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Johnson's Russia List


December 20, 1998    
This Date's Issues: 2527    

Johnson's Russia List
20 December 1998

[Note from David Johnson:
1. Reuters: Santa says health book is perfect gift for Yeltsin.
2. The Independent (UK): Phil Reeves, Attack on Iraq - Impotent Russia 
rails against the West Moscow's anger. 

3. San Jose Mercury: Richard Paddock, Impeachment acts in U.S. and 
Russia a study in contrasts.

4. Baltimore Sun: Will Englund, Hope and heat scarce in Russia's 
frozen north.

5. AP: Greg Myre, Russians Abandoning Far East.
6. The Economist: RUSSIANS AND MONEY. A misunderstanding of money is 
the root of all Russia’s evils.

7. Financial Times: MOSCOW: Urban, but not yet urbane. Paul Gould wonders 
if he will ever come to terms with the Russian capital's contradictions.]


FEATURE -Santa says health book is perfect gift for Yeltsin
By Elina Talvitie

ROVANIEMI, Finland, Dec 20 (Reuters) - Santa Claus will not disclose what
Queen Elizabeth or U.S. President Bill Clinton will find in their Christmas
stockings this year. 
But he knows what Russian President Boris Yeltsin should receive. ``The
liquid has dominated Yeltsin's diet a bit too much. If he could follow a book
on healthy living, he should be able to stay in office until the end of his
term,'' Santa told Reuters. 
He attributes his mythical longevity to milk from his private herd of
reindeer, although he will not hand over any of the elixir even to bring
stability to Russia. 
``Where would I draw the line? The Americans and Chinese would want some as


The Independent (UK)
20 December 1998
[for personal use only]
Attack on Iraq - Impotent Russia rails against the West
Moscow's anger. By Phil Reeves 

Here, ladies and gentlemen, are the headlines. Bong! Iraqi children are
suffering because of Bill Clinton's love affair with Monica Lewinsky. Bong!
The Americans are attacking Iraq to enrich their petroleum giants, by pushing
up the oil price. Bong! As this scandal unfolds, Russia is powerless to do
anything about it. 
Thus, in anger and sadness, and with universal disapproval, has the Russian
media covered the American and British attack on Baghdad. "Russia is no longer
a superpower," mourned Izvestia on its front page yesterday. 
Russia is upset not only because its membership of the UN Security
Council has
counted for nothing, or because the assault cuts across Moscow's policy of
pushing for a political solution. What hurts as much as anything else is the
impression that the United States, the world's only superpower, no longer
appears to care a jot about what Russians think. Rarely has the aftertaste of
Cold War defeat seemed so bitter. 
This is not only a matter of the Russian government. The official response
has, in fact, had a ritualistic air, not least because Moscow desperately
needs western assistance if it is to stand any chance of reversing the
country's steady downward slide. At the same time as the Kremlin was angrily
hurrumphing about the bombardment and pulling back its ambassadors, plaintive
officials were also stressing that an $850m (more than £500m) food aid package
with the US should not be affected, and nor would relations with the
International Monetary Fund. 
It is also a question of public opinion. In bombing Iraq, the US and Britain
have shown no regard for the reaction of a Russian electorate which can be
expected to play a significant role in determining just what kind of leader
succeeds Boris Yeltsin (whose term expires in 2000). 
In the past seven years, Russia's relationship with the West has, from the
public's perspective, yielded almost nothing good. Russians have watched a
parade of slick young economists come and go from office, flourishing western
remedies from Harvard textbooks. 
But the results have been hyperinflation, the rise and fall of hundreds of
dodgy banks, the most corrupt mass privatisation of state assets in history
and a plethora of crooked pyramid schemes - all of which have contrived to rob
millions of people of their savings, their pensions and their monthly pay
The final blow came in August when a rescue package crafted by the IMF
and the rouble crashed to a third of its value, wiping out yet more savings
and wages and sending the country into a full-blown economic crisis. 
Russians have watched with equal gloom as Nato has hurriedly expanded to
Russia's western edge at a time when a broken-down army represents no serious
threat. Add to this the spectacle of US and British planes bombarding an old
Soviet friend in the Arab world, it is not hard to see why anti-westernism is
on the rise. 
For evidence of that trend one need look no further than the State Duma.
Crackpot extremists have long flourished within its doors. But the Communists,
parliament's largest party, have a new air of confidence about them. What
could be dismissed as the utterances of the loony left a year ago, are now
more significant. Some of these utterances are deeply alarming, such as a rash
of anti-Semitic diatribes - a hallmark of anti-westernism, as Israel is
assumed to be permanently plotting with the Americans. 
The best weathercock of anti-westernism is the Communist leader, Gennady
Zyuganov, runner-up in the last presidential elections. At a recent congress
of his coalition of Communist and nationalist forces, he identified Stalin as
one of the great national heroes - an opinion he knows antagonises his
democratic foes, and alarms western opinion. That he feels able to utter it is
a measure of the current climate. 
Politics are a mysterious business in Russia. The Communists have long had
trouble expanding their base, despite the country's malaise, and the
electorate are given to abrupt mood swings. It is too soon to say whether
today's anti-western sentiments will translate into tomorrow's successes at
the ballot box. But the fact that the world's last superpower no longer seems
to care one way or another is good cause for concern. 


