March 15, 1999    
This Date's Issues: 3090•3091  • 

Johnson's Russia List
#3091
15 March 1999
davidjohnson@erols.com

*********

This article was originally published in the english edition of ETC's
special issue on Russia (ETC english edition No 1, 1999). To order copies
of ETC magazine, please write to tidningen@etc.se
Dan Josefsson (dan.josefsson@etc.se) is a Swedish journalist.


THE ART OF RUINING A COUNTRY
WITH SOME PROFESSIONAL HELP FROM SWEDEN

An article by Dan Josefsson (dan.josefsson@etc.se)

Research by Stefan Lindgren (ryskpost@bahnhof.se)

Moscow in 1998, a warm day in late summer. Outside the Russian Parliament,
the Duma, a small group of demonstrators walk forth and back, carrying
placards. A policeman is standing at their side, meticulously noting the
placard texts in his notebook.

He writes:
"Yeltsin and Tjernomyrdin: Russia has had enough! Resign!"
and
"Are the Yankees the rulers of this country?"
and
"Stop experimenting with the Russian People!"

This last placard is carried by a sturdy lady with a headscarf.

The image of the woman pleading not to be treated as a guinea pig keeps
haunting me during my week in Russia.
What this woman calls "experiment" is sometimes called "reform work" and
sometimes "the big bang", but more often "shock therapy". What we have here
is the biggest privatization project in modern history. It was meant to
transform the whole Russian society into a US-style market economy. The
whole transformation was supposed to be implemented in 2 or 3 years.

Thus the term "shock therapy".

The experiment began in 1991. Today, seven years later, statistics show
that it turned into far more of a shock than of therapy.

The fact is that the therapy has nearly killed the patient.

Let's take a look at some figures.

Between 1991 and 1997, Russian GNP - i.e. the value of all goods and
services that Russia produces - went down 83%.

Agrarian production decreased 63%.

Investment decreased 92%.

70,000 factories were closed down. This led to Russia producing 88% fewer
tractors, 76% fewer washing machines, 77% less cotton fabric, 78% fewer
TV-sets - the list is endless.

In a country without unemployment, 13 million people lost their jobs.

Those who still have work have had their wages cut in half.

The average life span for men has been shortened by six years.

Six years!

Such a change normally occurs only when a country is hit by a massive war,
an epidemic or famine.
None of this has happened in Russia.

Still, the average life span decreased, in just a few years, to the same
level as in India, Egypt and Bolivia.

The experiment that the lady with the placard wants put an end to is
literally killing her countrymen.
No wonder she is demonstrating.

Did the Russian people wish to be subjected to this shock therapy?

According to the prevalent picture of what has happened in Russia during
the nineties, the answer strangely enough is "yes".

This picture looks something like this: when Michail Gorbachev took power
in 1985, he realized that the Russian economy was on the brink of falling
apart.

He then started a reform program that came to be called Perestroika.

Through reforms, he wanted to transform the undemocratic Soviet Union into
a socialist democracy.
The press monopoly of the Communist Party was to be abolished, and freedom
of speech declared and implemented. The Soviet Union was to become a
democratic country.

Simultaneously, the economy was to be reformed, from centralized communism
to reformed socialism.

The opposition against Gorbachev was led by Boris Yeltsin. Contrary to
Gorbachev, he didn't want some kind of democratized socialism at all. He
wanted to change over to capitalism.

According to the prevalent picture, the old Soviet elite - the upper
echelons of the Communist Party and the many top bureaucrats - were opposed
to Yeltsin's plans for capitalism. They were scared of losing all of their
privileges.

Jeltin's success was supposed to be founded on support from the Russian
people, who were fed up with the Soviet Union and therefore demanded far
more thorough reforms than the democratic socialism that Gorbachev aspired
to and worked for.

Thus: the people demanded capitalism.

The Soviet elite was forced to yield, reluctantly.

But was this what really happened?

The Russian sociologist Tatiana Zaslavskaya has shown that this popular
version of history is false.
According to her, the very influential elite may have been opposed to
radical changes for a couple of years after 1985. But once having realized
that privatization would benefit mainly those who already were at the top
of society, they rapidly changed their tune. According to Zaslavskaya,
Yeltsin could never have come to power without the support of the leading
old party hacks, a theory supported by the fact that it was the old Soviet
elite who took over the nation's assets after privatization.

