Barry Ickes | The Pennsylvania State University (original) (raw)
Papers by Barry Ickes
Social Science Research Network, 2000
The Russian Economy has evolved into a hybrid form, a partially monetized quasimarket system that... more The Russian Economy has evolved into a hybrid form, a partially monetized quasimarket system that has been called the virtual economy. In the virtual economy, barter and non-monetary transactions play a key role in transferring value from productive activities to the loss-making sectors of the economy. We show how this transfer takes place, and how it can be consistent with the incentives of economic agents. We analyze a simple partial-equilibrium model of the virtual economy, and show how it might prove an obstacle to industrial restructuring and hence marketizing transition. * * Paper presented in a BOFIT Transition Economics Workshop, June 1999.
Social Science Research Network, 2000
Palgrave Macmillan UK eBooks, 2008
Journal of Comparative Economics, Jun 1, 1987
RePEc: Research Papers in Economics, 1990
RePEc: Research Papers in Economics, Feb 1, 1998
The proximate causes of Russia's current financial crisis-the government's large budget deficit a... more The proximate causes of Russia's current financial crisis-the government's large budget deficit and the inability to service its debt, especially short-term dollar liabilities-are clear. The steps required to solve these short-term liquidity problems would seem to be equally straightforward and are being widely proposed. For its part, the Russian government is being called upon to reduce the budget deficit by collecting more taxes and cutting back on government spending. The international financial organizations and the Western nations, on the other hand, are being urged to craft an emergency loan package that would possibly include funds to stabilize the immediate financial situation but certainly a program to restructure Russia's debt for the longer term. These measures, it is argued, would allow the reformist government to get back to the business of market reform. The idea that Russia's economic problems can be remedied by such measures is wrong. It is premised on a fundamental misunderstanding of the Russian economy, but one which is a near-consensus view. It goes something like this. Russia is a largely privatized economy whose early success in market reform has been slowed by widespread corruption, crime, and incompetence. The explosion of barter and non-payments is due to inept and immoral enterprise management. Poor tax collection has produced a weak state. Overcoming these obstacles is a formidable challenge. But if they can be surmounted, movement towards the market can continue. In fact, most of the Russian economy has not been making progress toward the market, nor even marking time. It is actively moving away from the market. Over the past six years of "radical reform," Russian companies, especially those in the core manufacturing sectors, have indeed changed the way they operate. Only, they have not done so in order to join the market but rather to protect themselves against it. What has emerged in Russia is something that arguably qualifies as a new type of economic system with its own rules of behavior and criteria for success and failure. We call the new system Russia's "Virtual Economy," because it is based on illusion, or pretense, about almost every important parameter of the economy: prices, sales, wages, taxes, and budgets. At its heart is the ultimate pretense that the Russian economy is larger than it really is. It is this pretense that allows for larger government, and larger expenditures, than Russia can afford. It is the cause of the web of non-payments and fiscal crisis from which Russia seemingly cannot emerge. Below, we suggest the extent of the Virtual Economy and explain its roots. We also show how it helps explain some features of the current political process in Russia. The Virtual Economy, we argue, is robust, deep-rooted, and enjoys strong popular support. For those reasons, it has defined a new "reform" agenda for Russia that is already setting the tone for the current government. It will most certainly do so for a future one. The Virtual Economy presents the West with difficult choices regarding continued support of Russian economic transition. The principal motivation for providing more emergency funds for Russia, a "bailout," seems to be a belief not only that more money is required to preserve social and political stability, but also that it can be given with strings that will induce more reform. We believe that the opposite is true: the inevitable outcome of a bailout will be to support the Virtual Economy, a system that is nonmarket in nature and whose inefficiency will ensure continued economic decline and future crises. At
Post-Soviet geography and economics, Sep 1, 2000
