2    Re-visiting the recurring question of transition

Introduction: the durability of transition theory

All forms of economic reform led by global institutions are, at their heart, aimed at marketisation. The creation, or realigning, of economies towards the market has been the cornerstone of meta-global policy from Latin America in the early 1980s, to Eastern Europe later in the decade, in the post-Soviet states during the 1990s and to the responses to Europe’s financial crisis from 2008 onwards. This is because there is a fundamental belief that market-led reforms such as the deregulation of the economy, the withdrawal of state involvement and the opening up of the market will lead to both growth and a ‘trickle down’ of the benefits to the majority. In return for financial assistance from organisations such as the International Monetary Fund (IMF), often desperately needed to pay debt obligations or social welfare transfers such as pensions, countries agree to wide-ranging market-oriented reforms. Almost always the reforms involve measures such as the privatisation of state assets, the liberalisation of the economy, deregulation and austerity.

From the mid-1980s, states undertaking such reforms came to be known as ‘transition’ countries as they were moving from one economic system, be it from military-based governance, a command economy or a mismanaged state heading towards bankruptcy, towards a market economy. In other words, they were transiting from one economic form to another, with a starting and an end point when the reforms are complete. The role of this chapter is to provide a critique of the notion of transition, concentrating on three interlocking points. First, the very idea of transition is extremely flawed as it suggests that the concept of the perfectly working market economy actually exists outside of the textbook (for a discussion on the varieties of capitalism in operation, see Lane 2007). From this, therefore, there is an end point at which reforms will be complete. It also suggests that all starting points are the same, and that economic geographies and histories are irrelevant. Second, the social costs of such reforms are almost always ignored. While there is an acknowledgement that there will be short-term social ‘costs’, it is assumed that as the market develops, the majority will benefit. As this book shows, depending on the criteria you take, this is simply not the case. Finally, and perhaps most importantly, the role of informal practices within everyday life is simply not acknowledged in such reforms. This is the case at all scales, be it the practices used by business people to grab the benefits of privatisation schemes or the informal coping practices used in everyday life by the economically marginalised.

Given that within the social sciences there has been considerable critique of transition theory, it might seem that the book is setting up a ‘straw man’ to knock down. Here, therefore, it is important to demonstrate why discussions on its use are still of vital importance to understanding everyday life in post-Soviet spaces and the nature of informal practices. Pickles and Smith (1998: 2) were among the first to develop a systemic critique of transition theory. As they state,

Key within this quote is the notion that transition is based on the ruin and relations of the old system, which vary according to location, and that the economies that emerged were a form of market economies. Such theorisations became extremely influential in studies of economic reform and understanding the practices of everyday life (e.g. Golubchikov and Phelps 2011; Pavlovskaya 2004; Round et al. 2010; Smith and Swain 2010; Stenning and Hörschelmann 2008; Yeung and Lin 2003). These discussions led to re-theorisations of the form of economy that has developed within post-Soviet states rather than the textbook market system springing ‘forth like a deus ex machina’ (Burawoy 1998: 303), as displayed by discussions of systems of ‘economic involution’ (Burawoy et al. 2000), ‘chaotic capitalism’ (Lane 2000), ‘hybrid’ capitalism (Hanson and Teague 2007), ‘anti-modern’ economies (Rose 2009) or a ‘virtual economy’ (Gaddy and Ickes 1998). When discussing the ‘varieties of capitalism’ that have developed in post-Soviet spaces, Pickles (2008: 6) states in relation to ‘transition theory’:

From such rejections of meta-narratives, the term transformation has come to be used as a more nuanced term to describe and theorise reforming economies as it recognises that there are a multitude of starting points and that there is no fixed, pre-determined outcome. In other words, and as the current economic crisis amply demonstrates, we simply do not know the future for economic systems, growth or behaviour.

However, the concept of transition is still widely used in economics and management studies (e.g. Aristei and Perugini 2012; Bruck and Lehmann 2012; Frye 2011; Lehmann and Muravyev 2012; O’Brien et al. 2011; Perlman and Balabanova 2011; Turley and Luke 2010; Winiecki 2012), especially in relation to the economies of former socialist countries. Its uncritical usage within economics is particularly problematic as it is from such studies that the policies of international lending agencies are based. This is primarily because of the continuing assumption that economic behaviour can be modelled (Morgan and Knuuttila 2012) and that reforms and economic development can be measured quantitatively (Fine and Milonakis 2011). Therefore, it was possible for the deputy director of the IMF to state in July 2012 that Eastern and Central Europe ‘has been through a lot in the last two decades. It has successfully transitioned from planned to market economy’ (Shafik 2012: 1).

