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Johnson's Russia List
 

 

July 16, 1998  
This Date's Issues: 2268  2269  

Johnson's Russia List
#2269
16 July 1998
davidjohnson@erols.com

[Note from David Johnson:
IMPORTANT: I have decided to make the content of The Russia Weekly
nonduplicative of the content of JRL. So you will receive additional
enlightenment if you sign on to the Weekly. Contact me. More important:
tell your friends and neighbors how they can be informed about Russia 
without spending all their time reading.
1. Moscow Times editorial: Crisis Talk Hollow For Russians.
2. Ben Slay: Response to "Letter from Paul Saunders" from the
Washington Post (#2267, #2).

3. Moscow Times: Andrei Piontkovsky, SEASON OF DISCONTENT: Yeltsin 
Could Use a Small, Victorious War.

4. Victor Kalashnikov: On Lieven.
5. Anatol Lieven: The Masque of Democracy: Russia's Liberal Capitalist 
Revolution and the Collapse of State Power.]


********

#1
Moscow Times
July 16, 1998 
EDITORIAL: Crisis Talk Hollow For Russians 

The Russian government faces a much tougher job selling its austerity 
package than countries in Asia that are also grappling with financial 
crisis. 
In Thailand, Japan or Indonesia, the average citizen does not need to be 
told that the country is facing a serious situation that requires 
serious remedies. 
They have already seen a collapse in their national currencies, a huge 
rise in bankruptcies and unemployment and, in Indonesia's case, the 
descent of the nation's capital into anarchy. 
The average Russian on the street can see little extraordinary in the 
current situation. As far as he or she is concerned, Russia is in the 
same mess that it has been in for the last decade. 
Salaries and pensions have rarely been paid on time. Production has been 
declining. The government has been saying things are terrible but doing 
nothing about it. So what else is new? 
The turmoil on Russian financial markets has meant absolutely nothing to 
most normal people. The collapse in the stock market is irrelevant to 
the 99.9 percent of the population who do not own shares. The climb in 
interest rates has almost no impact in a country where middle-class 
people have neither mortgages or savings in bank deposits. 
As far as most people are concerned, the financial crisis is another 
rich people's problem that they hear about on television if at all. 
Another thing that prevents average Russians from appreciating the 
severity of the crisis now facing the country is that so much of the 
pain still lies in the future. Russians cannot see what the costs of a 
ruble devaluation or a renewed bout of hyperinflation will be. 
It is also hard to realize that things could get worse in the future 
because most people did not notice the subtle signs that things were 
getting better last year. 
The popular conscience had not absorbed the idea that Russia was on the 
brink of economic recovery last year. In fact, it was. Production had 
started to grow, and salaries and pensions were more or less paid on 
time, breaking a decade of defaults. These achievements are now at risk. 
It will be much better if Russia can convince the International Monetary 
Fund to hand over its promised $17.1 billion bailout package. It will be 

much less painful if the government passes a balanced financial 
austerity package now rather than if it waits and allows an 
Indonesia-style financial collapse. 
But this will not help endear proposed tax hikes and inevitable power 
blackouts to the justifiably cynical and jaded Russian people. 

*********

#2
Date: Thu, 16 Jul
From: Ben Slay <bslay@planecon.com> 
Subject: List submission

Dear David,

In response to your reprint of the "Letter from Paul Saunders" from the
Washington Post (#2267, #2), I wonder whether you would consider
reprinting the below item from the Jamestown Monitor in March.

Mr. Saunders argues that "if one looks carefully at the real Russia
today, there is no reason to believe that the Yeltsin government is any
more democratic, any more pro-Western or any less corrupt than the
likely alternatives . . . All of Russia's major opposition parties are
committed to political and economic reform and to good relations with
the West."

Few observers would argue that the Yeltsin era has been a paragon of
democracy, efficiency, or justice. This is quite different, however,
from arguing that better alternatives are close at hand -- especially
when such alternatives are not described. Indeed, as the Jamestown piece
shows, the party that came reasonably close to replacing the Yelstin
government in 1996 represents something fundamentally different -- and
in my view much, much worse -- than the status quo.

Sincerely,
Ben Slay
PlanEcon, Washington D.C.

