Russia's Path from Gorbachev to Putin

The Demise of the Soviet System and the New Russia

David Kotz, Fred Weir

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781135992057
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Over the past few years, many of the former Communist-rule countries of Central and Eastern Europe have taken a steady path toward becoming more or less normal capitalist countries- with Poland and Hungary cases in point.

Russia, on the other hand, has experienced extreme difficulties in its attempted transition to capitalism and democracy. The pursuit of Western-endorsed policies of privatization, liberalization and fiscal austerity have brought Russia growing crime and corruption, a distorted economy and a trend toward authoritarian government.

In their 1996 book- Revolution from Above - David Kotz and Fred Weir shed light on the underlying reasons for the 1991 demise of the Soviet Union and the severe economic and political problems of the immediate post-Soviet period in Russia.

In this new book, the authors bring the story up-to-date, showing how continuing misguided policies have entrenched a group of super-rich oligarchs, in alliance with an all-powerful presidency, while further undermining Russia's economic potential. New topics include the origins of the oligarchs, the deep penetration of crime and corruption in Russian society, the financial crisis that almost destroyed the regime, the mixed blessing of an oil-dependent economy, the atrophy of democracy in the Yeltsin years, and the recentralization of political power in the Kremlin under President Putin.

1 Introduction

In 1917 the Soviet Union was born in a poor, largely agricultural country.¹ Its predecessor, the Russian Empire, had played a role on the world stage, owing to its large population, huge land mass, and strategic location straddling Europe and Asia. But an underdeveloped economy and crumbling autocratic government had condemned pre-Revolutionary Russia to the position of weak relation to the dominant world powers – Britain, France, Germany, and the United States. Large factories had grown up in its western cities, a development largely propelled by infusions of West European capital. But in 1917 the Russian economy lagged far behind the dynamic capitalism of the great powers.

In 1980, some sixty years after the Russian Revolution, the Soviet Union was one pole of a bipolar world. It had been transformed into an urban, industrialized country of 265 million people. By such measures as life expectancy, caloric intake, and literacy, the Soviet Union had reached the ranks of the developed countries.² It gave economic and military aid to many countries around the world. It was a leader in many areas of science and technology. It launched the first space satellite. In some more prosaic fields, ranging from specialized metals, to machines for seamless welding of railroad tracks, to eye surgery equipment, it was a world leader. Its performing artists and athletes were among the world’s best. With its Warsaw Pact allies, it was the military equal of the United States-led Nato alliance.

The undeniable economic achievements of the Soviet Union existed side by side with persistent failures. Resources were used inefficiently. Many Soviet products, particularly consumer goods, were of low quality. Shoppers often faced long lines for ordinary goods in the notoriously inefficient system of retail distribution. Consumer services, from haircuts to appliance repair, were abysmal, if they were available at all. Construction projects seemed never to reach a conclusion. And the environmental cost of Soviet economic development mounted steadily.

Western commentators generally stressed the failures, yet it must be admitted that the achievements were impressive. Third World audiences particularly noticed the speed of Soviet industrialization. The Soviet leap from rural, agricultural society to urban, industrial one was among the most rapid in history.³

These transformations and achievements of the Soviet Union took place under a socioeconomic system that was radically different from capitalism. While capitalist systems, such as those of the United States, Germany, and Japan, differ from one another in many details, they share a common set of fundamental institutions. In all three most production is carried out by private business firms that are owned largely by wealthy shareholders. Market forces serve as the main coordinator of economic activity, and the profit motive acts as the propellant force. The Soviet system relied on none of those institutions. In the Soviet Union nearly all production took place in enterprises owned by the government. State plans devised in Moscow, rather than decentralized market forces, coordinated the economy. Directives aimed at fulfilling the central plan, not the pursuit of profit, set economic activity in motion. What would be a normal business in New York or Tokyo would, if conducted by a Soviet citizen, be criminal activity in Moscow.⁴

Western analysts called this system “Communism.” Soviet officials, reserving that term for a future stateless and classless society, called it “socialism.” Generations of Western socialists, repelled by the authoritarian, repressive nature of the Soviet state, questioned its identification as socialist. Perhaps the most neutral and accurate label is “state socialism,” which suggests the economic institutions of public ownership and economic planning that are usually associated with socialism, combined with the extreme centralization of economic and political power in an authoritarian state that characterized the Soviet system.⁵

During 1990–91, in the space of two short years, the mighty system built by Lenin and his successors collapsed. The huge Soviet Communist Party, which had exercised unchallenged rule for seventy years, was disbanded. The state socialist system which it ran was dismantled, replaced by an effort to install capitalism in its place. Even the nation-state of the Soviet Union disintegrated, replaced by 15 new nations, some of which soon were locked in cross-border warfare or internal rebellion. The former Soviet Union lay prostrate, its economy collapsing, its people suddenly impoverished, its cultural achievements withering, its athletes and scientists emigrating, and its superpower status vanished.

