Their main mistake was acting too late to reform the elites

Perestroika Lost


PERESTROIKA, the series of political and economic reforms I undertook in the Soviet Union in 1985, has been the subject of heated debate ever since. Today the controversy has taken on a new urgency — not just because of the 25th anniversary, but also because Russia is again facing the challenge of change. In moments like this, it is appropriate and necessary to look back.

We introduced perestroika because our people and the country’s leaders understood that we could no longer continue as we had. The Soviet system, created on the precepts of socialism amid great efforts and sacrifices, had made our country a major power with a strong industrial base. The Soviet Union was strong in emergencies, but in more normal circumstances, our system condemned us to inferiority.

[N.B. The Chinese are about there now.]

This was clear to me and others of the new generation of leaders, as well as to members of the old guard who cared about the country’s future. I recall my conversation with Andrei Gromyko, the foreign minister, a few hours before the plenary meeting of the Central Committee that elected me as the party’s new general secretary in March 1985. Gromyko agreed that drastic change was needed, however great the risk.

[N.B. The Soviet/Russian elites must have seen some of this during the time of Brezhnev when the war in Afghanistan could not be won. Other voices indicate the decrease in oil prices as a trigger.]

I am often asked whether my fellow leaders of perestroika and I knew the full scope of what we had to do. The answer is yes and no — not fully and not immediately. What we had to abandon was quite clear: the rigid ideological, political and economic system; the confrontation with much of the rest of the world; and the unbridled arms race. In rejecting all that, we had the full support of the people; those officials who later turned out to be die-hard Stalinists had to keep silent and even acquiesce.

[N.B. Had they known would they still have undertaken the changes? How much is the US today captive to "rigid ideological, political and economic system; the confrontation with much of the rest of the world; and the unbridled arms race?"]

It is much more difficult to answer the follow-up question: What were our goals, what did we want to achieve? We came a long way in a short time — moving from trying to repair the existing system to recognizing the need to replace it. Yet I always adhered to my choice of evolutionary change — moving deliberately so that we would not break the backs of the people and the country and would avoid bloodshed.

[N.B. The goals were probably to have another go at empire.]

While the radicals pushed us to move faster, the conservatives stepped on our toes. Both groups must bear most of the blame for what happened afterward. I accept my share of responsibility as well. We, the reformers, made mistakes that cost us, and our country, dearly.

[N.B. Self-serving?]

Our main mistake was acting too late to reform the Communist Party. The party had initiated perestroika, but it soon became a hindrance to our moving forward. The party’s top bureaucracy organized the attempted coup in August 1991, which scuttled the reforms.

[N.B. This should be sent on a postcard to president Obama, possibly rested as following: Our main mistake was acting too late to reform the elites.]

We also acted too late in reforming the union of the republics, which had come a long way during their common existence. They had become real states, with their own economies and their own elites. We needed to find a way for them to exist as sovereign states within a decentralized democratic union. In a nationwide referendum of March 1991, more than 70 percent of voters supported the idea of a new union of sovereign republics. But the coup attempt that August, which weakened my position as president, made that prospect impossible. By the end of the year, the Soviet Union no longer existed.

[N.B. Let's hope that all the divisive talk (gov. Perry of Texas) is hot electoral air.]

We made other mistakes, too. In the heat of political battles we lost sight of the economy, and people never forgave us for the shortages of everyday items and the lines for essential goods.

[N.B. Maybe that postcard to president Obama should include the above as a 2nd line.]

Still, the achievements of perestroika are undeniable. It was the breakthrough to freedom and democracy. Opinion polls today confirm that even those who criticize perestroika and its leaders appreciate the gains it allowed: the rejection of the totalitarian system; freedom of speech, assembly, religion and movement; and political and economic pluralism.

After the Soviet Union was dismantled, Russian leaders opted for a more radical version of reform. Their “shock therapy” was much worse than the disease. Many people were plunged into poverty; the income gap grew tremendously. Health, education and culture took heavy blows. Russia began to lose its industrial base, its economy becoming fully dependent on exports of oil and natural gas.

By the turn of the century, the country was half destroyed and we were facing chaos. Democracy was imperiled. President Boris Yeltsin’s 1996 re-election and the transfer of power to his appointed heir, Vladimir Putin, in 2000 were democratic in form but not in substance. That was when I began to worry about the future of democracy in Russia.

