Comrades in Monetarism

John Lloyd writes about the Russia over which Yegor Gaidar and his team preside

Why is it so important for the rich states of the world that Russia and the other post-Communist states become capitalist democracies? Why are rich foreign countries so determined to lavish resources, generally perceived as scarce, on a country whose standard of living, though declining, is still much higher than that of most of the Third World?

The first reason is fear. We were always frightened of Russia in its Soviet imperial form. But the collapse of a system which claimed world domination, even if unconvincingly, was in retrospect only a start. Russia, with Ukraine, Belorussia and Kazakhstan, is the inheritor of the Soviet nuclear arsenal, and there is as yet no stable mechanism to oversee that arsenal’s destruction or diminution – or even to control it at all. At present, both Ukraine and Kazakhstan are insisting that they keep that part of the arsenal – strategic and tactical – located on their territories, in a bid to be admitted to the nuclear bargaining tables of the world and, especially in the case of Ukraine, because they do not trust a nuclear Russia which claims to be the sole inheritor of the weapons. The Ukrainian position, though disturbing, has some force: Russian nationalists, whose power is steadily increasing, are organising themselves around claims for the return of the Crimea, a Russian territory ‘given’ to Ukraine in 1954 by Khrushchev, and there is little doubt Russian pressure would rise to the nuclear level.

If the transformations of Russia, Ukraine and the other republics of the former Soviet Union (FSU) do not succeed, there are very significant forces within all of these states which would inevitably take them back to forms of authoritarianism and to efforts to export their aggression. At present, only one model of transformation to a stable state is available: that of a democratic pluralist politics based on a capitalist economy.

The second reason is, to put it at its worst, greed. The former Soviet empire, in its fullest extent, numbers over 400 million people, educated, among other things, to want what the advanced industrial countries make. The inclusion of this area in the capitalist ambit would, over time, give the market system a challenge and an opportunity which should keep it on the road for the lifetime of everyone likely to read this, and probably far beyond. The agents of the transformation will be, first, the Russian government and its as yet tentative entrepreneurs, and second, the Western businessmen now poking about in Moscow, fascinated, fearful and endlessly prevaricating. The more adventurous among them quickly grasp that there are fortunes to be made. Settled capitalist relations will take longer to establish – perhaps a great deal longer – and the magnitude of the effort required to establish them is vast. The sheer power of the system, and the dimensions of both its failures and its successes, all cry with one voice: don’t start!

It was, as we know, a centrally planned system, but until now we have had little understanding of what central planning really meant. In a recent conversation with Vitaly Naishul, one of the circle of neo-liberal economists who have provided the general staff for the present Yeltsin government, I was told that GosPlan, where Naishul worked for ten years, was by the late Seventies a demoralised and bewildered institution. Its senior people knew they could not do their job: they could not calculate the necessary inputs and outputs of the thousands of increasingly complex enterprises under their nominal control. In fact, the tables had been turned since Stalin’s time: like the debtor who owes the bank so much that he owns it, the enterprises were so much part of the stability of the system that they ‘owned’ GosPlan, GosBank and the Ministry of Finance. Thus while the state through its various agencies still allocated targets, and successfully kept producer from consumer, it did not exercise any effective control: it had theoretical property rights but few of their effective attributes.

This in turn meant that the workers in the plants became very powerful – much more powerful in many respects than their Western counterparts had ever been. They had huge negative control. They knew they could not be fired; and the state didn’t allow substantial differentials between enthusiastic worker and hopeless boozer: only the desire for advancement could impel an ambitious worker up the ladder which led to party or state office. The workers of Stalin’s time, overwhelmingly from the land, were easily cowed and disciplined: the second and third-generation workers of Brezhnev’s period, relatively well-educated, were a different breed. Their enterprises enclosed them much more efficiently than happens with Japanese companies: gave them flats, holidays, sport and recreation facilities, provided every service from the cradle to the grave. Nor was there, as there is in Japan, any real or implied contract that they give productive work in return, nor was there a management spurred on by world competition to innovate, organise or exhort. Brezhnev came as close as any Communist leader to achieving some part of the ludicrous imperative to ‘make the working class the ruling class’. Now, the workers are one of the largest constraints on a pro-capitalist government: to create capitalist structures, the government must strip them of power, security and, in the first stage at least, their old living standards. One of the many ironies of the transformation, and one of which the present Russian government is very well aware, is that they are embarking on a period of democracy with a programme and practice no democratic electorate would tolerate for half a year. Yet if it fails there will be no democracy.

There was a market in Communist times, of course, but it was largely criminalised. People wanted scarce goods. The state allocated these in too small quantities or not at all. There were bound to be those who took the (diminishing) risk of supplying them for a premium. In other countries, there are merchants: in the Soviet Union, there were only criminals; and since they needed protection, the criminals criminalised large sections of the Party and the state, creating an enormous hinterland of deceit, coercion and inefficiency. These are the people who are now most active in the private markets. Most ‘decent’ citizens still regard them as criminals, or mafiosi. At a recent auction of shops in Nizhny Novgorod (formerly Gorky), the shopworkers stood outside the city’s main Palace of Culture, where the auction took place, with placards saying: ‘Don’t sell what we have built with our own hands to the mafia!’ One might feel sympathy for these women, were it not for the fact that it is they and their counterparts everywhere who offer surliness and aggression to anyone who comes through their front door, while peddling state goods for profit out of the back.

There were no real prices in the command economy. Position or corruption (or both) bought the most desirable goods, and the ‘basics’ came via the state as a kind of welfare provision. The Kosygin reforms of 1965 did make enterprise managers pay more attention to profits and to the use of inputs, but that only lasted four or five years, partly because of the odium associated with ‘reform’ after the crushing of the Prague Spring, and partly because the antitovarniki (those opposed to any kind of commodity relations) could secure Brezhnev’s ear with the argument that Kosygin’s reforms would dilute their power base. Aganbegyan, Gorbachev’s economic adviser, who was associated with Kosygin’s reforms, says in Moving the Mountain that ‘by the early Seventies the authorities had slipped into a kind of administrative hysteria which affected both industry and agriculture.’

Investment criteria were set by politicians in association with the engineers who were also the industrial managers. Many of these decisions were taken for reasons that had nothing to do with the economy. For example, the development of a heavy industrial sector in the Baltic States, especially Latvia and Estonia, represented the last great surge of the Russians into new lands in a kind of industrial equivalent of the Ulster plantations. The Ministry of Finance and the State Bank were mere allocatory agencies: the only ‘Westernised’ banking sector was the one that dealt with foreign loans and with foreign branches of the state banking system – not surprisingly, many of those who are now struggling to put a banking system into operation passed through the London-based Moscow Narodny Bank or others like it in Paris and Hong Kong.

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