BUSINESSWEEK ONLINE : MARCH 13, 2000 ISSUE
BOOKS After Yeltsin WITHOUT A MAP Political Tactics and Economic Reform in Russia By Andrei Shleifer and Daniel Treisman MIT Press 223pp $25.95 Russia's new Acting President, Vladimir V. Putin, is expected to win a four-year mandate when voters go to the polls for presidential elections on Mar. 26. It will be his job to pick up the pieces of former President Boris N. Yeltsin's reform program--and finish the job of building a market economy in Russia. Putin and his advisers could benefit from reading Without A Map: Political Tactics and Economic Reform in Russia. Written by Harvard economist Andrei Shleifer and Daniel Treisman, a political scientist at the University of California at Los Angeles, it tells why some of Yeltsin's reforms succeeded while others failed. ''The main reason,'' the authors say, ''was politics.'' They compare reforming an economy like Russia's to ''embarking on a journey through mountains without a map.'' Getting through depends both on choosing the right path and on such conditions as the steepness of the mountains. In this analogy, the mountains represent obstacles to reform. The authors target four groups that could block reforms in Russia: the governments of the country's 89 regions, its banking sector, big industrial and energy enterprises, and the parliament. When Yeltsin and his aides succeeded in co-opting at least some of these ''stakeholders,'' they succeeded. Otherwise, they failed. Consider one of the most successful reforms of the Yeltsin era: privatization. In 1992, Yeltsin's team won support for it via a key compromise: They let managers of state-owned enterprises acquire, along with their workers, majority stakes in their companies--and thus retain their positions as bosses. This slowed industrial restructuring since many managers clung to their old ways, while others stole from their companies. But it was the only ''politically feasible'' way ahead, Shleifer and Treisman argue. In contrast, Yeltsin's reformers drastically failed when it came to public finances. In August, 1998, a serious tax shortfall forced the government to devalue the ruble and default on its domestic debt. Under a convoluted system, companies are forced to pay dozens of taxes, which are then shared by the regional and federal governments. Regional leaders strongly opposed tax reform for fear that they would lose income. And government officials didn't push big companies to pay arrears because Yeltsin needed their political support. In short, reformers failed to co-opt either regional governments or the companies. This analysis implies that tax reform should now become top priority. Particularly needed, the authors say, is a tax code that not only cuts rates but clearly assigns revenues to the regional governments. That might win their support. If Putin can find his own ''politically feasible'' way through the mountains, he might succeed where Yeltsin failed. By ROSE BRADY _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS After Yeltsin PHOTO: Cover, ``Without a Map'' INTERACT E-Mail to Business Week Online

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