THE WORLD'S ELITE CLUB

One late evening in Moscow I meet the sociologist Boris Kagarlitsky,
researcher at the Institute of Comparative Studies at the Russian Academy
of Sciences, and a heavy critic of the current regime. His criticism of
shock therapy is particularly validated by the fact that he was arrested by
the KGB in 1982, for collaborating with a socialist group that criticized
the Soviet regime at the time.

In one of the little cafés in the Rossija Hotel, Boris Kagarlitsky
describes how the Russian elite is well underway to destroying his country.

"You must realize that the key aim of the Russian elite was to become equal
members of the world's elite, he says. Whatever it took.

If they had to tear their own country to shreds in order to be accepted
into that club - then they'd tear the country to shreds."

Boris describes how immensely privileged the top echelon of Soviet society
was in comparison to the rest of the population. But compared to top
politicians and industrial leaders in the West, they were still poor. Not
even members of the politburo were dressed in anything else but
Russian-made clothes and shoes, and when they went on vacation, they had to
make do with the party villas by the Black Sea. They were infinitely better
than the simple dachas of the ordinary Soviet citizen, but hardly the
exclusive spas in Monaco or the Caribbean Islands frequented by the world's
elite.

That door was closed to the top dogs of the biggest nation on earth.

But when Gorbachev started to reform Soviet society, the younger members of
the elite got a whiff of more heavenly climes.

"An interesting phenomenon", says Boris, "is that those who became the
foremost representatives and functionaries of neoliberalism in Russia,
often are children of the top bureaucrats of the Soviet era. They are
second generation top dogs. Through their fathers, they have good contacts
in the former party hierarchy, they are often educated in the West, and
they very much wish to be accepted as part of the world's elite."

Yeltsin was elected president in 1991, and shortly thereafter Russia became
an independent nation itself. The Russian economists around him at that
time were extremely market oriented. A survey indicated that they even
believed more in the ability of the market to single-handedly solve the
economical problems of a nation than their colleagues did in the West.

Yeltsin appointed the economist Jegor Gajdar, 36 years old at the time, as
his Minister of Finance. Jegors paternal grandfather had been a war hero in
the Red Army, and his father a foreign correspondent for Pravda. As a
child, Jegor Gajdar therefore lived in Cuba and Yugoslavia with his father.
During the Gorbachev period, Jegor Gajdar worked as economics editor at the
journal Kommunist, and as a columnist for Pravda.

In short, Jegor Gajdar was a typical example of how the second or even
third generation of the Soviet elite changed over from communism to
extremely market-oriented neo-liberalism in the course of just a few years.

Professor Jeffrey Sachs of Harvard was called in as economic advisor to
Yeltsin's cabinet. In the mid 80's, Jeffrey Sachs had constructed an
economic policy for the government of Bolivia, and in 1989, he advocated
the same policy when engaged as a consultant by the Polish government.

The technique was nicknamed "shock therapy". After Poland had been
subjected to shock therapy, economists thought that this was the best
method of transforming a socialist country into a market economy.

One member of Jeffrey Sachs's team was the Swedish economist Anders Åslund.

Until 1984, Åslund had been working at the Swedish embassy in Moscow,
during which time he became the personal friend of many of those who later
on would implement shock therapy in Russia.

Gajdar as well as Yeltsin were for shock therapy, and the foreign advisors
were given the task of planning a cure-all for Russia.

It would turn into one of the most ruthless experiments in neo-liberalist
politics ever performed.

"Shock therapy" was based on the view that society in it's "natural" state
functions as a market economy. 

Only by regulating and limiting the free market in an "unnatural" way,
could a non-market-oriented system be created - which was what had been
done in the Soviet Union of old.

The only thing needed to reinstate the natural order, strictly speaking,
was to take the restricting regulations away. The natural balance of
society thus would be restored by itself.

The driving force would be the concept of self-interest - the ambition of
each single individual to make as much money as possible.

Or, as expressed by Anders Åslund in Dagens Nyheter in May 1992:

"The miraculous incentives or temptations of capitalism conquer more or
less anything."

The recipe that would let loose "the miraculous incentives of capitalism"
was simple: State-owned companies would be privatized, regulated prices set
free, currency trade deregulated.

The advocates of shock therapy did not deny that this process would be
painful for the Russian people. During the Soviet era, the State had
subsidized all merchandise, making almost everything very cheap. You paid
nearly no rent at all, and price increases were an unknown phenomenon to
the Russians. The shock therapists warned that prices would go up when
price regulations were abolished, but only during a transition period.
Soon, the urge to earn a profit would make private companies produce more
of the products most in demand, and consequently prices would go down and
stabilize. After that, Russia would become a better place to live in.
Everything according to sound, market-oriented economic principles.

