Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List

Johnson's Russia List


February 23, 2000    
This Date's Issues: 4126 4127 4128


Johnson's Russia List
23 February 2000

[Note from David Johnson:
1. Reuters: Elaine Monaghan: Ex-spy in Kremlin, U.S. lost for words.
2. AFP: Drink, disease and depression eat away at Russian population.
3. AFP: Russian Capital Investment Rises One Percent In 1999.
4. International Herald Tribune: Anatoli Sobchak, Worries in the West About a President Putin Are Unjustified.
5. Vek: Dmitry Nikolsky, WHO FEARS PUTIN?
6. Monthly Review: Nancy Holmstrom and Richard Smith, The Necessity of Gangster Capitalism: Primitive Accumulation in Russia and China.]


ANALYSIS-Ex-spy in Kremlin, U.S. lost for words
By Elaine Monaghan (

WASHINGTON, Feb 21 (Reuters) - When President Bill Clinton says he can "do
business" with the ex-KGB man who is
tipped to win Russia's presidential election on March 26, he does not mean a
Western-style democrat like him will be in the Kremlin.
In fact, U.S. officials are at a loss what to make of Acting President
Vladimir Putin, who in his seven weeks at the helm has ignored Western
pleas for
an end to the campaign in Chechnya, filled posts from the foreign intelligence
world he lived in for years and restarted military training in schools.
"I think we have to admit that we don't really know who Putin is. But it
would be just as wrong to claim we can put all the pieces that we have
in a positive as in a negative way," a U.S. administration official said.
When Secretary of State Madeleine Albright gave the name liberal
reformer to
a man whose strong arm and straight talk are welcomed by Russians, she was
acting like a member of an administration in its last year of office, some
analysts say.
"It seems as if Clinton and Albright have bent over backwards to label this
guy a liberal democrat when on the political side, what he's done as acting
president does not suggest he should have that label," Michael McFaul,
Professor of Political Science at Stanford University, said.
Clinton's mind is on getting START II ratified so they can move on to START
III and deepen cuts in nuclear arsenals, and agreement from Moscow to amend
Anti-Ballistic Missile treaty so he can build a system to shoot down missiles.
"I think they're thinking 'Get the damned START signed and everything
will be hunky dory.' They're in legacy mode now, wondering what the
will say," McFaul said.
McFaul and other U.S.-based experts on Russia like him are growing very
worried about Putin's style of leadership, though they concur he is a
who may well succeed in his goal of reforming the state and getting the
economy back on track.
Anders Aslund of the Carnegie Endowment for International Peace was in
upbeat mood about the new regime a month ago but he returned from Moscow last
week in a black mood.
No one remembered Putin from his days at Leningrad University's law
faculty, he was filling posts with "mediocre people" from the foreign 
intelligence world and he appeared to be in favor of printing money to 
stimulate demand. "It's very clear that he wants people who obey orders," 
he said.
McFaul saw a threat to the goal of having an economically strong partner
Washington can literally "do business" with.
"They believe they can have a quasi-authoritarian regime and that will help
market reform. They look at east Asian models and think if they did it, we can
do it," he said.
"It's a fundamentally false analogy because the state is so weak and
With authoritarianism in Russia, you don't get China, you get something like
Nigeria or Zaire with a weak central state and control of oil," he added.
Fears being voiced by the Moscow intelligentsia about Putin's approach to
civil rights, human rights and press freedom only serve to heighten their
The disappearance of a Russian journalist in Chechnya last month after
he was
detained by Russian forces and then handed over to the rebels in a prisoner
swap is the best-known case but there other, less dramatic stories making them
One U.S.-based Russia analyst who spoke on condition of anonymity laughed
uncomfortably as he told how a Russian colleague had been handed a
questionnaire to fill out on him.
"The FSB feels involved, like they're in charge," he said, referring to the
successor of the KGB run by Putin for a time.
"A couple of weeks ago they gave a research assistant a psychological
profile to fill out on me, asking everything from my religious affiliation 
and where I like to eat in Moscow."
Some analysis of Putin's behavior has bordered on the hysterical, to which
Albright, who spent 165 minutes meeting him in the Kremlin on February 2, has
said he has "two strands" and people should wait and see what he does.
A fluent German speaker and friend of liberals in Western-looking St
Petersburg, his time in the KGB took him to east Germany and to the West
and he
reportedly had a non-ideological reaction to the fall of the Berlin Wall.
Analysis of him has included references to everyone from Charles de
Gaulle to Adolf Hitler. One analyst said his decree on military training 
was like the start of the Hitler youth.
But the U.S. official said it might just as well be like the Scout movement
founded by Robert Baden-Powell in 1908.
"If Putin turns into Hitler, we'll all look back and say it was with this
decision that we should have known. But if he turns out to be closer to Lord
Baden-Powell, we'll just say it reflected a determination to create an
order and patriotism of the benign kind," he said.


Drink, disease and depression eat away at Russian population

MOSCOW, Feb 22 (AFP) - 
Emigration, suicide, vodka abuse, abortion, tuberculosis, economic crisis, 
war ... it is no wonder the population of Russia fell by a post-Soviet record 
of almost 800,000 people last year, experts say.

There are now almost three million fewer Russians than there were when the 
Soviet Union collapsed, and analysts are wondering where the depopulation of 
the world's largest country will end.

Most experts see the population decline continuing due to a low birth rate, 
which is exacerbated by widespread abortion, and a far higher death rate 
blamed on formidable alcohol abuse, a failing public health system, a growing 
AIDS problem and a shockingly high suicide rate.

