Gorbachev returned to Moscow as a spent force. He joined forces with Yeltsin again, but was now the junior partner. Yeltsin, who held the initiative, would not declare his hand. He denied that he was against the ‘Union of Sovereign States’, whose constitution was being drafted, but as the negotiations over the new form of union continued he did his best to weaken its powers. When Gorbachev offered him the presidency if he backed the project, he demurred; and when a governmental crisis arose in September he pretended to be ill. The republics were demanding ever-increasing expenditure, but on 16 October it was announced that the government was spending twice the amount of its revenue. Next day Ukraine backed out of the proposed economic union and within a week repudiated responsibility for a share in any future Soviet debt. Having refused to agree to a common army, it reinforced its point by withholding food coupons to units which would not take orders from the new Ukrainian Ministry of Defence. Three other republics, of the remaining fourteen, also refused to agree to a common army
Output (GNP) fell by an eighth between mid-January and September 1991. The budget deficit was ballooning, unemployment was soaring, and inflation — which the International Monetary Fund estimated to have reached 150 per cent in 1990 — was rising by 2 or 3 per cent a week. The IMF urged long-term help but the Group of Seven, the world’s richest countries, refused to rush into any rescue plan. Then the Russian government seized the Soviet gold reserves and suspended oil exports. As investors got the scent of another Russian catastrophe, on 15 November 1991 stock-market values round the world plummeted. And, as at moments of national emergency since medieval times, the Patriarch of the Russian Church addressed the Russian people. ‘The old structures have collapsed’, Aleksei II said bleakly, ‘and new ones are not yet in place … People are losing faith in the future and in their political leaders.’
It was a form of political extreme unction, but the death throes of the Soviet Union were not yet quite complete. When Ukraine voted for independence in a referendum held at the beginning of December Yeltsin moved immediately to create an association which would be weaker still. This ‘Commonwealth of Independent States’, centred on Minsk, capital of Belarus, would constitute a single market and co-operate in military matters but have very little real power. However, the Baltic republics and Georgia refused to endorse even this shadow of a union.
Recognizing the failure of his last mission, and the impossibility of his position, Gorbachev went on television a few days later to announce his resignation and a formal end to the entity of which he was president. At midnight on 31 December 1991 the Union of Soviet Socialist Republics, Russia’s fourth empire, would cease to exist. 22 He spoke with sadness and with dignity. Not so Boris Yeltsin. He moved into the presidential offices in the Kremlin before Gorbachev had time to clear his desk, and threw a party there.
The end was untidy and brought benefit only to the scavengers of the dead state. Ukraine gained independence but lost the assured Russian market for its grain and coal, on which it had depended. Its huge Russian minority suddenly found themselves in an alien state. Kazakhs formed only 40 per cent of the population of newly independent Kazakhstan; indeed, they barely outnumbered Russians, who formed 38 per cent of its population. 23 As the Soviet Union disintegrated there were widespread uncertainties not only about trade and the currency, but about the law and its enforcement, about what was licit and illicit. Lithuania tried to rehabilitate those condemned by Soviet courts for collaboration with the Nazis during the war, only to backtrack when Western countries indicated that this was politically incorrect. Concern spread abroad too — about the repayment of Soviet debt, nuclear proliferation, even about a possible nuclear holocaust.
The Soviet system need not have collapsed so precipitately, nor indeed at all. As Yeltsin subsequently remarked, the Soviet Union could have survived for many years, if not indefinitely. What, then, caused its dramatic collapse? Few of the explanations that were popular at the time hold much credence in retrospect. The Pope’s moral support and diplomacy may have helped speed the break-up of Yugoslavia, but he had little influence in the Soviet Bloc proper outside Poland, Lithuania and western Ukraine. The ‘Star Wars’ project put a strain on the Soviet budget by demanding increased military expenditure for a time but, though debilitating, it was no death blow. There is no evidence to support the idea put about by resentful Communists that the Soviet Union was murdered thanks to a conspiracy by the capitalist West. Nor was nationalism the cause. Nationalism was indeed the banner beneath which several Soviet republics left the Union, yet it turned out to be an excuse for leaving, rather than the cause. The spread of electronic communication may have rendered conventional censorship and political control futile, but only in the long term, and the regime had ceased to be Stalinist in its oppressions long before Gorbachev came to power.
Since the 1960s the Soviet economy had been unable to compete with capitalism. Its inefficiencies had been recognized in Brezhnev’s time, but cautious efforts to improve the system had met with little success. The entrenched interests of the Soviet managerial class, the apparatchiki, obstructed systemic reform. The difficulties attending this option led Gorbachev repeatedly to avoid it and address political reform instead. Yet the people had become disillusioned with democracy even before Gorbachev lost power. Communist China engineered a better solution in the light of his experience. It adopted a mixed economy, part planned, part free, and gave priority to economic, rather than political, reform. That prescription might well have worked in Russia too.
