--------------F5A0386E9F5606C796639A14
As promissed,
Here is the Buzgalin&Kolganov article that clarifies some of the roots
of the ongoing crisis in Russia!
Regards,
Greg.
Just a note for those concerned with copyright: this article appeared in
the Winter 1998 edition of (Socialist)"Alternatives".
*****
Alexandr Buzgalin, Andrei Kolganov
THE INFLUENCE OF THE INTERNATIONAL MONETARY FUND AND THE INTERNAL CAUSES
OF THE SOCIOECONOMIC CRISIS IN RUSSIA
The implementation of the so-called radical economic reforms in Russia
in the first half of the nineties makes it hard to provide any rational
explanation for the policy of obviously deliberate destruction of the
industrial, human and other potentials of Russia other than what seems
an obvious simple law: gradual radicalization of economic policy to
create an economy meeting the "standards" set by our Western
"colleagues". It was formulated in a number of theoretical and
publicistic publications of right-wing Sovietologists and other experts
in the late eighties. Early in 1990, a manifesto of this policy was made
public under the title "500 Days" (originally "400 Days"); it had been
prepared by Grigory Yavlinsky, an economist little known at the time.
That document amazed one by its market radicalism and reckless
adventurism by promising absolutely unrealistic deadlines for reform.
Nevertheless, the well-orchestrated choir of eulogizers of this
adventure sounded more and more loudly.
1. The IMF: What They "Advised" Us
Early in 1991, the voice of radical "marketeers" was given a ponderous
reinforcement in official documents of the International Monetary Fund,
the Organization for Economic Cooperation and Development, the World
Bank and the European Bank for Reconstruction and Development. Experts
of these organizations on a commission from the governments of the "Big
Seven" compliled a three-volume report entitled "A Study of the Soviet
Economy. Volumes 1-3. Paris: OECD Publications Service. February 1991).
The greater part of this monumental work contained an analysis of the
situation in the Soviet economy; recommendations for its reformation,
however, also occupied much space. What did representatives of these
prestigious organizations recommend us to do? "...The desired transition
to a market economy would be best facilitated by an early, faster and
more comprehensive liberalization of prices...." (idem, vol. 2, p. 9).
That recommendation was obeyed. The recomendations to exlcude the prices
of municipal services (including municipal transport), housing rent and
electric power from the general price liberalization process were also
obeyed.
At the initial stage of reform, the government was recommended to import
large quantities of staple foods to limit the rise of free prices. That
recommendation was also obeyed, without much success in limiting price
rises, it is true, thogh food imports ousted much of domestic foodstuffs
from the market.
The government was recommended to carry out quick privatization of the
state sector following price liberalization. At the same time, it was
recommended that state-owned enterprises should not be sold at high
prices on the plea that a high price paid by a new owner would limit the
latter's possibilities for subsequent investments. That recommendation
was also obeyed: one half of industry was privatized within two years,
and enterprises were sold at give-away prices.
In the process of privatization, it was recommended not to place
enterprises under collective management by their workers but only to
award to them stocks or shares on an individual basis. At the same time,
contrary to the world experience of enterprises in full and partial
ownership of their workers, it was recommended not to discourage them
from free sale of their stocks. That recommendation was fully obeyed,
too.
It was pointed out in the recommendations that the USSR should increase
the share of the manufacturing industries in its exports. However, it
was specified there and then that in the short term "it would be more
effective to concentrate efforts on expanding exports of energy sources
and raw materials, where quicker results are probable" (ibid., vol. 2,
p. 61). The Yeltsin government did just that. But petroleum production
had started to fall as far as the late eighties. Where was one to take
resources for expanding exports? The answer was very simple: domestic
prices should be brought close to world prices, the price rise would
reduce domestic consumption, and resources for export would become
available. The same should be done to the prices of iron and steel and
nonferrous metals. Of course, part of the plants would have to be closed
down. That recommendation was dutifully obeyed.
It was also recommended "to set up a ceiling to wage raises to prevent a
wage-price spiral and maintain the minimum wage in order to protect
those economically weak in the face of inflation" (idem., vol. 2,
p.182). The government successfully coped with the task of setting the
ceiling. As for the minimum wage, however, there was a setback: the said
wage is a mere one fourth of the subsistence minimum.
Introduction of converbility of the rouble was named as the main
prerequisite for attracting foreign investments. That recommendation was
obeyed. It is true, we have so far been vainly waiting for such
investments. Incidentally, the section of recommendations devoted to
foreign aid contains no mention of investments.
In considering the role of the manufacturing industry, the
recommendations proposed a 20 percent reduction in industrial output in
the first year of reform, cautiously noting at the same time:
"Production will possibly be ruined to a greater extent than expected"
(idem, vol. 3, p. 354). That was a correct conjecture.
As for the development prospects of the Soviet economy, experts made
their calculations with respect to only two aspects: development of the
export potential of the energy-producing sector and, in this context,
the possibility to reduce the Soviet foreign debt to the West. All the
other aspects, as one can guess, worried then much less.
Significantly, having accepted these recommendations as the main guide
to action, the Eltsin government displayed independence in many details.
All these details referrred to civilizing the market (particularly, the
financial market): here our domestic reformers proved unruly and
unwilling to follow the advice to introduce insurance of bank deposits
of citizens, to set a rigid limit to credits issued to the largest 3 to
4 borrowers, to secure open publication of information about banks,
including auditing inspection findings, etc. The government was also
unwilling or unable to comply with such recommendations as the speediest
enforcement of business legislation defining the rules of operation of
the new market entities (legislation on the stock market still contains
too many "blank spots"), a clear definition of the rights of ownership
before privatization, disclosure of information about companies to their
clients, etc.
