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With the collapse of the Soviet Union two decades ago, the newly-emerged independent states rushed to adopt capitalism and establish free–market system as quickly as possible. They believed it would pre-determine the economic growth and higher standard of living for everybody. The reality, however, turned to be far more complex. All former Soviet states experienced GDP fall and fierce inflation, income gap had widened substantially and many people fell below the poverty line. The apparent failure of capitalism in those newly emerged countries initiated discussions on whether the economic model of the free market capitalism itself was a flawed one. The debate over the topic has only intensified in the view of the recent global economic crisis.
Is the free market capitalism to blame for the economic malfunctioning in the former Soviet states? Do benefits of this economic system outweigh the costs? Could former Soviet states have been better off not adopting free market capitalism? Is it the best economic system currently available? The debate on these issues is ongoing.
Supporters of the motion argue that the experience of former Soviet states evidently demonstrates the inapplicability of ‘one-size-fits-all’ approach when it comes to the choice of the optimal economic model for a country. Free market capitalism may be good for some countries but absolutely detrimental for others. Prior to the attempts of replacing central planning with individual choice, one should ensure that stakeholders are ready for such a transformation. Post Soviet states were completely unprepared for capitalism. Privatization took place in societies with no managerial or organizational experience except for that acquired in the communist party apparatus, the KGB or the black market. Insistence by western advisors on rapid privatizations resulted in the stripping of assets from what might otherwise have been viable firms. Neither people were provided with time necessary to understand the implications of private property nor did the state have revenues to continue to support the social sphere in a time of transition.
Free market capitalism not only failed its promise to deliver higher standard of living but actually worsened the people’s economic security they had during Soviet times. Former Soviet states embraced free market capitalism since it was seen as a necessary liaison to the democratic government in achieving better standards of living. Instead, it brought the kleptocratic ruling elite that undermined democratic institutions and the rule of law in order to maintain its grip on the country’s wealth. Many of the post Soviet states did not have the political capacity to introduce a necessary system of checks and balances without which capitalism could not function in an ethical manner.
Furthermore, capitalism with its self-interest behavior is largely to blame for the recent world economic recession that has knocked flat most of the fragile new economies of the former Soviet states. Capitalism does not foster social responsibility. Countries adopting capitalism are likely to become vulnerable to any slightest regulatory failure. Furthermore, the more open an economy is the greater is the risk and potential damage of being affected by misconduct in partner-countries. The current crisis is just another sacrifice former Soviet states had to make in their zest to provide for intrinsically flawed model of the free market capitalism.
However, the opponents of the motion argue that free market capitalism is the right model for the former Soviet states with positive returns, however, yet to be seen. Capitalism, like democracy, can only be learned by doing, thus there was no possibility to avoid the disruptions of the rapid move to free markets and democratic elections. Post Soviet states are still suffering because they were rather misdeveloped than underdeveloped. Thus, the post Soviet economic and political transitions were not simply a matter of creating something new from scratch. These were about erasing outdated habits, perception, organization and governance styles that were inimical to the development of free market capitalism. Those old ways of thinking, acting and governing still prevent the fulfillment of the capitalistic economic model. However, adoption of capitalism paved the way for necessary improvements and provided people with much broader horizons and opportunities than they previously had.
Furthermore, by the time of the collapse of the Soviet Union there hardly was any viable alternative to a free market capitalism for most of the former member states. The command economy model, which had exploitation of the peasantry, the environment and resources at its foundation and which was sustained by foreign indebtedness in its last gasp, had been completely discredited in its collapse. The former Soviet countries did not actually bargain stability for opportunity because there was nothing to bargain about in the early 1990s in the first place.
The opponents also argue that financial crisis actually showed that it was not the economic model of capitalism that was flawed but rather its the implementation of it. Capitalism doesn’t exist in a vacuum but must be accompanied by effective governance. It was the failure of governments – in the thrall of those who have not read Adam Smith to the end and therefore missed the part about the need for regulation in a market economy. This has boosted the crisis. The recovery from the crisis demonstrates the basic resilience of capitalism when governments respond with appropriate policies.
The debate on the motion ‘Free Market Capitalism Has Failed the Former Soviet States’ will take place on the 15th of June 2010 in Kiev, Ukraine. The event is jointly organized by the BBC World, the Foundation for Effective Governance and London-based Intelligence2.
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