Friday, January 23, 2009

Lancet rebuttal

Ex-communist reform

Mass murder and the market

Jan 22nd 2009
From The Economist print edition

Economic reform in Russia was accompanied by millions of early deaths. But it was not the cause

MATCHES and even salt were in short supply as the Soviet empire’s planned economies collapsed two decades ago. But blame was plentiful then and now. Millions of people—chiefly men in late middle age—died earlier than their counterparts in other countries. That drop, of fully five years in male life expectancy between 1991 and 1994, demands explanation. A newly published article in the Lancet, a British medical journal that in recent years has used epidemiological analysis to examine political and social questions, argues that the clear culprit was mass privatisation (distributing vouchers that could be swapped for shares in state-owned enterprises). A statistical analysis, it says, shows that this element of the economic-reform package, nicknamed “shock therapy”, clearly correlates with higher mortality rates.

That, says the Lancet, was a shocking failure. It argues that advocates of free-market economics (it cites an article in this newspaper by the economist Jeffrey Sachs) ignored the human costs of the policies they were promoting. These included unemployment and human misery, leading to early death. In effect, mass privatisation was mass murder. Had Russia adopted more gradual reforms, those lives would have been saved.

In fact the blame game must start at the beginning. Why was the Soviet economy in ruins by 1991? Partly because planned economies don’t work (blame Lenin and Stalin for that). Partly because the gerontocratic leadership of Leonid Brezhnev failed to start reforms in the early 1970s, when gradualism might have had a chance of succeeding. By the time Mikhail Gorbachev initiated perestroika and glasnost in the late 1980s, the Soviet Union was all but bust. Worse, by running the printing presses red-hot, his government created a colossal monetary overhang. Russians may have thought that their savings evaporated when prices were liberalised at the start of 1992; in truth, their cash was already worthless.

The second question is the effect of all this on mortality. Soviet public-health statistics show a clear decline from 1965 to the early 1980s, with rising deaths from circulatory diseases (because of poor diet, smoking and, especially, drinking). Mr Gorbachev’s anti-booze campaign—although hugely unpopular—raised life expectancy by fully three years between 1985 and 1987. After 1992 the state monopoly on alcohol (and health checks on its quality) collapsed. As anybody who lived in Russia at the time will recall, the effect was spectacular—and catastrophic. Death rates returned to their long-term trend.

The thorniest question is about economic policy mistakes after 1991. In retrospect, the West failed to prepare for the Soviet collapse. It took too long to recognise that Boris Yeltsin’s first government deserved trust, pressing it too hard on debt repayments and being too stingy with aid. Then it made the opposite mistake, being too trusting and generous when Russia was becoming more hawkish and looting was endemic. Mass privatisation broke the planners’ grip but failed to create the hoped-for shareholder democracy.

Yet the Lancet paper seriously misunderstands both the timing and the effects of economic reform. It states quite wrongly that “Russia fully implemented shock therapy by 1994”. As it happens, in that year life expectancy started rising. But in any case reforms were by then bogged down and advisers such as Mr Sachs had quit in despair. Moreover, mass privatisation had little immediate effect on jobs—or much else. Most Russians exchanged their vouchers for trivial amounts of cash, or even vodka. That may have been marginally bad for their health—but it does not explain the huge jump in the death rate.

Correlation is not causation. Mass privatisation was not the most important or effective part of “shock therapy” and the rise in death rates is out of synch with efforts at economic reform. Furthermore, countries that successfully applied shock therapy, such as Poland, saw improved life expectancy. So did the then Czechoslovakia, which plumped for mass privatisation, albeit not very successfully. Mistakes were made, but Russia’s tragedy was that reform came too slowly, not too fast.

1 comment:

János said...

You may be interested to know (as an Eastern Europe specialist) that the same kinds of reforms that were responsible, according to the Lancet article, for a decline in Russian life expectancy, in the early nineties are now seriously being proposed (again) to ease the economic pain in Hungary, by the former Minister of Finance, Lajos BOKROS.