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Peter Gowan has written an ambitious article.

1

In it, he aims to showthat the Group of Seven major industrial states (g7) and the interna-tional financial institutions (ifis) have, with a good deal of success,sought to impose at least an economic imperialism over the post-com-munist states in Central and Eastern Europe and in the former republicsof the Soviet Union. They have done this, he claims, by promoting ShockTherapy (st) as the strategy of economic transformation which thesestates must adopt as a precondition for qualifying for imf, World Bankand other loans. This action has impoverished these states by ruiningtheir industrial structurea necessary step if, as is the g7ifi intent,

they are to be rendered into passive markets for Western products. ShockTherapy, he writes, was developed by the Harvard economist JeffreySachs who has functioned as its main ideologist and promoterassistedin the last of these by writers, including the anonymous correspondentsof the Economist, Anne Applebaum and Michael Ignatieff in ForeignAffairs and, in the Financial Times and the London Review of Books, bymethe reason for my reply.

His proposition is extraordinary in two main ways. If true, it is an enor-mous scandal: for the wealthy states, which have boasted of their com-

mitment to promoting democracy and the free market, have in fact beenacting in the most cynical and mendacious fashion, pursuing their exclu-sive interests at the expense, not just of the economies of the states theyprofess to assist, but of thousands, perhaps hundreds of thousands, ofhuman lives who, on Gowans account, have prematurely perished fromthe side-effects of Shock Therapy. In other words, the imperialism whichhe imputes to the g7 is of the classic kindrapacious murder cloaked inthe guise of enlightenment and improvement.

Second, the article marks the emergence of full agreement, by a Marxisteconomist in the worlds major Anglophone Marxist journal, with thebasic tenets of the case made out in the past four years by the CommunistParty of the Russian Federation (cprf), Zhirinovskys Liberal DemocraticParty of Russia, the recently formed Congress of Russian Communities(Lebed) and many other MarxistLeninist and nationalist groupings in

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John Lloyd

Eastern Reformers and Neo-MarxistReviewers

1 Peter Gowan, Neo-Liberal Theory and Practice for Eastern Europe, nlr 213.

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Russia, in the former Soviet Union, and a few rather smaller and lessinfluential Marxist and far-rightist groups in Central and Eastern Europe.It thus points to an embrace by at least a strain of Western Marxism of theEastern Marxist-nationalist analysis of the reform process of the last half-dozen years, and a rejection of the strategy of the refashioned and renamedcommunist parties of, for example, Poland, Hungary and Lithuania,whose periods in powerand indeed in oppositionhave been and are

marked by an explicit acceptance of the main planks of what is calledShock Therapy, even where they claim to be softening its social impact.Given Marxisms marginalization to the academyand even, to anextent, within the academythis is presently of minor importance. Butit may be more so in the future, if there is any kind of Marxist revival.

Yet there are majorand welcomedifferences. Gowans account is ofcourse devoid of the anti-Semitism and other racism which habituallyaccompanies the more robust presentations of the Western imperialist

thesis. It is rather more coherent and knowledgeable. Some of its con-tentions are true. However, the greater sophistication of argument is alsoless direct and straightforward than the Eastern Marxistnationalistcase: where the cprf, Zhirinovsky and others openly and loudly accusethe West of imperialism, Gowan slides the point in below a cloak in thelast paragraph. There can be no doubt about what is meant, but themeaning has to be reconstituted, like soup from a bouillon cube.

Limited Choices for Post-Communist Governments

Further, its overall perspective is one of assuming that those who formedthe governments of the post-communist states had wide, even limitless,scope to choose between a range of possibilities, from neo-liberalism tothe communism without the party which the leaders of Belarus, andsome of the Central Asian states, now essay. Almost wholly lacking isany sense of the crises which faced the post-communist governingelitesespecially those in the former Soviet states, confronted with thecollapse of an empire, a trading system, an industrial and economicstructure and a ruling party. This is not to deny that political choiceswere made and that these were both conscious and decisive. Gowan,

however, implicitly denies the overwhelming importance of the pres-sures of particular crises on the decisions that were made. For example,the fact that many post-communist governments sooner or later raisedprices, usually to or near to market-clearing levels, pointed to the com-mon crisis of subsidizationa crisis which had long existed under, andsapped the remaining strength from, the communist regimes, but whichthey had been unable to radically reform because they rightly feared thattheir hold on power was too fragile to withstand the demand for a gen-eral belt-tightening. Those which did not so raise prices have subsidized

basics as a more or less explicit indication that their governing elite willretain the powers and privileges of an authoritarian state, granting cheapminimal upkeep as such a states traditional concession to the populace.In Gowan there is no recognition of such a crisis, nor of the trade-offs itsresolution demands: in his account, choice is a matter of good and badalternatives, almostat timesbetween good and evil. In fact, ShockTherapy was much more than a series of desperate efforts to stem thetotal collapse of state finances than a cocktail of measures freely chosen120

