Post-Soviet Russia: an analysis

by Sam Pawlett

" the vipers, bloodsuckers, the middlemen-- that's what needs to be rehabilitated in the Soviet Union. That's what makes our country click!"

--Bruce Gelb, head of the United States Information Agency.

In mid-august the Russian Government (Boris Yeltsin, Anatoly Chubais and the IMF) devalued the ruble by more than 30%. Less than a month earlier, the Russian government said it would not devalue, which says a lot about the stability of the Russian government. The devaluation is supposed to make the Russian economy more competitive on an international scale by lowering wages and living standards( raising the prices of imports). The devaluation was an indicator of the general malaise and disease infecting the Russian economy. The Russian stock exchange has fallen by more than 80% in the past three months. The crash in East Asia has further exacerbated Russia's problems. The Russian economy has not experienced any real GDP growth since the end of the Soviet Union.Real GDP per capita is said to have fallen over 50%,capital investment by 90%(!)

The switch to a "market" economy has, of course, been a disaster in many ways. Only the most fervent believers in free-market theology ever believed other wise. The conversion to capitalism in Russia was supervised and in effect dictated to the Russian government by the IMF and a coterie of Western advisors, mostly IVY League trained economists including most prominently Jeffrey Sachs. Sachs has now become a critic of the IMF and its policies, presumably to enhance his own self-righteousness. The Russian economy at the time accepted terms that no G-7 country would ever submit to. The conversion to capitalism was labeled "shock therapy" and was to be carried as quickly and as drastically as possible to forestall any public opposition that might develop. The program of "shock therapy" was forcefully imposed like capitalism everywhere, on the Russian people without their being given a say in the matter. NO alternatives were considered or debated and the past history and structure of the Russian economy were not taken into consideration. The argument put forward was that there was no alternative given the realities of the unfolding global economy. At any rate, an opportunity to try different alternatives was missed. Another argument put forward was that the peoples of Russian and the former Soviet block states were tired of experiment and just wanted to go with what was tried and true. Capitalism in its present modern form had never existed in the Former Soviet Union and Eastern Europe. Elements of capitalism existed in Russia before 1917 but Russian and Eastern Europe were still very "backward" economically, culturally and politically. One only has to have a slight knowledge of the debates and writings of the Russian and European revolutionary movements of the time to realize this point. Capitalism as an organic system is complicated and consists of many factors. There is no guarantee that what worked in one culture will work in another. Further the capitalism that was proposed in Russian( the pure laissez-faire type)does not exist in any country today.

The shock therapy program consisted in the main of the following;

1) liberalization of prices

2)macroeconomic stabilization

A) reduction of government spending to achieve a balanced budget.

B) strict limits on the growth of money and credit.

3) privatization of state enterprises

4) abolition of the remaining elements of central planning.

5) removal of all barriers to free international trade and investment.

Shock therapy was supposed to work like any model in a first year economic textbook. It reveals the extreme naiveté of its designers of the understanding of how actual societies work. This free-market monetarism is supposed to more productive, efficient and to contain faster growth. This is assumed a priori by its adherents and practitioners.

The results of shock therapy were disastrous. Russian GDP has fallen 50% since 1990 as have real wages and pensions. Public health standards have declined considerably, creating a serious problem. Diseases such as tuberculosis which were virtually wiped out under Soviet rule have returned to epidemic proportions. There is widespread malnutrition and starvation. There is an estimated 1 million homeless people in Russia or 1% of the population. Average life expectancy for Russian males has fallen from 73 years to 57. The level of alcoholism, already high, has skyrocketed contributing to the statistic cited above. The rural areas outside of Moscow and St., Petersburg have been hit the hardest as these areas were most dependent on the state enterprises and income redistribution between regions. Under the Soviet system, often a whole town or city would be dependent on one or two state enterprises, which not only provided all the employment in the town but also provided for infrastructure, schools and health._ When these enterprises were shut down, the whole infrastructure of the town would vanish as well. Predictably, support for today's communists and nationalists is highest in rural regions outside Moscow and St. Petersburg.

Russia's economic collapse is not that important internationally since the Russian economy is now smaller than that of the Netherlands. The collapse is not a great blow to the international bourgeoisie, in strict economic terms, yet financiers and speculators like George Soros will be hit hard as Russian banks have defaulted on more than us$40 billion dollars worth of loans. German banks were prime lenders to Russia and will be caught holding a myriad of bad loans. That default will make it very difficult for Russian to raise capital on international credit markets in the future.

