Issue 223 of SOCIALIST REVIEW Published October 1998 Copyright Socialist Review

The bear's market

Russia, once a mighty superpower, has descended into chaos as the recession spreads west. Rob Ferguson looks at what this means for ordinary people and why Russia's rulers, with their firm belief in capitalism and the market, are solely to blame.

It all seemed vaguely familiar. Supermarket shelves stripped of goods, a worthless rouble, shoppers queuing to buy sugar to preserve vegetables for the winter, the production and distribution of goods in chaos. The ills of the Soviet era are back with a vengeance, courtesy of the free market, with hyperinflation added in for good measure. It was not meant to be like this.

In 1991, in the wake of Communism's collapse, Russians were confidently assured that a brave new world beckoned. Boris Yeltsin promised he would lie down on the railway tracks if ordinary Russians suffered from the implementation of economic reform. Western advisers were slightly more cautious, but Russia was assured a bright future so long as it swallowed its market medicine.

That future is now exposed as the mirage it has always been. With each successive attempt to pursue the holy grail of the market the crisis has deepened. Now even its most avid proponents are in despair. 'This is not inflation', wailed Izvestiya, the pro-market Russian daily. 'It is the collapse of the system.'

Economic growth rates in the Soviet Union went into reverse back in the early 1980s. In 1985 the new Soviet leader, Mikhail Gorbachev, attempted to halt Soviet economic decline by introducing market mechanisms. Perestroika--restructuring would, workers were assured, stimulate the economy and promote efficiency. Output continued to fall. Empty promises were matched by empty shelves. Shortages mounted inexorably, queues mushroomed and basic consumer items were rationed. In the enterprises workers were subjected to a discipline crackdown and productivity drives. Amidst the ever increasing austerity workers' resentment intensified.

In the summer of 1989, in western Siberia, a shift of miners struck over lack of soap and the rotten meat served in their canteen. Within days the mining regions of the Soviet Union were at a standstill. Town squares filled with thousands of miners demanding that ministers come from Moscow to hear their demands in person. For the first time in 60 years workers in the Soviet Union had stepped back onto the stage of history.

The 1989 strike together with the mass protests for national independence in the republics deepened the splits in an already divided regime, culminating finally in the failed August coup of 1991 and the disintegration of the Soviet Union. Boris Yeltsin inherited the Russian presidency and appointed a government led by young market reformers.

On 1 January 1992 the government freed prices overnight. The thinking behind the plan was simple. Freeing prices would force producers to produce what the customers wanted, weed out inefficient enterprises and end the 'distortion' of subsidies. Economic experts did not expect this process to be entirely painless. John Lloyd in the Financial Times, for example, forecast that prices would rise by 300 percent.

They rose by 2,500 percent. Production plummeted as cash flow dried up. Goods again disappeared from the shelves and the economy teetered on the verge of collapse. Savings were wiped out overnight. Pensioners were particularly hard hit. Men and women who had suffered under Stalin, fought on the eastern front during the Second World War, and endured a lifetime of hard work for little reward now faced penury for the remainder of their lives.

Eventually inflation was brought under control. But this was achieved by the simple expedient of not paying anyone. Enterprises stopped paying taxes to the government. The government stopped paying for state orders, and everyone stopped paying workers' wages. Some people continued to pay themselves a lot of money. The old Soviet elite re-emerged as bosses of the new 'private' enterprises. Politicians, whether 'communist' or 'democrat', made fortunes via their business connections. The old guard and the new business sharks profiteered like there was no tomorrow. As one striking miner put it, 'Now, thank you very much, there is a choice. Each voter can now choose between a communist or a democrat, as they gaze across at each other's pot bellies.' On the sidelines a host of western advisers and consultants took their cut.

Nonetheless, if inflation appeared 'under control', the fundamentals of the economy were a wreck. Output had fallen to below 50 percent of its 1990 level and continued to decline as inter-enterprise debt and wage non-payment climbed into the stratosphere. So this year's fallout from Asia and the drop in oil prices came as the knockout punch for an economy already suffering from irreversible haemorrhaging after seven long years of market 'therapy'.

Of course western economists insisted that the Russians had only themselves to blame. They had not pursued the market vigorously enough. The experts sometimes disagreed how much help the west should give Russia in the form of loans (all payable with interest) but were united in their confident belief that the market was the only cure for Russia's ills. Even after the crisis broke, Richard Layard, a professor at the London School of Economics, was still trying to defend his brilliantly ridiculous book The Coming Russian Boom!

On the eve of price liberalisation in January 1992 Socialist Review reiterated an analysis argued in its pages many times before and since:
'The scale of [Russian] industry is so great that freedom to compete in a closed economy means freedom to set monopoly prices with restricted production, while opening the economy up immediately to international competition threatens the obliteration of vast sections of industry. So we can expect openings to the market that cause economic devastation, and then retreat to forms of state control.'

