by Will Podmore
The Yeltsin government, backed by the Russian Union of Industrialists and Entrepreneurs, let directors and workers buy 51 per cent of the voting shares in their workplaces at nominal prices, using the enterprises’ own funds. All too often, workers agreed not to interfere with the directors in exchange for promises of job security, soon broken. Directors bought workers’ shares before they had any market value or in collaboration with banks outbid the workers.
Yeltsin issued special decrees to exclude other buyers, to aid his cronies. He set up an incentive system that drove money into Swiss bank accounts and made domestic investment virtually impossible. Directors used joint ventures, shell companies and offshore havens to leach cash and raw materials out of public enterprises. They created banks and trading companies that seized the factories’ output and stripped their assets.
But the biggest money-spinner for the new capitalist class was the theft of Russia’s vast natural resources through the Loans for Shares scam: the capitalists lent money to the state. In exchange, they bought at auction, for a fraction of their market value, the shares that the government put up as collateral for the loans. When the government could not repay the loans, the capitalists sold the shares to themselves very cheaply as repayment for the loans. In these corrupt insider deals, the government let capitalists seize the companies.
As the basis for these auctions, the government used companies’ book values as fixed in January 1992. That month, Yeltsin’s deputy prime minister, Egor Gaidar, had freed prices, causing 2,500 per cent inflation. So capitalists could buy Russia’s energy resources for tiny fractions of what they were worth. (It also wiped out workers’ life savings — seventy million accounts in the state-owned Sberbank alone.)
In November and December 1995, the government sold off twelve of Russia’s biggest companies. A handful of private banks, owned by the new capitalists, ran the auctions, disqualified their rivals, bid in the auctions and - surprise, surprise - won the auctions. For example, in a closed auction run by his own bank, Uneksimbank, Vladimir Potanin (the deputy prime minister in charge of finance) bought Norilsk Nickel, the world’s biggest producer of nickel and platinum, for just $170.1 million. Its profits that year were $1.2 billion. His bank had disqualified a rival bid of $350 million, on a technicality.
Yeltsin’s friend Boris Berezovsky loaned the government $100 million for 51 per cent of Sibneft, Russia’s sixth biggest oil company, worth $2.8 billion, then sold it to himself in another sham auction 18 months later for $110 million. Russia’s Audit Chamber later reported that the sale was conducted with ‘multiple legal violations’ and ‘should be considered invalid’. In 2000, Sibneft bought 27 per cent of its shares for $542 million from shareholders. Less than a year later, it secretly sold back those shares, for far less, to the same shareholders. It then gave a $612 million dividend to the shareholders — one of whom, Roman Abramovich, was lucky enough to own 87 per cent of the shares. The Blair government gave Berezovsky political asylum, while Roman Abramovich bought Chelsea Football Club.
The Yeltsin government sold off other national assets cheaply, including tax concessions, TV channels, radio frequency licences, export licences and government bank accounts. Yeltsin privatised the TV company Channel One, which reached 200 million Russians, without the legally required auction, selling it to Berezovsky for a knock-down price of $2.2 million.
Successive Russian governments privatised 80 per cent of Russia’s 22,500 industrial enterprises, which produced 90 per cent of Russia’s industrial output. Eight oligarch groups controlled 85 per cent of the revenues of Russia’s 64 largest private companies. By 2002, five people controlled 95 per cent of Russia’s aluminium, 18 per cent of her oil, 40 per cent of her copper, 20 per cent of her steel and 20 per cent of car production. Criminal gangs, which had been growing since the 1960s, ran nearly half the private sector and owned half Russia’s largest banks. In 2004, the World Bank reported that 30 people controlled 40 per cent of the $225 billion output of Russia’s key sectors. The 100 richest Russians owned 25 per cent of Russia’s entire GDP. By contrast, in the USA, the 227 richest owned 6 per cent.
The capitalists also looted state funds and the Soviet gold reserves. The new banks took billions of rubles of party, government and trade union funds, transferring these too to foreign bank accounts and offshore tax havens. In 2006, the government deregulated all capital accounts. By 2014, an estimated $500 billion of capital had fled the country since 1991.
