The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism
The paper tries to give Post Keynesian explanation of the most important problems of the Post-Soviet Russian Capitalism. The main idea is that institutions of this type of capitalism reduce uncertainty ineffectively. The main cause of it is a failure of the state as the effective enforcer of the con...
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irk-123456789-1148952017-03-20T03:02:45Z The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism Rozmainsky, I. Economic Theory and History The paper tries to give Post Keynesian explanation of the most important problems of the Post-Soviet Russian Capitalism. The main idea is that institutions of this type of capitalism reduce uncertainty ineffectively. The main cause of it is a failure of the state as the effective enforcer of the contracts. In turn, higher uncertainty leads to chronic underinvestment, deindustrialization, technological degradation and tendency to sink into the underdevelopment trap. The accompanying phenomenon is the underdeveloped monetary system. All these factors contribute to the significant economic backwardness of the modern Russian economy. У статті зроблена спроба дати посткейнсіанське пояснення найбільш важливих проблем пострадянського російського капіталізму. Основна ідея полягає в тому, що інститути капіталізму такого типу неефективно зменшують невизначеність. Основною причиною цього є нездатність держави як ефективного виконавця контрактів. У свою чергу, більш висока невизначеність призводить до хронічного недофінансування, деіндустріалізації, технологічної деградації і схильності занурюватися в пастку відсталості. Супутнім явищем є недостатньо розвинена грошова система. Всі ці фактори сприяють значній економічній відсталості сучасної російської економіки. В статье сделана попытка дать посткейнсианское объяснение наиболее важных проблем постсоветского российского капитализма. Основная идея заключается в том, что институты капитализма такого типа неэффективно уменьшают неопределенность. Основной причиной этого является неспособность государства как эффективного исполнителя контрактов. В свою очередь, завышенная неопределенность приводит к хроническому недофинансированию, деиндустриализации, технологической деградации и склонности погружаться в ловушку отсталости. Сопутствующим явлением есть недостаточно развитая денежная система. Все эти факторы способствуют значительной экономической отсталости современной российской экономики. 2016 Article The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism / I. Rozmainsky // Економічний вісник Донбасу. — 2016. — № 4 (46). — С. 21–27. — Бібліогр.: 29 назв. — англ. 1817-3772 http://dspace.nbuv.gov.ua/handle/123456789/114895 330.834.4:338.1(470) en Економічний вісник Донбасу Інститут економіки промисловості НАН України |
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Economic Theory and History Economic Theory and History Rozmainsky, I. The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism Економічний вісник Донбасу |
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The paper tries to give Post Keynesian explanation of the most important problems of the Post-Soviet Russian Capitalism. The main idea is that institutions of this type of capitalism reduce uncertainty ineffectively. The main cause of it is a failure of the state as the effective enforcer of the contracts. In turn, higher uncertainty leads to chronic underinvestment, deindustrialization, technological degradation and tendency to sink into the underdevelopment trap. The accompanying phenomenon is the underdeveloped monetary system. All these factors contribute to the significant economic backwardness of the modern Russian economy. |
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| author_facet |
Rozmainsky, I. |
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Rozmainsky, I. |
| title |
The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism |
| title_short |
The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism |
| title_full |
The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism |
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The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism |
| title_full_unstemmed |
The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism |
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basic elements of the post keynesian analysis of the post-soviet model of russian capitalism |
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Інститут економіки промисловості НАН України |
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Economic Theory and History |
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| citation_txt |
The basic elements of the post keynesian analysis of the post-soviet model of Russian capitalism / I. Rozmainsky // Економічний вісник Донбасу. — 2016. — № 4 (46). — С. 21–27. — Бібліогр.: 29 назв. — англ. |
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2025-07-08T07:57:57Z |
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| fulltext |
I. Rozmainsky
21
Економічний вісник Донбасу № 4(46), 2016
UDC 330.834.4:338.1(470)
I. Rozmainsky,
National Research University – Higher School of Economics
THE BASIC ELEMENTS OF THE POST KEYNESIAN ANALYSIS
OF THE POST-SOVIET MODEL OF RUSSIAN CAPITALISM
According to the Post Keynesian Economics, un-
certainty is the most essential characteristic of the real
world in which we live (Carvalho, 1992; Davidson,
1972; 1991; 1996; Rousseas, 1998, p. 17). Emphasis on
uncertainty is the characteristic that differ Post Keynes-
ianism from all other schools of economic thought. We
can remind that uncertainty is the situation when agents
do not know both quantity of possible future events and
probabilities of these events. Therefore, the probability
theory is irrelevant for an analysis of situations in which
uncertainty takes place (Davidson, 1991). As Keynes
(1937, pp. 213 – 214) wrote: “By “uncertain”
knowledge, let me explain, I do not mean merely to dis-
tinguish what is known for certain from what is only
probable. The game of roulette is not subject, in this
sense, to uncertainty; nor is the prospect of a Victory
bond being drawn. Or, again, the expectation of life is
only slightly uncertain. Even the weather is the only
moderately uncertain. The sense in which I am using the
term is that in which the prospect of a European war is
uncertain, or the price of copper and the rate of interest
twenty years hence, of the obsolescence of a new inven-
tion, or the position of private wealth-owners in the so-
cial system in 1970. About these matters there is no sci-
entific basis on which to form any calculable probability
whatever. We simply do not know”.
