Post-cold warPost-communist depression

A new analysis showing how the radical policies advocated by Western economists helped to bankrupt Russia and other former Soviet countries after the cold war has been released by researchers.

The study, led by academics at the University of Cambridge, is the first to trace a direct link between the mass privatization programs adopted by several former Soviet states, and the economic failure and corruption that followed.

Devised principally by Western economists, mass privatization was a radical policy to privatize rapidly large parts of the economies of countries such as Russia during the early 1990s. The policy was pushed heavily by the International Monetary Fund, the World Bank, and the European Bank for Reconstruction and Development (EBRD). Its aim was to guarantee a swift transition to capitalism, before Soviet sympathizers could seize back the reins of power.

A University of Cambridge release reports that instead of the predicted economic boom, what followed in many ex-communist countries was a severe recession, on a par with the Great Depression of the United States and Europe in the 1930s. The reasons for economic collapse and skyrocketing poverty in Eastern Europe, however, have never been fully understood. Nor have researchers been able to explain why this happened in some countries, like Russia, but not in others, such as Estonia.

Some economists argue that mass privatization would have worked if it had been implemented even

more rapidly and extensively. Conversely, others argue that although mass privatization was the right policy, the initial conditions were not met to make it work well. Further still, some scholars suggest that the real problem had more to do with political reform.

Writing in the new, April issue of the American Sociological Review, Lawrence King and David Stuckler from the University of Cambridge and Patrick Hamm, from Harvard University, test for the first time the idea that implementing mass privatization was linked to worsening economic outcomes, both for individual firms, and entire economies. The more faithfully countries adopted the policy, the more they endured economic crime, corruption and economic failure. This happened, the study argues, because the policy itself undermined the state’s functioning and exposed swathes of the economy to corruption.

The report also carries a warning for the modern age: “Rapid and extensive privatization is being promoted by some economists to resolve the current debt crises in the West and to help achieve reform in Middle Eastern and North African economies,” said King. “This paper