Economic indicators were equally frightening: Russia produced two hundred and fourteen thousand tractors in 1990. By 1994 it was fewer than twenty-nine thousand—a collapse of eighty-seven percent. The production of all foodstuffs in 1994 was half what it was under Gorbachev and had still farther to fall. By the late 1990s, Russia’s annual grain harvests were smaller than they were under the tsars before World War I. The Red Cross even mobilized food aid to avert a potential famine.4
The economic hardships helped unleash a tidal wave of drunkenness larger than anything seen before in Russia’s long, inebriated history. Russia’s heavy-drinking men were dying off at an alarming rate, with deaths from alcohol poisonings, liver and cardiovascular diseases, drunken homicides and suicides all skyrocketing. Russian male life expectancy dropped from sixty-four to fifty-eight—worse even than under Stalin’s tyranny.5
In many ways it seemed that Russia was not simply in the throes of economic depression but was somehow regressing backward in time—undoing all of the economic and social progress that had been achieved through such tremendous human sacrifice under the Soviets. From the most remote regions to the capitals Russia experienced a “steady retreat of civilization”: citizens were forced into premodern survival strategies as the Soviet-era industrial, commercial, healthcare, and law enforcement systems corrupted, decayed, and collapsed around them.6
“It’s difficult to talk about the twenty-first century when you’re sitting here reading by candlelight,” confided one teen in Russia’s desolate Kamchatka Peninsula on the eve of the new millennium. “The twenty-first century does not matter. It’s the nineteenth century here.”7 This was no ordinary economic recession.
From “Transition” To Demodernization
To read the economic literature on Russia’s “lost decade” of the 1990s is to get lost in the technocratic language of “-ions”: stagnation, transition, recession, depression, contraction, liberalization, inflation, stabilization, deregulation, denationalization, privatization, commercialization. Examining developments through such high-altitude, macroeconomic “-ions” conveniently—and perhaps deliberately—blinds us to the true cost of a decade-long turmoil that by some estimates reduced economic output by over fifty percent—far worse even than the Great Depression.8 Economists’ estimates of diminishing GDP—even on a per capita basis—tell only one side of the story.
In the wake of Russia’s 1998 default, NYU professor Stephen F. Cohen described the horrific scope of the realities on the ground: “When the infrastructures of production, technology, science, transportation, heating and sewage disposal disintegrate; when tens of millions of people do not receive earned salaries, some 75 percent of society lives below or barely above the subsistence level, and millions of them are actually starving; when male life expectancy has plunged as low as fifty-eight years, malnutrition has become the norm among schoolchildren, once-eradicated diseases are again becoming epidemics, and basic welfare provisions are disappearing; when even highly educated professionals must grow their own food in order to survive and well over half the nation’s economic transactions are barter—all this, and more, is indisputable evidence of a tragic ‘transition’ backward to a premodern era.” Cohen concludes that “so great is Russia’s economic and thus social catastrophe that we must now speak of another unprecedented development: the literal demodernization of a twentieth-century country”.9
Although neither Cohen nor any other scholar have elaborated on “demodernization” as a concept, his underlying claim is most assuredly true: adding social indicators to economic ones, we find that not only was Russia’s “lost decade” worse than either Japan’s “lost decade” or America’s Great Depression in degree, but it was also fundamentally different in kind—a process of destruction and deindustrialization without parallel in the peacetime history of the world.10
Perhaps the best way to illustrate this difference is to fold social indicators into the conventional economic comparisons. Recently, sword-swallowing Swedish statistician Hans Rosling and his Gapminder Foundation have developed just such an approach. Bridging the “gap” between inaccessible social-scientific data and a broader public utilization, Gapminder is a user-friendly clearinghouse of official health, economic, and social statistics compiled by national and international agencies around the globe, which facilitates comparisons across countries and over time. For instance, by plotting a standard indicator of prosperity (income per capita) on the horizontal axis and social well-being (average life expectancy) on the vertical, Rosling animates over two hundred years of data for two hundred countries to show how, due to industrialization and modernization, all countries have generally moved toward the upper-right quadrant—his so-called “healthy, wealthy corner”—where all modern states aspire to be.11
Following Rosling, figure 20.1 presents twenty-year sections of data: Russia and Japan from 1980 to 2000 and the United States from 1920 to 1940. The results are telling: Japan’s “lost decade” was a prolonged recession: economic growth may have slowed, but Japan was still progressing toward the healthy–wealthy corner. By contrast, America’s experience in the Great Depression was movement toward the upper-left quadrant: the economy was contracting, yet the overall health of the population actually improved.