In turn, the uncertainty of the future can be classi-
fied as ontological uncertainty and epistemological un-
certainty (Davidson, 1996). The latter implies that fu-
ture is uncertain but knowable. In other words, episte-
mological uncertainty is a kind of uncertainty explored
by the Austrian school. Each agent almost does not
know about knowledge, preferences and expectations of
other agents. Therefore, the government will never be
able to give those “good” outcomes provided by the
market system. However, the market system gathers this
information and generates true decisions. It means that
information gathered and processed by the market is
knowable.
Ontological uncertainty implies that relevant infor-
mation is not only uncertain but also unknowable. The
point is that a lot of information is not created yet. It
means that between the present and the future there are
ontological differences. Ontological uncertainty is the
characteristic of a transmutable reality or non-ergodic
environment (Davidson, 1996). In a transmutable reality
“the future can be permanently changed in nature and
substance by the actions of individuals, groups… and/or
governments, often in ways not completely foreseeable
by the creators of change” (Davidson, 1996, p. 482).
The essential principle of – inspired by Post
Keynesianism – comparative analysis of various eco-
nomic systems is to analyze how institutions of these
systems try to reduce uncertainty. “How we try to cope
with uncertainty defines the system under which we
live. Capitalism has one way of doing it, socialism an-
other” (Rousseas, 1998, p. 17).
The market capitalism – or, according to the Post
Keynesian terminology – monetary economy – is the
economic system which tries to reduce uncertainty by
means of such institutions as forward contracts, money
and the state. It is necessary to note that money matters
in this context as a means of discharging contracts –
therefore, “… money and contracts intimately and inev-
itably related” (Panagopoulos and Spiliotis, 1998, p. 650
– 651; see also Davidson, 1977). The state is very im-
portant as the enforcer of contracts (Davidson, 1972;
Carvalho, 1992). Contracting without state enforcement
is unreliable, insecure and frail. That is why, according
to Post Keynesian Economics, monetary economy is the
economy based on a system of forward contracts (Car-
valho, 1992, p. 102). “Without forward contracts… life
under capitalism would be violently unstable” (Rous-
seas, 1998, p. 23).
These and some other uncertainty-reducing institu-
tions provide some order and predictability in the eco-
nomic life under capitalism. In particular, institutions
“contribute to the stability of the social world, by stabi-
lizing people’s way of acting” (Dequech, 2004, p.372).
At the same time, contracts and other institutions cannot
completely eliminate uncertainty regarding, first of all,
financial flows of private agents. “In a monetary econ-
omy output is determined by effective demand and there
is no reason why effective demand should be at the level
of full employment” (Marangos, 2002, p. 575). As a re-
sult, business cycles, crises and unemployment are the
normal outcome of market capitalist economy’s func-
tioning (Carvalho, 1992; Davidson, 1972; Minsky,
1986), and, therefore, there is a need for discretionary
macroeconomic – fiscal and monetary – policy of the
government. Such stabilization policy can reduce uncer-
tainty regarding financial inflows of firms and other pri-
vate agents. Other means of further uncertainty-reduc-
ing activity under market capitalism can be Central
Bank activity as a lender of last resort (Minsky, 1986)
and “monopolistic concentrations of market power
through vertical and horizontal integration, conglomer-
ate mergers, product differentiation, and still other ways
of amassing economic power” (Rousseas, 1998, p. 22).
All these arguments are the fundamentals of the
Post Keynesian approach to an analysis of the Western
types of market capitalism. Post Keynesian Economics
takes into account features of the contemporary ad-
vanced economies of the Western capitalistic countries
I. Rozmainsky
22
Економічний вісник Донбасу № 4(46), 2016
and can offer relevant “cures” for various economic
“diseases” of these countries.