ZYUGANOV LIFTS VEIL ON SHADOW CABINET. In an informal conversation with
Russia's Independent TV, Communist party leader Gennady Zyuganov
revealed the contours of the shadow cabinet being put together by the
Communists and their nationalist and agrarian allies. Oddly enough,
there seemed to be no place for Zyuganov himself in the team, which is
to number some thirty members. The final composition of the shadow
cabinet will be decided at the end of April by a plenary meeting of the
Popular-Patriotic Union of Communists, nationalists and agrarians. (NTV,
March 6) 

The post of prime minister is likely to go to Yegor Stroyev, governor of
Orel Oblast and speaker of the upper house of the Russian parliament.
Stroyev, a moderate Communist, would not be a controversial choice, but
Zyuganov's other nominees certainly would. Nikolai Kondratenko, governor
of Krasnodar Krai, would be deputy prime minister in charge of the
economy. Kondratenko is notorious for his virulently racist and
anti-Semitic views. Since he was elected governor at the end of 1996, he
has put together a coalition of Communists, Cossacks and nationalists
and enacted a krai charter that declares the North Caucasus region to be
the "historical territory of the Kuban Cossacks" and "a place of
residence for the [ethnic] Russian people." (Izvestia, March 4)

Another controversial appointee would be Vasily Strarodubtsev as deputy
premier with responsibility for agriculture. Starodubtsev, a leader of
the Agrarian party, was one of the plotters of the August 1991 coup that
brought down the USSR. He was elected one year ago as governor of Tula
Oblast and is a strong opponent of private land ownership. (See Monitor,

March 6, lead story) 

Zyuganov's choice of the Communist firebrand Viktor Ilyukhin to take
charge of state security would usher in a witch hunt against leading
members of the present government. As a member of the State Duma,
Ilyukhin has repeatedly called for criminal investigations against first
deputy premier Anatoly Chubais and his government associates. Zyuganov
pointedly told NTV that, though the Communists could work with several
of the members of the present cabinet, they drew the line at Chubais,
Boris Nemtsov and deputy premier Yakov Urinson.

Finally, Zyuganov mentioned Aman Tuleev, governor of Kemerovo Oblast, to
return to the cabinet to take charge of Russia's relations with the CIS,
a post that Tuleev held until a year ago. Zyuganov promised that some
seats in the shadow cabinet would go to women, but he named none, other
than commenting that Svetlana Goryacheva, the Communist deputy speaker
of the Duma, is "experienced and educated." Zyuganov infuriated many at
the weekend when he marked International Women's Day with the comment
that there is "nothing more frightful" than a woman who is both smart
and pretty and "asks too many questions." (Itar-Tass, March 5) 
(Jamestown Monitor, 3/9/98)

*********

#3
Moscow Times
July 16, 1998 
SEASON OF DISCONTENT: Yeltsin Could Use a Small, Victorious War 
By Andrei Piontkovsky
Special to The Moscow Times

The fattest rats are already abandoning the sinking ship of presidential 
power. The latest to leave are presidential aide Sergei Shakhrai and 
Deputy Chief of Staff Igor Shabdurasulov. The defection of the latter, 
who is regarded to be very close to administration chief Valentin 
Yumashev, is especially telling. Can the president completely rely on 
Yumashev himself? 

What if one fine day Yumashev were to enter the president's office 
somewhere in Barvikha or Gorki-9 with a group of honorable gentlemen -- 
the Federation Council Chairman Yegor Stroyev, State Duma Speaker 
Gennady Seleznyov and the leaders of various party factions? 

Briefly describing the situation in the country, the country's leading 
politicians could suggest to the president that the only way out is for 
him to resign. The TV stations, which belong to the oligarchs, could 
broadcast this event, embellishing their reporting with highly 
professional camera shots of striking miners, defense workers and 
scientists. 

What could President Boris Yeltsin do to oppose not a plot to seize 
power, but an entirely democratic and constitutional expression of 
public opinion? 

One of Yeltsin's most nightmarish memories is the night of Oct. 3 to 4 
in 1993, when his power hung on a thread and, after all-night 
discussions and drinking sessions, he finally managed to convince 
General Pavel Grachev to bring in four tanks, which were a decisive 
solution to his fight for power. 

Today, Marshall Igor Sergeyev could not provide Yeltsin with even a 
single tank. The tens of thousands of people who gathered around the 
White House in August 1991 and thousands in front of the Mossoviet in 
October 1993 would not turn out this time. The people who brought 
Yeltsin to power feel betrayed. And the people to whom Yeltsin 

personally handed over state property, power and the mass media are now 
sick of him. He annoys them with his caprices, unpredictability and 
inadequacy. The oligarchs have already for some time wanted to run the 
country directly without having to gratify any longer his bodyguards, 
daughters, members of the administration, sons-in-law. They need a 
"cheaper president." 

So does this mean Yeltsin would have no way of countering such an 
intrigue, and would be forced to give up power? In my view, he does have 
such means at his disposal. There is a group of people who, under 
certain conditions, are prepared and able to support Yeltsin. These are 
the generals who lost the war in Chechnya, convinced that they were not 
allowed to win it. They feel personally humiliated from the defeat, and 
are thirsting for revenge. 

If there were another provocation, wide-scale maneuvers by General 
Leonty Shevtsov's temporary operative group in the North Caucasus could 
easily be expanded on orders from the supreme commander into a second 
small victorious war. 