To call this development surprising would be a vast understatement. Great powers have declined often before in history – but never so rapidly and unexpectedly. The sudden demise of such an economically and militarily powerful entity as the Soviet Union, in the absence of external invasion or violent internal upheaval, is unprecedented in modern history.

This raises a host of questions. Why did the attempt to reform the Soviet system, known as “perestroika,” lead instead to its demise? Why was perestroika attempted in the first place? Why was the demise of the Soviet system followed by such a rapid economic and social decline? Why has the attempt to make a transition to democracy and capitalism in the former Soviet Union proved to be so troubled? What do these events tell us about the feasibility of alternative modes of development to modern capitalism? Do they demonstrate that in the modern world capitalism is the only viable socioeconomic system, and that any attempt to build a more cooperative and egalitarian system is doomed to failure?

Soviet specialists in the West have proposed various interpretations of the Soviet demise, but two explanations have dominated the popular understanding. One is the view that the Soviet demise resulted from the non-viability of a socialist economic system. According to this interpretation, the Soviet planned economy stopped functioning and was impossible to reform, leaving capitalism as the only alternative.⁶ The view of socialism as economically unworkable dates back to the 1920s, when a literature arose claiming that a planned economy could not function.⁷

A serious problem with this explanation of the Soviet demise lies in the evidence that Soviet state socialism produced rapid economic development for some sixty years before succumbing. While it did encounter increasing economic difficulties in the 1970s and 1980s, it continued to yield economic growth, although at reduced rate, through to the end of the 1980s.⁸ As we shall argue in Chapter 5, the evidence does not support the claim that a collapse of the Soviet planned economy due to its own internal contradictions explains the demise of the system.⁹

The second dominant interpretation of the Soviet demise stresses the role of popular opposition to the system from below. According to this view, a society based on repression could only last as long as its leaders had the will to use the coercive instruments at their command. The first serious attempt at liberal reform gave the people an opportunity to break their bonds. As it became clear that Soviet President Mikhail Gorbachev would not use force to preserve the system, a popular movement from below peacefully dismantled it, through elections, mass demonstrations, strikes, and secessionist movements.¹⁰ Oppressed people voted in capitalism, and oppressed nationalities gained freedom from Moscow’s yoke.

While it is true that many ordinary Soviet citizens actively expressed their dissatisfaction with the system, this second explanation also has serious shortcomings. While much of the Soviet population, along with Gorbachev and his associates, favored an expanded role for market forces in the Soviet economy, polling evidence shows that only a small minority in the former Soviet Union wanted the sort of capitalism found in the United States.¹¹ The rapid rush to capitalism does not appear to have flowed from a popular desire for this direction of development.

It also appears that a large majority of the people in the former Soviet Union, with the exception of some of the smaller republics, wanted to preserve the Union. A referendum on preserving the Union won with 76.4 per cent of the vote only nine months before the Union was dismantled.¹² While the people wanted economic and political change, they apparently did not want either the capitalist transformation or the political disintegration that were visited upon them. This calls into question the view that popular pressure or popular revolution can explain the demise and transformation of the Soviet system.¹³

The explanations offered by supporters of Soviet state socialism are no more persuasive than the foregoing claims of inevitable economic collapse or popular revolution. Some Soviet officials complained that foreign pressure destabilized the Soviet Union.¹⁴ But the major Western powers had done their best to apply whatever pressure they could to defeat the Soviet system since its inception. If they were unable to do so during the decades when the Soviet Union was still weak and underdeveloped, is it plausible that they could succeed after the Soviet Union had reached the peak of its power and achievement?

Other supporters of the old regime cited betrayal at the very top within the former Soviet Union. According to this view, President Gorbachev, hiding under a cloak of reform and renewal of the Soviet system, actually set about to destroy it.¹⁵ But a careful reading of the record supports the sincerity of Gorbachev’s claim that he wanted to reform socialism, not replace it with capitalism.¹⁶ Even after the failed coup of August 1991, when Gorbachev had nothing to gain from clinging to socialism, he insisted on doing just that. And he struggled to the end to keep the Union intact.

