In his 1992 article "How and how not to desocialize" http://www.lewrockwell.com/rothbard/rothbard143.html
M. Rothbard sketched a plan of how "all this could and should be done in one day, although the monetary reform could be done in steps taking a few days". Basically proposing radical free-market reforms.
I can't imagine how he could miss the lack of institutions necessary for capitalist economy in Russia from the analysis. New Russia wasn't like USA with all the institutions of private property, rule of law, etc. being there for 200 years given. While the institutional memory in Russia was completely lost after communist regime era.
And Russia did experience a radical "shock therapy" reform - a rapid liberalization of prices and chaotic privatization with the power of state and Central Bank virtually disappearing. However, this brought a "cowboy", ugly capitalism with deep social, political and economic transitional crises. Now the consensus is that prior institutional design would be much more productive than just letting it all go in the hands of laissez-faire.
Do you think Rothbard was correct with his plan? What would you alter knowing what actually happened?
Would you suggest the same swift "shock therapy" kind of plan for dismantling the Fed in one day and bringing in free-market money into the USA?
New Russia wasn't like USA with all the institutions of private property, rule of law, etc.
Of course, those things are the basis for a succesful capitalist economy. But if there is no rule of law or respect for private property, than no economy at all can succeed, capitalist or otherwise.
However, this brought a "cowboy", ugly capitalism with deep social, political and economic transitional crises.
And yet everyone in Russia understood that what they had before was disaster. Obviously, going from disaster to a viable econmy will have deep effects on the existing system, and will cause temporary upheavals. That is part of the price to be paid for what was done in the past.
For example, if someone doesn't maintain his house, and it gets moldy and rotten and becomes dangerous to live in, he will have to fix his house. this will be very expensive, so he will have to eat simpler food, buy simpler clothing, go less times to the ballet, etc. Does that mean he should not fix his house?
Not sure what you mean by ugly cowboy capitalism. What was ugly and cowboy about it?
Now the consensus is that prior institutional design would be much more productive than just letting it all go in the hands of laissez-faire.
There was once a consensus that the Earth is flat. The only advantage of prior instituttional design is that a lucky few get jobs designed for them, whther they are productive at those jobs or not. Bit of course this is a drain on everyone else.
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It's easy to refute an argument if you first misrepresent it. William Keizer
There is one glaring error I see in Rothbard's text:
...granting shares to productive workers and peasants who had worked on these assets.
The scheme of privatization most conducive to respect for private property going forward would be allocating equal shares of ownership of every government owned asset to every citizen -- after every asset (land, real-estate, etc.) with clear title of previous ownership has been returned to their rightful owners or their heirs -- then allowing those to be freely exchanged on free equity exchanges. Logistical difficulty is a miserable excuse for not undertaking this scheme.
Granting ownership of assets to current workers is just moronic. A guy who retired from the factory after working there for 30 years would get nothing and a guy who got hired last year would get a share? The new janitor in the new fancy car factory would become a part owner of that new valuable asset, while the 30 year veteran in the delapidated, indebted textile factory would become a part owner of that? If every government asset was the result of theft (taxation) from every citizen, the simplest and least imperfect scheme would be to split all those assets equally and return them back to everyone in equal parts. Calculating who produced what and how much of it was taken from him by the government over multiple generations -- now that would be logictically impossible, especially without markets to even give a hint for the values/quantities of what has been produced and stolen over the decades.
What you call "cowboy capitalism" stems from the most criminal of all "privatization" processes done in the ex-USSR where government bureaucrats literally "allocated" all government assets to themselves and their friends at ridiculous prices and under ridiculous payment (lending) contracts -- producing a billionaire parasitic elite out of the bureaucratic parasitic elite overnight! Only an idiot would expect that respect for private property and free markets would follow the largest robbery of the century. Whatever follows after that would be cowboy something but definitely not capitalism.
In literally every former socialist country in which "privatization" was done in the above criminal manner, respect for private property is close to zero, the free market is virtually non-existent, and former socialist government parasites have simply been replaced by new socialist government parasites, different from the old ones in name only.
z1235: The scheme of privatization most conducive to respect for private property going forward would be allocating equal shares of ownership of every government owned asset to every citizen
That's exactly what was initially done: voucher privatization in 1992. Everyone has got a voucher and could buy with it whichever share he wanted (of his plant for example). Well, it failed.
People were selling off their vouchers for a vodka. From this process first tycoons emerged.
z1235: Calculating who produced what and how much of it was taken from him by the government over multiple generations -- now that would be logictically impossible, especially without markets to even give a hint for the values/quantities of what has been produced and stolen over the decades.
Yes, that is a practical shortcoming you've spotted. But at least it would be better than the plan that was realized. At least the plants wouldn't be bought by no matter who from Moscow and then sold off apart. The workers would have at least long-term incentives over their property, which would be extremely important to start with in the free-market economy with no capitalist institutions. And I think Rothbard didn't realize HOW he was right on this part.
z1235: Whatever follows after that would be cowboy something but definitely not capitalism
You can't even imagine how you are right. However, could there be an outcome that would be universally accepted? What would be your way of privatization?