San Jose Mercury
December 19, 1998
[for personal use only]
Impeachment acts in U.S. and Russia a study in contrasts
Los Angeles Times 

MOSCOW -- The president's enemies have been waiting a long time for their
chance to bring him down. In recent weeks, lawmakers have held lengthy
impeachment hearings that seek to hold him accountable for a variety of sins.
They regularly drag out charges from the president's past that call into
question his morality and behavior. Harsh rhetoric attacking his character
rings through the halls and hearing rooms.
But for President Boris Yeltsin -- unlike his friend, President Clinton
-- the
impeachment hearings that have dragged on for months in the Russian parliament
are a mere political sideshow.
While the two presidents both face impeachment proceedings, the
in which each finds himself are quite different.
The kind of behavior that got Clinton in trouble might well improve
opinion of their feeble, 67-year-old president by suggesting a vigor that they
haven't seen in their leader in years. The Communist-inspired impeachment
charges seek to hold Yeltsin responsible for Russia's greatest calamities: its
economic collapse, the disastrous mid-1990s war in the breakaway republic of
Chechnya, the sharp rise in the rate of crime, and the equally startling
decline in the country's population.
``The Communists are stepping up their anti-Yeltsin hysteria, trying to draw
parallels and screaming that if in America the president can be impeached for
a mere trifle, Yeltsin should surely be impeached for the serious crimes
attributed to him,'' said Victor I. Borisyuk, a political analyst and former
Yeltsin adviser.
The efforts of Yeltsin's foes to impeach him, however, are handicapped by
fact that they must operate under a constitution -- written by Yeltsin himself
five years ago -- that makes it nearly impossible for parliament to remove a
president from office.
Some deputies in the Duma, the lower house of parliament, predict that
Russia's impeachment hearings will still be running in 2000, when the next
presidential elections are scheduled.
So far, a Duma committee has approved three articles of impeachment,
that Yeltsin:
Instigated the 1991 collapse of the Soviet Union;
Illegally used force against parliament in 1993 when it resisted his order
dissolving the body; and
Mounted the unsuccessful war in Chechnya that claimed as many as 80,000
from December 1994 to August 1996.
This week, Communist Duma Deputy Victor I. Ilyukhin used the hearings as a
forum to accuse Yeltsin of ``genocide'' against his own people. Evidence for
the genocide theory includes the fact that Russia's population has fallen from
nearly 149 million to 146.5 million in the past five years, while the average
life expectancy of Russian men has plummeted to 57 years.
Russian political analysts predict that in the end, neither impeachment
will lead to the removal of a president, but they note that the efforts offer
a contrast between the countries' political systems.


Baltimore Sun
December 19, 1998
[for personal use only]
Hope and heat scarce in Russia's frozen north
Severe winter, chaos in Moscow leave towns short of fuel, food,
By Will Englund 
Sun Foreign Staff 

PEVEK, Russia -- Cut off from the rest of the world by heavy snow, howling
Arctic winds, economic collapse and government breakdown, the desperate town
of Mys Shmidta can hold out a few more days before the last of the heating oil
is gone.
Then, with daytime temperatures as low as 35 below zero, the 4,300 residents
can burn their last few scraps of wood to keep warm and contemplate the
Russian pullback that is leaving them behind.
Moscow can no longer support the towns and cities strung across the Arctic,
places that began as grim prison camps and evolved into mining and industrial
outposts that have become hopelessly expensive to maintain. For several years,
the population has been steadily draining away, but not fast enough for those
left behind.

