Reverse Gradualism, Investment Collapse and Financial Degradation in Russia
The Russian transitional economy is characterized now (in the 1997s) by two adverse processes. The first one is the long and biggest fall in output and fixed capital investment. The second one is the degradation of financial system (I will explain the meaning of this term below). These phenomena (especially the first one) reflect clearly failure of economic reforms in Russia, because large negative economic growth means nothing but fiasco. Why these reforms were so unsuccessful?
The goal of this article is to give the answers to this and some other questions. I will show that roots of economic failure of Russia are in the type of the strategy of economic reforms. I called it "reverse gradualism"; indeed it is another name of big-bang policy, as I will explain below. Such strategy generates the criminalization of the economy, which, in turn, does the adverse influence on investment, output and finance. The interaction between investment sector and finance one deepens crisis. The economic losses (generated by unsuccessful reforms) can become irrevocable.
The structure of the paper is the following. The Section 2 describes (in detail) the essence of gradualism and its important elements and also explains why big-bang strategy is nothing but "reverse gradualism". The Section 3 illustrates the ideology of the Russian transitional reforms. The Section 4 shows both concrete carrying-out of reforms in Russia and how these reforms generated criminalization of the economy. The Section 5 describes the influence of criminalization on fall in fixed capital investment. The Section 6 contains the description of the influence of the same process on financial degradation. Section 7 tells about the interaction between changes in fixed capital investment activity and financial development in the developed countries (including "new industrial countries") and in Russia. The Section 7 is the conclusion which tries to give the answer to the very typical Russian question "What to do?"