Figure 20.1 HEALTH AND WEALTH INDICATORS DURING MAJOR ECONOMIC CRISES. Sources: Life expectancy figures derived from the Human Mortality Database, www.mortality.org. For notes on Gapminder data collection and standardization of GDP per capita statistics see http://www.gapminder.org/documentation/documentation/gapdoc001_v9.pdf. For income per person for Japan and Russia see Angus Maddison, “Historical Statistics for the World Economy: 1–2006 AD” (2008), www.ggdc.net/maddison/. For income per person in the United States see Robert J. Barro and José F. Ursúa, Macroeconomic Crises since 1870, NBER Working Paper No. 13940 (Cambridge, Mass.: NBER, April 2008). Data are from http://rbarro.com/data-sets/.
These experiences were fundamentally different—not only in degree but also in kind—from what Russia endured: moving dramatically away from the healthy–wealthy corner for the duration of the 1990s, becoming both far poorer and more sickly. The only other examples of such dramatic retrograde motion come from countries devastated by war: World War I and the 1918 flu pandemic, Germany in World War II, Bosnia in the Yugoslav wars of the 1990s. To have such dramatic backsliding in peacetime is unheard of.
What happened?
My argument here is straightforward: economic crisis plus the legacies of vodka politics lead to demodernization, which undercut Russia’s long-term potential for both economic growth and successful democratization.
The End Of Autocracy, The End Of Vodka Politics?
Vodka politics has been the central pillar of Russian statecraft since the earliest tsars. Yet so radical was the break with the Soviet past that even the mighty state vodka monopoly fell to liberalization, marketization, and democratization.
In January 1992 the old Soviet vodka monopoly was abolished. The once-fixed price of alcohol would now be set by supply and demand, capped with an eighty percent excise tax. The state maintained some control by monopolizing the necessary raw materials for distillation—ethyl alcohol—which could only be legally procured from one of the 162 state-run rectification facilities at a price that reflected the additional taxes levied on it.12 The old Soviet alcohol producers and importers were reorganized and privatized while private distilleries and samogon moonshiners flourished. To evade government taxes and regulations most alcohol production shifted off the books and into the black market. Untaxed imports flooded in from the West, and illegal shipments arrived by the trainload from Belarus and Ukraine. Vodka was everywhere. A half-liter bottle of questionable origins and ingredients could be had for a dollar. Whereas vodka contributed almost a third of the Soviet superpower’s budget, by 1996 that share had plummeted to three percent—with the money that once would have gone to the treasury ending up in the hands of black market producers and bootleggers.13
&nbs
p; “The tradition of drinking oneself under the table,” once quipped Soviet dissident Mikhail Baitalsky, is “the popular tradition most profitable to the state.”14 Yet just because the state was no longer profiting as it used to did not mean that Russians instantly sobered up. Government policies change quickly; cultures change glacially. So although the Soviet autocracy and monopoly were suddenly gone, they left behind an entire population that for generations had relied on vodka as “the Russian god”—omnipotent and omnipresent, in good times and bad.15
And times were getting very, very bad.