The statistics speak for themselves. The State Statistics Committee reported 
on Monday that Russia's population at the end of 1999 was 145.5 million, 2.8 
million fewer than in 1992. Last year the population fell by a staggering 
784,500, or 0.5 percent.

The number of immigrants fell sharply to 379,700 while the number who 
emigrated rose to 214,900. Births fell to 1.215 million while deaths 
increased to 2.14 million.

Georgetown University's Murray Feshback predicted recently that with the 
birth rate falling sharply, and the death rate climbing, Russia's population 
would evaporate to just 80-100 million people by 2050.

Russia's birth rate has been hit by the double-whammy of economic crisis, 
which has made people reluctant to procreate, and the almost blase attitude 
to abortion here.

The Russian press reported earlier this month that for every birth in the 
country there are two abortions.

"Russia is on the verge of a demographic crisis because we don't have very 
many children being born," said Valentin Pokrovsky, head of Russia's Academy 
of Medical Sciences recently.

Government reports issued in recent years have suggested that the demographic 
tendencies in the country could be a "threat to national security," with a 
worse-case scenario predicting a halving of the population by 2050.

"These projections are exaggerated," said Kremlin demographics advisor 
Vladimir Mukomel. "No expert worth his salt could advance such predictions," 
he told AFP.

And yet the death rate, which implies that the average Russian man dies at 
the age of 58, still remains a serious concern.

Alcohol abuse is partly blamed for this, but the re-emergence of 
tuberculosis, rife in Russian prisons, and a growing AIDS problem are also 
factors, experts say.

At some 40 people per 100,000 inhabitants meanwhile, Russia's suicide rate is 
one of the worst in the world. Eight people killed themselves in Moscow on 
Sunday alone, the Segodnya daily reported, most of them throwing themselves 
out of windows.

Emigration meanwhile remains popular with more than 200,000 people leaving 
Russia on average every year.

Economic penury and the growing criminalisation of society is persuading 
those who can to seek a future elsewhere, an attitude summed up by top soccer 
star Andrei Tikhonov, who was the victim of a weekend robbery in which his 
young child narrowly escaped injury.

"I am going to play abroad," Tikhonov told Sport Express daily. "I no longer 
want to worry about my family every day."

All of which gives acting president Vladimir Putin pause for thought as he 
pursues his five-month war in Chechnya, which has done little for the 
country's population growth.

"Vladimir Putin will have no one to rule," moaned the daily Izvestia, looking 
ahead to March 26 elections which Putin is a clear favourite to win.

"He apparently says that 'for a country like ours we need no fewer than 500 
million people'. Unfortunately on this matter you can't just say 'We'll work 
on it, Vladimir Vladimirovich.'"


Russian Capital Investment Rises One Percent In 1999

MOSCOW, Feb 22, 2000 -- (Agence France Presse) Capital investment in Russia 
rose slightly in 1999 for the first time since economic reforms began in the 
early 1990s, ITAR-TASS agency said Monday, citing economics ministry figures.

The rise of one percent over 1998, to 598.7 billion rubles ($24.3 billion), 
was especially strong in the industrial sector, where investment jumped 13 
percent to 364 billion rubles.

Areas such as forestry and wood production, chemicals and petro-chemicals, 
agriculture and food products, and the pharmaceutical industry were the other 
major beneficiaries, said the agency.

On the other hand, investment into the electrical, oil, and mining sectors 
was in decline.

The slight rise is still outweighed by continuous decreases in investment 
since the start of the decade, with a 6.7 percent drop recorded in 1998 alone.

The drop in agricultural investment eased in 1999, but still slipped 4.2 
percent, following a 15.9 percent drop a year earlier. 


International Herald Tribune
February 22, 2000
[for personal use only]
Worries in the West About a President Putin Are Unjustified
By Anatoli Sobchak, Los Angeles Times Service
Mr. Sobchak, who died on Sunday, was a former mayor of St. Petersburg and an 
ally of Vladimir Putin. This comment has been adapted from an article 
distributed last week by the Los Angeles Times Syndicate.

MOSCOW - Ever since Boris Yeltsin stepped down and named Vladimir Putin as 
acting president, a number of anxieties have been expressed about him in the 
West that I would like to put to rest.
Some fear that Mr. Putin will be an ''authoritarian modernizer,'' cracking 
down on cultural and political freedom while pursuing market reforms. His 
democratic credentials have been further questioned as a result of his 
prosecution of the war in Chechnya.

Others worry that his alliance with the Communists in the Duma may spell the 
end of economic liberalization in Russia.

Let me answer these fears one by one.

Given the chaos of Russian reform during the past decade, we seem to be 
forced into thinking that Russia needs a dicta-tor to impose his policies 
with an iron hand.

True, the imperative of establishing law and order is widely felt. But 
restoring fundamental governance by uprooting the unlimited permissiveness 
that permeated Russian society under Mr. Yeltsin does not warrant restoration 
of Stalin's labor camps. Mr. Putin knows that totalitarian dictatorship 
cannot be the answer.

He favors a strong central government. He will abide by laws and insist on 
full compliance with their letter and spirit. This will enable him to 
exercise a political will aimedat effectively realigning Russia's political 
and economic life toward the middle of the road, with no more bounding from 
curb to opposite curb. He himself has said that he acceptsonly one kind of 
dictatorship - the dictatorship of the law.The acting president's tough line 
on Chechnya does not make him a foe of democracy and human rights. He is a 
true Russian patriot. He is trying to resolve the Chechen issue based on his 
understanding of what is good for the country, and that led him to the 
conclusion that a military solution was the only realistic option.