Thus, with the exception of the above "trifles" the IMF recommendations
for "shock therapy" were accepted for enforcement. It is important to
emphasize the fact that the Gorbachev administration in 1991 started
heeding with these recommendations more and more, and the Eltsin
administration which succeeded it adopted them without reservations.
2.A "Shock": Qui Prodest
(Who in Russia has gained by implementing IMF ecommendations?)
It need not be proved that "the development of capitalism in the USSR"
ran its course not in the 16th or 17th century but on the threshold of
the 21st century and not in a country like Somalia but within an
advanced industrial economic system with a high level of monopoly and an
inheritance of the rotting "salad" of such socio-economic relations as
mutant socialism, state capitalism, noneconomic coercion and a black
market, in a country where a diffusion of institutions (or simply a
mess), a socio-cultural and ethical crisis, indifference and crime were
growing. In that situation, "market reforms" could not practically turn
into anything but growing redistribution of real economic power between
the former half-masters of our economic life "liberated" from
centralized patronage. But who are they?
At one pole, there was a concentration of paternalistic-minded
bureaucrats of the middle and lower levels, ranging from managing
directors of factories to top executives of government departments and
regional authorities. At the other pole, there was a new social stratum
which had arisen on the basis of partly legalized criminal business,
partly new private business oriented towards mediatory, profiteering
operations, foreign trade, and so on, government executives (also mainly
of the lower and middle levels) and intellectuals representing them, who
were craving for political and ideological power (as well as for money
at the same time).
With the growing self-disintegration of the bureaucratic management
system (which is precisely the term we would use to characterize the
essence of "reforms" in the economy in the late eighties), those at the
first pole gained real power at "their" enterprises (though it was not
legally formalized until the late eighties). Those at the second pole
gradually concentrated in their hands the steadily consolidating private
and semi-private capital (first joint-venture companies, joint stock
companies or parasitic cooperatives attaching themselves to state-owned
enterprises), accumulating money and forces for a breakthrough to
political power.
Let us take a retrospective look at the real economic interests of the
former and the latter in the period after the half-harted reforms, which
had just been initiated. It is clear enough that the
paternalistic-minded directors of large enterprises and their "allies"
were interested, firstly, in such a market where they could take
advantage of their monopoly positions while continuing to sponge on the
state budget, pursuing a paternalistic social policy and maintaining a
"class peace" with "their" workers.
Secondly, they obviously stood to gain from legal enforcement of their
basic property rights precisely in their persons to let them legally
control "their" enterprises.
Thirdly, a group of them (those concentrating on export and import
trade, primarily in the fuel and energy complex, exporters of nonferrous
metals, and so on were to gain extremely much from a policy of
liberalizing foreign economic activities and bringing domestic prices
close to world price levels (which would mean, in fact, a steep rise in
prices of raw and other materials and a spiraling inflation of costs).
The other group of the directors' corps (the military-industrial complex
and others) stood much more to gain from a policy of reinforcing the
status of Russia as a successor to the USSR in world geopolitics and
supporting national production and protectionism for this purpose.
(It may be noted as a short digression that the originally inconspicuous
and not essential differences between the latter two groups gradually
widened towards 1993, so much so that the struggle between these two
lobbies began to affect directly the economic policy of the President's
team in Russia during the last two years - but we may be carrying it too
far).
As for the second group of forces who were forcing their way to economic
and political power at the end of Perestroika, the hot new rich who had
risen from illegal private business of the past and semi-legal business
of the present pursued slightly different economic interests.
This business, which is concentrated primarily in the transactions
sector by reason of the specific conditions of its genesis (to put it in
simpler terms, in the field of speculative trade in commodities,
primarily imports, finances, real estate, etc.) was evidently interested
in preserving and strengthening a situation where transaction activity
would be far more lucrative than production. Why so? Because the level
of concentration of semi-criminal private capital at the time was still
too low for large long-term investments in production; that capital
needed business with a fast turnover of funds, a superhigh profit rate
(during its semi-legal life it had grown "accustomed" to an almost 100
percent annual profit), and the possibility to use on a wide scale as
before the methods of coercion, corruption, racket, and so on.
What was precisely the type of economic reform needed to achieve such
targets? Firstly, a liberalization of prices, preferably of the run-away
kind. Why? Because enormous structural imbalances, imbalances of costs
in particular, had grown in our economy as a result of its specific
development, internal antagonisms and a crisis in the economic planning
system. The gaps in prices between regions and a still wider gap between
domestic prices in Russia and world market prices were so great that
speculaltive operations became the most lucrative field for investments.
(One example: in the early nineties, the monthly salary of a highly
skilled specialist was equivalent to the price of a simple cassette tape
recorder made in Korea. Indeed, isn't it profitable (fantastically
profitable!) to exchange the product of the monthly work of an
industrial worker, engineer or scientist for an electronic toy, whose
price in the USA is less than the daily earnings of a garbage
collector?).
Second, the reforms were to provide the conditions for gradual
concentration of the means of production in the hands of the "new
Russians" growing on the basis of speculative trade as fast as mushrooms
grow after rain? Since this process occurred in a developed industrial
country, in contrast to primary accumulation of capital in England,
where the enclosure process had taken place in its time, a different
process but similar to the latter in certain respects, was necessary in
Russia: privatization. At the same time, it was necessary to select such
a model of macroeconomic policy and reformation of state bureaucratic
property that would depreciate the former state-owned enterprises to a
minimum.
It is clear enough that this goal would be served quite well by such
steps as sale of state-owned enterprises at their residual balance value
(in prices of 1991: with the inflation and equipment wear and tear,
almost for free).