A couple of urgently organized terrorist acts in Moscow could lead to a 
state of emergency. Who prevented our valiant military leaders and 
commander-in-chief from winning the first small victorious war? Of 
course, the traitors on TV. This would not be repeated a second time. 
Miners on the rails? It would be necessary to apply martial law to those 
who were obstructing the path of military echelons. 

Backed into a corner by popular discontent and the oligarchs' intrigues, 
Yeltsin would be prepared, in order to hold on to his evasive power, to 
cast Russia into its last catastrophe of the 20th century. 

********

#4
Date: Thu, 16 Jul 1998 
From: machinegun@glas.apc.org (Victor Kalashnikov)
Subject: On Lieven

On Anatol Lieven's 'Introduction' to his book about 
Chechnya (JRL, 2263)
From Victor Kalashnikov

Mr.Lieven's 'Introduction' is excellent in its critics of the 
most common Russia concepts. But it apparently was not 
conceived to advance the author's own visions. Probably, 
some of us will have chance to learn them through reading 
of the book itself. One can only look forward for viable 
explanations of specific events and developments - in 
Chechnya, in Moscow and elsewhere, and thus - for a new 
version of Russian affairs. Yet, the dynamics of views on 
Russia, as presented by the 'Introduction', is reflections-
provoking anyway.

Rulers' motivation is, of course, crucial for commenting on 
their deeds. Mr. Lieven's sarcasm is well-founded when he 
writes about persisting habit to deduce policy-making from 
particular ideologies. Let be Bill Clinton other people's 
issue. In Russia, Boris Yeltzin is since long, for absolute 
majority of population, personification of greed, corruption 
and cruelty of his regime. He is deservedly one of the most 
despised and hated personalities at the top. 

I reckon, regular Russia observers could not have been 
mislead by 1996 election results. The reading of that 
campaign was an unequivocal intimidation: 'Vote, or you will 
lose!' In a broader context, the message was: those, who 


seized nation's wealth will not give it away, be that at cost 
of another mass-bloodshed. They had army, and the KGB, 
and the West at their side - so, the acting of many Russian 
voters was quite 'pragmatic' - yet another time in Russia's 
history!

Did some Western observers really miss that key element 
in the 1996 campaign? Yet, it outlined so clearly both the 
character of the situation and the combination of forces 
ready to maintain it by whatever means.

What we have in this country today is, in the first line, a 
typical class-division, with upper classes enjoying absence 
of organised unions or parties protecting labour interests 
(nothing new under the sun - alas!). Here lies, in fact, the 
major source of instability in Russia. Given criminal, 
reckless nature of the ruling clique, there are no 
guarantees against further social deterioration and unrest. 

Recent crises in mining areas have showed once again: 
organised criminality (well-armed and extremely savage) is, 
at the end, on this government's side. They share basic 
economic interests as well as common values. They are 
also very similar in their styles. And they cooperate.

This explains why it so difficult, almost impossible, to set 
up, say, an effective union somewhere in Kemerovo region. 
The repression will follow immediately. It will, in fact, 
preclude any such actions due to well-established FSB-
observance. 

An ordinary Russian (a miner, a farmer, an oil-worker) is 
not so simple as not to see who and how have stolen his 
salary (no parasitism-impregnated 'Who's to blame?' in 
those places - that's why so few contacts to Moscow 
intelligentsia). But one is well aware from his daily practice 
where the hard-defined limits for counter-acting are. 
Present regime in Russia is based on terror.

I admit, it's all somewhat prosaic and so remote from 
meditations on 'Russia's fate' and on 'Russian idea'. But 
this is the local reality without which global relationships 
wouldn't work either.

Globally, I prefer to see what happened during 80-90-s and 
what is going to continue from a perspective broader than 
'the end of the cold war', and 'the collapse of communism'. 
The USSR was swept by the wave of market liberalisation 
which earlier reached most Western countries and China. 
The expanding financial markets, equipped with all 
necessary hard- and soft-ware, were in need of new play-
grounds. Privatisation, changes in policies and in 
propaganda followed. Today, all what is reported on 
Moscow-IMF deals, on 'stabilisation', on tax reforms is 
being performed within segments of Russian economy - 
and of Russian life altogether - which happened to get 
involved into those games. Everything beyond these 
segments appears for many irrelevant, almost inexistent: it 
doesn't fit into schemes compatible to IMF balances.

The posture of 'transition' - criticised by Mr. Lieven as by 
many other authors now - has its origins within international 
finances as well. An 'other-people's-money' manager has 
to impose upon his creditor's minds the idea of debtor's 
proceeding in a 'per aspera ad astra' mode. So that he will 

be able to pay back some time in future. The rest of the 
story should be known to the JRL regular contributors 
better than to myself.