S hinichiro Tabata (2000) emphasizes the role of the ruble exchange rate in explaining Russian ec... more S hinichiro Tabata (2000) emphasizes the role of the ruble exchange rate in explaining Russian economic performance in the 1990s. There is much to say for this view. Russia emerged from the Soviet period with an industrial economy that was unprepared for global competition. A sufficiently large depreciation of the ruble would have signaled the real (external) market value of Russian production. It would also have reduced real incomes and thus better reflected the actual inheritance from the Soviet period. But Russia is not just an inefficient manufacturer. It is also a major exporter of natural resources. The large demand for rubles generated by those exports kept the ruble from depreciating sufficiently to make the manufacturing sector competitive. At the same time, the economy was not one that was safe for investment. Hence, the rather large export earnings did not go into new capital. Rather, they flowed abroad. Indeed, capital flight from Russia is estimated at roughly $15-20 billion a year since 1994. This large capital flight no doubt prevented even further ruble appreciation, and thus masked how inefficient the economy really was. Tabata argues that the key to understanding the ruble's overvaluation prior to August 1998 is the microeconomics of the exchange market—specifically, compulsory sales of foreign currency by exporters. While this is an interesting point, it would be more appropriate to focus on the fiscal stance of the government. Massive borrowing, both internal and external, led to extraordinarily high interest rates. The government's fiscal policy guaranteed a high value of the ruble no matter how the currency auctions were organized. Of course, foreign investors' perception that Russia was "too big to fail" was a critical element. But the fact remains that Russia was living beyond its means during this period. The high ruble meant cheap imports, and it hid the true productivity of the economy. Since August 1998 the ruble has depreciated significantly in real terms, and Tabata is correct to point to this as the central fact of the recovery. Indeed, most of the improvement in tax payments and monetization of the economy can be traced directly to ruble depreciation— rather than behavioral change—a point we have repeatedly emphasized. If this is so, then as Tabata concludes, one has to wonder about the strength of the recovery, as the real depreciation is unlikely to continue indefinitely. Thinking about real depreciation yields insights into the virtual economy. The critical point is that ruble depreciation makes the export-oriented part of the economy (which is predominantly value-adding and cash-based) larger in ruble terms relative to the dinosaur part of
The National Interest, 2009
The editors are especially indebted to Elin Knotter of the Fund's External Rel.ations Department,... more The editors are especially indebted to Elin Knotter of the Fund's External Rel.ations Department, who edited the entire manuscript and coordinated \~he production of this volume. Norma Alvarado provided expert word processing assistance. Finally, the editors thank all the participants in the conference, who contributed to two days of stimulating discussions.
The Brookings Review, 1999
Carnegie Endowment for International Peace eBooks, Dec 1, 2011
Social Science Research Network, 2005
We study the role of reputation in dealing with the soft-budget constraint. We examine whether th... more We study the role of reputation in dealing with the soft-budget constraint. We examine whether the reputation of a borrower can lead to repayment in an environment where enforcement is weak. We also introduce lenders' reputation and examine how this impacts on the allocation of borrowers. We find that reputation can harden budget constraint and improve welfare, although it can never fully eliminate softness. We also show that lenders who acquire a reputation for being tough can earn higher profits than lenders with reputations for being soft. JEL: F34, G33, P34.
One of the most exciting areas in economic theory is the study of incentives. Within this rubric ... more One of the most exciting areas in economic theory is the study of incentives. Within this rubric a broad range of problems are currently being addressed. They range from the problems of social choice, to the economics of planning, to the character of labor contracts. The central theme of the research agenda concerns how the incentive structure affects the quality of information agents are willing to communicate. The principal question concerns how truthful revelation of information can be induced.1 Such questions are important whenever agents can profit from distorting information. The problem thus arises in all sorts of guises in economics. The purpose of this essay is to illustrate this point by focusing on three distinct areas, social choice, public finance, and economic planning.
Understanding why economies do not succeed is at least as important as understanding success. The... more Understanding why economies do not succeed is at least as important as understanding success. The study of failure is focused on the stability of institutions that inhibit good performance, the Northian Conundrum. Policies that seem perverse may fit into a larger institutional environment. This explains the persistence of dysfunctional institutions. The key to effective reform is to understand the underlying logic of the system. I use the phenomenon of Russian viability insurance as an example.
Post-soviet Affairs, 1997
ABSTRACT Four specialists on the Russian economy analyze the extent to which enterprises use law ... more ABSTRACT Four specialists on the Russian economy analyze the extent to which enterprises use law and legal institutions in structuring exchange relations. The analysis uses the responses from questionnaires administered to sixty officials of fifteen enterprises in Moscow and Yekaterinburg during May-June 1996, supplemented by interviews in enterprises and within arbitrazh courts. Their results indicate that enterprises make little use of law and consider legal institutions to be ineffective. Other than ties based on historic business relations, there is an absence of social and economic networks that might function as substitutes for law. The underdevelopment of institutions to foster impersonal relations between firms slows restructuring and growth. Journal of Economic Literature, Classification Numbers: P51, P11, K1.
