business

Russia Is Ready For Market Reform

While the burning Russian parliament building provided a vivid image of the recent Moscow revolt, it was the nearby Central Bank building that, in essence, the fighting was really all about. Control over the direction of the Russian economy--market or centralized, private or state-owned, open or closed--was at the very heart of the battle between the forces of President Boris Yeltsin and the rebellious communists and xenophobic fascists behind Aleksandr V. Rutskoi and Ruslan I. Khasbulatov. Yeltsin's victory over his political opponents provides a critical opportunity to remake the Russian economy.

Russia is the last major link in a single, global market economy--an economic phenomenon the world has never seen before. With China, Eastern Europe, and Latin America already in the market loop, the transformation of Russia promises to set off an exponential explosion of international economic growth in the years ahead.

But first, Russia must take three decisive steps if market forces are to be harnessed:

--Faith in the ruble must be restored. The central bank must slow down the printing presses and tighten the money supply to combat hyperinflation, now running at 30% a month. The bank's recent attempt to simply ban the U.S. dollar, used widely throughout the economy, will be a futile gesture until the ruble is stabilized.

--The laws and regulations regarding foreign investment, ownership, and repatriation must be modernized and brought up to international standards. With the xenophobes in retreat, fear of Western "imperialism" should take a back seat to the desire to attract capital and technology.

--Privatization of both farms and the agricultural distribution system should be quickened to get produce to the cities.

Much has been made of the need to privatize the huge state-owned manufacturing system as well, but it just may be that this is less of a priority right now. Already, one in five Russian workers is employed in the private sector. While huge state subsidies go to the large, inefficient factories, the same funds would have to be spent on welfare should these factories lay off millions of workers. China is showing the ex-communist world that it is possible to generate a parallel market economy. By encouraging local entrepreneurs, inviting in foreign investment, and driving the economy through exports, Russia could do the same while preserving its social and political stability.

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