Monday, March 29, 2021

License to kill: “The World Turned Upside Down”—a laudatory review

 Yang Jisheng’s “The world turned upside down” (whose methodological approach I reviewed here) is an extraordinary rich book. The ten-year period that it covers, from 1966 to 1976, was an amazingly turbulent period in Chinese history, with implications that do not carry over only for China to the present, but that have resonance  (and precedents) in the rest of the world.

When it comes to the narrative alone, Yang’s book is fascinating. It is impossible to describe in a short review the chaos wrought by the Cultural Revolution that Yang studies not only chronologically, but in various parts of China. A part of the challenge of describing what was happening lies with the decentralized nature of anarchy and violence that engulfed the whole country. The reader often thinks of analogies with Stalin’s Great Terror, but the differences are perhaps even more telling. While the Great Terror was a centralized terrorization of certain groups and individuals, often specifically selected by Stalin, the Cultural Revolution was a decentralized permission to settle scores given to everybody. Thus the nature of conflict varied from one locality to another, from one town to another.

The beginnings in the Summer of 1966 were limited to high-school and university students and were almost entirely Beijing-based. It was a permission, even encouragement, given to high-school kids to take over schools and universities, berate and humiliate teachers, and do as they please. If one were to do the same thing anywhere in the world, the results would have been the same: the kids would enjoy “turning the world upside down”, as the young Nero and Commodus did. At that early stage, the attacks were mostly directed against “the five black classes”. Offspring of high government and party officials (all studying at various Beijing universities) were often in the lead, using a bizarre “blood lineage” theory that, they argued, gave them the right to rule in virtue of being of the right class (and genetic) background.

The escalation was not only geographical, as the student movement widened to cover all of China, but “sectoral” as well. Mao first authorized the movement to spread among workers, and encouraged the alliance of revolutionary students and workers (a thing which, by the way, eluded the “revolution” in France only a year later), and finally –despite the strong opposition from the military—allowed the “support-the-left” movement to sow havoc in the Army as well. The military was asked to supply weapons to the left factions, or to ignore such factions’ stealing or simply taking the weapons themselves.

The country thus within some twelve months descending into a full chaos created a bewildering number of factions with quasi identical names (e.g. “The Red Alliance” against “The Revolutionary Alliance” in Daoxian, p. 351) all fighting each other in order to further Mao Zedong thought. “Thousands of large-scale armed conflicts throughout the country resulted in deaths of more than a hundred thousand people” (p. 228). At the risk of simplification, it could be said that the factions can be divided into two groups, and Yang uses the two groupings consistently through the book: rebel and conservative factions.

The rebel faction was originally started by the children of the nomenklatura but then gradually was taken over by malcontents, low-paid workers, and those with grievances, or just a taste for violence, that is, those who had most to gain from anarchy as well as by those who ideologically believed in “the continuous revolution”. As Yang explains,

“A genuine rebellion requires taking  political risk, but the old Red Guards [the original rebel faction] with their privileged backing, had little to fear from attacking teachers…When the situation of the Cultural Revolution changed and the parents of the Red Guards were attacked as capitalist roaders, the old Red Guards openly protected the cadres and attacked the rebel factions, and in that way become a conservative faction in name as well as practice, however they might  disavow the label” (p. 151).

Was the rebel faction people’s faction? The negotiations in Shanghai between the rebel faction of the workers and the city government eerily resemble those between Solidarity and Polish government, some 13 years later. So, workers in Shanghai and workers in Gdansk united? The difference was that in Shanghai workers had the support from the top, namely from Mao, who in 1967 “allowed China’s people to enjoy the freedom of association enshrined in the constitution, [and] mass organizations proliferated” (p. 149). So, revolution of freedom, or “revolution because of lack of freedom”? Moreover “The Sixteen Articles [the CPC rules on handling the Cultural Revolution] prevented party committees from attacking the rebel masses, while giving the masses the freedom and confidence to rebel, and the higher the rank of the leader denounced, the more revolutionary the critic was considered to be” (p. 154).