For those interested in 'financial anatomy' and in what 
happened at recent IMF-Chubais meetings - please read 
'Kommersant-Daily' July 15 report (p. 7). You can learn 
here, i.a., that:
- conversion of domestic debt into foreign obligations will 
rise dollars' role in what is called Russian finances with 
Moscow government's influence depleting even further; 
- Russia, seemingly, has served as a ground for FRS 
intrigues against Central European Bank; 
- Chubais was tending in the course of talks with IMF to 
lower status of resident GKO investors as compared with 
non-residents (!);
- Goldman Sachs' fees (GKO-Eurobonds conversion lead 
manager) will exceed by several times the level usually paid 
for such duties.

Now, you could hardly have this system running without 
certain conditions being kept at Kemerovo and at Vorkuta. 
The task is twofold: to bring labour cost below zero (while 
destroying general living conditions), and to neutralise 
those who disagree. This local-global link is fundamental 
for most Third-world countries and clearly outweighs in its 
explanatory value all what is usually said about today's 
Russia in terms like national character and historical 
predestination.

The war in Chechnya was evidently the major accelerator 
towards situation we're now in. It drained Russia's 
resources till effective bankruptcy broke out last fall. 

As to the Chechnya war itself, it was fought not to be won 
at all. One's always puzzled a bit by reading analysis 
confined to the martial side of the event. Who cared about 
winning or losing battles, of maintaining Russia's territorial 
integrity? Look into faces of Grachev of Soskovetz to realise 
what I mean. Go deeper into their backgrounds and 
'motivations' as far your stomachs will sustain.

Many would recall virtual gold-rush mood in Moscow during 
that war-time. $millions transaction and deals effected 
through bombings, advancing/retreating, selling & reselling 
arms, taking hostages, letting soldiers and civilians 
(Russian citizens) get killed. The record, well-documented, 
is plentiful and mostly accessible due to usual compromat-
warfare. Chernomyrdin himself admitted publicly that there 
was a CURRENT COORDINATION between Chechen 
commanders and Moscow magnates. And - what?

To extract the essence - simply look what happened next. 
All but nothing! One business was over, others were to get 
started. No political or personal consequences. No moral 
assessments. Not a word from Russian priests. Except for 
'Soldiers' Mothers' movement, 'motivated' through pain 
and desperation, no noticeable reaction or repentance 
whatsoever. No signs of public solidarity as well. That's the 
real area for reflections and for examination! 

I guess, the Chechnya case implies clearly enough what I 
hold of all US and Jewish 'conspiracies', mentioned, in 
passing, by Mr.Lieven.

To show transcendent nature of some of Russia's 
phenomena - the Afghanistan war was, essentially, 
isomorphic to Chechnya war which followed shortly after. 


There also was a business-like agitation and enthusiasm, 
during the entire decade, at every spot endowed with 
supply, distribution and promotion. That artificially provoked 
crisis has brought a relief to wide parts of VPK and to army 
bureaucracy plagued by the 70-s stagnation, and by arms 
control in Europe. 

The Afghanistan enterprise appeared more than welcomed. 
Was the war fought for access to Indian ocean? For 
preaching Marxism-Leninism to Beludshi nomads? All to 
easy explanations deriving directly from propaganda of that 
time.

Yet, Afghanistan war may have absorbed part of energies 
and discontent within nomenklatura (and within younger 
officers' ranks) which otherwise may have been channelled 
into a different direction. In this sense, NATO-policy during 
the 80-s was reasonable. No one knows, what kind of 
Warsaw-Treaty 'defence initiative' could have otherwise 
overtaken Central Europe. Supplying those army-groups 
with mounts of hardware was maybe the most lucrative sort 
of business mankind ever saw. Accidentally, no 
international investors had opportunity to join at that time. 

Summarising, I only again can praise Mr.Lieven's effort to 
go beyond usual 'Russian historical instincts' and 
'Russians' inherited strivings' patterns. Even if the 'cultural' 
barrier allegedly dividing East and West so safely acquires 
then some new breches.

********

#5
Date: Thu, 16 Jul 1998 
From: Anatol Lieven <lieven@iiss.org.uk>
Subject: The Masque of Democracy: Russia's Liberal Capitalist Revolution
and the Collapse of State Power. 

Dear David - at risk of overloading your list with my outpourings - here is
another piece culled from the book which tries to put Russia today in the
context of the development of liberal capitalism over the past two
centuries in countries with weak states and civil societies.
From Anatol Lieven

[This is a condensed version of Chapter 4 of my book, “Chechnya: Tombstone
of Russian Power”, which was published by Yale University Press in May.]

The Masque of Democracy:
Russia's Liberal Capitalist Revolution and the Collapse of State Power. 

"Ivan Vasilich the Terrible with his valiant retinue is feasting tirelessly
near Mother Moscow.
A row of tables glitters with golden jugs; the dissolute oprichniki are
sitting at the tables.
From Vespers onwards wines flow onto the TsarÕs carpets, from midnight
spirited minstrels sing to him;
They sing of the joys of war, of the battles of olden times, of the capture
of Kazan and the conquest of Astrakhan.
But the voice of former glory does not gladden the Tsar; he bids his
cupbearer hand him a mask.
ŌLong live my officers, my oprichniki! And you bards, you nightingales,
pluck the strings more loudly!
Let each of you, my friends, choose himself a mask; I will lead off the gay
dance myself!"...
(From "Prince Mikhail Repnin", by Count Alexey Tolstoy, 1817-75.) 

