The tumbling of the Russian stock index and the exchange rate of Rubles to US Dollars sends the signals on the surface that the Russian economy is in a great crisis. However, in my opinion, there is no crisis at all in Russia. What is happening is that there emerge some temporary difficulties due to the shift from the centrally planned economy to the free market economy. I believe that such difficulties will be overcome eventually and the transfer from the centrally planned economy to the free market economy will succeed.
In my opinion, there are only two types of economy patterns. One is the centrally planned economy exercised by the former USSR, and the other is the free market economy exercised in the US and West Europe. In the former USSR, centrally planned economy has dominated the country for nearly 70 years. During these years, the Russians people found that the free market economy had much more advantages over the centrally planned economy. The centrally planned economy pattern is a very backward model, featured by low productivity and efficiency. This economy pattern caused great waste of social resources. It was this backward, inefficient and wasting economy pattern that caused the collapse of the former USSR. Hence, I believe, the Russian people long to exercise free market economy in their country. In order to obtain this goal, the first task is to transfer the old-fashioned centrally planned economy pattern to the free market economy pattern. This transfer is not an easy job. The Russian people have to pay dearly to such a transfer and it will not be achieved in one day. I sincerely hope that the Russian people will complete this transfer at the earliest possible time.
For helping the Russian people to fulfill this transfer as soon as possible, I'd like to put forward some of my suggestions, and I sincerely expect that the Russian people may get some inspirations and assistance from them.
My suggestions are as follows:
1. A general vote or a vote in the parliament to decide which economy pattern the Russian will choose: centrally planned economy or free market economy. Such a vote will help consolidate the determination of the Russian people to exercise the free market economy and force those who try to obstruct such a transfer to give up their attempt.
2. To speed up private ownership and give up as much as possible public ownership.
3. To give up control over the price of consumer goods no matter how high it is and let the market itself decide the price of all the consumer goods. Only in such a way, could Russian economy be defined as free market economy pattern.
4. To give up control over exchange of Rubles to any foreign currencies and adopt floating exchange rate instead of fixed exchange rate. My article "How Did the Financial Crisis in Southeast Asia Happen?" <http:/www.geocities.com/~juchang/> has explained clearly the financial crisis taking place in the Southeast Asia last year. The Russian people should take a good lesson from this crisis.
5. After opening prices, the Russian government should guarantee that the poor people are able to maintain a reasonable living standard in two ways. On the one hand, it is necessary for the Russian government to make a law to define a minimum wage level and to stipulate that every worker's salary should be no less than this level. On the other hand, it is necessary for the Russian government to provide the jobless people with relief funds. Relief funds shouldn't be supplied for the rich, which will cause a great loss of governmental funds. The purpose of defining a minimum wage and issuing relief funds is to make some adjustments of the social wealth and to make some reduction in the wealth of the over-rich people, so as to ensure the poor people a basic living standard. To do this, there must be enough wealth at home in Russia. Without sufficient wealth, the adjustment would not be successful. Therefore, the Russian government should instruct the Russian people to do well in their production and to produce more wealth, especially more necessary consumer goods of the first and second grades, so as to make the adjustment carried out smoothly. The adjustment of the social wealth by the Russian government is the key to the realization of a transfer from the centrally planned economy to the free market economy. Such measures will avoid the social disturbance and riot and, meanwhile, reduce the influence of price rising on the living standard of the low-income people.
6. It is reported that there appears a great shortage of grain at home in Russia. When winter comes, the Russian people will probably suffer from hunger. This shortage of grain doesn't result from insufficient farmland. It is caused by insufficient manpower engaging in agricultural production and insufficient funds for developing agriculture in Russia. The Russian premier has appealed to international communities for grain aid. I don't think it practicable to count on foreign support merely. The Russian government should take the following steps at home to solve this problem: A. The Russian government should give its people a clear explanation of what is called market adjustment, which has been expounded in detail in my article "On What's Market Regulation and On Relationship between Market and Government" <http://www.geocities.com/~juchang/marketaa>. B. The Russian government should open grain prices and let them have a rise, allowing the market to make its own decision of them and letting those engaging in agricultural production have a rise in their income. In this way, more people will be made to engage in agricultural production. C. The Russian government should encourage the jobless people to engage in agricultural production and give them proper help. For example, they can be provided with suitable houses in the countryside and free training of agricultural knowledge. D. The Russian government should manage to increase an investment in agricultural production, so as to make it carried on smoothly. E. If the unemployed people are still unwilling to engage in farmland cultivation, the Russian government should cut down their relief funds to make them rather willing to take up this job.
7. To cut down all kinds of governmental expenses. To dismiss some governmental bodies which are not so indispensable nowadays. To make a reasonable use of the funds. These measures are helpful to the reduction of inflation and devaluation of Rubles. However, salaries and routine expenses for the key departments of the government must be ensured. Among them the police and the juridical departments should be put in the first place. Only when these departments are in good function, will crimes be controlled and the society be kept in peace. If the salaries and routine expenses for those key governmental departments are not guaranteed, their normal operations will be influenced, and the whole society will result in social turmoil.
