The "transition" in Russia

[Louis Proyect <lnp3@xxxxxxxxx>]

The “Transition” in Russia

By Ernest Tate, September 9, 2004.

Introduction

Russia has been in a social and economic crisis for almost two decades. 
With the collapse of the USSR, the Boris Yeltsin regime moved quickly to 
privatize everything and Russian businessmen along with some high-placed 
bureaucrats, who later became known as “the oligarchs”, made big strides 
in getting control of the economy. Yet organizations such as the World 
Bank and the International Monetary Fund (IMF), despite all the changes, 
still see the Russian economy as being “in transition”, that is, 
somewhere on the road from being a socialized economy to being “a 
market” economy. Even though the American government has declared Russia 
to be a “market” economy, in its trade and foreign policies, it 
maintains a line that is consistent with its anti-Soviet policies of the 
Cold War. And some pro-capitalist academics in the U.S., challenge that 
designation, saying that what exists there now is a form of “network 
socialism”.(1) The purpose of this article is to try and look at 
Russia’s political economy to get a measure of how far along “the 
transition”, the country has travelled and to try and understand its 
complexities. Under Stalinism, Russia was a closed off society, and 
almost impenetrable for socialist critics and the great majority of the 
Russian people were in the same boat. With the help of the Internet 
however, and the many English-language web-sites that now exist in 
Russia -- which gives us information about developments almost as they 
happen -- socialists of today are in a much better position than ever to 
figure out what is going on there.(2)

Economic collapse

The first Five Year Economic plan was implemented in Russia 1928, a 
major achievement of the October Revolution of 1917 when the working 
class and peasantry overthrew a semi-feudal state and began the 
construction of a new society in opposition to capitalism. This 
transitional society, between socialism and capitalism, allowed Russia 
to rise, in the space of only a few decades, from a country with a 
mainly backward semi-feudal, largely rural, economy into a major 
industrial power.(3) The entire infrastructure of the country, the 
location of its factories, its pipelines, its energy supply system, the 
telegraph lines, the highway system and rail lines, the location of 
schools and medical facilities, the distribution of the population 
throughout the country, were organized according to the requirements of 
economic “planning”(4) and this was carried out under a powerful 
bureaucracy that grew to dominate the society. Stalin headed up a brutal 
dictatorship over the working class and maintained his power by 
persecuting, jailing and killing his opponents to. But primarily, the 
economy had been organized to protect society against the anarchy of the 
capitalist market and against the very idea of “the market” as a driver 
of the economy.

During Nikita Khruschev’s time in the late 1950’s and early 1960’s, the 
economy expanded at around 10% a year and in the 1970’s began to falter 
under Brezhnev to the point of stagnation as the country faced 
widespread shortages of basic necessities. (5) This crisis intensified 
under Mikhail Gorbachov in the eighties and then under Yeltsin in the 
nineties, at which point the bureaucracy turned to a wholesale 
accommodation with imperialism to solve the country’s economic problems, 
abandoning planning and throwing the economy open to the largest 
privatization process the world has ever seen. Through naked 
self-interest and with the active encouragement of the World Bank and 
the IMF, the regime allowed some of the most productive sectors of the 
economy – such as energy and mineral extraction and processing – to fall 
into private hands through outright theft.(6) The privatization drive 
stalled as a result of the Asian financial crises of 1998 when Russia, 
ignoring the advice of the American Treasury and the IMF, swiftly 
defaulted on its international and domestic debt, an expression at the 
time of its lack of integration into the world imperialist system. In an 
economy already severely depressed by the neo-liberal “shock therapy” of 
discarding price controls and with the mass of the population 
impoverished by inflation rates which at times went above 1000%, many 
state enterprises went bankrupt and tens of millions of ordinary 
Russians lost their life’s savings and were thrown into poverty. 
Pensions went unpaid and social programmes were terminated. The ruble 
was devalued by 75% and the IMF threw its support behind Yeltsin with a 
$22.5 billion loan.(7) It was only last year that Russia received its 
first-ever investment grade rating from a major credit company.(8)

Limited economic “revival”