The principal lesson to be drawn from the Russian experience is that Capitalism does not work. Capitalism, where successful, ( to the extent that it has been successful in raising living standards)_ has been the product of a long historical development stretching out over centuries in some areas. Its development has been parasitic on slavery, genocide, plunder, thievery and massive exploitation of the majority of the population as a working class. The Russian experience shows that capitalism cannot be reproduces a priori, ahistorically as contemporary economic theory would have one believe. The conditions for capitalist development cannot reproduced immediately and ahistorically. In !991, important conditions were absent that are required for capitalist growth or at least have been present in successful modern capitalist societies. There was no bourgeoisie that could carry out the primary tasks in the process of capital accumulation. Today a bourgeoisie has developed in Russia whose prime task it has been to seize former state assets of the Soviet Union and ferret the capital out of the country as fast as possible. Estimates range from US$140 billion to US$300 in capital flight. Even Geoffrey Sachs ,amongst many others, has a called the process of privatization in Russia a massive criminal operation. The main beneficiaries of the privatization process have been former high ranking members of the CPSU and their families as well as western "investors." This is the main reason the top of the CPSU hierarchy decided to dismantle the Soviet Union; to get their hands on the assets of the state,, which formally at least, under the USSR belonged to the people as a whole. Boris 'buy me a drink' Yeltsin and his cronies have used the central bank as their own personal piggy bank ripping off billions in loans and aid that were supposed to go towards paying wages and pensions that have not been paid in some cases for up to 8 months. The billions in IMF aid which were supposed to go towards paying back wages and pensions has either been pocketed or squandered trying to defend the ruble.

Indigenous investment in real production has been a minimal percentage of total investment as production has declined by over 70%. Russia today produces virtually none of its own food and consumer goods. Quite a feat given that the Soviet Union was practically a self-sufficient society. Some foreign multinational corporations have invested in Russia's huge natural gas and oil reserves._ Foreign investment as a whole, has been in the raw materials sector like any other third world economy. Foreign companies are now the majority owners of Russian media as well , which, surprise!, trumpet the IMF-western imperialist line about the economic reforms and shock therapy. In the last general election, ALL of the Russian media backed Yeltsin, continuously running favorable stories about him while maligning his major running mate Gnyadi Zyuganov of the Communist Party as a monster who would resurrect the labor camps that existed under Stalin. On this basis, the UN observer team at the election declared the election unfair. The election was reminiscent of the 'demonstration' elections that the US used to sponsor in places like El Salvador, Guatemala and the Dominican Republic.

Foreign companies were initially very optimistic and were licking their lips at the prospects of plundering Russia's natural resources. Russia has a well-trained and educated work force courtesy of the Soviet Union. Now the place is so corrupt that even battle hardened TNC's are either pulling out or discontinuing plans to invest in Russia. Most of the manufacturing investment now goes to Poland, Hungary and the Czech republic where things are a little less corrupt and a bit more stable. Major corporations can do business there at least. The Baku oilfields and the Caspian sea remain a prime area of interest for Big Oil with huge untapped oil and gas reserves. Progress remains very slow though because of corruption, nationalist and local opposition.

The cities of Moscow and St. Petersburg have been the principal sites of the economic largesse. The city of Moscow comprises 70% of the economic activity in Russia. Real incomes have grown in Moscow albeit with tremendous inequality. American and European imports decorate the shops and streets of some districts of these cities making these areas recipients of glowing praise from the Western press who proffer images of these areas and the people who consume the goods as proof that the free-market is succeeding in Russia. Some 80 to 90% of the consumption in these cities is direct imports from Europe and North America. Imported goods in Russia, as in other third world societies, are status symbols. Symbols of one's wealth and upper class status but also of one's pro-western pro-capitalist imperialist viewpoint and lifestyle as opposed to the backward looking poor nationalists and (gasp!) socialists who find something of value in Russian cultural and political traditions.

