The “Transition” in Russia


By Ernest Tate, September 9, 2004.




Russia has been in a social and economic crisis for almost two decades. With the collapse of the USSR, the BorisYeltsin regime moved quickly to privatize everything and Russian businessmen along with some high-placed bureaucrats, who later became known as “the oligarchs”, made big strides in getting control of the economy. Yet organizations such as the World Bank and the International Monetary Fund (IMF), despite all the changes, still see the Russian economy as being “in transition”, that is, somewhere on the road from being a socialized economy to being “a market” economy. Even though the American government has declared Russia to be a “market” economy, in its trade and foreign policies, it maintains a line that is consistent with its anti-Soviet policies of the Cold War. And some pro-capitalist academics in the U.S., challenge that designation, saying that what exists there now is a form of “network socialism”.(1) The purpose of this article is to try and look at Russia’s political economy to get a measure of how far along “the transition”, the country has travelled and to try and understand its complexities. Under Stalinism, Russia was a closed off society, and almost impenetrable for socialist critics and the great majority of the Russian people were in the same boat. With the help of the Internet however, and the many English-language web-sites that now exist in Russia -- which gives us information about developments almost as they happen -- socialists of today are in a much better position than ever to figure out what is going on there.(2)


Economic collapse


The first Five Year Economic plan was implemented in Russia 1928, a major achievement of the October Revolution of 1917 when the working class and peasantry overthrew a semi-feudal state and began the construction of a new society in opposition to capitalism. This transitional society, between socialism and capitalism, allowed Russia to rise, in the space of only a few decades, from a country with a mainly backward semi-feudal, largely rural, economy into a major industrial power.(3) The entire infrastructure of the country, the location of its factories, its pipelines, its energy supply system, the telegraph lines, the highway system and rail lines, the location of schools and medical facilities, the distribution of the population throughout the country, were organized according to the requirements of economic “planning”(4) and this was carried out under a powerful bureaucracy that grew to dominate the society. Stalin headed up a brutal dictatorship over the working class and maintained his power by persecuting, jailing and killing his opponents to. But primarily, the economy had been organized to protect society against the anarchy of the capitalist market and against the very idea of “the market” as a driver of the economy.


During Nikita Khruschev’s time in the late 1950’s and early 1960’s, the economy expanded at around 10% a year and in the 1970’s began to falter under Brezhnev to the point of stagnation as the country faced widespread shortages of basic necessities. (5) This crisis intensified under Mikhail Gorbachov in the eighties and then under Yeltsin in the nineties, at which point the bureaucracy turned to a wholesale accommodation with imperialism to solve the country’s economic problems, abandoning planning and throwing the economy open to the largest privatization process the world has ever seen. Through naked self-interest and with the active encouragement of the World Bank and the IMF, the regime allowed some of the most productive sectors of the economy – such as energy and mineral extraction and processing – to fall into private hands through outright theft.(6) The privatization drive stalled as a result of the Asian financial crises of 1998 when Russia, ignoring the advice of the American Treasury and the IMF, swiftly defaulted on its international and domestic debt, an expression at the time of its lack of integration into the world imperialist system. In an economy already severely depressed by the neo-liberal “shock therapy” of discarding price controls and with the mass of the population impoverished by inflation rates which at times went above 1000%, many state enterprises went bankrupt and tens of millions of ordinary Russians lost their life’s savings and were thrown into poverty. Pensions went unpaid and social programmes were terminated. The ruble was devalued by 75% and the IMF threw its support behind Yeltsin with a $22.5 billion loan.(7) It was only last year that Russia received its first-ever investment grade rating from a major credit company.(8)


Limited economic “revival”


Since the year 2000, a limited economic revival has begun and Russia has reduced its international debt by $39.4 billion,(9) but according to a group of economists and sociologists from the Russian Academy of Sciences, much of the country still remains in a severely depressed state. Out of a total population of 145 million, 36 million live below the poverty line – one quarter of the population – half of whom are children. Thirty to forty percent of all Russians can be classified as indigent, they say. Incomes of the new poor are lower than the living wage officially fixed by the government, which is only 50% of that which was established in 1991. Official government spokespeople talk about the 30% increase in average wages, but this is a lie, the Russian economists and sociologists say, and does not affect the bulk of the population; it is the effect on the average of the small group – 7% -- who are the wealthy, who build the luxurious villas, who buy expensive cars and who shop at expensive boutiques where ordinary people do not venture. Incomes of the majority of working people have been reduced by a factor of two or three, a marginalization of the poor which ranks Russia alongside third world countries such as Chile, Brazil and Mexico.(10) The average lifespan of the Russian male has dropped to 58.6 years for males and 72.1 years for females and the population of the country is declining at a rate of 750,000 per year. (11) And like many of the countries of Western Europe, there is a huge mass of illegal migrants in the country, between 3.5 to 5.0 million, mainly from the former nations of the USSR, the majority of whom work in the privatized sector often in appalling conditions and for low pay.(12) Jonathan Steel in the British Guardian talks about a “grotesquely widened inequality of incomes since Soviet times. It is not just that the top 10% have 23 times more than the bottom 10% (the same rate in Britain is 12, in Poland seven. With Internet access as low as 5% of households, Russia is divided into a tiny stratum of people who travel abroad and are wired into global modernity and a huge mass struggling to survive.” (13) Moscow News says that the seventh article of the Russian Constitution stipulates that “Russia is a social-welfare state” but the share of the GDP spent on social services “is very little compared to other European countries – much less than France or Norway…provision of free health-care is no more than a myth”.(14)


High concentration of private ownership


A recent report by the World Bank provides important insights into how far the dismantling of the planned economy has progressed – in essence a long economic counter-revolution -- and the degree to which Russia’s new capitalists – in the space of only a few years – have risen from virtually nothing to getting their hands on vast slabs of Russia’s productive resources. (15) The report, it should be noted, while remarking on the illegality of what transpired during that time and the resultant suffering of the Russian population, hypocritically remains silent about the World Bank’s part in that process when it mobilized its support behind Yeltsin in helping him implement his neo-liberal policies.


Among the countries of the Organization for Economic Cooperation and Development (OECD), private ownership concentration in the Russian economy now compares only to Germany. “Financial industrial groups are controlling the largest firms,” says the World Bank, “Measured by sales, the average firm identified as controlled by a big business group or individuals, is 76% larger that the average firm controlled by other domestic owners in the data base…and the disparity would be greater if smaller firms were included...”


“At present,” the World Bank report concludes, “the Russian economy is dominated by a small group of powerful companies and because of their high investment rates, their influence is likely to increase.” The report also shows the corrupt relationship between these large companies and the government – what they euphemistically term “state capture” and urges the government to implement anti-cartel measures to limit their influence.(16) The authors of the report analyzed a large, statistically representative sample of the Russian economy, “covering about 1300 large firms, listed and unlisted, in industry and services and employing 3.3 million people. The industry part of the sample represents 17% of Russia’s industrial employment and 57% of industrial output.” Twenty three of the largest owners in the study controlled 36% of sales and 38% of employment in the country. In the industrial sub-sectors of the sample, financial industrial groups (FIG’s) controlled 35% of sales, whereas combined federal and regional governments only control 25%. The remainder is controlled by smaller capitalists. Control by FIG’s is highest in the oil, raw materials, automobile and chemical sectors. .”(17)


By 2002, single shareholder groups have come to control ninety-seven percent of all the large privatized enterprises, says David Mandel, in his recent book, “Labour After Communism”. According to some estimates, “twenty large conglomerates controlled seventy percent of Russia’s GDP.”(18) Since the 1998 financial crises, a wave of private acquisitions has swept the auto and farm machine sector of the economy as large capitalists increased their control over manufacturing, he says. “With the economic upturn and the windfall profits from high oil and metal prices, and especially after Putin’s election in 2000, the ‘oligarchs’, who had made their fortunes in the resource sectors, began buying factories in other manufacturing sectors. These sold for a tiny fraction of their real value because of their poor financial situation. Moreover, ways were often found to further reduce their attractiveness prior to the sale. As a result, industrial ownership became increasingly concentrated.”(19)


“Managed” privatization


On May 7th, 2004, Vladimir Putin was inaugurated for his second term as President of Russia, after a landslide victory, taking 71% of the vote, the third presidential election since the fall of the USSR. One of the reasons for the increase in his support is the reviving economy which is benefiting from the current high oil and commodity prices on the world market. Even though there has been a slight increase in unemployment (which is in reality, is much greater than figures signify), the government says the economy grew at an annual rate 9.1% in the first quarter of 2003. (20)