As it was, the attempts to decentralize decision-taking, encouraging regional officialdom and managers to take more power into their hands, drove the system towards a precipice. After some initial confusion, managers and officials began to take Gorbachev at his word. In doing so they undermined the authority of the central institutions on which the leadership depended for the execution of its policies. Furthermore Yeltsin’s assault on the Communist Party removed Gorbachev’s most effective lever of government. But, perhaps Gorbachev was the architect of his own failure. As he admitted in retrospect, he had certainly been remiss in failing to keep the money supply in check. As a result, inflation gathered speed, destroying savings and creating increasing distress. Communist Russia was an essentially makeshift contraption. Born of war and revolution, it had been shaped by necessity and hardened by time into a fixed, rigid and ultimately brittle system.
Gorbachev deserves credit for positive achievements. 24 He, more than anyone else, was responsible for changing Russia’s political configuration — albeit in a way he had neither foreseen nor intended. He also did great harm, though without intending to. Unlucky and incautious, he was soon overwhelmed by the rush of events and by successive crises. Having bravely begun the dangerous process of radical reform, he suddenly found the machine careering onward and downward out of his control. In the end, then, the verdict must be death by misadventure.
The rejoicing over the collapse was great. Yet the advent of democracy was to solve no problems, and many who rejoiced at the time were to regret the Soviet Union’s demise. Most of the good things which both the dissidents and Western politicians and ideologues forecast would emerge from the collapse of Communism did not materialize. Indeed, most Russians were to find the first fruits of the freedom they had been promised very sour indeed. It is on this aftermath - the condition of Russia in the post-Communist era — that we must now focus, for that is the soil in which any future expansion will be rooted.
15
Reinventing Russia
W
HEN THE SOVIET Union collapsed, crowds swarmed out on to the streets of central Moscow and St Petersburg to greet the new order. They were mostly younger people and their expectations matched their excitement. Russia was free. The stern face of authority was fast fading away; political correctness and restrictions were things of the past. Untrammelled now by empire, Russians would no longer be isolated from the world. They would be ruled by democracy instead of tsars and commissars,
and join the global economy Western statesmen and economists had forecast that investment would flow in from Wall Street, the London Stock Exchange and all the other bourses of the free world. A vibrant free economy would rise up in place of the moribund, now crumbing, bureaucratic economy People would have opportunity and choice instead of dull predictability.
A handful of Russians were soon to become wealthy beyond dreams, as in a fairy tale, though a few were to perish at the hands of contract killers, and one or two even ended up in jail for fraud. Shops in city centres were filled with an amazing variety of expensive goods. Mercedes limousines, Cardin dresses, blue jeans and Macdonald hamburgers proclaimed the coming of the new age. But for most people the euphoria was momentary, the aftertaste bitter.
More and more old ladies stood patiently in lines outside metro stations hoping to sell a treasured possession, a cigarette or two, or a wilting posy of wild flowers to buy some food. Infants died of malnutrition; young women and children were recruited for the prostitution and pornography industries, and not a few of them exported. The use of drugs increased, forgotten diseases like typhus returned and new ones like AIDS, virtually unknown in the Soviet era, began to spread. The welfare system that had for so long sheltered the population steadily deteriorated. The birth rate rapidly declined; the death rate soared.
As in the Time of Troubles four centuries earlier (See Chapter 6), disaster struck six years out of seven, in the form not of unusual weather and crop failure this time, but of precipitous industrial decline. By 1998 the country’s gross national product was less than half what it had been in 1990. Young scientists emigrated, and capital, desperately needed for investment, flowed out to foreign bank accounts. One of the brighter spots in the new, dark world, was shone by schoolteachers who continued to turn up in their classrooms even though some had not been paid for months.
What was the source of the disaster? Was it the inevitable consequence of an inevitable transition? Was it due to Communism and the bad habits it encouraged; or, as many Russians believed, the work of the United States? Washington certainly wished former Communist states to join the free-trade system and, as Bismarck had noticed a century and a half earlier, free trade favours robust economies, not vulnerable ones like Russia’s. Could it have been the fault of Russia’s own corrupt elite, the so-called nomenklatura, many of whom had also occupied important positions under Communism? Or were misconceived policies of the new men led by Boris Yeltsin and their advisers to blame?
The decline had begun under Gorbachev but little had been done to stop it. Inflation continued to spiral upward, reaching an annual rate of over 2,000 per cent before it eventually abated. The social impact of this factor alone was immense. Savings were wiped out; investment ceased. The International Monetary Fund advanced loans with conditions attached and some of the richer countries pitched in, notably Germany, which advanced Russia the equivalent of over $24 billion between 1989 and 1993, 1 but most of these loans fell into the wrong hands and eventually disappeared into numbered Swiss bank accounts and American stocks. 2 All that accumulated for Russians in Russia was foreign debt, which had hardly existed in the Soviet era. On the other hand Russia was no longer burdened by empire. It had shrunk almost to the frontiers of 1700 in Asia and of 1600 in Europe, and its population was now no more than 150 million. This was a manageable size for an economy, and Boris Yeltsin now proceeded to dismantle and rebuild according to a new model.
