum

T3 (2012/13 - )/Putin era III

• Current situation… – Neoclassical and liberal economics is a dirty word,

arrested, jailed (arrest of A. Ulyukaev)

– Total repression of neoclassical, neoliberal, = western, etc. economics

– HSE, NSE, Gaidar Institute in disgrace

– And self-repression, self critics (mimetisme, convention)…

– New Institutions emerge (RAS, Stolypin Club, Valdai club etc. )

Examples of Russian Heterodox Economics

- Institutional Economics - Monetary policy

Russian Institutionalism (since early 2000)

• Example of Russian Institutionalism (since early 2000)

– Institutional trap, interfaces etc. (Polterovich, HOPE)

– Institutional matrices (X, Y) (Kirdina)

– Redistribution and gift economy in Russian tradition (K Polanyi, Bessonova)

– Institutional analysis of Russian privatisation, role of violence and force (Volkov)

– State capture versus business capture (Yakovlev)

– Institutional anomie (Starodubrovskaya)

– Political economy of power (power=property)

– New (Russian !) paternalism

Russian Institutionalism (since early 2000)

– Multicivilisationism (“diversity of democracy”)

– Russian historical institutionalism (R. Nureev) etc.

(back to Danilevsky, 1852, Asiatic mode of production etc.)

– New socialism (Buzgalin and Kolganov)

– Russian Economic School, economic tradition etc.

– Extreme slavophilisme (Russian Economic Society, Katasonov, on money)

– Geopolitical writings (Alexander Diygin)

Alexander Douginethe biggest heterodox thinker in Russia

Russian Economic Society « S Sharapov’’Valentin Katasonov

Social liberalism (RAS, V Avtonomov !!!)

Russian Journal of Economics (Elsevier, since 2015, A. Kudrin)

Economics and the Mathematical Methods

(repressed, worse that under Gorbatchev)

Discussion on Monetary Policy

• Central bank of Russia the last bastion of monetarist thinking

– Practically all economists and politicians (ex: Putin’s adviser S. Glaziev*) against Central Bank (plus some residual liberals) Inflation targeting is ridiculed, financial markets are enemies

– Central bankers are accused to be IMF and USA agents, to be “stupid neoclassical economists” and criminals (“immediately in jail !” = worse than Hitler)

*banished to travel in USA and EU

Discussion on Monetary Policy

– Russia needs of new nationalistic (Russian) monetary paradigm

– Low interest rates, sharp increase of money supply, stimulate lending

– Capital control and exchange rate restrictions

– Independent payments system (disconnected from American banks, Visa etc.)/ Erdogan …

– Punishment of financial speculators, restriction of financial markets etc.

Elements of comparison: Bulgaria

• Similar trajectory– T1 (1990-1997)

• Shock therapy, free market economics

• Deep crisis, hyperinflation, debt default

• Need of anchor – Currency Board (Germany)

• Flat tax (10%, introduced by the left)

– T2 (1997-) Monetarism and Austrian school • 1997 – 2005/07 (EU integration)

• since 2007 – more Keynesian economics

• since 2010 – Boyko Borisov, bodyguard in power (proud that he had read only one book, … on Vinetu)

• Heterodox works, historical studies, etc., Nationalism

Concluding reflexions

Russia Heterodox Economics

Orthodox Economics

Concluding reflexions • Orthodox (neoclassical)/heterodox (Schmoller

programme) should be carefully scrutinised (positively and normatively)

• And put into national and time context (heterodox when defending the heterodoxy)

• Heterodoxy sometime could be dangerous to life !!! ( and the life is the highest human value !) (In some circumstances the neoclassical economics could be more healthy ….

Concluding reflexions

• Heterodox economics could be instrumentalised by the elites, for the use of domination, control, etc (could become heterodoxism ? bolchevism)

• Heterodoxy could justify the non existence of economic rules and principles, in this case everything is left to the discretion of … Putin (Erdogan or …)

• Could lead to authoritarian regime, starting from the absolutely understandable and well-meaning principles…

• Responsibilities of western heterodox economists

• France (Putin solution)