Population dwindling

The Chukotka region, which embraces Russia's northeastern tip, just
across the
Bering Strait from Alaska, has lost half of its population this decade.
Twenty-six villages have been abandoned. Russians and Ukrainians have been
streaming back to what they call the mainland, leaving this huge expanse of
tundra to the native Chukchi people, whose traditional way of life has been
nearly wiped out by alcohol and Soviet policy.
The chaos stemming from Moscow's financial turmoil, together with the most
severe winter in decades, has left thousands of people trapped in the north,
with fuel and food running short.
"If the government doesn't do something quickly, within a month there
will be
a catastrophe," Vladimir Chmyr, the chief doctor at the Mys Shmidta hospital,
said by telephone.
For a few months, Moscow -- well-heated and well-lighted -- has been
the threat to the northern towns as one of those crises that the hardy and
ingenious Russians will somehow muddle through. But when the heat runs out in
the Arctic, it's not a question of muddling through; it's a question of
Mys Shmidta, 250 miles east of Pevek, hasn't seen an airplane since before a
heavy and prolonged snowstorm began Nov. 19.
"There is so much snow around that this morning I tumbled over and slid
down a
bank and found myself at the door to the hospital," Chmyr said. "People say
there hasn't been this much snow for 40 years."
The telephone is Mys Shmidta's only link to the outside world. In the
that passes for daytime above the Arctic Circle, families have had to abandon
their grim, gray apartment houses as pipes have burst and boilers have broken
down. The few remaining buildings with heat are filled with the newly
There is enough flour, salt, sugar and cereal to last until spring, but no
fruit and no vegetables. Vladimir Yershov, head of the local administration,
said 200 people from the village of Leningradsky, where there is no heat and
little food, have crowded into Mys Shmidta in search of shelter.
All of the settlements are supposed to be stocked during the short summer.
This year, the regional and national governments were not up to the job.
Pevek, the northernmost commercial port in Russia, ran dangerously low on
as early as November. An icebreaker, chartered by the Ministry of Emergency
Situations, set out from western Russia in an attempt to break through,
clearing a path for a Finnish tanker. Several times, the convoy ground to a
halt in block ice, but three weeks ago it finally reached the wind-swept
Pevek has heat and light again. Wednesday, after a two-week delay, a
convoy of
10 trucks set out for Mys Shmidta, following frozen riverbeds and plowing
through snowbanks. It should take 10 to 12 days to make the 440-mile journey,
about a week longer than the heat will last there. When they arrive, Yershov
said, the trucks will deliver enough fuel to keep Mys Shmidta warm for four

Icebreaker stymied

The icebreaker, named the Soviet Union, tried to return to its home base but
was last reported blocked by impenetrable ice about 100 miles west of the
As large as France and with a population of 90,000, Chukotka is a place
reality has collided with the contradictions of Soviet planning. The cities
that were planted here to provide workers for the mines and factories, in an
economy that didn't weigh costs and benefits, now make no sense.
A weeklong tour of the region, in the company of Gov. Alexander V. Nazarov,
was a study in the stoicism and endurance of the Chukotka people during a time
of intense trial.
In the Chukchi village of Konergino, where the coppery noontime sun
hugged the
horizon, drunks cadged rubles, but no one doubted that life will go on. In
half-abandoned Apapelkhin, village workers, unpaid for more than three years,
are giving up.
In Bilibino, where the temperature stood at 54 below zero, what could be the
world's most remote nuclear power plant operates at half capacity or less,
waiting for the gold boom that Nazarov is sure he can foster while a restive
staff yearns for Russia.
Nazarov has a vision for Chukotka in which the permanent towns of the north,
with their services, would be emptied out. Instead, workers would be brought
in to mine the extensive gold and tin deposits on rotations of a few weeks at
a time, leaving their families behind.
About 800 Chukchis work in the tundra, herding 150,000 reindeer. Vladimir
Utikhtikak, 23, lives most of the year in a yaranga, a tent made of hides,
moving with his herd through a frozen landscape where the folds of the distant
mountains are smudged in the palest pastel blues and lilacs.
He and the nine others in his group live a solitary life on the forbiddingly
empty tundra. Their yarangas are rimmed with frost on the inside, except in
the sleeping sections curtained off with furs.
It has been a bad year for Utikhtikak because ice that formed under the snow
during a thaw has kept the reindeer from grazing, and they are dying of
starvation. The herders can't make money selling meat and hides anyway,
because no one has any money.
"It used to be that the reindeer provided everything we needed to live,"
Anatoly Teneru, director of a reindeer collective who believes the herder's
way of life is dying out. "The psychology of my people is different now. Why
work if we're not getting any money?"
Alcohol and television, Teneru said, have turned the Chukchi people away
their roots, as have boarding schools and Soviet collectivization.
"We'd like to have fruit and vegetables," said Valentina Gumyanova, who
in Konergino. "But that's our own fault for having gotten used to them."
Except for reindeer, nothing is grown in Chukotka. People catch fish and
collect berries and mushrooms, but otherwise they must rely on their wages to
buy food. Yet, as in most of Russia, people haven't been paid regularly here
for four years.

