Russian Output Drop in Early Transition and its Macro- and Micro-economic Implications

Abstract

One of the ‘stylised’ facts for the former Soviet-type economies in the early transition period is that there was a sharp fall in output coupled with a high inflation rate, which was an unexpected result for the suppliers of the reform package, namely the IMF and the World Bank. The drop in output officially measured in the early stages of the transition process was caused by the collapse of the traditional command and statistical system (see Winiecki, 1995). In the Soviet era, as was pointed out by many economists, including Seliunin and Khanin (1987) and Treml (1988), the official statistics of industrial production and national income suffered a general and continuous upward bias. This upward bias was mainly brought about by the traditional command system associated with its intrinsic incentive system, namely the distribution of bonuses, input requirements and output targets according to the extent of fulfilment of production plans. In this situation Soviet firms sent to the planning and statistical authorities reports which overestimated output performance (a phemonenon known as pripiska). This type of paper output (write-ins) must have already disappeared by the early transition period.