Against the rebel factions were arrayed the conservative factions, supported by most of the top military (old marshals whom Mao alternatively cajoled and berated), the government apparatus, health and education workers, factory managers, and all those who wanted to impose some kind of order over a society that was looking more Hobbesian by the day.

Yang’s unstated, but clear, objective in the book is to overturn the current official narrative. The officially-sanctioned view of the Cultural Revolution is that most of the crimes were committed by the “rebel faction” and that eventually the country was saved thanks to those who managed to ensure the return to normal life. But, Yang writes, “mainstream public opinion has blamed all the evils of the Cultural Revolution on the rebel faction, but the vast majority of victims died while the rebel faction was suppressed under the new order of military and administrative bureaucratic control” (p. 230). In that revision of official history neither Liu Shaoqi, who initially, whether for opportunistic or genuine reasons, supported the Cultural Revolution, nor (especially) Zhou Enlai are spared at times scathing comments. (Deng Xiaoping hardly appears in the story.)

The “new order”—which basically means a major turning point in the Cultural Revolution—occurred when Mao himself personally witnessed the chaos of pitched armed battles in Wuhan in August 1967, and had to flee the city. It was followed by investigations and suppression of the rebel faction, linked to the May 16 [1967] incident when the rebel faction directly accused Zhou Enlai.

The three central chapters of the book (chapters 16-18) describe in gory detail the enormity of the massacres. “The cleansing of party ranks” gives a review of local campaigns against various class enemies (who in many cases were the same people who previously themselves conducted campaigns of cleansing of the enemies); the next chapter describes the cases of famous victims, mostly scientists and old party members (in a way strongly reminiscent of Roy Medvedev’s “Let History Judge”) and the most gut-wrenching chapter describes the appalling massacred conducted at the local level by whatever faction managed to do it against neighbors. The randomness and brutality of killings (including ritualistic murders and cannibalism) is both shocking, and not entirely unexpected for those who know, from history, that humans freed from any constraint and given a license to kill, will often do so. We are not there in the presence of a systematic targeted killing, as performed by the Nazis and Stalin’s Great Terror, but of decentralized massacres common to civil wars.

It is a book that anyone interested in Chinese or communist history should read. But it is a book whose main messages are about the role of government, freedom from constraint, and human nature.

Thursday, March 25, 2021

"The World Turned Upside Down"—a critical review

 This may be the most difficult book review to write. I have decided to break it into two parts. Writing it is difficult because one has to have huge admiration for Yang Jisheng, a former journalist, now a historian, who has amassed an incredible amount of information about the political maneuvering, personal relations, events and, most importantly,  victims of the Cultural Revolution and presented all of this in his new book “The World Turned Upside Down: A History of the Cultural Revolution” (published in English only two months ago). Yang reminds me of those few courageous authors, indignant by the  inequities of communism who, beginning with Djilas, then the Medvedev brothers and even Solzhenitsyn himself, or Volkogonov in his biographies of Lenin and Stalin, have written valuable testimonials about the system.

But, alas, most of them were almost fully ignorant of political science, economics and historiography. Yang is perhaps an extreme example: on the one hand, extraordinary evidence that he has collected (I think that the book must contain several thousand names of people involved), and on the other hand, equally extraordinary absence of any thinking about that evidence. The book is thus a succession of events, many of them tragic, conferences and rallies, gossip and innuendoes, intrigues and betrayals. Yang is the type of writer whom  Cicero two thousand years ago dismissively called “narratores rerum”.

So, in my first review I will focus on these defects and problems.

