LM Archives
  10:05 PM BST
LM Commentary Review Search
Comment Current LM Web review Mailing
lists Discuss Chat Events Search Archives Subject index Links Merchandise Overview FAQ Feedback Toolbar

No market for reforms

Tracey Brown reports from Russia, where international support for the status quo has helped make 'economic transition' the national joke

The collapse of the Russian currency and financial markets has led to talk of a world financial meltdown on the scale of 1929. The European and US press is full of concern that Russia will abandon market reform, and the planes to Russia are packed with jittery businessmen making frantic reports to head office.

The problems in Russia are real enough. The government is completely out of cash and unable to call on the banks to bail it out one more time. Even before the current crisis the Moscow administration announced that wages in many government sectors would be cut by 40 per cent. Now even this looks optimistic; few have been paid at all for three months. The marginal improvement on tax collection has done little to alleviate large-scale government debt.

These problems, however, have been constant features of Russian life for five years. The crisis has been a long time in the making. So why now?

We are told that the 'international community' is now forcing Russia to face up to its predicament. Tony Blair has been talking tough on the telephone to Bill Clinton and Helmut Kohl. There will be no more cash. Bill agreed and told it straight to elite economics students in Moscow. As the Russkiyi Telegraf reported on the Clinton visit, 'It would have been great to read out some sort of large-scale plan to save Russia. But there will not be one'.

Clinton's 'bitter pill' presentation to Yeltsin-the road to reform is hard but you must stick to it-has been hailed in the British and US press as the moment of truth. Russia has lagged behind schedule. Its 'gangster capitalism' has meant too many payouts and its corpulent bureaucracy has held up progress in the transition to the market.

In some ways this is a moment of truth. But the bitter pill is one that Clinton, Blair and Kohl have to swallow. Russia is in this mess precisely because of all the frantic, external attempts to stabilise the heart of the former Soviet Union. The billions of dollars pumped into Russia over the past five years have never made economic sense. They have never been seriously linked to any 'reform programme'.

Since the early 1990s every international discussion about Russia's progress has been shaped by exaggerated fears about communist comebacks, Nazi takeovers and general collapse. From the beginning of marketisation Western leaders hastily committed themselves to Yeltsin in an attempt to consolidate a stable leadership. Their rather excessive anxiety-fearing the region would be plunged into turmoil, spilling over into Western Europe and the world economy-led them to fixate on stability and pump in cash to shore up the existing Russian leadership.

Having once decided that Yeltsin was their man, foreign leaders have been unable to disentangle themselves for fear that any alternative would be destabilising. And of course the Yeltsin regime has become adept at playing to these fears. During the presidential elections in 1996, Russia received massive foreign cash injections in a bid to guarantee that Yeltsin won. The German loan of DM4 billion, just prior to election day, was personally overseen by chancellor Kohl. As the major regional power, Germany has been more frenzied than Britain or the USA in its attempts to consolidate and stabilise Russia, with the result that current figures show Germany holding nearly $30 billion of Russian debts (almost 40 per cent of the total).

The International Monetary Fund (IMF) has also timed the release of loan payments to relieve pressure on Yeltsin at key moments. In July 1997 it pledged a further $22 billion, insisting that a proper repayment plan must emerge from Russia. The following December, despite the IMF's pleas that the Russian administration improve tax collection before further payments, it relented again. As Yeltsin tried to push his budget through the Duma, four major banks made another emergency loan to avert a crisis. The real problem for the IMF seems to be its inability to restrain its own payments. The slightest hint that the stodgy status quo in Moscow might be disturbed sends Western bankers and premiers running for their cheque books.

All kinds of comparisons have been made between Russia's situation and other crises, past and present, such as Britain's forced withdrawal from the ERM or the East Asian stock market contraction. These are quite inappropriate, and have only become popular in the Western press because nobody knows what the Russian path to reform is supposed to be.

From the beginning of Russia's marketisation, foreign ministers in the developed nations have seen cause for nervousness rather than opportunity. Since the early days of perestroika in the eighties, the international discussion about Russia has fixated on the more anxious issues of central stability, firing the imagination with the threats of the past and new dangers of extremism. Despite constantly barracking Russia to develop a free market, leaders in Germany, Britain, Japan and the USA have prioritised political stability. They themselves have shown little confidence in the market's ability to transform the former Soviet Union. So much so that anybody studying the past five years of Western intervention in Russia could be forgiven for thinking that market-oriented reforms mean shoring up the state and creating a preoccupation with order; which sounds not dissimilar to the approach of the old Stalinist regime.

Russia's own concerns today mirror the fearful preoccupations of the international elites, putting political stability before economic reform. Its decadent economy reflects the speculative character of world markets. Much of the investment that has occurred has been financial speculation. As a report by the Russian-European Centre for Economic Policy noted last year, the expansion of Moscow's new stock exchange has meant little to the rest of the economy.

All of the warnings about reverting to the past and bringing back old economic solutions are missing the source of the problem: Russia has now consolidated its past in the new conditions.

There have been many changes in Russia's economic life, from the removal of price and trade controls to privatisation and the creation of a stock market. But because of the Western insistence on keeping things stable, there has been little urgency behind any programme to restructure the economy more fundamentally. This leaves few ways out of the current situation. The government may even print money again to pay its wages debts, which will be hailed as yet further evidence that Russia is in danger of reverting to the past. It would be nearer the truth to say that they will be forced to print money now because the pressure to restructure the taxation system has for years been alleviated by fear-fuelled Western aid and state borrowing.

The discussion about Russia descending into civil chaos, or even a 'new revolution', makes no sense now. The only political conflict is a narrow jockeying for power within the elite. Even Russians who were quite opinionated when I met them during earlier elections feel that nothing much is at stake in the contest to be prime minister.

It struck me almost immediately on my arrival that Russians were treating this 'crisis' much like every other pronouncement of crisis in the past few years-meeting it with black humour and a lot of shoulder shrugging. 'I would have a BMW but I'm in transition', quipped my lift from Kazan airport when I inquired why he hadn't managed to sell his car. 'Transition' (perekhod) is now the butt of irony in Russia, long replacing perestroika and reform.

Russia's 'transition' to a free market has in reality been a period of consolidation of the old bureaucracy in its new position as gatekeepers of business. The past few years have seen the growth of financial speculation and the powerful Moscow banks, amid the decay and promiscuous auction of productive assets. The irony is that none of this would have been possible without the constant injections of politically motivated cash made by Western governments and banks. Because of their fantasies about Russia degenerating into uncontrollable chaos-fantasies which say more about insecurity in the West than the real situation in the East-they have sustained an expanded, degenerate administration that has helped bring the country to the brink of bankruptcy.

Tracey Brown is a sociologist working in Russian social research

'Sell, sell, sell'

Reproduced from LM issue 114, October 1998

Subscribe to LM




Mail: webmaster@mail.informinc.co.uk