The reforms taken in supposedly collapsed communist regimes are always intentionally designed to fail. It's never the people on top that want the reform. They want to continue the system and trick people into thinking that they are trying a serious alternative, secretly hoping that people will end up wanting to return to the old regime. I know that Yeltsin sold most state assets to a few friends at rock bottom prices. Putin has built a career on playing hero by reversing that. I don't know what your issue is with the voucher outcome. Anyone with sense must have have known that every idiot would sell his own shares and then complain about it later. It seems a good outcome to me. I'm not a populist.
Dzmitry Kniahin: That's exactly what was initially done: voucher privatization in 1992. Everyone has got a voucher and could buy with it whichever share he wanted (of his plant for example). Well, it failed. People were selling off their vouchers for a vodka. From this process first tycoons emerged.
Um, no. Everyone got a piece of paper saying "This is worth 10,000 rubles toward buying any state property." Who calculated the value of 1/140million of all state property, and what markets provided the prices for such valuations? Also, this was combined with free gifts of shares to employees (the "Rothbard proposal") and outright sales of assets in rigged auctions. The tycoons emerged in 1995-96 when huge commodity, energy, and industrial concerns were "sold" by the state to mafia friends for joke-prices, along with zero down-payment loans, and repayment of said loans tied to the assets' future profits. Now that's how you become a billionaire after one night's work. ;^)
The "shares to employees" approach was applied in a few ex-communist countries. That only landed all assets in the hands of the (communist) management as they gave employees offers they "couldn't refuse": Either "sell" me your shares for nothing, or you're fired!. No -- or extremely feeble -- attempts were made to return property that the communist state had outright confiscated via the "collectivization". Market capitalism, my a**.
The voucher -- and every other -- "program" in the ex-communist countries were designed by the modern day socialist-statists (Harvard, etc.) to blur property boundaries as much as possible in order to guarantee future disrespect for property boundaries, and hence ensure a large-scale dependence on whatever new parasitic state structure emerges for generations to come. From the parasites' perspective, none of these programs "failed".
z1235: From the parasites' perspective, none of these programs "failed".
OK, good job. You have provided interesting and realistic insights criticizing both Rothbard's scheme and voucher privatization scheme that you proposed yourself earlier.
However, the questions stated in the beginning remain: do you find Rothbard's recipe for immature Russian capitalist economy realistic?
If you were Jeffrey Sachs, invited advisor from the West, what would you advise to Russian young policymakers?
And would you rely on spontaneous market order by releasing the Fed in one day without prior gradual institutional reforms, similarly to what proposes Rothbard and one of the forum participants?
Dzmitry Kniahin:OK, good job. You have provided interesting and realistic insights criticizing both Rothbard's scheme and voucher privatization scheme that you proposed yourself earlier.
I did no such thing. What I did was explain how your "voucher scheme" was nothing like what I proposed, both in its design and, more importantly, in its implementation.
Yes, both realistic and vastly preferable to anything coming from a Harvard socialist. But, you see, if property does get properly allocated, hence respected, then Harvard socialists would be out of a job. There'd be no misery and wretchedness left for them to solve or write books about.
The so-called Economic Crisis in Argentina is another example of bogus reform.
I think the only kind of sudden, political change that should be encouraged is secession. Any kind of positive reform campaign such as that outlined by Rothbard might be nice to dream about but the reality is that it would be corrupted and what you would get would be worse than what you started with. The answer is slow-and-stead, just what the LvMI has been doing for a couple decades now. Just keep teaching people the truth about economics, law, politics, and so on. The rest will follow on its own.
Law is perhaps the single most important stabilizing influence in society. For better or worse, the monopoly courts and the statutory and regulatory structure have infused themselves into law. They are so deeply embedded that no sudden social or political change can cleanly extract them. The only exception is secession because it doesn't attempt to alter the fundamental existence of the State, it simply peels off the top layer of State parasitism.
I envision a future - perhaps a century from now - where the globalists have utterly mucked up their attempts at world domination and the people of the world have lost all patience with pretenders of world government like the UN and its imitators like the EU, UK and US. The nonsense has been pushed so far that everyone, even leftist academics and other political 'true believers', can finally see the bullshit for what it is (kind of like the unintended discrediting effect that the Soviet Union has had on communism). At this point, it will be possible to make serious proposals to retire these outdated institutions. Once-independent political units will begin to "pull out" of their parent political organization and declare independence, that is, stop sending tax revenues on up to the top.
In fact, I invented a political slogan that could be useful for this far-off time: It is a fundamental human right that tax-revenues shall never be moved - by any means - more than 200 miles distant from the people from which they were collected. It is a fundamentally secessionist concept but it is compatible with a lot of the economic and political mumbo-jumbo to which the masses are eternally susceptible.
Clayton -