In sum, the privatisations of the 1990s sold off a trillion dollars’ worth of state assets for just $5 billion.20 Anatoly Chubais, head of the State Privatization Committee, said of Russia’s capitalists, “They steal and steal and steal. They are stealing absolutely everything and it is impossible to stop them.” The American economist Milton Friedman admitted, “In the immediate aftermath of the fall of the Soviet Union, I kept being asked what the Russians should do. I said, ‘Privatize, privatize, privatize.’ I was wrong.”21 As civil society disintegrated, private firms, cartels, crony networks and mafia gangs burgeoned. Local bosses, protected by racketeers, ran any remaining production. State-planned internal exchange was not replaced by a national free market, but by the petty trade of intra-regional deals between local bodies defined by ethnicity and religion, and by local networks of barter, a parody of socialist exchange.
Kort concluded that the 1990s saw ‘a spasmodic descent into a morass of political dysfunction, economic hardship, social disorder, unchecked criminality, and corruption on a massive scale’.22 Jerry Hough summed up, “Without question, Russia in the 1990s featured a great deal of illegality and corruption. … The utter scandal is that so much of the ‘corruption’ in Russia has been legal and has been the logical consequence of the policy that has been advocated by the West.”23
Catastroika
Yeltsin’s shock therapy caused ‘the worst economic and social devastation ever suffered by a modern country in peacetime’ and ‘the unprecedented demodernisation of a twentieth century country’.24 Russia’s vice president Alexander Rutskoy denounced Yeltsin’s programme as ‘economic genocide’.25 The Russian people called its effects ‘catastroika’.26 The UN’s investigative team warned, “a human crisis of monumental proportions is emerging in the former Soviet Union, as the transition years have literally been lethal for a great many people.”27 In the 1990s, Russia’s rate of population loss was more than double the rate in the first half of the 1930s. Stuckler and Basu estimated that there were 10 million excess deaths in Russia in the early 1990s.28
Between 1991 and 1998, national income was cut by more than 50 per cent, as against 27 per cent in the USA in the Great Depression. Oil production fell by half. Investment in 1999 was a fifth of 1990’s total. Direct foreign investment in Russia during the 1990s was only a little more than in Hungary, which had a fifteenth of Russia’s population. Most of that investment went into extractive industries. The privatisation of housing provision led to a huge fall in house building.
In Russia, in 1994-98, 40-60 per cent of workers were owed wages. In 1995, pay was just half 1990’s level and average real pensions were less than half 1990’s level. Unemployment rose from 3.6 million in 1992 to 8.9 million – a tenth of the working class – in 1998. By 1998, more than 80 per cent of Russia’s firms had gone bankrupt and 70,000 factories had closed. Industrial jobs were cut from 32 million in 1990 to fewer than 20 million by 1999. Science lost half its workers.
Livestock and dairy herds fell by 75 per cent. By 2008, Russia was importing 40 per cent of its food, including 75 per cent of its meat. Meat and milk production were half what they had been in 1990. Russia had reverted to its 19th-century role as a source of raw materials: it depended on its oil and gas exports.
The 2000 labour code reform allowed wider use of temporary contracts, expanded employers’ rights to dismiss workers, and reduced the powers of trade unions in dismissals. Responsibilities for housing, health care and pensions were transfe
rred to individuals, markets and insurance mechanisms. Access to public transport, housing, utilities and other goods and services was further reduced.
The extensive social services of Soviet times, from free kindergartens to free health care and paid holidays, all went. As a former supporter of Yeltsin lamented in 1992, “Our children used to rest at well-provided camps; we were able to buy things at prices we could afford; we received free medical care from doctors who respected their Hippocratic Oath; we ate at lunchrooms at prices within our reach; we walked the streets till early in the morning without fear. Now all is falling apart.”29
Vitamin deficiency was widespread. Tuberculosis cases rose by 75 per cent, HIV cases from 400 in 1994 to 250,000 in 2000. A tenth of newborns suffered from serious birth defects and about half all schoolchildren suffered from chronic diseases. By late 1998, two million Russian children were living without families, two-thirds of them on the streets. Ten million children were not in school. In 1999, about 35 per cent of the people were living below the poverty line and many more hovered just above it. The suicide rate was up 60 per cent since 1989. Russia’s birthrate had dropped by a third since 1990 and its mortality rate had risen by a quarter. The population fell to 146 million in late 1999, down more than two million since 1991. In 1989, lifespans had been 66 for men and 75 for women; by 2008, they were 62 and 74. By 2007, Russia ranked 164th of 226 countries for life expectancy.