The Russia that went to war in Chechnya in December 1994 was and remains
both a weak state and one in the throes of a liberal capitalist revolution
- part of the second great wave of such revolutions that the world has seen
over the past 200 years. The first wave, in the 19th Century, shattered
the old ruling trinity of monarchy, church and nobility (while also
co-opting elements of all three), and also destroyed or severely undermined
the social and economic forms and traditions of the peasantry and the urban
artisanate. 
This was the true modernising revolution of the modern era, and it has
been repeated in our own time in the active or passive revolutions against
Communism: in China since 1979 by a state-led process, and in the former
Soviet bloc since 1989 by a mixture of elite-led changes and upsurges from
below. However, it is perfectly obvious that the first wave of liberal
revolutions had very different results for different countries and
cultures, and different regions within the same country. The striking
economic success stories usually occurred either where existing social and
cultural trends strongly favoured this, or - as in Russia in the 1890s and
China in the 1980s - where a strong state threw its power behind reform.

Elsewhere - in much of Italy and Spain, and most of Latin America -
liberal economics was to produce only weak, unstable and unbalanced
economic growth; while for much or even most of the population it led to
increased poverty, disinheritance, social oppression backed by the police,
intense social, moral and geographical dislocation, the establishment in
power of corrupt and unproductive comprador elites, and severe damage to
the environment. 
Most of the world in the 1990s after all lives neither under
totalitarianism nor under a prosperous Western style capitalist democracy.
Most people on this earth live under political systems more akin to the
anarchic quasi-feudalism - with political and criminal "clans", including
armed retainers, following particular magnates or bosses - incisively
described by Vladimir Shlapentokh. 
However, rather than the Medieval feudalism Shlapentokh uses as a model
- which was at its height a formal, recognised system enshrined in law,
contract, religion and culture - a closer historical analogy might be the
"cacique" system of liberal Spain and much of Latin America in the later
19th and early 20th Centuries - a system admittedly with certain analogies
to a kind of "bastard feudalism" . It was a time when Spain's governments
never ceased to trumpet their allegiance to constitutionalism, law, and
enlightened progress, but in which real power on the ground was held by
corrupt local political chieftains (cacique comes from the Caribbean Indian
word for a chief), who distributed patronage and government contracts,
fixed or "made" elections on behalf of their patrons in Madrid, and
occasionally bumped off inconvenient political opponents, critical
journalists, trades unionists and so on.
Another key difference between the two traditions, all too applicable to
Russia today, was incisively remarked on by Gerald Brenan: 
"The defects of the Spanish upper classes are sometimes put down to their
having a feudal mentality. I do not think this word has been well chosen.:
feudalism implies a sense of mutual obligations that has long been entirely
lacking in Spain..."
Such systems can prove remarkably stable and long-lasting, and even
generate considerable economic growth. To their better-off inhabitants, and
those with some form of "protection", they offer major personal freedoms
and opportunities. They also however tend to be characterised by very high
levels of organised crime, personal insecurity, atrocious public health,
bad public education, rampant bureaucacy and bureaucratic corruption, and
vicious exploitation of the poor and the environment. Their states are
generally far too weak and corrupt to enforce the law, raise taxes
efficiently and fairly, and protect the weaker sections of society. In
extreme cases, like Columbia and to an increasing extent Mexico in the
1990s, the state itself may be largely taken over by criminal forces. 
As will be apparent however from the succeeding chapters - as indeed is
blindingly apparent from the evidence - the nature of the new order rules
out any serious mobilisation of this wealth, via revenue, for the armed
forces or indeed any other major state tasks. The Soviet Union used to be
cited by political scientists as an extreme version of the "strong state",
contrasted to "weak states" like India for example. This was always partly
illusory, but at least the illusion could be maintained, though only by
ultimately crippling military spending. Today, the privatisation - indeed,
the virtual hollowing-out - of Russian state structures by the new elites,
combined with a collapse of the ideology of patriotsm and state service,
has left Russia as a classically weak state, unable even to raise enough
revenue to pay her soldiers, or enough patriotism to motivate them to fight
without pay.
While in recent decades some of these countries have escaped from these
syndromes, a good many others have remained to a considerable extent stuck
in them. Even periods of ŌmiraculousÕ economic growth, as in Mexico, have
not been enough to raise the bulk of society to a high, stable, and secure
economic plane - if only because of the way that economic distribution was
skewed.