Food instead of pay

A system arose in which the regional government and various enterprises
bringing in food, mostly purchased in Seattle, that workers could accept in
lieu of wages. U.S. cabbages, beets and pickles were making their way to the
Russian far east, but in August most of the regional government's money was
frozen when the banking system collapsed. Prosecutors are looking into
allegations that a major part of Chukotka's money has been illegally diverted.
In any event, the imports stopped.
In Konergino, at least, there's a sense that hardship comes with the
territory. Viktor Pakhomov lost his fingers, toes and left ear to frostbite
when he lost his way in the tundra 14 years ago. "Winter will be wonderful,"
he said. "Could you lend me something for a drink?"
Natasha Tagrigirgina, 13, lost her father in 1996 when he froze to death
hunting. "I was born here; I'll live here," she said. Her fondest wish is
"that my mama lives to see a grandson."
In Apapelkhin, patience has run out.
This village outside Pevek bears the brunt of cold, damp winds coming off
Arctic. A person's nose crunches slightly as it begins to freeze inside. Heat
is scarce.
Eleven municipal workers went on a hunger strike Nov. 27 when their monthly
food allotments were cut back. Up to then, they had been receiving a monthly
allotment of a little more than 2 pounds of rice, peas and sugar, one salted
fish, a little more than 4 pounds of flour and oil, and bread when it was
"We're hostages," said Valentina Velichko, a 45-year-old crane operator and
widow who has been in Chukotka for 14 years, lured by the higher salaries once
offered for work in the north. She has lost 11 pounds. She is owed almost
three years' pay and can't afford to move back to central Russia.
She and the other strikers have moved into two rooms in the village
administration building. They lie on cots, sipping water while huddled in
blankets and coats. They are drawn and bitter and don't see a way out.
"Spare us from advertising," she said. "Our children can't bear to watch
Snickers ads on TV anymore."
Nazarov, whose wife and daughter live in Moscow, which he visits
frequently as
a member of the Federation Council, wouldn't meet with the hunger strikers.
But he said Wednesday that he would find money for them. He blamed Moscow for
the delayed payments.
In Pevek, a town of 6,000 where from November to February the sun is never
seen, 684 families are on the waiting list for government-subsidized
apartments elsewhere in Russia, said Larisa Kozar, a welfare official. Last
year, eight families from that list made the move, and many more scraped money
together on their own and got out.
"If everyone could go, of course most of them would," Kozar said. "If I
had a
choice, I'd go."


Russians Abandoning Far East
December 19, 1998

YUZHNO-SAKHALINSK, Russia (AP) -- When Vladimir Tribuk was growing up on
Sakhalin Island, a land filled with natural riches but short on people, he
believed the one guarantee his future held was steady work.
But on a recent frigid morning, he reluctantly prepared to board a flight to
South Korea to join the growing ranks of Russians in the Far East who have
become migrant laborers.
``I couldn't find any work here, and neither could my friends. There is
nothing here for us,'' said Tribuk, 23, who now has a job at a Korean
furniture factory.
Many of his friends have moved to the Russian mainland, or headed off to
Japan, Australia and the west coasts of Canada and the United States in search
of jobs.
This exodus has reversed the old Soviet trend of sending generations of
pioneers into the rugged, virgin lands of the Far East, which served the
political aim of settling every nook and cranny of the world's biggest
But these settlements on remote islands, the frozen tundra and isolated
forests always relied on government subsidies and rarely made economic sense.
So the Soviet collapse left their descendants stranded and broke in some of
the most inhospitable corners of the land.
Now, people are bailing out. The thinly populated Far East has lost 10
of its residents this decade. Sakhalin Island, for example, has gone from
720,000 people to barely 600,000 and is still shrinking.
The entire Far East now has just 7.3 million people scattered across a
territory more than half the size of the United States. Yet there still aren't
enough jobs to go around and this winter promises more hardship.
Sakhalin Gov. Igor Farkhutdinov speaks for most regional leaders when he
the greatest threats this winter will come from power shortages, not a lack of
``We have big problems with energy throughout the island,'' Farkhutdinov
``The situation is really quite grave.''
Sakhalin and other remote regions took another blow when Russia's latest
financial crisis hit in August, leaving the national government in Moscow with
even less money to help far-flung provinces.
Life on Sakhalin was never a picnic. Russia's czars used it as a penal
and the dour Russian writer Anton Chekov visited a century ago and proclaimed
it one of the most depressing places anywhere in Russia.
But at least there was work. Sakhalin's young men used to labor in the coal
mines, pulp mills and fish factories that are now abandoned and rusting
victims of decades of mismanagement. At Sakhalin's port of Korsakov, a short
journey to the powerful economies of China, Japan and South Korea, not a
single foreign ship is in sight, and the only working crane is chewing on a
pile of scrap metal.
``People should only work in these hardship places for four or five months a
year when it's warm,'' said Yuri Yanitsky, the general director of the
Korsakov port and an extensive traveler throughout the region.
``The (Soviet) idea was to populate all these places because they were
part of
the motherland. But the government should now take these people out and
resettle them.''
With the Soviet era aid gone, many people feel abandoned by Moscow, more
5,000 miles and seven time zones from Russia's east coast.
``When Moscow distributes resources, we are always last in line,'' said
Vladimir Sorochan, editor of the newspaper Sovetsky Sakhalin. ``We don't
receive financing for anything.''
Shortages are so acute at hospitals in Yuzhno-Sakhalinsk that surgery
must sometimes bring their own canisters of anesthesia to the operating room,
Dr. Vladimir Kasanyuk said.
``We are short of absolutely all medicines,'' said Kasanyuk.
He hasn't been paid since May, and makes his money driving a taxi in his off
hours. With a wife, two kids and two elderly parents to support, he feels
trapped on the island. ``People with means head to the mainland, but I'm in no
position to do that.''
For all its woes, Sakhalin is still faring a bit better than the Far East's
even more distant outposts.
In the southeast, some residents on the disputed Kuril Islands are so fed up
with Moscow's lack of help that they've signed petitions to lease their land
to neighboring Japan, which lost the islands to the Soviet Union in the waning
days of World War II and still wants them back.
On the Chukotka Peninsula, which juts out toward Alaska in the northeast,
emergency officials evacuated more than 1,000 people in November because it's
too expensive to send in food and fuel. More may follow.
The Arctic settlements must receive their winter food and fuel supplies
the all-too-brief summer months, when enough ice has melted to make the seas
and rivers navigable.
But many boats didn't make the journey this summer because shipping
weren't getting paid. The ice has already frozen over and many points are now
reachable only by plane.
Most foreign investors have been driven off by the region's daunting
and those who have set up shop have faced endless hassles.
While Sakhalin's governor complains of energy shortages, the building across
the street from his office is filled with executives from some of the biggest
Western oil companies.
They've been working for several years, and have already invested
hundreds of
millions of dollars, to drill for oil off Sakhalin's northern coast. The
biggest and most advanced project, Sakhalin-2, has anchored a state-of-the-art
offshore rig designed to withstand nasty storms, gigantic ice floes and
periodic earthquakes.
The first oil is expected to start flowing in the middle of next year, and
should bring with it the most promising economic development since the Soviet
But the Western oil companies, including Shell, Exxon and Arco, are waiting
impatiently on Russia's cantankerous national legislature to give them legal
guarantees on how the oil will be divided.
``You can't have people investing billions of dollars without a stable
business climate,'' said Dinty Miller, chief representative of Arco.
As Miller expounded on the difficulties of working in the Far East, the
building's lights went out. It's a daily occurrence, and Miller didn't miss a
beat. He whipped out a flashlight for a visiting reporter and the interview
continued in the dark.
``I used to say this place had a future so bright that you needed to wear
welding goggles,'' Miller said. ``I'm still an optimist, but I don't say that