The European Bank for Reconstruction and Development (EBRD), set up in 1991 to assist the former Soviet and socialist countries in the reform process, has a journal called Economics of Transition which states on its opening page that it ‘fosters transition to market economies in countries from central and eastern Europe to central Asia and north Africa’. The inclusion of north Africa in this statement demonstrates further why critiques of transition theory are still relevant today. Even though, as shown above, there is a whole body of work highlighting the term’s problematic nature, it continues to be applied to regions undergoing socio-economic crisis (Saif 2011). The director of the IMF’s Middle East and Central Asia Department, Masood Ahmed (2012), for example, talks about financial support for Arab countries in ‘transition’. Such discussions are more nuanced than the approach taken towards Russia, for example, in 1991, but are still couched in terms of the transition to the neo-liberal democratic market economy. Within such discussions, other forms of economic development, based on, for example, religious beliefs or alternative economic practices, are not even allowed space for discussion.

Such thinking is also evident in approaches aimed at solving Europe’s current economic crisis. In the mid-2000s, a discussion emerged about whether large organisations such as the IMF were still needed, given economic growth in many regions and the ability of private financial institutions to provide lending facilities to states (Maier 2007). Obviously the banking crisis and the subsequent recession in many mature economies led to such thinking being quickly abandoned. The IMF again came to global prominence, providing loans to Greece, for example, in order to insure against the default on sovereign debt. In return for such loans, recipients have to undertake stringent austerity measures, deregulate their economy and reduce social protection obligations (Katsimi and Moutos 2010; Matsaganis 2012). In other words, they have to transit their economy to the textbook neo-liberal market economy ideal. Thus, two decades after the socially disastrous reforms began in Russia, the same approaches are now being seen within the EU, signalling how the study of transition theory remains pertinent today. The remainder of this chapter details how economic reform was enacted in Russia and Ukraine, demonstrating the short-sightedness of the transition approach and the resulting diverse economies that arose.

The Soviet Union and its informal economies

It is common that the Soviet Union’s command economy is presented as a monolith, with the state in control of all of its functions (Rutland 2009). However, as Ledeneva (2006: 1) states,

There were also marked geographical variations in how the command economy was enacted. As many commentators highlight, the countries that formed the command economy all had different starting points from, for example, the relatively industrialised Czech Republic to the mainly agricultural Russia and Ukraine (Pickles and Smith 1998; Round 2009; Smith 2000; Verdery 1991). Within the system, Moscow had dominance and different regions of the Union were given prominence in different sectors, such as food production in Ukraine and agricultural machinery production in Belarus (Shaw 1999; Sokol 2001). Five-year plans were produced, to which each enterprise had to adhere, despite Moscow having imperfect information about local conditions, such as which land was suited to different types of agricultural production (Shmelev and Popov 1990). As Davies (2001) states, massive divisions existed between ministries who were competing for resources and power within the government, rather than working for a common social good, and overall there was not a culture of innovation (Berliner 1978). The lack of investment in mass communications and information technology made it increasingly difficult for the centre to know what its branches were doing (Colton 1986), and often managers would simply falsify information to be sent to Moscow (Anderson and Boettke 1997). As Ledeneva (2006) states, the system could be cheated in many ways.

In short, the system did not work as planned, there were huge geographical differences within it and it was not able to move towards intensive modes of production (Ofer 1987). Furthermore, and as McAuley (1979) notes, there were wide differences in pay within the Soviet Union, which belied the system’s commitment to equal reward for labour (Round 2006). Overall, the command economy operated differently to the way suggested in textbooks and there were significant variations within it.