The truth of this for the modern world was brought out in a sober and
perspective series in the Washington Post over the New Year 1996/97,
entitled "For Richer, For Poorer". With regard to Mexico - a country which
in recent years has carried out a full programme of economic reforms, and
attracted vastly more foreign investment than Russia - Molly Moore wrote that,
"Now, Mexico stands as a prime case study for critics who argue that
globalisation...is proving not to be a reliable mechanism for raising the
Third World out of poverty...
"Billions of dollars of capital flowed into Mexico during the past 10
years...But Mexico, like many of its Latin American neighbours, has two
almost separate economies, divided by geography, technology and by
ethnicity - and only one of them has benefited from the new money. [The]
proportion of Mexicans considered 'extremely poor' has increased sharply." 
This was also true during a previous period of rapid Mexican economic
growth in the 1950s and 60s, when the economy grew by an average of six
percent a year - an impressive period, even for that period, and one which
Russia today can only yearn to achieve. Even so, however, this did not
create a breakthrough to first world standards of living and economic
stability - least of all for the poor, whose share of national income
declined. Typically, the wealth generated was also disproportionately
concentrated in the capital and one or two other great commercial centres;
thus Moscow's economy is estimated to have grown by ten per cent or more in
the mid-1990s, even while the economy as a whole has declined
precipitously, and Moscow may now account for as much as 35 per cent of
Russian GDP - something which also facilitates the concentration of
political power in the hands of a metropolitan oligarchy. 
In some cases - including, it increasingly appears, that of Mexico in
the 1990s - the condition of these countries, and especially of their
poorer classes, has been made even worse by a mushrooming of organised
crime, and its increasing hold on the state and "legitimate" economy. 
It is for the optimistic ideological free marketeers - the Aslunds,
Layards and others - to explain why they do not think that this is a real
and serious long-term prospect for Russia. 
Yegor Gaidar declared in 1992 that: "the choice is not between
Anglo-Saxon and Scandinavian models of capitalism; it's between the
European and the African." But this disguises far more than it reveals.
Russia is not a failed state, and the Russian economy and infrastructure
are far too developed, Russian society is far too modernised and
well-educated ever to fall to African levels; but there are a vast range of
possible paths somewhere between that and becoming a fully developed part
of the capitalist West.

Privatisation as Enclosure of the Common Land.

Leaving aside the absence of mass violence and the links between
liberalism and nationalism, in another respect there is rather a close
parallel between the Russia of today and Italy - and other liberal-ruled
states - of the 19th Century; this is in one of the processes by which the
new elites acquired their wealth: in Russia, through privatisation of state
property; in Italy, Spain, Mexico and elsewhere, though "land reform"; in
both cases, with the help of massive corruption, and under the ideological
umbrella of a triumphalist liberal capitalism. We have seen all this
before, and not once but many times.
The land reforms which in Italy, Spain, Mexico and elsewhere
redistributed the lands of the Church, of the village communes, and of some
of the great feudal landowners, have a very familiar ring to anyone who
knows Russian privatisation. They were supposed to be equitably and justly
conducted, to lead to the creation of a class of small but efficient
capitalist peasant farmers, to break the power of the Church and other
anti-liberal forces, and to help the peasants themselves escape from the
twin traps - as seen by the urban liberals - of traditional peasant culture
and traditional peasant agriculture.

That is what was supposed to happen - and in a few places did happen.
In England, the dissolution of the monasteries and the enclosure of the
commons (much older processes of course than the 19th Century liberal land
reforms) undoubtedly contributed greatly to the eventual development of
efficient modern agriculture in England, though they were deeply socially
unjust, destructive of ancient communities and traditions, destructive of
the environment, and hated by the poorer peasantry. 
What happened elsewhere can be summed up in a few examples: in Mexico,
for example, where the liberal reformers, the so called "cientificos"
(because of the positivist claim of these US-trained Mexican economists to
represent "scientific" solutions to MexicoÕs problems - very reminiscent of
Gaidar, Chubais et al) set out to break up the lands of the Church and the
common lands of the Indian villages, in the name of economic efficiency and
progress. 
An initial limit of 2,500 hectares was supposed to prevent the
accumulation of new vast haciendas (great estates), but this was ignored
from the start. As a result, "the 1880s and 1890s witnessed a land grab of
unprecedented proportions." By 1910 more than half of rural Mexicans lived
on haciendas. Local magnates, political bosses or military men, with links
to the regime, simply used the law to seize the land of the peasants, after
declaring that they were baldio, or lacking private title. Where the Indios
and peasants resisted, they were shot down and driven off by the army, the
police or privately hired pistoleros. A million acres of Yaqui Indian land
went to the Torres family alone. 
In a majority of cases, the improvement in economic efficiency was very
limited (inevitably, on estates of such an unmanageable size and given the
lack of new capital), and certainly did not begin to offset the resulting
immiseration of large sections of the peasantry and especially the
indigenous Indian population. Moreover, thanks to the weakness and
corruption of the Mexican state, as with privatisation in Russia, the state
treasury received only a derisory proportion of the money that the and
being privatised was actually worth. In Benito Juarez's sale of "vacant
lands" in the 1860s, for example, the state received about $100,000 for
4.5 million acres, or about two and a half cents per acre. Under Porfirio
Diaz, a fifth of the country was given away for three and a half cents an
acre, compared to a market price which averaged two dollars. 
The social, political and economic consequences are with us to this day
in Chiapas and other regions. And as in the case of Russia in recent years,
both local reformers and their foreign backers and advisers resolutely
turned their eyes from the reality of what was happening, and justified
privatisation not for any goods it was producing, but as an absolute good
in itself. This was coupled with an obsession with the stability of the
currency and the government's credit rating - and Mexico under Diaz was in
fact judged a very good bet by international financiers - rather than with
economic fundamentals, let alone with the lives and conditions of ordinary
people.
In southern Italy, where the regimes of Joseph Bonaparte and Joachim
Murat introduced legislation to end feudalism and break up the great
latifundias, the result was the same. Most of the peasantry was effectively
excluded from participation by legal chicanery and high registration fees,
and were also stripped of the common village land which they had held under
the great estates. The result was that the great bulk of the land was
acquired by a small number of great magnates, whether the old feudatories
themselves or new bourgeois proprietors - often civil servants of the
Bonapartist government, like the two greatest owners in Calabria, who
between them gained control of almost half the province. Once again, this
very notoriously did absolutely nothing to improve agricultural efficiency,
let alone the general wellbeing of the population, which in many areas
declined sharply as a result.

