Armageddon Averted: The Soviet Collapse, 1970-2000 (19 page)

survival and cannibalism in the rust belt firms, too. Keeping afloat the incurable had in a sense bankrupted everyone. Yet consider that almost
one half
of Russian towns had only one major industrial firm, and three-quarters no more than four. Such monopoly employers, moreover, also owned and often maintained urban mass transit systems, housing stock, hospitals, and winter heating systems.

Market logic was further stymied by bankruptcy proceedings being used for cut-rate hostile takeovers of profitable assets. When not colluding in such scams, regional governments bestowed various non-monetary subsidies on inefficient producers, claiming a need to maintain jobs and services. The federal authorities, too, were subsid-izers, tolerating the tax arrears of energy supply companies so long as they maintained electricity to non-paying customers, such as military installations or giant employers.
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Workers, even when paid only in kind or not at all, hung on, eating in factory canteens and scavenging factory tools and materials for their own private economic activities, as in Soviet times. If they were let go, workers kept their factory-built Soviet-era apartments, for which they paid only nominal fees for rent and utilities—any attempt to remove state budget subsidies for electricity, heat, and water just led to non-payments. In short, the Soviet legacy worked as a hindrance to full marketization, and as a safeguard against utter catastrophe.
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Soviet-era industry still dominated Russian employment, but major shifts occurred. For one thing, two-thirds of GDP was now in private hands. For another, the military’s 137

survival and cannibalism in the rust belt share plunged from around 20 per cent (in the mid-1980s) to under 5 per cent in 1998, while the energy sector’s share climbed from 11 per cent in 1991 to 32 per cent by 1998. Russia became an export-dominated economy, but mostly of raw materials. Domestic oil production had dropped by half, yet consumption fell, too, enabling Russia to take advantage of high world oil prices during much of the decade. Even more crucial for the economy was the gas industry, which had been a top investment priority under Brezhnev. Chernomyrdin strengthened the gas sector’s monopoly structure, while partially privatizing it with insiders. As a result, Russia’s gas behemoth, despite utterly dubious tax breaks as well as breathtaking managerial embezzlement, supplied a fifth of federal budget revenues throughout the 1990s.
30
In a sense, the country was still living off its oil and gas—in a continuum since the 1970s. But, instead of underwriting a global military superpower, oil and gas financed far more modest levels of government spending and more immodest lifestyles of the reshuffled elites.

Oil and gas money also continued to encourage the delay of painful economic restructuring. Retooling obsolete plants costs considerably more than building new ones. In the former East Germany, factories—unable to ignore or outfox the market like their Russian counterparts—were not rebuilt; they were not even torn down but abandoned as new ones were built nearby, thanks to colossal capital transfers from a rich, con-descending Western ‘uncle’. Over the course of the 1990s 138

survival and cannibalism in the rust belt in Russia, total direct foreign investment amounted to just several billion dollars per year, less than in tiny Hungary (which if somehow picked up and dropped from above into Russia could not be found again). No less important, Russia’s banking system functioned not to make household savings available for productive investment but, peri-odically, to wipe savings out, and, with a big invisible hand from Western banks, to facilitate extensive money laun-dering and capital flight. Perhaps $150 billion of domestic capital fled Russia during the 1990s, an amount close to four times the IMF loans extended as ‘aid’. Another $40

billion in domestic ‘mattress savings’ were also unavailable for investment.
31
The investment dearth was among the reasons that, even as Russia’s continent of smokestacks connived to maintain its wasteful, toxic output, it continued to be cannibalized for short-term gain. Perhaps the only way to have ‘restructured’ Russia’s rust belt was to have bombed it from the air.