I understood that in a situation where the very existence of the Russian state was at stake, it was not always possible to act “by the book.” Decisive, tough measures and even elements of authoritarianism may be needed at such times. That is why I supported the steps taken by Mr. Putin during his first term as president. I was not alone — 70 percent to 80 percent of the population supported him in those days.

[N.B. Should our deviations from the Constitution be taken on this note?]

Nevertheless, stabilizing the country cannot be the only or the final goal. Russia needs development and modernization to become a leader in an interdependent world. Our country has not moved closer to that goal in the past few years, even though for a decade we have benefited from high prices for our main exports, oil and gas. The global crisis has hit Russia harder than many other countries, and we have no one but ourselves to blame.

[N.B Alright, a 3rd line would be in order: Fighting terrorism cannot be the only or the final goal!]

Russia will progress with confidence only if it follows a democratic path. Recently, there have been a number of setbacks in this regard.

For instance, all major decisions are now taken by the executive branch, with the Parliament rubber-stamping formal approval. The independence of the courts has been thrown into question. We do not have a party system that would enable a real majority to win while also taking the minority opinion into account and allowing an active opposition. There is a growing feeling that the government is afraid of civil society and would like to control everything.

We’ve been there, done that. Do we want to go back? I don’t think anyone does, including our leaders.

I sense alarm in the words of President Dmitri Medvedev when he wondered, “Should a primitive economy based on raw materials and endemic corruption accompany us into the future?” He has also warned against complacency in a society where the government “is the biggest employer, the biggest publisher, the best producer, its own judiciary ... and ultimately a nation unto itself.”

[N.B. We can echo and ask: Should an economy based on imports and endemic corporate and political corruption accompany us into the future?” Can the financial sector remain “the top employer, running its regulatory and judiciary ... and ultimately a nation unto itself?"]

I agree with the president. I agree with his goal of modernization. But it will not happen if people are sidelined, if they are just pawns. If the people are to feel and act like citizens, there is only one prescription: democracy, including the rule of law and an open and honest dialogue between the government and the people.

What’s holding Russia back is fear. Among both the people and the authorities, there is concern that a new round of modernization might lead to instability and even chaos. In politics, fear is a bad guide; we must overcome it.

Today, Russia has many free, independently minded people who are ready to assume responsibility and uphold democracy. But a great deal depends now on how the government acts.

Translation by Pavel Palazhchenko

From Taleb's Twitter Feed

From Nassim Taleb's Twitter Feed:

1. In nature we never repeat the same motion. In captivity (office, gym, commute, sports), life is just repetitive stress injury. No randomness about 6 hours ago via web
2. Using, as excuse, others' failure of common sense is in itself a failure of common sense. 9:33 AM Mar 12th via web
3. Dubai borrowed to put vanity buildings on postcards; America and W. Europe need to borrow to just survive. 4:52 AM Mar 12th via web
4. We unwittingly amplify commonalities with friends, dissimilarities with strangers, & contrasts with enemies. 3:30 PM Mar 11th via web
5. The mark of a mediocre mind is the subdued and passive reaction in front of the truly exceptional. 11:32 AM Mar 11th via web
6. [Explanation: The biggest error since Socrates has been to believe that lack of clarity is the SOURCE of all our ills, not the result. ] 11:22 AM Mar 10th via web
7. Mental clarity is the child of courage, not the other way around. 11:07 AM Mar 10th via web
8. What they call play (gym, travel) looks like work;what I call work (effortless daydreaming) looks like play.They lose freedom trying harder. 3:27 AM Mar 10th via web
9. The differences between Goldman Sachs & the mafia: GS has a better legal-regulatory expertise; but the mafia understands public opinion. 7:13 AM Mar 9th via web
10. Common minds find similarities in stories (& situations), finer minds detect differences [Essay on the Universal & the Particular] 12:47 AM Mar 8th via web
11. I wish to say some day about someone "Voilà un homme!" as Napoleon said upon meeting Goethe: mixture of passion & intellect (& elegance too) 5:45 AM Mar 7th via web
12. Übermen tolerate others' small inconsistencies though not the large ones;losers tolerate others' large inconsistencies though not small ones 6:16 AM Mar 5th via web
13. If you want people to read a book, tell them it is overrated. 1:07 PM Feb 28th via web
14. Their sabbatical is to work six days and rest for one; my sabbatical is to work for (part of) a day and rest for six. 7:05 AM Feb 28th via web
15. City-states organize by tinkering; nation-states produce bureaucracies, empty suits, Bernankes, deficits, and the toobigtofail. Too obvious. 6:49 AM Feb 27th via web
16. answ:[ If you can't detect (w/out understanding) the difference betw sacred & profane you'll never know what religion means. Same with art ] 7:36 AM Feb 26th via web
17. Atheism/materialism means treating the dead as if they were unborn. I won't. By respecting the sacred you reinvent religion. 4:47 AM Feb 26th via web
18. I wonder if a lion (or a cannibal) would pay a high premium for free-range humans. [modern bondage] 8:00 AM Feb 25th via web
19. Writing is the art of repeating oneself without anyone noticing. 12:40 PM Feb 24th via web
20. You know you have influence when people start noticing your absence more than the presence of others. 3:26 PM Feb 23rd via web

