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#7 - JRL 7034
The Russia Journal
January 24-30, 2003
Is Russia ready for a watershed year?
By Andrei Piontkovsky

In a number of his recent speeches at a round table at the Russian School
of Economics jubilee session, for example Yegor Gaidar drew an
interesting parallel between two periods in Russian economic history: The
NEP (New Economic Policy) years of the early 1920s and post-Soviet Russias
first period of economic growth from 1999-2002.

What these periods have in common is that they both aimed at economic
recovery at a time when relative political stability descended on the
country. During the NEP years, factories were rebuilt and farm land
re-cultivated after the destruction of the civil war. During the recent
growth period, industrial facilities that had no real economic purpose
during the Soviet planned economy and were sidelined in the early 1990s
were finally put to work.

But neither period succeeded in putting into place the structural
mechanisms and institutions needed for sustainable economic growth, and as
a result, soon fizzled out. A few initial years of high GDP growth gave way
to a slowdown and finally to outright stagnation. In both cases, optimism
among the political leadership was followed by unconcealed irritation. By
1926, the Bolshevik Politburo told Council of Peoples Commissars Chairman
Alexei Rykov that his government was not sufficiently ambitious in its plans.

It seems only natural to continue the Gaidar-drawn parallel. If 1999-2002
is a sort of mirror of 1923-26, then does this mean that in the near future
we can expect a new version of 1929, a year that went down in the Russian
history as a great watershed that ended in the dramatic and for millions
of people ultimately tragic resolution of contradictions that had already
become apparent by 1927?

There may be no conditional mood in history, and its too late to change
1929, but we can ask ourselves what point in history were at today, and
alternatives we have for resolving todays economic and political crises.

These questions are all the more important in that another great watershed
year could prove too much for the Russian state to survive.

But before looking for answers, its worth pointing out that Gaidar is far
from alone in being skeptical about todays economic situation. A number of
well-known economists and politicians have expressed similar doubts.

It looks as though the time has come in Russia to analyze the real essence
of the socio-economic and political system that emerged under Boris
Yeltsins presidency and has strengthened and taken institutional root
under his successor, President Vladimir Putin.

At almost the same time, Yabloko leader Grigory Yavlins-kys work,
"Demodernization Modern Russia: Economic assessments and political
conclusions" appeared, along with articles and reports by Sergei Glazyev,
Mikhail Delyagin, Andrei Illarionov, Yevgeny Yasin, and foreign specialists
such as Joseph Stiglitz and others.

These are all very different people who seldom agree on anything,
especially in their answers to the traditional Russian questions of who is
to blame and what is to be done. But all of them, including Gaidar, agree
on one thing: The current economic system in Russia can neither ensure
sustainable growth nor Russias transition to a post-industrial society. It
dooms the country to stagnation and a place on the sidelines. At the same
time, it has a degree of local sustainability and isnt threatened with
imminent collapse in a 1998-style crisis, which makes it all the more
dangerous. This society is reminiscent of a traveler peacefully falling
asleep in a snowdrift while a snowstorm rages.

Yavlinsky is right in pointing out how hard it is to define the modern
Russian socio-economic system in traditional political-economic terms, and
he sees his "Demodernization" as an in-depth attempt to come up with the
right definition.

Over the last 10-15 years, we have created a mutant characterized by its
identifying signs of the merging of money and power, the criminalizing of
power, institutionalized corruption, an economy dominated by large, mostly
raw-materials corporations that flourish through having privatized the
countrys administrative resources. Capitalism in Russia begins with the
shuttle traders and ends with businessmen of the likes of David
Yakobashvili and Anatoly Karachinsky.

The Abramoviches and the Deripaskas are not and never were capitalists.
Their macroeconomic role and the nature of their activities make them more
like top state officials, controlling budget flows and distributing the
profits obtained from raw materials. The whole secret of the way the mutant
functions is that its creators have appointed themselves businessmen, or,
in todays trendy jargon, have positioned themselves as such. Having taken
over this worthy status they dont deserve, these virtual businessmen and
real state officials got the chance to appropriate a huge slice of the
national wealth completely legally.

When presidential economic advisor Illarionov says the problem with the
Russian economy is that state spending eats up too much of the GDP, hes
doubly right because the slice of the GDP appropriated by the
officials/businessmen amounts in economic terms to yet more state spending
the costs of maintaining their disgraceful apparatus.

This all goes not just for the oligarchs who gained their posts through
being close to Yeltsin and are now part of the notorious "Family." It also
goes for the Orthodox bankers who pillage the state budget and the
state-patriot Chekists who provide protection for furniture stores and are
closer to the current authorities. They belong to the same breed of
bureaucrats making profits out of the administrative resource theyve
privatized all these small and not-so-small chunks of the state.

Its not this or that individual figure who is important, but the essence
of the way the system functions. As has been said before, exiling Boris
Berezovsky and Vladimir Gusinsky hasnt changed anything in the way modern
Russian capitalism works, just as the liquidation of many prominent
communist officials in 1937 did nothing to change the way the communist
nomenklatura functioned as a corporate group.
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