We should not forget that the second Chechen war was not initiated by Russia. 
It was imposed on us by gangs that invaded Dagestan. Did anyone in the West 
question Britain's right to restore law and order in the Falklands as Britain 
saw fit?

If terrorists' deeds are left unpunished, we are asking for more of the same. 
This is especially true of Islamic fundamentalists - not Muslims in general 
but those terrorists who perpetrate crimes in the name of the Koran - whose 
threat is not confined to Russia but is worldwide. You cannot negotiate with 
them because they are willing to commit any crime in pursuit of their 
medieval beliefs. Do we in the West and in Russia want to become hostages to 
religious fanatics with weapons of the 21st century? If not, then we should 
combat them together.

The alliance in the Duma between Communist deputies and the pro-government 
Unity faction has spurred wide-ranging debates. Is the acting president 
really committed to democratic values when his backers have forged an 
alliance with the left?

In my view, this is a tactical move. While the Duma was in the process of 
making appointments to committees and seeing to other organizational matters, 
it made sense to collaborate with the left in order to solidify the 
center-left majority.

But when the Duma embarks on its routine lawmaking activities, Unity will 
most likely enter into new alliances with the forces of Grigori Yavlinsky, 
Yevgeni Primakov and Sergei Kirienko. I am convinced that in the very near 
future a center-right majority will emerge in the Duma.

If he succeeds in being elected president next month, Mr. Putin will strive 
to be on the best of terms with the rest of the world, not only the West. In 
so doing he will resolutely oppose any attempts to bring pressure on himself 
or Russia. Any interference in our internal affairs will be doomed to failure 
under a President Putin.

No, Russia does not claim to be a superpower any longer. Yet we have plenty 
to defend ourselves with and will do so. A Putin presidency will be built on 
the basis of Russian national interest and will rule out any blind following 
of the United States or the West. Unlike what we have had in the recent past, 
a Putin presidency will be strong, sober and sure of itself.

However, the international community should not fear that in defending 
Russia's interests a President Putin would go so far as to provoke another 
round of confrontation and restore the Cold War. Nor, I hasten to add, does 
the West have anything to gain in elevating any situation to the point of a 
major quarrel with a nuclear-armed Russia.

As democratic institutions are solidified in Russia, Western apprehensions 
about Mr. Putin will disappear.

He is familiar with the West. He is too careful to make any wrong moves that 
might lead to irreparable damage in this relationship. That would be out of 
the question.


Vek No. 7
[translation from RIA Novosti for personal use only] 

The elite which has grown accustomed to a certain level of 
life and the style of Russia's governance of the "late Yeltsin 
period" cannot but think about its own perspectives under a new 
style of governance or, simply speaking, about the notorious 
"guarantees." This applies not so much to some "Family" or the 
leaders of the country's seven or ten major banks; this applies 
precisely to the elite both in Moscow and the provinces. It is 
already clear for it that life under Putin will be somewhat 
different from the life under Yeltsin. So, there is nothing 
surprising in the fact that part of the elite is not happy 
about the changes predicted. There is also nothing surprising 
in the fact that some persons from among that part of the elite 
may wish to re-arrange the cards in the election line-up of 
Russian politics. 
That is why the closer the fateful date of March 26, the 
louder the talks about the absence of an alternative at the 
presidential elections and the enigmatic nature of Vladimir 
Putin from whom one does not know what to expect in the case of 
his election as the Russian President. Critical remarks about 
Putin, as it is easy to notice, boil down to three basic 
postulates so far: the excessively tough nature of the Chechen 
campaign, the KGB past which causes the observers' doubts about 
his commitment to democratic values and finally, the absence of 
the notorious "programme". 
It is possible to assume that as the elections draw 
closer, new dishes will be added to anti-Putin plats du jour. 
This Putinophobia, which, to judge from sociological polls, is 
not found among electors but is wide-spread in the world of 
politics and the mass media, has, apparently, reasons for 
existence. What if Putin is simply feared? Everyone knows Putin 
as the supporter of the strong state and the "dictatorship of 
law." Those who have grown accustomed in the past few years to 
juggle with these notions, use them as a cover and turn them 
into the elements of time-serving propaganda constructions 
cannot but fear that Putin as the President may force them in 
actual fact to live according to law and work in the interests 
of the state. Meanwhile, quite different plans for the 
presidential campaign and the subsequent life can be brought 
forward. There is great temptation to repeat the scenario of 
the 1996 elections when in exchange for the support of the 
candidature of Yeltsin at the elections the powers-that-be 
demanded from the state some regime of special favours. Since 
this temptation is enormous, the elections of March 26 may not 
be so much devoid of any alternative, as it seems. 
It is enough to ensure the holding of the second round and 
the presence of a "substitute third" candidate" to create the 
situation of some bargaining, thus giving an opportunity for 
some to secure more or less firm guarantees of their own 
future, for example. 
So, it comes to the issue of guarantees again. The doubts 
that Putin's guarantees will be fulfilled are generated by the 
statist programme of the acting President and the fact that he 

