Experiments with economy — transitioning into laisez-faire approach
The fall of the Berlin wall in 1989 was accompanied with a series of unprecedented events that set into motion paradigm shifts in the world economic order. This phase marked the transition of the Russia ( former Soviet Union ) from a communism to a free market approach.
The idea of a centralized or command economy (Marxism) has been a subject of rampant criticism stemming from the inherent weaknesses and potential threats associated with this system like lack of incentives for profit and innovation, corruption, non-price rationing, uncertainty, famines, inefficiency in resource allocation etc. . The transition of a country from a state where the government controls each aspect of the economy to a free market can be quite tumultuous. The late nineteenth century was characterized by a gospel of market economics actively fostered by the Western nations and IMF. This era witnessed a large number of economic transitions in several parts of the world, with the fall of the Berlin Wall in late 1989, leading to the disintegration of the USSR and the Russian transition, and the economic reforms introduced in China in late 1970s. The fundamental difference in these transitions was the speed of reforms. The Chinese leaders adopted a ‘gradualist’ or ‘incremental’ approach. They believed that sequenced economic reforms, compatible with the ideologies of the communist party and political system of the country would lead to rewarding economics by preventing fierce public debates under the communist dictatorship. The controlled transition, with the onset of the reforms, helped China to increase its global standing exponentially with a simultaneous retention of successful state monopolies and adequate incentivization and provisions to ignite the creation of competing private enterprises. However, Russian leaders and IMF believed in ‘shock therapy’, characterized by rapid privatization, instantaneous price liberalization, stabilization etc. They believed that intensive and fast-paced transitions would leave no space for corruption and the formation of a capitalist economy would be faster and more successful. Following this methodology, they had to create institutional mechanisms to regulate markets, deploy resources in an efficient manner, inculcate a new form of entrepreneurship driven by incentives and profits, etc rapidly to decrease the probability of failure. The experience of Russia in the early years of the transition was of declining economy and pessimistic reforms, with the middle class has been engulfed with a crony and mafia capitalism, accompanied with diminishing democratic practices.