The Death of the Bad Idea.(the Russian economy)(Brief Article)

Few would have thought that the debacle of '98 was the best thing that could have happened to Russia. And yet it's so. Where once was chaos, collapse and destitution, there is now stability, reform and growth. In today's stressed world of emerging-market finance, Russia is a remarkable exception, with both its budget and current account in healthy surplus and its people content. Putin has done it. The longer this virtuous cycle goes on, the greater will be his political power.

What a change from three years ago, when the ruble tanked, Russia's foreign debt lost most of its value and chaos ruled the day. The young reformers of postcommunist Russia were rightly determined to wipe out communism. They did away with price controls, blew up the planned economy, privatized public assets at literally any price--with scant attention to due process or sensitivity to public hardship. It could have been done better, in hindsight. So-called oligarchs rose to plunder the system. State industry collapsed. Gangsterism and corruption ran amok. There were hyperinflation, currency runs, desperate poverty, unbelievably vulgar displays of stolen wealth, vodka everywhere. The young learned English and commerce; the old were left by the wayside. Boris Yeltsin misruled; the nation suffered. But in the end it worked, whereas policies of gradualism, circumspection and a plan with rules might not have.

History is very forgiving of success, however messy the means. Russia today is an entirely different place. It is normalizing. Broad-based economic growth and financial stability are the outward signs. But the roots go much deeper. Four factors are key to Russia's transformation-- and they augur well for its future.

First: Yeltsin is out, Putin is in. The change could not be more dramatic. When not drunk, Yeltsin was redistributing state assets to his favorites and buying political support against an increasingly mobilized opposition. Putin, by contrast, understands that the public wants stability and growth and will award their votes to anyone who delivers.

Second: oil. For the past few years, prices have been high. That has boosted budget revenues and external surpluses--keys to financial stability. The high oil prices came just in time to help Putin put in place his financial-responsibility policy and his reform strategies. With prices falling off, the economy's sheen will doubtless fade a bit. But we are miles away from printing money and a return of capital flight and currency collapse.

Third: Russia seems to have run out of bad ideas. Bad economics, populism, antimarket policies have all been tried--and all failed. And they failed at such a steep social cost as to have been utterly discredited. As in every country that has gone through hyperinflation and economic ...