Duma Elections: Economic Programs and Implications

Issue Brief
Vol. 1, No. 8, October 28, 1999

A presentation by Mikhail Dmitriev, former first deputy minister of labor and social policy

All major political parties competing in the upcoming Duma elections have drafted pro-market economic programs. This was a key conclusion in the presentation by Mikhail Dmitriev, former first deputy minister of labor and social policy. Dmitriev currently co-chairs the Project on Post-Soviet Economies in Transition at the Carnegie Moscow Center, where he is a scholar-in-residence. He based his presentation on his recent survey of the economic proposals of the four parties poised to break the five percent threshold needed to attain seats in the Duma: Yabloko, the Communist Party (KPRF), the Liberal Democratic Party (LDPR) -- recently renamed Zhirinovsky's Bloc, and Fatherland-All Russia. He compared the current economic programs to each other and to the economic programs drafted by the parties elected to the Duma in 1995: Yabloko, the KPRF, the LDPR, and Our Home is Russia (NDR).

Dmitriev rated the proposed economic policies of each of these parties on their support for market reform and on the degree to which their policies are economically realistic. He divided his analysis into ten categories: monetary policy, tax policy, foreign trade and international capital flows, state intervention, structural policy, privatization and property rights, land ownership, welfare benefits, labor markets, and health and education policy.

DMITRIEV'S FINDINGS:

Monetary Policy:

Compared to 1995, all of the parties have grown wary of inflation, and no party is proposing large-scale printing of money. Yabloko is most committed to fighting inflation, while the three other major parties continue to promote looser monetary policy. The KPRF claims that "managed money issuing" could lead to eight to ten percent growth in GDP next year. Fatherland-All Russia seeks to attain growth through other means, such as differentiated interest rates.

Tax Policy:

In 1995 proposed taxation policies were highly unrealistic and out of line with market reform, explained Dmitriev. They were overly progressive and allowed serious economic distortions by failing to end the numerous tax exemptions which the government was granting to chosen sectors of the economy. In contrast, in 1999 all parties agree that a priority of economic reform must be reduction of the tax burden, streamlining of the tax collection system, and a shift of the tax burden away from the producer to the consumer. Yabloko and the KPRF have the most specific proposals to attain this last goal. Only Yabloko's program, however, includes discussion of how to minimize taxes on labor.

Foreign Trade and International Capital Flows:

In 1995 all four Duma parties were highly protectionist, catering to unrealistic, populist demands to keep foreign competitors out of the Russian market. Today, Dmitriev said, two of the major parties -- Yabloko and Fatherland-All Russia -- accept foreign competition. Although the KPRF and LDPR continue to support high customs tariffs as a means to increase domestic economic growth, they, too, seek to reduce distortions in the tax system by reducing exemptions for the government's favored importers.

State Intervention:

As in 1995, Yabloko is the most market-oriented and realistic in terms of its position on state intervention. The other major parties claim that their goal is to increase the efficiency of state regulation, but their proposals -- which for some parties include large-scale government support for industries based on economic indicators gathered over five-year periods -- are still reminiscent of state planning.

Structural Policy:

The proposed structural policies of the current parties are only slightly more liberal than in 1995, Dmitriev concluded. All of the proposals in this category are highly unrealistic. Yabloko seeks to target industries such as aeronautics and space technology. It hopes to attract much of these funds from the private sector, but the levels of investment which it seeks to attain are, according to Dmitriev, completely impractical. The other parties propose devoting more state funds to the support of selected industries. Fatherland-All Russia suggests using money from the gas and oil industry to support the development of import-substitution sectors.

Privatization and Property Rights:

In 1995 a major aim of the KPRF was to alter the outcome of privatization, including the long-run goal of renationalization of major industries. While the Communists proposed the most stringent renationalization plans, other major parties also claimed that privatization had occurred unjustly and that some revision of property distribution was necessary. Between 1995 and 1999, argued Dmitriev, a major shift has taken place. Yabloko's focus is now on improving corporate governance. It seeks, for example, to increase protection of shareholders' rights. The other parties continue to claim that the outcome of privatization was unjust, but they propose judicial reform rather than administrative redistribution of property. In one of the most drastic turnarounds since 1995, the KPRF is now talking about how to enforce property rights. In unambiguous terms, the KPRF accepts that where competition exists, private property should be the dominant form of ownership. Although the KPRF continues to support collective ownership, it now defines this term as it is defined in western economies, meaning private, employee-owned firms. The KPRF's economic program supports state ownership only for natural monopolies and enterprises in need of long-term restructuring.

Land Ownership

Dmitriev noted that less change has occurred between 1995 and 1999 in this category than in any other. The KPRF continues to reject outright private ownership of land. Fatherland-All Russia and the LDPR remain cautious about major reform of land ownership. Even Yabloko's program offers only vague statements admitting that private ownership of land is a necessity, not specific proposals about how to proceed.

Social Policy: Welfare Benefits, the Labor Market, and Health and Education Policies

Compared to 1995 when the economic programs of most of the major parties continued to support Soviet-style social policy, a major shift has occurred. Most of the parties' attitudes toward social policy now resemble euro-socialist ideas. Even the KPRF supports, for those who can afford it, the privatization of health care and education.

CONCLUDING REMARKS: 

Dmitriev concluded by comparing the amount of change in each party's economic program since 1995. He found that Yabloko's economic proposals remained fairly similar, continuing to exhibit both support for the market and a high degree of realism. The LDPR's proposals shifted from slightly anti-market to slightly pro-market yet remain driven by populist pressures rather than realistic economic goals. Finally, he found that the KPRF's economic thinking has evolved dramatically from very populist and anti-market to slightly pro-market and less unrealistic. Fatherland-All Russia did not exist in 1995.

He also provided some final remarks on the overall realism of the parties' economic programs. By his calculations, the social policies which the major parties are proposing would require spending levels between 30 and 40 percent of GDP, which the government clearly cannot afford. Dmitriev explained that on the whole, the economic programs of the current parties are more realistically oriented than the 1995 programs. The programs do not, however, account for the change in economic conditions caused by the August 1998 financial crisis. Consequently, in the context of 1995 conditions, the 1995 economic programs may have been more feasible than the 1999 programs are in the context of 1999 conditions.

On the positive side, Dmitriev noted a convergence in the attitudes toward economic reform of the major parties between 1995 and 1999. Although he emphasized that analysis of pre-election economic programs is no surefire indicator of the economic policies of the next Duma, Dmitriev speculated that the growing centrist consensus on economic issues among the parties might foster effective, although moderate, economic reform.

Summary by Jordan Gans-Morse, Junior Fellow with the Russian and Eurasian Program