The Economist
December 19, 1998
[for personal use only]
The cash don’t work 
A misunderstanding of money is the root of all Russia’s evils 

“THE Russian is not only incapable of accumulating capital, he is also a
persistent and helpless squanderer.” So says Alexey, “The Gambler” in
Dostoyevsky’s book of that name. “Nonetheless,” Alexey continues brightly, “we
Russians do have great use for money, and so we are always very happy to come
across such things as roulette, which can enable a man to become rich almost
effortlessly within two hours.” 
More recently, Russians were very happy to come across the financial
which promised to make them rich just as effortlessly and rather more
reliably. The Russian government raised about $45 billion in 1994-98 by
selling securities. Russian firms ran up debts of perhaps a further $20
billion. An estimated $60 billion left Russia as “flight capital” over the
same period, indicating that Russian borrowers knew their country’s ways
better than foreign lenders did. 
For a country crawling back towards creditworthiness after two previous debt
defaults this century and two rounds of hyper-inflation, what happened next
smacked of something more than carelessness. In August the government
defaulted on its own debt yet again, ordered private borrowers to default on
foreign loans, provoked a collapse of the domestic banking system and
abandoned its support for the rouble. The combined effect of these gestures
was that almost anybody with roubles lost 75-100% of their money. “It was like
the American dream in reverse,” reflected one Russian victim. “We woke up
A ruffle through the monetary history of pre-communist Russia demonstrates a
remarkable consistency. You could rely on Russia to rob you blind. In the 17th
century Tsar Alexis thought he could hammer coins worth 312 roubles out of
five roubles’ worth of copper. Peter the Great debased his silver coinage by
42%. Convertibility of the rouble at a stable exchange-rate has been possible
in fewer than 40 of the 229 years since Catherine the Great introduced her
treasury to the pleasures of the printing press. “The Gambler” spoke for the
One could be forgiven for making the leap from this almost unbroken
history of
monetary mismanagement to the conclusion that there is something intrinsically
disaster-prone—a “national character” problem—in Russians’ relations with
money. The August default, which foreign lenders failed completely to foresee,
strongly suggests that prudence might best be served by awaiting proof to the
But pursuing the source of the problem too far up the stream of history
be to risk missing the point. Russian tsars and revolutionaries did not really
differ much from their counterparts elsewhere in their pursuit of short-term
relief through printing unbacked money and defaulting on debt. The main source
of Russia’s recent monetary problems is to be found in the psychological
consequences of a more modern project. They spring from the profoundly strange
ideas, and profoundly bad habits, insisted on by the Soviet regime and
ingrained by central planning. The scant record of monetary discipline before
that time counts as an aggravating circumstance. 