Many analysts blamed the West, particularly the US, for not coming up with a Marshall Plan for Russia, but they were misguided on several counts.
32
In the late 1940s, Marshall money went to European bureaucrats who were strictly accountable and guided by rules to spend funds on imports not of consumer goods but of capital goods—a form of basic industrial policy excluded in the 1990s by the politically insurmountable American mythology of stateless markets. Also, the Marshall Plan sustained a West European recovery already underway. Russia was in a deep depression—an altogether different prospect. In any case, 139

survival and cannibalism in the rust belt to offer the Russians—which Russians?—anything close to the investment necessary, the US government, even if it had miraculously overcome ideological objections, would have had to explain to American taxpayers how implementation was going to work, since Russia’s own government failed miserably in efforts to direct investment, especially when compared to its successes in aiding capital flight. And what of accountability, in a country whose own Central Bank speculated against the rouble, hid money in offshore accounts, and spent hard-currency reserves on its own salaries, perquisites, and bureaucratic aggrandizement? The ‘aid’ (almost exclusively in the form of loans) that was extended to Russia predictably disappeared, leaving behind a mountain of public debt, just as had happened in Eastern Europe in the 1970s and 1980s, though Western governments later forgave much of Eastern Europe’s debt.

In any event, all post-Communist countries, whether subjected to stateled gradualism or elements of shock therapy, saw GDP fall off a cliff. Ukraine held off price liberalization and its privatization was less far-reaching than Russia’s, but its inflation and asset stripping were arguably worse, despite its free ride from not paying Russia for gas supplies. Certainly Russian policymakers can be blamed for not seeking to end the rouble zone immediately, for not removing controls on energy prices, and for trying to build political support with free state credits to industry. Certainly faking auctions to hand insiders strategic industries, just like facilitating foreign 140

survival and cannibalism in the rust belt trade scams and using the gas industry as a private reserve, was unpardonable. But the underlying cause of Russia’s difficulties was not policy. Rather, the fundamental factor was the Soviet bequeathal, one side of which was a socio-economic landscape dominated by white elephants that consumed labour, energy, and raw materials with little regard for costs or output quality.
33
The other side, remarkably, was even more ruinous: unfettered state officials whose larceny helped cashier the Soviet system, and whose bloated ranks swelled with many grasping newcomers.

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6

Democracy without liberalism?

Just as you cannot have capitalism where everything is planned, so you cannot have capitalism where everything is for sale, not at least if the saleable items include employees at the public registry of titles and deeds. Markets presuppose a competent and honest bureaucracy . . . [And] the idea that autonomous individuals can enjoy their private liberties if they are simply left unpestered by the public power dissolves before the disturbing realities of the new Russia.

(Stephen Holmes, American political philosopher, 1997)

All my telephones were tapped. And I’m sure, not just the telephones.

(Vyacheslav Kostikov, President Boris Yeltsin’s loyal press secretary, 1997) Well before Gorbachev came to power, it was evident that among Communism’s greatest failures was its inability to control Communists. But who would have guessed that, 142

democracy without liberalism?

after the elimination of the party from the state administration and well-intentioned democratic reforms, officialdom would become far more shameless under Yeltsin than it had been even under Brezhnev? Russia popularly elected and revamped its legislature, and popularly elected its president, even before the dissolution of the Union. But the country did not manage to cut back the number, or transform the behaviour, of the hordes of executive branch officials it inherited. Nor did it manage completely to overhaul the Soviet-era legal machinery, the Procuracy and the KGB, and sufficiently bolster the very weak Soviet-era judiciary. Democracy came to Russia atop the debris of the Soviet Union’s expressly anti-liberal state, the institutional twin of the industrial planned economy.

Historically, liberalism—a legal order geared to the defence of private property and the civic rights of those recognized as citizens—combined the proclamation of universal principles with slavery or colonialism, and only very belatedly, after considerable struggle, extended legal protections, the right to form associations, and the fran-chise to all male inhabitants, and finally to women. But despite its glaring exclusions and deep flaws, liberalism, as Alexis de Tocqueville might have noted, is more fundamental to successful state building than democracy.