What about other varieties of capitalism and other
economic system? According to the Post Keynesian ap-
proach, social and economic successes and failures of
such systems should be concerned, in the first place,
with uncertainty-reducing institutions and their influ-
ence on key macroeconomic decisions, in particular, in-
vestment and financial ones. I think that it is precisely
Post Keynesian Economics that explains essential prob-
lems of “backward” models of capitalism. One of such
examples is the Post-Soviet Russian capitalism. Post
Keynesian approach was already applied to different as-
pects of the Post-Soviet Russian economy (see Dzara-
sov, 2010; Dzarasov; 2011) or post-socialist economies
in general (Dow et al., 2008; Lah and Sušjan, 1999; Ma-
rangos, 2002), but this paper tries to analyze succes-
sively the most essential features of the contemporary
Russian economic system using the basic principles of
Post Keynesianism. I emphasize Uncertainty, Institu-
tions, Investment, Money and its surrogates as the main
“building blocks” of the Russian economy’s analysis on
the base of Post Keynesian Economics.
Institutions of the Post-Soviet Russian Capita-
lism and Uncertainty
The starting point of the arguments is as follows:
institutions of the Post-Soviet Russian capitalism reduce
uncertainty very ineffectively, and contemporary Rus-
sian capitalist economy is the system characterized by
higher uncertainty (in comparison with the Western
capitalist economies). In order to understand reasons for
it is necessary to analyze how the Post-Soviet Russian
model of capitalism emerged.
The most part of the Russian economic history in
the twentieth century was the history of the planned
economy. According to the Post Keynesian view, such
economic system can be treated as the alternative – to
capitalism – set of uncertainty-reducing institutions (see
above quote from Rousseas, 1998, p. 17). The central-
ized plans’ directives, fixed prices, guaranteed employ-
ment (and sales), absence of private entrepreneurship
and stock exchange are elements of institutional envi-
ronment that reduce institutions under the planned so-
cialism. The detailed Post Keynesian analysis of such
system’ performance waits in the wings.
In the beginning of the 1990s Russian system be-
came economy in transition. There was an “institutional
transformation”: the economy moved from the planned
socialism to some model of capitalism. Such transition
itself generated serious problems of economic coordina-
tion. The institutional hiatus (Kozul-Wright and Ray-
ment, 1997, p. 643) emerged: “the old command system
had collapsed before the new coordinating mechanisms
of the market economy could be put in its place and gen-
erate effective responses”. Such phenomena as “transi-
tion uncertainty” (Marangos, 2002, p. 575) and transfor-
mational recession (Kornai, 1993) took place.
The important point is that the transition to the mar-
ket capitalism was carried on the principles of shock
therapy (Dzarasov, 2010; Dow et al., 2008). It is strategy
implying quick transformation with simultaneous im-
plementation of all main reforms. These reforms are
price and trade liberalization, privatization and financial
stabilization. Such approach was inspired by the famous
doctrine known as the Washington Consensus (Da-
vidson, 2004).
The point is that some reforms – for example, price
liberalization, – require short period for its completion,
other reforms – for example, creation of clear legal
framework for market economy – require long one. So,
strict shock therapy policy was transformed into the pro-
cess treated by me as "reverse gradualism". Those re-
forms that must be implemented later, took place more
early (and vice versa). It is the definition of the "reverse
gradualism". Such "bad" succession really complicated
the transition to the market economy and also generated
chaos and increased degree of uncertainty of the future.
That is why, according to Post Keynesian perspective,
shock therapy is adverse mode of transition (see also
Tsang, 1996; Dow et al, 2008).
The shock therapy policy’s implementation implied
not shift but break in the institutional base of the eco-
nomic system. As a result, “the destruction of the old was
hardly matched by the creation of market-oriented insti-
tutions of economic control” (Murrell, 1993, p. 137).
This argument is relevant for the Russian capital-
ism born in the 1990s. In 1991, this country had still
some analogue of the planned economy: “Price controls
and state orders each applied to about 75 percent of eco-
nomic activity” (Murrell, 1993, p. 132). Contract law
and other basic institutions of the market capitalism
were not created yet. The 1992 year was the first year of
implementation of the shock therapy policy. The out-
comes were the following: privatization without rules of
law, price liberalization without workable competition,
the government refusal from enterprise administration
and control without emergence of efficient entrepre-
neurship and management, advertisement of “conspicu-
ous consumption” and "luxury life" without introduc-
tion of moral rules of civil society, etc. The Russian gov-
ernment had refused from administration of state enter-
prises in this period and become to perform very badly
functions of legal protection of forward contracts. More-
over, it often violated its own contractual obligations.
All this generated extremely high level of uncertainty in
comparison with the Western capitalist economies and
most Eastern-European post-socialist ones.
The Russian version of shock therapy created in-
centives for various “shadow” and "black" activities
ranging from trials to conceal income for the sake of tax
evasion to real criminal acts. In other words, many Rus-
sian firms were engaged in the 1990s in diverse forms
of the "shadow economy". Shock therapy – especially
via privatization – generated “a breakdown of institu-
tional norms resulting in corruption and illegal activi-
ties” (Marangos, 2002, p 573). The Russian capitalism
was emerged, to a considerable degree, as a criminal
capitalism. It is not surprising that now both businesses
of many influential Russians have criminal origin, and
I. Rozmainsky
23
Економічний вісник Донбасу № 4(46), 2016
some actions of the Russian governmental officers vio-
late (international or domestic) law.
