Russia's Economy in an Epoch of Turbulence

Crises and Lessons

Vladimir Mau

• Publisher: Routledge
• Year: 2017
• Topic: Social Sciences
• eBook ISBN:
  9781351667449
• Subtopic: Ethnic Studies
• Index: Social Sciences

Over the course of the last thirty years post-communist Russia has either been struggling with crises, discussing the lessons learned from past crises, or attempting to trace the contours of future crises. Based on the author's own experiences and his research over this long period, this book traces the logic of the development of the crises and the anti-crisis policies, and shows the continuity, or discontinuity, in determining particular solutions. It demonstrates how perceptions of the priorities for economic policy, and the problems of economic growth and the formation of a new model and its alternatives were formed and how they changed. It also outlines the evolution of ideas about the role of social politics and human capital sectors in addressing anti-crisis and modernization issues, and discusses the changing views on the institutional and structural priorities for Russia's development. This is an important book on an economic subject of crucial global significance by a leading participant.

Part I

Crises and revolutions

1 A breakdown in continuity

Key aspects of a revolutionary transformation

The transformation of a society can take many forms, and this shift in principal characteristics is often described as ‘revolutionary’. However, a revolution can only be regarded as such depending on the results: they imply a qualitative change in the state of the society. Such a broad concept does little to help understand certain events that claim to be revolutionary. Not only the extent of the transformations, but also the mechanisms by which they are implemented, are significant.

Revolutions have traditionally been interpreted as violent changes of a regime and associated with the emergence of a new elite and new ideology. The experience of post-communist transit calls for a revision of this definition. A revolution is indeed a radical and systemic transformation of society. However, the role of violence and changes in the elite and the ideology need not be absolute. A far more important characteristic of a full-scale revolutionary transition is the fact that it is conducted under the conditions of a sharp decline in the power of the state. The political manifestation of this crisis involves a strong conflict of elites (and the main interest groups in general) and a lack of consensus among them in terms of basic values, key issues and the direction in which the country should develop. For economists, the weakness of the authorities is primarily evident in the financial crisis of the state, in its inability to collect taxes and balance its expenses with its income.

It is the weakness of the state authorities that is responsible for the spontaneous nature of the course of economic and social processes, which, in turn, makes great revolutions remarkably similar to one another, both in terms of the phases in which an economic and political crisis develops, as well as in terms of basic characteristics. Social progress suddenly becomes a result, not of an individual’s deliberate actions (sometimes more, sometimes less effective, but always considered), but rather of various interests leading the country in different directions, which predefines the unstructured nature of ensuing events. Despite this, however, there are patterns that make great (large-scale) revolutions so similar to one another.

It is the spontaneity and unstructured nature, not violence, that are constitutive features of a revolution. Violence does, of course, play a certain role. Acute conflicts between major interest groups, an inability of the bulk of the society to share common values, to come to an understanding regarding fundamental issues of life in the country, make it impossible to avoid the use of force to impose a definite system of values – a system that cannot be agreed upon using conventional procedures (which are legitimate according to the country’s level of development). However, the level of violence cannot be evaluated coherently, and certainly not in quantitative terms. Who can say how much violence is required for a transformation to be considered revolutionary? One can hardly agree with the statement that bloodier revolutions are more important. These reasons become even more unstable when we move from an agrarian society to analysing revolutionary events in the modern world. As the overall level of socio-economic development increases (and with it, the level of education, culture and material well-being), the role of violence generally decreases, because the people “have something to lose”.

Revolution, of course, changes the elite. However, this should not be confused with the immediate physical elimination of representatives of the elite of the old regime (through execution, exile or dismissal). Two aspects must be taken into account. First, the radical nature of the renewal of the elite is often exaggerated by historians of revolutions.¹ When one looks at the statements of people present at the time of the events, one almost always finds complaints from many members about the old elite remaining in power. And, these complaints are characteristic even of such seemingly radical upheavals as the great French Revolution. The situation only changes with the passage of time.

A different aspect of the problem is of more importance. The change in the elite should not be equated with the individuals that represent that particular elite. A new elite is those people willing to act under new circumstances and play by new rules, with a new logic. Both members of the old elite and new individuals are capable of adapting to this. It cannot be said, for instance, that, because the Bishop of Autun was a member of the old elite, Talleyrand was not one of the most prominent representatives of the new regime. In the same way, Viktor Chernomyrdin’s presence in the upper echelons of the Soviet nomenklatura (minister and member of the Central Committee of the Communist Party of the Soviet Union) does not detract from his role in the formation of new Russian capitalism. To put it briefly, individuals’ roles are more important than their origins.