is not from the usual cast of contenders for the Kremlin's seat.
Attempts to make Putin more dependent on the elite's top before 
the elections may result in a more decisive rejection of 
guarantees after. 
Paradoxically, in this situation the guarantees by the 
political who is well-known and, as it would seem, is doomed 
from the very start to failure in the contest with Putin, may 
seem to be more weighty for some part of the elite. After all, 
Gennady Zyuganov, the traditional leader of the opposition and 
exposer of the "corrupt and anti-popular Yeltsin regime" may be 
less feared by those who are seriously apprehensive of Putin's 
ascent to the Kremlin's seat. Zyuganov has long been on the 
political scene;
his principles and the manner of political behaviour are 
well-known - why not come to agreement with him as no one 
thinks in earnest that he is a red commissar with Lenin in his 
mind and a revolver in his hand. It is understandable that the 
Communist leader is only one of possible candidates for the 
role of such alternative. 
What the behaviour of Vladimir Putin may be in this uneasy 
situation? At first glance it seems that he has two main 
directions of the election campaign. The first one is an 
unoffical agreement with the elite's doubting top and searches 
for his own support in the elite. The second way is a public 
divorce with the elite and a search for support in the masses 
of the electors with the use of all populist trump cards. This 
means Boris Yeltsin's way of the late 1980s. The problem for 
Putin in this resepct is that both ways may be dangerous for 
him. They are dangerous because the elite in the first case and 
the electors in the second case may not come to believe him. 
Consequently, it is necessary to think about a third, reserve 
and compromise way lying somewhere in between. It is up for 
Putin to decide how to do this. 


Monthly Review 
February 2000

The Necessity of Gangster Capitalism:
Primitive Accumulation in Russia and China
by Nancy Holmstrom and Richard Smith 

NANCY HOLMSTROM is professor of Philosophy at Rutgers Universityin Newark,
specializing in social philosophy, particularly marxist and feminist
theory. She is co-editor of Not for Sale: In Defense of Public Goods
(Westview Press, 2000). RICHARD SMITH has taught history at Rutgers
University in New Brunswick, and has written on the social and
environmental impact of the transition to capitalism in China for the New
Left Review, the Ecologist, and other publications. 

The Russian bank laundering scandal in the newspapers last fall is only the
latest installment in the ongoing saga of corruption coming out of the
former Soviet Union. The more important question is: where did they get the
money in the first place? How, for example, did the former Premier of the
Ukraine manage to buy a seven million dollar mansion in Marin County,
California, on his official salary of a few thousand dollars a year? The
answer is only too apparent: Moscow's gangster rule has become so well
known that the term "Mafia" has lost its exclusively Italian connotation.
China is not much better. Ten years after the Tiananmen Square
demonstrations were called to protest official corruption, corruption is
still the "Number 1 Complaint" of Chinese today, according to a recent
headline in the New York Times. Western economic experts, who were the
architects of the former communist countries' transition to market
economies, have expressed shock and disappointment at the extent of
corruption, criminality, and social collapse that have accompanied the
market reforms they prescribed. As one U.S. Treasury official complained,
"We had a belief that the first generation of Russian capitalists would be
nice guys, but they are ruthless motherfuckers." 

We will argue here that the reason Western economists were surprised by
these outcomes is because they relied on a historical-fantasy-world,
neoliberal model of capitalism. The emergence of gangster capitalism and
wholesale corruption in the former Soviet bloc and China should have been
entirely predictable to anyone familiar with the historical origins of
capitalism in Europe, the United States, and elsewhere, and to anyone with
a passing familiarity with Marx's account of "primitive accumulation."
After a brief review of Marx on the origins of capitalism, we will consider
the theory's current usefulness as an aid to understanding what is
happening in Russia and China today. 

The Secret of Primitive Accumulation 

Towards the end of volume one of Capital, in a chapter called "The Secret
of Primitive Accumulation," Marx raises the question of how the process of
capitalist accumulation got started in the first place. Though markets
existed from antiquity, capitalism as a social productive system did not
really emerge until the sixteenth and seventeenth centuries, first in
England. This system which, unlike all previous historical modes of
production, was based on generalized production for market, and depended on
the predominance of two kinds of commodity producers/sellers: on the one
hand, a class of capitalists vested with a virtual monopoly of the
ownership of the means of production and, on the other hand, a propertyless
proletariat dispossessed of the means of production and subsistence and,
consequently, with nothing to sell but their capacity to labor. The
emergence of these two great social classes was the indispensable condition
for the operation and development of capitalist production. "Capital," Marx
was keen to emphasize, is not just money; it is this unique social
relationship. So if one wants to understand the origins of capitalism, one
has to understand how these these two great classes came onto the
historical stage in the first place. Mainstream economists of Marx's day
relied upon a "Just So" story of how the diligent, intelligent, and frugal
people accumulated wealth, while the other, lazy rascals, lost theirs.
Dismissing this myth as "insipid childishness" in defense of (stolen)
property, Marx argued that primitive accumulation is nothing but the
"historical process of divorcing the producer from the means of
production." In early Europe, the producers had to be freed from feudal
bonds, but they also had to be "freed " from possession of any means of
subsistenceaccess to land and any feudal guarantees of survival. In
England, the first capitalist nation, an alliance of landlords, nascent
capitalist farmers, and the state waged a centuries-long campaign to
privatize farms and commons traditionally held by peasant collectivities.
England's peasants were forcibly evicted from their farms by a series of
enclosure movements from the fifteenth century through the nineteenth
century, and thereby came to be wholly dependent on the market for the
satisfaction of their needs. By seizing these lands and thus securing a
virtual monopoly of the agrarian means of production, England's nascent
agrarian bourgeoisie established the conditions for the normal operation of
capitalist production, i.e., for the systematic exploitation of wage labor.
This institution was greatly facilitated by the English state, which
enacted harsh vagrancy laws (the "bloody legislation against the
expropriated") to compel the newly propertyless proletariat to take up wage
labor or be forced to labor in workhouses. Marx sums up this process of
primitive accumulation by noting that: "In actual history it is notorious
that conquest, enslavement, robbery, murder, briefly force, play the great