The 1990s were the period of “oligarchic discre-
tion”. As a result of shock therapy, the most of property
was acquired – often illegally or something like that –
by different oligarchic groups. Some of them had roots
in the criminal world. The Russian agents wanted and
very often were forced to circumvent the government.
The emerged illegal economy took various shapes: tax
evasion and all by-products of it, transactions with rights
and licenses, production and selling of drugs etc. The
perspectives of survival for private businesses not linked
with oligarchic groups were very blurred in the 1990s.
This capitalism was non-competitive. Oligarchic busi-
ness had big “comparative” advantages; small and me-
dium businesses that have no any protection from crim-
inal or semi-criminal groups had big “comparative” dis-
advantages. This “state-of-the-art” was supplemented
by contradictions between many formal laws, slowly de-
veloping legal system, slow and inefficient work of
courts, and other aspects of the underdeveloped institu-
tional environment. The slogans of “quick enrichment”
and “conspicuous consumption” showed by the oligar-
chic aggressive advertisement also did not contribute to
the successful economic development.
In the 2000s, “bureaucratic discretion” substituted
for “oligarchic discretion”. New President – Mr.
Putin – started to form “power vertical”. Different oli-
garchic groups – that were not loyal to President and his
friends – had been weakened or destroyed (case of
Khodorkovsky is the most famous example). In order to
survive in the business world close links with the power
authorities started to become more and more important.
The bureaucratic raids of the private property and busi-
nesses became more and more “popular”. The Russian
capitalism remained non-competitive. Institutions – as
in the 1990s – did not protect agents investing money in
the productive assets. At the present time, the situation
with lack of institutional protection of investors’ and
owners’ rights is likely to be worsened.
Uncertainty and Productive Underinvestment
in Post-Soviet Russia
During the 1990s Russia had suffered from fantas-
tic collapse of productive investment. In 1998 real in-
vestment was equal to only 21% of pre-reform 1990
value (Dzarasov, 2011, p 199). Such investment col-
lapse was not only factor of the great fall of aggregate
demand and GDP (In 1998 real GDP was equal to 57%
of 1990 value), but also a phenomenon contributing to
deindustrialization and technological degradation of the
Russian economy. For example, the average age of in-
dustrial fixed capital has fallen from 11 years in 1990 to
21 years in 2004; and later data are not published at all.
Some branches of highly technological manufacturing
were partially or completely destroyed in the 1990s and
later.
It is Post Keynesian economics that explains thor-
oughly negative tendencies in the dynamics of produc-
tive investment on the macro level. According to the
Post Keynesian approach, not relative prices but invest-
ment “… is the central point in the economy. Investment
is dynamic, constantly in motion, and never resting in an
“equilibrium” position” (Marangos, 2002, p. 575). The
fluctuations of business activity are concerned, mainly,
with changes in the demand for durable assets: increas-
ing investments as purchases of productive durable as-
sets contribute to rising GDP and employment but in-
creasing demand for money and other non-productive
assets do not contribute to GDP and creation of new jobs
(Davidson, 1972; Minsky, 1975; Carvalho, 1992). In
turn, choice of durable assets is the inherent feature of
any economy faced with the uncertainty of the future.
The point is that institutions of the Russian transi-
tional economy discouraged productive investment and
encouraged purchases of various non-productive liquid
assets. These institutions failed to reduce uncertainty in
a considerable degree. Broadly speaking, the idea of the
negative influence of uncertainty of the future on fixed
investment is commonplace for Post Keynesian eco-
nomics (Carvalho, 1992; Davidson, 1972; Keynes,
1936, ch.12; Minsky, 1975; 1986). We already men-
tioned above that shock therapy have generated extreme
uncertainty of the future. In this environment, the Rus-
sian potential investors had no any bases for sensible in-
vestment decision-making. It was not very surprising, at
least, for Post Keynesian economists that collapse of
fixed investment took place.
Higher uncertainty contributed to low animal spir-
its (Keynes, 1936, ch. 12) and total lack of confidence
of investors. I already suggested that in the 1990s only
those investors who had close links with influential
criminal and “quasi-criminal” groups could hope for the
protection of their property and contract rights. The
most agents preferred to acquire various “surrogate store
of values” (Grahl, 1988) in the forms of foreign curren-
cies and other financial assets, precious metals, an-
tiques, Old Masters rather than fixed capital and other
productive assets. For example, according to various es-
timations, capital flight from Russia in the 1990s was
equal to 100 – 500 billion US dollars. These forms of
non-productive investment can be treated as arational
reactions to higher uncertainty and impossibility to
make calculated decisions. Such fixed capital invest-
ment collapse is a something like an effect of mass psy-
chosis due to sharp break with the planned economy’s
institutions and lack of new effective “market” institu-
tions in the process of the shock therapy policy’s imple-
mentation.