In other words, there is nothing very new about the way in which
Russian public property was grabbed in the course of "privatisation" (and
if the result is only continued incompetence, exploitation of existing
resources rather than new investment, and general economic stagnation, that
will not be new either). It is exactly what has always happened over the
past 200 years when a ruthless liberal capitalist ideology, which is
prepared to justify almost anything in the name of "progress", combines
with a corrupt bureaucracy and a weak legal order.
For to be fair to Chubais, it would be wrong to see personal corruption
as the root of his approach to privatisation. He did receive a $3 million,
five year interest-free loan from Alexander SmolenskyÕs Stolichny Bank
(part of the Group of Seven) even while that bank was acquiring enormous
Russian state assets at a knockdown price, but he is by all accounts
absolutely and genuinely convinced of the rightness of his cause. In his
interviews, Berezovsky too presents himself articulately as a force for
economic and even moral progress - an "ideologist for cash", perhaps, as
Ostap Bender described himself.
One factor which is connected to this and very reminiscent of the 19th
Century liberal movements is the contempt of the "cientifico" liberal
reformers and the New Russians for their poorer, older and less dynamic
compatriots. This attitude is composed of two elements: a general
progressive and "scientific" contempt for their backward culture - in the
past, peasant and Catholic, today Soviet and "Communist" - and a personal
contempt for their "cowardice" and lack of dynamism. It would be wrong to
rule out the possibility that in future, privatisation will lead to
increased efficiency and stable economic growth benefiting the mass of the
population - but it would also be impossible to argue that this has
happened so far. Belief in wonderful future results (as held by Layard,
Aslund et al) are therefore as of the time of writing a matter of faith,
not of evidence. What should also be clear from this chapter is that even
if economic growth does occur, it will be very unevenly distributed and
will mostly benefit only a small proportion of the population. 
The Russian population is well aware of this, and the way in which
public property has been shared out under Yeltsin, though it has not led to
revolt or a desire to return to Communism, has created what I would call a
deep moral wound, an offence against the moral economy of ordinary Russians.
If this feeling is combined with economic misery for the mass of the
population over a long period of time, this may eventually lead to serious
long-term consequences for the legitimacy of the new Russian order - akin
to the feelings of Spanish, Italian and Mexican peasants about the new
liberal order in the 19th Century. 
As in many of the pseudo-liberal states of the past (and some in the
present), Post-Soviet Russia suffers an added burden because of the
comprador nature of its new elites. That is, businessmen, bankers and the
officials who are their clients and allies, and who are overwhelmingly
dependent for their wealth on the export of raw materials, and only to an
extremely limited extent on manufacturing, or on "adding value" in some way
to Russia's products. This perhaps is inevitable, given the intense
wastefulness and incompetence of Soviet industry, many of whose sectors, as
is now notorious, were actually value-reducing - that is to say that the
raw materials would have earned more if sold on international markets than
the shoddy and useless finished product. 
Nonetheless, dependence on the export of raw materials could well
represent a trap for Russia, of a kind that has closed around many other
countries in the past. It enables the Russian state to support basic
services and buy off important parts of the population without having to
conduct truly deep reforms; and more importantly, it allows many Russian
big businessmen and officials to become fantasically wealthy simply by
using existing Soviet equipment to extract various substances from the
ground and then ship them abroad, and pocket the proceeds - and move a
large part of them abroad as well - without having to re-invest a kopek in
the much riskier business of capital investment in new production and
plant. There is simply no need to "add value". 