Officially, poverty could not exist within the Soviet system as this would undermine the ideological superiority of the socialist system (Matthews 1986). Furthermore, as those of working age were, unless categorised as unable to work, legally bound to undertake paid employment and as the state, through enterprises, provided a comprehensive ‘cradle to the grave’ welfare system (Ashwin 1999), it would have been a major failing of the system if poverty did exist. It was commonplace in the early literature examining post-Soviet social marginalisation to state that poverty was at a very low level at the Soviet Union’s collapse, with often the Goskomstat figure of 1.8 per cent of the population living in poverty in 1991 cited when comparisons are made to post-Soviet levels of poverty (Klugman and Braithwaite 1998). However, the reality was markedly different. In the early Soviet period, 60,000 families were monitored and analysts were allowed to publish material from the data. However, in the late 1920s this was stopped and words such as poverty and slum were officially banned (Matthews 1986). This is not to say that the Soviet authorities were not aware of the problems of everyday life and the term ‘under provisioning’ was coined as a more ideologically palatable alternative to ‘poverty’ (Round and Kosterina 2005). Under this schema, which was only introduced in the early 1970s, social transfers were made to those whose household income was below a certain level, mainly those with more than one child. It was, of course, extremely difficult given the secrecy and lack of data on the issue to ascertain a true poverty figure for the Soviet Union. Sarkisyan and Kuznetsova (1964) calculated that the average household income with two workers was 178 roubles per month. For a family with two children, the subsistence figure was 205 roubles per month, suggesting that the average family would be experiencing serious economic marginalisation.

As Mathews (1986: 2) asserted, ‘Soviet poverty is nothing like Third World poverty but its scope is breathtaking.’ He discusses how the state calculated that the average Soviet household spent 3 per cent of their income on housing. However, surveys of émigrés suggested that the figure was closer to 10 per cent. Sarkisyan and Kuznetsova (1964) discuss how as many as 20 per cent of the population did not have a suitable winter coat, and points out that the true cost of household repairs were far above the state-set costs, which meant many struggled to make such repairs. Matthews’ (1967) émigré survey saw 45 per cent reporting that they had seen people begging. Estimations of realistic Soviet poverty levels, understandably, vary greatly. Urlanis (1966) noted that only 3.8 per cent of single people and 5 per cent of couples without children could be considered poor, but 21 per cent of families with children and 25 per cent of single-parent families. Rimashevskaya (2006: 120) suggests the level was even higher when she states: ‘Our studies showed that in the late 1960s the share of under-provisioned (‘poor’) made 29.7% of the total population, in the late 1970s 32.1%, and in the late 1980s 38.9%.’

What is clear is that given the closeness of the average wage and the poverty line, many families lived extremely close to economic marginalisation (Rimashevskaya and Onikov 1977). Compounding this situation was the shortage of food and consumer goods. As Alexeev (1986) notes, the need to queue for goods was an alternative form of inflation. As the state controlled prices, their cost could not reflect their demand and thus people had to queue for them (Nordhaus 1990). Most anthropological work on the Soviet era notes the role of the queue and the time that, mostly women, had to devote to securing enough food for the household (Bogdanov 2012; Humphrey 2002; Shevchenko 2009). While there is no data available for the amount of time that was spent queuing, interviewees for this book who were old enough to do so during the Soviet period all discussed how it was a major drain on their time. As one interviewee said,

Shortages were not confined to food, with the vast majority of consumer goods, from clothing to windscreen wipers, in short supply (Morton 1980). As Ledeneva (1998: 28) states, from personal experience, queues were an ‘omni-present’ part of everyday life. Therefore, it was commonplace in the Soviet Union for households to suffer from both economic marginalisation and a shortage of goods. To cope, they often turned to the informal economy.

Informality in the former Soviet Union

It is somewhat of a cliché that the Soviet Union was typified by high levels of state control of the everyday. However, managers at all levels realised that if serious attempts were made to constrain the informal economy, then social unrest would soon follow (Matthews 1967). Although it is difficult in all economies to ascertain the size of the informal sector, this was especially difficult in the Soviet Union as it officially did not exist and there were strict controls on the forms of research that academics could undertake (Weinberg 1974). It is clear, however, that informal practices were an extremely important part of everyday life and were culturally different to informal practices in market economies.

First, informal practices were often undertaken for free, or for exchange, as money had relatively little value given the shortage of goods to purchase. It was much more important to have a wide network of friends and acquaintances that could be called upon in a time of need, and a commonly heard phrase at the time was ‘it is better to have a hundred friends than a hundred roubles’. The Russian term for this use of connections is blat, which implies an obligation to repay the favour when someone has helped you, such as when they need assistance to acquire a good or service (Ledeneva 2006). The second difference between informal practices in Soviet compared with western economies was its omnipresent nature. Ledeneva (2008: 123) discusses how blat was needed to negotiate almost all aspects of life, from the ‘everyday’ such as obtaining food, through ‘periodical events’ such as holidays and ‘life-cycle’ events such as obtaining kindergarten places, to helping others. As she states, ‘blat were required to satisfy all four types of needs. Their pervasive use as a “safety-net” or “survival kit” made involvement in informal practices compulsory rather than voluntary’ (Ledeneva 2008: 123).

