03.09.1998

Russia in crisis

Worldwide recession looms

When the normally rational and pragmatic Financial Times concludes that “only a miracle” can save Russia from its current financial and economic woes (August 27), then the situation must indeed be grave. Sharp falls in stock markets around the world attest to growing anxieties about a general, systematic financial crisis leading to a possible slump. It is important to analyse the nature and extent of Russia’s troubles and to examine their political repercussions.

First, let us do away with the misconception that this crisis represents the failure or death of capitalism in Russia. Whatever it is that has collapsed there, it is not capitalism in any conventional sense of the word. To understand why this is so, we have to look first of all at the peculiar, almost Asiatic relations of power and patronage that have arisen around what amounts to the court of Tsar Boris. The point to grasp is that for a long time, especially since the 1996 presidential election, there have effectively been two parallel, uncoordinated administrations in Russia.

On the one hand, there is the official government, appointed by the president and approved by parliament. For five years up to the spring of 1998, when Yeltsin sacked him, the government was led by Viktor Chernomyrdin. It is, of course, Chernomyrdin whom Yeltsin nominated once again last week. Under Chernomyrdin the Russian government was committed in principle to a programme of ‘radical economic reform’ - ie, an attempt to introduce full-blooded capitalism. In practice, however, the social costs in terms of unemployment and the associated political risk in terms of popular discontent meant that the introduction of a conventionally capitalist industrial base was constantly stalled and never really took place.

On the other hand, there arose a small but powerful stratum of elite businessmen, many of them former members of the old nomenklatura, commonly referred to as the ‘oligarchs’, who effectively functioned as a parallel financial and economic administration. Their power increased considerably after the June 1996 presidential election. They spent millions of dollars backing Yeltsin’s campaign, but also funded another candidate, the popular former general, Aleksander Lebed. His function was to act as a spoiling candidate to draw votes away from Gennadiy Zyuganov, leader of the Communist Party of the Russian Federation (CPRF). The first round of voting was too close to call, but after Lebed duly opted to support Yeltsin the result was inevitable.

As became clear almost immediately after the election, Yeltsin’s physical health and mental stability were precarious, to say the least. Many of his executive functions consequently devolved upon a coterie of court favourites and advisers. Most have close links with the oligarchs. Those wishing to learn more about the Byzantine court of Tsar Boris should read the memoirs of Aleksander Korzhakov, his former KGB bodyguard and crony, who was at one time widely regarded as the second most powerful man in Russia. Much of Korzhakov’s testimony needs to be treated with scepticism, but there seems little reason to doubt his general contention that real power in Russia is for the most part exercised by the oligarchs.

Although they are vulgarly portrayed as capitalists, the oligarchs do not really fit the description. Yes, they have had access to billions of dollars in the form of foreign investment capital and IMF aid, but only a tiny fraction of it has been invested in the sinews of the economy - capital investment in industry has fallen by 75% over the last two years and industrial output has shrunk by 40% in the same period. A good deal of this finance capital simply found its way abroad, placed in the private bank accounts of oligarchs and their corrupt political placemen. Some was used to buy up large chunks of state enterprises at bargain prices; or it formed the capital for innumerable banks, whose main function was to launder money for the Russian mafia; or it was invested in speculative instruments on the financial markets. This is not capitalism as Marxists understand it. Nor can we speak of authentic capitalist relations in a situation where wage labour hardly exists. Millions of workers receive no pay at all and survive only through barter and the consumption of home-grown produce.

Only in the sense of a very primitive form of capital accumulation can Russia’s economic system be called capitalist. George Soros has called it “robber capitalism”; others “wild west capitalism”. It is essentially characterised by plunder, parasitism and reckless self-enrichment on the part of the oligarchs.

Boris Nemtsov, the recently dismissed, long-term proponent of radical reform, describes the situation thus:

“The country is built as a freakish, oligarchic capitalist state. Its characteristics are the concentration of property in the hands of a narrow group of financiers ... Many of them operate inefficiently, having a parasitic relationship to the industries they control, sucking out capital and keeping it in Moscow or moving it abroad. They don’t pay taxes and they don’t pay the workers” (The Observer August 30).

Leonid Shebarshin, a former senior KGB officer, who now runs a prestigious security service for banks, characterises the situation as follows:

“Thousands of banks sprouted up like mushrooms. There was a chaotic stripping of national wealth. No other country has experienced privatisation on such a scale. The atmosphere was one of boundless greed, of a desire to enrich yourself at any price. The people who were in power looked on this power as an instrument of direct and brazen self-enrichment. Over several years we created not just millionaires, but billionaires. I don’t think there’s a precedent for this, apart from the emergence of the drug barons ... Personal and group interests overwhelmed the interest of the state and the people” (ibid).