With their life savings gone, jobs evaporating, the uncertainty of economic calamity, and the lack of steady leadership, is it any wonder that more and more Russians turned to vodka, practically the only product that was both cheaper and more available than under the Soviets?16 By the time of Yeltsin’s 1996 reelection bid, per capita alcohol consumption approached fourteen liters of pure alcohol per year—returning to the astronomical levels of the Brezhnev era and erasing what little benefits remained of Gorbachev’s well-intentioned anti-alcohol program.17
Gorbachev’s campaign was a vivid reminder that clamping down on legal vodka breeds a thriving underground of moonshiners and bootleggers who skirt government regulations through bribes and graft. The growth of dangerous samogon home brew and mushrooming corruption undercut Gorbachev’s initiatives just as they had done to every previous, dramatic anti-alcohol measure, including the ill-fated prohibition during World War I. Economic logic suggested, then, that once restrictions were lifted and the alcohol market was liberalized, the black market in alcohol would emerge from the shadows and become a legitimate contributor to Russia’s new capitalist economy. As it turns-out—due to vodka’s complex role in Russian culture—something quite different happened.
When times are tough, vodka has always been there—not just as a product to be bought to drown one’s sorrows, but also as the currency used in the exchange. Indeed, just as Russia’s economy was demodernizing, so too was its monetary system. With the ruble rendered practically worthless by hyperinflation, more and more transactions were conducted through the primitive commodity money of vodka rather than modern paper currency.18
Back under the tsars, Orthodox priests gave villagers vodka in exchange for working for the parish (chapter 8). Set against the Bolshevik Revolution and civil war, Boris Pasternak’s Nobel Prize–winning novel Doctor Zhivago described vodka as Russia’s “favorite black-market currency.”19 Alcohol even greased the wheels of the modern administrative-command economy itself: most Soviet enterprises employed supply officers, or tolkachi, well-connected black market hustlers who, equipped with a few cases of vodka, could find the scarce materials necessary to help the factory fulfill their production quotas. The ministry of foreign trade even got Pepsi Cola from the United States by bartering Stolichnaya vodka.20
Whenever cash was unavailable or unreliable, vodka was there. Butylka za uslugu—a bottle for a favor—was how things got done: whether it was getting a leaky faucet fixed or expediting bureaucratic paperwork, vodka delivered results.21 But what of those, like rural pensioners, who could not afford vodka? From necessity rather than thirst, many turned to home brewing. “We have to harvest potatoes, mow hay and lay in firewood,” explained one elderly babushka in a 1984 Soviet investigation, “and for every favor the collective farm workers do, you give them two or three bottles of vodka. We don’t have the money to do this, so we have to brew the liquor ourselves.” After compiling many similar complaints from the countryside, the Soviet journalist simply lamented, “It’s as if money itself is too inconvenient.”22 To make matters worse, even elderly home brewers were often fined forty rubles for violating laws against moonshining—a penalty that rose during Gorbachev’s anti-alcohol campaign.23
Understanding vodka as a medium of barter, and home brewing as a means of coping with personal economic hardship, helps explain why—when the post-communist transition rendered the ruble worthless and pushed millions into poverty—Russia saw a dramatic increase in moonshining by those on fixed incomes: not just pensioners, but teachers, nurses, engineers, scientists, and soldiers.24 So although the old state monopoly was gone, the illegal vodka trade did not wither away—it exploded.
Yet vodka from homemade stills was just a drop in the bucket compared to the tsunami of illegal alcohol flooding into Russia from abroad. By early 1994—unfathomably—as much as sixty percent of all of the vodka sold in Russia was imported.25 Rather than the top-shelf European liquors like Absolut or Finlandia, these were cheap, and often poisonous, knockoffs smuggled in from other post-Soviet republics. A quick bribe to a hard-up border guard or inspector was often enough to sneak an entire shipment through Russia’s porous borders, which could undercut the price of legally produced, regulated, and taxed Russian hooch by as much as fifty percent.26
In the West, those concerned about Russian border security normally feared Russia’s “loose nukes” sneaking into the hands of international terrorists. In Russia, the bigger challenge was preventing trucks and even trainloads of illegal, unregulated, and therefore often poisonous alcohol from entering the country, especially in the volatile Caucasus. Forty percent of the vodka consumed in Russia was produced—most of it illegally—in the small province of North Ossetia, where fully one-third of the entire adult population was employed in vodka production. In addition to distilling a large, subsidized quota of ethyl alcohol from the ministry of agriculture, cheap raw-material spirits were imported from Ukraine, with false documents listing Russia as a transit country and therefore exempt from Russian customs duties.27
When the government-subsidized supply of ethyl alcohol dried up thanks to market reforms, and stepped-up customs regulations put a kink in the “Great Vodka Route” from Ukraine to Russia, North Ossetian producers turned to smuggling cheap foreign spirits through the Georgian port of Poti, from where it was trucked over the mountains and smuggled into Russia through the Roki Tunnel. In July 1997, with the backing of President Yeltsin, General Andrei Nikolayev of the Federal Border Service closed the Russian border to Georgian alcohol trucks that did not pay full import duties.
