Privatizations, Nationalizations and Mortalizations, Oh My!

NEW YORK, New York -- The New York Times' Economix blog reports today that the renowned British medical journal The Lancet has published a study that concludes that the privatization of businesses in post-communist states caused a spike in mortality rates.

In other words, after the Soviet Union and the socialist regimes in its satellite states collapsed in 1990-1992, selling factories and other formerly state-owned enterprises into private ownership caused people to die, in essence. The study alleges that privatizations increased the death rate in former communist states by 12.8%.


Would keeping you in the government's hands have saved lives?

To my mind, the report's conclusions sound suspicious. Here's a preliminary rebuttal, based on a quick perusal of the report and a few dashed-off thoughts.

I think controlling for privatizations is a difficult, problematic thing to do, first of all. The report's authors say they used a multivariable longitudinal regression analysis. And to effect of privatization, they controlled for "price and trade liberalization, income change, initial country conditions, structural predispositions to higher mortality, and other potential confounders." But they acknowledge that "one mediating factor could be male unemployment rates, which were increased substantially by mass privatization."

Well, not really. They draw a line between Russia and non-Soviet Eastern Bloc states, arguing that Russia saw more mass privatizations than the East European states (Croatia, Poland & co. -- Dickbag Cheney's "New Europe," in short). Now, although the authors acknowledge that they don't control for unemployment and that that could be a problem, they subsequently say it's not a problem because privatizations in Russia saw three times as much unemployment as in the East European states. This, to them, means that unemployment is linked to mass privatizations and that they can't be separated, or, equally, there's no use in separating them.

But that's not necessarily the case. It may be the case, but we don't know it must be. For what exactly tells us unemployment in Russia was higher because there were more mass privatizations there? Other factors could are just as likely to have come into play -- for instance, that Russia's economy was more tightly controlled by the communist state. (The Eastern Bloc states were as close as Soviets could get to a magical bohemia, where there was limited private industry, high-quality goods from the West, and less political oppression.) With the collapse of the centrally planned economy, Russia was, simply put, worse off than the others. Therefore it fell harder, and unemployment was higher. That's a structural problem of Soviet communism as practiced in Russia, not privatization.

Moreover, how do we determine that privatization, and not attempted coups (as in 1993 in Russia) and general political/mortal uncertainty, caused either unemployment or, ultimately, the deaths attributed to it? And then there's the Trump Card of Russia: You mix in the accessibility of alcohol, which was very limited under Gorbachev but repealed under Yeltsin, and you have a complicated picture. Study after study have shown that the status of alcohol sales and production has a huge impact on Russian life expectancy.

I don't doubt that being jobless contributed to people's misery, stress, and willingness to consume alcohol (though any person who has lived in Russia knows that employment/unemployment was hardly the biggest factor in alcohol consumption by Soviet workers). Nor do I want to argue that "shock therapy" was perfect. But the study's conclusions sound very dubious.

Take into account as well that what we got in Russia wasn't just privatization but crooked, swindled, corrupt privatization. Did the authors control for that? They don't mention it.

So there are methodology and controlling issues that may be at work. But there's also this, which the Times picks up on: “Many employers provided extensive health and social care for their employees, so through privatization workers experienced the ‘double whammy’ of losing not only their livelihood but also their means of surviving the crisis."

I get the feeling this report has almost westernized the situation in early post-Soviet Russia. All Russians have healthcare. It's not very good, but everyone has it, regardless of whether you work. There of course was no American-style system of private, employer-based health care in the Soviet Union, and there isn't today. This summary makes it sound as though losing one's job meant losing access to healthcare. And unless you live in a one-factory town where the closure of a factory meant the general abandonment of the town and closure of the local polyclinic, it is a stretch to imply that losing one's job meant losing one's access to healthcare.

Why do I care? Well, the report is quite political in its own way. (Living in Russia, you realize anything can take on political overtones if seized upon by the right people, i.e., Russian propagandists -- which the Lancet obviously is not, but someone reading their report may be.) Throughout, we encounter statements like this:

There were two approaches to capitalism. Radical
free-market advisers argued that capitalist transition
needed to occur as rapidly as possible. The prescribed
policy was called shock therapy, with three major ele-
ments: liberalisation of prices and trade to allow markets
to re-allocate resources, stabilisation programmes to
suppress inflation, and mass privatisation of state-owned
enterprises to create appropriate incentives. When
implemented simultaneously, these elements would cause
an irreversible shift to a market-based economy. By
contrast, gradualist economists, also known as insti-
tutionalists, called for a slow transition, recommending
that countries gradually phase in markets and private
property while allowing time to develop institutions that
are needed to make markets work well.

Meanwhile, we are told that "the main policy advisers at the EBRD, who backed the shock therapists, were also responsible for scoring progress in privatisation" and that their indices were "biased and subjective."

This paper sounds more like revisionist history than a medical study. Particularly, it sounds very much like the Great Oz Vladimir Putin's revisionist history. The Putin regime's founding myth, put forth incessantly in today's Russia, is about the evils of the "chaotic 90s" and the unscrupulous (and Jewish) oligarchs who cheated the people out of their assets. While the privatizations were quite corrupt, for Putin it becomes a question of Russia being sullied by the West -- the shock therapists and the likes of the EBRD. Putin and Lancet seem to converge, then. But Putin's intentions are darker than the journal's: For him, as for the discontented elements in Weimar Germany, the perceived indignities heaped upon his country by the West are a primary motivator. And they boil down to privatization. Today there is talk of re-nationalization in Russia. It's the culmination of years of visceral hatred of the privatizations.

For this reason, I think one must be very careful before drawing such stark conclusions about Russia's privatization. For they can be used to real consequence.