Grossman (1977) argues that the need to engage in the informal economy increased as economic stagnation took hold of the Soviet economy from the early 1970s. Although blat was extremely important to everyday life, there were also instances of informal work undertaken for cash in hand. The majority of such work was nominally illegal as only certain practices were allowed under Soviet law, such as the sale of domestically grown food, tutoring and the repairing of clothes. Wage labour for other activities and individuals was not permitted and nor was the buying and reselling of goods for profit. Using Soviet family budget surveys and national accounts, Kim (2003) estimates that between 1969 and 1990 the average percentage of informal income as a proportion of total income was 16.3 per cent. This he notes equated to 6.8 per cent of Soviet GNP and that there were sizable differences in informal activity between Soviet states. Bartlett (1990) suggests that the figures were even higher, ranging from 38 per cent in Soviet Russia to 67 per cent in Belarus. In the sphere of housing, O’Hearn (1980) estimates that 70 per cent of home repairs were conducted in the informal economy. Therefore, it is clear that the informal economy was a key part of Soviet life.

A sizable share of informal work was undertaken through the workplace. This took the form of either stealing products for exchange within blat networks (Sampson 1987) or using company time to undertake informal work or to queue for goods (Ashwin and Clarke 2003; Gregory 1987; Zaslavskaia 1987). The state turned a blind eye to such practices because, as Sampson (1987: 120) notes, ‘The second economy helps to alleviate consumer shortages and bureaucratic bottlenecks in all these societies. It also acts as a social mollifier, channelling dangerous political frustrations into consumerism, swindling, or petty corruption.’

Furthermore, as Harrison (2002) notes, there simply was not the capability or capacity within the state system to monitor it effectively. Thus, the state had the choice of either spending enormous resources on monitoring systems, or accepting that there would be theft. Given the Soviet Union’s economic slowdown, the former was never a realistic option. Both Kiblitskaya (2000) and Ashwin (1998) discuss how the shortage of skilled labour also empowered workers, allowing them to be absent in the knowledge that their employer could not afford to dismiss them. Such practices led to the oft-heard phrase ‘you pretend to pay us and we pretend to work’, indicating the almost tacit bargain that as long as workers were there when plans needed to be fulfilled, managers would turn a blind eye to informal practices during quieter periods. Labour turnover was high as workers moved between enterprises looking for the most favourable conditions, both in terms of pay and benefits, but also for blat opportunities. Gregory and Stuart (1994) estimate that approximately 20 per cent of the workforce changed employment per year, with those who moved often in search of informal opportunities termed ‘rolling stones’.

People interviewed during the course of the fieldwork for this book who had worked in the late Soviet period all recounted how they had to spend increasing amounts of time acting informally as consumer shortages increased. As one asserted,

There are many reasons why the Soviet Union and the state collapsed, but there is little doubt that the form of its economy was a significant cause (Åslund 1995; Beissinger 2002; Graham 1993; Sakwa 1999; Suny 1994). As Sampson (1987) perceptively noted, tolerating such high levels of informal activity for social reasons did not help the formal economy in the long term as it only replicated its problems. What is also clear is that the Soviet Union’s economic form at its collapse was a long way from the textbook definition of a command economy. Informal practices were rife and there were wide geographical variations in both the formal and informal spheres across the Union. Therefore, it is possible to state that as the Soviet Union collapsed, there was not a single point from which the move towards a market economy began, but rather a multitude of histories, geographies, legacies and competing practices.

The Soviet Union’s collapse and the rise of the Washington Consensus

While there were myriad reasons for the Soviet Union’s collapse, the rapidity of its disintegration was a surprise (Strayer 1998), despite the plans for radical economic reform developed in the late 1980s, such as Shatlin and Yavlinsky’s ‘500-day plan’ aimed at the economy’s liberalisation. The failure of the command economy was met with triumphalism among western politicians and economists and was, now infamously, declared as the ‘end of history’ as it demonstrated the superiority and inevitability of the western neo-liberal economic model (Fukuyama 1992). As Wedel (2001: 2) notes ‘The thinking of the day was that “we” had a once in a lifetime window of opportunity to effect change’, and post-Soviet states were now seen as a tabula rasa from which it was expected that a market economy would ‘spring forth like a deus ex machina’ (Burawoy 1998: 303).

