Russian reform

...In essence this means the direction that perestroika was moving in up to 1990, before opposition on the left and on the right disrupted its progress...

...Retrogression is disguised as progress...

...It was a new manifestation of the old habit of political utopianism, the temptation to embrace ideal solutions without regard to the practical consequences...

...Some measure of market freedom may be a necessary condition of democracy, but it is not a sufSUMMER • 1995 • 309 Politics Abroad ficient one...

...The Gorbachev reforms are widely faulted, but for contradictory reasons: they went too far too fast, or they did not go far enough fast enough...

...The democratic enthusiasm of 1991 is gone, replaced by cynicism and apathy...

...However, like past Russian reforms copied from the West, the Yeltsin-Gaidar program rested on a serious misunderstanding of the Western context...

...Taking advantage of Gorbachev's steps toward democratization in 1989-90, he put himself at the head of the radical democratic movement, won the leadership of the Russian Republic, and embraced those policies that were most calculated to embarrass and discredit his rival, specifically the radical free-market alternative in economics and self-determination in nationality relations...

...and premature dismantling of the planning and controls that might have guided more constructive reform, including conversion of the military-industrial complex...

...They have plunged into disruptive institutional rearrangements without first addressing the need for the legal, financial, and policy infrastructure that underlies the Western economy, not to mention the decades of struggle in the West to remedy the failings and injustices of capitalism...

...Though shock therapy was dear to the hearts of Russia's new Western advisers, it was not really called for until the 1992 price reforms unleashed the inflationary storm...

...However, under contemporary Soviet conditions of centralism and super-industrialism these reforms were far more difficult to accomplish than in the 1920s without risking deep economic disruption...

...308 • DISSENT Politics Abroad Far from being a natural process of "transition" as it has been so widely represented, the Yeltsinite project of re-creating capitalism was entirely without historical precedent...

...Reform in Russia has been inspired less by practical considerations than by ideology...

...He gingerly relaxed state controls over those sectors—retail trade, services, agriculture—where nationalization and command methods had been most inappropriate to begin with...

...Russia's circumstances, above all the challenge of escaping the burden of the Soviet past, do not necessarily call for the same policies that Western countries follow, let alone what Western ideology prescribes...

...Marketization, on the NEP model, had already been carried to an excess in the Gorbachev era in the application of the profit-andloss principle to inappropriate areas, even to cultural and scientific institutions...

...Free-market reform has not strengthened democracy in Russia...

...Reform in Russia has been called a "revolution," both by Gorbachev and by his successors...

...Whether the necessary political forces could be mustered in the near term to support such an approach remains to be seen, but it would clearly be more compatible with Russian democracy than the obsession with unfettered capitalism that has dominated Russian reform since perestroika was abandoned...

...The government deficit was financed not by borrowing but by unrestricted currency emission—just printing the money—while tax revenue remained in limbo between impossible 310 • DISSENT Politics Abroad demands and problematical collection...

...reassert control over foreign trade and the revenue from the export of natural resources...

...Yeltsin was clearly driven to settle scores with Gorbachev after their falling out in 1987...

...They have perpetrated deep and damaging contradictions among the various elements of their attempted reforms...

...Here political events and the interaction of personalities became crucial, a point neglected by theories of an inevitable postcommunist transition...

...power...

...But a greater failure of prediction, by any lights, was Russia's slide into chaos, crime, and corruption under its postcommunist leadership...

...The reasons are more emotional than logical...

...It was a deliberate attempt, by state command, to unscramble eggs, ignoring both the modern limitations of the market system and Russia's unreadiness for it...

...The ultimate irony of utopian reform, trying to implement an unreal image of the first world, has been to turn Russia into a third world country, the opposite of what the theorists of transformation expected...

...Privatization, the third component of reform, has achieved a mixed record...

...In most of Europe, however, democratization of the political process proceeded only with the rise of the working class and the critics of capitalism...

...In their new attachment to the free-market ideal, the Russian reformers succumbed to the basic fallacy in Anglo-American economics, inherited from Adam Smith, that the pursuit of individual advantages necessarily yields in the aggregate the maximum community advantage...

...It proposes to liquidate "inefficient" firms through credit starvation and bankruptcy, but a whole country cannot go into bankruptcy and liquidate itself...