The UN Human Settlements Programme concluded in 2003, “The region where the increase in extreme poverty was the most pronounced comprised the former socialist countries of Eastern Europe and Central Asia. Poverty rates moved to over 50 per cent in half of the transitional countries in the transition period of 1988 to 1995; and persons in poverty increased from 14 million to 168 million in the region, as a whole. The number of people in poverty in Russia rose from 2 million to 74 million, in the Ukraine from 2 million to 33 million and in Romania from 1.3 million to 13.5 million. These massive changes were due to lower incomes, to increased income inequality and especially to inflation, which lowered purchasing power substantially.”30
Yet the working class fought back. The government proposed to abolish the United Tariff Scale (UTS) that governed the wages of all public employees. It also proposed to devolve responsibility to regional and local authorities for public-sector finances, for providing public services and for wage-setting, which would cause large differentials in pay between more and less wealthy regions. The health service workers’ union demanded that the UTS be kept, to guarantee equal pay for equal work. In October 2004, a million health workers struck. As a result, the lowest grade workers won a pay increase from 110 to 600 rubles and public sector wages rose by 20 per cent from 1 January 2005 and then by 50 per cent in stages over the next three years. Early in 2005, trade unions organised demonstrations and transport blockades across more than 70 cities in protest at the ‘austerity’ measures.
The chairman of the building workers’ regional committee in Samara said, “The trade union is a fighting organisation, not a charitable one. … Only competently organised pressure upon employers brings a positive result.”31 This union waged about five disputes a year, winning most of them. In 2001, it prevented the bankruptcy of a large building materials combine and in 2006 it stopped the closure of a large project. Metal workers at Siberian Ore won a 20 per cent wage increase in 2007. Ford workers won a big pay rise in 2009 and a 12 per cent rise the next year.
The world crisis hit Russia hard. In 2009, its output fell by 7.9 per cent; in 57 out of 83 regions, disposable income per person was cut by 30 per cent or more. 75 per cent of the people lived at or below subsistence level. In 2013, the health of Russian men was still worse than it was before 1991.32
Reactionaries rejoiced at Russia’s plight. Charles Krauthammer, the Washington Post’s political commentator, wrote, “it is in our interest that their economy not recover”33, an opinion shared by Britain’s International Institute for Strategic Studies. The ‘young-reformer’, privatiser and businessman Alfred Kokh said, “the Russians deserved their miserable fate.”34
Yet Russia still had huge resources: the World Bank said in 2013 that it was the world’s fifth largest economy. It needed to direct investment into industrial and agricultural enterprises, to borrow to invest and to pay workers’ unpaid wages and pensions, to support education, science and welfare, to put tariffs on imported goods to protect domestic enterprises, to tighten controls to stop bank malpractices and capital flight, to regulate key prices (especially of food and energy) and to renationalise key privatised enterprises like oil, gas, timber and strategic metals. Even US economist Joseph Stiglitz agreed that some renationalisation was needed.35 Russia should default on its debts. Restructuring the debt, the usual IMF ‘remedy’, would only add interest due, perpetuating the debt bondage.
Central Asia
The counter-revolution threw the peoples of the five countries of Central Asia, Tajikistan, Uzbekistan, Kyrgyzstan, Kazakhstan and Turkmenistan, into poverty. American historian Sally Cummings summed up, “Debt remained a serious problem. To date, trade has benefited the richest, not the poorest. Social problems have increased as access to basics, for example education and health care, have declined. Basic state infrastructures have declined. … In all five, state capacity in the sectors of welfare and infrastructure has been enormously neglected.”36
These countries became avenues for the heroin trade to Russia and Europe, which increased heroin use in these countries too, spreading addiction, disease, misery, corruption and crime. A UN agency concluded, “in the past ten years, Central Asia has experienced the highest increase in prevalence of drug abuse worldwide.”37 Their states became repressive kleptocracies, dictatorships where capitalist criminals seized both state power and the countries’ resources. Their economies were reduced to sales of raw materials, money-lending, dodgy corporate takeovers aided by Western banks and the sale of contracts to supply fuel to the US military bases set up to wage NATO’s war against Afghanistan.
