Russia's Virtual Economy - Hardcover

Gaddy, Clifford G.; Ickes, Barry W.

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Hardcover

ISBN 10: 0815731124 ISBN 13: 9780815731122

Publisher: Brookings Institution Press, 2002

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Clifford Gaddy's and Barry Ickes' paradigm of the "virtual economy" has fundamentally changed the way people think about Russia's economy. Circulated at the highest levels of the Russian and U.S. governments and reported in leading publications worldwide, their thesis--that Russia's economy is based on illusion or pretense about nearly every important economic yardstick, including prices, sales, wages and budgets--has forced broad recognition of the inadequacies of the intended market reform policies in Russia. More important, their work has provided a coherent framework for understanding how and why so much of Russia's economy has resisted reform. Gaddy and Ickes now use the virtual economy concept to project the near- and middle-term future of the Russian economy and suggest possible policy responses. Drawing on new empirical material from published and unpublished sources and from their own extensive field work in Russia, the authors examine critical aspects of the virtual economy: manufacturing enterprises, households and the public sectors, both local and federal. For the first time, they will also integrate the financial and agricultural sectors into their model. Gaddy's and Ickes' book can be expected to be a seminal work for understanding the inner workings of the Russian economy. Clifford G. Gaddy is a fellow in Foreign Policy Studies at the Brookings Institution and a member of Brookings' Center on Social and Economic Dynamics. He is the author of The Price of the Past: Russia's Struggle with the Legacy of a Militarized Economy (Brookings, 1996) and coauthor of Open for Business: Russia's Return to the Global Economy(Brookings, 1992). Barry W. Ickes is associate professor of economics at Pennsylvania State University and director of research at the New Economic School, Moscow.

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From the Inside Flap

Economic reform in Russia has been anything but the smooth process envisioned by many in 1991. A full decade after Russia officially embarked on what were described as "radical market reforms," there is no consensus about whether the economic transition has been a success or failure.

The Russian transition has turned out to be vastly more complicated in practice than theory. Some attribute the problems to a series of bad policy choices. Others assert that the path to market economics is inconsistent with Russian history and culture.

Neither of these explanations is sufficient to capture the difficulties of implementing a market economy within an economic structure bequeathed by central planning, according to Clifford G. Gaddy and Barry W. Ickes. In this book they examine how the Russian economy has evolved into a mutant form that combines elements of the market with institutions and behaviors that have a distinct, nonmarket character.

Gaddy and Ickes put special focus on Russia's "virtual economy." Rooted in Russia's vast sector of hopelessly noncompetitive industrial enterprises and their struggle to survive in the hostile market enviornment, this mutant system is characterized by a set of informal institutions that permits the production and exchange of goods that are worth less than the value of the inputs used to produce them. Buyers and sellers collude to hide the fictitious nature of the pricing through the use of barter and other forms of nonmonetary exchange. Those who try to play by the normal market rules are penalized relative to those who play by the virtual economy's rules.

By developing a method by which Russia's virtual economy can be analyzed, Gaddy and Ickes seek to restore a sense of logic and consistency to our understanding of the Russian economy and to provide a framework for thinking about the future.

About the Author

Clifford G. Gaddy is a senior fellow in the Foreign Policy and Global Economy and Development programs at Brookings. Barry W. Ickes is professor of economics at Pennsylvania State University.

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