Thirdly, for post-"socialist" accumulation of capital and its
concentration it was necessary to prevent such developments in which the
working people could become the owners of former state enterprises; they
were to be deprived of their savings and prevented from saving more.
The mechanisms needed for that purpose were not very difficult to find:
it was a changeover from moderate market reforms to "shock therapy":
liberalization of prices inevitably causing hyperinflation with a wage
freeze or an extremely limited wage indexation, "forgetting" at the same
time to apply indexation to savings of the population. In addition, it
would be useful to forget that under "free market" conditions the
monopolist is invariably the winner in a deal with a fragmented and
unorganized contractor: on the Russian market the purchaser of labour
power had every chance of a stable win in competition against its seller
(the worker) provided the trade unions were weakened and disorganized.
The latter task was also to be accomplished in the course of future
"reforms". Finally, it was also extremely important to carve up the
former state property in a way that would place it not into the hands of
those who had been building it up for seventy years, no matter how well,
but those who had amassed money capital.
That generated the social "demand", which had objectively grown out of
the contradictions of Prestroika, for future reforms on the part of the
economic forces who were the de facto rulers of the country. They were
to secure the transformation of the state speculative market into
corporate speculative capitalism and to erect a dependable barrier to
economic and political democracy in the country.
As a result, the alignment of forces at the "home stretch" of
Gorbachev's reforms (1989-1991) gradually shifted more and more in
favour of the future dramatists and actors of the play "A Shock Without
Therapy in Russia". By 1991, the latter also acquired experienced
prompters of a high class: Jeoffrey Saks and the IMF figures behind his
back, who had secured an over 30 percent fall in industrial production
in Poland in 1990-1991, chose to play on a new, Russian, field and break
their former record in ruining an economy. Thus, the development of a
bureacratically regulated and, in addition, corporate monopoly market
and partial legalization of small and medium-sized private property in
the conditions of growing diffusion of institutions could not but excite
the desire of the Nomenclatura to exchange its former power slipping out
of their hands and increasingly illusory for perfectly tangible
property. The partly legalized private capital developed a no less
objective interest in its accelerated growth, primarily by means of
speculative trade and expropriation of state property created by the
labours of the people. Both groups of "masters of life" waited for a
chance to unite in the ecstasy of profiteering and privatization in the
muddy waters of "shock therapy", which was, in addition, applied with
bureaucratic inconsistency and for that reason in a situation of growing
chaos....
In the field of regulation of economic affairs, a strange system of
relations took shape, where the administrative-bureacratic system of
planning, maintaining the right proportions and securing growth had
disintegrated, while a market system of self-regulation had failed to
form: the economy had become largely unmanageable and slipped down to
the brink of chaos.
In the field of property relations, after a timid attempt to encourage
economic powers of the working people, we gave it up very quickly and
took a road leading to concentration of the main property rights in the
hands of the new generation of the Nomenclatura and the directors' corps
along with the "new Russians". The estrangement of the working people
from property was not reduced, and no motivation for work based on
newly-evolved "owner mentality" arose, as a rule. In the sphere of
social relations, the priority of social vlaues proclaimed at the advent
of Perestroika was finally renounced. For the first time in many
decades, there began a direct and not only indirect decline in the
living standards of the mass of the working people, deterioration of the
social protection system along with accelerated growth of social
differentiation. Inflation became overt and soared at unprecedented
rates.
All these factors brought our country to the brink of a social and not
only economic crisis. In a multinational country with a disintegrating
system of centralized bureaucratic authority they could not but generate
the menace of interethnic conflicts and increasing chauvinistic
sentiments.
"Reforms": Conception and Reality
In theory, the government under Gaidar, who was put at the head of the
Cabinet in 1992, proposed to apply a model similar to the recipes of the
International Monetary Fund (the memorandum of the Government of Russia
to the International Monetary Fund prepared in February 1992 was perhaps
the only document containing an integral conception of "reforms"). In
the political lobbies and in the mass consciousness this model became
imprinted on the minds as "shock therapy", which was renamed "a shock
without therapy" after some time. The conformity of the economic policy
of 1992-1993 to the standard monetarist recipes is now often disputed,
but three years ago this conformity was clearly visible, all the more so
as Eltsin's foreign advisors (Jeoffrey Saks, in the first place)
represented the right liberal school of "Chicago boys".
Thus, in theory, the model of "shock therapy" was to be put into
operation in Russia in 1992. The targets set to "shock therapy" were as
follows: accelerated transition to a market economy and private
capitalist property in the conditions of financial stabilization,
significant inflation control and openness of the economy. The
programmes of realists (their schemes were known only to professionals;
the population was given propaganda meals of promises of market paradise
and reforms "not at the expense of the people" and "without a price
rise") proposed as the results to overcome the shortages within a year
(full shop counters and shining shop windows) with a moderate rate of
inflation and recession; to check inflation and recession after two
years; and after three years to enter the market economy with a stable
growth of the most progressive sectors.
Speaking on TV on the occasion of three years since the advent of
radical reform, Egor Gaidar complained that he had not been allowed to
bring them to completion, that he had been interrupted after two years,
during which period his work was interfered with all the time.
Nevertheless, in his opinion, a number of positive results were achieved
in Russia: shortages were almost completely eradicated, the population's
real incomes after their precipitous fall in 1992 began to grow and
would possibly regain the level of 1991 after a year.... There seem to
be good reasons for confident optimism.