Putin’s promises of “stability”, and the jailing of a few major capitalists has helped contribute to his popular support as these actions speak to the concerns of the great majority of ordinary Russians who remain hostile to the massive theft of important parts of Russia’s productive wealth by a few insiders,. This is not to suggest that he is in any way an obstacle to the deepening of the capitalist penetration in the economy; in this respect, his policies are not much different than that of his predecessor, Boris Yeltsin or for that matter Mikhail Gorbachov, who during his time, pursued a policy of the USSR’s “organic integration with the world economy” (21) and entered into negotiations with the G7 powers on speeding up the introduction of “market reforms” which culminated in the “Washington consensus” with the USSR achieving associate membership in the G7 and “special relations” with the World Bank without ever resolving the matter of the imperialist countries discriminatory anti-Soviet trade legislation. (22) Rather, Putin’s objective is to see that the privatization process is orderly and “managed”. The state’s efforts to prosecute Mikhail Khodorkovsky, exc-CEO of OAO Yukos, a giant oil company which employs over 150,000 people, for tax evasion ( see below, the issue of “transfer pricing”) and privatization irregularities, has given the impression that Putin is against “oligarchs” and that he might be trying to bring OAO Yukos under some measure of public control. He has made clear, however, that the government has no wish to drive OAS Yukos into bankruptcy nor to revisit government’s privatization policies. Also under threat of prosecution or are already being prosecuted, are other major capitalists, among them media mogul, Vladimir Guisinsky and Platon Lebedev of the banking and holding company, Menatap. Adam Abramovich, now Britain’s richest man, fled the country to escape arrest. (23) Vladimir Potanin , well connected to government circles and a powerful capitalist, was also under threat of arrest.(24) But appearances to the contrary, Putin’s relationship with the big capitalists is very comfortable. It seems Khodorkovsky – who owes the government several billion dollars in taxes -- violated a gentleman’s agreement between the government and the capitalists that they could keep their assets, no matter how they got them, as long as they paid their taxes and didn’t meddle openly in politics. Khodorkovsky had once formed and financed his own political party. Many leading capitalists are serving or have served, in influential positions in the bureaucracy and government. A political associate of Putin’s, Alex Federov, a key figure in Putin’s United Russia party, who owns Irkut, a Siberia based aerospace company which employs 15,000 workers (who make an average wage of $200 a month), recently got his hands on a $500 million contract to build wings for BAE Systems – Britain’s largest defense contractor. (25) Potanin, the most powerful billionaire in the country was once a deputy prime-minister. A protégé of Potanin’s, Oleg Deripaska, who controls the Russian aluminum industry and who was barred from entering the United States because of allegations against him of extortion and murder, is related by marriage to Putin.(26) And these are only a few examples of this intimate relationship.


Recovery From the 1998 Financial Crises


In 1998, unlike other economies in the world which went through a similar kind of crisis, the Russian economy began to recover relatively quickly, mainly as a result of import substitutions and the advantages for exporters of a severely devalued ruble, but also as a result of the economy not being fully privatized, which allowed many workers to stay in the plants, even though they were not receiving wages. (Under the old Soviet system, most of these plants provided social benefits such as housing, health-care, vacation facilities and even food for the worker and their family) “Years of output decline before the crisis contributed to the role played in the recovery by increased utilization of physical capital (plant and equipment) and human capital (labour), which had often been formally employed but, in fact, neither paid nor working in the pre-crisis period. Growth rates suggest “utilization rates increased massively until about mid-2002”, despite a low share of investment. But “investment accelerated substantially in 2003. (27)


Wage growth has also picked up and has exceeded GDP growth, one of the few places in the world where this appears to have happened. But this may also be the result of workers working longer hours, doing two jobs or speed-up of production.(28) This improvement , which does not compensate for the drastic drop in living standards workers have suffered since the fall of the USSR, along with a decrease in unemployment and a feeling that things will not get worse, have undoubtedly contributed to Putin’s electoral success.


Russia’s chronic social and economic woes are well documented. GDP has shrunk to a third of what it was in the late 1980’s, and is now only one tenth the size of Japan’s. (29) Kommersant , one of the country’s main business newspapers whose editor was fired recently because of his criticism of the hostage taking and slaughter at Beslan , claims industrial growth continues to stagnate, despite boasts to the contrary by the government. Kommersant quoted a leaked monthly statistical report from the government’s own Center for Business Environment to back-up its claims. (30) Putin, in his recent state-of-the-nation address, has projected doubling the GDP over the next decade. GDP today, incredibly, is now less than Costa Rica’s. (31) Doubling GDP in that time span will only be possible if Putin reduces public expenditures and the economy grows at 7.2% a year, an annual rate over the next ten years which would be a record for Russia. Such has been the decline, this rate of growth, if achieved, will only bring Russia (population:145 million) up to the present day level of Portugal (population: 23.6 million) or to catch up with Taiwan, (population: 38.6 million . (32)


Beginning in 1999, the Gross Domestic Product (GDP), grew at an average annual rate of 5% and has increased to 7.8% for the first seven months of this year, and 9.2% year on year for industrial production. (33) But increasingly, the economy resembles that of a third world country on the periphery of imperialism. In 2003, eighty percent of exports were made up of natural resources and 55% of all exports were from the oil and gas sector, which employs approximately 1% of the Russian work force. Sixty percent of all fixed capital investment is going into the resource sector.(34) Up until 1998, that’s where most of private investment went.


According to the World Bank, the advantage of the 1998 devalued ruble has now come to an end. Although in the last few years, there has been a rise in non-raw-material exports, most of the growth is resource based, coming primarily from the energy sector and greatly augmented by the high world energy prices. “Around 85% of all exports are natural resources, the share of oil and gas is 60%”, said the World Bank in an earlier report. It warns, however, that “Policy makers need to be continually aware of the risk facing all large natural-resource producers, where a wealthy few acquire control over resources and the remainder of the population live in poverty.”(35)


“Window of opportunity”


During the Presidential election, Putin campaigned very little – refusing to participate in any television debates and not even running on the ticket of his nationalist Motherland party. In a landslide victory, he took 71% of the vote. He marginalized the Communist Party candidate, Nicolai Kharitonov, who only got 13.7% of the vote. Putin’s tactics were the same as those used in the previous December’s regional elections for the State Duma, when the bureaucracy applied the powerful administrative resources of the state apparatus and state monopolies, to run a relentless cheerleading campaign for Putin, especially in state-controlled television, keeping critics out of camera range. A dominant block of pro-Putin parties were elected and support for the opposition Agrarian and the Communist Parties was reduced to single-digit numbers. The C.P. lost over half its seats, and the openly pro-capitalist Liberal parties such as Yabloka. were virtually wiped out There are now few parliamentary checks on Putin’s power and legislation moves through parliament with barely any resistance. (36) Prior to the Duma election last December, 2003, the Communist and Agrarian parties’ opposition in the Duma had frustrated the regime’s “structural” reforms in the economy, and land “reform”. For the C.P. the electoral failure was especially catastrophic, resulting in a severe financial and leadership crisis which now threatens its very existence. Before the election it had “sold” some “expected” seats to businessmen but was unable to deliver on its deal and had to return the money after the election. The party in 1999 had committed itself to market solutions for the economy, (37) has now split into two factions over what kind of social democracy is better for Russia. (38)


During the elections, Putin attacked his old mentor, Yeltsin, giving the appearance of breaking from the past. Putin, who had been Prime Minister under Yeltsin, was hand-picked by him as his replacement in 1999 when Yeltsin resigned. Putin’s right-wing neo-liberal policies are the same as Yeltsin’s. Such is the crisis Russia is living through, prospective Presidents can only look good by strongly disassociating themselves from their predecessors. (39) Gorbachov in his time savaged Brezhnev, and Yeltsin, Gorbachov. Just like in any Western so-called democracy, each “new” Russian regime must distance itself from the foregoing administration to give the illusion to the masses that it is “different” and “better”, one of the advantages for the bureaucracy in breaking the Communist Party’s monopoly on political power in the early 90’s.