Yang’s explanation for many events during the Cultural Revolution, including ritualistic vows of fealty to Mao, is “totalitarianism”. It is repeated a number of times. It is a cool word to say, but the Cultural Revolution was anything but totalitarianism. It might have been started by Mao (although I will explain later that Yang never tells us why) but while totalitarianism is absence of agency by individuals, the Cultural Revolution was the opposite: millions of individuals had agency. They had too much of it. The Cultural Revolution was not totalitarianism, but its very reverse: Hobbesian world where everyone fought  everyone else. The most tragic revelation about the Cultural Revolution (an observation that Yang does not make) is that it shows us what the withdrawal of the state and government does: it reveals human nature at its worst. Without state’s monopoly on violence, we would simply go out fighting each other. Forever. Imagine the United States, when suddenly the President, Congress, all politicians, judges, and police simply decide to go home and never return to their jobs. Within a week, the country would be in a “Cultural Revolution”. (Actually, with Katrina, it took less than a week for New Orleans to descend into the “Cultural Revolution”.) China during the Cultural Revolution was not Stalinism redux, but Libya today.

Under totalitarian regimes, every individual, spontaneous action is proscribed. Writing on your own a letter of support to Stalin was as likely to land you in jail as writing a letter criticizing Stalin. Not so under the chaos of the Cultural Revolutions: everyone wrote big-character posters, organized rallies, attacked “traitors”, called themselves a follower of “Mao Zedong’s line”. It is just that nobody knew what that line was today or what it might become tomorrow. Neither did Mao.

But if not totalitarianism, was it autocracy? That too is difficult to justify in standard terms. Mao did not rule like an autocrat; he ruled like a God; which meant that he appeared just from to time, when needed. Yang shows that Mao, uninterested in management of the country and the economy, and even in foreign affairs, simply delegated all of day-to-day running of the country to various people, mostly to Zhou Enlai. But even saying “delegated” is an exaggeration. Mao just ignored the running of the country, and whoever managed to get to it, did. If, in this management, “the delegate” did something that eventually displeased Mao, he could end up dismissed, expelled from  the party, wearing a dunce hat, being driven to suicide or pushed by mob from a tall building. But Mao’s ruling style was not the style of a usual autocrat. Mao was neither a Stalin who worked 12 hours per day and personally authorized (or ordered) executions during the Great Terror, nor a Hitler with his obsessive control of every detail. People were persecuted or killed without Mao having had the slightest idea what is happening to them.  In daily affairs of government, Mao’s involvement was significantly less than, for example, the involvement of Joe Biden, Angela Merkel, let alone that of an autocrat like Vladimir Putin. He would disappear for weeks, sometimes for months; would come to Beijing without his “closest collaborators” being aware of it. We do not even seem to know how Mao was spending his days: was he writing poetry, editing Central Committee’s communiques, sleeping, having long meals, sharing bed with mistresses—but whatever he was doing he was not running the government in the way governments are commonly run by autocrats.

Perhaps the closest parallel that we have is the power of a prophet (Weber’s charismatic power?). The prophet does not need to show up dally—perhaps it is even better for him than he does not. But prophets are not normally prototypes of autocratic leaders.

Then, why did he start the Cultural Revolution? Yang does not tell us. There are some very vague hints that it was a revenge for Mao’s  relative loss of power after the failed Great Leap Forward. Was it a pay-back time for Peng Zhen and Liu Shaoqi? But to get rid of the two, Mao did not need to turn 800 million people upside down, nor to have Collective No. 6 fight Collective No. 5 with sticks and stones (and at times firearms) in X’ian or Shanghai. Another possibility is his fear of being replaced by a within-Party coup as happened to Khrushchev in 1964. It is possible, but we are never provided any evidence nor a narrative why the Cultural Revolution might have been a solution to that fear. It is also possible, Yang mentions in passing, that it was sheer idealism: “permanent revolution” and the desire to recreate the Paris Commune. But many lovers of the Paris Commune (Lenin was buried wrapped up in its flag) did not see the need to start the war of all against all in order to replay it.