Hardly so. As is known, there are three lies: a lie, a great lie, ...
and statistics. If one is to believe something, let us try to believe
official statistics. What does it tell us? On the whole, during
1991-1994, industrial production in Russia fell roughly by 56 percent,
and GDP by 40 percent. The annual increment (decline) in economic
indicators were as follows (in %%):
1990 1991 1992 1993 1994 1995 1996
GDP -3.0 -5.0 -14.5 -8.7 -12.6 -4.0 -6.0
Indust.output -0.1 -8.0 -18.8 -16.2 -22.8 -4.7 -5.0
Agricl.output -3.6 -4.5 -9.4 -4.4 -12.0 -8.0 -7.0
Investments +1.0 -15.5 -39.7 -11.6 -24.3 -13.2 -18.0
The rate of investments into the real sector of economy fell even more
rapidly. The profit performance rate in industry fell from 32 percent in
1993 to 17 percent during the first half of 1994, and to 6-7% in 1996.
This means that the sources of financing capital investments are
shrinking: the state is constantly reducing its share in financing the
economy, while their own financial basis of enterprises is undermined by
the current crisis. As far as investment credits are concerned, their
share is negligible.
In accordance with the ILO methods accepted internationally, the
unemployment rate in November 1994 was 5.1 million, i.e., 6.8 of the
labour force. Moreover, another 4.8 million people were employed
part-time. The share of the jobless out of work for over 8 months
increased from 13 percent to 26 percent between the middle of 1993 and
the middle of 1994. In 1996 the unemployment rate was 9.3 percent of the
labour force.
In the first half of 1994, real wages and salaries fell by 17 percent,
while their share in the population's incomes shrank by 16 percent. The
share of incomes from entrepreneurship, however, doubled in the first
half-year. The incomes of the top 20 percent of the richest population
increased by 30 percent, while the income of the bottom 20 percent of
the poorest population fell by 15 percent.
At the same time, according to preliminary estimates, the population's
real incomes declined catastrophically fast during the period 1991-1993:
in the first 9 months of 1994, there were incipient signs of their
growth, but, firstly, they were seen only in the highest income
brackets; secondly, they failed to offset, even slightly, the loss of
incomes in the years of "reform" (in relation to 1990, real incomes fell
roughly by 40-45 percent); thirdly, this growth came to a halt in
November 1994. In 1995 the real income fell by 13 percent and real wage
fell by 28 percent.
It should be noted that the rise in prices of the "consumer basket" of
the high-income population groups occurs much more slowly than is the
case with the middle-income groups, and even more slowly than is the
case with the basket of 19 products which constitute the physiological
consumption minimum. With this factor taken into consideration, the real
differentiation of incomes will prove even greater than what is reported
by official statistics. According to the latter, the relationship of the
incomes of 10 percent of the population within the lowest income
brackets to the incomes of 10 percent of the population within the
highest income brackets was 1:14 late in 1994. The foreign economic
effects of the "shock" were no less dramatic than its social effects.
Russia's foreign debt remains enormous (over 100 billion USD), while the
possibilities for its repayment are unrealistic, because the state
budget is permanently plagued by an acute deficit, while production is
declining catastrophically. At the same time, over the years of reform a
special atmosphere was generated in the country, in which legal
exporation and smuggling of free capital out of the country became the
most rational way of using it for all entrepreneurs in possession of
such capital. The reason is simple: the Russian economy has become a
scene of extremely lucrative speculative deals with a great probability
of earning enormous profits from short-term operatioons but without any
guarantee of stbility and preservation of capitals. As a result over the
years of reform, the net export of capital has approached the level of
100 billion USD. Is it not, indeed, a piquant situation? The advocates
of the IMF policy jusitify compliance with its recipes of "tightening
one's belt" by arguments to the effect that otherwise Russia will not be
given credits, which we have been promised during a few years (so far we
are given a few billion a year). In the meantime, Russia has already
lost up to 100 billion USD by pursing a policy in the spirit of IMF
recipes.
* * *
The results of "reform" in the spirit of the IMF can be summed up as
follows: an extremely deep economic crisis accompanied by
de-industrialization and wasteful consumption of the country's natural
resources; a steep fall in the quality of life, including a decline in
real incomes, a crisis of education, public health, science and culture;
the handover of economic and political power into the hands of the new
generation of the Nomenclatura, even more cynical than the old one,
which is allied with the "new Russians"; the working people have
remained, as before, estranged from property, the labour market, and
their labour results; on the international scene, Russia is increasingly
turning into a dependent, export-oriented economy, simultaneously
getting bogged down in debt and exporting capital to developed
countries.
All these results had been predicted long before the advent of "reform"
, and efforts to achieve them, as we have tried to prove, were made not
by mistake or stupidity on the part of the government but in the
interests of the social forces in power in the country. This is
precisely why the question of an alternative to this systemic crisis is
not one of correcting socio-economic policy but a problem of changing
radically economic and apolitical power, since the present "masters" of
Russia have no interest in any other policy.
--------------F5A0386E9F5606C796639A14
<HTML>
<TT>As promissed,</TT><TT></TT>
<P><TT>Here is the Buzgalin&Kolganov article that clarifies some of
the roots of the ongoing crisis in Russia!</TT>
<P>Regards,
<P>Greg.