In a sense, it is their “boundless greed” that has come back to haunt the oligarchs. Their determination not to pay tax on immense capital gains and income from privatisation and other business dealings played a major part in creating the present crisis: Russia’s chronic problems with budget deficits have worsened markedly over the last year; rapidly spreading crisis phenomena in Asian asset markets led to fears of a deflationary spiral and a consequent fall in the price of commodities like oil, gas and gold, which form the bulk of Russia’s foreign earnings. The absence of tax revenues means that in effect the country simply ran out of money to pay the interest on its mountain of debt.

In this situation, the Kiryenko government, supported by radical reformers like Nemtsov and Anatoli Chubais was preparing drastic action against the oligarchs’ myriad business interests, particularly in the banking sector. It was also an acute shortage of revenue that led the Kiryenko government effectively to devalue the rouble and introduce a rescheduling of debt that amounted to a default. Undertaking to pay back $40 billion of dollar-denominated debt in roubles was a move that caused western bankers and the oligarchs themselves to spit blood. A further $150 billion of short-term, high-interest bonds are also to be rescheduled, a move that is bound to produce multiple bankruptcies in the Russian banking system, the bulk of which is owned by the oligarchs themselves.

Against this economic and financial background, it is clear why the oligarchs opted for a make-or-break political solution to their dilemma. As they saw it, the choice was between allowing the Kiryenko government to inflict major, perhaps terminal damage on their banking interests through the seizure assets and the demand for payment of billions of roubles in back taxes; or bringing in a government that would leave their interests intact while printing its way out of trouble. The flawed economic logic of this approach is easy enough to see, but desperate problems call forth desperate remedies. According to some reports, it was the leading oligarch Boris Berezovsky who brokered a deal with Yeltsin’s officials. Whether Yeltsin knew what he was doing when he signed the decree sacking the entire Kiryenko administration on August 23 is open to question.

Economically, of course, this move was sheer madness. Its first and definitive political outcome has been to destroy the Yeltsin presidency’s dwindling credibility. Politically he is already a stinking corpse, but even as a cadaver he can still do the oligarchs one final favour. Yeltsin must occupy the presidential throne for a little longer, while they desperately try to stitch together a political deal that will shift the centre of gravity of state power away from the presidency and towards the prime minister and government. They have made Yeltsin an offer he cannot refuse, in return for which this arch-traitor to the Soviet ‘motherland’ and agent of imperialism will get a peaceful retirement in which to enjoy an immense, criminally acquired fortune. As a bonus, there will be a sackful of immunities to protect him from the legal consequences of his political corruption.

The choice of Viktor Chernomyrdin as prime minister designate was entirely predictable. As a former ‘red director’ and later chief executive of Gazprom, the huge gas monopoly, he managed effortlessly to transform himself from a ‘communist’ apparatchik to a liberal free marketeer, forming his own party called Our Home is Russia. His personal fortune is considerable and, as a kind of bridge between the old and new regimes, he was (and to a certain extent still is) regarded by western politicians and other foreigners as a safe pair of hands. At home, however, his five-year premiership is seen as a lamentable saga of futile dithering on economic reform, a good many questionable privatisation deals involving old nomenklatura buddies, and a proliferation of criminality in general. Significantly, shares in Gazprom were practically the only equities to rise on the day after Chernomyrdin’s nomination. In a telling gesture, speculators assumed that someone as well known for cronyism as he is would use his new position to ensure that Gazprom was given favoured treatment under the new regime.

From our perspective, the imperialists’ initial reaction to the Russian crisis has been both instructive and encouraging - mainly because the big powers and global institutions have found it impossible to disguise their impotence and despair in the face of a situation for which they have no answers. Clinton, Blair, various G7 ministers and the IMF have issued a salvo of more or less identical statements: ‘If Russia continues on the path of reform’, is the message, ‘then we will help’. But on no account should Russia contemplate a return to a command economy.

As all these ladies and gentlemen are perfectly aware, what ‘reform’ has actually amounted to in Russia is nothing more than organised crime. A small army of thieves and swindlers have been ‘reforming’ the Russian economy for more than seven years now, and the net result has been the impoverishment and degradation of every (non-criminal) stratum in Russian society. Well over $50 billion in IMF funding is unaccounted for and clearly further charity of this kind would amount to throwing good money after bad.

The CPRF’s decision to block Chernomyrdin’s confirmation as prime minister, effectively leaving Russia without a government, has raised the political stakes and deprived the Clinton-Yeltsin summit in Moscow of any meaningful purpose - “Lame duck meets dead duck”, as one of the headline writers put it. On past form, the CPRF will try to extract the maximum tactical advantage before caving in.

Whatever short-term deal is agreed, there is no way out for Russia. The transition to western capitalism under a bourgeois democracy is impossible, while nobody - not even the CPRF - is advocating a return to Soviet-style ‘socialism’. The working class has no voice, no political organisation. As the country descends into chaos, a military takeover looks more and more possible.

Russia’s crisis has further added to the global instability of capital, with world markets in turmoil. It is no longer a question of if, but when the recession will hit home.

Viktor Melor