How Politics Influences Transfers and Investment
Thе conference Studying Institutions and Development in Russia: new Data and New Approaches ( HSE, June 26-27, 2013 Moscow) presentы cutting edge research in the field of political economy. Drawing in large part on the work of the International Center for the Study of Institutions and Development (ICSID) at the Higher School of Economics in 2011-2013, it focuses on the regional dimension of institutions and economic development. Byung-Yeon Kim, Professor in the Department of Economics at the Seoul National University gave a special interview for HSE news service.
— At Seoul National University, you've been studying the economics of transition. What are some of your major findings concerning economic shocks and priorities?
— I started my research on the economics of transition in the early 1990s when I was beginning my doctoral degree at Oxford University. Economic shocks have different causes: they may be the result of macroeconomic policy failures (the fiscal deficit, exchange rate mechanism, and high external debt), a combination of market and policy failures (eg the recent financial crisis in the US), or the failure of an economic system that consists of property rights, and incentive and coordination mechanisms. The collapse of the Soviet economy in the early 1990s belongs to the third category, that is, the collapse of the socialist system.
When the Soviet regime collapsed, many people – including professional economists – held the naïve view that privatizing the state-owned enterprises, liberalizing prices and trade, and stabilizing the macroeconomy would be sufficient to ensure a successful transition to a market economy. Now we find that these policies are important for transforming the economy to a market economy, but they do not necessarily lead to a successful market economy. A transition in an economic system is a grand-scale transformation in which virtually everything in the system needs to change and adjust. In this process, complex interactions among economic, social, and political variables occur. We need to find the optimal way to balance this jungle of variables.
Economic efficiency measured at the time of action is one target but not the only or most important one. For example, South Korea experienced a financial crisis in 1997-1998, which belongs to the first category I mentioned above. However, the policies that were employed to overcome the crisis changed Korean society dramatically; Korea is no longer the society it was before 1997. The Korean economy recovered amazingly quickly and companies became much stronger financially. However, the society is polarized, and people became quite risk-averse.
About 60% of the students in my department (the department of economics) want to become government officials because they and their parents believe government jobs are safe. Then the question becomes: who is going to create the pie, if most of our talented students want to become government officials whose responsibility it is to divide the pie? If Korea’s crisis, which was relatively small compared to the crisis that rocked Russia in the 1990s, changed the country substantially, we can easily imagine the magnitude of the shock experienced by Russia’s people and society at large during this period. Looking back at Russia’s transition process, I believe Russia made a big mistake in allowing such a dramatic increase in income inequality. This caused the country to become divided, polarized, and even atomized. Then institutions tend to develop to protect the rents for the political elites and the rich, when these two are in collusion. I think this happened in Russia.
— As a researcher, what interests you most about Russian economics today?
— I’m interested in Russia’s political economy and institutional development. I used to work on Russia’s informal economy and entrepreneurship – how entrepreneurs are formed and how they use the informal economy. The more I work on this issue, the stronger my belief is that institutional environments are a key to entrepreneurship. Yet Russia’s institutional development is heavily influenced by politics. That’s why I am interested in the political economy in Russia.
— What do you expect from the Moscow conference?
— I decided to use my participation in this conference as a learning experience. Russia’s case is very interesting in that institutional changes are potentially rapid and diverse across regions. I would like to know what data is available for researchers, what the status of the research using this data is, and what data and research gaps need to be filled.
— How are you going to develop your cooperation with the HSE?
— I’ve visited the HSE several times for seminars and conferences, as well as for academic collaborations between my department and the HSE. These types of collaborations will continue and be expanded upon. As an example, Professor Yakovlev, Dr. Dolgopyatova, and Dr. Golikova from the HSE, and Professor Iwasaki from Japan’s Hitotsubashi University and I have been discussing a joint research project, which we will be discussing further during my visit.
Anna Chernyakhovskaya, specially for HSE news service