As well as demonstrating the west’s economic superiority, the collapse was also seen as an ideological vindication for the Cold War. Therefore, it was seen as crucial that in the newly independent states, and especially in Russia, given its leading role in the Soviet Union and its nuclear capability, that the communists could not come back into power at any cost. The Soviet collapse was also seen as an opportunity for western firms. It was assumed that new, lucrative markets would open up in Russia’s resource-rich regions and that it represented a ‘wild frontier’ ripe for exploitation (Freeland 2000; Sidaway and Power 1995). However, while espousing free-market rhetoric towards the east, western countries were rapidly erecting barriers to ensure that their markets were not flooded with cheap imports from the former Soviet republics (Christiansen et al., 2000).

How, though, could a market economy be created in the post-Soviet spaces? As Stenning (2005) notes, there were numerous implausible internal plans to transit to the market within 100 days of the Soviet Union’s collapse. However, given the political turmoil, together with the economic crisis engulfing the region, outside assistance was always going to be required. From 1989, the countries of Eastern Europe had been moving towards market-based systems with the assistance of organisations such as the World Bank and IMF (Rodrik 2006). The policy prescriptions broadly followed those which had been implemented earlier in the decade in South American countries such as Argentina and Brazil in attempts to reduce budget deficits, liberalise economies and encourage privatisation. The package of policies were termed the Washington Consensus as they were ideologically led, as well as financed and consulted upon, by US economic officials and the IMF and World Bank, all of whom are based in Washington (Stiglitz 1998). Williamson (2009), who is credited as the first to use the term in 1989 before a congressional hearing, stated that the consensus coalesced around ten points regarding how economies should be reformed: fiscal discipline; the reordering of public expenditure priorities; tax reform; liberalising interest rates; a competitive exchange rate; trade liberalisation; the liberalisation of inward foreign direct investment; privatisation; deregulation; and secure property rights. In short, the state should divest itself of control of the economy and countries should open up to international competition. In return for loans, which were desperately needed to pay social benefits, recipient countries had to agree to undertake reforms based around these ten points.

Given the reforms’ relative economic success in South America, it was ‘logical’ that they be transposed onto the newly independent countries of Eastern and Central Europe (Lane 2007; Rodrik 2006). As Gabrisch and Hoslscher (2006) note, the political reforms of the time were looking for an economic basis and the Washington Consensus provided this. With Central and Eastern Europe undertaking the above-mentioned reforms, it was again ‘logical’ that as the Soviet Union collapsed and began desperately to look for new economic forms and financial support, that the Washington Consensus move even further east (Kolodko 1999; Solimano 1998; Smith and Swain 1998). As noted above, western economic thinking on the reform of centrally planned economies ignored their diversity and thus reforms were introduced in a blanket fashion (McCleery and De Paolis 2008; Suzuki 2001). For example, Poland had experience of the market economy prior to its submergence into the socialist system. Therefore, when it began its move towards the market it had legislation that it could immediately re-enact. While such legislation was not ideal, it provided a basis around which market-based relations such as property rights could be developed. Such countries were thus able to adopt a market framework very quickly, whereas in Russia and elsewhere across the former Soviet Union, such institutions had to be developed from scratch.

This would be difficult enough under normal circumstances, but given the political turmoil, economic collapse and the developing oligarchy who wished to steer institutional development to their benefit, it was an almost impossible task (Wedal 1998). Notwithstanding this, Russia began the reform process based around the ‘four pillars of transition’ (Gros and Steinherr 1995; Round 2009), namely:

1   Liberalisation:

• The freeing of the economy from state control and political influence. The state can no longer dictate what, where and how much is produced or where it can be sold.
• Prices are to be determined by the laws of supply and demand. Subsidies on goods must be removed and prices for services brought into line with world levels.
• Regional subsidies must be curtailed.
• The use of barter between enterprises should be eliminated.

2   Stabilisation:

• As the state withdraws from the economy it must also curb its expenditure. This entails a reduction in the size of the state apparatus and a decrease in spending on social safety nets.
• The state should avoid excessive borrowing and living beyond its means.
• It should implement a strict monetary policy to control inflation and create a stable currency.
• Myriad laws are implemented for the whole system to work, making it an extremely complex and time-consuming process.

3   Privatisation:

• The state must divest itself of ownership of the means of production. This is to be achieved through privatisation schemes, open to both foreign and internal competition.
• The state should create conditions for the formation of new private enterprises.
• It is preferable that employees have the opportunity to become stake-holders in their enterprises through voucher privatisation schemes.
• Monopolies are to be dismantled.