The road ahead now seems clear for Putin to accelerate the implementation of his pro-capitalist policies. “(T)o ensure economic growth”, he says, and the “restructuring of natural monopolies” under “basic privatization of industry, under “basic laws” that have recently been passed dealing with the railways and UES, the country’s electricity system, both of which are “natural” monopolies. Although “reform” of UES, a joint stock company in which the government is the major shareholder, has slowed, it is proceeding to sell off eight of its generating stations.(40) Many government services such as procurement, notarization, technical inspection of motor vehicles, licensing and registrations are to be handed over to private interests. Licensing of over fifty kinds of activity will be abolished, including tourism. (41) Around the time of the election, Putin promised modest reforms to Gazprom, the state controlled joint-stock company the country’s largest energy monopoly, which often acts like an arm of the government, but this promise was quickly modified during Russia’s negotiations with the European powers over entry into the (WTO).(42) Also in the works is legislation, the “Law on the Turn-over of Agricultural Land”, to increase private ownership in agriculture and to increase home ownership. But central to his programme is the strengthening of the state institutions and the enforcement of the tax system, while at the same time maintaining “stability” in Russia’s economic, social, and political life.(43) Putin has promised to “develop” the system of state pensions – which he says are now being paid again after several year of the government defaults – but his major proposals on social policy have already led to protests in the street. He is moving to replace subsidized services such as “… free public transportation, low-cost electricity, free medicine for invalids and rent-free apartments for many government workers – with a cash stipend of $20 - $30 a month.” Thirty-two million Russian – veterans, retirees, invalids, civil servants, career soldiers, most of the households in the country will be effected.(44) Putin’s proposals on land-reform, further privatizations, and improving the tax system -- are not much different from those proposed by his predecessors and are a strong echo of the “seven tasks” of the government proposed under BorisYeltsin by Anatoly Cubais and his crew of pro-capitalist reformers in 1997, proposals which “encountered major obstruction” because of opposition in the State Duma where the Communist Party and the Agrarian parties had a majority. (45)


That these remain outstanding “tasks” for the government is testimony to the difficulties the bureaucracy has faced for almost thirteen years when it chose the “market” and the dismantling of the planned economy as a solution to the deep crisis which its rule had engendered, a policy aggressively pursued by Yeltin and now by Putin. Polling shows that the great majority of the population is opposed to the privatizations and is deeply resentful of the theft of state property and the self-aggrandizement by elements of the bureaucracy. “They cheated 90%of the population”, says Mikhail Khodorkovsky, the wealthiest capitalist in Russia and owner of OAS Yukos, in a letter to Putin from his prison cell. “We must consider the results of the privatization to be unjust and its beneficiaries not to be the legitimate owners.” (46)


There is some apprehension in government circles about how long this “window of opportunity” will last. The World Bank warns about “reform fatigue” but the regime is taking full advantage of the Putin victory to speed up the penetration of capitalism into the economy. “We have a rare and positive moment in Russia that will not last long …”, stated Yury Isaev, top deputy to German Gref, Russia’s Economics and Trade Minister, to a conference of American investors in New York. “This could be the last chance for quite a while for us to move quickly to take advantage of the possibilities.” And the George W.Bush administration has been quick to put its stamp of approval on the Putin team, which was been specifically assembled with an eye to reassuring imperialism that Russia will be staying the course in implementing pro-capitalist reforms. “Assistant Secretary for European Affairs, Beth Jones, told a congressional hearing this week that U.S. officials have been encouraged by Mr Putin’s decision to stack his second-term administration with prominent pro-market figures…With a strong popular mandate and a sizable working majority in the [Russian Parliament], President Putin is well positioned to press a program of substantial economic reforms, she said.” (47)


Entry into W.T.O.


Russia has concluded its negotiations with the European powers to allow it to enter the WTO, a goal of every Russian government since Gorbachov. Russia is the largest economy remaining outside that body. It first applied to join the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, in 1993 and the WTO in 1995. Increasingly it has faced import quotas and anti-dumping duties by European Union on its steel, chemicals and grain. To facilitate its access, Russia has updated some 100 laws and over 1000 ministerial regulations.(48) Despite the seemingly cordial relation between Washington and Moscow today, and even though it is a member of the G8, Russia is still prevented by world capitalism from freely accessing world markets. Yeltsin, in his “Midnight Dairies”, referring to the anti-USSR, Jackson-Vanik amendment passed by the US Congress in 1974, writes that “It’s worthwhile for us (Russia) to sign a big contract with a third country – one with aerospace firms for example –as a way of circumventing this problem. In this situation, however, the Americans start quietly, sometimes openly, to put pressure on that country’s government. When we tried to penetrate Latin America’s arms market to sell helicopters and airplanes, the U.S. embassies began to hold briefings and organize campaigns in the local press.” (49) In April, 2002, the United States revoked Russia’s “non-market economy” status and the “EU initiated moves to recognize Russia as a market economy that eventually took effect on November 8, 2002. (Cynics consider what the E.U. granted with one hand was withdrawn by the other with the enactment of new anti-dumping and anti-subsidy provisions)” (50)


The European powers placed many obstacles to Russia’s entry into the WTO. Issues reported in the Russian press were Russia’s acceptance of the Kyoto Accords, or its new tarrifs on imports (35%) to protect its automobile and aircraft industries. The Europeans objected especially to the low price of natural gas, which Gazprom, Russia’s largest energy utility, supplies to its domestic and commercial customers at twenty-percent of the price charged to its customers over the Russian border. (51) They demanded that Russia privatize its gas and oil distribution system. At times it looked like the talks would fail and many Russian officials say the requirement for Russia’s entry has been raised higher than for previous applicants. (52) The negotiations with the European Union countries have concluded and the Russian press says Russia will have full membership in 2007. Russia has now agreed to allow domestic natural gas prices to rise in stages over the next several years to “market” levels.(53) It will lower import tariffs on aircraft and automobiles as well as allow foreign access to the Russian telecom and insurance market.(54) Russia’s drive to get into the WTO takes on added urgency as the European Union has expanded to include the former Warsaw Pact countries, shutting off some Russian exports. At the last minute, Russia lifted its objections to the Baltic countries entering the E.U., but without getting any guarantees about Russian entry into the WTO. (55)


Russian paradox


In foreign policy, Russia represents a paradox: while it promotes the idea of a “multi-polar” world counter-posed to the American strategic drive for uni-polar domination, the Putin regime has signed on – with reservations -- to George Bush’s “war against terrorism”. He has entered into a detente with imperialism in exchange for an understanding from the imperialist powers that Russia will be allowed a free hand to crush Chechnya’s national struggle for independence, in contrast to the USSR’s occupation of Afghanistan, when the US, in an illegal and undercover operation, supplied the Afghanis with personnel and material assistance, especially the highly effective Stinger missiles. In return for imperialisms “understanding”, Russia has acquiesced in the face of US aggression against Iraq, once a long-time ally. And taking advantage of American differences with the Europeans over Iraq, it has backed Germany and France’s opposition to the invasion. The regime’s main concern seemed to be about how it could collect the $9 billion owed to it by the Sadaam Hussien regime. Russia has also been powerless to resist its military and strategic encirclement by the American empire. The U.S., now has military bases in Tajickestan, Uzbeckestan and Krgyz, bordering Russia and which were constructed “for the war on terrorism”, but which will not be dismantled anytime soon. It has a friendly government in Ukraine and a pro-American government in Georgia, countries that were once part of the USSR, all in an area of the world where there are vast reserves of energy, the control of which is of strategic importance to imperialism. The United States is currently pressuring the Russian government to close its two military bases in Georgia (56) The North Atlantic Treaty Organization (NATO) has expanded to include ten new members, seven of them former members of the Warsaw Pact, to bring imperialism’s main strategic military alliance right up to the borders of Russia, with some NATO air-fields only a few hundred miles from Moscow. The Putin regime“… has allowed the West to solve strategic tasks without spending an extra penny”, says the Russian Communist Party. (57)


For U.S. military planners, Russia is still seen as a threat. Although there are a number of treaties between Russia and the U.S. that have led to a reduction in nuclear-armed intercontinental ballistic missiles and nuclear testing, most of America’s existing weapons systems are still aimed at Russia (and China). Recently Canada has agreed to allow NORAD to be part of the U.S.’s Star Wars System which will be operational this fall in Alaska. Australia will also be part of the “missile defense shield” system. NORAD was critical to the war plans of the United States during the Cold War and was initially built under the pretext of “countering the Soviet threat “, placing an enormous economic burden on the USSR. The anticipated cost of the Star Wars System is $100 billion.(58) In addition, the U.S. is taking steps to escalate the nuclear danger. (58) “…Washington is reversing a decades-old policy of “no production of fissible material or weapon”, as it prepares to create new capabilities of its own.”(59) Correctly, both China and Russia see these moves by the imperialist powers as a threat to their security. This summer, the U.S. has been engaged in massive naval exercises close to Taiwan. Both Russia and China are in the process of upgrading their military capabilities. Recently, the Russian army has been engaged in large war games in the Far East and in the latest Russian budget, military spending was increased and Russia has begun developing and testing a new missile system to counter these new threats.(60)


This again imposes a huge burden on Russian working people who will pay for all of this through deferred improvements in their social conditions. In 2002, the planned figure for Russia total defense expenditure was just over $9.5 billion, or 2.7% of GDP. (Some Western estimate put it at around $50 billion.) But no matter how it is calculated, this is tiny compared to the massive U.S. military budget of $385 billion, excluding the Homeland Defense expenditures and the war with Iraq. (61) A prime reason why Gorbachov made dramatic moves to reach an accord with Thatcher and Reagan in the 1980’s was to seek relief, during the USSR’s social and economic crises from the heavy burden of maintaining the large military establishment Russia needed to defend itself against the capitalist powers surrounding it. Military expenditure was rising twice as fast as the rate of growth of GDP, says Gorbachov. “In virtually all branches of the national economy, military expenditures sapped the vital juices.” (62) Both Gorbachov and Yeltsin saw accommodation with imperialism as a way out of the crises and were prepared to pay a high price to achieve it.