Democratically elected office-holders, in multiparty systems, often behave like dictators unless they are constrained by a liberal order, meaning the rule of law. A liberal order involves a powerful parliament controlling the purse and issuing a steady stream of well-written laws, 143

democracy without liberalism?

an authoritative judiciary to interpret and rule on the parliament’s laws, and generally consistent implementation of laws and rules by a highly professional civil service, all of which allows for the influence of civic organizations to be felt. To put the matter another way, liberalism entails not freedom from government but constant, rigorous officiating of the private sphere and of the very public authority responsible for regulation. In short, liberalism —as is evident from its absence—means not just representative government but effective government, a geopolitical imperative for prosperity in the hierarchical world economy.

The Soviet system had served as a powerful shield against the dictates of the world economy. But that isolation could not have been maintained forever, and when it ended, its consequences proved especially disastrous. Furthermore, because the Soviet dictatorship had been distinguished by complete state ownership of property, the USSR, unlike even authoritarian inflections of historical liberalism, had had no corpus of laws for, or experience in, adjudicating legal private interactions among self-directed actors. True, the Soviet state had a huge body of laws, a court system, and legal experts, some of whom offered recourse to individuals wronged by state authorities. But innumerable executive decrees, many of them secret, asserted precedence over laws, and the executive power, if it so desired, could trump any court or legal decision, just as the executive commanded the legislature. The Soviet Union was governed by men, not laws. That was the very 144

democracy without liberalism?

reason the Soviet executive power had an extremely difficult time governing
itself
.

Privatization in Russia was supposed to create a dynamic society and reduce the inordinate number and power of state officials. But it was precisely the members of Russia’s arbitrary, unencumbered executive branch, at all levels, who assumed responsibility for history’s most extensive privatization (which as of 2001 still had a considerable way to go), and over other key economic nodal points. Far from being snapped, the nexus between holding executive office and exercising control over property and resources was in some ways fortified. This circumstance enabled the executive power to eclipse legislatures, despite the latter’s formal budgetary responsibilities, and it reduced Russian politics to a scrum to acquire and benefit from executive office, irrespective of ideological tilting.

As individuals elected or appointed to positions of state authority pursued private gain to a greater degree, the commitment to the public good that had existed in the Soviet Union—for health care, education, children’s summer camps—eroded much more deeply, demoralizing rather than empowering society.

This intensified privatization of public office and neglect of the public interest, both cause and effect of the Soviet collapse, were accompanied by a transience of formal organizations. From the late 1980s, a new political ‘movement’ was announced almost every week. By the end of the 1990s, Russia had nearly 100 registered ‘political parties’, but only one that was a real organization and 145

democracy without liberalism?

countrywide—the relic Communists. Russia also had nearly a quarter of a million legally registered NGOs (until a forced ‘re-registration’ reduced the number to around 100,000, still a hefty total). Yet, despite all the babble, dating back to the Gorbachev reforms, about the growth of ‘civil society’, none of Russia’s NGOs came remotely close to matching the robustness and influence of the state-sponsored associations of the Communist period.

Without empowering roots in society, state power was weak and it was unconstrained—except for the executive branch’s own convoluted structures and officialdom’s self-serving behaviour, both of which proved inimical not just to the tasks of facilitating a liberal, market society, but also to the aspirations of any would-be authoritarian ruler, whether Boris Yeltsin or his elected successor, Vladimir Putin.

Most Russia watchers were transfixed by Yeltsin’s personal failings (he did finally apologize upon resigning slightly ahead of term), the chicanery of the ‘oligarchs’ (a misnomer for publicity-craving goniffs), hideous as well as pseudo nationalists (who also attracted broad media attention despite their lack of effective organizations), the supposed recalcitrance of the supposedly Communist-dominated legislature (which assiduously protected its perquisites by voting for initiatives of the Kremlin), and the ascent to power of former KGB agent Putin (a pragmatist uncertainly pursuing order amid chaos). Remarkably, analysts paid almost no attention to what really counted— the multiple institutions and mundane workings of the 146