4   Internationalisation:

• The domestic economy must be opened up to international competition.
• Conditions must be created to encourage foreign investment, such as legal norms, property rights and a trust culture.
• International standards for accounting, custom duties and tax must be developed.
• A stable, convertible currency must be introduced.

Perhaps the biggest ideological issue was the timing of the reforms. Gradual reforms, and continued state involvement in the economy, would protect the population from the worst impacts of economic reforms, known as the ‘Chinese model’ (Burawoy 1996). However, this was rejected by the reformers primarily because of a concern that if the reforms were not enacted as a ‘big bang’, then the communists would be voted back into power by an electorate disaffected by the social outcomes of transition (Burawoy and Verdery 1999). Furthermore, as Stenning (2005) states, it was assumed that every aspect of the Soviet system would have to be disregarded.

The focus of both domestic and international policy was on erasing and ignoring the institutions, practices and geographies of socialism, which were deemed to have failed, and building a new social, economic and political system ‘from scratch’. Such approaches rested on viewing East-Central Europe and the former Soviet Union as a tabula rasa, primed for ‘capitalism by design’. It was assumed that the power of the market would automatically lead to the rapid rise of the institutions, regulations, cultures and practices that are necessary for the efficient functioning of a neo-liberal market (Smith and Swain 1998). Even the most optimistic of reformers acknowledged that there would be considerable social costs. However, they assumed that it would only be temporary and that economic growth would bring prosperity to the majority in a short space of time (for critiques of such approaches, see Berardi 2001; Escobar 1995; Pender 2001). However, as Crisp and Kelly (1999: 534) state:

The Russian ‘big bang’ was enacted in January 1992 and the social impacts were immediate. In Russia price liberalisation led to hyperinflation, over 2,600 per cent in 1992, wiping out savings and real incomes and wages and social transfers went unpaid for extended periods. Concurrently, life expectancy for men fell from 64 to 58 years old within a decade, with suicide, murder and alcohol abuse rates all soaring (Syrinov 2003). Ukraine suffered arguably even more severe impacts, as by 1993 inflation had reached almost 10,000 per cent per annum (Åslund 2002), again destroying savings and real wages; and, epitomising the chaos, it was not until 1996 that the first post-Soviet bank notes were introduced (Wilson 2005). As one Ukrainian interviewee recalled,

Given the complexity, unpopularity, scale and general chaos surrounding the reforms, it is no surprise that the ‘big bang’ was only partially enacted. As noted above, price liberalisation was introduced, but in both Russia and Ukraine, regional governments attempted to control prices and subsidies remained in place in order to provide some form of social protection (Koen and Phillips 1992). Attempts at macro-stabilisation were deeply flawed, with money supply constricted simply by not paying state employees, suppliers or pensions, with the failure to enforce hard budget constraints allowing bankrupt enterprises to continue operating (Broadman 1998; Freeland 2000; Hoffman 2011). Internationalisation was also stymied as foreign trade and investment remained heavily regulated and the financing of imports by export credits and foreign investment regulations were at best opaque.

On one level it seemed as if Russia’s privatisation schemes were successful. By the end of 1992, over 60,000 enterprises were privately owned, compared with only 70 in 1991, and by the end of the following year two-thirds of all state assets had been transferred to private enterprises. However, as Wedel (2001), Lane (2000), Hoffman (2011) and Freeland (2000) all discuss at length, the privatisation processes were deeply flawed and the main concern was the divestiture of assets to ensure the communists could not return to power. To whom, how and for how much the assets were sold was of secondary concern. This was crucial as the reforms’ increasing unpopularity saw communist politicians, sensing that they might be able to regain power, withdrawing their support for the process, and by the end of 1992 it appeared that the reform process would grind to a halt. It was only revived when Yeltsin won a nationwide referendum on his position and policies in 1993, though gaining only 53 per cent support for the reform process (Åslund 2011). However, the Russian government was at this point effectively economically bankrupt. In order to pay wages and pensions it borrowed money from Russian entrepreneurs in return for the lender ‘managing’ the enterprises that were exploiting the country’s natural resources. As the government was unable to repay, the ‘loans became shares’ and control of the country’s natural resources was passed to a new oligarch class (Freeland 2000). This led to the creation of, rather than a market economy, what has been variously described as systems of ‘economic involution’ (Burawoy et al. 2000), ‘chaotic capitalism’ (Lane 2000), ‘virtual economies’ (Gaddy and Ickes 1998) and ‘a Weberian political capitalism’ (Hanson and Teague 2007). These are rather different to visions of the ‘messianic reforms’ that were implemented in the early 1990s with the faith that market reform would occur (Burawoy 2001).