<BR>
<P><TT>Just a note for those concerned with copyright: this article appeared
in the Winter 1998 edition of (Socialist)"Alternatives".</TT>
<BR><TT></TT>
<P>*****
<BR><TT>Alexandr Buzgalin, Andrei Kolganov</TT>
<P><TT>THE INFLUENCE OF THE INTERNATIONAL MONETARY FUND</TT> <TT>AND THE
INTERNAL CAUSES OF THE SOCIOECONOMIC CRISIS IN RUSSIA</TT>
<P><TT>The implementation of the so-called radical economic reforms in
Russia in the first half of the nineties makes it hard to provide any rational
explanation for the policy of obviously deliberate destruction of the industrial,
human and other potentials of Russia other than what seems an obvious simple
law: gradual radicalization of economic policy to create an economy meeting
the "standards" set by our Western "colleagues". It was formulated in a
number of theoretical and publicistic publications of right-wing Sovietologists
and other experts in the late eighties. Early in 1990, a manifesto of this
policy was made public under the title "500 Days" (originally "400 Days");
it had been prepared by Grigory Yavlinsky, an economist little known at
the time. That document amazed one by its market radicalism and reckless
adventurism by promising absolutely unrealistic deadlines for reform. Nevertheless,
the well-orchestrated choir of eulogizers of this adventure sounded more
and more loudly.</TT>
<P><TT> </TT>
<P><TT>1. The IMF: What They "Advised" Us</TT>
<P><TT> </TT>
<P><TT>Early in 1991, the voice of radical "marketeers" was given a ponderous
reinforcement in official documents of the International Monetary Fund,
the Organization for Economic Cooperation and Development, the World Bank
and the European Bank for Reconstruction and Development. Experts of these
organizations on a commission from the governments of the "Big Seven" compliled
a three-volume report entitled "A Study of the Soviet Economy. Volumes
1-3. Paris: OECD Publications Service. February 1991).</TT>
<P><TT>The greater part of this monumental work contained an analysis of
the situation in the Soviet economy; recommendations for its reformation,
however, also occupied much space. What did representatives of these prestigious
organizations recommend us to do? "...The desired transition to a market
economy would be best facilitated by an early, faster and more comprehensive
liberalization of prices...." (idem, vol. 2, p. 9). That recommendation
was obeyed. The recomendations to exlcude the prices of municipal services
(including municipal transport), housing rent and electric power from the
general price liberalization process were also obeyed.</TT>
<P><TT>At the initial stage of reform, the government was recommended to
import large quantities of staple foods to limit the rise of free prices.
That recommendation was also obeyed, without much success in limiting price
rises, it is true, thogh food imports ousted much of domestic foodstuffs
from the market.</TT>
<P><TT>The government was recommended to carry out quick privatization
of the state sector following price liberalization. At the same time, it
was recommended that state-owned enterprises should not be sold at high
prices on the plea that a high price paid by a new owner would limit the
latter's possibilities for subsequent investments. That recommendation
was also obeyed: one half of industry was privatized within two years,
and enterprises were sold at give-away prices.</TT>
<P><TT>In the process of privatization, it was recommended not to place
enterprises under collective management by their workers but only to award
to them stocks or shares on an individual basis. At the same time, contrary
to the world experience of enterprises in full and partial ownership of
their workers, it was recommended not to discourage them from free sale
of their stocks. That recommendation was fully obeyed, too.</TT>
<P><TT>It was pointed out in the recommendations that the USSR should increase
the share of the manufacturing industries in its exports. However, it was
specified there and then that in the short term "it would be more effective
to concentrate efforts on expanding exports of energy sources and raw materials,
where quicker results are probable" (ibid., vol. 2, p. 61). The Yeltsin
government did just that. But petroleum production had started to fall
as far as the late eighties. Where was one to take resources for expanding
exports? The answer was very simple: domestic prices should be brought
close to world prices, the price rise would reduce domestic consumption,
and resources for export would become available. The same should be done
to the prices of iron and steel and nonferrous metals. Of course, part
of the plants would have to be closed down. That recommendation was dutifully
obeyed.</TT>
<P><TT>It was also recommended "to set up a ceiling to wage raises to prevent
a wage-price spiral and maintain the minimum wage in order to protect those
economically weak in the face of inflation" (idem., vol. 2, p.182). The
government successfully coped with the task of setting the ceiling. As
for the minimum wage, however, there was a setback: the said wage is a
mere one fourth of the subsistence minimum.</TT>
<P><TT>Introduction of converbility of the rouble was named as the main
prerequisite for attracting foreign investments. That recommendation was
obeyed. It is true, we have so far been vainly waiting for such investments.
Incidentally, the section of recommendations devoted to foreign aid contains
no mention of investments.</TT>
<P><TT>In considering the role of the manufacturing industry, the recommendations
proposed a 20 percent reduction in industrial output in the first year
of reform, cautiously noting at the same time: "Production will possibly
be ruined to a greater extent than expected" (idem, vol. 3, p. 354). That
was a correct conjecture.</TT>
<P><TT>As for the development prospects of the Soviet economy, experts
made their calculations with respect to only two aspects: development of
the export potential of the energy-producing sector and, in this context,
the possibility to reduce the Soviet foreign debt to the West. All the
other aspects, as one can guess, worried then much less.</TT>
<P><TT>Significantly, having accepted these recommendations as the main
guide to action, the Eltsin government displayed independence in many details.
