NCPA - National Center for Policy Analysis

Market Paths In Russia And Poland

January 27, 1997

Stock markets in both Poland and Russia racked up extraordinary gains last year in dollar terms -- Poland's up just under 60 percent and Russia achieving gains of around 150 percent. But as capitalism puts down roots in these countries, their governments are following diverse paths, say economists Timothy Frye of Columbia University and Andrei Shleifer of Harvard.

  • The researchers say that Russia uses a "grabbing hand" approach -- with government bureaucrats less interested in promoting private economic activity than in lining their own pockets.
  • Poland's government, by contrast, depends more on the invisible hand of the market to guide economic growth.

Their survey of 105 private retail shops in Moscow and Warsaw revealed that shop managers in both cities had little confidence in their legal systems and rarely used the courts to resolve disputes with other businesses or government agencies.

  • However, more than three-quarters of the Moscow shops had to pay private security agents for "protection," whereas only eight percent of Polish shops did so.
  • Moscow managers reported that it took nearly three months to go through the regulatory red tape needed to open their businesses, while in Warsaw it took only several weeks.
  • Moscow managers had to endure an average of 19 inspections a year, and 83 percent said they had been assessed fines by the government.
  • In Warsaw, the comparable figures were 9 percent and 46 percent.

Such differences may explain why Russia's economy has contracted by 50 percent in the past six years, while the Polish economy was posting better than five percent growth in both 1995 and 1996.

Source: Gene Koretz, "Paths Toward a Free Market," Business Week, January 27, 1997.


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