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from a menu.Nowhere is this duality between good and evil more apparent than inGowans brief excursion into Russian politicsthat is, his use of theconflict between Boris Yeltsin and the Russian Supreme Soviet in 1993as an example of the legitimate protest by a democratic institutionagainst the effects of Shock Therapy, and its ruthless backing byunbridled presidential power. In this passage, he most clearly chimes

with the views of the cprf and the Russian nationalists. It is not false tosay that their opposition to economic reform did in part come frombelow: many of the Supreme Soviet deputies constituentsand it was apartly democratic assembly, however much Yeltsin and others mightseek to portray it as wholly unrepresentativewere suffering from thehuge hike in prices which the January 1992 and subsequent price liber-alizations had ushered in. But that was far from the limit of their opposi-tion, or even the most important part of it. Absent from Gowansnarrative are the following facts:

In April 1993, fifteen months after radical reform began, bothYeltsin and economic reform were backed in a popular referen-dum.

The alliance of Supreme Soviet speaker Ruslan Khasbulatov andVice President General Alexander Rutskoi had continually renegedon agreements made with Yeltsin.

The constitution which governed the Russian Federation, apatched-up version of the Soviet-era Russian constitution, in effect

prescribed a struggle for power between the different levels ofauthority in the trackless political desert which was post-commu-nist Russiasince it did not endow any one level with a coherentset of rights and duties.

The Supreme Soviet had not simply been asking Yeltsin to surren-derwhich Gowan denies they didits leadership had beenactively pursuing his impeachment, and this months after the mainarchitect of Shock Therapy, Yegor Gaidar, had been dismissed byYeltsin and replaced by Victor Chernomyrdin.

The Supreme Soviet leadership had openly sought to build up anindependent armed force which, as the confrontation between itand the President deepened, came under the leadership of self-declared fascists.

The sins of the account are not only those of omission. Gowan says ofYeltsin that he responded to a march on a radio station with a militaryassault on the Parliament building. The march on the radio station wasan armed attack, explicitly ordered by General Rutskoi, on the Central

Television station, following an assault on one of the buildings of theMoscow mayoralty opposite the Supreme Soviet. I was a witness to all ofthese events. There is a reasonable dispute as to how far the SupremeSoviet deputies who remained in the building after it had been dissolvedby Yeltsinunconstitutionally, as Gowan emphasizeswere deliber-ately tempted by the pro-Presidential forces into armed insurrection. Ido not believe there is evidence to say that this was so: both JonathanSteele in Eternal Russia and Bruce Clarke in his recent An Empires New

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Clothes believe there is. But there is no dispute that the central feature ofthe day, before units of the Russian army mounted an attack on theWhite House, was not a march on a radio station.

Finally on Russian politics: Gowan slips naturally into the Gorba-chev-good, Yeltsin-bad interpretation of the past decade, whichbedevils an understanding of its events. That Gorbachev was a libera-

torbeyond his intent, though apparently in tune with his dominantinstinctsis clear: that he, or those acting in his name, ruined theWarsaw Pact, Comecon, the Soviet Union and the Communist Partywith only the last-minute assistance of Yeltsin is, or should be, beclear also; indeed, that was the major content of his liberation. Therewere left to his successors none of the levers of gradualist decompres-sion of communism which Gowan, elsewhere in his article, calls for.They were in a quite different and much worse position than that ofthe Chinese communist leadershipwho, of course, are commended

by Gowan for their canny gradualism without the indivisible totali-tarian side-effects being recognized, or even mentioned. That Yeltsinhas struggled with this legacy in a manner which ranges from enlight-ened to murderous is clear: that the legacy was and remains one ofunprecedented complexity for a government with improvised instru-ments of power is, or should also be, clear.

Cargo Cult or Rational Choice?

The treatment of the new governing elites is similarly lopsided.

Essentially, from the reference in the Themes section to Shock Therapyas a cargo cultthe nlrs formulation, to be sure, not Gowanstheimage conjured is of credulous and ignorant natives worshipping beforea mysterious theory bestowed upon them by deified beings from a differ-ent land, to Gowans belief that the new governments were induced toaccept Shock Therapy or be damned to a loan-less g7 purgatory, the viewproposed is of pawns manipulated from Washington, LondonandHarvard. Only in one curious phrase, it could also be said that officialopinion, at least in the Visegrad states continued. . . to be resolutely com-mitted to the Shock Therapy course, and that this was not only due to

Western structural power and pressure, is there an apparent admissionthat the new elites have a will of their own.