All these details referrred to civilizing the market (particularly, the
financial market): here our domestic reformers proved unruly and unwilling
to follow the advice to introduce insurance of bank deposits of citizens,
to set a rigid limit to credits issued to the largest 3 to 4 borrowers,
to secure open publication of information about banks, including auditing
inspection findings, etc. The government was also unwilling or unable to
comply with such recommendations as the speediest enforcement of business
legislation defining the rules of operation of the new market entities
(legislation on the stock market still contains too many "blank spots"),
a clear definition of the rights of ownership before privatization, disclosure
of information about companies to their clients, etc.</TT>
<P><TT>Thus, with the exception of the above "trifles" the IMF recommendations
for "shock therapy" were accepted for enforcement. It is important to emphasize
the fact that the Gorbachev administration in 1991 started heeding with
these recommendations more and more, and the Eltsin administration which
succeeded it adopted them without reservations.</TT>
<P><TT> </TT>
<P><TT>2.A "Shock": Qui Prodest</TT>
<P><TT>(Who in Russia has gained by implementing IMF ecommendations?)</TT>
<P><TT> </TT>
<P><TT>It need not be proved that "the development of capitalism in the
USSR" ran its course not in the 16th or 17th century but on the threshold
of the 21st century and not in a country like Somalia but within an advanced
industrial economic system with a high level of monopoly and an inheritance
of the rotting "salad" of such socio-economic relations as mutant socialism,
state capitalism, noneconomic coercion and a black market, in a country
where a diffusion of institutions (or simply a mess), a socio-cultural
and ethical crisis, indifference and crime were growing. In that situation,
"market reforms" could not practically turn into anything but growing redistribution
of real economic power between the former half-masters of our economic
life "liberated" from centralized patronage. But who are they?</TT>
<P><TT>At one pole, there was a concentration of paternalistic-minded bureaucrats
of the middle and lower levels, ranging from managing directors of factories
to top executives of government departments and regional authorities. At
the other pole, there was a new social stratum which had arisen on the
basis of partly legalized criminal business, partly new private business
oriented towards mediatory, profiteering operations, foreign trade, and
so on, government executives (also mainly of the lower and middle levels)
and intellectuals representing them, who were craving for political and
ideological power (as well as for money at the same time).</TT>
<P><TT>With the growing self-disintegration of the bureaucratic management
system (which is precisely the term we would use to characterize the essence
of "reforms" in the economy in the late eighties), those at the first pole
gained real power at "their" enterprises (though it was not legally formalized
until the late eighties). Those at the second pole gradually concentrated
in their hands the steadily consolidating private and semi-private capital
(first joint-venture companies, joint stock companies or parasitic cooperatives
attaching themselves to state-owned enterprises), accumulating money and
forces for a breakthrough to political power.</TT>
<P><TT>Let us take a retrospective look at the real economic interests
of the former and the latter in the period after the half-harted reforms,
which had just been initiated. It is clear enough that the paternalistic-minded
directors of large enterprises and their "allies" were interested, firstly,
in such a market where they could take advantage of their monopoly positions
while continuing to sponge on the state budget, pursuing a paternalistic
social policy and maintaining a "class peace" with "their" workers.</TT>
<P><TT>Secondly, they obviously stood to gain from legal enforcement of
their basic property rights precisely in their persons to let them legally
control "their" enterprises.</TT>
<P><TT>Thirdly, a group of them (those concentrating on export and import
trade, primarily in the fuel and energy complex, exporters of nonferrous
metals, and so on were to gain extremely much from a policy of liberalizing
foreign economic activities and bringing domestic prices close to world
price levels (which would mean, in fact, a steep rise in prices of raw
and other materials and a spiraling inflation of costs). The other group
of the directors' corps (the military-industrial complex and others) stood
much more to gain from a policy of reinforcing the status of Russia as
a successor to the USSR in world geopolitics and supporting national production
and protectionism for this purpose.</TT>
<P><TT>(It may be noted as a short digression that the originally inconspicuous
and not essential differences between the latter two groups gradually widened
towards 1993, so much so that the struggle between these two lobbies began
to affect directly the economic policy of the President's team in Russia
during the last two years - but we may be carrying it too far).</TT>
<P><TT>As for the second group of forces who were forcing their way to
economic and political power at the end of Perestroika, the hot new rich
who had risen from illegal private business of the past and semi-legal
business of the present pursued slightly different economic interests.</TT>
<P><TT>This business, which is concentrated primarily in the transactions
sector by reason of the specific conditions of its genesis (to put it in
simpler terms, in the field of speculative trade in commodities, primarily
imports, finances, real estate, etc.) was evidently interested in preserving
and strengthening a situation where transaction activity would be far more
lucrative than production. Why so? Because the level of concentration of
semi-criminal private capital at the time was still too low for large long-term
investments in production; that capital needed business with a fast turnover
of funds, a superhigh profit rate (during its semi-legal life it had grown
"accustomed" to an almost 100 percent annual profit), and the possibility
to use on a wide scale as before the methods of coercion, corruption, racket,
and so on.</TT>
<P><TT>What was precisely the type of economic reform needed to achieve
such targets? Firstly, a liberalization of prices, preferably of the run-away
kind. Why? Because enormous structural imbalances, imbalances of costs
in particular, had grown in our economy as a result of its specific development,
internal antagonisms and a crisis in the economic planning system. The
gaps in prices between regions and a still wider gap between domestic prices
in Russia and world market prices were so great that speculaltive operations
became the most lucrative field for investments.</TT>
<P><TT>(One example: in the early nineties, the monthly salary of a highly
skilled specialist was equivalent to the price of a simple cassette tape
recorder made in Korea. Indeed, isn't it profitable (fantastically profitable!)