“Is the ‘transition’ reversible?”


This is another part of the Russian paradox. If it has “gone capitalist”, as is commonly expressed by some commentators, why can’t imperialism seem to recognize this? Could it be that the “the transition” has not progressed far enough to be irreversible? And is it possible that capitalism has not been as successful in Russia as many in the West believe, and they are keeping their options open? Large sectors of the economy have yet to be fully integrated into a fully-functioning private property system. Even though capitalism has made big strides in penetrating the economy – with as much as much as 90% of its active industrial production in private hands – there is still some distance to go before it totally dominates the economy. According to some estimates, the Russian state still owns approximately 10,000 companies and has stakes in about 4500 joint-stock companies (63) “At present more than one half of the economic entities in the country are fully or partially owned by the state’, said Putin in a speech to a joint session of the economics, finance and trade ministries.(64) The state holds a dominant stake in Gazprom, a joint-stock company natural gas monopoly, it owns 52% of the joint-stock RAO-UES(the electricity generating and distribution system) and 51% of the long-distance telecom monopoly, Rostelcom. (65) It owns diamond production and the state pipeline systems.


By 1998, before the advent of the August financial crisis, the privatization drive had run into a wall. “The wall was our Russian economy,” says Boris Yeltsin, “with its ‘special relations’. That unofficial gray sector with its unwritten rules and laws, was several times larger than the aboveboard ‘white sector’. Like a steel hulk, it had resisted all the efforts of the young reformers” (67)


Even at this stage in the privatization process, if we were to arrive at an estimate of the aggregate wealth of the Russian economy – that includes mines, land resources, factories, privately held and publicly owned – probably most of it would be under some type of social control or ownership. This would include control of those factories and enterprises transferred to directors, who often in collaboration with the workers and local political authorities have kept the factories operating, even at a minimal level of productivity, waiting until such time as the economy recovered before fully privatizing. Many of these enterprises, some nominally privatized, and often in heavy industry and referred to as “old economy” type plants, limp along barely avoiding bankruptcy. Many of them are under some form of public ownership, kept alive by a system of barter and promissory notes and hidden subsidies in the form of unpaid taxes, energy bills and unpaid wages. There is also deep suspicion in the general population about the privatizations, as can be seen in the lack of popular support for turning over social property to private interests. But, primarily, these plants lack investment and have obsolete equipment. “The age of Russian manufacturing plant and equipment, on average, is more than three times higher than in the OECD.” (68)

Most importantly for a would-be capitalist owner, they are “unprofitable” and unable to compete in the market economy without undergoing serious “restructuring”, which would entail mass lay-offs. The low wages are not a sufficient factor to allow these plants to be competitive.


Greed is a powerful dynamic


Under capitalism, one well-tried method to “restructure” the economy is through enforced bankruptcies. But in Russia, this has caused major difficulties for the regime. “Bankruptcy proceedings have been delayed or annulled because of the political risk of closing hundreds, perhaps thousands, of enterprises – without an adequate social safety net in place – in what are often one factory towns,” says Center for Strategic and International Studies.(69) “In October 1999, there were said to be 940 single-factory towns, with some 24 million inhabitants. In most of these the single factory provided not only employment but also housing, schools, clinics, stores, canteen, market gardens, and even free or heavily subsidized vacation resorts.” The local authorities were reluctant to press bankruptcy proceedings, the report continues, and “Sverdlovsk governor, Eduard Rossel vowed to prevent the bankruptcy or privatization of the Uralvaronzavod plant employing 25,000 workers. Chelyabisnk governor, Petr Sumin announced on April 16, 1999, that he would grant 200 of the oblast’s leading firms, political protection from bankruptcy…” “Wholesale closure or restructuring of loss-making firms has been hampered by the need to have a court order before management can be replaced and take up to 18 months to push bankruptcy proceedings through the courts”(70)


In determining how far the old collectivized economic system has been dismantled, it is not a simple matter of a quantitatively summing up in a formal way the various sectors that are fully or partially under some kind of state control. It is necessary to recognize the trajectory of the state as it is transformed into an instrument that will serve a new emerging bourgeois class in its drive to create opportunities to expropriate surplus value at the point of production and allow greater capital formation in the economy. Even if only a minority sector of the economy is privatized – no matter its overall weight in a strategic sense – the remaining “collectivized” part of the economy would be subordinate to that sector which is organized for the formation of capital, especially in the present political context and relationship of class forces. Capitalist greed, re-enforced with corruption in the state apparatus, provides a powerful dynamic to assure this outcome, especially under a government which is committed fully to “market solutions.”


The Russian government has withdrawn from any attempt at directing the economy and even plays less of a role in this respect than many of the governments in advanced capitalist countries.(71) The size of the state has been greatly reduced from what existed before the collapse and the financial resources available to the government, are now quite small, a hundred times less in than that of the U.S., for example, around $17 billion compared to $1.7 trillion. There is no state policy in regards to the production sector of the economy and the government believes it should not designate sector priorities. As a result, priorities are designated by the representatives from the regions where the sectors are located and are dependant upon their political influence with the state bureaucracy If we look at the administrative reforms carried out in recent years, especially since the 1998 financial collapse, most of these were designed to facilitate the growth of capitalism in the economy. All state enterprises have been incorporated and have a share ownership structure, a measure pushed through in the early 90’s under Yeltsin. Putin has implemented an extremely regressive tax system, a flat tax of 13%, even for the wealthiest individuals. Corporate taxes are among the lowest in the world. Most of the reforms at the level of the state – applied under the guidance of specialists from the IMF-- take the form of implementing new accounting and so-called, “transparent” procedures for private business transactions, allowing the free movement of capital in and out of the country. The government is now implementing tighter disclosure standards for publicly traded companies and has broadened the tax system.(72) A couple of years ago, amidst a lot of publicity by the government, two thousand new tax inspectors were hired to enforce the new tax laws. Nevertheless, tax collection from corporations is haphazard with many using their connections to the regime to pay nothing.(73) Still, in the eyes of the pro-business forces these measures are haphazard.


The privatization process has not been smooth. Its stops and starts are testimony to the inordinate difficulties the pro-capitalist forces face in rolling back the achievements of 1917, and helps explain the length of time that will be required to carry out the “transition”. The task of making the economy conform to the drive for profit is enormous and has caused a massive social disruption and instability everywhere in the country. Russia still lacks a consolidated capitalist class.(74) There is a lack of native capital and foreign investors have been staying away. Putin in his recent state of the nation speech, talked about trying to stop the $20 billion annual capital flight.(75) Total foreign accumulated capital in the economy is only $57.1 Billion. (78) The Duma has been debating measure to make it easier for foreigners who might invest in the country to gain citizenship. Russian Deputy Economy Minister, Andrey Sharonov, says foreign investment is “ten time lower than domestic investments.” (79) Foreign direct investment this year is expected to rise to $8 billion, and increase of 64% over the 2003.(80) Prior to this, the outflow of capital has often been much greater than inflow, much of which in the past two years has been returning Russian capital which took massive flight during the 1998 crisis. (81) Many Russian capitalists are using their base in Russia to find more profitable investment in the major capitalist countries. Russian energy giant, Lukoil, for example, recently bought 2,100 gas stations in the U.S. (82) Alasher Usmanov, a wealthy Russian businessman, is buying a 11% stake in the Corus Group, Europe’s third largest steelmaker.(83) They are also investing in countries such as India and in Nigeria, for example, they are in negotiations with the Nigerian government to privatize ALSCON, the state run aluminum smelting company. (84)


The capitalists need the bureaucrats


The growth of private wealth, especially since the fall of Gorbachev, has not been sufficiently large enough to allow the creation of a class powerful enough to take power in its own name , even though its growth has been amazingly swift, according to Forbes magazine in Russia. Its Russian editor, Paul Klebnikov, was murdered in what appears to be a contract killing, shortly after his Forbes article appeared. On the Forbes’ list of one hundred of Russia’s richest businessmen, 36 are billionaires with a total wealth of $110 billion, equal to one quarter of Russia’s GDP.(85) Forbes makes a comparison with the wealthy in other countries. Only four Russian billionaires appeared on the list in 1997, but today, they say, there are more billionaires in Russia than in Japan, which for example, has 22, an advanced capitalist economy where the GDP is $3.7 Trillion. Germany has 52 billionaires and a GDP of $2.1 trillion. The U.S. has 277 billionaires and a GDP of $11 trillion.. A writer for Pravda says figures from the government back up Forbes’ estimates. “The richest people in the country account for approximately 1.5% of the population…which adds up to two million. With all types of property taken into account, they are each worth at least $1,000,000.” (86)


