Issue 233 of SOCIALIST REVIEW Published September 1999 Copyright Socialist Review

Primed to fail

The turmoil inside Russia's ruling class continued last month as Yeltsin appointed his fifth prime minister in 17 months. Mike Haynes explains why the job has become almost impossible
Sergei Stepashin, sacked prime minister, ponders his future

Compared to the run up to the solar eclipse in August, Boris Yeltsin's sacking of Prime Minister Sergi Stepashin seemed to many western commentators to be a minor affair. But that was simply a reflection of their weary inability to cope with the scale of Russia's problems. The Russian catastrophe stands as a monument to the failed hopes that the market and democratisation could transform the former Soviet Union.

Yeltsin's popularity has sunk so low that he barely registers in opinion polls. Yet a decade ago he was the great reform hope. Earlier this year, when I suggested to a Russian that Yeltsin's predicament was more a farce than a tragedy, I was pointedly told that it was a tragedy. She and so many others had put their faith in a man they now found contemptible.

Hanging on until the bitter end

The scale of the Russian crisis beggars belief. Output has fallen by half since 1991--a slide unknown in peacetime world economic history. With it has come a considerable fall in the standard of living for ordinary Russians, who now depend more than ever on their vegetable plots for basic foodstuffs, sometimes guarding them with their lives. The birth rate has collapsed and life expectancy has declined. Alarmist reports circulate of the return of endemic diseases of the poor like TB, which currently affects 10 percent of the prison population and which, on one estimate, might affect one in seven of the whole population by 2020.

The underlying economic disintegration is less of a mystery than some make out. Stalinism did create an industrial base in Russia but it was not competitive with the West. The economy could have been reconstructed with assistance from abroad. Instead it was opened up to either sink or swim just as it was being abandoned by the former Eastern European satellites. In a declining market, if your competitors can produce a better quality product even a little bit cheaper, you will go under and they will succeed.

A vicious circle therefore set in, and enterprises in Russia tried to survive by turning in on themselves and building up links with one another. Instead of 'market' relations between plants, managers began to merge them with one another to stay in business. Instead of flowing in, the net flow of capital was outwards on a huge scale, as what 'profits' there were found their way to security abroad. Businessmen and enterprises delayed and as far as possible stopped paying taxes to the government.

An enormous gap opened up between the real economy and the fake Moscow based financial economy. Here, even as real output collapsed, monetary stability was proclaimed as the great success by the 'new Russian' financiers who filled out the banks and speculative companies. The IMF and the World Bank were happy to endorse this illusion, partly because they shared this crazy view of economics and partly because debt repayments continued to flow to the west. Western institutions even turned a blind eye to the fiddling of the accounts which allowed loans to flow in to help the payments flow out--including dodgy deals done by the Russian Central Bank with western banks based in the Channel Islands.

The illusion was destroyed in August of 1998 when the vast pyramid scheme that had become the Russian financial system collapsed as the wave of economic crisis swept in from Asia. The rouble was massively devalued, Russia defaulted on part of its debt and the economy lurched downwards again, stripping the political leaders of what little credibility they had.

What has happened since then needs to be understood as part of the infighting of Russia's rulers for survival and power. Russia's ruling class is best understood in terms of circles within circles. In the biggest outer circle are the vast mass of enterprise owners--the ex Soviet managers and privileged bureaucrats (the nomenklatura) who were able to encourage a process of privatisation that allowed them to legally pocket the resources that they controlled as state property. As the transition has continued, this ruling class has been leavened by new entrants, some of whom have shot into the inner circles, but these new entrants were also able to build on positions established under the Soviet regime. As one journalist put it, the 'Kremlin kids are the offspring of privileged Soviet nomenklatura... They had the brains and cynicism to reject their teaching and capitalise on new opportunities.'

Then, within this, is a narrower circle of the big 'oligarchs' who latched on to those parts of the Soviet economy whose products had some external value--like gas and oil--or newer sectors like the media and banking that could generate profits even as the rest of the economy crumbled. The wealth they grabbed has turned some of them into some of the richest men in the world.

Within these is a third inner circle known as 'the Family'. Everyone in Russia knows what is meant by 'the Family'. It consists of not just Yeltsin and his relations, most notably his powerful daughter Tatyana Dyachenko, but also his entourage and favoured big businessmen. When opponents of the Yeltsin clan wanted to attack Roman Abramovitch, a figure with links to the Yeltsin clan and the oil industry, they had posters put up in one of Moscow's prominent streets which simply read, 'Roma is thinking about the Family; the Family is thinking about Roma. Congratulations. Roma has found a marvellous place.' Everyone understood the point, not least the oil interests being ridiculed, who quickly had the offending posters removed.