The start of the speedy transformation of Russia was due to be winter 1992.
In the autumn, Yeltsin even publicly declared the exact date for
implementing free pricing.

This proved to be a huge blunder, as Russian businessmen immediately
stopped selling any products while awaiting deregulation, which would
provide greater profits.

In the autumn of 1991, the supply of products hadn't been scarcer than
usual in the shops of Moscow, but after Yeltsin's disclosure, shelves
suddenly stood bare. This dismal start to shock therapy would prove very
symbolic.

Prices were deregulated on January 2nd 1992.

Price increases were horrendous.

A few years before, the first McDonald's had opened in Moscow and became
very popular. Just a few weeks after deregulation, the restaurant stood
empty, the price of a hamburger having risen from 38 roubles to a 100.
The average salary was still 500-800 roubles a month.

In fact, the inhabitants of Moscow almost totally stopped eating meat, as
the price per kilo had become absurdly high.

And this was just the beginning.

In 1995, four years after deregulation, the products in the shops had
become 3,668 times more expensive than in 1990.

A journey on the underground, which cost 5 kopeks before, now suddenly cost
400 roubles, 8,000 times more.
A kilo of meat that had cost 2 roubles now cost over 3,000.

Etcetera.

In order to compensate for inflation, worker's wages were increased, but
not enough. By 1995, real wages in Russia had been halved.

The Russian people, who hadn't experienced any price increases for 30
years, now no longer could afford to buy food.

None of this seemed to bother those Swedish and American economists who had
planned the whole process. In January 1993, when runaway inflation was
strangling the Russian population, Anders Åslund said the following in
Dagens Nyheter:
"I breathe more freely when I come to Eastern Europe - Prague, Warsaw or
Budapest, but Moscow as well - escaping the small-mindedness of Western
Europe. During each visit I am gladdened by the great future, and the new
triumphs of capitalism."

A month or so later he commented on starvation among the poor as follows:
"The problem is the pensioners. But that's a social problem, not a
political one - because pensioners are not revolutionaries." (Expressen
930217)

Simultaneously, step two of the shock therapy got under way - the speedy
privatization of State-owned companies.

Almost no one really had time to understand what actually happened.

Journalist Julia Kalinina, who works at one of the biggest dailies in
Moscow, tells me about the way the publishing company was privatized. All
ownership was concentrated into one single share certificate, which the
editor in chief laid his hands upon. No protests from the journalists were
heard.

"None of us quite understood what a share certificate was", Julia explains.

The story is interesting. If the journalists at one of the biggest dailies
in Moscow didn't understand what privatization amounted to - then how could
other citizens understand it?

PRIVATIZATION COUPONS

The gap between the knowledge amongst the elite about what privatization
amounted to, and the ignorance of the common man, became obvious when the
State started issuing so-called vouchers, or privatization coupons.

The privatization coupons was an idea that was supposed to solve one of the
shock therapists' greatest problems: how to go about privatizing thousands
of State-owned companies in one fell swoop?

In the Western world we're used to a small class of owners controlling the
main part of our countries' resources. In Sweden, for instance, the
Wallenberg family controls half of the Swedish trade and industry. 

This fact is either accepted or totally ignored by the Swedes. But what
would happen if somebody suggested that we should privatize the national
railways and Telia, the national phone company, by simply turning them over
to Peter Wallenberg? Something like that could hardly happen without
debate, the injustice being far too obvious.

But what the shock therapists planned to do in Russia was precisely to
create a few new Wallenberg families by selling off national resources dirt
cheap.

An astonished reporter from Dagens Nyheter asked Anders Åslund whether
Russia really intended to more or less give national companies away. "Yes",
Åslund replied, "in order to rapidly create a class of owners." (Dagens
Nyheter 920216)

An owner class was to be created. But just as the Swedes would not be
inclined to make a gift of their national resources to Mr Wallenberg,
neither would the Russians want to see their country handed over for a
token sum to some arbitrarily chosen robber baron.

In his book "Why Eastern Europe needs a Shock Therapy" (1992), Anders
Åslund presented a solution to this problem. Privatization should be made
"politically acceptable" by distributing small blocks of shares to a lot of
Russians. Thus, nobody would perceive the privatization process as some
Russian version of Peter Wallenberg grabbing the people's property.

And so this was done. All Russians were given a voucher, worth about a
month's wages in roubles. This coupon was meant to be used to acquire
company shares.

Boris Kagarlitsky tells me that he and his wife refused to accept their
voucher.