This treatment of the new governments as local Quislings for an alienand hostile force is bound up with the treatment of Sachs. He is madeinto an all-powerful figure, at once a proselytizer for Western interests,a creator of the ideology which serves these interests and a manipulatorof the post-communist elites into a position of subservience to them.There is no question that Sachs has carved for himself a position no

other economist has been able, or has cared, to doa position so pub-licly visible, so openly proselytizing, so, at times, frankly confronta-tional, that he has long been seen by others less visible in his profession,by his allies and most of all by his many enemies as a man whose wingsare bound to melt. The key advisor to the government of Bolivia duringits successful stabilization, he consulted in the late eighties with othersof the Latin American governments who were then bringing in theirown versions of Shock Therapy. His most public dmarche was as advisor122

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to the post-communist Polish Solidarity government where, workingwith deputy prime minister Leszek Balczerowicz, he helped organizeimf support for the January 1990 stabilization programme which,according to Gowan, has had disastrous results. Invited to consult withthe last Gorbachev government and one of the main American econo-mists to work on the YavlinskyAllison Grand Bargain concept whichboth the g7 and Gorbachev rejected in August 1991, he was a frequent

and high-profile presence in Moscow in 1992 and 1993, advising, atdifferent times, acting Prime Minister Yegor Gaidar, privatizationminister Anatoly Chubais and deputy prime minister for finance BorisFyodorov. He resigned from his advisory post in January 1994, follow-ing parliamentary elections the previous month which saw large suc-cesses for the Zhirinovsky ldpr, and an apparent turn to the Left ineconomic policy.

Far more than any other Western advisor or institution, Sachs during the

years 199293 called for massive g7 assistance, opposed any attempts,including these of the imf, to hold the rouble zone (the former Sovietstates) together, launched public and vitriolic attacks on those officialshe thought were opposing reformmost particularly Victor Gerash-chenko, chairman of the Russian Central Bank from mid 1992 toOctober 1994and berated the communist, nationalist and other par-ties in the Supreme Soviet for their efforts to oppose the reform measures,especially privatization. He was a central figure in any narrative of theseyears. But he is not what Gowan seeks to make him.

He did not invent Shock Therapy, though he contributed to it. Besideshis work in Bolivia and elsewhere in Latin Americawhere the maininitiators of reform were the economists and politicians of these coun-triesthe most important instance in the development of the collage oftechniques which goes under that name was the puncturing of Israeliinflation in the mid eighties. In this, the key figures were the then chair-man of the Israeli Central Bank Michael Bruno, now chief economist atthe World Bank; and, as advisor, Stanley Fischer, then ofmit and nowfirst-deputy managing director of the imf. Both, especially the latter, aremuch more institutionally powerful than Sachs, and independently held

roughly similar viewsthough there were disagreements on instancesand details, and Bruno at first believed that gradualism in, for example,trade liberalization was possible, changing his mind with more exposureto the realities of the problem. The Thatcher governments privatizationprogramme of the early eighties and beyond was also an influencethough as it later transpired, it was of limited practical value to govern-ments who wished to privatize most of their economy, compared withthe 35 per cent that Thatcher achieved.

Indigenous Shock Therapy

Thus Shock Therapy, never a precise description, came to be the nameapplied to a range of measures which would typically include price andtrade liberalization, stabilization, privatization and convertibility: thesequence of these would be determined by events, but they would nor-mally be implemented as simultaneously as possible because of the needfor a swift transition. The need for swiftness was determined, in the case

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of the post-communist states, by the window of opportunity given bythe election or appointment of reforming governments, able to use popu-lar support to call for temporary sacrifices of anyway illusory relativewell-being in pursuit of a more surely grounded base for future prosper-ity. Above all, it has to be emphasized against Gowans silence, the1980s saw the development in many of the communist states of semi-clandestine groups of scholars, mainly economists, who read and dis-

cussed Western liberal economics. Most were also attracted todemocratic, non-socialist politics. Long before Sachs came on the scene,or before the ifis had set up any kind of stall in the region, these youngscholars read Hayek, Friedman, Kornai, Fischer and Dornbusch,Bruno...as well as Sachs; networked with each other; attended whatseminars they could organize; and in some casesas that of Gaidar dur-ing the Gorbachev glasnost periodsought to have an influence on pol-icy-making through journalism. They came to the conclusion that thegradualist measures which were endlessly proposed and endlessly sup-

pressed during the 198691 period were bound to fail, and thus devel-oped programmesYavlinskys Grand Bargain, a development of hisand Shatalins 500 Days strategy, was the best knownwhich soughtto jolt the command administrative economy into capitalism in recordquick time.

