Ed Weick
Morning, June 1, 1995 - More dismal thoughts and speculation about the economy
I find myself wondering about the tackiness, poor quality and poor maintenance of housing, of cars, of older shops, or roads and sidewalks, and indeed of everything that had to do with consumer needs under the old Soviet system. People were stacked up in crate like buildings, one on top of the other. And the buildings were of minimal quality and contained minimal facilities [unless one belonged to the elite, and then you were still stacked up, but much more stylishly and luxuriously].
It seems that what people were able and willing to endure contained a promise, an indebtedness of the state to the individual: "Live this way now, suffer these deprivations for the time being, and things will be better for you in future. We must first build an economy, and when that economy begins to produce, things will improve. You'll see. Trust us."
And the people trusted for a very long time. But then they began to see little delivery on the promise. Consumers goods did not become more abundant, queues did not get shorter, housing did not improve. All that happened was more and more and more of the same.
Things had reached a critical point by the time Gorbachev took over. Glasznost and Peristroika were to be the promises delivered - in part. There was to be a more equitable allocation of resources and productive capacity between heavy industry and consumers goods. But this was to happen without posing a threat to the main obligations of continuing to build the economy via heavy industry and continuing to meet the needs of the military. And, in retrospect, Gorbachev could not deliver very much. By the time his reforms came along it was too late. To keep the rundown industrial plant going and to keep the military armed simply demanded too much of what the economy was capable of producing. There was little left over for consumers.
Throughout the Soviet period, the emphasis had been on the development of heavy industry. Moreover, such development had proceeded extensively by allocating capital to building more instead of fixing the existing plant and making it more productive. With the exception of some of the most strategic industries, such as aviation, the emphasis was on volume, not quality. If, for example, oil drilling equipment kept breaking down, the answer was not to build drilling equipment which would not break down so easily, but to build enough rigs to ensure that those which failed could be replaced. A tremendous amount of scrap metal was produced by this process, but with little capacity for recycling, and indeed with little understanding of the desirability of recycling.
Very little of the industrial base had been devoted to the needs of consumers. Under the Soviet system, consumer prices were artificially maintained at very low levels, so goods and services were cheap. The problem was that they were not available. People had to hunt for food and other consumer items from store to store, had to stand in queues to get what food and consumers goods there were, had to buy whatever was available, and then had to barter to finally get what they wanted, if they could find someone to barter with.
With the freeing of prices and creation of a market system (which began during Perestroika but which as accelerated during the more recent reforms - the so-called "shock therapy"), the importation of western goods literally exploded. But western goods could only be had at world prices, and if Russian consumers were to pay for them in roubles (for a time they had the option of paying in dollars, but that has now been closed off) they had to pay the rouble equivalent of the dollar price of the goods. What occurred was a very rapid fall in the exchange value of the rouble, a very rapid rise in consumer prices, and a levering up of incomes by whatever formal or informal means were available. The exchange value of the rouble plummeted and finally crashed on "black Tuesday", October 11, 1994, when it fell from 3,000R to 3,926R to the dollar. It continued to fall further, and by the beginning of June, 1995, had reached almost 5,000R to the dollar.
Where incomes were upwardly flexible, wages increased. But in most cases they were not very flexible, so wage earners had to resort to a variety of other means, generally referred to as "working in the shadow economy", to obtain enough income to survive. Where incomes were fixed, such as the incomes of pensioners, people literally fell out of the economy. Savings, which were adequate as a retirement nest-egg under the Soviet system, were wiped out by inflation. Many people had to resort to depleting their capital by selling anything of value, even their apartments (to which they had been granted title when it became obvious to the state that it could not maintain them) just to survive.
The inflation was greatly abetted by the high degree of monopolization in the Russian economy. The Soviet state had held a monopoly on all foreign trade, and when the importation of goods fell into a relatively few strategically placed private hands, large profits were pocketed.
As well as putting many people into personal crisis, the "shock therapy" reforms had a disastrous impact on industry. Industrial firms, which in the planned economy had also been buying from and selling to each other at artificially low prices, took advantage of their monopoly positions following the freeing of prices and tried to charge "what the traffic would bear". Many could simply not pay, and the inter-linked industrial system began to fray and fall apart:
"A competitive market was missing--monopoly dictated prices--and there was no control over enterprise budgets because the state had lost influence over directors. The directors gave credit to each other in order to maintain production.
Cost-based pricing continued, and attempts to limit growth in the money supply failed "under pressure from the pro-inflationary behaviour of enterprises that are oriented toward a rapid increase in productions costs and that take advantage of their monopoly position to pass on those costs... The natural result is massive non-payments." Glazyev saw a chain of deepening structural crisis, "irreversible, spontaneous destruction of non-raw-material production facilities ... deindustrialization ... mass unemployment and impoverishment." Rapid privatization could only make things worse by breaking up rational concentrations of production and cooperative arrangements." (Fenster, Eric, The Russian Study Trip Briefing, 1995)
According to Russian official data, GDP declined by 12% in 1993 compared with 19% in 1992. Industrial output in 1993 fell 16% with all major sectors taking a hit. Agricultural production, meanwhile, was down 6%. The grain harvest totalled 99 million tons - some 8 million tons less than in 1992.
The Soviet system came to an end because it could not deliver on a promise, one which is still visible in the decay of housing and infrastructure, and in the dispirited, angry faces of the people who must put up with that housing and infrastructure from day to day, and with consumers goods they cannot, for the most part, afford.
What ordinary people must live with now is a world which no longer contains the promise made a very long time ago and then repeated by a succession of leaders. In the minds of most Russians who have suffered greatly from them, the more recent promises of the shock therapy reforms have also turned out to be empty. Now the state no longer has an obligation to the individual; that has gone. The onus for his or her welfare or health, or his and her children's welfare, has been placed on the individual. It is up to the individual to create his own paradise or to merely stay alive by whatever means he can. The state will try to set rules, but it cannot go much further than that, and in Russia there is little guarantee that the rules can either be set or will be followed. If you want better housing, you will have to find it yourself; if you want more and better consumers goods, why then find the means to pay for them!
And judging by some of the fancy cars and clothes, and the high priced restaurants in downtown Moscow and St. Petersburg, it would seem that some people have found those means. But many others have not and never will. On a three hour walk in the Old Arbat, I saw a middle aged woman who sang, an old man who juggled, a little girl perhaps eight or ten who played an accordion, and several young men who played wonderful music in a subway tunnel - all for the few ruobles that passers-by threw them. Many people in the metro tunnels and on the street, particularly old people who had little talent to offer, were just plain begging, selling bread, cucumbers or cigarettes, or getting out of it all by being very drunk on vodka.