Today, we are witnessing a similar process throughout the post-Communist
world carried out under the banner of "market reform." Indeed, this modern
version of primitive accumulation in Russia, Eastern Europe, and China
amounts to the greatest enclosure movement in historyvirtually a
continent-wide drive to privatize state-collective property, far surpassing
in scope the historic enclosure movements. And, as in the past, this
process is hothousing the emergence of a class of newly rich capitalists,
side-by-side with growing millions of unemployed and starving. No one can
forsee the end result of this struggle to create the social property
foundations of capitalism, but what is certain is that economic depression,
social polarization, corruption, and class struggle are going to increase.
Today, as yesterday, the process of primitive accumulation is not a pretty

Harvard's Best and Brightest "Do Russia" 

Russia's descent into gangster capitalism began in the early 1990s when
Russian market reformers attempted to introduce capitalism in one fell
swoopon the advice of Western advisors, particularly Harvard University
"shock therapist," Professor Jeffrey Sachs and his capitalist provocateurs
at the Harvard Institute for International Development (HIID). In 1990 and
1991, as Gorbachev's reform program stalled and his government was
collapsing, Sachs and his Institute colleagues advised Yegor Gaidar,
Yeltsin's first economic czar, to dismantle quickly most of the controls
and subsidies that had structured life for Soviet citizens for most of the
century. Sachs predicted a more or less smooth transition to a normal
western-style capitalism, once the initial shock of price decontrol was
over. In the early nineties, Dr. Sachs bragged about how his prescriptive
shock therapy had cured Bolivia's hyperinflation in nine days. Eastern
Europe's and Russia's reform, he allowed, might take longer. Sachs could
think this because, like most mainstream economists, he has a completely
ahistorical understanding of economics. Like Adam Smith, Sachs believes
that the "propensity to truck and barter" is built into human nature. So he
supposed the transition to capitalism would be a natural, virtually
automatic economic process: start by abandoning state planning, free up
prices, promote private competition with state-owned industry, and sell off
state industry as fast as possibleand economic growth and prosperity would
follow. As he wrote in 1990: 

All this [shock therapy] will reduce real wages sharply in 1990, by 20% or
so relative to 1989. That is a brave step. But this decline will not mean
an equivalent decline in actual living standards. These will in fact fall
much less sharply, bolstered by the end of shortages and the end of the
`inflation tax' now eating away at households' cash balances, genuine gains
not reflected in the real wage indexes.1 

The crucial thing, Sachs stressed, was not to waste time on half measures
or hopeless "third ways" such as a "chimerical market socialism" but to
force the transition to a western-style market economy as fast as possible.
So Gaidar and his successor, Anatoly Chubais, wasted no time and went "all
the way." Russia got the shock: On January 2, 1992, price controls were
lifted on 90 percent of traded goods, and by the end of 1994,
three-quarters of Russia's medium-sized and large-scale industrial
enterprises had been privatized"sold" off (stolen, would be a more accurate
description) to management, underworld gangsters and the likeand the
private sector produced 62 percent of Russia's officially reported gross
domestic product (GDP). 

The Demodernization of Russia 

The result was an unmitigated disaster. In the first year of reform,
industrial output collapsed by 26 percent. Between 1992 and 1995, Russia's
GDP fell 42 percent and industrial production fell 46 percentfar worse than
the contraction of the U.S. economy during the Great Depression. Worse,
pace Dr. Sachs, it has yet to recover. Since 1989, the Russian economy has
halved in size, and continues to drop. Real incomes have plummeted 40
percent since 1991; 80 percent of Russians now have no savings. The Russian
government, bankrupted by the collapse of economic activity, stopped paying
the salaries of millions of employees and dependents. Unemployment soared,
particularly among women. By the mid to late nineties, more than forty-four
million of Russia's 148 million people were living in poverty (defined as
living on less than thirty-two dollars per month); three quarters of the
population live on less than one hundred dollars per month. Suicides
doubled and deaths from alcohol abuse tripled in the mid-nineties. Infant
mortality reached third-world levels while the birthrate plummeted. After
five years of reform, life expectancy fell by two years (to seventy-two)
for women and by four years (to fifty-eight) for menlower than a century
ago for the latter. Currently, deaths so greatly exceed births that the
Russian population is falling by about one million per year. If these
trends continue, in the next thirty years Russia's population is expected
to fall from 147 million to 123 milliona demographic collapse not seen
since the Second World War.2 

"Economic reform" has also brought the mass abandonment of children. By the
end of 1998, at least two million Russian children were orphanedmore than
at the end of the Second World Warand only about 650,000 live in
orphanages. The rest were homeless. A year after leaving orphanages, one in
three becomes an alcoholic, one in ten commits suicide. In what was once
the second industrial power in the worldwhere schools turned out far more
scientists and engineers per year than the United Statesten million
children currently do not attend school. 