Compared to other capitalist countries of course, this is a very narrow stratum. In Canada, for example, with a population approximately one fifth that of Russia, the top ten percent of families – representing approximately 3,000,000 people –have an average wealth of $1,100,000 Cdn. (87) But, if we take into account the “informal economy” in Russia, the so-called “grey market”, which some Russian estimates put at between 22% - 50% of GDP or which some Western estimates put as high as 40% , we can see that the number of wealthy individuals in Russian society is much higher than the above figures indicate. (88) The significance of the “informal economy”, can be seen in the recent public discussion around proposals to make it easier for citizens to obtain consumer mortgages when Putin declared he wished to see home ownership expanded so that one-third of Russians will own their own home by 2010.(89) At the recent National Real Estate Congress, the Guild of Realtor statistics revealed that 75% of all consumer mortgage applicants are unable to prove their income because it is undeclared.(90)


Illegally acquired wealth is widespread in the society. An earlier World Bank report commented on “a puzzle in Russia’s national accounts”, which also shows its extent. Figures revealed that the production of services exceeds the production of goods in the economy by a wide margin, while the official share of non-market services was very small. Moreover, the trade sector in official accounts is huge and profitable – accounting for about one third of GDP and half of all profits generated by trade (91) This “puzzle”, it turns out, is a result of the practice of “transfer pricing” and is very evident in the energy sector. The government’s official figures for the year 2000 state that oil and gas in the economy represented only 8% of GDP, yet the government also stated that oil and gas exports alone were worth about 20% of GDP. Apparently, it is a common practice for firms – in all sectors – to set up trading subsidiaries, sometimes off-shore, to receive favourable tax treatment. (This is one of the charges against Mikhail Khodorkovsky of OAO Yukos) “The firm then uses transfer pricing to move profits from the industrial subsidiary to the trading arm; output of the industrial firm is sold at an unrealistic low price to the trading subsidiary which sells it at the higher market price, and the mark-up accrues to the trading firm which benefits from the lower effective tax rates.” The report indicates that this tax loop-hole was closed this year, but there are also illegal variants on this scheme where trading companies disappear after a number of transactions and pay no taxes at all. (92) The practice also helps keep wages low because the firm will always be on the verge of bankruptcy, with the bosses asking the workers to make concessions.


“Unofficial” wealth


“Unofficial” wealth is not a recent phenomena in Russia and existed under Stalin and its growth even prepared the ground for the eventual collapse of the economy.(93) In the late 70’s and early 80’s, as the crises of the bureaucratic regime intensified, corruption deepened under Brezhnev, even reaching into his family, as more and more sectors of the population sought “personal” solutions to their problems. After the discovery of oil, oil-well development was substituted for the modernization of industry. (94) However, the Stalinist system was fundamentally unstable. In its relations with the workers, the bureaucracy, because of the limitation of its coercive powers at the point of production – primarily, and ironically, because it was at the same time, part of the working class -- faced extreme difficulty in intensifying production and driving efficiency, causing under-production and the production of “defective use values.” (95) One consequence of this was for the administration to tell the workers “You will not have to work too hard and we won’t pay you much.” This resulted in extremely destructive practices in the workplace, and in reality, a form of privatization. Workers sought their own private solutions to the lack of income which led to an increase in growth of the black market and reliance on private plots for the growing of food. Important sectors of the bureaucracy directly participated in corrupt practices, accenting the crises and benefiting from it.


Yuri Andropov, who took over when Brezhnev died, “carried through the exemplary dismissal of a number of ministers who were charged with protecting or even virtually running a hugely profitable underground manufacturers and commercial concerns.”(96) According to Gorbachov, Andropov “had repeatedly stated that the Ministry of Internal Affairs was corrupt, that there were signs that it had links with mafia structures, and that in its present form, it was unable to combat rising crime.” N.S. Shchelokov, the Minister, had enjoyed the protection of Brezhnev. Throughout the republics of the USSR, corruption was rampant as they were often run as personal fiefdoms of local Communist Party leaders. The bureaucracy under Andropov was incapable of remedying the situation, often appointing replacements who were often just as corrupt.(97)


The new capitalist class that has arisen out of the crises of the last two decades is very weak, and not only in terms of its aggregate wealth. The capitalization of the stock market is tiny and all of Russia’s 1500 private banks have total assets of under $100 billion, less than some individual American banks.(98) The Russian wealthy lack moral legitimacy because they looted the economy. They are reviled, but they have learned “not to be loved” and are even prepared at this stage to be political footballs for the regime. “President Putin, “says Vladimir Potanin, “may know the true worth of the wealth creators, but the majority of the people do not like us, then he has to be with the majority. I must understand why people don’t like me…I must learn not to be loved…” (99) Although somewhat feeble, Russia’s wealthy class has a power many times greater than its actual social weight in the society because it has the the support of a government aligned with its interests and the unswerving solidarity of a cohesive world imperialist system backed up by a system of powerful global financial institutions. These Russian capitalists frequently put their differences aside and intervene financially and politically at decisive moments to ensure a government, aligned with their interests, remains in power. They were extremely brazen in their support of Boris Yeltsin, intervening in elections when he had lost popular support to throw their organizational and financial resources behind him.(100) Because of the influence of the Russian capitalists when Western backed legislation was being proposed to allow the government to make deals with foreign oil multi-nationals such as Exxon, and bypass OAO Yukos, to allow it to lock up reserves and give the government some measure of control over the upstream oil business, the legislation was eviscerated.. In a display of his influence over the Russian government, Khodorkovsky, in a February 2002 meeting with George W. Bush, predicted this would happen. (101)


The capitalists need a social base


A pre-requisite for the success of capitalism in Russia is the existence of a sufficiently large enough social base for a private property system in the society. This took thousands of years to develop in the advanced capitalist countries. In Russia, the social base for capitalism was obliterated by revolution and the long years of imperialist intervention. To privatize successfully requires that there be a sufficiently large wealthy class in the society to drive the process through and incorporate the newly privatized productive resources into an existing private-property system. Otherwise, there is a danger the country can be colonized by the imperialist powers. This explains some of the compromises made by Anatoly Dubais and his “reformers” when they began to dismantle the collective economy in the 1992 – 1995 period. At that time, if they had put the factories on the auction block for immediate disposal, they would have been taken over by foreign capitalists. There was simply insufficient private capital in Russia to accomplish the privatization task. They would have been forced to sell important parts of the economy at absurdly low prices. Moreover, the government had a political problem because of the deep suspicion in the population about their “reform” programme, so “ownership” of the factories was turned over to the workers in the form of vouchers. This temporarily helped solve the problem of a lack of popular support for the “reformers” efforts and it also prepared for the privatization we see taking place in the manufacturing sector today. The regime under Yeltsin was unable to go all the way in selling off state assets. In some critical key sectors, the state maintained a controlling interest and there are still thousands of factories where the state has a minority interest.


Changes in agriculture


Changing the agriculture sector is an entirely different matter and has proven more difficult for the regime to carry out. This is probably due to a combination of the historic crises in agriculture remaining from the forced collectivization under Stalin and the new deep poverty level of the mass of the population resulting from the economic collapse. There is simply no money to buy anything. Life in the countryside remains much the same as it was prior to the collapse, if not worse although “capitalist in structure but still socialist in spirit“.(102)


Russian agriculture has been in crisis since Stalin’s brutal forced collectivization was imposed upon the Russian peasantry. In 1990, before the collapse of the USSR, the agriculture sector produced 15.4% of GDP. (103) It now produces only 5.5% of GDP. Agriculture suffered catastrophically from the removal of price controls in 1992. There was a collapse of prices simultaneously with a sharp rise in the cost of inputs as they quickly rose to world market levels. Workers in the sector, which employs 7.7 million, have the highest age-levels and the lowest wages, $66.00 a month, in the country. Agriculture, of all sectors of the economy, has the highest backlog of unpaid wages. State subsidies to farmers are greater than the total taxes paid by them. The sector is also comprised of 34.9 million privately-owned household plots and gardens which while making up just over 6% of the total area of farmland, produces over half of all the country’s agricultural products.


Total area of land available for cultivation is 221 million hectares (acres), 13% of the total area of the country. Only 80% of available land is cultivated and agricultural land is declining. Livestock numbers are constantly decreasing as the beef industry uneconomic and suffering losses of around 30%. The production of dairy products and eggs is also in decline. (104) Yeltsin says that the 1998 financial crisis “barely impacted the countryside” because conditions were already severely depressed. Rural people did not have any bank deposits to lose. (105) The problems in agriculture have become so grave, Russia has had to ask for assistance from the Western powers. In 1998-99, the U.S. shipped $500 million in food aid and the European Union provided similar amounts. In 2000-2001, the U.S. shipped more aid in the form of animal feed because of the crisis. Last October, the Vice Premier and Agricultural Minister admitted publicly that Russian agriculture was “in critical condition”, with debts at $9 billion.


