Monday, August 16, 2010

Sachs, Building Booms and Reforms

Jeff Sachs comments on the reforms in Poland and Russia in Scientific American. He writes of the contrast between Warsaw and St. Petersburg.
Warsaw has enjoyed a building boom, with impressive new business towers going up despite the economic slowdown in western Europe. St. Petersburg glories in the architectural treasures of the past but with much less evidence of current dynamism.
This is because Poland has had successful reforms and Russia has not:
In Russia, on the other hand, corruption has run rampant during the past 20 years, and the public shows little capacity to rein it in. The institutions of civil society, suppressed by centuries of tsarism and obliterated by Soviet-era state brutality, remain weak. Because the constraints on corruption were so toothless, vast state wealth—especially oil, gas and mineral wealth—was transferred in the mid-1990s into private hands, creating the so-called oligarchs of the new Russia. A few years later powerful bureaucrats wrested back control of many of these assets. The rise and fall of the oligarchs was murky, without the transparency needed for a healthy market economy. Russia, not surprisingly, lands at a dismal 146th on the Transparency International corruption list.
But the comparison is contrived. As anyone who has visited Moscow in the last ten years knows, it has experienced a tremendous building boom. Indeed, all one reads about in Moscow is how building is trampling on its architectural heritage. There are skyscrapers and apartment buildings everywhere. Outside the home of the New Economic School in Moscow we are surrounded by huge apartment blocks, obscuring what used to be great views of southwestern Moscow.

So if Sachs had visited Moscow would he have written that corruption has no effect on economic performance? Of course there are reasons why Moscow benefits more than St. Petersburg, primarily because it is the capital and business wants to be close to officials. Is this also the explanation for Warsaw? I do not know enough to answer. But it is an odd comparison.

1 comment:

Vladimir Kreyndel said...

Exactly! What is more, he fails to discuss the sustainability of Polish growth or accurately track the reasons of the difference between the growth rates of two economies. With all sue respect to Dr Sachs, his article is not "scientific" enough.