Nassin Taleb

A step closer to the core of one of our most common problems

Trading Away Productivity

FOR a quarter-century, American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.

Such policies, advocates say, drive innovation, which leads to enormous labor productivity and wage gains — more than enough, supposedly, to make up for the labor disruptions that accompany free trade and de-industrialization.

[N.B. In fact, labor productivity has been an eternal obsession of the US capitalist, shared at one point by the now-defunct comrades in the planned economies. Have a look at The Politicos vs An old man]

In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.

[N.B. So what does it mean if this were indeed a failure of the workers? Too bad they could not retrain themselves to become neurosurgeons or derivative traders?]

But what if wages lag because productivity itself is being grossly overstated, especially in the nation’s manufacturing sector? Then, suddenly, a cornerstone of American economic policy would begin to crumble.

Productivity measures how many worker hours are needed for a given unit of output during a given time period; when hours fall relative to output, labor productivity increases. In 2009, the data show, Americans needed 40 percent fewer hours to produce the same unit of output as in 1980.

But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.

The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.

This oversight is no secret: as Labor Department officials acknowledged at a 2004 conference, their statistical methods deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain.

This continuing mismeasurement leads economists and all those who rely on them to assume that recorded productivity gains always signify greater efficiency, rather than simple offshoring-generated cost cuts — leaving the rest of us scratching our heads over stagnating wages.

[N.B. Why would few push this, where was the organized labor?]

Of course, just because productivity is mismeasured doesn’t mean that genuine innovations can’t improve living standards. It does mean, however, that Americans are flying blind when it comes to their economy’s strengths and weaknesses, and consequently drawing the wrong policy lessons.

Above all, if offshoring has been driving much of our supposed productivity gains, then the case for complete free trade begins to erode. If often such policies simply increase corporate profits at the expense of American workers, with no gains in true productivity, then they don’t necessarily strengthen the national economy.

[N.B. This seems a clear case when regulation should help protect capitalism from capitalists.]

In this regard, the case for free trade as a stimulus for innovation weakens, too. Because productivity gains in part reflect job offshoring, not just the benefits of technology or better business practices, then the American economy has been much less innovative than widely assumed.

How can we actually increase innovation and real productivity? Manufacturing, long slighted by free-market extremists, needs to be promoted, not pushed offshore, since it has historically accounted for the bulk of research and development spending and employs the bulk of American science and technology workers — who in turn spur further innovation and real productivity.

Promoting manufacturing will require major changes in tax and trade policies that currently foster offshoring, including implementing provisions to punish currency manipulation by countries like China and help American producers harmed by discriminatory foreign value-added tax systems. It also means revitalizing government and corporate research and development, which has languished since its heyday in the 1960s.

Much of government policy and business strategy rides on false assumptions about innovation, and although the Obama administration acknowledges the problem, it has done nothing to correct it. With the economy still in need of government life support and the future of American manufacturing in doubt, relying on faulty productivity data is a formula for disaster.

Alan Tonelson, a fellow at the United States Business and Industry Council, is the author of “The Race to the Bottom.” Kevin L. Kearns is the president of the council, which is an association of small manufacturers.

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