After 1998 – year of the Russian government’ de-
fault – there were not radical changes in this situation.
Various private “shadow” oligarchic groups were dis-
placed in the 2000s by the “agents” possessing close
links with the “friends of the President” and other “in-
fluential people” from the government. As I already
mentioned, “bureaucratic discretion” substituted for “ol-
igarchic discretion”. It hardly improved a protection of
those who made decision to invest in durable GDP-cre-
ating assets. “Climate” for productive investors – if they
were not concerned with “friends of the President” – re-
mained “cold” in general.
I. Rozmainsky
24
Економічний вісник Донбасу № 4(46), 2016
Increased investment in the period between 1999
and 2008 was a reaction to both sharp rouble deprecia-
tion in 1998 August (after the Russian government de-
fault) and rising oil prices in the 2000s. However, there
are no reasons to say that institutional environment
strongly improved. It became clear since 2008 when
GDP not concerned with oil and gas sectors ceased to
grow, and especially since 2013 when total GDP ceased
to grow. The current 2016 year is the year of the contin-
ued crisis with decreasing investment activity. Potential
investors do not trust each other and have no confidence
in the future of the Russian economy.
Inability of the Post-Soviet institutions to reduce
uncertainty generated such phenomenon as investor my-
opia. What does it mean? In order to give the answer I
would like to start from mentioning short-termism,
which in mainstream economics is usually defined as
“the pessimistic under-weighting of expected future re-
turns and/or the excessive discounting of expected fu-
ture returns” (Juniper, 2000). It is clear that so defined
short-termism leads to refusal from realization of some
investment projects. Furthermore, as Juniper (2000) has
pointed out, short-termism favors strategies of labor-
shedding and asset-stripping instead of strategies of
skills formation and asset-renewal.
The very important point is that all mainstream
analysis of short-termism encompasses only equity mar-
ket (Miles, 1995). Usually short-termism is explained
through an exploration of relationships between share-
holders and managers (for instance, see Dickerson et al.,
1995). Moreover, short-termism as the behavioral fea-
ture regards only these types of economic agents. The
main reason for it is turnover on managerial or share-
holder side (Dickerson et al., 1995; Juniper, 2000).
However, short-termism can be represented in
more extreme form, although this form is often treated
as a something that is different from short-termism it-
self. I imply investor myopia that means that agents
evaluate consequences of their decisions only over
short-time horizon (Juniper, 2000; see also Bellais,
2004, pp. 430 – 431). In other words, investor myopia
implies that agents exclude from the consideration val-
ues of future variables after some threshold time point.
Unfortunately, there is no consistent theory of in-
vestor myopia as the most radical and important form of
short-termism. In order to construct such theory, it is
necessary to reject treatment of both short-termism and
investor myopia as a phenomenon confined only to the
equity market (Juniper, 2000). It seems to me that it is
necessary to exceed the bounds of equity market in order
to provide full analysis of this phenomenon.
The point is that choice among durable assets is ra-
ther more “expanded” event than some decision regard-
ing equity market. It is completely consistent with the
mentioned above Post Keynesian theory of durable as-
sets’ choice. Acquisition of fixed (and also human and
health) capital, different non-equity speculations, vari-
ous illegal activity – all these things can be both type of
choice of durable assets and transactions beyond equity
market. Investor myopia can exist whenever decision
about purchase of durable asset(s) should be made. -
Investor myopia shows always itself to be a shift toward
assets bearing short-term income across the whole spec-
trum of durable assets. Therefore, investor myopia af-
fects not only structure of stock market and choice be-
tween asset-renewal and asset-stripping (Juniper, 2000).
This phenomenon can determine ratios between produc-
tive and mediatory activities, between skills formation
and skills erosion, between health promotion and health
loss, between technical-progress-inducing industries
and other ones, between legal and illegal activities, and
so on. The abovementioned surrogate stores of value
(Grahl, 1988) attract mainly agents whose behavior
characterized by investor myopia
Investor myopia is complementary to very low an-
imal spirits (Keynes, 1936, ch. 12). The latter is a some-
thing like “spontaneous pessimism” regarding an ex-
pected profitability of any productive investments; the
former is a something like “pessimism” regarding an ex-
pected profitability of any productive investments after
some threshold point in time. Agents suffered from in-
vestor myopia are interested in exclusively short-term
gains from any projects. Because the most productive
investment projects generate incomes only in the long-
term future, such agents do not want to buy productive
equipment and prefer to make purchases of various non-
productive assets.
