Old Saint Basil's Cathedral in MoscowJohnson's Russia List title and scenes of Saint Petersburg
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#9 - JRL 7002
Financial Times (UK)
January 2, 2003
Reform for the east made in the west: Continuing a five-part series, John Lloyd argues that western aid for Russia's decade of economic transition in the 1990s was driven primarily by political imperatives
By John Lloyd

Through the market in the town of Tikhvin, north-west of St Petersburg, a young drunk staggers. He wears a heavy overcoat despite the heat. His long matted hair frames a fine-boned handsome face, but he dribbles and stinks. He falls, crawls, disappears around a corner.

To one side of the market a cafe offers strong tea and tough sausage sandwiches. A group of youngish Petersburgers point at the Soviet-era menu (meat pattie, 50 grams, with one egg, bread, 1 rouble 20 kopecks - the price of nothing now) and laugh with city sophistication. A woman in her thirties behind the counter, straight-backed and stern, says: "This is how we are here! If you people from Leningrad don't like it, you can go back there. We don't need you coming here insulting our town!" Like naughty children who have pushed the adult world too far, they troop out. Much of Russia outside Moscow is like this still. It will take many years of today's relatively high rates of economic growth before Tikhvin and towns like it, pick up. This after a decade in which Russian reform has been a central - the central, for the first half of the 1990s - concern of western states and the international financial institutions. Does the staggering, lurching state that Russia is still in show that the west's economic advice - confident in its free-market bias - was misplaced, and that reform has failed? Even, that Russia and the other former communist states are worse than they ought to be because of that advice?

These scenes in Tikhvin market, played out amid the rows of poor quality foodstuffs, cheap clothes and household possessions being sold off, contain two lessons. One is that Russia suffers from a social malaise, manifested in drunkenness, arbitrary behaviour, apathy, criminality, aggression. It has much deeper roots than any supplied by the rigours of the post-Soviet, western-inspired reforms that tend to carry the blame. Tikhvin had been created or re-created as a one-plant town (making parts for MiG fighter jets in this case: there are thousands like it in the former Soviet Union) with no hope of survival except within an unsustainable hyper-extended militarised economy. Drunkenness was, and remains, one way of coping with a life from which social purpose had been drained and material abundance had failed to materialise.

The second lesson is that the moral people of the country, those who stood for decent behaviour and social justice, were often communists, or those who accepted communist/Soviet morality and made it their own. They had something more than cynicism or authoritarianism on their side. They could appeal to egalitarian and internationalist ideals, not always absent, to which Mikhail Gorbachev also app-ealed when he set about dismantling the Soviet Union in the name of reforming and humanising its socialism.

These lessons are poignant now, because Russia is reforming, under the guidance of a president who had been a medium-ranking official in the KGB, one of the greatest instruments of terror of the 20th century. The reform is real: its court system is a bit less corrupt, its tax system is more coherent and more successful in delivering, its company law is a bit less punitive to companies, its government is less capricious and better disciplined, its GDP has grown by about 5 per cent a year. Even its oligarchs, or super-rich business people, no longer assume they have state as well as financial clout, as they did in the presidency of Boris Yeltsin.

Marcello Selowsky, now deputy head of the International Monetary Fund's internal audit unit and for most of the 1990s a toiler in the Russian reform vineyard, flourishes a graph he has constructed of the "winners and losers of reforms". It shows the oligarchs and state industry insiders soaring in wealth and status early on, to decline as "new entrants" push through.

Russia gets even more points from the current US administration, in part because the latter needs the former as an ally in the war against terror. But the rapprochement began before 9/11 and has more than opportunist roots: in the view of one of the most senior foreign affairs officials in George Bush's administration, speaking privately, Russia is preparing to find a place that it has not been able to find "in 300 years of wandering" - securely anchored in the democratic, market-economy world. This is now possible because of President Vladimir Putin, "an extraordinary man", who has made a strategic choice for the west, even as it remains doubtful whether his people support him.

