Yeltsin Fires His Last Reformer

Yeltsin Fires His Last Reformer

Yeltsin Fires His Last Reformer

Moneybox
Commentary about business and finance.
Sept. 30 1998 4:06 PM

Yeltsin Fires His Last Reformer

Only in an economic universe as confused as the one now inhabited by Russia could Monday's dismissal of Boris Fyodorov, the Russian government's top economic policy maker and key tax collector, make any sense. Fyodorov was doomed as soon as Boris Yeltsin's nomination of Viktor Chernomyrdin was rejected by the Communist-dominated Duma. Still, his firing remains something of a paradox--a paradox symptomatic of the chaos that now engulfs Russia.

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Fyodorov was doomed because he was the last of the original shock-therapy reformers. While Fyodorov did not play as prominent a role in shaping economic policy in the early years of Yeltsin's rule as did figures like Yegor Gaidar and Anatoly Chubais, he shared their faith in privatization, markets, and an end to subsidies and cheap credit. And in recent years, as Gaidar faded from prominence and Chubais came under attack for his alleged role in handing over Russian industry to the so-called "seven oligarchs," Fyodorov emerged as the last serious voice for market-driven reform. If anything, in fact, Fyodorov was the most strident free-marketeer of all of Yeltsin's advisers. Not surprisingly, then, he was hardly a favorite of the men now in power, most of whom have ties to the old Communist regime.

And yet for all his free-market rhetoric, Fyodorov saw his main responsibility as boosting the government's tax revenue. Beginning last summer, he embarked on a campaign against tax delinquents, who include Russia's wealthiest individuals and its largest corporations, most notably Gazprom. While the campaign enjoyed only moderate success, and while the collapse of Russia's financial infrastructure caused Fyodorov to miss his revenue targets in recent months, its very existence was something of a triumph in a country in which tax-dodging has become nearly obligatory. Fyodorov's quest to lower marginal tax rates while dramatically improving collection rates represented the only reasonable alternative for a government whose lack of legitimacy is embodied in its empty coffers.

What's paradoxical about Fyodorov, then, is that although he was a firm believer in markets, he recognized that markets cannot flourish in the absence of the rule of law, and further, that that rule of law depends upon the government's ability to raise revenue from its citizens. (The Republicans who spent weeks earlier this year blasting the IRS should look to Russia to see what happens when tax collection becomes a thoroughly de-legitimized state function.) And what's paradoxical about his dismissal is that one would think that a cardinal principle of any social-democratic or left-leaning politics--of the sort supposedly embodied by the new Russian government--would be the importance of tax collection. In firing Fyodorov, the new government has instead sent the message that settling old scores is more important than the pragmatic work of putting the country back in order.

What's more troubling is that the dismissal also sends the message that tax delinquents have little to fear from the state. Russia presents us with the curious spectacle of a country in which those who seemingly have the most at stake in keeping market reform alive--the very rich--are doing nothing to help the reformers (in fact, perhaps actively working against them). Fyodorov was a lone voice insisting that individuals were responsible to more than just themselves--a voice that today's Russia could ill afford to lose.