I offer to consider investor myopia as a reaction to
ineffective institutional environment failing to reduce
strongly uncertainty and to protect private owners and
investors. The economy populated by the agents suffered
from investor myopia has been doomed for the chronic
underinvestment and technological backwardness.
In turn, long fall of investment decreases capital
stock and, consequently, capital-labor ratio, which can
be treated as the argument in the technical progress
function together with level of investment itself (Palley,
1996; see also Bellais, 2004).
Underinvestment and Degradation of Monetary
System in Post-Soviet Russia.
During the 1990s the Russian economy had faced
with another adverse tendency: displacement of bank
money from monetary circulation. Barter and various
“quasi-monies” started to play enormous role. Monetary
“surrogates were of countless varieties. They were is-
sued by government, and local authorities, banks, enter-
prises, and even individuals” (Dzarasov, 2010, p. 34).
“The rise of… pure barter transactions, transactions in
promissory notes, and mutual debt write-offs, was ob-
served in almost all of the 20-plus transition economies
in the 1990s. However, it was most severe in Russia and
Ukraine…” (Dow et al, 2008, p. 28). According to
Makarov and Kleyner (1999), the share of barter in the
transactions with industrial products was equal in 1991–
94 to 40%, in 1995–1996 to 75%, and in 1997–99 to 80–
90%. According to Dow et al (2008, p. 18), “at its peak
in 1998, nonmonetary transactions such as mutual write-
offs, promissory notes, and pure barter transactions con-
stituted more than 50 percent of industrial transactions
in Russia”. Another substitute for bank money was cash:
M0/M2 ratio had increased from approximately 18 per
I. Rozmainsky
25
Економічний вісник Донбасу № 4(46), 2016
cent in 1992 to almost 40 per cent in 1998. These events
were accompanied by demonetization of the economy.
Coefficient of monetization had fallen from 19.9 per
cent in 1993 to 14.8 per cent in 1999, while in the UK,
USA, Germany, France in the 1990s and 2000s this ratio
was between 50 and 100 per cent; in Eurozone between
1995 and 2005 it had increased from 72.5 per cent to
89.2 per cent.
So such changes in the structure of media of ex-
change were opposed to tendencies in financial evolu-
tion in the Western economies characterized by fall in
M0/M2 ratio and expansion of new bank types of mon-
ies (Minsky, 1986). I believe that the described dynam-
ics of the monetary system of Russia in the 1990s was,
to a considerable extent, due to the described above in-
vestment collapse. The great decrease of investment dis-
couraged monetary evolution: banks and other financial
institutions had no incentives to invent new kinds of
monies. Such “monetary degradation”, in turn, limited
investment activity because led to a lack of finance for
purchases of productive assets.
In the 1990s economic agents forgot about invest-
ment and concentrated on purely production and (even
more) exchange aspects. However, working capital
turnover – unlike additions to fixed capital stock – can
take place by means of using cash money, barter and
mutual arrears. Furthermore, barter and arrears pro-
vided survival of insolvent firms, especially when bank-
ruptcy law really did not work (as in Russia in the 1990s;
later bankruptcy law was used by corporate raiders). So,
one the one hand, such deterioration of monetary system
was the reaction on sharp macroeconomic slump in-
duced by shock therapy, on the other hand, it created
barriers to “revival” of investment activity. It implied
that there was improvement of technologies of conceal-
ment of outcomes of economic activity and/or this ac-
tivity itself – I can repeat that the Russian capitalism
emerged as, to a considerable degree, as a criminal cap-
italism. Thus, the possibilities for expansion of shadow
economy became wider.
It is necessary to note that, unlike back money, cash
and barter are anonymous. Use of it does not imply dis-
closure of information about the name(s) of transac-
tor(s). In this respect, cash is ideal mode of financing
illegal activity in comparison with bank money. How-
ever, barter (and mutual arrears) has even more ad-
vantages. Firstly, barter allows to conceal genuine
(monetary) value of goods. Secondly, accounting of ma-
terial things flows is more difficult than accounting of
monetary flows. These advantages frequently more than
offset disadvantages of barter that are concerned with its
“awkwardness”. Therefore, with “help” of barter and
mutual arrears the Russian agents often financed illegal
activity in the 1990s.
In turn, these events led to both further fall of GDP
and cost-push inflation. In other words, displacement of
bank money by cash, barter and arrears could inject cost
inflation irrespective of the central bank policy. For ex-
ample, in 1997, “the Severovejsk engineering plant paid
by surrogates (which means on barter terms) for the de-
livery of cast iron 2 million roubles per ton. In cash, its
cost at the time was only 0.7 million roubles” (Dzarasov,
2010, p. 35).