The end of transition?

Despite this variety of capitalisms developing in former socialist and Soviet countries (Lane 2007), the international economic community still felt able to ascertain whether they had ‘achieved’ market status. Åslund (2007: 277) argues that the ‘empirical evidence is strong’ that Russia ‘became a market economy after a couple of years of transition’. He argues (emphasis added) that

Language such as ‘normal Western’ reiterates the notion that the transition project assumed that post-Soviet states should become more like the west, despite the many varieties of capitalism they could have followed. It is quite incredible that a country with an inflation rate of approximately 2,500 per cent, as Russia endured in 1992, could be classed as ‘an intermediary market economy’. The EBRD (2012) produces scorecards on transition indicators, macroeconomic indicators, structural change indicators, transition development snapshots and now uses a range of 1 to 4+ ‘where 1 represents little or no change from a rigid centrally planned economy and 4+ represents the standards of an industrialised market economy’. Large-scale privatisation, for example, is measured thus:

1    little private ownership;

2    comprehensive scheme almost ready for implementation – some sales completed;

3    more than 25 per cent of large-scale enterprise assets in private hands or in the process of being privatised (with the process having reached a stage at which the state has effectively ceded its ownership rights), but possibly with major unresolved issues regarding corporate governance;

4    more than 50 per cent of state-owned enterprise and farm assets in private ownership and significant progress with corporate governance of these enterprises;

4+  standards and performance typical of advanced industrial economies – more than 75 per cent of enterprise assets in private ownership with effective corporate governance.

Russia is currently rated at 3, as is Ukraine (EBRD 2011), which recognises the issues surrounding corporate governance in both countries. However, in the mid-1990s the former enjoyed a rating of 4. The issue here is that while such rankings provide interesting comparisons between countries, they reveal little about the actual workings of the processes and practices they rank. As Myant and Drahokoupil (2012: 71) note,

There is nothing in such ratings about the scale and nature of informal practices and almost nothing about the social impacts of the reforms. The main reflections on social change can be found in the ‘transition development snapshots’ which look at expenditure on health and education as a share of GDP, household spending on power and water and poverty levels. While all are problematic, the latter is particularly so; for both Russia and Ukraine the poverty levels are stated as 3.7 per cent. This figure seems impressive until the methodology is revealed, as it is based on the UN’s $2 per day calculations. For Russia this equates to approximately 1,900 roubles per month, which is three times lower than the already unrealistic state subsistence minimum figure, and therefore has no relevance at all to realistic conceptualisations of poverty in Russia.

Why does this matter? First, such rankings reiterate that there is an end point to reforms, that transition is complete when a certain ‘score’ is reached. Indeed, the authors of this book were in Ukraine when the EU bestowed market economy status on the country, after it met certain quantitative criteria (Kuzio 2006). This was met with some bemusement from interviewees at the time who saw on a daily basis that their economic practices were often far from the market. The market status was erroneously used by the state to imply that EU membership could be achieved soon, a powerful political tool among voters. Such statements were popular but not as popular as the government thought. Rather than reflecting the progress the country was making, interviewees saw it as a way to leave the country to live and work in a ‘more normal economy’. As one stated,

Russia was granted market status in 2001 but did not gain entry to the World Trade Organisation (WTO) until 2012.

Second, there is no room for the informal economy in such discussions, apart from the fact it is a sign of progress if its share of the economy declines. As the above quote shows, informality, in the form of corruption, was, and still is, a major part of everyday post-Soviet life, but scorecards and other such mechanisms struggle to incorporate such issues.

Third, they do not reflect the social outcomes of the reforms. Russia privatised quickly, but the way in which it did so placed the country’s wealth in the hands of a few individuals. Attempts were made to ensure that employees shared the spoils of privatisation, but very few did. A voucher scheme gave employees shares in their enterprise but few understood the mechanism and/or they were so desperate for money to feed their families they sold their shares as quickly as possible. This allowed those with some capital to quickly take overall control of enterprises and the vast majority of the general public saw little benefit (Freeland 2000; Hoffman 2011). As Gilman (2010) argues, the reforms took place in a vacuum where political, economic and social relations were being reformulated almost daily and hyperinflation rendered savings meaningless. As one interviewee asserted,

As Wilson (2005) notes, it was easy for enterprises to make a profit if they ‘forgot’ to pay their workers or paid them late, allowing inflation to reduce the value of what they had to pay. However, if the enterprise was privatised, it was seen as progress by organisations such as the EBRD.