This human catastrophe, which mainstream economists call "bumps on the road
to a market economy" is more accurately summed up by Professor Stephen
Cohen of New York University as the "endless collapse of everything
essential to a decent existence." It is also the process of creation of a
true Russian proletariat. Under communism, Russian workers certainly did
not own the means of production, but they did, and many still do, in a real
sense "own" their jobs. They had long-established rights to housing,
state-provided medical care, childcare, and numerous subsidies from the
state. These social property rights are being destroyed in the process of
transition to a "normal" market economy. Divested, "freed" from control,
possession, or ownership of means of production, the majority of people of
the former Soviet Union are forced to come to the market with, in Marx's
words, "nothing to sell but their skins." Though probably more than they
bargained for, the architects of the transition insist that a certain
degree of pain was unavoidable, at least in the short run, in order to give
Sachs' "New Russian" entrepreneurs the freedom to remake the economy,
thereby opening the way to greater prosperity for all. Let us turn now to
the new entrepreneurs, the other great class of capitalism. 

The Role of Force and Violence in the Institution of Capitalism 

Sachs' reforms gave the "New Russian" entrepreneurs their freedom, to be
sure. But instead of investments rationalizing the economy along capitalist
lines, Russia's new bourgeoisie just plunged into a hellish free-for-all of
"grabification"a brutal struggle to steal everything they could get their
hands on. They plundered the nation's wealth of natural resources, sold
state-owned gold, diamonds, oil, gas, Siberian forests, even plutonium, and
unloaded them on the West to amass their private fortunes. And, as we've
seen in the money-laundering scandals of late, they also privatized
billions of dollars of western aid. 

Instead of plowing their stolen wealth into productivity-enhancing
investments, as Sachs' reformers had hoped, they have, for the most part,
just socked their loot away in secret western bank accounts or squandered
it on yachts and villas on the French Riviera. By the mid-nineties,
Russia's red bourgeoisie had stashed more than 150 billion dollars in
foreign bank accounts, investments, and properties. At home, they've
"invested" in furs, limousines, and high living. And they've hired private
armies of gun thugs to defend their stolen wealth and possessions (from
each other). But this is only until, as the Thatcherite Economist frankly
acknowledged, the "legitimacy" of these stolen properties can be ratified
by compliant governmentsas were the enclosures in England or the vast land
grabs in the nineteenth-century United States. 

In 1994, a U.S. Treasury official told journalist Seymour Hersh that U.S.
shock therapists failed "to anticipate fully the viciousness and
rapaciousness" of Russia's new mafioso capitalists: "Much worse than the
American robber barons. These guys take the fillings out of teeth after
murder. It's a nightmare."3 Sachs explains these unhappy results by blaming
the political culture of the old Communist regime. But this cannot be a
sufficient explanation for the wholesale plunder brought on by the
transition to capitalism throughout the post-Communist world. The main
reason is that capitalism as a social system requires such a one-time
wholesale expropriation of social property. 

Why? Because capitalism requires capitalists, a class of people vested with
an effective monopoly ownership of the means of production. But as Sachs
himself points out, prior to 1989, Russia's industries, mines, and natural
resources "were nominally owned by the state and thus by nobody." The
nomenklatura collectively monopolized control of the means of production
but they did not own them privately. The class had to be created. Sachs'
protocols for the transition contain no discussions of robber barons or
gangster capitalists. Fetishizing an abstract ahistorical model, Sachs
imagined that once prices were freed, once private enterprise was legally
permitted, "capitalists" would somehow appear, stride forth, and take
command of the economy. But where were these capitalists to come from? In
1990, no one in Eastern Europe or Russia had significant monetary wealth or
private property in the industrial means of production. There was no
bourgeoisienot even a pre-revolutionary bourgeoisie to give the economy
back to. As the joke went in Poland, "What were they to dogive the Lenin
shipyard back to the Lenin family?" So no one had the means to buy the
factories, the mines, the forests, the collective farms, or to hire labor.
That's why they all feared that western investors would just come in, buy
up everything, and take over the whole economy. 

So who were the capitalists, the "New Russian" entrepreneurs, supposed to
be? Sachs was quick to rule out the workers: "[T]he overriding aim should
be to transform state enterprises into private corporations, with
transferable ownership shares, rather than, say, into cooperatives or firms
self-managed by their workers." Sachs also insisted that "[T]he government
must ... stop managers walking away with state property." 

If not the workers and not the managers, who would become the capitalists,
the owners of the private corporations? How could the reformers go "all the
way" to set up a "western-style" capitalism without capitalists? To set up
the basis for "normal" capitalist accumulation, they needed to carry out
"primitive accumulation"capitalists had to be created. Individuals had to
take possession, privatize property, factories, mines, wells, and forests.
But since no one had the money to buy these state properties from the
government, there was no feasible way this privatization could be done
legally, legitimately, or morally. And given Sachs' insistence on the need
for speed in the transition, there was no time for a native capitalist
class of small entrepreneurs to grow up over decades or centuries into
large corporations. This class had to be hothoused, virtually overnight.
And it was. In the end, a combination of elements of underground mafiosa,
the nomenklatura, especially the top managers of certain industries, and
segments of the intelligentsia these people were essentially drafted to
privatize the economy criminally. Indeed, Sachs and the HIID bear much
responsibility for the creation of Russia's criminal capitalists because
they drafted many of the privatization decrees. Indeed, the U.S. government
is now investigating whether, and to what extent, the HIID broke U.S. laws
by funneling hundreds of millions of United States Agency for International
Development (USAID) dollars into the hands of corrupt privatizers like
Anatoly Chubais and his cronies, and to what extent Harvard academic
advisors personally profited in the process. 