Since this is a critical review, let me just end in the same spirit. The book suffers from many editing problems. There is, for example, a direct quote from Mao that is, midway, suddenly interrupted by the introduction of the third person, “Mao observed”. There are typos. There are statements in the introduction that are plainly contradicted by the text. The quality of American publishing has steadily deteriorated—probably under the pressure of time and money-making. This was a super difficult book to translate and edit (the translators had to convince the author to drop four chapters from an already very lengthy book). I can only hope that the translation was better than the editing.

Sunday, March 14, 2021

“The Byzantine Republic” and the Chinese Empire: Some similarities?

 Several years ago, Anthony Kaldellis, professor of classics, published a book with an intriguing title “The Byzantine Republic”. The book attracted my attention, not the least because of its title, when I saw it at my publisher’s offices; for my refereeing services I was paid in kind—by that book.

I liked the book although I was not convinced by its main theses. What are they? Kaldellis argues that the Eastern Roman Empire (often known as the Byzantine Empire) does not naturally follow ideologically from the “troubled century” of civil wars and defeats of Romans where most of the links to the “old” Roman empire were broken. It does not represent a shift towards a new Christian and autocratic government. According to Kaldellis, on the contrary,  when the Roman Empire was stabilized thanks to Constantine in the 4th century, it went back to the seemingly “republican” rule that existed not only in Republican Rome but also during the Principate. Kaldellis uses the term “republic” not in its current meaning of non-monarchical rule, but in its etymological meaning of the rule of the people. Thus defined republic is indeed, as Kaldellis writes, invoking among others Cicero, Cassius Dio and Rousseau (“la volonté générale”), compatible with monarchical rule. In such terminology, the Netherlands is a republic, but North Korea is not. (Note that the idea survives in today’s United States when people quote Benjamin Franklin by saying—especially during the Trump era to remind the then-president--“we are living in a republic”. They do not thereby mean a trivial fact that the US is not a monarchy, but a more substantive one that it is ruled by people.) In fact, to the term “republic”, Kaldellis prefers its Greek equivalent “politeia”.

Terminology is the easy part of Kaldellis thesis. A more difficult part is to argue for a continuity between the Principate and the Empire after year 313.  And the most difficult part is to argue that Eastern Roman emperors were constrained by popular will. Continuity is hard to prove, and also counter-intuitive given the enormous revolutions that occurred during the chaos of the 3rd century and under the “oriental-despotic” Dominate. Unlike the definition of the Byzantine Empire which sees it as “Christian by religion, Greek by language, and Roman by government”, Kaldellis insists on its Roman (Latin) character—by pointing out to the official use of Latin well into the 11th century, and the population’s self-description as “Romanoi”.

The second part of the thesis (popular mandate) is demonstrated by Kaldellis by the frequency of imperial changes (often violent), and the attention that was at least verbally proffered by the emperors for their subjects’ feelings or opinions. Here, in the absence of any formal mechanism which made emperors subject to popular will, Kaldellis’ approach seems to me the weakest. One could argue that similar “checks and balances” in the form of rulers being killed or overthrown, or rulers claiming a popular mandate, were the “bread and butter” of every autocratic rule. It is difficult to see—despite Kaldellis’ best effort—how it was different in the Byzantine Empire.

But I would rather defer to other, more competent and knowledgeable, critiques such as here and here. The book is certainly iconoclastic (may one use the term in this context without sounding a bit silly?) and has attracted, and will attract, lots of attention.

What the book made me think however is the similarity between Byzantium and China in both (1) Keldellis’ idea of a politeia and the “mandate of heaven” and (2) social structures. Now, the Byzantine Empire lasted for at least 900 years, and the Chinese Empire for more than 2 millennia. So what exactly to compare? It may be useful, perhaps, to focus on the Byzantine Empire under the Macedonian dynasty, and especially at its peak under Basil II (around the year 1000) and on China under the Sung dynasty. How similar/different were Constantinople and Hangzhou?

