Saving Behavior And Soviet Reform

This paper argues against using the forced savings concept to explain saving behavior of Soviet consumers. It discusses reasons for consumers in a traditional Soviet economy to save less than their counterparts in market economies at similar economic development stages. These reasons include low variability of life cycle income, large state subsidies to major consumption items, ability of retirees to compensate for low money income by acquiring goods at state‐controlled prices through standing in queues, and limited choice of financial instruments. When transition to a market economy occurs or is expected to occur, consumers tend to increase their savings. The way to deal with the Soviet system's inefficiencies is to liberalize currently controlled prices and to implement other market reforms, which would result in lifting official restrictions on already existing market forces. Market reforms, in turn, will help achieve financial stability. The Soviet economy's problem is not excessive saving but rather the excessive role of the state.