Many of the crises in the regime over the years can be traced back to agriculture. Gorbachov, a Party Secretary for the agricultural region of Stavropol was chosen by Brezhnev in the early 1970’s to come onto the powerful Central Committee to deal specifically with this problem. (106) One of Gorbachov’s major reforms in the 1989-90 period was legislation which created the legal basis for family farming and which provided for the creation of non-state enterprises such as cooperatives, the de-nationalization of land and non-land assets by transferring them legally to cooperatives and state farms. (107) There were also several attempts by Yeltsin – and now Putin – to break the hold of the collective traditions on the rural economy by introducing legislation in the Duma, to make it legal for individuals to buy and sell land. However, most of these attempts have stalled. With the many new laws and decrees in place, redefining the legal forms of large agricultural enterprises and land ownership and certifying existing ownership rights, it was expected that the large collective and state farms would be restructured. “But as it turned out, few peasants were interested in establishing individual farms and management and operating practices inside large agricultural enterprises remain largely unchanged.”, says the OECD. “Most of the 62% of the so-called privately-held agricultural land is still under collective shareholding, mainly as re-registered large-scale farms. Even family farms and household plots, which make up 10% of agricultural land, are constrained from exercising full ownership rights.” (108)


Agriculture and the WTO


Putin, during the recent election, said he will introduce legislation to deal with the chronic problem of agriculture. New legislation on land reform before the Duma is designed to make agriculture conform to the needs of the international market. With Russia’s entry into the WTO, the problems may become greater. Russia consumes up to 40% of all U.S. imports. It recently banned the import of frozen chicken from the U.S., imposing tariffs of 30% to protect its own under-capitalized poultry producers and it has a 20% tariff on other agricultural products. Under WTO rules, such measures may be impossible to maintain and it may be forced to cut back its subsidies.(109) But it seems that the policies chosen to deal with agriculture may be those adopted by many third world countries, such as Brazil and Argentina, when in the early 1970’s they threw the doors wide open to large-scale integrated agro-businesses. The consequent development of mono-culture drove tens of thousands of peasants off the land and into the shanty towns surrounding major cities. The Russian government is now in talks with several large capitalist holding companies about the “opportunities” in agriculture, according toViktor Semyonov, deputy chairman of the Duma’s “committee for economic policy and entrepreneurship”. In the Belgorad region (Western Russia), two large agro-industrial holding companies are cultivating large tracts of land and the government is now in negotiations with Internos, a holding company owned by Vladimir Potanin, to turn over to it a vast area, almost 2,5,000,000 acres for “development”. (110)


The restructuring of agriculture will not be an easy task for the regime. In early 2001, we got an insight into the difficulties in making such changes. When the then new Putin government was striving to maneuvre legislation through the Duma to increase private land sales, a report in the The Times of London , January 23, 2001, gave a picture of the difficulties. The paper reported on the situation of a farmer, Alexsander Zhukov and his family, who bought land in the early 1990’s when government ownership of land was temporarily rescinded to allow small-scale farming. The family owned 650 acres and were quite prosperous, according to The Times, but because this is so rare in this part of Russia, “they ‘dress down’ to avoid the envy of their neighbours and guard their barn with dogs and a gun.” Of the nearly fifty small farms set up on the collective farm in the early 1990’s, “the Zhukov’s is the only one still in business, part of pattern that has seen private farming in Russia, far from expanding to supply domestic demand, shrink drastically over the past two years.” The Zhukovs earn about $1300 a month, “a vast sum by local standards, The Times said, “ and are in a position to double the size of their holding. The law rules that out, however. ” Even though, on that occasion, a new land law was being debated in Russia’s parliament which would have allowed “extensive private land ownership for the first time since the Russian Revolution”, the paper reported that the Zhukhovs’ desire to expand their holding would remain frustrated, because the new law “will keep a ban on agricultural land sales.”


“Transition” is not stable


The foregoing is an example of the contradictory nature of Russia’s transition to a system of private property relations throughout the economy. The transition can undergo modification at any time, a consequence of either economic or financial crisis such as the virtual state of bankruptcy in August , 1998, or because of opposition political forces compelling the government to modify or pull back from pro-capitalist policies. TheTimes reporter, in the article quoted above, stated that Putin hinted, around the middle of January that year, he would back down on an election promise to speed-up privatization of the “largest mass of farmland on the planet. His concession showed the limits of his power over the Duma where the Communists constituted the largest single faction.” This will change now that those political obstacles have been reduced.


It would be a mistake to interpret some of the half-way measures and the contradictions, the “barter” character that may persist in some parts of the economy, as a kind of guarantor of the existence of some elements of a collective economy or even its revival under the present regime. This would ignore the objective processes at work in Russia and the deep crises in the economic and political system and the extent to which Russia has moved towards capitalism even though still very much a product of its collectivist past. It would be wrong to think that some sort of synthesis will evolve, embracing both the private and social elements of the economy.


Even though Putin is enjoying an increase in popular support at the moment, his main political problem is that he has yet to develope an effective political instrument to run the state and implement his programmes. Under Stalinism, the now-discredited Communist Party did that. The present regime lacks a stable political base as there is no effective social force in the society to help it promote its policies, which is apparent in some of Putin’s key political appointments. Since coming to power, he has chosen many functionaries from the “siloviki”, a Russian term that includes the police, prosecutors, the military and members of the security forces. He has restored the power of the FSB (the refurbished KGB,) which was severely discredited in the eyes of most Russians because of its role under Stalin and in the coup against Gorbachov. Today it has greater influence than at any time since the fall of the USSR. Moreover, half the civil servants have been in their positions since Brezhnev.(111) There is an increase in authoritarian practices by the regime, as can be seen in the last two elections election, a reflection of a fundamental problem confronting it because of its relative isolation in the society.(112)


High world oil prices has given the regime some breathing space, but the dependence on resource exports and high commodity prices – especially oil –makes the economy, which has become more and more integrated into the world economy, more exposed than ever to external shock. On the world market, the price of oil and commodities can fall, and inevitably will. The economy could be wracked by crises at any time, increasing the misery of the mass of the people and reducing the space for maneuvre of the regime. This summer, Russia survived a banking crisis, with a run on some banks by jittery depositors seeking to withdraw their deposits, which was precipitated when Alfa Bank, the fourth largest bank in the country, was forced to pay large ransoms for two kidnapped CEOs. (113) And the unemployment crisis is not going away anytime soon and will get worse. The Ministry of Labour is projecting a large increase in the unemployed as the privatization proceeds in government services and the power industry. Coal mining is also in the process of a restructuring and down-sizing as major capitalists “restructure” the mines under private ownership.(114)