I have written about Basil II Byzantium here, creating the first social table for Byzantium and trying to calculate the subsistence basket, overall real income and  to estimate income inequality. The table on p. 465 gives the social structure of Byzantium. Let me summarize it. In urban areas (around 10% of overall population and a quarter of total income): (1) beggars and “marginals”, (2) unskilled workers, (3) qualified workers, professional solders and craftsmen, and (4) important officials, judges, “strategoi” (high military officials) and wealthy merchants. Group (4) that accounted  for about ½ of a percent of the total population included civilian and military nobility that were constantly vying for power with emperors (and this leads us to Kaldellis’ hypothesis). Their per capita incomes were some 50 times the estimated mean income; for comparison today’s top ½ percent in the US has an average (after-tax) income that is nine times greater than the mean.

In rural areas (90% of total population), there were (1) small landholders (most numerous but decreasing in numbers), (2) tenant-farmers, (3) owners of latifundias, (4) wage workers on latifundias, and (5) slaves. The social structure in rural areas was, in the 10th and 11th centuries, rapidly changing in favor of large landholders. Because of excessively high taxes peasant-owners were abandoning their farms to become tenants on large estates. Landholders were taxed on their land, but once they became tenants they were tax-free; although obviously they had to pay land-rent. But it seems that for many small farmers this was cheaper than paying taxes. There were even laws that prevented, or tried to reverse, the trend toward land concentration.

This was a very unequal social structure—such that practically the entire surplus above the subsistence was appropriated by high income classes. But this structure is, I think, fairly similar to China’s under Sung. The emperor on the top, surrounded by civilian and military nobility (exactly like in Byzantium), a mandarinate (again similar in its function to bureaucracy in Byzantium), and lots of small land-owning peasantry interspersed with merchants and large landowners.  In neither society was there the standard structure of West European feudalism: serfdom (that is, very few land-owning peasants) and a nobility relatively independent of the ruler. Bureaucracy which emanates from the emperor and rules the realm was, probably, much stronger in both Byzantium and China than in Western Europe (e.g., France or Spain). This is somewhat contested in the case of Byzantium by authors who believe that the Empire was “feudal” or was moving in that direction.

As I argued here, there were probably no endogenous forces of capitalist development in Byzantium—or for that matter in the Roman Empire (a point argued more or less forcefully by Moses Finley, Michael Rostovtzeff, Walter Scheidel, Bob Allen, and Aldo Schiavone but disputed by Peter Temin).  If there were, a millennium would have been, one guesses, a sufficient time for them to emerge. By analogy one may wonder if such forces existed in medieval China. But beyond that question, a more thorough comparative study of China and Byzantium would be, I believe, highly useful and might yield new insights.  




Sunday, March 7, 2021

The influence of the Soviet economic model and the lessons for China

 In 1967, at the half-centennial of the Russian Revolution, the Royal Institute of international Affairs (RIIA) in London published a book “The Impact of the Russian Revolution” with a star cast of authors. The book’s objective was to assess how internationally influential was the Russian Revolution. A very long and brilliant introduction was written by Arnold Toynbee. Neil McInnes wrote about the Soviet influence on trade unions and political parties in Western Europe, Hugh Seton-Watson on nationalism and imperialism, Peter Wiles on economic influence of the Soviet model, and Richard Lowenthal on the political (authoritarian party) influence of the Bolsheviks.

It does not seem that being published by RIIA was unrelated to some of the themes running through the book. Several authors (including Toynbee) tend to regard the communist ideology, the modified Marxism as defined by Lenin, as a particularly mischievous trick whereby Russians were able to appeal to the colonized nations of the world and bring the British Empire to an end.  The Russian Revolution is seen as an episode of the Great Game. As Toynbee writes: “Marxism affected the mood of the non-western peoples when these were ripe for revolting against the western dominance. It is a creed of western origin that indicts the western establishment. It is thus able to express their will to revolt against the West in terms that, being western, have prestige”.

