But this figure is grossly exaggerated. Under communism everyone padded output to reach the targets of the planned economy, but no one cared about the quality or even the usefulness of the items produced. For instance, the Soviet Union manufactured more than six times as many tractors as the United States, yet its agricultural output lagged far behind because production was so wasteful. Much of Soviet manufacturing was unfit for consumption, so Russians flocked to the imported goods that flooded the market following the liberalization of foreign trade. Thus the subsequent decline in the production of useless goods and unneeded inputs was not a tragedy but a desirable change. At least one-fifth of Soviet output fell into one of these categories, and the estimated GDP of the Soviet era should be reduced accordingly.

After communism the statistical measure of output shrank far more than its actual level. The underground economy accounts for at least one-quarter of this purported contraction. Thus the Russian economy has not collapsed. Rather, until 1998 it stagnated because of sluggish, incomplete reforms. Russia’s level of economic development remains where it was during the Soviet era, roughly on par with Brazil’s.

Moreover, Russia has not developed a new "virtual economy" based on barter rather than money. The share of barter transactions in Russian industry peaked at 54 percent in August 1998, but the financial crash curtailed this system of hidden subsidies that had been the norm for Russian enterprises. Nonmonetary transactions fell like a stone once Russian industry realized that it could no longer depend on the state and would have to earn real money in the marketplace. Today the virtual economy is marginal.

According to the latest official data, Russia achieved GDP growth of 5.4 percent in 1999 and 8.3 percent in 2000—and growth continues today. While many systemic problems remain, Russia appears to have attained a critical mass of market reforms and privatization. (Several other countries in the region, such as Kazakhstan, have made similar achievements and are also booming.) Considering the enormous distortions left behind by communism, that is a splendid feat.

The economic mayhem that preceded the collapse of the Soviet Union—the legacy of years of gradual, inadequate reforms—left former President Boris Yeltsin with few choices but to move.

Russia toward a market economy. But this situation was not unique to Russia, which is why more than 20 other former communist countries also pursued market reforms. The most successful of these countries, with high growth and contained corruption (notably Estonia and Poland), undertook far more radical reforms. Nearly all of Russia’s current problems—widespread corruption, excessive state intervention, high tax rates, lingering inflation, limited rule of law—reflect insufficient reform efforts.

Russia has experienced rapid economic growth and considerable structural improvements in the wake of the financial crash that shook the world in August 1998. That crisis reduced the wealth and political power of two of Russia’s most corrupt groups: oligarchic tycoons and regional governors. More surprisingly, the crash convinced both the communists and the general public that there was no alternative to a real market economy. Until fairly recently Russia’s real problem was too little shock and too much corrupt state therapy in the form of subsidies to the country’s elite.

Instead of saying that privatization has generated corruption, it would be more accurate to say that it has generated national wealth. Since 1997 Russia’s private sector has accounted for 70 percent of GDP.

Corruption is usually defined as the misuse of public power for private gain. But privatization permanently deprives public servants of public property, so they can no longer charge money for the privilege of using it. The bribery that plagues Russia today is not related to privatization. Rather, it is overwhelmingly tied to law enforcement, tax collection, and state intervention.

In general, the higher is the level of privatization that a former communist country has attained, the higher is the economic growth that it has achieved. Russia is atypical in having been more successful with privatization than with other market reforms, such as price liberalization. As a result people tend to blame privatization for Russia’s shortcomings, while it would be more logical to complain about the dearth of other reforms. Russian enterprises are hounded by scores of state inspectorates that regularly extort money from businesspeople.

Strangely, the standard comparison is between privatization in Russia and in Poland, with the allegation that Poland privatized more slowly. In fact, Poland started off with a bigger private sector than did Russia. But Poland undertook more reforms in nearly all spheres—suggesting that, had Russia not privatized so fast, it probably would have been in the doldrums.

Ukraine has implemented most reforms, including privatization, more slowly than Russia. As a result Ukraine’s privatization has been worse than Russia’s, with more ownership going to managers and employees and less being sold on open markets. Ukraine’s corporate governance also remains far worse than Russia’s, where nearly 800 enterprises actually paid dividends to their shareholders in 2000.

This allegation is based on sheer disinformation. Russia collects one-third of its official GDP in general government revenues—slightly more than the United States, whose citizens complain that taxes are too high. Not only has Russian tax collection been high, it has also been very stable.