Since the year 2000, a limited economic revival has begun and Russia has 
reduced its international debt by $39.4 billion,(9) but according to a 
group of economists and sociologists from the Russian Academy of 
Sciences, much of the country still remains in a severely depressed 
state. Out of a total population of 145 million, 36 million live below 
the poverty line – one quarter of the population – half of whom are 
children. Thirty to forty percent of all Russians can be classified as 
indigent, they say. Incomes of the new poor are lower than the living 
wage officially fixed by the government, which is only 50% of that which 
was established in 1991. Official government spokespeople talk about the 
30% increase in average wages, but this is a lie, the Russian economists 
and sociologists say, and does not affect the bulk of the population; it 
is the effect on the average of the small group – 7% -- who are the 
wealthy, who build the luxurious villas, who buy expensive cars and who 
shop at expensive boutiques where ordinary people do not venture. 
Incomes of the majority of working people have been reduced by a factor 
of two or three, a marginalization of the poor which ranks Russia 
alongside third world countries such as Chile, Brazil and Mexico.(10) 
The average lifespan of the Russian male has dropped to 58.6 years for 
males and 72.1 years for females and the population of the country is 
declining at a rate of 750,000 per year. (11) And like many of the 
countries of Western Europe, there is a huge mass of illegal migrants in 
the country, between 3.5 to 5.0 million, mainly from the former nations 
of the USSR, the majority of whom work in the privatized sector often in 
appalling conditions and for low pay.(12) Jonathan Steel in the British 
Guardian talks about a “grotesquely widened inequality of incomes since 
Soviet times. It is not just that the top 10% have 23 times more than 
the bottom 10% (the same rate in Britain is 12, in Poland seven. With 
Internet access as low as 5% of households, Russia is divided into a 
tiny stratum of people who travel abroad and are wired into global 
modernity and a huge mass struggling to survive.” (13) Moscow News says 
that the seventh article of the Russian Constitution stipulates that 
“Russia is a social-welfare state” but the share of the GDP spent on 
social services “is very little compared to other European countries – 
much less than France or Norway…provision of free health-care is no more 
than a myth”.(14)

High concentration of private ownership

A recent report by the World Bank provides important insights into how 
far the dismantling of the planned economy has progressed – in essence a 
long economic counter-revolution -- and the degree to which Russia’s new 
capitalists – in the space of only a few years – have risen from 
virtually nothing to getting their hands on vast slabs of Russia’s 
productive resources. (15) The report, it should be noted, while 
remarking on the illegality of what transpired during that time and the 
resultant suffering of the Russian population, hypocritically remains 
silent about the World Bank’s part in that process when it mobilized its 
support behind Yeltsin in helping him implement his neo-liberal policies.

Among the countries of the Organization for Economic Cooperation and 
Development (OECD), private ownership concentration in the Russian 
economy now compares only to Germany. “Financial industrial groups are 
controlling the largest firms,” says the World Bank, “Measured by sales, 
the average firm identified as controlled by a big business group or 
individuals, is 76% larger that the average firm controlled by other 
domestic owners in the data base…and the disparity would be greater if 
smaller firms were included...”

“At present,” the World Bank report concludes, “the Russian economy is 
dominated by a small group of powerful companies and because of their 
high investment rates, their influence is likely to increase.” The 
report also shows the corrupt relationship between these large companies 
and the government – what they euphemistically term “state capture” and 
urges the government to implement anti-cartel measures to limit their 
influence.(16) The authors of the report analyzed a large, statistically 
representative sample of the Russian economy, “covering about 1300 large 
firms, listed and unlisted, in industry and services and employing 3.3 
million people. The industry part of the sample represents 17% of 
Russia’s industrial employment and 57% of industrial output.” Twenty 
three of the largest owners in the study controlled 36% of sales and 38% 
of employment in the country. In the industrial sub-sectors of the 
sample, financial industrial groups (FIG’s) controlled 35% of sales, 
whereas combined federal and regional governments only control 25%. The 
remainder is controlled by smaller capitalists. Control by FIG’s is 
highest in the oil, raw materials, automobile and chemical sectors. .”(17)