There is a grain of truth in each of the above four views. The particular form of economic administration adopted in the Soviet Union under Stalin, and never fundamentally changed prior to perestroika, did have severe flaws, which grew more serious over time. The Soviet people’s yearning for freedom and democracy did play an important role in the demise of the system. So also did Western pressure. And, if not Gorbachev himself, some of his top aides did abandon any belief in socialism while still occupying influential positions. However, none of these factors, individually or together, can adequately explain the course of events.

This book offers a different explanation. In the mid-1970s the performance of the Soviet economy deteriorated significantly. After ten years of minor adjustments had failed to improve economic performance, a new leadership under Mikhail Gorbachev set off on the path of major structural reform, the aim being to democratize and renew Soviet socialism. However, unforeseen by Gorbachev and his fellow reformers, the economic, political, and cultural reforms they carried out unleashed processes that created a new coalition of groups and classes that favored replacing socialism with capitalism.

Boris Yeltsin, who became the chief executive of the Russian Republic¹⁷ within the Soviet Union in 1990, emerged as the leader of this coalition. To win power, this coalition had to elbow aside two rival groups – those who wanted to reform socialism, led by Mikhail Gorbachev, and the Old Guard who wanted to preserve the state socialist system with only minor changes, typified by the leaders of the attempted coup of August 1991. The political victory of the group favoring capitalism was made possible by the support it gained from an apparently unlikely source – the party– state elite of the Soviet system.

The vast territory and many nationalities which made up the Soviet Union had been held together by the centralized economic and political institutions of state socialism. As Gorbachev’s perestroika transformed those institutions, the multinational Soviet state began to weaken. A new union might have been stitched together – and, indeed, nearly was in 1991 – but this aim clashed with the political ambitions of the emerging dominant political coalition in Russia, which found that it could consolidate its power only by separating Russia from the other Soviet republics. This spelled the end of the Union.

Although no one predicted this chain of events in advance, one can see how the basic structure of Soviet state socialism made this outcome a likely one. While many accidental events played a role in this process, the victory of the political coalition favoring capitalism was not the result of pure chance. The success of Gorbachev’s bold venture of reforming and democratizing socialism depended not just on the technical feasibility of the reform plans, but on whether Gorbachev and his associates could gather the necessary political support to carry them out. As the reforms reduced the power of the very top leadership of the hierarchical Soviet system, the broader party–state elite became the decisive power broker.¹⁸

The Old Guard leaders who sought to preserve the old system with only cosmetic changes found little support within the elite. As a result, the coup plotters of the summer of 1991 soon found themselves very isolated. But Gorbachev and the others promoting the reform of socialism also had difficulty rallying the elite to their program, as the elite grew increasingly skeptical of their reform plans. The bulk of the elite concluded that a democratized form of socialism had little to offer them. That direction of change threatened to reduce their power and material privileges. Once the future course of the Soviet system was opened to serious internal debate by the policy of glasnost (openness), support for capitalism grew with astonishing speed within this elite, because that path appeared to offer the only way to maintain, and even increase, its power and privileges.

The political significance of Boris Yeltsin was widely misunderstood in the West, where he was initially seen primarily as a supporter of democracy. A rising star of the early perestroika period who had been cast out of his job as Moscow Party boss, Yeltsin took advantage of the new openness to campaign against the leadership, calling initially for ill-defined radical political and economic change. This stance brought him support from democratic intellectuals and from ordinary voters. But, once chosen as leader of the Russian Republic in May 1990, his subsequent victory over Gorbachev and over the Old Guard depended most importantly on his ability to win the support of a decisive part of the party–state elite. He accomplished this by clearly signalling to the elite his intention to rapidly sweep away socialism and head full-speed toward a capitalist future for Russia. Thus, the ultimate explanation for the surprisingly sudden and peaceful demise of the Soviet system was that it was abandoned by most of its own elite, whose material and ideological ties to any form of socialism had grown weaker and weaker as the Soviet system evolved. It was a revolution from above.¹⁹

Members of the party–state elite played various roles in the process of abandonment of socialism in favor of building capitalism. Some, as early as 1987, used their connections and access to money and other resources to start private businesses. Others became political leaders of the drive to bring capitalism to the USSR. The switch from defense of socialism to praise for capitalism appeared to require a drastic change of worldview for the old elite. Many Western observers have been puzzled, and a bit suspicious, at the sudden mass conversion of thousands of former Soviet Communist officials. But since Stalin’s day the Soviet leadership had gone through frequent sharp reversals on key policy issues. By the 1980s ideology had long since ceased to have any real significance for most of the Soviet elite. Exchanging Communist ideology for advocacy of private property and free markets did not prove to be difficult for the highly pragmatic members of this group. No deeply held political belie...