Social Science Research Network, 2000
The Russian Economy has evolved into a hybrid form, a partially monetized quasimarket system that... more The Russian Economy has evolved into a hybrid form, a partially monetized quasimarket system that has been called the virtual economy. In the virtual economy, barter and non-monetary transactions play a key role in transferring value from productive activities to the loss-making sectors of the economy. We show how this transfer takes place, and how it can be consistent with the incentives of economic agents. We analyze a simple partial-equilibrium model of the virtual economy, and show how it might prove an obstacle to industrial restructuring and hence marketizing transition. * * Paper presented in a BOFIT Transition Economics Workshop, June 1999.
Social Science Research Network, 2000
Palgrave Macmillan UK eBooks, 2008
Journal of Comparative Economics, Jun 1, 1987
RePEc: Research Papers in Economics, 1990
RePEc: Research Papers in Economics, Feb 1, 1998
The proximate causes of Russia's current financial crisis-the government's large budget deficit a... more The proximate causes of Russia's current financial crisis-the government's large budget deficit and the inability to service its debt, especially short-term dollar liabilities-are clear. The steps required to solve these short-term liquidity problems would seem to be equally straightforward and are being widely proposed. For its part, the Russian government is being called upon to reduce the budget deficit by collecting more taxes and cutting back on government spending. The international financial organizations and the Western nations, on the other hand, are being urged to craft an emergency loan package that would possibly include funds to stabilize the immediate financial situation but certainly a program to restructure Russia's debt for the longer term. These measures, it is argued, would allow the reformist government to get back to the business of market reform. The idea that Russia's economic problems can be remedied by such measures is wrong. It is premised on a fundamental misunderstanding of the Russian economy, but one which is a near-consensus view. It goes something like this. Russia is a largely privatized economy whose early success in market reform has been slowed by widespread corruption, crime, and incompetence. The explosion of barter and non-payments is due to inept and immoral enterprise management. Poor tax collection has produced a weak state. Overcoming these obstacles is a formidable challenge. But if they can be surmounted, movement towards the market can continue. In fact, most of the Russian economy has not been making progress toward the market, nor even marking time. It is actively moving away from the market. Over the past six years of "radical reform," Russian companies, especially those in the core manufacturing sectors, have indeed changed the way they operate. Only, they have not done so in order to join the market but rather to protect themselves against it. What has emerged in Russia is something that arguably qualifies as a new type of economic system with its own rules of behavior and criteria for success and failure. We call the new system Russia's "Virtual Economy," because it is based on illusion, or pretense, about almost every important parameter of the economy: prices, sales, wages, taxes, and budgets. At its heart is the ultimate pretense that the Russian economy is larger than it really is. It is this pretense that allows for larger government, and larger expenditures, than Russia can afford. It is the cause of the web of non-payments and fiscal crisis from which Russia seemingly cannot emerge. Below, we suggest the extent of the Virtual Economy and explain its roots. We also show how it helps explain some features of the current political process in Russia. The Virtual Economy, we argue, is robust, deep-rooted, and enjoys strong popular support. For those reasons, it has defined a new "reform" agenda for Russia that is already setting the tone for the current government. It will most certainly do so for a future one. The Virtual Economy presents the West with difficult choices regarding continued support of Russian economic transition. The principal motivation for providing more emergency funds for Russia, a "bailout," seems to be a belief not only that more money is required to preserve social and political stability, but also that it can be given with strings that will induce more reform. We believe that the opposite is true: the inevitable outcome of a bailout will be to support the Virtual Economy, a system that is nonmarket in nature and whose inefficiency will ensure continued economic decline and future crises. At
Post-Soviet geography and economics, Sep 1, 2000
S hinichiro Tabata (2000) emphasizes the role of the ruble exchange rate in explaining Russian ec... more S hinichiro Tabata (2000) emphasizes the role of the ruble exchange rate in explaining Russian economic performance in the 1990s. There is much to say for this view. Russia emerged from the Soviet period with an industrial economy that was unprepared for global competition. A sufficiently large depreciation of the ruble would have signaled the real (external) market value of Russian production. It would also have reduced real incomes and thus better reflected the actual inheritance from the Soviet period. But Russia is not just an inefficient manufacturer. It is also a major exporter of natural resources. The large demand for rubles generated by those exports kept the ruble from depreciating sufficiently to make the manufacturing sector competitive. At the same time, the economy