Lawlessness From Above and Below: Economic Radicalism and Political Institutions

Abstract

Lawlessness from Above and Below: Economic Radicalism and Political Institutions Mitchell Orenstein (bio) The recent debate over crime in Russia has become a touchstone for two competing notions about the role of political institutions in economic reform. The problems of Russia - its overnight transformation into a world center for narcotics distribution and money-laundering, its burgeoning murder rate, and its dangerous free markets in nuclear material and grenade launchers - have increased awareness that well-ordered market economies depend upon strong, legitimate, and liberal state institutions. There is fundamental disagreement, however, on the prospects of such institutions arising in Russia. Will the development of efficient courts and legitimate political institutions simply take a little more time? Or has the rampant criminality of the past decade brought about a merger between criminal and bureaucratic forces that will rule Russia for decades to come? With so much at stake in the answers to these questions, the issue of Russian crime has cut to the center of debates over the method and sequencing of radical economic reform. Neo-classical economists argue that fast reform will lead to a quicker reduction in crime rates (and a faster return to economic growth), thus minimizing the importance of institutions and interests created [End Page 35] during the transition. Historical-institutionalist scholars, however, argue that it is the provisional that endures; Russia may never bounce back to a law-abiding equilibrium if corrupt, criminal structures are established during the current “Wild East” period of capitalism. Has fast reform created the right incentives for an orderly capitalist economy to develop? Or has it opened the door to a tyranny of the strong over the weak? While neo-classical economists celebrate the capitalist cowboy bandits and urge patience, institutionalists gaze nervously at the horizon, waiting for the cavalry to come. This article will argue that the dominant method of neo-classical economic reform in the world today - shock therapy - has actually contributed to the prevailing atmosphere of lawlessness in contemporary Russia. Shock therapy is “a revolutionary strategy for the complete reconstruction of the economic arrangements of a country” 1 that relies for its enactment on a high (and often increasing) degree of executive power. Shock therapy is more than the specific set of economic measures summed up in the slogan “stabilization, liberalization, privatization.” As Jeffrey Sachs has explained - and as the experiences of countries that have undergone it affirm - shock therapy includes a political strategy for implementing radical economic measures. 2 This strategy emphasizes speed in pushing reform through a “window of opportunity” created by extraordinary political events. It suggests that reformers be isolated from political pressures during the planning and implementation of their program, and granted the power of decree when necessary to overcome opposition by entrenched interest groups. This lack of accountability is thought to enable shock therapy reformers to impose socially-optimal policies more effectively than normal democratic procedures. Otherwise special interest groups linked to the old system could use democratic institutions cynically to undermine necessary reforms. 3 However, a side-effect of shock therapy in Russia, as elsewhere in the developing world, has been to weaken legal institutions by degrading the powers of the legislature and extending the use of executive decrees. This serves to de-legitimize state power, erode the democratic basis of state authority, undermine the fiscal capacities of the state, and, thus, to destabilize the political system over the long term. Shock therapy’s methods of lawlessness from above cannot engender respect for rule of law from below. [End Page 36] This article will show that neo-classical economists as well as Weberian political sociologists have come to agree that strong legal institutions facilitate development. If this emerging consensus is correct, then economists need to seriously reconsider the fundamentals of their previous transition strategies. If building liberal state institutions is crucial, then why support deep cuts in public sector wages for judges and police? Why advocate and participate in the use of extra-legal means to achieve radical reform? To assist in the creation of law-based market economies, it is necessary to promote parliamentary alternatives to the top-down methods of shock therapy. Markets, States, and Crime From the beginning of the...