The US government and the EU used Islamist terrorists to fragment and destabilise countries across Asia.38 In Tajikistan, a civil war in 1992-97 killed 50,000 people. Uzbekistan and Russia aided Tajikistan’s government; the US government funded the opposition. In Uzbekistan, the Islamic Movement of Uzbekistan [IMU], linked to Al-Qaeda, funded its weapons purchases by selling Afghan opium. It ran 70 per cent of Central Asia’s drug trade. It opposed the Moscow peace accord which ended the war in Tajikistan. It de-stabilised Kyrgyzstan by launching raids in 1997 and 2000. NGOs also destabilised Kyrgyzstan. As journalist Boris-Mathieu Pétric wrote, “international organisations and NGOs in Kyrgyzstan are … co-producing a policy that has exacerbated and strengthened ethnic differences instead of producing a common social contract ...”39 This led to the killings in inter-communal violence of hundreds of Uzbek and Kyrgyz inhabitants of the Kyrgyzstani city of Osh in 2010.
But the Uzbekistan government bucked the trend. In May 2005, it cracked down on the IMU and on the Chechen terrorists in the country (who also funded their weapons purchases by selling Afghan opium and were also linked to Al-Qaeda). This brought a halt to the wave of ‘colour’ counter-revolutions in countries of the former Soviet Union. The government also evicted the USA from the Karshi-Khanabad Air Base and expelled the NGOs. The Uzbek economy grew by 7 per cent in 2013 and only 4.9 per cent were jobless.
In Mongolia, the counter-revolution made life worse. 9 per cent were unemployed in 2011 and 29.8 per cent lived below the poverty line. Craig Janes and Oyuntsetseg Chuluundorj noted, “as most Mongolians now recognize, it is clear that the social protections afforded by the old socialist regime provided households and individuals far more health, economic, and social security than are now afforded under the new capitalist system.”40
US and EU governments stir up trouble
On 2 February 1990, the US and German governments agreed “there was no interest to extend NATO to the East.”41
But this was untrue. NATO’s top priority was to extend across Eastern Europe. When Gorbachev met Germany’s Chancellor Helmut Kohl on 10 February, he conceded what Kohl wanted - German unification - without getting Kohl to agree to what Russia wanted - no eastward expansion of NATO.42 The Czech Republic, Hungary and Poland joined NATO in 1999. After 9/11, the Russian government was the first to back the US war against jihadism. The US response was to withdraw from the Anti-Ballistic Missile Treaty and to expand NATO yet more. Bulgaria, Romania, Slovakia, Slovenia, Estonia, Latvia and Lithuania joined in 2004, and Albania and Croatia in 2009. Before 1989, Leningrad was 1,200 miles from NATO’s nearest border. By 2004, with Estonia’s entry into NATO, it was just 100 miles away.
When NATO installed a new anti-ballistic missile system, it told Russia that it was not usable against Russia, but, as Karl Lieber and Daryl Press wrote in Foreign Affairs, “If the United States’ nuclear modernization were really aimed at rogue states or terrorists, the country’s nuclear force would not need the additional thousand ground-burst warheads it will gain from the W-76 modernization program. The current and future US nuclear force, in other words, seems designed to carry out a preemptive disarming strike against Russia or China.”43 The US government continued to build a force able to win a nuclear war.
Former Secretary of Defense and CIA Director Robert Gates noted, “When the Soviet Union was collapsing in late 1991, [Defense Secretary Dick Cheney] wanted to see the dismemberment not only of the Soviet Union and the Russian empire but of Russia itself, so it could never again be a threat to the rest of the world.”44 Brzezinski urged, “both EU and NATO expansion should continue, thereby eliminating any geopolitical ambiguities or temptations in the areas immediately west of Russia.”45 The Wall Street Journal explained NATO’s aggressive expansion as ‘a strategy that will permanently guarantee Western overall interests in the South Caucasus and Central Asia. Such interests include: direct access to energy resources … and forward bases for allied operations.”46 The Washington Post opined, “The West wants to finish the job begun with the fall of the Berlin Wall and continue its march to the east.”47