was not one that was safe for investment. Hence, the rather large export earnings did not go into new capital. Rather, they flowed abroad. Indeed, capital flight from Russia is estimated at roughly $15-20 billion a year since 1994. This large capital flight no doubt prevented even further ruble appreciation, and thus masked how inefficient the economy really was. Tabata argues that the key to understanding the ruble's overvaluation prior to August 1998 is the microeconomics of the exchange market—specifically, compulsory sales of foreign currency by exporters. While this is an interesting point, it would be more appropriate to focus on the fiscal stance of the government. Massive borrowing, both internal and external, led to extraordinarily high interest rates. The government's fiscal policy guaranteed a high value of the ruble no matter how the currency auctions were organized. Of course, foreign investors' perception that Russia was "too big to fail" was a critical element. But the fact remains that Russia was living beyond its means during this period. The high ruble meant cheap imports, and it hid the true productivity of the economy. Since August 1998 the ruble has depreciated significantly in real terms, and Tabata is correct to point to this as the central fact of the recovery. Indeed, most of the improvement in tax payments and monetization of the economy can be traced directly to ruble depreciation— rather than behavioral change—a point we have repeatedly emphasized. If this is so, then as Tabata concludes, one has to wonder about the strength of the recovery, as the real depreciation is unlikely to continue indefinitely. Thinking about real depreciation yields insights into the virtual economy. The critical point is that ruble depreciation makes the export-oriented part of the economy (which is predominantly value-adding and cash-based) larger in ruble terms relative to the dinosaur part of
The National Interest, 2009
The editors are especially indebted to Elin Knotter of the Fund's External Rel.ations Department,... more The editors are especially indebted to Elin Knotter of the Fund's External Rel.ations Department, who edited the entire manuscript and coordinated \~he production of this volume. Norma Alvarado provided expert word processing assistance. Finally, the editors thank all the participants in the conference, who contributed to two days of stimulating discussions.
The Brookings Review, 1999
Carnegie Endowment for International Peace eBooks, Dec 1, 2011
Social Science Research Network, 2005
We study the role of reputation in dealing with the soft-budget constraint. We examine whether th... more We study the role of reputation in dealing with the soft-budget constraint. We examine whether the reputation of a borrower can lead to repayment in an environment where enforcement is weak. We also introduce lenders' reputation and examine how this impacts on the allocation of borrowers. We find that reputation can harden budget constraint and improve welfare, although it can never fully eliminate softness. We also show that lenders who acquire a reputation for being tough can earn higher profits than lenders with reputations for being soft. JEL: F34, G33, P34.
One of the most exciting areas in economic theory is the study of incentives. Within this rubric ... more One of the most exciting areas in economic theory is the study of incentives. Within this rubric a broad range of problems are currently being addressed. They range from the problems of social choice, to the economics of planning, to the character of labor contracts. The central theme of the research agenda concerns how the incentive structure affects the quality of information agents are willing to communicate. The principal question concerns how truthful revelation of information can be induced.1 Such questions are important whenever agents can profit from distorting information. The problem thus arises in all sorts of guises in economics. The purpose of this essay is to illustrate this point by focusing on three distinct areas, social choice, public finance, and economic planning.
Understanding why economies do not succeed is at least as important as understanding success. The... more Understanding why economies do not succeed is at least as important as understanding success. The study of failure is focused on the stability of institutions that inhibit good performance, the Northian Conundrum. Policies that seem perverse may fit into a larger institutional environment. This explains the persistence of dysfunctional institutions. The key to effective reform is to understand the underlying logic of the system. I use the phenomenon of Russian viability insurance as an example.
Post-soviet Affairs, 1997
ABSTRACT Four specialists on the Russian economy analyze the extent to which enterprises use law ... more ABSTRACT Four specialists on the Russian economy analyze the extent to which enterprises use law and legal institutions in structuring exchange relations. The analysis uses the responses from questionnaires administered to sixty officials of fifteen enterprises in Moscow and Yekaterinburg during May-June 1996, supplemented by interviews in enterprises and within arbitrazh courts. Their results indicate that enterprises make little use of law and consider legal institutions to be ineffective. Other than ties based on historic business relations, there is an absence of social and economic networks that might function as substitutes for law. The underdevelopment of institutions to foster impersonal relations between firms slows restructuring and growth. Journal of Economic Literature, Classification Numbers: P51, P11, K1.