Illusions of market paradise: State, business, and economic reform in post-socialist Russia and post-1980s crisis Argentina

Abstract

Why do some economic elites initially support reform policies that potentially risk their very positions, especially when they apparently do little to address the potential threat or make use of increasingly likely radical changes? To address this question, and to expand our understanding of managerial and business decision-making in periods of fundamental economic change, we compare industrial managers’ and business elites’ reactions to initial economic reform in Argentina and late Soviet/early post-Soviet Russia. Drawing on a stochastic learning model, we suggest three processes shaped decisions to embrace reforms in such as way as to leave themselves vulnerable. First, these elites anchored expectations in experiences of past reforms, including experiences and expectations that reforms would ultimately be limited or would fail. Second, these two groups used reforms to augment gains and autonomy, but in such a way that left them vulnerable to competition and greater fiscal strains alter. Third, market-oriented reforms were initially ambiguous, because of the nature of market systems under construction (which inherently include uncertainty and ambiguity about future outcomes) and because reforms themselves were not entirely coherent. These factors, combined with no initial demonstration by the state that reforms would be carried out to their limit, allowed Soviet managers and Argentine business elites to read a positive future into reforms, leaving them vulnerable. As a result, they supported reforms that ultimately turned into threats.