From the Inside Flap

Economic reform in Russia has been anything but the smooth process envisioned by many in 1991. A full decade after Russia officially embarked on what were described as "radical market reforms," there is no consensus about whether the economic transition has been a success or failure.

The Russian transition has turned out to be vastly more complicated in practice than theory. Some attribute the problems to a series of bad policy choices. Others assert that the path to market economics is inconsistent with Russian history and culture.

Neither of these explanations is sufficient to capture the difficulties of implementing a market economy within an economic structure bequeathed by central planning, according to Clifford G. Gaddy and Barry W. Ickes. In this book they examine how the Russian economy has evolved into a mutant form that combines elements of the market with institutions and behaviors that have a distinct, nonmarket character.

Gaddy and Ickes put special focus on Russia's "virtual economy." Rooted in Russia's vast sector of hopelessly noncompetitive industrial enterprises and their struggle to survive in the hostile market enviornment, this mutant system is characterized by a set of informal institutions that permits the production and exchange of goods that are worth less than the value of the inputs used to produce them. Buyers and sellers collude to hide the fictitious nature of the pricing through the use of barter and other forms of nonmonetary exchange. Those who try to play by the normal market rules are penalized relative to those who play by the virtual economy's rules.

By developing a method by which Russia's virtual economy can be analyzed, Gaddy and Ickes seek to restore a sense of logic and consistency to our understanding of the Russian economy and to provide a framework for thinking about the future.

About the Author

Clifford G. Gaddy is a fellow in the Economic Studies and Foreign Policy Studies programs at the Brookings Institution. He is the author of The Price of the Past: Russia's Struggle with the Legacy of a Militarized Economy (Brookings, 1996) and coauthor of Open for Business: Russia's Return to the Global Economy (Brookings, 1992). Barry W. Ickes is associate professor of economics at Pennsylvania State University and director of research at the New Economic School, Moscow.