"We thought that it felt like partaking in the robbery", he says. But 80%
of the population accepted.
This, however, did not lead to any distribution of ownership. On the contrary.

Boris recounts that each voucher was worth about a month's wages when
privatization started. But a few months later, when people were about to
exchange their vouchers, runaway inflation had consumed nearly all their
value. A voucher was worth no more than a bottle of vodka.

It so happened that at this very time, a bunch of businessmen suddenly
turned up, willing to exchange people's apparently worthless vouchers for -
yes, vodka bottles. What people didn't know was that a voucher loses
nothing of its value if used to acquire company shares. The value of the
companies had not been adjusted by inflation.

"Most people swapped their vouchers for vodka", says Boris Kagarlitsky.

Thus, people with contacts could collect a couple of thousand vouchers,
enough to buy a whole company for 2,000 bottles of vodka.

The buyers were the same elite who had been at the top during the Soviet
era, and who had helped Yeltsin implement the shock therapy.

COMPANIES FOR FREE

Someone with real fancy contacts, however, didn't even have to pay with vodka.

This is how a take-over for free could take place:
The CEO of a State-owned company started a non-operational private company.
The State-owned Company then lent the new little private company 50,000
dollars. In practice, the CEO thus granted himself a government loan.
Before the planned privatization, the value of the State-owned company was
appraised in roubles. The enormous inflation, however, continually
diminished its value in dollars. When the State-owned company was worth
only 50,000 dollars, the CEO took action: the small private company bought
the State-owned company in it's entirety, with the money he had borrowed
from it.

Finally, the two companies were merged, and thereby, the 50,000 dollar debt
never had to be paid off. The CEO had become the legal owner of a former
State-owned company, without having to pay a single kopek for it.
In this way, the Russian elite took over everything from car factories to
oil wells. Millionaires were made overnight.

Thus a new class of owners had been created, although in a horribly unjust
way.

According to the plans of the shock therapists, the new owners now would
automatically run their industries with an efficacy new to Russia.

State-owned companies, which had produced things nobody wanted before,
would go bankrupt or reorganize production.

And the driving force behind it all was supposed to be what Åslund almost
poetically had named "the miraculous incentive of capitalism".

Bur things didn't quite turn out the way Åslund had expected. The new
owners didn't produce what people wanted. Instead they started plundering
their companies.

According to Boris Kagarlitsky, they had no real choice.

"Put yourself in their position," he says. "There you are, the owner of a
company, wondering what to do with it. You have neither the capital nor the
money to invest in production. You lack funds to replace old equipment.

You have no money to invest in research and development. If you're unlucky
just once, not getting paid for a delivery, you have no reserve funds to
pay your workers from."

"This means that the only thing these new company owners could do was to
exploit the company as a resource in its own right. If for instance an
aluminium mine had been privatized, the owner extracted as much aluminium
as possible without investing any money. He run the machines until they
fell apart, and then he threw it all away as scrap.

By plundering companies, big companies fell into the hands of a small,
extremely wealthy upper class. To them it became something of a hobby to
spend loads of money."

One evening I visited the Prague, a luxurious restaurant in the middle of
Moscow, where probably sizeable chunks of the plundered companies have been
converted into food and drink. One dinner here costs as much as a Russian
low-income earner makes in six months. On the menu, the price is marked in
dollars. The most interesting thing however was the entrance, which is so
well guarded it could be an Israeli airport. In order to enter the
premises, you yourself as well as any hand baggage you may have must pass
through metal detectors.

The process is supervised by a bunch of hefty security guards with mikes in
their ears.

These control measures are necessary, as assassination attempts on the
nouveaux riches are pretty commonplace. Often it's a matter of internal
disputes within the new upper class.

THE FIASCO

As an ever-increasing number of grotesquely rich Russians turned up in the
shopping capitals of Europe, whilst the Russian industry rusted away, it
became more and more obvious that the shock therapy hadn't worked.

"Suddenly", Boris Kagarlitsky says, "you realized that the new Russian
elite were extremely rich in terms of personal wealth, but in terms of
working capital, they were all poor. If you have, say, 5 million dollars in
your pocket, good for you, but for an industry that's nothing. What you can
do is speculate in real estate. 
There, 5 million dollars is OK. Or sometimes, the money went into buying
such luxury products as Mercedes Benzes and the like. Also, a lot of the
money went directly into accounts in foreign banks."

According to Kagarlitsky, it was a fatal mistake to believe that Western
economists were experts in creating a market economy, just because they
were experts in managing one. Neither Anders Åslund nor Jeffrey Sachs have
been involved in the creation of Western capitalism.