Yeltsin’s understanding of economics was limited, but he followed the advice urged upon him by the West and set young Russian economists to the task. American free-market theory provided the framework, and shock therapy was favoured over gradualism. The ideas of the Harvard economist Jeremy Sachs, which had recently accomplished an apparent miracle in Poland, were particularly influential, and the revolution was implemented in a hurry. It seemed that this would make the transition painful but short, but according to Anatolii Chubais, one of those chiefly responsible for the manner in which the transformation was undertaken, there was another, political, motive. Yeltsin was anxious to destroy the base for any Communist revival in the future. 3 So was Washington. Together they succeeded.
On 2 January 1992, the day after Russia began its separate existence, most prices were freed from state controls — though those for oil and other natural resources were kept so low that vast quantities were sold on abroad for profit. To make the new, higher, prices in the shops more affordable wages were raised, which meant further increases in the money supply. So did the huge subsidies doled out to public utilities. Together they led to a further spurt in inflation. This was eventually curbed by high interest rates, but investment dried up as a result. Furthermore, it suddenly became apparent that the lack of adequate financial institutions was a serious impediment. As the chief IMF economist remarked, the government had ‘tried to take a short cut to capitalism, creating a market economy without the underlying institutions, and institutions without the underlying institutional infrastructures’. 4
Capitalism cannot work its miracles without capital, and with foreigners reluctant to invest and newly rich Russians spiriting their assets away to foreign banks, no miracle was possible. Before long about $2 billion was leaving the country each month — more than all the aid, loans, credit and investment that were coming in. 5 So far things had gone very badly wrong. It seemed that the only way to create the elusive economic miracle was to stimulate appetites and let greed off the leash.
This was soon done. In August 1992 Yeltsin signed a decree disposing of state property to raise money. Vouchers were issued entitling every adult in the country to 10,000 rubles-worth of shares in the enterprise or institution with which they were associated. Alternatively they could sell their vouchers. Voucher auctions would be arranged. The randomness of the method met with the approval of Western economic theorists. Most people might have no idea of value, they said, but the vouchers would surely end up in the hands of people who did. And so it turned out. Most Russians, bemused by the process, sold their vouchers — many of them to touts who offered ready money for them on the street. Managers and new businessmen, who had a better understanding of values than the general public, made killings and manoeuvred themselves into positions to make more. The proceeds, intended to reduce the state’s massive deficit, turned out to be disappointing, however, because during the interval that passed before they reached the treasury their value had been savaged by inflation. On the other hand gigantic windfall profits went to a handful of sharp-eyed and unscrupulous operators who exploited the reformers’ mistakes.
The beneficiaries were mainly young men in the know. Since there were so few of them, and the industries they came to control dominated the Russian economy, they were soon wielding political power as well as financial clout. Aside from Viktor Chernomyrdin, a government functionary who was no longer young, the first generation of multimillionaires included Mikhail Khodorkovskii, Vladimir Gusinskii, Petr Aven, Roman Abramovich and Boris Berezovskii. Able youngish, civil servants, city functionaries, economic advisers, scientific researchers, they turned themselves into biznesmeny and swiftly graduated to become tycoons dominating important industries — aluminium, natural gas, air transport, banks, the media, and oil. Several of them came to be closely connected with organized crime as well as with government, for the atmosphere, in Moscow particularly, closely resembled that of Chicago during prohibition and they needed protection, whether from former KGB operatives or from the Chechen and other organized mobs. 6
While the plutocrats counted their assets, the masses counted the costs of the transition. At least a third, and probably over half, the population had been forced below the poverty line, and the health statistics of the first years of post-communist freedom told their own story. Between January 1992, when the switch from a planned to a market economy began, and June 1994 the death rate in Russia rose by over 30 per cent, to a level unknown in any country that was not at war or suffering from famine. The rise in mortality among males of worki
ng age was particularly steep. They died from heart attacks, strokes, alcohol poisoning, suicide and murder. A UNICEF study attributed the sharp increase in adult deaths to stress arising from fear of unemployment, although despair at the collapse of a familiar world seems also to have played a part. A dramatic increase in infant mortality, which more than doubled in the period 1991-3, was no less alarming. Child health had been improving steadily until 1990. 7 Now, suddenly, health-care services and education were in danger of collapse. They would have done so had conscientious teachers, doctors and nurses not continued to work even when their modest salaries were unpaid. And unpaid workers isolated amid the vast wastes of the north also worked on for lengthy periods without reward simply because they and their families could not afford the costs entailed in moving and starting a new life elsewhere.
In December 1993 President Yeltsin approved a new coat of arms for Russia. It took the form of a Byzantine eagle with two heads surmounted by three crowns. 8 It might seem odd that Yeltsin, who had played a key role in stripping Russia of empire, should have adopted this imperial symbolism for the new, truncated Russia, but it was not the only irony. A former Communist apparatchik, he was now the scourge of Communism. This and his pious commitment to the cause of democracy, which he paraded as religiously as any seventeenth-century tsar paraded his commitment to Christ and all the saints, commended him to Washington and London, despite the fact that only two months before adopting the imperial insignia he had ordered troops to launch a bloody attack on parliament and shut it down.
Russia Page 42