In sum, a decade after the latest generation of Harvard's "best and
brightest" did Russia, the one-time superpower has been effectively
demodernized. The economy is in ruins; the country is saddled with more
than 150 billion dollars in debt; healthcare and social services have been
gutted; 70 to 80 percent of the population survive at subsistence; a third
of the country's population is now living in extreme poverty, many on the
verge of starvation; and a class of gangster capitalists has supplanted the
Stalinist bureaucracy. And this is what U.S. economists call a "rational,"
"normal" economy.4 

The fundamental conditions of capitalist production have come into
existence in Russia very quickly: on the one side are the mass of Russians
who have lost all guarantees of existence afforded by the old Soviet
arrangements; on the other side are owners of money, eager to increase
their holdings. Nevertheless, today, the issue of private property is still
bitterly contested and far from settled in Russia. Private property is
still not fully legal and there is still no independent judiciary, no
bourgeois state, to back it up. Russian public resistance to the
legalization of this "grabification" of state-owned property remains
strong. Yet without these guarantees, most Russian capitalists remain
reluctant to sink money into productive investments at home. So there has
been little productive investment, little development, and the economy
continues to sink even as privatization and marketization advance. 

"Getting Rich is Glorious" 

China's transition to capitalism has followed a sharply different course,
but with a similar end result.5 On the one hand, China's post-Communist
ruling class is striving to fully expropriate the proletariat, to break
their "iron rice bowls" (their guaranteed jobs, state-subsidized housing,
free medical care) and to subject them to market discipline, breaking
through socialist "sloth" and raising labor productivity (even, according
to New York-based Human Rights in China, to the point of reproducing the
workhouses of Dickens' England). On the other hand, they're striving to
privatize the profits of, and eventually the ownership of, the country's
state-owned means of production. Many cadres are also "borrowing" state
funds and "plunging into the sea of the market." This struggle has been led
by China's highest-level cadres, starting with Deng Xiaoping and his
children. Since the onset of reform in the early 1980s, these
post-Communist robber barons have plunged into a veritable orgy of
corruption, embezzlement, bribery, kickbacks, graft, smuggling, currency
manipulation, influence peddling, and theft of state funds to amass
personal fortunes and privatize state monies, enterprises, and properties.
It was, of course, this "official corruption" that was the main grievance
of protestors in the Tiananmen uprising in 1989. This resentment is, if
anything, felt more deeply today. 

China's transition to capitalism has differed from the Russian case in two
main ways: first, the Chinese, starting in 1978, broke up their communes
and effectively privatized much of the agricultural sector (whereas in
Russia, agricultural production is still carried out mainly by large-scale,
state-owned, state-managed farms). Though still maintaining formal legal
ownership of all agricultural land, the government instituted long-term
leases that gave peasants some incentive to improve. Though still enforcing
production quotas for major crops like grain, oil crops, and cotton, the
government allowed peasant farmers freedom to organize production and to
sell sideline produce on the free market. These reforms transformed China's
agricultural sector, generating regular and sustained increases in farm
output that served to underpin the entire reform process. 

Secondly, whereas the Russians rapidly (and criminally) privatized large
sections of state industry right at the start of the reform process, the
Chinese have, so far, maintained state ownership, management, and planning
of the bulk of the industrial economy. Side-by-side with this state sector,
however, the Chinese simultaneously promoted the development of a new
private and semi-private economy, heavily foreign-funded and
export-oriented. This economy is composed mainly of new rural township
industries and "Special Economic Zones" established in the 1980s in
Guangdong and other coastal provinces. In contrast to state industries,
which still produce mainly for the plan, these new industries produce for
market, and they have few to none of the restrictions or social obligations
imposed on state industries. So the Chinese created, in essence, an economy
within the economy. They were able to do this mainly because they were able
to tap into the vast wealth of Hong Kong and other overseas Chinese to fund
private and semi-private development. The Chinese leadership also invited
western, especially U.S., investment, which began flowing heavily into the
special economic zones in the mid-to-late 1980s. So, again in contrast to
the Russian case, foreign investment has largely funded the breathtaking
growth of China's non-state sector industries in the eighties and nineties.
In this way, in the first phase, at least, the transition to capitalism has
not been as traumatic as the shock therapy model Sachs' HIID and the
International Monetary Fund (IMF) imposed on Russia. Yet by preserving
state ownership of most of the industrial economy, the process of primitive
accumulation in China has only been delayed. 

Under Mao's "classless communism" prior to 1978, China had no capitalists
and no private property. Virtually all industry was government owned, as
was all land. Workers were tied to their production units, but as part and
parcel of their lack of freedom, they had a presumptive right to their
jobs, and their children could likewise expect to be assigned work, and
enjoyed rights to their housing, medical care, childcare, free schools, and
numerous subsidies. This was the workers' so-called "iron rice bowl."
Everyone wore the same blue suit and was more or less equally poorbut could
feel economically secure. The Communist cadres enjoyed the fruits of the
system but they owned nothing personally. When, in 1978, Deng abandoned
Mao's "socialism in poverty" and called on China's masses to "get rich!" he
was careful to bar Communist officials from going into businessit being
unseemly at the time for actual card-carrying Communists to become
practicing capitalists. 

For years after launching the market reforms in 1978, the government sought
to confine the developing market economy to farm sidelines, small-scale
private manufacturing, and petty trading. These reforms were quite
successful as far as they went. But rural, small-scale industry and
farmers' markets were not going to generate the capital to renovate China's
economy, and were not going to employ China's growing population. 

