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Russia: The 'Real' Model City Defies Conventional Wisdom

Moscow, 29 August 1997 (RFE/RL) - If Russia's leading economic policymakers and western commentators are asked to guess which region of Russia has produced the highest living standard for the majority of its residents since reforms started in 1991, they are all likely to be mistaken.

Most pick Moscow, the capital, where most of the country's wealth is concentrated. Some choose Tyumen, in the centre of Siberia's oilfields. Regional income and spending measures prepared by the Kremlin's geographers, as well as by staff of the Federation Council, list both Moscow and Tyumen at the top of Russia's richest-regions list. They also have the highest per capita incomes. They contribute far more to the federal budget than they get back in budget assistance.

Western economists and reporters are also fond of citing Nizhny Novgorod, whose governor, Boris Nemtsov, was appointed First Deputy Prime Minister in March, on the strength of his reputation as one of the most effective regional reformers across the country.

However, according to research just completed by an American economist, economic reforms in these three towns are not the success story they might appear. The research has found that a far higher standard of living prevails in Ulyanovsk than in Nizhny Novgorod; and that the average citizen of Ulyanovsk is significantly better off than the national average -- almost twice better off than the citizens of Saratov.

President Boris Yeltsin was in Saratov this week, where he announced: "I want to see for myself that there are changes for the better here, so I'm in a good mood." Saratov, he added, "is not one of many regions where people live okay."

Had Yeltsin gone five-hundred kilometres up the Volga River to Ulyanovsk, what he said would have been more accurate. The reason he did not, says Robert McIntyre, an economics professor from Washington, who is on a Fulbright fellowship to teach in Russian universities, is that Ulyanovsk has proved the success of a reform model that is diametrically opposed to the one Yeltsin and his advisors have been pursuing since 1991.

Ulyanovsk, writes McIntyre in a recent academic study, resisted pressure from the Kremlin, creating "what was in effect a country within a country." Controls were enforced over local farm producers to prevent food from leaving the region until local needs were satisfied. Price rationing was introduced over bread, meat, sugar and other basics, in combination with free-market sales. Wholesale and retail distribution networks were policed to prevent criminal takeover. Local taxation funded welfare payments and subsidies. A type of regional mortgage was invented to stimulate local housing construction.

Even after formal rationing was lifted a year ago, McIntyre says the unusual mix of price and supply controls and subsidies, which have been attacked everywhere in Russia, outside of Ulyanovsk, continue to operate effectively there.

Comparing real income and food prices in regions throughout Russia in May 1996, McIntyre found Ulyanovsk was 39 percent better off than Nizhny Novgorod. Moscow and Tyumen are acknowledged as "high-income islands." But according to McIntyre, this is not attributable to the type of price and privatization policies advocated by reformers like Nemtsov.

The Ulyanovsk model has been attacked in the Russian and foreign press as reactionary opposition to the market. But, it has been popular among the locals. When Yeltsin last stopped in the city in 1992, he asked factory workers, "Do you want [Yury] Goryachev?" Their support has protected the regional Communist Party boss, in power since 1990. Goryachev has resisted several Kremlin attempts to remove him. His easy election as governor last year was even reported in Moscow papers as a victory for the pro-government party, because the Kremlin has given up fighting him.

Yeltsin, on the other hand, has fared poorly in Ulyanovsk. In the first round of last year's presidential election, the Communist Party candidate, Gennady Zyuganov, won twice as many votes as Yeltsin. In the second round, Zyuganov took 57 percent, making Ulyanovsk a bastion of the opposition.

McIntyre says his research suggests that opposition to Yeltsin's policies in Ulyanovsk does not mean that market reforms are blocked. "On the contrary," he tells RFE/RL, "they facilitate the development of low-criminalization market processes."

One of the keys to Ulyanovsk's successful economic transition, McIntyre concludes, is that local regulation of the market prevented mafia penetration that has occurred almost everywhere else. "Rather than being 'anti-market', they (the Ulyanovsk policymakers) take seriously the institutional requirements for the successful functioning of markets. Because criminalization could not develop and entrench itself, markets are better able to function now."

The World Bank recently came to a similar conclusion after surveying market reforms in 69 countries. The Bank says in a report just issued that corruption and criminalization, especially in Russia, are destroying the credibility of government, sabotaging reform, and retarding economic growth. Russia scored among the worst of the 69 countries surveyed on measures of corruption, insecurity, and lawlessness.

(John Helmer is a Moscow-based journalist who routinely contributes to RFE/RL.)