...The voucher method of distributing shares to employees and to the public seemed most democratic and politically palatable, though it highlighted the contradiction between the utopian eighteenth-century ideal of a democracy of smallholders and the twentieth-century reality of large authoritarian organizations...

...Nevertheless, Russia needs to define its own destiny and not let it be imposed by outside ideologists...

...Idealizing the capitalist market, the reformers overlooked both its short-term and long-term weaknesses— cyclical instability and structural unemployment on the one hand, corporate concentration and market manipulation on the other—problems that require continuous state intervention and management in order to make the market function as it is supposed to...

...The reformers never realistically addressed the problems of what a state-initiated system of private ownership would ultimately look like, how they would deal with existing monopolies and conglomerates, who would take title to state property, and how it would be paid for, if at all...

...As everyone in Russia was soon saying, perestroika broke up the old economic guidance mechanism without putting anything in its place...

...The Brezhnev era begins to look good in contrast...

...Alexander Solzhenitsin describes it as "fraught with unproductive, savage, and repulsive forms of behavior, the plunder of •To some extent this collapse was offset by the upsurge in private and illegal activity that never came to the attention of the statisticians and the tax collectors...

...What is to be done...

...Still, it will take a long time to undo the political as well as economic damage inflicted on Russia by the Yeltsin regime just as the country was coming out of the long shadow of totalitarianism...

...As Russia entered theYeltsin phase of reform, it was driven all the more by ideology, both the negative reaction against anything associated with the Stalinist model, including socialism and planning, and the positive attraction of Western freemarket capitalism...

...Yegor Gaidar went further, to suggest that economic disruption was the necessary price for quickly exploiting the window of opportunity to extirpate the nomenldatura as a ruling class and make the reforms irreversible...

...restore economic planning in its indirect form and accelerate conversion in the military-industrial complex, rather than contemplate bankruptcies and unemployment (or arms sales abroad...

...Privatization has naturally proceeded furthest and most successfully in the sectors of small enterprise, housing, and direct consumer services where, as I have noted, nationalization was least appropriate to begin with...

...This is an exaggeration...

...Although the shock prescription is orthodox Western medicine for the third world, no developed country has voluntarily submitted to it...

...With the decree powers voted to it by the Russian Parliament in November 1991, theYeltsin government undertook radical economic reconstruction along three principal lines—market liberalization, macro-economic stabilization, and privatization...

...Post-Soviet figures may understate economic performance as much as Soviet figures exaggerated it...

...Though the reforms of marketization, stabilization, and privatization have been justified as the answer both to pre-Gorbachevian stagnation and to Gorbachevian confusion, their effect on Russian economic performance has been little short of disastrous, recorded economic activity falling by 1993 to perhaps one-half of the level of the 1980...

...This contradiction between the theory that has inspired reform and the actual nature of modern society—particularly the peculiar kind of modern society that was the Soviet system—lies at the root of Russia's troubles of the 1990's...

...Who is to blame...

...Chto delat...

...In real life there are innumerable policy positions between Smithian laissez-faire capitalism and Stalinist barracks socialism...

...This was the presumption underlying the "Five Hundred Days" plan of 1990...

...The real question, for the West as for the ex-communists, is how to adapt democracy to the realities of a society based on large organizations, by democratizing bureaucratic structures rather than trying to break them up (as in Russia and in the public sector in the West) or ignoring their implications (as in the private sector in the West...

...The pursuit of market socialism, barely underway, was supplanted by the conviction that only a purely private, capitalist market economy could rescue the Soviet Union from its economic difficulties...

...The blame for Russia's current distress lies first of all with the utopian image of the free-market economy touted by the Western theorists...

...Railing against a demonized image of the Soviet regime on the basis of an idealized image of the West, the reformers have thrown away the tools of planning and control that might have helped them deal with the problems they inherited from the past...

...But the premise is historically questionable, let alone the conclusion...

...Russia, it is suggested, had to go through the phase of "Wild West capitalism"— though this formula ignored Russia's accomplishment of primary capital accumulation under pre-communist as well as communist auspices...

...and the urge to extirpate the past in the name of a myth...

...312 • DISSENT...