It is not surprising that such adverse changes in
monetary circulation could induce the government to re-
strict more its policy. For example, decrease of tax rev-
enue due to diffusion of barter and arrears might lead to
new increase in tax burden. This increase was directed
to balance the government budget. Similarly, accelera-
tion of inflation due to the same cause might lead to
tightening of monetary policy; such policy was directed
to disinflation. In the 1990s “Russian authorities started
what, probably, was the most consistent experiment of
the restrictive monetary policy in recent history” (Dzar-
asov, 2010, p. 33). Such policies are approved by the
reforms-inspiring international organizations like IMF.
However, described tightening was ineffective because
it only intensified further expansion of barter and ar-
rears.
However, the most dangerous effect of described
bank money’s displacement was concerned with disinte-
gration, “fragmentation” of the economy. The point is
that “normal” money, as is well known, is universal
means of payment, unlike goods used in barter or obli-
gations of the enterprises. Arrears (or some commodity
utilized in barter relations) of Firm A can be accepted by
Firm B or Firm C; but Firm D and Firm E may refuse to
make it and, therefore, will break economic links with
the former three companies. That is why endogeneity of
bank credit money and endogeneity of obligations of en-
terprises are fundamentally different things: the latter is
extremely far from “full-fledged” money, because it
cannot be both “the means of contractual settlement”
and “one-way time machine” (Davidson, 1977, p. 542).
Here I should emphasize the role of informal links
between agents in shadow economy and the meaning of
“bad” media of circulation for survival of insolvent
firms. Barter and arrears allowed to strengthen above
links and to provide more sharp divisions between
“friends and foes”. The economy broke into discon-
nected local groups of economic agents. Furthermore,
inefficient (and therefore insolvent for conditions of
normal market economy) companies continued to live
and did not to try to improve own efficiency, productiv-
ity, level of its technology etc. The main consequence of
all this was both absence of incentives to technical pro-
gress and impossibility of horizontal diffusion of inno-
vations (Makarov and Kleyner, 1999). Such economy
could maintain standards of living that are compatible
with bare subsistence, but it had doomed on deepest
technological stagnation and decline. This doom took
place irrespective of liberalized prices, privatized enter-
prises, low rate of money supply growth approved by
IMF, etc. It means that not only money is not neutral,
but also the structure of money is not neutral.
The described “monetary degradation” was
stopped in the end of the 1990s due to positive macroe-
conomic (including external) shocks and successful
shift in the government regulations (by prime-minister
of those days Primakov), and also attainment of bare
subsistence level. Almost all this happened in 1999 –
2001: “Only after the restrictive monetary policy was
I. Rozmainsky
26
Економічний вісник Донбасу № 4(46), 2016
violently stopped by the crisis, did economic recovery
ensue in Russia” (Dzarasov, 2010, p. 35).
“The steady rise of oil prices also contributed to
macroeconomic stabilization. As a result, since 1999,
the economy’s reliance on cash money has steadily been
declining and the importance of banking has slowly
been increasing” (Dow et al, 2008, p. 18). The level of
use of barter and monetary surrogates reached to 2001
the very low, almost “non-visible”, level that is typical
for the developed countries. Nevertheless, some lega-
cies of the described adverse tendencies in the monetary
circulation in the 1990s remain now. These ones are low
coefficient of monetization, large M0/M2 ratio and ab-
sence of such monetary aggregates as M3 and M4.
Above I already wrote that in 1999 coefficient of mone-
tization was equal to 14.8 per cent. It did steady increase
until 2013 when it was equal to 47.1 per cent that is very
low value according to the international standards. Dur-
ing 2000 – 2014 M0/M2 ratio has fallen from 0.37 to
0.22. This was a good tendency, but 22 per cent of M0
relatively to M2 is very large size, according to the
standards of the developed countries (less than 10 per
cent). The economy with “degraded”, “underdeveloped”
structure of media of exchange cannot rapidly grow on
the “internal base”: local groups of informally linked
agents are closed and self-contained structures that have
no ability to develop and to innovate. It is the reverse
side of the “bureaucratic discretion” in the contempo-
rary Russian economy.
Conclusions. According to the Post Keynesian
Economics, the most essential feature of the Post-Soviet
Russian model of capitalism is higher uncertainty due to
ineffective institutions. Property rights of the Russian
agents are poorly protected. Contracts are not enforced
effectively. Some laws are not consistent with other
laws. Courts work slowly and inefficiently. Corruption
and bribes are the commonplace of the economic activ-
ity. Barriers to entry are very high for almost any com-
pany that has no links or friendship with “influential
groups”. In the 1990s “links and contacts” with private
criminal groups were often necessary condition for sur-
vival of many private businesses. In the 2000s and 2010s
similar “links and contacts” with the state authorities be-
came necessary prerequisites for survival of almost any
businesses. As a result, in contemporary Russia – espe-
cially Russia of the “Crimea period” – different types of
agents have different degrees of legal protection and
abilities. Companies created by or concerned with dif-
ferent “friends of the President” and “friends of the
friends of the President” are in the best position. “Ordi-
nary” businesses without any “important links and con-
tacts” are at the “opposite end of the spectrum”. Owners
of such businesses have no adequate protection against
possible raiders concerned with the authorities.