8. To increase taxes, especially the taxes on consumer goods of the third and fourth grades. Only when taxes are increased, will the expenses for the governmental bodies be guaranteed. Only with taxes increased, will the government have enough money to issue relief funds to the low-income people. Besides, taxation is an effective lever of regulating the market. It is because there is a rise in taxation level on consumer goods of the third and fourth grades that their exceeding growth will be restrained, thus allowing more capital to flow to the production of consumer goods of the first grade so as to produce more such materials to meet the needs of the society for consumer goods of the first grade.
9. If the Russian Government is able to obtain enough taxes, the expenses for all the key government bodies will be guaranteed, and the government will have enough money to give relief to the low-income people. The Government, therefore, should do its best to obtain enough tax income. However, if the government fails to do so, there is no panic at all. On condition that there is enough wealth existing in the country, the government may take the financial-deficit policy, starting its printing machines to print more bank notes for the expenses for governmental bodies and for the relief funds issued to the low-income people. Starting the money-printing machine is only an abnormal way to increase the revenue, though such a way will bring about inflation and devaluation of Rubles. However, there is nothing horrible, as the inflation and devaluation are not caused by economic crisis. They are normal and will not cause social riot. Therefore, the Russian people should not be frightened by the so-called economic crisis theory.
10. Presently, the Russian government seems much afraid of the economic crisis, worrying about the bankruptcy of banks or enterprises. In my opinion, this is nothing horrible. According to my economic theory, the development of social economy will naturally be accompanied by bankruptcy of companies or enterprises. During the economic growth in the US and European countries in this century, countless companies and enterprises were declared bankrupt and closed, yet their economy is still the strongest in the world. When some companies and enterprises go bankrupt and closed, new companies will emerge. The Russian government has no reason to worry about the economic crisis.
11. In China, it is reported in Shenzhen Special Zone Daily that the Russian government has defaulted salary, retirement pay and soldier's pay nearly to a total of 120 billion Rubles. If some factories and enterprises default the workers' salary and retirement pay, these factories and enterprises, I think, should be closed down. Their property will be auctioned off, with the money obtained from the auction used to repay the defaulted salary and retired pay. The bankruptcy is part of the free market economy. There would be no free market economy without bankruptcy and there would be no new enterprises and new companies formed without bankruptcy, and so the development of social economy would be impossible. The Russian government, following the example of the United States and the countries in West Europe, should draw up a complete set of bankrupt law. The unemployment relief funds should be offered to the jobless workers.
12. If the governmental bodies default salary, retirement pay and solders' pay, the government should manage to increase the taxation to repay. If Russians people are not used to paying taxes or don't like to pay taxes, the Russian government has to start the printing machines to produce enough bank notes so as to repay the salary, the retirement pay and the solders' pay. This will be doomed to inflation and devaluation of the Rubles, which, however, are caused by the Russian people's not paying taxes rather than the economic crisis. The Russian government should give the Russian people a clear explanation about the fact so that they may prefer to pay taxes: starting the printing machines to produce bank noted is also a way of collecting taxes. Only this way is rather irregular.
13. To control the import and export of merchandise. When consumer goods of the first grade suffer a shortage, failing to meet the demands of the nation, the import duties of the first grade consumer goods should be reduced to encourage their import, and, meanwhile, the import duties of the third and fourth grade consumer goods should be raised to restrain their import. And measures should be taken to reduce the export so as to increase the quantity of the goods inside the country to meet the demands. I found there are many economists in China holding the theory that the less the imports and the more the exports, the faster the economic development of one country. Such thought, I believe, is not reasonable. I hope the Russian people will not hold such unreasonable ideas.
14. Press freedom and speech freedom should be encouraged in Russia. They are an effective means in attacking crimes, in promoting normal economic development and in keeping social justice, as many criminals will be scared if they are exposed to the open air by the press.
15. The Russian Government should do its best to seek for international support and assistance, particularly the support from the industrialized countries such as the US and West-European countries. With their assistance and support, Russia is sure to accomplish its economic transfer more smoothly and rapidly.
Finally, I sincerely hope that President Yelsin of Russia will be able to read my article and find the way from it to solve the current problems in Russia. I also hope President Clinton of the United States will give assistance to Russia and help them in its transfer from the centrally planned economy to the free market economy at the earliest possible time.
Besides, "My Homepage" has published the latest and most complete economic theory in the world. I do hope the Russian people may obtain more inspiration and help from My Homepage at http://www.geocities.com/~juchang, and I do hope it will help the Russian people to solve their present economic problems.
-- Sincerely, Ju-chang He
SHENZHEN, P.R. CHINA Welcome to visit My Home Page at <http://www.geocities.com/WallStreet/Exchange/3058/> or <http://www.geocities.com/~juchang/>