...To find a way out of its current crisis Russia needs to de-ideologize its thinking and analyze its problems and resources without illusion, whether Westernist or nativist...

...This means speculative capitalism, grafted onto an impoverished society to extract natural resources and exploit cheap labor, a kind of economy marked by colossal theft, speculation, and luxury imports...

...Confounding the utopians, their goal of market liberalization hopelessly undercut their parallel goal of financial stabilization...

...But from this point on, parliamentary resistence to Yeltsin, and the general fear of unemployment and a "social explosion," stymied the serious imposition of monetary restraints...

...naively trusting managers who had no sensitivity to market stimuli...

...Western advice and promises of aid only confirmed the Yeltsin regime in its radical commitments...

...They are wasting the unique opportunity that their escape from totalitarianism has afforded them, to fashion social systems combining freedom, justice, and material progress...

...Kto vinovat...

...The "social safety net" and the "social market" are more fiction than fact...

...Yeltsin's radical approach had precedents in the Russian intellectual tradition...

...The right to property is realized through destatization and privatization, through the transfer of state property to citizens...

...In fact, Yeltsin's people were more genuinely devoted to their ideology than their communist predecessors had ever been, except for the "heroic" period of the early Soviet years...

...Capitalism in the West was built over the course of centuries by capitalists pursuing their own profit...

...Second, there is the traditional Russian penchant for extreme and simplistic solutions...

...What led the radical reformers to embrace a new false certainty when they had barely escaped from the false consciousness of MarxismLeninism...

...This error led them to minimize the role of the state in expressing a democratically derived common interest and taking care of those "externalities" such as health, safety and environmental quality that are beyond the scope of the individual enterprise...

...After a long postrevolutionary dictatorship, the country was returning to the democratic, constituSUMMER • 1995 • 307 Politics Abroad tional hopes of 1905 and 1917, before violence and extremism overwhelmed the moderate reformers...

...By contrast, the Yeltsin regime abandoned the distinction between new enterprise and existing large-scale entities...

...The fundamental fallacy was to suppose that the market could be invoked out of nothing as an instrument for the transition to the market itself...

...The inflationary surge has continued right down to the present, with all its deleterious consequences for public morale and the productive economy...

...in Russia the reformers aimed to recreate capitalism overnight by an act of state policy, while they overlooked the century and a half of efforts in the West to address the defects and injustices of capitalism...

...temporarily re-control basic prices...

...The practical question is not which ideal system to choose and how to jump there, but how and how much the existing social system should be modified and what the side effects might be...

...Defenders of the free-market project commonly assert that democratic government must rest on the market and private property, and that the capitalist economy assures democracy...

...The Gorbachev regime, wedded to the "socialist choice," moved slowly here, acting mainly to ease restraints on new, small-scale private enterprise...

...Max Weber, so fashionable today, actually wrote, "It is ridiculous in the extreme to ascribe to modern high capitalism, as currently being imported into Russia [this in 1906...

...The troubles of perestroika under Gorbachev were serious enough, but minor compared with the crisis brought on by the Yeltsin phase of reform...

...SUMMER • 1995 • 311 Politics Abroad the nation's wealth, the likes of which the West has not known...

...recognize regional interdependence among the former Soviet republics without imposing coercive unity on the one hand or abetting particularistic impoverishment on the other...

...This is true both as a reaction against whatever the Soviet regime professed to stand for, and in attempting to implement an idealized free-market image of Western society...

...This was precisely the logic, in reverse, of the Bolshevik radicals like Nikolai Bukharin who attempted to justify the economic disaster of War Communism between 1918 and 1921...

...We will publish a remembrance in the Fall issue...

...However, the free-market model, the "false consciousness" of capitalism, is not adequate to describe Western reality, let alone guide a society emerging from the straitjacket of the communist past...

...As one rereads this proposal, one is struck by its ambition to combine emergency economic stabilization with radical change: "The program sets the task of taking everything possible away from the state and giving it to the people...

...q IN MEMORIAM We mourn the death of our friend and comrade, a former editor of Dissent, George Eckstein...

...The program advanced by Yeltsin's deputy Yegor Gaidar was a form of super-Westernism, distrusting everything Russian and naively adopting the foreign model—even if it had to be imposed by old Russian command methods...