It should be said that nationalism is rampant in Russia as it is throughout Eastern Europe. It is often a particularly virulent and reactionary nationalism, full of Jewish conspiracies, communist plots etc. The Communist party itself (at least parts of its leadership) espouse this kind of nationalism, what Lenin called "great Russian chauvinism" in one of his polemics against Stalin. The heroes of this nationalism are not Lenin or Bukharin but individuals like Yuri Gradenko the cosmonaut who was the first man in space(he beat the Americans, the nationalists would emphasize.) The Communist party, the largest political party in Russia with over 500,000 members, is as aforementioned rife with nationalism leading some commentators to call it a "red-brown synthesis." Its ideology while progressive in some respects (it wants to re-institute free education and health care and give the emphasis on domestic industry) reflects some of the worst aspects of Stalinist ideology e.g. the nationalism, chauvanism, anti-semitism, xenophobia and ignorance with regards to national minorities. The party may be trying to improve on these issues as it attempts to better its public image. Again, this is not to cast aspersions on the party as a whole, but merely the leadership who are the sources for most of these accusations. Zyuganov and his cowardly deputies in the Duma are by far the most conservative faction in the Russian communist party. Other factions in the party who espouse a more traditional Marxist internationalist perspective have criticized the leadership along the lines I suggested above and also accuse it of being merely social-democratic. There are basis for this criticism since when pressed Zyuganov is willing to talk to the IMF and other representatives of Western Imperial interests. There are also a myriad of smaller political parties in Russia ranging from outright fascist to trotskyist. Many of the smaller far-left parties have been leading and coordinating the current strikes and railroad blockades that have been occurring over the past year or so as a result of unpaid wages and other grievances. Radical slogans are appearing( one slogan at a miners strike read Capitalism=Shit) and the hitherto dormant giant ,the Russian working class, shows signs of developing a mass movement for change. What has been most puzzling is the docile nature of the Russian workers. Just now things are starting to heat up in the class struggle after millions of workers have not been paid for up to 6 months. Can you imagine what would happen here if millions of workers were not paid for 1 month let alone 6! The future of Russia lies in the hands of its workers and it is up to them to decide in which direction the country will go.

There seems to be an inter-class conflict between sectors of the Russian bourgeoisie. One faction seems wedded to riding on the coattails of Western Imperialism hoping to get the spin-off from the multinational corporations and is dedicated to riding the course set up by the IMF and Ivy League economics professors as well as the U.S. Treasury. The other faction is an indigenous bourgeoisie who have arisen in the last few years. The indigenous want to plunder Russia's raw materials rather than have foreign companies do the job.

Right now the IMF and other agents of imperialism have thrown up their hands in frustration as if to say "we ruined your country and stole all its wealth now its up to you to deal with the consequences." Russian effective demand has declined dramatically as real incomes have fallen over 50% in the last 5 years. Imports become more expensive as the ruble falls against the dollar. Russia thus has not turned out to be the market that many western companies were hoping it to be. One gets the feeling that many foreign exporters and companies have given up on Russia because of the lack of an internal market and the costs of doing business there. The much ballyhooed Russian Mafia is said to control most of the domestic economy. The Mafia, closely linked to the domestic bourgeoisie in many instances, arose because of its links to the Communist party._ Further, the Mafia consists of many experienced black marketers who operated under the old Soviet regime. As far as organized crime goes, the Russian Mafia are as ruthless as any. The murder rate throughout Russia has risen dramatically as has the crime rate and the suicide rate.

Perhaps what is most depressing about the current state of affairs in Russia is the state of its youth and the state of the arts and sciences. The Soviet regime gave great prominence to the arts and sciences. The quality of Soviet artists and scientists was first-class. The USSR had at one time the most doctors and scientists per capita in the world. Now there is longer any funding for the arts and sciences resulting in a massive cultural and scientific decay. The once great and proud Soviet ballets and symphony orchestras are now either non-existent or the artists are forced to work second jobs and live in terrible living conditions. Russian culture today consists of the worst of recycled North American popular culture. Funding for Russian science has also dried up with the many world class research institutes of the USSR closing their doors. With no work for them, many Russian scientists, social scientists and engineers have emigrated, causing a great brain drain in the country. This does not bode well for the future of the Russian economy as technological advancement requires well-educated scientists and engineers.

The state of Russian youth is sad. Nihilism and consumerism as well as apathy mark the contemporary Russian youth. Many are turning to violence, crime and fascism as all other opportunities vanish. Young Russian women are particularly vulnerable as many have ended up working as prostitutes or dome other aspect of the sex industry. Young Russian women have been showing up in droves in the red light districts of European and increasingly, North American cities. A great opportunity exists for the political left in Russia, as it must be an organizers paradise. Whether the left takes advantage of this opportunity remains to be seen. I am pretty skeptical with experiences of the youth in this country.