The bond that has emerged between Bush and Putin in many respects mirrors that between Bill Clinton and Yeltsin. In both, a stressing of the personal links and the meeting of minds and hearts. In both, an assumption that US/western interests and those of Russia's are closely intertwined. And in both, the view that the "capture" of Russia by the west - with the latter's values, economic system and liberal democratic order becoming the norm in the eastern colossus - represented a key, if not the key, foreign policy challenge for the US.

In this lies the central truth about the west's intervention in post-Soviet Russia. Though it took a largely economic form, and its main agents were the International Monetary Fund and World Bank, it has been and remains driven by US strategic and political calculation.

This is well illustrated by Strobe Talbott, a former Time diplomatic editor, friend of Mr Clinton and chief Russia-minder in both his administrations (he rose to be deputy secretary of state under Madeleine Albright). In his memoir, The Russia Hand, Talbott makes clear that intervention in Russia (he preferred, he said, to call it "engagement with") was so close, and so much that of a teacher to a pupil that even Clinton, an avid interventionist, mused once to Talbott that "we keep telling 'ol' Boris - 'OK, now here's what you've got to do next - here's some more shit for your face'. And that makes it real hard for him."

When Yeltsin had a desperate need for western aid to cushion the shocks of reform - as the nearly Dollars 30bn promised to all former Soviet states at the 1992 G7 meeting in Tokyo - Clinton twisted arms and schmoozed to make sure he got it. He coaxed Yeltsin out of foul tempers, feigned amusement when Yeltsin was drunk during phone calls or at joint press conferences and wheedled him into accepting Nato expansion, restricting nuclear co-operation with Iran and withdrawing the Soviet military from the Baltic states.

Russian reform, inevitably, became something of a pawn in what was held to be a greater game: geo-politics trumps global economics. "Russia," says William Easterly, a former World Bank senior adviser, "was coddled along and we didn't ask too many questions because it was a superpower. It was a special case - and should have been treated as such. Instead it was given to the IMF and the World Bank to oversee its reform - but its reform just wasn't within their core competence."

Talbott is now head of the Brookings Institution in Washington. Asked if there had even been any debate in the Clinton White House about intervening so decisively in Russia, he said: "There were some advisers who warned of the wisdom of engaging so heavily. But it was always resolved in favour by the big guy (Clinton). He had a politician's feel for the developments there, and for Yeltsin's problems. This was the biggest thing in the world."

The fiercest criticism from within the international financial institutions of their own intervention in the affairs of the former Soviet states was made by Joseph Stiglitz, an economics Nobel prize winner and former chief economist of the World Bank. Stiglitz got so angry about the way in which the IMF was treating Russia that he gave a series of polemical speeches in 1999 about the failure of its policies and in particular its acquiescence in the massive corruption that attended the privatisation of state assets. He left his post early. In his book, Globalization and its Discontents, Stiglitz argues that the "disastrous outcomes" in the former Soviet states had been caused, in large part, by fund advice which "at the very least provided support to those who led Russia and many of the other economies down the paths they followed, arguing for a new religion - market fundamentalism - as a substitute for the old one - Marxism - which had proved so deficient". The fund roundly rejected these charges.

In Moscow, Yegor Gaidar, Yeltsin's first reform prime minister, is still the leader of the radical young economists who practised what Stiglitz calls "the new religion". Gaidar is no great fan of the fund. He believes, still, that it should have made very large sums available instantly, to cushion the shock of the sudden freeing of many prices in January 1992. But he said: "Criticism of the western aid is misplaced by giving it too much importance. Sometimes it was good advice, sometimes not. Sometimes we took it, sometimes we did not. What was most important for us was the domestic political situation: and the inability to proceed because of the opposition of the parliament and the enterprise directors."

The best description of the decade of reform, which may now be paying off under the unlikely figure of Putin, comes from Stephen Kotkin, the director of Russian Studies at Princeton University. "Western advice, whether misguided or sensible," he says, "was largely inconsequential. Russia's was not, and could not have been, an engineered transition to the market. It was a chaotic, insider, mass plundering of the Soviet era, with substantial roots prior to 1991 and ramifications stretching far into the future."

Will that future be brighter for Tikhvin? It may be: but only if people like the lady in the market cafe, erect and suspicious beneath her Soviet menu, see the inevitability of change and start being its agent.

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