Although the authors seem melancholic about the outcome (the British Empire being, In their view, a preferred option to independence), they do have a case. Lenin’s reconfiguration of Marxism to combine left-wing policies with anti-imperialism, including the alliance with national bourgeoisies, so long as they were anti-colonialist, was probably one of the most important events in the 20th century (a century not lacking in important events). The discussion of the relationship between the original Marxism, its modification by Lenin, Lenin’s “Imperialism: the Highest Stage of Capitalism” and the role of China—as the most important country where communism, beginning in the 1920s, played its anti-imperialist card both with the Kuomintang and the Communist Party of China—is present in all five contributions.

The level of that discussion, as well as of the others, is very high. Hugh Seton-Watson, a renowned student of nationalism, has an excellent chapiter on Marxist approach to the “nationality question” and how it was “solved” (as we know now, through dissolution of the countries) in the Soviet Union and Yugoslavia. Peter Wiles, who likewise had studied communist economies for years, has a first-rate, if whimsical, chapter (which I will discuss below). Richard Lowenthal discusses the model of the Leninist totalitarian state. Neil McInnes’ chapter on the Soviet influence on Western European politics is well informed but marred by his excessive anti-communist zeal.  A Soviet is being seen under every bed, a nefarious hand of secret agents present in every strike.

I would like to cover in greater detail Peter Wiles’ economics chapter. Let me start with his most interesting point. Overall, Wiles argues, Soviet influence was very limited and the main reason is not that the product was badly “packaged” (the main lines of the economic “product”—nationalize, centralize, plan—were very clear) but that “the salesmanship” was dishonest: those who wanted to apply the Soviet model were not told by the Soviets what were the real pitfalls and problems, things to beware and fix, but were presented a sanitized version of events that was not helpful at all. Contrasting American and Soviet influence in the Third World, in a language that may be considered somewhat ribald in a more puritan world of today, Wiles (I think rightly) summarizes it thus:

[The Soviet technician] keeps himself apart after hours, haunts his own embassy, and generally fails to enter into the spirit of things. His descriptions of the life back home are constrained and peculiar. Compared with the drunken, bottom-pinching, tax-dodging, and perhaps racist American technician, his behavior is faultless, and this is just what is wrong.  


Where, according to Wiles, Soviet experience did have an influence was  in placing economic growth at the forefront, not only through the first-ever macro models of growth that were developed in the Soviet Union, but because success in growth informed the competition between the two systems.

Wiles then reviews several concrete policy experiences as to study the extent to which Soviet example mattered. The most important influence was on Mexico, on Lazaro Cardenas’s agricultural cooperatives (ejidos) that mimicked Soviet kolkhozes even if their importance was always small: at the time of writing, only 4% of agricultural labor force worked in collectivized ejidos. The complicated relationship between Cardenas and the Soviet Union is nicely analyzed—including  such interesting, and rather unlikely, details that Cardenas managed to be Trotsky’s protector, to condemn Soviet attack on Finland in 1940, and then to become the laureate of the Stalin Prize in 1956 (under Khrushchev).

The second example of the Soviet influence is on UK nationalizations after the War. Physical target planning by Labour in 1946-47 is seen as directly following the Soviet model. As Wiles writes: “The choice of things to nationalize—coal, iron and steel, railways, the central bank, gas and electricity, much of road transport—resembles strongly Lenin’s choice in 1917 (not [emphasis in the original] the wholesale nationalizations of 1918)”. However that influence quickly waned because the use of physical targets proved inefficient.

The next case is India. The point in case is the famous First Five-Year plan and the use of Marx’s schemes of extended reproduction and his two-sector model (production of the means of production, and of consumption goods). That influence came through a common, both to the early Soviet planners and people around Mahalanobis, interest in economic growth as a way to catch-up, and most effectively to do so through investment in production of the means of production.   Other international influences however were  more important: Charles Bettelheim, Ragnar Frisch, R. M. Goodwin, and Oskar Lange.

The next two cases (Ghana under Nkrumah and Guinea under Sekou Touré) are not taken very seriously, the Soviet conditions being substantially different from those in Africa. “The economy [in Ghana] just ran on as it had under British rule, with much more government expenditure and corruption, and rather more nationalization”.