Reluctant to give up control of state industry, China's Communists tried,
in the 1980s, to reform state-owned urban industries by introducing some
market reforms, such as pay hikes, bonus incentives, and two-tier pricing
structures to encourage some out-of-plan production. But since they also
continued to enforce mandatory production targets and state ownership of
industry, the reforms had little effect. State industry stagnated, the
national debt mounted as the government took on foreign loans, and,
meanwhile, China's surging population growth was putting enormous pressures
on the government to generate new jobs and raise incomes. By the mid-1980s,
therefore, Deng gave the Communist cadres the go-ahead to get into business
in a big way. The cadres were freed to set up joint ventures with foreign
capitalists and even private enterprises in order to generate jobs, foreign
investment and tax revenue. Yet China's cadres, like Russia's, lacked the
personal capital to set up private businesses, and they did not own the
state enterprises they ran. So without a "legal" way to embourgeoisment,
China's red bourgeoisie began to build their fortunes through corruption.
In the beginning, they enriched themselves by trading on their position,
but they soon graduated to siphoning off state funds to set up private
businesses. Rural cadres also levied numerous ad hoc levies on peasants. 

In the ongoing collapse of China's social order into a pell-mell capitalist
free-for-all, it is no longer clear who owns what. As in Russia, the
transition to a market economy in the absence of a bourgeois legal
framework is fast producing a descent into corruption, criminality,
gangster capitalism, and violence in a society-wide struggle over property.
In the cities, managers are struggling to break workers' job rights, and
tens of thousands of industrial workers have been forced out of their state
jobs and into the free market. Cadre capitalists strive to privatize
"their" enterprises by means of stock frauds, back-door deals, bilking
government treasuries, and outright theft. Factory bosses squeeze their
workers, and government officials squeeze the capitalists. Government
agencies, such as the army and schools, have gone into business. In the
countryside, millions of Chinese peasants are being driven off their lands
by economic necessity. The state refuses to pay them enough for their crops
for the farmers to make a living wage, their land is ruined by overfarming
or by drought (as precious water supplies are diverted to government and
joint-venture industrial projects), or they're ejected by local officials,
who confiscate their lands for joint venture industrial projects, road
building, or urban sprawl.6 

In March 1998, the govenment announced its intention to begin privatizing
its ailing state-sector industry by selling off thousands of small,
state-owned industries. But in just a few months, the program collapsed in
corruption, as Prime Minister Zhu Rongji conceded in his speech to the
National People's Congress in March 1999. Zhu was responding in part to the
increasing public outrage at growing corruption. The threat of rising
unemployment that privatization inevitably entails (and which China can ill
afford) has forced China's reformers to retrench. For the moment,
large-scale privatization is on hold. 

The end result of this process of primitive accumulation cannot be
foreseen. But what is absolutely certain is that far from the fantasy of a
smooth, gradual transition to capitalism envisioned by western academic
economists, capitalism will be born through intense class struggle in all
its manifestations. And instead of a vast consumer cornucopia for all, we
can expect to see vast poverty and unrest as millions more lose their lands
and jobs. There is already a "floating population" of more than a hundred
million mostly landless and homeless migrants in China. But as evidenced by
reports like those in the Asia Monitor Center's Asian Labor Update, masses
of people in China are not reacting passively to their forced
transformation. Since the beginning of the decade, discontent over
inflation, non-payment of back wages, layoffs, hazardous working
conditions, and bureaucratic corruption has fed thousands of strikes,
slowdowns, and protests against both state industries and foreign-owned
firms. Peasant farmers have also protested over taxes, corruption, and
expropriation of their lands. And despite ferocious state repression of
labor activists, workers have repeatedly tried to form independent trade
unions. China's increasingly restless and combative labor force has yet to
find its voice, but when it does, this could throw a large wrench into the
World Bank-comprador bureaucrat plans for a transition to capitalism. The
government's reaction to the Falun Gong cult shows how desperately they
fear independent organization. 


Capitalism requires a class of capitalists and a class of proletarians.
These classes do not come into existence naturally and spontaneously. As
evidenced in the first transition to capitalism from feudalism, and as we
can see from observing the rapid transformations in the former Soviet bloc
countries within the last twenty years, the enrichment of some and the
impoverishment of the many is inevitably a brutal and corrupt process. The
wonder is not that the introduction of capitalism is responsible for these
disasters, but that the illustrious western economic "experts" who were the
architects of the transition expected anything else. 

* The Economist (January 13, 1990), p. 23; the following quotes from Sachs
are also from this article.

* Michael Specter, "Russia's Degenerating Health: Rampant Illness, Shorter
Lives," New York Times, February 19, 1995.

* Atlantic Monthly, June 1994, p. 79, also the source of the quote on page 2.

* Some measure of the depth of despair among the victims of the transition
to capitalism in Russsia is revealed in a recent poll on attitudes to
reform. When asked, "What economic system would you prefer?" 48 percent of
Russians polled said they would prefer "state planning and distribution,"
while just 35 percent preferred "private property and the market." To the
statement "It would have been better if the country had stayed as it was
before 1985," 58 percent answered "yes;" only 27 percent said "no." See the
Economist, December 18, 1999, p. 21. 

* For a lengthier analysis, see Richard Smith, "The Chinese Road to
Capitalism," New Left Review (May-June 1993), pp. 55-99. The following
description draws from that article.

* The methods and extent of offical corruption have been widely reported in
China and the West. One of the best sources is a widely read new book
Zhongguo de xianjing [China's Pitfall] (Hong Kong: Mingjing chubanshe,
1998), by newspaper reporter and former economist He Qinglian, which pushed
the limits of official tolerance. Though not yet available in translation,
see the review by Liu Binyan and Perry Link in the New York Review of Books
(October 8, 1998).


Web page for CDI Russia Weekly:


Return to CDI's Home Page  I  Return to CDI's Library