The Perilous Road to the Market-The Political Economy of Reform in Russia, India, and China.

Author:Reardon, Jack
Position:Book Review
 
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The Perilous Road to the Market-The Political Economy of Reform in Russia, India, and China, by Prem Shankar Jha. London: Pluto Press. 2002. Paper, ISBN 0745318517, $24.95. 300 pages.

Prem Jha, a journalist for The Hindustan Times, understands the evolution of market economies; his first footnote is from Karl Polyani's The Great Transformation. Market economies do not spontaneously arise, Jha writes, but "the market has to be created first and the state is the irreplaceable agent of its creation" (p. 5). The theme of this important book is that a strong, viable state with a dependent source of revenue is necessary to implement supporting market laws and institutions.

Russia, China, and India, with 39 percent of the world's population, are emerging from failed statist policies and implementing market reforms. Russia implemented shock therapy in 1992, which destroyed the economy and almost destroyed the state and its ability to influence economic reform. China, responding to underemployment and agricultural stagnation implemented gradualist reforms in 1980 and India reacting to a stagnating industrial sector and a deteriorating balance of payments implemented gradualist reforms in 1991. But gradualism, Jha argues, can also weaken the state if reforms are enacted without supporting regulatory institutions as in China; or if reforms are implemented too slowly, as in India.

In Russia, orthodoxy assumed that if the socialist state were dismantled and resources were privatized, a market economy would spontaneously arise. But this assumption was based on a fundamental misunderstanding of the role of the state in market economies. The results were disastrous. Privatization of state-owned resources stripped the state of its socialist dominion, while demonetarization--implemented to reduce inflation and make imports more competitive--devolved the economy into a primitive barter system. The state was deprived of resources, and its citizens were impoverished. In the resulting vacuum, Russia's regional governors assumed political power while oligopoly capitalists assumed economic control.

In 1998, Yengeni Primakov, Russia's newly appointed prime minister, began rebuilding the "edifice of state regulation" (p. 75). This, along with the decision to remonetarize, dramatically improved the economy. The restoration of the state continued with the election in 2001 of Vladimir Putin, who has deliberately confronted the power of the regional governors and the...

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