Wiles’ discussion of the Soviet influence (fifty years after the Revolution) is instructive not only for historical reasons—especially now when the Soviet Union no longer exists and Russia is capitalist, but because it helps us think about the potential Chinese influence. The main problem faced by Chinese “export” of its model to the rest of the world is, as I argued in “Capitalism, Alone”, the difficulty of “packaging” it into several simple and mutually-reinforcing policies. The reason for that is that the model was developed heuristically, by trial-and-error and reflects specific Chinese conditions that are difficult to replicate elsewhere. To see that compare (whatever you think of it) the simplicity and internal logic of the Washington Consensus to any possible policy combination suggested by the Chinese experience. To say that the state should have a greater role in the control of credit or that it should stimulate ICTs does not really tell to (say) Tanzanian government anything new nor does it explain how it should do it.

China might have benefited from its experimental approach where reforms were tested in different areas (e.g., dual-track pricing policy) or different territorial units, but that was made possible by the size of the country and at the same time ability of the Party to keep centralized control. This is what Chenggang Xu called “Regionally Decentralized Authoritarianism”. But how can Laos, Egypt,  Paraguay or Serbia apply such an approach? It is not at all clear. So far only Ethiopia seemed to have benefited from Chinese experience. If China plans to “export” its model, the way that the USA and the Soviet Union did, she needs to define it in a way that, at least in principle, may be applicable under very different conditions.

It is here that we encounter the main difference between the Soviet Union then and China today. The peak of Soviet influence was from the late 1940s to the early 1960s. The model was consistent, but the sellers were dishonest (as argued by Wiles). After around 1965, it became obvious that the product itself was deficient, so the demand declined. For China, however, we all observe that the product works. But we do not fully know why, nor how to apply it elsewhere. And the seller is not really telling us much as he insists on “Chinese specificities”. So long as one puts “Chinese” first, and not “general”, the model may be admired, but it will not be imitated.



Thursday, March 4, 2021

Distinguishing post-communist privatizations from the Big Bang

 From time to time there are articles that criticize the initial 1990s reforms (the Big Bang) in several East European countries and Russia, and they invariably mention the role of Jeff Sachs (often in a negative context like here). This is not a piece written in defense of Sachs, but in defense of the Big Bang reforms at that point in time and in those countries. I emphasize “at that point in time” and “those countries” because the conditions faced by Poland, Russia, and Yugoslavia (the three cases I know reasonably well and where Sachs was involved) were very special and in most respects incomparable with other cases of macro adjustments. In these reforms which (I believe) were both inevitable and successful, Jeffrey Sachs played a very positive role.

But my point is broader: the opprobrium that is often heaped at the Big Bang comes in part from the lack of knowledge of the contemporary conditions, and from easy conflation between macroeconomic reforms and privatization, which indeed began at approximately the same time, but were two distinct processes. While the Big Bang was successful and after a year of output decline and reduced real wages allowed Poland to grow fast, and would have certainly done the same for Russia, the hurried and inequitable privatizations created a kleptocratic oligarchy whose net contribution to innovation was close to zero but whose ability to extract surplus from political connection was infinite.

These two subjects (macro stabilization in the late 1980s-early 1990s and privatization) are topics for a whole book—and more. I want to give here just a bird’s-eye-view of the problem as it existed in Poland in 1989, Yugoslavia in 1990, and Russia in 1992. The Polish case is the one that I am most familiar with because I worked on Poland, spent months in the country between 1987 and 1990, know or at least have met all the main protagonists, including Sachs, and used to speak the language. I have written about Polish stabilization here (unfortunately it is pay-walled with an outrageous price, but if you write to me I will be happy to send you the article) and of course, I have written a lot about inequality and poverty before and after the reforms—like e.g. a book here here or an article there).