The trade unions


There has been very little effective resistance from Russia’s trade-unions to the regime’s neo-liberal policies. David Mandel, in his recent study of the Russian trade unions, chronicles the difficulties the unions have faced and how they still suffer from the ideological legacies of the past, such as a notion of “collectivity” which now encompasses the bosses and even the regime, and how reactionary the idea of a “collectivity” becomes if it is divorced from a class outlook. The Russian Federation of Independent Unions (FNPR) has 38 million members, 90% of all unionized members. The other major union is the All Russian Confederation of Labour (VKt) and there are some smaller “independent” unions that have begun to organize since the collapse. In 1990, the unions adopted a policy of “social partnership” that does not see the authorities as its main opponent, nor the owners, nor the employers and therefore entered into a Tri-partite Agreement with them. Under an amendment to the new Labour Code, which bans strikes, and which went through the Duma in February, 2004, the Tri-Partite agreement is now compulsory at all levels of the state, regions and municipalities with fines for those refusing to sign. Some commentators say the primary interest of the union leadership in their discussions with the government about changes to the Code, was to make sure their unions would be dominant in the work place, and to keep out the independent unions by making it difficult for them to organize. The union bureaucracy has moved seamlessly from their position in the Soviet period of being a “transmission belt”, that is, acting as a policeman for the regime’s policies in the workplace -- to now becoming a “social partner”. Many say this policy is an excuse for the leaders to do nothing. The living standard of the union membership is very low. If one asks, “to what extent the major unions in the ASM (auto and farm machine) sector – or, for that matter, in any sector – actually tried to defend its members, the answer can be more conclusive: it did not even attempt to mobilize the better part of the resources at its disposal.”, says Mandel. The strike waves of 1998 were defeated by the severe recession that resulted from the financial crash, but Mandel gives examples where time and again the workers resisted management with great determination and were often let down by a leadership who were confused about the nature of the regime they were dealing with. Insecurity and demoralization is widespread in the workplace and a culture of theft has grown in which management participates, and which it in turn exploits to keep union activists on the defensive. (115) In many factories, wages are based on an output bonus system, which can be arbitrarily determined by a foreman, with a huge variation of four times for the same job. Workers still enjoy a high degree of freedom of association, he says, but the unions’ bureaucratic traditions from the Soviet period, have become mill-stones around their necks. A large part of the work force is unionized, but the head offices of the national unions are extremely weak with only a few full-timers, and limited financial resources. Most of the dues, 85%, of them, are retained at the local plant level and are often used to fund social programmes rather than for direct union activities. Management and professional staff of the plant can also be members of the local bargaining unit and they frequently intervene in the union to have militants removed from their positions of influence. Many times, national union leaders connive with local management to have local local “trouble makers” removed, often through violence.(116) Political organizing in the work-place is banned. Reform of the Labour Code, to make Russia more attractive to investors, has weakened union rights, compared to the Soviet period. Much of a typical local leader’s time is taken up with social services, such as housing, health and holiday camps which the company may support or which may have been off-loaded onto local authorities. There is a “historical legacy of subordination to bureaucratic authority and the absence of traditions of self-organization,” but in the independent unions that have survived, “there is a greater understanding that the unions cannot succeed over the long run unless they are appropriated by their members.”(117) Mandel gives instances of workers having success if they are well organized and are able to maintain an independent class perspective. There are many examples in the book of individual leaders, who have risen to develop a clear working class outlook and lead their members in successful strikes, and the important role played by the School For Workers Democracy, with which he is associated. The employers – and even the government -- are socially and politically weak and will often back down rather than enter into serious conflict with the workforce. Boris Kagarlitsky is very hopeful about a victory for the left in Siberia where a socialist critic of the regime was recently elected mayor in a city where Norilsk Nickel, one of the larges nickel producers in the world, has its facilities.(118)


A puzzle of the “transition”


For me, one of the enduring puzzles of the “transition” has been, after all this time, the seeming inability of the working class at this late stage, in the face of the massive onslaught on its standard of living all these years, to enter into the political arena as a sustained autonomous political force. Mandel, through his research and interviews with countless militants and trade-union leaders in an indirect way answers this. The previous Stalinist dictatorship, which survived – despite “perestroika” and “glasnost” -- right up to the fall of Gorbachov, extirpated any expression of working class self-organization and political activity. Marxism as a theory of revolutionary change and social criticism was expunged from political life. Anyone can be an anti-Stalinist today; but back then it could have cost you your life. Anyone caught carrying the books of Leon Trotsky or other Marxist critics of the regime could end up in the gulag. Even under Gorbachov, dissidents were incarcerated and locked away in psychiatric institutions. And we can’t ignore the damage done to the ideas of socialism by a dictatorial regime that called itself, “socialist” or even “communist”. Acceptance of these authoritarian practices was a condition for obtaining promotion within the bureaucracy. Gorabchov, whose grandfather was imprisoned under Stalin, tells of how he and his wife – even when he was on the Politburo -- were compelled to leave their apartment and go for a walk in the park – often in the dead of winter – if they wished to talk to each other about serious matters and not be overheard by the KGB. There was zero space for a culture of criticism and working class protest and the pressures of imperialism at the country’s borders made it virtually impossible to challenge the regime. Those workers who did so were repressed with physical force and a tremendous loss of life. (119)


As Mandel says, under Stalinism, the working class did not have a collective history – “a memory” of class struggle,(120) and it is only in the past decade or so, that the history of the suppression of workers struggles in the factories and mines under Stalinism is being revealed. It would be a mistake to think that somehow the ideas of revolutionary socialism can arise spontaneously in the Russian working class. The experience of the past couple of decades in Russia suggests that this is not possible. Revolutionary socialism can only be introduced into the working class from outside, by the conscious efforts of socialists who are committed to its liberation. This is not a new idea, but it certainly runs counter to the beliefs of various anarchist and “workerist” groups, whose views gained some credence during the anti-globalization mobilizations of the past few years. It is worthwhile reminding ourselves of an old truth: we humans need teachers more than any other species, because in our evolution, specialization in human intelligence has led to inventions and intellectual advance so that we cannot expect successive generations to learn without help. The ideas of revolutionary socialism are an intellectual advance whose continuity was broken in Russia; and it is only in recent years that this break has begun to be repaired by people such as Boris Kagarlitsky and his Young Socialists and the many socialists and activists in the trade unions Mandel met on his travels to Russia.     




(1) “From Predation to Prosperity: Breaking up Enterprise Network Socialism in Russia”, Michael S. Bernstam and Alvin Rabushka, Hoover Institution, 2003.


(2) There are many socialist scholars today who are studying Russia and have devoted themselves to understanding the political economy of the “transition”. Among them are Boris Kagarlitsky in Russia, Hilel Tictin from Glasgow University and the magazine, Critique, which he edits, and Labour Focus on Eastern Europe in London, in which the writings of Peter Gowan often appear. Of major importance is the work by David Mandel of the University of Quebec in Montreal, whose latest book, “Labour After Communism”, an excellent analysis of the contemporary trade-union movement in Russia, Ukraine and Belarus and the political and social conditions under which it function. I found his book to be extremely valuable in understanding Russia.


(3) The planned economy – the main reason German attacked Russia -- allowed Russia to defeat fascism – at a cost of around 27,000,000 lives -- suffering more than half the total casualties of all the Allied and German forces combined, in a war that saw vast areas of the country occupied by the German army, a war by Fascism upon the USSR to which the Western powers gave tacit encouragement. See A.J.P Taylor, “The Origins of the Second World War”, New York: Atheneum 1962 and David Horowitz, “Empire and Revolution”, Random House, 1969.


(4) I use the word “planning” in quotation marks here to note it was carried out in a bureaucratic manner under the policy of “Socialism in one country” in an attempt to reproduce the complexity of the world economy inside the USSR.


(5) p153, “The Rise and Fall of State Socialism”, David Lane, Polity Press, pp 233,1996.


(6) p29, “Labour After Communism”, David Mandel, Black Rose Books, pp 285, 2004.


(7) “What is to be done?” Stephen Kotkin,, March 5, 2004


(8) National Business Review, June 11, 2004.


(9) Boris Kheifits, , April 26, 2004.


(10) “Russia: Splendor and Miseries of the Social Split”, Yana Amelina, Pravda.Ru.htm, July 11, 2003.


(11) p18, “From Transition to Development, a country memorandum for Russia”, World Bank report, April, 2004.


(12) “Central Asia: Special Report on Labour Migrants in Russia”, International Labour Organization (ILO), May 17, 2004.


(13) “What If the Roof Were to Cave In? Oil dependence and inequality threatens Putin’s mastery of Russia”, Jonathan Steel, The Guardian, February 25, 2004.


(14) “How Much Does Russia Cost?, , May 18, 2004.


(15) “From Transition …”, World Bank report,.April, 2004. Using data based upon sales volumes, information provided by private financial institutions, investors and analysts and backed up from official government employment statistics, the authors say this is a “market” view of the present day ownership structures and concentrations in the economy. It sets out to answer three main questions: how concentrated is ownership, what are the implications for performance and what does it say about the ability of these owners to obtain preferential treatment from government, that is, the degree of “state capture” by these owners?

The report makes a distinction between the concept of “establishments” and “firms”. “Establishments” are defined as individual production units, which Soviet planners preferred. “Firms” are legal entities, as is commonly understood in the capitalist world. “The distinction between establishments and firms survives privatization. Early privatization (i.e., prior to the loan-for-shares operations), was heavily biased towards insiders (managers and sometimes workers). The overwhelming majority of production units have been corpratized and sold off as single firms . The enduring legacy of this is large establishment, which are also small firms”, the report says. Prior to this, the legal concept of a firm as an independent unit did not exist. “While vertical integration between enterprises was fairly standard, Russia still lacks equivalents of G.M, McDonalds or Wal-Mart, and in particular generally lacks large horizontally integrated firms such as G.E. and Siemens.” ( p 78)


The World Bank report uses as a surrogate for the economy, a data sample of about 1300 selected large firms, banks, individuals, business groups and government entities, all of which employ approximately 3,300,000 workers. The industry part of the data set represented 17% of total industrial employment and 57% of industrial output. The average firm in the sample employed about 2982 workers and had an annual sales of $127 million (U.S.). Banks in the study represented 68% of the assets in Russia’s total banking sector. Data on ownership and control was collected up until June 1, 2003.


(16) p128, W.B. “From Transition…”


(17) pv,.W.B.. “ From Transition..”


(18) p34, Mandel.


(19) p34, Mandel.


(20) P39, Mandel.


