Russia's Second Chance At Reform

Russia's most reform-minded cabinet since 1992 has just been appointed by President Boris Yeltsin, and it's off to a good start. The sacking of Vladimir Potanin, sending him back to his post at the Oneximbank, is a good sign that an effort will be made to put distance between the rich and powerful and the state. Breaking the grip of the new oligarchy on the government is the only way to free the economy for growth and generate the tax resources necessary to help Russia make the transition to capitalism.

But Anatoly Chubais, back in the cabinet as both First Deputy Prime Minister and Finance Minister, must go much further. Five years ago, he shifted valuable public assets from the state to private individuals. He in effect created the current oligarchy, and its members, in turn, supported Yeltsin in his last election. Now Chubais must turn gangster-style capitalism into a true market economy.

What must he do? First, simplify and cut taxes. The whole problem of uncollected taxes, nonpayment of wages and pensions, and delayed payment of bills is due to a Byzantine tax system. The government would collect far more taxes if companies and entrepreneurs thought they were fair. Then, newly appointed Boris Nemtsov, former reformist governor of Nizhny Novgorod, must break up the monopolies in gas, electricity, and transportation. By bringing in foreign investment and opening these markets to competition, Nemtsov can help growth tremendously. Finally, Yeltsin must bring order to his country. Economic growth is extremely difficult when ruthless mobs control business decisions and capital flight robs the society of investment. Many nations, including the U.S., have passed through Robber Baron stages in their economic development. Others have remained bogged down in corruption. This is post-Soviet Russia's second big chance at reform. There may not be many more.

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