This institutional environment reduces uncertainty
very ineffectively. It discourages many productive in-
vestment projects because rights of the most potential
and actual investors are very poorly protected. Various
dangers surrounding any productive investment projects
are supplemented – in the contemporary Russian eco-
nomy – by the dangers generated by the ineffective in-
stitutions. Therefore, many potential investors prefer to
buy – instead of GDP-creating productive equipment –
various “surrogate stores of value” in the form of differ-
ent non-productive assets like foreign financial assets,
antiques, precious metals, Old Masters, old part of real
estate etc. Animal spirits are very low, and investor my-
opia rules the roost.
In 2015 investment/GDP ratio was equal to 18%.
This figure is very small for the country that has plans
of massive “import substitution” strategy and “autono-
mous”, “independent development”. Russia of the “Cri-
mea period” has doomed for the underinvestment and
technological backwardness. This situation is aggra-
vated by low coefficient of monetization, high M0/M2
ration and absence of monetary aggregates M3 and M4.
The backwardness of monetary and financial systems
contributes to a “fragmentation” of the economy: many
groups of agents are closed and self-contained structures
with no incentives to develop and to innovate. In order
to escape from this situation is to reform radically exist-
ing institutions. The Russian institutional system should
provide more predictability for those who invest in
GDP-creating productive equipment.
All these conclusions are derived from an applica-
tion of Post Keynesian Economics to the Post-Soviet
Russian economy. The contemporary Russian model of
capitalism “copes with uncertainty” very ineffectively
and, therefore, discourages productive investment. The
Russian agents prefer to buy non-productive durable as-
sets not contributing to GDP and employment. As a re-
sult, economic backwardness of Russia becomes
stronger.
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Розмаїнський І. В. Основні елементи пост-
кейнсіанського аналізу пострадянської моделі
російського капіталізму
У статті зроблена спроба дати посткейнсіан-
ське пояснення найбільш важливих проблем постра-
дянського російського капіталізму. Основна ідея по-
лягає в тому, що інститути капіталізму такого типу
неефективно зменшують невизначеність. Основною
причиною цього є нездатність держави як ефектив-
ного виконавця контрактів. У свою чергу, більш ви-
сока невизначеність призводить до хронічного недо-
фінансування, деіндустріалізації, технологічної де-
градації і схильності занурюватися в пастку відста-
лості. Супутнім явищем є недостатньо розвинена
грошова система. Всі ці фактори сприяють значній
економічній відсталості сучасної російської еконо-
міки.
Ключові слова: посткейнсіанська економіка, не-
визначеність, контракти, перехід, Росія, капіталізм.
Розмаинский И. В. Основные элементы
посткейнсианского анализа постсоветской мо-
дели российского капитализма
В статье сделана попытка дать посткейнсиан-
ское объяснение наиболее важных проблем постсо-
ветского российского капитализма. Основная идея
заключается в том, что институты капитализма та-
кого типа неэффективно уменьшают неопределен-
ность. Основной причиной этого является неспособ-
ность государства как эффективного исполнителя
контрактов. В свою очередь, завышенная неопреде-
ленность приводит к хроническому недофинансиро-
ванию, деиндустриализации, технологической де-
градации и склонности погружаться в ловушку от-
сталости. Сопутствующим явлением есть недоста-
точно развитая денежная система. Все эти факторы
способствуют значительной экономической отста-
лости современной российской экономики.
Ключевые слова: посткейнсианская экономика,
неопределенность, контракты, переход, Россия, ка-
питализм.
Rozmainsky I. The Basic elements of the post
keynesian analysis of the post-soviet model of Rus-
sian capitalism
The paper tries to give Post Keynesian explanation
of the most important problems of the Post-Soviet Rus-
sian Capitalism. The main idea is that institutions of this
type of capitalism reduce uncertainty ineffectively. The
main cause of it is a failure of the state as the effective
enforcer of the contracts. In turn, higher uncertainty
leads to chronic underinvestment, deindustrialization,
technological degradation and tendency to sink into the
underdevelopment trap. The accompanying phenome-
non is the underdeveloped monetary system. All these
factors contribute to the significant economic backward-
ness of the modern Russian economy.
Keywords: Post Keynesian economics, uncer-
tainty, contracts, transition, Russia, capitalism.
Received by the editors: 24.10.2016
and final form 28.12.2016
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