Trouble up t’rouble 

Relations with money troubled the communists from the moment they seized
in 1917. True believers thought perpetuating the rouble might slow the arrival
of true communism, which presumed a direct exchange of goods and labour. No
fools, the Bolshevik leaders soon saw they could have their cake and eat it.
They could print all the banknotes they wanted, while telling the wild-eyed
that this was a strategy for destroying money by reducing its value to zero.
They very nearly succeeded. When they reversed economic policy and carried out
a currency reform in 1924, it took 50 billion roubles of the 1921 issue to buy
one of the newly minted variety. 
When Stalin prevailed, and central planning with him, the value of the
became something stranger than zero. It became both arbitrary and variable.
Under central planning the Soviet Union probably achieved the Bolsheviks’ aim
of abolishing “money” in a useful sense of that word—which is to say, legal
tender of predictable value. The new arrangements, though they preserved a
rouble of sorts, resembled closely what scholars call a token economy. A token
economy is a closed system (within a prison or hospital, say) which allows a
population to be “paid” for behaving appropriately in tokens that can be
redeemed for goods only within the institution. Token economies often succeed
in “conditioning” people to do what the authorities wish—to work and to
socialise, for example. The big drawback, according to Adrian Furnham and
Michael Argyle, two British psychologists, is that “conditioned behaviour does
not generalise to new environments where the token economy does not operate”—a
point which Russia’s transition from communism into near-chaos would seem to
bear out on an unusually large scale. 
Under central planning firms essentially ceased to hold money, save for
wages. They held clearing accounts with the state bank; the bank recorded
transactions in accounting units that it called roubles, but which it could as
easily have called anything else. Cash survived in the payment of roubles to
workers and peasants, which could be spent on consumer goods—food and clothes,
pots and pans and so on. But this money had no life of its own; it was a mere
token to be exchanged under strictly set rules. The goods for which these
roubles were exchanged were the real “wage” being paid to the workers, much as
fodder is the “wage” paid to horses on a farm. But a system of illusory money
and prices had its uses as a tool of conditioning. It was another means by
which the government could control and manipulate people—so long as the
government controlled and manipulated the rouble. Which it did. 
The value of the rouble varied depending on where they were spent. Your
connected neighbour might pay five roubles for a kilo of sugar in the cosy
little private shop attached to his ministry. You might queue for an hour to
pay 50 roubles at the grocer down the street. Your money was worth what the
government said you were worth. 
Private saving was not envisaged (were you doubting the state’s capacity to
provide for your old age?). Excess money was eliminated through not-quite-
forced subscriptions to public bond issues and by confiscatory “reforms” of
the note issue. Sometimes the holders of excess money were eliminated too. The
New York Times reported in August 1930 that “Four men put to death by an OGPU
firing squad in Moscow for hoarding . . . as much as 5,000 roubles in coins”—a
rare example of Gresham’s Law attracting capital punishment. 
If one accepts the “token-economy” view of the Soviet era, then Russia today
is a developed country in most respects, but one whose people and institutions
were denied money for decades and are returning to it imperfectly. This is an
unusual circumstance. In modern times moneyless societies tend to be so
different (eg: insect-based diet) from money societies that the role of money
itself has been hard to isolate with any confidence. Russia thus offers a
chance to air intuitions and suppositions about the general effect of money,
and its absence. 