The tense standoff quickly escalated into a small-scale “vodka war” when a caravan of over three thousand metric tons of pure ethyl alcohol destined for North Ossetia was denied entry to Russia. When the border guards were unswayed by bribes in excess of $1 million, the heavily armed rum-runners opened fire, attempting to fight their way into Russia before being pushed back by military reinforcements. One Georgian truck driver was killed in the crossfire. In the face of pressure from the Georgian foreign ministry and President Eduard Shevardnadze, Yeltsin relented: Nikolayev was dismissed, and the flow of alcohol resumed.28
Hundreds of trucks laden with illegal alcohol imports are stranded on the Russian–Georgian border, September, 19, 1997. Associated Press/Shakh Aivazov.
Armed standoffs illustrated just how high the stakes—and the payoffs—were for anyone who could sidestep government regulations and meet the demand for cheap booze. Corrupt entrepreneurs set up shell companies to import a single shipment before vanishing without paying duties. Others forged foreign documents for Russian products to sidestep regulations on domestic production.
Shockingly, in 1993, President Yeltsin decreed that particular charitable organizations that had earned his favor—including the Afghan War Veterans’ Union, the Hockey Federation of Russia, the National Sports Foundation, and the Moscow Patriarchate of the Russian Orthodox Church—were exempt from paying customs duties on imports. Consequently, these charities suddenly found themselves knee-deep in the corrupt world of the international vodka trade. The Department of External Relations of the Russian Orthodox Church became a major importer of vodka and cigarettes. The National Sports Foundation—nominally charged with promoting healthy lifestyles—imported thirty-one railroad cars containing nine hundred and seventy-five thousand bottles of vodka in one transaction alone, never paying the 43.5 billion rubles in import duties. H
eads of both the Hockey Federation and the Veterans’ Union were assassinated in bloody contract killings in the settling of accounts. When the import loopholes were finally rescinded in the late 1990s, the government estimated that these charities left the woefully indebted Yeltsin regime on the hook for another thirty-seven trillion rubles or some nine billion dollars.29
How much black market vodka actually came from abroad is impossible to know. However, Russian law enforcement estimated that, during the 1990s, a mere two percent of Russia’s thriving shadow market came from homemade samogon. The other ninety-eight percent was either imported illegally or manufactured off the books in regular distilleries.30 The reason was simple: it was more cost effective to pay bribes than the heavy eighty percent excise tax levied on alcohol. With corruption as historically entrenched as alcohol (and, as we’ve seen, actually a consequence of it), and with a population that had little experience in paying taxes under the Soviets, it was apparent why so much of the vodka market remained underground.31
As if out of a Hollywood prohibition drama, the savvy Russian bootlegger directed a complex operation with creative bookkeeping: one set of books recording a distillery’s official production—and hence the quantity of alcohol he pays taxes on—which is entirely different from the factory’s actual output. Since taxes were so high and the competition for cheap booze so intense, profit margins on legal vodka were a razor-thin four or five percent.32 It was much more lucrative to move production off the books all together—oftentimes leasing out their facilities during off-hours to third parties who had little concern for tax or safely regulations. So prevalent was this “third shift” vodka that many distilleries in the 1990s—especially in the North Caucasus—reported operating at only five percent of their known capacity.
Vodka Politics: Alcohol, Autocracy, and the Secret History of the Russian State Page 45