Serious crisis has also hit the once mighty Russian military. The army has shrank considerably with only 450,000 soldiers, 150,000 of those being conscripts. The army was humiliated in the bloody secessionist war in Chechnia where, because of Yeltsin's stupidity, 150,000 people died and dozens of towns and cities were completely destroyed. Russian soldiers, like Russian workers, have had serious difficulties in getting paid. Many survive by hunting and foraging and live like most Russians in substandard housing. The Russian armaments industry is still going string and represents one of the country's top export industries. It represents some 12% of the worlds arms market down from a high of 39% in Soviet times. It exports to the so-called "rogue" states like Iran, N.Korea, Libya and Syria. They basically sell to anyone who will buy--not a comforting thought. As in many of the former Socialist countries the army is(was) the main pillar of the regime ideologically and politically. In Cuba for example, Members of the army are held in very high esteem even if they did not participate in the original revolution. The ideological and political situation of the Russian army today is uncertain. While the army may not be a threat on a conventional basis internationally, it will still reign supreme in any civil conflict within Russia itself (although the Chechenya fiasco would might change someone's mind on the topic of starting a guerrilla war in Russia.) Most of the Generals were educated under the old Soviet system and probably still hold to remnants of the old, crusty Marxist-Leninist ideology. However, Yeltsin will need only a few divisions to support him and keep him in power. Which direction the army goes in the class struggle or any civil struggle may ultimately prove to be the decisive factor.Also of interest, is Russia's large stockpile of nuclear warheads estimated to be around 16,000. Much has been made of this in the western bourgeois press yet, admittedly, the likes of a Vladimir Zhironovsky with his finger on the nuclear button is not soothing. These military weapons may act as a bulwark against any US imperialist military intimidation which they are now more prone to in the "post-cold war" world.

Options for Russia; The Crystal Ball Outlook.

As of September 1998, Russia is a terrible mess that, barring significant drastic action, is only bound to get worse. Many observers in and outside Russia have compared the current situation as one of the worst in the countries history comparable to Stalin's 1930's or the second world war. Indeed, the survival strategies of Russians is similar to the Stalinist era, with the cultivation of the small garden plot which provides the food and nutrients for the majority of Russians. The situation in Russian will get worse because of the decaying capital stock, lack of capital investment, high foreign debt, limited export potential, high unemployment, decaying infrastructure, severe housing crisis, collapse of the financial sector and epidemics of disease. The economic structure of Russia today is that of a primitive third-world monoculture economy.

The Western press has been prognosticating that a return to a Soviet style economy or elements thereof is inevitable. This is probably untrue. Rumors around Moscow have it that the government is planning a re-nationalization of key sectors of the economy. This means, probably, oil, gas, minerals, food production, clothing production, health, education, basic infrastructure and what's left of the banking sector. This will give the Russian state effective control of the private sector. The central bank may try to print rubles and impose price controls to re-flate the economy. A sharp bout of inflation would also help with the ridding of the mountain of foreign debt. The above strategy might work even undertaken thoughtfully with extreme care and caution. There will probably be little opposition from Western imperialism provided the government does not make a sharp ideological and political turn to the left. However, action must be taken soon to prevent the already, tragic and catastrophic situation from getting any worse, before millions starve to death or something similar.

The Russian intelligentsia(or what's left of it) and people in decision making places in Russia would do well to study their own countries history, particularly the !920's when the country was facing a similar situation. The 1920's were the time of what is called "the Great Debate", a huge debate involving Lenin, Trotsky, Bukharin, Preobrazensky as well as great numbers of Bolshevik economists, social scientists and scientists on which direction the economy should go and what should be done. The substance of the debate was one of the great intellectual debates in the history of economics and contains many insights and instructional material for students and policy makers today. The debate revolved around markets, state involvement in the economy, technology, foreign investment, regional inequality, class structure, agriculture, the structure of heavy and light industry and the "scissors crisis" that emerged out of the contradictions between the urban and rural regions. What the Bolsheviks came up with was the New Economic Policy or NEP. What Russia needs is a NEP for today and solid objective thinking and a great deal of commitment to build a dynamic, egalitarian society that involves all of the Russian people.

Further Reading. The writings of Lenin,Trotsky,Bukharin and Probrazensky are essential for an understanding of the genesis of the USSR as well as its early years.