The cashless nexus 

Keynes’s proposition that “the importance of money essentially flows from it
being a link between the present and the future” holds up fairly well. A
constant feature of Soviet life was the gap between present and future, the
latter an even more perfect paradise that would be reached not through
accretions of effort but through “leaps” and transformations. Inability to
develop plausible expectations about the future and to pursue them over time
remains a striking feature of Russian life now at all levels. (For example,
the federal government is incapable of implementing an annual budget.) 
Georg Simmel, a turn-of-the-century German philosopher whose main work
was on
money, thought that “the progressive expansion of money’s role in society is
associated with a growing intellectualisation of experience, a tendency to
orient action reflexively on the basis of cognitive rather than normative
expectations”. Roughly speaking, this means that money encourages realism, as
opposed to wishful thinking. The communist project is, indeed, one of
history’s greatest examples of action oriented towards “normative
expectations”. Russia has seemed scarcely able since to free itself from a
reliance on bluff, exaggeration and lying in public and commercial life. The
“virtual economy” discussed below is one elaborate example. 
As James Buchan, author of a recent history of money (“Frozen Desire”,
and Farrar, Straus & Giroux) points out, the link between money and freedom is
basic to liberal economics: “Adam Smith spoke of money as the ‘obvious and
simple system of natural liberty’.” This belief is certainly encouraged by the
Russian experience. But it jars with another point of Simmel’s suited
particularly to large countries. “Despotism finds in money an incomparably
suitable technique, an instrument whereby to tie itself to the farthest
reaches of its domination, which in a barter economy always tend to drift
apart and to become autonomous.” Presumably Simmel would have qualified his
view if he had seen Stalinist central planning at work; he underestimated the
peculiar power of barter in the service of conscientious despotism. Central
planning, a non-market barter economy, was a marvellous technique for
integrating Russia. Where systematic despotism is absent, though, as in post-
Soviet Russia, barter does indeed seem to encourage a large country to break
down into autonomous localities. 
When central planning collapsed, the economic vacuum was filled by a half-
formed private enterprise—energetic, opportunistic, often criminal, always
cash-obsessed—descended from the fraud, black-marketeering, smuggling and
moonlighting that went on at the margins of the old regime. But the state
could scarcely understand this new economy, let alone regulate it. The Russia
born from the Soviet ruins inherited none of the legal, institutional and (for
want of a better word) moral taboos with which other societies hedge the use
of money and protect it over time. It was hard to say what “honesty” even
meant in a country which had still to frame laws against many forms of fraud.
To this day it is almost impossible to collect a debt or foreclose on property
through the Russian courts. Ubiquitous corruption in public life has been
encouraged by the habit inherited from the communist era of paying very low
money wages to officials. Anybody with ordinary amounts of cash can buy civil
servants and policemen at very reasonable rates. Ambitious tycoons have
managed to acquire entire ministries. 
There were, and are, huge shortages of knowledge and experience. The
of the Russian central bank in 1992-94, debauching the rouble to prop up
bankrupt industries and aborting Russian reform even as it began, was
explicable partly in terms of ignorance about money—a dangerous handicap for a
central bank—and partly in terms of conditioning. The root cause was that all
Russian politicians were products of a Soviet system that insisted on the
world as a place of simple problems and simple solutions (complications were
caused by saboteurs). The mighty physical resources of Russian industry
assured the value of the country’s currency. If those industries were short of
money, what could be simpler than printing more banknotes? Only in 1994 did
the then prime minister, Viktor Chernomyrdin, persuade himself that printing
money was not the right answer, whatever the question—provoking Yegor Gaidar,
a Russian liberal, to celebrate the end of what he called “the most expensive
education in history”. A pity there were not more graduates. Mr Chernomyrdin’s
successors have returned to the view that the country suffers from a physical
shortage of banknotes which it is the central bank’s responsibility to remedy.
When nobody (including the central bank) knows what banking entails, anybody
can be a banker. The Russian financial sector grew by 43% between 1992 and
1995, even as the Russian economy shrank by 26.4%. Russians opened banks for
much the same reason that Willy Sutton robbed them (“Because that’s where the
money is”). The final results were often similar. Mainly, the new banks
speculated against the rouble using money placed with them by the government,
which had no treasury system of its own. Later the banks lent the government’s
money back to it at usurious rates of interest, or played the stockmarket.
Later still they defaulted on deposits and closed their doors. It was
fortunate that Russian households had little disposition to save roubles in
banks; they preferred to hoard dollars under the bed. 
Russian industry had no experience of private investment or financial
accounting. So whereas it was clear enough to Russian managers what wealth was
(dollars), and what the redistribution of wealth involved (theft), they could
be forgiven for wondering what on earth “wealth creation” might be. The onset
of the money economy so shocked Russian industry that it turned round and
Told to behave commercially, firms began by extending credit to one
another—which is to say, nobody paid anybody. When debts between firms
approached half GDP, the central bank tried to clear them by handing out free
money. When hyperinflation beckoned the central bank stopped and firms
reverted to barter, using IOUs when a straight of exchange of goods was not
attractive. By accepting these IOUs in payment of local taxes, local
governments served as clearing houses for unmatched claims. Since it suited
everybody to treat IOUs as negotiable, despite their dubious value and
legality, Russia was soon awash with local “private moneys”. 
In a recent essay in Foreign Affairs called “Russia’s Virtual Economy”
Clifford Gaddy and Barry Ickes, two American scholars, guessed that many
Russian firms are overvaluing their output by a factor of two or three for
barter transactions, and up to fivefold for sales made against promissory
notes. The absence of true price-information means that nobody can say which
firms are adding value and which are destroying it, including the firms
themselves. Rational credit and investment decisions are impossible, and would
remain so even if anybody were to start wanting to make them. 
The “most expensive education in history” continues, in fact, at a national
level. Russia’s economic problems are getting worse, not better. The economy
is still shrinking, inflation is rising again, financial markets have closed
to Russian borrowers. The tenacity of this decline suggests the Bolsheviks
were probably right in one of their ideas about money, even if they were wrong
in all the others. There may no better way to destroy the “bourgeois regime”,
as Bukharin put it, than to master “the laws of circulation”—and abolish them.


Financial Times
DECEMBER 19 1998 
[for personal use only]
Arts & Leisure 
MOSCOW: Urban, but not yet urbane
Paul Gould wonders if he will ever come to terms with the Russian capital's