...In his new book, Lost Opportunity: Why Economic Reforms in Russia Have Not Worked, Marshall Goldman writes, "These leaders all seem to have forgotten that, as a minimum, a successful reform must make the life of the average consumer better...

...Finally, large blocks of shares were left in the hands of the state, causing Russia's supposedly private economy to look more like the French or Italian economic structures than the German or American...

...Nevertheless, the Yeltsin government has continued to put marketization at the forefront of its program, even though the resulting chaos and criminality have more than offset any benefits that the free market might have offered in the encouragement of initiative and efficiency...

...protect industry and agriculture from foreign competition in order to revive domestic production and employment...

...Third, there is the equally ideological rejection of everything associated with the Soviet past...

...systematic denigration of the public powers and national resources inherited from the Soviet regime...

...The Consequences of Utopianism Like the other ex-communist countries, Russia has been guided since 1991 by a combination of fallacies...

...All these steps, unfortunately, defy the model of free-market reform demanded by Western governments and financial institutions as the price of aid and credits...

...They include the simplistic perception of a Western model that never (or hardly ever) existed...

...It has to confront its limitations in experience and cultural background, and the ghastly lapse into anarchy and criminality that utopian reform efforts have allowed...

...Russia would have done better following the Chinese path of market reform at the bottom while retaining planning at the top...

...In a population without much internalized selfdiscipline and a tendency to see the market as an opportunity for speculation rather than production, the sudden removal of economic controls allowed a catastrophic lapse into crime and corruption...

...Nevertheless, in 1989 and 1990, under the influence of Western ideology and the communist collapse in Eastern Europe, Soviet economic thinking underwent a paradigm shift...

...Prices rose so fast that they failed to stimulate domestic production and investment, while foreign imports undercut existing employment in consumer goods...

...However, reform in the Yeltsin phase, inspired by utopian ideology, has proved to be far more disruptive and confrontational...

...These errors have torn the country apart economically as well as politically, creating a situation distinctly more serious than Brezhnev's era of stagnation despite superficial appearances of Western-style glitz in the major cities...

...Marshall Goldman calls it "grabitization...

...It follows that to consolidate democracy in the former communist countries, the socialist economy had to be broken up and converted to capitalism as rapidly as possible, to create a new middle class and make the reforms irreversible...

...Rejecting everything that happened since 1917 as a historical wrong turn, theYeltsinites remind one of the anarchists of 1917-18 who wanted to tear up the tainted czarist railroad tracks and start over again...

...Yet the West connived in Yeltsin's pursuit of the freemarket chimera, offering promises of aid and investment in return for radical reforms that would open up Russian markets and investment opportunities to Western capital...

...Macro-economic stabilization, in other words the shock therapy of restricting the money supply to fight inflation, has not merely failed in Russia— it has never been systematically applied, and for good reason...

...A surge in prices was the inevitable result, launching one of history's classic inflations, evoking an orgy of speculation and white-collar crime, and economically devastating a large part of the Russian population...

...Meanwhile, contemporary capitalism in the West is rapidly socializing formerly independent business activity...

...Yet there was no consensus in Russia about this reversion to old reference points...

...Clearing away the damage done by ideological mythology would require, among other things, that the government stop artificial privatization of existing state entities...

...The challenge is to work out the best intermediate position for a particular country...

...As to large-scale enterprise in Russia, the only way to privatize it was to give it away...

...This misunderstanding stems from the same fallacious assumptions that have been steering Russia's reform efforts into that morass ever since the breakup of the USSR and the advent of Boris Yeltsin's leadership...

...Mesmerized by a utopian vision of capitalist society, Russia's reformers have shrugged off the country's past accomplishments, spotty as these may have been, in such key elements of modernization as industrialization, education, and technology...

...Shock therapy is a paradoxical treatment, aiming to cure an ailing economy by making it sicker...

...A remedy for Russia that combines democratic values with recognition of modern social realities points logically to some form of compromise solution, including the politics of federalism and a mixed economy...

...In agriculture, the campaign to break up the collectives has achieved only a modest degree of individual farming, at the price of much disruption and declining output...

...Reform advocates blame this collapse on the failings of the pre-reform system, just as the communists habitually blamed "survivals of capitalism" for their troubles...

