Essay:Difference between Chinese and russian economic reform

NOTE: NOT YET COMPLETE

Summary

An essay designed to find the qualitative and quantitative differences in the structure of both China's and Russia's economic reforms. Described as Reform and Opening Up in China and Shock Therapy for Russia. The argument of this essay is simple, the nature of China's economic reforms is not tantamount to simply "restoring capitalism" unlike what Russia did. We will measure the reforms from 1989 to around 1996, when the Russian reforms and Chinese reforms were both well under way. We will look at the effects on quality of life, structure of economic reorganization, public and private sectors, but most importantly, whether or not China has restored the capitalist road, like Russia has.

"Shock Therapy"

The US State Department’s Agency for International Development contracted the now-defunct Harvard Institute for International Development to advise the Russian government on privatization and the creation of capital markets. The policy advice given and implemented was to go for a ‘big bang’ approach. or otherwise known as shock therapy by engaging in a rapid mass privatization programme. This started in 1992, and by 1994, 14,000 medium and large state enterprises – or 70% of Russian industry – had been transformed into joint-stock companies

The architects of Shock Therapy had pressed ahead without creating the necessary laws and institutions to protect private property and to prevent self-dealing by managers. They believed that privatization would result in the emergence of private property owners who would then lobby the government to create laws and enforcement institutions that would prevent their expropriation. Except, what ended up happening was the complete opposite. Instead, company managers and other kleptocrats lobbied to oppose the strengthening of laws and institutions that would protect shareholders

The largest enterprises, mainly those in oil and metals, were not part of the voucher privatization scheme. Instead, they were auctioned off in a highly rigged manner (at very low prices) to a small number of well-connected men who had made their wealth by expropriating funds and assets from the government. Essentially creating a group of Oligarchs and Kleptocrats. The results were as follows:

• Corruption rose According to Transparency International’s Corruption Perceptions Index, based on surveys of international businessmen, Russia was ranked to 126th out of 159 countries surveyed in 2005, with a score of 2.4 out of 10,
• Russia suffered the worst peace time increase in mortality experienced by any industrialized country.
• For the years 1987 and 1988, roughly 2% of Russia population lived in poverty (surviving on less than $4 a day), by 1993-1995, it was 50%
• IMF economic reform programs are associated with significantly worsened tuberculosis incidence, prevalence, and mortality rates in post-communist Eastern European and former Soviet countries.
• Male life expectancy in Russia has fallen to just 57 years: ‘By 1993 Russia’s death rate had risen above even the level of low income countries. Russia’s death rate now stood on a par with that of such countries as Bangladesh, Nigeria, Sudan and Togo, a dreadful testimony to the awful results of the reform process.’
• The United Nations Children’s Fund (Unicef) reported at the end of 1995 that 34 per cent of Russia’s population had fallen below the subsistence minimum and that for men in the 20–39 age group in Russia, Ukraine and the Baltic states ‘the mortality increase due to heart, digestive and infectious diseases has taken on frightening dimensions unequalled in its magnitude in peacetime.’
• Russia had the dollar value of its exports nearly halved, from $63 billion in 1990 to $35 billion in 1994, and has been reduced to an exporter of raw materials and energy which, by 1993, made up 80 per cent of its exports.
• In Russia, the poor performance of Gorbachev’s early years turned into a very poor performance in the later period of his rule. It became nothing less than a disaster in the 1990s. Output declined precipitously.
• The cumulative drop of output registered over the last two to three years in some countries has attained proportions that are unmatched even by the Great Depression of 1929-1933.
• Hungarian GDP fell by 11.7 per cent, Romanian GDP by 18.6 per cent, and Polish GDP by 19.0 per cent. Czech Net Material Product (NMP) fell by 12.8 per cent, the NMP of the former USSR by 16.0 per cent, and Bulgarian NMP by 30.9 per cent.
• The beginning of 1990 to mid-1991 industrial output declined by 25.9 per cent in Czechoslovakia, 27.2 per cent in Hungary, 38.1 per cent in Bulgaria, and 40.1 per cent in Poland.
• Between 1989 and the middle of 1991, employment fell by 11.6 per cent in Rumania, 13.8 per cent in Czechoslovakia, 16.9 per cent in Poland, and 20.1 per cent in Bulgaria. As the fall in output in Eastern Europe was even more rapid than the decline in employment productivity sharply declined.