(21) p608, “Memoirs”, Mikhael Gorbachov, Doubleday, 1996.


(22) p25, Mandel.


(23) The Guardian, May 8, 2004


(24) (, June 3, 2004.


(25) The Guardian, March 1, 2004.


(26) p75, Mandel


(27) p7 W.B., “From transition…”


(28) p14, Russia Economic Report, World Bank, August 2003.


(29) Financial Times, July 28, 2003.


(30) Mosnews, May 24, 2004.


(31) Adrian Levy and Cathy Scott-Clark, The Guardian, May 8, 2004.


(32) Putin advisor, Andrei Illarionov, at a meeting in Moscow of the Open Forum Club on the economy, Mar 24, 2004,


(33) German Gref, Russia’s economics minister,, the government’s official news agency.


(34) p8, “From Transition…”,W.B.


(35) p127, “From Transition…”W.B.


(36) New York Times, July 5, 2004, as reported on


(37) “Before the 1999 State Duma elections, the Communist Party changed its party program to embrace a normal market economy.” Anders Aslund, “Liberalism is Alive and Driving the Economy”, The St. Petersburg Times, April 27, 2004.


(38) Boris Kagarlitsky, CounterPunch,, July 9, 2004)


(39) “’Look at the state of the country when I took over’, Putin told Russians. ‘The federation was at risk of falling apart, as the Soviet Union had done. Serious mistakes in reforming the economy had thrown a third of the population into poverty. The ruble had collapsed. In foreign policy Russia ‘had lost its independence’”. Jonathan Steel, The Guardian, Feb. 25th, 2004.


(40), June 22, 2004.


(41) “’Revolutionary’ government change”, Rossiyskya Gazeta, February 16, 2004, .


(42) “Finding the golden mean”, interview with Vladimir Putin, March 16, 2004,


(43) Arkady Oshovsky,“ Is Russian democracy becoming an illusion?”, February 25, 2004,


(44) New York Times, June 18th, 2004, C.J. Chivers, “Cash vs Benefits: Efficiency or Assault on Russia”s Soul”


(45) p87, Boris Yeltsin, “Midnight Diaries”, Pheonix, pp398, 2000.


(46) Khodorkovsky letter to Putin, “Liberalism in Crisis: What Is to Be Done”, Moscow Times, April 1, 2004.


(47) The Washington Times, May 18, 2004.


(48) p12, “Russian Economic Survey”, Center for Strategic and International Studies(CSIS), June 2003.


(49) p138, “Midnight Diaries”.


(50) p16, CSIS.


(51) “Cheap gas means low-priced fertilizer”, Truth About Trade and Technology, April 6, 2004, Des Moines, Iowa, 50309.


(52) p17,“Russia Economic Survey”, CSIS , June, 2003.


(53) “WTO Golden Harvest for Russia”, Trade About Trade and Technology, May 18, 2004.


(54) “Russia to join WTO in 2007 –Economy Minister”, Moscow News, May 25,


(55) “Last Minute Agreement On New Partnership Deal”,, May 6, 2004


(56), January 26, 2004


(57) Sovetskya Rossia, November 10, 2001


(58) Toronto Star, Aug 11, 2004


(59) Toronto Star, Aug 11, 2004.


(60) Toronto Star, Aug 11, 2004.


(61) p4, CSIS.


(62) p136, Gorbachov.


(63) The Russia Journal, March 22, 2004.


(64) ITAR-TASS, March 21, 2004.


(65) Rueters, March 25th, 2004.


(67) Yeltsin, MD, p177.


(67) Yeltsin, MD, p177.


(68) “Russia Economic Survey”, CSIS, June 2003.


(69) CSIS, June, 2003.


(70) CSIS, June 30, 2003.


(71) “How Much Does Russia Cost?”, Moscow Times, April 17, 2004.


(72), June 8, 2004.


(73) Russia Journal, April 16, 2004.


(74) Interview in New Internationalist, Boris Kagarlitsky.


(75), May 26, 2004.


(78) The Russian Journal, May 21, 2004.


(79) Ros Business Consulting, . See also “Cumulative foreign direct investment”, CSIS.


(80) Prime-TASS, August 25, 2004.


(81) p11, W.B. Aug., 2003.


(82) San Antonio Express, July 20, 20004.


(83), March 19, 2004.


(84) China View,, August 25, 2004.


(85) Financial Times, July 28, 2003.


(86) Pravda, May 26, 2004.


(87) Personal communication from John Anderson, Research Director of CCSD, Ottawa, August 11, 2004.


(88) “How Much Does Russia Cost?”, Moscow News.


(89) State of the nation speech,, May 26, 2004.


(90) Maria Levitov, Moscow, “Realtor Focus on Affordable Housing”, June 8th, 2004.


(91) p2, Russian Economic Report,W.B, February, 2004.


(92) P8, W.B. Report, February, 2004


(93) “In some ways the shadow economy prepared the way for the rise of true private business and large-scale entrepreneurship later on. The last generation of the Soviet era became accustomed to private business. The shadow economy created informal networks of business relationships that survived after the official institutions of the command economy collapsed. Many ordinary people learned to hustle to make money, and this helps account for the otherwise surprising explosion of entrepreneurial energy in Russia after 1985. Above all, the shadow economy created the first small pools of private capital. P115, “Capitalism Russian-Style”, Cambridge University Press, 1999, Thane Gustafson.


(94) “How Much Does Russia Cost?” Moscow News, March 19, 2004, (95) p145, Hilel Tictin, quoted in David Lane’s “The Rise and Fall of State Socialism”, Polity Press, p135.


(96) Geofrey Hoskins, A History of the Soviet Union, Fontana Books, 1992.


(97) P143 and 146, Gorbachov.


(98) National Post, April 8, 2003.


(99), July 20th, 2004.


(100) p77, Yeltsin.


(101) “Russian Capitalists”,, May 2, 2003.


(102) “How Much Does Russia Cost”, Moscow Times, April 17, 2004.


(103) “The Slow Transformation of Russian Agriculture”, Paris, OECD, 1988.


(104) “How Much Does Russia Cost?” , Mos News, March 26,04.)


(105) p198. Yeltsin.


(106) p14, Gorbachov.


(107) p14, Gorbachov.


(108) “The Slow Transformation of Russian Agriculture”, OECD, Paris, 1998.


(109) “Russian Roulette – V. Russian Agriculture”, Sam Vakinin,


(110) “Engagement of Big Business in Agriculture Main Tendency In The Development Of Agriculture”, Pravda, June 30, 2004.


(111) “Russia’s Biggest Problem is the State”, Vyacheslav Nikov, Politics Foundation President, March 24, 2004, , March 24, 2004.


(112) “None of the social groupings from which Putin might recruit state agents – the oligarchs, the governors, the Unity party, or the security services – are likely to produce loyal cadres who can be relied upon to implement government policy as a matter of principle rather than expediency. As a result, the gap between formal state policy and informal politics and economic reality in the Russian Federation is likely to remain a wide one -- with negative consequences for civil society, investor confidence and geo-political reality in the Eurasian region.”, Stephen E. Hanson, . “Can Putin Rebuild The Russian State? November, 2000, PONARS Policy Memo 148, University of Washington.


(113), July 9, 2004.


(114) February 18, 2003, From Johnson’s Russia List.


(114) p59, Mandel.


(115) p48,Mandel.


(116) p81,Mandel.


(117) p125, Mandel.


(118) New Internationalist,


(119) “The brutal suppression of workers’ demonstration by armed troops in the summer of 1962 sent a tremor through the Soviet system. The twelve year-old Alexander watched the events unfurl with childish bewilderment as Novocherkassk, normally a quite Soviet back-water, was gripped by anarchy, becoming the scene of the largest anti-Soviet riots in Russia since the civil war. Ironically, details of the riots were first published in a Russian newspaper in 1989, just as Soviet paratroops were ordered to a attack civilian demonstrators in Tibilsi.” Eleven thousand workers in the Budeny locomotive works in Novocherkassk, protested the 30% increases in the prices of eggs, milk and other food products at the same time piece-work norms were raised, effectively lowering wages. Over thirty of the Budeny workers’ leaders were arrested. The protests spread to other factories and were finally violently suppressed by the army, with a large loss of life and the bodies the dead workers buried, in secret, in three derelict cemeteries. The bodies were tipped straight from trucks into especially dug pits, says Elletson, who quotes Izvestia, June 4, 1994. “Doctors who treated the wounded were forced to sign statements swearing to remain silent, and some of the wounded were exiled with their families to Siberia to keep them quite. People who enquired at the mortuary about missing relatives were arrested.” p5,“The General Against the Kremlin. Power and Illusion: Alexander Lebed”, a biography by Harold Elletson, Warner Books, 336pp, 1998.


(120) p270, Mandel.


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