Thus the move of Boris Berezovsky from the motor industry first to
banking and then to oil extraction (not by founding a new company, but by
using state connections to seize an existing state one) is both typical and
from his own financial point of view, entirely logical. It is not however
in any way beneficial for Russia. Equally important is the way in which a
business world concentrated on the struggle for control of strategic raw
materials will tend to resist or ignore the kind of new mentalities,
business practices and legal norms so crucial to true economic progress. By
their nature, oil and minerals can also be controlled by a small number of
men or of big corporations - which can create the political domination of a
narrow, corrupt and unproductive oligarchy, as latin America found for so
many decades. 
The comprador nature of the Russian oligarchy under Yeltsin is at its
most blindingly obvious in Vladivostok in the Russian Far East. This is an
area which for several years has been undergoing an acute economic crisis,
due to the collapse of local industries and the cost of shipping fuel and
materials from Russia. In terms of infrastructure and manufacturing, it
makes a pitiful comparison with the East Asian states (except of course for
North Korea). The Far East has been the scene of some of the most dreadful
stories of contemporary Russian poverty and hunger, and in the winter of
1996-97, thousands of local workers were on strike because their wages were
up to six months in arrears. 
Yet the crumbling, potholed roads of Vladivostok, where most of the
street lights have long since failed or been turned off to save
electricity, are jammed with second-hand Japanese cars (many of them
admittedly originally stolen), and the casinos and night clubs are crammed
with very prosperous-looking types and their women. The wealth to buy to
buy these comes purely from the export of raw materials - timber, fish,
oil, gold, metals, even tiger skins. As long as these last - and the tigers
and the trees are admittedly going pretty fast - and there is anything of
the old Soviet pie to carve up, the local elites will have no interest in
manufacturing, let alone outside investment. In the bitter words of a local
journalist, "Why should they care about any of that? Half the wealth of
Siberia passes through their hands!"
This is one key difference from the American robber barons of the 19th
Century, or indeed the pioneering Russian capitalists of the same period,
the Morozovs and Putilovs. These were true pioneers, who built from
scratch. With extremely rare exceptions, the contemporary Russians have
exploited existing Soviet plant. 
Equally importantly, the gains made by the great American magnates were
mostly ploughed straight back into American production, or were at least
spent at home. They were not sent out of America on a massive scale to
Swiss or other bank accounts. In Russia, by contrast, capital flight was
estimated by Western experts to have reached a total of between $60 billion
and $73 billion between 1992 and 1996, with little sign of it returning.
This would be more than four times RussiaÕs borrowing from international
financial institutions, and around five times its direct foreign investment
in those years. The World Bank estimated the "unexplained residual" at 88.7
billion since 1992, but that would presumably include the huge number of
cash dollars that Russians were keeping within Russia and using on the
black and grey markets. 
Moreover, with rare exceptions, the new Russian compradors have deeply
proved hostile to outside strategic investment - for after all, they are
quite happy as it is, and what could Western control of companies bring
them but extra competition? This hostility has been especially clear and
overt in the case of the banks, but in a more muted way it is true of the
extraction industries as well (for example, in the support of most Russian
owners in this field for the rule which bars non-Russian companies from
owning more than 15 percent of oil companies; the privatisation process was
then rigged so that the blocks of shares auctioned at a time were
invariably more than 15 percent, thereby excluding Western participation
altogether). This, on top of the general insecurity of the investment
climate, the contempt for contractual obligations, and the dreadful tax
situation, kept new direct foreign investment between 1989 and 1996 to a
mere $5.3 billion, a third of that in Hungary which has one fifteenth of
Russia's population.

The possession of abundant raw materials can thus prove a curse and not
a blessing; firstly because they spare both the state and many of its
people from having to make hard choices and take real risks until it is too
late; secondly, because it encourages the creation of small, wealthy but
unproductive elites; thirdly, because the interests of these elites lie far
more in keeping their foreign markets open than they do in stimulating
domestic consumption or investment; and finally, because the raw materials
eventually run out - and if a state, or its businessmen, have not
reinvested the profits from them in some form of other production or
infrastrcuture, then the country will eventually find that from all this it
has gained precisely nothing. 
The behaviour of the present Russian elites has been the typical one for
such groups over the past 150 years. In the words of one critic of the
Porfirian elite in Mexico:
"The owners of our spinning and weaving mills do not wear the shirting
or the cashmeres which their factories produce. They generally dress
themselves in European texiles, they use European or American hats, they
lay out money for European or American carriages, they decorate their homes
with European art objects, and prefer, in short, everything foreign over
the national; even the painting, the literature and the music with which
they satisfy their desires and divert their leisure time have to carry the
foreign seal..." 
The only difference of course lies in the grotesque idea of the New
Russians diverting their leisure time with painting or literature. 

******** 


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