By 2002, single shareholder groups have come to control ninety-seven 
percent of all the large privatized enterprises, says David Mandel, in 
his recent book, “Labour After Communism”. According to some estimates, 
“twenty large conglomerates controlled seventy percent of Russia’s 
GDP.”(18) Since the 1998 financial crises, a wave of private 
acquisitions has swept the auto and farm machine sector of the economy 
as large capitalists increased their control over manufacturing, he 
says. “With the economic upturn and the windfall profits from high oil 
and metal prices, and especially after Putin’s election in 2000, the 
‘oligarchs’, who had made their fortunes in the resource sectors, began 
buying factories in other manufacturing sectors. These sold for a tiny 
fraction of their real value because of their poor financial situation. 
Moreover, ways were often found to further reduce their attractiveness 
prior to the sale. As a result, industrial ownership became increasingly 
concentrated.”(19)

“Managed” privatization

On May 7th, 2004, Vladimir Putin was inaugurated for his second term as 
President of Russia, after a landslide victory, taking 71% of the vote, 
the third presidential election since the fall of the USSR. One of the 
reasons for the increase in his support is the reviving economy which is 
benefiting from the current high oil and commodity prices on the world 
market. Even though there has been a slight increase in unemployment 
(which is in reality, is much greater than figures signify), the 
government says the economy grew at an annual rate 9.1% in the first 
quarter of 2003. (20)

Putin’s promises of “stability”, and the jailing of a few major 
capitalists has helped contribute to his popular support as these 
actions speak to the concerns of the great majority of ordinary Russians 
who remain hostile to the massive theft of important parts of Russia’s 
productive wealth by a few insiders,. This is not to suggest that he is 
in any way an obstacle to the deepening of the capitalist penetration in 
the economy; in this respect, his policies are not much different than 
that of his predecessor, Boris Yeltsin or for that matter Mikhail 
Gorbachov, who during his time, pursued a policy of the USSR’s “organic 
integration with the world economy” (21) and entered into negotiations 
with the G7 powers on speeding up the introduction of “market reforms” 
which culminated in the “Washington consensus” with the USSR achieving 
associate membership in the G7 and “special relations” with the World 
Bank without ever resolving the matter of the imperialist countries 
discriminatory anti-Soviet trade legislation. (22) Rather, Putin’s 
objective is to see that the privatization process is orderly and 
“managed”. The state’s efforts to prosecute Mikhail Khodorkovsky, 
exc-CEO of OAO Yukos, a giant oil company which employs over 150,000 
people, for tax evasion ( see below, the issue of “transfer pricing”) 
and privatization irregularities, has given the impression that Putin is 
against “oligarchs” and that he might be trying to bring OAO Yukos under 
some measure of public control. He has made clear, however, that the 
government has no wish to drive OAS Yukos into bankruptcy nor to revisit 
government’s privatization policies. Also under threat of prosecution or 
are already being prosecuted, are other major capitalists, among them 
media mogul, Vladimir Guisinsky and Platon Lebedev of the banking and 
holding company, Menatap. Adam Abramovich, now Britain’s richest man, 
fled the country to escape arrest. (23) Vladimir Potanin , well 
connected to government circles and a powerful capitalist, was also 
under threat of arrest.(24) But appearances to the contrary, Putin’s 
relationship with the big capitalists is very comfortable. It seems 
Khodorkovsky – who owes the government several billion dollars in taxes 
-- violated a gentleman’s agreement between the government and the 
capitalists that they could keep their assets, no matter how they got 
them, as long as they paid their taxes and didn’t meddle openly in 
politics. Khodorkovsky had once formed and financed his own political 
party. Many leading capitalists are serving or have served, in 
influential positions in the bureaucracy and government. A political 
associate of Putin’s, Alex Federov, a key figure in Putin’s United 
Russia party, who owns Irkut, a Siberia based aerospace company which 
employs 15,000 workers (who make an average wage of $200 a month), 
recently got his hands on a $500 million contract to build wings for BAE 
Systems – Britain’s largest defense contractor. (25) Potanin, the most 
powerful billionaire in the country was once a deputy prime-minister. A 
protégé of Potanin’s, Oleg Deripaska, who controls the Russian aluminum 
industry and who was barred from entering the United States because of 
allegations against him of extortion and murder, is related by marriage 
to Putin.(26) And these are only a few examples of this intimate 
relationship.

full: http://www.marxmail.org/ChangesinRussia.htm

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