Åslund and the others never read Max Weber, Boris Kagarlitsky says. Max
Weber showed in an extremely lucid and distinct way that a class of owners
is created by its history, it's culture, and it's internal development, but
not through the owning of property. Private property existed long before
capitalism, without developing into capitalism. Thus, the existence of
private ownership means precious little. It means that there are private
owners, but not necessarily a class of entrepreneurs.

The results of the plunder can be seen in statistics. Between 1991 and
1997, GNP decreased 83%. The shock therapy simply shut the colossal Russian
industry down.

The Western media, which had been inundated with visions of the fantastic
future awaiting Russia, were all very careful when reporting on the
horrible consequences of shock therapy.

One of few exceptions was Swedish TV-reporter Peter Löfgren, who described
the winding food queues along Moscow streets. Anders Åslund was so
irritated that this reverse side of shock therapy was brought before the
Swedish people that he wrote the following in an article on the debating
page of Dagens Nyheter:

"The few longer queues still to be found in Russia are a result of the fact
that the prices of a few products are still being regulated (even if this
is hard to believe, looking at Peter Löfgren's militant socialist reports
on TV2)."

A journalist in Moscow who points his camera at poor people thus suddenly
becomes a "militant socialist". This was neither the first nor the last
time that Anders Åslund dismissed his critics as communists or militant
socialists.

However, most journalists in no way ran the risk of attracting the wrath of
Anders Åslund in the press. 
The typical attitude to the suffering of the Russians was that shock
therapy was the correct medicine, but that its effect hadn't been felt
"yet". A typical example:

"Much seems to indicate that Gajdar is doing a great job; but the man in
the street doesn't yet perceive the positive effects of the recently
implemented "shock therapy." (Dagens Nyheter 920419)

Four years later the Russians are still waiting for the "positive effects"
mentioned in Dagens Nyheter. The only difference is that they are even
poorer now.

The banks also helped to spread the picture of a rapidly growing
market-oriented Russia. As late as December 1997, the company Banco Fonder
advertised it's new Russia Fund. In the prospect, interested speculators
could read about the fantastic developments in Russia:

"In an amazingly short time, Russia has changed and become a democracy on
it's way to a Western-style market economy."

And:
"With a population of 150 million people, who slowly but surely are
experiencing improved purchasing power, there are good reasons to expect
continuing growth and development."

It's hard to understand how these words could adequately describe a country
where capital investment has decreased 80%, and where the earnings of 75%
of the population have tumbled to subsistence level or less.

BARTERING IS BACK

As regards the state finances of Russia, the shock therapy became a
catastrophe of a magnitude never seen before.

A giant nation, whose industry just a few years ago was functioning
reasonably well, has been forced to return to bartering. Runaway inflation
has meant that there simply isn't enough money in circulation.

Even wages are paid in products. At the end of his working day, a worker
thus may be forced to stand by the road trying to hawk the products that he
has produced during the day. He gets no other wages.

There's only one single institution that has money in Russia today, namely
the private banks, often owned by the small elite that has become
millionaires as a result of shock therapy.

The Russian government has been forced to borrow money from these banks, in
order to pay its own bills.
The banks obliged by demanding extortionate interest rates.

The chief of the Russian Revision Chamber is Venjamin Sokolov. If you want
to see him, you have to take suspectly clattering elevator ten floors up in
one of the enormous office buildings in Moscow.

Solokov apologizes for his nearly empty office. The Revision Chamber is
changing premises, and he is the last one to move to the new offices.

The 50-year-old man in a suit sitting on the other side of the desk looks
somewhat modest and unobtrusive. But when he starts to describe what the
Western economic advisers and the old Soviet elite have done to Russia, you
get a hint of why Venjamin Sokolov is a hated man these days among the
propagandists for shock therapy.

"Since the economy functions by barter, without any money, you can't tax
people", Sokolov says. The effect is that the budget keeps shrinking. Since
the banks have money, and the government budget has not, we issue bonds
running at between 3 and 6 months, with an interest rate of 100%.

This figure is unbelievable.

The Russian government thus has to pay 100% interest on a 
3 months loan.

This means that the Russian government borrows about three times as
expensively as the loans that Finax infamously tries to trick poor private
individuals into in Sweden.

And the Russian government doesn't borrow money for a new washing machine.
It borrows in order to pay off the bills of an entire nation, to pay
interest on loans abroad, and to pay government employees their wages.
It borrows in order to enable the Russian State to continue being a State.