The inner circle is now battling to hold on against alliances developing in the middle and outer circles. Under the constitution Yeltsin cannot stand for a third term, and would be unlikely to be elected in any case. Yet his aim is to survive as long as possible to protect the gains of those around him. As the presidential election approaches in July 2000 he may be tempted to suspend the constitution to stay in power, but his strategy at the moment is to have a prime minister loyal to his group who can disrupt the consolidation of an opposition. These are contradictory and possibly impossible objectives.

Only a compliant nonentity can give the Yeltsin 'Family' the loyalty it wants. Primakov was too serious a figure and the last prime minister, Stepashin, seems to have made the mistake of talking about being independent of parties--which effectively meant the Yeltsin group. Equally, the momentum behind the formation of an opposition group is considerable. Here the most serious challenge comes from an alliance between Yuri Luzhkov, the well financed mayor of Moscow, and some of Russia's most important regional governors.

Russia, which is still geographically twice as large as the US, is made up of 89 regions. Crisis has swung power towards them from the centre, and some even talk of the possible future break up of Russia. At the moment this seems unlikely--no region can confidently go it alone and talk of this is rhetoric except in areas like Chechnya and neighbouring Dagestan, where a new crisis is brewing. Here religion and anti-colonialism combine to give demands for more autonomy from Moscow a greater push. Elsewhere what the powerful governors want is a stable relationship with the centre that both allows for order and recognises the role and partial autonomy of the regions.

Luzhkov on the other hand, with his control of Russia's capital city, is a formidable challenge to Yeltsin in his own right. Bringing the two forces together creates a real springboard for Luzhkov's presidential ambitions--he gets their support in the regions where he is less popular and they get a powerful potential ally at the very centre of power.

No one believes that this issue will be decided by 'free and fair' elections. With the mass of the population disoriented by the crisis, the turnout is likely to be low. The run up will depend on who can mobilise the best dirty tricks and the most money. This is one of the reasons why Yeltsin likes his prime ministers to have a security background. Not only does it seem to increase the chances of loyalty, but it gives access to the files of the Federal Security Service (the former KGB). The classic sting of the past year that for a time grabbed Russia's attention was the attack on chief prosecutor Skuratov who was trying to expose financial scandals close to Yeltsin and was himself then 'exposed' enjoying a sauna with prostitutes.

Having the security forces on board is also an important insurance for any possible financial backers since, if the worst comes to the worst, they still appear as a significant card in Yeltsin's hand. Then, finally, there is the question of the integrity of the election if it goes ahead. A question mark already hangs over the 1996 presidential election with some believing that Yeltsin's success was helped by considerable fiddling of the ballot.

It seems unlikely that any of this will be enough to save Yeltsin but he clearly still hopes he has enough time to preserve the base he has created by stretching the system to its limits. Much depends in part on his own erratic personality, but even more on the extent to which those at the core of the state decide to swing behind a challenger with the look of a victor.

Faced with this, western policy towards Russia is in tatters. For many ordinary Russians, suspicion has come to replace the naive impression of the west that they had a few years ago, and Nato's action in Kosovo has helped to consolidate this. Russia still retains 6,000 to 7,000 nuclear weapons and has yet to ratify the Start II Treaty (the US ratified it in 1996) which would cut their numbers in half. The IMF and World Bank utter their mantra about the need for wholesale closures of inefficient plants, slashing what is left of government social spending and enforcing the payment of taxes, but they are also trapped by the perverse structures they have helped to create. Maslyukov, the finance minister who first tried to pick up the pieces after the August crash, reportedly boasted that he had told IMF head Camdessus this spring that 'if the position of the government and the Duma does not suit you, then you should be prepared for a military or criminal government in the future'.

This leaves ordinary Russians with no obvious way out. The typical Russian flat has always had a sturdy front door with strong locks. In recent years the locks have been made stronger as people have turned in on themselves. Situations arise where local struggles break out which can be very militant. But economic disintegration has sapped rather than mobilised confidence. Earlier this year the Economist Intelligence Unit's report on the Russian situation gloatingly viewed this as one of the few positive elements of the crisis.

This enables the factions in Russia's ruling class to continue to quarrel amongst themselves, but it does not mean that any of them have a solution to the real problems of Russia. The scale of Russia's crisis and that in the successor states of the USSR is unique, but it is now an integral part of the worldwide problems that exist. Its solutions lie in the same direction, and for ordinary Russians the best hope lies in their learning from the successes that ordinary people have in the rest of the world, in establishing the basis of a saner and more genuinely democratic system.

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