Russia Missed Its Chance to Be Like America

March 8, 2016 JRL Russia List Economy, Business, Investment, Trade, History, Soviet Union, Politics, Government, Protests, Elections, United States, U.S.-Russian Relations

Map of Russia and Russian Flag adapted from images at state.gov

(Bloomberg – bloomberg.com – Leonid Bershidsky – March 4, 2016)

Many Russians feel the U.S. and their country are much alike. Both are vast, they share a sense of adventure, along with underlying lawlessness and violence, and in both, the infrastructure often is an afterthought. So what is keeping Russia from turning into another America — a democratic nation and an economic powerhouse?

Russia got its chance in the early 1990s, but it was largely wasted. The first post-Soviet decade brought almost unlimited liberties, but also rampant corruption and economic decline. During the second one, the liberties gradually eroded and the economy improved thanks to high commodity prices — a mirage, as became clear by the middle of the third decade. So is it just that Russians are not suited to building the kind of society that has ensured America’s prosperity?

In 1990, when the Soviet Union was on its last legs, Yale’s Robert J. Shiller and the Russian economist Maxim Boycko, who would later hold important government jobs and become a wealthy investor, polled Muscovites and New Yorkers on their attitudes toward free markets. They avoided asking about abstract notions such as “economic liberty” and “capitalism,” focusing instead on concrete situations. The study showed significant differences between the views of Russians and Americans. In late 2015, Shiller and Boycko repeated their survey. The results, which were published recently, show that Russians aren’t really any less pro-market than Americans — but their attitudes still diverge seriously on some important points, and this divergence may explain why Russia hasn’t become more like the U.S. [http://nber.org/papers/w22027]

Shiller and Boycko asked respondents in the two cities whether it was fair for a factory that produces $1,000 kitchen tables, and is unable to meet demand, to raise the price by $100, even if there’s no change in production cost. In 1990, 66 percent of Muscovites and 70 percent of New Yorkers said they considered this unfair. In 2015, 68 percent of Muscovites and only 57 percent of New Yorkers held this view. Another question, dealing with the question of whether it was fair to raise the price of flowers on a holiday when there is high demand, also showed that Americans have become more economically liberal in the last quarter-century, while Russians’ understanding of fairness remained roughly the same as in 1990.

The economists then asked if the government should allow the factory, or flower sellers, to raise prices in response to demand. In 1990, Russians were more likely than New Yorkers to approve of a government-imposed cap and about as likely to agree with the regulation of kitchen table prices (43 percent in New York and 41 percent in Moscow). In 2015, about half of Muscovites still liked the idea of price regulation, but the number of New Yorkers who approved of it had dropped (to 35 percent, in the case of kitchen tables).

In some situations, Russians have come to show more acceptance of market mechanisms than they did in 1990. The researchers asked whether respondents would be annoyed if a stranger ahead of them in a long line sold his place in the line for $50. In 1990, 69 percent of those asked in Moscow (and 44 percent in New York) said they would be. In 2015, only 57 percent of Muscovites (and still 44 percent of New Yorkers) said they would resent such a transaction. This probably is a natural reaction to 25 years of capitalism.

Shiller and Boycko interpreted their data to mean that even though Russians’ and Americans’ attitudes are somewhat different, there never was any reason — and there is none now — to consider Russians significantly less market-oriented:

“Back in 1990, before the dissolution of the Soviet Union and the launch of President Yeltsin’s market reforms, a common view in Russia was that ordinary Russians are “not ready” for the transition to a market economy, because they do not understand the markets and have different values. The impact of Shiller et. al. (1991), despite its finding of some interesting attitudinal differences between Russians and Americans, was to demonstrate that this view was really not supported by evidence. Today, after 25 years of development of markets in Russia, that old view sounds almost ridiculous.”

It seems to me, however, that the economists underestimate some important data points in their work. In 2015, they added questions about democratic values, inspired by a 1992 study by another group of academics who had also framed their questions in terms of life situations. These have showed a wider divergence of views than the economic questions.

In 1992, only 22 percent of Muscovites — compared with 29 percent of New Yorkers today — agreed that “society shouldn’t have to put up with people whose political views are fundamentally different from the views of majority. ” In 2015, 37 percent of Muscovites believe dissidents shouldn’t be tolerated. A whopping 76 percent of Muscovites believe that “it is better to live in a society with strict order than to allow people so much freedom that they can bring destruction to the society” — compared to 69 percent in 1992 and 36 percent in New York today.

Shiller and Boycko appear to attribute this shift in part to the growing role of government propaganda in Russian society: “Western democracy’ is generally portrayed as dysfunctional, amoral, hypocritical, etc., which has likely damaged public perception of the concept of democracy, and might have affected the fundamental attitudes to it as well.” I’m not so sure that’s the problem, especially because the clear preference for a powerful state that rules in the majority’s interest is coupled with a belief, unchanged since Soviet times, that such a government should interfere with the workings of a free market.

In a recent Facebook post, Garry Kasparov, a chess world champion and a celebrity of 1990s Russia, wrote that he enjoyed “the irony of American Sanders supporters lecturing me, a former Soviet citizen, on the glories of Socialism and what it really means.” “Talking about Socialism is a huge luxury, a luxury that was paid for by the successes of capitalism,” the economic libertarian went on. “Income inequality is a huge problem, absolutely. But the idea that the solution is more government, more regulation, more debt, and less risk is dangerously absurd.”

No wonder Kasparov now lives in the West, having become politically undesirable in Russia.

Russia’s foreign minister, Sergei Lavrov, recently published a lengthy article arguing that the Russian civilization is fundamentally different from the West’s and that the Soviet Union was built on some innate Russian values, such as collectivism. That civilizational influence, Lavrov wrote, played a major role in the creation of Western welfare states:

“The governments of European nations introduced unprecedented social support measures under the influence of the Soviet Union’s example and in attempts to pull the rug out from under the feet of leftist forces.”

Regardless of whether Lavrov is right, that influence was never as strong in the U.S., the spirited Sanders campaign notwithstanding. The Shiller and Boycko paper shows that, if anything, Americans — in politically liberal New York, too — have only grown more pro-market lately.

Russians’ enduring belief in a paternalistic state — which continues to define itself as the guardian of traditional collectivism — is their millstone, the main obstacle on the path to making Russia as vibrant, and as powerful, as America. There is, however, one other, seemingly minor difference that the Shiller-Boycko paper reveals and that may be almost as important.

The economists asked people which they would prefer — making a lot of money without achieving fame or winning some non-monetary distinction: an Olympic medal or the respect of professional peers. Both in 1990 and in 2015, Russians weren’t interested in fame without fortune: only 35 percent and 33 percent, respectively, picked the second option — compared with almost half of New Yorkers.

On the surface, this means that Russians are more materialistic and more business-oriented. It’s more likely, however, that they’d simply rather have money than respect and admiration. As a consequence, they are less likely to rebel, take risks, choose the path of the most resistance. That character flaw is more dangerous, and more depressing, than statism.