As the 1990s progressed and the socio-economic problems Russia and Ukraine faced as a result of the shock-therapy approach showed no signs of abating, the Washington Consensus’ theoretical underpinnings came under increasing scrutiny. It was now recognised that the market reforms could not be expected to work deus ex machina without strong institutions to guide them. Gilman (2010), the IMF’s senior advisor to Russia between 1996 and 2000, argues that another key problem was the state’s weakness, which occurred as the reforms happened in a vacuum, with the state reconstituted alongside and often behind the economy. The lack of strong state functions and institutions ensured, for example, that corruption flourished (Levin and Satarov 2000), political patronage superseded the legal process (Hoffman 2011) and that the oligarch class had undue power over the political everyday (Wedel 2001). The World Bank acknowledged that it had been too simplistic to expect fully functioning market economies to form without state guidance, with Stiglitz (1998: 1), then the World Bank’s chief economist, stating in 1998:

Furthermore, given the chaos of the early reform period, it was totally unrealistic that the benefits of the reforms would reach the majority quickly. As Gilman (2010: 7) states, ‘we suffered a collective myopia in believing that a few years would be sufficient in turning things around’. The publication of ‘Beyond the Washington Consensus: Institutions Matter’ (Burki and Perry 1998) was the beginning of international aid agencies taking a more micro-economic approach to market reforms, with an emphasis on reducing corruption and strengthening the institutions which guide market development. It also saw a recognition that geography matters, which was crucial because, as McCleery and De Paolis (2008: 23) argue in their ‘post-mortem’ of the Washington Consensus,

The policies arising from this theoretical shift became known as the post-Washington Consensus, where it was recognised that the state did have a role to play in market economies, with particular reference to the regulation of financial markets and areas where the market struggles, such as education and healthcare (Cowling and Tomlinson 2011). This shift coincided with one of the longest periods of overall global economic growth, and the role of institutions such as the IMF was beginning to be questioned as states often preferred now to turn to the market to raise capital (Maier 2007). On the basis of high oil revenues, Russia became a ‘middle-income’ country and a net donor of international aid, vindication that the transition path was complete and that it had been the correct one to take (Sutela 2012).

Conclusions

This chapter has argued that the transition or transformation debate is reduced by some to merely a semantic argument. Its relevance, however, has been brought sharply back into focus at the onset of the current global economic crisis. This enables us to pose a provocative question: are we all Russians now? Virtually overnight, austerity reforms within the majority of EU states saw notions of education, work and retirement change, conceptually at least. The removal of security, the decreasing real worth of pensions, the absence of ‘decent’ work, and subsequently the need to find alternative forms of income, leading to a rise in informal practices within the EU, is eerily reminiscent of the early post-Soviet period. While there is not the same level of political upheaval, there is a political stasis as technocrats come into power with the remit of withdrawing the state from society. Perhaps most perturbing, however, is the return of institutions such as the IMF without debate or reflection. In order to obtain loans, countries such as Greece and Spain have had to agree to far-reaching reforms, such as the slashing of public spending and privatisation of state assets. This seems to be a return to the Washington Consensus form of reform, with the ideas of the post-Washington ideology, such as the stronger role of institutions to help regulate the market and to protect the most vulnerable, being forgotten with no reflection on the social costs that this ideology produced n the post-Sovet spaces or the forms of economy that emerged post-reform.

Güven (2012: 869–870) argues that although the then MF’s managng director Domnque Strauss-Kahn descrbed the crss of 2008 as a ‘year of humility’, the response of such organisations can be seen as ‘paradigm renewal’. Labelling the current reforms a Berlin–Washington Consensus, Fitoussi and Saraceno (2012: 2) argue that ‘the European Union has gone farther than any other country or institution in internalizing the prescriptions of the Washington Consensus’. It is clear, therefore, that the transition/transformation debate is much more than a semantic discussion. Within the current reform prescriptions there is no discussion of the variety of capitalisms that exist across the globe or the role of informal practices within everyday life, bar that the informal economy plays a negative role in economic development. Therefore, it is imperative that debates on the nature of economic reform are kept alive and that lessons are learned from previous outcomes. With this in mind, the book now turns to re-theorising ‘the economic’ before exploring in depth the informal practices that have developed as a response to the post-Soviet reforms implemented in the early 1990s.