A similar line of reasoning can be applied to issues concerning the trans formation of ownership. Arguments concerning a change of owner are undoubtedly important, but they should not be absolute. It is not the physical change of owner that is most important, but the change in the form of ownership. A good example of this is the English revolution (Civil War) in the mid seventeenth century. Most researchers consider it inconsequential and half-hearted, as it was not accompanied by a radical redistribution of ownership, and the aristocracy, for the most part, maintained its position. The researchers were particularly surprised by the tendency of the revolution’s leaders to resell royalist estates back to their old owners after they had been confiscated. However, the fact was overlooked that, after the resale, it was a different type of property – private, freed from old feudal obligations, forming the basis for the forthcoming capitalist society and providing the necessary social basis for future economic growth. The situation developed in a similar way in the first years of post-communist Russia, where, after the initial phase of privatization, a significant portion of property fell under the control of company directors and was then gradually passed on to others.

The role of new ideology should not be exaggerated either. A revolution is undoubtedly connected with ideology; however, the relationship between the two is more complex than commonly thought. A revolution does not impose a new ideology on society. On the contrary, it happens when society (primarily the elite) absorbs a new ideology and new perceptions of the ‘right’ state order. Enlightenment and the ideology of ‘natural order’ and the ‘spirit of the law’ (espirit de lois) formed the basis of the French Revolution and the general framework of virtually all revolutionary and post-revolutionary governments. Crises in market democracy and assertions in the world of ideology of industrialism, monopolism and statism were characteristic features of the turn of the twentieth century. Modern post-communist transformations fit in perfectly with the system of economic and political beliefs and values that triumphed in the civilized world in the early 1980s. This system was based on liberalism and individualism, the symbol of which was the famous thesis on the “end of history” written by Francis Fukuyama.² In short, the dominant ideology of the era sets the general framework of the revolution as a whole, and of its economic dimensions in particular.

Therefore, we consider revolution as a systemic transformation of society with a weak state. It is a particular mechanism of social restructuring, passing through a systemic social crisis and adapting to new challenges of the era. Other mechanisms of adaptation are also possible: gradual reforms undertaken by the old regime, the conquest of a foreign state and, finally, a “revolution from above”. However, the common feature of all these models of transformation that distinguishes them from a real revolution is the presence of a strong government controlling the nature and course of reforms. Real revolution is characterized by a chaotic struggle between interest groups with an indefinite political outcome. This is a struggle that makes all social life highly uncertain, both in the immediate future and in terms of the strategic outlook. This uncertainty created by political struggle largely determines the character of a revolutionary society, including the economic mechanisms of the revolutionary transformation.

Revolution and modernization

The main objective of Russian policy in the twentieth century (both at the beginning and end of the century) was modernization, or, more precisely, to reduce the gap between it and the most developed countries and become aligned with them in terms of the level of socio-economic development, which is traditionally measured using the indicator of GDP per capita. This has been Russia’s main challenge over the past three centuries. At least since the time of Peter the Great, the country has been attempting to modernize and overcome the gap that various observers estimate to be approximately 50 years behind countries such as France and Germany.

At the turn of the twentieth century, major efforts needed to be made to address the issue of increasing the pace of modernization. The defeat in the Crimean War (1853–6) left no doubt that the issue of industrialization equated to Russia maintaining its position as an independent player in world politics. Alexander II began implementing a set of political reforms that were later followed by economic reforms (introduced mostly by his successors): these included budgetary, tax and monetary reforms, and external economic regulation. These efforts resulted in an increase in the pace of industrial growth, which, in the 1890s, came close to 10 per cent.

The mechanism of industrialization was clear and was based on two important factors. First, the source of funds for industrialization was the peasantry. Russia was the largest exporter of grain (45 per cent of the world market). Products of agriculture were the main export items and, accordingly, provided the country’s main currency earnings. High taxes meant that huge amounts of money could be extorted from rural areas to be redistributed for the benefit of industry. “We shall eat less, but export more” – this quote from the minister of finance, Ivan Vyshnegradsky, expressed the essence of industrialization in Russia for decades to come, although no one else dared to state this so bluntly. It must also be noted that, at the time, Russian grain elevators were owned by the State Bank, which determined the nat...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• List of figures
• List of tables
• Preface
• List of abbreviations
• Introduction: economic crises in the contemporary history of Russia
• PART I Crises and revolutions
• PART II The 1998 crisis in Russia
• PART III Challenges of the global crisis
• PART IV Global crisis in Russia
• Conclusion: medium-term economic policy priorities
• Appendix
• References
• Index (persons)
• Index