to exchange the product of the monthly work of an industrial worker, engineer
or scientist for an electronic toy, whose price in the USA is less than
the daily earnings of a garbage collector?).</TT>
<P><TT>Second, the reforms were to provide the conditions for gradual concentration
of the means of production in the hands of the "new Russians" growing on
the basis of speculative trade as fast as mushrooms grow after rain? Since
this process occurred in a developed industrial country, in contrast to
primary accumulation of capital in England, where the enclosure process
had taken place in its time, a different process but similar to the latter
in certain respects, was necessary in Russia: privatization. At the same
time, it was necessary to select such a model of macroeconomic policy and
reformation of state bureaucratic property that would depreciate the former
state-owned enterprises to a minimum.</TT>
<P><TT>It is clear enough that this goal would be served quite well by
such steps as sale of state-owned enterprises at their residual balance
value (in prices of 1991: with the inflation and equipment wear and tear,
almost for free).</TT>
<P><TT>Thirdly, for post-"socialist" accumulation of capital and its concentration
it was necessary to prevent such developments in which the working people
could become the owners of former state enterprises; they were to be deprived
of their savings and prevented from saving more.</TT>
<P><TT>The mechanisms needed for that purpose were not very difficult to
find: it was a changeover from moderate market reforms to "shock therapy":
liberalization of prices inevitably causing hyperinflation with a wage
freeze or an extremely limited wage indexation, "forgetting" at the same
time to apply indexation to savings of the population. In addition, it
would be useful to forget that under "free market" conditions the monopolist
is invariably the winner in a deal with a fragmented and unorganized contractor:
on the Russian market the purchaser of labour power had every chance of
a stable win in competition against its seller (the worker) provided the
trade unions were weakened and disorganized. The latter task was also to
be accomplished in the course of future "reforms". Finally, it was also
extremely important to carve up the former state property in a way that
would place it not into the hands of those who had been building it up
for seventy years, no matter how well, but those who had amassed money
capital.</TT>
<P><TT>That generated the social "demand", which had objectively grown
out of the contradictions of Prestroika, for future reforms on the part
of the economic forces who were the de facto rulers of the country. They
were to secure the transformation of the state speculative market into
corporate speculative capitalism and to erect a dependable barrier to economic
and political democracy in the country.</TT>
<P><TT>As a result, the alignment of forces at the "home stretch" of Gorbachev's
reforms (1989-1991) gradually shifted more and more in favour of the future
dramatists and actors of the play "A Shock Without Therapy in Russia".
By 1991, the latter also acquired experienced prompters of a high class:
Jeoffrey Saks and the IMF figures behind his back, who had secured an over
30 percent fall in industrial production in Poland in 1990-1991, chose
to play on a new, Russian, field and break their former record in ruining
an economy. Thus, the development of a bureacratically regulated and, in
addition, corporate monopoly market and partial legalization of small and
medium-sized private property in the conditions of growing diffusion of
institutions could not but excite the desire of the Nomenclatura to exchange
its former power slipping out of their hands and increasingly illusory
for perfectly tangible property. The partly legalized private capital developed
a no less objective interest in its accelerated growth, primarily by means
of speculative trade and expropriation of state property created by the
labours of the people. Both groups of "masters of life" waited for a chance
to unite in the ecstasy of profiteering and privatization in the muddy
waters of "shock therapy", which was, in addition, applied with bureaucratic
inconsistency and for that reason in a situation of growing chaos....</TT>
<P><TT>In the field of regulation of economic affairs, a strange system
of relations took shape, where the administrative-bureacratic system of
planning, maintaining the right proportions and securing growth had disintegrated,
while a market system of self-regulation had failed to form: the economy
had become largely unmanageable and slipped down to the brink of chaos.</TT>
<P><TT>In the field of property relations, after a timid attempt to encourage
economic powers of the working people, we gave it up very quickly and took
a road leading to concentration of the main property rights in the hands
of the new generation of the Nomenclatura and the directors' corps along
with the "new Russians". The estrangement of the working people from property
was not reduced, and no motivation for work based on newly-evolved "owner
mentality" arose, as a rule. In the sphere of social relations, the priority
of social vlaues proclaimed at the advent of Perestroika was finally renounced.
For the first time in many decades, there began a direct and not only indirect
decline in the living standards of the mass of the working people, deterioration
of the social protection system along with accelerated growth of social
differentiation. Inflation became overt and soared at unprecedented rates.</TT>
<P><TT>All these factors brought our country to the brink of a social and
not only economic crisis. In a multinational country with a disintegrating
system of centralized bureaucratic authority they could not but generate
the menace of interethnic conflicts and increasing chauvinistic sentiments.</TT>
<P><TT> </TT>
<P><TT>"Reforms": Conception and Reality</TT>
<P><TT> </TT>
<P><TT>In theory, the government under Gaidar, who was put at the head
of the Cabinet in 1992, proposed to apply a model similar to the recipes
of the International Monetary Fund (the memorandum of the Government of
Russia to the International Monetary Fund prepared in February 1992 was
perhaps the only document containing an integral conception of "reforms").