This economic impasse has its reflection in a political crisis within the ruling class itself. Different interests, unable to unite around any coherent programme except their own individual self aggrandisement, fight it out amongst themselves. The August 1991 putsch, Yeltsin's shelling of parliament in 1993, the plethora of different parties and the endless round of ministerial sackings are all consequences of this crisis at the top of society. The compromise appointment of Yevgeny Primakov as premier will not alter the situation.

Out of this chaos have risen great banking and financial moguls who vie for control over what assets remain and over the media empires through which they exercise political influence. Corruption is the order of the day. Presidential advisers are caught with holdalls containing $500 million in cash.

Journalists investigating shady deals on the part of leading politicians or military figures are shot or mysteriously blown to pieces. Business rivals settle their accounts with the aid of mafia hitmen.

The real victims, however, are workers and the poor. Millions now rely solely on what subsistence they can scratch from their miserable allotments. During the night the truly desperate raid the plots of their fellow poor, digging up crops of onions or potatoes, painstakingly planted and tended for months. People even kill over such thefts. Yet commentators soothingly reassure their listeners that these garden plots will enable ordinary Russians to bear the hardships of wage non-payment, hyperinflation, and the Russian winter! There is a vicious irony in this. The worker's plot originated under Stalin when the regime, intent on devoting production exclusively to arms and heavy industry, gave workers no alternative but to work yet more long hours planting their own vegetables in order to eat. As Leon Trotsky put it in 1937: 'What a terrible robbery of human power is implied by those words "his own cow" and "his own plot", and what a burden of medieval digging in manure and in the earth they lay upon the worker.'

No newspaper report or set of statistics can fully convey the accumulation of privations or the incessant intrusion of deprivation into daily life. The horror of individual tragedy has become universal. A mother phones an ambulance for her 18 month old baby who has swallowed her tablets. The crew explain that they need to take the child to the city hospital 40 minutes drive away but need money to pay for petrol. The desperate woman explains she will get the money later, to no avail. A child dies for the price of a tank of petrol.

People risk their lives to disconnect high power cables in order to sell the metal on the black market. Soldiers dismantle their own barracks to sell the bricks. And in the St Petersburg region an 87 year old pensioner who has not received her pension for three months hangs herself. In her suicide note she lists in detail how much she owes and to whom, and asks to be forgiven for her debts.

We should not understate the seriousness of this social crisis. Russia stands at the gates of Weimar--the crisis stricken German republic of the interwar years. Voices are being raised for, 'a strong hand'. The ex- general Alexander Lebed hovers in the wings. He is an avowed admirer of Pinochet, the butcher of Chilean democracy in the 1970s, and longs to restore the army into a real force. Yuri Luzhkov, the nationalist and racist mayor of Moscow, also has his eyes on the presidency. He specialises in organising brutal sweeps against migrants from the Caucasus seeking work in the capital, and insistently calls for the annexation of the Crimea in the Ukraine.

Still the sheer resilience of the Russian working class, despite all that it has suffered, is impressive. In recent months miners and other workers have blocked railway lines, bringing essential freight to a halt for weeks. There has been a sustained level of guerrilla strike action and the ruling class's greatest fear is still that the crisis will ignite a 'social explosion'.

Workers have so far been resistant to organised reaction. None of the fascist parties nor the deeply reactionary Communist Party, led by Genadii Zyuganov, have a solid base amongst workers-yet. The problem, however, is that while the majority have rejected the past and have long lost any illusions they may have once had in the market, they see no alternative to put in its place. This situation cannot continue indefinitely. If our side does not begin to fill the vacuum, someone else will.

The world's ruling claws are terrified of instability in Russia, hence the panic on the world's financial markets. This is a state that overlooks Japan in the far cast and stretches to the borders of Scandinavia and eastern Europe in the west. Its southern borders mark out some of the most potentially volatile areas of the world: China, central Asia, the Caucasus, Chechnya, the oilfields of the Caspian. There are also tensions with the Ukraine and the rest of eastern Europe. And it still bristles with nuclear weapons.

However, the economic significance of the Russian collapse should not be downplayed either. Whilst the economic weight that Russia commands in world terms is relatively small, it acts as a cipher for the crisis in the world economy. The ruling class hoped it had contained the crisis in south east Asia. The collapse of the rouble dashed that hope and threatened to destabilise 'emerging markets' across the world. Here too our analysis of the crisis and its roots has been vindicated. Russia, and the Soviet Union before it, has always been an integral part of a world economy based on the anarchic competition between rival states and firms. That competition in both its free market and state capitalist form have combined to produce the economic disaster we see across the globe today.

The ruling class has no solution to the crisis, except to make us pay for it. There is only one alternative to this endless round of barbarity-socialism. It is time to organise and fight to make that alternative a reality.


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