A bracing night-time stroll along Tverskaya, Moscow's answer to Oxford
is almost enough to convince me that Russia's westernisation is a fait
There are neon lights, advertising, shops, Mercedes and BMWs. The normality
belies any talk of a country in crisis. It defies the sense of fear that
Moscow holds for visitors. Indeed, for a moment it seems the place offers
little that is challenging or different.
Then I see the babushka with her goat. The wrinkled old woman, clad in the
habitual headscarf and white apron, must be 70. But there she is, braving the
sub-zero chill outside one of Moscow's busiest metro stations, nonchalantly
selling goat's milk - with the proud producer of her wares on display for good
The milk has been enterprisingly decanted into a variety of used mineral
bottles, and the ploy of putting the goat on show is original enough to
generate a healthy trade. But not odd enough to raise eyebrows.
Yet this farmyard duo stands within sight of gaudy casinos, a Cadillac
showroom and all-night pharmacy freely selling Viagra (no messing around with
prescriptions in licentious Russia).
For Moscow's muscular sprawl and political might sit side-by-side with a
peasant-like nature stubbornly dear to the Russian soul. Urban it is, but not
quite urbane.
The same bumptiousness infects the new, commercial Russia. On nearby Old
Street or at Izmailovsky market, stacking dolls - some of them opening to
reveal Brezhnev inside Gorbachev inside Yeltsin etc - jostle for position with
Soviet-era insignia: flags, army belts and officers' hats.
Traders insist you must not pass their stall - but you have to haggle
hard to
get a decent price for that "I am a KGB agent" T-shirt.
Go to Moscow with questions, and you will come back with more questions. Go
with expectations, and they'll invariably be turned on their head. If I
expected a city of drab monoliths, then I am pleasantly surprised to see
pastel-painted Art Deco townhouses with wrought-iron balconies. If I expected
a city of puritanical severity, I am surprised to see recklessness and
debauchery. If this jumble of competing impressions sounds contradictory,
that's because it is.
What makes the place tick? Where is that Russian soul that people are always
talking about? My trip to Moscow, like anyone's visit to that beguiling
capital, is a search for that soul.
The city's very name stirs strong associations in the Russian heart - or so
wrote the poet, Alexander Pushkin. As if to prove the point, there are always
fresh flowers at the poet's statue, just a stone's throw from McDonald's on
Pushkin Square.
A reverence for culture is part of the story. Like saints, the names of
artistic giants resound across the capital: the Tchaikovsky Concert Hall,
Chekhov metro station, Gogol Boulevard, the Stanislavsky Theatre.
But religion plays an even larger part. A visit to a Russian Orthodox church
is an unfailingly moving experience - defying the Soviet Union's 70 years of
official atheism.
So a friend and I visit the Yelokhovsky Cathedral in eastern Moscow.
when a service is under way - which is acceptable -I respectfully uncover my
head while my friend covers hers. We are instantly plunged into the hush of a
thousand lighted candles. Countless icons glimmer in the semi-darkness. A
steady murmur is punctuated only by the basso profondo chanting of the bearded
priest in his shimmering robes.
There are no pews: the congregation, a mêlé e of older Russians, shuffles
constantly from altar to alcove. They cross themselves before the icons
covering every bit of available wall space. They light more candles. They
utter their own private prayers. They kiss the icons: these people believe. 
Hard to realise that this is the same bogeyman state that dynamited
of churches in its rip-it-all-up pursuit of a brave new world. Yet this is the
story behind an exhibition at the resurrected Cathedral of Christ the Saviour.
The gold-domed edifice on the banks of the Moskva River is not yet open to the
public, but the exhibition in its vaults uses a poignant mixture of
photographs, models and documents to tell its story.
First built in 1812, to commemorate victory over Napoleon, the cathedral was
razed in 1933 to make way for the never-built Palace of the Soviets. On
display is a signed decree clinically ordering its "clearance". Photographs
show it being stripped of its gold, its dome crashing to the ground amid the
Until the rebuilding of the cathedral in 1995-97, an open-air swimming pool
occupied the site for decades after it was realised that the ground would not
support the Palace of Soviets. Only models and pictures now testify to those
plans for a skyscraper topped by a gargantuan statue of Lenin.
Moscow, however, affords many other glimpses of that would-be communist
utopia. At Mayakovsky metro station, naturally named after the poet, a series
of ceiling mosaics evokes the Soviet dream of a society of heroes, of
plentiful harvests and of sunny skies defended by an invincible airforce.
But the pièce de résistance is the 1937 statue of "The Worker and the
Collective Farm Girl", near VDNKh metro in northern Moscow. Standing as tall
as Nelson's Column, the twin Titans of steel stride towards a bright future,
clothes and hair billowing in a stylised wind, holding aloft their hammer and
sickle. It is a vision of a society that never materialised.
The chasm between the devout, cultural Russia and its Evil Empire
alter-ego is
writ large across the face it presents to visitors. Russians are warm,
reckless and hospitable in private - yet surly and brusque as they shove their
way through the obstacles of public life. The architecture is equally
schizophrenic, with forbidding Stalinist monoliths looming over ancient onion-
domed churches.
On Red Square, the humbug-like turbans of St Basil's Cathedral hover
behind a
horizon of cobblestones. At this most familiar tourist magnet, two images
spring to mind: cold war parades of tanks and missile launchers; then the
caprice, the whimsy that gave birth to the cathedral's fantasy architecture.
As Churchill said, Russia "is a riddle wrapped in a mystery inside an
And that has to be one of the best reasons, still, to go.
Paul Gould travelled to Moscow for a three-night City Break with Crystal
Holidays, Crystal House, Arlington Road, Surbiton, Surrey. Three nights in a
3-star hotel, including breakfast, flight and visa processing, costs from £509
to £559 in low season; from £565 high season. Four-night breaks start at £555
in low season. For reservations tel: 0181-241 5040. 



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