In the political lobbies and in the mass consciousness this model became
imprinted on the minds as "shock therapy", which was renamed "a shock without
therapy" after some time. The conformity of the economic policy of 1992-1993
to the standard monetarist recipes is now often disputed, but three years
ago this conformity was clearly visible, all the more so as Eltsin's foreign
advisors (Jeoffrey Saks, in the first place) represented the right liberal
school of "Chicago boys".</TT>
<P><TT>Thus, in theory, the model of "shock therapy" was to be put into
operation in Russia in 1992. The targets set to "shock therapy" were as
follows: accelerated transition to a market economy and private capitalist
property in the conditions of financial stabilization, significant inflation
control and openness of the economy. The programmes of realists (their
schemes were known only to professionals; the population was given propaganda
meals of promises of market paradise and reforms "not at the expense of
the people" and "without a price rise") proposed as the results to overcome
the shortages within a year (full shop counters and shining shop windows)
with a moderate rate of inflation and recession; to check inflation and
recession after two years; and after three years to enter the market economy
with a stable growth of the most progressive sectors.</TT>
<P><TT>Speaking on TV on the occasion of three years since the advent of
radical reform, Egor Gaidar complained that he had not been allowed to
bring them to completion, that he had been interrupted after two years,
during which period his work was interfered with all the time. Nevertheless,
in his opinion, a number of positive results were achieved in Russia: shortages
were almost completely eradicated, the population's real incomes after
their precipitous fall in 1992 began to grow and would possibly regain
the level of 1991 after a year.... There seem to be good reasons for confident
optimism.</TT>
<P><TT>Hardly so. As is known, there are three lies: a lie, a great lie,
.... and statistics. If one is to believe something, let us try to believe
official statistics. What does it tell us? On the whole, during 1991-1994,
industrial production in Russia fell roughly by 56 percent, and GDP by
40 percent. The annual increment (decline) in economic indicators were
as follows (in %%):</TT>
<P><TT>
1990 1991 1992
1993
1994 1995 1996</TT>
<BR><TT> GDP
-3.0 -5.0 -14.5 -8.7
-12.6 -4.0 -6.0</TT>
<BR><TT> Indust.output -0.1 -8.0
-18.8 -16.2 -22.8 -4.7
-5.0</TT>
<BR><TT> Agricl.output -3.6 -4.5
-9.4 -4.4 -12.0 -8.0
-7.0</TT>
<BR><TT> Investments +1.0 -15.5
-39.7 -11.6 -24.3 -13.2
-18.0</TT><TT></TT>
<P>
<P><TT>The rate of investments into the real sector of economy fell even
more rapidly. The profit performance rate in industry fell from 32 percent
in 1993 to 17 percent during the first half of 1994, and to 6-7% in 1996.
This means that the sources of financing capital investments are shrinking:
the state is constantly reducing its share in financing the economy, while
their own financial basis of enterprises is undermined by the current crisis.
As far as investment credits are concerned, their share is negligible.</TT>
<P><TT>In accordance with the ILO methods accepted internationally, the
unemployment rate in November 1994 was 5.1 million, i.e., 6.8 of the labour
force. Moreover, another 4.8 million people were employed part-time. The
share of the jobless out of work for over 8 months increased from 13 percent
to 26 percent between the middle of 1993 and the middle of 1994. In 1996
the unemployment rate was 9.3 percent of the labour force.</TT>
<P><TT>In the first half of 1994, real wages and salaries fell by 17 percent,
while their share in the population's incomes shrank by 16 percent. The
share of incomes from entrepreneurship, however, doubled in the first half-year.
The incomes of the top 20 percent of the richest population increased by
30 percent, while the income of the bottom 20 percent of the poorest population
fell by 15 percent.</TT>
<P><TT>At the same time, according to preliminary estimates, the population's
real incomes declined catastrophically fast during the period 1991-1993:
in the first 9 months of 1994, there were incipient signs of their growth,
but, firstly, they were seen only in the highest income brackets; secondly,
they failed to offset, even slightly, the loss of incomes in the years
of "reform" (in relation to 1990, real incomes fell roughly by 40-45 percent);
thirdly, this growth came to a halt in November 1994. In 1995 the real
income fell by 13 percent and real wage fell by 28 percent.</TT>
<P><TT>It should be noted that the rise in prices of the "consumer basket"
of the high-income population groups occurs much more slowly than is the
case with the middle-income groups, and even more slowly than is the case
with the basket of 19 products which constitute the physiological consumption
minimum. With this factor taken into consideration, the real differentiation
of incomes will prove even greater than what is reported by official statistics.
According to the latter, the relationship of the incomes of 10 percent
of the population within the lowest income brackets to the incomes of 10
percent of the population within the highest income brackets was 1:14 late
in 1994. The foreign economic effects of the "shock" were no less dramatic
than its social effects. Russia's foreign debt remains enormous (over 100
billion USD), while the possibilities for its repayment are unrealistic,
because the state budget is permanently plagued by an acute deficit, while
production is declining catastrophically. At the same time, over the years
of reform a special atmosphere was generated in the country, in which legal
exporation and smuggling of free capital out of the country became the
most rational way of using it for all entrepreneurs in possession of such
capital. The reason is simple: the Russian economy has become a scene of
extremely lucrative speculative deals with a great probability of earning
enormous profits from short-term operatioons but without any guarantee
of stbility and preservation of capitals. As a result over the years of
reform, the net export of capital has approached the level of 100 billion
USD. Is it not, indeed, a piquant situation? The advocates of the IMF policy
jusitify compliance with its recipes of "tightening one's belt" by arguments
to the effect that otherwise Russia will not be given credits, which we
have been promised during a few years (so far we are given a few billion
a year). In the meantime, Russia has already lost up to 100 billion USD
by pursing a policy in the spirit of IMF recipes.</TT>
<P><TT> </TT>
<P><TT>* * *</TT>
<P><TT> </TT>
<P><TT>The results of "reform" in the spirit of the IMF can be summed up
as follows: an extremely deep economic crisis accompanied by de-industrialization
and wasteful consumption of the country's natural resources; a steep fall
in the quality of life, including a decline in real incomes, a crisis of
education, public health, science and culture; the handover of economic
and political power into the hands of the new generation of the Nomenclatura,
even more cynical than the old one, which is allied with the "new Russians";
the working people have remained, as before, estranged from property, the
labour market, and their labour results; on the international scene, Russia
is increasingly turning into a dependent, export-oriented economy, simultaneously
getting bogged down in debt and exporting capital to developed countries.</TT>
<P><TT>All these results had been predicted long before the advent of "reform"
, and efforts to achieve them, as we have tried to prove, were made not
by mistake or stupidity on the part of the government but in the interests
of the social forces in power in the country. This is precisely why the
question of an alternative to this systemic crisis is not one of correcting
socio-economic policy but a problem of changing radically economic and
apolitical power, since the present "masters" of Russia have no interest
in any other policy.</TT>
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