Russian Reform is the Problem,
not the Solution
by Edward S. Herman
CovertAction Quarterly magazine, Fall 1998
One of the remarkable myths of the West is that "reform"
in Russia has been a success, even if qualified, and that serious
failure has only struck Russia with the ongoing financial implosion.
This myth allows President Clinton to advise Boris Yeltsin to
avoid a return to "failed economic policies," referring
not to the disastrous policies of the Yeltsin years but to chose
of the prior era (which were characterized by reduces growth rates,
but no major absolute declines). A second myth is that reform
has been approved by the Russian people in a genuine, even if
imperfect, democratic process. Both myths result from the fact
that western elites have enthusiastically backed the rapid dismantlement
of socialist institutions in Russia, so that seriously adverse
economic and social consequences, which would have been featured
as demonstrating a dismal failure had they occurred in Castro's
Cuba, have been largely ignored by the mainstream media. With
the current collapse, the search is on for scapegoats that will
deflect attention from the impact of the reforms themselves.
Indeed, "reform" in Russia-the rapid privatization
of the economy and open door to foreign trade, investment, and
finance-has been accompanied by a historically unique peacetime
economic and social collapse, which has beggared a large majority
of the population and reduced Russia to the status of a Third
World country. Between 1990 and 1998 Russian GDP fell by some
50 percent, industrial production and capital investment declined
by 90 percent, and the Russian economy shrank to approximately
the size of the Netherlands. The incomes of 75 percent of the
population have been pushed down to subsistence levels or below,
and male life expectancy has fallen below that of Indonesia and
the Philippines. Over 60 percent of consumer goods are imported,
and Russia's main, almost exclusive, exports are oil and gas.
Despite this deindustrialization and economic decline, a small
elite, including a substantial criminal element, has prospered
mightily, based on trading, financial dealing, and smuggling,
rather clan any productive activity. A large fraction of elite
gains have been based on privileged access to government contracts,
licenses, and national property, and Goldman Sachs banker Andrew
Ipkendanz admitted, recently and belatedly, that "Russian
elites have plundered the country's capital and funneled most
of the proceeds offshore." As in other Third World countries,
boutiques and restaurants catering to the tiny elite (and foreigners)
have blossomed, along with homelessness, beggary, crime, prostitution,
and mass immiseration. The prosperity of the urban elite has fooled
some foreigners, with reporters finding a "mystery"
in the spectacular rise in suicide, infant mortality, and death
Reform in Russia has been a catastrophic failure because neither
political conditions nor economic institutions existed that would
have permitted a successful rapid transition to full-blown capitalism.
The political elite, from Yeltsin on down, were old Communist
apparatchiks who, while rejecting Soviet socialism, were by no
means democrats, and many were cynical opportunists on the make.
Under their rule, there has been a gigantic looting of public
assets, the rapid emergence of a financial and corporate oligarchy,
no concern whatever for the deteriorating condition of the mass
of ordinary citizens, and no attempt to pace the transition to
a market economy in accord with the demands of equity, efficiency,
or national development needs. This has been a corrupt revolution
The Russian economy was crippled by the break-off of the other
constituents of the Soviet Union, which was an integrated system.
It also had a large military production component, and an inefficient
industrial system highly vulnerable to foreign competition. To
make the shift to a market economy Russian industry needed pressure,
but it also needed time for change if a national disaster was
to be averted. The "cold turkey" approach imposed by
the "reformers," with Western encouragement and pressure,
caused a collapse, not only of the industrial system, but agriculture
and the medical and social welfare apparatus as well.
The Russian people never approved this process. Polls from
1990 to the present show that Russians want social democracy,
with a major government social service role, not laissez faire
capitalism. They have also strongly opposed the massive theft
of public property. Russian elections have been a travesty. In
the important 1996 election, Yeltsin started the campaign with
an 8 percent popularity rating, reflecting total public disenchantment
with "reform." He quickly sacked Chubais, the symbol
of reform, and ran against his own reform policies-as well as
"communism," which was not at issue, with the Communist
Party running on a mildly reformist platform, and in no position
to reestablish communism even if they wanted to. With the oligarchs
and state controlling the media, huge illegal spending on the
campaign, and western support, Yeltsin defeated both "communism"
and reform. On the day after his election victory, he reinstated
Chubais to push forward reform.
The West encouraged and pressed for rapid privatization, despite
the uncongenial circumstances, because its main objectives were
to obtain irreversible institutional changes away from socialism
(and social democracy), and to end any military threat from a
former military rival. The costs to the Russian populace were
of little concern. Realizing Western ends required joint venture
partners-as in Indonesia and the Philippines-who would make the
necessary changes, without regard to the internal human costs.
The Yeltsin team, like Suharto and Marcos, served this role well.
The West is now searching for scapegoats. One is that the
"moguls" and "business oligarchs" are irresponsible
and have sabotaged reform. But the moguls are the very children
of reform, and they supported it all along, as aides of Yeltsin
and the prime beneficiaries of his policies. Another scapegoat
is the slowing up of the reform process, which has brought all
these wondrous benefits! It is also pretended that the only choices
for Russia are between "reform" and Communism. As with
the drunkard who has looked everywhere for his eyeglasses perched
on the end of his nose, the solution to the problem of why Russia
is imploding is extremely simple-this is the latest phase of an
ongoing "reform" debacle.
Secrets and Lies