Foreign Investment in Contemporary Russia: Managing Capital Entry. by Andrei KuznetsovReview by: George D. HollidaySlavic Review, Vol. 54, No. 3 (Autumn, 1995), pp. 826-827Published by:Stable URL: http://www.jstor.org/stable/2501832 .

Accessed: 14/06/2014 02:44

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.

.

Association for Slavic, East European, and Eurasian Studies is collaborating with JSTOR to digitize, preserveand extend access to Slavic Review.

http://www.jstor.org

This content downloaded from 62.122.76.48 on Sat, 14 Jun 2014 02:44:27 AMAll use subject to JSTOR Terms and Conditions

826 Slavic Review

external technologies to achieve rapid expansion. Liu advances other key lessons such as the need to depoliticize the economic bureaucracy, to develop rule of law based on legal authority and the importance of transitioning from extensive to intensive resource allocation.

Liu has written a valuable and insightful book. His future work may want to consider developing more specific recommendations for Russian policy makers. States and Markets: ComparingJapan and Russia provides an important comparative case study of these nations' paths of development in their differences and similarities. The rec- ommendations that the book makes are crucial, and Russian reformers and American policy makers should study them closely. The volume will also appeal to specialists in comparative economic development, international political economy, international politics and business.

DEBORAH ANNE PALMIERI Russian-American Chamber of Commerce

Foreign Investment in Contemporary Russia: Managing Capital Entry. By Andrei Kuz- netsov. New York: St. Martin's Press, 1994. xiv, 188 pp. Index. $59.95, hard bound.

Andrei Kuznetsov examines a vitally important issue for economic policymakers in Russia today: how to attract foreign investment to Russia and maximize its benefits to the national economy. He suggests ways to create an attractive environment in Russia for foreign investors, discusses features of Russia's economic development to consider when formulating a policy toward foreign investment and identifies sectors of the economy which should be given high priority when attracting foreign investment.

Kuznetsov recognizes the important role that foreign investment plays in the world economy and aptly describes the specific role that it can play in contemporary Russia. Foreign direct investment is the most effective means for transferring capital, management skills, commercial technologies and marketing skills-all in short supply in Russia-across international borders. He also emphasizes Russia's historical ambiv- alence toward foreign direct investment-a recognition of the benefits of foreign investment combined with a deep suspicion of foreign control over parts of the econ- omy. It is a legacy that current policymakers and foreign investors should heed. Kuz- netsov describes, for example, how tsarist and bolshevik officials warmly embraced foreign investors, inviting them to help with modernization of the economy and how in the 1930s Soviet leaders turned a cold shoulder to foreign investors.

In exploring the needs of contemporary Russia, Kuznetsov favors neither the warm embrace nor the cold shoulder. He clearly believes that Russia must attract foreign investment to help solve its difficult economic problems. He is, however, wary of leaving foreign-investment decisions to the market place. The latter, he thinks, would leave Russia at the mercy of transnational corporations and banks which serve the national interests of their home countries, not the interests of the countries in which they invest. Kuznetsov's solution to this dilemma is an activist government which intervenes in foreign-investment decisions. The Russian government, he says, must adopt a comprehensive industrial policy to channel foreign investments into the right parts of the Russian economy and ensure that the economy reaps maximum benefits.

Kuznetsov's argument will be familiar to western scholars and policymakers who have debated the issues of industrial policy, strategic-trade policy and other proposals to promote certain industries or enhance "national competitiveness." However com- pelling such proposals may appear in theory, they are usually exceedingly difficult to put into practice. To implement an industrial policy successfully, political leaders and government bureaucrats must identify which industries should be promoted. They must also devise a promotion program (for example, subsidizing, protecting or chan- neling capital investments into the favored industries) that does not create costly distortions of resource allocation. To be successful, governments must be smart enough to carry out such policies without discouraging private investors, who own most of the capital needed to promote the favored industries. In the case of Russia, it is

This content downloaded from 62.122.76.48 on Sat, 14 Jun 2014 02:44:27 AMAll use subject to JSTOR Terms and Conditions

Book Reviews 827

sobering to remember that many of the officials who might administer industrial policy are holdovers from the Soviet government, which tried unsuccessfully to improve upon the market's allocation of capital resources.

Of $200 billion in worldwide foreign direct investment in 1994, only about $1 billion went to Russia. On the surface, Russia's small share is surprising. The country is richly endowed with natural resources and, more importantly, with talented human resources. Since it is desperately in need of capital, the returns on investments should be lucrative. Yet, Russian Economics Minister Evgenii Iasin recently remarked that Russia is now among the least attractive countries in the world for foreign investment. Clearly, the first priority for Russian policymakers must be to attract foreign invest- ment to Russia, not to channel foreign investment into preferred industries. One way to encourage foreign investors is to avoid politicizing private investment decisions. There are legitimate grounds for the Russian government to regulate foreign invest- ment: it must protect the environment, enforce labor standards and safeguard national defense. The standard for government regulation, however, should be national im- provement. The Russian economy will reap maximum benefits if private investors, whether foreign or domestic, make decisions about how and where to invest their capital.

There are, as Kuznetsov observes, other prerequisites for attracting foreign in- vestment. He points out, for example, that political stability is a critical element. Foreign investors will be reluctant to risk their capital in a country ruled by weak leaders and unstable political institutions. Kuznetsov's analysis of a second critical element, macroeconomic stability, misses the mark. He criticizes the Russian govern- ment's "one-sided" pressure to instill monetary discipline. In fact, the government has not vigorously pursued responsible fiscal and monetary policies. A more steadfast policy would contribute to low inflation and a stable currency-important ingredients of an attractive environment for foreign investment.

GEORGE D. HOLLIDAY

Congressional Research Service, Library of Congress

Industrial Decision-Making and High-Risk Technology: Siting Nuclear Power Facilities in the USSR. By Charles K. Dodd. Lanham: Rowman & Littlefield, 1994. xii, 211 pp. Index. Maps. Tables. Appendixes. Bibliography. $39.50, hard bound.

Charles Dodd's twin goals in the preparation of his study were to describe the evo- lution of Soviet nuclear-facility-siting policy after 1954 and to compare the institu- tional framework of Soviet policy making with respect to nuclear facilities to the framework of such policy making in the west. This slim volume (an outgrowth of his master's thesis at the University of Washington) achieves each of these goals in a succinct, well ordered manner. Dodd presents an excellent case study of decision making within a narrowly defined segment of the Soviet politico-economic hierarchy.

Drawing upon the large volume of literature available on nuclear facility siting in the US and western Europe, Dodd opens his book by describing the participants and criteria which characterize the western nuclear plant policy-making process, which he uses as a basis of comparison when exploring the Soviet energy sector. Using a wide variety of western and Soviet sources, Dodd portrays the Soviet process as dom- inated by officials of the central planning (Gosplan) and energy ministries (Minenergo), with minimal oversight by safety agencies and no significant role for local authorities. In stark contrast to western practice, Soviet decisions on the siting of nuclear facilities were made solely by officials with a vested interest in the development of nuclear power in the USSR.

The evolution of the siting policy which those officials pursued was marked, in Dodd's view, by two important watersheds, the XXIV Congress of the CPSU in 1971 and the Chernobyl disaster of 1986. The XXIV Congress called for the rapid expansion of Soviet nuclear power capability, resulting in ever larger-capacity plants, the con- struction and operation of which were dominated by cost reduction and economy of

This content downloaded from 62.122.76.48 on Sat, 14 Jun 2014 02:44:27 AMAll use subject to JSTOR Terms and Conditions