Deutscher, Isaac. The Prophet Armed.(V1), The Prophet Unarmed(V2), The Prophet Outcast(V3). This biography of Trotsky is one of the greatest biographies written in the english language. Beautifully written, it is one of the books that one cannot put down after one has started reading. Valuable for its biographical and psychological insight as well as its analysis of the politics, history and problems of the USSR.

Deutscher,Isaac. Stalin. A biography of ol' Uncle Joe himself. Also valuable for its analysis of Stalin's policies and politics.

Medvedev, Roy. Let History Judge. The first attempt at a marxist analysis of the rise of Stalinism. Written from inside the USSR. The manuscript was smuggled out as Roy sat in jail.

Kagarlitsky, Boris. The Disentegrating Monolith , The Thinking Reed, Why Capitalism Failed in Russia, The Mirage of Modernization and Square Wheels. Kagarlitsky was a member of the dwindling band of Soviet marxist critics of the USSR. His books are all well written, informative and well argued. He writes with an excellent sense of humor making many of the above books hilarious to read.Boris did time in Soviet jails.

Nove, Alec. An Economic History of the USSR. Standard economic history written from a leftish western perspective.

Kornai, Janos. The Socialist System. A Former Hungarian marxist turned Thatcherite writes an interesting analysis of "the system", combining the insights of Marx,Keynes and Hayek.

Ticktin,Hillel. The Crisis of the USSR. A fiercely critical Trotskyist analysis of the Gorbachaev years.

Kotz,David with Weir,Fred. Revolution From Above; The Demise of the Soviet System. The best critical analysis so far of "shock therapy" and its aftermath by American economics professor and a Canadian journalist residing in Russia.

Gowan,Peter "Neo-Liberalism for Eatern Europe" in New Left Review 56. Excellent analysis of the reforms in Russia and Easten Europe.

Williamson, Anne. How The West Created the New Russian Oligarchy. Former Wall Street Journal reporter gives all the lurid details on the corruption and criminality involved in the transformation of Russia.

Parenti,Michael. Blackshirts and Reds. A well written and informative account of the "New Russia" by the veteran American marxist.

Carr E.H. A History of Soviet Russia. 14 volumes. This massive and definitive history of the USSR migght best be used as a reference work. Magisterial scholarship from the late great English marxist. Lewin Moshe. Lenin's Last Struggle. A passionate study of Lenin's struggle against Stalin in his dying days. Lewin's other books are well worth reading as well.

Mandel,Ernest. The Gorbachaev Years. Excellent study of the Gorbachaev reforms from the legendary marxist economist, concentration camp escapee and leading member of the European underground. Mandel was for many years the leader of the world Trotskyist movement. He has authored more than thirty books and never earned a living as a university professor.

Mandel David.ed. Looking Left Eastwards. Ernest's son conducts interviews with Russian working class activists and union leaders.

_causing one German left-communist to refer to the USSR as "one big company town."

_Where living standards have risen in capitalist countries this is not because of capitalism per se but because of collective struggle for better wages,access to health facilities, better housing etc. The Soviet Union played no small part in the granting of these concessions, witness the vicious attack on unions, living standards and the "welfare state" since the Soviet Union has ceased to exist.

_The Soviet state company Gazprom in charge of all the USSR's natural gas and oil was relatively successful making it a great source of pride amongst the Soviet elite.

_"You can always tell by the shoes." IN Russia as in other third world countries one can tell other status by the type of shoes they wear.

_that is, many members of the mafia, like the contemporary bourgeousie, were members of or had close links to the old CPSU. The CPSu itself must rank high on anyone's list of the world's most corrupt,stodgy and intellectually bereft organizations.

_The publicly funded film industry in the USSR has collapsed which produced many worthwhile films including " I Am Cuba" which Martin Scorcese called "the greatest film of the twentieth century". Further the Russian publishing has collapsed which used to produce many cheap yet quality editions of contemporary poets and authors including ones from LatinAmerica, Asia and Africa. In the era of the USSR, 3 out every 5 books published were published in the USSR. THese have been, like the film industry, replaced mass-marketed garbage from the West. Most of the marxist or otherwise leftish literature has been removed from bookstores and libraries. The writer's union in E.Germany reported that 50,000 books were buried in a dump.And last,but not least, enter the Moonies, Mormons, Hare Krishna's, Jehovah's Witnesses, Bahai's, right-wing evangelicals, instant success hucksters and other vultures who prey on the deprived and desperate.