In the last 20 years since the breakup of
the Soviet Union many post Soviet economies like my home country Russia have struggled
to reach economic prosperity. This has led some people to question the virtues of free
market capitalism. I would argue that it has not been a failure of free market capitalism,
but rather a failure to create the right conditions where capitalism could prosper. Therefore
the right question we should be asking is why did some post Soviet economies grow so
much faster than others? The more successful transition economies are
conscious like Azerbaijan and Poland with average GDP growth rates of over 4%. These
transition economies also tends to be located on the outer edge of the Soviet bloc where
corrupt Soviet [inaudible 00:00:58] institutions did not take root.
The more successful countries also tend to have more economic and political freedoms,
lower levels of corruption and inflation and more transparent government institutions.
All these features help capitalism to succeed. Conversely countries with relatively dismal
economic performance like Russia, Ukraine, Belarus and some central Asian states have
not grown this fast because they have not created a market friendly environment. These
poorly performing states tend to have high levels of corruption and inflation, low levels
of economic and political freedoms and poorly defined poor enforced property rights.
All of those problems make capitalism less successful. In addition to that oil revenues
tend to mask the economic problems these nations face and make their governments more reluctant
to reform. While many post Soviet economies now have large private markets they are still
a long way from having a true market economy. In that sense the dismal economic performance
countries like Russia is the result of inadequate reforms rather than a failure of capitalism.
Free market capitalism never had a chance to succeed in countries like Russia and it
will never will unless the market reforms are implemented.