Gowan appears to believe, though he offers no evidence, that Sachs wasresponsible for the collapse of Comecon, and that this was orchestratedby the g7. As far as I am aware Comecon was essentially killed at a meet-ing of its member states in Sofia in January 1990, when the Russian side,

somewhat to the surprise of the Central European members, many bythat time with non-communist governments, conceded that the organi-zation move to hard-currency operationsa move which made its col-lapse inevitable, since, once the political raison dtre was removed and ittook the form of a relatively transparent trading organization, its disad-vantages both to the Russians, trading valuable oil and gas for sub-stan-dard equipment, and to the Central Europeans, locked into a series oflow-technology trading relationships, became starkly obvious. TheCentral European governments were then moving strongly away fromthe Soviet Union and from the trading system they saw as its imposition

and the largest cause of their relative technological backwardness: theywere in no mood to be told by anyone that they should remain within theSoviet sphere of influence for a moment longer than they had to, themore so since popular revolts against Soviet domination had broughtnew elites to power. This view, with regard to Russia rather than theSoviet Union, persists and remains popular in the Central Europeanstatesand in the Baltic, as well as the Western parts of Ukraine andMoldova. The position in the Caucasian and Central Asian states, espe-cially Kazakhstan, is more complex: it is the main cause for the clamour-

ing of the Central Europeans and the Balts to become part of NatoGowan sees any future extension of Nato eastwards as simply necessaryto consolidate the absorption of East-Central Europe and assure us lead-ership. Here again, the views of these countries governments, in thiscase, above all, strongly backed by popular opinion, play no role, andthey will be balked of membership only if the many sceptics in WesternEurope succeed in slowing down the process to a halta desirable out-come, but one which presently seems less rather than more likely.124

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done, and are doing, best. This has been said, of course, by Sachs, by theEconomist, by the ft and by others who have commended the strategy, asone would expect. Gowan says that this is mendacious propaganda. Butit is impossible to understand on what basis he makes this claim.

First, he says that gradualism produces better results than Shock Ther-apy, contrasting the cases of Hungary and Romania: Romania, he says,

has revived far more strongly than wide-open Hungary or the CzechRepublic. This is simply not so. On the latest figures, the ebrdswhich are an amalgam from the statistical authorities of the countries inquestion, from the imf, the World Bank, the oecd and the uneceRomanias gnp over the years since 1990 shrank by 6, 13 and 10 per centto 1992, revived by 1 per cent in 1993, 3 per cent in 1994 and 4 per centin 1995. Hungarys shrank by 4, 12, 3 and 1 per cent up to 1993, thengrew by 2 and 3 per cent in 1994 and 1995. In 1995, Romanias gnpstood at 81 per cent of what it was in 1989, while Hungarys stood at 86

per cent.

3

This does not show that Romania revived far more stronglythan Hungary.

In fact, the premise of the comparison is also debatable. Hungary has beengenerally seen asuntil the past year, under a government composedmainly of former communistsbalking many of the necessary stages ofShock Therapy. Its privatization process only really went into gear lastyear, trade restrictions were retained, though reduced, wage controls con-tinued to 1993. Yet even leaving this aside, and treating it, as Gowandoes, as a prime example of Shock Therapy in the raw, it is clear that there

is no outcome of the kind he advertises. Hungary declined by signifi-cantly less than Romania, and is growing insignificantly more slowly.

Second, he says that it will take the Central European countries twentyyears to return to the living standards of the last years of communism. Weshould first remember that the last years of communism in Hungary andPoland saw the regimes borrowing desperately to keep up consumptionlevels, while the hard-line regimes of Czechoslovakia, East Germany,Albania and Romania simply snappedin differing wayslike the rigidstructures they were, once they were challenged to deliver higher stan-

dards. We should also note that, in all post-communist economies, theofficial figures are distorted in two ways which have a similar result: thegnp and consumption data were distorted upwards in the communistperiod to show compliance with the plan and for propaganda reasons.After communism, they tend to be distorted downwards, since much pri-vate activity does not appear in statistics for tax-evasion reasonsthis isespecially true in Russia and other post-Soviet states, and partiallyexplains why, when the gnp has more than halved, consumption, thoughdeclining, has not followed it so sharply downwards. But these points

aside, the ebrd data show that Polands gnp in 1995 stands at 97 per centof1989 levels, the Czech Republics at 85 per cent and Hungarys, asabove, at 86 per cent. Even were the high (5 per cent plus) rates of growthpredicted for them not to materialize, they would recover 1989 levels by2000, or a year or two afterfive or six years from now, not twenty.