...turning the kolkhozy into genuine cooperatives supporting expanded private plots would have made much more sense...

...the reform era was not so much a new revolution as it was the closing phase of the original one that began in 1917, a phase that I term the "moderate revolutionary revival...

...These are Russians' eternal questions about their destiny, today as much as in the past...

...Gorbachev 's regime certainly made economic mistakes—wage increases without productivity increases, generating "inflationary overhang...

...With widening inequality and endemic corruption, Russia is headed for the model not of Germany but of Brazil, or perhaps of a lowlevel Arab sheikdom where most of the population lives on handouts financed by the export of natural resources...

...Today's utopians have unwittingly subscribed to Lenin's uncompromising formulation: between capitalism and socialism "there is no third way...

...Everyone recalls well how Yeltsin pushed Gorbachev aside after the August Putsch of 1991, but it is not so well understood that the policies he had become committed to were adopted opportunistically, in order to outmaneuver the Union president...

...On top of all this came the divisive leadership politics of the posttotalitarian succession—first, Gorbachev's quest for an alternative to the communist bureaucracy, and thenYeltsin's embrace of the radical free-market program in order to mark himself off from Gorbachev...

...In the last analysis, by most accounts, the chief gainers in privatization have been the old managers and officials, the nomenldatura, taking over as private fiefdoms the entities that they formery directed as state bureaucrats...

...Gorbachev wanted to preserve the "socialist choice" of 191718, while Yeltsin repudiated everything smacking of the communist era and harked back to the semiauthoritarian structure of czarism between 1905 and 1917 (illustrated by his preference for the "Duma" rather than the "soviets," for example...

...The Utopian Program in Russia How did reform in Russia and Eastern Europe come to be guided by a utopian plan that had little reference to Western reality and none to the Soviet past...

...Russia is experiencing a sort of Pinochet scenario, by degrees, as it moves backward politically toward dictatorship in order to support the ideological commitment to capitalism...

...In undertaking to dismantle the totalitarian system, Gorbachev worked his way back through Soviet history to attack the military-style planned economy and the "command-administrative system" in the name of the New Economic Plan (NEP) model of market socialism...

...Inevitably, a large proportion of the vouchers issued to the public ended up in the hands of speculators...

...But the reformers failed to grasp that these ideologies neither described nor guided their respective systems, serving rather to obfuscate and legitimize them...

...When and in what form the country may regain a measure of stability and decent living conditions for the mass of the population remains to be seen...

...In more recent history, there are ample instances, from Mussolini's Italy to Pinochet's Chile, where capitalism not only did not prevent the overthrow of democracy but connived in it...

...They have inadvertently degraded their own societies by facilitating crime, corruption, extremes of speculative wealth and mass impoverishment, and accelerated environmental deterioration, with consequences that may take decades to rectify...

...But the critical step was the decision by the Yeltsin government in January 1992 to free most prices and loosen foreign exchange controls...

...Accordingly he liquidated the USSR, and proceeded to implement the radical economic theory, without any empirical calculation as to its applicability or its impact...

...They have overlooked the parallel evolution— some have said "convergence"—of both communist and Western societies toward bureaucratic organization and concentrated economic This article is based on a paper presented at the international congress, "1985-1995: Perestroika in Search of a New World Balance," held in Genoa in March of this year...

...an inner affinity with `democracy' or even 'freedom.'" True, early capitalism, small-scale and individualist, was associated with the rise of liberal government in Britain and America and with the principles of the French Revolution...

...Employee shares, by contrast, harked back to old syndicalist ideas of workers' control, not heard since the Workers' Opposition of 1920-21...

...As an attempt to reconstruct the Soviet economy overnight in line with an abstract theory, the Five Hundred Days Plan was a manifesto of Bolshevism in reverse...

...They assert, "You cannot jump over a chasm in two leaps," an argument that illustrates what Alfred North Whitehead called "the fallacy of misplaced concreteness," that is, describing a complex social situation with a physical metaphor, and then deducing answers from the physical properties of the metaphor...

...It made the conversion of state property into private enterprises an ideological imperative, carried to extremes (airports and museums, for instance) undreamed of in the West...

...On the contrary, by stimulating political reactions against the Yeltsin regime, it has provoked the latter into more and more authoritarian methods of rule...