Under Sokolov's leadership, the Revision Chamber has disclosed that
government officials have invented a new way to make money themselves on
the enormous borrowing needs of the government. They simply extract
commissions from the banks who have the privilege of lending the government
money.

"Suppose that a defense industry delivers its product to the government and
wants its money, Sokolov recounts. The government official says that the
government does not have the money to pay, but that the industry can go to
a bank and get credit that the government guarantees. The bank extracts up
to 200% interest. After 6 months, the government has borrowed enough money
to pay back its debt to the defense industry. But then at least half the
sum goes to the bank, which in turn pays off the government official who
arranged the loan."

According to Sokolov, this kind of corruption reaches high up in the
political hierarchy.

"A former Minister of Finance has been arrested for transactions of this
kind", he says, "and with the facts we have at our disposal, all the
leading figures of the Ministry of Finance could be arrested."

INTEREST ATE IT ALL

Of course, no nation can keep paying interest rates of 100 to 200 per cent.

Finally, the whole borrowing spree falls apart.

"The more bonds you issue, the greater your debt, " Sokolov says. "And
finally you get to a point where you no longer get any of the borrowed
money from the banks, since you are paying them all of it net."
This is the situation Russia has got itself into.

All the money the State received went directly into paying the exorbitant
interest rates of the private banks.

In order to save the rouble from total collapse, the IMF stepped in with
emergency loans.

In August 1993, Russia received a loan of 1.1 billion dollars.

In July 1993, 2.9 billion.

In April 1995, 6.8 billion.

In July 1998, the IMF granted another 14.1 billion dollars, not yet disbursed.

In all, the IMF has provided 18 billion dollars in loans to the Russian
government. But the loans are not free. The IMF craves something in return.

Russia must promise to follow through slavishly exactly the same shock
therapy that has created its desperate situation.

Privatizations and deregulationary measures must continue, or no money will
be delivered.

You might think that the IMF leadership is mad, granting billions upon
billions in loans to an economy that obviously doesn't function.

This of course isn't the case. The IMF has very good reasons for doing its
utmost to prevent Russia either going bankrupt or throwing shock therapy
onto the garbage heap.

There is an abundance of foreign banks and investment companies who also
have financial interests in Russia.
All in all, more than 200 billion dollars from abroad are at stake in
Russia, in the form of loans and investments. If Russia goes formally
bankrupt or abandons the "reform policy", these 200 billion may be lost.

Then several Austrian banks with large interests in Russia would go
bankrupt. The same would happen to big banks in Switzerland, Germany and
the Netherlands. In the US, Chase Manhattan, Citicorp and a string of other
banks would go bust.

And so on.

SAVE WESTERN BANKS

The money lent by the IMF is taxpayers' money. Sweden and almost 200 other
countries are contributing to the fund.

What the IMF in practice is doing is using taxpayers' money to save a
number of very rich Western companies from bankruptcy.

That this is really true is being stated openly more and more often.

On September 10 1998, an important hearing was held by an American
congressional committee. The subject for discussion was the crisis in
Russia and the role of the IMF as saviour.

One of the invited speakers was the financier Jim Rogers, founder of the
investment company Roger Holdings. His message was crystal clear:

"The activities of the organization is gussied up in sanctimonious prose
about aiding the poor and raising the living standards of the third world.
Don't be fooled. These bailouts are really about protecting interests of
Chase Manhattan, J.P. Morgan, and Fidelity Investments. Of course, if Chase
went directly to Congress and asked for taxpayer help to cover a bad loan
it had made to Korea, it's not hard to imagine the response Chase would
get. But under the cover of the IMF, it can do this regularly without so
much as a peep of criticism."

However, the gigantic loans haven't helped Russia one iota. While 200
billion dollars have been poured into the country, 350 billion dollars have
been illegally exported from the country, according to an estimate by the
Minister of the Interior.

The final destination has been bank accounts of the elite in Switzerland or
real estate speculations in the West. Today, Russians are the largest group
of property owners in London.

Simultaneously, a terrible winter awaits the nearly 150 million Russians
who have made no profits from shock therapy.

After 1994, Anders Åslund quit his job as adviser to Yeltsin and moved to
the US. Since then, he has been the most stubborn defender of every single
part of the grandiose shock therapy project, no matter what the current
situation in Russia might have been at the time. 

Already in 1995, he wrote a book with the astonishing title "How Russia
Became a Market Economy". He was so sure of his success that he claimed
victory in advance.