The most important thing to know is that  by the time reforms took place, the government no longer controlled the economy. This was therefore not a standard type of macro adjustment, like in (say) Egypt or Argentina, where the economy is behaving “normally” but there are fiscal or external-sector imbalances. In the Polish case, the economy was in a free fall, several exchange rates existed, hyperinflation was already present, enterprises were neither under the control of government ministries, nor subject to market; the power battles (who decides on work discipline, to whom to sell the goods, from whom to buy, where to borrow) were waged within every single enterprise, and all the way to the top of government. Neither coercion nor incentives were any longer operative.

Under such conditions, macro stabilization or the Big Bang had no alternative; its role was simply to validate what was already happening but in a most pernicious and chaotic way. Instead of closing eyes before multiple exchange rates, to unify them in one; instead of promising subsidies which the government could no longer deliver because its taxation ability collapsed, to eliminate them formally; instead of pretending to impose price controls (or the price freeze like in Yugoslavia) which the government had no ability to enforce, to legally allow all prices to be market-determined.

So the Big Bang was less a standard program of macro adjustment than a simple validation (or legalization) of what was there. It was acceptance of the fact that  government’s writ was no longer. It essentially said, in economics, and as of now, the government has no political power to do much beyond its minimal functions; it will have to abandon the rest to the market, and at some further point, when political legitimacy is restored after elections and some degree of stability is reintroduced, it will try to create a more balanced economy. This is indeed what happened in Poland.

A different issue was privatization. It was not entirely separated from macro stabilization because once macro situation improved, lack of clear ownership (either by workers, or by the state or by private capitalists) meant that it was not obvious who would make economic decisions and who would be the residual income claimant. But formally, and substantively, it was a separate issue.

Here of course Russia is the best example. It was not Gaidar’s reforms, which took place under even worse conditions than in Poland—when the country was on the verge of famine and even a possible civil war—that were responsible for what happened since but privatization. Privatizations’ effects, unlike those of macro stabilization, were long-term and they continue today. For Russia to privatize its economy would have never been easy, given the amount of wealth that existed and needed to be distributed, and difficult starting conditions. (One should not forget that in both Poland and Yugoslavia agriculture was mostly private.) But Russia under political pressure of Yeltsin’s cronies, chose the worst possible privatization strategy that included (1) an ostensible egalitarian voucher privatization, where vouchers were quickly bought for quasi-nothing from the impoverished population, and (2) a top-driven privatization that in 1996 was legalized under the title of “loans-for-shares”, a misnomer which actually meant private sector’s loans to corrupt and penniless government so that it could conduct the electoral campaign and make Yeltsin reelected. And in return the government would then give away, for nominal amounts, the most valuable state assets.   

Informal and formal privatizations, which in Russia began as early as 1988, and were “crowned” by the loans-for-shares, are the root cause of Russian problems  today and might continue for a number of decades. These problems are political. Privatization created a set of “political” billionaires who presumed that they could become the government (see my review of Paul Klebnikov’s book on Berezovsky). Putin, whom they brought to power in the expectation that they will control him, clipped the wings of the most ambitious and ruthless amongst them, and brought in his own “cadre” to let them be enriched. But the struggle between the first set of billionaires, many of whom Westerners, who enriched themselves under Yeltsin, and were unhappy from being excluded from the next division of the spoils, and the second set of billionaires, the Putin’s “team”, continues to this day, not only in Russia but across the world. Many of the first group have used millions that they have stolen from Russia to set a number of political think-tanks whose main role is to fight Putin, under the pretext of transparency and democracy, but in reality in the hope that they would again be able to exploit the mineral resources.  Putin’s team in order to stay in power applied the same rules: the permission to get rich is given only in exchange for political loyalty.

None of that existed in Poland, and the fact that Poland, despite massive economic growth has been a country with only a handful of billionaires, shows that it was inequitable privatizations that are at fault, not the long-forgotten and indeed successful macro stabilization of the late 1980s. In criticizing what went wrong then, we need to keep these two issues separate.