#9 - JRL 7175
Kennan Institute
event summary
The Piratization of Russia: Russian Reform Goes Awry
May 1, 2003

This Kennan Institute book launch highlighted Marshall Goldman’s most recent book “The Piratization of Russia: Russian Reform Goes Awry.” Dr. Goldman spoke about the process of privatization in Russia from 1991 to the present. In particular, he focused on the rise of the different types of nouveaux riches after the fall of communism.

Dr. Goldman began by speaking about the astounding amount of wealth that a few select Russians had attained in a relatively short period of time after the process of privatization was underway in Russia. He placed the wealthy into three groups. The first group are the relatively well off who were formerly factory directors and became factory owners at the time of privatization. The second group are the nomenklatura apparatchiks who had already received special treatment from the Soviet state. The final group is categorized as the non-nomenklatura, the fringe of Soviet society who were already engaging in varying degrees of illegal activities when the switch to capitalism began. This group had a head start to make money since they already had experience with a wild market. The new Russian oligarchs emerged from these three groups. The oligarchs gained both extreme wealth and societal power; they have strongly influenced national political campaigns and continue to take part in politics. Currently, there are seventeen who rank on Forbes’ list of the wealthiest people in the world.

Dr. Goldman spoke about the shock therapy that hit the Russian economy in the early 1990s. The shock on the economy caused food to be scarce, prices to fluctuate drastically and inflation to be rampant. Likewise, those who in the Soviet Union who learned how to operate in an environment of scarcity had an advantage over the nomenklatura, who once the Soviet system of planning collapsed found themselves at a disadvantage. Dr. Goldman endorsed the Polish system of change to a capitalist society. The Polish system was a much more controlled process of privatization than the Russian system. One third of the stock of each of the Polish firms that were privatized was assigned to one of fifteen mutual funds. This gave the mutual fund rather than factory manager effective control of the enterprise being privatized and allowed restructuring; a result very different than what happened in Russia.

In his summary, Goldman concentrated upon the current state of affairs in Russia. Russia is today, a better place for many Russians than it was before in communist times or during the peak of the economic shock therapy. However, the bureaucratic tendencies of the government will slow the growth of start-ups and small businesses. But there may come a time when the oligarchs will use their influence and money to challenge the Russian president and influence politics, which may not be such a bad thing.