As the years went by, fewer and fewer people remained who unconditionally
applauded the shock therapy advocated by Åslund.

Jeffrey Sachs, the economist who led the team that included Åslund, has
begun to change tack. 

These days, he suggests increased regulations in order to reduce worldwide
speculation, and more than once has said that inflation is far better than
depression. In a debating article, Anders Åslund dismissed this point of
view uttered by Jeffrey Sachs - Harvard professor and the creator of shock
therapy - as "leftist criticism".

In the same article, Joseph Stiglitz, chief economist of the World Bank,
was also deported to the leftist camp, as well as MITprofessor Alice Amsden
and financier George Soros.

ÅSLUND CONFESSES

In September 1998, Anders Åslund finally admitted for the first time in
Swedish media that Russia isn't heading for a glorious future. In an
interview he says that Russia is on it's way toward "the biggest single
national bankruptcy the world has seen".

However, he refuses to acknowledge that any responsibility for the current
situation lies with him and the other shock therapists who steered Russia
towards the abyss. When Svenska Dagbladet's reporter asked him why
everything had gone to pot in Russia, he answered instead as follows:

"Corruption, corruption and corruption - - - in the vast State bureaucracy
under (former prime minister) Chernomyrdin, among local governors, in
parliament and among businessmen. All these four groups lack the instinct
of self-preservation. They only look after their own interests. No one in
Russia is strong enough to look after the interests of society as a whole."

Let's hear the last part once more:
"They only look after their own interests. No one in Russia is strong
enough to look after the interests of society as a whole."

The answer is a revelatory one. But also very sad.

Before us, we see one of the most convinced partisans of neo-liberalism.

His macro-economic theories have never been tested on real people before in
the history of the world.

Until now. In Russia, Anders Åslund got his chance to bring about a society
that according to the neoliberal course literature would be the perfect one.

A society where self-interest "conquers just about anything".

A society where starving pensioners "are not a political problem".

A society where a new "class of owners" was encouraged to help themselves
to what before was owned collectively.

He was allowed to bring it all about, and then, when it all became a
disaster, he sat there whining that nobody "looks after the interests of
society".

That's how shallow the neoliberal analysis was.

Outside the White House in Moscow, 300 miners have pitched camp in
home-made plastic tents.

They promise to stay until the politicians abandon the policies that are
killing their compatriots.
They have no money.

They still stay put.

Every day, a small group of very poor pensioners come by to give the
protesting miners food.

Dan Josefsson



Quotes and other short texts from the article:

"What is known as neoliberalism in Sweden is a civil duty in Russia"
Professor Anders Åslund in Dagens Nyheter* 30-05-92

"The less money the State possesses, the fewer its chances to steal it."
(Anders Åslund)

"The simple truth is that shock therapy functions very well, and functions
fast."
Professor Anders Åslund in Dagens Nyheter 22-01-93

"The costs of communism and the changeover to capitalism in Russia turned
out to be heavier than most people initially thought. But the faster a
system change is implemented, the more limited the suffering will be." 
Anders Åslund, Dagens Nyheter 30-05-92

"I've been instrumental in this kind of reductions in Russia and the
Ukraine, and learnt that politically, the easiest way is to abolish all
dubious expenditures simultaneously."
Anders Åslund, Dagens Nyheter, 28-10-1997

"On the basis of what we now know about system changes in former communist
countries, we should expect the GNP of Russia to drop at least 20% from the
beginning of 1992 until it bottoms out."
Anders Åslund in Dagens Nyheter 30-05-92
(Actually, his guess was wrong. In 1997, Russian GNP had dropped an
inconceivable 83%. And there's no sign of it bottoming out.)


HOW TO SUCCEED IN RUSSIA

Lesson One: How to barter 2,000 bottles of vodka and get an industrial
company in return.

1. Make sure you're born into a family belonging to the top elite of the
old Soviet State.

2. When the shock therapists start distributing "privatization vouchers" to
the people, get your own coupon and bide your time.

3. When after some time, hysterical inflation (also created by the shock
therapy) has made the coupons nominally worth no more than a bottle of
vodka, then you go out and buy 2,000 bottles of vodka. Try to get a
quantity discount.

4. Let everyone know that you're willing to exchange coupons for vodka
bottles.

5. Through your good contacts among the elite, you know that the price of
the companies that can be bought for the vouchers hasn't changed with
inflation. Since hardly anybody else knows this, most people gladly
relinquish their coupons for a liquor bottle. Collect 2,000 coupons through
bartering.