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3 Transition Report1995, ebrd, London.

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These states, says Gowan, have, as further evidence of their prostration,been reduced to sucking in imports because of the Western-sponsoreddestruction of their own industries. Leave aside the fact that to continueto deprive citizens of what they now suppose to be free countries of atleast some part of the range of goods available in a West to which manyof them now travel would doom any government to defeat; or that, if thestructure of imports is biased to capital goodsGowan does not break

down the figuresan import surplus is a good thing. Even then, realityis far from the import bonanza which Gowan says Western manufactur-ers are enjoying. On the latest figures (1994), the Czech republic hasstrongly increased the rate of growth of exports over imports, Polandsrate of export growth is double that of import growth in the same year,and only Hungary, whose exports, and imports, grew strongly in thefirst years of the nineties, is showing a loss of growth, especially inexports.

The Misery of Fast and Slow Reform

Finally, Gowan rightly highlights the misery visited upon the popula-tions of the post-communist countrieswith declining incomes andstandards of health, and rising unemployment and mortality rates. Theseare certainly strongly present in the former Soviet Union, where malemortality, having been near the mid-sixties a decade ago, is now at thelow figure of fifty-ninethe female rate is much higher, and indeed iscomparable with that of developed countries. This is the most poignantand affecting part of the article for here, it seems, is the core of the mat-

ter: the Wests desire to slash and burn the post-communist economies isso fanatically pursued that it results in the premature deaths of hundredsof thousands of people who would otherwise have lived longer, morehealthily and more fully.

But, as far as one can tell, this is false. The countries which have notundergone radical change, or which, like Russia, have begun it but notfollowed through, prolonging an agony while delaying its relief, showthe worst results, in the social as in other spheres: those which have takenthe shock are now improving, and doing so strongly. Again, the latest

evidence indicates that those countries that have moved most firmly intransition and stabilization have suffered the lowest costs in the processand are starting to see the rewards. These rewards have not comeinstantly but they can and do begin to appear within two to four years ofdecisive transition measures being implemented. While living standardswill take some time to recover, in historical terms four years must beregarded as a remarkably short period for the returns on such a radicaleconomic and social change to begin to emerge. The arguments for fur-ther advance of reform for countries in early stages of transition are now

observable and powerful.4

And, directly to the social point, another passage from the same source:all of the late and slower-reforming countries...have experienced a dra-matic deterioration in social indicators since 1989. Far from improving

4 Ibid, p. 7.

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these dimensions of the standard of living, it is clear that low or post-poned market-oriented reform has been associated with a sharp deterio-ration in indicators of social development. This superior performance ofthe faster-reforming countries is of great significance. It translates intolarge improvements for the population in social development in thosecountries relative to [the slower movers].5

For much of his argument, though not all of it, Gowan appears to acceptthat the goal is and should be some form of capitalism: his argumentappears to be with the method chosen. There is thus no fundamental dif-ference of view between him and those he criticizes as to eventual out-comes: his concern is to reduce the costs, both to the industries and to thepopulation.

He appears to suggest, by the fleeting use of the Chinese parallel and bythe tone, rather than the facts, of his argument that a transition could

have been painless had it been better organized, more gradual and lessideologically neo-liberal. But the cases of the Ukraine in the recent pastand of Belarus in the present directly contradict this: in both states,efforts were or are being made to open up the economy gradually whilepreserving living standards: after a short period in which it seemed thetrick would work, the evidence has mounted that it is making mattersworse. Second, as above, these statesunlike Chinafaced across-the-board collapse, political, economic and social: in the case of the formerSoviet states, they did so after more than seventy years of the most totali-tarian politico-economic system the world has seen, in which agriculture

had been comprehensively degradedagain unlike Chinaand wheremost employment was in state-owned industryunlike China. One ofthe many arguments for Shock Therapy is that it got the pain overquickly rather than spun it out: but that there would be pain, there is noargument.

Other issues raised by Gowanmost of all, his assertions that economicnationalism, rather than increasingly internationalized global produc-tion and marketing, is the trend of the futureare worth refutation butare incidental to his main point. That point, that a terrible infamy has

been visited upon hundreds of millions of fellow Europeans by cynicalcargo-cultists and their camp-followers from the worlds richest states,cannot stand.

5 Ibid., p. 24.

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