The misperception about Russian taxation is the result of superficial observations. Most outsiders tend to focus on federal revenues. But those represent only a part of total revenues, which also include regional and local tax revenues as well as several extrabudgetary funds, notably the pension fund. Another source of confusion is that many observers, including some Russians, take for granted that Russia should have state revenues as high as Western Europe or the former Soviet Union, ignoring that such taxation harmed growth in both places. For Russia a more plausible tax rate, in line with its level of economic development, would be 15-25 percent of GDP.

The real problem is not that Russia cannot collect taxes, but that the government collects too much. These revenues are spent improperly and aggravate corruption. According to the World Bank, at least 16 percent of Russia’s GDP went to enterprise subsidies in 1998. (Small wonder that state finances crashed.) Furthermore, tax collection is ruthless. The lawlessness of tax inspectors has emerged as one of the most serious concerns of the post-Soviet era.

The obvious solution to these problems was a low, flat tax rate. Earlier this year Russia introduced a flat income tax of just 13 percent (a rate that the United States and Western Europe could only dream about). Income tax revenues instantly jumped 70 percent as people abandoned expensive schemes for avoiding taxes.

Think again. Dramatic news stories, such as the tragic sinking of the submarine Kursk and the fire that engulfed the Ostankino television tower in Moscow, have created the impression that Russia is coming apart at the seams. In fact, Russia has seen extraordinary improvements in its infrastructure. Investment in fixed assets (buildings, equipment) increased 18 percent in 2000, reaching a healthy 20 percent of GDP (higher than the standard U.S. ratio of 16 percent). Admittedly, the Soviet Union had investment of about 30 percent of GDP, but that was an indication of waste. The Soviet Union was notorious in its neglect of infrastructure and maintenance. Today privatization and market pricing have revived much of Russia’s infrastructure. Market competition has fostered incredible expansion in telecommunications. Airports and airlines have similarly improved. Road construction is up. New ports have been built around St. Petersburg. Whereas ruins once blighted the landscape of even Moscow, modern-day Russia has initiated a widespread building boom.

Maintenance problems persist, however, where state monopolies linger—notably in the natural gas monopoly Gazprom, the state-owned oil pipeline monopoly, and some public utilities.

Granted, recent health statistics from Russia are shocking. Male life expectancy plummeted from 64 to 57 years between 1989 and 1994, and the country’s population is dropping by more than 500,000 people a year. The population decline has two causes. The first is low birth rates, which are common throughout Europe. The other cause is high death rates. The population pyramid is badly skewed because there were so few births in 1930-45 due to government terror and war, and the large age group born before 1930 is now dying.

According to the most recent United Nations projections, Russia’s population decline—28 percent through 2050—will not be drastically worse than that in parts of Western Europe. The main causes of the drop in male life expectancy are cardiovascular disease and accidents, partly fueled by alcoholism. Nothing suggests that health care standards in Russia have fallen. The quality of health care is closely linked to infant mortality, which plunged 17 percent between 1993 and 1998. Public and private spending on health has risen sharply as a share of GDP. Capitalism has made medicines widely available that were unknown during the Soviet era, and hospital equipment has greatly improved.

Yet the proliferation of illicit drugs and AIDS, both of which are inevitable consequences of becoming an open society, is cause for genuine concern. Another worry is tuberculosis—a new drug-resistant strain of the disease is particularly troubling. Moreover, because the health care system remains predominantly public, it suffers from low salaries, low efficiency, and widespread bribery.

A profound misperception prevails that the West has provided enormous aid to Russia. In fact, such aid has been trivial. Between 1992 and 2000 the U.S. Agency for International Development (USAID) committed $2.6 billion to Russia. But actual disbursements have been much less: Russia received only about $200 million a year in grants from the United States, while the European Union gave barely $150 million a year. The United States has also given food aid, partly in grants and partly in credits—but that has been at the behest of the U.S. agricultural lobby and qualifies more as financial aid for U.S. farmers. In fact, food aid has hampered agricultural reform in Russia. (The United States has also financed denuclearization in the former Soviet Union, but again that is driven predominately by U.S., not Russian, interests.)

Russia has drawn nearly $15 billion in stabilization credits from the International Monetary Fund (IMF), all of which must be paid back with interest, and the country has already returned nearly half that amount. The World Bank has committed $12 billion, but that is also in the form of credits that must be repaid with interest. Thus since the end of the Cold War the West has provided Russia with public grants totaling about $5 billion—equivalent to U.S. aid to Israel and Egypt in a single year—most of which has been spent on Western consultants.

For its part, the United States has benefited enormously from the peace dividend that came with the disappearance of the Soviet military threat. In the 1980s the United States spent 6 percent of its GDP on defense, compared with 3 percent—$300 billion a year—today.