6. Helped by your contacts among the elite, find a suitable company and buy
it for your coupons.
That's it! You now own a company. Of course you have no capital to make it
run, but you can always strip it of all its resources and send the money to
your Swiss bank account.


HOW TO SUCCEED IN RUSSIA

Lesson Two: How to become the owner of a company without paying a single
kopek.

1. Make sure you're born into a family belonging to the old Soviet elite.

2. Arrange to be named CEO of a State-owned company.

3. Start a small private company discreetly on the side. If you have guilt
feelings, you can make your wife or brother the nominal head of the
company, but this isn't necessary.

4. Get the State-owned company to make a loan of 50,000 dollars to the
little private company. It's easily done, you being the CEO of both.

5. Shock therapy is in full swing, and the State-owned company is to be
sold to a private buyer. Check it's value in roubles.

6. With the help of your contacts, see to it that the State-owned company
isn't revalued, despite the horrendous inflation.

7. Wait until the value of the rouble has deteriorated to the point where
the State-owned company would cost exactly 50,000 dollars. Then make your
move, letting the small private company buy the State-owned one for the
money you borrowed.

8. Merge the two companies. Now you won't have to pay back the 50,000
dollars that the small company owes the big one.
That's it! You're now the owner of a former State-owned company, which has
cost you nothing.


SHOCK THERAPY FACTS

# During the Great Depression in the US 1929-1933, production dropped by
30%. In Russia, with shock therapy underway, it dropped by 83%.

# During the first 3 months of 1992, Russian government expenditure was
reduced by 40%.

# Even in deregulated USA, the public sector accounts for 1/4 of the
economy. In Russia today, the corresponding figure is 1/8.

# The law on privatization that was passed in the Russian Duma in 1992
prescribed that already the very same year, half of the State-owned Russian
companies should be privatized, and 20% more before 1995.

# The proceeds of the whole gigantic privatization plan during the years
1992-96 amounted to only 0.15% of State revenues. The whole of Russia was
auctioned off for a few billion dollars.

# 324 factories were sold for less than 4 million dollars apiece, among
these industrial giants like Uralmasj and the Chelyabinsk Metallurgy
Combine. While international telephone companies bought networks in Hungary
for 2,083 dollars per subscriber, they got the Russian network for 117
dollars per subscriber. Tractor factories were sold for the price of a
bakery or a sausage factory in Switzerland, according to the privatization
report of the Duma.

# An energy company with the capacity of UES would have cost 49 billion
dollars in the US. In Russia, it was sold for 200 million.

# The oil companies cost 4 cents per barrel produced in yearly in annual
capacity. In the US, the corresponding figure is over 7 dollars.

# Money is so scarce in Russia that bartering is back on a grand scale. Gas
giant Gazprom, for instance, gets only 10-17% of its income in money, the
rest in the form of products. A 1998 investigation indicates that 73% of
all transactions between big companies are made by exchanging debts or
products.

# 70,000 factories have been shut down during the Russian "reform period".

# Industrial production has decreased 81%.


BEFORE AND AFTER

# Already in Soviet times, there were vast differences between classes,
definitely greater than in Sweden. And yet, the new Russian elite has made
those gaps widen dramatically.
In 1995, the difference between the richest and poorest 10% was already as
large as in the US.
Eventually the Latin American level was reached, where the richest 10% of
the population make 16 times as much money as the poorest 10%.

# At the end of the 1980's, the seven richest men in Russia today owned at
most a summer cottage and an old Lada. Today, five of them are on the
Forbes list of the richest men in the world.

# Real wages have diminished by 78%, pensions by 67%.

# 13 million Russians are unemployed.

# 800,000 Russians with a higher education have left the country.

# The Russian population has been shrinking for some years by about half a
million a year. The current figure is 147 million, 4 million less than in
1990.

# The shorter life-span in Russia is a result of, among other things, the
return of cholera, diphtheria, syphilis and tuberculosis.

# In Stalin's Russia, political adversaries risked execution. In today's
Russia, the death penalty is no longer needed. 20% of prisoners in Russian
jails have contracted tuberculosis, largely of an incurable variety. In
all, 2 million Russians are infected with tuberculosis a figure increasing
by 80,000-150,000 people a year.

# Causes of death that are increasing the most in Russia are: heart and
vascular disorders (particularly heart attacks and strokes), murder,
suicide and alcoholic poisoning.

# Russian murder statistics definitely have surpassed those in the US.
Russia is approaching the extreme level of violence prevalent in countries
like South Africa and Colombia.

NOTES

* Dagens Nyheter is the biggest morning paper in Sweden.

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